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ELEMENTS OF AN OBLIGATION

(1) NARCISO DEGAOS, Petitioner, vs. PEOPLE OF THE PHILIPPINES, Respondent.

G.R. NO. 162826, October 14, 2013

Ponente: BERSAMIN, J., FIRST DIVISION

Nature of the Action: Novation is not a mode of extinguishing criminal liability under the penal
laws of the country. Only the. State may validly waive the criminal action against an accused.
Novation is relevant only to determine if the parties have meanwhile altered the nature of the
obligation prior to the commencement of the criminal prosecution in order to prevent the
incipient criminal liability of the accused.

Facts: In an amended information, the Office of the Provincial Prosecutor charged Aida Luz, and
Narciso Degaos inthe RTC with estafa under Article 315 of the RPC allegedly committed as
follows:That they received from Sps Atty. Bordador gold and pieces of jewelry worth almost
500k under express obligation tosell the same on commission and remit the proceeds thereof or
return the unsold gold and pieces of jewelry, but thesaid accused, once in possession of the said
merchandise and far from complying with their obligation, inspite ofrepeated demands for
compliance therewith, willfully, unlawfully and feloniously, with intent of gain and grave
abuseof confidence misapply, misappropriate and convert to their own use and benefit the said
merchandise and/or theproceeds thereof, to the damage and prejudice of said Sps. Atty. Bordador
in the said amount of almost 500k.Prior to the institution of the instant case, a separate civil
action for the recovery of sum of money was filed by theSps. Bordador against accused Aida and
Narciso.

In an amended complaint Ernesto Luz, husband of Aida, wasimpleaded as party defendant. RTC
found Narciso liable and ordered him to pay the sum of P725,463,98 as actual and consequ ential
damages plus interest and attorneys fees in the amount of P10,000.00. On the other hand, Aida
was ordered to pay the amount of P21,483.00, representing interest on her personal loan. The
case against Ernesto Luz was dismissed for insufficiency of evidence. Both parties appealed to
the CA which affirmed the aforesaid decision. On further appeal, the SC sustained the CA. While
the said civil case was pending, the private complainants instituted thepresent case against the
accused.Narciso and Aida Luz are brother and sister. Lydia knew them because they are the
relatives of her husband. Theusual business practice of Sps. Atty Bordador with the accused was
for Narciso to receive the jewelry and gold itemsfor and in behalf of Aida and for Narciso to
sign the "Kasunduan at Katibayan" receipts while Aida will pay for the pricelater on. The subject
items were usually given to Narciso only upon instruction from Aida through telephone calls
orletters. Said business arrangement went on for quite sometime since Narciso and Aida Luz had
been payingreligiously. When the accused defaulted in their payment, they sent demand letters.

Aida sent a letter to Lydia Bordador requesting for an accounting of her indebtedness. Lydia
made an accounting which contained the amount of P122,673.00 as principal and P21,483.00 as
interest. Thereafter, she paid the principal amount through checks. She did not pay the interest
because the same was allegedly excessive. Atty. Jose Bordador brought a ledger to her and asked
her to sign the same. The said ledger contains a list of her supposed indebtedness to the private
complainants. She refused to sign the same because the contents thereof are not her indebtedness
but that of his brother, Narciso. She even asked the private complainants why they gave so many
pieces of jewelry and gold bars to Narciso without her permission, and told them that she has no
participation in the transactions covered by the subject "Kasunduan at Katibayan" receipts. Co-
accused Narciso categorically admitted that he is the only one who was indebted to the private
complainants and out of his indebtedness, he already made partial payments in the amount of
P53,307.00. Included in the said partial payments is the amount of P20,000.00 which was
contributed by his brothers and sisters who helped him and which amount was delivered by Aida
to the private complainants. RTC found Narciso GUILTY beyond reasonable doubt of the crime

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of estafa but acquitted Luz for insufficiency of evidence, imposing on Narciso twenty years of
reclusion temporal. On appeal, Degaos assailed his conviction.

Issue: Whether Novation transpire as to prevent the incipient criminal liability from arising

Held: No. Novation is never presumed, and the animus novandi, whether totally or partially,
must appear by express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken.

The extinguishment of the old obligation by the new one is necessary element of novation which
may be effected either expressly or impliedly. The term "expressly" means that the contracting
parties incontrovertibly disclose that their object in executing the new contract is to extinguish
the old one. Upon the other hand, no specific form is required for an implied novation, and all
that is prescribed by law would be an incompatibility between the two contracts. While there is
really no hard and fast rule to determine what might constitute to be a sufficient change that can
bring about novation, the touchstone for contrarity, however would be an irreconcilable
incompatibility between the old and the new obligations.

There are two ways which could indicate, in fine, the presence of novation and thereby produce
the effect of extinguishing an obligation by another which substitutes the same. The firs t is when
novation has been explicitly stated and declared in unequivocal terms. The second is when the
old and the new obligations are incompatible on every point. The test of incompatibility is
whether or not the two obligations can stand together, each one having its independent existence.
If they cannot, they are incompatible and the latter obligation novates the first. Corollarily,
changes that breed incompatibility must be essential in nature and not merely accidental. The
incompatibility must take place in any of the essential elements of the obligation, such as its
object, cause or principal conditions thereof; otherwise, the change would be merely
modificatory in nature and insufficient to extinguish the original obligation.

Although the novation of a contract of agency to make it one of sale may relieve an offender
from an incipient criminal liability, that did not happen here, for the partial payments and the
proposal to pay the balance the accused made during the barangay proceedings were not at all
incompatible with Degafios liability under the agency that had already attached. Rather than
converting the agency to sale, therefore, he even thereby confirmed his liability as the sales agent
of the complainants.

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated on
September 23, 2003; and ORDERS petitioner to pay the costs of suit.

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SOURCES OF OBLIGATIONS

(2) ABS-CBN BROADCASTING CORPORATION, EUGENIO LOPEZ, JR., AUGUSTO


ALMEDA-LOPEZ, and OSCAR M. LOPEZ, petitioners, vs. OFFICE OF THE
OMBUDSMAN, ROBERTO S. BENEDICTO,* EXEQUIEL B. GARCIA, MIGUEL V.
GONZALES, and SALVADOR (BUDDY) TAN,* respondent.

G.R. NO. 133347, April 23, 2010

Ponente: NACHURA, J., FIRST DIVISION

Nature of the Action: Petition for certiorari under Rule 65 of the Rules of Court challenging the
Joint Resolutiondated May 2, 1997 of then Ombudsman Aniano Desierto in OMB-0-94-1109,
dismissing the complaint filed by petitioners against private respondents, and the Order denying
their motion for reconsideration.

Facts: The day after the declaration of martial law, or on September 22, 1972, just before
midnight, military troops arrived at the ABS-CBN Broadcast Center ordering the closure of all
radio and television stations in the country.

Corollary thereto, sometime in November 1972, Eugenio Lopez, Jr., then president of ABS-
CBN, wrote then Secretary of National Defense, Juan Ponce Enrile, of their desire to sell ABS-
CBN to the government. In that same month, however, Eugenio Lopez, Jr. was arrested by the
military, and detained at Fort Bonifacio for almost five (5) years until his escape therefrom on
September 30, 1977.

Subsequently, after the proposal to sell ABS-CBN to the Marcos government did not materialize,
On even date, both Benedicto and Alfredo Montelibano, relaying his plan to temporarily use
ABS-CBN's broadcast studios in Quezon City, from which to operate TV Channel 9, for such
period of time as may be necessary to rebuild KBS' burned studios.

In June 1986, President Corazon Aquino, acting on the request of ABS-CBN through Senator
Taada, returned to ABS-CBN these radio and TV stations on a gradual and scheduled basis.

As required by the Ombudsman, the respondents, except for Garcia, filed their respective
counter-affidavits, with Benedicto adopting that of Gonzales', denying petitioners' charges.

Thereafter, with the issues having been joined, the Ombudsman issued the herein assailed Joint
Resolution dismissing petitioners' complaints. To the Ombudsman, the following circumstances
did not give rise to probable cause necessary to indict respondents for the various felonies
charged.

Issue: Whether a criminal complaint may continue and be prosecuted as an independent civil
action

Held: The claim for civil liability survives notwithstanding the death of accused, if the same
may also be predicated on a source of obligation other than delict. Article 1157 of the Civil
Code enumerates these other sources of obligation from which the civil liability may arise as a
result of the same act or omission: a) law. b) contracts. c) quasi-contracts. d) xxx xxx xxx.
e) quasi-delicts.

Applying the foregoing rules, ABS-CBN's insistence that the case at bench survives because the
civil liability of the respondents subsists is stripped of merit.

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To begin with, there is no criminal case as yet against the respondents. The Ombudsman did not
find probable cause to prosecute respondents for various felonies in the RPC. As such, the rule
that a civil action is deemed instituted along with the criminal action unless the offended party:
(a) waives the civil action, (b) reserves the right to institute it separately, or (c) institutes the civil
action prior to the criminal action, is not applicable.

In any event, consistent with People v. Bayotas, the death of the accused necessarily calls for the
dismissal of the criminal case against him, regardless of the institution of the civil case with it.
The civil action which survives the death of the accused must hinge on other sources of
obligation provided in Article 1157 of the Civil Code. In such a case, a surviving civil action
against the accused founded on other sources of obligation must be prosecuted in a separate civil
action. In other words, civil liability based solely on the criminal action is extinguished, and a
different civil action cannot be continued and prosecuted in the same criminal action.

Significantly, this Court in Benedicto v. Court of Appeals, taking cognizance of respondent


Benedicto's death on May 15, 2000, has ordered that the latter be dropped as a party, and
declared extinguished any criminal as well as civil liability ex delicto that might be attributable
to him in Criminal Cases Nos. 91-101879 to 91-101883, 91-101884 to 101892, and 92-101959 to
92-101969 pending before the Regional Trial Court of Manila.

Lastly, we note that petitioners appear to have already followed our ruling in People v.
Bayotas by filing a separate civil action to enforce a claim against the estate of respondent
Benedicto. The claim against the estate of Benedicto is based on contract-the June 8, 1973 letter-
agreement-in consonance with Section 5, Rule 86 of the Rules of Court. Plainly, the dropping of
respondents Benedicto and Tan as parties herein is in order.

WHEREFORE, premises considered, the petition is hereby DISMISSED. Roberto S. Benedicto


and Salvador Tan are dropped as private respondents without prejudice to the filing of separate
civil actions against their respective estates. The assailed Joint Resolution and Order of the
Ombudsman in OMB-0-94-1109 are AFFIRMED.

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OBLIGATIONS ARISING FROM CONTRACTS

(3) MANILA ELECTRIC COMPANY, Petitioner, vs. MATILDE MACABAGDAL


RAMOY, BIENVENIDO RAMOY, ROMANA RAMOY-RAMOS, ROSEMARIE RAMOY,
OFELIA DURIAN and CYRENE PANADO, Respondents
G.R. NO. 158911, March 4, 2008
Ponente: AUSTRIA-MARTINEZ, J., THIRD DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision of the Court of Appeals (CA) dated December 16, 2002, ordering
petitioner Manila Electric Company (MERALCO) to pay Leoncio Ramoy moral and exemplary
damages and attorney's fees, and the CA Resolution dated July 1, 2003, denying petitioner's
motion for reconsideration, be reversed and set aside.
Facts: In the year 1987, the National Power Corporation (NPC) filed with the MTC Quezon City
a case for ejectment against several persons allegedly illegally occupying its properties in Baesa,
Quezon City. among the defendants in the ejectment case was Leoncio Ramoy, one of the
plaintiffs in the case at bar. On April 28, 1989 the MTC rendered judgment for MERALCO to
demolish or remove the building and structure they built on the land of the plaintiff and to vacate
the premises. On June 20, 1999 NPC wrote to MERALCO requesting the immediate
disconnection of electric power supply to all residential and commercial establishments beneath
the NPC transmission lines along Baesa, Quezon City.
In a letter dated August 17, 1990 MERALCO requested NPC for a joint survey to determine all
the establishments which are considered under NPC property. In due time, the electric service
connection of the plaintiffs was disconnected. During the ocular inspection ordered by the Court,
it was found out that the residence of the plaintiffs-spouses was indeed outside the NPC property.
Issue: Whether respondents cause of action is based on culpa contractual or breach of contract
Held: Yes. MERALCO admit that respondents are its customers under a Service Contract
whereby it is obliged to supply respondents with electricity.Nevertheless, upon request of the
NPC, MERALCO disconnected its power supply to respondents on the ground that they were
illegally occupying the NPC's right of way. Under the Service Contract, [a] customer of electric
service must show his right or proper interest over the property in order that he will be provided
with and assured a continuous electric service. MERALCO argues that since there is a Decision
of the Metropolitan Trial Court (MTC) of Quezon City ruling that herein respondents were
among the illegal occupants of the NPC's right of way, MERALCO was justified in cutting off
service to respondents.
Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or
breach of contract for the latter's discontinuance of its service to respondents under Article 1170
of the Civil Code which provides:

Article 1170. Those who in the performance of their


obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.

In culpa contractual the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief from law, recognizing the
obligatory force of contracts, the law will not permit a party to be set free from liability for
any kind of misperformance of the contractual undertaking or a contravention of the tenor
thereof.

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Article 1173 also provides that the fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. The Court emphasized in Ridjo Tape
& Chemical Corporation v. Court of Appeals that as a public utility, MERALCO has the
obligation to discharge its functions with utmost care and diligence.

The Court agrees with the CA that under the factual milieu of the present case, MERALCO
failed to exercise the utmost degree of care and diligence required of it. To repeat, it was not
enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether
it had become final and executory. Verily, only upon finality of said Decision can it be said with
conclusiveness that respondents have no right or proper interest over the subject property,
thus, are not entitled to the services of MERALCO.

Although MERALCO insists that the MTC Decision is final and executory, it never showed any
documentary evidence to support this allegation. Moreover, if it were true that the decision was
final and executory, the most prudent thing for MERALCO to have done was to coordinate with
the proper court officials in determining which structures are covered by said court
order. Likewise, there is no evidence on record to show that this was done by MERALCO.

The utmost care and diligence required of MERALCO necessitates such great degree of
prudence on its part, and failure to exercise the diligence required means that MERALCO was at
fault and negligent in the performance of its obligation. In Ridjo Tape, the Court explained:

[B]eing a public utility vested with vital public interest, MERALCO


is impressed with certain obligations towards its customers and any
omission on its part to perform such duties would be prejudicial to its
interest. For in the final analysis, the bottom line is that those who do
not exercise such prudence in the discharge of their duties shall be
made to bear the consequences of such oversight.

This being so, MERALCO is liable for damages under Article 1170 of the Civil Code.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATION. The award for exemplary damages and attorney's fees
is DELETED.

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OBLIGATIONS ARISING FROM QUASI DELICT

(4) NATIONAL POWER CORPORATION, Petitioner, vs. THE HONORABLE COURT OF


APPEALS (Ninth Division), HADJI ABDUL CARIM ABDULLAH, CARIS ABDULLAH,
HADJI ALI LANGCO1 and DIAMAEL PANGCATAN, Respondents.

G.R. NO. 124378, March 8, 2005

Ponente: CHICO-NAZARIO, J., SECOND DIVISION

Nature of Action: Petition for review, petitioner seeks the reversal of the Decision dated 21
December 1995 of the Court of Appeals in CA-G.R. CV No. 44639, which affirmed with
modification the Decision dated 29 July 1991 of the Regional Trial Court (RTC), 12 th Judicial
Region, Branch 9, Marawi City, in Civil Case No. 115-87, for damages. The Resolution dated 27
March 1996 that denied petitioners motion for reconsideration is likewise assailed.

Facts: Petitioner National Power Corporation (NPC) is a government-owned and controlled


corporation created under Commonwealth Act No. 120, as amended. It is tasked to undertake the
development of hydroelectric generations of power and the production of electricity from
nuclear, geothermal and other sources, as well as the transmission of electric power on a
nationwide basis. Concomitant to its mandate, petitioner has, among other things, the power to
construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations, and substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake, spring, and waterfalls in the Philippines,
and supplying such power to the inhabitants.
On 15 November 1973, the Office of the President of the Philippines issued Memorandum Order
No. 398 - "Prescribing Measures to Preserve the Lake Lanao Watershed, To Enforce the
Reservation of Areas Around the Lake Below Seven Hundred And Two Meters Elevation, and
for Other Purposes." Said decree instructed the NPC to build the Agus Regulation Dam at the
mouth of Agus River in Lanao del Sur, at a normal maximum water level of Lake Lanao at 702
meters elevation. Pursuant thereto, petitioner built and operated the said dam in 1978.

Private respondents Hadji Abdul Carim Abdullah and Caris Abdullah were owners of fishponds
in Barangay Bacong, Municipality of Marantao, Lanao del Sur, while private respondents Hadji
Ali Langco and Diamael Pangcatan had their fishponds built in Poona-Marantao, also in the
same province. All of these fishponds were sited along the Lake Lanao shore. Private
respondents have spent substantial amounts to construct, maintain, and stock their respective
fishponds with fish fingerlings, and make plantings along the adjoining foreshore areas between
1984 and 1986.

In October and November of 1986, all the improvements were washed away when the water
level of the lake escalated and the subject lakeshore area was flooded. Private respondents
blamed the inundation on the Agus Regulation Dam built and operated by the NPC in 1978. They
theorized that NPC failed to increase the outflow of water even as the water level of the lake rose
due to the heavy rains.

Thus, in December of 1986, the private respondents, except for Caris Abdullah, wrote separate
letters to the NPCs Vice-President, a certain "R.B. Santos," who was based in Ditucalan, Iligan
City. They sought assistance and compensation for the damage suffered by each of them. The
private respondents pleas were shorn off by NPC on the ground that it was mandated under
Memorandum Order No. 398 dated 15 November 1973 to build the dam and maintain the normal
maximum lake level of 702 meters, and that since its operation in 1978, the water level never
rose beyond 702 meters. Furthermore, NPC retorted that visible monuments and benchmarks
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indicating the 702-meter elevation had been established around the lake from 1974 to 1983,
which should have served as a warning to the private respondents not to introduce any
improvements below the 702-meter level as this was outlawed.

Left with no other recourse, the private respondents filed a complaint for damages before the
RTC of Marawi City, Branch 9, on 24 February 1987, docketed as Civil Case No. 115-87. They
alleged that the negligence and inexperience of NPCs employees assigned to operate the Agus
Regulation Dam were the proximate causes of the damage caused to their properties and
livelihood. They prayed for damages corresponding to the cost of their lost fishes plus the value
of their destroyed fishpond and the expenses and the fishes thereof. They, too, asked for
reimbursement of necessary expenses as may be proved in the trial, moral and exemplary
damages, and the costs.

NPC denied the private respondents allegations, and tossed back the disputations that: (a) the
water level of Lake Lanao never went beyond 702 meters, (b) NPC employees were never remiss
in the performance of their duties, and (c) the private respondents alleged fishponds were either
located below the 702-meter level, or must have been introduced when the water level was
abnormally low and as such, were within the prohibited area as defined in Memorandum Order
No. 398. In fine, the NPC posited that the private respondents had no cause of action against it.

The trial court created a committee composed of representatives of both parties to conduct an
ocular inspection of the dam and its surrounding areas. On 29 July 1991, the trial court rendered
a Decision in favor of the private respondents.

Unflinched, the petitioner appealed to the Court of Appeals, which in a Decision dated 21
December 1995, affirmed the decision of the court a quo with modification on the award of
damages.

Issue: Whether the principle of damnum absque injuria, or damage without injury, applies in the
present case

Held: No. This principle means that although there was physical damage, there was no legal
injury, as there was no violation of a legal right. The negligence of NPC as a result of its inability
to maintain the level of water in its dams has been satisfactorily and extensively established. In
crimes and quasi-delicts, the defendant shall be liable for all damages, which are the natural and
probable consequences of the act or omission complained of and it is not necessary that such
damages have been foreseen or could have reasonably been foreseen by the defendant.

In the case at bar, both the appellate court and the trial court uniformly found that it was such
negligence on the part of NPC which directly caused the damage to the fishponds of private
respondents. The degree of damages suffered by the latter remains unrebutted and there exists
adequate documentary evidence that the private respondents did have fishponds in their
respective locations and that these were inundated and damaged when the water level escalated
in October 1986.

However, as observed by the Court of Appeals, while the private respondents claim
reimbursement for actual or compensatory damages, they failed to present independent evidence
to prove with a reasonable degree of certainty the actual amount of loss. The private respondents
could only testify as to the amounts they had spent to build and stock their respective fishponds
and as to the amount of earnings they would have made had the fish been sold at current market
prices. We find no reason to deflect from the award of temperate or moderate damages by the
Court of Appeals in reduced amounts, but are reasonable under the circumstances conformably
with Articles 2224 and 2225 of the New Civil Code.

WHEREFORE, the instant petition is DENIED. The Decision dated 21 December 1995 and the
Resolution dated 27 March 1996 of the Court of Appeals in CA-G.R. CV No. 44639 are hereby
AFFIRMED. Costs against petitioner.

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SOLUTIO INDEBITI

(5) NORLINDA S. MARILAG, Petitioner, v. MARCELINO B. MARTINEZ, Respondent.


G.R. No. 201892, July 22, 2015
Ponente: PERLAS-BERNABE, J., FIRST DIVISION
Nature of Action : Petition for review on certiorari1 are the Decision dated November 4, 2011
and the Resolution dated May 14, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 81258
which recalled and set aside the Orders dated November 3, 2003 and January 14, 2004 of the
Regional Trial Court (RTC) of Las Pias City, Branch 202 (court a quo) in Civil Case No. 98-
0156, and reinstated the Decision dated August 28, 2003 directing petitioner Norlinda S. Marilag
(petitioner) to return to respondent Marcelino B. Martinez (respondent) the latter's excess
payment, plus interest, and to pay attorney's fees and the costs of suit.
Facts: On July 30, 1992, Rafael Martinez (Rafael), respondent's father, obtained from petitioner
a loan in the amount of P160,000.00, with a stipulated monthly interest of five percent (5%),
payable within a period of six (6) months. The loan was secured by a real estate mortgage over a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-208400. Rafael failed to
settle his obligation upon maturity and despite repeated demands, prompting petitioner to file a
Complaint for Judicial Foreclosure of Real Estate Mortgage before the RTC of Imus, Cavite,
Branch 907 (RTC-Imus) on November 10, 1995,8 docketed as Civil Case No. 1208-95 Gudicial
foreclosure case) Meanwhile, prior to Rafael's notice of the above decision, respondent agreed to
pay Rafael's obligation to petitioner which was pegged at P689,000.00. After making a total
payment of P400,000.00, he executed a promissory note dated February 20, 1998 (subject PN),
binding himself to pay on or before March 31, 1998 the amount of P289,000.00, "representing
the balance of the agreed financial obligation of [his] father to [petitioner]." After learning of the
January 30, 1998 Decision, respondent refused to pay the amount covered by the subject PN
despite demands, prompting petitioner to file a complaint for sum of money and damages before
the court a quo on July 2, 1998, docketed as Civil Case No. 98-0156 (collection case).
Issue: Whether the payment of Rafael constitutes solutio indebiti
Held: Yes. Thus, as of January 30, 1998, only the amount of P265,600.00 was due under the loan
contract, and the receipt of an amount more than that renders petitioner liable for the return of the
excess. Respondent, however, made further payment in the amount of P100,000.00 on the belief
that the subject loan obligation had not yet been satisfied. Such payments were, therefore, clearly
made by mistake, giving rise to the quasi-contractual obligation of solutio indebiti under Article
2154 in relation to Article 2163 of the Civil Code. Not being a loan or forbearance of money, an
interest of 6% p.a. should be imposed on the amount to be refunded and on the damages and
attorney's fees awarded, if any, computed from the time of demand until its
satisfaction. Consequently, petitioner must return to respondent the excess payments in the total
amount of P134,400.00, with legal interest at the rate of 6% p.a. from the filing of the Answer on
August 6, 1998 interposing a counterclaim for such overpayment, until fully settled.
WHEREFORE, the petition is DENIED. The Decision dated November 4, 2011 and the
Resolution dated May 14, 2012 of the Court of Appeals in CA-G.R. CV No. 81258 reinstating
the court a quo's Decision dated August 28, 2003 in Civil Case No. 98-0156 are
hereby AFFIRMED with the MODIFICATIONS: (a) directing petitioner Norlinda S. Marilag
to return to respondent Marcelino B. Martinez the latter's excess payments in the total amount of
P134,400.00, plus legal interest at the rate of 6% p.a. from the filing of the Answer on August 6,
1998 until full satisfaction; and (b) deleting the award of attorney's fees.

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KINDS OF CIVIL OBLIGATIONS
CONDITIONAL OBLIGATIONS - SUSPENSIVE CONDITION

(6) HEIRS OF PAULINO ATIENZA, namely, RUFINA L. ATIENZA, ANICIA A.


IGNACIO, ROBERTO ATIENZA, MAURA A. DOMINGO, AMBROCIO ATIENZA,
MAXIMA ATIENZA, LUISITO ATIENZA, CELESTINA A. GONZALES, REGALADO
ATIENZA and MELITA A. DELA CRUZ Petitioners,
vs. DOMINGO P. ESPIDOL, Respondent.

G.R. NO. 180665, August 11, 2010

Ponente: ABAD, J., SECOND DIVISION

Nature of Action: This case is about the legal consequences when a buyer in a contract to sell on
installment fails to make the next payments that he promised.

Facts: This case is about the legal consequences when a buyer in a contract to sell on installment
fails to make the next payments that he promised.

On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a
contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell land
with a down payment) covering the property. They agreed on a price, payable in three
instalments.

When the Atienzas demanded payment of the second installment of P1,750,000.00 in


December 2002, however, respondent Espidol could not pay it. Claiming that Espidol breached
his obligation, on February 21, 2003 the Atienzas filed a complaint for the annulment of their
agreement with damages before the Regional Trial Court (RTC) of Cabanatuan City in a Civil
Case.

Issue: Whether or not the Atienzas were entitled to the cancellation of the contract to sell they
entered into with respondent Espidol on the ground of the latters failure to pay the second
installment when it fell due

Held: Regarding the right to cancel the contract for non-payment of an installment, there is need
to initially determine if what the parties had was a contract of sale or a contract to sell. In a
contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold. In
a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is
not to pass to the vendee until full payment of the purchase price. In the contract of sale, the
buyers non-payment of the price is a negative resolutory condition; in the contract to sell, the
buyers full payment of the price is a positive suspensive condition to the coming into effect of
the agreement. In the first case, the seller has lost and cannot recover the ownership of the
property unless he takes action to set aside the contract of sale. In the second case, the title
simply remains in the seller if the buyer does not comply with the condition precedent of making
payment at the time specified in the contract. Here, it is quite evident that the contract involved
was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the
land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no
question that the parties understood this to be the case.

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Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in
December 2002.1awph!1 That payment, said both the RTC and the CA, was a positive
suspensive condition failure of which was not regarded a breach in the sense that there can be no
rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition
had not taken place. And this is correct so far. Unfortunately, the RTC and the CA concluded that
should Espidol eventually pay the price of the land, though not on time, the Atienzas were bound
to comply with their obligation to sell the same to him.

But this is error. First, since Espidol failed to pay the installment on a day certain fixed in their
agreement, the Atienzas can afterwards validly cancel and ignore the contract to sell
because their obligation to sell under it did not arise. Since the suspensive condition did
not arise, the parties stood as if the conditional obligation had never existed.

Second, it was not a pure suspensive condition in the sense that the Atienzas made no
undertaking while the installments were not yet due. Mr. Justice Edgardo L. Paras gave a
fitting example of suspensive condition: Ill buy your land for P1,000.00 if you pass the last bar
examinations. This he said was suspensive for the bar examinations results will be awaited.
Meantime the buyer is placed under no immediate obligation to the person who took the
examinations.

Here, however, although the Atienzas had no obligation as yet to turn over title pending the
occurrence of the suspensive condition, it was implicit that they were under immediate obligation
not to sell the land to another in the meantime. When Espidol failed to pay within the period
provided in their agreement, the Atienzas were relieved of any obligation to hold the property in
reserve for him.

The ruling of the RTC and the CA that, despite the default in payment, the Atienzas remained
bound to this day to sell the property to Espidol once he is able to raise the money and pay is
quite unjustified. The total price was P2,854,670.00. The Atienzas decided to sell the land
because petitioner Paulino Atienza urgently needed money for the treatment of his daughter who
was suffering from leukemia. Espidol paid a measly P100,000.00 in down payment or about
3.5% of the total price, just about the minimum size of a brokers commission. Espidol failed to
pay the bulk of the price, P1,750,000.00, when it fell due four months later in December 2002.
Thus, it was not such a small default as to justify the RTC and the CAs decision to continue to
tie up the Atienzas to the contract to sell upon the excuse that Espidol tried his honest best to
pay.

Although the Atienzas filed their action with the RTC on February 21, 2003, four months before
the last installment of P974,670.00 fell due in June 2003, it cannot be said that the action was
premature. Given Espidols failure to pay the second installment of P1,750,000.00 in December
2002 when it was due, the Atienzas obligation to turn over ownership of the property to him
may be regarded as no longer existing. The Atienzas had the right to seek judicial declaration of
such non-existent status of that contract to relieve themselves of any liability should they decide
to sell the property to someone else. Parenthetically, Espidol never offered to settle the full
amount of the price in June 2003, when the last installment fell due, or during the whole time the
case was pending before the RTC.

WHEREFORE, the Court GRANTS the petition and REVERSES and SETS ASIDE the
August 31, 2007 decision and November 5, 2007 resolution of the Court of Appeals in CA-G.R.
CV 84953. The Court declares the Kasunduan sa Pagbibili ng Lupa na may Paunang-
Bayad between petitioner Heirs of Paulino Atienza and respondent Domingo P. Espidol dated
August 12, 2002 cancelled and the Heirs obligation under it non-existent. The Court directs
petitioner Heirs of Atienza to reimburse the P130,000.00 down payment to respondent Espidol.

11
OBLIGATIONS - SUSPENSIVE CONDITION

(7) MILA A. REYES, Petitioner, vs. VICTORIA T. TUPARAN, Respondent.

G.R. NO. 188064, June 1, 2011

Ponente: MENDOZA, J., SECOND DIVISION

Nature of Action: Subject of this petition for review is the February 13, 2009 Decision of the
Court of Appeals (CA) which affirmed with modification the February 22, 2006 Decision of the
Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an
action for Rescission of Contract with Damages.

Facts: Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages
against Victoria T. Tuparan (respondent) before the RTC.In her Complaint, petitioner alleged,
among others, that she was the registered owner of a 1,274 square meter residential and
commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-4130.

Petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank,
Inc. (FSL Bank) to secure a loan. Petitioner then decided to sell her real properties so she could
liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent
verbally offered to conditionally buy petitioner's real properties.

The parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real
Properties with Assumption of Mortgage. Due to their close personal friendship and business
relationship, both parties chose not to reduce into writing the other terms of their agreement
mentioned in paragraph 11 of the complaint.

Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of
paying the amounts due in lump sum on their respective maturity dates, respondent paid
petitioner in small amounts from time to time.

Respondent countered, among others, that the tripartite agreement erroneously designated by the
petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was
actually a pure and absolute contract of sale with a term period. It could not be considered a
conditional sale because the acquisition of contractual rights and the performance of the
obligation therein did not depend upon a future and uncertain event.

Respondent further averred that she successfully rescued the properties from a definite
foreclosure by paying the assumed mortgage plus interest and other finance charges.

The RTC handed down its decision finding that respondent failed to pay in full the total purchase
price of the subject real properties. It stated that the checks and receipts presented by respondent
refer to her payments of the mortgage obligation with FSL Bank. The RTC also considered the
Deed of Conditional Sale of Real Property with Assumption of Mortgage executed by and among
the two parties and FSL Bank a contract to sell, and not a contract of sale.

12
The CA rendered its decision affirming with modification the RTC Decision.The CA agreed with
the RTC that the contract entered into by the parties is a contract to sell but ruled that the remedy
of rescission could not apply because the respondent's failure to pay the petitioner the balance of
the purchase was not a breach of contract, but merely an event that prevented the seller
(petitioner) from conveying title to the purchaser (respondent).

Issue: Whether rescission under Article 1191 applies in this case

Held: No. The petitioner was rescinding the subject Deed of Conditional Sale pursuant to
Article 1191 of the Civil Code because of the respondent s failure, refusal to pay the balance of
the total purchase price of the petitioner s properties within the stipulated period. The full
payment of the purchase price is the positive suspensive condition, the failure of which is
not a breach of contract, but simply an event that prevented the obligation of the vendor to
convey title from acquiring binding force. Thus, for its non-fulfilment, there is no contract to
speak of, the obligor having failed to perform the suspensive condition which enforces a juridical
relation. With this circumstance, there can be no rescission or fulfillment of an obligation that is
still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made
that the breach contemplated in Article 1191 of the New Civil Code is the obligor s failure to
comply with an obligation already extant, not a failure of a condition to render binding that
obligation.

Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the Deed
of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total
purchase price of the subject property in the amount of 4,200,000.00, the remaining unpaid
balance of Tuparan (respondent) is only 805,000.00, a substantial amount of the purchase price
has already been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of
the purchase price to Reyes.

Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for
the reason that, considering the circumstances, there was only a slight or casual breach in the
fulfillment of the obligation.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract is
substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or
substantial is largely determined by the attendant circumstances.

WHEREFORE, the petition is DENIED.

13
OBLIGATIONS W ITH A PERIOD

(8) ROWENA R. SALONTE, Petitioner, vs. COMMISSION ON AUDIT, CHAIRPERSON


MA. GRACIA PULIDO-TAN, COMMISSIONER JUANITO G. ESPINO, JR.,
COMMISSIONER HEIDI L. MENDOZA, and FORTUNATA M. RUBICO, DIRECTOR
IV, COA COMMISSION SECRETARIAT, in their official capacities, Respondents.

G.R. No. 207348, August 19, 2014

Ponente: VELASCO, JR., J., EN BANC

Nature of Action: Petition for review filed under Rule 64 assailing the February 15, 2008
Decision and November 5, 2012 Resolution, 2 denominated as Decision Nos. 2008-018 and 2012-
190, respectively, of the Commission on Audit (COA). The assailed issuances affirmed the
Notice of Disallowance No. (ND) 2000-002-101(97) dated November 14, 2001 issued by Rexy
M. Ramos, COA State Auditor IV, pursuant to COA Assignment Order No. 2000-63

Facts: In 1989, the City of Mandaue (City) and F.F. Cruz and Co., Inc. (F.F. Cruz) entered into a
Contract of Reclamation which was estimated to be finished in six years. During the contracts
duration, F.F. Cruz is allowed to make improvements in the area, free of rentals, which such shall
be turned over to the City after the construction is finished supported by a Memorandum of
Agreement (MOA). F.F. Cruz constructed houses and a canteen, among others. In 1997, eight
years after the contract was initiated, a road widening project was conducted by the Department
of Public Works and Highways (DPWH), with Samuel Darza as project director. The project
affected the improvements made by F.F. Cruz. Rowena Solante paid an amount of money,
approved by Darza, to F.F. Cruz as payment for the demolition of such improvements. Darza
brought to the attention the Office of the Ombudsman, Visayas, the irregularities conducted in
the implementation of the project, and such was referred to the Commission on Audit (COA).
COA released a report saying that the amount of money paid by DPWH is not for F.F. Cruz
because the latter is no longer the owner of the properties at the time of payment. F.F. Cruz,
Solante, and Darza were held liable for the transaction. F.F. Cruz appealed, and Solante filed for
a motion for reconsideration but such were jointly denied. F.F. Cruz appealed to COA Central,
while the letter-complaint of Darza was upgraded to an Ombudsman case and was dismissed for
lack of merit. COA ruled that ruling in favor of F.F. Cruz will make the government pay for the
cost of the demolished improvements and will defeat the intention of parties as regards
compensation due from the contractor for its use of subject land. COA denied the motion for
reconsideration by saying that despite the fact that the Project was not turned over to the City, the
contention that the ownership of the said improvements would not be acquired yet by the City
would put the entire contract at the mercy of F.F. Cruz, thus, negating the mutuality of contracts.

Issue: Whether or not the F.F. Cruz is to be paid for the cost of the demolished properties

Held: Yes. F.F. Cruz is to be paid for the cost of the demolished properties.
Article 1193 of the Civil Code provides that:

14
Obligations with a resolutory period take effect at once, but terminate upon arrival
of the day certain.
A day certain is understood to be that which must necessarily come, although it
may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is
conditional, and it shall be regulated by the rules of the preceding Section.
In the instant case, a plain reading of the Contract of Reclamation reveals that the six (6)-year
period provided for project completion, or termination of the contract was a mere estimate and
cannot be considered a period or a "day certain" in the context of Art. 1193. To be clear, par. 15
of the Contract of Reclamation states: "the project is estimated to be completed in six (6)
years." The lapse of six (6) years from the perfection of the contract did not, make the
obligation to finish the reclamation project demandable, such as to put the obligor in a state of
actionable delay for its inability to finish. Thus, F.F. Cruz cannot be deemed to be in delay.

WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed February 15, 2008
Decision, November 5, 2012 Resolution, and Notice of Disallowance No. 2000-002-101 (97)
dated November 14, 2001 issued by the Commission on Audit are hereby REVERSED and SET
ASIDE.

15
JOINT AND SOLIDARY OBLIGATIONS
SOLIDARY OBLIGATION

16
(9) SPOUSES RODOLFO BEROT AND LILIA BEROT, Petitioners, vs. FELIPE C. SIAPNO,
Respondent.

G.R. No. 188944, July 9, 2014

Ponente: SERENO, CJ., FIRST DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules on
Civil Procedure assailing the Court of Appeals (CA) Decision dated 29 January 2009 in CA-G.R. CV
No. 87995. The assailed CA Decision affirmed with modification the Decision in Civil Case No. 2004-
0246-D issued by the Regional Trial Court (RTC), First Judicial Region of Dagupan City, Branch 42.
The RTC Decision allowed the foreclosure of a mortgaged property despite the objections of
petitioners claiming, among others, that its registered owner was impleaded in the suit despite being
deceased.

Facts: On May 23, 2002, Macaria and petitioner spouses Rodolfo and Lilia Berot obtained a
P250,000 loan from respondent Siapno. As security for the loan, Macaria and spouses Berot
mortgaged to Siapno a portion of a parcel of land in pangasinan. On June 23, 2003, Macaria died.
Because of the mortgagors default, Siapno filed an action for foreclosure of mortgage and damages in
the RTC.

Spouses Berot alleged that the lower court has no jurisdiction over Macaria for the reason that no
summons was served on her as she was already dead. Thus, the complaint was amended by
substituting the estate of Macaria in her stead.

The lower court rendered a decision allowing the foreclosure of the subject mortgage. On appeal,
Rodolfo contends that the substitution of the estate of Macaria for her is improper as the estate has no
legal personality to sue and to be sued. The CA affirmed the RTC.

Issue: Whether the obligation is joint

Held: Yes. As previous ruled by the Court, The well entrenched rule is that solidary obligations
cannot be inferred lightly. They must be positively and clearly expressed. A liability is solidary only
when the obligation expressly so states, when the law so provides or when the nature of the obligation
so requires. Respondent was not able to prove by a preponderance of evidence that petitioners'
obligation to him was solidary. Hence, applicable to this case is the presumption under the law that the
nature of the obligation herein can only be considered as joint. It is incumbent upon the party alleging
otherwise to prove with a preponderance of evidence that petitioners' obligation under the loan
contract is indeed solidary in character.

During her lifetime, Macaria was the registered owner of the mortgaged property, subject of the
assailed foreclosure. Considering that she had validly mortgaged the property to secure a loan
obligation, and given our ruling in this case that the obligation is joint, her intestate estate is liable to a
third of the loan contracted during her lifetime. Thus, the foreclosure of the property may proceed, but
would be answerable only to the extent of the liability of Macaria to respondent. WHEREFORE, the
CA Decision in CA-G.R. CV No. 87995 sustaining the RTC Decision in Civil Case No. 2004-0246-D
is hereby AFFIRMED with the MODIFICATION that the obligation of petitioners and the estate of
Macaria Berot is declared as joint in nature.

JOINT AND SOLIDARY OBLIGATION

17
(10) RUKS KONSULT AND CONSTRUCTION, Petitioner, vs.ADWORLD SIGN AND
ADVERTISING CORPORATION* and TRANSWORLD MEDIA ADS, INC., Respondents.

G.R. No. 204866, January 21, 2015


Ponente: PERLAS-BERNABE, J., FIRST DIVISION
Nature of Action: Assailed in this petition for review on certiorari are the Decision dated November
16, 2011 and the Resolution dated December 10, 2012 of the Court of Appeals (CA) in CA-G.R. CV
No. 94693 which affirmed the Decision4 dated August 25, 2009 of the Regional Trial Court of Makati
City, Branch 142 (RTC) in Civil Case No. 03-1452 holding, inter alia, petitioner Ruks Konsult and
Construction (Ruks) and respondent Transworld Media Ads, Inc. (Transworld) jointly and severally
liable to respondent Adworld Sign and Advertising Corporation (Adworld) for damages.
Facts: Adworld alleged that it is the owner of a 75 ft. x 60 ft. billboard structure located at EDSA
Tulay, Guadalupe, Barangka Mandaluyong, which was misaligned and its foundation impaired when,
on August 11, 2003, the adjacent billboard structure owned by Transworld and used by Comark
collapsed and crashed against it. Resultantly, on August 19, 2003, Adworld sent Transworld and
Comark a letter demanding payment for the repairs of its billboard as well asloss of rental income. On
August 29, 2003, Transworld sent its reply, admitting the damage caused by its billboard structure on
Adworlds billboard, but nevertheless, refused and failed to pay the amounts demanded by Adworld.
Transworld averred that the collapse of its billboard structure was due to extraordinarily strong winds
that occurred instantly and unexpectedly, and maintained that the damage caused to Adworlds
billboard structure was hardly noticeable. Transworld likewise filed a Third-Party Complaint against
Ruks, the company which built the collapsed billboard structure in the formers favor. Ruks admitted
that it entered into a contract with Transworld for the construction of the latters billboard structure
but It contended that when Transworld hired its services, there was already an existing foundation for
the billboard and that it merely finished the structure according to the terms and conditions of its
contract with the latter
Issue: Whether Rusks should be jointly and severally liable with Transworld
Held: Yes. In this case, the CA correctly affirmed the RTCs finding that Transworlds initial
construction of its billboards lower structure without the proper foundation, and that of Rukss
finishing its upper structure and just merely assuming that Transworld would reinforce the weak
foundation are the two (2) successive acts which were the direct and proximate cause of the damages
sustained by Adworld. Worse, both Transworld and Ruks were fully aware that the foundation for the
formers billboard was weak; yet, neither of them took any positive step to reinforce the same. They
merely relied on each others word that repairs would be done to such foundation, but none was done
at all. Clearly, the foregoing circumstances show that both Transworld and Ruks are guilty of
negligence in the construction of the formers billboard, and perforce, should be held liable for its
collapse and the resulting damage to Adworlds billboard structure. As joint tortfeasors, therefore,
they are solidarily liable to Adworld. Verily, "[j]oint tortfeasors are those who command, instigate,
promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or
approve of it after it is done, if done for their benefit. They are also referred to as those who act
together in committing wrong or whose acts, if independent of each other, unite in causing a single
injury. Under Article 219429 of the Civil Code, joint tortfeasors are solidarily liable for the resulting
damage. In other words, joint tortfeasors are each liable as principals, to the same extent and in the
same manner as if they had performed the wrongful act themselves.

WHEREFORE, the petition is DENIED. The Decision dated November 16, 2011 and the Resolution
dated December 10, 2012 of the Court of Appeals in CA-G.R. CV No. 94693 are hereby AFFIRMED.

SOLIDARY OBLIGATION

18
(11) OLONGAPO CITY, Petitioner, vs. SUBIC WATER AND SEWERAGE CO., INC.,
Respondent.

G.R. No. 171626, August 6, 2014

Ponente: BRION, J., SECOND DIVISION

Nature of Action: Petition for certiorari1 under Rule 65 the challenge to the July 6, 2005 decision and
the January 3, 2006 resolution (assailed CA rulings) of the Court of Appeals (CA) in CAG.R. SP No.
80947

Facts: On May 25, 1973, Presidential Decree No. 198 (PD 198) took effect. This law authorized the
creation of local water districts which may acquire, install, maintain and operate water supply and
distribution systems for domestic, industrial, municipal and agricultural uses.

Pursuant to PD 198, petitioner Olongapo City (petitioner) passed Resolution No. 161, which
transferred all itsexisting water facilities and assets under the Olongapo City Public Utilities
Department Waterworks Division, to the jurisdiction and ownership of the Olongapo City Water
District (OCWD).

PD 198, as amended, allows local water districts (LWDs)which have acquired an existing water
system of a localgovernment unit (LGU) to enter into a contract to pay the concerned LGU. In lieu of
the LGUs share in the acquired water utility plant, it shall be paid by the LWD an amount not
exceeding three percent (3%) of the LWDs gross receipts from water sales in any year.

On October 24, 1990, petitioner filed a complaint for sum of money and damages against OCWD.
Among others, petitioner alleged that OCWD failed to pay its electricity bills to petitioner and remit
its payment under the contract to pay, pursuant to OCWDs acquisition of petitioners water system.

In its answer, OCWD posed a counterclaim against petitioner for unpaid water bills amounting to
P3,080,357.00.

In the interim, OCWD entered into a Joint Venture Agreement (JVA) with Subic Bay Metropolitan
Authority (SBMA), Biwater International Limited (Biwater), and D.M. Consunji, Inc. (DMCI) on
November 24, 1996. Pursuant to this agreement, Subic Water a new corporate entity was
incorporated.

On November 24, 1996, Subic Water was granted the franchise to operate and to carry on the
businessof providing water and sewerage services in the Subic BayFree Port Zone, as well as in
Olongapo City. Hence, Subic Water took over OCWDs water operations in Olongapo City.

To finally settle their money claims against each other, petitioner and OCWD entered into a
compromise agreement on June 4, 1997. In this agreement, petitioner and OCWD offset their
respective claims and counterclaims. OCWD also undertook to pay to petitioner its net obligation
amounting to P135,909,467.09, to be amortized for a period of not exceeding twenty-five (25) years at
twenty-fourpercent (24%) per annum.

The compromise agreement also contained a provision regarding the parties requestthat Subic Water,
Philippines,which took over the operations of the defendant Olongapo City Water District be made the
co-makerfor OCWDs obligations. Mr. Noli Aldip, then chairman of Subic Water, acted as its
representative and signed the agreement on behalf of Subic Water.
Subsequently, the parties submitted the compromise agreement to RTC Olongapo for approval. In its
decision dated June 13, 1997, he trial court approved the compromiseagreement and adopted it as its
judgment in Civil Case No. 580-0-90.

Pursuant to the compromise agreement and in payment of OCWDs obligations to petitioner,petitioner


and OCWD executed a Deed of Assignment onNovember 24, 1997. OCWD assigned all of its rights in
the JVA in favor of the petitioner, including but not limited to the assignment of its shares, lease

19
payments, regulatory assistance fees and other receivables arising out of or related to the Joint Venture
Agreement and the Lease Agreement. On December 15,1998, OCWD was judicially dissolved.

On May 7, 1999, to enforce the compromise agreement, the petitioner filed a motion for the issuance
of a writ of execution with the trial court. In its July 23, 1999 order, the trial court granted the motion,
but did not issue the corresponding writ of execution.

Issue: Can the Subic Water, who was not a party in the case, still be subjected to a writ of execution,
since it was identified as OCWDs co-maker and successor-in-interest in the compromise agreement?

Held: No. Solidary liability must be expressly stated; it is not presumed. Art. 1207 of the Civil Code
provides, There is a solidary liability only when the obligation expressly so states, or when the law
or the nature of the obligation requires solidarity.

In Palmares v. Court of Appeals, the Court did not hesitate to rule that although a party to a
promissory note was only labeled as a co-maker, his liability was that of a surety, since the instrument
expressly provided for his joint and several liability with the principal.

The law explicitly states that solidary liability is not presumed and must be expressly provided for.
Not being a surety, Subic Water is not an insurer of OCWDs obligations under the compromise
agreement. At best, Subic Water was merely a guarantor against whom petitioner can claim, provided
it was first shown that: a) petitioner had already proceeded after the properties of OCWD, the
principal debtor; b) and despite this, the obligation under the compromise agreement, remains to be
not fully satisfied.

WHEREFORE, premises considered, we hereby DISMISS the petition. The Court of Appeals'
decision dated July 6, 2005 and resolution dated January 3, 2006, annulling and setting aside the
orders of the Regional Trial Court of Olongapo, Branch 75 dated July 29, 2003 and October 7, 2003,
and the writ of execution dated July 31, 2003, are hereby AFFIRMED. Costs against the City of
Olongapo.

20
SOLIDARY OBLIGATION

(12) ESTANISLAO and AFRICA SINAMBAN, Petitioners, vs. CHINA BANKING


CORPORATION, Respondent.

G.R. No. 193890, March 11, 2015

Ponente: REYES, J., THIRD DIVISION

Nature of Action: Petition for Review on Certiorari 1 of the Decision dated May 19, 2010 of the Court
of Appeals (CA) in CA-G.R. CV. No. 66274 modifying the Decision dated July 30, 1999 of the
Regional Trial Court (RTC) of San Fernando City, Pampanga, Branch 45 for Sum of Money in Civil
Case No. 11708.

Facts: On February 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses Manalastas)
executed a Real Estate Mortgage (REM) in favor of respondent China Banking Corporation
(Chinabank) over two real estate properties covered by Transfer Certificate of Title Nos. 173532-R
and 173533-R, Registry of Deeds of Pampanga, to secure a loan from Chinabank of P700,000.00
intended as working capital in their rice milling business. During the next few years, they executed
several amendments to the mortgage contract progressively increasing their credit line secured by the
aforesaid mortgage. Thus, from P700,000.00 in 1990, their loan limit was increased to P1,140,000.00
on October 31, 1990, then to P1,300,000.00 on March 4, 1991, and then to2,450,000.00 on March 23,
1994. The spouses Manalastas executed several promissory notes (PNs) in favor of Chinabank. In two
of the PNs, petitioners Estanislao and Africa Sinamban (spouses Sinamban) signed as co-makers.

On November 18, 1998, Chinabank filed a Complaint for sum of money, docketed as Civil Case No.
11708, against the spouses Manalastas and the spouses Sinamban (collectively called the defendants)
before the RTC. The complaint alleged that they reneged on their loan obligations under the PNs
which the spouses Manalastas executed in favor of Chinabank on different dates.

All of the three promissory notes carried an acceleration clause stating that if the borrowers failed to
pay any stipulated interest, installment or loan amortization as they accrued, the notes shall, at the
option of Chinabank and without need of notice, immediately become due and demandable. A penalty
clause also provides that an additional amount shall be paid equivalent to 1/10 of 1% per day of the
total amount due from date of default until fully paid, and the further sum of 10% of the total amount
due, inclusive of interests, charges and penalties, as and for attorneys fees and costs.

In Chinabanks Statement of Account11 dated May 18, 1998, reproduced below, the outstanding
balances of the three loans are broken down.

On the basis of the above statement of account, and pursuant to the promissory notes, Chinabank
instituted extrajudicial foreclosure proceedings against the mortgage security. The foreclosure sale was
held on May 18, 1998, with Chinabank offering the highest bid of P4,600,000.00, but by then the
defendants total obligations on the three promissory notes had risen to P5,401,975.00, before
attorneys fees of 10% and auction expenses, leaving a loan deficiency of P1,758,427.87. Thus, in the
complaint before the RTC, Chinabank prayed to direct the defendants to jointly and severally settle the
said deficiency, plus 12% interest per annum after May 18, 1998, the date of the auction sale.

The spouses Sinamban, in their Answer dated February 26, 1999, averred that they do not recall
having executed PN No. OACL 636-95 for P325,000.00 on May 23, 1995, or PN No. CLF 5-93 for
P1,300,000.00 on February 26, 1991, and had no participation in the execution of PN No. OACL 634-
95 for P1,800,000.00 on April 24, 1995. They however admitted that they signed some PN forms as
co-makers upon the request of the spouses Manalastas who are their relatives; although they insisted
that they derived no money or other benefits from the loans. They denied knowing about the mortgage
security provided by the spouses Manalastas, or that the latter defaulted on their loans. They also
refused to acknowledge the loan deficiency of P1,758,427.87 on the PNs, insisting that the mortgage
collateral was worth more than P10,000,000.00, enough to answer for all the loans, interests and
penalties. They also claimed that they were not notified of the auction sale, and denied that they knew
21
about the Certificate of Sale and the Statement of Account dated May 18, 1998, and insisted that
Chinabank manipulated the foreclosure sale to exclude them therefrom. By way of counterclaim, the
Spouses Sinamban prayed for damages and attorneys fees of 25%, plus litigation expenses and costs
of suit.

The spouses Manalastas were declared in default in the RTC Order dated April 6, 1999, and
Chinabank was allowed to present evidence ex parte as against them, but at the pre-trial conference
held on July 5, 1999, the spouses Sinamban and their counsel also did not appear; hence, in the Order
dated July 5, 1999, the RTC allowed Chinabank to present evidence ex parte against the defendants
before the Branch Clerk of Court. During the testimony of Rosario D. Yabut, Branch Manager of
Chinabank-San Fernando Branch, all the foregoing facts were adduced and confirmed, particularly the
identity of the pertinent loan documents and the signatures of the defendants. On July 21, 1999, the
court admitted the exhibits of Chinabank and declared the case submitted for decision.

Issue: Whether spouses Sinamban expressly bound themselves to be jointly and severally, or
solidarily, liable with the principal makers of the PNs, the spouses Manalastas.

Held: Yes. A co-maker of a promissory note who binds himself with the maker jointly and severally
renders himself directly and primarily liable with the maker on the debt, without reference to his
solvency.

"A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the
date and under the conditions agreed upon by the borrower and the lender. A person who signs such an
instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature
he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits
the sympathy and assistance of this Court and deserves instead its sharp repudiation.

Employing words of common commercial usage and well-accepted legal significance, the three
subject PNs uniformly describe the solidary nature and extent of the obligation assumed by each of the
defendants in Civil Case No. 11708, to wit:
"FOR VALUE RECEIVED, I/We jointly and severally promise to pay to the CHINA BANKING
CORPORATION or its order the sum of PESOS x x x[.]"

According to Article 2047 of the Civil Code, if a person binds himself solidarily with the principal
debtor, the provisions of Articles 1207 to 1222 of the Civil Code (Section 4, Chapter 3,Title I, Book
IV) on joint and solidary obligations shall be observed. Thus, where there is a concurrence of two or
more creditors or of two or more debtors in one and the same obligation, Article 1207 provides that
among them, "[t]here is a solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity." It is settled that when the obligor or obligors
undertake to be "jointly and severally" liable, it means that the obligation is solidary. In this case, the
spouses Sinamban expressly bound themselves to be jointly and severally, or solidarily, liable with the
principal makers of the PNs, the spouses Manalastas.

Moreover, as the CA pointed out, in Paragraph 5 of the PNs, the borrowers and their co-makers
expressly authorized Chinabank, as follows:
[T]o apply to the payment of this note and/or any other particular obligation or obligations of all or
any one of us to the CHINA BANKING CORPORATION as the said Corporation may select,
irrespective of the dates of maturity, whether or not said obligations are then due, any or all moneys,
securities and things of value which are now or which may hereafter be in its hands on deposit or
otherwise to the credit of, or belonging to, all or any one of us, and the CHINA BANKING
CORPORATION is hereby authorized to sell at public or private sale such securities or things of value
for the purpose of applying their proceeds to such payments.

WHEREFORE, the Decision of the Court of Appeals dated May 19, 2010 in CA-G.R. CV No. 66274
is MODIFIED. The Decision dated July 30, 1999 and the Order dated December 8, 1999 of the
Regional Trial Court of San Fernando City, Pampanga, Branch 45 in Civil Case No. 11708 are hereby
AFFIRMED with MODIFICATIONS.

22
JOINT and SOLIDARY OBLIGATIONS

23
(13) SPOUSES CHIN KONG WONG CHOI and ANA 0. CHUA, Petitioners, vs. UNITED
COCONUT PLANTERS BANK, Respondent.

G.R. No. 207747. March 11, 2015

Ponente: CARPIO, J., SECOND DIVISION

Nature of Action: This petition for review assails the Decision dated 29 January 2013 as well as the
Resolution dated 27 May 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 117831. The CA
reversed the Decision dated 1 June 2010 and Resolution dated 5 January 2011 of the Office of the
President (OP), and ruled that its decisions in the cases of UCPB v. O'Halloran and UCPB v. Liam shall
apply in the present case, following the doctrine of stare decisis.

Facts: Petitioner spouses Chin Kong Wong Choi and Ana O. Chua (Spouses Choi) entered into a
Contract to Sell8 with Primetown Property Group, Inc. (Primetown), a domestic corporation engaged in
the business of condominium construction and real estate development. The Contract to Sell provided
that Spouses Choi agreed to buy condominium unit no. A-322 in Kiener Hills Cebu (Kiener) from
Primetown for a consideration of P1,151,718.75, with a down payment of P100,000.00 and the
remaining balance payable in 40 equal monthly installments of P26,292.97 from 16 January 1997 to 16
April 2000.

On 23 April 1998, respondent United Coconut Planters Bank (UCPB), a commercial bank duly
organized and existing under the laws of the Philippines, executed a Memorandum of Agreement and
Sale of Receivables and Assignment of Rights and Interests (Agreement) with Primetown. The
Agreement provided that Primetown, in consideration of P748,000,000.00, "assigned, transferred,
conveyed and set over unto [UCPB] all Accounts Receivables accruing from [Primetowns Kiener] x x
x together with the assignment of all its rights, titles, interests and participation over the units covered
by or arising from the Contracts to Sell from which the Accounts Receivables have arisen." Included in
the assigned accounts receivable was the account of Spouses Choi, who proved payment of one
monthly amortization to UCPB on 3 February 1999.

On 11 April 2006, the Spouses Choi filed a complaint for refund of money with interest and damages
against Primetown and UCPB before the Housing and Land Use Regulatory Board (HLURB) Regional
Field Office No. VI (RFO VI). Spouses Choi alleged that despite their full payment of the purchase
price, Primetown failed to finish the construction of Kiener and to deliver the condominium unit to
them.

Issue: Whether, under the Agreement between Primetown and UCPB, UCPB assumed the liabilities
and obligations of Primetown under its contract to sell with Spouses Choi.

Held: No. Spouses Choi entered into contract to sell with Primetown Property Group, Inc. a domestic
corporation engaged in the business of condominium construction and real estate development.
Primetown on the other hand assigned its receivables to United Coconut Planters Bank. Despite full
payment Primetown failed to deliver the condominium unit. Spouses Choi sued UCPB and Primetown.
UCPB was not Primetowns successor-in-interest and was not jointly and severally liable with
Primetown for the latters failure to deliver the condominium unit. The Supreme Court held that
considering that UCPB is a mere assignee of the rights and receivables under the Agreement, UCPB
did not assume the obligations and liabilities of Primetown under its contract to sell with Spouses
Choi.

WHEREFORE, we DENY the petition and AFFIRM with MODIFICATION the Decision dated 29
January 2013 and the Resolution dated 27 May 2013 of the Court of Appeals in CA-G.R. SP No.
117831. We ORDER respondent United Coconut Planters Bank to RETURN to petitioner spouses Chin
Kong Wong Choi and Ana 0. Chua the amount of P26,292.97, with 12% interest per annum from the
time of its receipt on 3 February 1999 until 30 June 2013, then 6% interest per annum from 1 July 2013
until fully paid.

24
BREACH OF OBLIGATIONS

DELAY - MORA SOLVENDI

(14) SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs.


ERNESTO V. SANTOS and RIVERLAND, INC., respondents.

G.R. NO. 153004, November 5, 2004

Ponente: QUISUMBING, J., FIRST DIVISION

Nature of Action: Subject of the present petition for review on certiorari is the Decision, dated
January 30, 2002, as well as the April 12, 2002, Resolution of the Court of Appeals in CA-G.R. CV No.
55122. The appellate court reversed the Decision, dated October 4, 1996, of the Regional Trial Court of
Makati City, Branch 148, in Civil Case No. 95-811, and likewise denied petitioner's Motion for
Reconsideration

Facts: Subject of the present petition for review on certiorari is the Decision, dated January 30, 2002,
as well as the April 12, 2002, Resolution of the Court of Appeals, The appellate court reversed the
Decision, dated October 4, 1996, of the Regional Trial Court of Makati City, and likewise denied
petitioner's Motion for Reconsideration.

On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their
pending litigations. The pertinent portions of the Agreement, include the following: (1) Defendant
Foundation shall pay Plaintiff Santos P14.5 Million on (a) P1.5 Million immediately upon the
execution of this agreement and (b) The balance of P13 Million shall be paid, whether in one lump sum
or in installments, at the discretion of the Foundation, within a period of not more than two years from
the execution of this agreement; (2) Immediately upon the execution of this agreement (and [the]
receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases; (3)
Failure of compliance of any of the foregoing terms and conditions by either or both parties to this
agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution
for the enforcement of this agreement.

In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the
aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties
involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of
P13 million.

On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay
the balance of P13 million. There was no response from petitioner. Consequently, respondent Santos
applied with the Regional Trial Court of Makati City, for the issuance of a writ of execution of its
compromise judgment dated September 30, 1991. The RTC granted the writ.

Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of
the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts,
however, were futile.

On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In
the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate
of Sale covering the real properties subject of the auction sale. Subsequently, another auction sale was
held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland,
Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of
redemption within one year from the date of registration of the said properties.

On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages
alleging that there was delay on the part of petitioner in paying the balance of P13 million.

Issue: Whether petitioner is liable for damages/legal interest

25
Held: Yes. When respondents wrote a demand letter to petitioner, the obligation was already due and
demandable, and when the petitioner failed to pay its due obligation after the demand was made, it
incurred delay. Delay as used in this article is synonymous to default or mora solvendi which means
delay in the fulfillment of obligations with respect to time and in order for the debtor to be in default, it
is necessary that the following requisites be present: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance
judicially or extrajudicially.

In the case at bar, the obligation was already due and demandable after the lapse of the two-year period
from the execution of the contract. The two-year period ended on October 26, 1992. When the
respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due
and demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how
much he is to pay and when he is to pay it.

The second requisite is also present. Petitioner delayed in the performance. It was able to fully settle its
outstanding balance only on February 8, 1995, which is more than two years after the extra-judicial
demand. Moreover, it filed several motions and elevated adverse resolutions to the appellate court to
hinder the execution of a final and executory judgment, and further delay the fulfillment of its
obligation.

Third, the demand letter sent to the petitioner on October 28, 1992, was in accordance with an extra-
judicial demand contemplated by law.

Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This is
provided for in Article 1170 of the New Civil Code.

When the debtor knows the amount and period when he is to pay, interest as damages is generally
allowed as a matter of right. The complaining party has been deprived of funds to which he is entitled
by virtue of their compromise agreement. The goal of compensation requires that the complainant be
compensated for the loss of use of those funds. This compensation is in the form of interest. In the
absence of agreement, the legal rate of interest shall prevail. The legal interest for loan as forbearance
of money is 12% per annum29 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.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the
Court of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs
against petitioner.

26
COMPENSATIO MORAE

(15) ANTONIO R. CORTES (in his capacity as Administrator of the estate of Claro S. Cortes),
petitioner, vs. HON. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT
CORPORATION, respondents.

G.R. NO. 126083, July 12, 2006

Ponente: YNARES-SANTIAGO, J., FIRST DIVISION

Nature of Action: The instant petition for review seeks the reversal of the June 13, 1996 Decision of
the Court of Appeals in CA-G.R. CV No. 47856, setting aside the June 24, 1993 Decision of the
Regional Trial Court of Makati, Branch 138, which rescinded the contract of sale entered into by
petitioner Antonio Cortes (Cortes) and private respondent Villa Esperanza Development Corporation
(Corporation).

Facts: This is a petition for reversal of decision made by the Court of Appeals setting aside the decision
of Trial Court to rescind the contract between Antonio Cortes and Villa Ezperenza Development
Corporation for the contract of sale of land amounting to 3.7 million pesos located at Baclaran, Metro
Manila with the following terms:
0 The Corporation shall advance 2.2 M as downpayment, and Cortes shall likewise deliver the
TCT for the 3 lots.

1 The balance of 1.5M shall be payable within a year from the date of the execution.
The Corporation paid the partial the amount of P1,213,000.00 as downpayment but Cortes failed to
deliver the CTC and the original copy of the Deed of Sale arising resulting to the filing of this instant
case by the Corporation praying for specific performance to deliver the CTC and the Deed of sale from
the petitioner.
Cortes claimed that the owners duplicate copy of the three TCTs were surrendered to the Corporation
and it is the latter which refused to pay in full the agreed down payment.
RTC ruled rescinding the contract of sale and return the downpayment with interest for the Corporation
having failed to pay in full the amount of P2,200,000.00 despite Cortes delivery of the Deed of
Absolute Sale and the TCTs, rescission of the contract is proper.
On appeal by the respondents, CA reversed the decision of the RTC directed Cortes to execute the Deed
of Sale simultaneous with the Corporation payment of the full balance of purchase. It found that the
parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes
delivery of the three TCTs to the Corporation. The records show that no such delivery was made,
hence, the Corporation was not remiss in the performance of its obligation and therefore justified in not
paying the balance.
However, Cortes file a petition praying for the reinstatement of rescinding the contract by RTC since
the Corporation failed in the performance of their obligation.

Issue: Whether or not there is delay in the performance of the parties obligation that would justify the
rescission of the contract of sale?

Held: No. There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of
the parties.

Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same
together with the TCTs, the trial court erred in concluding that he performed his part in the contract of
sale and that it is the Corporation alone that was remiss in the performance of its obligation. Actually,
both parties were in delay. Considering that their obligation was reciprocal, performance thereof must
be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave rise to
a compensation morae or default on the part of both parties because neither has completed their part in
their reciprocal obligation. Cortes is yet to deliver the original copy of the notarized Deed and the
TCTs, while the Corporation is yet to pay in full the agreed down payment of P2,200,000.00. This
mutual delay of the parties cancels out the effects of default, such that it is as if no one is guilty of
delay.
27
Cortes argument would have been correct if he actually surrendered the Deed and the TCTs to the
Corporation. With such delivery, the Corporation would have been placed in default if it chose not to
pay in full the required down payment. Under Article 1169 of the Civil Code, from the moment one of
the parties fulfills his obligation, delay by the other begins.

The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in
the contract of sale, i.e., for Cortes to, among others, deliver the necessary documents to the
Corporation and for the latter to pay in full, not only the down payment, but the entire purchase price.

WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals in
CA-G.R. CV No. 47856, is AFFIRMED.

28
COMPENSATIO MORAE

(16) UNLAD RESOURCES DEVELOPMENT CORPORATION, UNLAD RURAL BANK OF


NOVELETA, INC., UNLAD COMMODITIES, INC., HELENA Z. BENITEZ, and CONRADO
L. BENITEZ II, Petitioners, vs. RENATO P. DRAGON, TARCISIUS R. RODRIGUEZ,
VICENTE D. CASAS, ROMULO M. VIRATA, FLAVIANO PERDITO, TEOTIMO BENITEZ,
ELENA BENITEZ, and ROLANDO SUAREZ, Respondents.

G.R. NO. 149338, July 28, 2008

Ponente: NACHURA, J., THIRD DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure
seeking the reversal of the November 29, 2000 Decision and August 2, 2001 Resolution of the Court of
Appeals (CA) in CA-G.R. CV No. 54226.

Facts: The parties entered in a Memorandum of Agreement: respondents as controlling stockholders of


the Rural Bank shall allow Unlad Resources to subscribe to a minimum of P480, 000 common or
preferred non-voting shares of stock with a total par value of P4.8M and pay up immediately P1.2M for
said subscription; that the respondents, upon the signing of the said agreement shall transfer control and
management over the Rural Bank to Unlad Resources. The respondents complied with their obligation
but the petitioners did not, thus respondents filed a Complaint for rescission of the agreement and the
return of control and management of the Rural Bank from petitioners to respondents, plus damages.
RTC declared the MOA rescinded &ordered to immediately return control and management over the
Rural to respondents. Petitioners appealed to the CA which dismissed the appeal for lack of merit.

Petitioners contend that the issues court are intra-corporate in nature and are, therefore, beyond
the jurisdiction of the trial court. They point out that respondents' complaint charged them with
mismanagement and alleged dissipation of the assets of the Rural Bank.

Issue: Whether the trial court, as affirmed by the CA, correctly ruled for the rescission of the subject
Agreement.

Held: Yes. Petitioners contend that they have fully complied with their obligation under the
Memorandum of Agreement but due to respondents failure to increase the capital stock of the
corporation to an amount that will accommodate their undertaking, it had become impossible for them
to perform their end of the Agreement.

Again, petitioners contention is untenable. There is no question that petitioners herein failed to fulfill
their obligation under the Memorandum of Agreement. Even they admit the same, albeit laying the
blame on respondents.

It is true that respondents increased the Rural Banks authorized capital stock to only P5 million, which
was not enough to accommodate the P4.8 million worth of stocks that petitioners were to subscribe to
and pay for. However, respondents failure to fulfill their undertaking in the agreement would have
given rise to the scenario contemplated by Article 1191 of the Civil Code, which reads:

Article 1191. The power to rescind reciprocal obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

29
In reciprocal obligations, failure of the other party to perform the obligation renders the other party
to demand fulfillment of the obligation or asked for the rescission of the contract, but not simply not
performing their part of the Agreement.

Rescission has the effect of "unmaking a contract, or its undoing from the beginning, and not merely its
termination."[16] Hence, rescission creates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever he may be obliged to
restore. To rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative positions as if no contract has
been made.

Accordingly, when a decree for rescission is handed down, it is the duty of the court to require
both parties to surrender that which they have respectively received and to place each other as far as
practicable in his original situation. The rescission has the effect of abrogating the contract in all parts.

Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was just cause
for rescission. With the contract thus rescinded, the parties must be restored to the status quo ante, that
is, before they entered into the Memorandum of Agreement.

WHEREFORE, the foregoing premises considered, the petition is hereby DENIED. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 54226 are AFFIRMED.

30
FORTUITOUS EVENT
(17) COMGLASCO CORPORATION/AGUILA GLASS, Petitioner, v. SANTOS CAR CHECK
CENTER CORPORATION, Respondent.
G.R. No. 202989, March 25, 2015

Ponente: REYES, J., THIRD DIVISION

Nature of Action:

Facts: On August 16, 2000, respondent Santos Car Check Center Corporation (Santos), owner of a
showroom located at 75 Delgado Street, in Iloilo City, leased out the said space to petitioner Comglasco
Corporation (Comglasco), an entity engaged in the sale, replacement and repair of automobile
windshields, for a period of five years at a monthly rental of P60,000.00 for the first year, P66,000.00
on the second year, and P72,600.00 on the third through fifth years.

On October 4, 2001, Comglasco advised Santos through a letter that it was pre-terminating their lease
contract effective December 1, 2001. Santos refused to accede to the pre-termination, reminding
Comglasco that their contract was for five years. On January 15, 2002, Comglasco vacated the leased
premises and stopped paying any further rentals. Santos sent several demand letters, which Comglasco
completely ignored. On September 15, 2003, Santos sent its final demand letter, which Comglasco
again ignored. On October 20, 2003, Santos filed suit for breach of contract.

Summons and a copy of the complaint, along with the annexes, were served on Comglasco on January
21, 2004, but it moved to dismiss the complaint for improper service. The Regional Trial Court (RTC)
of Iloilo City, Branch 37, dismissed the motion and ordered the summons served anew. On June 28,
2004, Comglasco filed its Answer.Santos moved for a judgment on the pleadings, which the RTC
granted. On August 18, 2004, the trial court rendered its judgment, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered in favor of [Santos] and against [Comglasco]:

1. Ordering [Comglasco] to faithfully comply with [its] obligation under the Contract of Lease and pay
its unpaid rentals starting January 16, 2002 to August 15, 2003 in the total amount of Php1,333,200.00,
plus 12% interest per annum until fully paid;

2. To pay [Santos]:
a) Php200,000.00 as attorneys fees;
b) [Php]50,000.00 as litigation expenses;
c) [Php]400,000.00 as exemplary damages.
3. Costs of the suit.

SO ORDERED.

On February 14, 2005, Santos moved for execution pending Comglascos appeal, which the trial court
granted on May 12, 2005. In its appeal, Comglasco interposed the following issues for resolution:

1 Whether or not judgment on the pleadings was properly invoked by the trial court as basis for
rendering its decision;
2 Whether or not material issues were raised in [Comglascos] Answer;
3 Whether or not damages may be granted by the trial court without proof and legal basis.

31
In its Decision dated August 10, 2011, the Court of Appeals (CA) affirmed the judgment of the RTC but
reduced the award of attorneys fees to P100,000.00 and deleted the award of litigation expenses and
exemplary damages.

Issue:

Held: The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory,
the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to
exist, the contract also ceases to exist. This theory is said to be the basis of Article 1267 of the Civil
Code. This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of contractual
relations. The parties to the contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of circumstances that equity
demands assistance for the debtor

Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate its lease with
respondent, petitioner invokes the 1997 Asian currency crisis as causing it much difficulty in meeting
its obligations. In Philippine National Construction Corporation v. CA, the Court held that the payment
of lease rentals does not involve a prestation to do envisaged in Articles 1266 and 1267 which has
been rendered legally or physically impossible without the fault of the obligor- lessor. Article 1267
speaks of a prestation involving service which has been rendered so difficult by unforeseen subsequent
events as to be manifestly beyond the contemplation of the parties. To be sure, the Asian currency crisis
befell the region from July 1997 and for sometime thereafter, but petitioner cannot be permitted to
blame its difficulties on the said regional economic phenomenon because it entered into the subject
lease only on August 16, 2000, more than three years after it began, and by then petitioner had known
what business risks it assumed when it opened a new shop in Iloilo City.

This situation is no different from the Courts finding in PNCC wherein PNCC cited the assassination
of Senator Benigno Aquino Jr. (Senator Aquino) on August 21, 1983 and the ensuing national political
and economic crises as putting it in such a difficult business climate that it should be deemed released
from its lease contract. The Court held that the political upheavals, turmoils, almost daily mass
demonstrations, unprecedented inflation, and peace and order deterioration which followed Senator
Aquinos death were a matter of judicial notice, yet despite this business climate, PNCC knowingly
entered into a lease with therein respondents on November 18, 1985, doing so with open eyes of the
deteriorating conditions of the country. The Court rules now, as in PNCC, that there are no absolutely
exceptional changes of circumstances that equity demands assistance for the debtor.

WHEREFORE, premises considered, the petition is DENIED for lack of merit.

32
FORTUITOUS EVENT

(18) MARITO T. BERNALES, Petitioner, v. NORTHWEST AIRLINES, Respondent.


G.R. No. 182395, October 5, 2015
Ponente: BRION, J., SECOND DIVISION
Nature of Action: Petition for review on certiorari seeks to reverse the 31 March 2008 decision of the
Court of Appeals (CA) in CA-G.R. CV No. 86861, which reversed the 26 January 2006 decision of the
Regional Trial Court (RTC) of Iriga City, Branch 60 in Civil Case No. 3355. This RTC ruling, in turn,
ordered the respondent Northwest Airlines (NWA) to pay the petitioner moral and exemplary damages
plus attorney's fees in the sum of twelve million five hundred thirty thousand pesos (P12,530,000.00).
Facts: The petitioner Marito T. Bernales is a lawyer, a university dean, and a board member of
theSangguniang Panlalawigan of Camarines Sur. On 1 October 2002, he and several other prominent
personalities from Bicol were on their way to Honolulu, Hawaii, as the delegates of a trade and tourism
mission for the province. They were economy class passengers of Northwest Airlines Flight No. 10
from Manila to Honolulu via Narita, Japan At around 6:00 p.m., a typhoon hit Japan, leading to the
cancellation of most flights, including NWA Flight No. 10. However, NWA did not cancel Flight No.
22, also bound for Honolulu later that night, to minimize delays and to accommodate stranded
passengers in case the typhoon would subside.
The passengers of Flight 22 were called for boarding at around 11:00 p.m. and the delegates boarded
the shuttle taking them to the airplane. But before the shuttle bus could leave, NWA Customer Service
Agent Tsuruki Ohashi entered the shuttle and informed the petitioner that he could not take Flight 22 as
no available seat was left for him. the petitioner filed a complaint for moral and exemplary damages
against the respondent NWA for breach of their contract of carriage. The petitioner alleged that
Ohashi's rude treatment, his ejection from the shuttle bus, the resulting missed obligations due to the
flight's delay, and the humiliation from the ordeal caused him immense mental anguish and moral
shock.
Issue: Whether the storm is an event in which NWA can be exempt from liabilities.
Held: Yes. The petitioner paints the dismal picture that he was forced to use the public comfort rooms
and sleep on the floor like "the beggars of Quiapo and Baclaran." He fails to mention though that the
1,500 other stranded passengers had to endure the same discomforts that he experienced; NWA did not
maliciously single him out. All the stranded passengers suffered the same experience because of
Typhoon Higos. NWA did the next best thing it could and provided the passengers with blankets,
snacks, and other comforts available under the circumstances.
The arrival of Typhoon Higos was an extraordinary and unavoidable event. Its occurrence made it
impossible for NWA to bring the petitioner to Honolulu in time for his commitments. We cannot hold
the respondent liable for a breach of contract resulting from a fortuitous event. Moreover, we find that
NWA did not act in bad faith or in a wanton, fraudulent, reckless, or oppressive manner. On the
contrary, it exerted its best efforts to accommodate the petitioner on Flight No. 22 and to lessen the
petitioner's discomfort when he and the other passengers were left to pass the night at the terminal.
Thus, the CA did not err in dismissing the complaint.
WHEREFORE, considering that the Court of Appeals committed no reversible errors, we DENY the
petition for lack of merit. Costs against the petitioner.

33
EXTINGUISHMENT OF OBLIGATION

(19) SPS. JUAN CHUY TAN and MARY TAN (deceased) substituted by surviving heirs, JOEL
TAN and ERIC TAN, Petitioners vs. CHINA BANKING CORPORATION, Respondent.

G.R. No. 200299, August 17, 2016

Ponente: PEREZ, J., THIRD DIVISION

Nature of the Action: Petition for Review on Certiorari to reverse and set aside the Decision and
Resolution of the CA affirming with modification the Decision of the RTC by ordering that the penalty
surcharge of 24% per annum as stipulate in the contract of loan be reduced to 12% per annum.

Facts: Petitioners Joel and Eric Tan, as substitutes for their deceased parents, represented Lorenze
Realty and Development Corporationa domestic corporation duly authorized by Philippine laws to
engage in real estate business. Respondent China Banking Corporation, on the other hand, is a
universal banking corporation duly authorized by Bangko Sentral ng Pilipinas to engage in banking
business. In 1997, Lorenze Realty obtained various amounts of loan and credit accommodations from
China Bankthe sum of which amounting to P71,050,000. Lorenze Realty in their Promissory Notes,
agreed to pay the additional amount of 1/10 of 1% per day of the total amount of obligation due as
penalty to be computed from the day that the default was incurred up to the time that the loan
obligations are fully paid. They also undertook to pay an additional 10% of the total amount due
including interests, surcharges and penalties as attorneys fees.

As security for the said obligations, Lorenze Realty executed Real Estate executed Real Estate
Mortgages (REM) over 11 parcels of land in Valenzuela City. When Lorenze Realty defaulted in paying
its amortization, China Bank caused the extra-judicial foreclosure of the REM constituted on the
securities. China Bank emerged as the highest bidder after bidding P85,000,000. However, there still
remained a balance. China Bank demanded payment for the deficiency but petitioners did not pay the
same. Hence, China Bank filed an action for collection of sum of money against Lorenze Realty and its
officers. RTC ruled in favor of China Bank. Aggrieved, China Bank appealed to CA. CA affirmed the
RTC Decision with modification.

Issue: Whether Lorenze Realtys obligation is extinguished upon the extra-judicial foreclosure of the
REM despite the deficiency?

Held: No. Obligations are extinguished, among others, by payment or performance, the mode most
relevant to the factual situation in the present case. Under Article 1232 of the Civil Code, payment
means not only the delivery of money but also the performance, in any other manner, of an obligation.
Article 1233 of the Code states that a debt shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered or rendered, as the case may be.
In contracts of loan, the debtor is expected to deliver the sum of money due the creditor. These
provisions must be read in relation with the other rules on payment under the Civil Code, such as the
application of payment, to wit:

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may
declare at the time of making the payment, to which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment is made by the party for whose benefit the term
has been constituted, application shall not be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract. In interpreting
the foregoing provision of the statute, the Court in Premiere Development Bank vs. Central Surety &

34
Insurance Company Inc., held that the right of the debtor to apply payment is merely directory in nature
and must be promptly exercised, lest, such right passes to the creditor.

Article 1252 gives the right to the debtor to choose to which of several obligations to apply a particular
payment that he tenders to the creditor. But likewise granted in the same provision is the right of the
creditor to apply such payment in case the debtor fails to direct its application. This is obvious in Art.
1252, par. 2, viz.: If the debtor accepts from the creditor a receipt in which an application of payment is
made, the former cannot complain of the same. It is the directory nature of this right and the subsidiary
right of the creditor to apply payments when the debtor does not elect to do so that make this right, like
any other right, waivable.

Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals or good
customs, or prejudicial to a third person with a right recognized by law.

A debtor, in making a voluntary payment, may at the time of payment direct an application of it to
whatever account he chooses, unless he has assigned or waived that right. If the debtor does not do so,
the right passes to the creditor, who may make such application as he chooses. But if neither party has
exercised its option, the court will apply the payment according to the justice and equity of the case,
taking into consideration all its circumstances." [Emphasis supplied, citations omitted.]

In the event that the debtor failed to exercise the right to elect, the creditor may choose to which among
the debts the payment is applied as in the case at bar. It is noteworthy that after the sale of the
foreclosed properties at the public auction, Lorenze Realty failed to manifest its preference as to which
among the obligations that were all due the proceeds of the sale should be applied. Its silence can be
construed as acquiescence to China Bank's application of the payment first to the interest and penalties
and the remainder to the principal which is sanctioned by Article 1253 of the New Civil Code which
provides that:. Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been covered.

That they assume that the obligation is fully satisfied by the sale of the securities does not hold any
water. Nowhere in our statutes and jurisprudence do they provide that the sale of the collaterals
constituted as security of the obligation results in the extinguishment of the obligation. The rights and
obligations of parties are governed by the terms and conditions of the contract and not by assumptions
and presuppositions of the parties. The amount of their entire liability should be computed on the basis
of the rate of interest as imposed by the CA minus the proceeds of the sale of the foreclosed properties
in public auction.

Wherefore, premises considered, the petition is DENIED. The Assailed Decision and Resolution of the
Court of Appeals are hereby AFFIRMED.

35
EXTINGUISHMENT BY PAYMENT OR PERFORMANCE

(20) RIVELISA REALTY, INC., represented by RICARDO P. VENTURINA, Petitioner, vs.


FIRST STA. CLARA BUILDERS CORPORATION, represented by RAMON A. PANGILINAN,
as President, Respondent.

G.R. No. 189618, January 15, 2014

Ponente: PERLAS-BERNABE, J., SECOND DIVISION

Nature of Action: Assailed in this petition for review on certiorari are the Decision dated February 27,
2009, and the Resolutions dated May 22, 2009 and September 8, 2009 of the Court of Appeals (CA) in
CA-G.R. CV No. 67198 which reversed and set aside the Decision dated March 30, 2000 of the
Regional Trial Court of Cabanatuan City, Branch 86 (RTC), holding that: (a) the 15-day reglementary
period to file a motion for reconsideration is non-e:xtendible; and (b) the Joint Venture Agreement
(JVA) entered into by petitioner Rivelisa Realty, Inc. (Rivelisa Realty) and respondent First Sta. Clara
Builders Corporation (First Sta. Clara) had been terminated through mutual assent.

Facts: On January 25, 1995, Rivelisa Realty entered into a JVA with First Sta. Clara for the
construction and development of a residential subdivision located in Cabanatuan City (project).
According to its terms, First Sta. Clara was to assume the horizontal development works in the
remaining 69% undeveloped portion of the project owned by Rivelisa Realty, and complete the same
within twelve (12) months from signing. Upon its completion, 60% of the total subdivided lots shall be
transferred in the name of First Sta. Clara. Also, since 31% of the project had been previously
developed by Rivelisa Realty which was assessed to have an aggregate worth of P10,000,000.00, it was
agreed that First Sta. Clara should initially use its own resources (in the same aggregate amount of
P10,000,000.00) before it can start claiming additional funds from the pre-sale of the 31% developed
lots. 40% of the cost of additional works not originally part of the JVA was to be shouldered by
Rivelisa Realty, while 60% by First Sta. Clara.

During the course of the project, First Sta. Clara hired a subcontractor to perform the horizontal
development work as well as the additional works on the riprap and the elevation of the road
embankment. Since First Sta. Clara ran out of funds after only two (2) months of construction, Rivelisa
Realty was forced to shoulder part of the payment due to the subcontractor. First Sta. Clara manifested
its intention to back out from the JVA and to discontinue operations when Rivelisa Realty refused to
advance any more funds until 60% of the project had been accomplished. In a letter dated August 24,
1995, Rivelisa Realty readily agreed to release First Sta. Clara from the JVA and estimated its actual
accomplishment at P4,000,000.00, which included the payment to the subcontractor in the amount of
P1,258,892.72 and the cash advances amounting to P319,259.68. First Sta. Clara, however, insisted on
a valuation of its accomplished works at P 4,578,142.10, which, less the cash advances and
subcontractors fees, should leave a net reimbursable amount of P3,000,000.00 in its favor. After
several exchanges, Rivelisa Realty agreed to reimburse First Sta. Clara the amount of P3,000,000.00,
emphasizing in its letter dated October 9, 1995 that the amount is actually over and beyond its
obligation under the JVA. However, the reimbursable amount of P 3,000,000.00 remained unpaid
despite several demands. Hence, First Sta. Clara filed a complaint for rescission of the JVA against
Rivelisa Realty before the RTC, claiming the payment of damages for breach of contract and delay in
the performance of an obligation.

For its part, Rivelisa Realty asserted that it was not obligated to pay First Sta. Clara any amount at all
since the latter had even failed to comply with its obligation to initially spend the equivalent amount of
P10,000,000.00 on the project before being entitled to cash payments.

36
Issue: Whether First Sta. Clara is entitled to be compensated for the development works it had
accomplished on the project.

Held: Yes. First Sta. Clara is entitled to be compensated for the development works it had
accomplished on the project based on the principle of quantum meruit. Case law instructs that under
this principle, a contractor is allowed to recover the reasonable value of the thing or services rendered
despite the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit means that,
in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably
deserves. The measure of recovery should relate to the reasonable value of the services performed
because the principle aims to prevent undue enrichment based on the equitable postulate that it is unjust
for a person to retain any benefit without paying for it. In this case, it is undisputed that First Sta. Clara
already performed certain works on the project with an estimated value of P4,578, 152.10. Clearly, to
completely deny it payment for the same would result in Rivelisa Realty's unjust enrichment at the
former' s expense. Besides, as may be gleaned from the parties' correspondence, Rivelisa Realty
obligated itself to unconditionally reimburse First Sta. Clara the amount of P3,000,000.00 (representing
First Sta. Clara's valuation of its accomplished works at P4,578,152.10, less the cash advances and
subcontractor's fees) after the JV A had already been terminated by them through mutual assent. As
such, Rivelisa Realty cannot unilaterally renege on its promise by citing First Sta. Clara's non-
fulfilment of the terms and conditions of the terminated JVA. For all these reasons, the CA' s ruling
must be upheld.

WHERFORE, the petition is DENIED. The Decision dated February 27, 2009, and Resolutions dated
May 22, 2009 and September 8, 2009 of the Court of Appeals in CA-G.R. CV No. 67198 are hereby
AFFIRMED.

37
EXTINGUISHMENT BY PAYMENT OR PERFORMANCE

(21) PHILIPPINE COMMERCIAL INTERNATIONAL BANK (now BDO UNIBANK, INC.),


Petitioner, vs. ARTURO P. FRANCO, substituted by his heirs, namely: MAURICIA P. FRANCO,
FLORIBEL P. FRANCO, AND ALEXANDER P. FRANC0, Respondents.

G.R. No. 180069, March 5, 2014

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court
are the July 31, 2007 Decision and October 4, 2007 Resolution of the Court of Appeals (CA) in CA-
G.R. CV No. 82340, which affirmed the October 21, 2003 Decision of the Makati City Regional Trial
Court (RTC), Branch 61.

Facts: This is an action for damages filed [on September 5, 2000] by plaintiff Arturo P. Franco against
Philippine Commercial International Bank (PCIB), now known as Equitable-PCIBank, and Equitable
Banking Corp.

The complaint essentially alleges, among others, that plaintiff secured from defendant PCIB the
following Trust Indenture Certificates.

That despite demands, defendants refused and still refuses to return to plaintiff the trust amounts, plus
the stipulated interest[;] that in all of the trust transactions that defendant PCIB had entered into with
the plaintiff, defendant PCIB represented to plaintiff that[,] in making the trust investment, plaintiff was
actually providing for his future since the money invested was going to be managed and administered
by their PCIB-Trust Services Group and will be commingled, pooled and automatically rolled- over for
better investment return; that believing the representation of the bank, the plaintiff invested his lifetime
savings in the hope that the defendant bank will actually provide for their future by reinvesting and
rolling-over their investment automatically, without any need for the plaintiff to take any further action;
that on the few occasions that plaintiff had visited the defendant bank to request for a status on his
investments, bank officers would normally pull out his (sic) ledger card and show plaintiff the updated
amount due him; that sometime in 1995, plaintiff discovered that one of his children had leukemia
and[,] in the ensuing hospitalization and treatment, plaintiff spent a lot of money; that because his funds
were already exhausted, plaintiff then turned to his Trust Indenture Certificates and started inquiring as
to how he could liquidate the trust; that in the beginning, defendant bank constantly asked for time to
look for his records, at one time [on June 18, 1998], promising to have an answer before July 15, 1998,
then writing plaintiff on May 18, 2000 saying that the bank [had] coordinated with their Branch and
Trust Department but that it might take [some time] to retrieve their records; [and] that to plaintiffs
surprise, on June 22, 2000, he received a letter signed by defendants counsel, Curato Divina &
Partners, in effect denying plaintiffs request for payment by stating that due to the conversion of all
outstanding PCIBank trust indenture accounts into common trust certificates, all such PCIBank trust
indenture certificates have been rendered "null and void." Plaintiff prays for the payment of the
amounts under the Trust Indenture Certificates, plus interest, moral and exemplary damages and
attorneys fees.

In their Answer, defendants admit the issuance by defendant PCIB of the Trust Indenture Certificates
subject matter of the complaint, but deny the allegation that the investments subject of the Trust

38
Indenture Certificates are automatically rolled-over as such certificates have their own fixed term and
maturity date, and that the present action had already prescribed.

Issue: Whether the CA committed an error in its decision

Held: No. Upon perusal of the entire case records, the Court finds no reversible error committed by the
CA in sustaining the RTC Decision. Considering the evidence at hand, both courts have applied the law
in accordance with the facts of the case.

A quick point, however, on the issue of alleged payment by petitioner Bank on the subject trust
certificate indentures.

Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it. Even
where the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant
to prove payment, rather than on the plaintiff to prove non-payment. When the creditor is in possession
of the document of credit, he need not prove non-payment for it is presumed. The creditor's possession
of the evidence of debt is proof that the debt has not been discharged by payment.

Payment: Although Article 1271 of the Civil Code provides for a legal presumption of renunciation of
action (in cases where a private document evidencing a credit was voluntarily returned by the creditor
to the debtor), this presumption is merely prima facie and is not conclusive; the presumption loses
efficacy when faced with evidence to the contrary. The provision merely raises a presumption, not of
payment, but of the renunciation of the credit where more convincing evidence would be required than
what normally would be called for to prove payment.

In this case, respondent's possession of the original copies of the subject TICs strongly supports his
claim that petitioner Bank's obligation to return the principal plus interest of the money placement has
not been extinguished. The TICs in the hands of respondent is a proof of indebtedness and a prima facie
evidence that they have not been paid. Petitioner Bank could have easily presented documentary
evidence to dispute the claim, but it did not. In its omission, it may be reasonably deduced that no
evidence to that effect really exist. Worse, the testimonies of petitioner Bank's own witnesses, reinforce,
rather than belie, respondent's allegations of non-payment.

WHEREFORE, premises considered, the instant Petition is DENIED. The July 31, 2007 Decision and
October 4, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 82340, which affirmed the
October 21, 2003 Decision of the Makati City Regional Trial Court, Branch 61, are AFFIRMED.

39
EXTINGUISHMENT BY PAYMENT OR PERFORMANCE

(22) NETLINK COMPUTER INCORPORATED, Petitioner, vs. ERIC DELMO, Respondent.

G.R No. 160827, June 18, 2014

Ponente: BERSAMIN, J., FIRST DIVISION

Doctrine : In the absence of a written agreement between the employer and the employee that sales
commissions shall be paid in a foreign currency, the latter has the right to be paid in such foreign
currency once the same has become an established practice of the former. The rate of exchange at the
time of payment, not the rate of exchange at the time of the sales, controls.

Facts: On November 3, 1991, Netlink Computer, Inc. Products and Services (Netlink) hired Eric S.
Delmo (Delmo) as account manager tasked to canvass and source clients and convince them to
purchase the products and services of Netlink. Delmo worked in the field most of the time. He and his
fellow account managers were not required to accomplish time cards to record their personal presence
in the office of Netlink. He was able to generate sales worth P35,000,000.00, more or less, from which
he earned commissions amounting to P993,558.89 and US$7,588.30. He then requested payment of his
commissions, but Netlink refused and only gave him partial cash advances chargeable to his
commissions. Later on, Netlink began to nitpick and fault find, like stressing his supposed absences and
tardiness. In order to force him to resign, Netlink issued several memoranda detailing his supposed
infractions of the companys attendance policy. Despite the memoranda, Delmo continued to generate
huge sales for Netlink.

On November 28, 1996, Delmo was shocked when he was refused entry into the company premises by
the security guard pursuant to a memorandum to that effect. His personal belongings were still inside
the company premises and he sought their return to him. This incident prompted Delmo to file a
complaint for illegal dismissal.

In its answer to Delmos complaint,Netlink countered that there were guidelines regarding company
working time and its utilization and how the employees time would be recorded. Allegedly, all
personnel were required to use the bundy clock to punch in and out in the morning, and in and out in
the afternoon. Excepted from the rules were the company officers, and the authorized personnel in the
field project assignments. Netlink claimed that it would be losing on the business transactions closed by
Delmo due to the high costs of equipment, and in fact his biggest client had not yet paid. Netlink
pointed out that Delmo had becomevery lax in his obligations, with the other account managers
eventually having outperformed him. Netlink asserted that warning, reprimand, and suspension
memoranda were given to employees who violated company rules and regulations, but such actions
were considered as a necessary management tool to instill discipline.

Issue: Whether or not the payment of the commissions should be in US dollars

Held: No. One who pleads payment has the burden of proving it. Even where the plaintiff must allege
non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on
40
the plaintiff to prove non-payment. When the creditor is in possession of the document of credit, he
need not prove non-payment for it is presumed. The creditor's possession of the evidence of debt is
proof that the debt has not been discharged by payment. In this case, respondent's possession of the
original copies of the subject Trust Indenture Certificate strongly supports his claim that petitioner
Bank's obligation to return the principal plus interest of the money placement has not been
extinguished.

As a general rule, all obligations shall be paid in Philippine currency. However, the contracting parties
may stipulate that foreign currencies may be used for settling obligations. This notwithstanding, the
practice of a company of paying its sales agents in US dollars must be taken into consideration.

Thus, in the absence of a written agreement between the employer and the employee that sales
commissions shall be paid in a foreign currency, the latter has the right to be paid in such foreign
currency once the same has become an established practice of the former. The rate of exchange at the
time of payment, not the rate of exchange at the time of the sales, controls.

With the payment of US dollar commissions having ripened into a company practice, there is no way
that the commissions due to Delmo were to be paid in US dollars or their equivalent in Philippine
currency determined at the time of the sales. To rule otherwise would be to cause an unjust diminution
of the commissions due and owing to Delmo.

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision
promulgated on May 9, 2003; and ORDERS the petitioner to pay the costs of suit.

41
EXTINGUISHMENT BY PAYMENT OR PERFORMANCE

(23) LEONARDO BOGNOT, Petitioner, vs. RRI LENDING CORPORATION, represented by its
General Manager, DARIO J. BERNARDEZ, Respondent.

G.R. No. 180144, September 24, 2014

Ponente: BRION, J., SECOND DIVISION

Nature of Action: Petition for review on certiorari filed by Leonardo Bognot (petitioner) assailing the
March 28, 2007 decision and the October 15, 2007 resolution of the Court of Appeals (CA) in CA-G.R.
CV No. 66915.

Facts: Petitioner Leonardo and his brother Rolando Bognot applied for and obtained a loan of
P500,000.00 from Respondent RRI Lending Corporation payable on 30 November 1996 as evidenced
by a promissory note and secured by a check postdated to said date. Petitioner renewed the loan several
times on a monthly basis by paying renewal fees, issuing postdated checks and executing/renewing
promissory notes. Days before the loans maturity, Mrs. Bongot applied for another renewal, signed a
promissory note anew and issued a check for the renewal fee. She also brought home the loan
documents purportedly for the siblings signatures but were never returned. Consequently, Respondent
sent follow-up letters demanding payment of the loan plus interest and penalty charges but these
demands were unheeded. In the proceedings before the RTC for sum of money, Petitioner claims that
there is no cause of action since Respondents claim had been paid, waived, abandoned or otherwise
extinguished.

Issue: Whether the parties obligation was extinguished by: (i) payment; and (ii) novation by
substitution of debtors.

Held: NO as to both modes. In the present case, the petitioner failed to satisfactorily prove that his
obligation had already been extinguished by payment. As the CA correctly noted, the petitioner failed
to present any evidence that the respondent had in fact encashed his check and applied the proceeds to
the payment of the loan. Neither did he present official receipts evidencing payment, nor any proof that
the check had been dishonored. Contrary to the petitioners contention, Mrs. Bognot did not substitute
the petitioner as debtor. She merely attempted to renew the original loan by executing a new
promissory note and check. The purported one month renewal of the loan, however, did not push
through, as Mrs. Bognot did not return the documents or issue a new postdated check. Since the loan
was not renewed for another month, the original due date, June 30,1997, continued to stand. More
importantly, the respondent never agreed to release the petitioner from his obligation. That the
respondent initially allowed Mrs. Bognot to bring home the promissory note, disclosure statement and
the petitioners previous check dated June 30, 1997, does not ipso facto result in novation. Neither will
this acquiescence constitute an implied acceptance of the substitution of the debtor.

WHEREFORE, premises considered, the Decision dated March 28, 2007 of the Court of Appeals in
CA-G.R. CV No. 66915 is hereby AFFIRMED with MODIFICATION, as follows:
1. The petitioner Leonardo A. Bognotand his brother, Rolando A. Bognot are JOINTLY LIABLE to pay
the sum of P500,000.00 plus 12% interest per annum from December 3, 1997 until fully paid.
2. The rest of the Court of Appeals' dispositions are hereby AFFIRMED.
42
EXTINGUISHMENT BY PAYMENT OR PERFORMANCE

(24) SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA CRUZ, Petitioners, vs. ANA
MARIE CONCEPCION, Respondent

G.R. NO. 172825, October 11, 2012

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court
filed by petitioners spouses Miniano B. Dela Cruz and Leta L. Dela Cruz against respondent Ana Marie
Concepcion are the Court of Appeals (CA) Decision dated March 31, 2005 and Resolution dated May
24, 2006 in CA-G.R. CV No. 83030.

Facts: On 25 March 1996, the Petitioners Spouses Dela Cruz entered into a Contract to Sell with
Respondent Concepcion over a house and lot for a consideration of P2,000,000.00 subject to terms
and conditions. As of 7 July 1997, Respondents payments amounted to P2,000,000.00 but before she
could draw the last check, she informed the Petitioners that her unpaid obligation as of 6 July was
only P200,000.00. Petitioners agreed with Respondent, and the title to the property was transferred to
the latter. Petitioners later reminded Respondent to pay P209,000.00 which according to them, have
remained unpaid despite the transfer of title. Failing to collect the sum despite repeated demands
impelled Petitioners to file a complaint for sum of money against Respondent in the RTC. In the
course of the trial, Petitioner presented a receipt purportedly indicating payment of the remaining
balance to one Adoracion Losloso who allegedly received the same on behalf of Petitioners.

Issue: Whether or not Respondents obligation had already been extinguished by payment.

Held: Yes. Respondents obligation consists of payment of a sum of money. In order to extinguish
said obligation, payment should be made to the proper person as set forth in Article 1240 of the Civil
Code, to wit: Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it. Admittedly, payment
of the remaining balance of P200,000.00 was not made to the creditors themselves. Rather, it was
allegedly made to a certain Losloso. Respondent claims that Losloso was the authorized agent of
petitioners, but the latter dispute it. In a letter dated 7 August 1997, petitioners reminded respondent
of her remaining balance, together with the amount of taxes paid. Taking into consideration the busy
schedule of respondent, petitioners advised the latter to leave the payment to a certain "Dori" who
admittedly is Losloso, or to her trusted helper. This is an express authority given to Losloso to
receive payment. Thus, as shown in the receipt signed by petitioners agent and pursuant to the
authority granted by petitioners to Losloso, payment made to the latter is deemed payment to
petitioners and effectively extinguished respondents obligation.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of Appeals
Decision dated March 31, 2005 and Resolution dated May 24, 2006 in CA-G.R. CV No. 83030, are
AFFIRMED.

43
EXTINGUISHMENT BY PAYMENT OR PERFORMANCE

(25) THE WELLEX GROUP, INC., Petitioner, vs. U-LAND AIRLINES, CO., LTD., Respondent.

G.R. No. 167519, January 14, 2015

Ponente: LEONEN, J., SECOND DIVISION

Nature of Action: This is a Petition1 for Review on Certiorari under Rule 45 of the Rules of Court. The
Wellex Group, Inc. (Wellex) prays that the Decision dated July 30, 2004 of the Court of Appeals in CA-
GR. CV No. 74850 be reversed and set aside.

Facts: Wellex and U-Land agreed to develop a long-term business relationship through the creation of
joint interest in airline operations and property development projects in the Philippines. The agreement
includes: I. Acquisition of APIC and PEC shares; II. Operation and management of APIC/PEC/APC;
III. Entering into and funding a joint development agreement; and IV. The option to acquire from
WELLEX shares of stock of EXPRESS SAVINGS BANK ("ESB") up to 40% of the outstanding
capital stock of ESB of U-Land. The provisions of the memorandum were agreed to be executed within
40 days from its execution date.

The 40-day period lapsed but Wellex and U-Land were not able to enter into any share purchase
agreement although drafts were exchanged between the two. However, Despite the absence of a share
purchase agreement, U-Land remitted to Wellex a total of US$7,499,945.00. Wellex acknowledged the
receipt of these remittances in a confirmation letter addressed to U-Land and allegedly delivered stock
certificates and TCTs of subject properties. Despite these transactions, Wellex and U-Land still failed to
enter into the share purchase agreement and the joint development agreement. Thus, U-Land filed a
Complaint72 praying for rescission of the First Memorandum of Agreement and damages against Wellex
and for the issuance of a Writ of Preliminary Attachment. Note: After verification with the Securities
and Exchange Commission, U-Land discovered that "APIC did not own a single share of stock in APC.

RTC: Ruled In favor of Uland and ordered rescission of contract under Art. 1911 of the civil code.
Basis of rescission: Wellexs misrepresentation that APIC was a majority shareholder of APC that
compelled it to enter into the agreement..
Notwithstanding the said remittances, APIC does not own a single share of APC. On the other
hand, defendant could not even satisfactorily substantiate its claim that at least it had the
intention to cause the transfer of APC shares to APIC. Defendant obviously did not enter into
the stipulated SPA because it did not have the shares of APC transferred to APIC despite its
representations. Under the circumstances, it is clear that defendant fraudulently violated the
provisions of the MOA.

On appeal, the Court of Appeals affirmed the ruling of the Regional Trial Court. Hence this petition.

Petitioners invokes Suria v. Intermediate Appellate Court, which held that an "action for rescission is
not a principal action that is retaliatory in character under Article 1191 of the Civil Code, but a
subsidiary one which is available only in the absence of any other legal remedy under Article 1384 of
the Civil Code Respondent U-land avers that this case was inapplicable because the pertinent provision
44
in Suria was not Article 1191 but rescission under Article 1383 of the Civil Code. The "rescission"
referred to in Article 1191 referred to "resolution" of a contract due to a breach of a mutual obligation,
while Article 1384 spoke of "rescission" because of lesion and damage. Thus, the rescission that is
relevant to the present case is that of Article 1191, which involves breach in a reciprocal obligation. It
is, in fact, resolution, and not rescission as a result of fraud or lesion, as found in Articles 1381, 1383,
and 1384 of the Civil Code.

Issue: Whether the parties are obligated to return to each other all they have received

Held: Yes. Petitioner Wellex and respondent U-Land bound themselves to negotiate with each other
within a 40-day period to enter into a share purchase agreement. If no share purchase agreement was
entered into, both parties would be freed from their respective undertakings. It is the non-occurrence or
non-execution of the share purchase agreement that would give rise to the obligation to both parties to
free each other from their respective undertakings. This includes returning to each other all that they
received in pursuit of entering into the share purchase agreement. At the lapse of the 40-day period, the
parties failed to enter into a share purchase agreement. This lapse is the first circumstance provided for
in Article 1185 that gives rise to the obligation. Applying Article 1185, the parties were then obligated
to return to each other all that they had received in order to be freed from their respective undertakings.

WHEREFORE, the petition is DENIED. The Decision of the Regional Trial Court in Civil Case No.
99-1407 and the Decision of the Court of Appeals in CA-G.R. CV No. 74850 are AFFIRMED. Costs
against petitioner The Wellex Group, Inc.

45
EXTINGUISHMENT BY PAYMENT OR PERFORMANCE

(26) NATIONAL POWER CORPORATION, Petitioner, vs. LUCMAN M. IBRAHIM, ATTY.


OMAR G. MARUHOM, ELIAS G. MARUHOM, BUCAY G. MARUHOM, MAMOD G.
MARUHOM, FAROUK G. MARUHOM, HIDJARA G. MARUHOM, ROCANIA G.
MARUHOM, POTRISAM G. MARUHOM, LUMBA G. MAR UH OM, SIN AB G.
MARUHOM, ACMAD G. MARUHOM, SOLAYMAN G. MARUHOM, MOHAMAD M.
IBRAHIM, CAIRONESA M. IBRAHIM and MACAPANTON K. MANGONDATO Respondents.

G.R. No. 175863, February 18, 2015

Ponente: PEREZ, J., FIRST DIVISION

Nature of Action: Petition for review on certiorari assailing the Decision dated 24 June 2005 and
Resolution dated 5 December 2006 of the Court of Appeals in CA-G.R. CV No. 68061.

Facts: In 1978, petitioner took possession of a 21,995 square meter parcel of land in Marawi City
(subject land) for the purpose of building thereon a hydroelectric power plant pursuant to its Agus 1
project. The subject land, while in truth a portion of a private estate registered under Transfer
Certificate of Title (TCT) No. 378-A in the name of herein respondent Macapanton K. Mangondato
(Mangondato), was occupied by petitioner under the mistaken belief that such land is part of the vast
tract of public land reserved for its use by the government under Proclamation No. 1354, s. 1974.

Mangondato first discovered petitioners occupation of the subject land in 1979the year that
petitioner started its construction of the Agus 1plant. Shortly after such discovery, Mangondato began
demanding compensation for the subject land from petitioner.

In support of his demand for compensation, Mangondato sent to petitioner a letter dated 28 September
1981 wherein the former detailed the origins of his ownership over the lands covered by TCT No. 378-
A, including the subject land. The relevant portions of the letter read:

Now let me trace the basis of the title to the land adverted to for particularity. The land titled in my
name was originally consisting of seven (7) hectares. This piece of land was particularly set aside by
the Patriarch Maruhom, a fact recognized by all royal datus of Guimba, to belong to his eldest son,
Datu Magayo-ong Maruhom. This is the very foundation of the right and ownership over the land in
question which was titled in my name because as the son-in-law of Hadji Ali Maruhom the eldest son
of, and only lawyer among the descendants of Datu Magayo-ong Maruhom, the authority and right to
apply for the title to the land was given to me by said heirs after mutual agreement among themselves
besides the fact that I have already bought a substantial portion of the original seven (7) hectares.

The original title of this seven (7) hectares has been subdivided into several TCTs for the other children
of Datu Magayo-ong Maruhom with whom I have executed a quit claim. Presently, only three (3)
hectares is left to me out of the original seven (7) hectares representing those portion [sic] belonging to
my wife and those I have bought previously from other heirs. This is now the subject of this case.

46
Petitioner, at first, rejected Mangondatos claim of ownership over the subject land; the former then
adamant in its belief that the said land is public land covered by Proclamation No. 1354, s. 1974. But,
after more than a decade, petitioner finally acquiesced to the fact that the subject land is private land
covered by TCT No. 378-A and consequently acknowledged Mangondatos right, as registered owner,
to receive compensation therefor.

Thus, during the early 1990s, petitioner and Mangondato partook in a series of communications aimed
at settling the amount of compensation that the former ought to pay the latter in exchange for the
subject land. Ultimately, however, the communications failed to yield a genuine consensus between
petitioner and Mangondato as to the fair market value of the subject land. Civil Case No. 605-92 and
Civil Case No. 610-92

With an agreement basically out of reach, Mangondato filed a complaint for reconveyance against
petitioner before the Regional Trial Court (RTC) of Marawi City in July 1992. In his complaint,
Mangondato asked for, among others, the recovery of the subject land and the payment by petitioner of
a monthly rental from 1978 until the return of such land. Mangondatos complaint was docketed as
Civil Case No. 605-92.

For its part, petitioner filed an expropriation complaint before the RTC on 27 July 1992. Petitioners
complaint was docketed as Civil Case No. 610-92.
Later, Civil Case No. 605-92 and Civil Case No. 610-92 were consolidated before Branch 8 of the
Marawi City RTC

Issue: Whether Petitioner can be held liable to the Ibharims and Maruhoms

Held: No. Article 1242 of the Civil Code is an exception to the rule that a valid payment of an
obligation can only be made to the person to whom such obligation is rightfully owed. It contemplates
a situation where a debtor pays a possessor of credit i.e., someone who is not the real creditor but
appears, under the circumstances, to be the real creditor. In such scenario, the law considers the
payment to the possessor of credit as valid even as against the real creditor taking into account the
good faith of the debtor. Hence, NAPOCORs payment to Mangondato of the fees and indemnity due
for the subject land as a consequence of the execution of Civil Case No. 605 -92 and Civil Case No.
610-92 could still validly extinguish its obligation to pay for the same even as against the Ibrahims and
Maruhoms.

WHEREFORE, premises considered, the instant petition is GRANTED. The Decision dated 24
June2005 and Resolution dated 5 December 2006 of the Court of Appeals in CA-G.R. CV No. 68061 is
hereby SET ASIDE. The Decision dated 16 April 1998 of the Regional Trial Court in Civil Case No.
967-93 is MODIFIED in that petitioner is absolved from any liability in that case in favor of the
respondents Lucman M. Ibrahim, Atty. Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom,
Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Rocania G. Maruhom, Potrisam G.
Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G. Maruhom, Solayman G. Maruhom,
Mohamad M. Ibrahim and Caironesa M. Ibrahim. Civil Case No. 967-93 is DISMISSED as against
petitioner.

47
ART 1240
TO WHOM PAYMENT SHOULD BE MADE

(27) SPOUSES MINIAN0 vs. CONCEPCION

G.R. 172825, October 11, 2012

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: Assailed in this petition for review on certiorari under Rule 45 of the Rules of
Court filed by petitioners spouses Miniano B. Dela Cruz and Leta L. Dela Cruz against respondent
Ana Marie Concepcion are the Court of Appeals (CA) Decision dated March 31, 2005 and Resolution
dated May 24, 2006 in CA-G.R. CV No. 83030.

Facts: On 25 March 1996, the Petitioners Spouses Dela Cruz entered into a Contract to Sell with
Respondent Concepcion over a house and lot for a consideration of P2,000,000.00 subject to terms
and conditions. As of 7 July 1997, Respondents payments amounted to P2,000,000.00 but before she
could draw the last check, she informed the Petitioners that her unpaid obligation as of 6 July was
only P200,000.00. Petitioners agreed with Respondent, and the title to the property was transferred to
the latter. Petitioners later reminded Respondent to pay P209,000.00 which according to them, have
remained unpaid despite the transfer of title. Failing to collect the sum despite repeated demands
impelled Petitioners to file a complaint for sum of money against Respondent in the RTC. In the
course of the trial, Petitioner presented a receipt purportedly indicating payment of the remaining
balance to one Adoracion Losloso who allegedly received the same on behalf of Petitioners.

Issue: To whom payment should be made

Held: Admittedly, payment of the remaining balance of P200,000.00 was not made to the creditors
themselves, but rather, it was allegedly made to a certain Losloso who was the authorized agent of
petitioners. Respondents obligation consists of payment of a sum of money, and in general, a
payment in order to be effective to discharge an obligation, must be made to the proper person,
thus, payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment. Payment made to one having apparent authority to
receive the money will, as a rule, be treated as though actual authority had been given for its
receipt. If payment is made to one who by law is authorized to act for the creditor, it will work
as a discharge.

48
CONSIGNATION - ART 1257

(28) SOLEDAD DALTON, vs. Petitioner, FGR REALTY AND DEVELOPMENT


CORPORATION, FELIX NG, NENITA NG, and FLORA R. DAYRIT or FLORA REGNER,
Respondents.

G.R. No. 172577, January 19, 2011

Ponente: CARPIO, J., SECOND DIVISION

Nature of Action: This is a petition for review on certiorari under Rule 45 of the Rules of Court. The
petition challenges the 9 November 2005 Decision and 10 April 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 76536. The Court of Appeals affirmed the 26 February 2002 Decision of
the Regional Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in Civil Case No. CEB 4218.

Facts: A parcel of land owned by respondent Flora Dayrit was leased to petitioners Dalton, et. al.
Eventually, the land was sold to respondent FGR realty and Development Corporation. FGR realty and
Dayrit decided not to accept payment from Dalton, et. al. for the purpose of terminating the lease
agreements.

Dalton, et. al. filed a complaint with the RTC and attached was a consignation of the rental payments.
However, they failed to notify the other party of such action. FGR Realty and Dayrit withdrew the
consigned amount with reservation to quesion the validity of the consignation.

Issue: Whether the consignation made by Dalton, et. al. is void

Held: Yes. The consignation is void. Compliance with requisites of a valid consignation is mandatory.
Failure to comply strictly with any of the requisites will render the consignation void. Substantial
compliance is not enough. The giving of notice to the persons interested in the performance of the
obligation is mandatory. Failure to notify the persons interested in the performance of the obliations
will render the consignation void.

Under Art. 1257 of the Civil Code, in order that consignation of the thing due may release the obligor,
it must first be announced to the persons interested in the fulfillment of the obligatin. The consignation
shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.
In said article 1258, it is further stated that the consignation having been made, the interested party
shall also be notified thereof.

We hold that the essential requisites of a valid consignation must be complied with fully and strictly in
accordance with the law, Article 1256 to 1261, New Civil Code. That these Articles must be accorded a
mandatory construction is clearly evident and plain from the very language of the codal provisions
themselves which require absolute compliance with the essential requisites therein provided.
Substantial compliance is not enough for that would render only a directory construction to the law.
The use of the words shall and must which are imperative, operating to impose a duty which may

49
be enforced, positively indicate that all the essential requisites of a valid consignation must be complied
with.

TENDER OF PAYMENT

(29) SPOUSES OSCAR and THELMA CACAYORIN, Petitioners, vs. ARMED FORCES AND
POLICE MUTUAL BENEFIT ASSOCIATION, INC., Respondent.

G.R. NO.171298, April 15, 2013

Ponente: DEL CASTILLO, J., SECOND DIVISION

Nature of Action: Consignation is necessarily judicial. Article 1258 of the Civil Code specifically
provides that consignation shall be made by depositing the thing or things due at the disposal of judicial
authority. The said provision clearly precludes consignation in venues other than the courts.

Assailed in this Petition for Review on Certiorari are the September 29, 2005 Decision of the Court of
Appeals (CA) which granted the Petition for Certiorari in CA-G.R. SP No. 84446 and its January 12,
2006 Resolution denying petitioners' Motion for Reconsideration.

Facts: Oscar Cacayorin filed an application with AFPMBAI to purchase a property which the latter
owned through a loan facility. Oscar and his wife, Thelma, and the Rural Bank of San Teodoro
executed a Loan and Mortgage Agreement with the former as borrowers and the Rural Bank as lender,
under the auspices of PAG-IBIG. On the basis of the Rural Bank's letter of guaranty, AFPMBAI
executed in petitioners' favor a Deed of Absolute Sale, and a new title was issued in their name. Then,
the PAG-IBIG loan facility did not push through and the Rural Bank closed. Meanwhile, AFPMBAI
somehow was able to take possession of petitioners' loan documents and the TCT, while petitioners
were unable to pay the loan for the property. AFPMBAI made written demands for petitioners to pay
the loan for the property. Then, petitioners filed with the RTC a complaint for consignation of loan
payment, recovery of title and cancellation of mortgage annotation against AFPMBAI, PDIC and the
Register of Deeds of Puerto Princesa City. AFPMBAI filed a motion to dismiss claiming that
petitioners' Complaint falls within the jurisdiction of the Housing and Land Use Regulatory Board
(HLURB), as it was filed by petitioners in their capacity as buyers of a subdivision lot and it prays for
specific performance of contractual and legal obligations decreed under Presidential Decree No.
957(PD 957). It added that since no prior valid tender of payment was made by petitioners, the
consignation case was fatally defective and susceptible to dismissal.

Issue: Whether or not the case falls within the exclusive jurisdiction of the HLURB.

Held: No. Petitioner alleged that the lack of prior tender of payment is not fatal their consignation case.
They filed the case they were at a loss as to which between the two the Rural Bank or AFPMBAI was
entitled to such a tender of payment. Article 1256 authorizes consignation alone, without need of prior
tender of payment, where the ground for consignation is that the creditor is unknown, or does not
appear at the place of payment; or is incapacitated to receive the payment at the time it is due; or when,
without just cause, he refuses to give a receipt; or when two or more persons claim the same right to
collect; or when the title of the obligation has been lost.

50
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB.

WHEREFORE, premises considered, the Petition is GRANTED. The September 29, 2005 Decision
and January 12, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 84446 are ANNULLED
and SET ASIDE. The October 16, 2003 and March 19, 2004 Orders of the Regional Trial Court of
Puerto Princesa City, Branch 47, are REINSTATED, and the case is REMANDED to the said court for
continuation of the proceedings.

TENDER OF PAYMENT

51
(30) SPOUSES TEOFILO and SIMEONA RAYOS, and GEORGE RAYOS, petitioners, vs.
DONATO REYES, SATURNINO REYES, TOMASA R. BUSTAMANTE and TORIBIA R.
CAMELO, respondents.

G.R. NO. 150913, February 20, 2003

Ponente: BELLOSILLO, J., SECOND DIVISION

Nature of Action: Petition for Review is the ownership of three (3) parcels of unregistered land with
an area of approximately 130,947 square meters situated in Brgy. Sapa, Burgos, Pangasinan, the
identities of which are not disputed.

Facts: 3 parcels of unregistered land in Pangasinan were formerly owned by the spouses Tazal who
on 1 September 1957 sold them to respondents predecessor-in-interest, Reyes, with right to
repurchase within two 2 years from date thereof by paying to the vendee the purchase price and all
expenses incident to their reconveyance. After the sale the vendee a retro took physical possession of
the properties and paid the taxes thereon.

The otherwise inconsequential sale became controversial when 2 of the 3 parcels were again sold by
Tazal in favor of petitioners predecessor-in-interest Rayos without first availing of his right to
repurchase the properties. In the meantime, the conventional right of redemption in favor of spouses
Tazal expired without the right being exercised by either the Tazal spouses or the vendee Rayos.

After the expiration of the redemption period, Tazal attempted to repurchase the properties from
Reyes by asserting that the 1 September 1957 deed of sale with right of repurchase was actually an
equitable mortgage and offering the amount of P724.00 to pay for the alleged debt. (consignation) But
Reyes refused the tender of payment and vigorously claimed that their agreement was not an equitable
mortgage.

On 9 May 1960 Francisco Tazal filed a complaint with the CFI Reyes for the declaration of the 1
September 1957 transaction as a contract of equitable mortgage. He also prayed for an order requiring
defendant Mamerto Reyes to accept the amount of P724.00 which he had deposited with the trial
court as full payment for his debt, and canceling the supposed mortgage on the three (3) parcels of
land with the execution of the corresponding documents of reconveyance in his favor.

The trial court in the Civil Case rejected the contention of Tazal that the deed of sale executed on 1
September 1957 was an equitable mortgage but held that Tazal could nonetheless redeem the three (3)
parcels of land within thirty (30) days from finality of judgment by paying to Reyes the purchase price
and all expenses to execute the reconveyance. Reyes appealed the Decision to the CA which in turn
elevated the appeal to this Court since only questions of law were involved. When Reyes died,
petitioner-spouses Rayos wrested physical possession of the disputed properties from Reyess heirs.

This Court considered the case closed and terminated for failure of the parties therein to manifest their
interest to further prosecute the case. The judgment in the Civil Case became final and executory.

Subsequent to the finality of judgment in the Civil Case petitioner-spouses did nothing to repurchase
the three (3) parcels of land within the thirty (30) day grace period from finality of judgment.

Respondents as heirs of Reyes executed an affidavit adjudicating to themselves the ownership of the
parcels of land and declared the properties in their names for assessment and collection of real estate
taxes. The respondents registered the 1 September 1957 deed of sale with right of repurchase with the
RD.

Respondents filed a complaint for damages and recovery of ownership and possession of the 3 parcels
of land in dispute against herein petitioner-spouses Rayos and the administrator thereof before the
RTC. It was respondents theory that neither petitioners nor their predecessors-in-interest Tazal and
Rayos repurchased the properties before buying them or when the judgment in the Civil Case became
final and executory, hence the sale of the three (3) parcels of land to petitioner-spouses did not transfer
ownership thereof to them.
52
Petitioners argued on the other hand that the consignation of P724.00 in Civil Case No. A-245 had the
full effect of redeeming the properties from respondents and their predecessor-in-interest, and that
respondents were guilty of estoppel and laches since Reyes as their predecessor-in-interest did not
oppose the sale to Rayos and to petitioner-spouses Rayos. The parties then filed their respective
memoranda after which the case was submitted for decision.

The trial court promulgated its Decision in the Civil Case void the separate deeds of absolute sale
thereof executed by Tazal in favor of Rayos and to spouses Rayos and by Rayos to the same spouses,
and ordered herein petitioners and Francisco Tazal to vacate and reconvey the lands to respondents as
heirs of Reyes and to pay damages. Petitioners appealed the Decision to the CA.

The appellate court promulgated its Decision affirming in toto the judgment appealed from. Hence,
the instant petition for review.

Issue: Whether consignation is valid

Held: No. Petitioners failed to (a) offer a valid and unconditional tender of payment; b) notify
respondents of the intention to deposit the amount with the court; and (c) show the
acceptance by the creditor of the amount deposited as full settlement of the obligation, or in the
alternative, a declaration by the court of the validity of the consignation.

In order that consignation may be effective the debtor must show that (a) there was a debt due; (b) the
consignation of the obligation had been made because the creditor to whom a valid tender of payment
was made refused to accept it; (c) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (d) the amount due was placed at the disposal of the
court; and, (e) after the consignation had been made the person interested was notified thereof.

53
WHEREFORE, the instant Petition for Review is DENIED. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 55789 affirming in toto the Decision of the Regional Trial Court, Branch
54, Alaminos, Pangasinan in Civil Case No. A-2032, i.e., declaring void the Deeds of Absolute Sale
executed by Francisco Tazal in favor of Blas Rayos, and by the latter in favor of Teofilo Rayos, and by
Francisco Tazal in favor of Teofilo Rayos dated 22 June 1961, all encompassing the three (3) parcels
of land sold under the Deeds of Sale with the Right to Repurchase, insofar as they authorized the
transfer of ownership and possession thereof to petitioner-spouses Teofilo and Simeona Rayos;
proclaiming respondents Donato Reyes, Saturnino Reyes, Tomasa R. Bustamante and Toribia R.
Camelo who are heirs of Mamerto Reyes as absolute owners of the property in question free from all
liens and encumbrances; and, ordering petitioner-spouses Teofilo and Simeona Rayos, petitioner
George Rayos and Francisco Tazal and/or their agents or representatives to vacate and surrender the
parcels of land in favor of respondents Donato Reyes, Saturnino Reyes, Tomasa R. Bustamante and
Toribia R. Camelo, are AFFIRMED with the SOLE MODIFICATION that the award of actual
damages for litigation expenses, attorneys fees and exemplary damages plus costs is DELETED and
SET ASIDE. No costs.

COMPENSATION

51
(31) FIRST UNITED CONSTRUCTORS CORPORATION and BLUE STAR CONSTRUCTION
CORPORATION, Petitioners, vs. BAYANIHAN AUTOMOTIVE CORPORATION, Respondent.

G.R. No. 164985, January 15, 2014

Ponente: BERSAMIN, J., FIRST DIVISION

Nature of Action: Under review is the decision promulgated on July 26, 2004, whereby the Court of
Appeals CA) affirmed the judgment rendered on May 14 1996 by the Regional Trial Court, Branch
107, in Quezon City adjudging the petitioners defendants) liable to pay to the respondent plaintiff)
various sums of money and damages.

Facts: Petitioner First United Constructors Corporation (FUCC) and petitioner Blue Star Construction
Corporation (Blue Star) were associate construction firms sharing financial resources, equipment and
technical personnel on a case-to-case basis. From May 27, 1992 to July 8, 1992, they ordered six units
of dump trucks from the respondent, a domestic corporation engaged in the business of importing and
reconditioning used Japan-made trucks, and of selling the trucks to interested buyers who were mostly
engaged in the construction business.

The parties established a good business relationship, with the respondent extending service and repair
work to the units purchased by the petitioners. The respondent also practiced liberality towards the
petitioners in the latters manner of payment by later on agreeing to payment on terms for subsequent
purchases.
On September 19, 1992, FUCC ordered from the respondent one unit of Hino Prime Mover that the
respondent delivered on the same date. On September 29, 1992, FUCC again ordered from the
respondent one unit of Isuzu Transit Mixer that was also delivered to the petitioners. For the two
purchases, FUCC partially paid in cash, and the balance through post-dated checks.

Upon presentment of the checks for payment, the respondent learned that FUCC had ordered the
payment stopped. The respondent immediately demanded the full settlement of their obligation from
the petitioners, but to no avail. Instead, the petitioners informed the respondent that they were
withholding payment of the checks due to the breakdown of one of the dump trucks they had earlier
purchased from respondent, specifically the second dump truck delivered on May 27, 1992.

Due to the refusal to pay, the respondent commenced this action for collection on April 29, 1993,
seeking payment of the unpaid balance in the amount of P735,000.00 represented by the two checks.

In their answer, the petitioners averred that they had stopped the payment on the two checks worth
P735,000.00 because of the respondents refusal to repair the second dump truck; and that they had
informed the respondent of the defects in that unit but the respondent had refused to comply with its
warranty, compelling them to incur expenses for the repair and spare parts. They prayed that the
respondent return the price of the defective dump truck worth P830,000.00 minus the amounts of their
two checks worth P735,000.00, with 12% per annum interest on the difference of P90,000.00 from
May 1993 until the same is fully paid; that the respondent should also reimburse them the sum of
P247,950.00 as their expenses for the repair of the dump truck, with 12% per annum interest from
December 16, 1992, the date of demand, until fully paid; and that the respondent pay exemplary
damages as determined to be just and reasonable but not less than P500,000, and attorneys fees of
P50,000 plus P1,000.00 per court appearance and other litigation expenses.

It was the position of the respondent that the petitioners were not legally justified in withholding
payment of the unpaid balance of the purchase price of the Hino Prime Mover and the Isuzu Transit
Mixer due the alleged defects in second dump truck because the purchase of the two units was an
entirely different transaction from the sale of the dump trucks, the warranties for which having long
expired.

Issue: Whether petitioners can avail compensation

55
Held: Yes. A debt is liquidated when its existence and amount are determined. Accordingly, an
unliquidated claim set up as a counterclaim by a defendant can be set off against the plaintiffs claim
from the moment it is liquidated by judgment. Article 1290 of the Civil Code provides that when all the
requisites mentioned in Article 1279 of the Civil Code are present, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount. With petitioners expenses for
the repair of the dump truck being already established and determined with certainty by the lower
courts, it follows that legal compensation could take place because all the requirements were present.
The legal interest rate to be imposed from February 11, 1993,the time of the extrajudicial demand by
respondent, should be 6% per annum in the absence of any stipulation in writing in accordance with
Article 2209 of the Civil Code.

WHEREFORE, the Court AFFIRMS the decision promulgated on July 26, 2004 in all respects subject
to the MODIFICATION that petitioners are ordered, jointly and severally, to pay to respondent the sum
of 1 663,650.00, plus interest of 6% per annum computed from February 11, 1993, the date of the first
extrajudicial demand, until fully paid; and ORDERS the petitioners to pay the costs of suit.

56
COMPENSATION

(32) CESAR V. AREZA and LOLITA B. AREZA, Petitioners, vs. EXPRESS SAVINGS BANK,
INC. and MICHAEL POTENCIANO, Respondnets.

G.R No. 176697, September 10, 2014

Ponente: PEREZ, J., FIRST DIVISION

Nature of Action: Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules
of Court, which seeks to reverse the Decision and Resolution dated 29 June 2006 and 12 February 2007
of the Court of Appeals in CAG.R. CV No. 83192. The Court of Appeals affirmed with modification
the 22 April 2004 Resolution of the Regional Trial Court (RTC) of Calamba, Laguna, Branch 92, in
Civil Case No. B-5886.

Facts: Petitioners Cesar V. Areza and Lolita B. Areza have two bank deposits with respondent Express
Savings Bank. They were engaged in the business of buy and sell of brand new and second-hand
motor vehicles. On May 2, 2000, they received an order from a certain Gerry Mambuay for the
purchase of a second-hand Mitsubishi Pajero and a brand-new Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks
payable to different payees and drawn against the Philippine Veterans Bank, each valued at Two
Hundred Thousand Pesos (P200,000.00) for a total of One Million Eight Hundred Thousand Pesos
(P1,800,000.00).

Michael Potenciano, the branch manager of Express Savings Bank, was present during the transaction
and immediately offered the services of the bank for the processing and eventual crediting of the
checks to the account of the petitioners because the Arezas were valued clients of the bank.

The petitioners then deposited the checks to Express Savings Bank which in turn deposited the checks
with its depository bank, Equitable-PCI Bank. Equitable-PCI Bank then presented the checks to the
drawee bank, Philippine Veterans Bank, which honoured the checks.

Sometime in July 2000, the checks were returned by PVAO to the drawee on the ground that the
amount on the face of the checks was altered from the original amount of P4,000.00 to P200,000.00.
The drawee bank, in turn, returned the checks to Equitable-PCI Bank. Equitable-PCI Bank then
informed Express Savings Bank that the drawee dishonored the checks on the ground of material
alterations. It also debited the deposit account of Express Savings Bank in the amount of
P1,800,000.00. Express Savings Bank insisted that it informed the petitioners of what happened to the
checks. On the other hand, the petitioners maintained that the said bank never informed them of the
said progress.

The petitioners then issued a check in the amount of P500,000.00 but it was dishonored. They
demanded the bank to honor the check but it refused. Instead, it closed the Special Savings Account of
the petitioners with a balance of P1,179,659.69 and transferred said amount to their savings account.
Express Savings Bank then withdrew the amount of P1,800,000.00 representing the returned checks
from petitioners savings account.

The petitioners filed a Complaint for Sum of Money with Damages against Express Savings Bank and
Potenciano for the alleged arbitrary and groundless dishonouring of their checks and the unlawful and
unilateral withdrawal from their savings account.

The RTC, through Judge Antonio S. Pozas, initially ruled in favor of the petitioners but the same court,
through Pairing Judge Romeo C. De Leon, eventually granted the Motion for Reconsideration filed by
the respondents and set aside the Pozas Decision. On appeal, the Court of Appeals affirmed the ruling
of the RTC. Hence, this petition for review on certiorari.
57
Issue: Whether the respondent bank has the right to debit P1,800,000.00 from the petitioners accounts.

Held: No. Under Art. 1278 of the New Civil Code, compensation shall take place when two persons, in
their own right, are creditors and debtors of each other.

The relationship of the depositors and the Bank or similar institution is that of creditor-debtor. Article
1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loans. The bank is the debtor
and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the
depositor on demand. The savings deposit agreement between the bank and the depositor is the contract
that determines the rights and obligations of the parties.

Petitioners are not liable for the deposit of the altered checks. The Bank, as the depositary and
collecting bank ultimately bears the loss. Thus, there being no indebtedness to the Bank on the part of
petitioners, legal compensation cannot take place. Under Art. 1278 of the New Civil Code,
compensation shall take place when two persons, in their own right, are creditors and debtors of each
other.

WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006 and 12
February 2007 respectively of the Court of Appeals in CA-G.R. CV No. 83192 are REVERSED and
SET ASIDE. The 15 January 2004 Decision of the Regional Trial Court of Calamba City, Branch 92 in
Civil Case No. B-5886 rendered by Judge Antonio S. Pozas is REINSTATEDonly insofar as it ordered
respondents to jointly and severally pay petitioners P1,800,000.00 representing the amount withdrawn
from the latters account. The award of moral damages and attorneys fees are DELETED.

58
COMPENSATION

(33) FEDERAL BUILDERS, INC., Petitioner, vs. FOUNDATION SPECIALISTS, INC.,


Respondent, FOUNDATION SPECIALISTS, INC., Petitioner, vs. FEDERAL BUILDERS, INC.,
Respondent.

G.R. No. 194507, G.R. No. 194621, September 8, 2014

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: Before the Court are two consolidated cases, namely: (1) Petition for review on
certiorari under Rule 45 of the Rules of Court, docketed as G.R. No. 194507, filed by Federal Builders,
Inc., assailing the Decision and Resolution, dated July 15, 2010 and November 23, 2010, respectively,
of the Court of Appeals (CA) in CA-G.R. CV No. 70849, which affirmed with modification the
Decision dated May 3, 2001 of the Regional Trial Court (RTC) in Civil Case No. 92-075; and (2)
Petition for review on certiorari under Rule 45 of the Rules of Court,docketed as G.R. No. 194621,
filed by Foundation Specialists, Inc., assailing the same Decision and Resolution, dated July 15, 2010
and November 23, 2010,respectively, of the CA in CA- G.R. CV No. 70849, which affirmed with
modification the Decision dated May 3, 2001 of the RTC in Civil Case No. 92-075.

Facts: On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with Foundation
Specialists, Inc. (FSI) whereby the latter, as subcontractor, undertook the construction of the diaphragm
wall, capping beam, and guide walls of the Trafalgar Plaza located at Salcedo Village, Makati City (the
Project), for a total contract price of Seven Million Four Hundred Thousand Pesos (P7,400,000.00).
Under the agreement, FBI was to pay a downpayment equivalent to twenty percent (20%) of the
contract price and the balance, through a progress billing every fifteen (15) days, payable not later than
one (1) week from presentation of the billing.

On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the RTC of Makati
City seeking to collect the amount of One Million Six Hundred Thirty-Five Thousand Two Hundred
Seventy-Eight Pesos and Ninety-One Centavos (P1,635,278.91), representing Billings No. 3 and 4,
with accrued interest from August 1, 1991 plus moral and exemplary damages with attorneys fees. In
its complaint,FSI alleged that FBI refused to pay said amount despite demand and itscompletion of
ninety-seven percent (97%) of the contracted works.

In its Answer with Counterclaim, FBI claimed that FSI completed only eighty-five percent (85%) of the
contracted works, failing to finish the diaphragm wall and component works in accordance with the
plans and specifications and abandoning the jobsite. FBI maintains that because of FSIs inadequacy,
its schedule in finishing the Project has been delayed resulting in the Project owners deferment of its
own progress billings. It further interposed counterclaims for amounts it spent for the remedial works
on the alleged defects in FSIs work.

On May 3, 2001, after evaluating the evidence of both parties, the RTC ruled in favor of FSI.

Issue: Whether the interest rate is inapplicable

Held: In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, as regards 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: When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code. In line with the recent circular of the Monetary Board
of the Bangko Sentral ng Pilipinas No. 799 (July 1, 2013), the Court has modified the guidelines in

59
Nacar v. Gallery Frames, wherein the interest due shall itself earn legal interest from the time it is
judicially demanded and 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. This case, however, does not involve acquiescence to the temporary
use of a partys money but a performance of a particular service, specifically the construction of the
diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza. Thus, in the absence of any
stipulation as to interest in the agreement between the parties herein, the matter of interest award
arising from the dispute in this case would actually fall under the second paragraph of the above-
quoted guidelines in the landmark case of Eastern Shipping Lines, which necessitates the imposition
of interest at the rate of 6%, instead of the 12% imposed by the courts below. As to the rate of interest
due thereon, however, the Court notes that the same should be reduced to 6% per annum considering
the fact that the obligation involved herein does not partake of a loan or forbearance of money.

WHEREFORE, premises considered, the instant petition is DENIED. The Decision and Resolution,
dated July 15, 2010 and November 23, 2010, respectively, of the Court of Appeals in CA-G.R. CV No.
70849 are hereby AFFIRMED with MODIFICATION. Federal Builders, Inc. is ORDERED to pay
Foundation Specialists, Inc. the sum of Pl ,024,600.00 representing billings 3 and 4, less the amount of
P33,354.40, plus interest at six percent (6%) per annum reckoned from August 30, 1991 until full
payment thereof.

60
LEGAL COMPENSATION

(34) PHILIPPINE TRUST COMPANY, PETITIONER, VS. FLORO ROXAS AND EUFEMIA
ROXAS, RESPONDENTS.
G.R. No. 171897, September 14, 2015
Ponente: JARDELEZA, J., THIRD DIVISION
Nature of Action: Whether the principle of legal compensation may be applied to offset the judgment
debt of petitioner Philippine Trust Company ("PTC") and the loan obligation of private respondents
Floro and Eufemia Roxas ("Spouses Roxas).
Facts: On April 10, 1979, the Spouses Roxas, PTC, and Roben Construction and Furnishing Group,
Inc. entered into "a contract of building construction," under which PTC granted an additional loan of
Php 900,000 to the Spouses Roxas to enable them to finish their ongoing housing projects. This was
superseded by a new "contract of building construction" where Rosendo P. Dominguez, Jr.
("Dominguez") substituted Roben Construction as the contractor under the same terms and conditions.
The new contract stipulated that PTC may only release the proceeds of the loan for the purchase of
materials and supplies when requested by Dominguez and with the conformity of the Spouses Roxas.
Invoices covering materials previously purchased with the funds should also be submitted to PTC
before any subsequent release of funds is made
PTC, however, released to Dominguez the sum of Php 870,000 out of the Php 900,000 although the
Spouses Roxas had agreed only to the release of not more than Php 450,000, as evidenced by a
promissory note dated April 11, 1979.
The Spouses Roxas did not finish the housing project, which led to missed amortization payments in
their loans from PTC.
Issue: Whether there is legal compensation between PTCs loan credit and the judgment credit.
Held: No. Although legal compensation takes place by operation of law, it must be alleged and proved
as a defense by the debtor who claims its benefits. Only after it is proved will its effects retroact to the
moment when all the requisites under Article 1279 of the Civil Code have concurred.
Nonetheless, not all requisites of legal compensation are present in this case. Under Article 1279, in
order for legal compensation to take place, the following requisites must concur:
(a) that each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(b) that both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(c) that the two debts be due;
(d) that they be liquidated and demandable; and
(e) that over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
Here, the fourth requisite is absent. A debt is liquidated when its existence and amount are determined.
Compensation can only take place between certain and liquidated debts; it cannot extend to
unliquidated, disputed claims. Since the loan obligation, including its amount and demandability, is still
being disputed in CA-G.R. CVNo. 30340, PTC's credit cannot be considered liquidated as of yet.
Consequently, no legal compensation could have taken place between PTC's loan credit and the
Spouses Roxas' judgment credit.

61
WHEREFORE, the petition for review is DENIED for lack of merit. The Decision dated November
17, 2005 and Resolution dated March 9, 2006 of the Court of Appeals in CA-G.R. SP No. 35203 are
hereby AFFIRMED. Costs against petitioner.

LEGAL COMPENSATION

(35) MAVEST (U.S.A.) INC., and MAVEST Manila Liaison Office, Petitioners, vs.
SAMPAGUITA GARMENT CORPORATION, Respondent.

G.R. No. 127454 September 21, 2005

Ponente: GARCIA, J., THIRD DIVISION

Nature of Action: Assailed and sought to be set aside in this petition for review on certiorari under
Rule 45 of the Rules of Court is the Decision dated 10 December 1996 of the Court of Appeals in CA-
G.R. No. 48232-CV, affirming, with modifications, an earlier decision of the Regional Trial Court at
Makati City in Civil Case No. 90-1131, an action for a sum of money thereat commenced by the herein
respondent Sampaguita Garment Corporation against the herein petitioners MAVEST (U.S.A), Inc. and
MAVEST Manila Liaison Office and two (2) others.

Facts: Petitioners Mavest USA and Mavest Manila Liaison Office entered into a series of transactions
with Sampaguita Garments Corporation whereby the former would furnish from abroad raw materials
to be manufactured by the latter into finished products for shipment to foreign buyers, Sears Roebuck
and JC Penney. Each transaction was embodied in a purchase order specifying the style and
description. JC Penney ordered 8,000 pieces of Cotton Woven Pants at $3.65 a piece or a total of
$29,200.00. Despite the shipment and receipt by JC Penney of said orders, no payment was made
prompting Respondent to send demand letters which were unheeded. Respondent then filed a complaint
for the collection of $29,200.00 with damages before the RTC against Petitioners. The latter contends
that Respondent has already been paid by virtue of legal compensation since Respondent likewise owes
a sum of money in the form of damages and losses as a result of breaches it committed in previous
shipments to Sears Roebuck.

Issue: Whether or not the unpaid amount due respondent has been extinguished by reason of legal
compensation.

Held: NO. Concededly, the Civil Code lists compensation as one of the modes of extinguishing the
obligations of persons who, in their own right, are creditors and debtors of each other. For
compensation, legal or conventional, to validly take place, such requires confluence in the parties of the
characters of mutual debtors and creditors, but their rights as such creditors or obligations as such
debtors, need not spring from one and the same contract or transaction. Legal compensation could not
have occurred in this case. The appellate court pointed to the fact that petitioners, on one hand, and
respondent, on the other, are not mutually bound as creditors and debtors. It was only the Petitioners
debt to the respondent that had been rightfully established. It was observed that petitioners even
acknowledged their obligation to respondent in the amount of US$29,200.00. They failed to establish
Respondents purported liability to them which would have then set the automatic operation of legal
compensation in motion.

WHEREFORE, the instant petition is DENIED and the assailed decision of the Court of Appeals
AFFIRMED in toto

62
NOVATION
(36) BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. AMADOR DOMINGO,
RESPONDENT.
G.R. No. 169407, March 25, 2015
Ponente: LEONARDO-DE CASTRO, J., FIRST DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45 of the Rules of Court, filed by
petitioner Bank of the Philippine Islands (BPI), seeking the reversal and setting aside of the Decision
dated July 11, 2005 and Resolution 2 dated August 19, 2005 of the Court of Appeals in CA-G.R. SP No.
88836.
Facts: Amador admitted that his wife bought a car and was mortgaged to Far East Bank and Trust
Company While they were still paying for the car, Carmelita Gonzales got interested to buy the car and
is willing to assume the mortgage. After furnishing the bank [with] the Deed of Sale duly notarized,
Carmelita Gonzales subsequently issued a check payable to Far East Bank and Trust Company and the
remaining postdated checks were returned to them. Based on the application of payment prepared by
[BPI's] witness, Carmelita Gonzales made payments from November 14, 1995 to December 1995.
Aside from these payments on May 19, 1997, Carmelita Gonzales issued a check to Far East Bank in
the amount of P385,431.60. In 1996, he received a phone call from a certain Marvin Orence asking for
their assistance to locate the car which Carmelita Gonzales bought from them. His lawyer went to Land
Transportation Office for assistance. From the time Ms. Gonzales started to pay, they never received
any demand letter from Far East Bank. Thereafter, on February 29, 1997, they received a demand letter
from Espino Law Office [on] behalf of [FEBTC]. His lawyer made a reply on March 31, 1997 stating
therein that the motor vehicle for which the loan was obtained had been sold to Carmelita Gonzales as
of July 5, 1994 with the knowledge and approval of their client.
Issue: Whether or not there had been a novation of the loan obligation with chattel mortgage of the
spouses Domingo to BPI so that the spouses Domingo were released from said obligation and
Carmelita was substituted as debtor.
Held: No. The burden of establishing a novation is on the party who asserts its existence. Contrary to
the findings of the Court of Appeals and the RTC, Amador failed to discharge such burden as he was
unable to present proof of the clear and unmistakable consent of BPI to the substitution of debtors.
First, that BPI (or FEBTC) had a copy of the Deed of Sale and Assumption of Mortgage executed
between Mercy and Carmelita in its file does not mean that it had consented to the same. The very
Deed itself states:
That the VENDEE [Carmelita] assumes as he/she had assumed to pay the aforecited mortgage in
accordance with the original terms and conditions of said mortgage, and the parties hereto [Mercy and
Carmelita] have agreed to seek the conformity of the MORTGAGEE [FEBTC].[30]
This brings the Court back to the original question of whether there is proof of the conformity of BPI.
The Court notes that the documents of BPI concerning the car loan and chattel mortgage are still in the
name of the spouses Domingo. No new promissory note or chattel mortgage had been executed
between BPI (or FEBTC) and Carmelita. Even the account itself is still in the names of the spouses
Domingo.
The absence of objection on the part of BPI (or FEBTC) cannot be presumed as consent. Jurisprudence
requires presentation of proof of consent, not mere absence of objection. Amador cannot rely on Babst
which involved a different factual milieu.
WHEREFORE, in view of the foregoing, the Petition is GRANTED. The Decision dated July 11, 2005
and Resolution dated August 19, 2005 of the Court of Appeals in CA-G.R. SP No. 88836, affirming
63
with modification the Decision dated February 10, 2005 of the RTC of Manila, Branch 26 in Civil Case
No. 04-111100, is REVERSED and SET ASIDE. The Decision dated June 10, 2004 and Order dated
September 6, 2004 of the Me TC of Manila, Branch 9 in Civil Case No. 168949-CV, is REINSTATED
with MODIFICATIONS. The heirs of respondent Amador Domingo are ORDERED to pay petitioner
Bank of the Philippine Islands the following:

(1) the P275,562.00 balance on the Promissory Note, plus legal interest of 12% from January 29, 1997
to June 30, 2013 and 6% from July 1, 2013 until fully paid; (2) attorney's fees of 10%; and (3) costs of
suit. However, the liability of Amador Domingo's heirs is limited to the value of the inheritance they
received from the deceased.

64
NOVATION
(37) THE WELLEX GROUP, INC., Petitioner, vs. U-LAND AIRLINES, CO., LTD., Respondent.

G.R. No. 167519, January 14, 2015

Ponente: LEONEN, J., SECOND DIVISION

Nature of Action: This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. The
Wellex Group, Inc. (Wellex) prays that the Decision dated July 30, 2004 of the Court of Appeals in CA-
GR. CV No. 74850 be reversed and set aside.

Facts: Wellex and U-Land agreed to develop a long-term business relationship through the creation of
joint interest in airline operations and property development projects in the Philippines. The agreement
includes: I. Acquisition of APIC and PEC shares; II. Operation and management of APIC/PEC/APC;
III. Entering into and funding a joint development agreement; and IV. The option to acquire from
WELLEX shares of stock of EXPRESS SAVINGS BANK ("ESB") up to 40% of the outstanding
capital stock of ESB of U-Land. The provisions of the memorandum were agreed to be executed within
40 days from its execution date.

The 40-day period lapsed but Wellex and U-Land were not able to enter into any share purchase
agreement although drafts were exchanged between the two. However, Despite the absence of a share
purchase agreement, U-Land remitted to Wellex a total of US$7,499,945.00. Wellex acknowledged the
receipt of these remittances in a confirmation letter addressed to U-Land and allegedly delivered stock
certificates and TCTs of subject properties. Despite these transactions, Wellex and U-Land still failed to
enter into the share purchase agreement and the joint development agreement. Thus, U-Land filed a
Complaint72 praying for rescission of the First Memorandum of Agreement and damages against Wellex
and for the issuance of a Writ of Preliminary Attachment. Note: After verification with the Securities
and Exchange Commission, U-Land discovered that "APIC did not own a single share of stock in APC.

RTC: Ruled In favor of Uland and ordered rescission of contract under Art. 1911 of the civil code.
Basis of rescission: Wellexs misrepresentation that APIC was a majority shareholder of APC that
compelled it to enter into the agreement..
Notwithstanding the said remittances, APIC does not own a single share of APC. On the other
hand, defendant could not even satisfactorily substantiate its claim that at least it had the
intention to cause the transfer of APC shares to APIC. Defendant obviously did not enter into
the stipulated SPA because it did not have the shares of APC transferred to APIC despite its
representations. Under the circumstances, it is clear that defendant fraudulently violated the
provisions of the MOA.

On appeal, the Court of Appeals affirmed the ruling of the Regional Trial Court. Hence this petition.

Petitioners invokes Suria v. Intermediate Appellate Court, which held that an "action for rescission is
not a principal action that is retaliatory in character under Article 1191 of the Civil Code, but a
subsidiary one which is available only in the absence of any other legal remedy under Article 1384 of
the Civil Code Respondent U-land avers that this case was inapplicable because the pertinent provision
in Suria was not Article 1191 but rescission under Article 1383 of the Civil Code. The "rescission"
referred to in Article 1191 referred to "resolution" of a contract due to a breach of a mutual obligation,
while Article 1384 spoke of "rescission" because of lesion and damage. Thus, the rescission that is
relevant to the present case is that of Article 1191, which involves breach in a reciprocal obligation. It
is, in fact, resolution, and not rescission as a result of fraud or lesion, as found in Articles 1381, 1383,
and 1384 of the Civil Code.

65
Issue: Whether there was a novation

Held: None. Because novation requires that it be clear and unequivocal, it is never presumed. The
parties did not enter into any subsequent written agreement that was couched in unequivocal terms. The
transaction of the First Memorandum of Agreement involved large amounts of money from both
parties. Any subsequent agreement would be expected to be clearly agreed upon with their counsels
assistance and in writing, as well. Thus there was no express novation. There was also no implied
novation of the original obligation. There was no incompatibility between the original terms of the
First Memorandum of Agreement and the remittances made by respondent U-Land for the shares of
stock. These remittances were actually made with the view that both parties would subsequently enter
into a share purchase agreement. It is clear that there was no subsequent agreement inconsistent with
the provisions of the First Memorandum of Agreement.

WHEREFORE, the petition is DENIED. The Decision of the Regional Trial Court in Civil Case No.
99-1407 and the Decision of the Court of Appeals in CA-G.R. CV No. 74850 are AFFIRMED. Costs
against petitioner The Wellex Group, Inc.

66
NOVATION
(38) FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, vs. VALENTIN L.
FONG, Respondent.

G.R. No. 209370, March 25, 2015

Ponente: PERLAS-BERNABE, J., FIRST DIVISION

Nature of Action: Assailed in this petition for review on certiorari are the Decision dated May 17,
2013 and the Resolution dated September 2, 2013 rendered by the Court of Appeals (CA) in CA-G.R.
CV. No. 93407, which affirmed the Decision dated January 28, 2009 of the Regional Trial Court of
Mandaluyong City, Branch 214 (RTC) in Civil Case No. MC06-2928, finding petitioner Fort Bonifacio
Development Corporation (FBDC) liable to respondent Valentin L. Fong (Fong), as proprietor of VF
Industrial Sales, for the amount of Pl,577,115.90 with legal interest computed from February 13, 2006.

Facts: Fort Bonifacio Development Corporation (FBDC) and MS Maxco Company Inc., entered into a
Trade Contract for the execution of the structural and partial architectural works on one of its projects
in Taguig City; under the contract the FBDC had the option to hire other contractors to rectify errors
committed by MS Maxco by reason of its negligence, omission, act, or default. It was also prohibited
from assigning or transferring any of its rights, obligations or liabilities without the express consent of
FBDC. For failure of MS Maxco comply with the Trade Contract, FBDC had to hire other contractors
and perform corrective works which eventually cost FBDC P11,567,779.12. In April, 2005, FBDC
received a letter dated April 18, 2005 from the counsel of one Valentin Fong, informing it that MS
Maxco had already assigned its receivables from FBDC to him (Valentin), thru a Deed of Assignment,
particularly the amount of P1,577,115.90, to be taken from the retention money with the FBDC.
Replying, FBDC acknowledged the 5% retention money of MS Maxco but asserted that the same was
not yet due and demandable and the subject of garnishment by MS Maxcos creditors. Despite
repeated requests, FBDC refused to release the retention money. In a letter dated January 31, 2006,
FBDC informed Fong that nothing was left of MS Maxcos retention money after the rectification of
the defects in the projects.

Valentin then filed a complaint against FBDC to collect the P1, 577, 115.90 before the RTC. In its
defense, FBDC alleged that MS Maxco incurred delays in the performance of its obligations under the
Trade Agreement, constraining FBDC to hire other contractors to rectify its works, which cost was
deducted from the retention money; the retention money was already depleted, hence FBDC was not
liable to pay it to Fong; FBDC was not bound under the Deed of Assignment between Fong and MS
Maxco, not being a party thereto. Fong being a mere assignee, was bound to observe the terms of the
Trade contract of MS Maxco with FBDC.

After trial, the RTC ruled in favour of Fong. It held that the case was one of assignment of credit under
Article 1624 of the Civil Code, hence, did not require FBDCs consent as debtor for its validity and
enforceability. What the law requires is not the consent of the debtor, but merely notice to him, as the
assignment takes effect only from the time of his knowledge thereof. Also, Fong could not be adversely
affected by the garnishment of Maxcos retention money, as he had become the owner of the
receivables to the extent of the amount indicated in the Deed of Assignment. When Maxco assigned
the amount to Fong, he effectively became the owner of the said amount, especially since the
garnishment of the retention money came after FBDC was informed of the Deed of Assignment. Also,
Fong is not bound by the stipulation prohibiting Maxco from assigning its obligations and credits under
the Trade Contract since he did not become automatically a party to it by the mere expedient of
entering into a Deed of Assigment with Maxco.

67
The Court of Appeals affirmed the RTC decision, hence FBDC elevated its case to the Supreme Court.

Issue: Whether the CA erred in ruling that FBDC was bound by the Deed of Assignment between MS
Maxco and Fong

Held: The petition is meritorious. By virtue of the Deed of Assignment, the assignee is deemed
subrogated to the rights and obligations of the assignor and is bound by exactly the same conditions as
those which bound the assignor. Accordingly, an assignee cannot acquire greater rights than those
pertaining to the assignor. The general rule is that an assignee of a non- negotiable chose in action
acquires no greater right than what was possessed by his assignor and simply stands into the shoes of
the latter. Applying the foregoing, the Court finds that MS Maxco, as the Trade Contractor, cannot
assign or transfer any of its rights, obligations, or liabilities under the Trade Contract without the
written consent of FBDC.

WHEREFORE, the petition is GRANTED. The assailed Decision dated May 17, 2013 and the
Resolution dated September 2, 2013 rendered by the Court of Appeals in CA-G.R. CV. No. 93407 are
hereby REVERSED and SET ASIDE, and a new one is entered DISMISSING the instant complaint
against petitioner Fort Bonifacio Development Corporation.

68
NOVATION
(39) ANAMER SALAZAR, Petitioner, vs. J.Y. BROTHERS MARKETING CORPORATION,
Respondent.

G.R. No. 171998, October 20, 2010

Ponente: PERALTA, J., SECOND DIVISION

Nature of Action: Petition for review seeking to annul and set aside the Decision dated September 29,
2005 and the Resolution dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.

Facts: In 1997, petitioner Anmer Salazar and Nena Jaucian Timario were charged with estafa before
the Legazpi City Regional Trial Court.

The estafa case allegedly stemmed from the payment of a check worth P214,000 to private respondent
J.Y. Brothers Marketing Corporation (JYBMC) through Jerson Yao for the purchase of 300 bags of
rice. The check was dishonored by drawee Prudential Bank as it is drawn against a closed account.
Salazar replaced said check with a new one, this time drawn against Solid Bank. It is again dishonored
for being drawn against uncollected deposit (DAUD).

The DAUD means that the account to which the check was drawn had sufficient funds. However, the
fund cannot be used because it was collected against a deposited check which is yet to be cleared.

Trial ensued. After the prosecution presented its evidence, Salazar filed a demurrer to evidence with
leave of court, which the trial court granted.

In 2002, the trial court rendered judgment acquitting Salazar, but ordered her to remit to JYBMC
P214,000. The trial court ruled that the evidence of the prosecution failed to establish the existence of
conspiracy beyond reasonable doubt between the petitioner and the issuer of the check, Timario. As a
mere endorser of the check, Salazar's breach of warranty was a good one and did not amount to estafa
under Article 315 (2)(d) of the Revised Penal Code. Timario remained at large.

As a result, Salazar filed a motion for reconsideration on the civil aspect of the decision with a plea to
be allowed to present evidence. The trial court denied the motion.

Because of the denial of the motion, she filed petition for review on certiorari before the Supreme
Court alleging she was denied due process as the trial court did not give her the opportunity to adduce
evidence to controvert her civil liability.

Issue: Whether acceptance of a new check in replacement of the previous one is a novation?

Held: No, the obligation to pay a sum of money is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not incompatible with
the old ones or the new contract merely supplements the old one. In the instant case, there was no
express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from liability.
Neither is there incompatibility because both checks were given precisely to terminate a single
obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct
obligations, such is inapplicable to this case.

WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the Resolution
dated March 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.
69
NOVATION
(40) LAND BANK OF THE PHILIPPINES, Petitioner, vs. ALFREDO ONG, Respondent

G.R. NO. 190755, November 24, 2010

Ponente: VELASCO, JR., J., FIRST DIVISION

Nature of Action: This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA)
in CA-G.R. CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the Philippines, which affirmed
the Decision of the Regional Trial Court (RTC), Branch 17 in Tabaco City.

Facts: On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank
Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five
(5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-
term and would mature on February 28, 1997, while the balance of PhP 10 million would be payable in
seven (7) years. The Spouses Sy could no longer pay their loan which resulted to the sale of three (3) of
their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother, under a
Deed of Sale with Assumption of Mortgage.

Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform them about the sale and
assumption of mortgage. Land Bank Banch Head told Alfredo that there was nothing wrong with
agreement with the Spouses Sy and provided him requirements for the assumption of mortgage.
Alfredo later found out that his application for assumption of mortgage was not approved by Land
Bank. On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages
against Land Bank, as Alfredos payment was not returned by Land Bank. Alfredo said that Land
Banks foreclosure without informing him of the denial of his assumption of the mortgage was done in
bad faith and that he was made to believed that P750,000 would cause Land Bank to approve his
assumption to the mortgage.6 He also claimed incurring expenses for attorneys fees of PhP 150,000,
filing fee of PhP 15,000, and PhP 250,000 in moral damages.7 This prompted Alfredo to file a case
with RTC against Land Bank.

On its decision to the case, RTC held that the contract approving the assumption of mortgage was not
perfected as a result of the credit investigation conducted on Alfredo where he was disapproved.

As such, it ruled that it would be incorrect to consider Alfredo a third person with no interest in the
fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not bound
by the Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land
Banks active preparations for Alfredos assumption of mortgage essentially novated the agreement.

Issue: Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply
and in finding that there is novation.

Held: The Supreme Court affirmed with modification to the appealed decision that recourse against
Land Bank. Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should
have sought recourse against the Spouses Sy instead of Land Bank. The court agreed with Land Bank
on the point mentioned as to the first part of paragraph 1 of Art. 1236. However,. Alfredo made a
conditional payment so that the properties subject of the Deed of Sale with Assumption of Mortgage
which Land Bank required from him would be approved. Thus, he made payment not as a debtor but as
a prospective mortgagor. Furthermore, the contract between Alfredo and Land Bank was not perfected
nor consummated because of the adverse disapproval of the proposed assumption. The Supreme Court
70
did not agree with the Court of Appeals that there was novation in the contract between the parties
because not all elements of novation were present.

The court further stresses that the instant case would not have been litigated had Land Bank been more
circumspect in dealing with Alfredo. The bank chose to accept payment from Alfredo even before a
credit investigation was underway and also failed to informed him of the disapproval. The court found
that there was negligence to a certain degree on the part of Land Bank in handling the transaction with
Alfredo. A bank as a business entity should observe a higher standard of diligence when dealing with
the public which Land Bank neglect to observe in this case.
The petitioners appeal was denied by the Supreme Court and the decision of the Court of Appeals was
affirmed with modification in that the amount of PhP 750,000 will earn interest at 6% per annum and
the total aggregate monetary awards will in turn earn 12% per annum from the finality of this Decision
until fully paid.

71
SIMULATED CONTRACTS

(41) MILAGROS C. REYES, petitioner, VS. FELIX P. ASUNCION, respondent.


G.R. No. 196083, November 11, 2015
Ponente: PERALTA, J., THIRD DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated April
25, 2011 of petitioner Milagros C. Reyes seeking the reversal of the Decision of the Court of Appeals
(CA) dated July 9, 2010 which affirmed the Decision3 of the Regional Trial Court (RTC), Branch 66,
Capas, Tarlac, dated January 17, 2007 dismissing the Complaint of petitioner against respondent Felix
P. Asuncion for the declaration of nullity of a contract or deed.
Facts: Petitioner claimed that since the early 80s, she and her late husband were the owners, with the
right to occupy and possess a parcel of land (subject land), which is also a sugarcane plantation, with an
area of more or less 3.5 hectares located at Patling, Capas, Tarlac and forms part of a U.S. Military
Reservation. Sometime in 1986, petitioner hired respondent as a caretaker of the subject land. In 1997,
the Bases Conversion and Development Authority (BCDA) launched a resettlement program for the
victims of the Mt. Pinatubo eruption and began to look for possible resettlement sites in Tarlac and the
subject lot was among those considered.
Thereafter, according to petitioner, in order to prevent the BCDA from converting her property into a
resettlement site, she and respondent executed a contract, antedated on June 15, 1993, transferring her
rights over the subject land to the respondent.
Issue: whether the transfer of the land to respondent is a simulated contract that will void the transfer
Held: No.
So far, appellant's averments evince an obvious knowledge and voluntariness on her part to enter into
the alleged simulated contract. Without the slightest doubt, appellant, as plaintiff in the court below,
utterly foiled to adduce any evidence of appellee's bad faith or fraud in procuring her signature to the
contract or that he violated their real intention, if any, in executing it. It must be stressed that the
determination of whether one acted in bad faith is evidentiary in nature. Indeed, the unbroken
jurisprudence is that "[b]ad faith [or fraud] under the law cannot be presumed; it must be established by
clear and convincing evidence. The allegation of simulation of contract as well as lack of consent
and/or vitiated consent remains to be proven. As it stands, We perceive that the contract by its very
terms and conditions, on June 15, 1993, appellant simply intended to transfer the subject land to
appellee. It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of its stipulation shall control.
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated April
25, 2011 of petitioner Milagros C. Reyes is DENIED for lack merit, and the Decision of the Court of
Appeals, dated July 9, 2010, is AFFIRMED in toto.

72
DACION EN PAGO

(42) YULIM INTERNATIONAL COMPANY LTD., JAMES YU, JONATHAN YU, AND
ALMERICK TIENG LIM, petitioners, VS. INTERNATIONAL EXCHANGE BANK (NOW
UNION BANK OF THE PHILIPPINES), respondent.
G.R. No. 203133, February 18, 2015
Ponente: REYES, J., THIRD DIVISION
Nature of Action: In the assailed Decision dated February 1, 2012 in CA-G.R. CV No. 95522, the
Court of Appeals (CA) modified the Decision dated December 21, 2009 of the Regional Trial Court
(RTC) of Makati City, Branch 145, in Civil Case No. 02-749, holding that James Yu (James), Jonathan
Yu (Jonathan) and Almerick Tieng Lim (Almerick), who were capitalist partners in Yulim International
Company Ltd. (Yulim), collectively called as the petitioners, were jointly and severally liable with
Yulim for its loan obligations with respondent International Exchange Bank (iBank).
Facts: On June 2, 2000, iBank, a commercial bank, granted Yulim, a domestic partnership, a credit
facility in the form of an Omnibus Loan Line for P5,000,000.00, as evidenced by a Credit
Agreement which was secured by a Chattel Mortgage over Yulims inventories in its merchandise
warehouse at 106 4th Street, 9th Avenue, Caloocan City. As further guarantee, the partners, namely,
James, Jonathan and Almerick, executed a Continuing Surety Agreement in favor of iBank. Yulim
defaulted on the said note. On April 5, 2002, iBank sent demand letters to Yulim, through its President,
James, and through Almerick, but without success. iBank then filed a Complaint for Sum of Money
with Replevin against Yulim and its sureties. On October 2, 2002, the petitioners moved to dismiss the
complaint insisting that their loan had been fully paid after they assigned to iBank their Condominium
Unit No. 141, with parking space, at 20 Landsbergh Place in Tomas Morato Avenue, Quezon City.
Issue: Whether there is Dacion en pago in the assignment of the condominium unit
Held: No. Nowhere can it be remotely construed that the letter even intimates an understanding by
iBank that the Deed of Assignment would serve to extinguish the petitioners loan. Otherwise, there
would have been no need for iBank to mention therein the three collaterals or supports provided by
the petitioners, namely, the Deed of Assignment, the Chattel Mortgage and the Continuing Surety
Agreement executed by the individual petitioners. In fact, Section 2.01 of the Deed of Assignment
expressly acknowledges that it is a mere interim security for the repayment of any loan granted and
those that may be granted in the future by the BANK to the ASSIGNOR and/or the BORROWER, for
compliance with the terms and conditions of the relevant credit and/or loan documents thereof.The
condominium unit, then, is a mere temporary security, not a payment to settle their promissory notes.

WHEREFORE, premises considered, the petition is DENIED.

73
EARNEST MONEY
(43) FIRST OPTIMA REALTY CORPORATION, Petitioner, vs. SECURITRON SECURITY
SERVICES, INC., Respondent.
G.R. No. 199648, January 28, 2015
Ponente: DEL CASTILLO, J., SECOND DIVISION
Nature of Action: This Petition for Review on Certiorari1 seeks to set aside: 1) the September 30, 2011
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 93715 affirming the February 16, 2009
Decision' of the Regional Trial Court (RTC) of Pasay City, Branch 115 in Civil Case No. 06-0492
CFM; and 2) the CAs December 9, 2011 Resolution denying the herein petitioners Motion for
Reconsideration of the assailed judgment.
Facts: The petitioner looking to expand business and add to its existing offices, respondent through
its General Manager, Antonio Eleazar (Eleazar) sent a letter to the petitoner offering to purchase the
subject property at P6,000.00 per square meter. A series of telephone calls ensued, but only between
Eleazar and Youngs secretary; Eleazar likewise personally negotiated with a certain Maria Remoso
(Remoso), who was an employee of petitioner. At this point, Eleazar was unable to personally negotiate
with Young or the petitioners board of directors.
Sometime thereafter, Eleazar personally went to petitioners office offering to pay for the subject
property in cash, which he already brought with him. However, Young declined to accept payment,
saying that she still needed to secure her sisters advice on the matter. 10She likewise informed Eleazar
that prior approval of petitioners Board of Directors was required for the transaction, to which remark
Eleazar replied that respondent shall instead await such approval.11
On February 4, 2005, respondent sent a Letter of even date to petitioner. It was accompanied by
Philippine National Bank Check No. 24677, issued for P100,000.00 and made payable to petitioner.
The check was eventually deposited with and credited to petitioners bank account Thereafter,
respondent through counsel demanded in writing that petitioner proceed with the sale of the property
Issue: Whether there is a contract of sale when the respondent accepted the supposed earnest money.
Held No. In the present case, the parties never got past the negotiation stage. Nothing shows that the
parties had agreed on any final arrangement containing the essential elements of a contract of sale,
namely, (1) consent or the meeting of the minds of the parties; (2) object or subject matter of the
contract; and (3) price or consideration of the sale
Respondents subsequent sending of the February 4, 2005 letter and check to petitioner without
awaiting the approval of petitioners board of directors and Youngs decision, or without making a new
offer constitutes a mere reiteration of its original offer which was already rejected previously; thus,
petitioner was under no obligation to reply to the February 4, 2005 letter. It would be absurd to require
a party to reject the very same offer each and every time it is made; otherwise, a perfected contract of
sale could simply arise from the failure to reject the same offer made for the hundredth
time.1wphi1 Thus, said letter cannot be considered as evidence of a perfected sale, which does not
exist in the first place; no binding obligation on the part of the petitioner to sell its property arose as a
consequence. The letter made no new offer replacing the first which was rejected.
WHEREFORE, the Petition is GRANTED. The September 30, 2011 Decision and December 9, 2011
Resolution of the Court of Appeals in CA-G.R. CV No. 93715, as well as the February 16, 2009
Decision of the Regional Trial Court of Pasay City, Branch 115 in Civil Case No. 06-0492 CFM are
REVERSED and SET ASIDE. Civil Case No. 06-0492 CFM is ordered DISMISSED. , Petitioner First
Optima Realty Corporation is ordered to REFUND the amount of P100,000.00 to respondent

74
Securitron Security Services, Inc. without interest, unless petitioner has done so during the course of
the proceedings.

RIGHT OF REDEMPTION
(44) CEBU STATE COLLEGE OF SCIENCE AND TECHNOLOGY (CSCST), REPRESENTED
BY ITS INCUMBENT PRESIDENT, petitioner, VS. LUIS S. MISTERIO, GABRIEL S.
MISTERIO, FRANCIS S. MISTERIO, THELMA S. MISTERIO, AND ESTELA S. MISTERIO-
TAGIMACRUZ, respondents.
G.R. No. 179025, June 17, 2015
Ponente: PERALTA, J., THIRD DIVISION
Nature of Action: Petition for review on certiorari under Rule 45 of the Rules of Court seeking to
reverse and set aside the Decision dated July 25, 2007 of the Court Appeals (CA) in CA-G.R. CV No.
77329 which reversed and set aside the Order dated October 1, 2002, of the Regional Trial Court
(RTC), Branch 23, Cebu City, in Civil Case No. CEB-25746
Facts: On March 18, 1960, the Provincial Board of Cebu donated 41 parcels of land, covering
104.5441 hectares of the Banilad Friar Lands Estate to the SAHS subject to two (2) conditions: (1) that
if the SAHS ceases to operate, the ownership of the lots would automatically revert to the province, and
(2) that the SAHS could not alienate, lease or encumber the properties. In the meantime, the Province
of Cebu sought to recover the 41 parcels of land it previously donated to SALIS on the basis of an
initial report of its provincial attorney that SAHS had no personality to accept the donation, and thus,
the deed it executed was void. On August 19, 1988, respondents Luis, Gabriel, Francis, Thelma,-all
surnamed Misterio, and Estella S. Misterio-Tagimacruz, as heirs of the late Asuncion Sadaya, informed
the then Governor of the Province of Cebu, Emilio Osmena, through a letter, of their intention to
repurchase the subject property as stipulated in the Deed of Sale Thereafter, on March 13, 1990,
respondents,informed petitioner of their 'intention to exercise their right to repurchase under the Deed
of Sale on the ground that the SAHS had ceased to exist. However, petitioner's Vocational School
Superintendent II, Jesus T. Bonilla, informed respondents that SAHS still existed as only the name of
the school was changed.
Issue: Whether can the right to redeem the property still exist
Held:No. In the Decision dated June 23, 2005, this Court ruled that since, petitioner and respondents
in this case did not agree on any period for the exercise of the right to repurchase the property herein,
respondents may use said right within four (4) years from the happening of the allocated conditions
contained in their Deed of Sale: (a) the cessation of the existence of the SAHS, or (b) the transfer of the
school to other site.[28] However, due to respondents' failure to exercise their right to redeem the
property within the required four (4) years from the time when SAHS had ceased to exist, or from June
10, 1983, the date of effectivity of BP Blg. 412, this Court held that respondents are barred by
prescription.
Xxx To repeat, Article 1606 expressly provides that in the absence of an agreement as to the period
within which the vendor a retro may exercise his right to repurchase, the same must be done within
four (4) years from the execution of the contract. In the event the contract specifies a period, the same
cannot exceed ten (10) years. Thus, whether it be for a period of four (4) or ten (10) years, this Court
consistently implements the law and limits the period within which the right to repurchase may be
exercised, adamantly striking down as illicit stipulations providing for an unlimited right to repurchase.
Indubitably, it would be rather absurd to permit respondents to repurchase the subject property upon the
occurrence of the second suspensive condition, particularly, the relocation of SAHS on October 3,
1997, the time when petitioner ceded the property to the Province of Cebu, which is nearly forty-one
(41) years after the execution of the Deed of Sale on December 31, 1956. This Court must, therefore,

75
place it upon itself to suppress these kinds of attempts in keeping with the fundamentally accepted
principles of law
WHEREFORE, premises considered, the instant petition is GRANTED. The Decision dated July 25,
2007 of the Court Appeals in CA-G.R. CV No. 77329 is REVERSED and SET ASIDE.

LEASE
(45) MANUEL JUSAYAN,ALFREDO JUSAYAN, AND MICHAEL JUSAYAN, PETITIONERS,
VS. JORGE SOMBILLA, RESPONDENT.
G.R. No. 163928, January 21, 2015
Ponente: BERSAMIN, J., FIRST DIVISION
Nature of Action: Under review on certiorari is the decision promulgated on October 20, 2003,
whereby the Court of Appeals (CA) reversed the judgment in favor of the petitioners rendered on April
13, 1999 in CAR Case No. 17117 entitled Timoteo Jusayan, Manuel Jusayan, Alfredo Jusayan and
Michael Jusayan v. Jorge Sombilla by the RTC, Branch 30, in Iloilo City.
Facts: Wilson Jesena (Wilson) owned four parcels of land situated in New Lucena, Iloilo. On June 20,
1970, Wilson entered into an agreement with respondent Jorge Sombilla (Jorge), wherein Wilson
designated Jorge as his agent to supervise the tilling and farming of his riceland in crop year 1970-
1971. On August 20, 1971, before the expiration of the agreement, Wilson sold the four parcels of land
to Timoteo Jusayan (Timoteo). Jorge and Timoteo verbally agreed that Jorge would retain possession of
the parcels of land and would deliver 110 cavans of palay annually to Timoteo without need for
accounting of the cultivation expenses provided that Jorge would pay the irrigation fees. From 1971 to
1983, Timoteo and Jorge followed the arrangement. In 1975, the parcels of land were transferred in the
names of Timoteos sons, namely; Manuel, Alfredo and Michael (petitioners). In 1984, Timoteo sent
several letters to Jorge terminating his administration and demanding the return of the possession of the
parcels of land.
Issue: Whether or not the relationship between the petitioners and respondent is that of agency or
agricultural leasehold
Held: Agricultural lease. The claim of Timoteo that Jorge was his agent contradicted the verbal
agreement he had fashioned with Jorge. By assenting to Jorges possession of the land sans accounting
of the cultivation expenses and actual produce of the land provided that Jorge annually delivered to him
110 cavans of palay and paid the irrigation fees belied the very nature of agency, which was
representation. The verbal agreement between Timoteo and Jorge left all matters of agricultural
production to the sole discretion of Jorge and practically divested Timoteo of the right to exercise his
authority over the acts to be performed by Jorge. While in possession of the land, therefore, Jorge was
acting for himself instead of for Timoteo. Unlike Jorge, Timoteo did not benefit whenever the
production increased, and did not suffer whenever the production decreased. Timoteos interest was
limited to the delivery of the 110 cavans of palay annually without any concern about how the
cultivation could be improved in order to yield more produce.
WHEREFORE, the Court GRANTS the petition for review on certiorari by PARTIALLY
AFFIRMING the decision of the Court of Appeals to the extent that it upheld the tenancy relationship
of the parties; DISMISSES the complaint for recovery of possession and accounting; and ORDERS the
petitioners to pay the costs of suit.

The parties are ordered to comply with their undertakings as agricultural lessor and agricultural lessee.

76
MUTUUM
(46) SPOUSES SALVADOR ABELLA AND ALMA ABELLA, PETITIONERS, VS. SPOUSES
ROMEO ABELLA AND ANNIE ABELLA, RESPONDENTS.
G.R. No. 195166, July 8, 2015
Ponente: LEONEN, J., SECOND DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that
judgment be rendered reversing and setting aside the September 30, 2010 Decision and the January 4,
2011 Resolution of the Court of Appeals Nineteenth Division in CA-G.R. CV No. 01388. The Petition
also prays that respondents Spouses Romeo and Annie Abella be ordered to pay petitioners Spouses
Salvador and Alma Abella 2.5% monthly interest plus the remaining balance of the amount loaned.
Facts: The petitioners alleged that respondents obtained a loan from them in the amount of
P500,000.00. The loan was evidenced by an acknowledgment receipt dated March 22, 1999 and was
payable within one (1) year. Petitioners added that respondents were able to pay a total of P200,000.00
P100,000.00 paid on two separate occasionsleaving an unpaid balance of P300,000.00. The
respondents claimed that they were approached by petitioners, who proposed that if respondents were
to "undertake the management of whatever money [petitioners] would give them, [petitioners] would
get 2.5% a month with a 2.5% service fee to [respondents]." The 2.5% that each party would be
receiving represented their sharing of the 5% interest that the joint venture was supposedly going to
charge against its debtors. Respondents further alleged that the one year averred by petitioners was not
a deadline for payment but the term within which they were to return the money placed by petitioners
should the joint venture prove to be not lucrative. Moreover, they claimed that the entire amount of
P500,000.00 was disposed of in accordance with their agreed terms and conditions and that petitioners
terminated the joint venture, prompting them to collect from the joint venture's borrowers. They were,
however, able to collect only to the extent of P200,000.00; hence, the P300,000.00 balance remained
unpaid.
Issue: Whether what has been contracted by the parties is a mutuum.
Held: Yes. On March 22, 1999, respondents executed an acknowledgment receipt to petitioners, which
states:
Batan, Aklan
March 22, 1999
This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500,000.00) Pesos from
Mrs. Alma R. Abella, payable within one (1) year from date hereof with interest.

Annie C. Abella (sgd.) Romeo M. Abella (sgd.)[33]


(Emphasis supplied)

The text of the acknowledgment receipt is uncomplicated and straightforward. It attests to: first,
respondents' receipt of the sum of P500,000.00 from petitioner Alma Abella; second, respondents' duty
to pay tack this amount within one (1) year from March 22, 1999; and third, respondents' duty to pay
interest. Consistent with what typifies a simple loan, petitioners delivered to respondents with the
corresponding condition lat respondents shall pay the same amount to petitioners within one (1) year.

WHEREFORE, the assailed September 30, 2010 Decision and the January 4, 2011 Resolution of the
Court of Appeals Nineteenth Division in CA-G.R. CV No. 01388 are SET ASIDE. Petitioners Spouses
Salvador and Alma Abella are DIRECTED to jointly and severally reimburse respondents Spouses
Romeo and Annie Abella the amount of P3,379.17, which respondents have overpaid.

77
A legal interest of 6% per annum shall likewise be imposed on the total judgment award from the
finality of this Decision until its full satisfaction.
FORECLOSURE OF REAL ESTATE MORTGAGE
(47) BANGKO SENTRAL NG PILIPINAS, petitioner, VS. AGUSTIN LIBO-ON, respondent.
G.R. No. 173864, November 13, 2015
Ponente: REYES, J., THIRD DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the
reversal of the Decision dated March 21, 2006 and the Resolution dated July 18, 2006 of the Court of
Appeals-Cebu City in CA-G.R. CV No. 00098.
Facts: Agustin Libo-on, together with his wife, Mercedes Libo-on (Spouses Libo-on), secured loans
from the Rural Bank of Hinigaran, Inc., in the amounts of P100,000.00 and P300,000.00, respectively.
The Spouses Libo-on executed promissory notes payable to. the order of the Rural Bank for a period of
360 days or until August 24, 1998 and September 12, 1998, respectively. As security for the loan, the
Spouses Libo-on likewise executed a Deed of Real Estate Mortgage over a parcel of land with Transfer
Certificate of Title No. T-67129 in favor of the Rural Bank of Hinigaran.
Meanwhile, on September 19, 1997[6] and October 17, 1997, the Rural Bank of Hinigaran, in turn,
secured a loan with now petitioner, Bangko Sentral ng Pilipinas (BSP) in the amount of P800,000.00
and P640,000.00, respectively. The Rural Bank of Hinigaran executed a document denominated as
"promissory note with trust receipt agreement."[8] As a security for the loan, the Rural Bank of
Hinigaran pledged and deposited to BSP promissory notes with supporting TCTs, including the
promissory note and TCT of the Spouses Libo-ons mortgaged with the former.
Issue: Whether the pledge of Rural Bank of Hinigaran gave the Bangko Sentral ng Pilipinas the right to
forclose the mortgage.
Held: No. The mere pledge and deposit of the mortgage contract, transfer certificate of title and
promissory note executed by the the Rural Bank of Hinigaran in favor o'f BSP, does not produce the
effect of giving BSP the authority to intervene with the transaction between the Spouses Libo-on and
the Rural Bank of Hinigaran, much less foreclose the mortgaged property of the Spouses Libo-on. In
the absence of a notarized deed of assignment, BSP cannot be considered as an assignee who can
proceed against the Spouses Libo-on's property.
Moreover, the Rural Bank of Hinigaran in fact has no authority to pledge the security documents to
BSP during the term of the real estate mortgage contract between the Rural Bank of Hinigaran and the
Spouses Libo-on because if it is within the term of the contract, the mortgaged property remains to be
the property of the latter.
It must be stressed that for a contract of pledge to be valid, it is necessary that:
the pledge is constituted to secure the fulfillment of a principal obligation;. (2) the pledgor be the
absolute owner of the thing pledged; and (3) the person constituting the pledge has the free disposal of
his property, and in the absence thereof, that he be legally authorized for the purpose.
WHEREFORE, premises considered, the petition is DENIED. The Decision dated March 21, 2006
and Resolution dated July 18, 2006 of the Court of Appeals-Cebu City in CA-G.R. CV. No. 00098 are
AFFIRMED.

78
FORECLOSURE OF REAL ESTATE MORTGAGE

(48) MAYBANK PHILIPPINES, INC. (FORMERLY PNB-REPUBLIC BANK), petitioner VS.


SPOUSES OSCAR AND NENITA TARROSA, respondent.
G.R. No. 213014, October 14, 2015
Ponente:PERLAS-BERNABE, J., FIRST DIVISION
Nature of Action: Petition for review on certiorari are the Decision dated November 29, 2013 and the
Resolution dated May 13, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. 02211, which
affirmed the Decision dated June 16, 2005 of the Regional Trial Court of Bacolod City, Branch 41
(RTC) in Civil Case No. 98-10451 declaring the extrajudicial foreclosure sale of the property covered
by Transfer Certificate of Title (TCT) No. T-5649 as null and void for being barred by prescription.
Facts: (Maybank), a loan in the amount of P91,000.00. The loan was secured by a Real Estate
Mortgage dated January 5, 1981 (real estate mortgage) over a 500-square meter parcel of land situated
in San Carlos City, Negros Occidental (subject property), covered by TCT No. T-5649,[7] and the
improvements thereon.
After paying the said loan, or sometime in March 1983, Sps. Tarrosa obtained another loan from
Maybank in the amount of P60,000.00 (second loan),[9] payable on March 11, 1984.However, Sps.
Tarrosa failed to settle the second loan upon maturity.
Maybank commenced extrajudicial foreclosure proceedings. Respondents averred that the second loan
was unsecured and Maybanks right to foreclose is barred by laches. Maybank countered the second
loan was secured by the same real estate mortgage under a continuing security provision therein when
the loan became past due, Sps. Tarrosa promised to pay and negotiated for a restructuring of their loan,
but failed to pay despite demands; and Sps. Tarrosa's positive acknowledgment and admission of their
indebtedness controverts the defense of prescription.
Issue: Whether Maybank right to foreclose the real estate mortgage has not yet elapsed
Held: Yes. An action to enforce a right arising from a mortgage should be enforced within ten (10)
years from the time the right of action accrues, i.e., when the mortgagor defaults in the payment of his
obligation to the mortgagee; otherwise, it will be barred by prescription and the mortgagee will lose his
rights under the mortgage. However, mere delinquency in payment does not necessarily mean delay in
the legal concept. To be in default is different from mere delay in the grammatical sense, because it
involves the beginning of a special condition or status which has its own peculiar effects or results.
In order that the debtor may be in default, it is necessary that:
(a) the obligation be demandable and already liquidated;
(b) the debtor delays performance; and
(c) the creditor requires the performance judicially or extrajudicially, unless demand is not necessary
WHEREFORE, the petition is GRANTED. The Decision dated

November 29, 2013 and the Resolution dated May 13, 2014 of the Court of Appeals in CA-G.R. CV
No. 02211 are hereby REVERSED AND SET ASIDE. The complaint in Civil Case No. 98-10451 is
DISMISSED.

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CONTRACTS

ESSENTIAL ELEMENTS OF A CONTRACT

(49) SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON substituted by his children
namely: JOSE TONGSON, JR., RAUL TONGSON, TITA TONGSON, GLORIA TONGSON
ALMA TONGSON, Petitioners, vs. EMERGENCY PAWNSHOP BULA, INC. and DANILO R.
NAPALA, Respondents.

G.R. 167874, January 15, 2010

Ponente: CARPIO, J., SECOND DIVISION

Nature of Action: Before the Court is a petition for review of the 31 August 2004 Decision and 10
March 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 58242. In the 31 August 2004
Decision, the Court of Appeals partially granted the appeal filed by Emergency Pawnshop Bula, Inc.
(EPBI) and Danilo R. Napala (Napala) by modifying the decision of the trial court. In the 10 March
2005 Resolution, the Court of Appeals denied the motion for partial reconsideration filed by the
Spouses Jose C. Tongson and Carmen S. Tongson (Spouses Tongson).

Facts: In May 1992, Napala offered to purchase from the Spouses Tongson their 364-square meter
parcel of land, situated in Davao City and covered by Transfer Certificate of Title (TCT) No. 143020,
for P3,000,000. Finding the offer acceptable, the Spouses Tongson executed with Napala a
Memorandum of Agreement4 dated 8 May 1992.

On 2 December 1992, respondents lawyer Atty. Petronilo A. Raganas, Jr. prepared a Deed of Absolute
Sale5 indicating the consideration as only P400,000. When Carmen Tongson "noticed that the
consideration was very low, she [complained] and called the attention of Napala but the latter told her
not to worry as he would be the one to pay for the taxes and she would receive the net amount of
P3,000,000.

To conform with the consideration stated in the Deed of Absolute Sale, the parties executed another
Memorandum of Agreement, which allegedly replaced the first Memorandum of Agreement, showing
that the selling price of the land was only P400,000.

Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash to the Spouses Tongson and
issued a postdated Philippine National Bank (PNB) check in the amount of P2,800,000, representing
the remaining balance of the purchase price of the subject property. Thereafter, TCT No. 143020 was
cancelled and TCT No. T-186128 was issued in the name of EPBI.

When presented for payment, the PNB check was dishonored for the reason "Drawn Against
Insufficient Funds." Despite the Spouses Tongson's repeated demands to either pay the full value of the
check or to return the subject parcel of land, Napala failed to do either. Left with no other recourse, the
Spouses Tongson filed with the Regional Trial Court, Branch 16, Davao City a Complaint for
Annulment of Contract and Damages with a Prayer for the Issuance of a Temporary Restraining Order
and a Writ of Preliminary Injunction.

In their Answer, respondents countered that Napala had already delivered to the Spouses Tongson the
amount of P2,800,000 representing the face value of the PNB check, as evidenced by a receipt issued
by the Spouses Tongson. Respondents pointed out that the Spouses Tongson never returned the PNB
check claiming that it was misplaced. Respondents asserted that the payment they made rendered the
filing of the complaint baseless.

At the pre-trial, Napala admitted, among others, issuing the postdated PNB check in the sum of
P2,800,000. The Spouses Tongson, on the other hand, admitted issuing a receipt which showed that
they received the PNB check from Napala. Thereafter, trial ensued.
80
Issue: Whether the contract of sale can be annulled based on the fraud employed by Napala

Held: The issuance of PNB check and fraudulently representation made by Napala could not be
considered as determining cause for the sale of the subject parcel of land.

A valid contract requires the concurrence of the following essential elements: (1) consent or
meeting of the minds, that is, consent to transfer ownership in exchange for the price; (2)
determinate subject matter; and (3) price certain in money or its equivalent. As regards the requisite
which is the consent of the parties, it is clearly shown for the record that the spouses agreed to sell
the land to Napala who offered to pay the price. The fraud was not employed during the negotiation
and perfection stages of the sale, but existed in the consummation when the parties are in the process
of their respective obligtions.

In the present case, there is no question that the subject matter of the sale is the 364-square meter
Davao lot owned by the Spouses Tongson and the selling price agreed upon by the parties is
P3,000,000, but the existence of the remaining element, which is consent of the contracting parties,
to sell the property, claiming that their consent was vitiated by fraud, renders the contract of sale
void.

WHEREFORE, we PARTIALLY GRANT the petition. We SET ASIDE the 31 August 2004 Decision
and 10 March 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 58242, except as to the
award of moral and exemplary damages, and ORDER the rescission of the contract of sale between the
Spouses Tongson and Emergency Pawnshop Bula, Inc.

81
CONSENT

(50) SPOUSES VICTOR and EUNA BINUA, Petitioners, vs. LUCIA P. ONG, Respondent.

G.R. No. 207176, June 18, 2014

Ponente: REYES, J., FIRST DIVISION

Nature of Action: Spouses Victor and Edna Binua (petitioners) seek the declaration of the nullity of
the real estate mortgages executed by petitioner Victor in favor of Lucia P. Ong (respondent), on the
ground that these were executed under fear, duress and threat.

Facts: In a Joint Decision1 dated January 10, 2006 by the Regional Trial Court of Tuguegarao City,
Branch 2 (RTC-Branch 2), in Criminal Cases Nos. 8230, 8465-70, petitioner Edna was found guilty of
Estafa and was sentenced to imprisonment from six ( 6) years and one ( 1) day of prision mayor, as
minimum, to thirty (30) years of reclusion perpetua, as maximum, for each conviction. Petitioner Edna
was also ordered to pay the respondent the amount of P2,285,000.00, with ten percent (10%) interest,
and damages.

Petitioner Edna sought to avoid criminal liability by settling her indebtedness through the execution of
separate real estate mortgages over petitioner Victors properties on February 2, 2006, and covering the
total amount of P7,000,000.00. Mortgaged were portions of Lot No. 1319 covered by Transfer
Certificate of Title (TCT) No. T-15232 and Lot No. 2399 covered by TCT No. T-15227, both located in
Tuguegarao City.

Thereafter, petitioner Edna filed a motion for new trial, which was granted by the RTC-Branch 2.
Consequently, the RTC-Branch 2 rendered a Decision 4 on February 24, 2006, ordering petitioner Edna
to pay the respondent the amount of P2,285,000.00 as actual damages, with ten percent (10%) interest,
and other damages.5 The RTC-Branch 2 ruled that the presentation of a promissory note dated March 4,
1997 novated the original agreement between them into a civil obligation.

However, after the Promissory Note (Exh. "1") was executed by the parties, the whole scenario was
novated into purely civil in nature. It was the intention of both [the respondent] and [petitioner Edna] to
turn the debt into a mere loan, hence, this agreement of theirs being the law that binds them must be
respected.

[Petitioner Edna] nonetheless, admits in Exhibit "1," that, she is indebted to [the respondent]. Thus, she
must pay her just debt. (Emphasis ours)

Petitioner Edna, however, failed to settle her obligation, forcing the respondent to foreclose the
mortgage on the properties, with the latter as the highest bidder during the public sale.

The petitioners then filed the case for the Declaration of Nullity of Mortgage Contracts, alleging that
the mortgage documents were "executed under duress, as the [petitioners] at the time of the execution
of said deeds were still suffering from the effect of the conviction of [petitioner] Edna, and could not
have been freely entered into said contracts.

On December 12, 2008, the RTC of Tuguegarao City, Branch 5 (RTC-Branch 5), rendered a Decision
dismissing the complaint for lack of factual and legal merit.

The petitioners brought their case to the Court of Appeals (CA) and in the assailed Decision 11 dated
November 13, 2012 and Resolution12 dated May 14, 2013, the RTC-Branch 5 decision was affirmed.

82
Issue: Whether the petitioner were compelled by duress or intimidation when they executted the
mortgage contracts.

Held: NO. Article 1390(2) of the Civil Code provides that contracts where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud are voidable or annullable.

Intimidation may vitiate consent and render the contract invalid, the following requisites must concur:
(1) that the intimidation must be the determining cause of the contract, or must have caused the consent
to be given; (2) that the threatened act be unjust or unlawful; (3) that the threat be real and serious,
there being an evident disproportion between the evil and the resistance which all men can offer,
leading to the choice of the contract as the lesser evil; and (4) that it produces a reasonable and well-
grounded fear from the fact that the person from whom it comes has the necessary means or ability to
inflict the threatened injury.

Based on the petitioners own allegations, what the respondent did was merely inform them of
petitioner Ednas conviction in the criminal cases for estafa. It might have evoked a sense of fear or
dread on the petitioners part, but certainly there is nothing unjust, unlawful or evil in the respondent's
act. The petitioners also failed to show how such information was used by the respondent in coercing
them into signing the mortgages.

SC affirmed the finding of the CA that if the judgment of conviction is the only basis of the
[petitioners] in saying that their consents were vitiated, such will not suffice to nullify the real estate
mortgages and the subsequent foreclosure of the mortgaged properties. No proof was adduced to show
that [the respondent] used [force], duress, or threat to make [petitioner] Victor execute the real estate
mortgages.

Also, the threat to prosecute for estafa not being an unjust act, but rather a valid and legal act to enforce
a claim, cannot at all be considered as intimidation.

WHEREFORE, the petition is DENIED for lack of merit.

83
CONSENT

(51) ECE REALTY AND DEVELOPMENT INC., Petitioner, vs. RACHEL G. MANDAP,
Respondent.

G.R. No. 196182, September 1, 2014

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: Before the Court is a petition for review on certiorari assailing the Decision and
Resolution of the Court of Appeals (CA), dated July 21, 2010 and March 15, 2011, respectively, in CA-
G.R. SP No. 100741.

Facts: Petitioner ECE Realty is a corporation engaged in the building and development of
condominium units. Sometime in 1995, it started the construction of a condominium project called
Central Park Condominium Building located along Jorge St., Pasay City. However, printed
advertisements were made indicating therein that the said project was to be built in Makati City.

December 1995: respondent Mandap, agreed to buy a unit from the above project by paying a
reservation fee and, thereafter, downpayment and monthly installments. On June 18, 1996, respondent
and the representatives of petitioner executed a Contract to Sell. In the said Contract, it was indicated
that the condominium project is located in Pasay City.

More than two years after the execution of the Contract to Sell, respondent Mandap, through her
counsel, wrote petitioner a letter demanding the return of P422,500.00, representing the payments she
made, on the ground that she subsequently discovered that the condominium project was being built in
Pasay City and not in Makati City as indicated in its printed advertisements. Instead on answering the
letter, petitioner ECE Realty sent a letter informing her that her unit is already ready for inspection and
occupancy should she decide to move in.

Treating the letter as a form of denial of her demand for the return of the sum she had paid to petitioner
ECE Realty, respondent Mandap filed a complaint with the Expanded National Capital Region Field
Office (ENCRFO) of the HLURB seeking the annulment of her contract with petitioner, the return of
her payments, and damages.

Sept. 30, 2005: ENCRFO dismissed the complaint and directed the parties to resume the fulfillment of
the terms and conditions of their sales contract. ENCRFO held that the respondent failed to show or
substantiate the legal grounds that consist of a fraudulent or malicious dealing with her by the
[petitioner], such as, the latter's employment of insidious words or machinations which induced or
entrapped her into the contract and which, without them, would not have encouraged her to buy the
unit.

The HLURB Board of Commissioner and the Office of the President affirmed the decision of the
ENCRFO.

CA reverses the decision. It annulled the contract between the parties. ECE ordered to return the
payments made with legal interest. It held that petitioner employed fraud and machinations to induce
respondent Mandap to enter into a contract with it. It also expressed doubt on the due execution of the
Contract to Sell between the parties.

84
Issue: Whether or not ECE Realty was guilty of fraud and if so, whether such fraud is sufficient ground
to nullify its contract with Mandap.

Held: NO. Jurisprudence has shown that in order to constitute fraud that provides basis to annul
contracts, it must fulfill two conditions. First, the fraud must be dolo causante or it must be fraud in
obtaining the consent of the party. This is referred to as causal fraud. The deceit must be serious. The
fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case
should be considered, taking into account the personal conditions of the victim. Second, the fraud must
be proven by clear and convincing evidence and not merely by a preponderance thereof.

In the present case, this Court finds that petitioner is guilty of false representation of a fact. This is
evidenced by its printed advertisements indicating that its subject condominium project is located in
Makati City when, in fact, it is in Pasay City. However, insofar as the present case is concerned, that the
misrepresentation made by petitioner in its advertisements does not constitute causal fraud which
would have been a valid basis in annulling the Contract to Sell between petitioner and respondent.

The Housing and Land Use Arbiter found that respondent failed to show that the essential and/or
moving factor that led the [respondent] to give her consent and agree to buy the unit was precisely the
project's advantageous or unique location in Makati [City] to the exclusion of other places or city x x
x. Both the HLURB Board of Commissioners and the Office of the President affirmed the finding of
the Arbiter and unanimously held that respondent failed to prove that the location of the said project
was the causal consideration or the principal inducement which led her into buying her unit in the said
condominium project. The Court finds no cogent reason to depart from the foregoing findings and
conclusion of the above agencies.

Indeed, evidence shows that respondent proceeded to sign the Contract to Sell despite information
contained therein that the condominium is located in Pasay City. This only means that she still agreed
to buy the subject property regardless of the fact that it is located in a place different from what she was
originally informed. If she had a problem with the property's location, she should not have signed the
Contract to Sell and, instead, immediately raised this issue with petitioner. But she did not. It took
respondent more than two years from the execution of the Contract to Sell to demand the return of the
amount she paid on the ground that she was misled into believing that the subject property is located in
Makati City. In the meantime, she continued to make payments.

The Court is not persuaded by the ruling of the CA which expresses doubt on the due execution of the
Contract to Sell. The fact remains that the said Contract to Sell was notarized. It is settled that absent
any clear and convincing proof to the contrary, a notarized document enjoys the presumption of
regularity and is conclusive as to the truthfulness of its contents. Neither does the Court agree that the
presumption of regularity accorded to the notarized Contract to Sell was overcome by evidence to the
contrary. Respondent's allegation that she signed the said Contract to Sell with several blank spaces,
and which allegedly did not indicate the location of the condominium, was not supported by proof. The
basic rule is that mere allegation is not evidence and is not equivalent to proof. In addition, the fact that
respondent made several payments prior to the execution of the subject Contract to Sell is not the kind
of evidence needed to overcome such presumption of regularity.

In any case, even assuming that petitioners misrepresentation consists of fraud which could be a
ground for annulling their Contract to Sell, respondent's act of affixing her signature to the said
Contract, after having acquired knowledge of the property's actual location, can be construed as
an implied ratification thereof. Ratification of a voidable contract is defined under Article 1393 of the
Civil Code as follows: Art. 1393. Ratification may be effected expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and
such reason having ceased, the person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing
approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.
Under Article 1392 of the Civil Code, ratification extinguishes the action to annul a voidable
85
contract. In addition, Article 1396 of the same Code provides that [r]atification cleanses the contract
from all its defects from the moment it was constituted.

Hence, based on the foregoing, the findings and conclusions of the Housing and Land Use Arbiter, the
HLURB Board of Commissioners and the Office of the President, should be sustained.

CONSIDERATION ART. 1354


(52) PENTACAPITAL INVESTMENT CORPORATION, Petitioner, vs. MAKILITO B.
MAHINAY, Respondent.
G.R. NO. 171736, July 5, 2010
Ponente: NACHURA, J., SECOND DIVISION
Nature of Action: Before us are two consolidated petitions for review on certiorari under Rule 45 of
the Rules of Court filed by petitioner Pentacapital Investment Corporation. In G.R. No. 171736,
petitioner assails the Court of Appeals (CA) Decision dated December 20, 2005 and Resolution dated
March 1, 2006 in CA-G.R. SP No. 74851; while in G.R. No. 181482, it assails the CA Decision dated
October 4, 2007 and Resolution4 dated January 21, 2008 in CA-G.R. CV No. 86939.
Facts: Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based on
two separate loans obtained by the latter, amounting to P1,520,000.00 and P416,800.00, or a total
amount of P1,936,800.00. These loans were evidenced by two promissory notes dated February 23,
1996. Despite repeated demands, respondent failed to pay the loans, hence, the complaint.

In his Answer with Compulsory Counterclaim,respondent claimed that petitioner had no cause of action
because the promissory notes on which its complaint was based were subject to a condition that did not
occur. While admitting that he indeed signed the promissory notes, he insisted that he never took out a
loan and that the notes were not intended to be evidences of indebtedness. By way of counterclaim,
respondent prayed for the payment of moral and exemplary damages plus attorneys fees.

Respondent explained that he was the counsel of Ciudad Real Development Inc. (CRDI). In 1994,
Pentacapital Realty Corporation (Pentacapital Realty) offered to buy parcels of land known as the
Molino Properties, owned by CRDI, located in Molino, Bacoor, Cavite. The Molino Properties, with a
total area of 127,708 square meters, were sold at P400.00 per sq m. As the Molino Properties were the
subject of a pending case, Pentacapital Realty paid only the down payment amounting to
P12,000,000.00. CRDI allegedly instructed Pentacapital Realty to pay the formers creditors, including
respondent who thus received a check worth P1,715,156.90. It was further agreed that the balance
would be payable upon the submission of an Entry of Judgment showing that the case involving the
Molino Properties had been decided in favor of CRDI.

Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent had a charging lien
equivalent to 20% of the total consideration of the sale in the amount of P10,277,040.00. Pending the
submission of the Entry of Judgment and as a sign of good faith, respondent purportedly returned the
P1,715,156.90 check to Pentacapital Realty. However, the Molino Properties continued to be haunted
by the seemingly interminable court actions initiated by different parties which thus prevented
respondent from collecting his commission.

On motion of respondent, the Regional Trial Court (RTC) allowed him to file a Third Party Complaint
against CRDI, subject to the payment of docket fees.

Admittedly, respondent earlier instituted an action for Specific Performance against Pentacapital Realty
before the RTC of Cebu City, Branch 57, praying for the payment of his commission on the sale of the
Molino Properties. In an Amended Complaint, respondent referred to the action he instituted as one of
Preliminary Mandatory Injunction instead of Specific Performance. Acting on Pentacapital Realtys

86
Motion to Dismiss, the RTC dismissed the case for lack of cause of action. The dismissal became final
and executory.

With the dismissal of the aforesaid case, respondent filed a Motion to Permit Supplemental
Compulsory Counterclaim. In addition to the damages that respondent prayed for in his compulsory
counterclaim, he sought the payment of his commission amounting to P10,316,640.00, plus interest at
the rate of 16% per annum, as well as attorneys fees equivalent to 12% of his principal claim.
Respondent claimed that Pentacapital Realty is a 100% subsidiary of petitioner. Thus, although
petitioner did not directly participate in the transaction between Pentacapital Realty, CRDI and
respondent, the latters claim against petitioner was based on the doctrine of piercing the veil of
corporate fiction. Simply stated, respondent alleged that petitioner and Pentacapital Realty are one and
the same entity belonging to the Pentacapital Group of Companies.

Over the opposition of petitioner, the RTC, in an Order dated August 22, 2002, allowed the filing of the
supplemental counterclaim. Aggrieved, petitioner sought recourse in the CA through a special civil
action for certiorari, seeking to reverse and set aside the RTC Order. The case was docketed as CA-
G.R. SP No. 74851. On December 20, 2005, the CA rendered the assailed Decision dismissing the
petition. The appellate court sustained the allowance of the supplemental compulsory counterclaim
based on the allegations in respondents pleading. The CA further concluded that there was a logical
relationship between the claims of petitioner in its complaint and those of respondent in his
supplemental compulsory counterclaim. The CA declared that it was inconsequential that respondent
did not clearly allege the facts required to pierce the corporate separateness of petitioner and its
subsidiary, the Pentacapital Realty.

Issue: Whether respondent is not liable based on the ground that the promissory notes lacked
consideration as he did not receive the proceeds of the loan.

Held: No. Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful
unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of the Rules of Court, the
following are disputable presumptions: (1) private transactions have been fair and regular; (2) the
ordinary course of business has been followed; and (3) there was sufficient consideration for a
contract.A presumption may operate against an adversary who has not introduced proof to rebut it. The
effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to
meet the legal presumption or the prima facie case created thereby, and which, if no proof to the
contrary is presented and offered, will prevail. The burden of proof remains where it is, but by the
presumption, the one who has that burden is relieved for the time being from introducing evidence in
support of the averment, because the presumption stands in the place of evidence unless rebutted.

In the present case, as proof of his claim of lack of consideration, respondent denied under oath that he
owed petitioner a single centavo. He added that he did not apply for a loan and that when he signed the
promissory notes, they were all blank forms and all the blank spaces were to be filled up only if the sale
transaction over the subject properties would not push through because of a possible adverse decision
in the civil cases involving them (the properties). He thus posits that since the sale pushed through, the
promissory notes did not become effective.

As proof of lack of consideration, respondent (a) denied under oath that he owed petitioner a single
centavo, (b) represented that he did not apply for a loan and (c) said that when he signed the promissory
notes, they were all blank forms thus rendering the notes ineffective. It is presumed that consideration
exists and is lawful unless the debtor proves the contrary and the presumption that a contract has
sufficient consideration cannot be overthrown by the bare, uncorroborated and self-serving assertion
of respondent that it has no consideration.

Respondents liability is not negated by the fact that he has uncollected commissions from the sale of
the Molino properties. As the records of the case show, at the time of the execution of the promissory
notes, the Molino properties were subject of various court actions commenced by different parties.
Thus, the sale of the properties and, consequently, the payment of respondents commissions were put
on hold. The non-payment of his commissions could very well be the reason why he obtained a loan
from petitioner.

87
WHEREFORE, premises considered, the petitions are hereby GRANTED. The Decisions and
Resolutions of the Court of Appeals dated December 20, 2005 and March 1, 2006, in CA-G.R. SP No.
74851, and October 4, 2007 and January 21, 2008, in CA-G.R. CV No. 86939, are REVERSED and
SET ASIDE. Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital Investment
Corporation P1,936,800.00 plus 12% interest per annum, and 12% per annum penalty charge, starting
February 17, 1997. He is likewise ordered to pay 10% of his outstanding obligation as attorneys fees.
No pronouncement as to costs.

88
CONSIDERATION ART. 1354

(53) HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA, MACARIO


B. URETA, GLORIA URETA-GONZALES, ROMEO B. URETA, RITA URETA-SOLANO,
NENA URETA-TONGCUA, VENANCIO B. URETA, LILIA URETA-TAYCO, and HEIRS OF
POLICRONIO B. URETA, JR., namely: MIGUEL T. URETA, RAMON POLICRONIO T.
URETA, EMMANUEL T. URETA, and BERNADETTE T. URETA, Petitioners, vs.HEIRS OF
LIBERATO M. URETA, namely: TERESA F. URETA, AMPARO URETA-CASTILLO,
IGNACIO F. URETA, SR., EMIRITO F. URETA, WILKIE F. URETA, LIBERATO F. URETA,
JR., RAY F. URETA, ZALDY F. URETA, and MILA JEAN URETA CIPRIANO; HEIRS OF
PRUDENCIA URETA PARADERO, namely: WILLIAM U. PARADERO, WARLITO U.
PARADERO, CARMENCITA P. PERLAS, CRISTINA P. CORDOVA, EDNA P. GALLARDO,
LETICIA P. REYES; NARCISO M. URETA; VICENTE M. URETA; HEIRS OF FRANCISCO
M. URETA, namely: EDITA T. URETA-REYES and LOLLIE T. URETA-VILLARUEL;
ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF INOCENCIO M. URETA,
namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V. URETA, and
ENRIQUE V. URETA; MERLINDA U. RIVERA; JORGE URETA; ANDRES URETA,
WENEFREDA U. TARAN; and BENEDICT URETA, Respondents.

G.R. NO. 165748, September 14, 2011

Ponente: MENDOZA, J., THIRD DIVISION

Nature of Action: These consolidated petitions for review on certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure assail the April 20, 2004 Decision 1 of the Court of Appeals (CA),
and its October 14, 2004 Resolution2 in C.A.-G.R. CV No. 71399, which affirmed with modification
the April 26, 2001 Decision3 of the Regional Trial Court, Branch 9, Kalibo, Aklan (RTC) in Civil Case
No. 5026.

Facts: Alfonso Ureta begot 14 children and was financially well-off during his lifetime. Alfonso
executed 4 Deeds of Sale covering parcels of land in favor of Polcronio, Liberato, Prudencia ad his
common-law wife, Valeriana Dela Cruz. The Deeed of Sale executed on October 25, 1969, in favor of
Policronio, covered, six parcels of land, which are the properties in dispute in this case. Since the sales
were only made for taxation purposes, no monetary consideration was given. Alfonso continued to
own, possess and enjoy the land and their produce.

When Alfonso died, except for the portion of parcel 5, the rest of the parcels transferred to Policronio
were tenanted. The tenants never turned over the produce of the lands to Policronio, or any of his heirs
until he died, except for the portion of parcel 5, neither his heirs ever took possession of the subject
lands. on April 19, 1989, Alfonsos heirs executed a Deed of Extra Judicial Partition, which included
all the lands that were covered by the 4 deeds. Conrado, eldest son of Policronio, signed it in behalf of
his co-heirs, who later found with his co-heirs a tax declaration in their fathers name covering six
parcels of land and June 15, 1995 obtained a copy of the Deeds of Sale.

Heirs of Policronio filed a Complaint for Declaration of Ownership, Recovery of Possession,


Annulment of Documents, Partition, and Damages against the Heirs of Alfonso. RTC dismissed the
complaint, declaring the Deed of Sale null and void, the Deed of Extra Judicial Partition valied and
neither was entitled for damages. They appealed before CA, CA partially granted the appeal. RTC
decision affirmed with modification: Deed of Sale void for being ABSOLUTELY SIMULATED,
Deed of Extra-Judicial Partition annulled, claim for damages dismissed.

Issue: Whether CA erred in affirming the decision of RTC declaring Deed of Sale void for being
absolutely simulated?

89
Held: No. Two veritable legal presumption bear on the validity of the Deed of Sale: (1) that there was
sufficient consideration for the contract; and (2) that it was the result of a fair and regular private
transaction. If shown to hold, these presumptions infer prima facia the transactions validity, except
that it must yield to the evidence adduced.

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement.

Lacking, therefore, in an absolutely simulated contract is consent which is essential to a valid and
enforceable contract.14 Thus, where a person, in order to place his property beyond the reach of his
creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title
and control of the property; hence, the deed of transfer is but a sham. 15 Similarly, in this case, Alfonso
simulated a transfer to Policronio purely for taxation purposes, without intending to transfer
ownership over the subject lands.

The most protuberant index of simulation of contract is the complete absence of an attempt in any
manner on the part of the ostensible buyer to assert rights of ownership over the subject properties.
Policronios failure to take exclusive possession of the subject properties or, in the alternative, to
collect rentals, is contrary to the principle of ownership. Such failure is a clear badge of simulation
that renders the whole transaction void. t is further telling that Policronio never disclosed the existence
of the Deed of Sale to his children. This, coupled with Policronios failure to exercise any rights
pertaining to an owner of the subject lands, leads to the conclusion that he was aware that the transfer
was only made for taxation purposes and never intended to bind the parties thereto. It is clear that the
parties did not intend to be bound at all, and as such, the Deed of Sale produced no legal effects and
did not alter the juridical situation of the parties. The Deed of Sale is, therefore, void for being
absolutely simulated pursuant to Article 1409 (2) of the Civil Code.

Although the contract states that the purchase price of 2,000.00 was paid by Policronio to Alfonso
for the subject properties, it has been proven that no such payment was made. It is well-settled that
where a deed of sale states that the purchase price has been paid but in fact has never been paid, the
deed of sale is null and void for lack of consideration.

WHEREFORE, the petition in G.R. No. 165748 is DENIED. The petition in G.R. No. 165930 is
GRANTED. The assailed April 20, 2004 Decision and October 14, 2004 Resolution of the Court of
Appeals in CA-G.R. CV No. 71399, are hereby MODIFIED in this wise:
(1) The Deed of Extra-Judicial Partition, dated April 19, 1989, is VALID, and
(2) The order to remand the case to the court of origin is hereby DELETED.

90
CONTRACT OF ADHESION

(54) VICENTE D. CABANTING AND LALAINE V. CABANTING, Petitioners, v. BPI FAMILY


SAVINGS BANK, INC., Respondent.

G.R. No. 201927, February 17, 2016

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45 praying that the Decision of CA on
Sept. 28, 2011 and Resolution dated May 16, 2012 denying petitioners motion for reconsideration be
reversed and set aside.

Facts: On Jan. 14, 2003, petitioners bought on installment basis from Diamond Motors Corporation a
2002 Mitsubishi Adventure SS MT. Petitioners also executed and delivered to Diamond Motors a
Promissory Note (PN) with Chattel Mortgage. There, petitioners jointly and severally obligated
themselves to pay Diamond Motors the sum of P836,032.00 payable in monthly installments in
accordance with the schedule of payment indicated therein. Diamond Motors assigned to respondent
BPI Family its rights to the PN with Chattel Mortgage. On Oct. 16, 2003, BPI Family filed a Complaint
against petitioners for Replevin and damages before the RTC of Manila because petitioners allegedly
failed to pay three consecutive installments or surrender possession of the vehicle to BPI Family
despite several written demands. Petitioners, on the other hand alleged that they sold the subject vehicle
to one Victor Abalos with the agreement the the latter shall assume the obligation to pay the remaining
monthly installments. Petitioners further alleged that it was Abalos who made payments to BPI through
his personal checkswhich BPI accepted. Hence BPI shouldve sued Abalos instead.

During trial, BPI Family dispensed with the testimony of its sole witness and formally offered its
documentary evidence. Petitioners, on the other hand, failed to present its defense and despite the
numerous opportunities given to them, they werent able to present their witness, Jacobina Alcantara,
despite courts issuance of a subpoena duces tecum ad testificandum. Hence, RTC granted BPIs
motion to hold petitioners right to present evidence be deemed waived and ordered petitioners to pay
the BPI P742,022.92 with 24% interest per annum plus attorneys fees. Aggrieved, petitioners appealed
to CA but the latter only affirmed with modification RTCs judgmentmaking petitioners pay only
P740, 155.18 with legal interest of 12% per annum plus attorneys fees. Hence, the instant petition.

Issue: Whether or not the stipulation waiving demand in a contract of adhesion is invalid.

Ruling: No, the stipulation waiving demand in a contract of adhesion is not necessarily invalid.

91
CA is correct that no prior demand was necessary to make petitioners obligation due and payable. The
Promissory Note with Chattel Mortgage clearly stipulated that "[i]n case of my/our [petitioners'] failure
to pay when due and payable, any sum which I/We x x x or any of us may now or in the future owe to
the holder of this note x x x then the entire sum outstanding under this note shall immediately become
due and payable without the necessity of notice or demand which I/We hereby waive."

Petitioners argue that such stipulation should be deemed invalid as the document they executed was a
contract of adhesion. It is important to stress the Court's ruling in Dia v. St. Ferdinand Memorial Park,
Inc., to wit:

A contract of adhesion, wherein one party imposes a ready-made form of contract on the other, is not
strictly against the law. A contract of adhesion is as binding as ordinary contracts, the reason being that
the party who adheres to the contract is free to reject it entirely. Contrary to petitioner's contention, not
every contract of adhesion is an invalid agreement. Contrary to petitioner's contention, not every
contract of adhesion is an invalid agreement. As we had the occasion to state in Development Bank of
the Philippines v. Perez:

x x x In discussing the consequences of a contract of adhesion, we held in Rizal Commercial Banking


Corporation v. Court of Appeals.

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true that we
have, on occasion, struck down such contracts as void when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion
are not invalid per se; they are not entirely prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent.

The validity or enforceability of the impugned contracts will have to be determined by the peculiar
circumstances obtaining in each case and the situation of the parties concerned. Indeed, Article 24 of
the New Civil Code provides that "[in] all contractual, property or other relations, when one of
theparties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age, or other handicap, the courts must be vigilant for his protection." x x x8

Here, there is no proof that petitioners were disadvantaged, uneducated or utterly inexperienced in
dealing with financial institutions; thus, there is no reason for the court to step in and protect the
interest of the supposed weaker party. Verily, petitioners are bound by the aforementioned stipulation in
the Promissory Note with Chattel Mortgage waiving the necessity of notice and demand to make the
obligation due and payable.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, promulgated on
September 28, 2011, and the Resolution dated May 16, 2012 in CA-G.R. CV No. 91814 are
AFFIRMED with MODIFICATION by ordering payment of legal interest at the rate of twelve
percent ( 12%) per annum from the time of filing of the complaint up to June 30, 2013, and thereafter,
at the lower rate of six percent (6%) per annum from July 1, 2013 until full satisfaction, pursuant to
Bangko Sentralng Pilipinas - Monetary Board Circular No. 799, Series of 2013 and applicable
jurisprudence.

92
RESCISSION OF CONTRACT

(55) CONCHITA A. SONGLEY, petitioner vs. ANCHOR SAVINGS BANK/EQUICOM


SAVINGS BANK, respondent.

G.R. No. 205623, August 10, 2016

Ponente: DEL CASTILLO, J., SECOND DIVISION

Nature of Action: Petition for Review on Certiorari assailing CA Decision and Resolution denying
petitioners Urgent Motion for Reconsideration.

Facts: On March 13, 2009, petitioner filed a complaint for declaration of nullity of rescission of
contract and damages against respondent bank. Petitioner, in her complaint, alleged that she agreed to
purchase a parcel of land that had been foreclosed by respondent bank in Quezon City for P2.2M.
Petitioner and respondent entered into a Contract to Sell where the petitioner agreed to pay P200K as
downpayment with the balance of P2M payable in sixty monthly installmentsof P47,580. When
petitioner defaulted in paying the installments, respondent bank rescinded their contract to sellwhich
petitioner believes to be null and void since she has already substantially paid her obligation to the
bank. The bank, in its Answer denied petitioners allegations and contended that the post-dated checks
issued by petitioner in its favor covering the monthly installments were all dishonored by the drawee
bank when they were presented for payment.

After the Pre-Trial, parties agreed to settle amicably and entered into a Compromise Agreement. On the
basis thereof, the trial court rendered judgment whereby the petitioner agreed to repurchase the subject
property from respondent bank for P1,469,460.66 plus 12% interest per annum. However, respondent
bank later on filed a Manifestation and Motion for Execution claiming that petitioner had not been
paying the agreed monthly installments in accordance with the compromise agreement. Trial court
granted respondents motion. Aggrieved, petitioner filed a petition for certiorari before CA but CA
ruled against petitioner. Petitioner moved to reconsider but CA remained unconvinced. Hence, the
present petition.

Issue: Whether or not petitioners failure to abide by the compromise agreement could result in
execution, cancellation, and rescission of the compromise agreement and contract to sell, and her
eviction from the property.

Held: Yes, petitioners failure to abide by the compromise agreement could result in the execution,
cancellation, and rescission of the compromise agreement and contract to sell, and her eviction from
the property.

93
Certainly, a compromise agreement becomes the law between the parties and will not be set aside other
than [sic] the grounds mentioned above. In Ramnani v. Court of Appeals, we held that the main
purpose of a compromise agreement is to put an end to litigation because of the uncertainty that may
arise from it. Once the compromise is perfected, the parties are bound to abide by it in good faith.
Should a party fail or refuse to comply with the terms of a compromise or amicable settlement,
the other party could either enforce the compromise by a writ of execution or regard it as rescinded and
so insist upon his/her original demand.

Petitioner may be right in arguing that respondent has the option to proceed with the sale and charge
corresponding penalties instead, pursuant to the stipulations in the Contract to Sell; however,
respondent chose to rescind the same, an option which it is equally entitled to by contract and under the
law, and thus evict petitioner from the premises.

Respondent must have thought that if past actions were a gauge, petitioner was no longer in a position
to honor her obligations under the Contract to Sell. Respondents claim is straightforward: it seeks
rescission and eviction, with whatever amount paid by petitioner to be applied as rental for the
use and occupation of the subject property as agreed upon. Going by what is on record, it would
appear that petitioner paid the total amount of P497,412.76, while she has been occupying the
property, a 126.5-square meter parcel of land with improvements thereon located at Timex Street,
West Fairview, Quezon City, as her residence since 2007.In effect, petitioner would have paid a measly
sum as aggregate rent for her stay therein, which is more than just for her.

WHEREFORE, the Petition is DENIED. The August 28, 2012 Decision and January 25, 2013
Resolution of the Court of Appeals in CA-G.R. SP No. 122409 are AFFIRMED. The parties
Compromise Agreement and Contract to Sell dated December 21, 2007 are RESCINDED. Petitioner
Conchita A. Sonley is ordered to immediately VACATE the subject property and premises and
SURRENDER the 'same to respondent Anchor Savings Bank/Equicom Savings Bank.

94
VOID CONTRACT

(56) MERCEDES N. ABELLA, MA. THERESA A. BALLESTEROS and MARIANITO N.


ABELLA, Petitioners, vs. HEIRS OF FRANCISCA C. SAN JUAN namely: GLICERIA SAN
JUAN CAPISTRANO, BENIGNA SAN JUAN VASQUEZ, EVARISTO SAN JUAN, NIEVES
SAN JUAN LUSTRE and MATILDE SAN JUAN QUILONIO, Respondents.

G.R.No. 182629, February 24, 2016

Ponente: JARDELEZA, J., THIRD DIVISION

Nature of Action:

Facts: Francisca San Juan was a tenant to a parcel of land in Balatas, Naga City covered by CLT No.
843 owned by petitioners. On Jan. 28, 1981, Dr. Manuel Abella and Francisca entered into an
Agreement exchanging the Balatas property with a lot situated in Cararayan, Naga City. The parties
agreed that in addition to the Cararayan property, Francisca shall receive from Dr. Abella the amount of
P5,250 as disturbance compensation and a 120-sq. m. home lot in Balatas. The Carayan property was
later on declared to be under the name of Francisca under Tax Dec. No. 01-006-0169 while the home
lot in Balatas was sold for P7,200 to Felimon Delfino, Jr. in 1988. Despite this, the original CLT No.
843 was not cancelled.

Sometime in 1983, Benigna S.J. Vasquez, daughter of Francisca, sought permission from Mercedes
Abella, Dr. Abellas wife, to construct a small house on the Balatas property. Benigna and her children
constructed their residential houses on the property. However, when Mrs. Abella finally requested
Benigna and her children to vacate the property, they refused, claiming ownership. Hence, Mrs. Abella
filed an action for unlawful detainer against them. MTC ruled in favor of the heirs of Dr. Abella and
issued writs of execution and demolition against Benigna and her sons. Respondent heirs of Francisca
then filed an action to quiet title with prayer for TRO with the RTC against the heirs of Dr. Abella. RTC
however dismissed the Complaint for lack of merit. Respondents then appealed to CA contending that
under PD 27, title to the Balatas property could not have been acquired by the petitioners since its
transfer is limited only to the government or the grantees heirs by way of succession. Thus, the
Agreement is an invalid instrument. CA reversed the RTC Decision and ruled that the Agreement was
void for being violative of PD 27 and Memo Circular No. 7, s. 1979, which declares as null and void
the transfer by beneficiaries under PD 27 of the ownership, rights, and possession of their farms/home
lots to other persons. CA further ruled that DAR approval cannot clother the void Agreement with
validity. Petitioners filed a Motion for Reconsideration which the CA denied. Hence the instant
Petition.

Issue: Whether or not the Agreement is void for being contrary to law.

95
Held: Yes, the Agreement is void for contravening PD 27.

The resolution of this Petition hinges on the determination of whether the Agreement between Dr.
Abella and Francisca is void for violating PD 27.

We affirm the CA ruling.

PD 27 provides for only two exceptions to the prohibition on transfer, namely, (I) transfer by hereditary
succession and (2) transfer to the Government:

Torres v. Ventura40 explained the provision, thus:

xxx

The law is clear and leaves no room for doubt. Upon the promulgation of Presidential Decree No. 27 on
October 21, 1972, petitioner was DEEMED OWNER of the land in question. As of that date, he was
declared emancipated from the bondage of the soil. As such, he gained the rights to possess, cultivate,
and enjoy the landholding for himself. Those rights over that particular property were granted by the
government to him and to no other. To insure his continued possession and enioymcnt of the property,
he could not, under the law, make any valid form of transfer except to the government or by hereditary
succession, to his successors.

Yet, it is a fact that despite the prohibition, many farmer-beneficiaries like petitioner herein were
tempted to make use of their land to acquire much needed money. Hence, the then Ministry of Agrarian
Reform issued the following Memorandum Circular:

"Despite the above prohibition, however, there arc reports that many farmer-beneficiaries

of PD 27 have transferred tfte owners/tip, rights, and/or possession of their farmsllwmelots to other
persons or have surrendered the same to their former landowners. All these transactions/surrenders are
violative of PD 27 and therefore, null and void.

The intended exchange of properties by the parties as expressed in the Agreement and in the Deed of
Donation entailed transfer of all the rights and interests of Francisca over the Balatas propetiy to Dr.
Abella. It is the kind of transfer contemplated by and prohibited by law. Thus, petitioners' argument that
the Agreement was merely a relocation agreement, or one for the exchange or swapping of properties
between Dr. Abella and Francisca, and not a transfer or conveyance under PD 27, has no merit. A
relocation, exchange or swap of a property is a transfer of property. They cannot excuse themselves
from the prohibition by a mere play on words. We likewise agree with the CA that the DAR's approval
did not validate the Agreement. Under PD 27 and the pronouncements of this Court, transfer of lands
under PD 27 other than to successors by hereditary succession and the Government is void.47 A void or
inexistent contract is one which has no force and effect from the beginning, as if it has never been
entered into, and which cannot be validated either by time or ratification. No form of validation can
make the void Agreement legal.

WHEREFORE, the assailed Decision of the CA dated October 16, 2007 and Resolution dated April
14, 2008 are AFFIRMED with the MODIFICATION that respondents should return to the petitioners
the 6,000-square meter parcel of land located in Cararayan, Naga City, Camarines Sur, and the amount
of ?5,250.00 with legal interest computed at the rate of 6% per annum reckoned from the finality of this
judgment until fully paid. This case is remanded to the Regional Trial Court, Branch 23, Naga City for
the determination of the fair market value of the Balatas home lot at the time of donation.

SO ORDERED.

96
VOID CONTRACT

(57) TOMAS P. TAN, JR., Petitioner, v. JOSE G. HOSANA, Respondent.

G.R. No. 190846, February 3, 2016

Ponente: BRION, J., SECOND DIVISION

Nature of Action: Petition for Review on certiorari challenging the Aug. 28, 2009 decision and Nov.
17, 2009 resolution of CA in CA-G.R. CV No. 88645.

Facts: Respondent Jose Hosana married Milagros Hosana on Jan. 14, 1979. During their marriage, they
bought a house and lot in Tinago, Naga City covered by TCT No. 21229. On Jan. 13, 1998, Milagros
the subject property to petitioner Tomas Tan, Jr. as evidenced by a deed of sale executed by Milagros as
herself and as attorney-in-fact of Jose, by virtue of an SPA executed by Jose in her favor. The Deed of
Sale stated that the purchase price for the lot was P200,000.00. However, on Oct. 19, 2001, Jose filed a
Complaint for Annulment of Sale/Cancellation of Title/Reconveyance and Damages against Milagros,
Tomas, and the Register of Deeds of Naga City. Jose averred that while he was working in Japan,
Milagros, without his consent and knowledge, conspired with Tomas to execute the SPA by forging
Joses signature. Tomas, however, maintained that he was a buyer in good faith and for value and
alleged that the SPA authorizing Milagros to sell the property was annotated at the back of the title.
Tomas alleged that he made a partial payment of P350,000 and another P350,000 upon the execution of
Deed of Absolute Sale. Tomas noticed that the consideration written on the Deed of Sale was only
P200,000 but when he inquired about it, Milagros explained that the reason for said discrepancy was to
save on taxes. After trial, RTC ruled in favor of Jose and nullified the sale of the property to Tomas.
Tomas appealed to CA but CA affirmed the RTC ruling that the deed of sale and SPA were void and
directed Milagros to reimburse Tomas the purchase price of P200,000. Tomas filed a motion for
reconsideration on the ground that the amount of P200,000 is insufficient but was denied for lack of
merit. Hence, the instant petition.

Issue: Whether or not a void Deed of Sale can be used as basis for the amount of consideration paid.

Ruling: Yes, a void Deed of Sale can be used as basis for the amount of consideration paid.

We affirm the CA ruling and deny the petition.

Whether Tomas paid the purchase price of P700,000.00 is a question of fact not proper in a petition for
review on certiorari. Appreciation of evidence and inquiry on the correctness of the appellate court's
factual findings are not the functions of this Court, as we are not a trier of facts.

97
We agree with the CA that Tomas bare allegation that he paid Milagros the sum of P700,000.00 cannot
be considered as proof of payment, without any other convincing evidence to establish this claim.
Tomas bare allegation, while uncontroverted, does not automatically entitle it to be given weight and
credence.

It is settled in jurisprudence that one who pleads payment has the burden of proving it; the burden rests
on the defendant to prove payment, rather than on the plaintiff to prove non-payment. A mere allegation
is not evidence, and the person who alleges has the burden of proving his or her allegation with the
requisite quantum of evidence, which in civil cases is preponderance of evidence.

The force and effect of a void

contract is distinguished from its

admissibility as evidence.

The next question to be resolved is whether the CA correctly ordered the reimbursement of
P200,000.00, which is the consideration stated in the Deed of Sale, based on the principle of unjust
enrichment. The petitioner argues that the CA erred in relying on the consideration stated in the deed of
sale as basis for the reimbursable amount because a null and void document cannot be used as
evidence.

We find no merit in the petitioners argument.

A void or inexistent contract has no force and effect from the very beginning. This rule applies to
contracts that are declared void by positive other spouses written consent. A void contract is equivalent
to nothing and is absolutely wanting in civil effects. It cannot be validated either by ratification or
prescription. When, however, any of the terms of a void contract have been performed, an action to
declare its inexistence is necessary to allow restitution of what has been given under it. It is basic that if
a void contract has already been performed, the restoration of what has been given is in order. This
principle springs from Article 22 of the New Civil Code which states that every person who through
an act of performance by another, or any other means, acquires or comes into possession of something
at the expense of the latter without just or legal ground, shall return the same. Hence, the restitution of
what each party has given is a consequence of a void and inexistent contract.

While the terms and provisions of a void contract cannot be enforced since it is deemed inexistent, it
does not preclude the admissibility of the contract as evidence to prove matters that occurred in the
course ofexecuting the contract, i.e., what each party has given in the execution of the contract The
deed of sale as documentary evidence may be used as a means to ascertain the truthfulness of the
consideration stated and its actual payment.

The purpose of introducing the deed of sale as evidence is not to enforce the terms written in the
contract, which is an obligatory force and effect of a valid contract. The deed of sale, rather, is used as a
means to determine matters that occurred in the execution of such contract, i.e., the determination of
what each party has given under the void contract to allow restitution and prevent unjust enrichment.

Accordingly, the CA correctly ordered Jose to return the amount of P,200,000.00 since this the
consideration stated in the Deed of Sale and given credence by the lower court. Indeed, even Jose
expressly stated in his comment that Tomas is entitled to recover the money paid by him in the amount
of P,200,000.00 as appearing in the contract.

WHEREFORE, we hereby DENY the petition for review on certiorari. The decision dated August 28,
2009 and the resolution dated November 17, 2009, of the Court of Appeals in CA-G.R. CV No. 88645
is AFFIRMED. Costs against the petitioner.

98
VOID CONTRACT

(58) ASIAN CATHAY FINANCE AND LEASING CORPORATION, Petitioner, vs. SPOUSES
CESARIO GRAVADOR and NORMA DE VERA and SPOUSES EMMA CONCEPCION G.
DUMIGPI and FEDERICO L. DUMIGPI, Respondents.

G.R. NO. 186550, July 5, 2010

Ponente: NACHURA, J., SECOND DIVISION

Nature of Action: On appeal is the June 10, 2008 Decision of the Court of Appeals (CA) in CA-G.R.
CV No. 83197, setting aside the April 5, 2004 decision of the Regional Trial Court (RTC), Branch 9,
Bulacan, as well as its subsequent Resolution3 dated February 11, 2009, denying petitioners motion for
reconsideration.

Facts: Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of P800,000.00 to
respondent Cesario Gravador (Cesario), with respondents Norma de Vera and Emma Concepcion
Dumigpi as his co-makers. The loan was payable in 60 monthly installments of P24,000.00 each and
secured by a real estate mortgage executed by Cesario over his property. Respondents paid the first
installmentforNovember1999butfailedtopaythesubsequentinstallments. InFebruary2000,ACFLC
demanded payment of P1,871,480.00 from respondents. Respondents asked for more time to pay but
ACFLC denied their request.

Respondents filed a case for annulment of the real estate mortgage and promissory note before the
Regional Trial Court (RTC). Respondents averred that the mortgage did not make reference to the
promissory note and contained a provision on the waiver of the mortgagors right of redemption, which
is contrary to law and public policy. Respondents added that the promissory note did not specify the
maturity date of the loan, the interest rate, and the mode of payment, and illegally imposed liquidated
damages.

ACFLC filed a petition for extrajudicial foreclosure of mortgage with the office of the Deputy Sheriff.
The RTC dismissed respondents complaint for annulment of mortgage for lack of cause of action,
holding that respondents were well-educated individuals who could not feign naivete in the execution
of the loan documents. The RTC further held that the alleged defects in the promissory note and in the
deed of real estate mortgage were too insubstantial to warrant the nullification of the mortgage. It
added that a promissory note was not one of the essential elements of a mortgage, thus, reference to a
promissory note was neither indispensable nor imperative for the validity of the mortgage.
99
Respondents appealed to the Court of Appeals (CA) which reversed the RTC. The CA held that the
amount of P1,871,480.00 demanded by ACFLC from respondents was unconscionable and excessive.
The CA fixed the interest rate at 12% per annum and reduced the penalty charge to 1% per month. The
CA also invalidated the waiver of respondents right of redemption for reasons of public policy.

When the CA denied ACFLCs motion for reconsideration, ACFLC brought the case to the Supreme
Court, insisting on the validity of the real estate mortgage and promissory note. ACFLC argued that
right of redemption was a privilege which respondents could waive as they did in this case. It further
argued that respondents action for annulment of mortgage was a collateral attack on its certificate of
title.

Issue: Whether or not the provision in the real estate mortgage on the mortgagors waiver of right of
redemption should be voided for being against public policy

Held: Settled is the rule that for a waiver to be valid and effective, it must, in the first place, be
couched in clear and unequivocal terms which will leave no doubt as to the intention of a party to give
up a right or benefit which legally pertains to him. The intention to waive a right or an advantage must
be shown clearly and convincingly. ACFLC failed to convince the Court that respondents waived their
right of redemption voluntarily.

The Court agreed with the CAs explanation in invalidating the waiver: The supposed waiver was in
fine print and in the form and language prepared by ACFLC, partaking of the nature of a contract of
adhesion. Doubts in the interpretation of stipulations in contracts of adhesion should be resolved
against the party that prepared them. This principle especially holds true with regard to waivers, which
are not presumed, but which must be clearly and convincingly shown. ACFLC failed to show the
efficacy of this waiver. Moreover, to say that the mortgagors right of redemption may be waived
through a fine print in a mortgage contract is, in the last analysis, tantamount to placing at the
mortgagees absolute disposal the property foreclosed. It would render practically nugatory this right
that is provided by law for the mortgagor for reasons of public policy. A contract of adhesion may be
struck down as void and unenforceable for being subversive to public policy, when the weaker party is
completely deprived of the opportunity to bargain on equal footing.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals
in CA-G.R. CV No. 83197 are AFFIRMED. Costs against petitioner.

100
UNENFORCEABLE CONTRACTS

(59) IGLESIA FILIPINA INDEPENDIENTE, Petitioner, vs. HEIRS of BERNARDINO TAEZA,


Respondents.

G.R. No. 179597, February 3, 2014

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: This deals with the Petition for Review on Certiorari under Rule 45 of the Rules
of Court praying that the Decision1 of the Court of Appeals (CA), promulgated on June 30, 2006, and
the Resolution dated August 23, 2007, denying petitioner's motion for reconsideration thereof, be
reversed and set aside.

Facts: Iglesia Filipina Independiente (IFI) was the owner of a parcel of land (Lot 3653) subdivided
into four. From 1973-1976, Suprme Bishop Rev. Macario Ga, sold one lot to Bienvenido de Guzman
and two lots to Bernardino Taeza.
Taeza registered the subject parcels of land and transfer certificates were issued in his name. He then
occupied a portion of the land.
In January 1990, IFI filed for annulment of sale annulment of the subject parcels of land against Rev.
Ga and the defendant Bernardino Taeza on the ground that Rev. Ga was not authorized to sell. The RTC
rendered judgment in favor of IFI. The CA reversed such decision. It ruled that IFI being a corporation
sole, validly transferred ownership over the land in question through its Supreme Bishop, who was at
the time the administrator of all properties and the official representative of the church. It further held
that [t]he authority of the then Supreme Bishop Rev. Ga to enter into a contract and represent the
plaintiff-appellee cannot be assailed, as there are no provisions in its constitution and canons giving the
said authority to any other person or entity.
Issue: W/N the deed of sale with mortgage is null and void or unenforceable?
Held: The issue boils down to the question of whether then Supreme Bishop Rev. Ga is authorized to
enter into a contract of sale in behalf of petitioner.
Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga had
no authority to give such consent. It emphasized that Article IV (a) of their Canons provides that "All
real properties of the Church located or situated in such parish can be disposed of only with the
approval and conformity of the laymen's committee, the parish priest, the Diocesan Bishop, with
101
sanction of the Supreme Council, and finally with the approval of the Supreme Bishop, as administrator
of all the temporalities of the Church." It is alleged that the sale was done without the required approval
mentioned in the Canons;
The Trial court also found that the laymen's committee indeed made its objection to the sale known to
the Supreme Bishop but the latter still executed the contract of sale despite such opposition. He clearly
acted beyond his powers: This case clearly falls under the category of unenforceable contracts
mentioned in Article 1403, paragraph (1) of the Civil Code, which provides, thus:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(0) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;
Petition Granted. IFI is the rightful owner of subject lots.

SPECIAL CONTRACTS : SALES

(60) DESIDERIO RANARA, JR., petitioner vs. ZACARIAS DE LOS ANGELES, JR.,
respondent

G.R. No. 200765, August 8, 2016

Ponente: REYES, J., THIRD DIVISION

Nature of the Action: Petition for Review on Certiorari under Rule 45

Facts: Sometime in October 1989, Leonor Parada loaned from Zacarias de los Angeles, Sr. money
amounting to P60,000 payable within a period of 10 yrs. As security, Parada mortgaged a parcel of
land. Under their stipulation, respondent would take possession of and farm the land as payment for the
loan interest. Parada, executed a Deed of Sale with Right to Repurchase dated Oct. 26, 1989.

Respondent took possession of the land, paid taxes due and converted the forested portion into irrigated
land without objection from Parada. In 1991, OCT No. 10020 was issued in the name of Parada who
brought with her to Canada the original owners duplicate. Later, Parada gave the owners duplicate to
Zacarias, Sr. upon reports that someone attempted to enter the land. However, in February 2001,
respondent sold the land to petitioner for P300,000. In light of foregoing, two documents of sale were
executed: 1) for the actual sale price and 2) for P130,000 to be used as basis for computation of taxes,
registration, and transfer of ownership. Respondent then sent a letter to Parada on July 17, 2001 giving
her 15 days to repurchase the property. Parada respondent to said letter claiming there was no pacto de
retro sale and then tendered P60,000 as payment for the loan but it was refused by respondent. Parada
later learned that apparently, respondent had already fraudulently registered the Deed of Sale with
Right to Repurchase, falsified the affidavit of seller/transferor and that respondent already sold the
property to petitioner. Parada filed a Complaint against petitioner and respondent for reformation of
instrument, consignation, recovery of possession, with prayer for writ of preliminary mandatory
injunction and damages. Petitioner, in his Answer with Cross-Claim and Counterclaim, denied any
knowledge of any defect in the title of the property since respondent was in the possession of and
cultivating the land. Petitioner also claimed that aside from paying the purchase price of P300,000, he
also introduced permanent improvements on the property amounting to P150,000 for the deep-well
irrigation facilities and another P150,000for leveling portions of the property and converting it into rice
land.

102
RTC ruled in favor of Parada since Parada and respondent entered into an equitable mortgage pursuant
to Art. 1602 (6) of the Civil Code. It denied the petitioner and the respondents claim for
reimbursement from Parada. Moreover, RTC ruled that Petitioner was not privy to the contract between
Parada and respondent. Article 1616 of the Civil Code specifically provides that the vendor a retros
obligation to reimburse useful and necessary expenses only pertains to the vendee a retro. With respect
to the counterclaim and cross-claim of petitioner, RTC dismissed the same since petitioner had
knowledge of the propertys status when he purchased it from the respondent. Aggrieved, petitioner
appealed to CA but CA only affirmed RTCs decision. It ruled that petitioner, being a buyer in bad
faith, was not entitled to reimbursement since the water pump he introduced was a useful expense and
under Article 546 of the Civil Code, only possessors in good faith are entitled to reimbursement of
useful expenses. Hence, the instant petition.

Issue: Whether or not Petitioner is entitled to reimbursement for the improvements he introduced in the
property.

Held: No, he is not entitled to reimbursement. The Court denies the petition.

Here, both the RTC and CA have ruled that the petitioner and the respondent are both in bad faith and
such finding is binding on the Court since none of the exceptions warranting the Court's review are
availing.

In any event, the Court agrees with the courts a quo that the petitioner was in bad faith in purchasing
the land since it was his duty to investigate. A purchaser of land that is in the actual possession of the
seller must make some inquiry in the rights of the possessor of the land. The rule of caveat emptor
requires the purchaser to be aware of the supposed title of the vendor and one who buys without
checking the vendor's title takes all the risks and losses consequent to such failure.

The Court agrees with the courts a quo that the petitioner cannot claim reimbursement for any expense
incurred in the improvements on the lot.

Wherefore, the petition is DENIED. The Decision dated September 15, 2011 and Resolution dated
February 6, 2012 of the Court of Appeals in CA GR CV No. 90099, are AFFIRMED.

103
SALES

(61) ROMAN CATHOLIC BISHOP OF TUGUEGARAO, petitioner vs. FLORENTINA


PRUDENCIO, et. al., respondent

G.R. No. 187942, September 7, 2016

Ponente: JARDELEZA, J., THIRD DIVISION

Nature of the Action: Petition for review on certiorari assailing CA decision and resolution affirming
with modification RTC ruling declaring the sale to petitioner of a parcel of land in Cagayan to be null
and void.

Facts: Felipe Prudencio married twice during his lifetime. He had 5 children with his first wife Elena
Antonio and 2 children with his second wife Teodora Abad. During Felipe and Elenas marriage, they
acquired a parcel of land in Cagayan covered by OCT No. 1343. When Elena died, Felipe and their
children became co-owners of the property.

Felipe then died intestate during his second marriage. Upon his death, Teodora and her children
executed a Deed of Extra Judicial Partition of Estate of Felipe with Waiver of Rights in favor of
Teodora. While it was acknowledged in said deed that the land in Cagayan was acquired during
Felipes first marriage, it staed that Felipe and Elena did not have any children. Hence, Teodora and her
children appeared to be the only living heirs by operation of law. Teodora was able to transfer to her
name said property. Teodora then sold the land to Sps. Cepeda who sold then sold the said lot to
petitioner for P16,500.

On Sept. 15, 1972, respondents-appellees filed a Complaint for Partition with Reconveyance against
Sps. Cepeda. RTC ruled in favor of respondents appellees. On appeal, CA affirmed with modification
the ruling of the RTC. It declared that petitioner shall retain ownership of only 33,350 sq. m. which is
the are equivalent to Teodoras share. Petitioner moved for reconsideration but was denied. Hence, this
petition.

Issue: Whether or not the excluded heirs can recover what is rightfully theirs from persons who are
innocent purchasers for value.

104
Held: Yes, good faith is immaterial in this case because a person can only sell what he owns or is
authorized to sell. The buyer can as a consequence acquire no more than what the seller can legally
transfer.

Simply put, the sale of the Cagayan lot to Sps. Cepeda, then to petitioner is valid insofar as the share of
Teodora is concerned. In effect, petitioner merely holds the share of respondents-appellees under an
implied constructive trust. This is true through the TCTs covering the Cagayan lot were issued in the
name of Teodora, Sps. Cepeda and then petitioner by virtue of the subsequent sales. The issuance of a
certificate of title could not vest upon them ownership of the entire property; neither could it validate
their purchase of the same which is null and void to the extent of the shares of the respondent-
appellees. Registration does not vest title, for it is merely the evidence of such title. Our land
registration laws do not give the holder better title that what he actually has.

As it stands, petitioner which merely steps into the shoes of Teodora and respondents-appellees, are
now the pro-indiviso co-owners of the property.

DOUBLE SALE

(62) THELMA RODRIGUEZ, joined by her husband, petitioners vs. SPS. JAIME and ARMI
SIOSON, respondent

G.R. No. 199180, July 27, 2016

Ponente: REYES, J., THIRD DIVISION

Nature of Action: Petition for review under rule 45.

Facts: In 1997, Municipality of Bataan purchased from Neri delos Reyes an area of about 1.7 ha. of
Lot 398 to be used for the extension of the Municipalitys public market. It was agreed that Neri will
surrender the mother title to the municipality upon full payment of purchase price.

Lot 398 was subsequently divided into 5 lots: A, B, C, D, and E. Lots C and D pertain to the portions
that were sold to the municipality while E is a road lot. Consequently, A and B were left as remaining
portions over which Neri retained absolute title. TCTs T-209894 and T-209895 were then issued over
lots A and B respectively and registered in Neris name married to Violeta Lacuata. The owners
duplicate copies were however retained by the municipality pending Neris payment in the share in
expenses incurred for the subdivision of the lot 398.

Neri, however, sold lot A to Thelma for P1,243,000 and on Mar. 20, 1997, Thelma issued a check for
said amount payable to Neri. When it fell due, no sufficient funds were available to cover the check.
Thelma promised to pay the purchase price in installments until Sept. 4, 1997 but Thelma was only
able to pay P442,293.50. On Nov. 12, 2001, Thelma caused the annotation of an adverse claim on lot
As title. She saw an announcement that a new Orani Common Terminal will be built on lot A. Thelma
then filed a complaint for injunction against incumbent Mayor Pascual and municipality under claim of
ownership.

In 2002, Neri executed an affidavit claiming that the owners copies of TCTs covering lots A and B
were lost and caused for the reconstitution of new owners copies. After new copies were issued, Neri
sold lot A to respondent Sps. Sioson, Sps. Camacho, and Agnes Samonte. Consequently, the TCT
covering lot A was cancelled and a new TCT was thus issued in the respondents names. Respondents
filled the said lot with about 40 truckloads of soil/fillings but Thelma sent two armed blue guards who
105
entered the premises and set up a tent therein. Respondents brought the matter to the attention of the
barangay who referred them to the mayor but mayor did not take any action. Respondents filed a
forcible entry case against Thelma.

Pending the ejectment case, Thelma sought for the annulment of the second sale of lot A. RTC in its
joint decision ruled in favor of Thelma. Respondents moved for reconsideration but was denied by
RTC. On appeal, CA granted the appeal and ruled that there was no double sale since the contract
between Neri and Thelma was a mere contract to sell and not contract of sale. Thelma moved for
reconsideration but was denied. Hence, this petition.

Issue: 1) Whether the contract entered into by Neri and Thelma is a contract to sell or a contract of
sale.

2) Whether double sale exists in the instant case.

Held: 1) The contract entered by Neri and Thelma is a contract to sell.

In determining the nature of the agreement between Thelma and Neri, the CA took note of these two
documents and coupled with Thelmas own admissions, correctly found that it was a mere contract to
sell. According to CA:

During trial, Thelma explained the apparent disparity between the 2 deeds of absolute sale by testifying
that the undated and unnotarized deed of sale served only as a receipt which was signed by Neri when
the latter received the downpayment for the lot. The dated and notarized deed of sale, on the other
hand, was signed by both Thelma and Neri upon Thelmas alleged full payment of purchase price.

xxx

Second, the execution of the deed of absolute sale and the transfer and delivery of the title to Thelmas
name were conditional upon full payment of purchase price.

xxx

Despite the denomination of their agreement as one of sale, the circumstances tend to show that Neri
agreed to sell the subject property to Thelma on the condition that title and ownership would pass or be
transferred upon full payment of the purchase price. This is the very nature of a contract to sell which is
a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the
property despite delivery thereof to the buyer, binds himself to sell the property exclusively to the
buyer upon fulfillment of the condition agreed upon, i.e. full payment of purchase price.

2) Double sale doesnt exist in this case.

It was established that Thelma was not able to pay the full purchase price. To bolster her claim, Thelma
insists that she holds title over the property after Neri allegedly delivered the subject lot to her right
after the execution of sale. There is however nothing on record to support this claim aside from her bare
allegations.

Moreover, the alleged delivery of property, even if true, is irrelevant considering that in a contract to
sell, ownership is retained by the registered owner in spite of the partial payment of the purchase price
and delivery of possession of the property.

106
SALES

(63) LUZ S. NICOLAS, petitioner vs. LEONORA C. MARIANO, respondent

G.R. No. 201070, August 1, 2016

Ponente: DEL CASTILLO, J., SECOND DIVISION

Nature of the Action: Petition for Review on Certiorari assails the Court of Appeals June 21, 2011
Decision and March 1, 2012 Resolution denying herein petitioners Motion for Partial Reconsideration
in CA-GR CV No. 93532.

Facts: In 1972, respondent Leonora Mariano applied for a land grant under the Bagong Barrio Project
of the NHA. NHA approved it in 1978 and she was instituted as grantee of the foregoing parcel of land.
The grant, however, is subject to a mortgage which was annotated on the dorsal side of the title.
According to the inscription, the grantee Leonora must pay the sum of P36,036.10 within 25 years with
annual interest of 12% until fully paid in 300 equal monthly installments. Furthermore, the inscription
says that except by hereditary succession, the lot or any part of it cannot be transferred or encumbered
within 5 yrs from the date of release of the mortgage inscribed without prior written consent and
authority from the NHA. NHA withheld the conveyance of the original TCT to Leonora since issuance
thereof is conditioned upon the full payment of the mortgage loan.

On Jan. 28, 1998, Leonora obtained a P100,000 loan from petitioner Luz Nicolas to be paid within 10
months at monthly interest rate of 7%. As security, respondent executed a Mortgage contract over one
half of the portion of the property. Leonora, however, defaulted in the payment of her obligation to
petitioner. Hence, respondent executed in favor of petitioner a second mortgage deed named Sanglaan
ng Lupa at Bahay which mortgages the property and its improvements for P552,000 inclusive of the
original loan of P100,000 but respondent still failed to make payment on the second obligation.
Respondent executed a Deed of Absolute Sale of Real Property conveying to petitioner Luz the
ownership of the subject property. Notable however that at the time when negotiations were taking
place between petitioner and respondent, the mortgage loan of respondent to NHA remained unpaid.

107
On July 8, 2004, respondent Leonora sued petitioner Luz before the RTC for Specific Performance
with Damages and Prayer for Issuance of a Temporary Restraining Order and a Permanent Mandatory
Injuction. Respondent sought to be released from the second mortgage agreement and to stop petitioner
from collecting credit through rentals from her apartments claiming that she has fully paid her debt.
RTC in its Decision decreed that it is inclined to believe that what had been entered into by the parties
was a mere contract of mortgage and not sale of real property. RTC did not uphold the validity of the
Deed of Absolute Sale because it was tainted with flaws and defects. Judgment was rendered in favor
of respondent Leonora and against petitioner Luz. Aggrieved, petitioner Luz appealed before the CA
assailing ruling of the RTC declaring the Absolute Sale of Real Property invalid and cancelling the
Mortgage Contract and Sanglaan ng Lupa and awarding moral damages to respondent Leonora. CA
ruled that the appeal was partly meritorious. It affirmed RTC decision declaring the Absolute Sale of
Real Property invalid not because it lacked any of the essential requisites of a contract but because
respondent Leonora, the supposed vendor, is not the owner thereof. Also, it is a clear violation of the
express proviso prohibiting any transfer or encumbrance of the subject property within 5 yrs from the
release of the mortgage. In the same way, respondent Leonora, not being the owner of the property, the
Mortgage Contract and Sanglaan ng Lupa at Bahay she executed are void. Art. 2085 of the Civil Code
requires that for a person to validly constitute a mortgage on real estate, he must be the absolute owner
of the property mortgaged. Hence, the instate petition.

Issue: Whether or not respondent Leonora validly mortgaged and sold the property to petitioner Luz.

Held: No, respondent Leonoranot being the owner of the propertycould not have validly
mortgaged more so sold subject property to petitioner Luz.

The petition must be denied.

While title to TCT No. C-44249 is in the name of Mariano, she has not completed her installment
payments to NHA; this fact is not disputed, and as a matter of fact, Mariano admits it. Indeed, Mariano
even goes so far as to concede, in her Comments and Opposition to the Petition, that she is not the
owner of the subject property. Thus, if she never became the owner of the subject property, then she
could not validly mortgage and sell the same to Nicolas. The principle nemo dat quod non habet
certainly applies.

Indeed, the Torrens system of land registration merely confirms ownership and does not create it. It
cannot be used to divest lawful owners of their title for the purpose of transferring it to another one
who has not acquired it by any of the modes allowed or recognized by law.

WHEREFORE, the Petition is DENIED. The June 21, 2011 Decision and March 1, 2012 Resolution of
the Court of Appeals in CA-G.R. CV No. 93532 are AFFIRMED.

108
SALES

(64) DESIGNER BASKETS, INC., petitioner vs. AIR SEA TRANSPORT, INC. and ASIA
CARGO CONTAINER LINES INC., respondent

G.R. No. 184513, March 9, 2016

Ponente: JARDELEZA, J., THIRD DIVISION

Nature of Action: Petition for Review on Certiorari assailing the CA decision and resolution absolving
respondents from liability complaint for sum of money and damages filed by petitioner DBI.

Facts: DBI is a domestic corporation engaged in the business of producing houseware and handicraft
items for export. In 1995, Ambiente, a foreign-based company, ordered from DBI 223 cartons of
assorted wooden items worth USD 12,590.87 and payable through telegraphic transfer. Ambiente
designated respondent ACCLIa domestic corporation acting as agent of respondent ASTI which is a
US based corporation engaged in carrier transport business in the Philippines.

DBI delivered the goods to ACCLI for sea transport to Ambiente in California. ACCLI issued ASTI
bills of lading. Ambiente and ASTI entered into an indemnity agreement. Under it, Ambiente obligated
ASTI to deliver the shipment to it without surrender of relevant bill(s) of lading due to the non-arrival
or loss thereof. Ambiente undertook to indemnify and hold ASTI free from any liability as a result of
the release of the shipment. ASTI released the shipment to Ambiente without the knowledge of DBI
and without it receiving payment for the total cost of shipment.

DBI demanded payment from Ambiente but to no avail. Thus, DBI filed a complaint against
respondents for payment of value of shipment plus interest at legal rate, among others. DBI claimed
that under the bill of lading, ASTI and ACCLI is to release cargo/shipment to consignee xxx, only
after the original copy or copies of the bill of lading are surrendered to them; otherwise, they become
liable to the shipper for the value of the shipment. DBI amended its complaint and impleaded
Ambiente. RTC ruled in favor of DBI and found ASTI, ACCLI, and Ambiente solidarily liable to DBI
109
for the value of the shipment. DBI, ASTI and ACCLI appealed to CA. CA affirmed RTCs finding that
Ambiente is liable to DBI but absolved ASTI and ACCLI from liability. Hence, this petition.

Issue: 1) Whether DBIs assertion that par. 3 of Article 1503 of the Civil Code is the applicable
provision in this case is correct.

2) Whether ASTI and ACCLI can be held liable for the payment of the value of goods sold.

Held: 1) No, DBIs assertion is untenable. Article 1503 is an exception to the general presumption
provided in the 1st paragraph of Article 1523 which reads:

Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buer or not for the purpose
of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in cases
provided for in Article 1503, first, second, and third paragraphs, or unless a contrary intent appears.

xxx

Article 1503, on the other hand, provides:

Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the
contract reserve the right of possession or ownership in the goods until certain conditions have been
fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the
goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.

Where goods are shipped and by the bill of lading the goods are deliverable to the seller or his agent or
to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if
except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of
the goods, the sellers property in the goods shall be deemed to be only for the purpose of securing
performance by the buyer of his obligations under the contract.

Where the goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or
of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby
reserves a right to the possession of the goods as against the buyer.

xxx

Articles 1523 and 1503, therefore, refer to a contract of sale between a seller and a buyer. In particular,
they refer to who between the seller and the buyer has the right of possession or ownership over the
goods subject of sale. Articles 1523 and 1503 do not apply to a contract of carriage between the shipper
and the common carrier. The third paragraph of Article 1503, upon which DBI relies, does not oblige
the common carrier to withhold deliver of the goods in the even that the bill of lading is retained by the
seller. Rather, it only gives the seller a better right to the possession of the goods as against the mere
inchoate right of the buyer. Thus, articles 1523 and 1503 find no application here. The case before us
does not involve an action where the seller asserts ownership over the goods as against the buyer.
Instead, we are confronted with a complaint for sum of money with damages filed by seller against the
buyer and the common carrier due to the non payment of the goods by the buyer and the release of the
goods by the carrier despite non-surrender of the bill of lading. A contract of sale is separate and
distinct from a contract of carriage. They involve different parties, different rights, different obligations,
and liabilities.

2) No, ASTI and ACCLI cannot be held liable for payment of the value of the goods sold.

The contract between DBI and ASTI is a contract of carriage of goods; hence, ASTIs liability should
be pursuant to the contract and the law on transportation of goods. Not being a party to the contract of
sale between DBI and Ambiente, ASTI cannot be held for payment of the value of the goods sold.

Xxx

110
In view of foregoing, we hold that under Bill of Lading No. AC/MLLA601317 and the pertinent law
and jurisprudence, ASTI and ACCLI are not liable to DBI. We sustain the finding of the CA that only
Ambiente, as the buyer of the goods, has the obligation to pay for the value of the shipment. Xxx

WHEREFORE, the petition is DENIED for lack of merit xxx Resolution of the CA in CA-GR CV No.
79790 are hereby Affirmed with modification that from the finality of the decision until its full
satisfaction, the applicable rate of interest shall be 6% per annum.

SALES

EQUITABLE MORTGAGE

(65) ROSARIO VICTORIA and ELMA PIDLAON, petitioner vs. NORMITA,


HERMINIGILDA, and EUFEMIA PIDLAON, respondent

G.R. No. 196470, April 20, 2016

Ponente: BRION, J., SECOND DIVISION

Nature of the Action: Petition for review on certiorari challenging the decision and resolution of CA
reversing the ruling of RTC and ruled that Elma donated her entire property to Normita.

Facts: Rosario Victoria and Elma lived together since 1978 until Rosario left for Saudi. In 1984, Elma
brought a parcel of land in Lucena City. When Rosario came home, she caused the construction of a
house on the Elmas lot but left again before the house was built. Elma allegedly mortgaged the house
to Thi Hong Villanueva in 1989. When the properties were about to be foreclosed, Elma allegedly
asked for help from her sister-in-law, Eufemia, to redeem the property. Eufemia called her daughter,
Normita, to lend Elma money.

Elma thereafter sold the lot to Normita. They executed a deed of sale transferring ownership of the lot
to Normita which provides that Elma shall eject the person who erected the house and deliver the lot to
Normita. It was signed by Elma, Normita, and two witnesses but it was unnotarized. This is because
when they were about to have it notarized, the notary public advised them to donate the lot instead to
avoid capital gains tax. Hence, the notarized deed of donation between Elma and Normita.

111
Rosario found out about the donation when she returned to the country. Petitioners then caused the
filing of a complaint for reformation of contract, cancellation of TCT, and damages with prayer for
preliminary injunction against respondents.

RTC ruled that petitioners co-owned the house and lot. Thus, Elma could only donate her one-half
share in the lot. Respondents then appealed to CA which reversed RTCs decision and dismissed the
complaint. CA also denied petitioners motion for reconsideration. Hence, this petition.

Issue: 1) Whether the deed of donation between Elma and Normita was simulated.

2) Whether the sale between Normita and Elma was a sale, donation, or an equitable mortgage.

Held: 1) We find that the deed of donation was simulated and the parties real intent was to enter into a
sale.

We first dwell on the genuineness of the deed of donation. There are two types of simulated documents
absolute and relative. A document is absolutely simulated when the parties have no intent to bind
themselves at all, while it is relatively simulated when the parties concealed their true agreement. The
true nature of a contract is determined by the parties intention, which can be ascertained from their
contemporaneous and subsequent acts.

In the present case, Elma and Normitas contemporaneous and subsequent acts show that they were
about to have the contract of sale notarized but the notary public ill-advised them to execute a deed of
donation instead. Following this advice, they returned the next day to have a deed of donation
notarized. Clearly, Elma and Normita intended to enter into a sale that would transfer the ownership of
the subject matter of their contract but disguised it as a donation. Thus, the deed of donation
subsequently executed by them was only relatively simulated. CA upheld the deed of donations
validity based on principle that notarized document enjoys the presumption of regularity but this
presumption is overthrown in this case by respondents own admission in their answer that the deed of
donation was simulated.

xxx

Having admitted the simulation, the respondents can no longer deny it at this stage. The CA erred in
disregarding this admission and upholding the validity of the deed of donation.

Considering that the deed of donation was relatively simulated, the parties are bound to their real
agreemend. The records show that the parties intended to transfer the ownership of the property to
Normita by absolute sale.

2) An equitable mortgage is one which although lacking in some formality or other requisites
demanded by statute, nevertheless reveals the intention of the parties to charge real property as security
for a debt and contains nothing impossible or contrary to law. Art. 1602 and 1604 of the Civil Code
provide that a contract of absolute sale shall be presumed an equitable mortgage if any of the
circumstances listed in Art. 1602 is attendant.

Two requisites must concur for Articles 1602 and 1604 of Civil Code to apply: one, the parties entered
into a contract denominated as a contract of sale; and two, their intention was to secure an existing debt
by way of mortgage.

In the present case, the unnotarized contract of sale is denominated as Panananto ng Pagkatanggap ng
Kahustuhang Bayad. Its contents show an unconditional sale of property. The document shows no
intention to secure a debt or to grant a right to repurchase. Thus, there is no evidence that the parties
agreed to mortgage the propery as contemplated in Art 1602 of the Civil Code. Clearly the constract is
not one of equitable mortgage.

xxx

112
In sum, we rule that based on the records, Elma and Normita entered in a sale contract, not donation.
Elma sold the entire property to Normita. Accordingly, TCT No. T-70990 was validly issued in
Normitas name.

WHEREFORE, we hereby PARTIALLY GRANT the petition. The decision and resolution of CA are
hereby AFFIRMED with MODIFICATION that the parties entered into a contract of sale, not a
donation, and that petitioner Elma Pidlaon sold the whole disputed property to respondent Normita
Pidlaon.

SALES

SALE OF CONJUGAL PROPERTY

(66) MELECIO DOMINGO, petitioner vs. SPS. GENARO and ELENA MOLINA, respondent

G.R. No. 200274, April 20, 2016

Ponente: BRION, J., SECOND DIVISION

Nature of the Action: Petition for review on certiorari assailing decision and resolution of CA.

Facts: Sps. Anastacio and Flora Domingo bought a house in Tarlac consisting of a one-half undivided
portion over an 18,164 sq. m. land. The sale was annotated in the OCT covering the subject property.
Anastacio borrowed money from respondent sps. Molina. After Floras death, Anastacio sold his
interest over the land to sps. Molina to answer for his debts. The sale to sps. Molina was annotated at
the OCT of the subject property. In 1986, Anastacio died.

Melecio, one of Anastacio and Floras children, learned of the transfer of Anastacios interest to sps.
Molina. He filed a complaint for the annulment of title and recovery of ownership against sps. Molina.
He claims that the property served as collateral for money that Anastacio borrowed. Anastacio could
not have validly sold the interest over the property without Floras consent as Flora was already dead at
the time of sale. He also claims that Genaro Molina must have falsified the document transferring

113
Anastacio and Floras one-half undivided interest over the land. During the pendency of the case, sps.
Molina died and were substituted by their adopted son, Cornelio.

RTC dismissed the case because Melecio failed to establish his claim that Anastacio did not sell the
property to sps. Molina. RTC denied Melecios motion for reconsideration. Melecio appealed to CA.
CA affirmed RTC ruling in toto. Melecio filed a motion for reconsideration but was denied for lack of
merit. Hence, this instant petition.

Issue: Whether the sale of a conjugal property without Floras consent is valid and legal.

Held: We deny the petition.

It is well settled that when the trial courts factual findings have been affirmed by the CA, the findings
are generally conclusive and binding upon the Court and may no longer be reviewed on Rule 45
petitions. While there are exceptions20 to this rule, the Court finds no applicable exception with respect
to the lower courts finding that the subject property was Anastacio and Floras conjugal property.
Records before the Court show that the parties did not dispute the conjugal nature of the property.

Melecio argues that the sale of the disputed property to the spouses Molina is void without Floras
consent.

We do not find Melecios argument meritorious.

Anastacio and Floras

conjugal partnership was

dissolved upon Floras death.

There is no dispute that Anastacio and Flora Domingo married before the Family Codes effectivity on
August 3, 1988 and their property relation is a conjugal partnership.21

Conjugal partnership of gains established before and after the effectivity of the Family Code are
governed by the rules found in Chapter 4 (Conjugal Partnership of Gains) of Title IV (Property
Relations Between Husband and Wife) of the Family Code. This is clear from Article 105 of the Family
Code which states:

x x x The provisions of this Chapter shall also apply to conjugal partnerships of gains already
established between spouses before the effectivity of this Code, without prejudice to vested rights
already acquired in accordance with the Civil Code or other laws, as provided in Article 256.

The conjugal partnership of Anastacio and Flora was dissolved when Flora died in 1968, pursuant
to Article 175 (1) of the Civil Code22 (now Article 126 (1) of the Family Code).

Article 130 of the Family Code requires the liquidation of the conjugal partnership upon death of a
spouse and prohibits any disposition or encumbrance of the conjugal property prior to the conjugal
partnership liquidation, to quote:

Article 130. Upon the termination of the marriage by death, the conjugal partnership property shall
be liquidated in the same proceeding for the settlement of the estate of the deceased.

If no judicial settlement proceeding is instituted, the surviving spouse shall liquidate the conjugal
partnership property either judicially or extrajudicially within one year from the death of the deceased
spouse. If upon the lapse of the six month period no liquidation is made, any disposition or
encumbrance involving the conjugal partnership property of the terminated marriage shall be
void. x x x (emphases supplied)

While Article 130 of the Family Code provides that any disposition involving the conjugal property
without prior liquidation of the partnership shall be void, this rule does not apply since the provisions
of the Family Code shall be "without prejudice to vested rights already acquired in accordance with the
Civil Code or other laws."
114
An implied co-ownership

among Floras heirs governed

the conjugal properties

pending liquidation and

partition.

In the case of Taningco v. Register of Deeds of Laguna, we held that the properties of a dissolved
conjugal partnership fall under the regime of co-ownership among the surviving spouse and the heirs of
the deceased spouse until final liquidation and partition. The surviving spouse, however, has an actual
and vested one-half undivided share of the properties, which does not consist of determinate and
segregated properties until liquidation and partition of the conjugal partnership.

An implied ordinary co-ownership ensued among Floras surviving heirs, including Anastacio, with
respect to Floras share of the conjugal partnership until final liquidation and partition; Anastacio, on
the other hand, owns one-half of the original conjugal partnership properties as his share, but this is an
undivided interest.

Article 493 of the Civil Code on co-ownership provides:

Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another
person in its enjoyment, except when personal rights are involved. But the effect of the alienation or
the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted
to him in the division upon the termination of the co-ownership. (399) (emphases supplied)

Thus, Anastacio, as co-owner, cannot claim title to any specific portion of the conjugal properties
without an actual partition being first done either by agreement or by judicial decree. Nonetheless,
Anastacio had the right to freely sell and dispose of his undivided interest in the subject property.

SPECIAL CONTRACTS : LOAN

(67) EQUITABLE SAVINGS BANK, petitioner vs. ROSALINDA PALCES, respondent

G.R. No. 214752, March 9, 2016

Ponente: PERLAS-BERNABE, J., FIRST DIVISION

Nature of Action: Petition for review on certiorari assailing the decision and resolution of CA partially
affirming the RTC decision and ordering petitioner to reimburse respondent installments made in
March amounting to P103,000.

Facts: Respondent purchased a Hyundai Starex through a loan granted by petitioner in the amount of
P1,196,100. Respondent executed a Promissory Note with Chattel Mortgage (PN with CM) in favor of
petitioner stating that a) she shall pay petitioner 36 monthly installments of P33,225 per month; b)
respondents default will render the remaining balance due and payable; and c) failure to pay any
installment shall give the petitioner the right to foreclose the chattel mortgage or file civil action for
collection and other actions allowed by law.

Respondent paid monthly installments from Sept. 18, 2005 to Dec. 21, 2006 but defaulted in January
and February 2007 which triggered the acceleration clause. Petitioner demanded full payment of
balance from respondent but demands were unheeded. Hence, petitioner filed a complaint for recovery
of possession with replevin with alternative prayer for sum of money and damages against respondent.
RTC ruled in favor of petitioner. On appeal, CA affirmed RTC ruling with modification. It ordered
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petitioner to return the amount of P103,000 to respondent and deleted the award of attorneys fees in
favor of petitioner for lack of basis. Petitioner moved to reconsider but was denied. Hence, this petition.

Issue: Whether or not CA correctly ruled that petitioner waived its right to recover any unpaid
installments when it sought a writ of replevin in order to regain possession of the subject vehicle.

Held: No, the CA is mistaken on this point.

Article 1484 of the Civil Code which governs the sale of personal properties in installments, states in
full:

Article 1484. In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:

1. Exact fulfillment of the obligation, should the vendee fail to pay;


2. Cancel the sale, should the vendees failure to pay cover two or more installments;
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendees failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.

In this case, there was no vendor-vendee relationship between respondents and petitioner. Xxx
indubitably, a loan contract with the accessory chattel mortgageand not a contract of sale of personal
property in installmentswas entered into by the parties with the respondent standing as the debtor-
mortagagor and petitioner as creditor-mortgagee. Therefore the conclusion of CA that Art. 1484 finds
application in this case is misplaced, and thus must be set aside.

Xxx

Further, there is nothing in the PN with CM that bars the petitioner from receiving any late partial
payments from respondent. If at all, petitioners acceptance of respondents late partial payments in the
aggregate amount of P103,000 will only operate to reduce her outstanding obligation to petitioner.

SPECIAL CONTRACTS : PREPARATORY CONTRACTS

AGENCY

(68) MAGELLAN AEROSPACE CORPORATION, petitioner vs. PHILIPPINE AIR FORCE,


respondent

G.R. No. 216566, February 24, 2016

Ponente: MENDOZA, J., SECOND DIVISION

Nature of Action: Petition for review on certiorari under Rule 45

Facts: On Sept. 18, 2008, PAF contracted Chervin Enterprises for the overhaul of two T76 aircraft
engines in an agreement denominated as Contract for the Procurement of Services and Overhaul of
Two OV10 Engines. Chervin commissioned petitioner MAC to do the work for USD 364,577. MAC,
in turn, outsourced the overhaul service from another subcontractor, National Flight Services, Inc
(NFSI). The overhauled engines were eventually delivered to the PAF.

On Dec 15, 2008, MAC demanded from Chervin the payment of its balance of the contract price. PAF
confirmed that it had already released to Chervin the amount of P23,760,000 as partial payment but
withheld P2,376,000 as retention fund. Despite the release of funds to Chervin, it did not pay MAC
despite repeated demands. Unpaid, MAC demanded payment from PAF, but the latter rejected due to
the fact that the amount held in trust for Chervin cannot be released by PAF to MAC.
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MAC filed a complaint for sum of money against Chervin and PAF. PAF moved to dismiss the
complaint averring that its contract with Chervin was for repair and overhaul and not agency ; that it
was never privy to any contract between Chervin and MAC; and that it already settled in full its
obligations with Chervin. Chervin, on the other hand, moved to dismiss the complaint against them
alleging that MAC had no capacity to sue because it was a non-resident doing business in the
Philippines without a license.

RTC granted both motions to dismiss and ordered the dismissal of the complaint filed by MAC. MAC
appealed to CA. CA partly granted MACs appeal by reversing the RTC order of dismissal of the
complaint against Chervin but affirmed the dismissal of the complaint against PAF. MAC moved for a
partial consideration but was denied. Hence, this instant petition.

Issue: Whether or not CA erred in ruling that there was no agency between respondent PAF and
Chervin.

Held: No, CA did not err in ruling that there was no agency between respondent PAF and Chervin.

In essence, MAC asserts that the allegations stating that Chervin acted for and in behalf of a
principal, PAF, in tapping its services for the overhaul of the aircraft engines, completed with the
requirements of sufficiency in stating its cause of action against PAF. MAC claims that its allegation of
Chervin being mere agents of PAF in the overhaul contract, establishes clearly, under the premise of
admitting them as true for purposes of a Rule 16 challenge, its entitlement to recover from PAF, the
latter being the principal and beneficiary.

The Court is not persuaded.

The standard requires that [e]very pleading shall contain in a methodical and logical form, a plain,
concise and direct statement of the ultimate facts on which the party pleading relies for his claim or
defense, as the case may be, omitting the statement of mere evidentiary facts. Thus, trial courts need
not overly stretch its limits in considering all allegations just because they were included in the
complaint. Evidently, matters that are required and expected to be sufficiently included in a complaint
and, thus, accorded the assumption of truth, exclude those that are mere legal conclusions, inferences,
evidentiary facts, or even unwarranted deductions.

In this case, the averment that Chervin acted as PAFs mere agents in subsequently contracting MAC to
perform the overhauling services is not an ultimate fact. Nothing can be found in the complaint that can
serve as a premise of PAFs status as the principal in the contract between Chervin and MAC. No
factual circumstances were alleged that could plausibly convince the Court that PAF was a party to the
subsequent outsourcing of the overhauling services. Not even in the annexes can the Court find any
plausible basis for the assertion of MAC on PAFs status as a principal. Had MAC went beyond barren
words and included in the complaint essential supporting details, though not required to be overly
specific, this would have permitted MAC to substantiate its claims during the trial and survive the Rule
16 challenge. In short, factual circumstances serving as predicates were not provided to add to MACs
barren statement concerning PAFs liability. What MAC entirely did was to state a mere conclusion of
law, if not, an inference based on matters not stated in the pleading. To clarify, a mere allegation that
PAF, as a principal of Chervin, can be held liable for nonpayment of the amounts due, does not comply
with the ultimate fact rule.

Without the constitutive factual predicates, any assertion could never satisfy the threshold of an
ultimate fact. Not being an ultimate fact, the assumption of truth does not apply to the aforementioned
allegation made by MAC concerning PAF. Consequently, the narrative that PAF can be held liable as a
principal in the agreement between Chervin and MAC cannot be considered in the course of applying
the sufficiency test used in Section 1(g) Rule 16. It, therefore, produces no link to the alleged PAFs
correlative duty to pay the amounts being claimed by MAC a necessary element of a cause of action
that must be found in the pleading. Lacking that essential link, and after hypothetically admitting the
truth of all the allegations other than those that are ought to be excluded for not being ultimate facts, it
is demonstrable that the CA correctly ruled for the dismissal of the complaint on the ground of MACs
failure to state its cause of action against PAF.

WHEREFORE, the petition is DENIED.


117
AGENCY

IMPLIED AGENCY

(69) DRA. MERCEDES OLIVER, Petitioner, vs. PHILIPPINE SAVINGS BANK and LILIA
CASTRO, Respondents.

G.R. No. 214567, April 4, 2015

Ponente: MENDOZA, J., FIRST DIVISION

Nature of the case: Petition for review on certiorari seeking to reverse and set aside the Decision and
Resolution of CA which reversed RTCs Order in a case for injunction and damages.

Facts: Petitioner Dra. Mercedes Oliver was a depositor of respondent Philippine Savings Bank
(PSBank) . respondent Lilia Castro was the Asst. VP of ____Branch Manager of PSBank. Oliver, in her
Complaint, alleged that she made an initial deposit of P12M into her PSBank account. Castro then
convinced her to loan out her deposit as interim or bridge financing for the approved loans of bank
borrowers who were waiting for the actual release of their loan proceeds. Under this arrangement,
Castro would first show the approved loan documents to Oliver before withdrawing the amount needed
from Olivers account. Casto would then charge the rate of 4% per month from the loan proceeds as
interim or bridge financing interest. Meanwhile, Castro would earn a commission of 10% from the
interest. Their arrangement went on smoothly for months. Oliver entrusted her passbook to Castro and
because Oliver earned substantial profit, she was further convinced by Castro to avail of an additional

118
credit line in the amount of P10M secured by a real estate mortgage on her house and lot in Ayala
Alabang.

Oliver instructed Castro to pay P2M monthly to PSBank on Sept. 3, 1998 so that her credit line for
P10M would be fully paid by Jan. 3, 1999. However, beginning Sept. 1998, Castro stopped rendering
an accounting for Oliver. Oliver demanded from Castro the return of her passbook. When Castro finally
showed her the passbook she noticed many erasures and superimpositions and became suspicious to
erasures pertaining to December 1998 so she requested a copy of her transaction history register from
PSBank. Apparently, there were several transactions in December crediting and debiting millions.
Oliver learned that the additional P4.5M and P1,396,3120 loans were also secured by the REM
covering the same property in Ayala Alabang. Oliver received 2 collection letters from PSBank
referring to non-payment of unpaid loans of P4,491,250 from the additional loan and P1,396,310.45
from the P10M credit line which she neither availed of nor authorized the withdrawal of P7M. A final
demand letter was sent to her but Oliver still refused to pay. After which, Oliver received a notice of
sale involving the Ayala Alabang property. This prompted Oliver to file a Complaint against PSBank
and Castro. PSBank avers that Oliver failed to pay the P10M loan so she obtained another loan in the
amount of P4.5M days later she again acquired loan of P1,396,310.45 as shown by another promissory
note.

RTC dismissed the Complaint and rendered judgment in favor of PSBank and Castro. Oliver moved for
reconsideration which RTC granted by reversing its earlier decision. According to RTC, Olivers
assertion that the withdrawal was made without her consent prevailed in the absence of any proof to the
contrary. The cash savings withdrawal slips shouldve been offered in evidence to settle the issue of
whether the amount of P7M was actually withdrawn by Oliver or her authorized representative.
Aggrieved, Castro and PSBank appealed to CA. CA granted the appeal and reversed the RTC order.
Oliver moved for reconsideration but it was denied. Hence, this petition.

Issue: 1) Whether or not an agency exists between Oliver and Castro.

2) Whether or not agent acted beyond the scope of her authority.

Held: 1) Yes. There was an implied agency between Oliver and Castro.

A contract of agency may be inferred from all the dealings between Oliver and Castro. Agency can be
express or implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting on his behalf without authority. The
question of whether an agency has been created is ordinarily a question which may be established in
the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately
one of intention.

In this case, Oliver and Castro had a business agreement wherein Oliver would obtain loans from the
bank, through the help of Castro as its branch manager; and after acquiring the loan proceeds, Castro
would lend the acquired amount to prospective borrowers who were waiting for the actual release of
their loan proceeds. Oliver would gain 4% to 5% interest per month from the loan proceeds of her
borrowers, while Castro would earn a commission of 10% from the interests. Clearly, an agency was
formed because Castro bound herself to render some service in representation or on behalf of Oliver, in
the furtherance of their business pursuit.

For months, the agency between Oliver and Castro benefited both parties. Oliver, through Castros
representations, was able to obtain loans, relend them to borrowers, and earn interests; while Castro
acquired commissions from the transactions. Oliver even gave Castro her passbook to facilitate the
transactions.

Accordingly, the laws on agency apply to their relationship. Article 1881 of the New Civil Code
provides that the agent must act within the scope of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of the agency. Thus, as long as the agent acts within
the scope of the authority given by his principal, the actions of the former shall bind the latter.

2) P7 million was improperly withdrawn; agent acted beyond her scope of authority

119
Although it was proven that Oliver authorized the loans, in the aggregate amount of P5,888,149.33,
there was nothing in the records which proved that she also allowed the withdrawal of P7 million from
her bank account. Oliver vehemently denied that she gave any authority whatsoever to either Castro or
PSBank to withdraw the said amount.

Verily, Castro, as agent of Oliver and as branch manager of PS Bank, utterly failed to secure the
authorization of Oliver to withdraw such substantial amount. As a standard banking practice intended
precisely to prevent unauthorized and fraudulent withdrawals, a bank manager must verify with the
client-depositor to authenticate and confirm that he or she has validly authorized such withdrawal.

Castros lack of authority to withdraw the P7 million on behalf of Oliver became more apparent when
she altered the passbook to hide such transaction. It must be remembered that Oliver entrusted her
passbook to Castro. In the transaction history register for her account, it was clear that there was a
series of dealings from December 17, 1998 to December 23, 1998. When compared with Olivers
passbook, the latter showed that the next transaction from December 16, 1998 was on December 28,
1998. It was also obvious to the naked eye that the December 28, 1998 entry in the passbook was
altered. As aptly observed by the RTC, nowhere in the testimony of Castro could be gathered that she
made a detailed, plausible and acceptable explanation as to why she had to make numerous corrections
in the entries in the passbook. Even after the corrections allegedly done to reconcile the records, the
passbook and the transaction history register still contained different entries.

Curiously, though she asserts that Oliver obtained a loan of P4.5 million and authorized the withdrawal
of P7 million, Castro could not explain why these transactions were not reflected in the passbook which
was in her possession. Bearing in mind that the alleged unauthorized withdrawal happened on
December 21, 1998, while Castro was questionably withholding the passbook, the Court is of the
impression that she manipulated the entries therein to conceal the P7 million withdrawal.

Further, Castro claims that Oliver instructed her to withdraw the P7 million from her bank account and
to deposit the same in Lims account. Glaringly, Lim was not presented as a witness to substantiate her
defense. Even though she testified that the P7 million transfer from Olivers account to Lims was duly
documented, Castro never presented a single documentary proof of that specific transaction.

The Court is convinced that Castro went beyond the scope of her authority in withdrawing the P7
million from Olivers bank account. Her flimsy excuse that the said amount was transferred to the
account of a certain Lim deserves scant consideration. Hence, Castro must be held liable for
prejudicing Oliver.

SPECIAL CONTRACTS : ACCESSORY CONTRACTS


MORTGAGE

(70) METROPOLITAN BANK &TRUST COMPANY vs. CHUY LU TAN, ROMERO TANCO,
DR. SY SE HIONG, and TAN CHU HSIU YEN

G.R. No. 202176, August 1, 2016

Ponente: PERALTA,J., THIRD DIVISION

Nature of Action: Petition for review on certiorari seeking to reverse and set aside the decision and
resolution of CA. The assailed CA Decision reversed and set aside the RTC decision in an action for
collection of sum of money while the CA Resolution denied petitioners motion for reconsideration.

Facts: Respondents Chuy Lu Tan (Chuy) and Romeo Tanco (Tanco) obtained 5 loans from Metrobank
amounting to P19,900,000.00 The loans are evidenced by 5 Promissory Notes which respondents
executed in different dates. As security, Chuy executed a Real Estate Mortgage (REM) over a parcel of
land in Quezon City covered by TCT No. RT-53314. In addition, respondents Sy Se Hiong (Sy) and
Tan Chu Hsiu Yen (Tan) also executed a Continuing Surety Agreement whereby they bound themselves
to be solidarily liable with Chuy and Tanco for the loan plus interests at the rate stated in the
obligation secured thereby, any or all penalties, costs and expenses which may be incurred by
Metrobank in granting and/or collecting the aforesaid obligations/ indebtedness/instruments, and

120
including those for the custody, maintenance, and preservation of the securities given therefor, as may
be incurred by Metrobank before or after the date of the Surety Agreement.

Chuy and Tanco failed to settle their loans which ballooned to P24,353,062.03 despite Metrobanks
repeated demands. This prompted Metrobank to extrajudicially foreclose the mortgage and the property
was sold to it as the highest bidder for the amount of P24,572,268.00. Metrobank claims that there
remained a deficiency of P1,641,815 because of the cost of foreclosure, interest, penalty charges,
attorneys fees, etc. Metrobank demanded payment of deficiency from respondents but respondents did
not heed to Metrobanks demand. Metrobank then filed an action for collection of sum of money
against respondents. RTC ruled in favor of Metrobank and ordered herein respondents Chuy, Tanco, Sy,
and Tan solidarily liable to Metrobank for the deficiency. Petitioner and respondents, except Chuy,
appealed to CA. CA reversed and set aside RTC decision and dismissed Metrobanks complaint.
Metrobank moved for reconsideration but it was denied. Hence, the present petition.

Issue: Whether or not the CA erred in denying Metrobank its deficiency claim on the ground that such
claim is iniquitous, unconscionable, and exorbitant.

Ruling: Yes, the CA did err in denying Metrobank its deficiency claim.

The Court rules for the petitioner. Settled is the rule that a creditor is not precluded from recovering any
unpaid balance on the principal obligation if the extrajudicial foreclosure sale of the property subject of
the real estate mortgage results in a deficiency. In Spouses Rabat v. Philippine National Bank, this
Court held:

x x x it is settled that if the proceeds of the sale are insufficient to cover the debt in an
extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from
the debtor. For when the legislature intends to deny the right of a creditor to sue for any
deficiency resulting from foreclosure of security given to guarantee an obligation it expressly
provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing
sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the
extrajudicial foreclosure of mortgages, while silent as to the mortgagee's right to recover, does
not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a
deficiency claim arising from the extrajudicial foreclosure is allowed.

Indeed, the fact that the mortgaged property was sold at an amount less than its actual market value
should not militate against the right to such recovery. This Court has likewise ruled that in deference to
the rule that a mortgage is simply a security and cannot be considered payment of an outstanding
obligation, the creditor is not barred from recovering the deficiency even if it bought the mortgaged
property at the extrajudicial foreclosure sale at a lower price than its market value notwithstanding the
fact that said value is more than or equal to the total amount of the debtor's obligation.

WHEREFORE, the petition is PARTLY GRANTED. The March 20, 2012 Decision and June 11, 2012
Resolution of the Court of Appeals in CA-GR. CV No. 92543 are REVERSED and SET ASIDE. The
July 17, 2008 Decision of the Regional Trial Court of Makati City, Branch 61 is REINSTATED with
the MODIFICATION that the sum of~l,641,815.00

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SPECIAL CONTRACTS : TRUST

IMPLIED TRUST

(71) JOSE NORBERTO ANG, petitioner vs. THE ESTATE OF SY SO, respondent

G.R. No. 182252, August 3, 2016

Ponente: SERENO, C.J., FIRST DIVISION

Nature of the Action: Petition for Review on Certiorari under Rule 45 assailing the Decision and
Resolution of the CA partially granting respondent Sy Sos appeal from RTC Decision.

Facts: Respondent Sy So, a Chinese national, and her husband, Jose Ang, were childless that is why
when a woman approached respondent and offered an infant for adoption, respondent immediately
accepted the offer. No formal adoption papers were processed but the child was christened as Jose
Norberto Ang, the petitioner in this case. Respondent subsequently adopted three other wards: Mary
Ang, Tony Ang, and Teresita Tan. Shortly after her husband died, respondent acquired a property in
Caloocan which she registered under TCT No. 73396 in the name of petitioner Jose, who was then only
3 yrs. old, in keeping with the Chinese tradition of registering properties in the name of the eldest male
son or ward. Another property was again acquired by respondent also in Caloocan registered under
122
TCT No. 10425 under Joses name. Respondent, at her own expense, built an eight-door apartment and
for over 30 years, she, along with petitioner and her other wards, lived there.

Unknown to respondent, Jose filed Petition for Issuance of Second Owners Duplicate Certificate of
Title of the above mentioned properties and sold the one covered by TCT No. 10425 in 1971. In April
1974, Joses counsel wrote respondent Sy So to demand payment of P500 as her contribution for real
estate taxes on the 10th Ave. lot. In March 1989, said counsel wrote again formally demanding
respondent to vacate the property within 3 months and informing her that she would be charged P5,000
as monthly rent. In July 1989, Jose filed an ejectment suit against respondent for nonpayment of rentals
byt the case was dismissed on Oct. 30, 1989 by the MeTC. Meanwhile, in 1993, respondent Sy So filed
with the RTC a case for Transfer of Trusteeship from the Defendant Jose Ang to the New Trustee,
Tony Ang, with Damages. Citing Joses gross ingratitude, disrespectfulness, dishonesty, and breach of
trust, respondent Sy So argued that she bought the two parcels of land and constructed the apartment
doors at her own expense. Thus, she alleged that there was an implied trust over the properties in
question. RTC ruled in favor of petitioner and dismissed respondents complaint. RTC ruled there was
no implied trust citing Art. 1448 of the Civil Code which states that if the person to whom the title is
conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied
by law, it being disputably presumed that there is a gift in favor of the child. Aggrieved, respondent
appealed to CA. Respondent argued that in the absence of any formal adoption proceedings, Art. 1448
cannot apply. CA partially granted respondents appeal by denyust.ing her claim for reimbursement of
the purchase price over the lot covered by TCT 10425 on the ground of prescription and declaring her
as the true and absolute owner of the property under TCT No. 73396. Hence, this instant petition.

Issue: Whether or not the argument of respondent that there exists an implied trust is tenable.

Held: We grant the petition.

As early as Krivenko vs. Register of Deeds, we have interpreted the foregoing to mean that, under the
Constitution then in force, aliends may not acquire residential lands: One of the fundamental
principles underlying the provision of Article XIII of the Constitution x x x is that lands, minerals,
forests, and other natural resources constitute the exclusive heritage of the Filipino nation. They should,
therefore, be preserved for those under the sovereign authority of that nation and for their posterity.

These provisions have been substantially carried over to the present Constitution, and Jurisprudence
confirms that aliens are disqualified from acquiring lands of the public domain. In Ting Ho vs. Teng
Gui, Muller vs. Muller, Frenzel vs. Catito, and Cheesman vs. Intermediate Appellate Court, all cited in
Matthews vs. Sps. Taylor, We upheld the constitutional prohibition on aliens acquiring land in the
Philippines. We have consistently ruled thus in line with constitutional intent to preserve and conserve
prohibition on aliens acquiring land in the Philippines. Our Constitution clearly reserves for Filipino
citizens or corporations at least sixty percent of the capital of which is owned by Filipinos the right to
acquire lands of public domain. The prohibition against aliens owning lands in the Philippines is
subject only to limited constitutional exceptions, and not even an implied trust can be permitted on
equity considerations.

Much as we sympathize with the plight of a mother who adopted an infant son, only to have her
ungrateful ward eject her from her property during her twilight years, we cannot grant her prayer.
Applying the above rules to the present case, we find that she acquired the subject parcels of land in
violation of the constitutional prohibition against aliens owning real property in the Philippines.
Axiomatically, the properties in question cannot be legally reconveyed to one who had no right to own
them in the first place. This being the case, we no longer find it necessary to pass upon the question of
respondent Sy Sos substitution in these proceedings.

The Solicitor General, however, may initiate an action for reversion or escheat of the land to the State.
In sales of real estate to aliens incapable of holding title thereto by virtue of the provisions of the
Constitution, both vendor and the vendee are deemed to have committed the constitutional violation.
Being in pari delicto the courts will not afford protection to either party. The proper party who could
assail the sale is the Solicitor General.

WHEREFORE, the instant petition for review is Granted.

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SPECIAL CONTRACTS : ACCESSORY CONTRACTS

MORTGAGE

(72) METROPOLITAN BANK &TRUST COMPANY, petitioner vs. CHUY LU TAN, ROMERO
TANCO, DR. SY SE HIONG, and TAN CHU HSIU YEN, respondent

G.R. No. 202176, August 1, 2016

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: Petition for review on certiorari seeking to reverse and set aside the decision and
resolution of CA. The assailed CA Decision reversed and set aside the RTC decision in an action for
collection of sum of money while the CA Resolution denied petitioners motion for reconsideration.

Facts: Respondents Chuy Lu Tan (Chuy) and Romeo Tanco (Tanco) obtained 5 loans from Metrobank
amounting to P19,900,000.00 The loans are evidenced by 5 Promissory Notes which respondents
executed in different dates. As security, Chuy executed a Real Estate Mortgage (REM) over a parcel of
land in Quezon City covered by TCT No. RT-53314. In addition, respondents Sy Se Hiong (Sy) and
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Tan Chu Hsiu Yen (Tan) also executed a Continuing Surety Agreement whereby they bound themselves
to be solidarily liable with Chuy and Tanco for the loan plus interests at the rate stated in the
obligation secured thereby, any or all penalties, costs and expenses which may be incurred by
Metrobank in granting and/or collecting the aforesaid obligations/ indebtedness/instruments, and
including those for the custody, maintenance, and preservation of the securities given therefor, as may
be incurred by Metrobank before or after the date of the Surety Agreement.

Chuy and Tanco failed to settle their loans which ballooned to P24,353,062.03 despite Metrobanks
repeated demands. This prompted Metrobank to extrajudicially foreclose the mortgage and the property
was sold to it as the highest bidder for the amount of P24,572,268.00. Metrobank claims that there
remained a deficiency of P1,641,815 because of the cost of foreclosure, interest, penalty charges,
attorneys fees, etc. Metrobank demanded payment of deficiency from respondents but respondents did
not heed to Metrobanks demand. Metrobank then filed an action for collection of sum of money
against respondents. RTC ruled in favor of Metrobank and ordered herein respondents Chuy, Tanco, Sy,
and Tan solidarily liable to Metrobank for the deficiency. Petitioner and respondents, except Chuy,
appealed to CA. CA reversed and set aside RTC decision and dismissed Metrobanks complaint.
Metrobank moved for reconsideration but it was denied. Hence, the present petition.

Issue: Whether or not the CA erred in denying Metrobank its deficiency claim on the ground that such
claim is iniquitous, unconscionable, and exorbitant.

Held: Yes, the CA did err in denying Metrobank its deficiency claim.

The Court rules for the petitioner. Settled is the rule that a creditor is not precluded from recovering any
unpaid balance on the principal obligation if the extrajudicial foreclosure sale of the property subject of
the real estate mortgage results in a deficiency. In Spouses Rabat v. Philippine National Bank, this
Court held:

x x x it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial
foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when
the legislature intends to deny the right of a creditor to sue for any deficiency resulting from
foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges
[Civil Code, Art. 2115] and in chattel mortgages of a thing sold on installment basis [Civil Code, Art.
1484(3)]. Act No. 3135, which governs the extrajudicial foreclosure of mortgages, while silent as to the
mortgagee's right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly,
it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed.

Indeed, the fact that the mortgaged property was sold at an amount less than its actual market value
should not militate against the right to such recovery. This Court has likewise ruled that in deference to
the rule that a mortgage is simply a security and cannot be considered payment of an outstanding
obligation, the creditor is not barred from recovering the deficiency even if it bought the mortgaged
property at the extrajudicial foreclosure sale at a lower price than its market value notwithstanding the
fact that said value is more than or equal to the total amount of the debtor's obligation.

WHEREFORE, the petition is PARTLY GRANTED. The March 20, 2012 Decision and June 11, 2012
Resolution of the Court of Appeals in CA-GR. CV No. 92543 are REVERSED and SET ASIDE. The
July 17, 2008 Decision of the Regional Trial Court of Makati City, Branch 61 is REINSTATED with
the MODIFICATION that the sum of~l,641,815.00

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MORTGAGE

(73) HEIRS OF FELINO M. TIMBOL, JR., NAMELY, MICHAEL JOHN JORGE TIMBOL,
FELINO JAMES JORGE TIMBOL, AND MARILOU TIMBOL, Petitioners, v. PHILIPPINE
NATIONAL BANK, Respondent.

G.R. No. 207408, April 18, 2016

Ponente: CARPIO, J., SECOND DIVISION

Nature of the Action: Petition for review on certiorari under Rule 45 assailing the Decision and
Resolution of CA reversing and setting aside the RTC Decision.

Facts: In December 1996, Karrich Holdings Ltd (KHL) based in HK and owned by Felino Timbol
applied with PNBs wholly-owned HK-based subsidiary, PNB-IFL, for credit facilities in the amount of
P22,796,200. As security, Timbol executed real estate mortgages (REM) on his behalf and on behalf of
Emmanuela Languardia over 9 parcels of real estate registered in the name of Mr. and Mrs. Timbol, Jr.
When Timbol defaulted in paying his loan obligations, PNB, on behalf of PNB-IFL, sent a demand
letter stating that Timbols loan obligaton is P38,088,173.59. Timbol still failed to pay his obligation so
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on Nov. 15, 1999, PNB caused the foreclosure of the mortgaged properties claiming that Timbol
violated the terms of the REM by defaulting on the payment of loan obligation despite demands.

As of the date of foreclosure, the outstanding balance of Timbol already amounted to P42,320,611.62.
PNB was allegedly the highest bidder at the public auction sale with a bid price of P35,669,000. On
August 4, 2000, Timbol and Languardia filed suit against PNB, Espina, and the RD of Makati for
annulment of REM, foreclosure, and auction sale, for accounting and damages, and for a temporary
restraining order and/or injunction. They accused PNB of deliberately bloating the amount of the
obligation and that the foreclosure proceedings are highly irregular, invalid, and illegal.

RTC granted the issuance of a writ of preliminary injunction and denied PNBs motion for
reconsideration and supplemental motion for reconsideration while grating Timbols motion to reduce
bond which would ultimately be nullified and set aside by the SC. RTC declared the foreclosure of
mortgage by the defendant bank to be null and void. PNB elevated the case to CA and while the case
was pending, Timbol died. He was substituted by his heirs as petitioners. CA reversed RTCs decision
dismissing the complaint. Petitioners filed a motion for reconsideration but was denied. Hence, this
instant petition.

Issue: Whether or not PNB has the right to foreclose the real estate mortgage.

Held: Yes, PNB has the right to foreclose the real estate mortgage in this case.

As to the claim that there is no proper authority from PNB-IFL assigning its rights and interest in the
mortgage contract to PNB, the Court finds that the same is easily controverted by the REM itself.

Paragraph 21 of the REM states:

21. APPOINTMENT OF AGENT, ASSIGNMENT. The Mortgagee hereby appoints the PNB (Head
Office, Pasay City) as its attorney-in-fact with full power and authority to exercise all its rights and
obligations under this Agreement, such as but not limited to foreclosure of the Mortgaged Properties,
taking possession and selling of the mortgaged/foreclosed properties, and execution of covering
documents. The Mortgagee may also assign its rights and interest under this Agreement even without
need of prior notice to, or consent of, the Mortgagors

The terms of the contract are clear and should end any further discussion on this issue.

In addition, petitioners never raised the authority of PNB to foreclose the mortgage on behalf of PNB-
IFL in their complaint before the trial court or in the proceedings before the CA.

It is not too late for petitioners to raise these issues before the Court. It is noteworthy that all these
could have been ventilated in the proceedings before the CA had petitioners not neglected to file their
Appellees Brief.

Thus, the foregoing discussion puts to rest the issues raised by petitioners. Consequently, the REM, the
subsequent foreclosure and auction sale are held to be valid. No irregularity attended the execution of
the mortgage contract, the foreclosure, and the auction sale, the same being within the terms agreed
upon by petitioners predecessor-in-interest and PNB.

Wherefore, the petition is Denied. The Decision of the CA is Affirmed.

So ordered.

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BREACH OF CONTRACT

(74) CENTURY PROPERTIES, INC., petitioner vs. EDWIN J. BABIANO and EMMA B.
CONCEPCION, respondent

G.R. No. 220978, July 5, 2016

Ponente: PERLAS-BERNABE, J., FIRST DIVISION

Nature of Action: Petition for review on certiorari assailing the Decision and Resolution of CA which
affirmed with modification the Decision of the NLRC and ordering the petitioner to pay respondents
unpaid commissions.

Facts: Respondent Babiano was hired by petitioner CPI as Director of Sales and was eventually
appointed as VP for Sales. His employment contract contained a Confidentiality of Documents and
Non Compete Clause which barred him from working in any business enterprise in direct competition
with CPI while employed and for a period of one year from date of resignation or termination. Any
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breach thereof, his forms of compensation including commissions and incentives will be forfeited.
On February 25, 2009, Babiano tendered resignation and revealed that he had been accepted as VP of
First Global BYO Development Corporation (First Global)a competitor of petitioner. Petitioner
served him a Notice of Termination for being in AWOL, violating the Confidenciality and Non-
Compete Clause of their contract, and recruiting CPI personnel to join competitor.

Respondent Concepcion, on the other hand, was initially hired as Sales Agent but eventually promoted
as Project Director. In her contracts with petitioner, it is stipulated that no employer-employee
relationship that exists between them. On February 23, 2009, she resigned effective immediately.

Respondents filed a complaint for non payment of commissions and damages against CPI before
NLRC. LA ruled in CPIs favor and dismissed the complaint for lack of merit. Respondents appealed to
NLRC which reversed and set aside the ruling of the LA. Aggrieved, CPI filed a petition for certiorari
before CA. CA affirmed NLRC ruling with modification. CPI sought for reconsideration but was
denied. Hence, this petition.

Issue: Whether or not CA erred in denying CPIs petition and holding it liable for unpaid commissions
despite violation of the Confidentiality and Non-Compete clause of respondent Babiano.

Held: Article 1370 of the Civil Code provides that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

Thus, in the interpretation of contracts, the Court must first determine whether a provision or
stipulation therein is ambiguous. Absent any ambiguity, the provision on its face will be read as it is
written and treat as the binding law of the parties to the contract.

In the case at bar, CPI primarily invoked the Confidentiality of Documents and Non-Compete Clause
found in Babianos contract to justify the forfeiture of his commissions, which states that in order to
ensure strict compliance herewith, you shall not work for whatever capacity, either as an employee,
agent, or consultant with any person whose business is in direct competition with the company while
you are employed and for a period of one year from date of resignation or termination from the
company. And Finally, if undersigned breaches any terms of this contract, forms of compensation
including commissions and incentives will be forfeited.

Verily, the foregoing clause is not only clear and unamibiguous in stating that Babiano is barred to
work for whatsoever capacity xxx with any person whose business is in direct competition with CPI
while employed and for a period of one year from date of resignation or termination from the
company, it also expressly provided in no uncertain terms that should Babiano breach any term of the
employment contract, forms of compensation including commissions and incentives will be forfeited.

Here, the contracting partiesBabiano and CPIindisputably wanted the said clause to be effective
even during the existence of the employer-employee relationship between Babiano and CPI, thereby
indicating their intention to be bound by such clause by affixing their signatures to the employment
contract. Significantly, as CPI's Vice President for Sales, Babiano held a highly sensitive and
confidential managerial position as he "was tasked, among others, to guarantee the achievement of
agreed sales targets for a project and to ensure that his team has a qualified and competent manpower
resources by conducting recruitment activities, training sessions, sales rallies, motivational activities,
and evaluation programs."

Hence, to allow Babiano to freely move to direct competitors during and soon after his employment
with CPI would make the latter's trade secrets vulnerable to exposure, especially in a highly
competitive marketing environment. As such, it is only reasonable that CPI and Babiano agree on such
stipulation in the latter's employment contract in order to afford a fair and reasonable protection to CPI.
Indubitably, obligations arising from contracts, including employment contracts, have the force of law
between the contracting parties and should be complied with in good faith. Corollary thereto, parties
are bound by the stipulations, clauses, terms, and conditions they have agreed to, provided that these
stipulations, clauses, terms, and conditions are not contrary to law, morals, public order or public
policy, as in this case.

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Therefore, the CA erred in limiting the "Confidentiality of Documents and Non-Compete Clause" only
to acts done after the cessation of the employer-employee relationship or to the "post-employment"
relations of the parties. As clearly stipulated, the parties wanted to apply said clause during the
pendency of Babiano' s employment, and CPI correctly invoked the same before the labor tribunals to
resist the farmer's claim for unpaid commissions on account of his breach of the said clause while the
employer-employee relationship between them still subsisted. Hence, there is now a need to determine
whether or not Babiano breached said clause while employed by CPI, which would then resolve the
issue of his entitlement to his unpaid commissions.

A judicious review of the records reveals that in his resignation letter dated February 25, 2009, Babiano
categorically admitted to CPI Chairman Jose Antonio that on February 12, 2009, he sought
employment from First Global, and five (5) days later, was admitted thereto as vice president. From the
foregoing, it is evidently clear that when he sought and eventually accepted the said position with First
Global, he was still employed by CPI as he has not formally resigned at that time. Irrefragably, this is a
glaring violation of the "Confidentiality of Documents and Non-Compete Clause" in his employment
contract with PI, thus, justifying the forfeiture of his unpaid commissions.

BREACH OF CONTRACT

(75) TORRES-MADRID BROKERAGE, INC., petitioenr vs. FEB MITSUI MARINE


INSURANCE CO., INC. and BENJAMIN MANALASTAS, doing business under the name of
BMT TRUCKING SERVICES., respondent

G.R. No. 194121, July 11, 2016

Ponente: BRION, J., SECOND DIVISION

Nature of Action: Petition for review on certiorari challenging CA decision affirming RTCs Decision
finding Torres-Madrid Brokerage, Inc. (TMBI) and Benjamin Manalastas solidarily liable to respondent
FEB Mitsui Marine Insurance Co (Mitsui) for damages from the loss of transported cargo.

Facts: On Oct. 7, 2000, a shipment of electronic goods from Thailand and Malaysia arrived at the Port
of Manila for Sony Philippines. Prior to its arrival, Sony engaged services of TMBI to facilitate,
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process, withdraw and deliver the shipment to its warehouse in Binan, Laguna. TMBI subcontracted
the services Manalastas companyBMT Trucking Services (BMT) to transport shipment from the
port to Laguna. BMT picked up the shipment from the port at 11am on Oct 7, 2000 but could not
immediately deliver them because of the truck ban and because the following day was a Sunday. BMT
scheduled the delivery on Oct.9, 2000.

On Oct. 9, 4 BMT trucks left for Laguna but only 3 arrived at Sonys warehouse because the truck
driven by Rufo Lapesura was found abandoned along Filinvest Alabang with both the truck driver and
shipment missing. BMT and TMBI reported the matter to the police. TMBI filed a complaint against
the driver for hijacking and notified Sony of the loss. TMBI sent BMT a demand letter for the
payment of the lost shipment but BMT refused to pay.

Sony then filed an insurance claim with Mitsui and after evaluating the merits Mitsui paid Sony
P7,923,386.23 corresponding the value of the lost goods. Mitsui then sent TMBI a demand letter for
payment of lost goods but TMBI refused to pay. Thus, Mitsui filed a complaint against TMBI. TMBI
impleaded Manalastas as 3rd party defendant. RTC found TMBI and Manalastas solidarily liable to pay
Mitsui P7,293,386.23 among others. RTC also held TMBI and Manalastas were common carriers and
had acted negligently. On appeal, CA affirmed RTCs decision and held that hijacking is not
necessarily a fortuitous even because the term refers to the general stealing of cargo during transit and
that even if it was a fortuitous event, TMBIs failure to observe extraordinary diligence in overseeing
the cargo and adopting security measures make it liable for the loss. Lastly, that even if TMBI had not
been negligent, TMBI still breached its contractual obligation to Sony when it failed to deliver the
shipment. Hence, this instant petition.

Issue: 1) Whether or not TMBIa brokeragemay be considered a common carrier.

2) Whether or not a TMBI can be held liable for the loss of the goods due to hijacking.

Held: 1) Yes, a brokerage may be considered a common carrier if it also undertakes to deliver the
goods for its customers.

Common carriers are persons, corporations, firms, or associations engaged in the business of
transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public. By the nature of their business and for reasons of public policy, they are bound to
observe extraordinary diligence in the vigilance over the goods and safety of their passengers.

In A.F. Sanchez Brokerage Inc. v. Court of Appeals, we held that a customs broker whose principal
business is the preparation of the correct customs declaration and the proper shipping documents is
still considered a common carrier if it also undertakes to deliver the goods for its customers. The law
does not distinguish between one whose principal business activity is the carrying of goods and
one who undertakes this task only as an ancillary activity. This ruling has been reiterated in Schmitz
Transport & Brokerage Corp. v. Transport Venture, Inc., Loadmasters Customs Services, Inc. v.
Glodel Brokerage Corporation,and Westwind Shipping Corporation v. UCPB General Insurance Co.,
Inc.

Despite TMBIs present denials, we find that the delivery of the goods is an integral, albeit ancillary,
part of its brokerage services. TMBI admitted that it was contracted to facilitate, process, and clear the
shipments from the customs authorities, withdraw them from the pier, then transport and deliver them
to Sonys warehouse in Laguna.

That TMBI does not own trucks and has to subcontract the delivery of its clients goods, is immaterial.
As long as an entity holds itself to the public for the transport of goods as a business, it is considered a
common carrier regardless of whether it owns the vehicle used or has to actually hire one.

Lastly, TMBIs customs brokerage services including the transport/delivery of the cargo are
available to anyone willing to pay its fees. Given these circumstances, we find it undeniable that TMBI
is a common carrier.

2) Simply put, the theft or the robbery of the goods is not considered a fortuitous event or a force
majeure Nevertheless, a common carrier may absolve itself of liability for a resulting loss: (1) if it
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proves that it exercised extraordinary diligence in transporting and safekeeping the goods; or (2) if it
stipulated with the shipper/owner of the goods to limit its liability for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence.

However, a stipulation diminishing or dispensing with the common carriers liability for acts
committed by thieves or robbers who do not act with grave or irresistible threat, violence, or force is
void under Article 1745 of the Civil Code for being contrary to public policy. Jurisprudence, too, has
expanded Article 1734s five exemptions. De Guzman v. Court of Appeals interpreted Article 1745 to
mean that a robbery attended by grave or irresistible threat, violence or force is a fortuitous event that
absolves the common carrier from liability.

That the cargo disappeared during transit while under the custody of BMT TMBIs subcontractor
did not diminish nor terminate TMBIs responsibility over the cargo. Article 1735 of the Civil Code
presumes that it was at fault.

Instead of showing that it had acted with extraordinary diligence, TMBI simply argued that it was not a
common carrier bound to observe extraordinary diligence. Its failure to successfully establish this
premise carries with it thepresumption of fault or negligence, thus rendering it liable to Sony/Mitsui for
breach of contract.

Specifically, TMBIs current theory that the hijacking was attended by force or intimidation is
untenable.

First, TMBI alleged in its Third Party Complaint against BMT that Lapesura was responsible for
hijacking the shipment. Further, Victor Torres filed a criminal complaint against Lapesura with the
NBI. These actions constitute direct and binding admissions that Lapesura stole the cargo. Justice
and fair play dictate that TMBI should not be allowed to change its legal theory on appeal.

Second, neither TMBI nor BMT succeeded in substantiating this theory through evidence. Thus,
the theory remained an unsupported allegation no better than speculations and conjectures. The CA
therefore correctly disregarded the defense of force majeure.

QUASI-DELICT

(76) TRAVEL & TOURS ADVISERS, INCORPORATED, petitioner vs. ALBERTO CRUZ, SR.,
EDGAR HERNANDEZ, and VIRGINIA MUNOZ, respondent

G.R. No. 199282, March 14, 2016

Ponente: PERALTA, J., THIRD DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45

Facts: Respondent Edgar Hernandez was driving a passenger jeepney he owns along Angeles,
Pampanga. Meanwhile, a Daewoo passenger bus owned by petitioner and driven by Edgar Calaycay
was travelling in the same direction as that of respondent Hernandez vehicle. The bus bumped the rear

132
portion of the jeepney causing to ram into an acacia trea which resulted in the death of Alberto Cruz, Jr.
and the serious physical injuries of Virgina Munoz. Thus, respondents, filed a complaint for damages.

For its defense, the petitioner claimed that it exercised the diligence of a good father of a family in the
selection and supervision of its employee Calaycay and further argued that it was Hernandez who was
driving his passenger jeepney in a reckless manner by suddenly entering the lane of petitioners bus
without seeing whether the road was clear to enter said lane. Further, petitioner alleged that Hernandez
violated his franchise by travelling along an unauthorized route and that the jeepney was overloaded
with passengers and the deceased Alberto Cruz, Jr. was clinging at the back thereof.

RTC ruled in favor of respondents. On appeal, CA partially granted the appeal and affirmed with
modification the ruling of RTC. Hence, this present petition.

Issue: Whether petitioner is liable for damages awarded to the respondents.

Held: Yes, the petitioner is also liable for damages awarded to respondents.

It has been held that drivers of vehicles who bump the rear of another vehicle are presumed to be the
cause of the accident, unless contradicted by other evidence. The rationale behind the presumption is
that the driver of the rear vehicle has full control of the situation as he is in a position to observe the
vehicle in front of them.

xxx

From the above findings, it is apparent that the proximate cause of the accident is the petitioner s bus
and that the petitioner was not able to present evidence that would show otherwise.

xxx

Consequently, the petitioner being the owner of the bus and the employer of the driver, Edgar Calaycay,
cannot escape liability. Article 2176 of the Civil Code provides:

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done, such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

Complementing Article 2176 is Article 2180 which states:

The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but
also for those of persons for whom one is responsible xxx.

Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry xxx.

The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage.

Article 2180, in relation to Article 2176, of the Civil Code provides that the employer of a negligent
employee is liable for the damages caused by the latter. When an injury is caused by the negligence of
an employee, there instantly arises a presumption of the law that there was negligence on the part of the
employer either in the selection of his employee or in the supervision over him after such election. The
presumption, however may be rebutted by clear showing that it had exercised the care and diligence of
a good father of a family in the selection and supervision of his employee. Hence, to escape liability for
quasi-delict committed by an employee, the employer must adduce proof that it exercised such degree
of care. In this case, petitioner failed to do so.

xxx

The petitioner and its driver, therefore, are not solely liable for the damages caused to the victims. The
petitioner must be held liable only for the damages actually caused by his negligence. It is therefore,
133
proper to mitigate the liability of the petitioner and its driver. The determination of the mitigation of the
defendants liability varies depending on the circumstances of each case.

DAMAGES

LIQUIDATED DAMAGES

(77) ACS DEVELOPMENT & PROPERTY MANAGERS, INC., petitioner vs. MONTAIRE
REALTY AND DEVELOPMENT CORPORATION, respondent

G.R. No. 195552, April 18, 2016

Ponente: REYES, J., THIRD DIVISION

Nature of the Action: Petition for certiorari to assail the CA Decion which affirmed with modification
the Decision of the CIAC (Construction Industry Arbitration Commission).

134
Facts: Petitioner ADPROM and respondent MARDC were parties to a Construction Agreement
executed on April 25, 1996 where ADPROM, as contractor, bound himself to construct 17 units of
MARDCs Villa Fresca Townhomes in Brgy. Kaybagal, Tagaytay City. The total consideration for the
contract was P39,500,000 inclusive of labor, materials, supervision and taxes. ADPROM was to be paid
periodically based on monthly progress billings, less 10% retention. They later on amended their
agreement reducing the no. of units to be erected to 11 and the total contract price to P22,500,000.

MARDC fully satisfied ADPROMs Progress Billing Nos. 1-8 for a total of P23,169,183.43. In billing
no.9, ADPROM demanded P1,495,345.24. However, only P94,460.28 was approved. ADPROM
refused such reduction. ADPROM decided on a work stoppage. This prompted MARDC to serve to
ADPROM a notice of default. MARDC decided to terminate the agreement and demanded that
ADPROM return the alleged overpayments amounting to P11,188,539.69 after it was determined that
ADPROM only accomplished 54.67%. Feeling aggrieved, ADPROM instituted with CIAC a case for
sum of money against MARDC. CIAC ordered MARDC to pay ADPROM P4,384,987.03.
Dissatisfied, MARDC appealed to CA which deleted the award of interest on unpaid billings and
holding ADPROM liable to MARDC for liquidated damages at P39,500 per calendar day starting Mar.
20, 1997 to Sept. 1, 1997. Unyielding, ADPROM filed this petition.

Issue: Whether or not CA erred in holding ADPROM liable for liquidated damages.

Held: No, CA was correct in awarding liquidated damages to MARDC and holding ADPROM liable
for it.

The CA's award of liquidated damages upon MARDC was also supported by sufficient bases. In
justifying the award, the appellate court correctly cited the unjustified decision of ADPROM to cease in
its construction of MARDC's townhouse project. The pending conflict between the parties on the
unpaid billings was not a sufficient ground for such recourse. Article XIII, Section 13.1 of the
Construction Agreement even provided that "[t]he parties shall attempt to settle any dispute arising
from the Agreement amicably."

The Court reiterates that MARDC was allowed under the parties' contract to rely on the findings of
ALA on the percentage of completion and the appropriate payment that should be given therefor, and to
act in accordance with such findings. However, beginning March 18, 1997, at a time when no approval
for full payment was as yet issued by ALA, ADPROM proceeded with its threat to cease working on
the townhouse project already conveyed in its letter dated March 14, 1997. Such work stoppage by
ADPROM was not based on justifiable grounds, and thus rendered applicable the following agreement
of the parties on liability for liquidated damages:

Article IX

LIQUIDATED DAMAGES

9.1. [AD PROM] acknowledges that time is of the essence of this Agreement and that any unexcused
day of delay as determined in accordance with [S]ection 5.1 hereof as defined in the general conditions
of this Agreement will result in injury or damages to [MARDC], in view of which, the parties have
hereto agreed that for every calendar day of unexcused delay in the completion of its Work under this
Agreement, [ADPROM] shall pay [MARDC] the sum of Thirty[-]Nine Thousand Five Hundred
(P39,500.00) per calendar day as liquidated damages. Said amount is equivalent to 1110 of 1 % of the
Total Contract Price. Liquidated damages under this provision may be deducted by [MARDC] from the
stipulated Contract Price or any balance thereof, or to any progress billings clue [ADPROM].

Section 5.1 of Article V referred to in the aforequoted provision provides that the townhouse project
shall be completed within 180 calendar days, to be effective from the date of the agreement's execution,
MARDC 's payment of the required down payment and the issuance of a Notice to Proceed. Based on
records, the parties agreed on an extension of the period to complete the project until April 30, 1997.

There clearly was an unexcused delay in the completion of the project because of ADPROM's decision
on a work stoppage. Given the terms of the Construction Agreement, ADPROM neither had the
authority to terminate their contract, nor to unilaterally decide to discontinue a prompt performance of
its duties under the agreement, especially after no default could as yet be attributed to MARDC.
135
Records indicate that MARDC had been prompt in the payment of Progress Billing Nos. l to 8 for the
period covering June 1996 to January 1997, having already paid a total amount of P23,169,183.43 for
the construction of the townhouses. The dispute only arose from the February 1997 billing. ADPROM's
unilateral and hasty decision to cease constructing, and the consequent delay in the project's
completion, then made it liable for the stipulated liquidated damages. In Philippine Charter Insurance
Corporation v. Petroleum Distributors & Services Corporation, the Court reiterated:

Article 2226 of the Civil Code allows the parties to a contract to stipulate on liquidated damages to be
paid in case of breach. It is attached to an obligation in order to insure performance and has a double
function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the
obligation by the threat of greater responsibility in the event of breach. As a general rule, contracts
constitute the law between the parties, and they are bound by its stipulations. For as long as they are not
contrary to law, morals, good customs, public order or public policy, the contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient. (Citations
omitted)

Subsequent to the execution of the 'Construction Agreement, the parties decided to vary the terms of
their contract by reducing the project's number of units and the corresponding contract price. There was
nonetheless no indication that they resolved to reduce the amount of liquidated damages to be paid by
ADPROM in the event of its unexcused delay. The foregoing circumstances also do not affect
ADPROM's entitlement to the unpaid billings of Pl ,468,348.60, after it was established before the
CIAC and by the CA that work for such value had been completed by the company. MARDC then
rightly had to compensate AD PROM for such amount, together with the l0% retention of
P2,806,814.00.

The imposable interest on the monetary awards after their finality must however be clarified, as the CA
made no pronouncement on the CIA C's award of interest on the total money judgment, pegged by the
CIAC at the rate of 12% per annum from the time they become due until full payment. To be consistent
with prevailing jurisprudence, this must be modified in that all monetary awards shall bear interest at
the rate of only six percent (6%) per annum, and to be computed from the time the awards attain
finality until full payment thereof.

WHEREFORE, the petition is DISMISSED. The Decision dated March 28, 2000 and Resolution
dated November 9, 2010 of the Court of Appeals in CA-G.R. SP No. 48805 are AFFIRMED with
MODIFICATION in that the monetary awards to the parties shall bear interest at the rate of six
percent ( 6%) per annum from the time the awards become final until full satisfaction thereof.

SO ORDERED.

DAMAGES

(78) SPOUSES MAMERTO and ADELIA TIMADO, petitioner vs. RURAL BANK OF SAN
JOSE, INC., TEDDY MONASTERO and ATTY. AVELINO SALES, respondent

G.R. No. 201436, July 11, 2016

Ponente: BRION, J., SECOND DIVISION

Nature of Action: Petition for review on certiorari assailing the CA decision that affirmed with
modification RTC joint decision dismissing complaint for reformation of instruments and petition for
indirect contempt filed by petitioners against respondents.

136
Facts: Petitioners obtained a loan from Rural Bank amounting to P178,000. As security, they executed
a real estate mortgage over a parcel of land in Camarines Sur and chattel mortgage over on unit of rice
mill machinery and one unit of diesel engine in favor of the bank. Petitioners failed to pay the balance
of their loan amounting to P125,700. The bank informed the petitioners of its intention to foreclose the
REM and CM to cover the balance.

Petitioners filed a complaint for reformation of instruments with prayer for injunction and TRO against
respondents but Ru ral Bank still proceeded with the extrajudicial foreclosure of the REM and sold the
property at public auction where Rural Bank emerged as the highest bidder. Provisional deed of sale
was registered. After one year, the title was consolidated in Rural Banks name and a definite certificate
of sale was issued in its favor since petitioners failed to redeem the property within the redemption
period.

While the reformation and indirect contempt cases were pending, Rural Bank filed a petition for
issuance of writ of possession over the property. RTC subsequently ordered the consolidation of the
reformation and indirect contempt cases. In its joint decision, RTC dismissed complaint for reformation
of instruments and petition for indirect contempt filed by petitioners and ordered the Clerk of Court to
issue a writ of possession to petitioners. On appeal, CA affirmed with modification RTC Decision. CA
in its Decision deleted the award of moral damages for lack of legal justification and reduced the
amount of exemplary damages awarded by RTC to petitioners. Hence, this instant petition

Issue: Whether the award of exemplary damages is proper considering that CA deleted award of moral
damages.

Held: No, it is not proper to award exemplary damages when CA deleted award of moral damages.

Exemplary or corrective damages are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated, or compensatory damages. The award of exemplary damages
is allowed by law as a warning to the public and as a deterrent against the repetition of socially
deleterious actions.

The requirements for an award of exemplary damages to be proper are as follows:

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.

And third, the wrongful act must be accompanied by bad faith; and the award would be allowed only if
the guilty party acted in a wanted, fraudulent, reckless, oppressive, or malevolent manner.

In the light of the appellate courts finding that the respondents are not entitled to moral damages, the
award of exemplary damages, too, must be deleted for lack of legal basis.

DAMAGES

(79) CATHAY PACIFIC AIRWAYS, LTD., petitioner vs. SPS. ARNULFO and EVELYN
FUENTEBELLA, respondent

G.R. No. 188283, July 20, 2016

Ponente: SERENO, C.J., FIRST DIVISION

Nature of Action: Petition for review on certiorari assailing CA Decision affirming with modification
RTC decision.

137
Facts: Respondent then Congressman Arnulfo Fuentebella, Cong. Alberto Lopez, and Cong. Leonardo
Fugoso was to fly on official business to Sydney. Respondent Sps Fuentebella bought business class
tickets for Manila to Sydney via Hong Kong and back but decided to upgrade to first class. Sps. Lopez
and Sps. Fugoso were able to fly first class on all segments of the trip while respondents were not.
Petitioner admits that respondents were issued with first class tickets but that the tickets were open-
dated (waitlisted). Respondents claim that on Oct. 25, 1993 they queued in front of the first class
counter in the airport but they were issued boarding passes for business class seats in a plane bound for
Hong Kong from Manila and economy class seats in a plane bound for Sydney from HK. Respondent
requested that they be given first class tickets or at least access in the first class lounge but were denied
and was treated discourteously by the ground staff.

Respondents were able to travel first class from Sydney to HK but were issued boarding passes from
business class from HK to Manila. Upon arrival in the Philippines, respondents demanded a formal
apology and payment of damages from petitioner. The latter conducted an investigation after which it
maintained that no undue harm had been done to them. Respondents filed a complaint for damages
against petitioner. In their complaint, respondents prayed for P13M in damages for besmirched
reputation and honor and public embarrassment they suffered in a series of involuntary downgrades of
their trip from Manila to Sydney via Hong Kong and Hong Kong to Manila. RTC ruled in favor of
respondents and ordered petitioner to pay P5M to respondents, P1M as exemplary damages, and
P500,000 as attorneys fees. In settling the award, RTC considered the prestigious position held by
respondent as well as bad faith exhibited by petitioner. On appeal, CA affirmed RTC ruling with
modification that attorneys fees be reduced to P100,000. Hence this instant petition.

Issue: 1) Whether or not there was breach of contract.

2) Whether or not the award of moral and exemplary damages were without legal basis.

Held: 1) Yes, there was a breach of contract.

Air France v. Gillego, this ourt ruled that in an action based on a breach of contract of carriage, the
aggrieved party does not have to prove that the common carrier was at fault or was negligent; all
that he has to prove is the existence of the contract and the fact of its nonperformance by the carrier. In
this case, both the trial and appellate courts found that respondents were entitled to First Class
accommodations under the contract of carriage, and that petitioner failed to perform its obligation.

We shall not delve into this issue more deeply than is necessary because We have decided to accord
respect to the factual findings of the trial and appellate courts.

xxx

Petitioner tries to downplay the factual finding that no explanation was given to respondents with
regard to the types of ticket that were issued to them. It ventured that respondents were seasoned
travelers and therefore familiar with the concept of open-dated tickets. Petitioner attempts to draw
parallel with Sarreal, Jr. vs. JAL, in which the Court ruled that the airline could not be faulted for the
negligence of the passenger because the latter was aware of the restrictions carried by his ticket and the
usual procedure for travel. In that case, though, records showed that the plaintiff was a well-travelled
person who averaged two trips to Europe and two trips to Bangkok every month for 34 yrs. In the
present case, no evidence was presented to show that respondents were indeed familiar with the
concept of open-dated ticket. In fact, the tickets do not even contain the term open-dated.

2) The award of moral and exemplary damages by RTC was with basis. But the amounts were
excessive.

Moral and exemplary damages are not ordinarily awarded in breach of contract cases. This Court has
held that damages may be awarded only when the breach is wanton and deliberately injurious or the
one responsible had acted fraudulently or with malice or bad faith. Bad faith is a question of fact that
must be proven by clear and convincing evidence. Both trial and appellate courts found that petitioner
had acted in bad faith. After review of records, We find no reason to deviate from their finding.

xxx
138
However, the award of P5M as moral damages is excessive considering that the highest amount ever
awarded by this Court for moral damages involving airlines is P500,000. As We said in Air France vs.
Gillego, the mere fact that respondent was a Congressman should not result in an automatic increase
in the moral and exemplary damages.

We find that upon the facts established, the amount of P500,00 as moral damages is reasonable to
obviate the moral suffering that respondents have undergon. With regard to exemplary damages,
jurisprudence shows that P50,000 is sufficient to deter similar acts of bad faith attributable to airline
representatives.

DAMAGES

(80) TECHNO DEVELOPMENT & CHEMICAL CORPORATION, petitioner vs. VIKING


METAL INDUSTRIES, INC., respondent

G.R. No. 203179, July 4, 2016

Ponente: PERALTA, J., THIRD DIVISION

Nature of the Action: Petition for review on certiorari under Rule 45 seeking to reverse and set aside
the Decision and Resolution of the CA modifying the Decision of the RTC.

Facts: Respondent, through its President and Gen. Mgr., Brilly Bernardez, presented to the PNOC
Energy Development Corporation its bid proposal to supply and deliver within 160 days, various
139
fabricated items for the PNOC-EDC first MG Project. PNOC awarded said project to VMI. Pending the
execution of a formal contract, VMI and PNOC-EDC agreed that the bid documents and the Notice of
Award shall constitute as the binding contract between them. In a meeting among representatives of
PNOC, VMI and petitioner Techno Development & Chemical Corporation, parties agreed to paint the
fabricated items with Ultrazinc Primer, an anti-rust primer manufactured by petitioner Techno. VMI
purchased primers from Techno while Techno provided VMI with technical personnel to supervise the
application of the primer on the fabricated items.

VMI made several deliveries of the fabricated items to PNOC. However, PNOC advised VMI that 410
pieces of fabricated items were rejected due to premature rusting of its coated surfaces. VMI met with
Techno representatives and agreed that corrective measures on the defective painting would have to be
done. PNOC reminded VMI of its contractual obligations VMI. While the corrosion problems on the
fabricated items was being remedied, VMI incurred delays in submission of required fabrication
drawings, encountered difficulties in sourcing construction materials, and committed gross
miscalculation of the tons requirements, causing delay in the deliveries of structural supports. Despite
that, PNOC still proceeded to formally execute the Fabrication Contract with VMI.

VMI and PNOC further encountered several delays and contract extensions due to deficiencies and
non-conformance of the fabricated items with PNOCs specifications. PNOC advised VMI that it had
only until July 30, 1995 to complete the rectification work on the rejected items and that any remaining
undelivered items after said deadline will be inventoried and deleted from the contract. Thus, contract
price was reduced from P6,871,605.64 to P6,578,034.99. VMI appealed to PNOC to reconsider its
demand of P2,265,645.09 as the total collectible amount representing liquidated damages and
deductions saying that the delays were attributable to the poor and substandard primer of Techno but
PNOC only affirmed its deduction and informed VMI that its approval of Techno as paint supplier does
not relieve VMI of its obligations. VMI filed an action for Collection of Sum of Money with Damages
against PNOC for the remaining balance of the contract price. RTC decided in favor of VMI and
ordered PNOC to pay the balance of the contract price and Techno to pay the cost of rectification.
Aggrieved, Techno appealed to CA. CA modified the RTC Decision by deleting the award of actual
damages to VMI and reducing the award of unpaid balance of contract price. Techno moved to
reconsider but CA denied said motion. Hence, the instant pettion.

Issue: Whether or not Techno is entitled to exemplary damages.

Held: No, Techno is not entitled to exemplary damages.

On the matter of petitioner Techno's prayer for exemplary damages in the amount of P200,000.00,
however, the Court resolves to deny the same. Article 2234 of the Civil Code of the Philippines
requires a party to first prove that he is entitled to moral, temperate or compensatory damages before he
can be awarded exemplary damages. Moreover, Article 2220 of the same Code provides that in
breaches of contract, moral damages may be awarded when the party at fault acted fraudulently or in
bad faith. Thus, to justify an award for exemplary damages, the wrongful act must be accompanied by
bad faith, and an award of damages would be allowed only if he guilty party acted in a wanton,
fraudulent, reckless or malevolent manner. In the instant case, there is no showing that VMI failed to
pay for its purchased paint products fraudulently or in bad faith. The Court, therefore, does not find
Techno to be entitled to exemplary damages.

LIQUIDATED DAMAGES

(81) NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Petitioner, vs. AMA
COMPUTER LEARNING CENTER, INC., Respondent.

AMA COMPUTER LEARNING CENTER, INC., Petitioner. vs. NEW WORLD DEVELOPERS
AND MANAGEMENT, INC., Respondent,

G.R. No. 187930 and G.R. No. 188250, February 23, 2015

Ponente: SERENO, C.J., FIRST DIVISION

140
Nature of Action: Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Court of Appeals (CA) Decision dated 22 January 2009 and
Resolution2dated 18 May 2009 in CA-G.R. CV No. 89483.

The CA Decision ordered AMA Computer Learning Center, Inc. (AMA) to pay New World Developers
and Management, Inc. (New World) unpaid rentals for 2 months, as well asliquidated damages
equivalent to 4 months rent. The CA Resolution denied the separate motions for reconsideration filed
by the parties.

Facts: New World is the owner of a commercial building located at No. 1104-1118 Espaa corner
Paredes Streets, Sampaloc, Manila. In 1998, AMA agreed to lease the entire second floor of the
building for its computer learning center, and the parties entered into a Contract of Lease covering the
eight-year period from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set at P181,500, with an annual escalation rate equivalent to
15% for the succeeding years. It was also provided that AMA may preterminate the contract by sending
notice in writing to New World at least six months before the intended date. In case of pretermination,
AMA shall be liable for liquidated damages in an amount equivalent to six months of the prevailing
rent.
On the evening of 6 July 2004, AMA removed all its office equipment and furniture from the leased
premises. The following day, New World received a letter from AMA dated 6 July 2004[10] stating that
the former had decided to preterminate the contract effective immediately on the ground of business
losses due to a drastic decline in enrollment. AMA also demanded the refund of its advance rental and
security deposit.
Issue: Whether AMA is liable for liquidated damages
Held: Yes.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at least six
(6) months before the intended date of pre-termination, provided, however, that in such case, [AMA]
shall be liable to [New World] for an amount equivalent to six (6) months current rental as liquidated
damages;
Quite notable is the fact that AMA never denied its liability for the payment of liquidated damages in
view of its pretermination of the lease contract with New World. What it claims, however, is that it is
entitled to the reduction of the amount due to the serious business losses it suffered as a result of a
drastic decrease in its enrollment.
xxx
It is quite easy to understand the reason why a lessor would impose liquidated damages in the event of
the pretermination of a lease contract. Pretermination is effectively the breach of a contract, that was
originally intended to cover an agreed upon period of time. A definite period assures the lessor a steady
income for the duration. A pretermination would suddenly cut short what would otherwise have been a
longer profitable relationship. Along the way, the lessor is bound to incur losses until it is able to find a
new lessee, and it is this loss of income that is sought to be compensated by the payment of liquidated
damages.
COMPOUNDED INTEREST

(82) TARCISIO CALILUNG vs. PARAMOUNT INSURANCE CORPORATION, RP


TECHNICAL SERVICES, INC., RENATO L. PUNZALAN, and JOSE MANALO, JR.

G.R. No. 195641, July 11, 2016

Ponente: BERSAMIN, J., FIRST DIVISION

Nature of the Action: Petition for review on certiorari

141
Facts: Petitioner Tarcisio Calilung commissioned Renato Punzalan, President of RP Technical Services
Inc (RPTSI) because of his desire to buy shares of stocks worth P1,000,000 from RPTSI. RPTSI did
not agree with Calilungs proposal because he will be in complete control of the corporation. Instead,
he was allowed to buy P2,820 worth of shares with the understanding that the remaining balance of
P718,750 would be invested to finance Shell Station Project in Batangas which was being undertaken
then by respondent RPTSI. RPTSI, thru Punzalan, executed a promissory note (PN) in favor of
Calilung for P718,750 with 14% interest per annum payable on or before April 9, 1988. The PN was
guaranteed by respondent Paramount. On the same day, Punzalan and Jose Manalo, Jr., another officer
of RPTSI, executed an indemnity agreement to the effect that Paramount would be reimbursed of all
expenses it will incur under the surety bond.

RPTSI failed to pay Calulung the amount stated in the PN when it fell due prompting Calilung to file a
complaint for sum of money against RPTSI and Paramount. Paramount filed a third party complaint
against RPTSU and Punzalan and Manalo seeking reimbursement for all expenses it may incur under
the surety bond. In its answer, RPTSI denied that it authorized Punzalan and Manalo ro execute the PN
and claimed it did not profit from the loan obtained from Calilung. RTC rendered judgment in favor of
Calilung and against RPTSI and Paramount. It held RPTSI and Paramount solidarily liable to petitioner
for the amount of P718,750 with 14% interest plus attorneys fees and costs. It also held Punzalan and
Manalo solidarily liable to Paramount. Aggrieved, Paramount, Punzalan, and Manalo appealed to CA
but CA affirmed in toto the judgment of the RTC. They moved to consider but it was denied. Hence, it
went to SC on a petition for review on certiorari but SC only affirmed the Decision and Resolution of
CA.

The March 16, 2005 resolution of the SC became final and executor on July 19, 2005 and was recorded
in the book of entries of judgments on the same date. Petitioner moved for its execution. RTC ordered
that the loan be paid with 14% interest per annum. RTC reconsidered its first order and allowed
recovery of compounded interest. In its third order, RTC, acting on the motion for reconsideration of
Paramount, reverted to its stance under the first order to the effect of not allowing recovery of
compounded interest. Hence, this instant petition.

Issue: Whether it is correct to include compounded interest in the computation of judgment award.

Ruling: No, RTC cannot allow recovery of compounded interest in the computation of judgment
award.

It is settled that upon the finality of the judgment, the prevailing party is entitled as a matter of right to
a writ of execution to enforce judgment, the issuance of which is a ministerial duty of the court.

The judgment directed the respondents to pay the petitioner the principal amount of P718,750 plus
interest of 14% per annum from Oct. 7, 1987 until full payment xxx. Being already final and executor,
it is immutable, and can no longer be modified or otherwise disturbed. Its immutability is grounded on
fundamental considerations of public policy and sound practice, which demand that judgment of the
courts, at the risk of occasional errors, must become final at some definite date set by law or rule.
Indeed, the proper enforcement of the rule of law and the administration of justice requires that
litigation must come to an end at some time and that once judgment attains finality, the winning party
should not be denied the fruits of his favorable result.

Xxx

The only interest to be collected from the respondents is the 14% per annum on the principal obligation
of P718,750.00 reckoned from October 7, 1987 until full payment. There was no basis for the petitioner
to claim compounded interest pursuant to Article 2212 of the Civil Code considering that the judgment
did not include such obligation. As such, neither the RTC nor any other court, including this Court,
could apply Article 2212 of the Civil Code because doing so would infringe the immutability of the
judgment.

Verily, the execution must conform to, and not vary from, the decree in the final and immutable
judgment.

142
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the orders issued on
July 28, 2009 and February 10, 2011 by the Regional Trial Court, Branch 154, in Pasig City to the
effect that the only interest to be collected from the respondents is 14% per annum reckoned from
October 7, 1987 until full payment; DIRECTS the Regional Trial Court to forthwith issue the writ of
execution to enforce the final and executory judgment in accordance with the decree thereof; and
ORDERS the petitioner to pay the costs of suit.

ACTUAL AND TEMPERATE DAMAGES


(83) SNOW MOUNTAIN DAIRY CORPORATION, petitioner v. GMA VETERANS FORCE,
INC., respondent

G.R. No. 192446, November 19, 2014

Ponente: PERALTA, J., THIRD DIVISION

143
Nature of Action: Petition for review filed by petitioner Snow Mountain Dairy Corporation seeking to
modify the amount of actual damages awarded in the Decision dated May 31, 2010, of the Court of
Appeals (CA) in CA G.R. CV No. 91725.

Facts: Snow Mountain and GMA Veterans Force, Inc. entered into a ONE YEAR security service
agreement whereby the security agency would provide SNOW Mountain 7 security guards and under
the agreement, it was stipulated that The AGENCY shall charge the CLIENT for the Contract Price
equivalent to SIXTEEN THOUSAND FOURTEEN (PI 6,014.00) PESOS per month per guard per
twelve hours duty.

Barely 3 months into the agreement, Snow Mountain pre-terminated the contract. GMA informed Snow
Mountain that the contract was valid for a year and that it could only be terminated for just cause and
with 30 day notice.

As a result of the pre-termination of the contract, GMA filed a case for damages with the RTC.

GMA security agency alleged that it had entered in a security service agreement with petitioner; that it
had recruited seven security in compliance with the service agreement and in the process, incurred
expenses for training, physical and medical examinations, documentations, procurement of equipments
like service firearms, uniform and related expense and that it incurred income opportunity loss worth
P952,833.00 which it could have earned if the agreement was faithfully honored up to the end of the
contract period. Respondent prayed for actual, moral and exemplary damages, and attorney's fees.

Snow Mountain on the other hand alleged that there was no basis for the claim of actual damages in the
form of unrealized income as said claim was premised on a contingent circumstance, which was the
fulfillment and completion of the security agreement.

RTC rendered decision in favor of security agency ordering Snow Mountain to pay compensatory
damages representing the unserved portion of the contract in the amount of P952, 833.50.

CA affirmed the award of compensatory damages.

Issue(s):

0 Was the award of actual damages proper in this case?

1 Is the Security Agency entitled to temperate damages?

Held:

1.NO. Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation
is referred to as actual or compensatory damages.

Thus, actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss
or injury sustained. They proceed from a sense of natural justice and are designed to repair the wrong
that has been done, to compensate for the injury inflicted and not to impose a penalty. The burden is to
establish one's case by a preponderance of evidence which means that the evidence, as a whole,
adduced by one side, is superior to that of the other. Actual damages are not presumed. The claimant
must prove the actual amount of loss with a reasonable degree of certainty premised upon competent
proof and on the best evidence obtainable. Specific facts that could afford a basis for measuring
whatever compensatory or actual damages are borne must be pointed out. The award of actual damages
cannot be simply based on the mere allegation of a witness without any tangible claim, such as receipts
or other documentary proofs to support such claim.

Indeed, no evidence was presented by respondent establishing the actual amount of loss suffered by
reason of the pre-termination. It is elementary that to recover damages, there must be pleading and
proof of actual damages suffered. Clearly, there was no basis for the lower court's award of actual
damages in the absence of evidence proving the same.

144
2. YES. Undeniably, however, respondent suffered pecuniary loss because of the pre- termination of its
services without any valid cause. But since there was no proof capable of ascertaining the actual loss,
we refer to Article 2224 of the Civil Code which provides:

Article 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages may be recovered when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be proved with certainty.

Temperate damages may be allowed in cases where from the nature of the case, definite proof of
pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party suffered
some pecuniary loss. We also take into consideration that respondent certainly spent for the security
guard's training, firearms with ammunitions, uniforms and other necessary things before their
deployment to petitioner.

In Adriano v. Lasala, we found that respondents suffered pecuniary loss because of petitioners'
untimely termination of the former's security services for no cause at all. We then affirmed the CA's
award of temperate damages in the amount of P200, 000.00 in lieu of actual damages awarded by the
RTC since there was no proof capable of ascertaining the actual loss.

In this case, we find it just and proper to award temperate damages in the amount of P200, 000.00 in
lieu of actual damages.

WHEREFORE, the Decision dated May 31, 2010, of the Court of Appeals, is AFFIRMED with
MODIFICATION. The award of actual damages is deleted and, in lieu thereof, temperate damages
amounting to P200,000.00 is awarded with legal interest of six percent (6%) per annum from the time
this Decision attains finality until its full satisfaction.

TEMPERATE DAMAGES

(84) SEVEN BROTHERS SHIPPING CORPORATION, petitioner vs. DMC-CONSTRUCTION


RESOURCES, INC., respondent.

G.R. No. 193914, November 26, 2014

Ponente: SERENO, C.J., FIRST DIVISION


145
Nature of Action: This is a Rule 45 appeal dated 18 November 2010 assailing the Decision and
Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 69819, which affirmed with
modifications the Decision4 of the Regional Trial Court (RTC), Branch 132, Makati City in Civil Case
No. 98-699, finding petitioner liable to respondent for damages.

Facts: Petitioner Seven Brothers Shipping Corporation is the owner of the cargo ship M/V "Diamond
Rabbit," (vessel), while respondent DMC-Construction Resource, Inc. is the owner of coal-conveyor
facility, which was destroyed when the vessel became uncontrollable and unmanueverable during a
storm.

On 5 March 1996, respondent sent a formal demand letter to petitioner, claiming the damages sustained
by their vessel. When petitioner failed to pay, respondent filed with the RTC a Complaint for damages
against respondent. Based on the pieces of evidence presented by both parties, the RTC ruled that as a
result of the incident, the loading conveyor and related structures of respondent were indeed damaged.
In the course of the destruction, the RTC found that no force majeure existed, considering that
petitioner's captain was well aware of the bad weather, and yet proceeded against the strong wind and
rough seas, instead of staying at the causeway and waiting out the passage of the typhoon. It further
concluded that "there was negligence on the part of the captain; hence, defendant [petitioner] as his
employer and owner of the vessel shall be liable for damages caused thereby."

Regarding liability, the RTC awarded respondent actual damages in the amount of P3,523,175.92 plus
legal interest of 6%, based on the testimony of respondent's engineer, Loreto Dalangin (Engr.
Dalangin). The value represented 50% of the P7,046,351.84 claimed by the respondent as the fair and
reasonable valuation of the structure at the time of the loss, because as manifested by Engr. Dalangin at
the time of the incident, the loading conveyor and related structures were almost five years old, with a
normal useful life of 10 years.

Aggrieved, petitioner appealed via a Notice of Appeal which the CA DISMISSED, but MODIFIED in
that Seven Brothers Shipping Corporation is found liable to DMC Construction Equipment Resources,
Inc. for nominal damages in the amount of P3,523,175.92 due to the destruction of the latter's coal
conveyor post and terminal by the cargo ship M/V "Diamond Rabbit."

The CA affirmed the RTC's Decision with respect to the finding of negligence on the part of the vessel's
captain. However, the appellate court modified the nature of damages awarded (from actual to
nominal), on the premise that actual damages had not been proved. Respondent merely relied on
estimates to prove the cost of replacing the structures destroyed by the vessel, as no actual receipt was
presented.

Issue: Whether or not the CA erred in awarding nominal damages to respondent after having ruled that
the actual damages awarded by the RTC was unfounded.

Held: The SC rule that temperate, and not nominal, damages should be awarded to respondent in the
amount of P3,523,175.92.

To resolve the issue at hand, we must first determine whether there was indeed a violation of
petitioner's right. In this light, we are inclined to adopt the factual findings of the RTC and the CA.

Under the Civil Code, when an injury has been sustained, actual damages may be awarded under the
following condition:

Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as
actual or compensatory damages.

Jurisprudence has consistently held that "[t]o justify an award of actual damages x x x credence can be
given only to claims which are duly supported by receipts." We take this to mean by credible evidence.
Otherwise, the law mandates that other forms of damages must be awarded, to wit:

146
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated
or exemplary damages, may be adjudicated. The assessment of such damages, except liquidated ones,
is left to the discretion of the court, according to the circumstances of each case.

Under Article 2221 of the Civil Code, nominal damages may be awarded in order that the plaintiffs
right, which has been violated or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered. We have laid down the concept of
nominal damages in the following wise:

Nominal damages are 'recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind or where there has been a
breach of contract and no substantial injury or actual damages whatsoever have been or can be shown.

In contrast, under Article 2224, temperate or moderate damages may be recovered when the court finds
that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be
provided with certainty.

Given these findings, we are of the belief that temperate and not nominal damages should have been
awarded, considering that it has been established that respondent herein suffered a loss, even if the
amount thereof cannot be proven with certainty.

Consequently, in computing the amount of temperate or moderate damages, it is usually left to the
discretion of the courts, but the amount must be reasonable, bearing in mind that temperate damages
should be more than nominal but less than compensatory. For failure of respondent to establish by
competent evidence the exact amount of damages it suffered, we are constrained to award temperate
damages. Considering that the lower courts have factually established that the conveyor facility had a
remaining life of only five of its estimated total life often years during the time of the collision, then the
replacement cost of P7,046,351.84 should rightly be reduced to 50% or P3,523,175.92. This is a fair
and reasonable valuation, having taking into account the remaining useful life of the facility.

WHEREFORE, the Petition for Review on Certiorari is hereby DISMISSED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 69819, are hereby MODIFIED, in that
temperate damages in the amount of P3,523,175.92 are awarded, in lieu of nominal damages.

CIVIL INDEMNITY, MORAL DAMAGES, EXEMPLARY DAMAGES

(85) PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. FRANCASIO DELFIN, Accused-


Appellant.

G.R. No. 190349, December 10, 2014

147
Ponente: DEL CASTILLO, J., SECOND DIVISION

Nature of Action: On appeal is the January 27, 2009 Decision of the Court of Appeals (CA) in CA-
G.R. CR-H.C. No. 00077, which affirmed with modification the Decision of the Regional Trial Court
(RTC) of Naval, Biliran, Branch 16 by (1) finding appellant Francasio Delfin (appellant) guilty beyond
reasonable doubt of the crime of simple rape instead of statutory rape in Criminal Case No. N-2130 and
sentencing him to suffer the penalty of reclusion perpetua and pay the victim AAA civil indemnity
and moral damages at P75,000.00 each; and, (2) acquitting him of statutory rape in Criminal Case No.
N-2131.

Facts: The first rape incident happened on May 27, 2001. At around 10:00 to 11:00 p.m., AAA, then
an 11-year old girl, was watching television in a store at the public market in Naval, Biliran. When she
went outside the public market, appellant summoned her. AAA tried to run away, but appellant
threatened to shoot her with a slingshot. She thus approached appellant hesitantly. When already near
him, appellant suddenly grabbed AAAs hand and dragged her to the second floor of a newly-
constructed commercial building facing the public market. When they were already in a secluded
portion, appellant undressed AAA, spread her thighs, and inserted his penis into her vagina, causing
her pain and horror. Once satiated, appellant gave AAA P100.00 and told her not to tell anyone about
the incident or her family will be harmed.

The second rape incident happened during the evening of June 30, 2001. At about 11:00 p.m., AAA
was sleeping inside a jeepney parked outside a billiard hall when appellant focused a flashlight on her
face. He then went inside the jeepney and removed AAAs panty and again raped her by inserting his
penis into her vagina which caused AAA pain. After having difficulty in urinating and experiencing
pain and swelling in her abdomen, AAA told her aunt, BBB, about the rape incidents and pointed
to appellant as her rapist. Suspecting that AAA was suffering from vaginal infection due to the rape,
BBB brought AAA to the hospital. Thereafter, AAAs family reported the incident to the
Department of Social Welfare and Development. Consequently, complaints were filed against
appellant.

RTC gave weight and credence to AAAs testimony. Hence, it declared appellant guilty of two
counts of statutory rape and liable to pay AAA the amount of P50, 000.00 in civil indemnity for each
rape committed

On appeal, the CA held that the prosecution was not able to satisfactorily prove that AAA was under
12 years of age at the time of the alleged rape since no independent evidence of her age such as her
birth certificate was presented. It thus concluded that appellant could not be held liable for statutory
rape. However, it noted that in Criminal Case No. N-2130, force, threat and intimidation were properly
alleged in the Information as having attended the commission of the crime and was also duly
established by evidence. In view thereof, the CA held appellant liable for simple rape and ordered to
pay P75,000.00 as civil indemnity and P75,000.00 as moral damages.

Hence, this appeal.

Issue/s:

(1) Whether the award of civil indemnity amounting to P75, 000 is proper?

(2) Whether the award of P75, 000 moral damages is proper?

(3) Whether the award of exemplary damages in rape cases is proper?

Held:

(1) YES. With regard to the award of civil indemnity in the amount of P75, 000.00, the same is proper
and in consonance with the prevailing policy of the Court.

148
(2) NO. The award of moral damages in the amount of P75, 000.00 must however be reduced to P50,
000.00 in line with prevailing jurisprudence.

(3) YES. In addition, exemplary damages in the amount of P30, 000.00 is awarded to the victim
"AAA." Prevailing jurisprudence on simple rape likewise awards exemplary damages in order to set a
public example and to protect hapless individuals from sexual molestation.

Finally, all damages awarded shall earn interest at the rate of 6% per annum from date of finality of this
judgment until fully paid.

WHEREFORE, the January 27, 2009 Decision of the Court of Appeals in CA-G.R. CR-H.C. No.
00077 finding appellant Francasio Delfin guilty beyond reasonable doubt of the crime of simple rape
and sentencing him to suffer the penalty of reclusion perpetua is AFFIRMED with the following
modifications:

(1) appellant Francasio Delfin shall not be eligible for parole;

(2) the award of moral damages is decreased from P75,000.00 to P50,000.00;

(3) appellant Francasio Delfin is ORDERED to pay AAA the amount of P30,000.00 as exemplary
damages; and,

(4) appellant Francasio Delfin is ORDERED to pay AAA interest at the legal rate of six percent
(6%) per annum on all the amounts of damages awarded, commencing from the date of finality of this
Resolution until fully paid.

Costs against appellant.

ACTUAL DAMAGES

(86) CITY OF DAGUPAN, represented by the CITY MAYOR BENJAMIN S. LIM, Petitioner, vs.
ESTER F. MARAMBA, represented vy her ATTORNEY-IN-FACT JOHNNY FERRER,
Respondent.

149
G.R. No. 174411, July 2, 2014

Ponente: LEONEN, J., THIRD DIVISION

Nature of Action: A petition for relief from judgment under Rule 38 is an equitable remedy which
allows courts to review a judgment tainted with neglect bordering on extrinsic fraud. In this case, total
damages in the amount of Pl 1 million was awarded in spite of the evidence on record. The motion for
reconsideration of such judgment filed by the legal officer of the City of Dagupan inexplicably omitted
the required notice for hearing. Considering the damage that would be suffered by the local
government, such mistake was so glaring as to raise suspicion that it was contrived to favor the
plaintiff.

Facts:Respondent Maramba was a grantee of a DENR miscellaneous lease contract for a 284sqm
property in Dagupan City, for a period of 25 years, causing the construction of a commercial fish center
thereon. Petitioner city caused the demolition of the commercial fish center, prompting respondent to
file a complaint for injunction and damages with prayer for a writ of preliminary injunction and/or
TRO.

The complaint alleged that the demolition was unlawful and that the complete demolition and
destruction of the previously existing commercial fish center of plaintiff is valued at Five Million
(P10,000,000.00) pesos. The word, ten, was handwritten on top of the word, five.

In the complaints prayer, Maramba asked for a judgment ordering defendant corporation to pay
plaintiff the amount of P10,000.00 for the actual and present value of the commercial fish center
completely demolished by public defendant. The word, million, was handwritten on top of the word,
thousand, and an additional zero was handwritten at the end of the numerical figure.

RTC ruled in favor of Maramba and awarded P10 million as actual damages. Petitioner city filed a
motion for reconsideration denied.

On August 25, 2005, the trial court granted the petition for relief and consequently modified its July 30,
2004 decision. It reduced the award of actual damages from P10 million to P75,000.00.

Issue/s: 1. Whether actual damages must be substantiated in order to be awarded? 2. Whether or not the
amount of damages is proper?

Held:

1. Yes. It must be substantiated.

First, nowhere in the trial courts decision penned by Judge Laron did it state or refer to any document
presented by Maramba to substantiate her claimed costs. In fact, the amounts she testified on did not
even add up to the P10 million the court awarded as actual damages.

Second, the body of the trial courts July 30, 2004 decision mentioned that Maramba was entitled to P1
million as moral damages and P500,000.00 as attorneys fees. This is inconsistent with the dispositive
portion that awarded P500,000.00 as moral damages and P500,000.00 as attorneys fees.

The affidavit of merit discussed that Maramba testified on her shock, sleepless nights, and mental
anguish, but she never expressly asked for moral damages or specified the amount of P500,000.00.

2. The issue on the amount of damages is a factual question that this court may not resolve in a Rule 45
petition.

Article 2199 of the Civil Code defines actual damages. It states that [e]xcept as provided by law or by
stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as
he has duly proven. Competent proof of the amount claimed as actual damages is required before
courts may grant the award.

150
Petitioner city emphasized the argument it made in its motion for reconsideration that the
improvements allegedly destroyed or damaged consists only of G.I. sheets and some makeshift stalls
used for buying and selling of fishery products and by no stretch of imagination would said materials
amount to Php10,000,000.00 as claimed by the plaintiff.

WHEREFORE, the petition is GRANTED. The Court of Appeals June 15, 2006 decision and August
14, 2006 resolution are REVERSED and SET ASIDE. The trial court orders dated August 25, 2005 and
November 30, 2005 are AFFIRMED.

MORAL AND EXEMPLARY DAMAGES

(87) PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. SHIRLEY A. CASIO, Accused-


Appellant.

151
G.R. No. 211465, December 03, 2014

Ponente: LEONEN, J., SECOND DIVISION

Nature of Action: This case involves Republic Act No. 9208,2 otherwise known as the Anti-
Trafficking in Persons Act of 2003.

Facts:Chief PSI Ylanan, SPO1 Mendaros, SPO1 Altubar, PO1 Luardo, and PO1 Veloso composed the
team of police operatives. PO1 Luardo and PO1 Veloso were designated as decoys, pretending to be
tour guides looking for girls to entertain their guests. IJM provided them with marked money, which
was recorded in the police blotter. The team went to Queensland Motel and rented Rooms 24 and 25.
These rooms were adjacent to each other. Room 24 was designated for the transaction while Room 25
was for the rest of the police team.

PO1 Luardo and PO1 Veloso proceeded to D. Jakosalem Street in Barangay Kamagayan, Cebu Citys
red light district. Accused noticed them and called their attention by saying Chicks mo dong?

At that point, PO1 Luardo sent a text message to PSI Ylanan that they found a prospective subject.
After a few minutes, accused returned with AAA and BBB, private complainants in this case. Accused
gave the assurance that the girls were good in sex. PO1 Luardo inquired how much their services would
cost. Accused replied, Tag kinientos (500.00). PO1 Veloso and PO1 Luardo convinced accused to
come with them to Queensland Motel.

Upon proceeding to Room 24, PO1 Veloso handed the marked money to accused. As accused counted
the money, PO1 Veloso gave PSI Ylanan a missed call. This was their pre-arranged signal. The rest of
the team proceeded to Room 24, arrested accused, and informed her of her constitutional rights. The
police confiscated the marked money from accused.

Meanwhile, AAA and BBB were brought to Room 25 and placed in the custody of the representatives
from the IJM and the DSWD.

Regional Trial Court, Branch 14 in Cebu City found accused guilty beyond reasonable doubt. The
Court finds accused, SHIRLEY A. CASIO, GUILTY beyond reasonable doubt of trafficking in persons
under paragraph (a), Section 4 as qualified under paragraph (a), Section 6 of R.A. 9208 and sentenced
to suffer imprisonment of TWENTY (20) YEARS and to pay a fine of ONE MILLION
(Php1,000,000.00). Finally, accused is ordered to pay the costs of these proceedings.

The Court of Appeals affirmed the findings of the trial court but modified the fine and awarded moral
damages. The accused-appellant is accordingly sentenced to suffer the penalty of life imprisonment and
a fine of Php2,000,000 and is ordered to pay each of the private complainants Php150,000 as moral
damages.

Hence, the instant petition.

Issue/s:

(1) YES.

. (1) Whether the award of moral damages for the crime of Trafficking in persons as a prostitute
is proper?

. (2) Whether the award of exemplary damages for the crime of Trafficking in persons as a
prostitute is proper?

Held:

152
The payment of P500,000 as moral damages for the crime of Trafficking in Persons as a Prostitute finds
basis in Article 2219 of the Civil Code, which states that 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

The criminal case of Trafficking in Persons as a Prostitute is an analogous case to the crimes of
seduction, abduction, rape, or other lascivious acts. In fact, it is worse. To be trafficked as a prostitute
without ones consent and to be sexually violated four to five times a day by different strangers is
horrendous and atrocious. There is no doubt that Lolita experienced physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, and social humiliation
when she was trafficked as a prostitute in Malaysia.

2) YES.

The payment of P100,000 as exemplary damages shall be granted since the crime of Trafficking in
Persons was aggravated, being committed by a syndicate, the award of exemplary damages is likewise
justified. Human trafficking indicts the society that tolerates the kind of poverty and its accompanying
desperation that compels our women to endure indignities. It reflects the weaknesses of that society
even as it convicts those who deviantly thrive in such hopelessness. We should continue to strive for
the best of our world, where our choices of human intimacies are real choices, and not the last resort
taken just to survive. Human intimacies enhance our best and closest relationships. It serves as a
foundation for two human beings to face lifes joys and challenges while continually growing together
with many shared experiences. The quality of our human relationships defines the world that we create
also for others.

WHEREFORE, premises considered, we AFFIRM the decision of the Court of Appeals dated June
27, 2013, finding accused Shirley A. Casio guilty beyond reasonable doubt of violating Section 4(a),
qualified by Section 6(a) of Republic Act No. 9208, and sentencing her to suffer the penalty of life
imprisonment and a fine of P2,000,000.00, with the MODIFICATION that accused-appellant shall not
be eligible for parole under Act No. 4103 (Indeterminate Sentence Law) in accordance with Section 3
of Republic Act No. 9346.

ACTUAL AND MORAL DAMAGES


153
(88) JOSE ESPINELI a.k.a. DANILO ESPINELI, Petitioner, vs. PEOPLE OF THE
PHILIPPINES, Respondent.

G.R. No.179535, June 9, 2014

Ponente: DEL CASTILLO, J., SECOND DIVISION

Nature of Action: Petition for Review on Certiorari is the July 6, 2007 Decision 4 of the Court of
Appeals (CA) in CA-G.R. CR-H.C. No. 02252 which modified the August 31, 1999 Decision of the
Regional Trial Court (RTC) of Imus, Cavite, Branch 90, by finding petitioner Jose Espineli a.k.a.
Danilo Danny Espineli (petitioner) guilty of the crime of homicide instead of murder. Also
questioned is the CAs September 14, 2007 Resolution6 denying petitioners Motion for
Reconsideration

Facts: An Information charging petitioner with the crime of murder was filed. The facts show that in
the early evening of December 15, 1996, Alberto Berbon y Downie (Alberto), a 49-year old Senior
Desk Coordinator of the radio station DZMM, was shot in the head and different parts of the body in
front of his house in Imus, Cavite by unidentified malefactors who immediately fled the crime scene on
board a waiting car.

Meanwhile, the group of Atty. Orly Dizon (Atty. Dizon) of the National Bureau of Investigation (NBI)
arrested and took into custody one Romeo Reyes (Reyes) for the crime of Illegal Possession of Deadly
Weapon. Reyes confided to the group of Atty. Dizon that he was willing to give vital information
regarding the Berbon case. In due course, NBI Agent Dave Segunial(NBI Agent Segunial) interviewed
Reyes on February 10, 1997 and reduced his statement into writing whereby Reyes claimed that on
December 15, 1996, he saw petitioner and Sotero Paredes (Paredes) board a red car while armed with
a .45 caliber firearm and armalite, respectively; and that petitioner told Paredes that "ayaw ko nang
abutin pa ng bukas yang si Berbon."Subsequently, Reyes posted bail and was released on February 14,
1997. Thenceforth, he jumped bail and was never again heard of. NBI Agent Segunial testified on these
facts during the trial.

Issue: Whether or not the accused is liable for damages.

Held: While the CA correctly imposed the amount of P50,000.00 as civil indemnity, it failed, however,
to award moral damages. These awards are mandatory without need of allegation and proof other than
the death of the victim, owing to the fact of the commission of murder or homicide. Thus, for moral
damages, the award of P50,000.00 to the heirs of the victim is only proper.

Anent the award of actual damages, this Court sees no reason to disturb the amount awarded by the
trial court as upheld by the CA since the itemized medical and burial expenses were duly supported by
receipts and other documentary evidence.

The CA did not grant any award of damages for loss of earning capacity and rightly so. Though Sabina
testified as to the monthly salary of the deceased, the same remains unsubstantiated. "Such indemnity
cannot be awarded in the absence of documentary evidence except where the victim was either self-
employed or a daily wage worker earning less than the minimum wage under current labor laws.The
exceptions find no application in this case.

In addition and in conformity with current policy, an interest at the legal rate of 6% per annum is
imposed on all the monetary awards for damages from date of finality of this judgment until fully paid.

WHEREFORE, in light of all the foregoing, the Petition is hereby DENIED. The Decision dated July
6, 2007 and Resolution dated September 14, 2007 of the Court of Appeals in CA-G.R. CR-H.C. No.
02252 are AFFIRMED with the MODIFICATIONS that petitioner JOSE ESPINELI a.k.a. DANILO
DANNY ESPINELI is further ordered to pay the heirs of the victim ALBERTO BERBON y
DOWNIE P50,000.00 as moral damages as well as interest on all the damages assessed at the legal rate
of 6% per annum from date of finality of this judgment until fully paid.

ACTUAL AND MORAL DAMAGES

154
(89) EMERITU C. BARUT, Petitioner, vs. PEOPLE OF THE PHILIPPINES, Respondent.

G.R. No. 167454, September 24, 2014

Ponente: BERSAMIN, J., FIRST DIVISION

Nature of Action: Petition for review on Certiorari

Facts: SPO4 Vicente Ucag was coming from a picnic in Laguna and returning home to Taguig, Metro
Manila on board a passenger jeepney driven by his brother Rolando on the South Luzon Expressway.
Ucags wife and 16 year-old son Vincent were then riding an owner-type jeep driven by Rico Villas on
the same route. When the latter vehicle exited at the Sucat Interchange ahead of Ucags passenger
jeepney, PNCC guards Conrado Ancheta and Barut stopped Villas and directed him to park his vehicle
at the road side. After informing Villas that his vehicle had no headlights, Ancheta asked for his driving
license, but it took a while before Villas produced the same apparently waiting for his companions in
the passenger jeepney to arrive. Nonetheless, Villas ultimately surrendered his driving license. The
passenger jeepney carrying Ucag stopped where Villas jeep had parked. Ucag argued with Ancheta and
Barut as to the return of the drivers license. Later on, however, Ucag turned around in order to avoid
further argument, and simply told Villas to return for his driving license the next day. This apparently
irked Ancheta, who dared Ucag to finish the issue right there and then. Ancheta suddenly pulled out
his .38 caliber revolver and fired it several times, hitting Ucag on both thighs. Ucag fired back and hit
Ancheta. Upon seeing the exchange of gunshots, Vincent Ucag rushed towards his father to go to his
succor. Before Vincent could reach his father, however, Barut fired at Vincent in the chest. Vincent was
rushed to the Paraaque Medical Center, where he expired while undergoing emergency surgery. His
father was brought to the Camp Panopio Hospital in Quezon City for treatment and medical attendance.
Petitioner was found guilty of the crime of Homicide by the Regional Trial Court. On appeal, the Court
of Appeals affirmed the conviction of Barut.

Issue: WON the CA erred in affirming the award of civil liability by the RTC without specifying the
amounts corresponding to actual and moral damages, as well as to the civil indemnity for the death of
Vincent.

Held: YES. The SC ruled that both lower courts thereby erred on a matter of law. Actual and moral
damages are different in nature and purpose. To start with, different laws govern their grant, with the
amounts allowed as actual damages being dependent on proof of the loss to a degree of certainty, while
the amounts allowed as moral damages being discretionary on the part of the court. Secondly, actual
damages address the actual losses caused by the crime to the heirs of the victim; moral damages
assuage the spiritual and emotional sufferings of the heirs of the victim of the crime. On the civil
indemnity for death, law and jurisprudence have fixed the value to compensate for the loss of human
life. Thirdly, actual damages may not be granted without evidence of actual loss; moral damages and
death indemnity are always granted in homicide, it being assumed by the law that the loss of human life
absolutely brings moral and spiritual losses as well as a definite loss.

WHEREFORE, the Court AFFIRMS the conviction for homicide of petitioner EMERITU BARUT,
subject to the MODIFICATIONS that: (a) his indeterminate sentence is from 10 years of prision mayor,
as the minimum, to 17 years and four months of reclusion temporal, as the maximum; (b) he shall pay
to the heirs of the late Vincent Ucag civil indemnity of P75,000.00 for his death;moral damages of
P75,000.00; and emperate damages of ~25,000.00, plus interest of six percent (6%) per annum on each
of the items of damages hereby awarded from the date of finality of this judgment until fully paid; and
(c) he shall pay the costs of suit.

TEMPERATE DAMAGES

155
(90) VICENTE JOSEFA, Petitioner, vs. MANILA ELECTRIC COMPANY, Respondent.

G.R. No. 182705, July 18, 2014

Ponente: BRION, J., SECOND DIVISION

Nature of Action: Petition for review on certiorari filed by petitioner Vicente Josefa, doing business
under the name and style of 747 Lumber and Construction Supply, to challenge the January 31, 2008
decision and the April 29, 2008 resolution of the Court of Appeals (CA) in CA-G.R. CV No. 87512.

Facts: At around 1:45 p.m. on April 21, 1991, a dump truck, a jeepney and a car figured in a vehicular
accident along Ortigas Avenue, Pasig City. As a result of the accident, a 45-foot wooden electricity
post, 3 75 KVA transformers, and other electrical line attachments were damaged. Upon investigation,
Meralco discovered that it was a truck registered in Josefa's name that hit the electric post. Meralco
demanded from Josefa reimbursement for the replacement cost of the electricity post and its
attachments, but Josefa refused to pay. Thus, Meralco sued Josefa and Pablo Manoco, the truck driver,
for damages before the RTC of Pasig City.

In its complaint, Meralco alleged that (Bautista) Manoco's reckless driving resulted in damage to its
properties. It also imputed primary liability on Josefa for his alleged negligence in the selection and
supervision of Manoco. The RTC dismissed the complaint for insufficiency of evidence. The RTC held
that Meralco failed to establish that it was the truck that hit the electricity post. The RTC ruled that
SPO2 Galang's account of the accident was merely hearsay since he did not personally witness the
incident. It also did not give probative value to the police blotter entry dated January 7, 1994 since the
accident had long occurred in 1991.

The CA reversed the RTC ruling and held that the RTC erred in disregarding the parties' stipulation at
the pre-trial that it was the truck that hit the electricity post. The CA also found that Bautista was
Josefa's employee when the accident occurred since Josefa did not specifically deny this material
allegation in the amended complaint. It likewise noted that the sheriff's return stated that Bautista was
under Josefa's employ until 1993. The CA concluded that the fact that the truck hit the electricity post
was sufficient to hold Josefa vicariously liable regardless of whether Bautista was negligent in driving
the truck. In the same breath, the CA also stated that the employer's presumptive liability in quasi-
delicts was anchored on injuries caused by the employee's negligence. Even assuming that Bautista was
not Josefa's employee, the CA maintained that Josefa would still be liable for damages since the law
presumes that the registered owner has control of his vehicle and its driver at the time of the accident. It
thus ordered Josefa to pay Meralco. Josefa filed the present petition after the CA denied his motion for
reconsideration.

Issue/s: (1) Whether or not Bautista exercised due diligence in driving when the truck hit the electricity
post;

(2) Whether or not Josefa is vicariously liable for Bautista's negligence under paragraph 5, Article 2180
of the Civil Code;

(3) Whether Meralco is entitled to actual damages, attorney's fees, and expenses of litigation.

Held:

(1) Bautista did not exercise due diligence. Bautista's negligence was the proximate cause of the
property damage caused to Meralco. Bautista is presumed to be negligent in driving the truck under the
doctrine of res ipsa loquitur.

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. This fault or negligence, if there is no pre-existing contractual relation
between the parties, is called quasi-delict. Thus, for a quasi-delict case to prosper, the complainant must
establish: (1) damages to the complainant; (2) negligence, by act or omission, of the defendant or by
some person for whose acts the defendant must respond, was guilty; and (3) the connection of cause
and effect between such negligence and the damages. With respect to the third element, the negligent
act or omission must be the proximate cause of the injury.
156
Contrary to the CA's finding, the parties did not stipulate that the truck hit the electricity post. The pre-
trial order shows that the parties merely agreed that the truck "was involved in an accident on April 21,
1991. Nonetheless, Meralco has sufficiently established the direct causal link between the truck and the
electricity post through Abio's testimony. Abio categorically stated during trial that he saw the truck hit
the electricity post. We find his first-hand account of the incident during the direct- examination frank
and straightforward. Even without Abio's testimony, it does not escape this Court's attention that Josefa
judicially admitted in his motions and pleading that his truck hit the electricity post. These statements
constitute deliberate, clear and unequivocal admissions of the causation in fact between the truck and
the electricity post.

Contrary to the CA's opinion, the finding that it was the truck that hit the electricity post would not
immediately result in Josefa's liability. It is a basic rule that it is essentially the wrongful or negligent
act or omission that creates the vinculum juris in extra-contractual obligations. In turn, the employee's
negligence established to be the proximate cause of the damage would give rise to the disputable
presumption that the employer did not exercise the diligence of a good father of a family in the
selection and supervision of the erring employee.

The procedural effect of res ipsa loquitur in quasi-delict cases is that the defendant's negligence is
presumed. For this doctrine to apply, the complainant must show that: (1) the accident is of such
character as to warrant an inference that it would not have happened except for the defendant's
negligence; (2) the accident must have been caused by an agency or instrumentality within the
exclusive management or control of the person charged with the negligence complained of; and (3) the
accident must not have been due to any voluntary action or contribution on the part of the person
injured. The present case satisfies all the elements of res ipsa loquitur. It is very unusual and
extraordinary for the truck to hit an electricity post, an immovable and stationary object, unless
Bautista, who had the exclusive management and control of the truck, acted with fault or negligence.
We cannot also conclude that Meralco contributed to the injury since it safely and permanently installed
the electricity post beside the street. Thus, in Republic v. Luzon Stevedoring Corp., we imputed
vicarious responsibility to Luzon Stevedoring Corp. whose barge rammed the bridge, also an
immovable and stationary object.

(2) YES. Josefa is vicariously liable under paragraph 5, Article 2180 of the Civil Code because there is
an employer-employee relations between Bautista and Josefa, and Josefa failed to show that he
exercised the diligence of a good father of a family in the selection and supervision of Bautista.

The finding that Bautista acted with negligence in driving the truck gives rise to the application of
paragraph 5, Article 2180 of the Civil Code which holds the employer vicariously liable for damages
caused by his employees within the scope of their assigned tasks. In the present case, Josefa avoids the
application of this provision by denying that Bautista was his employee at the time of the incident.

Josefa cannot evade his responsibility by mere denial of his employment relations with Bautista in the
absence of proof that his truck was used without authorization or that it was stolen when the accident
occurred. In quasi-delict cases, the registered owner of a motor vehicle is the employer of its driver in
contemplation of law. The registered owner of any vehicle, even if not used for public service, would
primarily be responsible to the public or to third persons for injuries caused while the vehicle was being
driven on highways or streets.

In order for Josefa to be relieved of his vicarious liability, he must show that he exercised due diligence
in the selection and supervision of Bautista. In concrete terms, Josefa should show by competent object
or documentary evidence that he examined Bautista as to the latter's qualifications, experience and
service records prior to employment. He should likewise prove by competent object or documentary
evidence that he formulated standard operating procedures, monitored their implementation and
imposed disciplinary measures for breach of these procedures. However, Josefa failed to overcome the
presumption of negligence against him since he waived his right to present evidence during trial.

(3) Meralco is only entitled to temperate damages with interest at legal rate. Notwithstanding Josefa's
vicarious liability, Meralco failed to point out the specific facts that afford a basis for its claim for
actual damages. Actual damages cannot be presumed; they must be pleaded and proven in court in
order to be recoverable. One is entitled to an adequate compensation only for the pecuniary loss that he

157
has adequately proved based upon competent proof and on the best evidence obtainable by him. We
cannot give weight to Exhibit "D" as to the amount of actual damages for being hearsay. Exhibit "D"
constitutes hearsay evidence since it was derived on alleged pieces of documentary evidence that were
not identified and authenticated in court during trial.

Meralco is entitled to temperate damages because it clearly suffered pecuniary loss as a result of
Bautista and Josefa's negligence. When the court finds that some pecuniary loss has been suffered but
the amount cannot, from the nature of the case, be proven with certainty, the court may award
temperate damages in the exercise of its sound discretion. Considering the attendant circumstances of
this case, we find the amount of P200,000.00 to be a fair and sufficient award by way of temperate
damages.

Meralco is not entitled to attorney's fees and expenses of litigation. The CA likewise erred in awarding
Meralco attorney's fees and expenses of litigation without explaining its basis. In Buan v.
Camaganacan, we held that the text of the decision should state the reason why attorney's fees are
being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed to
Josefa that would warrant the award of attorney's fees under Article 2208 (5) of the Civil Code. It is a
settled rule that attorney's fees shall not be recovered as cost where the party's persistence in litigation
is based on his mistaken belief in the righteousness of his cause. There is also no factual, legal, or
equitable justification that would justify the Court's award of attorney's fees under Article 2208 (11) of
the Civil Code.

Finally, we impose an interest rate of 6% per annum on temperate damages pursuant to the guidelines
enunciated in Eastern Shipping Lines v. CA, as modified by Nacar v. Gallery Frames.

ACTUAL DAMAGES

158
(91) LOADSTAR SHIPPING COMPANY, INC. and LOADSTAR INTERNATIONAL
SHIPPING COMPANY, INC., petitioners, vs. MALAYAN INSURANCE COMPANY, INC.,
respondent.

G.R. No. 185565, November 26, 2014

Ponente: REYES, J., THIRD DIVISION

Nature of Action: Petition for Review on Certiorari filed by Loadstar Shipping Company,
Incorporated and Loadstar International Shipping Company, Incorporated (petitioners) against Malayan
Insurance Company, Incorporated (Malayan) seeking to set aside the Decision dated April 14, 2008 and
Resolution3 dated December 11, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 82758, which
reversed and set aside the Decision dated March 31, 2004 of the Regional Trial Court of Manila,
Branch 34, in Civil Case No. 01-101885.

Facts: Petitioner and Philippine Associated Smelting and Refining Corporation (PASAR) entered into a
Contract of Affreightment for domestic bulk transport of the latters copper concentrates. On
September 10, 2000, 5,065.47 wet metric tons (WMT) of copper concentrates were loaded in Cargo
Hold Nos. 1 and 2 of MV Bobcat, a marine vessel owned by Loadstar International Shipping Co.,
Inc. and operated by Loadstar Shipping under a charter party agreement. While MV Bobcat on its way
going to Isabel, Leyte, it was found out that there is a crack on starboard side of the main deck which
caused seawater to enter and wet the cargo inside Cargo Hold No. 2 forward/aft.

PASAR and Philexs representatives inspected the vessel and the samples of copper concentrates from
Cargo Hold No. 2 were found to be contaminated by seawater. PASAR rejected 750 MT of the 2,300
MT cargo discharged from Cargo Hold No. 2, and sent a formal notice of claim in the amount of
P37,477,361.31 to Loadstar Shipping. Elite Surveyor recommended payment to the assured the amount
of P32,351,102.32 as adjusted, which amount was paid by Malayan to PASAR.

PASAR signed a subrogation receipt in favor of Malayan, which in turn, demanded reimbursement
from Loadstar Shipping. Loadstar refused to comply, hence, Malayan instituted with the RTC a
complaint for damages. Malayan also sought to declare the bill of lading as void since it violates the
provisions of Articles 1734 and 1745 of the Civil Code.

Petitioners denied plaintiff-appellants allegations and averred that: they are not engaged in the
business as common carriers but as private carriers; that the vessel was seaworthy and defendants-
appellees exercised the required diligence under the law; that the entry of water into Cargo Hold No. 2
must have been caused by force majeure or heavy weather; that due to the inherent nature of the cargo
and the use of water in its production process, the same cannot be considered damaged or
contaminated.

The RTC dismissed the complaint stating that the vessel was seaworthy at the time of loading and that
the damage was attributable to the perils of the sea. The CA reversed the RTC Held and ordered
defendants-appellees to pay plaintiff-appellant P33,934,948.75 as actual damages and deducted the
amount US$90,000.00 from the amount of actual damages.

Issue: Whether or not petitioner is liable for actual damages against Malayan Held: No.

Malayans claim against the petitioners is based on subrogation to the rights possessed by PASAR as
consignee of the allegedly damaged goods. The right of subrogation stems from Article 2207 of the
New Civil Code which states:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by the insurance company does not fully cover
the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.

159
An insurer indemnifies the insured based on the loss or injury the latter actually suffered from. If there
is no loss or injury, then there is no obligation on the part of the insurer to indemnify the insured.
Should the insurer pay the insured and it turns out that indemnification is not due, or if due, the amount
paid is excessive, the insurer takes the risk of not being able to seek recompense from the alleged
wrongdoer. This is because the supposed subrogor did not possess the right to be indemnified and
therefore, no right to collect is passed on to the subrogee.

Article 2199 of the New Civil Code speaks of how actual damages are awarded:

Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as
actual or compensatory damages.

In the instant case, the CA modified its Decision dated April 14, 2008 by deducting the amount of
US$90,000.00 from the award, however, the same is still iniquitous for the petitioners because PASAR
and Malayan never proved the actual damages sustained by PASAR. It is a flawed notion to merely
accept that the salvage value of the goods is US$90,000.00, since the price was arbitrarily fixed
between PASAR and Malayan. Actual damages to PASAR, for example, could include the diminution
in value as appraised by experts or the expenses which PASAR incurred for the restoration of the
copper concentrates to its former condition, if there is damage and rectification is still possible.

It is also noteworthy that when the expert witness for the petitioners, Engineer Francisco Esguerra
testified as regards the lack of any adverse effect of seawater on copper concentrates, Malayan never
presented evidence of its own in refutation to Esguerras testimony. And, even if the Court will
disregard the entirety of his testimony, the effect on Malayans cause of action is nil. As Malayan is
claiming for actual damages, it bears the burden of proof to substantiate its claim. CA decision is
reversed.

WHEREFORE, the petition is GRANTED. The Decision dated April 14, 2008 and Resolution dated
December 11, 2008 of the Court of Appeals in CA-G.R. CV No. 82758 are hereby REVERSED and
SET ASIDE. The Decision dated March 31, 2004 of the Regional Trial Court of Manila, Branch 34 in
Civil Case No. 01-101885 is REINSTATED.

160
MORAL DAMAGES

(92) ALEJANDRO C. ALMENDRAS, JR., Petitioner, vs.ALEXIS C. ALMENDRAS, Respondent.

G.R. No. 179491, January 14, 2015

Ponente: SERENO, C.J., FIRST DIVISION

Nature of Action: Petition for Review filed by petitioner Alejandro C. Almendras, Jr., from the 27
January 2006 Decision and 28 August 2007 Resolution of the Court of Appeals (CA) in CA-G.R. CV
No. 73088. The CA affirmed the Decision and Order of the Regional Trial Court (RTC) in Civil Case
No. 3343 finding petitioner liable for damages.

Facts: Petitioner sent letters to House Speaker Jose de Venecia, Jr., and to Dr. Nemesio Prudente, The
controversial portion of the first and second letters reads as follows:

This is to notify your good self and your staff that one ALEXIS "DODONG" C. ALMENDRAS, a
brother, is not vested with any authority to liaison or transact any business with any department, office,
or bureau, public or otherwise, that has bearing or relation with my office, mandates or functions.
Noteworthy to mention, perhaps, is the fact that Mr. Alexis Dodong C. Almendras, a renown
blackmailer, is a bitter rival in the just concluded election of 1995 who ran against the wishes of my
father, the late Congressman Alejandro D. Almendras, Sr. He has caused pain to the family when he
filed cases against us: his brothers and sisters, and worst against his own mother. I deemed that his act
of transacting business that affects my person and official functions is malicious in purpose, done with
ill motive and part of a larger plan of harassment activities to perforce realise his egoistic and evil
objectives. May I therefore request the assistance of your office in circulating the above information to
concerned officials and secretariat employees of the House of Representatives.These letters were
allegedly printed, distributed, circulated and published by petitioner, assisted by Atty. Roberto Layug,
with evident bad faith and manifest malice to destroy respondent Alexis C. Almendras good name.

Issue/s: Whether or not respondent is entitled to moral damages?

Held: Yes. In awarding damages in libel cases, the court is given ample discretion to determine the
amount, depending upon the facts of the particular case. Article 2219 of the Civil Code expressly
authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation.
However while no proof of pecuniary loss is necessary in order that moral damages may be awarded, x
x x it is nevertheless essential that the claimant should satisfactorily show the existence of the factual
basis of damages and its causal connection to defendants acts. Considering that respondent
sufficiently justified his claim for damages (i.e. he testified that he was "embarrassed by the said letters
[and] ashamed to show his face in [sic] government offices") we find him entitled to moral and
exemplary damages.

161
TEMPERATE DAMAGES

(93) S.V. MORE PHARMA CORPORATION and ALBERTO A. SANTILLANA, petitioners, vs.
DRUGMAKERS LABORATORIES, INC. and ELIEZER DEL MUNDO, respondent.

G.R. NO. 200416, November 12, 2014

Ponente: PERLAS-BERNABE, J., FIRST DIVISION

Nature of Action: Before the Court are consolidated petitions for review on certiorari assailing the
Decision dated August 5, 2011 and the Resolution dated January 27, 2012 of the Court of Appeals (CA)
in CA-G.R. CV No. 81812, which affirmed with modification the Decision 4 dated September 13, 2002
of the Regional Trial Court of Quezon City, Branch 224 (RTC) in Civil Case No. Q-95-23087, finding
petitioners S.V. More Pharma Corporation (S.V. More) and Alberto A. Santillana (Alberto) to have
breached their contract with respondents Drugmakers Laboratories, Inc. (Drugmakers) and Eliezer V.
Del Mundo (Eliezer), and, thus, liable for damages.

Facts: Eliezer, Evangeline C. Del Mundo, and Atty. Quirico T. Carag (Del Mundo Group) are the
registered owners of 50% of E.A. Northam Pharma Corporation, a domestic corporation which
exclusively distributes and markets 28 various pharmaceutical products that are exclusively
manufactured by Drugmakers, a domestic corporation under the control of Eliezer. The remaining 50%
in E.A. Northam are owned by Alberto and Nilo S. Valente (Santillana Group). The Del Mundo Group
ceded all their rights and interests in E.A. Northam in favor of the Santillana Group for a consideration
of P4,200,000.00, and they agreed that: (a) the said pharmaceutical products shall remain jointly owned
by Eliezer/Drugmakers and Alberto; (b) the products shall be exclusively manufactured by Drugmakers
as long as Eliezer maintains majority ownership and control of the said company; and (c) the products
will be sold, conveyed, and transferred to S.V. More, provided that Alberto remains its chief executive
officer with majority ownership and control thereof.

E.A. Northam entered into a Deed of Sale/Assignment with S.V. More, whereby E.A. Northam agreed
to convey, transfer, and assign all its rights over 28 pharmaceutical products in favor of S.V. More
which shall then have the right to have them sold, distributed, and marketed in the latters name,
subject to the condition that such pharmaceutical products will be exclusively manufactured by
Drugmakers based on their existing Contract Manufacturing Agreement (CMA) set to expire in
October 1993.

On October 20, 1993, S.V. More requested a copy of the existing CMA from Drugmakers, but to no
avail. Hence, on October 23, 1993, S.V. More entered into a Contract to Manufacture Pharmaceutical
Products (CMPP) with Hizon Laboratories, Inc., and, thereafter, caused the latter to manufacture some
of the pharmaceutical products covered by the Deed of Sale/Assignment. Then the BFAD issued the
corresponding Certificates of Product Registration (CPR) therefor, with S.V. More as distributor, and
Hizon Laboratories as manufacturer.

Drugmakers and Eliezer filed a Complaint for Breach of Contract and Damages against S.V. More and
Alberto, and Hizon Laboratories, and its President, Rafael H. Hizon, Jr. Petitioners denied any liability,
and alleged that the Deed of Sale/Assignment failed to state the true intention of the parties. Further,
petitioners maintained that they did not violate the stipulation in the Deed of Sale/Assignment
regarding the continuous manufacture of the subject pharmaceutical products by Drugmakers because
said stipulation did not confer to Drugmakers the exclusive right to manufacture the said products.

The RTC ruled in favor of respondents, and ordered petitioners, Hizon Laboratories and Rafael, to
jointly and severally pay Drugmakers P6,000,000.00 as actual damages representing loss of income
and/or loss of business opportunity and damages. The CA affirmed the RTC Held but it deleted the
award for moral and exemplary damages and it absolved Rafael and Hizon Laboratories.

162
Issue: W/N the CA correctly affirmed petitioners liability for breach of contract. Held: The
consolidated petitions are partly meritorious.

Petitioner S.V More, through the CMPP and absent the prior written consent of respondent
Drugmakers, contracted the services of Hizon Laboratories to manufacture some of the pharmaceutical
products covered by the said contracts. Thus, since the CMPP with Hizon Laboratories was executed
on October 23, 1993, or seven (7) days prior to the expiration of the CMA on October 30, 1993, it is
clear that S.V. More who authorized the foregoing, breached the obligation to recognize Drugmakers as
exclusive manufacturer, thereby causing prejudice to the latter. However, the award of actual damages
(due to loss of profits) in the amount of P6,000,000.00 was erroneous due to improper factual basis.
The breach occurred only for a period of seven (7) days, or from October 23, 1993 until October 30,
1993 that is, the date when the CMA expired. The CMA from which stems S.V. Mores obligation
to recognize Drugmakerss status as the exclusive manufacturer of the subject pharmaceutical products
and which was only carried over in the other two (2) above-discussed contracts was never renewed
by the parties, nor contained an automatic renewal clause, rendering the breach and its concomitant
effect, i.e., loss of profits on the part of Drugmakers, only extant for the limited period of seven (7)
days. It is also evident that only six (6) of the 28 pharmaceutical products were caused by petitioners to
be manufactured by Hizon Laboratories.

Respondents palpably suffered some form of pecuniary loss resulting from petitioners breach of
contract, hence, the Court awarded in their favor the sum of P100,000.00 in the form of temperate
damages under Article 2224 of the Civil Code which states that temperate or moderate damages,
which are more than nominal but less than compensatory damages, may be recovered when the court
finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be
proved with certainty, as in this case.

WHEREFORE, the consolidated petitions are PARTIALLY GRANTED. The Decision dated August 5,
2011 and the Resolution dated January 27, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
81812 are hereby AFFIRMED with MODIFICATION in that the award of actual damages is
DELETED for lack of sufficient basis, and, in its stead, petitioners S.V. More Pharma Corporation and
Alberto A. Santillana are ORDERED to pay respondents Drugmakers Laboratories, Inc. and Eliezer
Del Mundo the amount of P100,000.00 as temperate damages. The rest of the assailed CA Decision
STANDS.

163
MORAL DAMAGES

(94) BPI EXPRESS CARD CORPORATION,* Petitioner, vs. MA. ANTONIA R. ARMOVIT,
Respondent.

G.R. No. 163654, October 8, 2014

Ponente: BERSAMIN, J., FIRST DIVISION

Nature of Action: Petitioner BPI Express Credit Card Corporation (BPI Express Credit) seeks the
reversal of and assails the adverse decision promulgated on February 26, 2004, whereby the Court of
Appeals (CA) affirmed the judgment rendered on April 22, 1996 by the Regional Trial Court, Branch
216, in Quezon City, (RTC) adjudging it liable to pay moral and exemplary damages, attorneys fees
and costs of suit to its credit card holder Ma. Antonia R. Armovit, the respondent herein

Facts: Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao Branch, was issued
by BPI Express Credit a pre-approved BPI Express Credit Card (credit card) in 1989 with a credit limit
of P20,000.00 that was to expire at the end of March 1993. On November 21, 1992, she treated her
British friends from Hong Kong to lunch at Mario's Restaurant in the Ortigas Center in Pasig. As the
host, she handed to the waiter her credit card to settle the bill, but the waiter soon returned to inform
her that her credit card had been cancelled upon verification with BPI Express Credit and would not be
honored. Inasmuch as she was relying on her credit card because she did not then carry enough cash
that day, her guests were made to share the bill to her extreme embarrassment. Outraged, Armovit
called BPI Express Credit to verify the status of her credit card. She learned that her credit card had
been summarily cancelled for failure to pay her outstanding obligations. She vehemently denied having
defaulted on her payments. Thus, by letter dated February 3, 1993, she demanded compensation for the
shame, embarrassment and humiliation she had suffered in the amount of P2,000,000.00. The RTC and
the CA rule in favor of the respondent.

Issue: Whether or not petitioner is liable to pay moral damages for breach of contract?

Held: Yes. The relationship between the credit card issuer and the credit card holder is a contractual
one that is governed by the terms and conditions found in the card membership agreement. Such terms
and conditions constitute the law between the parties. In case of their breach, moral damages may be
recovered where the defendant is shown to have acted fraudulently or in bad faith. Malice or bad faith
implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity. However, a conscious or intentional design need not always be present because negligence
may occasionally be so gross as to amount to malice or bad faith. Hence, bad faith in the context of
Article 2220 of the Civil Code includes gross negligence.

The Court disagrees with the contentions of BPI Express Credit that it was not gross negligent. The
Terms and Conditions Governing the Issuance and Use of the BPI Express Credit Card printed on the
credit card application form spelled out the terms and conditions of the contract between BPI Express
Credit and its card holders, including Armovit. Such terms and conditions determined the rights and
obligations of the parties. Yet, a review of such terms and conditions did not reveal that Armovit needed
to submit her new application as the antecedent condition for her credit card to be taken out of the list
of suspended cards.

BPI Express Credit made an error of inadvertently including her credit card in Caution List No. 225
dated March 11, 1993 sent to its affiliated merchants. Bereft of the clear basis to continue with the
suspension of the credit card privileges of Armovit, BPI Express Credit acted in wanton disregard of its
contractual obligations with her. We concur with the apt observation by the CA that BPI Express
Credit's negligence was even confirmed by the telegraphic message it had addressed and sent to

164
Armovit apologizing for the inconvenience caused in inadvertently including her credit card in the
caution list. It was of no consequence that the telegraphic message could have been intended for
another client, as BPI Express Credit apparently sought to convey subsequently, because the tenor of
the apology included its admission of negligence in dealing with its clients, Armovit included. Indeed,
BPI Express Credit did not observe the prudence expected of banks whose business was imbued with

165
EXEMPLARY DAMAGES

(95) THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. ANA GRACE
ROSALES AND YO YUK TO, Respondents.

G.R. No. 183204, January 13, 2014

Ponente: DEL CASTILLO, J., SECOND DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the
April 2, 2008 DecisioN and the May 30, 2008 Resolution of he Court of Appeals CA) in CA-G.R. CV
No. 89086

Facts: Ana Grace is the owner of a travel company, while Yu is her mother. In 2000, they opened a
Joint Peso Account with the banks Pritil-Tondo branch. In May, 2002, Ana Grace assisted her client
Liu Chi Fang, a Chinese national applying for a retirees visa with the PRA in opening a savings
account with the banks Escolta branch as required by the PRA. On March, 2003, Ana Grace and her
mother opened a Joint Dollar Account again with the banks Pritil-Tondo Branch. On July 31, 2003, the
bank issued the Hold Order against the accounts of Ana Grace and Yu. Later, on Spetember, 2003, the
bank thru its representative filed a case for estafa against Ana Grace and Yu. According to the bank,
Ana Grace and an unidentified woman made a fraudulent and unauthorised withdrawal from Liu Chi
Fangs dollar account with the banks Escolta branch, amounting to US$75,000.00. The baks allegedly
received a withdrawal clearance from PRA dated February 5, 2003 for the dollar account of Liu; that
same day, Ana Gace informed the branch head of Escolta that Liu will make a cash withdrawal, but was
told to come back the next day as there was insufficient dollars. The amount was subsequently
withdrawn on February 6. Ana Grace then opened a dollar savings account where it was discovered that
the serial numbers of the bills deposited were the same as those of the bills withdrawn from the account
of Liu.
On the other hand, Ana Grace denied taking part in the fraudulent scheme. According to her, after she
assisted Liu, she lost track of her. She was informed that Liu closed her dollar account when the branch
head Guttierez called her on February 6; she went there on the same day for a transaction, where she
saw a lady transacting with a bank personnel. After completing her transaction, she talked to the bank
personnel who showed her the withdrawal clearance issued by the PRA. After several months, Liu
called her up to seek her assistance in extending her visa; it was then that they discovered the
unauthorised withdrawal on the basis of an Special Power of Attorney allegedly executed by Liu in
favour of a certain Richard So, which Liu denied executing. The bank promised to reimburse Liu the
75,000 US dollars.
The Office of the City Prosecutor dismissed the case filed against Ana Grace. On the other hand, Ana
Grace and her mother filed a complaint for Breach of Obligation and Contract with Damages against
the bank. According to them, they cannot withdraw their money from their accounts with the bank
because of the Hold Order, to which no explanation was offered by the bank as to its issuance. They
prayed that the Hold Order be lifted and asked for damages against the bank. In their defense, they held
that plaintiffs have no cause of action against them because the Hold Order was valid. They were
forced to reimburse Liu of her money because of the fraudulent scheme of the plaintiffs. Meanwhile,
the Office of the City Prosecutor reversed its earlier resolution dismissing the case and filed Estafa
charges against the plaintiff.
The Regional Trial Court ruled in favour of the plaintiffs in the civil case, which on appeal was
affirmed by the Court of Appeals with modification that the award of moral damages and attorneys fees
were deleted.

Issue: Whether the CA erred in affirming the award of moral damages, exemplary damages and
attorneys fees

Held: Respondents are entitled to moral and exemplary damages and attorneys fees.1wphi1
In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith, or is "guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations."

166
In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals
that petitioner issued the "Hold Out" order in bad faith.

First of all, the order was issued without any legal basis. Second, petitioner did not inform respondents
of the reason for the "Hold Out." Third, the order was issued prior to the filing of the criminal
complaint. Records show that the "Hold Out" order was issued on July 31, 2003, while the criminal
complaint was filed only on September 3, 2003. All these taken together lead us to conclude that
petitioner acted in bad faith when it breached its contract with respondents. As we see it then,
respondents are entitled to moral damages.

As to the award of exemplary damages, Article 2229 of the Civil Code provides that exemplary
damages may be imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages." They are awarded only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis. We
need not belabor the fact that the banking industry is impressed with public interest. As such, "the
highest degree of diligence is expected, and high standards of integrity and performance are even
required of it." It must therefore "treat the accounts of its depositors with meticulous care and always to
have in mind the fiduciary nature of its relationship with them. For failing to do this, an award of
exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 of the Civil Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from
fraud or suspicions of fraud, the exercise of his right should be done within the bounds of the law and
in accordance with due process, and not in bad faith or in a wanton disregard of its contractual
obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30,
2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO
ORDERED.

167
ACTUAL OR COMPENSATORY DAMAGES

(96) LITO CORPUZ, Petitioner, vs. PEOPLE OF THE PHILIPPINES, Respondent.

G.R. No. 180016, April 29, 2014

Ponente: PERALTA, J., EN BANC

Nature of Action: This is to resolve the Petition for Review on Certiorari, under Rule 45 of the Rules
of Court, dated November 5, 2007, of petitioner Lito Corpuz (petitioner), seeking to reverse and set
aside the Decision dated March 22, 2007 and Resolution dated September 5, 2007 of the Court of
Appeals (CA), which affirmed with modification the Decision dated July 30, 2004 of the Regional Trial
Court (RTC), Branch 46, San Fernando City, finding the petitioner guilty beyond reasonable doubt of
the crime of Estafa under Article 315, paragraph (1), sub-paragraph (b) of the Revised Penal Code.

Facts: Private complainant Danilo Tangcoy and petitioner met at the Admiral Royale Casino in
Olongapo City sometime in 1990. Private complainant was then engaged in the business of lending
money to casino players and, upon hearing that the former had some pieces of jewelry for sale,
petitioner approached him on May 2, 1991 at the same casino and offered to sell the said pieces of
jewelry on commission basis. Private complainant agreed, and as a consequence, he turned over to
petitioner the following items: an 18k diamond ring for men; a woman's bracelet; one (1) men's
necklace and another men's bracelet, with an aggregate value of P98,000.00, as evidenced by a receipt
of even date. They both agreed that petitioner shall remit the proceeds of the sale, and/or, if unsold, to
return the same items, within a period of 60 days. The period expired without petitioner remitting the
proceeds of the sale or returning the pieces of jewelry. When private complainant was able to meet
petitioner, the latter promised the former that he will pay the value of the said items entrusted to him,
but to no avail.

Thus, an Information was filed against petitioner for the crime of estafa, which reads as follows:

That on or about the fifth (5th) day of July 1991, in the City of Olongapo, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused, after having received from one Danilo
Tangcoy, one (1) men's diamond ring, 18k, worth P45,000.00; one (1) three-baht men's bracelet, 22k,
worth P25,000.00; one (1) two-baht ladies' bracelet, 22k, worth P12,000.00, or in the total amount of
Ninety-Eight Thousand Pesos (P98,000.00), Philippine currency, under expressed obligation on the part
of said accused to remit the proceeds of the sale of the said items or to return the same, if not sold, said
accused, once in possession of the said items, with intent to defraud, and with unfaithfulness and abuse
of confidence, and far from complying with his aforestated obligation, did then and there wilfully,
unlawfully and feloniously misappropriate, misapply and convert to his own personal use and benefit
the aforesaid jewelries (sic) or the proceeds of the sale thereof, and despite repeated demands, the
accused failed and refused to return the said items or to remit the amount of Ninety- Eight Thousand
Pesos (P98,000.00), Philippine currency, to the damage and prejudice of said Danilo Tangcoy in the
aforementioned amount.

Issue: Whether the increased in civil indemnity is proper

Held: In our jurisdiction, civil indemnity is awarded to the offended party as a kind of monetary
restitution or compensation to the victim for the damage or infraction that was done to the latter by the
accused, which in a sense only covers the civil aspect. Precisely, it is civil indemnity. Thus, in a crime
where a person dies, in addition to the penalty of imprisonment imposed to the offender, the accused is
also ordered to pay the victim a sum of money as restitution. Clearly, this award of civil indemnity due
to the death of the victim could not be contemplated as akin to the value of a thing that is unlawfully
taken which is the basis in the imposition of the proper penalty in certain crimes. Thus, the reasoning
in increasing the value of civil indemnity awarded in some offense cannot be the same reasoning that
would sustain the adoption of the suggested ratio. Also, it is apparent from Article 2206 that the law
only imposes a minimum amount for awards of civil indemnity, which is P3,000.00.

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The law did not provide for a ceiling. Thus, although the minimum amount for the award cannot be
changed, increasing the amount awarded as civil indemnity can be validly modified and increased
when the present circumstance warrants it. Corollarily, moral damages under Article 2220 of the Civil
Code also does not fix the amount of damages that can be awarded. It is discretionary upon the court,
depending on the mental anguish or the suffering of the private offended party. The amount of moral
damages can, in relation to civil indemnity, be adjusted so long as it does not exceed the award of civil
indemnity.

WHEREFORE, the Petition for Review on Certiorari dated November 5, 2007 of petitioner Lito
Corpuz is hereby DENIED. Consequently, the Decision dated March 22, 2007 and Resolution dated
September 5, 2007 of the Court of Appeals, which affirmed with modification the Decision dated July
30, 2004 of the Regional Trial Court, Branch 46, San Fernando City, finding petitioner guilty beyond
reasonable doubt of the crime of Estafa under Article 315, paragraph (1), sub-paragraph (b) of the
Revised Penal Code, are hereby AFFIRMED with MODIFICATION that the penalty imposed is the
indeterminate penalty of imprisonment ranging from THREE (3) YEARS, TWO (2) MONTHS and
ELEVEN DAYS of prision correccional, as minimum, to FIFTEEN (15) YEARS of reclusion temporal
as maximum.

Pursuant to Article 5 of the Revised Penal Code, let a Copy of this Decision be furnished the President
of the Republic of the Philippines, through the Department of Justice.

Also, let a copy of this Decision be furnished the President of the Senate and the Speaker of the House
of Representatives.

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MORAL DAMAGES

(97) 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.

G.R. No. 206806, June 25, 2014

Ponente: LEONEN, J., THIRD DIVISION

Nature of Action: Petition for review on certiorari assailing the Court of Appeals decision in CA-G.R.
CV No. 95709, which stemmed from a complaint filed in the Regional Trial Court of Valenzuela City,
Branch 171, for collection of sum of money.

Facts: Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials,
under the name Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill
business. From February 2007 to March 2007, he delivered scrap papers worth 7,220,968.31 to Arco
Pulp and Paper Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer and
President, Candida A. Santos. The parties allegedly agreed that Arco Pulp and Paper would either pay
Dan T. Lim the value of the raw materials or deliver to him their finished products of equivalent value.

Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated
check dated April 18, 2007 in the amount of 1,487,766.68 as partial payment, with the assurance that
the check would not bounce. When he deposited the check on April 18, 2007, it was dishonored for
being drawn against a closed account.

On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement
where Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container
Corporation, owned by Eric Sy, for his account. According to the memorandum, the raw materials
would be supplied by Dan T. Lim, through his company, Quality Paper and Plastic Products. The
memorandum of agreement reads as follows:

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A.
Santos and Mr. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches
at the price of P18.50 per kg. to Megapack Container for Mr. Eric Sys account.

It has been agreed further that the Local OCC materials to be used for the production of the above Test
Liners will be supplied by Quality Paper & Plastic Products Ent., total of 600 Metric Tons at P6.50 per
kg. (price subject to change per advance notice). Quantity of Local OCC delivery will be based on the
quantity of Test Liner delivered to Megapack Container Corp. based on the above production schedule.

On May 5, 2007, Dan T.Lim sent a letter to Arco Pulp and Paper demanding payment of the amount of
7,220,968.31, but no payment was made to him.

Issue: Whether petitioners are liable for damages

Held: Yes. Moral damages are not recoverable on the mere breach of contract. Article 2220 requires
that the breach be done fraudulently or in bad faith. 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. When the party to a contracts 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 be
awarded. Here, the Court justified the award since the debtor issued a bouncing check in partial
payment of its obligation, 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 the
creditor.
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WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is
AFFIRMED.

Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay
respondent Dan T. Lim the amount of P7,220,968.31 with interest of 6% per annum at the time of
demand until finality of judgment and its full satisfaction, with moral damages in the amount of
P50,000.00, exemplary damages in the amount of P50,000.00, and attorney's fees in the amount of
P50,000.00.

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MORAL DAMAGES

(99) SPOUSES ROLANDO AND HERMINIA SALVADOR, Petitioners, v. SPOUSES ROGELIO


AND ELIZABETH RABAJA AND ROSARIO GONZALES, Respondents.

G.R. No. 199990, February 04, 2015

Ponente: MENDOZA, J., SECOND DIVISION

Nature of Action: This is a petition for review on certiorari seeking to reverse and set aside the August
22, 2011 Decision1 and the January 5, 2012 Resolution 2 of the Court of Appeals (CA) in CA-G.R. CV
No. 90296 which affirmed with modification the March 29, 2007 Decision of the Regional Trial Court
Branch 214 (RTC-Branch 214), Mandaluyong City in Civil Case No. MC-03-2175, for rescission of a
contract (rescission case).

Facts: Petitioner spouses Rolando and Herminia Salvador, are the sellers over the parcel of land. The
buyers, are respondent Spouses Rogelio and Elizabeth Rabaja, with Rosario Gonzales as the sellers
agent. Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador were looking for a buyer
of the subject property. Petitioner Herminia Salvador personally introduced Gonzales to them as the
administrator of the said property. Spouses Salvador even handed to Gonzales the owners duplicate
certificate of title over the subject property. On July, 3, 1998, Spouses Rabaja made an initial payment
of P48,000.00 to Gonzales in the presence of Herminia. Gonzales then presented the Special Power of
Attorney, executed by Rolando Salvador and dated July 24, 1998. On the same day, the parties
executed the Contract to Sell which stipulated that for a consideration of P5,000,000.00, Spouses
Salvador sold, transferred and conveyed in favor of Spouses Rabaja the subject property. Spouses
Rabaja made several payments totalling P950,000.00, which were received by Gonzales pursuant to the
SPA provided earlier as evidenced by the check vouchers signed by Gonzales and the improvised
receipts signed by Herminia.

Sometime in June 1999, however, Spouses Salvador complained to Spouses Rabaja that they did not
receive any payment from Gonzales. This prompted Spouses Rabaja to suspend further payment of the
purchase price; and as a consequence, they received a notice to vacate the subject property from
Spouses Salvador for non-payment of rentals. Thereafter, Spouses Salvador instituted an action for
ejectment against Spouses Rabaja. In turn, Spouses Rabaja filed an action for rescission of contract
against Spouses Salvador and Gonzales, the subject matter of the present petition. Spouses Rabaja
demanded the rescission of the contract to sell praying that the amount of P950,000.00 they previously
paid to Spouses Salvador be returned to them. They likewise prayed that damages be awarded due to
the contractual breach committed by Spouses Salvador.

Spouses Salvador filed their answer with counterclaim and cross-claim contending that there was no
meeting of the minds between the parties and that the SPA in favor of Gonzales was falsified. In fact,
they filed a case for falsification against Gonzales, but it was dismissed because the original of the
alleged falsified SPA could not be produced. They further averred that they did not receive any
payment from Spouses Rabaja through Gonzales. In her defense, Gonzales filed her answer stating that
the SPA was not falsified and that the payments of Spouses Rabaja amounting to P950,000.00 were all
handed over to Spouses Salvador.

RTC ruled in favor of Spouses Rabaja, holding that the contract although denominated as contract to
sell, was actually a contract of sale because Spouses Salvador, as vendors, did not reserve their title to
the property until the vendees had fully paid the purchase price. This was subsequently affirmed by
CA.

Issue: Whether the award of damages to Spouses Rabaja can be sustained

Held: The award of damages to Spouses Rabaja cannot be sustained by this Court. The filing alone of a
civil action should not be a ground for an award of moral damages in the same way that a clearly

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unfounded civil action is not among the grounds for moral damages. Article 2220 of the New Civil
Code provides that to award moral damages in a breach of contract, the defendant must act fraudulently
or in bad faith. In this case, Spouses Rabaja failed to sufficiently show that Spouses Salvador acted in a
fraudulent manner or with bad faith when it breached the contract of sale. Thus, the award of moral
damages cannot be warranted.

WHEREFORE, the petition is PARTLY GRANTED. The March 29, 2007 Decision of the Regional
Trial Court, Branch 214, Mandaluyong City, in Civil Case No. MC-03-2175, is MODIFIED to read as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, this Court renders judgment as follows:chanRoblesvirtualLawlibrary
a. Ordering the Contract to Sell entered into by Spouses Rogelio and Elizabeth Rabaja and
Spouses Rolando and Herminia Salvador on July 24, 1998 as RESCINDED;chanrobleslaw

b. Ordering Spouses Rolando and Herminia Salvador to pay Spouses Rogelio and Elizabeth
Rabaja:chanRoblesvirtualLawlibrary

1 The amount of Nine Hundred Fifty Thousand (P950,000.00) Pesos, representing the
payments made by the latter for the purchase of the subject property; and
2 The cost of suit;chanrobleslaw

c. Dismissing the counterclaims of Spouses Rolando and Herminia Salvador and Rosario
Gonzales against Spouses Rogelio and Elizabeth Rabaja.

The amounts awarded are subject to interest at the legal rate of 6% per annum to be reckoned from the
date of finality of this judgment until fully paid.

As aforestated, this is without prejudice to the invocation by either party of the Civil Code provisions
on legal compensation or set-off under Articles 1278, 1279 and 1270.

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MORAL DAMAGES

(100) SPS. FERNANDO VERGARA AND HERMINIA VERGARA, Petitioners, v. ERLINDA


TORRECAMPO SONKIN, Respondent.

G.R. No. 193659, June 15, 2015

Ponente: PERLAS-BERNABE, J., FIRST DIVISION

Nature of Action: Assailed in this petition for review on certiorari1 are the Decision2 dated February
24, 2010 and the Resolution3 dated September 2, 2010 of the Court of Appeals (CA) in CA-G.R. CV
No. 89357, which reversed and set aside the Decision 4 dated January 4, 2007 of the Regional Trial
Court of Malolos City, Bulacan, Branch 19 (RTC) in Civil Case. No. 900-M-2002 and entered a new
one in its stead.

Facts: The petitioners-spouses Vergara (Sps. Vergara) and Spouses Sonkin (Sps. Sonkin) are adjoining
landowners. The property owned by the Sps. Sonkin (Sonkin Property) is slightly lower in elevation
than that owned by Sps. Vergara (Vergara Property).

The Sps Sonkin constructed a house on their property using a portion of the partition wall as part of the
wall of the master's bedroom and bathroom.

Thereafter, the Sps. Vergara levelled the uneven portion of their property making it even higher than
that of the Sonkin Property. Eventually, Sps. Sonkin began to complain that water coming from the
Vergara Property was leaking into their bedroom through the partition wall, causing cracks, as well as
damage, to the paint and the wooden parquet floor. Sps. Sonkin repeatedly demanded that Sps. Vergara
build a retaining wall on their property in order to contain the landfill that they had dumped thereon,
but the same went unheeded.

Sps. Sonkin filed the instant complaint for damages and injunction with prayer for preliminary
mandatory injunction and issuance of a temporary restraining order.

The CA on appeal ruled that while the act of the Sps Vergara in elevating their property was the
proximate cause of the water seepage, the Sps. Sonkin were guilty of contributory negligence in
building their house directly abutting the perimeter wall. Thus, it deleted the actual damages ordered by
the RTC. It nevertheless awarded the Sonkins moral damages and attorneys fees.

Hence this appeal by the Sps Vergara.

Issue: Whether or not the Sps Sonkin are entitled to moral damages

Held: NO. Article 2179 of the Civil Code reads:

Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his
injury, he cannot recover damages. But if his negligence was only contributory, the immediate
and proximate cause of the injury being the defendant's lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded.

Verily, contributory negligence is conduct on the part of the injured party, contributing as a legal cause
to the harm he has suffered, which falls below the standard to which he is required to conform for his
own protection.

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The CA correctly held that while the proximate cause of the damage sustained by the house of Sps.
Sonkin was the act of Sps. Vergara in dumping gravel and soil onto their property, thus, pushing the
perimeter wall back and causing cracks thereon, as well as water seepage, the former is nevertheless
guilty of contributory negligence for not only failing to observe the two (2)-meter setback rule under
the National Building Code, but also for disregarding the legal easement (to receive water from higher
estates) constituted over their property. As such, Sps. Sonkin must necessarily and equally bear their
own loss.

In view of Sps. Sonkin's contributory negligence, the Court deems it appropriate to delete the award of
moral damages in their favor. While moral damages may be awarded whenever the defendant's
wrongful act or omission is the proximate cause of the plaintiffs physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and
similar injury in the cases specified or analogous to those provided in Article 2219 of the Civil Code,
they are only given to ease the defendant's grief and suffering and should, therefore, reasonably
approximate the extent of hurt caused and the gravity of the wrong done.

WHEREFORE, the petition is GRANTED. The Decision dated February 24, 2010 and the Resolution
dated September 2, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 89357 are hereby
AFFIRMED with MODIFICATIONS. The awards of moral damages and attorney's fees are
DELETED and respondent Erlinda Torrecampo Sonkin is DIRECTED to strictly comply with Section
708 (a) of the National Building Code by removing or demolishing the portion of her house that
occupies the two-meter easement from the property line. The rest of the CA Decision stands.

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