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CIVIL LAW DIGESTS 2014- June 2016

PERSONS

CONFLICT OF LAWS

DAVID A. NOVERAS vs. LETICIA T. NOVERAS


G.R. No. 188289, August 20, 2014, J. Perez

David and Leticia are US citizens who own properties in the USA and in the Philippines.
Leticia obtained a decree of divorce from the Superior Court of California in June 2005 wherein the
court awarded all the properties in the USA to Leticia. With respect to their properties in the
Philippines, Leticia filed a petition for judicial separation of conjugal properties. The Court ruled
that even if the Court applies the doctrine of processual presumption as the lower courts did with
respect to the property regime of the parties, the recognition of divorce is entirely a different matter
because, to begin with, divorce is not recognized between Filipino citizens in the Philippines. Absent
a valid recognition of the divorce decree, it follows that the parties are still legally married in the
Philippines. The trial court thus erred in proceeding directly to liquidation.

Facts:

David A. Noveras (David) and Leticia T. Noveras (Leticia) were married on 3 December
1988 in Quezon City, Philippines. They resided in California, United States of America (USA)
where they eventually acquired American citizenship. They then begot two children, namely:
Jerome T. Noveras, who was born on 4 November 1990 and JenaT. Noveras, born on 2 May 1993.
David was engaged in courier service business while Leticia worked as a nurse in San Francisco,
California.

Due to business reverses, David left the USA and returned to the Philippines in 2001. Upon
learning that David had an extra-marital affair, Leticia filed a petition for divorce with the
Superior Court of California, County of San Mateo, USA. The California court granted the divorce
on 24 June 2005 and judgment was duly entered on 29 June 2005.6 The California court granted to
Leticia the custody of her two children, as well as all the couple’s properties in the USA.

On 8 August 2005, Leticia filed a petition for Judicial Separation of Conjugal Property
before the RTC of Baler, Aurora. She prayed for: 1) the power to administer all conjugal properties
in the Philippines; 2) David and his partner to cease and desist from selling the subject conjugal
properties; 3) the declaration that all conjugal properties be forfeited in favor of her children; 4)
David to remit half of the purchase price as share of Leticia from the sale of the Sampaloc
property; and 5) the payment ofP50,000.00 and P100,000.00 litigation expenses

In his Answer, David stated that a judgment for the dissolution of their marriage was
entered on 29 June 2005 by the Superior Court of California, County of San Mateo. He demanded
that the conjugal partnership properties, which also include the USA properties, be liquidated and
that all expenses of liquidation, including attorney’s fees of both parties be charged against the
conjugal partnership.

The RTC considered the petition filed by Leticia as one for liquidation of the absolute
community of property regime instead of an action for judicial separation of conjugal property. As
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to the property relations, the trial court ruled that in accordance with the doctrine of processual
presumption, Philippine law should apply. The absolute community properties cannot be
forfeited in favor of Leticia and her children.

On appeal, the Court of Appeals modified the trial court’s Decision by directing the equal
division of the Philippine properties between the spouses.

Issues:

1. Whether or not the divorce decree should be judicially recognized

2. Whether or not the petition for judicial separation of property is proper

Ruling:

1. No, the divorce decree should not be judicially recognized for the requisites were not
complied with.

The requirements of presenting the foreign divorce decree and the national law of the
foreigner must comply with our Rules of Evidence. Specifically, for Philippine courts to recognize
a foreign judgment relating to the status of a marriage, a copy of the foreign judgment may be
admitted in evidence and proven as a fact under Rule 132, Sections 24 and 25, in relation to Rule
39, Section 48(b) of the Rules of Court.

Based on the records, only the divorce decree was presented in evidence. The required
certificates to prove its authenticity, as well as the pertinent California law on divorce were not
presented. Even if the Court applies the doctrine of processual presumption as the lower courts
did with respect to the property regime of the parties, the recognition of divorce is entirely a
different matter because, to begin with, divorce is not recognized between Filipino citizens in the
Philippines. Absent a valid recognition of the divorce decree, it follows that the parties are still
legally married in the Philippines. The trial court thus erred in proceeding directly to liquidation.

2. Having established that Leticia and David had actually separated for at least one year,
the petition for judicial separation of absolute community of property should be granted.

Separation in fact for one year as a ground to grant a judicial separation of property was
not tackled in the trial court’s decision because, the trial court erroneously treated the petition as
liquidation of the absolute community of properties.

The records of this case are replete with evidence that Leticia and David had indeed
separated for more than a year and that reconciliation is highly improbable. First, while actual
abandonment had not been proven, it is undisputed that the spouses had been living separately
since 2003 when David decided to go back to the Philippines to set up his own business. Second,
Leticia heard from her friends that David has been cohabiting with Estrellita Martinez, who
represented herself as Estrellita Noveras. Editha Apolonio, who worked in the hospital where
David was once confined, testified that she saw the name of Estrellita listed as the wife of David in
the Consent for Operation form. Third and more significantly, they had filed for divorce and it
was granted by the California court in June 2005.
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NORMA A. DEL SOCORRO for and in behalf of her Minor Child RODERIGO NORJO VAN
WILSEM vs. ERNST JOHAN BRINKMAN VAN WILSEM
G.R. No. 193707, December 10, 2014, J. Peralta

Under the doctrine of processual presumption, if the foreign law involved is not properly
pleaded and proved, our courts will presume that the foreign law is the same as our local or
domestic or internal law. Hence, pleading a foreign law without proving the same will bar its
application in the Philippines.

Facts:

Petitioner Norma A. Del Socorro and respondent Ernst Johan Brinkman Van Wilsem
contracted marriage in Holland on September 25, 1990. On January 19, 1994, they were blessed
with a son named Roderigo Norjo Van Wilsem. Unfortunately, their marriage bond ended on July
19, 1995 by virtue of a Divorce Decree issued by the appropriate Court of Holland. At that time,
their son was only eighteen (18) months old. Thereafter, Norma and her son came home to the
Philippines. Since the arrival of Norma and her son in the Philippines, Ernst never gave support to
the son, Roderigo. Not long thereafter, Ernst came to the Philippines and remarried in
Pinamungahan, Cebu, and since then, have been residing thereat.

On August 28, 2009, Norma, through her counsel, sent a letter demanding for support
from Ernst. However, he refused to receive the letter. Because of the foregoing circumstances,
Norma filed a complaint-affidavit with the Provincial Prosecutor of Cebu City against Ernst for
violation of Section 5, paragraph E(2) of R.A. No. 9262 for the latter’s unjust refusal to support his
minor child with her. She also filed a Motion/Application of Permanent Protection Order to
which Ernst filed his Opposition. On February 19, 2010, the RTC-Cebu dismissed the instant
criminal case against on the ground that the facts charged in the information do not constitute an
offense with respect to the Ernst who is an alien. Thereafter, Norma filed her Motion for
Reconsideration thereto reiterating Ernst’s obligation to support their child under Article 195 of
the Family Code, thus, failure to do so makes him liable under R.A. No. 9262 which “equally
applies to all persons in the Philippines who are obliged to support their minor children
regardless of the obligor’s nationality.”

Issue:

Whether a foreign national could be held liable for acts and omissions punishable under
special criminal laws, specifically in relation to family rights and duties.

Ruling:

Yes, he can.

Let it be noted that RTC-Cebu is correct in saying that Ernst is subject to the laws of his
country, not to Philippine law, as to whether he is obliged to give support to his child, as well as
the consequences of his failure to do so.

However, in international law, the party who wants to have a foreign law applied to a
dispute or case has the burden of proving the foreign law. In the present case, Ernst hastily
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concludes that being a national of the Netherlands, he is governed by such laws on the matter of
provision of and capacity to support. While Ernst pleaded the laws of the Netherlands in
advancing his position that he is not obliged to support his son, he never proved the same. In
view of his failure to prove the national law of the Netherlands in his favor, the doctrine of
processual presumption shall govern. Under this doctrine, if the foreign law involved is not
properly pleaded and proved, our courts will presume that the foreign law is the same as our local
or domestic or internal law. Notwithstanding that the national law of respondent Ernst states that
parents have no obligation to support their children or that such obligation is not punishable by
law, said law would still not find applicability because when the foreign law, judgment or contract
is contrary to a sound and established public policy of the forum, the said foreign law, judgment
or order shall not be applied.

In addition, considering that Ernst is currently living in the Philippines, the Court finds
strength in Norma’s claim that the Territoriality Principle in criminal law, in relation to Article 14
of the New Civil Code, applies to the instant case. On this score, it is indisputable that the alleged
continuing acts of Ernst in refusing to support his child with Norma is committed here in the
Philippines as all of the parties herein are residents of the Province of Cebu City. As such, our
courts have territorial jurisdiction over the offense charged against Ernst.

HUMAN RELATIONS

CARLOS A. LORIA vs. LUDOLFO P. MUÑOZ


G.R. No. 187240, October 15, 2014, J. Leonen

The principle of unjust enrichment has two conditions. First, a person must have been
benefited without a real or valid basis or justification. Second, the benefit was derived at another
person’s expense or damage. In this case, Loria received P2,000,000.00 from Muñoz for a
subcontract of a government project to dredge the Masarawag and San Francisco Rivers in
Guinobatan, Albay. However, contrary to the parties’ agreement, Muñoz was not subcontracted for
the project. Nevertheless, Loria retained the P2,000,000.00. Thus, Loria was unjustly enriched. He
retained Muñoz’s money without valid basis or justification. Under Article 22 of the Civil Code of
the Philippines, Loria must return the P2,000,000.00 to Muñoz.

Facts:

Ludolfo P. Muñoz, Jr. (Muñoz) filed a complaint for sum of money and damages with an
application for issuance of a writ of preliminary attachment against Carlos A. Loria (Loria) with
the Regional Trial Court of Legazpi City.

In his complaint, Muñoz alleged that he has been engaged in construction under the
name, “Ludolfo P. Muñoz, Jr. Construction.” In August 2000, Loria visited Muñoz in his office in
Doña Maria Subdivision in Daraga, Albay. He invited Muñoz to advance P2,000,000.00 for a
subcontract of a P50,000,000.00 river-dredging project in Guinobatan.

Loria represented that he would make arrangements such that Elizaldy Co, owner of
Sunwest Construction and Development Corporation, would turn out to be the lowest bidder for
the project. Elizaldy Co would pay P8,000,000.00 to ensure the project’s award to Sunwest. After

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the award to Sunwest, Sunwest would subcontract 20% or P10,000,000.00 worth of the project to
Muñoz. Since Muñoz had known Loria for five years, Muñoz accepted Loria’s proposal.

On October 2, 2000, Muñoz requested Allied Bank to release P3,000,000.00 from his joint
account with his business partner, Christopher Co, to a certain Grace delos Santos (delos Santos).
Loria then obtained the money from delos Santos.

Four days later, P1,800,000.00 of the P3,000,000.00 was returned to Muñoz. On January
10, 2001, Loria collected Muñoz’s P800,000.00 balance. After deducting Loria’s personal loans
from Muñoz, Muñoz issued a check to Loria for P481,800.00. Loria acknowledged receiving this
amount from Muñoz.

The project to dredge the Masarawag and San Francisco Rivers in Guinobatan was
subjected to public bidding. The project was awarded to the lowest bidder, Sunwest Construction
and Development Corporation. Sunwest allegedly finished dredging the Masarawag and San
Francisco Rivers without subcontracting Muñoz. With the project allegedly finished, Muñoz
demanded Loria to return his P2,000,000.00. Loria, however, did not return the money.

Muñoz then filed the complaint for sum of money.

During pre-trial, the parties agreed to litigate the sole issue of whether Loria is liable to
Muñoz for P2,000,000.00.
According to the trial court, Muñoz established with preponderant evidence that Loria
received P2,000,000.00 from Muñoz for a subcontract of the river-dredging project. Since no part
of the project was subcontracted to Muñoz, Loria must return the P2,000,000.00 he received, or
he would be “unduly enriching himself at the expense of Muñoz.”

The Court of Appeals sustained the trial court’s factual findings.

Issue:

Whether Loria is liable for P2,000,000.00 to Muñoz.

Ruling:

Yes. Loria is liable for P2,000,000.00 to Muñoz.

Under Article 22 of the Civil Code of the Philippines, “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 to him.” There is
unjust enrichment “when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice, equity
and good conscience.”

The principle of unjust enrichment has two conditions. First, a person must have been
benefited without a real or valid basis or justification. Second, the benefit was derived at another
person’s expense or damage.

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In this case, Loria received P2,000,000.00 from Muñoz for a subcontract of a government
project to dredge the Masarawag and San Francisco Rivers in Guinobatan, Albay. However,
contrary to the parties’ agreement, Muñoz was not subcontracted for the project. Nevertheless,
Loria retained the P2,000,000.00. Thus, Loria was unjustly enriched. He retained Muñoz’s
money without valid basis or justification. Under Article 22 of the Civil Code of the Philippines,
Loria must return the P2,000,000.00 to Muñoz.

Unjust enrichment exists, according to Hulst v. PR Builders, Inc., “when a person unjustly
retains a benefit at the loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good conscience.” The prevention of
unjust enrichment is a recognized public policy of the State, for Article 22 of the Civil Code
explicitly provides 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 to him.” It is well to note that Article 22 “is part of the chapter
of the Civil Code on Human Relations, the provisions of which were formulated as basic
principles to be observed for the rightful relationship between human beings and for the stability
of the social order; designed to indicate certain norms that spring from the fountain of good
conscience; guides for human conduct that should run as golden threads through society to the
end that law may approach its supreme ideal which is the sway and dominance of justice.”

WILLAWARE PRODUCTS CORPORATION vs. JESICHRIS MANUFACTURING


CORPORATION
G.R. No. 195549, September 3, 2014, J. Peralta

Article 28 of the Civil Code provides that unfair competition in agricultural, commercial or
industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any
other unjust, oppressive or high-handed method shall give rise to a right of action by the person who
thereby suffers damage. What is being sought to be prevented is not competition per se but the use
of unjust, oppressive or highhanded methods which may deprive others of a fair chance to engage in
business or to earn a living. Thus, when a manufacturer of plastic kitchenware products employed
the former employees of a neighboring partnership engaged in the manufacture of plastic
automotive parts; deliberately copied the latter’s products and even went to the extent of selling
these products to the latter’s customers, there is unfair competition.

Facts:

Respondent Jesichris Manufacturing Company (Jesichris), a partnership engaged in


manufacturing and distributing plastic and metal products, including plastic-made automotive
parts, filed with the RTC a complaint for damages for unfair competition with prayer for
permanent injunction to enjoin petitioner Willaware Products Corporation (Willaware), which is
engaged in the manufacturing and distributing plastic kitchenware products, from manufacturing
and distributing plastic-made automotive parts similar to those of Jesichris.

Jesichris alleged that it had originated the use of plastic in place of rubber in the
manufacture of automotive underchassis parts. Willaware’s manufacture of the same automotive
parts with plastic material was taken from Jesichris’ idea of using plastic for automotive parts.
Also, Willaware deliberately copied Jesichris’ products all of which acts constitute unfair
competition.
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Willaware claims that there can be no unfair competition as the plastic-made automotive
parts are mere reproductions of original parts and their construction and composition merely
conforms to the specifications of the original parts of motor vehicles they intend to replace. Thus,
Jesichris cannot claim that it “originated” the use of plastic for these automotive parts. In
addition, Jesichris had no exclusive right to use, manufacture and sell these as it has no patent
over these products.

The RTC ruled in favor of Jesichris, holding that Willaware clearly invaded the rights or
interest of Jesichris by deliberately copying and performing acts amounting to unfair competition.
The CA agreed with the RTC and held that there was unfair competition.

Issue:

Did Willaware commit acts amounting to unfair competition under Article 28 of the New
Civil Code?

Ruling:

Prefatorily, the Court would like to stress that the instant case falls under Article 28 of the
Civil Code on human relations, and not unfair competition under Republic Act No. 8293, as the
present suit is a damage suit and the products are not covered by patent registration. A fortiori,
the existence of patent registration is immaterial in the present case.

The concept of “unfair competition” under Article 28 is very much broader than that
covered by intellectual property laws. Under the present article, which follows the extended
concept of “unfair competition” in American jurisdictions, the term covers even cases of discovery
of trade secrets of a competitor, bribery of his employees, misrepresentation of all kinds,
interference with the fulfillment of a competitor’s contracts, or any malicious interference with
the latter’s business.

Article 28 of the Civil Code provides that “unfair competition in agricultural, commercial
or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or
any other unjust, oppressive or high-handed method shall give rise to a right of action by the
person who thereby suffers damage.”

From the foregoing, it is clear that what is being sought to be prevented is not
competition per se but the use of unjust, oppressive or highhanded methods which may deprive
others of a fair chance to engage in business or to earn a living. Plainly, what the law prohibits is
unfair competition and not competition where the means used are fair and legitimate.

In order to qualify the competition as “unfair,” it must have two characteristics: (1) it must
involve an injury to a competitor or trade rival, and (2) it must involve acts which are
characterized as “contrary to good conscience,” or “shocking to judicial sensibilities,” or otherwise
unlawful; in the language of our law, these include force, intimidation, deceit, machination or any
other unjust, oppressive or high-handed method. The public injury or interest is a minor factor;
the essence of the matter appears to be a private wrong perpetrated by unconscionable means.

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Here, both characteristics are present.

First, both parties are competitors or trade rivals, both being engaged in the manufacture
of plastic-made automotive parts. Second, the acts of the Willaware were clearly “contrary to good
conscience” as Willaware admitted having employed Jesichris’s former employees, deliberately
copied Jesichris’s products and even went to the extent of selling these products to Jesichris’s
customers.

To bolster this point, the CA correctly pointed out that Willaware’s hiring of the former
employees of Jesichris and Willaware’s act of copying the subject plastic parts of Jesichris were
tantamount to unfair competition.

Thus, it is evident that Willaware is engaged in unfair competition as shown by his act of
suddenly shifting his business from manufacturing kitchenware to plastic-made automotive parts;
his luring the employees of the Jesichris to transfer to his employ and trying to discover the trade
secrets of the Jesichris.

Moreover, when a person starts an opposing place of business, not for the sake of profit to
himself, but regardless of loss and for the sole purpose of driving his competitor out of business so
that later on he can take advantage of the effects of his malevolent purpose, he is guilty of wanton
wrong. As aptly observed by the court a quo, the testimony of Willaware’s witnesses indicate that
it acted in bad faith in competing with the business of Jesichris.

In sum, Willaware is guilty of unfair competition under Article 28 of the Civil Code.

ELIZABETH L. DIAZ vs. GEORGINA R. ENCANTO, ET AL.


G.R. No. 171303, January 20, 2016, J. Leonardo-De Castro

Facts:

Petitioner Diaz has been a professor in UP since 1963. In 1988, she applied for sabbatical
leave with pay for one year. The Chair of the Broadcast Department initially recommended to
CMC Dean Encanto that Diaz’s sabbatical application be granted. Thereafter, Encanto referred
Diaz’s sabbatical application to the Secretary of U.P., recommending its denial. Encanto also
requested her salary be withheld effective July 1, 1988 until further notice since her sabbatical
application has not yet been approved and that she did not teach that semester.

On July 4, 1988, it was recommended that Diaz be granted a leave without pay in order to
enable the CMC to hire a substitute. The next day, the U.P.’s Secretary referred to the Vice-
President for Academic Affairs, the fact of denial of such sabbatical request, for his own
recommendation to the U.P. President. On July 8, 1988, Abad returned the Reference Slip
indicating therein that Diaz had promised him to put down in writing the historical backdrop to
the latest denial of her sabbatical leave, but she did not do so. On Diaz’s request to teach for that
semester, the Vice Chancellor for Academic Affairs and the HRDO Director instructed Encanto
that until Prof. Diaz officially reports for duty, accomplishes the Certificate of Report for Duty,
and the Dean of CMC confirms her date of actual report for duty, she is considered absent
without official leave.

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On November 8, 1988, Abad, issued a Memorandum to Diaz to confirm as valid Encanto’s


reason of shortage of teaching staff in denying her sabbatical. Later, he also informed Diaz of her
lack of service during the first semester of AY 1988-89, hence she is not entitled to be paid. While
Diaz was able to teach during the second semester of AY 1988-89, she was not able to claim her
salaries for her refusal to submit the Report for Duty Form.

Diaz instituted a complaint against U.P., Abueva, Encanto, Tabujara and Abad with the
Pasig RTC praying that the latter be adjudged, jointly and severally to pay her damages. She
claimed, among others, that they conspired together as joint tortfeasors, in not paying her salaries
from July 1, 1988 in the first semester of academic year 1988-89, for the entire period when her
sabbatical application was left unresolved, as well as the salaries she earned from teaching in the
second semester from November 1988 to May 1989. She likewise claimed moral and exemplary
damages and attorney’s fees. The RTC held that Diaz was entitled to a sabbatical leave and that
they delay in the resolution of her application was unreasonable and unconscionable but the CA
reversed it on appeal, ruling that there was neither negligence nor bad faith in denying her
application and withholding her salaries.

Issues:

1) Whether the respondents acted in bad faith when they resolved Diaz’s application for
leave.
2) Whether the respondents are liable for damages.

Ruling:

1) No, they did not act in bad faith. Diaz’s complaint for recovery of damages before the RTC
was based on the alleged bad faith of the respondents in denying her application for sabbatical
leave vis-à-vis Articles 19 and 20 of the Civil Code. Article 19 of the Civil Code “prescribes a
‘primordial limitation on all rights’ by setting certain standards that must be observed in the
exercise thereof.” Abuse of right under Article 19 exists when the following elements are present:
(1) there is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of
prejudicing or injuring another.

No traces of bad faith or malice in the respondents’ denial of petitioner Diaz’s application
for sabbatical leave. They processed her application in accordance with their usual procedure –
with more leeway, in fact, since petitioner Diaz was given the chance to support her application
when she was asked to submit a historical background; and the denial was based on the
recommendation of respondent Encanto, who was in the best position to know whether
petitioner Diaz’s application should be granted or not.

On the question of whether or not there was bad faith int he delay of the resolution of
petitioner Diaz’s sabbatical leave application, the Court still rules in the negative. “It is an
elementary rule in this jurisdiction that good faith is presumed and that the burden of proving
bad faith rests upon the party alleging the same.” Petitioner Diaz has failed to prove bad faith on
the part of the respondents. There is nothing in the records to show that the respondents
purposely delayed the resolution of her application to prejudice and injure her. She has not even
shown that the delay of six months in resolving a sabbatical leave application has never happened
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prior to her case. On the contrary, any delay that occurred was due to the fact that petitioner
Diaz’s application for sabbatical leave did not follow the usual procedure; hence, the processing of
said application took time.

2) Given that the respondents have not abused their rights, they should not be held liable for
any damages sustained by petitioner Diaz. “The law affords no remedy for damages resulting from
an act which does not amount to a legal wrong. Situations like this have been appropriately
denominated damnum absque injuria. Similarly, the Court cannot grant petitioner Diaz’s claim for
attorney’s fees as no premium should be placed on the right to litigate. “Even when a claimant is
compelled to litigate or to incur expenses to protect his rights, still attorney’s fees may not be
awarded where there is no sufficient showing of bad faith in a party’s persistence in a case other
than an erroneous conviction of the righteousness of his cause.

MARRIAGE

REQUISITES OF MARRIAGE

PEREGRINA MACUA VDA. DE AVENIDO vs. TECLA HOYBIA AVENIDO


G.R. No. 173540. January 22, 2014
J. Perez

Semper – praesumitur pro matrimonio – Always presume marriage. The absence of a


Marriage Certificate does not ipso facto mean that no marriage took place.

Marriage may be proven by any competent and relevant evidence. Hence, when one of the
parties to the marriage or one of the witnesses to the marriage testifies that the marriage took place,
it has been held to be admissible to prove the fact of such marriage. Thus, the testimony of Tecla
(wife) and Adelina, who was present during the marriage ceremony, serves as an admissible evidence
to prove the fact of marriage between Tecla and Eustaquio.

Facts:

Respondent Tecla Hoybia Avenido (Tecla) instituted a Complaint for Declaration of Nullity of
Marriage against Peregrina Macua Vda. de Avenido (Peregrina) on the ground that she (Tecla), is
the lawful wife of the deceased Eustaquio Avenido (Eustaquio). In her complaint, Tecla alleged
that her marriage to Eustaquio was solemnized on 30 September 1942 in Talibon, Bohol in rites
officiated by the Parish Priest of the said town. According to her, the fact of their marriage is
evidenced by a Marriage Certificate recorded with the Office of the Local Civil Registrar (LCR) of
Talibon, Bohol. However, due to World War II, records were destroyed. Thus, only a
Certification was issued by the LCR.

In 1979, Tecla learned that her husband Eustaquio got married to another woman by the name of
Peregrina, which marriage she claims must be declared null and void for being bigamous – an
action she sought to protect the rights of her children over the properties acquired by Eustaquio.

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Peregrina filed her answer to the complaint with counterclaim, essentially averring that she is the
legal surviving spouse of Eustaquio who died on 22 September 1989 in Davao City, their marriage
having been celebrated on 30 March 1979 at St. Jude Parish in Davao City. She also contended that
the case was instituted to deprive her of the properties she owns in her own right and as an heir of
Eustaquio.

The RTC denied Tecla’s petition as well as Peregrina’s counterclaim. Tecla appealed to the CA.
The CA ruled in favor of Tecla by declaring the validity of her marriage to Eustaquio, while
pronouncing on the other hand, the marriage between Peregrina and Eustaquio to be bigamous,
and thus, null and void.

Peregrina, dissatisfied with the CA ruling, elevated the matter via this petition.

Issue:

Whether the existence of the marriage of Tecla and Eustaquio has been duly proven

Ruling:

In the absence of the marriage contract, the trial court did not give credence to the testimony of
Tecla and her witnesses as it considered the same as mere self-serving assertions. Superior
significance was given to the fact that Tecla could not even produce her own copy of the said
proof of marriage. Relying on Section 3 (a) and Section 5, Rule 130 of the Rules of Court, the trial
court declared that Tecla failed to prove the existence of the first marriage.

The CA, on the other hand, concluded that there was a presumption of lawful marriage between
Tecla and Eustaquio as they deported themselves as husband and wife and begot four (4)
children. Such presumption, supported by documentary evidence consisting of the same
Certifications disregarded by the trial court, as well as the testimonial evidence especially that of
Adelina Avenido-Ceno, created, according to the CA, sufficient proof of the fact of
marriage. Contrary to the trial court’s ruling, the CA found that its appreciation of the evidence
presented by Tecla is well in accord with Section 5, Rule 130 of the Rules of Court.

The court upholds the reversal by the CA of the decision of the trial court.

As correctly stated by the appellate court:

In the case at bench, the celebration of marriage between [Tecla] and EUSTAQUIO
was established by the testimonial evidence furnished by [Adelina] who appears to be
present during the marriage ceremony, and by [Tecla] herself as a living witness to the
event. The loss was shown by the certifications issued by the NSO and LCR of Talibon,
Bohol. These are relevant, competent and admissible evidence. Since the due
execution and the loss of the marriage contract were clearly shown by the evidence
presented, secondary evidence – testimonial and documentary – may be admitted to
prove the fact of marriage. In PUGEDA v. TRIAS, the Supreme Court held
that “marriage may be proven by any competent and relevant evidence. The testimony by
one of the parties to the marriage or by one of the witnesses to the marriage has been
held to be admissible to prove the fact of marriage. The person who officiated at the
solemnization is also competent to testify as an eyewitness to the fact of marriage.”
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x x x x

The court a quo committed a reversible error when it disregarded (1) the testimonies
of [Adelina], the sister of EUSTAQUIO who testified that she personally witnessed the
wedding celebration of her older brother EUSTAQUIO and [Tecla] on 30 September
1942 at Talibon, Bohol; [Climaco], the eldest son of EUSTAQUIO and [Tecla], who
testified that his mother [Tecla] was married to his father, EUSTAQUIO, and [Tecla]
herself; and (2) the documentary evidence mentioned at the outset. It should be
stressed that the due execution and the loss of the marriage contract, both
constituting the condition sine qua non for the introduction of secondary evidence of
its contents, were shown by the very evidence the trial court has disregarded.

The starting point then, is the presumption of marriage.

As early as the case of Adong v. Cheong Seng Gee, this Court has elucidated on the rationale
behind the presumption:

The basis of human society throughout the civilized world is that of


marriage. Marriage in this jurisdiction is not only a civil contract, but it is a new
relation, an institution in the maintenance of which the public is deeply
interested. Consequently, every intendment of the law leans toward legalizing
matrimony. Persons dwelling together in apparent matrimony are presumed, in the
absence of any counter-presumption or evidence special to the case, to be in fact
married. The reason is that such is the common order of society, and if the parties
were not what they thus hold themselves out as being, they would be living in the
constant violation of decency and of law. A presumption established by our Code of
Civil Procedure is that a man and a woman deporting themselves as husband and wife
have entered into a lawful contract of marriage. (Sec. 334, No. 28) Semper –
praesumitur pro matrimonio – Always presume marriage.

In the case at bar, the establishment of the fact of marriage was completed by the testimonies of
Adelina and Tecla; the unrebutted fact of the birth within the cohabitation of Tecla and Eustaquio
of four (4) children coupled with the certificates of the children’s birth and baptism; and the
certifications of marriage issued by the parish priest of the Most Holy Trinity Cathedral of
Talibon, Bohol.

FOREIGN DIVORCE

SOLEDAD L. LAVADIA vs. HEIRS OF JUAN LUCES LUNA, represented by GREGORIO Z.


LUNA and
EUGENIA ZABALLERO-LUNA
G.R. No. 171914, July 23, 2014, J. Lucas P. Bersamin

Divorce between Filipinos is void and ineffectual under the nationality rule adopted by
Philippine law. Hence, any settlement of property between the parties of the first marriage involving
Filipinos submitted as an incident of a divorce obtained in a foreign country lacks competent judicial

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approval, and cannot be enforceable against the assets of the husband who contracts a subsequent
marriage.

Atty. Luna’s subsequent marriage to Soledad was void for being bigamous, on the ground
that the marriage between Atty. Luna and Eugenia had not been dissolved by the Divorce Decree
rendered by the CFI of Sto. Domingo in the Dominican Republic but had subsisted until the death of
Atty. Luna

Given the subsistence of the first marriage between Atty. Luna and Eugenia, the
presumption that Atty. Luna acquired the properties out of his own personal funds and effort
remained. It should then be justly concluded that the properties in litis legally pertained to their
conjugal partnership of gains as of the time of his death. Consequently, the sole ownership of the
25/100 pro indiviso share of Atty. Luna in the condominium unit, and of the law books pertained to
the respondents as the lawful heirs of Atty. Luna

Facts:

Atty. Luna, a practicing lawyer, was at first a name partner in the prestigious law firm
Sycip, Salazar, Luna, Manalo, Hernandez & Feliciano Law Offices at that time when he was living
with his first wife, herein intervenor-appellant Eugenia Zaballero-Luna (Eugenia). They begot
seven (7) children.

After almost two (2) decades of marriage, Atty. Luna, obtained a divorce decree of his
marriage with Eugenia from the Civil and Commercial Chamber of the First Circumscription of
the Court of First Instance of Sto. Domingo, Dominican Republic. Also in Sto.Domingo,
Dominican Republic, on the same date, Atty. Luna, contracted another marriage, this time with
Soledad. Thereafter, Atty. Luna, and Soledad returned to the Philippines and lived together as
husband and wife.

Atty. Luna, organized a new law firm named: Luna, Puruganan, Sison and Ongkiko
(LUPSICON) where Atty. Luna, was the managing partner. LUPSICON through Atty. Luna,
purchased a Condominium Unit to be paid on installment basis for 36month. Said condominium
unit was to be used as law office of LUPSICON.

After the death of Atty. Luna, his share in the condominium unit including the lawbooks,
office furniture and equipment found therein were taken over by Gregorio Z. Luna, Atty. Luna’s
son of the first marriage. Gregorio Z. Luna then leased out the 25/100 portion of the condominium
unit belonging to his father to Atty. Renato G. De la Cruz.

The 25/100 pro-indiviso share of Atty. Luna in the condominium unit as well as the law
books, office furniture and equipment became the subject of the complaint filed by Soledad
against the heirs of Atty. Luna with the RTC. The complaint alleged that the subject properties
were acquired during the existence of the marriage between Atty. Luna and Soledad through their
joint efforts that since they had no children, she became co-owner of the said properties upon the
death of Atty. Luna.
RTC rendered that the Condominium unit was acquired by Atty. Juan Lucas Luna through
his sole industry; that Soledad has no right as owner or under any other concept over the
condominium unit; that Soledad declared to be the owner of the books Corpus Juris, Fletcher on
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Corporation, American Jurisprudence and Federal Supreme Court Reports found in the
condominium unit.

CA modified the RTC’s decision in holding and ruling that Eugenia, the first wife, was the
legitimate wife of Atty. Luna until the latter’s death. The absolute divorce decree obtained by
Atty. Luna in the Dominican Republic did not terminate his prior marriage with Eugenia because
foreign divorce between Filipino citizens is not recognized in our jurisdiction. Hence,
Defendants-appellants, the heirs of Juan Luces Luna and Eugenia Zaballero-Luna(first marriage)
are hereby declared to be the owner of the books Corpus Juris, Fletcher on Corporation, American
Jurisprudence and Federal Supreme Court Reports found in the condominium unit.

Issues:

1. Whether or not the divorce between Atty. Luna and Eugenia Zaballero-Luna (Eugenia)
had validly dissolved the first marriage.

2. Whether the second marriage entered into by the late Atty. Luna and the Soledad entitled
the latter to any rights in property.

Ruling:

1. Atty. Luna’s first marriage with Eugenia subsisted up to the time of his death

The first marriage between Atty. Luna and Eugenia, both Filipinos, was solemnized in the
Philippines. The law in force at the time of the solemnization was the Spanish Civil Code, which
adopted the nationality rule. The Civil Code continued to follow the nationality rule, to the effect
that Philippine laws relating to family rights and duties, or to the status, condition and legal
capacity of persons were binding upon citizens of the Philippines, although living abroad.

From the time of the celebration of the first marriage until the present, absolute divorce
between Filipino spouses has not been recognized in the Philippines. The non-recognition of
absolute divorce between Filipinos has remained even under the Family Code, even if either or
both of the spouses are residing abroad. Indeed, the only two types of defective marital unions
under our laws have been the void and the voidable marriages. As such, the remedies against such
defective marriages have been limited to the declaration of nullity of the marriage and the
annulment of the marriage.

It is true that the Court of First Instance (CFI) of Sto. Domingo in the Dominican Republic
issued the Divorce Decree dissolving the first marriage of Atty. Luna and Eugenia. Conformably
with the nationality rule, however, the divorce, even if voluntarily obtained abroad, did not
dissolve the marriage between Atty. Luna and Eugenia, which subsisted up to the time of his
death.

2. Atty. Luna’s marriage with Soledad, being bigamous, was void; properties acquired
during their marriage were governed by the rules on co-ownership

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Atty. Luna’s subsequent marriage to Soledad was void for being bigamous, on the ground
that the marriage between Atty. Luna and Eugenia had not been dissolved by the Divorce Decree
rendered by the CFI of Sto. Domingo in the Dominican Republic but had subsisted until the death
of Atty. Luna

In the Philippines, marriages that are bigamous, polygamous, or incestuous are void as
provided by Article 71 of the OLD Civil Code. Due to the second marriage between Atty. Luna and
the Soledad being void ab initio by virtue of its being bigamous, the properties acquired during
the bigamous marriage were governed by the rules on co-ownership, conformably with Article 144
of the OLD Civil Code

In such a situation, whoever alleges co-ownership carried the burden of proof to confirm
such fact. To establish co-ownership, therefore, it became imperative for Soledad to offer proof of
her actual contributions in the acquisition of property. Her mere allegation of co-ownership,
without sufficient and competent evidence, would warrant no relief in her favor. The plaintiff is
not automatically entitled to the relief prayed for. The law gives the defendant some measure of
protection as the plaintiff must still prove the allegations in the complaint.

Soledad was not able to prove by preponderance of evidence that her own independent
funds were used to buy the law office condominium and the law books subject matter in
contention in this case – proof that was required for Article 144 of the New Civil Code and Article
148 of the Family Code to apply – as to cases where properties were acquired by a man and a
woman living together as husband and wife but not married, or under a marriage which was void
ab initio. Under Article 144 of the New Civil Code, the rules on co-ownership would govern.

In contrast, given the subsistence of the first marriage between Atty. Luna and Eugenia,
the presumption that Atty. Luna acquired the properties out of his own personal funds and effort
remained. It should then be justly concluded that the properties in litis legally pertained to their
conjugal partnership of gains as of the time of his death. Consequently, the sole ownership of the
25/100 pro indiviso share of Atty. Luna in the condominium unit, and of the law books pertained
to the respondents as the lawful heirs of Atty. Luna.

EDELINA T. ANDO vs. DEPARTMENT OF FOREIGN AFFAIRS


G.R. No. 195432, August 27, 2014, CJ. Sereno

Petitioner questions the decision of the RTC, dismissing her petition for the recognition
of her second marriage as valid, for failing to comply with the requirements set forth in Art. 13 of
the Family Code – that is obtaining a judicial recognition of the foreign decree of absolute
divorce in our country. The SC however ruled that a divorce obtained abroad by an alien may be
recognized in our jurisdiction, provided the decree is valid according to the national law of the
foreigner. The presentation solely of the divorce decree is insufficient; both the divorce decree
and the governing personal law of the alien spouse who obtained the divorce must be proven.
Because our courts do not take judicial notice of foreign laws and judgment, our law on evidence
requires that both the divorce decree and the national law of the alien must be alleged and
proven and like any other fact. Hence, instead of filing a petition for the recognition of her
second marriage as valid, petitioner should have filed a petition for the judicial recognition of her
foreign divorce from her first husband.
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Facts:

On 16 September 2001, petitioner Edelina married Yuichiro Kobayashi, a Japanese


National, in a civil wedding solemnized at Candaba, Pampanga. Thereafter, Yuichiro Kobayashi
sought in Japan, and was validly granted under Japanese laws, a divorce in respect of his marriage
with Edelina. Believing in good faith that said divorce capacitated her to remarry and that by such
she reverted to her single status; Edelina married Masatomi Y. Ando in a civil wedding celebrated
in Sta. Ana, Pampanga. However, when Edelina applied for the renewal of her Philippine passport
to indicate her surname with her husband Masatomi she was told by the DFA that the same
cannot be issued to her until she can prove by competent court decision that her marriage with
her said husband Masatomi is valid.

Edelina then filed with the RTC a Petition for Declaratory Relief praying that her marriage
with Masatomi be declared as valid and to order the DFA to issue a Philippine passport to Edelina
nder the name of “Edelina Ando y Tungol.

For failure to comply with the requirements set forth in Art. 13 of the Family Code – that is
obtaining a judicial recognition of the foreign decree of absolute divorce in our country the RTC
dismissed the petition. The RTC further held that since the divorce allegedly obtained by her first
husband was never recognized in the Philippines, Edelina is still considered as married to
Kobayashi, her first husband. Accordingly, the second marriage with Ando cannot be honored
and considered as valid at this time. Hence, this petition.

Edelina argues that assuming a court judgment recognizing a judicial decree of divorce is
required under Article 13 of the Family Code, noncompliance therewith is a mere irregularity in
the issuance of a marriage license. She contends that any irregularity in the formal requisites of
marriage, such as with respect to the marriage license, shall not affect the legality of the marriage.

Issue:

Whether or not petitioner’s second marriage should be recognized.

Ruling:

No, Edelina’s second marriage should not be recognized.

With respect to her prayer for the recognition of her second marriage as valid, Edelina
should have filed, instead, a petition for the judicial recognition of her foreign divorce from her
first husband.

In Garcia v. Recio, the Court ruled that a divorce obtained abroad by an alien may be
recognized in our jurisdiction, provided the decree is valid according to the national law of the
foreigner. The presentation solely of the divorce decree is insufficient; both the divorce decree
and the governing personal law of the alien spouse who obtained the divorce must be proven.
Because our courts do not take judicial notice of foreign laws and judgment, our law on evidence
requires that both the divorce decree and the national law of the alien must be alleged and proven
and like any other fact.
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While it has been ruled that a petition for the authority to remarry filed before a trial
court actually constitutes a petition for declaratory relief, the Court is still unable to grant the
prayer of Edelina. As held by the RTC, there appears to be insufficient proof or evidence presented
on record of both the national law of her first husband, Kobayashi, and of the validity of the
divorce decree under that national law. Hence, any declaration as to the validity of the divorce
can only be made upon her complete submission of evidence proving the divorce decree and the
national law of her alien spouse, in an action instituted in the proper forum.

VOID MARRIAGES

RENATO A. CASTILLO v. LEA P. DE LEON CASTILLO


G.R. No. 189607, April 18, 2016; Sereno

Facts:

On 25 May 1972, respondent Lea P. De Leon Castillo (Lea) married Benjamin Bautista (Bautista).
On 6 January 1979, respondent married herein petitioner Renato A. Castillo (Renato).

On 28 May 2001, Renato filed before the RTC a Petition for Declaration of Nullity of Marriage,
praying that his marriage to Lea be declared void due to her subsisting marriage to Bautista and
her psychological incapacity under Article 36 of the Family Code. Respondent opposed the
Petition, and contended among others that her marriage to Bautista was null and void as they had
not secured any license therefor, and neither of them was a member of the denomination to
which the solemnizing officer belonged.

Meantime, on 3 January 2002, respondent filed an action to declare her first marriage to Baustista
void. On 22 January 2003, the RTC of Parañaque City, Branch 260 rendered its Decision declaring
that Lea's first marriage to Bautista was indeed null and void ab initio. Thereafter, the same court
issued a Certificate of Finality saying that the Decision dated 22 January 2003 had become final
and executory.

On 12 August 2004, respondent filed a Demurrer to Evidence claiming that the proof adduced by
petitioner was insufficient to warrant a declaration of nullity of their marriage on the ground that
it was bigamous. In his Opposition, petitioner countered that whether or not the first marriage of
respondent was valid, and regardless of the fact that she had belatedly managed to obtain a
judicial declaration of nullity, she still could not deny that at the time she entered into marriage
with him, her previous marriage was valid and subsisting. The RTC thereafter denied respondent's
demurrer in its Order 10 dated 8 March 2005.

The RTC declared the marriage between petitioner and respondent null and void ab initio on the
ground that it was a bigamous marriage under Article 41 of the Family Code. The RTC said that
the fact that Lea's marriage to Bautista was subsisting when she married Renato on 6 January
1979, makes her marriage to Renato bigamous, thus rendering it void ab initio. The lower court
dismissed Lea's argument that she need not obtain a judicial decree of nullity and could presume
the nullity of a prior subsisting marriage. The RTC stressed that so long as no judicial declaration
exists, the prior marriage is valid and existing. Lastly, it also said that even if respondent
eventually had her first marriage judicially declared void, the fact remains that the first and
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second marriage were subsisting before the first marriage was annulled, since Lea failed to obtain
a judicial decree of nullity for her first marriage to Bautista before contracting her second
marriage with Renato.

On appeal, the CA reversed and set aside the RTC's Decision and Order and upheld the validity of
the parties' marriage. In reversing the RTC, the CA said that since Lea's marriages were
solemnized in 1972 and in 1979, or prior to the effectivity of the Family Code on 3 August 1988, the
Civil Code is the applicable law since it is the law in effect at the time the marriages were
celebrated, and not the Family Code. Furthermore, the CA ruled that the Civil Code does not state
that a judicial decree is necessary in order to establish the nullity of a marriage.

Issues:

1) Whether or not the CA correctly held that the respondent’s marriage to petitioner is valid.

Ruling:

1) Yes, considering that their marriage was celebrated in 1979, or prior to the effectivity of
the Family Code on 3 August 1988, the applicable law is the Civil Code, which does not
require a judicial declaration of nullity before a person can remarry.

The validity of a marriage and all its incidents must be determined in accordance with the law in
effect at the time of its celebration. In this case, the law in force at the time Lea contracted both
marriages was the Civil Code. Hence, the Court must resolve this case using the provisions under
the Civil Code on void marriages, in particular, Articles 80, 81, 82, and 83 (first paragraph); and
those on voidable marriages are Articles 83 (second paragraph), 85 and 86.

Under the Civil Code, a void marriage differs from a voidable marriage in the following ways: (1) a
void marriage is nonexistent - i.e., there was no marriage from the beginning - while in a voidable
marriage, the marriage is valid until annulled by a competent court; (2) a void marriage cannot be
ratified, while a voidable marriage can be ratified by cohabitation; (3) being nonexistent, a void
marriage can be collaterally attacked, while a voidable marriage cannot be collaterally attacked;
(4) in a void marriage, there is no conjugal partnership and the offspring are natural children by
legal fiction, while in voidable marriage there is conjugal partnership and the children conceived
before the decree of annulment are considered legitimate; and (5) "in a void marriage no judicial
decree to establish the invalidity is necessary," while in a voidable marriage there must be a
judicial decree.

The first marriage of private respondent being void for lack of license and consent, there was no
need for judicial declaration of its nullity before he could contract a second marriage. In this case,
therefore, we conclude that private respondent's second marriage to petitioner is valid.

RENATO A. CASTILLO v. LEA P. DE LEON CASTILLO


G.R. No. 189607, April 18, 2016; Sereno

Facts:

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On 25 May 1972, respondent Lea P. De Leon Castillo (Lea) married Benjamin Bautista (Bautista).
On 6 January 1979, respondent married herein petitioner Renato A. Castillo (Renato).

On 28 May 2001, Renato filed before the RTC a Petition for Declaration of Nullity of Marriage,
praying that his marriage to Lea be declared void due to her subsisting marriage to Bautista and
her psychological incapacity under Article 36 of the Family Code. Respondent opposed the
Petition, and contended among others that her marriage to Bautista was null and void as they had
not secured any license therefor, and neither of them was a member of the denomination to
which the solemnizing officer belonged.

Meantime, on 3 January 2002, respondent filed an action to declare her first marriage to Baustista
void. On 22 January 2003, the RTC of Parañaque City, Branch 260 rendered its Decision declaring
that Lea's first marriage to Bautista was indeed null and void ab initio. Thereafter, the same court
issued a Certificate of Finality saying that the Decision dated 22 January 2003 had become final
and executory.

On 12 August 2004, respondent filed a Demurrer to Evidence claiming that the proof adduced by
petitioner was insufficient to warrant a declaration of nullity of their marriage on the ground that
it was bigamous. In his Opposition, petitioner countered that whether or not the first marriage of
respondent was valid, and regardless of the fact that she had belatedly managed to obtain a
judicial declaration of nullity, she still could not deny that at the time she entered into marriage
with him, her previous marriage was valid and subsisting. The RTC thereafter denied respondent's
demurrer in its Order 10 dated 8 March 2005.

The RTC declared the marriage between petitioner and respondent null and void ab initio on the
ground that it was a bigamous marriage under Article 41 of the Family Code. The RTC said that
the fact that Lea's marriage to Bautista was subsisting when she married Renato on 6 January
1979, makes her marriage to Renato bigamous, thus rendering it void ab initio. The lower court
dismissed Lea's argument that she need not obtain a judicial decree of nullity and could presume
the nullity of a prior subsisting marriage. The RTC stressed that so long as no judicial declaration
exists, the prior marriage is valid and existing. Lastly, it also said that even if respondent
eventually had her first marriage judicially declared void, the fact remains that the first and
second marriage were subsisting before the first marriage was annulled, since Lea failed to obtain
a judicial decree of nullity for her first marriage to Bautista before contracting her second
marriage with Renato.

On appeal, the CA reversed and set aside the RTC's Decision and Order and upheld the validity of
the parties' marriage. In reversing the RTC, the CA said that since Lea's marriages were
solemnized in 1972 and in 1979, or prior to the effectivity of the Family Code on 3 August 1988, the
Civil Code is the applicable law since it is the law in effect at the time the marriages were
celebrated, and not the Family Code. Furthermore, the CA ruled that the Civil Code does not state
that a judicial decree is necessary in order to establish the nullity of a marriage.

Issues:

1) Whether or not the CA correctly held that the respondent’s marriage to petitioner is valid.

Ruling:
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1) Yes, considering that their marriage was celebrated in 1979, or prior to the effectivity of
the Family Code on 3 August 1988, the applicable law is the Civil Code, which does not
require a judicial declaration of nullity before a person can remarry.

The validity of a marriage and all its incidents must be determined in accordance with the law in
effect at the time of its celebration. In this case, the law in force at the time Lea contracted both
marriages was the Civil Code. Hence, the Court must resolve this case using the provisions under
the Civil Code on void marriages, in particular, Articles 80, 81, 82, and 83 (first paragraph); and
those on voidable marriages are Articles 83 (second paragraph), 85 and 86.

Under the Civil Code, a void marriage differs from a voidable marriage in the following ways: (1) a
void marriage is nonexistent - i.e., there was no marriage from the beginning - while in a voidable
marriage, the marriage is valid until annulled by a competent court; (2) a void marriage cannot be
ratified, while a voidable marriage can be ratified by cohabitation; (3) being nonexistent, a void
marriage can be collaterally attacked, while a voidable marriage cannot be collaterally attacked;
(4) in a void marriage, there is no conjugal partnership and the offspring are natural children by
legal fiction, while in voidable marriage there is conjugal partnership and the children conceived
before the decree of annulment are considered legitimate; and (5) "in a void marriage no judicial
decree to establish the invalidity is necessary," while in a voidable marriage there must be a
judicial decree.

The first marriage of private respondent being void for lack of license and consent, there was no
need for judicial declaration of its nullity before he could contract a second marriage. In this case,
therefore, we conclude that private respondent's second marriage to petitioner is valid.

PSYCHOLOGICAL INCAPACITY

REPUBLIC OF THE PHILIPPINES vs. RODOLFO O. DE GRACIA


G.R. No. 171577, February 12, 2014
J. Perlas-Bernabe

Psychological incapacity, to be acceptable for purposes of annulling a marriage, must be


characterized by gravity, juridical antecedence, and incurability. Psychological incapacity to be
declared clinically or medically incurable is one thing; to refuse or be reluctant to perform one's
duties is another. It refers only to the most serious cases of personality disorders clearly
demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage.
Natividad’s emotional immaturity and irresponsibility cannot fall under the circumstances
acknowledged as psychological incapacity.

Facts:

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Rodolfo and Natividad were married on February 15, 1969. On December 28, 1998, Rodolfo filed a
verified complaint for declaration of nullity of marriage (complaint) before the RTC alleging that
Natividad was psychologically incapacitated to comply with her essential marital obligations.

In support of his complaint, Rodolfo testified, among others, that he first met Natividad when
they were students at the Barangay High School of Sindangan, and he was forced to marry her
barely three (3) months into their courtship in light of her accidental pregnancy. At the time of
their marriage, he was 21 years old, while Natividad was 18 years of age. He had no stable job and
merely worked in the gambling cockpits as “kristo” and “bangkero sa hantak.” When he decided to
join and train with the army, Natividad left their conjugal home and sold their house without his
consent. Thereafter, Natividad moved to Dipolog City where she lived with a certain Engineer
Terez (Terez), and bore him a child named Julie Ann Terez. After cohabiting with Terez,
Natividad contracted a second marriage on January 11, 1991 with another man named Antonio
Mondarez and has lived since then with the latter in Cagayan de Oro City. From the time
Natividad abandoned them in 1972, Rodolfo was left to take care of their children and he exerted
earnest efforts to save their marriage which, however, proved futile because of Natividad’s
psychological incapacity that appeared to be incurable.

Natividad failed to file her answer, as well as appear during trial, despite service of
summons. Nonetheless, she informed the court that she submitted herself for psychiatric
examination to Dr. Cheryl T. Zalsos (Dr. Zalsos) in response to Rodolfo’s claims. Rodolfo also
underwent the same examination.

In her two-page psychiatric evaluation report, Dr. Zalsos stated that both Rodolfo and Natividad
were psychologically incapacitated to comply with the essential marital obligations, finding that
both parties suffered from “utter emotional immaturity [which] is unusual and unacceptable
behavior considered [as] deviant from persons who abide by established norms of conduct.” As for
Natividad, Dr. Zalsos also observed that she lacked the willful cooperation of being a wife and a
mother to her two daughters. Similarly, Rodolfo failed to perform his obligations as a husband,
adding too that he sired a son with another woman. Further, Dr. Zalsos noted that the mental
condition of both parties already existed at the time of the celebration of marriage, although it
only manifested after. Based on the foregoing, Dr. Zalsos concluded that the “couple’s union was
bereft of the mind, will and heart for the obligations of marriage.”

The Office of the Solicitor General (OSG), representing petitioner Republic of the Philippines
(Republic), filed an opposition to the complaint, contending that the acts committed by Natividad
did not demonstrate psychological incapacity as contemplated by law, but are mere grounds for
legal separation under the Family Code.

The RTC declared the marriage between Rodolfo and Natividad void on the ground of
psychological incapacity. The CA affirmed the ruling of the RTC, finding that while Natividad’s
emotional immaturity, irresponsibility and promiscuity by themselves do not necessarily equate
to psychological incapacity, “their degree or severity, as duly testified to by Dr. Zalsos, has
sufficiently established a case of psychological disorder so profound as to render [Natividad]
incapacitated to perform her essential marital obligations.”

Issue:

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Whether Natividad is psychologically incapacitated to warrant the annulment of her marriage


with Rodolfo

Ruling:

“Psychological incapacity,” as a ground to nullify a marriage under Article 36 of the Family Code,
should refer to no less than a mental – not merely physical – incapacity that causes a party to
be truly incognitive of the basic marital covenants that concomitantly must be assumed and
discharged by the parties to the marriage which, as so expressed in Article 68 of the Family Code,
among others, include their mutual obligations to live together, observe love, respect and fidelity
and render help and support. There is hardly any doubt that the intendment of the law has been
to confine the meaning of “psychological incapacity” to the most serious cases of personality
disorders clearly demonstrative of an utter insensitivity or inability to give meaning and
significance to the marriage. In Santos v. CA (Santos), the Court first declared that
psychological incapacity must be characterized by: (a) gravity (i.e., it must be grave and serious
such that the party would be incapable of carrying out the ordinary duties required in a
marriage); (b) juridical antecedence (i.e., it must be rooted in the history of the party
antedating the marriage, although the overt manifestations may emerge only after the marriage);
and (c) incurability (i.e., it must be incurable, or even if it were otherwise, the cure would be
beyond the means of the party involved). The Court laid down more definitive guidelines in the
interpretation and application of Article 36 of the Family Code in Republic of the Phils. v.
CA, whose salient points are footnoted hereunder. These guidelines incorporate the basic
requirements that the Court established in Santos.

The RTC, as affirmed by the CA, heavily relied on the psychiatric evaluation report of Dr. Zalsos
which does not, however, explain in reasonable detail how Natividad’s condition could be
characterized as grave, deeply-rooted, and incurable within the parameters of psychological
incapacity jurisprudence. Aside from failing to disclose the types of psychological tests which she
administered on Natividad, Dr. Zalsos failed to identify in her report the root cause of Natividad's
condition and to show that it existed at the time of the parties' marriage. Neither was the gravity
or seriousness of Natividad's behavior in relation to her failure to perform the essential marital
obligations sufficiently described in Dr. Zalsos's report. Further, the finding contained therein on
the incurability of Natividad's condition remains unsupported by any factual or scientific basis
and, hence, appears to be drawn out as a bare conclusion and even self-serving. In the same vein,
Dr. Zalsos's testimony during trial, which is essentially a reiteration of her report, also fails to
convince the Court of her conclusion that Natividad was psychologically incapacitated. Verily,
although expert opinions furnished by psychologists regarding the psychological temperament of
parties are usually given considerable weight by the courts, the existence of psychological
incapacity must still be proven by independent evidence. After poring over the records, the Court,
however, does not find any such evidence sufficient enough to uphold the court a quo's nullity
declaration. To the Court's mind, Natividad's refusal to live with Rodolfo and to assume her duties
as wife and mother as well as her emotional immaturity, irresponsibility and infidelity do not rise
to the level of psychological incapacity that would justify the nullification of the parties' marriage.
Indeed, to be declared clinically or medically incurable is one thing; to refuse or be reluctant to
perform one's duties is another. To hark back to what has been earlier discussed, psychological
incapacity refers only to the most serious cases of personality disorders clearly demonstrative of
an utter insensitivity or inability to give meaning and significance to the marriage. In the final
analysis, the Court does not perceive a disorder of this nature to exist in the present case. Thus,
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for these reasons, coupled too with the recognition that marriage is an inviolable social institution
and the foundation of the family, the instant petition is hereby granted.

VALERIO E. KALAW vs. MA. ELENA FERNANDEZ


G.R. No. 166357, January 14, 2015, J. Del Castillo

Psychological incapacity is the downright incapacity or inability to take cognizance of and


to assume the basic marital obligations. The burden of proving psychological incapacity is on the
plaintiff. The plaintiff must prove that the incapacitated party, based on his or her actions or
behavior, suffers a serious psychological disorder that completely disables him or her from
understanding and discharging the essential obligations of the marital state. The psychological
problem must be grave, must have existed at the time of marriage, and must be incurable.

Facts:

Petitioner Valerio E. Kalaw (Tyrone) and respondent Ma. Elena Fernandez (Malyn) met in
1973. They maintained a relationship and eventually married in Hong Kong on November 4,
1976. They had four children, Rio, Maria Eva Ria, Miggy, and Jay. Shortly after the birth of their
youngest son, Tyrone had an extramarital affair with Jocelyn Quejano, who gave birth to a son in
March 1983. Meanwhile, Tyrone started living with Jocelyn, who bore him three more children.

On July 6, 1994, nine years since the de facto separation from his wife, Tyrone filed a
petition for declaration of nullity of marriage based on Article 36 of the Family Code. He alleged
that Malyn was psychologically incapacitated to perform and comply with the essential marital
obligations at the time of the celebration of their marriage. He further claimed that her
psychological incapacity was manifested by her immaturity and irresponsibility towards Tyrone
and their children during their co-habitation as shown by the following acts: she left the children
without proper care and attention as she played mahjong all day and all night; she left the house
to party with male friends and returned in the early hours of the following day; and she
committed adultery on June 9, 1985, which act Tyrone discovered in flagrante delicto.

During trial, Tyrone presented a psychologist, Dr. Gates, and a Catholic canon law expert,
Fr. Healy to testify on Malyns psychological incapacity. Dr. Gates explained on the stand that the
factual allegations regarding Malyns behavior her sexual infidelity, habitual mahjong playing, and
her frequent nights-out with friends may reflect a narcissistic personality disorder. Fr. Healy
corroborated Dr. Gates assessment. He explained that her psychological incapacity is rooted in
her role as the breadwinner of her family. This role allegedly inflated Malyns ego to the point that
her needs became priority, while her kids and husbands needs became secondary.

Malyn denied being psychologically incapacitated. While she admitted playing mahjong,
she denied playing as frequently as Tyrone alleged. She maintained that she did so only two to
three times a week and always between 1 p.m. to 6 p.m. only. She maintained that she did not
neglect her duties as mother and wife. Malyn denied the allegation of adultery.

The trial court ordered the court social worker, Jocelyn V. Arre (Arre), to conduct a social
case study on the parties as well as the minor children. While both parents are financially stable
and have positive relationships with their children, she recommended that the custody of the
minor children be awarded to Malyn. Based on the interviews of family members themselves,
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Malyn was shown to be more available to the children and to exercise better supervision and
care.

The trial court concluded that both parties are psychologically incapacitated to perform
the essential marital obligations under the Family Code. The CA reversed the trial courts ruling
because it is not supported by the facts on record. Both party’s allegations and incriminations
against each other do not support a finding of psychological incapacity. The party’s faults tend
only to picture their immaturity and irresponsibility in performing their marital and familial
obligations. Hence this petition for review.

Petitioner Tyrone argues that the CA erred in disregarding the factual findings of the trial
court, which is the court that is in the best position to appreciate the evidence. He opines that he
has presented preponderant evidence to prove that Malyn is psychologically incapacitated to
perform her essential marital obligations Malyn maintains that Tyrone failed to discharge his
burden of proving her alleged psychological incapacity. She argues that the testimonies of her
children and the findings of the court social worker to the effect that she was a good, loving, and
attentive mother are sufficient to rebut Tyrone’s allegation that she was negligent and
irresponsible.

Issue:

Whether petitioner Tyrone has sufficiently proved that Malyn suffers from psychological
incapacity

Ruling:

Tyrone failed to prove that Malyn suffers from psychological incapacity. He presented the
testimonies of two supposed expert witnesses who concluded that Malyn is psychologically
incapacitated, but the conclusions of these witnesses were premised on the alleged acts or
behavior of Malyn which had not been sufficiently proven. Tyrone’s experts heavily relied on his
allegations of Malyn’s constant mahjong sessions, visits to the beauty parlor, going out with
friends, adultery, and neglect of their children.

For instance, Tyrone alleged that Malyn constantly played mahjong and neglected their
children as a result. Malyn admittedly played mahjong, but it was not proven that she engaged in
mahjong so frequently that she neglected her duties as a mother and a wife. Malyn refuted
Tyrone’s allegations that she played four to five times a week. Tyrone did not present any proof,
other than his own testimony, that the mahjong sessions were so frequent that Malyn neglected
her family. The least that could have been done was to prove the frequency of Malyn’s mahjong-
playing during the years when these two children were in second grade. This was not done. Thus,
while there is no dispute that Malyn played mahjong, its alleged debilitating frequency and
adverse effect on the children were not proven.

Also unproven was Tyrone’s claim about Malyn’s alleged constant visits to the beauty
parlor, going out with friends, and obsessive need for attention from other men.No proof
whatsoever was presented to prove her visits to beauty salons or her frequent partying with
friends.

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Given the insufficiency of evidence that Malyn actually engaged in the behaviors described
as constitutive of NPD, there is no basis for concluding that she was indeed psychologically
incapacitated. Indeed, the totality of the evidence points to the opposite conclusion. A fair
assessment of the facts would show that Malyn was not totally remiss and incapable of
appreciating and performing her marital and parental duties. Not once did the children state that
they were neglected by their mother. On the contrary, they narrated that she took care of them,
was around when they were sick, and cooked the food they like. It appears that Malyn made real
efforts to see and take care of her children despite her estrangement from their father. There was
no testimony whatsoever that shows abandonment and neglect of familial duties. While Tyrone
cites the fact that his two sons, Rio and Miggy, both failed the second elementary level despite
having tutors, there is nothing to link their academic shortcomings to Malyns actions. After
poring over the records of the case, the Court finds no factual basis for the conclusion of
psychological incapacity. What transpired between the parties is acrimony and, perhaps,
infidelity, which may have constrained them from dedicating the best of themselves to each other
and to their children. There may be grounds for legal separation, but certainly not psychological
incapacity that voids a marriage.

GLENN VIÑAS vs. MARY GRACE PAREL-VIÑAS


G.R. No. 208790, January 21, 2015, J. Reyes

The lack of personal examination or assessment by a psychologist or psychiatrist is not


necessarily fatal in a petition for the declaration of nullity of marriage. If the totality of evidence
presented is enough to sustain a finding of psychological incapacity, then actual medical
examination of the person concerned need not be resorted to. In the case at bar, the assessment of
the psychological incapacity of the wife was based solely on the information provided by the
husband – whose bias in favor of his cause cannot be doubted. While this circumstance alone does
not disqualify the psychologist for reasons of bias, her report, testimony and conclusions deserve the
application of a more rigid and stringent set of standards. Hence, if the totality of the evidence
presented provides inadequate basis to warrant the conclusion that a psychological incapacity
existed that prevented her from complying with the essential obligations of marriage, the
declaration of the nullity of the marriage cannot be obtained. It has been settled that irreconcilable
differences, sexual infidelity or perversion, emotional immaturity and irresponsibility, and the like,
do not by themselves warrant a finding of psychological incapacity under Article 36, as the same
may only be due to a person’s refusal or unwillingness to assume the essential obligations of
marriage and not due to some psychological illness that is contemplated by said rule.

Facts:

On April 26, 1999, Glenn, a bartender, and Mary Grace, a production engineer, got
married in civil rites held in Lipa City, Batangas. At that time, Mary Grace was already pregnant.
The couple thereafter lived together under one roof. The infant, however, died at birth due to
weakness and malnourishment. Glenn alleged that the infant’s death was caused by Mary Grace’s
heavy drinking and smoking during her pregnancy.

Sometime in March of 2006, Mary Grace left the home which she shared with Glenn. The
latter subsequently found out that she went to work in Dubai. Eventually, Glenn filed a Petition
for the declaration of nullity of his marriage with Mary Grace. He alleged that Mary Grace was
insecure, extremely jealous, outgoing and prone to regularly resorting to any pretext to be able to
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leave the house. She thoroughly enjoyed the night life, and drank and smoked heavily even when
she was pregnant. Further, Mary Grace refused to perform even the most essential household
chores of cleaning and cooking. According to Glenn, Mary Grace had not exhibited the foregoing
traits and behavior during their whirlwind courtship. He likewise alleged that she was not
remorseful about the death of the infant whom she delivered. She lived as if she were single and
was unmindful of her husband’s needs. She was self-centered, selfish and immature. When Glenn
confronted her about her behavior, she showed indifference and eventually left their home
without informing him.

To ease their marital problems, Glenn sought professional guidance and submitted
himself to a psychological evaluation by Clinical Psychologist Nedy Tayag (Dr. Tayag). Dr. Tayag
found him as “amply aware of his marital roles” and “capable of maintaining a mature and healthy
heterosexual relationship.” On the other hand, Dr. Tayag also assessed Mary Grace’s personality
through the data she had gathered from Glenn and his cousin, Rodelito Mayo (Rodelito), who
knew Mary Grace way back in college. Apparently, at the time of the said examination, Mary
Grace was employed in Dubai and romantically involved with another man.

Eventually, Dr. Tayag diagnosed Mary Grace to be suffering from a Narcissistic Personality
Disorder with anti-social traits. Dr. Tayag concluded that Mary Grace and Glenn’s relationship is
not founded on mutual love, trust, respect, commitment and fidelity to each other. Considering
the said disorder of Mary Grace to be severe, serious, grave, permanent and chronic in proportion
and is incurable by any form of clinical intervention as it has already been deeply embedded
within her system as it was found to have started as early as her childhood years, Dr. Tayag
recommended the propriety of declaring the nullity of the couple’s marriage. Dr. Tayag found that
the psychological incapacity of Mary Grace is of a juridical antecedence as it was already in her
system even prior to the solemnization of her marriage with Glenn.

Subsequently, substituted service of summons was made upon Mary Grace through her
aunt, Susana Rosita. Mary Grace filed no answer and did not attend any of the proceedings before
the RTC. During the trial, the testimonies of Glenn, Dr. Tayag and Rodelito were offered as
evidence. Glenn and Rodelito described Mary Grace as outgoing, carefree, and irresponsible. She
is the exact opposite of Glenn, who is conservative and preoccupied with his work. On her part,
Dr. Tayag reiterated her findings in the psychological report dated December 29, 2008.

The RTC eventually declared the marriage between Glenn and Mary Grace as null and
void on account of the latter’s psychological incapacity. The Office of the Solicitor General (OSG)
moved for reconsideration but it was denied by the RTC. On appeal before the CA, the RTC
ruling was reversed and the marriage between Glenn and Mary Grace was declared as valid and
subsisting.

Issue:

Whether or not the marriage of Glenn and Mary Grace merits a declaration of nullity on
account of psychological incapacity of the latter.

Ruling:

The lack of personal examination or assessment of Mary Grace by a psychologist or


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psychiatrist is not necessarily fatal in a petition for the declaration of nullity of marriage. If the
totality of evidence presented is enough to sustain a finding of psychological incapacity, then
actual medical examination of the person concerned need not be resorted to.

In the instant petition, however, the cumulative testimonies of Glenn, Dr. Tayag and
Rodelito, and the documentary evidence offered do not sufficiently prove the root cause, gravity
and incurability of Mary Grace’s condition. The evidence merely shows that Mary Grace is
outgoing, strong-willed and not inclined to perform household chores. Further, she is employed
in Dubai and is romantically-involved with another man. She has not been maintaining lines of
communication with Glenn at the time the latter filed the petition before the RTC. Glenn, on the
other hand, is conservative, family-oriented and is the exact opposite of Mary Grace. While Glenn
and Mary Grace possess incompatible personalities, the latter’s acts and traits do not necessarily
indicate psychological incapacity. It has been settled that irreconcilable differences, sexual
infidelity or perversion, emotional immaturity and irresponsibility, and the like, do not by
themselves warrant a finding of psychological incapacity under Article 36, as the same may only
be due to a person’s refusal or unwillingness to assume the essential obligations of marriage and
not due to some psychological illness that is contemplated by said rule.

It is worth noting that Glenn and Mary Grace lived with each other for more or less seven
years from 1999 to 2006. The foregoing established fact shows that living together as spouses
under one roof is not an impossibility. Mary Grace’s departure from their home in 2006 indicates
either a refusal or mere difficulty, but not absolute inability to comply with her obligation to live
with her husband.

Further, considering that Mary Grace was not personally examined by Dr. Tayag, there
arose a greater burden to present more convincing evidence to prove the gravity, juridical
antecedence and incurability of the former’s condition. Glenn, however, failed in this respect.
Glenn’s testimony is wanting in material details. Rodelito, on the other hand, is a blood relative of
Glenn. Glenn’s statements are hardly objective. Moreover, Glenn and Rodelito both referred to
Mary Grace’s traits and acts, which she exhibited during the marriage. Hence, there is nary a
proof on the antecedence of Mary Grace’s alleged incapacity. Glenn even testified that, six months
before they got married, they saw each other almost everyday and he saw “a loving, caring and
well-educated person” in Mary Grace.

Anent Dr. Tayag’s assessment of Mary Grace’s condition, the Court finds the same as
unfounded. First, Dr. Tayag’s conclusions about the her psychological incapacity were based on
the information fed to her by only one side – Glenn – whose bias in favor of his cause cannot be
doubted. While this circumstance alone does not disqualify the psychologist for reasons of bias,
her report, testimony and conclusions deserve the application of a more rigid and stringent set of
standards. For, effectively, Dr. Tayag only diagnosed her from the prism of a third party account;
she did not actually hear, see and evaluate Mary Grace and how she would have reacted and
responded to the doctor’s probes. This Court thus finds Dr. Tayag’s observations and conclusions
insufficiently in-depth and comprehensive to warrant the conclusion that a psychological
incapacity existed that prevented Mary Grace from complying with the essential obligations of
marriage. It failed to identify the root cause of her narcissistic personality disorder and to prove
that it existed at the inception of the marriage. Neither did it explain the incapacitating nature of
the alleged disorder, nor show that she was really incapable of fulfilling his duties due to some
incapacity of a psychological, not physical, nature. To make conclusions and generalizations on
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Mary Grace’s psychological condition based on the information fed by only one side is, to our
mind, not different from admitting hearsay evidence as proof of the truthfulness of the content of
such evidence. Second, a careful reading of Dr. Tayag’s testimony reveals that she failed to
establish the fact that at the time the parties were married, Mary Grace was already suffering from
a psychological defect that deprived him of the ability to assume the essential duties and
responsibilities of marriage. Neither did she adequately explain how she came to the conclusion
that Mary Grace’s condition was grave and incurable. Clearly, Dr. Tayag made general references
to Mary Grace’s status as the eldest among her siblings, her father’s being an overseas contract
worker and her very tolerant mother, a housewife. These, however, are not sufficient to establish
and explain the supposed psychological incapacity of Mary Grace warranting the declaration of
the nullity of the couple’s marriage.

This Court understands the inherent difficulty attendant to obtaining the statements of
witnesses who can attest to the antecedence of a person’s psychological incapacity, but such
difficulty does not exempt a petitioner from complying with what the law requires. While the
Court also commiserates with Glenn’s marital woes, the totality of the evidence presented
provides inadequate basis for the Court to conclude that Mary Grace is indeed psychologically
incapacitated to comply with her obligations as Glenn’s spouse.

ROBERT F. MALLILIN vs. LUZ G. JAMESOLAMIN AND THE REPUBLIC OF THE


PHILIPPINES
G.R. No. 192718, February 18, 2015, J. Mendoza

The alleged failure of Luz to assume her duties as a wife and as a mother, as well as her
emotional immaturity, irresponsibility and infidelity, cannot rise to the level of psychological
incapacity that justifies the nullification of the parties' marriage. Psychological incapacity as
required by Article 36 must be characterized by (a) gravity, (b) juridical antecedence and (c)
incurability. The interpretations given by the National Appellate Matrimonial Tribunal of the
Catholic Church in the Philippines, while not controlling or decisive, should be given great respect by
our courts. The decision of the NAMT was based on the second paragraph of Canon 1095 which
refers to those who suffer from a grave lack of discretion of judgment concerning essential
matrimonial rights and obligations to be mutually given and accepted, a cause not of psychological
nature under Article 36 of the Family Code. A cause of psychological nature similar to Article 36 is
covered by the third paragraph of Canon 1095 of the Code of Canon Law.

Facts:

Robert and Luz were married on September 6, 1972. They begot three (3) children. On
March 16, 1994, Robert filed a complaint for declaration of nullity of marriage before the RTC,
Branch 23, Cagayan de Oro City, the RTC-Br. 23 denied the petition. Robert appealed this
judgment before the CA, the CA reversed the RTC-Br. 23 decision due to lack of participation of
the State as required under Article 48 of the Family Code. The case was remanded to the RTC for
further proceedings and its records were thereafter transferred from RTC-Br. 23 to RTC-Br. 37.

In the complaint, Robert alleged that at the time of the celebration of their marriage, Luz
was suffering from psychological and mental incapacity and unpreparedness to enter into such
marital life and to comply with its essential obligations and responsibilities. Such incapacity
became even more apparent during their marriage when Luz exhibited clear manifestation of
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immaturity, irresponsibility, deficiency of independent rational judgment, and inability to cope


with the heavy and oftentimes demanding obligation of a parent. Luz filed her Answer with
Counterclaim contesting the complaint. She averred that it was Robert who manifested
psychological incapacity in their marriage. Despite due notice, however, she did not appear
during the trial. Assistant City Prosecutor Isabelo Sabanal appeared for the State.

When Robert testified, he disclosed that Luz was already living in California, USA, and
had married an American. He also revealed that when they were still engaged, Luz continued
seeing and dating another boyfriend, a certain Lt. Liwag. He also claimed that from the outset,
Luz had been remiss in her duties both as a wife and as a mother. In addition, Robert presented
the testimony of Myrna Delos Reyes Villanueva, Guidance Psychologist II of Northern Mindanao
Medical Center.On May 8, 2000, while the case was pending before the trial court, Robert filed a
petition for marriage annulment with the Metropolitan Tribunal of First Instance for the
Archdiocese of Manila. The Metropolitan Tribunal handed down a decision declaring their
marriage invalid ab initio on the ground of grave lack of due discretion on the part of both parties
as contemplated by the second paragraph of Canon 1095. This decision was affirmed by the
National Appellate Matrimonial Tribunal. Prior to that, the RTC had rendered a decision
declaring the marriage null and void on the ground of psychological incapacity on the part of Luz
as she failed to comply with the essential marital obligations. The State, represented by the Office
of the Solicitor General (OSG), interposed an appeal with the CA. The OSG argued that Robert
failed to make a case for declaration of nullity of his marriage with Luz. The CA, in its Decision,
granted the petition and reversed the RTC decision. Robert filed a motion for reconsideration, but
it was denied by the CA. Hence, this petition.

Issue:

Whether or not the totality of the evidence adduced proves that Luz was psychologically
incapacitated to comply with the essential obligations of marriage warranting the annulment of
their marriage under Article 36 of the Family Code.

Ruling:

A petition for declaration of nullity of marriage is anchored on Article 36 of the Family


Code. “Psychological incapacity," as a ground to nullify a marriage under Article 36of the Family
Code, should refer to no less than a mental – not merely physical – incapacity that causes a party
to be truly incognitive of the basic marital covenants that concomitantly must be assumed and
discharged by the parties to the marriage. Psychological incapacity as required by Article 36 must
be characterized by (a) gravity, (b) juridical antecedence and (c) incurability. The incapacity must
be grave or serious such that the party would be incapable of carrying out the ordinary duties
required in marriage. It must be rooted in the history of the party antedating the marriage,
although the overt manifestations may only emerge after the marriage. It must be incurable or,
even if it were otherwise, the cure would be beyond the means of the party involved.

First, the testimony of Robert failed to overcome the burden of proof to show the nullity
of the marriage. Other than his self-serving testimony, no other evidence was adduced to show
the alleged incapacity of Luz. Second, the root cause of the alleged psychological incapacity of Luz
was not medically or clinically identified, and sufficiently proven during the trial. The alleged
failure of Luz to assume her duties as a wife and as a mother, as well as her emotional immaturity,
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irresponsibility and infidelity, cannot rise to the level of psychological incapacity that justifies the
nullification of the parties' marriage. The Court has repeatedly stressed that psychological
incapacity contemplates downright incapacity or inability to take cognizance of and to assume
the basic marital obligations, not merely the refusal, neglect or difficulty, much less ill will, on the
part of the errant spouse. Indeed, to be declared clinically or medically incurable is one thing; to
refuse or be reluctant to perform one's duties is another. Psychological incapacity refers only to
the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or
inability to give meaning and significance to the marriage. As correctly found by the CA, sexual
infidelity or perversion and abandonment do not, by themselves, constitute grounds for declaring
a marriage void based on psychological incapacity.

Third, the psychological report of Villanueva, Guidance Psychologist II of the Northern


Mindanao Medical Center, Cagayan de Oro City, was insufficient to prove the psychological
incapacity of Luz. There was nothing in the records that would indicate that Luz had either been
interviewed or was subjected to a psychological examination. The finding as to her psychological
incapacity was based entirely on hearsay and the self-serving information provided by Robert.

Fourth, the decision of the Metropolitan Tribunal is insufficient to prove the psychological
incapacity of Luz. Interpretations given by the NAMT of the Catholic Church in the Philippines,
while not controlling or decisive, should be given great respect by our courts, still it is subject to
the law on evidence. In this regard, the belated presentation of the decision of the NAMT cannot
be given value since it was not offered during the trial, and the Court has in no way of
ascertaining the evidence considered by the same tribunal. Granting that it was offered and
admitted, it must be pointed out that the basis of the declaration of nullity of marriage by the
NAMT was the second paragraph of Canon 1095 which refers to those who suffer from grave lack
of discretion of judgment concerning essential matrimonial rights and obligations to be mutually
given and accepted. Hence, Robert’s reliance on the NAMT decision is misplaced.

In fine, the Court holds that the CA decided correctly. Robert failed to adduce sufficient
and convincing evidence to prove the alleged psychological incapacity of Luz. As asserted by the
OSG, the allegations of Robert make a case for legal separation.

SUBSEQUENT MARRIAGE

CELERINA J. SANTOS vs. RICARDO T. SANTOS


G.R. No. 187061, October 08, 2014, J. Leonen

The proper remedy for a judicial declaration of presumptive death obtained by extrinsic
fraud is an action to annul the judgment. An affidavit of reappearance is not the proper remedy
when the person declared presumptively dead has never been absent.

Facts:

On July 27, 2007, the Regional Trial Court of Tarlac City declared petitioner Celerina J.
Santos (Celerina) presumptively dead after her husband, respondent Ricardo T. Santos (Ricardo),
had filed a petition for declaration of absence or presumptive death for the purpose of remarriage
on June 15, 2007. Ricardo remarried on September 17, 2008.

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In his petition, Ricardo alleged therein that he and Celerina rented an apartment
somewhere in San Juan, Metro Manila; after they had gotten married on June 18, 1980. After a
year, they moved to Tarlac City and were engaged in the buy and sell business. However, when
the business did not prosper, Celerina convinced him to allow her to work as a domestic helper in
Hong Kong. He initially refused but because of Celerina's insistence, he allowed her to work
abroad. She allegedly applied in an employment agency in Ermita, Manila, in February 1995 and
then left Tarlac two months after and was never heard from again. He further alleged that he
exerted efforts to locate Celerina by inquiring from her parents and other relatives and friends,
but no one gave him any information. Furthermore, claiming that it was almost 12 years from the
date of his Regional Trial Court petition since she left, he believed that she had passed away.

On the other hand, Celerina claimed that she learned about Ricardo's petition only
sometime in October 2008 when she could no longer avail the remedies of new trial, appeal,
petition for relief, or other appropriate remedies. Thereafter, on November 17, 2008, she filed a
petition for annulment of judgment before the Court of Appeals on the grounds of extrinsic fraud
and lack of jurisdiction. She argued that she was deprived her day in court when Ricardo, despite
his knowledge of her true residence, misrepresented to the court that she was a resident of Tarlac
City when, in fact, she never resided there. According to Celerina, her true residence was in
Neptune Extension, Congressional Avenue, Quezon City. This residence had been her and
Ricardo's conjugal dwelling since 1989 until Ricardo left in May 2008. As a result of Ricardo's
misrepresentation, she was deprived of any notice of and opportunity to oppose the petition
declaring her presumptively dead. Moreover, she claimed that she also never left and worked as a
domestic helper abroad. Neither did she go to an employment agency in February 1995. She also
claimed that it was not true that she had been absent for 12 years as Ricardo was aware that she
never left their conjugal dwelling in Quezon City. She insisted that it was he who left the conjugal
dwelling in May 2008 to cohabit with another woman. To support her contention that Ricardo
made false allegations in his petition, she referred to a joint affidavit executed by their children.

Eventually, the Court of Appeals dismissed Celerina's petition for annulment of judgment
for being a wrong mode of remedy. It ruled that the proper remedy was to file a sworn statement
before the civil registry, declaring her reappearance in accordance with Article 42 of the Family
Code. She sought the reconsideration of the said decision but the same was denied. Hence, this
petition was filed.

Issue:

Whether or not the Court of Appeals erred in dismissing Celerina's petition for annulment
of judgment for being a wrong remedy for a fraudulently obtained judgment declaring
presumptive death.

Ruling:

Celerina’s petition for annulment of judgment is the proper remedy.

Annulment of judgment is the remedy when the Regional Trial Court's judgment, order,
or resolution has become final, and the remedies of new trial, appeal, petition for relief (or other
appropriate remedies) are no longer available through no fault of the petitioner.

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The grounds for annulment of judgment are extrinsic fraud and lack of jurisdiction. In the
case at bar, Celerina made the following allegations: 1) that there was fraud when Ricardo
deliberately made false allegations in the court with respect to her residence; 2) that Ricardo
falsely claimed that she was absent for 12 years; 3) that there was also no publication of the notice
of hearing of Ricardo's petition in a newspaper of general circulation; and 4) that the court did not
acquire jurisdiction because the Office of the Solicitor General and the Provincial Prosecutor's
Office were not given copies of his petition. Hence, she theorized that she was deprived of notice
and opportunity to oppose Ricardo's petition. Clearly, these are allegations of extrinsic fraud and
lack of jurisdiction. Thus, Celerina alleged in her petition with the Court of Appeals sufficient
ground/s for annulment of judgment.

Also, Celerina filed her petition for annulment of judgment on November 17, 2008. This
was less than two years from the July 27, 2007 decision declaring her presumptively dead and
about a month from her discovery of the decision in October 2008. The petition was, therefore,
filed within the four-year period allowed by law in case of extrinsic fraud, and before the action is
barred by laches, which is the period allowed in case of lack of jurisdiction. There was also no
other sufficient remedy available to Celerina at the time of her discovery of the fraud perpetrated
on her.

The choice of remedy is important because remedies carry with them certain admissions,
presumptions, and conditions. It is also important for purposes of determining the status of the
second marriage and the liabilities of the spouse who, in bad faith, claimed that the other spouse
was absent.

The Family Code provides that it is the proof of absence of a spouse for four consecutive
years, coupled with a well-founded belief by the present spouse that the absent spouse is already
dead, that constitutes a justification for a second marriage during the subsistence of another
marriage. It also provides that the second marriage is in danger of being terminated by the
presumptively dead spouse when he or she reappears. A close reading of the entire Article 42
reveals that the termination of the subsequent marriage by reappearance is subject to several
conditions: (1) the non-existence of a judgment annulling the previous marriage or declaring it
void ab initio; (2) recording in the civil registry of the residence of the parties to the subsequent
marriage of the sworn statement of fact and circumstances of reappearance; (3) due notice to the
spouses of the subsequent marriage of the fact of reappearance; and (4) the fact of reappearance
must either be undisputed or judicially determined. Hence, reappearance of the absent or
presumptively dead spouse will cause the termination of the subsequent marriage only when all
the conditions enumerated in the Family Code are present.

It has also been settled that mere reappearance will not terminate the subsequent
marriage even if the parties to the subsequent marriage were notified if there was no step taken to
terminate the subsequent marriage, either by filing an affidavit of reappearance or by court
action. Since the second marriage has been contracted because of a presumption that the former
spouse is dead, such presumption continues in spite of the spouse's physical reappearance, and by
fiction of law, he or she must still be regarded as legally an absentee until the subsequent
marriage is terminated as provided by law.

A subsequent marriage contracted in bad faith, even if it was contracted after a court
declaration of presumptive death, lacks the requirement of a well-founded belief that the spouse
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is already dead. As such, the first marriage will not be considered as validly terminated. Therefore,
the party who contracted the subsequent marriage in bad faith is also not immune from an action
to declare his subsequent marriage void for being bigamous.

If, as Celerina contends, Ricardo was in bad faith when he filed his petition to declare her
presumptively dead and when he contracted the subsequent marriage, such marriage would be
considered void for being bigamous under Article 35(4) of the Family Code. This is because the
circumstances lack the element of "well-founded belief under Article 41 of the Family Code, which
is essential for the exception to the rule against bigamous marriages to apply. Furthermore, she
seeks not merely the termination of the subsequent marriage but also the nullification of its
effects. This Court gives credence to her contention that reappearance is not a sufficient remedy
because it will only terminate the subsequent marriage but not nullify the effects of the
declaration of her presumptive death and the subsequent marriage. Since an undisturbed
subsequent marriage under Article 42 of the Family Code is valid until terminated, the "children
of such marriage shall be considered legitimate, and the property relations of the spouses in such
marriage will be the same as in valid marriages." If it is terminated by mere reappearance, the
children of the subsequent marriage conceived before the termination shall still be considered
legitimate. Moreover, a judgment declaring presumptive death is a defense against prosecution
for bigamy.

While it is true that in most cases, an action to declare the nullity of the subsequent
marriage may nullify the effects of the subsequent marriage, specifically, in relation to the status
of children and the prospect of prosecuting a Ricardo for bigamy, such recourse may be filed
solely by the husband or wife. As such, even if Celerina is a real party in interest who stands to be
benefited or injured by the outcome of an action to nullify the second marriage, this remedy is
not available to her. Therefore, for the purpose of not only terminating the subsequent marriage
but also of nullifying the effects of the declaration of presumptive death and the subsequent
marriage, mere filing of an affidavit of reappearance would not suffice. Celerina's choice to file an
action for annulment of judgment will, therefore, lie.

PROPERTY RELATIONS OF THE SPOUSES

FRANCISCO LIM vs. EQUITABLE PCI BANK, NOW KNOWN AS THE BANCO DE ORO
UNIBANK, INC.
G.R. No. 183198. January 15, 2014
J. Del Castillo

The presumption under Article 160 of the New Civil Code applies when the property in
question was acquired during the lifetime of the husband and the wife and the subsistence of the
marriage. It is not overcome by the fact that the property is registered in the name of the husband or
the wife alone. The consent of both spouses is required before a conjugal property may be
mortgaged. However, since the nature of the property was never alleged in the complaint or raised
during trial by the petitioner, the court cannot apply such presumption in the instant case.
Facts:

Franco Lim and his mother Victoria Yao Lim (Victoria) obtained from respondent Equitable PCI
Bank (respondent; formerly Equitable Banking Corporation) a loan. To secure the loan, petitioner
Francisco Lim and Franco executed in favor of respondent a Real Estate Mortgage over the same
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property. However, when the loan was not paid, respondent foreclosed the mortgaged property. A
Writ of Possession in favor of respondent was then issued by the Regional Trial Court.

Petitioner filed before the RTC of Pasig a Motion for the Issuance of Temporary Restraining Order
(TRO) and a Complaint for Cancellation of Special Power of Attorney, Mortgage Contract,
Certificate of Sale, TCT No. 9470, and Tax Declaration No. 96-31807, with Damages and Issuance
of Preliminary Mandatory Injunction against respondent, Franco, and Victoria. Petitioner alleged
that he did not authorize Franco to mortgage the subject property to respondent and that his
signatures in the Real Estate Mortgage and the Surety Agreement were forged.

The RTC ruled in favor of the petitioner. It ruled that petitioner was able to prove by
preponderance of evidence that he did not participate in the execution of the mortgage contract
giving rise to the presumption that his signature was forged. The CA reversed the decision. It
ruled that petitioner’s mere allegation that his signature in the mortgage contract was forged is
not sufficient to overcome the presumption of regularity of the notarized document.

Hence, this petition. It is worthy to note that it is only at this point that he insists that the
respondent should have been alerted by the fact that the mortgage contract was executed without
the consent of his wife.

Issue:

Whether the respondent bank should have alerted petitioner’s wife by the face that the mortgage
contract was executed without her consent

Ruling:

The nature of the property was never raised as an issue.

The absence of his wife’s signature on the mortgage contract has no bearing in this case.

The court is not unaware that all property of the marriage is presumed to be conjugal, unless it is
shown that it is owned exclusively by the husband or the wife; that this presumption is not
overcome by the fact that the property is registered in the name of the husband or the wife
alone; and that the consent of both spouses is required before a conjugal property may be
mortgaged. However, the court finds it iniquitous to apply the foregoing presumption especially
since the nature of the mortgaged property was never raised as an issue before the RTC, the CA,
and even before this Court. In fact, petitioner never alleged in his Complaint that the said
property was conjugal in nature. Hence, respondent had no opportunity to rebut the said
presumption.

Worth mentioning, in passing, is the ruling in Philippine National Bank v. Court of Appeals to wit:

The well-known rule in this jurisdiction is that a person dealing with a registered land has
a right to rely upon the face of the torrens certificate of title and to dispense with the
need of inquiring further, except when the party concerned has actual knowledge of
facts and circumstances that would impel a reasonably cautious man to make such
inquiry.

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A torrens title concludes all controversy over ownership of the land covered by a final
[decree] of registration. Once the title is registered the owner may rest assured
without the necessity of stepping into the portals of the court or sitting in the mirador
de su casa to avoid the possibility of losing his land.

Article 160 of the Civil Code provides as follows:

“Art. 160. All property of the marriage is presumed to belong to the conjugal
partnership, unless it be proved that it pertains exclusively to the husband or
to the wife.”

The presumption applies to property acquired during the lifetime of the husband and
wife. In this case, it appears on the face of the title that the properties were acquired
by Donata Montemayor when she was already a widow. When the property is
registered in the name of a spouse only and there is no showing as to when the
property was acquired by said spouse, this is an indication that the property
belongs exclusively to said spouse. And this presumption under Article 160 of
the Civil Code cannot prevail when the title is in the name of only one spouse
and the rights of innocent third parties are involved.

The PNB had a reason to rely on what appears on the certificates of title of the
properties mortgaged. For all legal purposes, the PNB is a mortgagee in good faith for
at the time the mortgages covering said properties were constituted the PNB was not
aware to any flaw of the title of the mortgagor. (Emphasis supplied)

MARIETTA N. BARRIDO vs. LEONARDO V. NONATO


G.R. No. 176492, October 20, 2014, J. Peralta

After the marriage of petitioner and respondent has been declared void, petitioner filed a
complaint for the partition of the house and lot obtained by them during their marriage. The SC
ruled that what governs them is Art. 147 of the Family Code. Under this article, property acquired by
both spouses through their work and industry shall be governed by the rules on equal co-ownership.
Any property acquired during the union is prima facie presumed to have been obtained through their
joint efforts. A party who did not participate in the acquisition of the property shall be considered as
having contributed to the same jointly if said party's efforts consisted in the care and maintenance
of the family household. Efforts in the care and maintenance of the family and household are
regarded as contributions to the acquisition of common property by one who has no salary or
income or work or industry. In the case at bar since the former spouses both agreed that they
acquired the subject property during the subsistence of their marriage, it shall be presumed to have
been obtained by their joint efforts, work or industry, thus, the property is jointly owned by them in
equal shares.
Facts:

In the course of the marriage of respondent Leonardo V. Nonato (Nonato) and petitioner
Marietta N. Barrido (Barrido), they were able to acquire a property situated in Eroreco, Bacolod
City, consisting of a house and lot, covered by Transfer Certificate of Title (TCT). On March 15,
1996, their marriage was declared void on the ground of psychological incapacity. Since there was
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no more reason to maintain their co-ownership over the property, Nonato asked Barrido for
partition, but the latter refused. Thus, on January 29, 2003, Nonato filed a Complaint for partition
before the Municipal Trial Court in Cities (MTCC) of Bacolod City, Branch 3.

Barrido claimed, by way of affirmative defense, that the subject property had already been
sold to their children, Joseph Raymund and Joseph Leo. She likewise moved for the dismissal of
the complaint because the MTCC lacked jurisdiction, the partition case being an action incapable
of pecuniary estimation.

The Bacolod MTCC rendered a Decision dated September 17, 2003, applying Article 129 of
the Family Code. It ruled in favor of Barrido and adjudicated to her the dwelling with whom the
majority of the common children choose to remain.

Nonato appealed the MTCC Decision before the RTC. On July 21, 2004, the Bacolod RTC
reversed the ruling of the MTCC. It found that even though the MTCC aptly applied Article 129 of
the Family Code, it nevertheless made a reversible error in adjudicating the subject property to
Barrido.

Upon appeal, the CA affirmed the RTC Decision on November 16, 2006.

Issue:

Whether or not the subject property is still owned in common after the marriage was
declared void on the ground of psychological incapacity.

Ruling:

Yes. The property is still owned in common.

The records reveal that Nonato and Barrido’s marriage had been declared void for
psychological incapacity under Article 3610 of the Family Code. During their marriage, however,
the conjugal partnership regime governed their property relations. Although Article 129 provides
for the procedure in case of dissolution of the conjugal partnership regime, Article 147 specifically
covers the effects of void marriages on the spouses’ property relations. Article 147 reads:

Art. 147. When a man and a woman who are capacitated to marry each other, live
exclusively with each other as husband and wife without the benefit of marriage or
under a void marriage, their wages and salaries shall be owned by them in equal
shares and the property acquired by both of them through their work or industry
shall be governed by the rules on coownership.

In the absence of proof to the contrary, properties acquired while they lived together
shall be presumed to have been obtained by their joint efforts, work or industry, and
shall be owned by them in equal shares. For purposes of this Article, a party who did
not participate in the acquisition by the other party of any property shall be deemed
to have contributed jointly in the acquisition thereof if the former's efforts consisted
in the care and maintenance of the family and of the household.

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Neither party can encumber or dispose by acts inter vivos of his or her share in the
property acquired during cohabitation and owned in common, without the consent
of the other, until after the termination of their cohabitation.

When only one of the parties to a void marriage is in good faith, the share of the
party in bad faith in the co-ownership shall be forfeited in favor of their common
children. In case of default of or waiver by any or all of the common children or their
descendants, each vacant share shall belong to the respective surviving descendants.
In the absence of descendants, such share shall belong to the innocent party. In all
cases, the forfeiture shall take place upon termination of the cohabitation.

This particular kind of co-ownership applies when a man and a woman, suffering no
illegal impediment to marry each other, exclusively live together as husband and wife under a
void marriage or without the benefit of marriage.12 It is clear, therefore, that for Article 147 to
operate, the man and the woman: (1) must be capacitated to marry each other; (2) live exclusively
with each other as husband and wife; and (3) their union is without the benefit of marriage or
their marriage is void. Here, all these elements are present. The term "capacitated" in the first
paragraph of the provision pertains to the legal capacity of a party to contract marriage. Any
impediment to marry has not been shown to have existed on the part of either Nonato or Barrido.
They lived exclusively with each other as husband and wife. However, their marriage was found to
be void under Article 36 of the Family Code on the ground of psychological incapacity.

Under this property regime, property acquired by both spouses through their work and
industry shall be governed by the rules on equal coownership. Any property acquired during the
union is prima facie presumed to have been obtained through their joint efforts. A party who did
not participate in the acquisition of the property shall be considered as having contributed to the
same jointly if said party's efforts consisted in the care and maintenance of the family household.
Efforts in the care and maintenance of the family and household are regarded as contributions to
the acquisition of common property by one who has no salary or income or work or industry.

Here, the former spouses both agree that they acquired the subject property during the
subsistence of their marriage. Thus, it shall be presumed to have been obtained by their joint
efforts, work or industry, and shall be jointly owned by them in equal shares. Barrido, however,
claims that the ownership over the property in question is already vested on their children, by
virtue of a Deed of Sale. But aside from the title to the property still being registered in the names
of the former spouses, said document of safe does not bear a notarization of a notary public. It
must be noted that without the notarial seal, a document remains to be private and cannot be
converted into a public document, making it inadmissible in evidence unless properly
authenticated. Unfortunately, Barrido failed to prove its due execution and authenticity. In fact,
she merely annexed said Deed of Sale to her position paper. Therefore, the subject property
remains to be owned in common by Nonato and Barrido, which should be divided in accordance
with the rules on co-ownership.

PHILIPPINE NATIONAL BANK vs. VENANCIO REYES, JR.


G.R. No. 212483, October 5, 2016, J. Leonen

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A spouse's consent is indispensable for the disposition or encumbrance of conjugal


properties. A real estate mortgage over a conjugal property is void if the non-contracting spouse did
not give consent.

If the loan was taken out to be used for the family business, there is no need to prove actual
benefit. The law presumes the family benefited from the loan and the conjugal partnership is held
liable. However, if the conjugal partnership is insufficient to cover the liability, the husband is
solidarity liable with the wife for the unpaid balance.

Laches does not apply where the delay is within the period prescribed by law.

Facts:

Venancio married Lilia in 1973. They purchased 3 lots in Bulacan, which were later
mortgaged to petitioner bank to secure a loan. When the spouses failed to pay their loan,
petitioner foreclosed the 3 properties.

Venancio filed a complaint for annulment of certificate of sale and real estate mortgage
against petitioner, Lilia and the Sheriff of Bulacan. He claimed that the mortgage constituted over
the properties was void because Lilia undertook the loan and mortgage without his consent and
falsified his signature on the PNs.

The RTC ordered the annulment of the mortgage and directed Lilia to reimburse
petitioner the loan amount with interest. The CA affirmed the RTC’s ruling.

Issues:

1) Whether the real estate mortgage is void.


2) Whether the conjugal partnership can be held liable for the loan contracted unilaterally by
Lilia.
3) Whether respondent is guilty of laches and whether his claim is now barred by estoppel.

Ruling:

1) The real estate mortgage is void for want of consent from respondent.

The Reyes Spouses were married before the Family Code took effect. Hence, their property
regime is Conjugal Partnership of Gains. The applicable provision is Article 124 of the Family
Code, which states that any disposition or encumbrance of a conjugal property by one spouse
must be consented to by the other; otherwise, it is void. Here, respondent presented clear and
convincing evidence that his signature, as it appeared on the mortgage contract, was forged.

2) The conjugal partnership can be held liable for the loan

There are two scenarios considered: one is when the husband, or in this case, the wife,
contracts a loan to be used for the family business and the other is when she acts as a surety or
guarantor. If she is a mere surety or guarantor, evidence that the family benefited from the loan
need to be presented before the conjugal partnership can be held liable. On the other hand, if the
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loan was taken out to be used for the family business, there is no need to prove actual benefit. The
law presumes the family benefited from the loan and the conjugal partnership is held liable.

Here, the loan was used as additional working capital for respondent's printing business.
There is thus a presumption that it redounded to the benefit of the family; hence, the conjugal
partnership may be held liable for the loan amount. There is no need to prove actual benefit to
the family.

Further, what the lower courts declared void was the real estate mortgage attached to the
conjugal property of the Reyes Spouses. A mortgage is merely an accessory agreement and does
not affect the principal contract of loan. Here, the real estate mortgage is void and legally
inexistent because it was an encumbrance attached to a conjugal property without the consent of
the other spouse. Although petitioner cannot foreclose the mortgage over the conjugal property
in question, it can still recover the loan amount from the conjugal partnership. If the conjugal
partnership is insufficient to cover the liability, the husband is solidarily liable with the wife for
the unpaid balance. Petitioner can recover the remaining unpaid balance from the separate
properties of either respondent or his wife Lilia.

3) Respondent is not guilty of laches. Laches means the failure or neglect, for an
unreasonable and unexplained length of time, to do that which by exercising due diligence could
or should have been done earlier. It is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it. Since respondent filed the Complaint within the period of redemption
prescribed by law, he is not guilty of laches.

DOMINGO V. SPOUSES MOLINA


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

Facts:

In June 15, 1951, the spouses Anastacio and Flora Domingo bought a property in Camiling, Tarlac,
consisting of a one-half undivided portion over an 18,164 square meter parcel of land. The sale was
annotated on the Original Certificate of Title (OCT) No. 16354 covering the subject property.

During his lifetime, Anastacio borrowed money from the respondent spouses Genaro and Elena
Molina (spouses Molina). On September 10, 1978 or 10 years after Flora's death, Anastacio sold his
interest over the land to the spouses Molina to answer for his debts. The sale to the spouses
Molina was annotated at the OCT of the subject property. In 1986, Anastacio died.

In May 19, 1995, the sale of Anastacio's interest was registered under Transfer Certificate of Title
(TCT) No. 272967 and transferred the entire one-half undivided portion of the land to the spouses
Molina.

Melecio, one of the children of Anastacio and Flora, learned of the transfer and filed a Complaint
for Annulment of Title and Recovery of Ownership (Complaint) against the spouses Molina on
May 17, 1999.

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Melecio claims that Anastacio gave the subject property to the spouses Molina to serve as
collateral for the money that Anastacio borrowed. Anastacio could not have validly sold the
interest over the subject property without Flora's consent, as Flora was already dead at the time of
the sale. Melecio also claims that the document transferring Anastacio’s one-half undivided
interest to the Spouses Molina was falsified and that he had been in possession of the property
since Anastacio’s death.

On the other hand, the Spouses Molina alleged that Anastacio surrendered the title to the subject
property to answer for his debts, saying that his undivided one-half share was already theirs and
that Melecio was aware of the same, since he accompanied Anastacio when the latter borrowed
money. The Spouses Molina claims that Melecio built his nipa hut on the subject property
sometime in 1999 without their consent. The Spouses Molina died during the pendency of the
proceedings, and were substituted by their adopted son, Cornelio Molina.

The RTC ruled in favor of the Spouses Molina, finding that Melecio failed to establish fraud in the
transfer. It further held that Anastacio could dispose of the conjugal property without Flora’s
consent since the sale was necessary for conjugal liabilities.

On appeal, the CA upheld the RTC’s ruling. It ruled that Flora’s death is immaterial because
Anastacio only sold his rights, excluding Flora’s interest over the lot, to the Spouses Molina.

Issues:

1) Whether or not the transfer of the subject property to the Spouses Molina was valid
despite lack of consent of Flora.

Ruling:

1) Yes. Being the surviving spouse, Anastacio was the owner of the half of the undivided
estate of Flora. He co-owned the same with Flora’s other heirs, Melecio being one of them.
As co-owner, it is well within Anastacio’s right to sell his undivided interest.

Anastacio and Flora’s property regime is the conjugal partnership of gains since they got married
prior to the effectivity of the Family Code on August 3, 1988. When Flora died in 1978, it created
an implied co-ownership between Anastacio as surviving spouse, and the rest of Flora’s heirs,
including Melecio. Until final liquidation and partition, the regime of co-ownership applies to the
surviving spouse and other heirs of the deceased, with the surviving spouse having a vested one-
half undivided share of the properties. Anastacio, as co-owner of the undivided properties, may
validly sell and alienate the same according to Article 493 of the Civil Code. At the time of the
sale, Anastacio’s undivided interest in the conjugal properties consisted of half of the entire
conjugal properties plus his share as Flora’s heir on the conjugal properties. However, what he
transferred was an undivided portion, thus, the Spouses Molina cannot claim any specific portion
of the property prior to partition of the properties.
PATERNITY AND FILIATION

PROOF OF FILIATION

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GRACE M. GRANDE vs. PATRICIO T. ANTONIO


G.R. No. 206248. February 18, 2014
J. Velasco, Jr.

An illegitimate child may use the surname of his father if the latter has expressly recognized
their filiation. However, the child is under no compulsion to use his father’s surname. When Antonio
recognized Andre Lewis and Jerard Patrick as his sons, the two children had the right to use the
surname of Antonio. However, they were under no compulsion or mandate to use the same. The law
uses the word ‘may’, which dictates that it is merely permissive.

Facts:

Petitioner Grace Grande (Grande) and respondent Patricio Antonio (Antonio) for a period of time
lived together as husband and wife, although Antonio was at that time already married to
someone else. Out of this illicit relationship, two sons were born: Andre Lewis and Jerard Patrick.
The children were not expressly recognized by respondent as his own in the Record of Births of
the children in the Civil Registry. The parties’ relationship, however, eventually turned sour, and
Grande left for the United States with her two children. This prompted respondent Antonio to file
a Petition for Judicial Approval of Recognition with Prayer to take Parental Authority, Parental
Physical Custody, Correction/Change of Surname of Minors and for the Issuance of Writ of
Preliminary Injunction before the Regional Trial Court.

The RTC rendered a decision in favor of herein respondent Antonio, ruling that “[t]he evidence at
hand is overwhelming that the best interest of the children can be promoted if they are under the
sole parental authority and physical custody of [respondent Antonio].”

Aggrieved, petitioner Grande moved for reconsideration. However, her motion was denied for
being pro forma and for lack of merit.

Petitioner Grande then filed an appeal with the CA attributing grave error on the part of the RTC
for allegedly ruling contrary to the law and jurisprudence respecting the grant of sole custody to
the mother over her illegitimate children. The CA modified the ruling of the RTC, giving the
custody of the children to their mother but nevertheless ordering the Offices of the Civil
Registrar General and the City Civil Registrar of Makati City are DIRECTED to enter the
surname Antonio as the surname of Jerard Patrick and Andre Lewis, in their respective
certificates of live birth, and record the same in the Register of Births.

Dissatisfied with the decision, Grande interposed a partial motion for reconsideration,
particularly assailing the order of the CA insofar as it decreed the change of the minors’ surname
to “Antonio.” When her motion was denied, petitioner came to this Court via the present petition.

Issue:

Whether a father has the right to compel the use of his surname by his illegitimate children upon
his recognition of their filiation

Ruling:
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Central to the core issue is the application of Art. 176 of the Family Code, which was amended by
RA 9255 which now reads:

Art. 176. – Illegitimate children shall use the surname and shall be under the parental
authority of their mother, and shall be entitled to support in conformity with this
Code. However, illegitimate children may use the surname of their father if their
filiation has been expressly recognized by their father through the record of birth
appearing in the civil register, or when an admission in a public document or private
handwritten instrument is made by the father. Provided, the father has the right to
institute an action before the regular courts to prove non-filiation during his lifetime.
The legitime of each illegitimate child shall consist of one-half of the legitime of a
legitimate child. (Emphasis supplied.)

From the foregoing provisions, it is clear that the general rule is that an illegitimate
child shall use the surname of his or her mother. The exception provided by RA 9255 is, in case
his or her filiation is expressly recognized by the father through the record of birth appearing in
the civil register or when an admission in a public document or private handwritten instrument is
made by the father. In such a situation, the illegitimate child may use the surname of the father.

In the case at bar, respondent filed a petition for judicial approval of recognition of the filiation of
the two children with the prayer for the correction or change of the surname of the minors from
Grande to Antonio when a public document acknowledged before a notary public under Sec. 19,
Rule 132 of the Rules of Court is enough to establish the paternity of his children. But he wanted
more: a judicial conferment of parental authority, parental custody, and an official declaration of
his children’s surname as Antonio.

Parental authority over minor children is lodged by Art. 176 on the mother; hence, respondent’s
prayer has no legal mooring. Since parental authority is given to the mother, then custody over
the minor children also goes to the mother, unless she is shown to be unfit.

Art. 176 gives illegitimate children the right to decide if they want to use the surname of their
father or not. It is not the father (herein respondent) or the mother (herein petitioner) who is
granted by law the right to dictate the surname of their illegitimate children.

Nothing is more settled than that when the law is clear and free from ambiguity, it must be taken
to mean what it says and it must be given its literal meaning free from any
interpretation. Respondent’s position that the court can order the minors to use his surname,
therefore, has no legal basis.

On its face, Art. 176, as amended, is free from ambiguity. And where there is no ambiguity, one
must abide by its words. The use of the word “may” in the provision readily shows that
an acknowledged illegitimate child is under no compulsion to use the surname of his
illegitimate father. The word “may” is permissive and operates to confer discretion upon the
illegitimate children.

RODOLFO S. AGUILAR vs. EDNA G. SIASAT


G.R. No. 200169, January 28, 2015,
J. Mariano C. Del Castillo

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The filiation of illegitimate children, like legitimate children, is established by (1) the record
of birth appearing in the civil register or a final judgment; or (2) an admission of legitimate filiation
in a public document or a private handwritten instrument and signed by the parent concerned. In
the absence thereof, filiation shall be proved by (1) the open and continuous possession of the status
of a legitimate child; or (2) any other means allowed by the Rules of Court and special laws. The due
recognition of an illegitimate child in a record of birth, a will, a statement before a court of record,
or in any authentic writing is, in itself, a consummated act of acknowledgment of the child, and no
further court action is required. In fact, any authentic writing is treated not just a ground for
compulsory recognition; it is in itself a voluntary recognition that does not require a separate action
for judicial approval.

It must be concluded that Rodolfo– who was born during the marriage of Alfredo Aguilar
and Candelaria Siasat-Aguilar and before their respective deaths – has sufficiently proved that he is
the legitimate issue of the Aguilar spouses. He correctly argues, Alfredo Aguilar’s SSS satisfies the
requirement for proof of filiation and relationship to the Aguilar spouses under Article 172 of the
Family Code; by itself, said document constitutes an “admission of legitimate filiation in a public
document or a private handwritten instrument and signed by the parent concerned.”

Facts:

Spouses Alfredo Aguilar and Candelaria Siasat-Aguilar (the Aguilar spouses) died, intestate
and without debts. Included in their estate are two parcels of land (herein subject properties).

Petitioner, Rodolfo S. Aguilar filed with the RTC of Bacolod City a civil case for mandatory
injunction with damages against respondent Edna G. Sias at alleging that Rodolfo is the only son
and sole surviving heir of the Aguilar spouses. Edna claimed that Rodolfo is not the son and sole
surviving heir of the Aguilar spouses, but a mere stranger who was raised by the Aguilar spouses
out of generosity and kindness of heart; that he is not a natural or adopted child of the Aguilar
spouses.

RTC issued its Decision rendering that Rodolfo is not deemed vested with sufficient interest in
this action to be considered qualified or entitled to the issuance of the writ of mandatory
injunction and Damages prayed for, this was affirmed by CA.

Rodolfo argues in this petition that Alfredo Aguilar’s SSS satisfies the requirement for proof of
filiation and relationship to the Aguilar spouses under Article 172 of the Family Code.

Issue:

Whether or not Rodolfo satisfies the requirement for proof of filiation and relationship to
the Aguilar spouses
Ruling:

Yes, Rodolfo satisfies the requirement for proof of filiation and relationship to the Aguilar
spouses.

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The filiation of illegitimate children, like legitimate children, is established by (1) the
record of birth appearing in the civil register or a final judgment; or (2) an admission of legitimate
filiation in a public document or a private handwritten instrument and signed by the parent
concerned. In the absence thereof, filiation shall be proved by (1) the open and continuous
possession of the status of a legitimate child; or (2) any other means allowed by the Rules of Court
and special laws. The due recognition of an illegitimate child in a record of birth, a will, a
statement before a court of record, or in any authentic writing is, in itself, a consummated act of
acknowledgment of the child, and no further court action is required.

In fact, any authentic writing is treated not just a ground for compulsory recognition; it is
in itself a voluntary recognition that does not require a separate action for judicial
approval. Where, instead, a claim for recognition is predicated on other evidence merely tending
to prove paternity, i.e., outside of a record of birth, a will, a statement before a court of record or
an authentic writing, judicial action within the applicable statute of limitations is essential in
order to establish the
child’s acknowledgment.

There is perhaps no presumption of the law more firmly established and founded on
sounder morality and more convincing reason than the presumption that children born in
wedlock are legitimate. This presumption indeed becomes conclusive in the absence of proof that
there is physical impossibility of access between the spouses during the first 120 days of the 300
days which immediately precedes the birth of the child due to (a) the physical incapacity of the
husband to have sexual intercourse with his wife; (b) the fact that the husband and wife are living
separately in such a way that sexual intercourse is not possible; or (c) serious illness of the
husband, which absolutely prevents sexual intercourse.

Quite remarkably, upon the expiration of the periods set forth in Article 170, and in
proper cases Article 171, of the Family Code, the action to impugn the legitimacy of a child would
no longer be legally feasible and the status conferred by the presumption becomes fixed and
unassailable.

Thus, applying the foregoing pronouncement to the instant case, it must be concluded
that Rodolfo– who was born during the marriage of Alfredo Aguilar and Candelaria Siasat-
Aguilar and before their respective deaths – has sufficiently proved that he is the legitimate issue
of the Aguilar spouses. He correctly argues, Alfredo Aguilar’s SSS satisfies the requirement for
proof of filiation and relationship to the Aguilar spouses under Article 172 of the Family Code; by
itself, said document constitutes an “admission of legitimate filiation in a public document or a
private handwritten instrument and signed by the parent concerned. “

Rodolfo has shown that he cannot produce his Certificate of Live Birth since all the
records covering the period 1945-1946 of the Local Civil Registry of Bacolod City were destroyed,
which necessitated the introduction of other documentary evidence – particularly Alfredo
Aguilar’s SSS to prove filiation. It was erroneous for the CA to treat said document as mere proof
of open and continuous possession of the status of a legitimate child under the second paragraph
of Article 172 of the Family Code; it is evidence of filiation under the first paragraph thereof, the
same being an express recognition in a public instrument.

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In view of the pronouncements herein made, the Court sees it fit to adopt the following
rules respecting the requirement of affixing the signature of the acknowledging parent in any
private handwritten instrument wherein an admission of filiation of a legitimate or illegitimate
child is made:

1) Where the private handwritten instrument is the lone piece of evidence submitted to
prove filiation, there should be strict compliance with the requirement that the same must be
signed by the acknowledging parent; and

2) Where the private handwritten instrument is accompanied by other relevant and


competent evidence, it suffices that the claim of filiation therein be shown to have been made and
handwritten by the acknowledging parent as it is merely corroborative of such other evidence.

In all actions concerning children, whether undertaken by public or private social welfare
institutions, courts of law, administrative authorities or legislative bodies, the best interests of the
child shall be a primary consideration.

VIRGINIA CALIMAG v. HEIRS OF SILVESTRA N. MACAPAZ


G.R. No. 191936, June 1, 2016; Reyes

Facts:

This case involves a 299 square meter parcel of land located at No. 1273 Bo. Visaya Street Barangay
Guadalupe Nuevo, Makati City which was duly registered in the name of petitioner and Silvestra
N. Macapaz under TCT No. 183088. Appearing on said title is an annotation of Adverse Claim of
Fidela O. Poblete Vda. de Macapaz asserting rights and interests over a portion of the said
property. Respondents herein, Anastacio P. Macapaz, Jr. (Anastacio, Jr.) and Alicia Macapaz-Ritua
(Alicia) are the children of Silvestra’s brother, Anastacio Macapaz, Sr. (Anastacio, Sr.) and Fidela.

On November 11, 2002, Silvestra died without issue. On July 7, 2005, TCT No. 183088 was
cancelled and a new certificate of title, TCT No. 221466, was issued in the name of the petitioner
by virtue of a Deed of Sale dated January 18, 2005 whereby Silvestra allegedly sold her 99-sq-m
portion to the petitioner for P300,000.00. On September 16, 2005, Fidela passed away.

On March 2, 2006, the respondents, asserting that they are the heirs of Silvestra, instituted the
action for Annulment of Deed of Sale and Cancellation of TCT No. 221466 with Damages against
the petitioner and the Register of Deeds of Makati City.

petitioner averred that the respondents have no legal capacity to institute said civil action on the
ground that they are illegitimate children of Anastacio, Sr. As such, they have no right over
Silvestra's estate pursuant to Article 992 of the Civil Code which prohibits illegitimate children
from inheriting intestate from the legitimate children and relatives of their father and mother.

The RTC ruled in favor for respondents. It found that the deed of sale in favor of petitioner was a
forgery considering that the same was executed three (3) years after the death of Silvestra. As
regards the respondents’ capacity to sue, the RTC took into account the Certificate of Canonical
Marriage and the respective birth certificates of the respondents and ruled that respondents were
legitimate children.
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On appeal, the CA upheld the RTC’s decision. It held the deed of sale to be a forgery and that the
marriage between Anastacio, Sr. and Fidela to be valid. Not only did the couple live together in
open cohabitation thereby giving rise to the presumption of marriage, they have a valid Marriage
Contract. Thus, being borne during the subsistence of a valid marriage, the CA held respondents
to be legitimate children.

Issues:

1) Whether or not the CA correctly held that respondents are legitimate children who have
the capacity to sue.

Ruling:

1) Yes. The birth certificates of respondents show that respondents were born during the
subsistence of a valid marriage. The same are public documents which enjoy the
presumption of regularity absent any proof to the contrary.

No original of the marriage contract was presented as evidence of the validity of the marriage
between Anastacio, Sr. and Fidela. Moreover, the canonical certificate of marriage, being a private
instrument, lacked proper authentication. Nevertheless, the Certificates of Live Birth of the
respondents, wherein it stated that the respondents’ parents were marrid on May 25, 1955 in
Alang-alang, Leyte, sufficiently prove the marriage between Anastacio, Sr. and Fidela.

A certificate of live birth is a public document that consists of entries (regarding the facts of birth)
in public records (Civil Registry) made in the performance of a duty by a public officer (Civil
Registrar). Thus, being public documents, the respondents' certificates of live birth are presumed
valid, and are prima facie evidence of the truth of the facts stated in them.

Prima facie evidence is defined as evidence good and sufficient on its face. Such evidence as, in
the judgment of the law, is sufficient to establish a given fact, or the group or chain of facts
constituting the party's claim or defense and which if not rebutted or contradicted, will remain
sufficient.

It is irrelevant that Anastacio, Sr. did not sign the birth certificates. Under Section 5 of Act No.
3753, the declaration of either parent of the new-born legitimate child shall be sufficient for the
registration of his birth in the civil register, and only in the registration of birth of an illegitimate
child does the law require that the birth certificate be signed and sworn to jointly by the parents
of the infant, or only by the mother if the father refuses to acknowledge the child.

VIRGINIA CALIMAG v. HEIRS OF SILVESTRA N. MACAPAZ


G.R. No. 191936, June 1, 2016; Reyes

Facts:

This case involves a 299 square meter parcel of land located at No. 1273 Bo. Visaya Street Barangay
Guadalupe Nuevo, Makati City which was duly registered in the name of petitioner and Silvestra
N. Macapaz under TCT No. 183088. Appearing on said title is an annotation of Adverse Claim of
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Fidela O. Poblete Vda. de Macapaz asserting rights and interests over a portion of the said
property. Respondents herein, Anastacio P. Macapaz, Jr. (Anastacio, Jr.) and Alicia Macapaz-Ritua
(Alicia) are the children of Silvestra’s brother, Anastacio Macapaz, Sr. (Anastacio, Sr.) and Fidela.

On November 11, 2002, Silvestra died without issue. On July 7, 2005, TCT No. 183088 was
cancelled and a new certificate of title, TCT No. 221466, was issued in the name of the petitioner
by virtue of a Deed of Sale dated January 18, 2005 whereby Silvestra allegedly sold her 99-sq-m
portion to the petitioner for P300,000.00. On September 16, 2005, Fidela passed away.

On March 2, 2006, the respondents, asserting that they are the heirs of Silvestra, instituted the
action for Annulment of Deed of Sale and Cancellation of TCT No. 221466 with Damages against
the petitioner and the Register of Deeds of Makati City.

petitioner averred that the respondents have no legal capacity to institute said civil action on the
ground that they are illegitimate children of Anastacio, Sr. As such, they have no right over
Silvestra's estate pursuant to Article 992 of the Civil Code which prohibits illegitimate children
from inheriting intestate from the legitimate children and relatives of their father and mother.

The RTC ruled in favor for respondents. It found that the deed of sale in favor of petitioner was a
forgery considering that the same was executed three (3) years after the death of Silvestra. As
regards the respondents’ capacity to sue, the RTC took into account the Certificate of Canonical
Marriage and the respective birth certificates of the respondents and ruled that respondents were
legitimate children.

On appeal, the CA upheld the RTC’s decision. It held the deed of sale to be a forgery and that the
marriage between Anastacio, Sr. and Fidela to be valid. Not only did the couple live together in
open cohabitation thereby giving rise to the presumption of marriage, they have a valid Marriage
Contract. Thus, being borne during the subsistence of a valid marriage, the CA held respondents
to be legitimate children.

Issues:

1) Whether or not the CA correctly held that respondents are legitimate children who have
the capacity to sue.

Ruling:

1) Yes. The birth certificates of respondents show that respondnets were born during the
subsistence of a valid marriage. The same are public documents which enjoy the
presumption of regularity absent any proof to the contrary.

No original of the marriage contract was presented as evidence of the validity of the marriage
between Anastacio, Sr. and Fidela. Moreover, the canonical certificate of marriage, being a private
instrument, lacked proper authentication. Nevertheless, the Certificates of Live Birth of the
respondents, wherein it stated that the respondents’ parents were marrid on May 25, 1955 in
Alang-alang, Leyte, sufficiently prove the marriage between Anastacio, Sr. and Fidela.

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A certificate of live birth is a public document that consists of entries (regarding the facts of birth)
in public records (Civil Registry) made in the performance of a duty by a public officer (Civil
Registrar). Thus, being public documents, the respondents' certificates of live birth are presumed
valid, and are prima facie evidence of the truth of the facts stated in them.

Prima facie evidence is defined as evidence good and sufficient on its face. Such evidence as, in
the judgment of the law, is sufficient to establish a given fact, or the group or chain of facts
constituting the party's claim or defense and which if not rebutted or contradicted, will remain
sufficient.

It is irrelevant that Anastacio, Sr. did not sign the birth certificates. Under Section 5 of Act No.
3753, the declaration of either parent of the new-born legitimate child shall be sufficient for the
registration of his birth in the civil register, and only in the registration of birth of an illegitimate
child does the law require that the birth certificate be signed and sworn to jointly by the parents
of the infant, or only by the mother if the father refuses to acknowledge the child.

FUNERALS

FE FLORO VALINO vs. ROSARIO D. ADRIANO, FLORANTE D. ADRIANO, RUBEN D.


ADRIANO, MARIA TERESA ADRIANO ONGOCO, VICTORIA ADRIANO BAYONA, and
LEAH ANTONETTE D. ADRIANO
G.R. No. 182894, April 22, 2014, J. Mendoza

The petitioner alleges that being a common law spouse who took care of the deceased, she
has the right to make funeral arrangements for the deceased. The Supreme Court ruled that the duty
and the right to make funeral arrangements are confined within the family of the deceased
particularly the spouse of the deceased to the exclusion of a common law spouse.

Facts:

Atty. Adriano Adriano is married to respondent Rosario Adriano. When their marriage
turned sour, they separated in fact. Twenty (20) years later, Atty. Adriano courted his client
petition Fe Floro Valino. Valino and Atty. Adriano decided to live together as husband and wife.
Despite this arrangement, Atty. Adriano continued to provide financial support to Rosario and
their children.

However, Atty. Adriano died of acute emphysema. Since no one in Atty. Adriano’s family
was present during his death, petitioner Valino took it upon herself to pay the necessary funeral
expenses and buried Atty. Adriano at the mausoleum of the family of Valino in Manila Memorial
Park.

Because of this, respondent Rosario filed a petition before the Regional Trial Court for
indemnification for actual, moral, exemplary damages and attorney’s fees. She alleged that the
burial at Manila Memorial Park is contrary to the wishes of Atty. Adriano.

The RTC rendered a decision in favor of Valino. However, on appeal, the Court of Appeals
reversed the decision of RTC and ruled that under Article 305 of the New Civil Code, Rosario
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being the legal wife of Atty. Adriano gave her not only the duty but also the right to make
arrangements for the funeral of her husband. Hence, the current petition.

Issue:

The lone legal issue in this petition is who between Rosario and Valino is entitled to the
remains of Atty. Adriano.

Ruling:

Article 305 of the Civil Code, in relation to what is now Article 1996 of the Family Code,
specifies the persons who have the right and duty to make funeral arrangements for the deceased.
Thus:

Art. 305. The duty and the right to make arrangements for the funeral of a relative shall be
in accordance with the order established for support, under Article 294. In case of descendants of
the same degree, or of brothers and sisters, the oldest shall be preferred. In case of ascendants,
the paternal shall have a better right.

Art. 199. Whenever two or more persons are obliged to give support, the liability shall
devolve upon the following persons in the order herein provided:

(1) The spouse;


(2) The descendants in the nearest degree;
(3) The ascendants in the nearest degree; and
(4) The brothers and sisters.

Further, Article 308 of the Civil Code provides:

Art. 308. No human remains shall be retained, interred, disposed of or exhumed without
the consent of the persons mentioned in Articles 294 and 305. In this connection, Section 1103 of
the Revised Administrative Code provides:

Section 1103. Persons charged with the duty of burial. – The immediate duty of burying the
body of a deceased person, regardless of the ultimate liability for the expense thereof, shall
devolve upon the persons herein below specified:

(a) If the deceased was a married man or woman, the duty of the burial shall devolve upon
the surviving spouse if he or she possesses sufficient means to pay the necessary expenses;

From the foregoing provisions it is clear that the duty and the right to make funeral
arrangements are confined within the family of the deceased particularly the spouse of the
deceased to the exclusion of a common law spouse. The term spouse in the said provision is to be
construed as the legal spouse. As applied to this case, it is clear that the law gives the right and
duty to make funeral arrangements to Rosario, she being the surviving legal wife of Atty. Adriano.
The fact that she was living separately from her husband and was in the United States when he
died has no controlling significance. To say that Rosario had, in effect, waived or renounced,
expressly or impliedly, her right and duty to make arrangements for the funeral of her deceased
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husband is baseless. The right and duty to make funeral arrangements, like any other right, will
not be considered as having been waived or renounced, except upon clear and satisfactory proof
of conduct indicative of a free and voluntary intent to that end. While there was disaffection
between Atty. Adriano and Rosario and their children when he was still alive, the Court also
recognizes that human compassion, more often than not, opens the door to mercy and
forgiveness once a family member joins his Creator. Notably, it is an undisputed fact that the
respondents wasted no time in making frantic pleas to Valino for the delay of the interment for a
few days so they could attend the service and view the remains of the deceased. As soon as they
came to know about Atty. Adriano’s death in the morning of December 19, 1992 (December 20,
1992 in the Philippines), the respondents immediately contacted Valino and the Arlington
Memorial Chapel to express their request, but to no avail.

Even assuming, ex gratia argumenti, that Atty. Adriano truly wished to be buried in the
Valino family plot at the Manila Memorial Park, the result remains the same. Article 307 of the
Civil Code provides:

Art. 307. The funeral shall be in accordance with the expressed wishes of the deceased. In
the absence of such expression, his religious beliefs or affiliation shall determine the funeral rites.
In case of doubt, the form of the funeral shall be decided upon by the person obliged to make
arrangements for the same, after consulting the other members of the family.

From its terms, it is apparent that Article 307 simply seeks to prescribe the "form of the
funeral rites" that should govern in the burial of the deceased. As thoroughly explained earlier,
the right and duty to make funeral arrangements reside in the persons specified in Article 305 in
relation to Article 199 of the Family Code. Even if Article 307 were to be interpreted to include
the place of burial among those on which the wishes of the deceased shall be followed, Dr.
Arturo M. Tolentino (Dr. Tolentino), an eminent authority on civil law, commented that it is
generally recognized that any inferences as to the wishes of the deceased should be established
by some form of testamentary disposition. As Article 307 itself provides, the wishes of the
deceased must be expressly provided. It cannot be inferred lightly, such as from the
circumstance that Atty. Adriano spent his last remaining days with Valino. It bears stressing
once more that other than Valino’s claim that Atty. Adriano wished to be buried at the Valino
family plot, no other evidence was presented to corroborate it.

PROPERTY

OWNERSHIP

CLASSIFICATION OF PROPERTY

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE DEPARTMENT OF PUBLIC


WORKS AND HIGHWAYS (DPWH) vs. ORTIGAS AND COMPANY LIMITED
PARTNERSHIP
G.R. No. 171496. March 03, 2014
J. Leonen

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Where a party subdivided his property into five lots and reserved one lot for road widening
for a government project, the lot being reserved for road widening at the instance of the Republic of
the Philippines, the latter cannot rely on Section 50 of PD No. 1529 providing that delineated
boundaries, streets, passageways, and waterways of a subdivided land may not be closed or disposed
of by the owner except by donation to the government.

While the lot segregated for road widening used to be part of the subdivided lots, the
intention to separate it from the delineated subdivision streets was obvious from the fact that it was
located at the fringes of the original lot — exactly at petitioner Republic of the Philippines’ intended
location for the road widening project. Moreover, petitioner Republic of the Philippines’ intention to
take the property for public use was obvious from the completion of the road widening for the flyover
project and from the fact that the general public was already taking advantage of the thoroughfare.

Facts:

Respondent, Ortigas and Company Limited Partnership, is the owner of a parcel of land known as
Lot 5-B-2 with an area of 70,278 square meters in Pasig City. Upon the request of the Department
of Public Works and Highways, respondent Ortigas caused the segregation of its property into
five lots and reserved one portion for road widening for the C-5 flyover project. It designated Lot
5-B-2-A, a 1,445-square-meter portion of its property, for the road widening of Ortigas Avenue.
Respondent Ortigas also caused the annotation of the term “road widening” on its title. The title
was then inscribed with an encumbrance that it was for road widening and subject to Section 50
of Presidential Decree No. 1529 or the Property Registration Decree.

Consequently, respondent Ortigas further subdivided Lot 5-B-2-A into two lots: Lot 5-B-2-A-1,
which was the portion actually used for road widening, and Lot 5-B-2-A-2, which was the
unutilized portion of Lot 5-B-2-A.

Respondent Ortigas filed with the Regional Trial Court a petition for authority to sell to the
government Lot 5-B-2-A-1. Respondent Ortigas alleged that the Department of Public Works and
Highways requested the conveyance of the property for road widening purposes.

Despite due notice to the public, including the Office of the Solicitor General and the Department
of Public Works and Highways, no one appeared to oppose respondent Ortigas’ petition in the
hearing. Respondent Ortigas was able to establish the jurisdictional facts of the case and was
allowed to present evidence ex parte before the appointed Commissioner.

Finding merit in respondent Ortigas' petition, the Regional Trial Court issued an order on June 11,
2001, authorizing the sale of Lot 5-B-2-A-1 to petitioner Republic of the Philippines.

Petitioner Republic of the Philippines, represented by the Office of the Solicitor General, filed an
opposition, alleging that respondent Ortigas' property can only be conveyed by way of donation
to the government, citing Section 50 of Presidential Decree No. 1529, also known as the Property
Registration Decree.

Petitioner Republic of the Philippines also filed a motion for reconsideration of the Regional Trial
Court order reiterating its argument in its opposition. However, the same was denied.

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Petitioner Republic of the Philippines filed a notice of appeal. The Court of Appeals dismissed
petitioner Republic of the Philippines’ appeal. Petitioner Republic of the Philippines filed a
motion for reconsideration of the Court of Appeals' resolution. The Court of Appeals denied the
motion for reconsideration.

Hence, this case.

Issue:

Whether Ortigas has authority to sell the land to the Republic of the Philippines

Ruling:

Respondent Ortigas may sell its property to the government. It must be compensated because its
property was taken and utilized for public road purposes.

Petitioner Republic of the Philippines insists that the subject property may not be conveyed to the
government through modes other than by donation. It relies on Section 50 of the Property
Registration Decree, which provides that delineated boundaries, streets, passageways, and
waterways of a subdivided land may not be closed or disposed of by the owner except by donation
to the government. It reads:

Section 50. Subdivision and consolidation plans. Any owner subdividing a tract of
registered land into lots which do not constitute a subdivision project as defined and
provided for under P.D. No. 957, shall file with the Commissioner of Land Registration
or the Bureau of Lands a subdivision plan of such land on which all boundaries,
streets, passageways and waterways, if any, shall be distinctly and accurately
delineated.

If a subdivision plan, be it simple or complex, duly approved by the Commissioner of


Land Registration or the Bureau of Lands together with the approved technical
descriptions and the corresponding owner’s duplicate certificate of title is presented for
registration, the Register of Deeds shall, without requiring further court approval of said
plan, register the same in accordance with the provisions of the Land Registration Act, as
amended: Provided, however, that the Register of Deeds shall annotate on the new
certificate of title covering the street, passageway or open space, a memorandum to the
effect that except by way of donation in favor of the national government,
province, city or municipality, no portion of any street, passageway, waterway or
open space so delineated on the plan shall be closed or otherwise disposed of by
the registered owner without the approval of the Court of First Instance of the
province or city in which the land is situated. (Emphasis supplied)

Petitioner Republic of the Philippines’ reliance on Section 50 of the Property Registration Decree
is erroneous. Section 50 contemplates roads and streets in a subdivided property, not public
thoroughfares built on a private property that was taken from an owner for public purpose. A
public thoroughfare is not a subdivision road or street.

More importantly, when there is taking of private property for some public purpose, the owner of
the property taken is entitled to be compensated.
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There is taking when the following elements are present:


a. The government must enter the private property;
b. The entrance into the private property must be indefinite or permanent;
c. There is color of legal authority in the entry into the property;
d. The property is devoted to public use or purpose;
e. The use of property for public use removed from the owner all beneficial enjoyment of the
property.

All of the above elements are present in this case. Petitioner Republic of the Philippines’
construction of a road — a permanent structure — on respondent Ortigas’ property for the use of
the general public is an obvious permanent entry on petitioner Republic of the Philippines’ part.
Given that the road was constructed for general public use stamps it with public character, and
coursing the entry through the Department of Public Works and Highways gives it a color of legal
authority.

As a result of petitioner Republic of the Philippines’ entry, respondent Ortigas may not enjoy the
property as it did before. It may not anymore use the property for whatever legal purpose it may
desire. Neither may it occupy, sell, lease, and receive its proceeds. It cannot anymore prevent
other persons from entering or using the property. In other words, respondent Ortigas was
effectively deprived of all the bundle of rights attached to ownership of property.

It is true that the lot reserved for road widening, together with five other lots, formed part of a
bigger property before it was subdivided. However, this does not mean that all lots delineated as
roads and streets form part of subdivision roads and streets that are subject to Section 50 of the
Property Registration Decree. Subdivision roads and streets are constructed primarily for the
benefit of the owners of the surrounding properties. They are, thus, constructed primarily for
private use — as opposed to delineated road lots taken at the instance of the government for the
use and benefit of the general public.

In this case, the lot was reserved for road widening at the instance of petitioner Republic of the
Philippines. While the lot segregated for road widening used to be part of the subdivided lots, the
intention to separate it from the delineated subdivision streets was obvious from the fact that it
was located at the fringes of the original lot — exactly at petitioner Republic of the Philippines’
intended location for the road widening project. Moreover, petitioner Republic of the Philippines’
intention to take the property for public use was obvious from the completion of the road
widening for the C-5 flyover project and from the fact that the general public was already taking
advantage of the thoroughfare.

Delineated roads and streets, whether part of a subdivision or segregated for public use, remain
private and will remain as such until conveyed to the government by donation or through
expropriation proceedings. An owner may not be forced to donate his or her property even if it
has been delineated as road lots because that would partake of an illegal taking. He or she may
even choose to retain said properties. If he or she chooses to retain them, however, he or she also
retains the burden of maintaining them and paying for real estate taxes.

An owner of a subdivision street, which was not taken by the government for public use, would
retain such burden even if he or she would no longer derive any commercial value from said
street. To remedy such burden, he or she may opt to donate it to the government. In such case,

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however, the owner may not force the government to purchase the property. That would be
tantamount to allowing the government to take private property to benefit private individuals.
This is not allowed under the Constitution, which requires that taking must be for public use.

OWNERSHIP IN GENERAL

DEPARTMENT OF EDUCATION, represented by its REGIONAL DIRECTOR TERESITA


DOMALANTA vs. MARIANO TULIAO
G.R. No. 205664, June 9, 2014, J. Mendoza

In actions for recovery of possession, the plaintiff must show proof to support his claim of
his right to possession of the property. The defendant in turn must show proof to controvert the
plaintiff’s claim; otherwise the court will rule for the plaintiff. Thus, when a landowner filed an
action for recovery of possession against a public school which built a gymnasium on a parcel of
land which the owner allowed the school to use as an access road for the schoolchildren, and the
plaintiff showed as evidence tax declarations and a certificate of title over the property, the lone
testimonial evidence the DepEd presented is not sufficient to controvert the landowner’s case. In
addition, the landowner’s claim is not barred by laches when the school’s possession of the property
is not adverse, and when the landowner brought suit two years after he learned that the school is
constructing a gymnasium over the property.

Facts:

On October 8, 2002 respondent Mariano Tuliao filed an action for recovery of possession
and removal of structure with damages against petitioner DepEd with the MTCC, alleging that a
portion of a parcel of land registered in his name was allowed by his predecessors-in-interest to be
used by the Atulayan Elementary School (AES) as an access road for the schoolchildren in going
to and from the school. In March 2000, upon discovering that a structure was being constructed
on the land, he demanded that the DepED cease and desist and vacate the property. DepEd
refused.

DepEd averred that Tuliao’s claim had already been barred by prescription and/or laches.
Its occupation of the subject land was adverse, peaceful, continuous, and in the concept of an
owner for more than fifty (50) years.

MTCC rendered its decision, ruling that Tuliao was the registered owner of the subject
property and, thus, had a right of action against the holder and possessor of the said property.
Further, it found that respondent’s possession of the subject property was merely tolerated by
Tuliao. For said reason, his right to recover it was never barred by laches.

The RTC dismissed DepEd’s appeal and affirmed the MTCC. Interestingly, the RTC opined
that the case was impressed with public interest and it was the paramount interest of the pupils
who would be prejudiced by the finality and execution of the appealed decision, and strongly
suggested that DepEd pay Tuliao the just compensation of the land in question. The CA affirmed
the RTC decision.

Issues:

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1. Did the CA err in holding that Tuliao is entitled to possession of the property?
2. Was Tuliao’s claim barred by laches?

Ruling:

The petition is denied.

1. No. Tuliao presented sufficient proof of ownership while DepEd’s evidence were
insufficient to refute Tuliao’s claim.

Here, Tuliao, as the registered owner, filed a complaint for recovery of possession and
removal of structure. To support his claim, he presented not only tax declarations and tax
receipts, but also a certificate of title. The Court agrees with the CA that the said pieces of
evidence were sufficient to resolve the issue of who had the better right of possession. That being
the case, the burden was shifted to the DepEd to prove otherwise. Unfortunately, the DepEd only
presented testimonial evidence and nothing more to prove its defense and refute Tuliao’s claim.
Its lone witness was all that the DepEd had to prove its right of possession. As between a
certificate of title, which is an incontrovertible proof of ownership, accompanied with a tax
declaration and a tax receipt on one hand, and a testimony of a lone witness who is a retired
teacher on the other, the former prevails in establishing who has a better right of possession over
the property, following the rule that testimonial evidence cannot prevail over documentary
evidence.

2. No. DepEd’s possession was adverse only when it started to build the gymnasium; and
Tuliao filed the action two years later; thus he was not sleeping on his rights.

As regards the DepEd’s defense of laches, it has no merit either. It avers that its possession
of the subject land was open, continuous, exclusive, adverse, notorious and in the concept of an
owner for at least thirty-two (32) years already at the time Tuliao filed the complaint. It must be
noted, however, that Tuliao's claim that the DepEd's possession of a portion of his land to be used
as a passageway for the students was mere tolerance was not refuted. Thus, the same is deemed
admitted. This means that the DepEd's possession was not truly adverse.

The Court once ruled that mere material possession of the land was not adverse as against the
owner and was insufficient to vest title, unless such possession was accompanied by the intent to
possess as an owner. Accordingly, the DepEd's possession can only be considered as adverse from
the time the gymnasium was being constructed in 1999 on the subject portion of Tuliao's
property. In March 2000, Tuliao discovered the construction and demanded that the DepEd cease
and desist from continuing the same. When DepEd refused, Tuliao filed a complaint for recovery
of possession of the subject lot in 2002. Thus, only two (2) years had elapsed from the time the
DepEd resisted Tuliao’s claims. Clearly, he did not sleep on his rights. There was no prolonged
inaction that barred him from prosecuting his claims.

HEIRS OF PACIANO YABAO, represented by REMEDIOS CHAN vs. PAZ LENTEJAS VAN
DER KOLK
G.R. No. 207266, June 25, 2014, J. Mendoza

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A tax declaration is not a proof of ownership; it is not a conclusive evidence of ownership of


real property. In the absence of actual, public, and adverse possession, the declaration of the land for
tax purposes does not prove ownership.

Facts:

It was claimed that the plaintiffs herein are the sole surviving heirs of the late spouses
Paciano Yabao and Mercedes Cano and that they are co-owners of the land herein. That sometime
in 1996, Kolk asserted claim of ownership and allowed a person to possess the above-described
property, notwithstanding vehement opposition thereto by the Yabaos. Notwithstanding
demands for Kolk to vacate the premises usurped and occupied by her, she refused and still
continued to refuse, to leave the said premises. The Heirs of Yabao prayed that they be declared
the co-owners and possessors of a parcel of land designated as Lot 2473 located in Brgy.
Capoocan, Calbayog City and that possession thereof be restored to them.

On April 2, 2001, Van Der Kolk filed a Motion to Dismiss the complaint on the ground of
lack of cause of action on the part of the Yabaos.

Issue:

Whether the heirs of Paciano Yabao had proven their cause of action to initiate the
present proceedings.

Ruling:

No, they did not.

The MTCC erred when it granted the reliefs prayed by the Heirs of Yabao because the
same were not warranted by the allegations in the complaint. The Court noted that the
allegations pertinent to the their cause of action, particularly on their claim of ownership and
right to possession over Lot 2473, were not supported by any document annexed to the complaint.
Mere assertions, as what the heirs of Yabao proffered, do not suffice.

Ownership by the heirs cannot be established by mere lip service and bare allegations in
the complaint. As in all matters, a party must establish his/her averments in the complaint by
sufficient evidence necessary to prove such claim. It is significant that the basis of Yabao’s claim
of ownership was a mere tax declaration that was supposedly in the name of their putative
ancestor Paciano Yabao. However, a tax declaration is not a proof of ownership; it is not a
conclusive evidence of ownership of real property. In the absence of actual, public, and adverse
possession, the declaration of the land for tax purposes does not prove ownership. It can only be a
strong indication of ownership if coupled with possession. In the case at bench, it was the
petitioner who was in possession of the property and not the respondents. Consequently, the tax
declaration, standing alone, is not an acceptable proof of ownership. Accordingly, the Yabao’s
entitlement to their claims was not proven by preponderance of evidence.

MIDWAY MARITIME AND TECHNOLOGICAL FOUNDATION, represented by its


Chairman/President PhD in Education DR. SABINO M. MANGLICMOT vs. MARISSA E.
CASTRO, ET AL.
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G.R. No. 189061, August 6, 2014, J. Reyes

The petitioner is a lessee of a parcel of land and disputes the title of the owners of the
building built on the land they are leasing. The Supreme Court ruled that it is settled that "[o]nce a
contact of lease is shown to exist between the parties, the lessee cannot by any proof, however
strong, overturn the conclusive presumption that the lessor has a valid title to or a better right of
possession to the subject premises than the lessee." Section 2(b), Rule 131 of the Rules of Court
prohibits a tenant from denying the title of his landlord at the time of the commencement of the
relation of landlord and tenant between them.

Facts:

The petitioner MIDWAY MARITIME is a lessee of two parcels of land owned by spouses
Manglicmot. The lease contract was executed between the petitioner company and the
respondent. Inside the two parcels of land is a building which is the subject of the dispute in the
case at bar. The respondent Castro alleges that she is the owner of the building within the parcels
of land owned by the spouses. She asserts that what the petitioner spouses only acquired in is the
two parcels of land and it does not include the residential building in it. On the other hand, the
spouses Manglicmot contend that they are the owners of the said residential building by virtue of
the title they acquired from their predecessor-in-interest which is Union Bank which acquired the
property from Bancom who, in turn, acquired the property through a public auction.

The Regional Trial Court rendered a decision in favor of the respondents declaring them
to be the absolute owners of the residential building. On appeal, the Court of Appeals affirmed
the decision of the RTC. Hence, the current petition.

The petitioner MIDWAY MARITIME contests the award of rentals made by the RTC,
which was affirmed by the CA, contending that when Tomas bought the two parcels of land from
Union Bank in 1993, the sale included the improvements thereon, one of which was the
residential house in dispute. The petitioner also argues that the lease between CCC and the
respondents already expired at the time of the sale and they are now the current lessees of the
property, albeit the residential house is still standing inside the school compound. The petitioner
relies on a decision rendered by the RTC of Cabanatuan City, Branch 26, in Civil Case No. 2939
(AF),which was an appeal from the trial court’s dismissal of the complaint for Ejectment with
Damages filed by the respondents against the petitioner. In said decision, the RTC stated that "in
the advertised sale of the lots covered by TCT Nos. T-45816 and [T-45817] of the land records of
Cabanatuan City, all improvements were included, hence, the instant case has no factual and legal
basis."

Issue:

Whether or not the spouses Manglicmot owns the residential building located within the
two parcels of land they own.

Ruling:

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No. The Supreme Court affirmed the decision of the Court of Appeals and dismissed the
petition filed by the spouses.

Given the existence of the lease, the petitioner’s claim denying the respondents’ ownership
of the residential house must be rejected. According to the petitioner, it is Adoracion who actually
owns the residential building having bought the same, together withthe two parcels of land, from
her father Tomas, who, in turn, bought it in an auction sale.

It is settled that "[o]nce a contact of lease is shown to exist between the parties, the lessee
cannot by any proof, however strong, overturn the conclusive presumption that the lessor has a
valid title to or a better right of possession to the subject premises than the lessee." Section 2(b),
Rule 131 of the Rules of Court prohibits a tenant from denying the title of his landlord at the time
of the commencement of the relation of landlord and tenant between them. In Santos v. National
Statistics Office, the Court expounded on the rule on estoppel against a tenant and further
clarified that what a tenant is estopped from denying is the title of his landlord at the time of the
commencement of the landlord-tenant relation. If the title asserted is one that is alleged to have
been acquired subsequent to the commencement of that relation, the presumption will not apply.

More importantly, the respondents’ ownership of the residential building is already an


established fact.

"Nemo dat quod non habet. One can sell only what one owns or is authorized to sell, and
the buyer can acquire no more right than what the seller can transfer legally."18 It must be
pointed out that what Tomas bought from Union Bank in the auction sale were the two parcels of
land originally owned and mortgaged by CCC to Bancom, and which mortgage was later assigned
by Bancom to Union Bank. Contrary to the petitioner’s assertion, the property subject of the
mortgage and consequently the auction sale pertains only to these two parcels of land and did not
include the residential house. This was precisely the tenor of Castro, Jr. v. CA19 where the Court
nullified the writ of possession issued by the trial court insofar as it affected the residential house
constructed by the respondents on the mortgaged property as it was not owned by CCC, which
was the mortgagor. The Court ruled:

[Article 2127 of the Civil Code] extends the effects of the real estate mortgage to accessions
and accessories found on the hypothecated property when the secured obligation becomes due.
The law is predicated on an assumption that the ownership of such accessions and accessories
also belongs to the mortgagor as the owner of the principal. The provision has thus been seen by
the Court, x xx, to mean that all improvements subsequently introduced or owned by the
mortgagor on the encumbered property are deemed to form part of the mortgage. That the
improvements are to be considered so incorporated only if so owned by the mortgagor is a rule
that can hardly be debated since a contract of security, whether real or personal, needs as an
indispensable element thereof the ownership by the pledger or mortgagor of the property pledged
or mortgaged. The rationale shouldbe clear enough — in the event of default on the secured
obligation, the foreclosure sale of the property would naturally be the next step that can
expectedly follow. A sale would result in the transmission of title to the buyer which is feasible
only if the seller can be in a position to convey ownership of the thing sold (Article 1458, Civil
Code). It is to say, in the instant case, that a foreclosure would be ineffective unless the mortgagor
has title to the property to be foreclosed. The rule is that "when a decision becomes final and
executory, it becomes valid and binding upon the parties and their successors in interest." Such
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being the case, Castro, which already determined with finality the respondents’ ownership of the
residential house in question, is applicable and binding in this case and the petitioner cannot be
allowed to challenge the same. Thus, as correctly ruled by the CA, "[t]o our mind, the
pronouncement resolving the said issue necessarily touches also the issue on the ownership of the
building. x xx The finding of the Court [in Castro], now being final and executory, is no longer
open for inquiry and therefore, has attained its immutability

Also, Adoracion’s subsequent acquisition of the two parcels of land from her father does
not necessarily entail the acquisition of the residential building. "A building by itself is a realor
immovable property distinct from the land on which it is constructed and therefore can be a
separate subject of contracts." Whatever Adoracion acquired from her father is still subject to the
limitation pronounced by the Court in Castro, and the sale between Adoracion and Tomas is
confined only to the two parcels of land and excluded the residential building owned by the
respondents. It is beyond question that Tomas, and subsequently, Adoracion, could nothave
acquired a right greater than what their predecessors-in-interest – CCC and later, Union Bank –
had.

ROLANDO S. ABADILLA, JR. vs. SPOUSES BONIFACIO P. OBRERO and BERNABELA N.


OBRERO
G.R. No. 199448, November 12, 2014, J. Reyes

The petitioner claims that they are the rightful owners of the disputed property. Thus, an
ejectment proceeding cannot be commenced against them. The Supreme Court ruled that "ejectment
proceedings are summary proceedings intended to provide an expeditious means of protecting
actual possession or right to possession of property. Title is not involved. The sole issue to be
resolved is who is entitled to the physical or material possession of the premises or possession de
facto." "Issues as to the right of possession or ownership are not involved in the action; evidence
thereon is not admissible, except only for the purpose of determining the issue of possession."

Facts:

The respondents spouses Obrero filed a complaint for ejectment against the petitioner
Rolando Abadilla, Jr. The spouses allege that they are the owners of the land which is in their
possession and that Abadilla with the aid of armed men caused the dispossession of the spouses
Obrero from the disputed property. On the other hand, Abadilla claims that they are the rightful
owners of the property and that the spouses Obrero has been trespassing their property for a
number of years now.

The MTC dismissed the complaint of the spouses. On appeal, the Regional Trial Court
reversed and set aside the decision of the MTC and ordered Abadilla to return the possession of
the said property to the spouses. The Court of Appeals affirmed the decisions of the RTC. Hence,
the current petition.

Issue:

Whether or not the complaint for ejectment filed by the spouses Obrero should be
dismissed.

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Ruling:

No. The Supreme Court affirmed the decision of the Court of Appeals and ruled that
Abadilla illegally dispossessed the spouses Obrero of the possession of the disputed property
thereby the complaint for ejectment shall prosper.

"Ejectment proceedings are summary proceedings intended to provide an expeditious


means of protecting actual possession or right to possession of property. Title is not involved. The
sole issue to be resolved is who is entitled to the physical or material possession of the premises or
possession de facto." "Issues as to the rightof possession or ownership are not involved in the
action; evidence thereon is not admissible, except only for the purpose of determining the issue of
possession."

Thus, where the parties to an ejectment case raise the issue of ownership, the courts may
pass upon that issue but only to determine who between the parties has the better right to
possess the property. As such, any adjudication of the ownership issue isnot final and binding; it
is only provisional, and not a bar to an action between the same parties involving title to the
property.

As borne by the records, the respondents have erected concrete and bamboo structures
(i.e., picnic shades, shower rooms, comfort rooms, lodging rooms, cottages, apartelle) on the
subject land, declared the same for taxation purposes and paid the realty taxes thereon before the
petitioner and his men entered the same on September 22, 2007.

In contrast, the petitioner’s claim of possession was based on the unsubstantiated and
unreliable affidavits of his supposed caretakers that he had the land fenced in 1996 and thereafter
maintained those fences thru repairs. As correctly observed by the RTC and the CA, their
affidavits failed to state whether the fences they built and maintained pertained to the land
subject of this controversy. Neitherwere the supposed caretakers able to particularly identify the
years when the fences were purportedly repaired and when the respondents allegedly trespassed
on the land.

Indeed, the petitioner failed to show any competent and convincing evidence of
possession or act of dominion in contrast to the overwhelming proof of actual possession and
occupation proffered by the respondents. Consequently, it is indubitable that the respondents, as
registered owners, are entitled to and must be restored to the physical possession forcibly wrested
from them by the petitioner. It remains undisputed that the petitioner and his men unlawfully
entered the land, enclosed it with barbed-wire fence, destroyed the improvements thereon and
excluded the respondents therefrom. These actions necessarily imply the use of force31 which is
remedied by the herein proceedings for ejectment.
SUBIC BAY LEGEND RESORTS AND CASINOS, INC vs. BERNARD C. FERNANDEZ
G.R. No. 193426, September 29, 2014, J. Del Castillo

Though casino chips do not constitute legal tender, there is no law which prohibits their use
or trade outside of the casino which issues them. Since casino chips are considered to have been
exchanged with their corresponding representative value – it is with more reason that the Court
should require SBL to prove convincingly and persuasively that the chips it confiscated from Ludwin

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and Deoven were indeed stolen from it. If SBL cannot prove its loss, then Article 559 cannot apply;
the presumption that the chips were exchanged for value remains.

Facts:

Pietitioner Subic Bay Legend Resorts And Casinos, Inc., (SBL) a duly organized and
existing corporation operating under Philippine laws, operates the Legenda Hotel and Casino
located in the Subic Bay Freeport Zone in Zambales. On the other hand, Respondent Bernard C.
Fernandez (Bernard) is the plaintiff in Civil Case No. 237-0-97 prosecuted against SBL in
Olongapo RTC.

At around eleven o’clock in the evening of 6 June 1997, Bernard Fernandez’s brother
Ludwin Fernandez visited the Legenda Hotel and Casino Legenda had strategically installed
several CCTV cameras as part of security measures required by its business. The monitors
revealed that Ludwin changed $5,000.00 worth of chips into smaller denominations. Legenda
admitted in its brief that its surveillance staff paid close attention to Ludwin simply because it was
“unusual” for a Filipino to play using dollar-denominated chips. After Ludwin won $200.00 in a
game of baccarat, he redeemed the value of chips worth $7,200.00. An operation was launched by
Legenda to zero-in on Ludwin whose picture was furnished its security section. Thus,
unbeknownst to him, he was already closely watched when he went with another brother,
Deoven, to the casino. After playing (and losing $100.00) only one round of baccarat, the siblings
had their chips encashed at two separate windows. Cashiers “froze” the transaction. Shortly
thereafter, Legenda’s internal security officers accosted Ludwin and Deoven and ordered them to
return the cash and they complied without ado because they were being pulled away. The two
were eventually escorted to private rooms where they were separately interrogated about the
source of the chips they brought. The ultimatum was simple: they confess that the chips were
given by a certain employee, Michael Cabrera, or they would not be released from
questioning. Finally, the brothers succumbed to Legenda’s instruction to execute a joint
statement implicating Cabrera as the illegal source of the chips. Due to hunger pangs and fatigue,
they did not disown the statement even when they subscribed the same before the prosecutor in
whose office they were later brought. About two weeks later, Deoven executed a retraction in
Baguio City where he took up his engineering course.

On July 1, 1997, Bernard filed Civil Case No. 237-0-97 for recovery of sum of money with
damages against SBL, on the premise that on June 13, 1997, he went to Legenda with his brothers
Ludwin and Deoven; that he handed over Legenda casino chips worth US$6,000.00, which
belonged to him, to his brothers for the latter to use at the casino; that SBL accosted his brothers
and unduly and illegally confiscated his casino chips equivalent to US$5,900.00. SBL’s Answer
essentially alleged they voluntarily agreed to proceed to the Legenda security office upon
invitation, where Ludwin voluntarily informed security officers that it was a certain Michael
Cabrera (Cabrera) – a Legenda table inspector at the time – who gave him the casino chips for
encashment, taught him how to play baccarat and thereafter encash the chips, and rewarded him
with P1,000.00 for every $1,000.00 he encashed; that they volunteered to testify against Cabrera;
that Ludwin and Deoven voluntarily executed a joint affidavit before the Olongapo City
Prosecutor’s Office, which they subsequently recanted.

The trial court rendered a judgment in favor of the Bernard. It ruled that SBL failed to
prove that the casino chips were stolen. On appeal, the CA affirmed the decision of the trial court.
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Hence, this petition for review of certiorari. Bernard argued that SBL failed to rebut the
presumption that a person in possession of personal property is the lawful owner of the same,
pursuant to Article 559 of the Civil Code

Issue:

Whether or not Ludwin and Deoven can be presumed to be the owners of the chips.

Ruling:

The Petition is denied.

SBL’s underlying theory is that the subject casino chips were in fact stolen by its employee
Cabrera, then handed over to Bernard’s brothers, Ludwin and Deoven, for encashment at the
casino; that Ludwin and Deoven played at the casino only for show and to conceal their true
intention, which is to encash the chips; that Bernard’s claim that he owned the chips, as they were
given to him in payment of services he rendered to a Chinese client, is false. The failure of SBL to
file a criminal case against the latter – including Ludwin and Deoven for that matter – up to this
point certainly does not help to convince the Court of its position, especially considering that the
supposed stolen chips represent a fairly large amount of money. Indeed, for purposes of this
proceeding, there appears to be no evidence on record – other than mere allegations and
suppositions – that Cabrera stole the casino chips in question; such conclusion came unilaterally
from SBL, and for it to use the same as foundation to the claim that Ludwin, Deoven and Bernard
are dealing in stolen chips is clearly irregular and unfair. Thus, there should be no basis to
suppose that the casino chips found in Ludwin’s and Deoven’s possession were stolen; SBL acted
arbitrarily in confiscating the same without basis. Their Joint Affidavit – which was later recanted
– does not even bear such fact; it merely states that the chips came from Cabrera. If it cannot be
proved, in the first place, that Cabrera stole these chips, then there is no more reason to suppose
that Ludwin and Deoven were dealing in or possessed stolen goods; unless the independent fact
that Cabrera stole the chips can be proved, it cannot be said that they must be confiscated when
found to be in Ludwin’s and Deoven’s possession.

Though casino chips do not constitute legal tender, there is no law which prohibits their
use or trade outside of the casino which issues them. In any case, it is not unusual – nor is it
unlikely – that Bernard could be paid by his Chinese client at the former’s car shop with the
casino chips in question; said transaction, if not common, is nonetheless not unlawful. Given this
premise – that casino chips are considered to have been exchanged with their corresponding
representative value – it is with more reason that the Court should require SBL to prove
convincingly and persuasively that the chips it confiscated from Ludwin and Deoven were indeed
stolen from it; if so, any Tom, Dick or Harry in possession of genuine casino chips is presumed to
have paid for their representative value in exchange therefor. If SBL cannot prove its loss, then
Article 559 cannot apply; the presumption that the chips were exchanged for value remains.

Finally, the Court sustains the award of attorney’s fees. SBL’s act of arbitrarily confiscating
the casino chips and treating Ludwin and Deoven the way it did, and in refusing to satisfy
Bernard’s claim despite the fact that it had no basis to withhold the chips, confirm its bad faith,
and should entitle Bernard to an award.

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ACCESSION
RIGHT OF ACCESSION WITH RESPECT TO IMMOVABLE PROPERTY

MAGDALENA T. VILLASI vs. SPOUSES FILOMENO GARCIA AND ERMELINDA HALILI-


GARCIA
G.R. No. 190106. January 15, 2014
J. Perez

There is an exception to the rule that accessory follows the principal. Where it can be duly
established that the owner of the accessory is different from the owner of the principal, the two
properties should be treated separately. Hence, when there are factual and evidentiary evidence to
prove that the building and the lot on which it stands are owned by different persons, they shall be
treated separately.

Facts:

Petitioner Magdalena T. Villasi (Villasi) engaged the services of respondent Fil-Garcia


Construction, Inc. (FGCI) to construct a seven-storey condominium building. For failure of
Villasi to fully pay the contract price despite several demands, FGCI initiated a suit for collection
of sum of money before the RTC. The RTC ruled in favor of FGCI. The CA, however, reversed the
decision. FGCI filed a petition for review on certiorari, but the same was denied. To enforce her
right as prevailing party, Villasi filed a Motion for Execution. A Writ of Execution was issued
commanding the Sheriff to execute and make effective the Decision of the Court of Appeals.

To satisfy the judgment, the sheriff levied on a building. While the building was declared for
taxation purposes in the name of FGCI, the lots in which it was erected were registered in the
names of the Spouses Filomeno Garcia and Ermelinda Halili-Garcia (Spouses Garcia). After the
mandatory posting and publication of notice of sale on execution of real property were complied
with, a public auction was scheduled. To forestall the sale on execution, the Spouses Garcia filed
an Affidavit of Third Party Claim and a Motion to Set Aside Notice of Sale on Execution, claiming
that they are the lawful owners of the property which was erroneously levied upon by the
sheriff. To persuade the court a quo to grant their motion, the Spouses Garcia argued that the
building covered by the levy was mistakenly assessed by the City Assessor in the name of
FGCI. The motion was opposed by Villasi who insisted that its ownership belongs to FGCI and
not to the Spouses Garcia as shown by the tax declaration.

The RTC issue an order directing the Sheriff to hold in abeyance the conduct of the sale on
execution. Villasi moved for reconsideration but the same was denied. Hence, this petition.

Issue:

Whether the building and the lot in which it was erected should be treated separate properties

Ruling:

While it is a hornbook doctrine that the accessory follows the principal, that is, the ownership of
the property gives the right by accession to everything which is produced thereby, or which is

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incorporated or attached thereto, either naturally or artificially, such rule is not without
exception. In cases where there is a clear and convincing evidence to prove that the principal and
the accessory are not owned by one and the same person or entity, the presumption shall not be
applied and the actual ownership shall be upheld. In a number of cases, we recognized the
separate ownership of the land from the building and brushed aside the rule that accessory
follows the principal.

In Carbonilla v. Abiera, the court denied the claim of petitioner that, as the owner of the land, he
is likewise the owner of the building erected thereon, for his failure to present evidence to
buttress his position:

To set the record straight, while petitioner may have proven his ownership of the land,
as there can be no other piece of evidence more worthy of credence than a Torrens
certificate of title, he failed to present any evidence to substantiate his claim of
ownership or right to the possession of the building. Like the CA, we cannot accept
the Deed of Extrajudicial Settlement of Estate (Residential Building) with Waiver and
Quitclaim of Ownership executed by the Garcianos as proof that petitioner acquired
ownership of the building. There is no showing that the Garcianos were the owners of
the building or that they had any proprietary right over it. Ranged against
respondents’ proof of possession of the building since 1977, petitioner’s evidence pales
in comparison and leaves us totally unconvinced.

In Caltex (Phil.) Inc. v. Felias, the court ruled that while the building is a conjugal property and
therefore liable for the debts of the conjugal partnership, the lot on which the building was
constructed is a paraphernal property and could not be the subject of levy and sale:

x x x. In other words, when the lot was donated to Felisa by her parents, as owners of the
land on which the building was constructed, the lot became her paraphernal
property. The donation transmitted to her the rights of a landowner over a building
constructed on it. Therefore, at the time of the levy and sale of the sheriff, Lot No. 107
did not belong to the conjugal partnership, but it was paraphernal property of
Felisa. As such, it was not answerable for the obligations of her husband which
resulted in the judgment against him in favor of Caltex.

The rule on accession is not an iron-clad dictum. On instances where this Court was confronted
with cases requiring judicial determination of the ownership of the building separate from the lot,
it never hesitated to disregard such rule. The case at bar is of similar import. When there are
factual and evidentiary evidence to prove that the building and the lot on which it stands are
owned by different persons, they shall be treated separately. As such, the building or the lot, as
the case may be, can be made liable to answer for the obligation of its respective owner.

BANK OF THE PHILIPPINE ISLANDS vs. VICENTE VICTOR C. SANCHEZ ET AL.;


GENEROSO TULAGAN ET AL. vs. VICENTE VICTOR C. SANCHEZ ET AL.; REYNALDO V.
MANIWANG vs. VICENTE VICTOR C. SANCHEZ and FELISA GARCIA YAP
G.R. No. 179518; G.R. No. 179835; G.R. No. 179954, November 19, 2014, J. Velasco Jr.

Article 453 of the Civil Code clearly reads that a landowner is considered in bad faith if he
does not oppose the unauthorized construction thereon despite knowledge of the same. The fact

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that the Sanchezes did take action to oppose the construction on their property by writing the
HLURB and the City Building Official of Quezon City. The Court agrees with both the RTC and the
CA that Garcia and TSEI are builders in bad faith. They knew for a fact that the property still
belonged to the Sanchezes and yet proceeded to build the townhouses not just without the authority
of the landowners, but also against their will.

Facts:

Vicente Victor C. Sanchez, Kenneth Nereo Sanchez and Imelda C. V da. De Sanchez
owned a parcel of land located at No. 10 Panay Avenue, Quezon City consisting of 900 square
meters. The property was registered under TCT 156254 of the Registry of Deeds of Quezon City.
On October 10, 1988, Jesus V. Garcia, doing business under the name TransAmerican Sales and
Exposition, Inc., wrote a letter to Vicente offering to buy the Subject Property for One Million
Eight Hundred Thousand Pesos under subject terms and conditions. The offer was good for only
seven (7) days. The period elapsed with the parties failing to come to an agreement. Sometime in
the third week of October 1988, Felisa Yap, the widow of Kenneth Nereo Sanchez, and Garcia had
a meeting at the Quezon City Sports Club wherein the parties agreed to the sale of the subject
property. Pursuant to this agreement, Yap turned over to Garcia the original owner’s copy of TCT
156254, the copy of the filed Application for Restitution of Title to the property, and copies of all
receipts for the payment of real estate taxes on the property, while Garcia paid Yap 50,000 as
earnest money.

Afterwards, Yap required the occupants of the subject property to vacate the same.
Immediately after it was vacated, Garcia, without Yap’s knowledge and consent, took possession
of the lot and installed his own caretaker thereon with strict instructions not to allow anyone to
enter the property. Yap later learned that Garcia had also demolished the house on the property
and advertised the construction and sale of "Trans American Townhouse V" thereon. The
foregoing developments notwithstanding and despite numerous demands, Garcia failed to pay the
balance of the purchase price as agreed upon.

Yap was informed that the checks representing the purchase price of the subject property
were ready but that Vicente must pick up his checks personally. However, out of the six (6)
checks that were presented to them, four (4) of them were post-dated, further delaying their
overdue payment. In order to properly document such check payments, the parties executed an
Agreement dated December 8, 1988, which relevantly provide: That the total consideration of sale
of the rights, interest, participation and title of the Yap and Vicente of the aforestated parcel of
land to Garcia shall be One Million Eight Hundred Fifty Thousand Pesos (P1,850,000.00),
Philippine Currency, payable in check.That the parties hereto agree that once the aforestated
checks are honored by the bank and encashed by the payees thereof, the First and Second Parties
shall execute an EXTRA-JUDICIAL SETTLEMENT OF ESTATE WITH SALE distributing and
dividing among themselves. Subsequently, the first four (4) checks were deposited with no issue.
However, the last two (2) checks, amounting to P400,000 each, were dishonored for the reason of
"DAIF" or drawn against insufficient funds.Thus, Yap wrote a letter to Garcia informing him that
the two (2) checks were dishonored and asking that the checks be replaced within five (5) days
from receipt of the letter. Such request was left unheeded. Yap informed Garcia in a letter that she
and Vicente were rescinding the Agreement while demanding the return of the original owner’s
copy of TCT 156254. This prompted Garcia to offer two (2) manager’s checks in the aggregate

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amount of P300,000 which Yap flatly refused, reiterating the rescission of their Agreement and
demanding for the return of all documents entrusted to Garcia through a January 21, 1989 letter.

Garcia’s counsel, Atty. Francisco Beato, Jr, informed Yap that they had an agreement that
the P800,000 balance of the purchase price was due to be paid by Garcia only upon Yap and
Vicente’s payment of the realty, inheritance and capital gains taxes due on the transfer of the
property. Thus, Garcia effectively refused to return the documents and to vacate the subject
property. Yap referred Beato’s letter to her own counsel, Atty. Julian S. Yap, who wrote back in a
letter refuting the claim of Garcia that the P800,000 was not yet due and reiterating their decision
to rescind the Agreement and demanding that Garcia vacate the property and return the
documents that were surrendered to him by Yap. On February 19, 1989, Yap and Vicente
discovered that Garcia posted an advertisement in the classified ads of the Manila Bulletin
offering to sell units at the Trans American Townhouse V situated at the subject property. Thus,
on February 27, 1989, Atty. Yap wrote the Housing and Land Use Regulatory Board (HLURB)
informing the latter of the existing public advertisement of TSEI offering for sale townhouses
illegally constructed on the subject property and urging the HLURB to cancel any existing permit
or license to sell the said townhouse units or to deny any application therefor. On March 17, 1989,
the HLURB issued a Cease and Desist Order (CDO) enjoining TSEI and Garcia from further
developing and selling the townhouses.

In a delayed response to the CDO, TSEI wrote a letter to the HLURB alleging that only
ground leveling works were being undertaken on the project. Yap and Vicente also inquired from
the City Building Official of Quezon City, in a letter the office found that the construction on the
subject property was indeed illegal and at its 5% initial stage. Yap also wrote a letter to the
Register of Deeds in Quezon City informing it that TCT 156254 was no longer in their possession
and requesting that the office clear the matter with them first before acting on any transaction
pertaining to the subject property. Then, on August 21, 1989, Yap filed a formal complaint with the
Office of the City Building Official of Quezon City. However, both Garcia and TSEI failed to
attend the said hearing. Thereafter,Yap and Vicente, in his own behalf and representing the heirs
of Imelda C.Vda. De Sanchez, RTC in Quezon City a Complaint for the rescission of contract,
restitution and damages with prayer for TRO/preliminary injunction against TSEI and Garcia.

Meanwhile, Garcia managed to cause the cancellation of TCT 156254 and its replacement
with TCT 383697 in the name of TSEI. TCT 383697, however, bore the date of issuance as June 9,
1988, way before the parties agreed on the sale sometime in October 1988. Garcia apparently used
TCT 383697 to entice several buyers to buy the townhouse units being constructed by TSEI on the
subject lot. Claiming to have bought townhouse units sometime in early 1989, the following
intervened in the instant case: the spouses Jose and Visitacion Caminas, Reynaldo V. Maniwang,
Generoso C. Tulagan, Varied Traders Concept, Inc, and Arturo Marquez. TSEI left the townhouse
units unfinished, leaving these intervenors to finish their townhouses by themselves. Notably,
except for the Absolute Deeds of Sale executed between TSEI and VTCI, all the other intervenors’
contracts conveying townhouses in their favor identified their purchased lots as covered by TCT
156254.

Far East Bank and Trust Company entered into a Loan Agreement with TSEI secured by a
Real Estate Mortgage over TCT 156254.FEBTC later merged with the Bank of the Philippine
Islands with the latter as the surviving bank. Garcia purportedly explained to FEBTC that the
parties were still in the process of transferring the title. Garcia submitted a copy of TCT 383697 in
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TSEI’s name. Upon default, FEBTC foreclosed the subject lot and had the Foreclosure Certificate
of Sale annotated on TCT 383697. The RTC rendered a Decision in favor of the Sanchezes. The CA
rendered, the assailed Decision affirming the RTC Decision with modifications.

Issue:

Whether or not the parties all acted in bad faith.

Ruling:

No, The Sanchezes are not guilty of negligence and bad faith.

It must be stated that the CA already ruled that the issue of the Sanchezes’ negligence was
never raised at the pre-trial. As such, it can no longer be raised on appeal. Nevertheless, even if
such issue were to be passed upon, the Sanchezes cannot be considered negligent, much less in
bad faith.
It must be noted that defendant Garcia committed himself that, upon full payment of the
purchase price, he would personally undertake the preparation and execution of the Extrajudicial
Settlement with Sale as well as the reconstitution of the original copy of TCT No. 156254 on file
with the Register of Deeds of Quezon City. Thus, it was inevitably for Felisa Yap to surrender to
Garcia the owner’s duplicate copy of the aforesaid title as well as the other documents pertinent
for such documentation and reconstitution. To Our mind, this does not constitute negligence on
the part of the Sanchezes as the surrender was purely to comply with and in pursuance to their
earlier agreement with the defendants.

As regards the alleged relinquishment of possession of the subject property, this Court
also do not find any negligence on the part of the Sanchezes. The records would disclose that the
Sanchezes did not voluntarily surrender possession thereof to defendants. On the contrary, it was
Garcia who took possession of the subject property, without Sanchezes knowledge, posted his
own caretaker therein with strict instructions not to allow anyone to enter the same. The latter
also caused the demolition of the old house standing thereon and advertised the same for sale by
placing a large billboard in front of the subject property. In fact, had it not been for persistent
efforts of plaintiffs-appellants/appellees, the Agreement which eventually protected the latter’s
rights over the subject property, could not have been executed.

Article 453 of the Civil Code is relevant. The second paragraph of the provision clearly
reads that a landowner is considered in bad faith if he does not oppose the unauthorized
construction thereon despite knowledge of the same. The fact of the matter is that the Sanchezes
did take action to oppose the construction on their property by writing the HLURB and the City
Building Official of Quezon City. The Court agrees with both the RTC and the CA that Garcia
and/or TSEI are builders in bad faith. They knew for a fact that the property still belonged to the
Sanchezes and yet proceeded to build the townhouses not just without the authority of the
landowners, but also against their will. The factual milieu of the case reveals that intervenors are
buyers in bad faith. They admitted that they executed either contracts of sale or contracts to sell
indicating that the lot is covered by TCT No. 156254 registered under the name of the respondent
Sanchezes. And the intervenors know, based on the contract of sale or contract to sell, that the
property is registered under TCT No. 156254 in the name of the Sanchezes.

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VTCI has not shown that it verified with the RD if the alleged TCT 383697 of TSEI is valid
and genuine. And the CDO and the warnings to the public and prospective buyers published
VTCI should have been aware of the irregularities in the proposed sale of townhouses by Garcia
and TSEI. Even as the intervenors have been found to be in bad faith, BPI, the successor of
FEBTC, cannot be considered a mortgagee in good faith, considering the glaring anomalies in the
loan transaction between TSEI and FEBTC. The general rule that a mortgagee need not look
beyond the title does not apply to banks and other financial institutions as greater care and due
diligence are required of them, and FEBTC should have exercised the appropriate due diligence
review and made the requisite inquiries about the subject property which was offered to secure
the loan applied for by Garcia/TSEI under a real estate mortgage. FEBTC was negligent and
cannot be considered as a mortgagee in good faith.

REX DACLISON v. EDUARDO BAYTION


G.R. No. 219811, April 6, 2016; Mendoza

Facts:

On January 27, 2009, respondent Eduardo Baytion (Baytion) filed a Complaint for Forcible Entry
and Damages with Prayer for Issuance of Preliminary Mandatory Injunction with the
Metropolitan Trial Court, Branch 43, Quezon City (MeTC) against petitioner Rex Daclison
(Daclison), which was docketed as Civil Case No. 39225.

Baytion alleged that he was a co-owner of a parcel of land consisting of 1,500 square meters,
covered by Transfer Certificate Title (TCT) No. 221507. The said property was inherited by him
and his siblings from their parents and, as agreed upon, was being administered by him. As
administrator, he leased portions of the property to third persons. On the said property was a
one-storey building which was divided into seven units or stalls. One of the stalls was leased to a
certain Leonida Dela Cruz (Leonida) who used it for her business of selling rocks, pebbles and
similar construction materials. When the lease of Nida expired sometime in May 2008, Daclison
and other persons acting under her took allegedly took possession of the portion leased and
occupied by Leonida without the prior knowledge and consent of Baytion. Since then, Daclison
had been occupying the contested portion and using it for his business of selling marble and other
finishing materials without paying anything to Baytion.

On Daclison’s part, he argued that the property which he was occupying no longer forms part of
Baytion’s property. Daclison explained that initially, Baytion leased a portion of the property to
one Antonio Dela Cruz. When a stone wall was erected at the creek near the property, Antonio
was able to negotiate with a certain engineer to allow him to fill in the sloping area leading to the
newly erected wall. After filling it up, Antonio took possession of the same which was next to the
property he was leasing from Baytion. When Antonio died, a certain Ernanie Dela Cruz took over
the business. Daclison entered into a business venture with Ernanie. Soon after, Ernanie and
Daclison received a letter from Baytion requesting them to vacate the premises. Ernanie and
Daclison then came to an agreement wherein the latter would be the one to pay the rental arrears
and future lease payments. However, when Daclison issued a check in the amount of P100,000.00,
Baytion returned the same and stated that he would no longer bother Ernanie and Daclison if
they vacated the portion of the property he owned and from them to occupy the filled in portion.
Relying on the promise of Baytion, Ernanie and Daclison vacated the property they were leasing
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from Baytion, and settled only in the property filled in by Antonio. However, despite the same,
Baytion still filed a complaint with the barangay, now claiming that the filled in portion was part
of his property.

The MeTC dismissed the case on the ground that Baytion failed to include his siblings or his co-
owners as plaintiffs in the case.

On appeal to the RTC, it ruled that the MeTC had no jurisdiction over Baytion’s complaint as it
failed to allege ultimate facts that constitute a case of forcible entry. Nevertheless, the RTC
exercised its original jurisdiction over the same. The RTC then decided that Baytion had a better
right of possession over the property.
When the case reached the CA, it upheld the RTC’s ruling as regards the MeTC’s lack of
jurisdiction. It was of the view that the present action for forcible entry had actually ripened into
one for recovery of the right to possess or accion publiciana, which was an action in an ordinary
civil proceeding in the Regional Trial Court. As to who has a better right of possession, the CA
likewise ruled that Baytion had a better right to possess the property considering that the Ernanie
and Daclison were mere lessees, whose rights can never ripen to ownership by virtue of
continuous and adverse possession of the property.

Issues:

1) Whether or not the CA correctly held that Baytion had the better right of possession of
the property.

Ruling:

1) No, contrary to Baytion’s argument, the filled in portion of the property being occupied by
Daclison cannot be considered as accretion which will form part of his property. Not being
the owner thereof, Baytion may not be held to have a better right of possession.

Baytion’s contention that he owns that portion by reason of accretion is misplaced. Article 457 of
the New Civil Code provides that the owners of lands adjoining the banks of rivers belongs the
accretion which they gradually receive from the effects of the current of the waters. The following
requisites must concur in order for an accretion to be considered, namely: (1) that the deposit be
gradual and imperceptible; (2) that it be made through the effects of the current of the water; and,
(3) that the land where accretion takes place is adjacent to the banks of rivers.

In the case at bench, this contested portion cannot be considered an accretion. To begin with, the
land came about not by reason of a gradual and imperceptible deposit. The deposits were artificial
and man-made and not the exclusive result of the current from the creek adjacent to his property.
Baytion failed to prove the attendance of the indispensable requirement that the deposit was due
to the effect of the current of the river or creek. Alluvion must be the exclusive work of nature and
not a result of human intervention.

Furthermore, the disputed property cannot also be considered an improvement or accession since
in order to be considered as such, it must be constructed within or on the property and not
outside.

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MALAYAN INSURANCE COMPANY, INC. vs. ST. FRANCIS SQUARE REALTY


CORPORATION / ST. FRANCIS SQUARE REALTY CORPORATION vs. MALAYAN
INSURANCE COMPANY, INC.
G.R. Nos. 198916-17 / G.R. No. 198920-21, January 11, 2016, J. Velasco, Jr.

Facts:

Malayan, as Owner, and St. Francis, as Developer, executed a Joint Project Development
Agreement (JPDA) on 09 November 1995 for the construction, development and completion of
what was then known as "ASB Malayan Tower" ("the Project"), originally a 50-storey
office/residential condominium located at the ADB Avenue cor. Opal St., Ortigas Center, Pasig
City.

Malayan is the absolute and registered owner of the parcel of land (the Lot) in Pasig City
where the Project is located, as evidenced by Transfer Certificate of Title No. PT-78585.

ASB Realty Corporation [now, St. Francis] was not able to complete the Project. The
parties executed a Memorandum of Agreement (MOA) on 30 April 2002, under which Malayan
undertook to complete the condominium project then known as "ASB Malayan Project" that later
became "Malayan Plaza Tower."

The Lot was the subject of a Contract to Sell between Malayan as seller and [St. Francis] as
buyer, but St. Francis was unable to completely perform its obligation under the Contract to Sell.
Under Sec. 2 of the MOA, Malayan "shall invest the amount necessary to complete the Project",
among other obligations.

The basis for the distribution and disposition of the condominium units is the parties’
respective capital investments in the Project as provided in Sec. 4 of the MOA. St. Francis
represented and warranted to Malayan that Malayan can complete the Project at a cost not
exceeding Php452,424,849.00 (the Remaining Construction Cost [RCC]) [Sec. 9 of MOA].

On 24 August 2006, St. Francis sent a letter to Malayan seeking to reconcile several items
amounting to P133.64 million.

Malayan made interest expense, amounting to P37,705,346.62 as of August 2006, as part of


its actual construction cost on that date.

Malayan has included some of the units under Schedule 4 of the MOA in the condotel
pool managed by Quantum Hotels and Resorts from which it derives income.
Despite the completion of the Project and the turnover of the units to St. Francis, Malayan, and
other buyers of units, the issue of actual cost of construction has not been resolved to the mutual
satisfaction of the parties.

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On November 7, 2008, St. Francis filed with the CIAC a Complaint with Prayer for Interim
Relief against Malayan. St. Francis alleged that in August 2006, it secured a copy of a document
entitled "cost to complete" from Malayan which fixed the Actual Remaining Construction Cost
(ARCC) at P614,593,565.96. It disputed several cost items in the ARCC, amounting to
P145,487,496.42, and argued that their exclusion would entitle it to some reserved units.

Issues:

1) Whether interest expenses is part of the actual remaining construction cost.


2) Whether Malayan will be unjustly enriched if VAT is considered as part of the
ARCC.
3) Whether Malayan, as the owner of the project, is entitled to all of the civil fruits,
including the rents from the lease of the reserved units.
4) Whether the parties are entitled to attorney’s fees.

Ruling:

1) Interest expenses is not part of the actual remaining construction cost.

Only costs directly related to construction costs should be included in the ARCC. Interest
expense should not be included in the computation of the ARCC because it is not an actual
expenditure necessary to complete the project, but a mere financial cost. If it were the intention
of the parties to include interest expense as part of their investments, or even the ARCC, then the
MOA would have expressly indicated such intent in the provisions on investments of Malayan
and of ASB. Nowhere in the provisions of the MOA can it be gathered that interest expense is
included in the computation of the ARCC.

2) Malayan will not be unjustly enriched if VAT is considered as part of the ARCC. Unjust
enrichment claims do not lie simply because one party benefits from the efforts or obligations of
others, but instead it must be shown that a party was unjustly enriched in the sense that the term
unjustly could mean illegally or unlawfully. In offsetting its input VAT against output VAT,
Malayan is merely availing of the benefits of the tax credit provisions of the law, and it cannot be
said to have benefitted at the expense or to the damage of St. Francis.

3) Malayan is not entitled to all of the civil fruits including the rents from the lease of the
reserved units.

Malayan’s obligation to give the reserved units is unilateral because it was subject to 2
suspensive conditions, i.e., the completion of the project and the determination of the ARCC, the
happening of which are entirely dependent upon Malayan, without any equivalent prestation on
the part of St. Francis. Even if the obligation is unilateral, Malayan cannot appropriate all the civil
fruits received because it could be inferred from the nature and circumstances of the obligation
that the intention of the person constituting the same was different. Section 9(b) of the MOA
states that in the event that Malayan shall pay additional cost and expenses in excess of the RCC,
it shall be entitled to such net saleable areas indicated in Schedule 4 that corresponds to the
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increase in the remaining construction costs, while St. Francis shall be entitled to such remaining
areas, if any.
4) The parties are not entitled to attorney’s fees. None of the exceptions under Article
220872 of the New Civil Code is present in this case. As held in ABS-CBN Broadcasting Corporation
v. Court of Appeals:

The general rule is that attorney’s fees cannot be recovered as part


of damages because of the policy that no premium should be placed
on the right to litigate. They are not to be awarded every time a
party wins a suit. The power of the court to award attorney’s fees
under Article 2208 demands factual, legal, and equitable
justification. Even when a claimant is compelled to litigate with
third persons or to incur expenses to protect his rights, still
attorney’s fees may not be awarded where no sufficient showing of
bad faith could be reflected in a party’s persistence in a case other
than an erroneous conviction of the righteousness of his cause.

QUIETING OF TITLE TO, OR INTEREST IN AND REMOVAL OF INTEREST OR CLOUD


OVER TITLE TO OR INTEREST IN REAL PROPERTY
QUIETING OF TITLE

VILMA QUINTOS, represented by her Attorney-in-Fact FIDEL I. QUINTOS, JR.;


FLORENCIA I. DANCEL, represented by her Attorney-in-Fact FLOVY I. DANCEL; and
CATALINO L. IBARRA, vs. PELAGIA I. NICOLAS, NOLI L. IBARRA, SANTIAGO L. IBARRA,
PEDRO L. IBARRA, DAVID L. IBARRA, GILBERTO L. IBARRA, HEIRS OF AUGUSTO L.
IBARRA, namely CONCHITA R., IBARRA, APOLONIO IBARRA, and NARCISO IBARRA,
and the spouses RECTO CANDELARIO and ROSEMARIE CANDELARIO
G.R. No. 210252, June 16, 2014, J. Velasco, Jr.

For an action to quiet title to prosper, two indispensable requisites must concur, namely: (1)
the plaintiff or complainant has a legal or equitable title to or interest in the real property subject of
the action; and (2) the deed, claim, encumbrance, or proceeding claimed to be casting cloud on the
title must be shown to be in fact invalid or inoperative despite its prima facie appearance of validity
or efficacy. The first requisite was not complied with. Petitioners’ alleged open, continuous,
exclusive, and uninterrupted possession of the subject property is belied by the fact that
respondents, in 2005, entered into a Contract of Lease with the Avico Lending Investor Co. over the
subject lot without any objection from the petitioners. Petitioners’ inability to offer evidence tending
to prove that Bienvenido and Escolastica Ibarra transferred the ownership over the property in favor
of petitioners is likewise fatal to the latter’s claim.

Facts:

Petitioners and respondents are siblings. Their parents, Bienvenido and Escolastica Ibarra,
were the owners of the subject property. By 1999, both Bienvenido and Escolastica had already
passed away, leaving to their 10 children ownership over the subject property. Subsequently,
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sometime in 2002, respondents brought an action for partition against petitioners. It was
dismissed for the failure of the parties to attend the scheduled hearings. It was not appealed and
thus became final.

Thereafter, respondents instead resorted to executing a Deed of Adjudication to transfer


the property in favor of the 10 siblings. TCT No. 318717 was then canceled and TCT No. 390484
was issued in its place by the Registry of Deeds of Tarlac in the names of the 10 heirs of the Ibarra
spouses.

Respondents sold their 7/10 undivided share over the property in favor of their co-
respondents, the spouses Recto and Rosemarie Candelario. A Deed of Absolute Sale was executed
in favor of the spouses and an Agreement of Subdivision was purportedly executed by them and
petitioners. TCT No. 434304 was issued in the name of the Candelarios, covering the 7/10 portion.

Petitioners filed a complaint for Quieting of Title and Damages against respondents
wherein they alleged that upon distribution of their parents’ properties, they received the subject
property and the house constructed thereon as their share. They averred that they have been in
adverse, open, continuous, and uninterrupted possession of the property for over four decades
and are, thus, entitled to equitable title thereto. They also denied any participation in the
execution of the Deed of Adjudication and the Agreement of Subdivision.

During pre-trial, the respondents admitted having filed an action for partition, and that
petitioners did not participate in the Deed of Adjudication that served as the basis for the
issuance of TCT No. 390484, and that the Agreement of Subdivision that led to the issuance of
TCT No. 434304 in favor of spouses Candelario was falsified.

The trial court, however, dismissed the petition. The court did not find merit in the
allegations that the petitioners have acquired title over the property through acquisitive
prescription and noted that there was no document evidencing that their parents bequeathed to
them the subject property.

On appeal, the petitioners added that the partition should no longer be allowed since it is
already barred by res judicata, respondents having already filed a case for partition that was
dismissed with finality. The appellate court affirmed the trial court’s ruling. As to the partition,
CA ruled that it shall be in accordance to the subdivision plan as prepared.

Issue:

1. Whether or not the petitioners were able to prove ownership over the property

2. Whether or not the respondents’ counterclaim for partition is already barred by res
judicata

3. Whether or not the CA was correct in approving the subdivision agreement as basis for
the partition of the property

Ruling:

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1. No, the petitioners were not able to prove their ownership.

For an action to quiet title to prosper, two indispensable requisites must concur, namely:
(1) the plaintiff or complainant has a legal or equitable title to or interest in the real property
subject of the action; and (2) the deed, claim, encumbrance, or proceeding claimed to be casting
cloud on the title must be shown to be in fact invalid or inoperative despite its prima facie
appearance of validity or efficacy.

The first requisite was not complied with. The Court stressed that this issue is
substantially a factual issue that improper to delve into in a petition for review on certiorari under
Rule 45.

Petitioners’ alleged open, continuous, exclusive, and uninterrupted possession of the


subject property is belied by the fact that respondents, in 2005, entered into a Contract of Lease
with the Avico Lending Investor Co. over the subject lot without any objection from the
petitioners. Petitioners’ inability to offer evidence tending to prove that Bienvenido and
Escolastica Ibarra transferred the ownership over the property in favor of petitioners is likewise
fatal to the latter’s claim. On the contrary, Escolastica Ibarra executed a Deed of Sale covering half
of the subject property in favor of all her 10 children, not in favor of petitioners alone.

The Court ruled that all 10 siblings inherited the subject property and after the
respondents sold their aliquot share to the spouses Candelario, petitioners and the spouses
became co-owners of the same.

2. No, respondents’ counterclaim for partition is not barred by res judicata.

The doctrine of res judicata provides that the judgment in a first case is final as to the
claim or demand in controversy, between the parties and those privy with them, not only as to
every matter which was offered and received to sustain or defeat the claim or demand, but as to
any other admissible matter which must have been offered for that purpose and all matters that
could have been adjudged in that case.

There is res judicata when the following requisites are present: (1) the formal judgment or
order must be final; (2) it must be a judgment or order on the merits, that is, it was rendered after
a consideration of the evidence or stipulations submitted by the parties at the trial of the case; (3)
it must have been rendered by a court having jurisdiction over the subject matter and the parties;
and (4) there must be, between the first and second actions, identity of parties, of subject matter
and of cause of action.

The respondents have admitted that their previous petition for partition has been
dismissed and has attained finality. The subject property of said case and in the present
controversy are one and the same, and that in both cases, respondents raise the same action for
partition. And lastly, although respondent spouses Candelario were not party-litigants in the
earlier case for partition, there is identity of parties not only when the parties in the case are the
same, but also between those in privity with them, such as between their successors-in-interest.

Under Section 3 of Rule 17 of the Rules of Court, the dismissal of a case for failure to
prosecute has the effect of adjudication on the merits, and is necessarily understood to be with
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prejudice to the filing of another action, unless otherwise provided in the order of dismissal.
Petitioners claim that the order did not state it to be without prejudice and thus, must be treated
as dismissal on the merits.

However, dismissal with prejudice under Rule 17, Sec. 3 of the Rules of Court cannot
defeat the right of a co-owner to ask for partition at any time, provided that there is no actual
adjudication of ownership of shares yet. Under Art. 494 of the Civil Code, no co-owner shall be
obliged to remain in the co-ownership. Each co-owner may demand at any time the partition of
the thing owned in common, insofar as his share is concerned.

It can be gleaned that the law generally does not favor the retention of co-ownership as a
property relation, and is interested instead in ascertaining the co-owners’ specific shares so as to
prevent the allocation of portions to remain perpetually in limbo.

Between dismissal with prejudice under Rule 17, Sec. 3 and the right granted to co-owners
under Art. 494 of the Civil Code, the latter must prevail. To construe otherwise would diminish
the substantive right of a co-owner through the promulgation of procedural rules. Such a
construction is not sanctioned by the principle that a substantive law cannot be amended by a
procedural rule.

The Court held that that Art. 494 is an exception to Rule 17, Sec. 3 of the Rules of Court to
the effect that even if the order of dismissal for failure to prosecute is silent on whether or not it is
with prejudice, it shall be deemed to be without prejudice.

3. Yes, the Court of Appeals erred in approving the proposal partition submitted by spouses
Candelario.

Art. 496 provides that partition shall either be by agreement of the parties or in
accordance with the Rules of Court. In this case, the Agreement of Subdivision allegedly executed
by spouses Candelario and petitioners cannot serve as basis for partition, for, as stated in the pre-
trial order, respondents admitted that the agreement was a falsity and that petitioners never took
part in preparing the same. The "agreement" was crafted without any consultation whatsoever or
any attempt to arrive at mutually acceptable terms with petitioners. It, therefore, lacked the
essential requisite of consent.

HERMINIO M. DE GUZMAN, FOR HIMSELF AND AS ATTORNEY-IN-FACT OF: NILO M. DE


GUZMAN, ANGELINO DE GUZMAN, JOSEFINO M. DE GUZMAN, ESTRELLA M. DE
GUZMAN, TERESITA DE GUZMAN, ELSA MARGARITA M. DE GUZMAN, EVELYN M. DE
GUZMAN, MA. NIMIA M. DE GUZMAN, ANTOLIN M. DE GUZMAN, AND FERDINAND M.
DE GUZMAN vs. TABANGAO REALTY INCORPORATED
G.R. No. 154262, February 11, 2015, J. Leonardo-De Castro

The petitioners allege that they are the owners of the disputed property. This allegation is
anchored on the assertion that at the time of the death of their parents, the disputed property is still
under the latter’s name. The Supreme Court ruled that for an action to quiet title to prosper, two
indispensable requisites must concur: (1) the plaintiff or complainant has a legal or equitable title or
interest in the real property subject of the action; and (2) the deed, claim, encumbrance, or
proceeding claimed to be casting a cloud on his title must be shown to be in fact invalid or
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inoperative despite its prima facie appearance of validity or legal efficacy. Petitioners’ Complaint in
Civil Case No. TM-1118 failed to allege these two requisites for an action to quiet title.

Facts:

The petitioners filed an action for quieting of title of a land they allegedly owned against
the respondent Tabangao Realty Incorporated. They allege that they inherited the subject land
from their parents and that at the time of the death of their parents, the subject land was still on
their parents’ name and thus, by operation of law they are the alleged owners of the property. In
their complaint they also assert that the right or interest of Tabangao Realty over the subject
property can no longer be asserted by it because it is already barred by prescription and laches. It
is the contention of the petitioners that the failure of Tabangao Realty to cause the consolidation
of the title of the property in their name after the lapse of 13 years from the issuance of the
Certificate of Sherrif’s Sale operated to divest Tabangao Realty of any right as to the property and
therefore the title to the property reverted back to their parents’ and was passed on to them by
way of inheritance.

The Regional Trial Court, however, ruled in favor of Tabangao Realty (it filed a motion to
dismiss the complaint) and dismissed the complaint of the petitioners on the ground that the
complaint states no cause of action. Hence, the current petition.

Issue:

Whether or not the complaint filed by the petitioner states no cause of action.

Ruling:

Yes. The Supreme Court affirmed the order of the RTC dismissing the complaint filed by
the petitioners. It found that the petitioners failed to allege the necessary facts that would
constitute a complaint for quieting of title.

Regarding the nature of the action filed before the trial court, quieting of title is a
common law remedy for the removal of any cloud upon or doubt or uncertainty with respect to
title to real property. Originating in equity jurisprudence, its purpose is to secure “x xx an
adjudication that a claim of title to or an interest in property, adverse to that of the complainant,
is invalid, so that the complainant and those claiming under him may be forever afterward free
from any danger of hostile claim.” In an action for quieting of title, the competent court is tasked
to determine the respective rights of the complainant and other claimants, “x xx not only to place
things in their proper place, to make the one who has no rights to said immovable respect and not
disturb the other, but also for the benefit of both, so that he who has the right would see every
cloud of doubt over the property dissipated, and he could afterwards without fear introduce the
improvements he may desire, to use, and even to abuse the property as he deems best x xx.”

For an action to quiet title to prosper, two indispensable requisites must concur: (1) the
plaintiff or complainant has a legal or equitable title or interest in the real property subject of the
action; and (2) the deed, claim, encumbrance, or proceeding claimed to be casting a cloud on his
title must be shown to be in fact invalid or inoperative despite its prima facie appearance of
validity or legal efficacy.9
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Petitioners’ Complaint in Civil Case No. TM-1118 failed to allege these two requisites for an
action to quiet title.

Petitioners alleged in their Complaint that they were the children and only heirs of the
deceased spouses De Guzman and that the subject property was still registered in spouses De
Guzman’s names under TCT No. 3531. However, these allegations are insufficient to establish
petitioners’ title to the subject property.

Equally notable is the absence of any allegation in the Complaint that Serafin and/or
Josefino, as the judgment obligors in Civil Case No. 120680, or their successors-in-interest,
redeemed the subject property from respondent within the one-year redemption period, which,
reckoned from the date of registration of the Sheriff’s Certificate of Sale on TCT No. 3531 on April
13, 1988, expired on April 13, 1989.

To start with, petitioners base their claim of legal title not on the strength of any
independent writing in their favor but simply and solely on respondent Republic’s failure to
secure the Certificate of Final Sale, execute an Affidavit of Consolidation of Ownership and obtain
a writ of possession over the property in dispute within ten (10) years from the registration of the
Certificate of Sale.

Petitioners’ reliance on the foregoing shortcomings or inactions of respondent Republic


cannot stand.

For one, it bears stressing that petitioners’ predecessors-in-interest lost whatever right
they had over land in question from the very moment they failed to redeem it during the 1-year
period of redemption. Certainly, the Republic’s failure to execute the acts referred to by the
petitioners within ten (10) years from the registration of the Certificate of Sale cannot, in any way,
operate to restore whatever rights petitioners’ predecessors-in-interest had over the same. For
sure, petitioners have yet to cite any provision of law or rule of jurisprudence, and we are not
aware of any, to the effect that the failure of a buyer in a foreclosure sale to secure a Certificate of
Final Sale, execute an Affidavit of Consolidation of Ownership and obtain a writ of possession
over the property thus acquired, within ten (10) years from the registration of the Certificate of
Sale will operate to bring ownership back to him whose property has been previously foreclosed
and sold. x xx.

Quite the contrary, Section 33, Rule 39 of the 1997 Rules of Civil Procedure explicitly
provides that “[u]pon the expiration of the right of redemption, the purchaser or redemptioner
shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor
to the property as of the time of the levy.”

Moreover, with the rule that the expiration of the 1-year redemption period forecloses the
obligor’s right to redeem and that the sale thereby becomes absolute, the issuance thereafter of a
final deed of sale is at best a mere formality and mere confirmation of the title that is already
vested in the purchaser.

Calacala thus settled that Rule 39, Section 33 of the 1997 Rules of Court can be applied
retroactively to cases still pending and undetermined at the time of its passage,12 such as the
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present case. By virtue of said provision, the expiration of the one-year redemption period
foreclosed the right to redeem of the spouses De Guzman (as well as petitioners, as their
successors-in-interest) and the sale of the subject property to respondent became absolute, so
that the issuance thereafter of a final deed of sale and/or conveyance is at best a mere formality
and mere confirmation of the title that was already vested in respondent.

The allegations in petitioners’ Complaint also do not support the second requisite for an
action to quiet title, i.e., that the deed, claim, encumbrance or proceeding alleged to cast cloud on
a plaintiff's title is in fact invalid or inoperative despite its prima facie appearance of validity or
legal efficacy.

CLT REALTY DEVELOPMENT CORPORATION vs. PHIL-VILLE DEVELOPMENT AND


HOUSING CORPORATION, REPUBLIC OF THE PHILIPPINES (THROUGH THE OFFICE OF
THE SOLICITOR GENERAL) AND THE REGISTER OF DEEDS OF METRO MANILA
DISTRICT III, CALOOCAN
G.R. No. 160728, March 11, 2015, J. Leonardo-De Castro

Thus, both requisites in order for an action for quieting of title to prosper have been met in
this case: (1) Phil-Ville had established its equitable title or interest in the 16 parcels of land subject
of the action; and (2) TCT No. T-177013, found to overlap titles to said properties of Phil-Ville, was
previously declared invalid.

Facts:

The controversy in the instant petition originated from a complaint for quieting of title
filed by Respondent Phil-Ville against CLT Realty and the Register of Deeds of Metro Manila
District III. Before the trial court, Phil-Ville claims that it is the registered owner and actual
possessor of sixteen (16) parcels of land in Baesa, Caloocan City and that CLT’s TCT No. T-177013
overlaps the said parcels of land as it covers a vast tract of land denominated as Lot No. 26 of the
Maysilo Estate. Phil-Ville related that it acquired the said parcels from the National Housing
Authority (NHA), which traced its title from OCT No. 994 registered on May 3, 1918, and that CLT
was not among the vendees to whom the NHA dealt the rest of the properties within Lot No. 26.

For its part, CLT claims that it derived Lot 26 from Estelita Hipolito, who, in turn, got her
title from a certain Jose Dimson. It further alleged that Dimson acquired an interest over Lot 26 as
per court order issued by the CFI of Rizal in 1966 awarding him 25% interest as attorney’s fees in
the properties inherited by the Heirs of Maria de la Concepcion Vidal, covered then by OCT No.
994 registered on April 19, 1917, which includes the portions of the disputed Lot No. 26.

The trial court held that there was no doubt that the lots described in Phil-Ville’s titles are
clearly located within the large area of Lot No. 26 of the Maysilo Estate, supposedly covered by
CLT’s TCT No. T-177013. In declaring Phil-Ville as true, absolute and legitimate owner of the 16
parcels of land, among other arguments, the court took note that when CLT purchased the land
in 1988 from Hipolito, the latter’s title had an annotation which should have put CLT on guard on
the veracity of the proprietary interest, viz:

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“Pursuant to Ministry Opinion No. 239 dated November 4, 1982. Notice is hereby
given that this title is subject to the verification by the LRC Verification
Committee on questionable titles, plans, decrees and other documents.”

The court further elucidated that CLT has in a position to ascertain that the attorney’s lien
of Dimson affecting the interests of the Heirs of de la Concepcion Vidal remained unsettled. Ergo,
“[t]he acquisition of [Lot No. 26] by Estelita Hipolito from Dimson … as well as the subse-quent
acquisition of the same lot by [CLT] from Hipolito …, were both likewise subject to the condition …”

CLT appealed this decision by the trial court nullifying its title to the CA. The appellate
court in its assailed decision and resolution ruled, among others, that “CLT is not an innocent
transferee of whatever interest Dimson had on Lot No. 26 because it took said title of Dimson on
condition that there remained undis-posed portion of Lot No. 26 in the intestate estate of Maria
De La Concepcion Vidal and subject to the verification of the LRC Verification Committee.”

Issue:

Whether or not CLT’s TCT No. T-177013 imposes a cloud on Phil-Ville’s titles correspon-
ding to the 16 parceles of land in question, as provided in Art. 476 of the Civil Code.

Ruling:

YES, the title of CLT must be finally nullified.

In Phil-Ville Development and Housing Corporation vs. Bonifacio, the Court explained the
nature of and requisites under [quieting of title] in the following manner:

“Quieting of title is a common law remedy for the removal of any cloud upon, doubt,
or uncertainty affecting title to real property. Whenever there is a cloud on title to
real property or any interest in real property by reason of any instrument, record,
claim, encumbrance, or proceeding that is apparently valid or effective, but is, in
truth and in fact, invalid, ineffective, voidable, or unenforceable, and may be
prejudicial to said title, an action may be brought to remove such cloud or to quiet
the title. In such action, the competent court is tasked to determine the respective
rights of the complainant and the other claimants, not only to place things in their
proper places, and make the claimant, who has no rights to said immovable, respect
and not disturb the one so entitled, but also for the benefit of both...

“In order that an action for quieting of title may prosper, two requisites must concur:
(1) the plaintiff or complainant has a legal or equitable title or interest in the real
property subject of the action; and (2) the deed, claim, encumbrance, or proceeding
claimed to be casting cloud on his title must be shown to be in fact invalid or
inoperative despite its prima facie appearance of validity or legal efficacy.

xxxx xxxx

“Thus, the cloud on title consists of: (1) any instrument, record, claim, encumbrance
or proceeding; (2) which is apparently valid or effective; (3) but is in truth and in fact
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invalid, ineffective, voidable, or unenforceable; and (4) may be prejudicial to the title
sought to be quieted.”

The trial court and the CA both arrived at the conclusion that Phil-Ville had a valid title to
the 16 parcels of land subject of the complaint, and that CLT’s title is invalid despite its prima
facie appearance of validity. The Court is already bound by the factual findings of the courts a
quo.

The CA [ruled] based on the evidence presented on trial even prior to [the Court’s]
issuance of the historically-significant en banc resolutions in the consolidated cases, commonly
entitled Manotok Realty, Inc. vs. CLT Realty Development Corp., wherein the Court reconsidered
and reversed its earlier decision in the same case, as well as related, previously decided cases,
referring to OCT No. 994 ... There were two resolutions in said cases, one dated December 15,
2007 (the 2007 Manotok Resolution) and a subsequent one dated March 31, 2009 (the 2009
Manotok Resolution).

Of particular relevance to this present case is the ruling in the 2009 Manotok Resolution
that TCT No. T-177013, the certificate of title of herein CLT, who is also a party to said consoli-
dated cases, is null and void. Therefore, the cloud on Phil-Ville’s 16 titles subject matter of the
complaint had already been removed.

In Manotok, it was established that the true date of OCT No. 994 is May 3, 1917, and that
there is only one OCT No. 994. The decree of registration was issued on April 19, 1917, and actually
“received for transcription” by the Register of Deeds on May 3, 1917. Thus, all the titles that traced
its roots to the spurious OCT No. 994 dated April 19, 1917 were invalidated, including herein CLT’s
TCT No. T-177013. As held by the Court:

“It is evident from all three titles — CLT's, Hipolito’s and Dimson’s — that the
properties they purport to cover were ‘originally registered on the 19th day April, in
the year [1917] in the Registration Book...’ Note, as earlier established, there is no
such OCT No. 994 originally registered on 19 April 1917.

xxxx xxxx

“From these premises, the Court is able to make the following binding conclusions.
First, there is only one OCT No. 994. As it appears on the record, that mother title
was received for transcription by the Register of Deeds on 3 May 1917, and that
should be the date which should be reckoned as the date of registration of the title. It
may also be acknowledged, as appears on the title, that OCT No. 994 resulted from
the issuance of the decree of registration on 17 April 1917...

“Second. Any title that traces its source to OCT No. 994 dated 17 April 1917 is void,
for such mother title is inexistent. The fact that the Dimson and CLT titles made
specific reference to an OCT No. 994 dated 17 April 1917 casts doubt on the validity of
such titles since they refer to an inexistent OCT. This error alone is, in fact, sufficient
to invalidate the Dimson and CLT claims over the subject property if singular
reliance is placed by them on the dates appearing on their respective titles.”

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As a matter of fact, in Alfonso vs. Office of the President and Phil-Ville Development and
Housing Corporation, the Court penalized the former register of deeds of Caloocan who
acquiesced to the change of the date of registration of OCT No. 994 from May 3, 1917 to April 19,
1917, which wreaked havoc on our country’s land titling system, and led to much confusion that
continued to “rear its ugly head” in many cases pending before the courts.

It has taken all three branches of government to correct the massive confusion caused by
the fake titles purportedly covering various portions of the Maysilo Estate. In Manotok, the Court
took note of the DOJ Report dated August 28, 1997 as well as the Senate Report dated May 25,
1998, which the Solicitor General contended should be considered by the Court as evidence. xxx
What the Court in the 2007 Manotok Resolution did was to conduct its own investigation as to
the controversy, and not just rely on the reports presented by the Solicitor General from both the
executive and the legislative departments, and to remand the case to a Special Division of the CA
for reception of further evidence.

In the 2009 Manotok Resolution, the Court held that the Report (of the Special Division)
“is a commendably exhaustive and pellucid analysis of the issues referred to the Special Division”
and “is a more than adequate basis” for the Court to make its final dispositions in the consoli-
dated cases. [The Court quotes] the portions of the 2009 Manotok Resolution referring to the CLT
title, as follows:

“The ultimate purpose of the inquiry undertaken by the [CA] was to ascertain which
of the four groups of claimants were entitled to claim ownership over the subject
properties to which they claimed title thereto. One set of properties was disputed
between CLT and the Manotoks, while the other set was disputed between Araneta
and the Heirs of Dimson.

xxxx xxxx

“Another property in Dimson’s name, apparently taken from [Lot No. 26] of the
Maysilo Estate, was later sold to Estelita Hipolito, who in turn sold the same to CLT.
Said property was registered by CLT under TCT No. T- 177013, which also reflected,
as its mother title, OCT No. 994 dated 19 April 1917. Said property claimed by CLT
encroached on property covered by titles in the name of the Manotoks. The
Manotoks traced their titles to TCT Nos. 4210 and 4211, both issued in 1918 and both
reflecting, as their mother title, OCT No. 994 dated 3 May 1917.

xxxx xxxx

“It is evident that both the Heirs of Dimson and CLT had primarily relied on the
validity of OCT No. 994 dated 19 April 1917 as the basis of their claim of ownership.
However, the Court in its 2007 Resolution held that OCT No. 994 dated 19 April 1917
was inexistent. The proceedings before the Special Division afforded the Heirs of
Dimson and CLT alike the opportunity to prove the validity of their respective claims
to title based on evidence other than claims to title the inexistent 19 April 1917 OCT
No. 994.

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In view of the foregoing disquisitions, invalidating the titles of Dimson, the title of
CLT should also be declared a nullity inasmuch as the nullity of the titles of Dimson
necessarily upended CLT’s propriety claims. As earlier highlighted, CLT had
anchored its claim on the strength of Hipolito’s title and that of [Dimson’s title].
Remarkably and curiously though, [Dimson’s title] was never presented in evidence
for purposes of tracing the validity of titles of CLT. xxx.

Moreover, considering that the land title of CLT carried annotations identical to
those of Dimson and consequently included the defects in Dimson’s title, the fact
that whatever typographical errors were not at anytime cured by subsequent
compliance with the administrative requirements or subjected to administrative
correction bolsters the invalidity of the CLT title due to its complete and sole
dependence on the void Dimson title.

Thus, both requisites in order for an action for quieting of title to prosper have been met
in this case: (1) Phil-Ville had established its equitable title or interest in the 16 parcels of land
subject of the action; and (2) TCT No. T-177013, found to overlap titles to said properties of Phil-
Ville, was previously declared invalid.

HEIRS OF DELFIN AND MARIA TAPPA v. HEIRS OF BACUD, CALABAZARON, AND


MALUPENG
G.R. No. 187633, April 4, 2016; Jardaleza

Facts:

This case involves Lot No. 3341, a parcel of land located in Kongcong, Cabbo, Pefiablanca,
Cagayan, with an area of 21,879 square meters. Spouses Tappa alleged that they are the registered
owners of Lot No. 3341, having been issued an Original Certificate of Title No. P-69103 (OCT No.
P-69103) on September 18, 1992, by virtue of Free Patent No. 021519-92-3194. Delfin allegedly
inherited Lot No. 3341 from his father, Lorenzo Tappa (Lorenzo). Spouses Tappa claimed that
both Delfin and Lorenzo were in open, continuous, notorious, exclusive possession of the lot since
time immemorial.

On the other hand, respondents allege that they are the heirs and/or successors-in-interest of
Irene Tappa, the sister of Lorenzo. They allege that the subject property was originally owned by
Genaro Tappa, who had two children, Lorenzo and Irene. Upon Genaro’s death, the property
passed on to Lorenzo and Irene, and as co-owners, they each owned 10,939 square meters.
Lorenzo had three (3) children namely, Delfin, Primitiva, and Fermina, while Irene had four (4)
children, namely, Demetria, Juanita, Pantaleon, and Jose Bacud.

Calabazaron claims that his ownership derives from the share of Demetria and Juanita, who sold
their share of the property to him. Malupeng on the other hand, claims that he bought the share
of Pantaleon. Jose Bacud’s ownership is derived from his being a direct heir of Irene.

Respondents presented before the RTC a joint affidavit dated April 29, 1963 (1963 Affidavit) signed
by Delfin, his sisters, Primitiva and Fermina, and their mother, Modesta Angoluan. The 1963
affidavit stated that Genaro originally owned Lot No. 3341. It further stated that one-half of the
property was owned by Lorenzo; but that the whole property was declared as his, only for taxation
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purposes. Petitioners countered that the 1963 Affidavit was executed through force and
intimidation.

The RTC ruled in favor of petitioners and ordered the respondents to reconvey their respective
portions of the property to petitioners. The trial court ratiocinated that Delfin and Maria's title is
clear and unequivocal, and its validity has never been assailed by the defendants – nor has any
evidence been adduced that successfully overcomes the presumption of validity and legality that
the title of Delfin and Maria enjoys.

On appeal, the CA reversed the Decision of the RTC, finding that the respondents’ possession
from 1963 had already ripened into ownership through acquisitive prescription. The CA noted
that Spouses Tappa acknowledged in their complaint that they have not been in possession of the
lot, and that respondents have been continuously occupying portions of it since 1963. The CA
further ruled that the two indispensable requisites for an action to quiet title under Articles 476
and 477 of the Civil Code were not met. The first requisite is absent because petitioners do not
have a legal or an equitable title or an interest in the property because the free patent granted to
Spouses Tappa produced to legal effect the property being already private land by virtue of the
acquisitive prescription in favor of the respondents. The second requisite that the deed, claim,
encumbrance or proceeding claimed to be casting cloud on the title must be shown to be in fact
invalid or inoperative despite its prima facie appearance of validity is likewise unavailing. The CA
ruled that no other evidence (aside from Delfin's own testimony) was presented to prove the
allegation of fraud and intimidation, making the testimony self-serving.

Issues:

1) Whether or not the CA correctly dismissed the Spouses Tappa’s complaint for quieting of
title against respondents.

Ruling:

1) Yes, the two requirements for the successful prosecution of a quieting of title case, as laid
down in Articles 476 and 477, are not present, mainly: (1) the plaintiff or complainant has
a legal or an equitable title to or interest in the real property subject of the action; and (2)
the deed, claim, encumbrance or proceeding claimed to be casting cloud on his title must
be shown to be in fact invalid or inoperative despite its prima facie appearance of validity
or legal efficacy.

The CA is correct that at the time of the application for free patent, Lot No. 3341 had already
become private land by virtue of the open, continuous, exclusive, and notorious possession by
respondents. Hence, Lot No. 3341 had been removed from the coverage of the Public Land Act,
which governs public patent applications.

The second requisite for an action to quiet title is likewise wanting. Although an instrument (the
1963 Affidavit) exists, and which allegedly casts cloud on Spouses Tappa's title, it was not shown
to be in fact invalid or ineffective against Spouses Tappa's rights to the property.

A cloud on a title exists when (1) there is an instrument (deed, or contract) or record or claim or
encumbrance or proceeding; (2) which is apparently valid or effective; (3) but is, in truth and in
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fact, invalid, ineffective, voidable, or unenforceable or extinguished (or terminated) or barred by


extinctive prescription; and (4) and may be prejudicial to the title.

Lastly, there is no collateral attack on the certificate of title of Lot No. 3441. What cannot be
collaterally attacked is the certificate of title and not the title.

HEIRS OF DELFIN AND MARIA TAPPA v. HEIRS OF BACUD, CALABAZARON, AND


MALUPENG
G.R. No. 187633, April 4, 2016; Jardaleza

Facts:

This case involves Lot No. 3341, a parcel of land located in Kongcong, Cabbo, Pefiablanca,
Cagayan, with an area of 21,879 square meters. Spouses Tappa alleged that they are the registered
owners of Lot No. 3341, having been issued an Original Certificate of Title No. P-69103 (OCT No.
P-69103) on September 18, 1992, by virtue of Free Patent No. 021519-92-3194. Delfin allegedly
inherited Lot No. 3341 from his father, Lorenzo Tappa (Lorenzo). Spouses Tappa claimed that
both Delfin and Lorenzo were in open, continuous, notorious, exclusive possession of the lot since
time immemorial.

On the other hand, respondents allege that they are the heirs and/or successors-in-interest of
Irene Tappa, the sister of Lorenzo. They allege that the subject property was originally owned by
Genaro Tappa, who had two children, Lorenzo and Irene. Upon Genaro’s death, the property
passed on to Lorenzo and Irene, and as co-owners, they each owned 10,939 square meters.
Lorenzo had three (3) children namely, Delfin, Primitiva, and Fermina, while Irene had four (4)
children, namely, Demetria, Juanita, Pantaleon, and Jose Bacud.

Calabazaron claims that his ownership derives from the share of Demetria and Juanita, who sold
their share of the property to him. Malupeng on the other hand, claims that he bought the share
of Pantaleon. Jose Bacud’s ownership is derived from his being a direct heir of Irene.

Respondents presented before the RTC a joint affidavit dated April 29, 1963 (1963 Affidavit) signed
by Delfin, his sisters, Primitiva and Fermina, and their mother, Modesta Angoluan. The 1963
affidavit stated that Genaro originally owned Lot No. 3341. It further stated that one-half of the
property was owned by Lorenzo; but that the whole property was declared as his, only for taxation
purposes. Petitioners countered that the 1963 Affidavit was executed through force and
intimidation.

The RTC ruled in favor of petitioners and ordered the respondents to reconvey their respective
portions of the property to petitioners. The trial court ratiocinated that Delfin and Maria's title is
clear and unequivocal, and its validity has never been assailed by the defendants – nor has any
evidence been adduced that successfully overcomes the presumption of validity and legality that
the title of Delfin and Maria enjoys.

On appeal, the CA reversed the Decision of the RTC, finding that the respondents’ possession
from 1963 had already ripened into ownership through acquisitive prescription. The CA noted
that Spouses Tappa acknowledged in their complaint that they have not been in possession of the
lot, and that respondents have been continuously occupying portions of it since 1963. The CA
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further ruled that the two indispensable requisites for an action to quiet title under Articles 476
and 477 of the Civil Code were not met. The first requisite is absent because petitioners do not
have a legal or an equitable title or an interest in the property because the free patent granted to
Spouses Tappa produced to legal effect the property being already private land by virtue of the
acquisitive prescription in favor of the respondents. The second requisite that the deed, claim,
encumbrance or proceeding claimed to be casting cloud on the title must be shown to be in fact
invalid or inoperative despite its prima facie appearance of validity is likewise unavailing. The CA
ruled that no other evidence (aside from Delfin's own testimony) was presented to prove the
allegation of fraud and intimidation, making the testimony self-serving.

Issues:

1) Whether or not the CA correctly dismissed the Spouses Tappa’s complaint for quieting of
title against respondents.

Ruling:

1) Yes, the two requirements for the successful prosecution of a quieting of title case, as laid
down in Articles 476 and 477, are not present, mainly: (1) the plaintiff or complainant has
a legal or an equitable title to or interest in the real property subject of the action; and (2)
the deed, claim, encumbrance or proceeding claimed to be casting cloud on his title must
be shown to be in fact invalid or inoperative despite its prima facie appearance of validity
or legal efficacy.

The CA is correct that at the time of the application for free patent, Lot No. 3341 had already
become private land by virtue of the open, continuous, exclusive, and notorious possession by
respondents. Hence, Lot No. 3341 had been removed from the coverage of the Public Land Act,
which governs public patent applications.

The second requisite for an action to quiet title is likewise wanting. Although an instrument (the
1963 Affidavit) exists, and which allegedly casts cloud on Spouses Tappa's title, it was not shown
to be in fact invalid or ineffective against Spouses Tappa's rights to the property.

A cloud on a title exists when (1) there is an instrument (deed, or contract) or record or claim or
encumbrance or proceeding; (2) which is apparently valid or effective; (3) but is, in truth and in
fact, invalid, ineffective, voidable, or unenforceable or extinguished (or terminated) or barred by
extinctive prescription; and (4) and may be prejudicial to the title.

Lastly, there is no collateral attack on the certificate of title of Lot No. 3441. What cannot be
collaterally attacked is the certificate of title and not the title.
and a businessman. CO-OWNERSHIP

TEODORO S. TEODORO (DECEASED), SUBSTITUTED BY HIS HEIRS/SONS NELSON


TEODORO AND ROLANDO TEODORO vs. DANILO ESPINO, ROSARIO SANTIAGO,
JULIANA CASTILLO, PAULINA LITAO, RAQUEL RODRIGUEZ, RUFINA DELA CRUZ,
AND LEONILA CRUZ
G.R. No. 189248. February 05, 2014 J. Perez
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When a certain property remains to be registered in the name of the deceased ancestor, the
property becomes the co-owned property of all the heirs entitled to it. All of them are entitled to
exercise ownership and possession over the said property. Since, both parties assert prior and
exclusive physical possession in the concept of owner acquired through succession from the same
decedent, their aunt and grand aunt, respectively, Petra, and in turn, Petra inherited the property
from her father Genaro, in whose name the subject property is still registered, all of the heirs are co-
owners of the property. As co-owners, they are all entitled to the use and possession of the property.

Facts:

The subject property is a portion within Cadastral Lot No. 2476 with a total area of 248 square
meters, covered by Tax Declaration No. 99-05003-0246, registered in the name of Genaro, long
deceased ascendant of all the parties. The subject property pertains to the vacant lot where the
old ancestral house of Genaro stood until its demolition in June 2004, at the instance of Teodoro
Teodoro.

Genaro had five children: Santiago; Maria, from whom respondents descended and trace their
claim of ownership and right of possession; Petra, Mariano, Teodoro Teodoro’s father; and Ana.
Genaro and his children are all deceased.

Respondents’ respective parents are first cousins of Teodoro Teodoro. All parties are collateral
relatives of Petra Teodoro: Teodoro Teodoro is her nephew while respondents are her
grandnephews and grandnieces, descendants of Petra’s sister, Maria Teodoro.

Of all Genaro’s children, only Petra occupied the subject property, living at the ancestral house.
Genaro’s other children, specifically Santiago, Maria and Mariano were bequeathed, and stayed at,
a different property within the same locality, still from the estate of their father.

After Petra’s death, her purported will, a holographic will, was probated in Special Proceedings,
which Decision on the will’s extrinsic validity has become final and executory. In the will, Petra,
asserting ownership, devised the subject property to Teodoro Teodoro. Teodoro Teodoro effected
the demolition of the ancestral house, intending to use the subject property for other purposes.

Soon thereafter, respondents, who resided at portions of Lot No. 2476 that surround the subject
property on which the ancestral house previously stood, erected a fence on the surrounding
portion, barricaded its frontage, and put up a sign thereat, effectively dispossessing Teodoro
Teodoro of the property bequeathed to him by Petra.

After Teodoro Teodoro’s demand for respondents to vacate the subject property went unheeded,
he filed the complaint for forcible entry against respondents. In their Answer, respondents
asserted their own ownership and possession of the subject property.

MTC dismissed the complaint, ruling on the issue of ownership and ultimately resolving the issue
of who between Teodoro Teodoro and respondents had a better right to possess the subject
property. The RTC, in its appellate jurisdiction over forcible entry cases, acting on Teodoro
Teodoro’s appeal, adopted the factual findings of the MTC, but reversed the ruling, ruled in favor
of Teodoro Teodoro and ordered the ejectment of respondents from the subject property.

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Respondents then appealed the RTC’s decision to the Court of Appeals. The appellate court
reversed the RTC, likewise dismissed the complaint as the MTC had done, but did not reach the
same result as that of the inferior court. In all, the appellate court found that Teodoro Teodoro
(substituted by his heirs Nelson and Rolando Teodoro at that juncture) “failed to discharge the
burden of proof that he had prior actual physical possession of the subject [property] before it was
barricaded by [respondents] to warrant the institution of the forcible entry suit. Hence, this
petition.

Issue:

Whether the act of respondents in barricading the frontage of the portion of Lot No. 2476 on
which stood the ancestral house occupied by Petra amounted to Teodoro Teodoro’s unlawful
dispossession thereof through the forcible entry of respondents

Ruling:

In this case, both parties assert prior and exclusive physical possession in the concept of
owner acquired through succession from the same decedent, their aunt and grand aunt,
respectively, Petra. In turn, Petra inherited the property from her father Genaro, in whose name
the subject property is still registered.

The court grants the petition. It reverses the decision of the Court of Appeals and restore the
decision of the RTC on the appeal reversing the MTC.

The court likewise affirms the finding of fact by the RTC which is decisive of the issue that has
remained unresolved inspite of a summary procedure and two appellate reviews of the forcible
entry case filed by Teodoro Teodoro.

In the sense that Teodoro Teodoro has not proven exclusive ownership, the MTC was right. But
exclusive ownership of Lot No. 2476 or a portion thereof is not in this case required of Teodoro
Teodoro for him to be entitled to possession. Co-ownership, the finding of both the MTC at first
instance and by the RTC on appeal, is sufficient. The pertinent provisions of the Civil Code state:

Art. 484. There is co-ownership whenever the ownership of an undivided thing or


right belongs to different persons.

Art. 1078. When there are two or more heirs, the whole estate of the decedent is,
before its partition, owned in common by such heirs, subject to the payment of debts
of the deceased.

Certainly, and as found by the trial courts, the whole of Lot No. 2476 including the portion
now litigated is, owing to the fact that it has remained registered in the name of Genaro who
is the common ancestor of both parties herein, co-owned property. All, or both Teodoro
Teodoro and respondents are entitled to exercise the right of possession as co-owners.
Neither party can exclude the other from possession. Although the property remains
unpartitioned, the respondents in fact possess specific areas. Teodoro Teodoro can likewise
point to a specific area, which is that which was possessed by Petra. Teodoro Teodoro
cannot be dispossessed of such area, not only by virtue of Petra’s bequeathal in his favor but
also because of his own right of possession that comes from his co-ownership of the
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property. As the RTC concluded, petitioners, as heirs substituting Teodoro Teodoro in this
suit, should be restored in the lawful possession of the disputed area.

EXTRAORDINARY DEVELOPMENT CORPORATION vs. HERMINIA F. SAMSON-BICO and


ELY B. FLESTADO
G.R. No. 191090, October 13, 2014, J. Perez

A co-owner cannot rightfully dispose of a particular portion of a co-owned property prior to


partition among all the co-owners. However, this should not signify that the vendee does not acquire
anything at all in case a physically segregated area of the co-owned lot is in fact sold to him. Since
the co-owner/vendor’s undivided interest could properly be the object of the contract of sale between
the parties, what the vendee obtains by virtue of such a sale are the same rights as the vendor had as
co-owner, in an ideal share equivalent to the consideration given under their transaction. In other
words, the vendee steps into the shoes of the vendor as co-owner and acquires a proportionate
abstract share in the property held in common.

Facts:

Apolonio Ballesteros (Apolonio) and Maria Membrebe (Maria) were husband and wife.
They begot two (2) children, namely, Juan M. Ballesteros (Juan), who married Leonarda
Tambongco (Leonarda) and Irenea Ballesteros (Irenea), who married Santiago Samson (Santiago).

During his lifetime, Apolonio owned a parcel of land consisting of 29,748 square meters
situated at Barangay Pantok, Binangonan, Rizal. When Apolonio and Maria died, the property was
inherited by Juan and Irenea. When the latter died, the heirs of Juan and Irenea became co-
owners of the property.

On 16 April 2002, the heirs of Juan, without the consent of respondents, the heirs of Irenea
executed in favor of petitioner EDC a Deed of Absolute Sale covering the subject property for
P2,974,800.00. Prior to the sale, respondents claimed that they learned that the property had been
the subject of a contract to sell between the heirs of Juan and EDC. On 7 March 2000, respondents
wrote to EDC informing it of the existence of coownership over the subject property. EDC wrote
back that it will look into the matter and asked respondents to further establish the basis of their
claims.

EDC was able to cause the registration of the Deed of Absolute Sale with the Office of the
Provincial Assessor Rizal and transfer the tax declaration over the subject property in its name.
This prompted respondents to file the Complaint for Annulment of Contract and Reconveyance of
Possession with Damages.
In its Answer, EDC alleged that it is a buyer in good faith and for value of the subject
property because it was of the honest belief that the heirs of Juan are the only heirs of the late
Apolonio. On the other hand, the heirs of Juan asserted that respondents were aware of and were
parties to the contract to sell entered into by them and EDC. The heirs of Juan claimed that
respondents received their share in the downpayment made by EDC but they were both unpaid of
the balance on the cost of the land.

The RTC ruled in favor of respondents. EDC appealed to the Court of Appeals. The Court
of Appeals partially granted the appeal. The Court of Appeals ruled that respondents were able to
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establish their co-ownership over one-half of the subject property. The appellate court pointed
out that the heirs of Juan categorically admitted in their Answer, as well as during the hearing the
existence of co-ownership. The appellate court agreed with the trial court’s finding that the heirs
of Juan, as co-owners, could only alienate or convey to EDC their one-half portion of the subject
property which may be allotted to them in the division upon the termination of the co-ownership.
Thus, the sale will affect only their share but not those of the other co-owners who did not
consent to the sale. However, the appellate court reversed the ruling of the trial court that the
Deed of Absolute Sale is null and void. According to the appellate court, the same is valid with
respect to the transfer of the rights of the co-owners sellers heirs of Juan over the one-half portion
of the subject property, thereby making EDC a co-owner thereof. Aggrieved, EDC filed this
present petition.

Issue:

Whether or not the Court of Appeals committed grave error in ruling that the respondents
are entitled to ½ of the Property.

Ruling: No

As borne by the records, respondents were able to convincingly establish their co-
ownership over one-half of the subject property. Herminia has successfully established her
successional rights over the subject property through her clear testimony and admitted by the
opposing counsel.

In a contract of sale, it is essential that the seller is the owner of the property he is selling.
Under Article 1458 of the Civil Code, the principal obligation of a seller is to transfer the
ownership of the property sold. Also, Article 1459 of the Civil Code provides that the thing must
be licit and the vendor must have a right to transfer the ownership thereof at the time it is
delivered. The execution by appellants Ballesteros of the Deed of Absolute Sale over the subject
property which they do not exclusively own but is admittedly co-owned by them together with
the respondents, was valid only to the extent of the former’s undivided one-half share thereof, as
they had no title or interest to transfer the other one-half portion which pertains to the
respondents without the latter’s consent. It is an established principle that no one can give what
one does not have – nemo dat quod non habet. Accordingly, one can sell only what one owns or is
authorized to sell, and the buyer can acquire no more than what the seller can transfer legally.
Thus, since appellant EDC’s rights over the subject property originated from sellers-appellants
Ballesteros, said corporation merely stepped into the shoes of its sellers and cannot have a better
right than what its sellers have. Indeed, a spring cannot rise higher than its source. Moreover,
EDC was given an ample opportunity to be heard through counsel. The essence of due process is
the right to be heard. Due process is satisfied when the parties are afforded a fair and reasonable
opportunity to explain their respective sides of the controversy. Thus, when the party seeking due
process was in fact given several opportunities to be heard and air his side, but it is by his own
fault or choice he squanders these chances, then his cry for due process must fail.

Having established respondents’ co-ownership rights over the subject property, we find no
error in the appellate court’s ruling sustaining the validity of the Deed of Absolute Sale but only
with respect to the rights of the heirs of Juan over one-half of the property.

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Article 493 of the Civil Code recognizes the absolute right of a co-owner to freely dispose
of his pro indiviso share as well as the fruits and other benefits arising from that share,
independently of the other coowners, thus:

Art. 493. Each co-owner shall have the full ownership of his part 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.

In Spouses Del Campo v. Court of Appeals, we had the occasion to expound the rights of a
co-owner vis-à-vis the vendee, thus:

x x x Would the sale by a co-owner of a physical portion of an undivided property held in


common be valid? x x x

On the first issue, it seems plain to us that the trial court concluded that petitioners could
not have acquired ownership of the subject land which originally formed part of Lot 162, on the
ground that their alleged right springs from a void sale transaction between Salome and Soledad.
The mere fact that Salome purportedly transferred a definite portion of the co-owned lot by metes
and bounds to Soledad, however, does not per se render the sale a nullity. This much is evident
under Article 493 of the Civil Code and pertinent jurisprudence on the matter. More particularly
in Lopez vs. Vda. De Cuaycong, et. al. which we find relevant, the Court, speaking through Mr.
Justice Bocobo, held that:

…The fact that the agreement in question purported to sell a concrete portion of the
hacienda does not render the sale void, for it is a well-established principle that the binding force
of a contract must be recognized as far as it is legally possible to do so. "Quando res non valet ut
ago, valeat quantum valere potest." (When a thing is of no force as I do it, it shall have as much
force as it can have.)

Applying this principle to the instant case, there can be no doubt that the transaction
entered into by Salome and Soledad could be legally recognized in its entirety since the object of
the sale did not even exceed the ideal shares held by the former in the co-ownership. As a matter
of fact, the deed of sale executed between the parties expressly stipulated that the portion of Lot
162 sold to Soledad would be taken from Salome’s 4/16 undivided interest in said lot, which the
latter could validly transfer in whole or in part even without the consent of the other co-owners.
Salome’s right to sell part of her undivided interest in the co-owned property is absolute in
accordance with the well-settled doctrine that a co-owner has full ownership of his pro-indiviso
share and has the right to alienate, assign or mortgage it, and substitute another person in its
enjoyment. Since Salome’s clear intention was to sell merely part of her aliquot share in Lot 162, in
our view no valid objection can be made against it and the sale can be given effect to the full
extent.

We are not unaware of the principle that a co-owner cannot rightfully dispose of a
particular portion of a co-owned property prior to partition among all the co-owners. However,
this should not signify that the vendee does not acquire anything at all in case a physically
segregated area of the co-owned lot is in fact sold to him. Since the co-owner/vendor’s undivided
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interest could properly be the object of the contract of sale between the parties, what the vendee
obtains by virtue of such a sale are the same rights as the vendor had as co-owner, in an ideal
share equivalent to the consideration given under their transaction. In other words, the vendee
steps into the shoes of the vendor as co-owner and acquires a proportionate abstract share in the
property held in common.

VICENTE TORRES, JR., CARLOS VELEZ, AND THE HEIRS OF MARIANO VELEZ, NAMELY:
ANITA CHIONG VELEZ, ROBERT OSCAR CHIONG VELEZ, SARAH JEAN CHIONG VELEZ
AND TED CHIONG VELEZ vs. LORENZO LAPINID AND JESUS VELEZ
G.R. No. 187987, November 26, 2014, J. Perez

Under Article 493 of the New Civil Code, a co-owner has an absolute ownership of his
undivided and pro-indiviso share in the co-owned property. He has the right to alienate, assign and
mortgage it, even to the extent of substituting a third person in its enjoyment provided that no
personal rights will be affected. In this case, Jesus can validly alienate his co-owned property in favor
of Lapinid, free from any opposition from the co-owners. Lapinid, as a transferee, validly obtained
the same rights of Jesus from the date of the execution of a valid sale. Absent any proof that the sale
was not perfected, the validity of sale subsists. In essence, Lapinid steps into the shoes of Jesus as co-
owner of an ideal and proportionate share in the property held in common. Thus, from the
perfection of contract on 9 November 1997, Lapinid eventually became a co-owner of the property.
Even assuming that the petitioners are correct in their allegation that the disposition in favor of
Lapinid before partition was a concrete or definite portion, the validity of sale still prevails.

Facts:

Vicente Torres, Jr. (Vicente), Mariano Velez (Mariano) and Carlos Velez (Petitioners) filed
a Complaint before RTC Cebu City praying for the nullification of the sale of real property by
respondent Jesus Velez (Jesus) in favor of Lapinid; the recovery of possession and ownership of
the property; and the payment of damages.

Petitioners alleged in their complaint that they, including Jesus, are co-owners of several
parcels of land including the disputed Lot. No. 4389 located at Cogon, Carcar, Cebu. Sometime in
1993, Jesus filed an action for partition of the parcels of land against the petitioners and other co-
owners before Branch 21 of RTC Cebu City.

On 13 August 2001, a judgment was rendered based on a compromise agreement signed by


the parties wherein they agreed that Jesus, Mariano and Vicente were jointly authorized to sell the
said properties and receive the proceeds thereof and distribute them to all the co-owners.
However, the agreement was later amended to exclude Jesus as an authorized seller. Petitioners
inspected the property and discovered that Lapinid was occupying a specific portion of the 3000
square meters of Lot No. 4389 by virtue of a deed of sale executed by Jesus in favor of Lapinid. It
was pointed out by petitioners that as a consequence of what they discovered, a forcible entry
case was filed against Lapinid.

The petitioners prayed that the deed of sale be declared null and void arguing that the sale
of a definite portion of a co-owned property without notice to the other co-owners is without
force and effect. Further, they prayed for payment of rental fees amounting to P1,000.00 per

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month from January 2004 or from the time of deprivation of property in addition to attorney’s
fees and litigation expenses.

Jesus admitted that there was a partition case between him and the petitioners filed in
1993 involving several parcels of land including the contested Lot No. 4389. However, he insisted
that as early as 6 November 1997, a motion was signed by the co-owners (including the
petitioners) wherein Lot No. 4389 was agreed to be adjudicated to the co-owners belonging to the
group of Jesus and the other lots be divided to the other co-owners belonging to the group of
Torres. When the motion was filed and signed by the parties on 6 November 1997, his rights as a
majority co-owner (73%) of Lot No. 4389 became consolidated. Jesus averred that it was
unnecessary to give notice of the sale as the lot was already adjudicated in his favor.

On his part, Lapinid admitted that a deed of sale was entered into between him and Jesus
pertaining to a parcel of land with an area of 3000 square meters. However, he insisted on the
validity of sale since Jesus showed him several deeds of sale making him a majority owner of Lot
No. 4389. He further denied that he acquired a specific and definite portion of the questioned
property, citing as evidence the deed of sale which does not mention any boundaries or specific
portion. He explained that Jesus permitted him to occupy a portion not exceeding 3000 square
meters conditioned on the result of the partition of the co-owners.

Regarding the forcible entry case, Jesus and Lapinid admitted that such case was filed but
the same was already dismissed by the MTC of Carcar, Cebu. In that decision, it was ruled that the
buyers, including Lapinid, were buyers in good faith since a proof of ownership was shown to
them by Jesus before buying the property.

The trial court dismissed the complaint of petitioners and nullifies the site assignment
made by Jesus Velez in the Deed of Sale of Lorenzo Lapinid’s portion, the exact location of which
still has to be determined either by agreement of the co-owners or by the Court in proper
proceedings. Aggrieved, petitioners filed their partial motion for reconsideration which was
denied. Thereafter, they filed a notice of appeal

Court of Appeals affirmed the decision of the trial court. It validated the sale and ruled
that the compromise agreement did not affect the validity of the sale previously executed by Jesus
and Lapinid. It likewise dismissed the claim for rental payments, attorney’s fees and litigation
expenses of the petitioners.

Upon appeal before the Supreme Court, the petitioners echo the same arguments posited
before the lower courts.

Issue:

Whether Jesus, as a co-owner, can validly sell a portion of the property he co-owns in
favor of another person.

Ruling:

The petition is denied.


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Admittedly, Jesus sold an area of land to Lapinid on 9 November 1997. To simplify, the
question now is whether Jesus, as a co-owner, can validly sell a portion of the property he co-owns
in favor of another person. The Court answers in the affirmative.

A co-owner has an absolute ownership of his undivided and pro-indiviso share in the co-
owned property. He has the right to alienate, assign and mortgage it, even to the extent of
substituting a third person in its enjoyment provided that no personal rights will be affected. This
is evident from the provision of the Civil Code:

Art. 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.

A co-owner is an owner of the whole and over the whole he exercises the right of
dominion, but he is at the same time the owner of a portion which is truly abstract. Hence, his co-
owners have no right to enjoin a co-owner who intends to alienate or substitute his abstract
portion or substitute a third person in its enjoyment.

In this case, Jesus can validly alienate his co-owned property in favor of Lapinid, free from
any opposition from the co-owners. Lapinid, as a transferee, validly obtained the same rights of
Jesus from the date of the execution of a valid sale. Absent any proof that the sale was not
perfected, the validity of sale subsists. In essence, Lapinid steps into the shoes of Jesus as co-
owner of an ideal and proportionate share in the property held in common. Thus, from the
perfection of contract on 9 November 1997, Lapinid eventually became a co-owner of the
property.

Even assuming that the petitioners are correct in their allegation that the disposition in
favor of Lapinid before partition was a concrete or definite portion, the validity of sale still
prevails.

In a catena of decisions, the Supreme Court had repeatedly held that no individual can
claim title to a definite or concrete portion before partition of co-owned property. Each co-owner
only possesses a right to sell or alienate his ideal share after partition. However, in case he
disposes his share before partition, such disposition does not make the sale or alienation null and
void. What will be affected on the sale is only his proportionate share, subject to the results of the
partition. The co-owners who did not give their consent to the sale stand to be unaffected by the
alienation.

SPOUSES PRIMO AND JULIANA INALVEZ v. BAYANG NOOL, ALLAN NOOL, and
CELESTINO NOOL
G.R. No. 188145, April 18, 2016; Velasco, Jr.

Facts:

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This case involves a parcel of land covered by TCT No. 305862 with an area of more or less 10
hectares situated at Villa Aglipay, San Jose, Tarlac.

Sometime in 1980, the co-owners of the subject property, which include petitioners and Spouses
Cornelio and Bayang, executed a real estate mortgage over the whole property in favor of Tarlac
Development Bank (TDB) to secure a loan. Subsequently, such mortgage was foreclosed and the
title to the subject property was consolidated with TDB, which later on sold the subject property
to the petitioners and Spouses Jim and Liberty Baluyot. On October 3, 1991, the subject property
was subdivided with petitioners getting 133,809 square meters covered by TCT No. 262142.

On June 16, 2000, petitioners instituted a complaint for ejectment, collection of shares, and
damages against the respondents before the DARAB. Petitioners contend that Bayang being
Juliana’s sister, they allowed the respondents to cultivate a portion of the property provided that
petitioners are given 25% of the harvest proceeds thereof. When the respondents failed to fulfil
their undertaking, the petitioners instituted an ejectment complaint against them.

On Bayang’s part, she argued that she and her late husband were the actual and registered co-
owners of the subject property, which they inherited from her father, together with the
petitioners. She further denied having signed any document consenting to the mortgage of the
subject property and refuted the genuineness of her husband’s signature as appearing on the REM
executed with TDB. Lastly, the respondents argued that they are deemed to have already acquired
the subject property through ordinary acquisitive prescription since they have been in open,
continuous and exclusive possession of the subject property for more than 30 years.

The DARAB dismissed the case upon finding that no tenancy relationship exists between the
parties. Dissatisfied, the petitioners filed a complaint for recovery of possession, damages with an
application for preliminary injunction against the respondents before the RTC of Camiling, Tarlac
docketed as Civil Case No. 02-09.

The RTC rendered judgement in favor of petitioners and directed the respondents to vacate the
subject property.

On appeal, the CA reversed the RTC’s Decision upon finding that a co-ownership existed between
the parties. The CA faulted the trial court for relying on the fact that the petitioners are the
present registered owners of the property and in consequently ruling that they can recover
possession of the portion occupied by the respondents ratiocinating that registration does not
vest ownership but is intended to merely confirm and register title which one may have on the
land. The CA also gave credence to the respondents’ claim of forgery with respect to the signature
of Spouses Cornelio and Bayang on the REM.
Issues:

1) Whether or not the CA found that petitioners and respondents are co-owners of the
subject property.

Ruling:

1) Yes, being heirs of the original owner of the subject property, petitioner Juliana and
respondent Bayang are co-owners of the property.
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Records show that the subject property was originally owned by Juliana and Bayang’s father, Cleto
Macayanan under Original Certificate of Title No. 1665. Pursuant to Article 1451 of the Civil Code,
when land passes by succession to any person and he causes the legal title to be put in the name
of another, a trust is established by implication of law for the benefit of the true owner. Evidently,
a co-ownership existed between the parties prior to the foreclosure and consolidation of title in
favor of TDB and the subsequent re-acquisition thereof by the petitioners.

Should a co-owner alienate or mortgage the co-owned property itself, the alienation or mortgage
shall remain valid but only to the extent of the portion which may be allotted to him in the
division upon the termination of the co-ownership. In case of foreclosure, a sale would result in
the transmission only of whatever rights the seller had over of the thing sold. Indeed, a co-owner
does not lose his part ownership of a co-owned property when his share is mortgaged by another
co-owner without the former’s knowledge and consent as in the case at bar. The mortgage of the
inherited property is not binding against co-heirs who never benefited. When the subject
property was sold to and consolidated in the name of TDB, the latter merely held the subject
property in trust for the respondents. When the petitioners and Spouses Baluyot bought back the
subject property, they merely stepped into the shoes of TDB and acquired whatever rights and
obligations appertain thereto.

Moreover, contrary to the petitioners’ argument that the respondents’ claim is a collateral attack
upon their title which is impermissible, the Court had categorically ruled that a resolution on the
issue of ownership does not subject the Torrens title issued over the disputed realties to a
collateral attack. It must be borne in mind that what cannot be collaterally attacked is the
certificate of title and not the title itself.

HEIRS OF FELICIANO YAMBAO v. HEIRS OF HERMOGENES YAMBAO


G.R. No. 194260, April 13, 2016; Reyes

Facts:

This case involves a parcel of land located in Barangay Bangan, Botolan, Zambales, which was
originally possessed by Macaria De Ocampo (Macaria). Macaria's nephew, Hermogenes Yambao
(Hermogenes ), acted as the administrator of the property and paid realty taxes therefor.
Hermogenes has eight children, including Feliciano Yambao (Feliciano).

Upon the death of Hermogenes, all his heirs were free to puck and harvest from the fruit-bearing
trees planted on the subject property. However, sometime in 2005, the communal and mutual use
of the subject property by the heirs of Hermogenes ceased when the heirs of Feliciano, herein
petitioners, prohibited them from entering the property. The heirs of Feliciano even ejected
Eleanor from the subject property.

This prompted the heirs of Hermogenes, herein respondents, to file with the RTC a complaint for
partition, declaration of nullity of title/documents, and damages against the heirs of Feliciano.
The heirs of Hermogenes alleged that they and the heirs of Feliciano are co-owners of the subject
property, having inherited the right thereto from Hermogenes.

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The heirs of Feliciano denied the allegations of the heirs of Hermogenes and claimed that their
father, Feliciano, was in possession of the subject property in the concept of owner since time
immemorial. Accordingly, Feliciano was awarded a free patent thereon for which Original
Certificate of Title (OCT) No. P-10737 was issued. They also averred that the cause of action in the
complaint filed by the heirs of Hermogenes, which questioned the validity of OCT No. P-10737,
prescribed after the lapse of one year from its issuance on November 29, 1989.

The RTC dismissed the complaint filed by the heirs of Heromogenes on the ground that the latter
failed to show that the subject property is owned by Macaria. The RTC further held that even if
Macaria owned the subject property, the heirs of Hermogenes failed to show that Hermogenes
had the right to succeed over the estate of Macaria.

On appeal, the CA reversed the RTC’s Decision and ruled that the records of the case shows that
in Feliciano's application for free patent, he acknowledged that the source of his claim of
possession over the subject property was Hermogenes's possession of the real property in
peaceful, open, continuous, and adverse manner and more importantly, in the concept of an
owner, since 1944. Feliciano's claim of sole possession in his application for free patent did not
therefore extinguish the fact of co-ownership as claimed by the children of Hermogenes. The CA
held that the RTC should have conducted the appropriate proceedings for partition.

Issues:

1) Whether or not the CA correctly held the heirs of Hermogenes are co-owners of the
subject property.

Ruling:

1) Yes, Feliciano's free patent application indicated that he merely tacked his possession of
the subject property from Hermogenes, his father, who held the property in peaceful,
open, continuous, and adverse manner in the concept of an owner since 1944. This is an
implicit recognition of the fact that Feliciano merely co-owns the subject property with
the other heirs of Hermogenes. Indeed, the heirs of Feliciano have not presented any
evidence that would show that Hermogenes bequeathed the subject property solely to
Feliciano.

A co-ownership is a form of trust, with each owner being a trustee for each other. Mere actual
possession by one will not give rise to the inference that the possession was adverse because a co-
owner is, after all, entitled to possession of the property. Thus, as a rule, prescription does not run
in favor of a co-heir or co-owner as long as he expressly or impliedly recognizes the co-ownership;
and he cannot acquire by prescription the share of the other co-owners, absent a clear
repudiation of the co-ownership. An action to demand partition among co-owners is
imprescriptible, and each co-owner may demand at any time the partition of the common
property.

Prescription may nevertheless run against a co-owner if there is adverse, open, continuous and
exclusive possession of the co-owned property by the other co-owner/s. In order that a co-owners
possession may be deemed adverse to the cestui que trust or other co-owners, the following
requisites must concur: (1) that he has performed unequivocal acts of repudiation amounting to
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an ouster of the cestui que trust or other co-owners; (2) that such positive acts of repudiation
have been made known to the cestui que trust or other co-owners; and (3) that the evidence
thereon must be clear and convincing.

The issuance of the certificate of title would constitute an open and clear repudiation of any trust.
In such a case, an action to demand partition among co-owners prescribes in 10 years, the point of
reference being the date of the issuance of certificate of title over the property. But this rule
applies only when the plaintiff is not in possession of the property, since if a person claiming to be
the owner thereof is in actual possession of the property, the right to demand partition does not
prescribe.

However, while OCT No. P-10737 was registered in the name of Feliciano on November 29, 1989,
the prescriptive period only began to run on 2005 when the heirs of Feliciano expressly prohibited
the heirs of Hermogenes from entering the property.

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) vs. HEIRS OF GAVINA


IJORDAN, ET AL.
G.R. No. 173140, January 11, 2016, C.J. Sereno

FACTS:

On October 14, 1957, Julian Chizon (Julian) executed a Deed of Extrajudicial Settlement
and Sale (Deed) covering Lot No. 4539 (subject lot) situated in Ibo, Municipality of Opon (now
Lapu-Lapu City) in favor of the Civil Aeronautics Administration (CAA), the predecessor-in-
interest of petitioner Manila Cebu International Airport Authority (MCIAA). Since then until the
present, MCIAA remained in material, continuous, uninterrupted and adverse possession of the
subject lot through the CAA, later renamed the Bureau of Air Transportation (BAT), and is
presently known as the Air Transportation Office (ATO). The subject lot was transferred and
conveyed to MCIAA by virtue of Republic Act No. 6958.

In 1980, the respondents caused the judicial reconstitution of the original certificate of
title covering the subject lot (issued by virtue of Decree No. 531167). Consequently, Original
Certificate of Title (OCT) No. R0-2431 of the Register of Deeds of Cebu was reconstituted for Lot
No. 4539 in the names of the respondents' predecessors-in-interest, namely, Gavina Ijordan, and
Julian, Francisca, Damasina, Marciana, Pastor, Angela, Mansueto, Bonifacia, Basilio, Moises and
Florencio, all surnamed Cuison. The respondents' ownership of the subject lot was evidenced by
OCT No. R0-2431. They asserted that they had not sold their shares in the subject lot, and had not
authorized Julian to sell their shares to MCIAA's predecessor-in-interest.

The failure of the respondents to surrender the owner's copy of OCT No. R0-2431
prompted MCIAA to sue them for the cancellation of title in the RTC, alleging in its complaint
that the certificate of title conferred no right in favor of the respondents because the lot had
already been sold to the Government in 1957; that the subject lot had then been declared for
taxation purposes under Tax Declaration No. 00387 in the name of the BAT; and that by virtue of
the Deed, the respondents came under the legal obligation to surrender the certificate of title for
cancellation to enable the issuance of a new one in its name.

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ISSUES:

1) Whether the subject lot was validly conveyed in its entirety to the petitioner.
2) Whether estoppel or ratification applies in this case.
3) Whether acquisitive prescription applies in this case.

RULING:

1) No, the subject lot was not validly conveyed in its entirety to the petitioner.

Firstly, both the CA and the RTC found the Deed and the Tax Declaration with which
MCIAA would buttress its right to the possession and ownership of the subject lot insufficient to
substantiate the right of MCIAA to the relief sought. Secondly, the Deed was void as far as the
respondents' shares in the subject lot were concerned, but valid as to Julian's share, because of the
absence of the authority from his co-heirs in favor of Julian to convey their shares in the subject
lot. Hence, the conveyance by Julian of the entire property pursuant to the Deed did not bind the
respondents for lack of their consent and authority in his favor.

Article 1317 of the Civil Code provides that no person could contract in the name of
another without being authorized by the latter, or unless he had by law a right to represent him;
the contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, is unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party.

But the conveyance by Julian through the Deed had full force and effect with respect to his
share of 1/22 of the entire property consisting of 546 square meters by virtue of its being a
voluntary disposition of property on his part. As ruled in Torres v. Lapinid:

x x x even if a co-owner sells the whole property as his, the sale


will affect only his own share but not those of the other co-owners
who did not consent to the sale. This is because the sale or other
disposition of a co-owner affects only his undivided share and the
transferee gets only what would correspond to his grantor in the
partition of the thing owned in common.

The intention of the parties to bind themselves to an indivisible obligation can be further
discerned through their direct acts in relation to the package deal. There was only one agreement
covering all three (3) units of the Minilab Equipment and their accessories. The Letter Agreement
specified only one purpose for the buyer, which was to obtain these units for three different
outlets. If the intention of the parties were to have a divisible contract, then separate agreements
could have been made for each Minilab

This intent must prevail even though the articles involved are physically separable and
capable of being paid for and delivered individually, consistent with the New Civil Code:

Article 1225. For the purposes of the preceding articles,


obligations to give definite things and those which are not
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susceptible of partial performance shall be deemed to be


indivisible.

When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical
units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.

However, even though the object or service may be physically


divisible, an obligation is indivisible if so provided by law or
intended by the parties.

In Nazareno v. Court of Appeals, the indivisibility of an obligation is tested against


whether it can be the subject of partial performance:

An obligation is indivisible when it cannot be validly performed in


parts, whatever may be the nature of the thing which is the object
thereof. The indivisibility refers to the prestation and not to the
object thereof.

2) Estoppel or ratification to bar the respondents' contrary claim of ownership of their shares
in the subject lot does not apply. The doctrine of estoppel applied only to those who were parties
to the contract and their privies or successors-in-interest. Moreover, the respondents could not be
held to ratify the contract that was declared to be null and void with respect to their share, for
there was nothing for them to ratify. Verily, the Deed, being null and void, had no adverse effect
on the rights of the respondents in the subject lot.

3) Acquisitive prescription likewise does not apply. Aside from the absence of the satisfactory
showing of MCIAA's supposed possession of the subject lot, no acquisitive prescription could arise
in view of the indefeasibility of the respondents' Torrens title. Under the Torrens System, no
adverse possession could deprive the registered owners of their title by prescription. The real
purpose of the Torrens System is to quiet title to land and to stop any question as to its legality
forever. Thus, once title is registered, the owner may rest secure, without the necessity of waiting
in the portals of the court, or sitting on the mirador su casa to avoid the possibility of losing his
land.

ROSARIO VICTORIA AND ELMA PIDLAOAN v. NORMITA PADLAOAN, HERMINIGILDA


PiDLAOAN AND EUFEMIA PIDLAOAN
G.R. No. 196470, April 20, 2016; Brion

Facts:

The petitioners Rosario Victoria (Rosario) and Elma lived together since 1978 until Rosario left for
Saudi Arabia. In 1984, Elma bought a parcel of land with an area of 201 square meters in Lucena
City and was issued Transfer Certificate of Title (TCT) No. T-50282. When Rosario came home,
she caused the construction of a house on the lot but she left again after the house was built.

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Subsequently, Elma mortgaged the house and lot to a certain Thi Hong Villanueva in 1989. When
the properties were about to be foreclosed, Elma asked for help from her sister-in-law, Eufemia
Pidlaoan (Eufemia), to redeem the property. On her part, Eufemia called her daughter abroad,
Normita, to lend money to Elma. Normita agreed to provide the funds. Thereafter, Elma allegedly
sought to sell the land either to Eufemia or her daughter.

On March 21, 1993, Elma executed a deed of sale entitled "Panananto ng Pagkatanggap ng
Kahustuhang Bayad" transferring the ownership of the lot to Normita. However, the same was
never notarized because upon the advise of the notary, a deed of donation was more appropriate
in order to avoid capital gains tax. Thus, Elma executed a deed of donation in Normita's favor and
had it notarized. TCT No. T-50282 was cancelled and TCT No. T-70990 was issued in Normita's
name. Since then, Normita had been paying the real property taxes over the lot but Elma
continued to occupy the house.

A year or two after the transaction, Rosario found out about the donation when she returned to
the country. This prompted petitioners to file a complaint for reformation of contract,
cancellation of TCT No. T-70990, and damages with prayer for preliminary injunction against
respondents.

Petitioners argue that: first, they co-owned the lot because both of them contributed the money
used to purchase it; second, Elma and Normita entered into an equitable mortgage because they
intended to constitute a mortgage over the lot to secure Elma's loan but they executed a deed of
sale instead; and third, the deed of donation was simulated because Elma executed it upon the
notary public's advice to avoid capital gains tax.

For their part, the respondents argued that the deed of donation was indeed simulated, but that
there was no agreement to constitute a real estate mortgage on the lot and the intention was
indeed for the lot to be sold.

The RTC ruled that Rosario and Elma co-owned the lot and the house, and thus, Elma could only
donate her one-half share in the lot.

On appeal to the CA, it reversed the decision of the RTC and dismissed petitioners’ complaint.
The CA held that Elma and Normita initially entered into two agreements: a loan and a sale. They
entered into a loan agreement when Elma had to pay Thi Hong Villanueva to redeem the
property. Thereafter, Elma sold the property to Normita. They subsequently superseded the
contract of sale with the assailed deed of donation.

The CA also held that the deed of donation was not simulated. It was voluntarily executed by
Elma out of gratitude to Normita who rescued her by preventing the foreclosure of the lot.
Moreover, the deed of donation, being a public document, enjoys the presumption of regularity.
Considering that no conclusive proof was presented to rebut this presumption, the deed of
donation is presumed valid.

Issues:

1) Whether or not the CA correctly held that Rosario was not a co-owner of the lot.
2) Whether or not the CA correctly held that the deed of sale was valid.
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Ruling:

1) Yes, the fact that Rosario built a house in the lot does not make him a co-owner of the lot.

One who deals with property registered under the Torrens system has a right to rely on what
appears on the face of the certificate of title and need not inquire further as to the property's
ownership. A buyer is charged with notice only of the claims annotated on the title. The Torrens
system was adopted to best guarantee the integrity of land titles and to protect their
indefeasibility once the claim of ownership is established and recognized.

In the present case, the records of the case show that Elma alone purchased the lot in 1984 from
its previous owners. Accordingly, TCT No. T-50282 was issued solely in her name. Thus, Normita
bought the lot relying on the face of the TCT that Elma and no other person owned it.

In the present case, however, the petitioners failed to present proof of Rosario's contributions in
purchasing the lot from its previous owners. The execution of the transfer documents solely in
Elma's name alone militate against their claim of co-ownership. Thus, we find no merit in the
petitioners' claim of co-ownership over the lot. There is further no merit in petitioners’ argument
that Rosario co-owned the lot with Elma because the value of the house constructed by Rosario
on it is higher than the lot's value.

Mere construction of a house on another's land does not create a co-ownership. Article 484 of the
Civil Code provides that co-ownership exists when the ownership of an undivided thing or right
belongs to different persons. Verily, a house and a lot are separately identifiable properties and
can pertain to different owners, as in this case: the house belongs to Rosario and the lot to Elma.

Article 448 of the Civil Code provides that if a person builds on another's land in good faith, the
land owner may either: (a) appropriate the works as his own after paying indemnity; or (b) oblige
the builder to pay the price of the land. The law does not force the parties into a co-ownership.
Rosario, however, is not without recourse in retrieving the house or its value. The remedies
available to her are set forth in Article 448 of the Civil Code.

2) No, the respondents themselves admit that the deed of donation was simulated.

In view of the respondents’ admission that the deed of donation was simulated, there is no further
need to belabor this issue. As regards the allegation that the deed of sale was actually an equitable
mortgage, suffice to say that there was no proof adduced to show that the intention of the parties
was to secure the debt by way of mortgage.

HEIRS OF THE LATE GERRY ECARMA v. COURT OF APPEAS AND RENATO A. ECARMA
G.R. No. 191936, June 1, 2016; Reyes

Facts:

This case involves quarreling heirs, some refusing the partition of the properties they inherited.
Arminda was married to Natalio Ecarma. They had seven (7) children mainly (1) Angelita; (2)
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Rodolfo; (3) respondent Renato; (4) Maria Arminda; (5) Gerry Anthony Ecarma, husband and
father respectively of herein petitioners Avelina Suiza Ecarma, Dennis Ecarma, Gerry Lyn Ecarma
Pena, Antonio Ecarma and Natalia Ecarma Sangalang (collectively petitioners and/or heirs of
Gerry Ecarma); (6) Fe Shirley; and (7) Rolando.

After Natalio's death, his heirs executed an Extrajudicial Settlement of Estate covering four (4)
properties designated as Kitanlad, Cuyapo and Lala (consisting of two separate lots), half of which
was specifically noted as pertaining to herein decedent Arminda's share in their property regime
of conjugal partnership of gains. In the same Extrajudicial Settlement of Estate signed by all the
heirs, the four (4) properties were partitioned among them: Arminda was assigned an undivided
two-ninth's (2/9's) proportion and all their children in equal proportion of one-ninth (1/9) each.
Significantly, despite the partition agreement, no physical division of the properties was effected,
Natalio's heirs remaining in co-ownership (pro indiviso) even at the time of their mother's,
decedent Arminda's, death on 17 April 1983.

After his petition for the probate of Arminda’s will was dismissed, Renato, filed intestate
proceedings before the RTC of Quezon City, Branch 220, which later on appointed him as Special
Administrator. Thereafter, Renato moved for the partition of the properties, which was granted by
the RTC.

Gerry Ecarma filed a motion for reconsideration of the order of the RTC on the following grounds:
(1) the project of partition of the Kitanlad properties is not feasible, impractical and detrimental to
the interests of the heirs of the Spouses Natalio and Arminda Ecarma; (2) the planned partition is
not in accordance with the wishes of the decedents, the spouses Natalio and Arminda; and (3) the
RTC, Branch 220, as the court settling the intestate estate of Arminda, has no jurisdiction over
part of.the subject properties which do not form part of Arminda's estate, such undivided share
already pertaining to the other heirs as part of their inheritance from their deceased father,
Natalio.

The RTC denied the motions for reconsideration filed by Gerry Ecarma and the other oppositor
Rodolfo Ecarma.

The matter was brought on appeal to the CA. In the meantime, however, Gerry Ecarma died and
was substituted by his heirs. The CA however, dismissed the appeal on technical grounds.

The petitioners herein elevated the matter to the Supreme Court via a Petition for Certiorari
under Rule 65 of the rules of court.

Issues:

1) Whether or not partition of the properties is proper under the circumstances.

Ruling:

1) Yes. The oppositors to the partition cannot compel the other co-heirs to remain in
perpetual co-ownership over the subject properties.

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Notwithstanding the objections of the oppositors, the latter cannot compel other co-heirs to
remain in perpetual co-ownership over the subject properties as expressly provided by Article 494
and 1083 of the Civil Code. As mere co-owners, herein petitioners, representing the share of the
deceased Gerry Ecarma, cannot preclude the other owners likewise compulsory heirs of the
deceased spouses Natalio and Arminda, from exercising all incidences of their full ownership.

HEIRS OF FELICIANO YAMBAO v. HEIRS OF HERMOGENES YAMBAO


G.R. No. 194260, April 13, 2016; Reyes

Facts:

This case involves a parcel of land located in Barangay Bangan, Botolan, Zambales, which was
originally possessed by Macaria De Ocampo (Macaria). Macaria's nephew, Hermogenes Yambao
(Hermogenes ), acted as the administrator of the property and paid realty taxes therefor.
Hermogenes has eight children, including Feliciano Yambao (Feliciano).

Upon the death of Hermogenes, all his heirs were free to puck and harvest from the fruit-bearing
trees planted on the subject property. However, sometime in 2005, the communal and mutual use
of the subject property by the heirs of Hermogenes ceased when the heirs of Feliciano, herein
petitioners, prohibited them from entering the property. The heirs of Feliciano even ejected
Eleanor from the subject property.

This prompted the heirs of Hermogenes, herein respondents, to file with the RTC a complaint for
partition, declaration of nullity of title/documents, and damages against the heirs of Feliciano.
The heirs of Hermogenes alleged that they and the heirs of Feliciano are co-owners of the subject
property, having inherited the right thereto from Hermogenes.

The heirs of Feliciano denied the allegations of the heirs of Hermogenes and claimed that their
father, Feliciano, was in possession of the subject property in the concept of owner since time
immemorial. Accordingly, Feliciano was awarded a free patent thereon for which Original
Certificate of Title (OCT) No. P-10737 was issued. They also averred that the cause of action in the
complaint filed by the heirs of Hermogenes, which questioned the validity of OCT No. P-10737,
prescribed after the lapse of one year from its issuance on November 29, 1989.

The RTC dismissed the complaint filed by the heirs of Heromogenes on the ground that the latter
failed to show that the subject property is owned by Macaria. The RTC further held that even if
Macaria owned the subject property, the heirs of Hermogenes failed to show that Hermogenes
had the right to succeed over the estate of Macaria.

On appeal, the CA reversed the RTC’s Decision and ruled that the records of the case shows that
in Feliciano's application for free patent, he acknowledged that the source of his claim of
possession over the subject property was Hermogenes's possession of the real property in
peaceful, open, continuous, and adverse manner and more importantly, in the concept of an
owner, since 1944. Feliciano's claim of sole possession in his application for free patent did not
therefore extinguish the fact of co-ownership as claimed by the children of Hermogenes. The CA
held that the RTC should have conducted the appropriate proceedings for partition.

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Issues:

1) Whether or not the CA correctly held the heirs of Hermogenes are co-owners of the
subject property.

Ruling:

1) Yes, Feliciano's free patent application indicated that he merely tacked his possession of
the subject property from Hermogenes, his father, who held the property in peaceful,
open, continuous, and adverse manner in the concept of an owner since 1944. This is an
implicit recognition of the fact that Feliciano merely co-owns the subject property with
the other heirs of Hermogenes. Indeed, the heirs of Feliciano have not presented any
evidence that would show that Hermogenes bequeathed the subject property solely to
Feliciano.

A co-ownership is a form of trust, with each owner being a trustee for each other. Mere actual
possession by one will not give rise to the inference that the possession was adverse because a co-
owner is, after all, entitled to possession of the property. Thus, as a rule, prescription does not run
in favor of a co-heir or co-owner as long as he expressly or impliedly recognizes the co-ownership;
and he cannot acquire by prescription the share of the other co-owners, absent a clear
repudiation of the co-ownership. An action to demand partition among co-owners is
imprescriptible, and each co-owner may demand at any time the partition of the common
property.

Prescription may nevertheless run against a co-owner if there is adverse, open, continuous and
exclusive possession of the co-owned property by the other co-owner/s. In order that a co-owners
possession may be deemed adverse to the cestui que trust or other co-owners, the following
requisites must concur: (1) that he has performed unequivocal acts of repudiation amounting to
an ouster of the cestui que trust or other co-owners; (2) that such positive acts of repudiation
have been made known to the cestui que trust or other co-owners; and (3) that the evidence
thereon must be clear and convincing.

The issuance of the certificate of title would constitute an open and clear repudiation of any trust.
In such a case, an action to demand partition among co-owners prescribes in 10 years, the point of
reference being the date of the issuance of certificate of title over the property. But this rule
applies only when the plaintiff is not in possession of the property, since if a person claiming to be
the owner thereof is in actual possession of the property, the right to demand partition does not
prescribe.

However, while OCT No. P-10737 was registered in the name of Feliciano on November 29, 1989,
the prescriptive period only began to run on 2005 when the heirs of Feliciano expressly prohibited
the heirs of Hermogenes from entering the property.

SPOUSES PRIMO AND JULIANA INALVEZ v. BAYANG NOOL, ALLAN NOOL, and
CELESTINO NOOL
G.R. No. 188145, April 18, 2016; Velasco, Jr.

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Facts:

This case involves a parcel of land covered by TCT No. 305862 with an area of more or less 10
hectares situated at Villa Aglipay, San Jose, Tarlac.

Sometime in 1980, the co-owners of the subject property, which include petitioners and Spouses
Cornelio and Bayang, executed a real estate mortgage over the whole property in favor of Tarlac
Development Bank (TDB) to secure a loan. Subsequently, such mortgage was foreclosed and the
title to the subject property was consolidated with TDB, which later on sold the subject property
to the petitioners and Spouses Jim and Liberty Baluyot. On October 3, 1991, the subject property
was subdivided with petitioners getting 133,809 square meters covered by TCT No. 262142.

On June 16, 2000, petitioners instituted a complaint for ejectment, collection of shares, and
damages against the respondents before the DARAB. Petitioners contend that Bayang being
Juliana’s sister, they allowed the respondents to cultivate a portion of the property provided that
petitioners are given 25% of the harvest proceeds thereof. When the respondents failed to fulfil
their undertaking, the petitioners instituted an ejectment complaint against them.

On Bayang’s part, she argued that she and her late husband were the actual and registered co-
owners of the subject property, which they inherited from her father, together with the
petitioners. She further denied having signed any document consenting to the mortgage of the
subject property and refuted the genuineness of her husband’s signature as appearing on the REM
executed with TDB. Lastly, the respondents argued that they are deemed to have already acquired
the subject property through ordinary acquisitive prescription since they have been in open,
continuous and exclusive possession of the subject property for more than 30 years.

The DARAB dismissed the case upon finding that no tenancy relationship exists between the
parties. Dissatisfied, the petitioners filed a complaint for recovery of possession, damages with an
application for preliminary injunction against the respondents before the RTC of Camiling, Tarlac
docketed as Civil Case No. 02-09.

The RTC rendered judgement in favor of petitioners and directed the respondents to vacate the
subject property.

On appeal, the CA reversed the RTC’s Decision upon finding that a co-ownership existed between
the parties. The CA faulted the trial court for relying on the fact that the petitioners are the
present registered owners of the property and in consequently ruling that they can recover
possession of the portion occupied by the respondents ratiocinating that registration does not
vest ownership but is intended to merely confirm and register title which one may have on the
land. The CA also gave credence to the respondents’ claim of forgery with respect to the signature
of Spouses Cornelio and Bayang on the REM.
Issues:

1) Whether or not the CA found that petitioners and respondents are co-owners of the
subject property.

Ruling:

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1) Yes, being heirs of the original owner of the subject property, petitioner Juliana and
respondent Bayang are co-owners of the property.

Records show that the subject property was originally owned by Juliana and Bayang’s father, Cleto
Macayanan under Original Certificate of Title No. 1665. Pursuant to Article 1451 of the Civil Code,
when land passes by succession to any person and he causes the legal title to be put in the name
of another, a trust is established by implication of law for the benefit of the true owner. Evidently,
a co-ownership existed between the parties prior to the foreclosure and consolidation of title in
favor of TDB and the subsequent re-acquisition thereof by the petitioners.

Should a co-owner alienate or mortgage the co-owned property itself, the alienation or mortgage
shall remain valid but only to the extent of the portion which may be allotted to him in the
division upon the termination of the co-ownership. In case of foreclosure, a sale would result in
the transmission only of whatever rights the seller had over of the thing sold. Indeed, a co-owner
does not lose his part ownership of a co-owned property when his share is mortgaged by another
co-owner without the former’s knowledge and consent as in the case at bar. The mortgage of the
inherited property is not binding against co-heirs who never benefited. When the subject
property was sold to and consolidated in the name of TDB, the latter merely held the subject
property in trust for the respondents. When the petitioners and Spouses Baluyot bought back the
subject property, they merely stepped into the shoes of TDB and acquired whatever rights and
obligations appertain thereto.

Moreover, contrary to the petitioners’ argument that the respondents’ claim is a collateral attack
upon their title which is impermissible, the Court had categorically ruled that a resolution on the
issue of ownership does not subject the Torrens title issued over the disputed realties to a
collateral attack. It must be borne in mind that what cannot be collaterally attacked is the
certificate of title and not the title itself.

ROSARIO VICTORIA AND ELMA PIDLAOAN v. NORMITA PADLAOAN, HERMINIGILDA


PIDLAOAN AND EUFEMIA PIDLAOAN
G.R. No. 196470, April 20, 2016; Brion

Facts:

The petitioners Rosario Victoria (Rosario) and Elma lived together since 1978 until Rosario left for
Saudi Arabia. In 1984, Elma bought a parcel of land with an area of 201 square meters in Lucena
City and was issued Transfer Certificate of Title (TCT) No. T-50282. When Rosario came home,
she caused the construction of a house on the lot but she left again after the house was built.

Subsequently, Elma mortgaged the house and lot to a certain Thi Hong Villanueva in 1989. When
the properties were about to be foreclosed, Elma asked for help from her sister-in-law, Eufemia
Pidlaoan (Eufemia), to redeem the property. On her part, Eufemia called her daughter abroad,
Normita, to lend money to Elma. Normita agreed to provide the funds. Thereafter, Elma allegedly
sought to sell the land either to Eufemia or her daughter.

On March 21, 1993, Elma executed a deed of sale entitled "Panananto ng Pagkatanggap ng
Kahustuhang Bayad" transferring the ownership of the lot to Normita. However, the same was
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never notarized because upon the advise of the notary, a deed of donation was more appropriate
in order to avoid capital gains tax. Thus, Elma executed a deed of donation in Normita's favor and
had it notarized. TCT No. T-50282 was cancelled and TCT No. T-70990 was issued in Normita's
name. Since then, Normita had been paying the real property taxes over the lot but Elma
continued to occupy the house.

A year or two after the transaction, Rosario found out about the donation when she returned to
the country. This prompted petitioners to file a complaint for reformation of contract,
cancellation of TCT No. T-70990, and damages with prayer for preliminary injunction against
respondents.

Petitioners argue that: first, they co-owned the lot because both of them contributed the money
used to purchase it; second, Elma and Normita entered into an equitable mortgage because they
intended to constitute a mortgage over the lot to secure Elma's loan but they executed a deed of
sale instead; and third, the deed of donation was simulated because Elma executed it upon the
notary public's advice to avoid capital gains tax.

For their part, the respondents argued that the deed of donation was indeed simulated, but that
there was no agreement to constitute a real estate mortgage on the lot and the intention was
indeed for the lot to be sold.

The RTC ruled that Rosario and Elma co-owned the lot and the house, and thus, Elma could only
donate her one-half share in the lot.

On appeal to the CA, it reversed the decision of the RTC and dismissed petitioners’ complaint.
The CA held that Elma and Normita initially entered into two agreements: a loan and a sale. They
entered into a loan agreement when Elma had to pay Thi Hong Villanueva to redeem the
property. Thereafter, Elma sold the property to Normita. They subsequently superseded the
contract of sale with the assailed deed of donation.

The CA also held that the deed of donation was not simulated. It was voluntarily executed by
Elma out of gratitude to Normita who rescued her by preventing the foreclosure of the lot.
Moreover, the deed of donation, being a public document, enjoys the presumption of regularity.
Considering that no conclusive proof was presented to rebut this presumption, the deed of
donation is presumed valid.

Issues:

1) Whether or not the CA correctly held that Rosario was not a co-owner of the lot.
2) Whether or not the CA correctly held that the deed of sale was valid.

Ruling:

1) Yes, the fact that Rosario built a house in the lot does not make him a co-owner of the lot.

One who deals with property registered under the Torrens system has a right to rely on what
appears on the face of the certificate of title and need not inquire further as to the property's
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ownership. A buyer is charged with notice only of the claims annotated on the title. The Torrens
system was adopted to best guarantee the integrity of land titles and to protect their
indefeasibility once the claim of ownership is established and recognized.

In the present case, the records of the case show that Elma alone purchased the lot in 1984 from
its previous owners. Accordingly, TCT No. T-50282 was issued solely in her name. Thus, Normita
bought the lot relying on the face of the TCT that Elma and no other person owned it.

In the present case, however, the petitioners failed to present proof of Rosario's contributions in
purchasing the lot from its previous owners. The execution of the transfer documents solely in
Elma's name alone militate against their claim of co-ownership. Thus, we find no merit in the
petitioners' claim of co-ownership over the lot. There is further no merit in petitioners’ argument
that Rosario co-owned the lot with Elma because the value of the house constructed by Rosario
on it is higher than the lot's value.

Mere construction of a house on another's land does not create a co-ownership. Article 484 of the
Civil Code provides that co-ownership exists when the ownership of an undivided thing or right
belongs to different persons. Verily, a house and a lot are separately identifiable properties and
can pertain to different owners, as in this case: the house belongs to Rosario and the lot to Elma.

Article 448 of the Civil Code provides that if a person builds on another's land in good faith, the
land owner may either: (a) appropriate the works as his own after paying indemnity; or (b) oblige
the builder to pay the price of the land. The law does not force the parties into a co-ownership.
Rosario, however, is not without recourse in retrieving the house or its value. The remedies
available to her are set forth in Article 448 of the Civil Code.

2) No, the respondents themselves admit that the deed of donation was simulated.

In view of the respondents’ admission that the deed of donation was simulated, there is no further
need to belabor this issue. As regards the allegation that the deed of sale was actually an equitable
mortgage, suffice to say that there was no proof adduced to show that the intention of the parties
was to secure the debt by way of mortgage.

HEIRS OF THE LATE GERRY ECARMA V. COURT OF APPEAS AND RENATO A. ECARMA
G.R. No. 191936, June 8, 2016; Reyes

Facts:

This case involves quarreling heirs, some refusing the partition of the properties they inherited.
Arminda was married to Natalio Ecarma. They had seven (7) children mainly (1) Angelita; (2)
Rodolfo; (3) respondent Renato; (4) Maria Arminda; (5) Gerry Anthony Ecarma, husband and
father respectively of herein petitioners Avelina Suiza Ecarma, Dennis Ecarma, Gerry Lyn Ecarma
Pena, Antonio Ecarma and Natalia Ecarma Sangalang (collectively petitioners and/or heirs of
Gerry Ecarma); (6) Fe Shirley; and (7) Rolando.

After Natalio's death, his heirs executed an Extrajudicial Settlement of Estate covering four (4)
properties designated as Kitanlad, Cuyapo and Lala (consisting of two separate lots), half of which
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was specifically noted as pertaining to herein decedent Arminda's share in their property regime
of conjugal partnership of gains. In the same Extrajudicial Settlement of Estate signed by all the
heirs, the four (4) properties were partitioned among them: Arminda was assigned an undivided
two-ninth's (2/9's) proportion and all their children in equal proportion of one-ninth (1/9) each.
Significantly, despite the partition agreement, no physical division of the properties was effected,
Natalio's heirs remaining in co-ownership (pro indiviso) even at the time of their mother's,
decedent Arminda's, death on 17 April 1983.

After his petition for the probate of Arminda’s will was dismissed, Renato, filed intestate
proceedings before the RTC of Quezon City, Branch 220, which later on appointed him as Special
Administrator. Thereafter, Renato moved for the partition of the properties, which was granted by
the RTC.

Gerry Ecarma filed a motion for reconsideration of the order of the RTC on the following grounds:
(1) the project of partition of the Kitanlad properties is not feasible, impractical and detrimental to
the interests of the heirs of the Spouses Natalio and Arminda Ecarma; (2) the planned partition is
not in accordance with the wishes of the decedents, the spouses Natalio and Arminda; and (3) the
RTC, Branch 220, as the court settling the intestate estate of Arminda, has no jurisdiction over
part of.the subject properties which do not form part of Arminda's estate, such undivided share
already pertaining to the other heirs as part of their inheritance from their deceased father,
Natalio.

The RTC denied the motions for reconsideration filed by Gerry Ecarma and the other oppositor
Rodolfo Ecarma.

The matter was brought on appeal to the CA. In the meantime, however, Gerry Ecarma died and
was substituted by his heirs. The CA however, dismissed the appeal on technical grounds.

The petitioners herein elevated the matter to the Supreme Court via a Petition for Certiorari
under Rule 65 of the rules of court.

Issues:

1) Whether or not partition of the properties is proper under the circumstances.

Ruling:

1) Yes. The oppositors to the partition cannot compel the other co-heirs to remain in
perpetual co-ownership over the subject properties.

Notwithstanding the objections of the oppositors, the latter cannot compel other co-heirs to
remain in perpetual co-ownership over the subject properties as expressly provided by Article 494
and 1083 of the Civil Code. As mere co-owners, herein petitioners, representing the share of the
deceased Gerry Ecarma, cannot preclude the other owners likewise compulsory heirs of the
deceased spouses Natalio and Arminda, from exercising all incidences of their full ownership.

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POSSESSION

POSSESSION AND THE KINDS THEREOF

CARMENCITA SUAREZ, PETITIONER, VS. MR. AND MRS. FELIX E. EMBOY, JR. AND
MARILOU P. EMBOY-DELANTAR
G.R. No. 187944. March 12, 2014
J. Reyes

The following jurisdictional facts must be alleged in the complaint for unlawful detainer.

1. Initially, possession of property by the defendant was by contract with or by tolerance of the
plaintiff;
2. Eventually, such possession became illegal upon notice by plaintiff to defendant of the
termination of the latter’s right of possession;
3. Thereafter, the defendant remained in possession of the property and deprived the plaintiff of
the enjoyment thereof; and
4. Within one year from the last demand on defendant to vacate the property, the plaintiff
instituted the complaint for ejectment.

Petitioner’s failure to allege and prove how and when the respondents entered the subject lot
and constructed a house upon it is fatal to her claim. It makes her complaint for unlawful detainer
fall short of the first required jurisdictional fact – that the possession of the respondents was by
contract or by mere tolerance of the petitioner.

Facts:

At the center of the dispute is a 222-square meter parcel of land, designated as Lot No. 1907-A-
2 (subject lot) covered by Transfer Certificate of Title (TCT) No. T-174880 issued in the name of
Carmencita Suarez. The subject lot used to be a part of Lot No. 1907-A, which was partitioned
among the heirs of Spouses Carlos Padilla (Carlos) and Asuncion Pacres (Asuncion).

A house, which is occupied by respondents Felix and Marilou, stands in the subject lot. The
respondents claim that their mother, Claudia, had occupied the subject lot during her lifetime
and it was earmarked to become her share in Lot No. 1907-A. They had thereafter stayed in the
subject lot for decades after inheriting the same from Claudia, who had in turn succeeded her
own parents, Carlos and Asuncion. Respondents Felix and Marilou were asked by their cousins,
who are the Heirs of Vicente, to vacate the subject lot and to transfer to Lot No. 1907-A-5, a
landlocked portion sans a right of way. They refused to comply insisting that Claudia’s
inheritance pertained to Lot No. 1907-A-2.

Not long after, the respondents received from Carmencita’s counsel, Atty. Jufelenito R. Pareja
(Atty. Pareja), a demand letter requiring them to vacate the subject lot. They were informed that
Carmencita had already purchased on February 12, 2004 the subject lot from the former’s
relatives. However, the respondents did not heed the demand. Instead, they examined the
records pertaining to the subject lot and uncovered possible anomalies thus, they filed before the
RTC a complaint for nullification of the partition and for the issuance of new TCTs covering the
heirs’ respective portions of Lot No. 1907-A.
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Carmencita filed before the MTCC and against the respondents a complaint for unlawful detainer,
the origin of the instant petition. She alleged that she bought the subject lot from Remedios,
Moreno, Veronica and Dionesia, the registered owners thereof and the persons who allowed the
respondents to occupy the same by mere tolerance. As their successor-in-interest, she claimed
her entitlement to possession of the subject lot and the right to demand from the respondents to
vacate the same.

The MTCC upheld Carmencita’s claims in its decision. The respondents were ordered to vacate
the subject lot and remove at their expense all the improvements they had built thereon. The RTC
affirmed in its entirety the MTCC ruling. The CA rendered the herein assailed Decision reversing
the disquisitions of the courts a quo and dismissing Carmencita’s complaint for unlawful detainer.

Issues:

1. Whether Carmencita’s complaint against the respondents had sufficiently alleged and
proven a cause of action for unlawful detainer
2. Whether the pendency of the respondents’ petition for nullification of partition of Lot No.
1907-A and for the issuance of new certificates of title can abate Carmencita’s ejectment suit

Ruling:

In a complaint for unlawful detainer, the following key jurisdictional facts must be alleged and
sufficiently established:

1. Initially, possession of property by the defendant was by contract with or by tolerance of


the plaintiff;

2. Eventually, such possession became illegal upon notice by plaintiff to defendant of the
termination of the latter’s right of possession;

3. Thereafter, the defendant remained in possession of the property and deprived the plaintiff
of the enjoyment thereof; and

4. Within one year from the last demand on defendant to vacate the property, the plaintiff
instituted the complaint for ejectment.

In the case at bar, the first requisite mentioned above is markedly absent. Carmencita failed to
clearly allege and prove how and when the respondents entered the subject lot and constructed a
house upon it. Carmencita was likewise conspicuously silent about the details on who specifically
permitted the respondents to occupy the lot, and how and when such tolerance came about.
Instead, Carmencita cavalierly formulated a legal conclusion, sans factual substantiation, that (a)
the respondents’ initial occupation of the subject lot was lawful by virtue of tolerance by the
registered owners, and (b) the respondents became deforciants unlawfully withholding the
subject lot’s possession after Carmencita, as purchaser and new registered owner, had demanded
for the former to vacate the property. It is worth noting that the absence of the first requisite
assumes even more importance in the light of the respondents’ claim that for decades, they have
been occupying the subject lot as owners thereof.

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Again, this Court stresses that to give the court jurisdiction to effect the ejectment of an occupant
or deforciant on the land, it is necessary that the complaint must sufficiently show such a
statement of facts as to bring the party clearly within the class of cases for which the statutes
provide a remedy, without resort to parol testimony, as these proceedings are summary in
nature. In short, the jurisdictional facts must appear on the face of the complaint. When the
complaint fails to aver facts constitutive of forcible entry or unlawful detainer, as where it does
not state how entry was effected or how and when dispossession started, the remedy should
either be an accion publiciana or accion reivindicatoria.

As an exception to the general rule, the respondents’ petition for nullification of the
partition of Lot No. 1907-A can abate Carmencita’s suit for unlawful detainer

In Amagan, the Court is emphatic that:

As a general rule, therefore, a pending civil action involving ownership of the same property
does not justify the suspension of ejectment proceedings. “The underlying reasons for the
above ruling were that the actions in the Regional Trial Court did not involve physical or de
facto possession, and, on not a few occasions, that the case in the Regional Trial Court was
merely a ploy to delay disposition of the ejectment proceeding, or that the issues presented
in the former could quite as easily be set up as defenses in the ejectment action and there
resolved.”

Only in rare instances is suspension allowed to await the outcome of the pending civil
action. One such exception is Vda. de Legaspi v. Avendaño, wherein the Court declared:

“x x x. Where the action, therefore, is one of illegal detainer, as distinguished from one
of forcible entry, and the right of the plaintiff to recover the premises is seriously placed
in issue in a proper judicial proceeding, it is more equitable and just and less productive
of confusion and disturbance of physical possession, with all its concomitant
inconvenience and expenses. For the Court in which the issue of legal possession,
whether involving ownership or not, is brought to restrain, should a petition for
preliminary injunction be filed with it, the effects of any order or decision in the
unlawful detainer case in order to await the final judgment in the more substantive case
involving legal possession or ownership. It is only where there has been forcible entry
that as a matter of public policy the right to physical possession should be immediately
set at rest in favor of the prior possession regardless of the fact that the other party
might ultimately be found to have superior claim to the premises involved, thereby to
discourage any attempt to recover possession thru force, strategy or stealth and without
resorting to the courts.”

xxxx

Indisputably, the execution of the MCTC Decision would have resulted in the demolition of
the house subject of the ejectment suit; thus, by parity of reasoning, considerations of equity
require the suspension of the ejectment proceedings. We note that, like Vda. de Legaspi, the
respondent’s suit is one of unlawful detainer and not of forcible entry. And most certainly,
the ejectment of petitioners would mean a demolition of their house, a matter that is likely
to create the “confusion, disturbance, inconveniences and expenses” mentioned in the said

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exceptional case.

Necessarily, the affirmance of the MCTC Decision would cause the respondent to go through
the whole gamut of enforcing it by physically removing the petitioners from the premises
they claim to have been occupying since 1937. (Respondent is claiming ownership only of
the land, not of the house.) Needlessly, the litigants as well as the courts will be wasting
much time and effort by proceeding at a stage wherein the outcome is at best temporary, but
the result of enforcement is permanent, unjust and probably irreparable.

Carmencita’s complaint for unlawful detainer is anchored upon the proposition that the
respondents have been in possession of the subject lot by mere tolerance of the owners. The
respondents, on the other hand, raise the defense of ownership of the subject lot and point to the
pendency of Civil Case No. CEB-30548, a petition for nullification of the partition of Lot No.
1907-A, in which Carmencita and the Heirs of Vicente were impleaded as parties. Further, should
Carmencita’s complaint be granted, the respondents’ house, which has been standing in the
subject lot for decades, would be subject to demolition. The foregoing circumstances, thus, justify
the exclusion of the instant petition from the purview of the general rule.

NORMA V. JAVATE vs. SPOUSES RENATO J. TIOTUICO AND LERMA C. TIOTUICO


G.R. No. 187606, March 09, 2015, J. Peralta

If the purchaser is a third party who acquired the property after the redemption period, a
hearing must be conducted to determine whether possession over the subject property is still with
the mortgagor or is already in the possession of a third party holding the same adversely to the
defaulting debtor or mortgagor. In the instant case, while respondents' petition for the issuance of a
writ of possession was filed ex-parte, a “hearing” was, nonetheless, conducted when the RTC gave
petitioner her day in court by giving her the opportunity to file various pleadings to oppose
respondent's petition. Moreover, there is no dispute that petitioner remained in possession of the
subject property prior to the issuance of the questioned writ of possession. It is, thus, clear that
respondents' resort, as a subsequent or third-party purchaser, the petition for the issuance of a writ
of possession is proper.

Facts:

Petitioner Norma V. Javate (Javate) was the owner of a one thousand square meter parcel
of land in Mabalacat, Pampanga, which she mortgaged to Guagua Rural Bank (Bank) as security
for the loan she obtained from the said Bank. Javate failed to pay her obligation and the Bank
foreclosed the mortgage. The subject lot was sold at public auction where the Bank was the
highest bidder. A certificate of sale was then issued in favor of the Bank. After the one-year
redemption period has expired without Javate having redeemed the disputed property, the Bank
consolidated its ownership over the same. As a consequence, the title covering the said lot was
canceled, and in lieu thereof, a new title was issued in the name of the Bank. Subsequently, herein
spouses Tiotuico bought the subject lot from the Bank. A new title was later issued in the name of
spouses Tiotuico.

Respondent spouses Renato and Lerma Tiotuico (spouses Tiotuico) filed a Petition for the
Issuance of a Writ of Possession with the Regional Trial Court (RTC) of Angeles, City, Pampanga.
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The RTC ruled in spouses Tiotuicos' favor and ordered the issuance of the writ prayed for. Javate
appealed the RTC order.

Prior to the resolution of Javate's appeal, spouses Tiotuico filed a motion for the issuance
of a writ of possession pending appeal. The RTC issued an Order granting spouses Tiotuico'
motion. Javate filed a motion for reconsideration but the RTC denied it. Javate then filed a
petition for certiorari with the CA questioning the issuance of the above writ. The CA denied
Javate's petition. Javate's subsequent motion for reconsideration was likewise denied.

Javate then filed a petition for review on certiorari with this Court. This Court's First
Division issued a Resolution denying the petition for review on certiorari. A motion for
reconsideration was filed by Javate, but the Court the motion. Thereafter, the Court issued an
Entry of Judgment, stating that the decision had become final and executory. Meanwhile, spouses
Tiotuico filed with the RTC a motion to implement the Writ of Possession which was earlier
issued by the said court. The RTC granted spouses Tiotuico' motion. Javate filed a motion for
reconsideration, but the RTC denied it.

Javate then filed with the CA a special civil action for certiorari ascribing grave abuse of
discretion on the part of the RTC in allowing the implementation of the questioned writ. In the
presently assailed Decision, the CA dismissed Javate's certiorari petition. The CA found that Javate
has resorted to the filing of a petition for certiorari as a scheme to delay the implementation of
the disputed writ of possession. In any case, the CA held that, as owners of the subject property,
respondents are entitled to its possession as a matter of right and that the issuance of the
questioned writ is merely a ministerial function on the part of the RTC. Javate filed a Motion for
Reconsideration, but the CA denied it. Hence, the present petition for review on certiorari.

Javate’s basic contention is that Spouses Tiotuico cannot obtain possession of the subject
lot by the mere expedient of filing a petition for the issuance of a writ of possession. Petitioner
argues that under the law, the Bank, being the buyer of the disputed lot during foreclosure sale, is
the only one who is entitled, as a matter of right, to the issuance of the said writ; that
respondents, being subsequent buyers of the subject property, should instead, resort to the
appropriate judicial remedy, which is ejectment or accion reivindicatoria in order to gain
possession thereof.

Issue:

Whether or not the respondents are entitled, as a matter of right, to the issuance of a writ
of possession when they merely bought the subject property through private transaction and not
through land registration proceedings, judicial foreclosure and extrajudicial foreclosure.

Ruling:

Spouses Tiotuico were correct in asking the court to issue a writ of possession.

In the recent case of Okabe v. Saturnino, the RTC issued a writ of possession to enable a
third-party purchaser to obtain possession of the subject property which was extrajudicially
foreclosed. This Court, applying the rules on execution sale in a suppletory manner, sustained the
issuance of the said writ.
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In the instant case, while spouses Tiotiuico's petition for the issuance of a writ of
possession was filed ex-parte, a “hearing” was, nonetheless, conducted when the RTC gave Javate
her day in court by giving her the opportunity to file various pleadings to oppose respondent's
petition. “To be heard” does not mean verbal argumentation alone inasmuch as one may be heard
just as effectively through written explanations, submissions or pleadings.

Moreover, there is no dispute that Javate remained in possession of the subject property
prior to the issuance of the questioned writ of possession. It is, thus, clear that respondents'
resort, as a subsequent or third-party purchaser, the petition for the issuance of a writ of
possession is proper.

In Roxas v. Buan, this Court has held that a writ of possession obtained by a mortgagee-
purchaser in a foreclosure sale, after the expiration of the redemption period, may be enforced
against the successor-in-interest of the mortgagor. Conversely, this Court finds logic in ruling that
the successor-in-interest of the mortgagee-purchaser in a foreclosure sale, who already obtained
title over the foreclosed property, may be issued a writ of possession as against the mortgagor
who remains in possession of the subject property.

Finally, it bears to point out at this stage that the Court agrees with the CA that
Javate's certiorari petition filed with the CA questioning the implementation of the subject writ of
possession is a mere ploy to simply delay such implementation considering that the writ was
issued almost ten (10) years ago. Javate was already given her day in court when she was earlier
given the opportunity to file a suit to question the legality of the issuance of the writ, which case
eventually reached this Court and was decided against Javate. Thus, when this Court upheld the
trial court's issuance of the writ of possession in favor of the respondents, which judgment had
become final and executory, there is no recourse other than to immediately proceed with the
implementation of the writ, otherwise, the same will be a useless paper judgment. Verily, we find
that the CA did not err in upholding the trial court's order to implement the writ of possession
issued in respondents' favor.

ROSARIO, ET AL. v. ALBA


G.R. No. 199464, April 18, 2016; Reyes

Facts:

The properties subject of this case originally formed part of a parcel of land belonging to the
estate of the late Urbano Rosario (Urbano) and Vicenta Zarate (Vicenta). By virtue of a Decision
dated August 23, 2001 of the RTC of Bauang, La Union, Branch 67, in Civil Case No. 1151-Bg, which
was rendered pursuant to a Compromise Agreement executed among the heirs to the said estate,
namely, Jovencio Rosario, et al., Luzviminda Romero and Luz Florendo-Alba (Luz), the subject
properties were adjudged as shares of Luz.

The respondent is the son and only surviving legal heir of Luz while the petitioners are fellow
heirs to the estate of Urbano and Vicenta. The petitioners introduced residential dwellings and
other improvements on the subject properties even before the death of Luz. After Luz died, the
respondent sent out written notices to vacate upon the petitioners; the last one was sent as a
registered mail on November 9, 2007, and was duly received by the petitioners on November 12
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and 14, 2007. Because of the petitioners' refusal to leave, the respondent instituted the action for
ejectment on June 10, 2008.

Petitioners claim that the subject properties were already sold by Luz to Rogelio, and to Pablo
Rosario, the latter being the predecessor-in-interest of the other petitioners even before the
execution of the Compromise Agreement in Civil Case No. 1151-Bg. This was allegedly proved by
duly notarized deeds of sale.

The MTC ruled in favor of the respondent and found that the petitioners’ possession of the
subject properties was merely tolerated which became unlawful after respondent demanded them
to vacate. As regards the petitioners’ claim that the subject properties were already sold to their
predecessors-in-interest, the MTC found that the properties subject of the deeds of sale were
different from that inherited by respondent.

The RTC reversed the ruling of the MTC ruling that the complaint cannot give rise to an action
for unlawful detainer there was no express or implied contract between the parties. The
complaint also does not give rise to case for forcible entry because no date of entry was alleged.
Even if the respondent was the true owner of the subject properties, he cannot avail of the
summary action of ejectment considering that the possession thereof cannot be wrested from
another who had been in the physical or material possession of the same for more than one year.

On appeal to the CA, it reinstated the MTC’s decision.

Issues:

1) Whether or not the CA correctly held that the respondent’s complaint duly gave rise to an
action for unlawful detainer.

Ruling:

1) No, the RTC was correct in ruling that the complaint filed by respondent neither gives rise
to an action for unlawful detainer or forcible entry.

Forcible entry and unlawful detainer are two distinct causes of action defined in Section 1, Rule 70
of the Rules of Court. In forcible entry, one is deprived of physical possession of any land or
building by means of force, intimidation, threat, strategy, or stealth. In unlawful detainer, one
unlawfully withholds possession thereof after the expiration or termination of his right to hold
possession under any contract, express or implied. In forcible entry, the possession is illegal from
the beginning and the only issue is who has the prior possession de facto. In unlawful detainer,
possession was originally lawful but became unlawful by the expiration or termination of the right
to possess and the issue of rightful possession is the one decisive, for in such action, the defendant
is the party in actual possession and the plaintiffs cause of action is the termination of the
defendant's right to continue in possession.

The complaint cannot be considered as one for forcible entry. While the respondent averred that
the petitioners' entry in the subject properties was made without the knowledge and consent of
the respondent or his predecessor-in-interest which said allegation may amount to an averment
of the employment of stealth, there is, however, no showing that the action was filed within one
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year from the questioned entry. The complaint does not even state when the alleged
dispossession began.

Neither can the complaint be considered as one for unlawful detainer. It has been held in a catena
of cases that in actions for unlawful detainer, a complaint sufficiently alleges said cause of action
if it states the following elements, to wit: (1) initially, the possession of the property by the
defendant was by contract with or by tolerance of the plaintiff; (2) eventually, such possession
became illegal upon notice by the plaintiff to the defendant of the termination of the latter's right
of possession; (3) thereafter, the defendant remained in possession of the property and deprived
the plaintiff of its enjoyment; and (4) within one year from the making of the last demand to
vacate the property, the plaintiff instituted the complaint for ejectment.

In the instant case, it is undisputed that no contract, express or implied existed between the
parties. Apart from the MTC's conclusion that the petitioners' possession was by the mere
tolerance of Luz and the respondent, there was however no evidence presented by the respondent
to show such.

ACQUISITION OF POSSESSION

ANACLETO C. MANGASER, REPRESENTED BY HIS ATTORNEY-IN-FACT EUSTAQUIO


DUGENIA vs. DIONISIO UGAY
G.R. No. 204926, December 03, 2014, J. Mendoza

Anacleto Mangaser filed Forcible entry against Ugay. However, the latter contended that
Mangaser has failed to prove prior physical possession over the property. The court ruled that
possession can be acquired by juridical acts. These are acts to which the law gives the force of acts of
possession. Examples of these are donations, succession, execution and registration of public
instruments, inscription of possessory information titles and the like. The reason for this
exceptional rule is that possession in the eyes of the law does not mean that a man has to have his
feet on every square meter of ground before it can be said that he is in possession. It is sufficient that
petitioner was able to subject the property to the action of his will.
Facts:

Anacleto Mangaser, represented by his attorney-in-fact, Eustaquio Dugenia (petitioner),


tiled a complaint for Forcible Entry with Damages against Dionisio Ugay (respondent) before the
Municipal Trial Court of Caba, La Union (MTC). Anacleto Mangaser alleged that he was the
registered owner and possessor of a parcel of land situated in Santiago Sur, Caba, La Union, with
an area of 10,632 square meters and covered by OCT No. RP-174 (FP-13787) and Tax Declaration
No. 014-00707; that on October 31, 2006, Anacleto Mangaser discovered that Dionisio Ugay
stealthy intruded and occupied a portion of his property by constructing a residential house
thereon without his knowledge and consent; that he referred the matter to the Office of Lupong
Tagapamayapa for conciliation, but no settlement was reached, hence, a certification to file action
was issued by the Lupon; and that demand letters were sent to Dionisio Ugay but he still refused
to vacate the premises, thus, he was constrained to seek judicial remedy. Dionisio Ugay denied
the material allegations of the complaint .MTC ruled in favor of Dionisio Ugay. It stated that
Anacleto Mangaser failed to adduce any evidence to prove that the lot occupied by Dionisio Ugay
was within his lot titled under OCT No. RP-174 ( 13789). The MTC opined that Anacleto Mangaser
could have presented a relocation survey, which would have pinpointed the exact location of the
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house and fence put up by respondent, and resolved the issue once and for all. It also explained
that Anacleto Mangaser failed to prove his prior physical possession of the subject property.

Issue:

Whether or not Anacleto Mangaser failed to prove prior physical possession over the
property

Ruling:

No. Anacleto Mangaser proved prior physical possession over the property

For a forcible entry suit to prosper, the plaintiffs must allege and prove: (a) that they have
prior physical possession of the property; (b) that they were deprived of possession either by
force, intimidation, threat. strategy or stealth; and, (c) that the action was filed within one (1) year
from the time the owners or legal possessors learned of their deprivation of the physical
possession of the property. As a rule, the word "possession" in forcible entry suits indeed refers to
nothing more than prior physical possession or possession de facto, not possession de jure or legal
possession in the sense contemplated in civil law. Title is not the issue, and the absence of it "is
not a ground for the courts to withhold relief from the parties in an ejectment case."

The Court, however, has consistently ruled in a number of cases that while prior physical
possession is an indispensable requirement in forcible entry cases, the dearth of merit in
respondent's position is evident from the principle that possession can be acquired not only by
material occupation, but also by the fact that a thing is subject to the action of one's will or by the
proper acts and legal formalities established for acquiring such right.

The case of Quizon v. Juan, which surprisingly was relied on by the CA, also stressed this
doctrine.

Possession can be acquired by juridical acts. These are acts to which the law gives the
force of acts of possession. Examples of these are donations, succession, execution and
registration of public instruments, inscription of possessory information titles and the like. The
reason for this exceptional rule is that possession in the eyes of the law does not mean that a man
has to have his feet on every square meter of ground before it can be said that he is in possession.
It is sufficient that petitioner was able to subject the property to the action of his will.Here,
respondent failed to show that he falls under any of these circumstances. He could not even say
that the subject property was leased to him except that he promised that he would vacate it if
petitioner would be able to show the boundaries of the titled lot.

In the case at bench, the Court finds that Anacleto Mangaser acquired possession of the
subject property by juridical act, specifically, through the issuance of a free patent under
Commonwealth Act No. 141 and its subsequent registration with the Register of Deeds on March
18, 1987.

Moreover, his claim of possession is coupled with tax declarations. While tax declarations
are not conclusive proof of possession of a parcel of land, they are good indicia of possession in
the concept of an owner, for no one in his right mind would be paying taxes for a property that is
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not in his actual or constructive possession. Together with the Torrens title, the tax declarations
dated 1995 onwards presented by Anacleto Mangaser strengthens his claim of possession over the
land before his dispossession on October 31, 2006 by Ugay.

EFFECTS OF POSSESSION

PASIG PRINTING CORPORATION vs. ROCKLAND CONSTRUCTION COMPANY, INC.


xxx
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT (PCGG) AND MID-PASIG LAND
DEVELOPMENT CORPORATION (MPLDC) vs. ROCKLAND CONSTRUCTION
COMPANY, INC.
xxx
MID-PASIG LAND DEVELOPMENT CORPORATION, (MPLDC) vs. ROCKLAND
CONSTRUCTION COMPANY, INC.

G.R. No. 193592, G.R. No. 193610 & G.R. No. 193686. February 05, 2014
J. Mendoza

The original lease contract entered into by and between MPLDC and ECRM, the predecessor
in interest of Rockland, had long expired in 2003. As such, the right of Rockland to possess the
property has expired as well. It has been held by the court the a party’s right to possess a property
can emanate from a contract, such as a contract of lease. When the contract expires, the party’s
leasehold rights expire as well. He can no longer exercise any possessory right over the said
property.

Facts:

MPLDC leased the subject property to ECRM Enterprises (ECRM). Subsequently, ECRM assigned
all its rights in the contract of lease including the option to renew to Rockland. Later, Rockland
erected a building on the area and subleased certain portions to MC Home Depot. Thereafter,
MPLDC demanded that Rockland vacate the property.

This had been the subject of three cases filed with the trial courts. The first was filed by Rockland,
a civil case for specific performance, asking MPLDC to execute a 3-year extended contract of lease
in its favor. The second was MPLDC to protect its interest – an unlawful detainer case. The third
case was an indirect contempt case before the RTC filed by Rockland against MPLDC. The crux of
this controversy is the issue of possession covering the subject property registered in the name of
MPLDC.

All of the cases were elevated to the appellate and higher courts. In one of the three case, the CA
decision in the second case elevated to the Supreme Court entitled Mid-Pasig Land Development
Corporation v. Mario Tablante (Tablante), the SC ruled that a remand to the MeTC for the

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unlawful detainer case would have been proper if not for the circumstances which rendered the
issue of possession moot and academic.

Despite its mootness as held in Tablante, the issue of possession again surfaced in the third case.
The RTC, however, awarded the possession to MPLDC with Rockland being ordered to refrain
from exercising any possessory rights over the same.

PPC moved to intervene in the third case claiming interest over the property based on an alleged
option to lease granted to it by MPLDC. The RTC issued the Omnibus Order denying Rockland’s
motion for reconsideration on the dismissal of the indirect contempt case and granting PPC’s
motion to intervene. The resolution was implemented by the Sheriff, thus, possession of the
subject property was turned over to PPC on the basis of the option to lease agreement with
MPLDC.

Believing that the affirmation awarded the possession of the property to it, Rockland sought
restoration in the possession of the subject. In the course of the execution proceedings, the trial
court issued flip-flopping orders, the last (August 10, 2007 RTC Order) of which awarded the
possession to PPC.

With movants’ motion for reconsideration denied by the CA, petitions for certiorari under Rule 45
were filed before this Court. The Court dismissed the petitions reiterating its pronouncement
in Tablante that the issue of possession and other related issues had become moot and academic.

Hence, the filing of this motion for reconsideration seeking clarification and/or reconsideration.

Issue:

Whether Rockland had a right to possess the subject property

Ruling:

After a thorough review of the records, the Court agrees with the movants in their submission
that the dismissal of the petitions would affirm an erroneous ruling, which effectively restored the
possession of the subject property to Rockland despite the expiration of its contract of lease.

Although the Tablante decision considered the “main case” or the issue of possession as moot and
academic, as can be gleaned therefrom, the Court granted the petition and reversed the CA. In the
process, the Court adjudicated on Rockland’s right to possess the subject property. The Court
clearly stated that the said right was already extinguished by virtue of the expiration of Rockland’s
leasehold rights way back in 2003.

Thus, the movants, in filing their motions, seek the Court’s guidance in determining whether the
CA erred in not taking into consideration the mootness of Rockland’s claim when it issued an
order commanding the restoration of the property to the latter.

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The movants submit that by virtue of the Court’s ruling in Tablante, which already attained
finality, the CA has erred in declaring that Rockland still has the right to possess the subject
property.

The Court agrees.

The CA erred in ordering the restoration of the possession to Rockland. The rule is that:

It is a rule of universal application, almost, that courts of justice constituted to pass


upon substantial rights will not consider questions in which no actual interests are
involved; they decline jurisdiction of moot cases. And where the issue has become
moot and academic, there is no justiciable controversy, so that a declaration thereon
would be of no practical use or value. There is no actual substantial relief to which
petitioners would be entitled and which would be negated by the dismissal of the
petition.

Granting that the CA was not aware of Tablante, nonetheless, it had no factual or legal basis
in ordering the restoration of the possession of the subject property to Rockland. It was very
clear in the records that the original lease contract entered into by and between MPLDC and
ECRM, the predecessor in interest of Rockland, had long expired in 2003.

PAUL P. GABRIEL, JR, et al. vs. CARMELING CRISOLOGO


G.R. No. 204626, June 9, 2014, J. Mendoza

When it is shown that the plaintiff in a case of accion publiciana had a valid title issued in
her name in 1967, within the period which the Supreme Court held that titles issued over the same
properties were valid; that she has been paying the realty taxes on the said properties since l969;
that she likewise appointed an administrator of the disputed lands, and more importantly, there is
no question that she offered to sell to petitioners the portions of the subject properties occupied by
them, then she deserves to be respected and restored to her lawful possession as provided in Article
539 of the New Civil Code.
Facts:

Respondent Carmeling Crisologo filed with the MTCC a complaint for recovery of
possession with damages against petitioners Gabriel, Pulkera, Calwag and Tingga-an, alleging that
she was the registered owner of a parcel of land which were unlawfully occupied by the
petitioners, who constructed their houses thereon. Crisologo, though her daughter, orally
demanded the petitioners to vacate the properties but the latter offered to buy the properties.
Crisologo gave them time to produce the money but petitioners reneged on their promise to buy
and unlawfully held and occupied the property. The petitioners contend that the titled of
Crisologo were declared void by the Supreme Court in the Republic v. Marcos cases; hence she
cannot have valid title and prior possession over the land. The petitioners, on the other hand, had
been in open, actual, exclusive, notorious, uninterrupted, and continuous possession of the
subject land, in good faith.

The MTCC ruled in favor of Crisologo and ordered the petitioners to vacate the properties,
dismantle their structures and pay rentals. Crisologo was the registered owner of the properties
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while the petitioners were illegally occupying the land. The RTC reversed and set aside the MTCC
ruling, and held that the titles of Crisologo were invalid. The CA set aside the RTC ruling and
reinstated the MTCC, holding that Crisologo was entitled to the possession of the land, as the
same was established when she purchased the properties in 1967.

Issue:

Did Petitioners have a better right of possession over Crisologo on the subject parcels of
land?

Ruling:

The petition is denied.

Accion Publiciana: its nature and purpose

Also known as accion plenaria de posesion, accion publiciana is an ordinary civil


proceeding to determine the better right of possession of realty independently of title. It refers to
an ejectment suit filed after the expiration of one year from the accrual of the cause of action or
from the unlawful withholding of possession of the realty.

The objective of the plaintiffs in accion publiciana is to recover possession only, not
ownership. When parties, however, raise the issue of ownership, the court may pass upon the
issue to determine who between the parties has the right to possess the property. This
adjudication, nonetheless, is not a final and binding determination of the issue of ownership; it is
only for the purpose of resolving the issue of possession, where the issue of ownership is
inseparably linked to the issue of possession. The adjudication of the issue of ownership, being
provisional, is not a bar to an action between the same parties involving title to the property. The
adjudication, in short, is not conclusive on the issue of ownership.

In her complaint, Crisologo prayed that she be declared in prior actual possession of the
properties in dispute and that petitioners vacate the same and demolish their houses therein. She
alleged, among others, that she was the registered owner of the subject parcels of land and that
petitioners unlawfully entered her properties by stealth, force and without her prior consent and
knowledge. Clearly, she primarily wanted to recover possession of the subject parcels of land from
petitioners. Hence, the case is an accion publiciana.

The nullity of the decrees of registration and certificates of titles in Section 1 of P.D.
No. 1271 is not absolute

Although Section 1 of P.D. No. 1271 invalidated decrees of registration and certificates of
title within the Baguio Townsite Reservation Case No. 1, GLRO Record No. 211, the nullity,
however, is not that sweeping. The said provision expressly states that “all certificates of titles
issued on or before July 31, 1973 shall be considered valid and the lands covered by them shall be
deemed to have been conveyed in fee simple to the registered owners” upon 1) showing proof that
the land covered by the subject title is not within any government, public or quasi-public
reservation, forest, military or otherwise, as certified by appropriating government agencies; and

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2) compliance by the title holder with the payment to the Republic of the Philippines of the
correct assessed value of the land within the required period.

In the case at bench, the records show that the subject parcels of land were registered on
August 24, 1967. The titles are, thus, considered valid although subject to the conditions set. But
whether or not Crisologo complied with the said conditions would not matter because, this would
be a collateral attack on her registered titles, as would be discussed later.

Crisologo’s certificates of title give her the better right to possess the subject
parcels of land.

It is settled that a Torrens title is evidence of indefeasible title to property in favor of the
person in whose name the title appears. It is conclusive evidence with respect to the ownership of
the land described therein. It is also settled that the titleholder is entitled to all the attributes of
ownership of the property, including possession. Thus, in Arambulo v. Gungab, this Court declared
that the “age-old rule is that the person who has a Torrens title over a land is entitled to
possession thereof.”

The records show that TCT No. T-1393517 and TCT No. T-1393618 bear the name of
Carmeling P. Crisologo, as the registered owner. Petitioners do not dispute the fact that she has a
Torrens title over the subject parcels of land.

Crisologo’s Torrens certificates of title are immune from a collateral attack.

As a holder of a Torrens certificate of title, the law protects Crisologo from a collateral
attack on the same. Section 48 of P.D. No. 1529, otherwise known as the Property Registration
Decree, provides that a certificate of title cannot be the subject of a collateral attack.

As the lawful possessor, Crisologo has the right to eject the petitioners.

The Court agrees with the CA that the only question that needs to be resolved in this suit
to recover possession is who between the parties is entitled to the physical or material possession
of the subject parcels of land. Therefore, the foremost relevant issue that needs to be determined
here is simply possession, not ownership.

The testimonial and documentary evidence on record prove that Crisologo has a preferred
claim of possession over that of petitioners. It cannot be denied that she bought the subject
properties from the previous owner in 1967, which was why the transfer certificates of title were
subsequently issued in her name. Records further show that she has been paying the realty taxes
on the said properties since l 969. She likewise appointed Isican as administrator of the disputed
lands. More importantly, there is no question that she offered to sell to petitioners the portions of
the subject prope1iies occupied by them. Hence, she deserves to be respected and restored to her
lawful possession as provided in Article 539 of the New Civil Code.

PENTA PACIFIC REALTY CORPORATION vs. LEY CONSTRUCTION AND DEVELOPMENT


CORPORATION
G.R. No. 161589, November 24, 2014, J. Bersamin

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Penta Pacific leased its properties to Ley Construction. Both parties then entered into a
contract to sell. Ley Construction failed to pay its amortizations prompting Penta Pacific to file an
action for ejectment. The CA affirmed the ruling of the RTC that the MeTC had no jurisdiction over
the case. In resolving, the Supreme Court ruled that, a defendant's claim of possession de Jure or his
averment of ownership does not render the ejectment suit either accion publiciana or accion
reivindicatoria. The suit remains an accion interdictal, a summary proceeding that can proceed
independently of any claim of ownership. Even when the question of possession cannot be resolved
without deciding the issue of ownership, the issue of ownership is to be resolved only to determine
the issue of possession.

Facts:

Penta Pacific Realty owned the 25th floor of the Pacific Star Building located in Makati.
Ley Construction leased 444.03 square meters through Penta Pacific Realty’s authorized agent,
Century Properties Management, Inc. (Century Properties). Under the terms of the contract of
lease, Penta Pacific Realty gave the Ley Construction possession of the subject property under a
stipulation that in case of Ley Construction’s default in its monthly rentals, the Penta Pacific
Realty could immediately repossess the subject property.

On March 19, 1997, the Ley Construction expressed the intention to purchase the entire
1,068.67 square meters, including the subject property. The parties executed a contract to sell,
denominated as a reservation agreement. Any failure on Ley Construction’s part to pay the full
down payment, or deliver the post-dated checks or pay the monthly amortization on the due
date, shall entitle Penta Pacific Realty, at its option, to impose a penalty interest at the rate of
three percent (3%) per month on the outstanding balance or to cancel this agreement without
need of any court action and to forfeit, in its favor, any reservation deposits or payments already
made on the unit, without prior notice.

After paying US$538,735.00, Ley Construction stopped paying the stipulated monthly
amortizations. Penta Pacific Realty then sent several demand letters asking for the payment. In
the letter dated February 4, 1999, Penta Pacific Realty’s counsel informed Ley Construction of the
cancellation of the reservation agreement and the forfeiture of the Ley Construction’s payments;
and demanded that Ley Construction pay the rentals of P9,782,226.50 and vacate the subject
property.

On July 9, 1999, the Penta Pacific Realty filed the complaint for ejectment in the MeTC
following Ley Construction’s failure to comply with the demands to pay and vacate. On January
12, 2000, the MeTC, ruling in favor of Penta Pacific Realty, found that Ley Construction’s lawful
possession of the property had been by virtue of the contract of lease, but had become unlawful
when the Ley Construction had failed to comply with its obligation to pay the monthly rentals.
On appeal with the RTC, the RTC rendered its judgment nullifying the MeTC’s decision on the
ground of lack of jurisdiction, holding that the appropriate action was either accion publiciana or
accion reivindicatoria over which the MeTC had no jurisdiction. On appeal with the Court of
Appeals, the CA affirmed the judgment of the RTC. Hence, this petition.

Issue:

Whether or not the action is for unlawful detainer


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Ruling:

The present action is an action for unlawful detainer.

There are three kinds of real actions affecting title to or possession of real property, or
interest therein, namely: accion de reivindicacion, accion publiciana and accion interdictal. The
first seeks the recovery of ownership as well as possession of realty. The second proposes to
recover the right to possess and is a plenary action in an ordinary civil proceeding. The third
refers to the recovery of physical or actual possession only (through a special civil action either for
forcible entry or unlawful detainer).

The Municipal Trial Court (MTC) has exclusive original jurisdiction over accion
interdictal. Until April 15, 1994, the MTC had no original jurisdiction over the other possessory
actions. By such date, its jurisdiction was expanded to vest it with exclusive original jurisdiction
over the other possessory actions ofaccion publiciana and accion de reivindicacion where the
assessed value of the realty involved did not exceed P20,000.00, or, if the realty involved was in
Metro Manila, such value did not exceed P50,000.00. The expansion of jurisdiction was by virtue
of the amendment by Section 1 of Republic Act No. 7691.

A suit for unlawful detainer is premised on Section 1, Rule 70, 1997 Rules of Civil
Procedure, of which there are two kinds, namely: (1) that filed against a tenant, and (2) that
brought against a vendee or vendor, or other person unlawfully withholding possession of any
land or building after the expiration or termination of the right to hold possession by virtue of any
contract, express or implied.

"In an action for forcible entry or unlawful detainer, the main issue is possession de facto,
independently of any claim of ownership or possession de jure that either party may set forth in
his pleading." The plaintiff must prove that it was in prior physical possession of the premises
until it was deprived thereof by the defendant. The principal issue must be possession de facto, or
actual possession, and ownership is merely ancillary to such issue. The summary character of the
proceedings is designed to quicken the determination of possession de facto in the interest of
preserving the peace of the community, but the summary proceedings may not be proper to
resolve ownership of the property. Consequently, any issue on ownership arising in forcible entry
or unlawful detainer is resolved only provisionally for the purpose of determining the principal
issue of possession. On the other hand, regardless of the actual condition of the title to the
property and whatever may be the character of the plaintiff’s prior possession, if it has in its favor
priority in time, it has the security that entitles it to remain on the property until it is lawfully
ejected through an accion publiciana or accion reivindicatoria by another having a better right.

The aforequoted allegations of the complaint made out a case of unlawful detainer,
vesting the MeTC with exclusive original jurisdiction over the complaint. As alleged therein,the
cause of action of the Penta Pacific Realty was to recover possession of the subject property from
the Ley Construction upon the latter’s failure to comply with the former’s demand tovacate the
subject property after the latter’s right to remain thereon terminated by virtue of the demand to
vacate. Indeed, the possession of the latter, although lawful at its commencement, became
unlawful upon its non-compliance with the former’s demand to vacate.

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A defendant's claim of possession de Jure or his averment of ownership does not render
the ejectment suit either accion publiciana or accion reivindicatoria. The suit remains an accion
interdictal, a summary proceeding that can proceed independently of any claim of ownership.
Even when the question of possession cannot be resolved without deciding the issue of
ownership, the issue of ownership is to be resolved only to determine the issue of possession.

SUBIC BAY LEGEND RESORTS AND CASINOS, INC. vs. BERNARD C. FERNANDEZ
G.R. No. 193426, September 29, 2014, J. Del Castillo

Though casino chips do not constitute legal tender, there is no law which prohibits their use
or trade outside of the casino which issues them. In any case, it is not unusual – nor is it unlikely –
that respondent could be paid by his Chinese client at the former's car shop with the casino chips in
question; said transaction, if not common, is nonetheless not unlawful. These chips are paid for
anyway petitioner would not have parted with the same if their corresponding representative
equivalent – in legal tender, goodwill, or otherwise – was not received by it in return or exchange.
Given this premise – that casino chips are considered to have been exchanged with their
corresponding representative value – it is with more reason that the Court should require petitioner
to prove convincingly and persuasively that the chips it confiscated from the Fernandez brothers
were indeed stolen from it; if so, any Tom, Dick or Harry in possession of genuine casino chips is
presumed to have paid for their representative value in exchange therefor. If SBL cannot prove its
loss, then Art. 559 cannot apply; the presumption that the chips were exchanged for value remains.

Facts:

Bernard Fernandez filed a collection suit with damages against Petitioner Subic Bay
Legend (SBL). The controversy stems from the apprehension of the two brothers of Fernandez,
who went to and played in the casino operated by SBL. The Fernandez brothers caught the
attention of the casino management when they enchased substantial number of casino chips, part
of which valued at $5,900.00 is being claimed by Bernard in the civil action.

SBL harps on the admission made by the Fernandez brothers, after they were held for
several hours without food and sleep, to the effect that they were acting in complicity with a
certain Martin Cabrera, a casino table inspector employed by SBL, who gave the chips. Bernard,
however, asserts that his brothers recanted their statements on this alleged connivance. At any
rate, he has shown that he lawfully acquired the chips from a Chinese national who used the same
as payment for the car services he rendered.

The trial court ruled in favor of Bernard as it found SBL to have failed to prove that the
chips were stolen. On appeal, the CA deciding against SBL, applied Art. 559 of the Civil Code by
which Bernard is presumed to have legal title over the casino chips and this extends to his
brothers who are deemed possessors in good faith and for value. Secondly, the absence of any
criminal case against the supposed mastermind, Cabrera, and the Fernandez brothers weakens
the claim of alleged theft. Lastly, the circumstances surrounding the confession of the Fernandez
brother, which violates their constitutional rights, puts much doubt on its veracity.

Issue:

Whether or not Bernard is the lawful owner of the casino chips in question.
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Ruling:

YES, Bernard was able to show that he obtained, as it is the commonsensical practice, the
chips for sufficient consideration.

If petitioner should stick to its theory that Cabrera stole the subject casino chips, then its
failure to file a criminal case against the latter, including the Fernandez brothers for that matter,
up to this point certainly does not help to convince the Court of its position, xxx. Indeed, for
purposes of this case, there appears to be no evidence on record … that Cabrera stole the casino
chips in question; such conclusion came unilaterally from petitioner, and for it to use the same as
foundation to the claim that the Fernandez brothers and Bernard are dealing in stolen chips is
clearly irregular and unfair. Thus, there should be no basis to suppose that the casino chips found
in the Fernadez brothers’ possession were stolen; SBL acted arbitrarily in confiscating the same
without basis. xxx If it cannot be proved, in the first place, that Cabrera stole these chips, then
there is no more reason to suppose that the Fernandez brothers were dealing in or possessed
stolen goods; unless the independent fact that Cabrera stole the chips can be proved, it cannot be
said that they must be confiscated when found to be in the Fernandez brothers’ possession.

It is not even necessary to resolve whether the Fernandez brothers’ Joint Affidavit was
obtained by duress or otherwise; the document is irrelevant SBL’s cause, as it does not suggest at
all that Cabrera stole the subject casino chips. At most, it only shows that Cabrera gave the
Fernandez brothers casino chips, if this fact is true at all – since such statement has since been
recanted.

Though casino chips do not constitute legal tender, there is no law which prohibits their
use or trade outside of the casino which issues them. In any case, it is not unusual – nor is it
unlikely – that respondent could be paid by his Chinese client at the former's car shop with the
casino chips in question; said transaction, if not common, is nonetheless not unlawful. These
chips are paid for anyway petitioner would not have parted with the same if their corresponding
representative equivalent – in legal tender, goodwill, or otherwise – was not received by it in
return or exchange. Given this premise – that casino chips are considered to have been exchanged
with their corresponding representative value – it is with more reason that the Court should
require petitioner to prove convincingly and persuasively that the chips it confiscated from the
Fernandez brothers were indeed stolen from it; if so, any Tom, Dick or Harry in possession of
genuine casino chips is presumed to have paid for their representative value in exchange therefor.
If SBL cannot prove its loss, then Art. 559 cannot apply; the presumption that the chips were
exchanged for value remains.

GINA ENDAYA vs. ERNESTO V. VILLAOS


G.R. No. 202426, January 27, 2016, J. Del Castillo

Facts:

Gina Endaya (hereinafter petitioner) and the other heirs of Atilano Villaos (hereinafter
Atilano) filed before the RTC, a complaint for declaration of nullity of deeds of sale, recovery of
titles, and accounting of income of the Palawan Village Hotel (hereinafter PVH) against Ernesto
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V. Villaos (hereinafter respondent). Docketed thereat as Civil Case No. 4162, the complaint sought
the recovery of several lots, including that on which the PVH and Wooden Summer Homes are
located.

The complaint in the main said that the purported sale of the affected lots, from Atilano to
respondent, was spurious.

Subsequently or on 10 May 2006, respondent filed an ejectment case with preliminary


mandatory injunction against petitioner Gina Endaya and Leny Rivera before MTCC, docketed as
Civil Case No. 1940.

According to respondent, he bought from Atilano eight (8) parcels of land, including
those where PVH and WSH stood. Respondent then took possession of the lots and started to
manage and operate the said hotels. Upon taking possession of the said lots, he told petitioner
and the others who live in residential houses in the lots in question, to vacate the premises, giving
them a period of six (6) months to do so.

However, instead of leaving, petitioner even participated in a violent and unlawful take-
over of portions of PVH and WSH, thus, the filing of the ejectment case.

Issue:

Who, as between a registered owner and a buyer, is entitled to possess the subject
property?

Ruling:

In resolving the issue of possession in an ejectment case, the registered owner of the
property is preferred over the transferee under an unregistered deed of sale.

In the instant case, the evidence showed that as between the parties, it is the petitioner
who has a Torrens Title to the property. Respondents merely showed their unregistered deeds of
sale in support of their claims.
In Tenio-Obsequio v. Court of Appeals, it was held that the Torrens System was adopted in
this country because it was believed to be the most effective measure to guarantee the integrity of
land titles and to protect their indefeasibility once the claim of ownership is established and
recognized.

It is settled that a Torrens Certificate of title is indefeasible and binding upon the whole
world unless and until it has been nullified by a court of competent jurisdiction. Under existing
statutory and decisional law, the power to pass upon the validity of such certificate of title at the
first instance properly belongs to the Regional Trial Courts in a direct proceeding for cancellation
of title.

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The age-old rule is that the person who has a Torrens Title over a land is entitled to
possession thereof.

In the present case, there is no dispute that petitioner is the holder of a Torrens title over
the entire Lot 83. Respondents have only their notarized but unregistered Kasulatan sa Bilihan to
support their claim of ownership. Thus, even if respondents’ proof of ownership has in its favor
a juris tantum presumption of authenticity and due execution, the same cannot prevail over
petitioner’s Torrens title.

Besides, if there are strong reasons of equity, such as when the execution of the judgment
in the unlawful detainer case would result in the demolition of the premises such that the result
of enforcement would be permanent, unjust and probably irreparable, then the unlawful detainer
case should at least be suspended, if not abated or dismissed, in order to await final judgment in
the more substantive case involving legal possession or ownership.

REX DACLISON v. EDUARDO BAYTION


G.R. No. 219811, April 6, 2016; Mendoza

Facts:

On January 27, 2009, respondent Eduardo Baytion (Baytion) filed a Complaint for Forcible Entry
and Damages with Prayer for Issuance of Preliminary Mandatory Injunction with the
Metropolitan Trial Court, Branch 43, Quezon City (MeTC) against petitioner Rex Daclison
(Daclison), which was docketed as Civil Case No. 39225.

Baytion alleged that he was a co-owner of a parcel of land consisting of 1,500 square meters,
covered by Transfer Certificate Title (TCT) No. 221507. The said property was inherited by him
and his siblings from their parents and, as agreed upon, was being administered by him. As
administrator, he leased portions of the property to third persons. On the said property was a
one-storey building which was divided into seven units or stalls. One of the stalls was leased to a
certain Leonida Dela Cruz (Leonida) who used it for her business of selling rocks, pebbles and
similar construction materials. When the lease of Nida expired sometime in May 2008, Daclison
and other persons acting under her took allegedly took possession of the portion leased and
occupied by Leonida without the prior knowledge and consent of Baytion. Since then, Daclison
had been occupying the contested portion and using it for his business of selling marble and other
finishing materials without paying anything to Baytion.

On Daclison’s part, he argued that the property which he was occupying no longer forms part of
Baytion’s property. Daclison explained that initially, Baytion leased a portion of the property to
one Antonio Dela Cruz. When a stone wall was erected at the creek near the property, Antonio
was able to negotiate with a certain engineer to allow him to fill in the sloping area leading to the
newly erected wall. After filling it up, Antonio took possession of the same which was next to the
property he was leasing from Baytion. When Antonio died, a certain Ernanie Dela Cruz took over
the business. Daclison entered into a business venture with Ernanie. Soon after, Ernanie and
Daclison received a letter from Baytion requesting them to vacate the premises. Ernanie and
Daclison then came to an agreement wherein the latter would be the one to pay the rental arrears

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and future lease payments. However, when Daclison issued a check in the amount of P100,000.00,
Baytion returned the same and stated that he would no longer bother Ernanie and Daclison if
they vacated the portion of the property he owned and from them to occupy the filled in portion.
Relying on the promise of Baytion, Ernanie and Daclison vacated the property they were leasing
from Baytion, and settled only in the property filled in by Antonio. However, despite the same,
Baytion still filed a complaint with the barangay, now claiming that the filled in portion was part
of his property.

The MeTC dismissed the case on the ground that Baytion failed to include his siblings or his co-
owners as plaintiffs in the case.

On appeal to the RTC, it ruled that the MeTC had no jurisdiction over Baytion’s complaint as it
failed to allege ultimate facts that constitute a case of forcible entry. Nevertheless, the RTC
exercised its original jurisdiction over the same. The RTC then decided that Baytion had a better
right of possession over the property.

When the case reached the CA, it upheld the RTC’s ruling as regards the MeTC’s lack of
jurisdiction. It was of the view that the present action for forcible entry had actually ripened into
one for recovery of the right to possess or accion publiciana, which was an action in an ordinary
civil proceeding in the Regional Trial Court. As to who has a better right of possession, the CA
likewise ruled that Baytion had a better right to possess the property considering that the Ernanie
and Daclison were mere lessees, whose rights can never ripen to ownership by virtue of
continuous and adverse possession of the property.

Issues:

1) Whether or not the CA correctly held that Baytion had the better right of possession of
the property.

Ruling:

1) No, contrary to Baytion’s argument, the filled in portion of the property being occupied by
Daclison cannot be considered as accretion which will form part of his property. Not being
the owner thereof, Baytion may not be held to have a better right of possession.

Baytion’s contention that he owns that portion by reason of accretion is misplaced. Article 457 of
the New Civil Code provides that the owners of lands adjoining the banks of rivers belongs the
accretion which they gradually receive from the effects of the current of the waters. The following
requisites must concur in order for an accretion to be considered, namely: (1) that the deposit be
gradual and imperceptible; (2) that it be made through the effects of the current of the water; and,
(3) that the land where accretion takes place is adjacent to the banks of rivers.

In the case at bench, this contested portion cannot be considered an accretion. To begin with, the
land came about not by reason of a gradual and imperceptible deposit.1âwphi1 The deposits were
artificial and man-made and not the exclusive result of the current from the creek adjacent to his
property. Baytion failed to prove the attendance of the indispensable requirement that the deposit
was due to the effect of the current of the river or creek. Alluvion must be the exclusive work of
nature and not a result of human intervention.
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Furthermore, the disputed property cannot also be considered an improvement or accession since
in order to be considered as such, it must be constructed within or on the property and not
outside.

SPOUSES IMPERIAL v. SPOUSES PINIGAT


G.R. No. 193554, April 13, 2016; Reyes

Facts:

This case involves a 248 square meter residential lot with improvements situated in San Roque,
Baao, Camarines Sur. Petitioners herein allege that they have a better right to possess the
property allegedly because Rodrigo Jr.’s father (Rodrigo Sr.) purchased the same from their
grandfather, Isabelo Imperial. On the other hand, respondents allege that Isabelo sold half of the
property to Asuncion’s father, Juan Imperial (the brother of Isabelo), and upon the death of Juan,
Betty Imperial (Asuncion’s mother) sold the same to Rogelio Pinigat (husband of Asuncion).

Sometime in 1997, Rodrigo Jr. and his father Rodrigo Sr. were surprised to discover the existence
of the deed of absolute sale covering one-half of the subject property in favor of the respondents
and which was registered with the Registry of Deeds of Camarines Sur. After failing to amicably
settle the case before the barangay, Rodrigo Sr. proceeded to file a case for Quieting of Title,
Recovery of Possession and Damages against Betty, docketed as Civil Case No. 627.

The MTC rendered a Decision in favor of the respondents recognizing their ownership of the one-
half portion of the subject property. The MTC ruled that Rodrigo Sr. failed to prove that he indeed
purchased the property from Isabelo, because he neither registered the document which
purportedly transferred ownership to him, nor did he pay real property taxes thereon. The MTC
was more inclined to believe Betty’s version of the story. While there is also document evidencing
the sale, Betty and Juan had the property sub-divided by a geodetic engineer after the sale of
Isabelo of one-half of the property.

Rodrigo Sr. appealed the case with the RTC of Iriga City, which dismissed the appeal. The MTC’s
Decision therefore attained finality.

In the course of executing the MTC’s Decision, it was discovered through another survey that the
portion being occupied by the petitioners encroached on the area sold to the respondents. After
refusing to vacate the same despite demand, the respondents filed a complaint for unlawful
detainer against petitioners.

The MTC ruled in favor of the respondents and ordered the petitioners to vacate the and remove
the structures constructed on the portion of the property belonging to respondents

On appeal to the RTC, it reversed the MTC’s Decision. The RTC held that the respondents’
complaint failed to state the fact that the petitioners’ possession was lawful from the beginning
but became illegal when their right to possess had expired or terminated. It also noted that the
complaint failed to aver the facts constitutive of forcible entry or unlawful detainer particularly
the manner of entry; hence, the proper remedy should be either an accion publiciana or accion
reivindicatoria which must be filed with the proper RTC.
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On appeal to the CA, it reversed the RTC and reinstated the MTC’s Decision in favor of the
respondents.

Issues:

1) Whether or not the CA correctly held that the MTC’s Decision in the earlier Civil Case No.
627 binds petitioners herein, which necessarily means that respondents have a better right
to the portion granted to them in that case.

Ruling:

1) Yes, while it is true that the petitioners herein were not parties in Civil Case No. 627, A
final and executory decision of the court, however, is applicable not only to the parties
thereto but also to their successors-in-interest.

Indeed, Civil Case No. 627 was between Rodrigo Sr. and the respondents. A final and executory
decision of the court, however, is applicable not only to the parties thereto but also to their
successors-in-interest.

In Civil Case No. 627, the MTC dismissed Rodrigo Sr.'s claim of ownership after failing to establish
the veracity of his allegation that a contract of sale over the subject property was executed
between him and Isabelo. Hence, Rodrigo Jr. may not anchor his claim of title on that supposed
purchase by his father. The only possibility that Rodrigo Jr. may be entitled to a portion of the
property is by means of succession, his deceased father being the nephew of Isabelo who died
without any children. As a mere successor, however, Rodrigo, Jr. only succeeds to that portion of
the estate that the decedent did not dispose of during his lifetime. It is crystal clear from the facts
that at the time of Isabelo's death, he is the owner of only one-half of the subject property, having
disposed the other half by virtue of an absolute sale to his brother, Juan. Rodrigo Jr. cannot now
repudiate the conclusiveness of the judgment in Civil Case No. 627, which delineated the portion
of the subject property still owned by Isabelo and that which he had already disposed to the
respondents. Rodrigo Jr., having merely stepped into the shoes of his predecessor, cannot claim
that the decision does not apply to him.

EASEMENTS

EASEMENT OF RIGHT OF WAY

ALICIA B. REYES vs. SPOUSES VALENTIN RAMOS, FRANCISCO S. AND ANATALIA


G.R. No. 194488, February 11, 2015, J. Leonen

The convenience of the dominant estate's owner is not the basis for granting an easement of
right of way, especially if the owner's needs may be satisfied without imposing the easement. Thus,
mere convenience for the dominant estate is not what is required by law as the basis of setting up a
compulsory easement. Furthermore, based on the Ocular Inspection Report, petitioner's property
had another outlet to the highway. Access to the public highway can be satisfied without imposing
an easement on the spouses' property.
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Facts:

Alicia B. Reyes, through Dolores B. Cinco, filed a complaint before the RTC,
for easement of right of way against Spouses Francisco S. Valentin and Anatalia Ramos. In her
complaint Reyes alleged that she was the registered owner of a 450-square-meter parcel of land
designated as Lot No. 3-B-12. The property used to be a portion of Lot No. 3-B and was
surrounded by estates belonging to other persons.

Reyes also alleged that Spouses Valentin and Ramos’s 1,500-square-meter property
surrounded her property, and that it was the only adequate outlet from her property to the
highway. A 113-square-meter portion of said spouses' property was also the "point least prejudicial
to the them." The easement sought was the vacant portion near the boundary of spouses other
lot.

According to Reyes, her and the spouses' lots were previously owned by her mother. The
latter’s lot was given to Dominador Ramos who allegedly was respondent spouses' predecessor-in-
interest, her mother's brother and caretaker of properties.

Only 500 square meters were given to Dominador and part of the 1,500 square meters was
intended as a right of way. Dominador was tasked to prepare the documents. But, instead of
limiting the conveyance to himself to 500 square meters of the property, he conveyed the whole
1,500 square meters, including that which was supposed to be the access to the barangay road.

Reyes’ mother only learned about what Dominador did when a meeting was called in 1989
regarding the implementation of the Comprehensive Agrarian Reform Program. She did not cause
the recovery of her title because at that time, the Register of Deeds of Bulacan was razed by fire,
causing the destruction of the documents covering the subject properties. Despite demands and
willingness to pay the amount, respondents refused to accede to Reyes’ claims.

In their Answer, spouses Valentin and Ramos contended that the isolation of Reyes’
property was due to her mother's own act of subdividing the property among her children
without regard to the pendency of an agrarian case between her and her tenants. The property
chosen by Reyes as easement was also the most burdensome for respondent spouses. Said Spouses
pointed to an open space that connected Reyes’ property to another public road.

The RTC ruled in dismissing the complaint, it found that Reyes’ proposed right of way was
not the least onerous to the servient estate of spouses Valentin and Ramos. On appeal to the
Court of Appeals, it affirmed the former’s decision in toto.

Issue:

Whether Reyes has the compulsory easement of right of way over Spouses Valentin and
Ramos's property?

Ruling:

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No, it failed to satisfy the requirements of an easement of right of way under the Civil
Code.

Based on provisions of the said code, the following requisites need to be established before
a person becomes entitled to demand the compulsory easement of right of way: 1) an immovable
is surrounded by other immovables belonging to other persons, and is without adequate outlet to
a public highway; 2) Payment of proper indemnity by the owner of the surrounded immovable; 3)
the isolation of the immovable is not due to its owner's acts; and 4) the proposed easement of
right of way is established at the point least prejudicial to the servient estate, and insofar as
consistent with this rule, where the distance of the dominant estate to a public highway may be
the shortest.

We agree with the Regional Trial Court's and the Court of Appeals' findings that Reyes
failed to establish that there was no adequate outlet to the public highway and that the proposed
easement was the least prejudicial to respondents' estate. There is an adequate exit to a public
highway. Access to the public highway can be satisfied without imposing an easement on the
spouses' property.

In Dichoso, Jr. v. Marcos, that the convenience of the dominant estate's owner is not the
basis for granting an easement of right of way, especially if the owner's needs may be satisfied
without imposing the easement. Thus, mere convenience for the dominant estate is not what is
required by law as the basis of setting up a compulsory easement. Even in the face of necessity, if
it can be satisfied without imposing the easement, the same should not be imposed.

Based on the Ocular Inspection Report, Reyes' property had another outlet to the
highway. In between her property and the highway or road, however, is an irrigation canal, which
can be traversed by constructing a bridge, similar to what was done by the owners of the nearby
properties. There is, therefore, no need to utilize respondents' property to serve petitioner's
needs. Another adequate exit exists. Reyes can use this outlet to access the public roads.

Reyes would have permanent structures — such as the garage, garden, and grotto already
installed on respondent's property — destroyed to accommodate her preferred location for the
right of way. The cost of having to destroy these structures, coupled with the fact that there is an
available outlet that can be utilized for the right of way, negates a claim that respondents'
property is the point least prejudicial to the servient estate.

HELEN CALIMOSO, MARILYN P. CALIMOSO and LIBY P. CALIMOSO


vs. AXEL D. ROULLO
G.R. No. 198594, January 25, 2016, J. Brion

Facts:

In his Complaint for Easement of Right of Way, the respondent mainly alleged: that he is
the owner of a lot; that his lot is isolated by several surrounding estates, the lot owned by
petitioners Helen, Marilyn, and Liby, all surnamed Calimoso; that he needs a right-of-way in
order to have access to a public road; and that the shortest and most convenient access to the
nearest public road, i.e., Fajardo Subdivision Road, passes through the petitioners’ lot.
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Issue:

Whether all the requisites for the valid establishment of an easement of right-of-way are
present in this case.

Ruling:

Not all the requisites for the establishment of an easement of right-of-way are present in
this case. To be entitled to an easement of right-of-way, the following requisites should be met:

1. The dominant estate is surrounded by other immovables and has no adequate


outlet to a public highway;
2. There is payment of proper indemnity;
4. The isolation is not due to the acts of the proprietor of the dominant estate; and
5. The right-of-way claimed is at the point least prejudicial to the servient estate; and
insofar as consistent with this rule, where the distance from the dominant estate to
a public highway may be the shortest.

The immovable in whose favor the easement is established is called the dominant estate,
and the property subject to the easement is called the servient estate. Here, the respondent’s lot is
the dominant estate and the petitioners’ lot is the servient estate.

That the respondent’s lot is surrounded by several estates and has no access to a public
road are undisputed. The only question is whether the right-of-way passing through the
petitioners’ lot satisfies the fourth requirement of being established at the point least
prejudicial to the servient estate.

Article 650 of the Civil Code provides that the easement of right-of-way shall be
established at the point least prejudicial to the servient estate, and, insofar as consistent with this
rule, where the distance from the dominant estate to a public highway may be the shortest. Under
this guideline, whenever there are several tenements surrounding the dominant estate, the right-
of-way must be established on the tenement where the distance to the public road or highway is
shortest and where the least damage would be caused. If these two criteria (shortest distance and
least damage) do not concur in a single tenement, we have held in the past that the least
prejudice criterion must prevail over the shortest distance criterion.

In this case, the establishment of a right-of-way through the petitioners’ lot would cause the
destruction of the wire fence and a house on the petitioners’ property. Although this right-of-way
has the shortest distance to a public road, it is not the least prejudicial considering the
destruction pointed out, and that an option to traverse two vacant lots without causing any
damage, albeit longer, is available.

We have held that "mere convenience for the dominant estate is not what is required by law as
the basis of setting up a compulsory easement;" that "a longer way may be adopted to avoid injury
to the servient estate, such as when there are constructions or walls which can be avoided by a
round-about way."

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HELEN CALIMOSO, MARILYN P. CALIMOSO and LIBY P. CALIMOSO


vs. AXEL D. ROULLO
G.R. No. 198594, January 25, 2016, J. Brion

Facts:

In his Complaint for Easement of Right of Way, the respondent mainly alleged: that he is
the owner of a lot; that his lot is isolated by several surrounding estates, the lot owned by
petitioners Helen, Marilyn, and Liby, all surnamed Calimoso; that he needs a right-of-way in
order to have access to a public road; and that the shortest and most convenient access to the
nearest public road, i.e., Fajardo Subdivision Road, passes through the petitioners’ lot.

Issue:

Whether all the requisites for the valid establishment of an easement of right-of-way are
present in this case.

Ruling:

Not all the requisites for the establishment of an easement of right-of-way are present in
this case. To be entitled to an easement of right-of-way, the following requisites should be met:

1. The dominant estate is surrounded by other immovables and has no adequate outlet to
a public highway;
2. There is payment of proper indemnity;
3. The isolation is not due to the acts of the proprietor of the dominant estate; and
4. The right-of-way claimed is at the point least prejudicial to the servient estate; and
insofar as consistent with this rule, where the distance from the dominant estate to a
public highway may be the shortest.

The immovable in whose favor the easement is established is called the dominant estate,
and the property subject to the easement is called the servient estate. Here, the respondent’s lot is
the dominant estate and the petitioners’ lot is the servient estate.

That the respondent’s lot is surrounded by several estates and has no access to a public
road are undisputed. The only question is whether the right-of-way passing through the
petitioners’ lot satisfies the fourth requirement of being established at the point least
prejudicial to the servient estate.

Article 650 of the Civil Code provides that the easement of right-of-way shall be
established at the point least prejudicial to the servient estate, and, insofar as consistent with this
rule, where the distance from the dominant estate to a public highway may be the shortest. Under
this guideline, whenever there are several tenements surrounding the dominant estate, the right-
of-way must be established on the tenement where the distance to the public road or highway is
shortest and where the least damage would be caused. If these two criteria (shortest distance and
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least damage) do not concur in a single tenement, we have held in the past that the least
prejudice criterion must prevail over the shortest distance criterion.

In this case, the establishment of a right-of-way through the petitioners’ lot would cause the
destruction of the wire fence and a house on the petitioners’ property. Although this right-of-way
has the shortest distance to a public road, it is not the least prejudicial considering the
destruction pointed out, and that an option to traverse two vacant lots without causing any
damage, albeit longer, is available.

We have held that "mere convenience for the dominant estate is not what is required by law as
the basis of setting up a compulsory easement;" that "a longer way may be adopted to avoid injury
to the servient estate, such as when there are constructions or walls which can be avoided by a
round-about way."

NUISANCE

LINDA RANA vs. TERESITA LEE WONG, SPS. SHIRLEY LEE ONG and RUBEN ANG ONG
and SPS. ROSARIO and WILSON UY; SPS. ROSARIO and WILSON UY; WILSON UY as
attorney-in-fact of TERESITA LEE WONG, and SPS. SHIRLEY LEE ONG and RUBEN ANG
ONG vs. SPS. REYNALDO and LINDA LANA
G.R. No. 192861; G.R. No. 192862, June 30, 2014, J. Perlas-Bernabe

It is a standing jurisprudential rule that unless a nuisance is a nuisance per se, it may not be
summarily abated. Aside from the remedy of summary abatement which should be taken under the
parameters stated in Articles 704 (for public nuisances) and 706 (for private nuisances) of the Civil
Code, a private person whose property right was invaded or unreasonably interfered with by the act,
omission, establishment, business or condition of the property of another may file a civil action to
recover personal damages. Abatement may be judicially sought through a civil action therefor if the
pertinent requirements under the Civil Code for summary abatement, or the requisite that the
nuisance is a nuisance per se, do not concur. To note, the remedies of abatement and damages are
cumulative; hence, both may be demanded.

Facts:

Teresita Lee Wong (Wong) and Spouses Shirley and Ruben Ang Ong (Sps. Ong) are co-
owners pro-indiviso of a residential land (Wong-Ong property), abutting a 10-meter wide
subdivision road (subject road). On the opposite side of the subject road, across the Wong-Ong
property, are the adjacent lots of Spouses Wilson and Rosario Uy (Sps. Uy) and Spouses Reynaldo
and Linda Rana (Sps. Rana). The said lots follow a rolling terrain with the Rana property standing
about two (2) meters higher than and overlooking the Uy property, while the Wong-Ong property
is at the same level with the subject road.

Sometime in 1997, Sps. Rana elevated and cemented a portion of the subject road that
runs between the Rana and Wong-Ong properties in order to level the said portion with their
gate. Sps. Rana likewise backfilled a portion of the perimeter fence separating the Rana and Uy
properties without erecting a retaining wall that would hold the weight of the added filling
materials. Wong, Sps. Ong, and Sps. Uy filed a Complaint for Abatement of Nuisance with
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Damages against Sps. Rana before the RTC, docketed as Civil Case No. CEB-20893. They are
seeking to: a) declare the subject portion as a nuisance which affected the ingress and egress of
Wong and Sps. Ong to their lot “in the usual and normal manner, such that they now have to
practically jump from the elevated road to gain access to their lot and scale the same elevation in
order to get out; b) declare the backfilling as a nuisance considering that it poses a clear and
present danger to the life and limb of the Uy family arising from the premature weakening of Sps.
Uy’s perimeter fence due to the seeping of rain water from the Rana property that could cause its
sudden collapse. Sps. Rana countered that prior to the construction of their residence, there was
no existing road and they merely developed the subject portion which abuts their gate in view of
the rolling terrain. They claimed that Wong and Sps. Ong do not have any need for the subject
portion because their property is facing an existing road.

Wong & Uy filed a Motion for Leave to be Allowed to Bring in Heavy Equipment for the
development of the Wong-Ong property with a view to the use of the subject road as access to
their lot which was later on granted by the RTC. They proceeded to level the subject portion,
which, in the process, hampered Sps. Rana’s ingress and egress to their residence, resulting too to
the entrapment of their vehicle inside their garage.

Meanwhile, Sps. Rana filed with another branch of the same trial court a Complaintfor
Recovery of Property and Damages against Sps. Uy, docketed as Civil Case No. CEB-21296. They
alleged that, they caused a resurvey of their property which purportedly showed that Sps. Uy
encroached upon an 11-square meter portion along the common boundary of their properties.
They prayed that Sps. Uy be ordered to remove their fence along the common boundary and
return the encroached portion. Sps. Uy filed an Answer, averring that prior to putting up their
fence, they caused a relocation survey of their property and were, thus, confident that their fence
did not encroach upon the Rana property.

The RTC decided in the following cases. In Civil Case No. CEB-20893, the trial court
ruled (a) Sps. Rana, without prior consultation with the subdivision owner or their neighbors,
developed to their sole advantage the subject portion consisting of one-half of the width of the 10-
meter subject road by introducing filling materials, and rip rapping the side of the road and that
the said act denied Wong and Sps. Ong the use of the subject portion and affected the market
value of their property; (c) Sps. Uy have no intention of using the subject portion for ingress or
egress considering that they built a wall fronting the same; and (d) Wong, et al.’s manner of
enforcing the RTC decision on the motion caused damage and injury to Sps. Rana and amounted
to bad faith. In view of these findings, the RTC declared that the parties all acted in bad faith, and,
therefore, no relief can be granted to them against each other In Civil Case No. CEB-21296, the
RTC dismissed both the complaint and counterclaim for damages because of the failure of both
parties to substantiate their respective claims of bad faith against each other.

On appeal, in Civil Case No. CEB-20893, the CA found that (a) Sps. Rana’s act of
elevating and cementing the subject portion curtailed the use and enjoyment by Wong and Sps.
Ong of their properties; (b) the undue demolition of the subject portion by Wong, et al.
hampered Sps. Rana’s ingress and egress to their residence and deprived them of the use of their
vehicle which was entrapped in their garage; and (c) both parties were equally at fault in causing
damage and injury to each other and, thus, are not entitled to the reliefs sought for. As for Civil
Case No. CEB-21296, the CA sustained the dismissal of the complaint as well as the parties’
respective claims for damages for lack of legal and factual bases.
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Hence this petition for review on certiorari. In G.R. No. 192861, petitioner Linda Rana
faults the RTC in (a) not finding Wong and Sps. Uy guilty of malice and bad faith both in
instituting Civil Case No. CEB-20893 and in erroneously implementing the Order on the Motion.
On the other hand, in G.R. No. 192862, petitioners Wong, et al. fault the RTC in (a) applying the
in pari delicto doctrine against them and failing to abate the nuisance which still continues and
actually exists as Sps. Rana caused the same to be reconstructed and restored to their prejudice,
and (b) not finding Sps. Rana guilty of bad faith in instituting Civil Case No. CEB- 21296 and
ordering them to pay damages to petitioners Wong, et al.

Issue:

Whether or not the petitioners will prosper.

Ruling:

The petitions are partly meritorious.

Civil Case No. CEB-20893

Wong, et al. availed of the remedy of judicial abatement and damages against Sps. Rana,
claiming that both the elevated and cemented subject portion and the subject backfilling are
“nuisances” caused/created by the latter which curtailed their use and enjoyment of their
properties.

With respect to the elevated and cemented subject portion, the Court finds that the same
is not a nuisance per se. By its nature, it is not injurious to the health or comfort of the
community. It was built primarily to facilitate the ingress and egress of Sps. Rana from their house
which was admittedly located on a higher elevation than the subject road and the adjoining Uy
and Wong-Ong properties. Since the subject portion is not a nuisance per se (but actually a
nuisance per accidens) it cannot be summarily abated. As such, Wong, et al.’s demolition of Sps.
Rana’s subject portion, which was not sanctioned under the RTC’s Order, remains unwarranted.
Sps. Rana’s entitlement to the above-mentioned damages, however, only stands in theory. This is
because the actual award thereof is precluded by the damage they themselves have caused Wong,
et al. in view of their construction of the subject portion. Sps. Rana, without prior consultation
with Wong, et al. and to their sole advantage, elevated and cemented almost hal fof the 10-meter
wide subject road. As homeowners of Peace Valley Subdivision, Wong, et al. maintain the rights
to the unobstructed use of and free passage over the subject road. By constructing the subject
portion, Sps. Rana introduced a nuisance per accidens that particularly transgressed the aforesaid
rights. Thus, for the vindication and recognition of Wong, et al.’s rights, Sps. Rana should be
similarly held liable for nominal damages. The awards of damages in favor of each party are
OFFSET against each other.

As for the subject backfilling touching the perimeter fence of the Uy property, records
show that the said fence was not designed to act as a retaining wall but merely to withhold
windload and its own load. Both the RTC and the CA found the subject backfilling to have added
pressure on the fence, consequently endangering the safety of the occupants of the Uy property,
especially considering the higher elevation of the Rana property. With these findings, the Court
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thus agrees with the courts a quo that there is a need for Linda Rana to construct a retaining wall
which would bear the weight and pressure of the filling materials introduced on their property.

Civil Case No. CEB-21296

The Court found that the CA erred in affirming the RTC’s dismissal thereof considering
that it was determined that Sps. Uy had actually encroached upon the Rana property to the extent
of 2 sq. m. Settled is the rule that in order that an action for the recovery of property may prosper,
the party prosecuting the same need only prove the identity of the thing and his ownership
thereof. In the present cases, the report of the court-appointed commissioner, Atty. Pintor, who
conducted a relocation survey of the Rana and Uy properties identified and delineated the
boundaries of the two properties and showed that Sps. Uy’s perimeter fence intruded on 2 sq. m.
of the Rana property. Both the RTC and the CA relied upon the said report; thus, absent any
competent showing that the said finding was erroneous, the Court sees no reason to deviate from
the conclusions reached by the courts a quo. Having sufficiently proven their claim, Sps. Rana are,
therefore entitled to the return of the 2 sq.m. encroached portion. Corollary thereto, compliance
by Linda Rana with the directive in Civil Case No. CEB-20893 to build a retaining wall on their
property shall be held in abeyance pending return of the encroached portion.

NATIVIDAD C. CRUZ and BENJAMIN DELA CRUZ vs. PANDACAN HIKER’S CLUB, INC.
G.R. No. 188213, January 11, 2016, J. Velasco, Jr.

FACTS:

Petitioner Natividad C. Cruz (Cruz) was Punong Barangay or Chairperson of Barangay


848, Zone 92 City of Manila. On November 10, 2006, around five o'clock in the afternoon, within
the vicinity of her barangay, she allegedly confronted persons playing basketball with the
following statements:

Bakit nakabukas ang (basketball) court? Wala kayong karapatang


maglaro sa court na 'to, barangay namin ito! xxx xxx xxx Wala
kayong magagawa. Ako ang chairman dito. Mga walanghiya kayo,
patay gutom! Hindi ako natatakot! Kaya kong panagutan lahat!

Then, she allegedly gave an order to the other petitioner, Barangay Tanod Benjamin dela
Cruz (Dela Cruz), to destroy the basketball ring by cutting it up with a hacksaw which Dela Cruz
promptly complied with, thus, rendering the said basketball court unusable.

The acts of petitioners prompted the filing of a Complaint (for Malicious Mischief, Grave
Misconduct, Conduct Prejudicial to the Best Interest of the Service and Abuse of Authority)
before the Prosecutor's Office and the Office of the Ombudsman by the group that claims to be
the basketball court's owners, herein respondents Pandacan Hiker's Club, Inc. (PHC) and its
president Priscila Ilao (Ilao).

ISSUE:

Whether petitioners abated a nuisance, and if so, whether it done in accordance with law?
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RULING:

The basketball ring can be considered, at most, as a nuisance per accidens.

There is a nuisance when there is “any act, omission, establishment, business, condition of
property, or anything else which: (1) injures or endangers the health or safety of others; or (2)
annoys or offends the senses; or (3) shocks, defies or disregards decency or morality; or (4)
obstructs or interferes with the free passage of any public highway or street, or any body of water;
or (5) hinders or impairs the use of property.” But other than the statutory definition,
jurisprudence recognizes that the term “nuisance” is so comprehensive that it has been applied to
almost all ways which have interfered with the rights of the citizens, either in person, property,
the enjoyment of his property, or his comfort.

A nuisance is classified in two ways: (1) according to the object it affects; or (2) according
to its susceptibility to summary abatement.

As for a nuisance classified according to the object or objects that it affects, a nuisance
may either be: (a) a public nuisance, i.e., one which “affects a community or neighborhood or
any considerable number of persons, although the extent of the annoyance, danger or
damage upon individuals may be unequal”; or (b) a private nuisance, or one “that is not included
in the foregoing definition” which, in jurisprudence, is one which “violates only private rights
and produces damages to but one or a few persons.”

A nuisance may also be classified as to whether it is susceptible to a legal summary


abatement, in which case, it may either be: (a) a nuisance per se, when it affects the immediate
safety of persons and property, which may be summarily abated under the undefined law of
necessity; or, (b) a nuisance per accidens, which “depends upon certain conditions and
circumstances, and its existence being a question of fact, it cannot be abated without due hearing
thereon in a tribunal authorized to decide whether such a thing does in law constitute a
nuisance;” it may only be so proven in a hearing conducted for that purpose and may not be
summarily abated without judicial intervention.
There is no factual finding that the basketball ring was a nuisance per se that is susceptible
to a summary abatement. And based on what appears in the records, it can be held, at most, as a
mere nuisance per accidens, for it does not pose an immediate effect upon the safety of persons
and property, the definition of a nuisance per se.

But even if it is assumed, ex gratia argumenti, that the basketball ring was a nuisance per
se, but without posing any immediate harm or threat that required instantaneous action, the
destruction or abatement performed by petitioners failed to observe the proper procedure for
such an action which puts the said act into legal question.

Under Article 700 of the Civil Code, the abatement, including one without judicial
proceedings, of a public nuisance is the responsibility of the district health officer. Under Article
702 of the Code, the district health officer is also the official who shall determine whether or not
abatement, without judicial proceedings, is the best remedy against a public nuisance. The two
articles do not mention that the chief executive of the local government, like the Punong
Barangay, is authorized as the official who can determine the propriety of a summary abatement.
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Further, petitioners failed to comply with the requisites laid down in Article 704 of the
Civil Code, to wit:

Art. 704. Any private person may abate a public nuisance which is
specially injurious to him by removing, or if necessary, by
destroying the thing which constitutes the same, without
committing a breach of the peace, or doing unnecessary injury. But
it is necessary:

(1) That demand be first made upon the owner or possessor of the
property to abate the nuisance;

(2) That such demand has been rejected;

(3) That the abatement be approved by the district health officer


and executed with the assistance of the local police; and

(4) That the value of the destruction does not


exceed three thousand pesos.

NATIVIDAD C. CRUZ and BENJAMIN DELA CRUZ vs. PANDACAN HIKER’S CLUB, INC.
G.R. No. 188213, January 11, 2016, J. Velasco, Jr.

Facts:

Petitioner Natividad C. Cruz (Cruz) was Punong Barangay or Chairperson of Barangay


848, Zone 92 City of Manila. On November 10, 2006, around five o'clock in the afternoon, within
the vicinity of her barangay, she allegedly confronted persons playing basketball with the
following statements:

Bakit nakabukas ang (basketball) court? Wala kayong karapatang


maglaro sa court na 'to, barangay namin ito! xxx xxx xxx Wala
kayong magagawa. Ako ang chairman dito. Mga walanghiya kayo,
patay gutom! Hindi ako natatakot! Kaya kong panagutan lahat!

Then, she allegedly gave an order to the other petitioner, Barangay Tanod Benjamin dela
Cruz (Dela Cruz), to destroy the basketball ring by cutting it up with a hacksaw which Dela Cruz
promptly complied with, thus, rendering the said basketball court unusable.

The acts of petitioners prompted the filing of a Complaint (for Malicious Mischief, Grave
Misconduct, Conduct Prejudicial to the Best Interest of the Service and Abuse of Authority)
before the Prosecutor's Office and the Office of the Ombudsman by the group that claims to be
the basketball court's owners, herein respondents Pandacan Hiker's Club, Inc. (PHC) and its
president Priscila Ilao (Ilao).

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Issue:

Whether petitioners abated a nuisance, and if so, whether it done in accordance with law?

Ruling:

The basketball ring can be considered, at most, as a nuisance per accidens.

There is a nuisance when there is “any act, omission, establishment, business, condition of
property, or anything else which: (1) injures or endangers the health or safety of others; or (2)
annoys or offends the senses; or (3) shocks, defies or disregards decency or morality; or (4)
obstructs or interferes with the free passage of any public highway or street, or any body of water;
or (5) hinders or impairs the use of property.” But other than the statutory definition,
jurisprudence recognizes that the term “nuisance” is so comprehensive that it has been applied to
almost all ways which have interfered with the rights of the citizens, either in person, property,
the enjoyment of his property, or his comfort.

A nuisance is classified in two ways: (1) according to the object it affects; or (2) according
to its susceptibility to summary abatement.

As for a nuisance classified according to the object or objects that it affects, a nuisance
may either be: (a) a public nuisance, i.e., one which “affects a community or neighborhood or
any considerable number of persons, although the extent of the annoyance, danger or
damage upon individuals may be unequal”; or (b) a private nuisance, or one “that is not included
in the foregoing definition” which, in jurisprudence, is one which “violates only private rights
and produces damages to but one or a few persons.”

A nuisance may also be classified as to whether it is susceptible to a legal summary


abatement, in which case, it may either be: (a) a nuisance per se, when it affects the immediate
safety of persons and property, which may be summarily abated under the undefined law of
necessity; or, (b) a nuisance per accidens, which “depends upon certain conditions and
circumstances, and its existence being a question of fact, it cannot be abated without due hearing
thereon in a tribunal authorized to decide whether such a thing does in law constitute a
nuisance;” it may only be so proven in a hearing conducted for that purpose and may not be
summarily abated without judicial intervention.

There is no factual finding that the basketball ring was a nuisance per se that is susceptible
to a summary abatement. And based on what appears in the records, it can be held, at most, as a
mere nuisance per accidens, for it does not pose an immediate effect upon the safety of persons
and property, the definition of a nuisance per se.

But even if it is assumed, ex gratia argumenti, that the basketball ring was a nuisance per
se, but without posing any immediate harm or threat that required instantaneous action, the

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destruction or abatement performed by petitioners failed to observe the proper procedure for
such an action which puts the said act into legal question.

Under Article 700 of the Civil Code, the abatement, including one without judicial
proceedings, of a public nuisance is the responsibility of the district health officer. Under Article
702 of the Code, the district health officer is also the official who shall determine whether or not
abatement, without judicial proceedings, is the best remedy against a public nuisance. The two
articles do not mention that the chief executive of the local government, like the Punong
Barangay, is authorized as the official who can determine the propriety of a summary abatement.

Further, petitioners failed to comply with the requisites laid down in Article 704 of the
Civil Code, to wit:

Art. 704. Any private person may abate a public nuisance which is
specially injurious to him by removing, or if necessary, by
destroying the thing which constitutes the same, without
committing a breach of the peace, or doing unnecessary injury. But
it is necessary:

(1) That demand be first made upon the owner or possessor of the
property to abate the nuisance;
(2) That such demand has been rejected;
(3) That the abatement be approved by the district health officer
and executed with the assistance of the local police; and
(4) That the value of the destruction does not
exceed three thousand pesos.

MODES OF ACQUIRING OWNERSHIP


DONATION

ESPERANZA C. CARINAN vs. SPOUSES GAVINO CUETO and CARMELITA CUETO


G.R. No. 198636, October 8, 2014, J. Reyes

In order to sufficiently substantiate her claim that the money paid by the respondents was
actually a donation, petitioner should have also submitted in court a copy of their written contract
evincing such agreement. As earlier ruled by the Court, a donation must comply with the mandatory
formal requirements set forth by law for its validity. When the subject of donation is purchase
money, Article 748 of the NCC is applicable. Accordingly, the donation of money as well as its
acceptance should be in writing. Otherwise, the donation is invalid for non-compliance with the
formal requisites prescribed by law.

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Facts:

Spouses Gavino C. Cueto (Gavino) and Carmelita J. Cueto (respondents) alleged that
sometime in May 1986, Esperanza C. Carinan (Esperanza) and her husband, Jose Carinan (Jose),
acquired from one Roberto Ventura (Roberto) the rights over a parcel of land under the name of
the Government Service Insurance System (GSIS), located in Biñan, Laguna. Their transaction was
covered by a Deed of Assignment and Transfer of Rights with Assumption of Obligations.
Esperanza and Jose were to assume the payment of the applicable monthly amortizations for the
subject land to the GSIS. However, several amortizations remained unpaid by Esperanza and Jose,
resulting in an impending cancellation in 2005 of GSIS’ conditional sale of the subject property to
Roberto. Esperanza sought financial assistance from her brother, Gavino. The respondents then
paid from their conjugal savings Esperanza’s total obligation of P785,680.37 under the subject
deed of assignment.

The respondents alleged that Esperanza and Jazer undertook to execute a Deed of
Absolute Sale in favor of the respondents once the title over the subject property was transferred
to their names, subject to the condition that they would be given the first option to buy it back
within three years by reimbursing the expenses incurred by the respondents on the
property.6 Besides satisfaction of the unpaid amortizations to GSIS, the respondents paid for the
transfer of the subject property from Roberto to Esperanza, and the renovation of the residential
house erected on the subject land, resulting in additional expenses of P515,000.00. TCT No. T-
636804 already under the name of Esperanza was surrendered to the respondents.

Sometime in 2006, the respondents demanded from Esperanza and Jazer the fulfillment of
their commitment to transfer the subject property to the respondents’ names through the
execution of a deed of sale. When Esperanza and Jazer failed to comply despite efforts for an
amicable settlement, the respondents filed with the Regional Trial Court (RTC) of Biñan, Laguna
the subject complaint for specific performance with damages.

Esperanza and Jazer disputed these claims. They argued that there was neither a written
or verbal agreement for the transfer of the disputed property to the respondents’ names, nor a
promise for the repayment of the amounts that were paid by the respondents. Esperanza believed
that Gavino paid her outstanding balance with the GSIS out of sheer generosity and pity upon her.
She denied having borrowed the respondents’ money because given her financial standing, she
knew that she could not afford to pay it back. Furthermore, to require her to execute a deed of
sale for the property’s full conveyance would totally disregard the payments that she personally
made for the purchase. Finally, Esperanza questioned Jazer’s inclusion as a party to the case,
claiming that he had no personal knowledge nor was he privy to any negotiation with the
respondents.

After hearing, RTC ruled in favor of the respondents and ordered Esperanza and Jazer to
pay the respondents: P927,182.12, representing the amount of P 785,680.37 [paid] by the
[respondents] to the GSIS; and P 141,501.75 consisting of the expenses in transferring the title to
the name of Esperanza and Jazer plus the cost of improvements introduced on the property plus
attorney’s fees. The RTC emphasized that Esperanza and Jazer could not be compelled to convey
the subject property to the respondents. Even granting that a promise to sell was made by
Esperanza, the same was unenforceable as it was not reduced into writing. The inclusion of Jazer
in the complaint was sustained by the trial court, considering that he was the son of Esperanza
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and the late Jose, whose estate had not yet been settled. Jazer, thus, had an interest in the subject
property and benefited from the transaction. On appeal, CA affirmed the decision of the RTC,
hence, this petition for review on certiorari.

Issue:

Whether there was a donation from the respondents in favor Esperanza.

Ruling: The petition is bereft of merit.

The Court adopts the RTC’s and CA’s finding that between Esperanza and the
respondents, there was a clear intention for a return of the amounts which the respondents spent
for the acquisition, transfer and renovation of the subject property. The respondents then
reasonably expected to get their money back from Esperanza. Esperanza’s claim that the expenses
and payments in her behalf were purely gratuitous remained unsupported by records. As the CA
correctly observed:

Indeed, the absence of intention to be reimbursed is negated by the facts of


this case. [The respondents’] conduct never at any time intimated any intention to
donate in favor of [Esperanza and Jazer]. A donation is a simple act of liberality
where a person gives freely of a thing or right in favor of another, who accepts it
(Article 725, New Civil Code, as amended). But when a large amount of money is
involved, as in this case, this [c]ourt is constrained to take [Esperanza and Jazer’s]
claim of generosity by [the respondents] with more than a grain of salt.

Esperanza’s refusal to pay back would likewise result in unjust enrichment, to the clear
disadvantage of the respondents. "The main objective of the principle against unjust enrichment
is to prevent one from enriching himself at the expense of another without just cause or
consideration." While Esperanza claims that her brother’s generosity was the consideration for
the respondents’ payment of her obligations, this was not sufficiently established, that even the
respondents vehemently denied the allegation.

In order to sufficiently substantiate her claim that the money paid by the respondents was
actually a donation, Esperanza should have also submitted in court a copy of their written
contract evincing such agreement. Article 748 of the New Civil Code (NCC), which applies to
donations of money, is explicit on this point as it reads:

Art. 748. The donation of a movable may be made orally or in writing.

An oral donation requires the simultaneous delivery of the thing or of the


document representing the right donated.

If the value of the personal property donated exceeds five thousand pesos, the
donation and the acceptance shall be made in writing. Otherwise, the donation shall be
void.

As the Court ruled in Moreño-Lentfer v. Wolff, a donation must comply with the
mandatory formal requirements set forth by law for its validity. When the subject of donation is
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purchase money, Article 748 of the NCC is applicable. Accordingly, the donation of money as well
as its acceptance should be in writing. Otherwise, the donation is invalid for non-compliance with
the formal requisites prescribed by law.

The respondents’ statement that they paid for Esperanza’s obligations because they
wanted to help her did not contradict an understanding for the return of the claimed amounts.
Clearly, the aid then needed by Esperanza was for the immediate production of the money that
could pay for her obligations to the GSIS and effect transfer of title, in order that her payments
and interest over the property would not be forfeited. The help accorded by the respondents
corresponded to such need. It did not follow that the respondents could no longer be allowed to
later demand the repayment. In disputing the claim against her, Esperanza imputed deceit upon
the respondents and claimed that they misled her into their real intention behind the payment of
her obligations and possession of TCT No. T-636804. Deceit, however, is a serious charge which
must be proven by more than just bare allegations.

Although the Court affirms the trial and appellate courts' ruling that, first, there was no
donation in this case and, second, the respondents are entitled to a return of the amounts which
they spent for the subject property, it still cannot sustain the respondents' plea for Esperanza's full
conveyance of the subject property. To impose the property's transfer to the respondents' names
would totally disregard Esperanza's interest and the payments which she made for the property's
purchase. Thus, the principal amount to be returned to the respondents shall only pertain to the
amounts that they actually paid or spent. The Court finds no cogent reason to disturb the trial
court's resolve to require in its Decision dated December 15, 2009, around four years after the
sums were paid for the subject property's acquisition and renovation, the immediate return of the
borrowed amounts.

Esperanza's plea for a reversal of the lower courts' rulings upon her claim of co-ownership
and allegation that the respondents were builders in bad faith cannot be considered at this stage
of the case. These claims raise factual issues which are beyond the scope of a petition for review
on certiorari. More importantly, such defenses were not advanced by Esperanza during the
proceedings with the trial and appellate courts. Settled is the rule that "defenses not pleaded in
the answer may not be raised for the first time on appeal. A party cannot, on appeal, change
fundamentally the nature of the issue in the case. When a party deliberately adopts a certain
theory and the case is decided upon that theory in the court below, he will not be permitted to
change the same on appeal, because to permit him to do so would be unfair to the adverse party."

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE SECRETARY OF AGRICULTURE


vs. FEDERICO DACLAN, JOSEFINA COLLADO, AND HER HUSBAND FEDERICO DACLAN
AND MINVILUZ DACLAN, AS SURVIVING HEIRS OF DECEASED JOSE DACLAN
G.R. No. 197115 (consolidated), March 23, 2015, J. Del Castillo

The Daclans lament the supposed failure of the Province to provide “agricultural extension
and on-site research services and facilities” as required under the IRR of the LGC of 1991, which
failure they believe, constituted a violation of the stipulation contained in the deeds of donation to
develop and improve the livestock industry of the country. Yet this cannot be made a ground for the
reversion of the donated lands; on the contrary, to allow such an argument would condone undue
interference by private individuals in the operations of government. The deeds of donation merely
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stipulated that the donated lands shall be used for the establishment of a breeding station and shall
not be used for any other purpose, and that in case of non-use, abandonment or cessation of the
activities of the BAI, possession or ownership shall automatically revert to the Daclans. It was never
stipulated that they may interfere in the management and operation of the breeding station. Even
then, they could not directly participate in the operations of the breeding station.

Facts:

The controversy involved in the instant consolidated petition relates to the demand of
herein respondents- and petitioners-donors to return the four (4) parcels of land they donated to
the Republic, thru the Department of Agriculture (DA), in the year 1972 for the establishment and
operation of a breeding station in their area in La Union. In 2003, the donors demanded back the
properties considering that a medical center was constructed on a portion of the disputed
properties along with the alleged cessation of the breeding station.

Consequently, the donors, herein Daclans, filed a complaint for specific performance
against the DA. During the trial, the Province of La Union represented the Republic owing to the
devolution of the management of the contested properties from the DA to the LGU in view of the
LGC. Both the Province and DA admitted that the operation of the breeding station has ceased
considering that the latter already transferred the management to the former. The RTC, however,
appreciating the evidence adduced, found that the LGU continued to operate the breeding station
contrary to the assertions of the Daclans and their consent to the devolution of the
responsibilities of the DA under the deed of donation to LGU is not necessary. The CA, in setting
aside this decision, took note that clearly the DA and/or the LGU violated the stipulations under
the deed of donation when it permitted the construction of a medical center or the La Union
Medical Center (LUMC) to be exact.

Issue:

Whether or not the contested portion of the disputed properties may be returned to the
Daclans considering the alleged violation of the donee DA and its successor, the LGU.

Ruling:

NO, the Court grants the petition of the Republic and thus rejecting the reversion sought
by the Daclans.

The preponderance of evidence points to the fact that the breeding station remained
operational even after its transfer from the Republic to the Province. The activities of the [DA
thru the Bureau of Animal Industry or BAI] did not cease even after it was dissolved after the
government adopted the policy of devolution under the [LGU] of 1991; these activities were
merely transferred to the Province. Thus, the witnesses for the Daclans and the Republic
uniformly declared that the breeding station remained operational even after the [LGC] of 1991
was put into effect. Particularly, Regional Director Reinerio Belarmino, Jr. of the [DA], Region 1
declared that after the breeding station was transferred to the Province, he saw upon ocular
inspection that there remained six cows and fifty goats on the premises. Cresencia Isibido testified
that as Farm Foreman, she exercised supervision over her co-employees in the breeding station;
that in 1989, there were six personnel assigned at the breeding station; that from 1974 until 1989,
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she received her salary from the BAI; that after devolution, she started receiving her salary from
the Province; and that even after devolution, the operation of the Agoo Breeding Station
continued, and goats, cattle and swine were being maintained thereat. Dr. Nida Gapuz, La Union
Provincial Veterinarian, said that natural as well as artificial insemination activities were being
conducted at the breeding station, as well as goat dispersal and cattle production. Atty. Mauro
Cabading, La Union Provincial Assessor, testified that he was directed by the Governor and the
Provincial Administrator to take photographs of the breeding station in order to verify the
complaint filed by the Daclans; that he then proceeded to the Agoo Breeding Station; that he took
photographs of the animals – cows and goats – therein; and that the Province owned said animals
at the breeding station.

As against the bare assertions of the Daclans that the breeding station was abandoned and
became non-operational, the testimonies of the above public officers are credible. “In the absence
of any controverting evidence, the testimonies of public officers are given full faith and credence, as
they are presumed to have acted in the regular performance of their official duties.” Devolution
cannot have any effect on the donations made by the Daclans to the Republic. As defined,
“devolution refers to the act by which the national government confers power and authority upon
the various local government units to perform specific functions and responsibilities.” It includes
“the transfer to local government units of the records, equipment, and other assets and personnel of
national agencies and offices corresponding to the devolved powers, functions and responsibilities.”
While the breeding station may have been transferred to the Province of La Union by the [DA] as
a consequence of devolution, it remained as such, and continued to function as a breeding
station; and the purpose for which the donations were made remained and was carried out.
Besides, the deeds of donation did not specifically prohibit the subsequent transfer of the donated
lands by the donee Republic. The Daclans should bear in mind that “contracts take effect between
the parties, their assigns and heirs, except in cases where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of law.” Thus, as a
general rule, rights and obligations derived from contract are transmissible.

The Daclans lament the supposed failure of the Province to provide “agricultural extension
and on-site research services and facilities” as required under the [IRR] of the [LGC] of 1991, which
failure they believe, constituted a violation of the stipulation contained in the deeds of donation
to develop and improve the livestock industry of the country. Yet this cannot be made a ground
for the reversion of the donated lands; on the contrary, to allow such an argument would condone
undue interference by private individuals in the operations of government. The deeds of donation
merely stipulated that the donated lands shall be used for the establishment of a breeding station
and shall not be used for any other purpose, and that in case of non-use, abandonment or
cessation of the activities of the BAI, possession or ownership shall automatically revert to the
Daclans. It was never stipulated that they may interfere in the management and operation of the
breeding station. Even then, they could not directly partici-pate in the operations of the breeding
station.

Thus, even if the BAI ceased to exist or was abolished as an office, its activities continued
when its functions were devolved to the local government units such as the Province of La Union.
It cannot be said that the deeds of donation may be nullified just by the fact that the BAI became
defunct; its functions continued in the government offices/local government units to which said
functions were devolved.

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Lastly, the CA cannot validly order the return to the Daclans of the donated 1.5-hectare
portion where the LUMC is situated, because such portion was not donated by them. They
admitted that the 1.5-hectare portion where the LUMC is constructed does not form part of the
lands they donated to the government, but belonged to other donors who are not parties to the
instant case. As far as the Daclans are concerned, whatever they donated remains part of the
breeding station and so long as it remains so, no right of reversion accrues to them. Only the
original owner-donor of the 1.5-hectare portion where the LUMC is constructed is entitled to its
return.

PRESCRIPTION

PRESCRIPTION OF ACTIONS

RUFA A. RUBIO, BARTOLOME BANTOTO, LEON ALAGADMO, RODRIGO DELICTA, AND


ADRIANO ALABATA vs. LOURDES ALABATA
G.R. No. 203947. February 26, 2014
J. Mendoza

When strict application of the law will result to injustice, as well as unjust enrichment on
one party, the Court cannot follow law blindly. Petitioners could not afford to engage the services of
a private counsel and so were represented by the PAO. As has been repeatedly stated all over the
records, PAO, SAC-PAO in particular, failed them. SAC-PAO never informed them of the
abandonment by respondent of her appeal or of the entry of judgment. Under the circumstances,
they could not be faulted for their subsequent actions. In the pursuit of justice and equity, the Court
may, when the necessity arises, as in the present case, relax the rules to assist the party. The Court
believes that it is its bounden duty to exact justice in every way possible and exercise its soundest
discretion to prevent a wrong.

Facts:

Petitioners Rufa A. Rubio, Bartolome Bantoto, Leon Alagadmo, Rodrigo Delicta, and Adriano
Alabata (petitioners) and respondent Lourdes Alabata (respondent) were protagonists in an earlier
case for annulment of declaration of heirship and sale, reconveyance and damages before the
Regional Trial Court, Branch 43, Dumaguete City (RTC-43). The case was decided in favor of
petitioner. Respondent appealed to the CA but eventually withdrew the same. The CA resolution
granting respondent’s motion to withdraw became final and executor.

Unfortunately, the judgment was not executed. Petitioners claim that their counsel at the Public
Attorney’s Office, Dumaguete City (PAO-Dumaguete), was never informed that the entry of
judgment had already been issued. They pointed out that, initially, their case was handled by the
PAO-Dumaguete, but when the RTC-43 decision was appealed to the CA by respondent, their
case was handed over to the Special Appealed Cases Division (SAC-PAO) at the PAO Central
Office in Manila. They explained that although a copy of the Entry of Judgment was sent to Atty.
Ma. Lourdes Naz, the SAC-PAO lawyer in charge of their case, she failed to inform petitioners of
the issued entry of judgment before she resigned from PAO. She also failed to inform PAO-
Dumaguete of the said development. When petitioners followed up with PAO-Dumaguete, it was
of the belief that the appeal of respondent was still pending.
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More than ten (10) years from the date when the RTC-43 decision was entered in the CA Book of
Entries of Judgments, petitioners found out that the said decision had become final and executory
when their nephew secured a copy of the Entry of Judgment.

Thus, petitioners, through PAO-Dumaguete, filed an action for revival of judgment which was
raffled to RTC-42. After respondent filed her Answer with Affirmative Defenses, RTC-42 granted
her Motion to Dismiss and ordered petitioners’ case for revival of judgment dismissed on the
ground of prescription. Petitioners sought reconsideration, but RTC-42 denied the motion.

Petitioners then interposed an appeal before the CA. The latter rendered its assailed decision
denying petitioners’ appeal and affirming the dismissal by the RTC-42 of their case for revival of
judgment. The CA denied petitioners’ motion for reconsideration. Hence, this petition.

Issue:

Whether the petitioner’s action for revival of judgment should be granted

Ruling:

An action for revival of judgment is governed by Article 1144 (3), Article 1152 of the Civil Code and
Section 6, Rule 39 of the Rules of Court. Thus,

Art. 1144. The following actions must be brought within ten years from the time the
right of action accrues:

xxxx

(3) Upon a judgment

Article 1152 of the Civil Code states:

Art. 1152. The period for prescription of actions to demand the fulfillment of
obligations declared by a judgment commences from the time the judgment became
final.

To allow a strict application of the rules, however, would result in an injustice to petitioners
considering (1) that respondent decided not to contest the RTC-43 decision and withdrew her
appeal and (2) that no fault could be attributed to petitioners.

Petitioners could not afford to engage the services of a private counsel and so were represented by
the PAO. As has been repeatedly stated all over the records, PAO, SAC-PAO in particular, failed
them. SAC-PAO never informed them of the abandonment by respondent of her appeal or of the
entry of judgment. Under the circumstances, they could not be faulted for their subsequent
actions. They went to PAO-Dumaguete and they were told that the case was still pending on
appeal. Due to their penury and unfamiliarity or downright ignorance of the rules, they could not
be expected to bypass PAO-Dumaguete and directly verify the status of the case with the SAC-
PAO. They had to trust their lawyer and wait.

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No prejudice is caused to respondent because she withdrew her appeal. Withdrawing her appeal
means that she respected the RTC-43 Decision, which voided the “Declaration of Heirship and
Sale,” dismissed respondent’s counterclaim, and ordered her to reconvey the entire subject
property to petitioners and to pay moral and exemplary damages plus the cost of suit. Since the
decision became final and executory, she has been in possession of the property which rightfully
belongs to petitioners. She will continue to hold on to the property just because of a technicality.

Due to the peculiarities of this case, the Court, in the exercise of its equity jurisdiction, relaxes the
rules and decides to allow the action for the revival of judgment filed by petitioners. The Court
believes that it is its bounden duty to exact justice in every way possible and exercise its soundest
discretion to prevent a wrong. Although strict compliance with the rules of procedure is desired,
liberal interpretation is warranted in cases where a strict enforcement of the rules will not serve
the ends of justice; and that it is a better rule that courts, under the principle of equity, will not be
guided or bound strictly by the statute of limitations or the doctrine of laches when to do so,
manifest wrong or injustice would result.

SPOUSES FRANCISCO SIERRA (substituted by DONATO, TERESITA, TEODORA,


LORENZA, LUCINA, IMELDA, VILMA, and MILAGROS SIERRA) and ANTONINA SANTOS,
SPOUSES ROSARIO SIERRA and EUSEBIO CALUMA LEYVA, and SPOUSES SALOME
SIERRA and FELIX GATLABAYAN (substituted by BUENA VENTURA, ELPIDIO, PAULINO,
CATALINA, GREGORIO, and EDGARDO GATLABAYAN, LORETO REILLO, FERMINA
PEREGRINA, and NIDA HASHIMOTO) vs.PAIC SAVINGS AND MORTGAGE BANK, INC.
G.R. No. 197857, September 10, 2014, J. Perlas-Bernabe

Since the complaint for annulment was anchored on a claim of mistake, i.e., that petitioners
are the borrowers under the loan secured by the mortgage, the action should have been brought
within four (4) years from its discovery. As mortgagors desiring to attack a mortgage as invalid,
petitioners should act with reasonable promptness, else its unreasonable delay may amount to
ratification. Verily, to allow petitioners to assert their right to the subject properties now after their
unjustified failure to act within a reasonable time would be grossly unfair to PSMB, and perforce
should not be sanctioned. As such, petitioners' action is already barred by laches, which, as case law
holds, operates not really to penalize neglect or sleeping on one's rights, but rather to avoid
recognizing a right when to do so would result in a clearly inequitable situation.

Facts:

On May 31, 1983, Goldstar Conglomerates, Inc. (GCI), represented by Guillermo Zaldaga
(Zaldaga), obtained from First Summa Savings and Mortgage Bank (Summa Bank), now
respondent Paic Savings and Mortgage Bank, Inc. (PSMB), a loan in the amount of P1,500,000.00
as evidenced by a Loan Agreement dated May 31, 1983. As security therefor, GCI executed in favor
of PSMB six (6) promissory notes in the aggregate amount ofP1,500,000.00 as well as a Deed of
Real Estate Mortgage over a parcel of land. As additional security, petitioners Francisco Sierra,
Rosario Sierra, and Spouses Felix Gatlabayan and Salome Sierra mortgaged four(4) parcels of land
in Antipolo City, covered by TCT Nos. 308476, 308477, 308478, and 308479, and respectively
registered in their names (subject properties). Records show that after the signing of the mortgage
deed, Zaldaga gave petitioner Francisco Sierra four (4) manager’s checks with an aggregate

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amount of P200,000.00, which were later successfully encashed, as well as several post-dated
checks.

Eventually, GCI defaulted in the payment of its loan to PSMB, thereby prompting the
latter to extrajudicially foreclose the mortgage on the subject properties in accordance with Act
No. 3135, as amended, with due notice to petitioners. In the process, PSMB emerged as the highest
bidder in the public auction sale June 27, 1984. Since petitioners failed to redeem the subject
properties within the redemption period, their certificates of title were cancelled and new ones
were issued in PSMB’s name.

On September 16, 1991, petitioners filed a complaint for the declaration of nullity of the
real estate mortgage and its extrajudicial foreclosure, and damages against PSMB and Summa
Bank before the RTC.

The RTC: (a) declared the subject deed and the extrajudicial foreclosure proceedings null
and void; (b) cancelled the certificates of title of PSMB; and (c) directed the reinstatement of
petitioners’ certificates of title.

Aggrieved, PSMB filed a motion for reconsideration, while petitioners filed a motion for
discretionary execution which were, however, denied. Dissatisfied, PSMB interposed an appeal to
the CA. The CA reversed and set aside the RTC Decision and dismissed petitioners’ complaint for
lack of merit. Unperturbed, petitioners filed the instant petition.

Petitioners insist that the CA erred in ruling that their action for nullification of the
subject deed had already prescribed, contending that the applicable provision is the ten-year
prescriptive period of mortgage actions under Article 1142 of the Civil Code.

Issue:

Whether or not the CA erred in dismissing the complaint on the grounds of prescription
and laches.

Ruling:

The contention is bereft of merit.

Based on case law, a "mortgage action" refers to an action to enforce a right necessarily
arising from a mortgage. In the present case, petitioners are not "enforcing" their rights under the
mortgage but are, in fact, seeking to be relieved therefrom. The complaint filed by petitioners is,
therefore, not a mortgage action as contemplated under Article 1142.

Considering, however, petitioners’ failure to establish that their consent to the mortgage
was vitiated, rendering them without a cause of action, much less a right of action to annul the
mortgage, the question of whether or not the complaint has prescribed becomes merely
academic.

In any event, even assuming that petitioners have a valid cause of action, the four-year
prescriptive period on voidable contracts shall apply. Since the complaint for annulment was
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anchored on a claim of mistake, i.e., that petitioners are the borrowers under the loan secured by
the mortgage, the action should have been brought within four (4) years from its discovery.

The Court holds that laches applies.

As the records disclose, despite notice on June 19, 1984 of the scheduled foreclosure sale,
petitioners, for unexplained reasons, failed to impugn the real estate mortgage and oppose the
public auction sale for a period of more than seven (7) years from said notice. As such, petitioners'
action is already barred by laches, which, as case law holds, operates not really to penalize neglect
or sleeping on one's rights, but rather to avoid recognizing a right when to do so would result in a
clearly inequitable situation. As mortgagors desiring to attack a mortgage as invalid, petitioners
should act with reasonable promptness, else its unreasonable delay may amount to
ratification. Verily, to allow petitioners to assert their right to the subject properties now after
their unjustified failure to act within a reasonable time would be grossly unfair to PSMB, and
perforce should not be sanctioned.

SPOUSES VIRGILIO DE GUZMAN, JR. [substituted by his wife, Lydia S. De Guzman, and
children, namely, Ruel S. De Guzman, et al.] and LYDIA S. DE GUZMAN v. COURT OF
APPEALS, Mindanao Station, LAMBERTO BAJAO, HEIR OF SPOUSES LEONCIO* BAJAO
and ANASTACIA Z. BAJAO
G.R. No. 185757, March 2, 2016; Velasco, Jr.

Facts:

On May 28, 1968, Leoncio Bajao acquired Lot No. 532 located at North Poblacion, Medina,
Misamis Oriental, through Free Patent No. 400087. Lot No. 532 has a total area of 25,178 square
meters.

On May 24, 1969, the Spouses Leoncio (represented herein by heir Lamberto Bajao) and Anastacia
Bajao sold 200 square meters of Lot No. 532 to the Spouses Virgilio (substituted by wife Lydia and
children) and Lydia De Guzman for P1,000. Subsequently, on June 18. 1970 the Spouses Bajao sold
another 280 square meters of Lot No. 532 to the Spouses De Guzman for P1,400. Both transactions
were covered by separate Deeds of Absolute Sale. The Spouses Bajao allegedly promised to
segregate the property from the remaining area of Lot No. 532 and to deliver a separate title to
petitioners covering it. However, because the promise was not forthcoming, Lydia De Guzman
executed an Affidavit of Adverse Claim on April 21, 1980 covering the property. This was
annotated on the title covering Lot No. 532, Original Certificate of Title (OCT) No. P-6903, on
April 25, 1980.

On May 29, 1980, the Spouses De Guzman initiated the segregation of the property from Lot No.
532 through a survey and they were able to acquire Lot 2-A, Psd-10-002692. Thereafter, they
purportedly acquired possession over the land immediately, fenced the area, introduced
improvements, and planted it with fruit-bearing trees.

On September 26, 1980, or after the death of Leoncio Bajao on February 1, 1972, Lamberto and
Anastacia Bajao executed an Extrajudicial Settlement Among Heirs (Extrajudicial Settlement),
which subdivided Lot No. 532 into three parts. The 480 square meter property purchased by the
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Spouses De Guzman was included in Lot No. 532-C, which was adjudicated in favor of Lamberto
Bajaro. The Extrajudicial Settlement was registered on December 10, 1980.

On December 16, 1980, Lamberto Bajao caused the cancellation of the Spouses De Guzman’s
annotated adverse claim over the property and later obtained Transfer Certificate of Title (TCT)
No. T-7133 on February 13 and October 2, 1981. The Spouses De Guzman thereafter requested
Lamberto Bajao to deliver TCT No. T-7133 so they could present it to the Register of Deeds,
together with the two Deeds of Absolute Sale, for proper annotation. The latter, however, refused
to heed their request.

Thus, on January 21, 2000, the Spouses De Guzman filed a Complaint for Reconveyance with Writ
of Preliminary Mandatory Injunction and Damages. They contended that they were innocent
purchasers for value who took possession of the property immediately after the sale and
religiously paid its real property taxes. They also allege that Lamberto Bajao was in bad faith
because he knew of the existence of the Deeds of Absolute Sale yet he still adjudicated such
portion in his share.
On the other hand, Lamberto Bajao argues that the action of the Spouses De Guzman is already
time barred as more than 10 years have already elapsed from the date of the registration of the
Extrajudicial Settlement on December 10, 1980 and the registration of TCT No. T-7133 on February
and October 1981.

The RTC ruled in favor of the Spouses De Guzman ruling that the Deeds of Absolute Sale were
free from infirmities and that the execution thereof was equivalent to the delivery of the thing
sold, registration not being necessary to make the contract of sale valid. The trial court held that
as between the parties and their privies, an unrecorded deed of sale covering land registered
under the Torrens system passes title of ownership once the land is conveyed to the vendee.
Failure of registration does not, at anytime after the sale, vitiate or annul the right of ownership
conferred to such sale. The RTC further held Lamberto Bajao to be in bad faith as he admitted
that he was aware of the adverse claim of the Spouses De Guzman at the time of the registration
of the Extrajudicial Settlement. The RTC held that the “portion” adjudicated to him in the
Extrajudicial Settlement was the remainder of the property taking into account the 480 square
meters sold to the Spouses De Guzman.

On appeal to the CA, it ruled in favor of Lamberto and Anastacia Bajao dismissing the Spouses De
Guzman’s complaint. The CA ruled that an implied trust between the parties under Article 1456 of
the Civil Code was created at the time Anastacia and Lamberto Bajao executed the Extrajudicial
Settlement on September 26, 1980, with Lamberto becoming the trustee who holds the property
in trust for the benefit of the Spouses De Guzman. The CA held that an action for reconveyance
based on an implied trust prescribes in 10 years from the registration of title in the Office of the
Register of Deeds. Thus, the action for reconveyance filed in January 2000 has already prescribed
since more than 10 years have lapsed from October 1981, the date of registration of respondent's
title. Moreover, the CA found that the Spouses De Guzman failed to prove their actual possession
of the property since evidence shows that it was only in the 1980s, or 10 years after the property
was sold, when the Spouses De Guzman gained possession.

Issues:

1) Whether the CA was correct in ruling that the action for reconveyance had already
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prescribed.

Ruling:

1) Yes, the CA correctly held that the action for reconveyance had already prescribed.

Article 1456 of the Civil Code provides that a person acquiring property through mistake or fraud
becomes, by operation of law, a trustee of an implied trust for the benefit of the real owner of the
property. An action for reconveyance based on an implied trust generally prescribes in 10 years,
the reckoning point of which is the date of registration of the deed or the date of issuance of the
certificate of title over the property. Thus, petitioners had 10 years from 1981 or until 1991 to file
their complaint for reconveyance of property. The Complaint, however, was filed only on January
21, 2000, or more than 10 years from the issuance of TCT No. T-7133. Hence, the action is already
barred by prescription.

The exception to the ten-year rule on prescription does not apply here because the Spouses De
Guzman were not able to prove that they were in possession of the property. Otherwise, the
action for reconveyance becomes one for quieting of title, which is imprescriptible.

Moreover, the Deeds of Absolute Sale were null and void due to violation of the Public Land Act,
since they were executed within the 5 year prohibition period. Under the Public Land Act, no sale
or encumbrance of the homestead within 5 years shall be allowed. In this case, portions of Lot No.
532 were conveyed to petitioners by virtue of two Deeds of Absolute Sale executed on May 24,
1969 and June 18, 1970, or after the grant and issuance of Free Patent No. 40008774 on May 28,
1968. Both Deeds of Absolute Sale were executed within the prohibited period of five years. While
the law provides for automatic reversion to the state, the SC has previously held that a private
individual may not bring an action for reversion on behalf of the state, since only the Solicitor
General may do so.

CALTEX (PHILIPPINES), INC., ET AL., v. AGUIRRE, ET AL.


G.R. No. 170746-47, March 7, 2016; Reyes

Facts:

On December 20, 1987, the M/V Dona Paz, an inter-island passenger vessel owned and operated
by Sulpicio Lines, Inc., collided with M/T Vector, a commercial tanker owned and operated by
Vector Shipping Corporation, Inc. On that particular voyage, M/T vector was chartered by Caltex
(Philippines), Inc., et al. to transport petroleum products. The collision caused around 4,000
casualties.

After their class action was conditionally dismissed by the court of Loiusiana of the United States,
herein respondents, composed of 1,689 claimants, filed a civil action for damages for breach of
contract of carriage and quasi-delict with the RTC of Catbalogan Samar against herein petitioners.

The RTC motu proprio dismissed the complaint pursuant to Section 1, Rule 9 of the 1997 Rules of
Civil Procedure as respondents’ cause of action had already prescribed. However, in an unusual
turn of events, petitioners herein, who were not served summons, filed a Motion for

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Reconsideration alleging that they are waiving their defense of prescription, among others. The
RTC merely noted the petitioners’ motion.

The dismissal of their complaint prompted respondents to have their case reinstated in the
Louisiana court, which again conditionally dismissed the respondents’ action and instructed the
latter intervene in the pending cases in RTC Manila. Respondents thereafter filed their Motion to
Intervene in the cases pending in RTC Manila. Petitioners filed a Manifestation and a
Comment/Consent to Intervention waiving their defense of prescription, among others.

The RTC Manila denied respondents’ Motion to Intervene on the ground that the RTC
Catbalogan’s dismissal of the case was already final and executory.

On appeal, the CA affirmed the RTC Manila’s denial of the respondents’ Motion to Intervene on
the ground that the RTC Catbalogan’s dismissal has the effect of res judicata. The CA further
ruled that while no summons were served to petitioners in the RTC Catbalogan case, the filing of
their Motion for Reconsideration was tantamount to voluntary submission to the said court over
their person.

Issues:

1) Whether the CA correctly held that the RTC Catbalogan’s dismissal of the complaint filed
by respondents serve as a bar to the intervention of the latter in the RTC Manila cases,
despite petitioners’ waiver of prescription.

Ruling:

1) Yes, notwithstanding their waiver of the defense of prescription, the petitioners’ failure to
assail the RTC Catbalogan’s dismissal of the complaint rendered the same final and
executory.

This case is peculiar because the petitioners, who were the defendants in the antecedent cases
before the RTCs of Catbalogan and Manila, are most adamant in invoking their waiver of the
defense of prescription while the respondents, to whom the cause of action belong, have acceded
to the dismissal of their complaint. The petitioners posit that there is a conflict between a
substantive law and procedural law in as much as waiver of prescription is allowed under Article
1112 of the Civil Code, a substantive law even though the motu proprio dismissal of a claim that
has prescribed is mandated under Section 1, Rule 9 of the Rules of Court.

There is no dispute that the respondents' cause of action against the petitioners has prescribed
under the Civil Code. In fact, the same is evident on the complaint itself. The respondents
brought their claim before a Philippine court only on March 6, 2001, more than 13 years after the
collision occurred. Article 1139 of the Civil Code states that actions prescribe by the mere lapse of
time fixed by law. Accordingly, the RTC of Catbalogan cannot be faulted for the motu proprio
dismissal of the complaint filed before it. It is settled that prescription may be considered by the
courts motu proprio if the facts supporting the ground are apparent from the pleadings or the
evidence on record.

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The failure of the petitioners to assail the RTC Catbalogan’s Order merely noting their Motion for
Reconsideration (which serves as a denial), renders the same final and executory and indeed
serves as a bar to respondents’ intervention in the cases pending before the RTC Manila.
Petitioners’ argument that the RTC Catbalogan’s had no jurisdiction over their persons since upon
their filing of their Motion for Reconsideration the dismissal had already become final is
unavailing. Prior to their filing of the Motion for Reconsideration, the RTC Catbalogan had no
jurisdiction over them, thus, the dismissal was not final as to petitioners.

OBLIGATIONS
CLASSIFICATION OF OBLIGATIONS
PURE AND CONDITIONAL OBLIGATIONS

THE PRESIDENT OF THE CHURCH OF JESUS CHRIST OF LATTER DAY SAINTS vs. BTL
CONSTRUCTION CORPORATION
xxx
BTL CONSTRUCTION CORPORATION vs. THE PRESIDENT OF THE MANILA MISSION
OF THE CHURCH OF JESUS CHRIST OF LATTER DAY SAINTS AND BPI-MS INSURANCE
CORPORATION
G.R. No. 176439 & G.R. No. 176718, January 15, 2014
J. Perlas-Bernabe

Parties, in good faith, may claim what is rightfully theirs from another even if there is a
showing that both have claims against each other. The law was created to protect the rights of every
party.

Hence,in a case where the parties have reciprocal obligations towards each other, such as
the present case, both parties are entitled to enforce their rights against each, in good faith, other in
order to claim what is due to them respectively.

Facts:

COJCOLDS and BTL entered into a Construction Contract for the latter’s construction of the
former’s meetinghouse facility known as the Medina Project. The construction period was for
eight months. However, due to bad weather conditions, power failures, and revisions in the
construction plans (as per Change Order Nos. 1 to 12 agreed upon by the parties), among others,
the completion date of the Medina Project was extended.

Due to financial losses in another project, BTL requested COJCOLDS to bill the latter based on
the 95% and 100% completion of the Medina Project and to execute deeds of assignment in favor
of its suppliers so that they may collect any eventual payments directly from COJCOLDS, to which
COJCOLDS granted. Thereafter, BTL ceased its operations in the Medina Project because of its
lack of funds to advance the cost of labor necessary to complete the said project, as well as the
supervening increase in the prices of materials and other items for construction. Consequently,
COJCOLDS terminated its Contract with BTL and engaged the services of another contractor to
finish the Medina Project.

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BTL filed a complaint against COJCOLDS before the CIAC, claiming cost of labor, materials,
equipment, overhead expenses, lost profits and interests, the 10% retention money stipulated in
the contract with interest, actual damages, attorney’s fees, moral and exemplary damages, and
costs of arbitration. COJCOLDS filed its answer with compulsory counterclaim, praying for the
award of liquidated damages in view of BTL’s delay in completing the pending project,
reimbursement of the payments it directly made to BTL’s suppliers as per the latter’s request, cost
overrun, and attorney’s fees.

The parties agreed to a Terms of Reference (TOR) wherein it was stipulated that the parties’
relationship with respect to the Medina Project is governed by, among others, the Contract, and
the General Conditions of the Contract .They also stipulated that 98% of the said project had been
completed.

The CIAC found the claims of both parties meritorious. Feeling aggrieved, COJCOLDS elevated
the matter to the CA. The CA modified the CIAC ruling. Both parties were dissatisfied, hence,
these petitions.

Issues:

1. Whether COJCOLDS is liable to BTL


2. Whether BTL is liable to COJCOLDS

Ruling:

Liabilities of COJCOLDS to BTL.

a. The 10% Retention Money and the Unpaid Balance of the Contract Price.

In its petition, COJCOLDS concedes that it has yet to pay BTL the unpaid balance of the
contract price amounting to P1,612,017.74 and that it has withheld the 10% retention
money in the amount of P1,248,179.87 which should be returned to BTL. It, however,
argues that the CA erred in ruling that the retention money should be paid in addition to
the unpaid balance of the contract price. COJCOLDS contends that treating the retention
money as a separate and distinct liability from the unpaid balance would unduly increase
its total liability from the Medina Project (including the amount of P10,814,382.26 which it
had already paid to BTL) from P12,426,400.00 to P13,674,579.87.

The Court agrees with COJCOLDS.

b. Costs of Additional Works: Price of the


Concrete Retaining Wall and the Works Under
Change Order Nos. 8 to 12.

Article 1724 of the Civil Code governs the recovery of additional costs in contracts for a
stipulated price (such as fixed lump-sum contracts), as well as the increase in price for any
additional work due to a subsequent change in the original plans and specifications. Based
on the same provision, such added costs can only be allowed upon the: (a) written
authority from the developer or project owner ordering or allowing the written changes in
work; and (b) written agreement of parties with regard to the increase in price or cost due
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to the change in work or design modification. Case law instructs that compliance with
these two (2) requisites is a condition precedent for recovery. The absence of one or the
other condition thus bars the claim of additional costs. Notably, neither the authority for
the changes made nor the additional price to be paid therefor may be proved by any
evidence other than the written authority and agreement as above-mentioned.

In these cases, records reveal that there is neither a written authorization nor agreement
covering the additional price to be paid for the concrete retaining wall. This confirms the
CA’s finding that the construction of the perimeter wall of the Medina Project, which is
included in the original plans and specifications for the same,already subsumes the
construction of the concrete retaining wall. Accordingly, COJCOLDS should not pay the
amount of P804,460.89 claimed by BTL as additional cost for the same.

In similar regard, the COJCOLDS should not be held liable for the costs of the additional
works taken under Change Order Nos. 8 to 12 amounting to P344,360.16 as claimed by
BTL. As correctly observed by the CA, BTL had, in fact, requested COJCOLDS to make the
payments therefor directly to its suppliers in view of its financial losses in another
project. Hence, considering that COJCOLDS’s payment to BTL’s suppliers already
covered the costs of said additional works upon its own request and to its own credit, BTL
maintains no right to pursue such claim.

With BTL’s claims for the costs of additional works herein denied, COJCOLDS’s total
liability to BTL thus stands in the amount of P1,612,017.74, which represents the unpaid
balance of 98% of the contract price, inclusive of the 10% retention money, as previously
stated.

Liabilities of BTL to COJCOLDS.

a. Liquidated Damages Due to Delay.

BTL’s liability to COJCOLDS for liquidated damages is a result of its delay in the performance
of its obligations under the Contract. While the fact of BTL’s delay has not been seriously
disputed in these cases, the Court must, however, resolve the extent of such delay in view of
the conflicting findings of the CIAC and the CA on the matter.

In these cases, records reveal that BTL sought for a 304-day extension of the original
completion deadline of September 15, 2000, broken down as follows: (a) 184 days as per
Change Order Nos. 1 to 6; and (b) 120 days as per Change Order Nos. 8 to 12. However, the
architect only recommended that COJCOLDS should only grant BTL extensions of 160 days
for the works to be done under Change Order Nos. 1 to 6 and 30 days for Change Order Nos. 8
to 12, or a total of 190 days. Since Article 21.04 of the General Conditions expressly
recognizes that the architect’s recommendations regarding extensions of time should
be controlling, the Court upholds the CA’s finding that BTL was only granted a 190-day
extension (from the original completion deadline) to finish the Medina Project, or until March
24, 2001. Despite such extension, BTL nevertheless failed to complete the same. In fact, as the
parties themselves admitted, the Medina Project was only 98% complete when the Contract
was terminated. Based on the foregoing, the Court thus finds that BTL’s delay should be
reckoned from March 25, 2001 (or the day after the above-stated 190-day extension) up until

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August 17, 2001 (or the day when the Contract was terminated), or a total of 146 days(length
of delay). Applying Article 3(B) of the Contract and Article 29.04 of the General Conditions,
BTL is therefore liable to pay COJCOLDS liquidated damages in the amount of P12,680.00
multiplied by the length of delay, resulting in a total of P1,851,280.00

b. Cost Overrun.

Due to BTL’s delay which impelled COJCOLDS to terminate the Contract and subsequently
hire the services of another contractor, i.e., Vigor, to finish the Medina Project, the Court
equally agrees with the CA’s finding that COJCOLDS incurred a cost overrun of P526,400.00.
Conformably with Article 3(E) of the Contract and Article 29.04 of the General Conditions,
BTL should therefore reimburse COJCOLDS the said cost which the latter incurred essentially
because of BTL’s failure to complete the project as agreed upon.

c. Overpayments.

Based on the records, BTL charged COJCOLDS the amount of P1,014,469.79 for the
modifications introduced to the Medina Project as indicated in Change Order Nos. 1 to 12. In
turn, COJCOLDS paid BTL the amount of P651,727.91 for the modifications covered by Change
Order Nos. 1 to 7 and no longer paid for those covered by Change Order Nos. 8 to 12 because,
as discussed earlier, COJCOLDS diverted such payments directly to BTL’s suppliers upon its
own request and to its own credit. Accordingly, COJCOLDS paid P663,275.37 to these
suppliers, resulting in COJCOLDS actually paying a total of P1,315,003.28 for the works taken
under Change Order Nos. 1 to 12. This means that BTL was effectively overpaid the amount
of P300,533.49, and is therefore obliged to return the same to COJCOLDS pursuant to Article
2154 of the Civil Code which states that “[i]f something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to return it arises.”

GOLDEN VALLEY EXPLORATION, INC. vs. PINKIAN MINING COMPANY and


COPPER VALLEY, INC.
G.R. No. 190080, June 11, 2014, J. Perlas-Bernabe

In reciprocal obligations, either party may rescind the contract upon the other’s substantial
breach of the obligation/s he had assumed thereunder. The basis therefor is Article 1191 of the Civil
Code. PMC rescinded the operating agreement with GVEI due to failure of the latter to advance
payment for actual cost. The court ruled that in reciprocal obligations, either party may rescind the
contract upon the other’s substantial breach of the obligation/s he had assumed thereunder.

Facts:

PMC is the owner of 81 mining claims located in Kayapa, Nueva Vizcaya, 15 of which were
covered by Mining Lease Contract (MLC) No. MRD-56, while the remaining 66 had pending
applications for lease. On October 30, 1987, PMC entered into an Operating Agreement (OA) with
GVEI, granting the latter "full, exclusive and irrevocable possession, use, occupancy , and control
over the [mining claims], and every matter pertaining to the examination, exploration,

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development and mining of the [mining claims] and the processing and marketing of the
products for a period of 25 years.

Thereafter, PMC extra-judicially rescinded the OA upon GVEI’s for failure of GVEI to
advance the actual cost for the perfection of the mining claims or for the acquisition of mining
rights, cost of lease applications, lease surveys and legal expenses incidental thereto; GVEI’s non-
reimbursement of the expenses incurred by PMC General Manager Benjamin Saguid in
connection with the visit of a financier to the mineral property in 1996; its non-remittance of the
US$300,000.00 received from Excelsior Resources, Ltd.; its nondisclosure of contracts entered into
with other mining companies with respect to the mining claims; its being a mere
"promoter/broker" of PMC’s mining claims instead of being the operator thereof; and its
nonperformance of the necessary works on the mining claims.

GVEI averred that its obligation to pay royalties to PMC arises only when the mining
claims are placed in commercial production which condition has not yet taken place. It also
reminded PMC of its prior payment of the amount ofP185,000.00 as future royalties in exchange
for PMC’s express waiver of any breach or default on the part of GVEI.

PMC entered into a Memorandum of Agreement dated May 2, 2000 (MOA) with CVI,
whereby the latter was granted the right to "enter, possess, occupy and control the mining claims"
and "to explore and develop the mining claims, mine or extract the ores, mill, process and
beneficiate and/or dispose the mineral products in any method or process," among others, for a
period of 25 years.

Issue:

Whether or not there was a valid rescission of the Operating Agreement

Ruling:

Yes, there was a valid rescission of the Operating Agreement

In reciprocal obligations, either party may rescind the contract upon the other’s
substantial breach of the obligation/s he had assumed thereunder. The basis therefor is Article
1191 of the Civil Code which states as follows:

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

The injured party may choose between the 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.

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This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

More accurately referred to as resolution, the right of rescission under Article 1191 is
predicated on a breach of faith that violates the reciprocity between parties to the contract. This
retaliatory remedy is given to the contracting party who suffers the injurious breach on the
premise that it is "unjust that a party be held bound to fulfill his promises when the other violates
his." As a general rule, the power to rescind an obligation must be invoked judicially and cannot
be exercised solely on a party’s own judgment that the other has committed a breach of the
obligation. This is so because rescission of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental violations as would defeat the very object
of the parties in making the agreement. As a well-established exception, however, an injured party
need not resort to court action in order to rescind a contract when the contract itself provides
that it may be revoked or cancelled upon violation of its terms and conditions.

As elucidated in Froilan v. Pan Oriental Shipping Co. "there is nothing in the law that
prohibits the parties from entering into agreement that violation of the terms of the contract
would cause cancellation thereof, even without court intervention." Similarly, in Dela Rama
Steamship Co., Inc. v. Tan, it was held that judicial permission to rescind an obligation is not
necessary if a contract contains a special provision granting the power of cancellation to a party.

With this in mind, the Court therefore affirms the correctness of the CA’s Decision
upholding PMC’s unilateral rescission of the OA due to GVEI’s non-payment of royalties
considering the parties’ express stipulation in the OA that said agreement may be cancelled on
such ground. By expressly stipulating in the OA that GVEI’s non-payment of royalties would give
PMC sufficient cause to cancel or rescind the OA, the parties clearly had considered such
violation to be a substantial breach of their agreement. Thus, in view of the above-stated
jurisprudence on the matter, PMC’s extra-judicial rescission of the OA based on the said ground
was valid.

SWIRE REALTY DEVELOPMENT CORPORATION vs. JAYNE YU


G.R. No. 207133, March 09, 2015, J. Peralta

The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s failure to comply with an existing
obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek
rescission and, in the absence of any just cause for the court to determine the period of compliance,
the court shall decree the rescission. Thus, the delay in the completion of the project as well as of the
delay in the delivery of the unit are breaches of statutory and contractual obligations which entitle
respondent to rescind the contract, demand a refund and payment of damages.

Facts:

On September 24, 1997, Respondent Jane Yu (Yu) paid the full purchase price of
P7,519,371.80 for the unit while making a down payment of P20,000.00 for the parking lot.

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However, notwithstanding full payment of the contract price, Petitioner Swire Realty
Development Corporation (Swire) failed to complete and deliver the subject unit on time. This
prompted Yu to file a Complaint for Rescission of Contract with Damages before the Housing and
Land Use Regulatory Board (HLURB) Expanded National Capital Region Field Office (ENCRFO).

The HLURB ENCRFO rendered a Decision dismissing Yu’s complaint. It ruled that
rescission is not permitted for slight or casual breach of the contract but only for such breaches as
are substantial and fundamental as to defeat the object of the parties in making the agreement.
On the other hand, Yu is hereby directed to immediately update her account insofar as the
parking slot is concerned, without interest, surcharges or penalties charged therein.

All other claims and counterclaims are hereby dismissed for lack of merit. Yu then
elevated the matter to the HLURB Board of Commissioners. The HLURB Board of Commissioners
reversed and set aside the ruling of the HLURB ENCRFO and ordered the rescission of the
Contract to Sell. Swire moved for reconsideration, but the same was denied by the HLURB Board
of Commissioners. Unfazed, Swire appealed to the Office of the President (OP). The OP, through
then Deputy Executive Secretary Manuel Gaite, dismissed Swire’s appeal on the ground that it
failed to promptly file its appeal before the OP.

The OP, granted Swire’s motion and set aside Deputy Executive Secretary Gaite’s decision.
It held that after a careful and thorough evaluation and study of the records of the case, the OP
was more inclined to agree with the earlier decision of the HLURB ENCRFO as it was more in
accord with facts, law and jurisprudence relevant to the case.

Yu sought reconsideration of said resolution, however, the same was denied by the OP in a
Resolution dated August 18, 2011. Consequently, Yu filed an appeal to the CA. The CA granted Yu’s
appeal and reversed and set aside the Order of the OP. Swire moved for reconsideration, however,
the CA denied the same.

Issue:
Whether or not rescission of the contract is proper in the instant case.

Ruling:

Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that
specific performance becomes impossible.

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.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

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Basic is the rule that the right of rescission of a party to an obligation under Article 1191 of
the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the said provision is the obligor’s failure to comply
with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine the
period of compliance, the court shall decree the rescission.

In the instant case, the CA aptly found that the completion date of the condominium unit
was November 1998 pursuant to License No. 97-12-3202 dated November 2, 1997 but was extended
to December 1999 as per License to Sell No. 99-05-3401 dated May 8, 1999. However, at the time
of the ocular inspection conducted by the HLURB ENCRFO, the unit was not yet completely
finished as the kitchen cabinets and fixtures were not yet installed and the agreed amenities were
not yet available.

From the foregoing, it is evident that the report on the ocular inspection conducted on the
subject condominium project and subject unit shows that the amenities under the approved plan
have not yet been provided as of May 3, 2002, and that the subject unit has not been delivered to
Yu as of August 28, 2002, which is beyond the period of development of December 1999 under the
license to sell. Incontrovertibly, petitioner had incurred delay in the performance of its obligation
amounting to breach of contract as it failed to finish and deliver the unit to Yu within the
stipulated period. The delay in the completion of the project as well as of the delay in the delivery
of the unit are breaches of statutory and contractual obligations which entitle Yu to rescind the
contract, demand a refund and payment of damages.

OBLIGATIONS WITH PERIOD

ROWENA R. SALONTE 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
G.R. No. 207348, August 19, 2014, J. Velasco, Jr.,

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. 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.

Facts:

The City of Mandaue and F.F. Cruz and Co., Inc. (F.F. Cruz) entered into a Contract of
Reclamation in which F.F. Cruz agreed to undertake, at its own expense, the reclamation of 180

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hectares of foreshore and submerged lands from the Cabahug Causeway in that city. The
timetables, i.e., commencement of the contract and project completion, provides:

Work on the reclamation shall commence not later than July 1989. The project is estimated to be
completed in six (6) years: (3 years for the dredge-filling and seawall construction and 3 years for
the infrastructures completion).

The parties also made a Memorandum of Agreement (MOA) whereby the City of Mandaue
allowed F.F. Cruz to put up structures on a portion of a parcel of land owned by the city for the
use of and to house F.F. Cruz personnel assigned at the project site. The City of Mandaue and F.F.
Cruz have agreed that upon the completion of the Mandaue City Reclamation Project, all
improvements introduced by F.F. Cruz to the parcel of land owned by the City of Mandaue shall
ipso facto belong to the City of Mandaue.

Later developments saw the City of Mandaue undertaking the Metro Cebu Development
Project II (MCDP II), which required the widening of the Plaridel Extension Mandaue Causeway.
The structures built by F.F. Cruz subject of the MOA stood in the direct path of the road widening
project. DPWH and Samuel B. Darza, MCDP II project director, entered into an Agreement to
Demolish with F.F. Cruz whereby the latter would demolish the improvements in return, receive
the total amount of PhP 1,084,836.42 in compensation.

Petitioner Rowena B. Rances (now Rowena RancesSolante), Human Resource Management


Officer III, prepared and, with the approval of Samuel B. Darza (Darza), then issued
Disbursement Voucher for PhP 1,084,836.42 in favor of F.F. Cruz.

Darza addressed a letter-complaint to the Office of the Ombudsman, inviting attention to


several irregularities regarding the implementation of MCDP II. The letter was referred to the
COA for a team to audit the accounts of MCDP II. The audit team issued Special Audit Office
(SAO) Report which states:

F.F. Cruz and Company, Inc. was paid P1,084,836.42 for the cost of the property
affected by the widening of Plaridel Extension, Mandaue Causeway. However,
under Section 5 of its MOA with Mandaue City, the former was no longer the
lawful owner of the properties at the time the payment was made.

The letter-complaint of Darza was upgraded as an Ombudsman case, the Ombudsman, by


Resolution subsequently dismiss the same for lack of merit.

The COA ruled that from the MOA, it is clear that the improvements introduced by F.F.
Cruz would be owned by the City upon completion of the project. However, the project was not
completed in 1995 and even in 1997 when MDCP paid for these improvements. The fact that the
reclamation project had not yet been completed by F.F. Cruz in 1997 does not negate the right
over such improvements by the City. Hence, the instant petition.

Issue:

Who between the City of Mandaue and F.F. Cruz owned the properties during the period
that it was demolished?
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Ruling:

The petition is meritorious. The COA and its audit team obviously misread the relevant
stipulations of the MOA in relation to the provisions on project completion and termination of
contract of the Mandaue-F.F. Cruz reclamation contract.

The COA is alleging that the Contract of Reclamation establishes an obligation on the part
of F.F. Cruz to finish the project within the allotted period of six (6) years from contract execution
in August 1989. The COA would conclude that after the six (6)-year period, F.F. Cruz is
automatically in delay, the contract considered as completed, and the ownership of the structures
built in accordance with the MOA transferred to the City of Mandaue.

COA’s argument is untenable.

The Civil Code provision on obligations with a period is relevant. Article 1193 thereof
provides:

Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.

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.

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 the aforequoted 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.

Even if we consider the allotted six (6) years within which F.F. Cruz was supposed to
complete the reclamation project, the lapse thereof does not automatically mean that F.F. Cruz
was in delay. The City of Mandaue never made a demand for the fulfillment of its obligation
under the Contract of Reclamation. Article 1169 of the Civil Code on the interaction of demand
and delay and the exceptions to the requirement of demand relevantly states:

Article 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.

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However, the demand by the creditor shall not be necessary in order that delay may
exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins.

In the instant case, the records are bereft of any document that the City of Mandaue
exacted from F.F. Cruz the fulfillment of its obligation under the reclamation contract. Not one of
the exceptions to the requisite demand under Art. 1169 is established.

Since at the time of the demolition the said improvements actually belonged to F.F. Cruz
and the City of Mandaue has no claim whatsoever on the said payment for the demolished
improvements.

As it were, the Mandaue - F.F.Cruz MOA states that the structures built by F .F. Cruz on
the property of the city will belong to the latter only upon the completion of the project. The
completion of the project is a suspensive condition that has yet to be fulfilled. Until the condition
arises, ownership of the structures properly pertains to F .F. Cruz.

The MOA does not state that the structures shall inure in ownership to the City of
Mandaue after the lapse of six (6) years from the execution of the Contract of Reclamation. What
the MOA does provide is that ownership of the structures shall vest upon, or ipso facto belong to,
the City of Mandaue when the Contract of Reclamation shall have been completed. Logically,
before such time, or until the agreed reclamation project is actually finished, F.F. Cruz owns the
structures. The payment of compensation for the demolition thereof is justified. The disallowance
of the payment is without factual and legal basis. COA then gravely abused its discretion when it
decreed the disallowance.

NATURE AND EFFECT OF OBLIGATIONS

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


G.R. No. 194507, September 8, 2014, J. Peralta

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
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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 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 party’s 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.

Facts:

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 P7,400,000.00. Under the agreement, FBI was to pay a
downpayment equivalent to 20% of the contract price and the balance, through a progress billing
every 15 days, payable not later than 1 week from presentation of the billing.

FSI filed a complaint for Sum of Money against FBI before the RTC of Makati City seeking
to collect the amount of P1,635,278.91, representing Billings No. 3 and 4, with accrued interest
from August 1, 1991 plus moral and exemplary damages with attorney’s fees. In its complaint, FSI
alleged that FBI refused to pay said amount despite demand and its completion of 97% of the
contracted works.

FBI claimed that FSI completed only 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 FSI’s inadequacy, its schedule in finishing
the Project has been delayed resulting in the Project owner’s deferment of its own progress
billings. It further interposed counterclaims for amounts it spent for the remedial works on the
alleged defects in FSI’s work.

After evaluating the evidence of both parties, the RTC ruled in favor of FSI. Defendant’s
counterclaim is denied for lack of factual and legal basis.

CA affirmed the Decision of the lower court, but deleted the sum of P279,585.00
representing the cost of undelivered cement and reduced the award of attorney’s fees
to P50,000.00. CA explained that FSI failed to substantiate how and in what manner it incurred
the cost of cement by stressing that its claim was not supported by actual receipts. Also, it found
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that while the trial court did not err in awarding attorney’s fees, the same should be reduced for
being unconscionable and excessive. On FBI’s rejection of the 12% annual interest rate on the
amount of Billings 3 and 4.

Issue:

Whether or not the CA committed serious, reversible error when it imposed the 12% legal
interest from August 30, 1991 on the disputed claim of P1,024,600.00 less the amount of P33,354.40
despite the fact that there was no stipulation in the agreement of the parties with regard to
interest and despite the fact that their agreement was not a "loan or forbearance of money”.

Ruling:

The Court finds merit in the argument of FBI that the 12% interest rate is inapplicable,
since this case does not involve a loan or forbearance of money.

In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, the Court
laid down the following guidelines in computing legal interest:

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

1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.

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In line with the recent circular of the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP-MB) No. 799, the Court has modified the guidelines in Nacar v. Gallery
Frames, as follows:

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

1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged. 3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

In addition to the above, judgments that have become final and executory prior to
July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of
interest fixed therein. It should be noted, however, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013, the new rate of six percent (6%) per
annum shall be the prevailing rate of interest when applicable. Thus, the need to determine
whether the obligation involved herein is a loan and forbearance of money nonetheless exists.

Forbearance of money, goods or credits, therefore, refers to arrangements other than


loan agreements, where a person acquiesces to the temporary use of his money, goods or credits
pending the happening of certain events or fulfillment of certain conditions. Consequently, if
those conditions are breached, said person is entitled not only to the return of the principal
amount paid, but also to compensation for the use of his money which would be the same rate of
legal interest applicable to a loan since the use or deprivation of funds therein is similar to a loan.

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This case, however, does not involve an acquiescence to the temporary use of a party’s
money but a performance of a particular service, specifically the construction of the diaphragm
wall, capping beam, and guide walls of the Trafalgar Plaza.

A review of similar jurisprudence would tell that this Court had repeatedly recognized this
distinction and awarded interest at a rate of 6% on actual or compensatory damages arising from
a breach not only of construction contracts, such as the one subject of this case, but also of
contracts wherein one of the parties reneged on its obligation to perform messengerial
services, deliver certain quantities of molasses, undertake the reforestation of a denuded forest
land, as well as breaches of contracts of carriage, and trucking agreements. The Court have
explained therein that the reason behind such is that said contracts do not partake of loans or
forbearance of money but are more in the nature of contracts of service.

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.

The 6% interest rate shall further be imposed from the finality of the judgment herein
until satisfaction thereof, in light of our recent ruling in Nacar v. Gallery Frames. Note, however,
that contrary to FBI’s assertion, The Court finds no error in the RTC’s ruling that the interest shall
begin to run from August 30, 1991 as this is the date when FSI extrajudicially made its claim
against FBI through a letter demanding payment for its services.

In view of the foregoing, therefore, the Court finds no compelling reason to disturb the
factual findings of the RTC and the CA, which are fully supported by and deducible from, the
evidence on record, insofar as the sum representing Billings 3 and 4 is concerned. As to the rate of
interest due thereon, however, the Court note 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.

RODRIGO RIVERA vs. SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA


G.R. No. 184458 (consolidated), January 14, 2015, J. Perez

There are four instances when demand is not necessary to constitute the debtor in default:
(1) when there is an express stipulation to that effect; (2) where the law so provides; (3) when the
period is the controlling motive or the principal inducement for the creation of the obligation; and
(4) where demand would be useless. In the first two paragraphs, it is not sufficient that the law or
obligation fixes a date for performance; it must further state expressly that after the period lapses,
default will commence.

Corollary thereto, Art. 2209 solidifies the consequence of payment of interest as an


indemnity for damages when the obligor incurs in delay.

Art. 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of
money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or before 31 Decem-ber

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1995; and (3) the Promissory Note provides for an indemnity for damages upon default of Rivera
which is the payment of a 5% monthly interest from the date of default.

Facts:

The parties were friends of long standing having known each other since 1973. In February
1995, Rivera obtained a loan from the Spouses Chua, in the tune of PhP 120,000.00 embodied in a
promissory note with stipulations as to monthly interest from default and collec-tion fees. Three
years have passed from the maturity date, when Rivera issued two (2) checks in favor of Chua as
payment for the loan, which, upon presentment, were dishonored for the reason “account closed.”

In their collection suit, Spouses Chua alleged that they have repeatedly demanded
payment from Rivera to no avail. In his Answer, Rivera claimed forgery of the subject Promis-sory
Note and denied his indebtedness thereunder. From the MeTC to the CA, the monetary claim of
Spouses Chua was sustained.

Issues:

1. Whether or not the assailed promissory note is a negotiable instrument and thus
de-mand is no longer necessary to hold the promissor liable thereunder.

2. Whether or not the courts a quo are correct in holding that Rivera is liable for
interest and not penalties.

Ruling:

1. NO, the promissory note is not a negotiable instrument and demand too is no longer
necessary because the law is explicit that when the debtor fails to pay upon maturity
date, when the obligation is due and demandable, he therefore incurs delay.

Rivera argues “that even assuming the validity of the Promissory Note, demand was still
necessary in order to charge him liable thereunder. Rivera argues that it was grave error on the part
of the appellate court to apply [Sec. 70 of the NIL].”

The Court agrees that the subject promissory note is not a negotiable instrument and the
provisions of the NIL do not apply to this case. Sec. 1 of the NIL requires the concurrence of the
following elements to be a negotiable instrument:

a) It must be in writing and signed by the maker or drawer;


b) Must contain an unconditional promise or order to pay a sum certain in money;
c) Must be payable on demand, or at a fixed or determinable future time;
d) Must be payable to order or to bearer; and
e) Where the instrument is addressed to a drawee, he must be named or otherwise indi-
cated therein with reasonable certainty.

On the other hand, Sec. 184 of the NIL defines what negotiable promissory note is:

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“Sec. 184. Promissory Note, Defined. – A negotiable promissory note within the mea-
ning of this Act is an unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand, or at a fixed or determinable future
time, a sum certain in money to order or to bearer. Where a note is drawn to the
maker’s own order, it is not complete until indorsed by him.”

The Promissory Note in this case is made out to specific persons, herein respondents, the
Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
However, even if Rivera’s Promissory Note is not a negotiable instrument and therefore outside
the coverage of Sec. 70 of the NIL which provides that presentment for payment is not necessary
to charge the person liable on the instrument, Rivera is still liable under the terms of the Pro-
missory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and
becomes demandable—31 December 1995. As of 1 January 1996, Rivera had already incurred in
delay when he failed to pay the amount of PhP 120,000.00 due to the Spouses Chua on 31
December 1995 under the Promissory Note.

Art. 1169 of the Civil Code explicitly provides:

“Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obli-
gation.”

However, the demand by the creditor shall not be necessary in order that delay may
exist:

1) When the obligation or the law expressly so declare; or


2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform. In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his obligation,
delay by the other begins.

There are four instances when demand is not necessary to constitute the debtor in default:
(1) when there is an express stipulation to that effect; (2) where the law so provides; (3) when the
period is the controlling motive or the principal inducement for the creation of the obligation;
and (4) where demand would be useless. In the first two paragraphs, it is not sufficient that the
law or obligation fixes a date for performance; it must further state expressly that after the period
lapses, default will commence.

Corollary thereto, Art. 2209 solidifies the consequence of payment of interest as an


indemnity for damages when the obligor incurs in delay:

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“Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six percent per annum.”

Art. 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of
money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or before 31 Decem-ber
1995; and (3) the Promissory Note provides for an indemnity for damages upon default of Rivera
which is the payment of a 5% monthly interest from the date of default.

2. YES, Rivera is liable interest liabilities and not penalties.

[The Court does] not consider the stipulation on payment of interest in this case as a
penal clause although Rivera, as obligor, assumed to pay additional 5% monthly interest on the
principal amount of PhP 120,000.00 upon default.

The penal clause is generally undertaken to insure performance and works as either, or
both, punishment and reparation. It is an exception to the general rules on recovery of losses and
damages. As an exception to the general rule, a penal clause must be specifically set forth in the
obligation.

In high relief, the stipulation in the Promissory Note is designated as payment of interest,
not as a penal clause, and is simply an indemnity for damages incurred by the Spouses Chua
because Rivera defaulted in the payment of the amount of PhP 120,000.00. The measure of
damages for the Rivera’s delay is limited to the interest stipulated in the Promissory Note. In apt
instances, in default of stipulation, the interest is that provided by law.

In this instance, the parties stipulated that in case of default, Rivera will pay interest at the
rate of 5% a month or 60% per annum. On this score, the appellate court ruled:

“It bears emphasizing that the undertaking based on the note clearly states the date of
payment to be 31 December 1995. Given this circumstance, demand by the creditor is no
longer necessary in order that delay may exist since the contract itself already expressly
so declares. The mere failure of [Spouses Chua] to immediately demand or collect
payment of the value of the note does not exonerate [Rivera] from his liability
therefrom. Verily, the trial court committed no reversible error when it imposed interest
from 1 January 1996 on the ratiocination that [Spouses Chua] were relieved from making
demand under Art. 1169 of the Civil Code.

xxxx xxxx

As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in
addition to legal interests and attorney’s fees is, indeed, highly iniquitous and
unreasonable. Stipulated interest rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when necessary. Since the interest rate agreed
upon is void, the parties are considered to have no stipulation regarding the interest
rate, thus, the rate of interest should be 12% per annum computed from the date of
judicial or extrajudicial demand.
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The appellate court found the 5% a month or 60% per annum interest rate, on top of the
legal interest and attorney’s fees, steep, tantamount to it being illegal, iniquitous and uncons-
cionable.

At the time interest accrued from 1 January 1996, the date of default under the Promissory
Note, the then prevailing rate of legal interest was 12% per annum under Central Bank (CB)
Circular No. 416 in cases involving the loan or forbearance of money. Thus, the legal interest
accruing from the Promissory Note is 12% per annum from the date of default on 1 January 1996.

However, the 12% per annum rate of legal interest is only applicable until 30 June 2013,
before the advent and effectivity of [BSP] Circular No. 799, Series of 2013 reducing the rate of legal
interest to 6% per annum. Pursuant to [the Court’s] ruling in Nacar vs. Gallery Frames, BSP
Circular No. 799 is prospectively applied from 1 July 2013. In short, the applicable rate of legal
interest from 1 January 1996, the date when Rivera defaulted, to date when this Decision becomes
final and executor is divided into two periods reflecting two rates of legal interest: (1) 12% per
annum from 1 January 1996 to 30 June 2013; and (2) 6% per annum froom 1 July 2013 to date when
this Decision becomes final and executory.

As for the legal interest accruing from 11 June 1999, when judicial demand was made, to
the date when this Decision becomes final and executory, such is likewise divided into two
periods: (1) 12% per annum from 11 June 1999, the date of judicial demand to 30 June 2013; and (2)
6% per annum from 1 July 2013 to date when this Decision becomes final and executor.31 [The
Court anchors the] imposition of interest on interest due earning legal interest on Art. 2212 of the
Civil Code which provides that “interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.”

From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to the
Spouses Chua could already be determined with reasonable certainty given the wording of the
JOINT AND SOLIDARY OBLIGATION
Promissory Note.

SPOUSES RODOLFO BEROT AND LILIA BEROT vs. FELIPE C. SIAPNO


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

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.

Facts:

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Macaria Berot (or "Macaria") and spouses Rodolfo and Lilia Berot (Spouses Berot)
obtained a loan from Felipe C. Siapno (Siapno) payable within one year together with interest
thereon at the rate of 2% per annum from that date until fully paid. As security for the loan,
Macaria, and Spouses Berot mortgaged to Siapno a parcel of land situated in Banaoang, Calasiao,
Pangasinan in the names of Macaria and her husband Pedro Berot (or "Pedro"), deceased. On
June 23, 2003, Macaria died.

Because of the mortgagors’ default, Siapno filed an action against them for foreclosure of
mortgag eand damages on in the RTC. In answer, Spouses Berot alleged that the contested
property was the inheritance of the former from his deceased father, Pedro; that on said property
is their family home; that the mortgage is void as it was constituted over the family home without
the consent of their children, who are the beneficiaries thereof; that their obligation is only joint;
and that the lower court has no jurisdiction over Macaria for the reason that no summons was
served on her as she was already dead.

With leave of court, the complaint was amended by substituting the estate of Macaria in
her stead. Thus, the defendants named in the amended complaint are now the "ESTATE OF
MACARIA BEROT, represented by Rodolfo A. Berot, RODOLFO A. BEROT and LILIA P. BEROT".

After trial, the lower court ruled in favor of Siapno, allowing the foreclosure if the subject
mortgage and order Spouses Berot to pay Siapno, within 90 days, the amount of mortgage and the
interest plus damages. If within the aforestated 90-day period the Spouses Berot fail to pay
Siapno, the sale of the property subject of the mortgage shall be made and the proceeds of the sale
to be delivered to Siapno to cover the debt and charges mentioned above, and after such
payments the excess, if any shall be delivered to the Spouses Berot. Subsequent motion for
reconsideration was denied. On appeal, CA affirmed the decision of the RTC with modification as
to damages.

Issue:

Whether the obligation entered into is joint.

Ruling:

The Court rules that it is joint.

Under Article 1207 of the Civil Code of the Philippines, the general rule is that when there
is a concurrence of two or more debtors under a single obligation, the obligation is presumed to
be joint:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in
one and the same obligation does not imply that each one of the former has a right to
demand, orthat each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.

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The law further provides that to consider the obligation as solidary in nature, it must
expressly be stated as such, or the law or the nature of the obligation itself must require solidarity.
In PH Credit Corporation v. Court of Appeals, the Court held that:

A solidary obligation is one in which each of the debtors is liable for the
entire obligation, and each of the creditors is entitled to demand the satisfaction of
the whole obligation from any or all of the debtors. On the other hand, a joint
obligation is one in which each debtors is liable only for a proportionate part of the
debt, and the creditor is entitled to demand only a proportionate part of the credit
from each debtor. 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."

The testimony of petitioner Rodolfo only established that there was that existing loan to
respondent, and that the subject property was mortgaged as security for the said obligation. His
admission of the existence of the loan made him and his late mother liable to respondent. We
have examined the contents of the real estate mortgagebut found no indication in the plain
wordings of the instrument that the debtors – the late Macaria and herein petitioners – had
expressly intended to make their obligation to respondent solidary in nature. Absent from the
mortgage are the express and indubitable terms characterizing the obligation as solidary.
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.

OLONGAPO CITY vs. SUBIC WATER AND SEWERAGE CO., INC.


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

Solidary liability must be expressly stated. In the present case, the joint and several liability
of Subic Water and OCWD was nowhere clear in the agreement. The agreement simply and plainly
stated that Olongapo City and OCWD were only requesting Subic Water to be a co-maker, in view
of its assumption of OCWD’s water operations. Under these circumstances, Olongapo City cannot
proceed after Subic Water for OCWD’s unpaid obligations. 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 OCWD’s obligations under the compromise agreement.

Facts:

The Olongapo City filed a complaint for sum of money and damages against Olongapo
City Water District (OCWD). It alleged that OCWD failed to pay its electricity bills to Olongapo
City and remit its payment under the contract to pay, pursuant to OCWD’s acquisition of
Olongapo City’s water system. In the interim, pursuant to a Joint Venture Agreement (JVA), Subic
Water– a new corporate entity – was incorporated.

Subic Water was granted the franchise to operate and to carry on the business of
providing water and sewerage services in the Subic Bay Free Port Zone, as well as in Olongapo
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City. Hence, Subic Water took over OCWD’s water operations in Olongapo City. To finally settle
their money claims against each other, Olongapo City and OCWD entered into a compromise
agreement.

The compromise agreement also contained a provision regarding the parties’ request that
Subic Water, Philippines, which took over the operations of the defendant Olongapo City Water
District be made the co-maker for OCWD’s obligations. Mr. Noli Aldip, then chairman of Subic
Water, acted as its representative and signed the agreement on behalf of Subic Water.

To enforce the compromise agreement, Olongapo City filed a motion for the issuance of a
writ of execution with the RTC. It granted the motion, but did not issue the corresponding writ of
execution. Almost four years later, the Olongapo City, prayed again for the issuance of a writ of
execution against OCWD.

OCWD’s former counsel, filed a manifestation alleging that OCWD had already been
dissolved and that Subic Water is now the former OCWD. Because of this assertion, Subic Water
also filed a manifestation informing the RTC that as borne out by the articles of incorporation and
general information sheet of Subic Water defendant OCWD is not Subic Water. The
manifestation also indicated that OCWD was only a ten percent (10%) shareholder of Subic
Water; and that its 10% share was already in the process of being transferred to Olongapo City
pursuant to a Deed of Assignment .

The RTC granted the motion for execution and directed its issuance against OCWD
and/or Subic Water. The CA granted Subic Water’s petition for certiorari and reversed the trial
court’s rulings.

Issue:

Whether or not Subic Water could be held solidarily liable under the writ of execution
since it was identified as OCWD’s co-maker in the compromise agreement

Ruling:

No, solidary liability must be expressly stated.

As the rule stands, solidary liability is not presumed. This stems from Art. 1207 of the Civil
Code, which 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 the present case, the joint and several liability of Subic Water and OCWD was nowhere
clear in the agreement. The agreement simply and plainly stated that Olongapo City and OCWD
were only requesting Subic Water to be a co-maker, in view of its assumption of OCWD’s water
operations. No evidence was presented to show that such request was ever approved by Subic
Water’s board of directors.

Under these circumstances, Olongapo City cannot proceed after Subic Water for OCWD’s
unpaid obligations. 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 OCWD’s obligations
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under the compromise agreement. At best, Subic Water was merely a guarantor against whom
Olongapo City can claim, provided it was first shown that: a) Olongapo City 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. But Subic Water could not
also be recognized as a guarantor of OCWD’s obligations.

EXTINGUISHMENT OF OBLIGATIONS

PAYMENT OR PERFORMANCE

RIVELISA REALTY, INC., REPRESENTED BY RICARDO P. VENTURINA vs. FIRST STA.


CLARA BUILDERS CORPORATION, REPRESENTED BY RAMON A. PANGILINAN, AS
PRESIDENT
G.R. NO. 189618 January 15, 2014
J. PERLAS-BERNABE

The principle of quantum meruit allows a party to recover the reasonable value of the thing
or services rendered despite the lack of a written contract, in order to avoid unjust enrichment. The
principle states that a person must be paid with an amount that he deserves. It 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 the instant case, since First Sta. Clara already performed certain works on
the project with an estimated value of, to completely deny it payment for the same would result in
Rivelisa Realty’s unjust enrichment at the First Sta. Clara’s expense. Hence, it is only proper that
First Sta. Clara must be paid on a quantum meruit basis.

Facts:

Rivelisa Realty entered into a Joint Venture Agreement (JVA) with First Sta. Clara for the
construction and development of a residential subdivision. 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.

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 hired by First Sta. Clara. 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. After several exchanges, Rivelisa Realty agreed to reimburse First Sta. Clara the
amount of P3,000,000.00, emphasizing in its letter that the amount is actually over and beyond its
obligation under the JVA. However, the reimbursable amount of P3,000,000.00 remained unpaid
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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.

The RTC dismissed the complaint and ordered First Sta. Clara to instead pay Rivelisa Realty. As
First Sta. Clara stopped working on the project halfway into the construction period due to its
own lack of funds, the RTC concluded that it was actually the party that first violated the
JVA. Dissatisfied, First Sta. Clara elevated the matter on appeal. The CA found Rivelisa Realty still
liable for First Sta. Clara’s actual accomplishments in the project. Rivelisa Realty moved for
reconsideration but the same was denied. Hence, this instant petition.

Issue:

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

Ruling:

The Court concurs with the CA that 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 JVA 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-
fulfillment of the terms and conditions of the terminated JVA. For all these reasons, the CA’s
ruling must be upheld.

NATIONAL POWER CORPORATION vs. LUCMAN M. IBRAHIM et al.


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

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

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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, NAPOCOR’s 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.

Facts:

In 1978, National Power Corporation (NAPOCOR) took possession of a 21,995 square


meter parcel of land in Marawi City for the purpose of building thereon a hydroelectric power
plant. Well, in truth, a portion of the said land is privately owned by Macapanton K. Mangondato
as evidenced by a TCT registered in the latter’s name. When Mangondato discovered NAPOCOR’s
occupation, Mangondato demanded compensation for the subject land. At first, NAPOCOR
rejected Mangondato’s claim but later on acquiesced and acknowledged Mangondato’s right.
However, Mangondato and NAPOCOR failed to agree on the amount of just compensation.
Hence, Mangondato filed a complaint for reconveyance against NAPOCOR. On the other hand,
NAPOCOR filed an expropriation complaint before the RTC. The RTC in its decision, upholding
NAPOCOR’s right to expropriate the subject land: and it denied Mangondato’s claim for
reconveyance. The RTC ordered NAPOCOR to pay the amount of P21,995,000.00 as just
compensation and a monthly rentals of P15,000.00 per month with 12% interest per annum.
Disagreeing with the amount of just compensation, NAPOCOR filed an appeal with the Court of
Appeals.

While the appeal of NAPOCOR regarding just compensation was still pending Lucman
Ibrahim and Omar Maruhom filed a complaint against Mangondato and NAPOCOR. Ibrahim and
Maruhom asserted that they are the real owners of the subject land being the lawful heirs of the
original proprietor. They alleged that Mangondato is merely holding the land in trust for them. As
the real owners of the land, they posited they should be the ones entitled to any rental fees or
expropriation indemnity that may be found due for the subject land. In the same complaint
Ibrahim and Maruhom filed for an issuance of a TRO and a writ of preliminary injunction enjoin
NAPOCOR, during the pendency of the suit, from making any payments to Mangondato. The
RTC granted the TRO and writ of preliminary injunction.
The appeal of NAPOCOR regarding just compensation was denied. The Court of Appeals
affirmed in toto the RTC decision. Hence, NAPOCOR filed a petition for review on certiorari with
the Supreme Court. The Supreme Court affirmed the decision of the Court of Appeals. When the
said decision of the Supreme Court became final and executory, Mangondato filed a motion for
execution against NAPOCOR. NAPOCOR, however, pointed out the existence of a TRO and
preliminary injunction issued against any payment for the subject land, the same TRO and
preliminary issued prayed for by Ibrahim and Maruhom. The RTC denied said defense and
ordered the execution of the decision by issuing a notice of garnishment against NAPOCOR’s
bank accounts.

Back to the case of Ibrahim and Maruhom, the RTC finally rendered a decision adjudging
Ibrahim and Maruhom to be the true owners of the land. The RTC further ruled that NAPOCOR
and Mangondato are solidarily liable for the payment of just compensation and monthly rentals
from the subject land. NAPOCOR filed an appeal with the CA regarding this decision. While the
said appeal is still pending, Ibrahim and Maruhom were able to secure a writ of execution
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pending appeal, hence, Mangondato’s money with the SSS were garnished. Ultimately, the CA
affirmed the RTC decision stating that Ibrahim and Maruhom are the true owners of the land.
Hence, this present appeal by NAPOCOR.

Issue:

Whether or not it is correct, in view of the facts and circumstances in this case, to hold
NAPOCOR liable in favor of the Ibrahims and Maruhoms for the rental fees and expropriation
indemnity adjudged due for the subject land

Ruling:

No, NAPOCOR is not liable to the Ibrahims and Maruhoms.

No “bad faith” may be taken against it in paying Mangondato the rental fees and
expropriation indemnity due the subject land.

The essence of bad faith consists in the deliberate commission of a wrong. Indeed, the
concept has often been equated with malicious or fraudulent motives, yet distinguished from the
mere unintentional wrongs resulting from mere simple negligence or oversight. A finding of bad
faith, thus, usually assumes the presence of two (2) elements: first, that the actor knew or should
have known that a particular course of action is wrong or illegal, and second, that despite such
actual or imputable knowledge, the actor, voluntarily, consciously and out of his own free will,
proceeds with such course of action. Only with the concurrence of these two elements can the
Court begin to consider that the wrong committed had been done deliberately and, thus, in bad
faith.

Branch 10 of the Marawi City RTC and the Court of Appeals erred in their finding of bad
faith because they have overlooked the utter significance of one important fact: that NAPOCOR’s
payment to Mangondato of the rental fees and expropriation indemnity adjudged due for the
subject land in Civil Case No. 605-92 and Civil Case No. 610-92, was required by the final and
executory decision in the said two cases and was compelled thru a writ of garnishment issued by
the court that rendered such decision. In other words, the payment to Mangondato was not a
product of a deliberate choice on the part of the NAPOCOR but was made only in compliance to
the lawful orders of a court with jurisdiction. Since NAPOCOR was only acting under the lawful
orders of a court in paying Mangondato, the Court finds that no bad faith can be taken against it,
even assuming that NAPOCOR may have had prior knowledge about the claims of the Ibrahims
and Maruhoms upon the subject land and the TRO issued in Civil Case No. 967-93.

Either way, NAPOCOR cannot be made liable to the Ibrahims and Maruhoms: First. If
Mangondato is the real owner of the subject land, then the obligation by NAPOCOR to pay for
the rental fees and expropriation indemnity due the subject land is already deemed extinguished
by thelatter’s previous payment under the final judgment in Civil Case No. 605-92 and Civil Case
No. 610-92. This would be a simple case of an obligation being extinguished through payment by
the debtor to its creditor.63 Under this scenario, the Ibrahims and Maruhoms would not even be
entitled to receive anything from anyone for the subject land. Hence, NAPOCOR cannot be held
liable to the Ibrahims and Maruhoms.

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Second. the Court, however, can reach the same conclusion even if the Ibrahims and
Maruhoms turn out to be the real owners of the subject land. Should the Ibrahims and Maruhoms
turn out to be the real owners of the subject land, NAPOCOR’s previous payment to Mangondato
pursuant to Civil Case No. 605-92 and Civil Case No. 610-92—given the absence of bad faith on
NAPOCOR’s part as previously discussed—may nonetheless be considered as akin to a payment
made in “good faith” to a person in “possession of credit” per Article 1242 of the Civil Code that,
just the same, extinguishes its obligation to pay for the rental fees and expropriation indemnity
due for the subject land.

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, NAPOCOR’s 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.

LEONARDO BOGNOT vs. RRI LENDING CORPORATION, REPRESENTED BY ITS


GENERAL MANAGER, DARIO J. BERNARDEZ
G.R. No. 180144, September 24, 2014, J. Brion

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.

Novation: In order to give novation legal effect, the creditor should consent to the
substitution of a new debtor. Novation must be clearly and unequivocally shown, and cannot be
presumed.

Facts:

RRI Lending Corporation is an entity engaged in the business of lending money to its
borrowers within Metro Manila. Petitioner and his younger brother, Rolando A. Bognot (Bognot
siblings), applied for and obtained a loan of P500,000.00 from the respondent, payable on
November 30, 1996. The loan was evidenced by a promissory note and was secured by a post dated
check dated November 30, 1996. Evidence on record shows that the petitioner renewed the loan
several times on a monthly basis. He paid a renewal fee of P54,600.00 for each renewal, issued a
new post-dated check as security, and executed and/or renewed the promissory note previously
issued. The respondent on the other hand, cancelled and returned to the petitioner the post-
dated checks issued prior to their renewal.

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Sometime in March 1997, the petitioner applied for another loan renewal. He again
executed as principal and signed Promissory Note payable on April 1, 1997; his co-maker was again
Rolando. Subsequently, the loan was again renewed on a monthly basis until June 30, 1997. The
petitioner purportedly paid the renewal fees and issued a post-dated check dated June 30, 1997 as
security. As had been done in the past, the respondent superimposed the date “June 30, 1997” on
the upper right portion of Promissory Note No. 97-035 to make it appear that it would mature on
the said date.

Several days before the loan’s maturity, Rolando’s wife, Julieta Bognot (Mrs. Bognot), went
to the respondent’s office and applied for another renewal of the loan. She issued in favor of the
respondent a Promissory Note and International Bank Exchange (IBE) Check No. 00012522 in the
amount of P54,600.00 as renewal fee. On the excuse that she needs to bring home the loan
documents for the Bognot siblings’ signatures and replacement, Mrs. Bognot asked the
respondent’s clerk to release to her the promissory note. Mrs. Bognot, however, never returned
these documents nor issued a new post-dated check. Consequently, the respondent sent the
petitioner follow-up letters demanding payment of the loan, plus interest and penalty
charges. These demands went unheeded.

The respondent filed a complaint for sum of money before the RTC against the Bognot
siblings. The respondent mainly alleged that the loan renewal payable on June 30, 1997 which the
Bognot siblings applied for remained unpaid; that before June 30, 1997, Mrs. Bognot applied for
another loan extension and issued IBE Check No. 00012522 as payment for the renewal fee; that
Mrs. Bognot convinced the respondent’s clerk to release to her the promissory note and the other
loan documents; that since Mrs. Bognot never issued any replacement check, no loan extension
took place and the loan, originally payable on June 30, 1997, became due on this date; and despite
repeated demands, the Bognot siblings failed to pay their joint and solidary obligation. In his
Answer, the petitioner claimed that the complaint states no cause of action because the
respondent’s claim had been paid, waived, abandoned or otherwise extinguished. He denied being
a party to any loan application and/or renewal in May 1997.

The RTC ruled in the respondent’s favor and ordered the Bognot siblings to pay the
amount of the loan, plus interest and penalty charges. It considered the wordings of the
promissory note and found that the loan they contracted was joint and solidary. It also noted that
the petitioner signed the promissory note as a principal (and not merely as a guarantor), while
Rolando was the co-maker. On appeal, the CA affirmed the RTC’s findings. It found the
petitioner’s defense of payment untenable and unsupported by clear and convincing evidence. It
observed that the petitioner did not present any evidence showing that the check dated June 30,
1997 had, in fact, been encashed by the respondent and the proceeds applied to the loan, or any
official receipt evidencing the payment of the loan.

Issues:

1. Whether the CA committed a reversible error in holding the petitioner solidarily liable
with Rolando
2. Whether the petitioner is relieved from liability by reason of the material alteration in the
promissory note
3. Whether the parties’ obligation was extinguished by: (i) payment; and (ii) novation by
substitution of debtors.
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Ruling:

1. Yes. Under the promissory note, the Bognot Siblings defined the parameters of their
obligation as follows:“FOR VALUE RECEIVED, I/WE, jointly and severally…”. Although
the phrase “jointly and severally” in the promissory note clearly and unmistakably
provided for the solidary liability of the parties, we note and stress that the promissory
note is merely a photocopy of the original, which was never produced.

Under the best evidence rule, when the subject of inquiry is the contents of a document,
no evidence is admissible other than the original document itself except in the instances
mentioned in Section 3, Rule 130 of the Revised Rules of Court. Other than the promissory
note in question, the respondent has not presented any other evidence to support a
finding of solidary liability. As we earlier noted, both lower courts completely relied on the
note when they found the Bognot siblings solidarily liable. The Court concludes that the
obligation to pay is only joint

2. No. The petitioner raised as defense the alleged material alteration of Promissory Note. He
alleged that the respondent’s superimposition of the due date “June 30, 1997” on the
promissory note without his consent effectively relieved him of liability. The defense is
untenable. Although the respondent did not dispute the fact of alteration, he nevertheless
denied that the alteration was done without the petitioner’s consent. Even assuming that
the note had indeed been tampered without the petitioner’s consent, the latter cannot
totally avoid payment of his obligation to the respondent based on the contract of loan.
The Bognot Siblings had applied for and were granted a loan of P500,000.00 by the
respondent. In fact, the petitioner himself admitted his loan application. This loan was
renewed several times by the petitioner, after paying the renewal. Although the petitioner
had insisted that the loan had been extinguished, no other evidence was presented to
prove payment other than the cancelled and returned post-dated check. Petitioner cannot
validly deny his obligation and liability to the respondent solely on the ground that the
Promissory Note in question was tampered.

3. No to both. The petitioner failed to satisfactorily prove that his obligation had already
been extinguished by payment. 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.

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. No cash payment was proven by the petitioner. The
cancellation and return of the check dated April 1, 1997, simply established his renewal of
the loan – not the fact of payment.

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With respect to novation, petitioner contends that novation took place through a
substitution of debtors when Mrs. Bognot renewed the loan and assumed the debt. He
alleged that Mrs. Bognot assumed the obligation by paying the renewal fees and charges,
and by executing a new promissory note. He further claimed that she issued her own
check to cover the renewal fees, which fact, according to the petitioner, was done with the
respondent’s consent.

Contrary to the petitioner’s 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 post dated 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. In order to give novation legal effect, the creditor should
consent to the substitution of a new debtor. Novation must be clearly and
unequivocally shown, and cannot be presumed.
Since the petitioner failed to show that the respondent assented to the substitution, no
valid novation took place with the effect of releasing the petitioner from his obligation to
the respondent.

Moreover, in the absence of showing that Mrs. Bognot and the respondent had agreed to
release the petitioner, the respondent can still enforce the payment of the obligation
against the original debtor. Mere acquiescence to the renewal of the loan, when there is
clearly no agreement to release the petitioner from his responsibility, does not constitute
novation.

ELIZABETH DEL CARMEN vs. SPOUSES RESTITUTO SABORDO and MIMA MAHILUM-
SABORDO
G.R. No. 181723, August 11, 2014, J. Peralta

It is settled that compliance with the requisites of a valid consignation is mandatory. Failure
to comply strictly with any of the requisites will render the consignation void. One of these
requisites is a valid prior tender of payment. In the instant case, the SC finds no cogent reason to
depart from the findings of the CA and the RTC that Del Carmen and her co-heirs failed to make a
prior valid tender of payment to Sabordo.

Facts:

Sometime in 1961, the Suico spouses, along with several business partners, entered into a
business venture by establishing a rice and com mill. As part of their capital, they obtained a loan
from DBP, and to secure the said loan, four parcels of land owned by the Suico spouses and
another lot owned by their business partner, Juliana Del Rosario, were mortgaged.

Subsequently, the Suico spouses and their business partners failed to pay their loan
obligations forcing DBP to foreclose the mortgage. After the Suico spouses and their partners
failed to redeem the foreclosed properties, DBP consolidated its ownership over the same.

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Nonetheless, DBP later allowed the Suico spouses and Flores spouses, as substitutes for Juliana
Del Rosario, to repurchase the subject lots by way of a conditional sale for the sum of P240,571.00.

The Suico and Flores spouses were able to pay the downpayment and the first monthly
amortization, but no monthly installments were made thereafter. Threatened with the
cancellation of the conditional sale, the Suico and Flores spouses sold their rights over the said
properties to herein respondents Sabordo, subject to the condition that the latter shall pay the
balance of the sale price.

On September 3, 1974, Sabordo and the Suico and Flores spouses executed a supplemental
agreement whereby they affirmed that what was actually sold to Sabordo were Lots 512 and 513,
while Lots 506 and 514 were given to them as usufructuaries. DBP approved the sale of rights of
the Suico and Flores spouses in favor of Sabordo. Subsequently, Sabordo were able to repurchase
the foreclosed properties of the Suico and Flores spouses.

On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then Court
of First Instance of Negros Occidental an original action for declaratory relief with damages and
prayer for a writ of preliminary injunction raising the issue of whether or not the Suico spouses
have the right to recover from Sabordo Lots 506 and 514.

The RTC ruled in favor of the Suico spouses directing that the latter have until August 31,
1987 within which to redeem or buy back from respondents Lots 506 and 514. On appeal, the CA
modified the RTC decision by giving the Suico spouses until October 31, 1990 within which to
exercise their option to purchase or redeem the subject lots from respondents by paying the sum
of P127,500.00.

The CA granted the Suico spouses an additional period of 90 days from notice within
which to exercise their option to purchase or redeem the disputed lots. In the meantime, Toribio
Suico (Toribio) died leaving his widow, Eufrocina, and several others, including herein Del
Carmen, as legal heirs. Later, they discovered that Sabordo mortgaged Lots 506 and 514 with
Republic Planters Bank (RPB) as security for a loan which, subsequently, became delinquent.

Thereafter, claiming that they are ready with the payment of P127,500.00, but alleging that
they cannot determine as to whom such payment shall be made, Del Carmen and her co-heirs
filed a Complaint with the RTC seeking to compel herein Sabordo and RPB to interplead and
litigate between themselves their respective interests on the abovementioned sum of money.

The Complaint also prayed that Sabordo be directed to substitute Lots 506 and 514 with
other real estate properties as collateral for their outstanding obligation with RPB and that the
latter be ordered to accept the substitute collateral and release the mortgage on Lots 506 and 514.
Upon filing of their complaint, the heirs of Toribio deposited the amount of P127,500.00 with the
RTC.

The RTC rendered judgment, dismissing the complaint of Del Carmen and her co-heirs
for lack of merit. Del Carmen and her co-heirs filed an appeal with the CA contending that the
judicial deposit or consignation of the amount of P127,500.00 was valid and binding and produced
the effect of payment of the purchase price of the subject lots. In its assailed Decision, the CA
denied the above appeal for lack of merit and affirmed the disputed RTC Decision.
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Issue:

Whether or not the consignation which Del Carmen and her co-heirs made was a judicial
deposit based on a final judgment and, as such, does not require compliance with the
requirements of Articles 1256 and 1257 of the Civil Code

Ruling:

No, the petition lacks merit.

Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment, and it generally requires a
prior tender of payment. It should be distinguished from tender of payment which is the
manifestation by the debtor to the creditor of his desire to comply with his obligation, with the
offer of immediate performance.

Tender is the antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate consequences which the debtor
desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is
necessarily judicial, and the priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation. Tender and consignation, where validly made,
produces the effect of payment and extinguishes the obligation.

In the instant case, Del Carmen and her co-heirs, upon making the deposit with the RTC,
did not ask the trial court that Sabordo be notified to receive the amount that they have
deposited. In fact, there was no tender of payment. Instead, what Del Carmen and her co-heirs
prayed for is that Sabordo and RPB be directed to interplead with one another to determine their
alleged respective rights over the consigned amount; that Sabordo be likewise directed to
substitute the subject lots with other real properties as collateral for their loan with RPB and that
RPB be also directed to accept the substitute real properties as collateral for the said loan.
Nonetheless, the RTC correctly ruled that interpleader is not the proper remedy because RPB did
not make any claim whatsoever over the amount consigned by Del Carmen and her co-heirs with
the court.

Tender of payment involves a positive and unconditional act by the obligor of offering
legal tender currency as payment to the obligee for the former’s obligation and demanding that
the latter accept the same. In the instant case, the Court finds no cogent reason to depart from
the findings of the CA and the RTC that Del Carmen and her co-heirs failed to make a prior valid
tender of payment to Sabordo.

It is settled that compliance with the requisites of a valid consignation is mandatory.


Failure to comply strictly with any of the requisites will render the consignation void. One of
these requisites is a valid prior tender of payment.

Under Article 1256, the only instances where prior tender of payment is excused are: (1)
when the creditor is absent or unknown, or does not appear at the place of payment; (2) when the
creditor is incapacitated to receive the payment at the time it is due; (3) when, without just cause,
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the creditor refuses to give a receipt; (4) when two or more persons claim the same right to
collect; and (5) when the title of the obligation has been lost. None of these instances are present
in the instant case. Hence, the fact that the subject lots are in danger of being foreclosed does not
excuse petitioner and her co-heirs from tendering payment to respondents, as directed by the
court.

NETLINK COMPUTER INCORPORATED vs. ERIC DELMO


G.R No. 160827, June 18, 2014, J. Bersamin

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.

Facts:

On November 3, 1991, Netlink Computer, Inc. Products and Services hired Eric S. Delmo as
account manager. 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 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 company’s 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. This incident prompted Delmo to
file a complaint for illegal dismissal.

Netlink pointed out that Delmo had become very 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.
The CA ruled in favor of Delmo. Netlink on the other hand appealed but only as to the judgment
stating that commission to be paid is to be in dollars.

Issue:

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

Ruling:

Yes, it should.

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.

In the case at bar, here was no written contract between Netlink and Delmo stipulating
that the latter’s commissions would be paid in US dollars. The absence of the contractual
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stipulation notwithstanding, Netlink was still liable to pay Delmo in US dollars because the
practice of paying its sales agents in US dollars for their US dollar-denominated sales had become
a company policy. This was impliedly admitted by Netlink when it did not refute the allegation
that the commissions earned by Delmo and its other sales agents had been paid in US dollars.
Instead of denying the allegation, Netlink only sought a declaration that the US dollar
commissions be paid using the exchange rate at the time of sale.

LOSS OF THE THING DUE

COMGLASCO CORPORATION/AGUILA GLASS vs. SANTOS CAR CHECK CENTER


CORPORATION
G.R. No. 202989, March 25, 2015, J. Reyes

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.

Facts:

Santos Car Check Center Corporation (Santos), owner of a showroom located at 75


Delgado Street, in Iloilo City, leased out the said space to 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. Subsequently, 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. Hence, 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, 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. Thereafter, the trial court rendered its judgment in favor of
Santos ordering Comglasco to comply with its obligation under the Contract of Lease and to pay
Santos attorney’s fees, expenses and damages.

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Santos moved for execution pending Comglasco’s appeal, which the trial court
granted. On appeal, CA affirmed the judgement of the RTC but reduced the award of attorney’s
fees to P100,000.00 and deleted the award of litigation expenses and exemplary damages. Hence,
this petition.

Issue:

Whether Comglasco was entitled to pre-terminate the contract

Ruling:

The petition is denied.

Comglasco maintains that the RTC was wrong to rule that its answer to Santos’ complaint
tendered no issue, or admitted the material allegations therein; that the court should have heard
it out on the reason it invoked to justify its action to pre-terminate the parties’ lease; that
therefore a summary judgment would have been the proper recourse, after a hearing.

In Philippine National Construction Corporation v. CA (PNCC), which also involves the


termination of a lease of property by the lessee “due to financial, as well as technical,
difficulties,” the Court ruled:

The obligation to pay rentals or deliver the thing in a contract of lease falls within
the prestation “to give”; hence, it is not covered within the scope of Article
1266. At any rate, the unforeseen event and causes mentioned by petitioner are
not the legal or physical impossibilities contemplated in said article. Besides,
petitioner failed to state specifically the circumstances brought about by “the
abrupt change in the political climate in the country” except the alleged prevailing
uncertainties in government policies on infrastructure projects.

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, which provides:

Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or
in part.

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.

In this case, Comglasco wants this Court to believe that the abrupt change in the political
climate of the country after the EDSA Revolution and its poor financial condition “rendered the

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performance of the lease contract impractical and inimical to the corporate survival of the
petitioner.”

This Court cannot subscribe to this


argument. Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate
its lease with Santos, Comglasco invokes the 1997 Asian currency crisis as causing it much
difficulty in meeting its obligations. But in PNCC, 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 Comglasco
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 Comglasco had known what business risks it assumed when it opened a new shop in
Iloilo City.

This situation is no different from the Court’s 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 Aquino’s 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.”

NOVATION

ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS vs. DAN T. LIM, doing
business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES
G.R. No. 206806, June 25, 2014, J. Leonen

Arco Pulp and Paper had an alternative obligation whereby it would either pay Dan T. Lim
the value of the raw materials or deliver to him their finished products of equivalent value. When
petitioner Arco Pulp and Paper tendered a check to Lim in partial payment for the scrap papers, they
exercised their option to pay the price. This choice was also shown by the terms of the memorandum
of agreement which declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s
finished products would be to a third person, thereby extinguishing the option to deliver the finished
products of equivalent value to respondent. The trial court erroneously ruled that the execution of
the memorandum of agreement constituted a novation of the contract between the parties.
Novation extinguishes an obligation between two parties when there is a substitution of objects or
debtors or when there is subrogation of the creditor. The consent of the creditor must be secured for
the novation to be valid. In this case, Lim was not privy to the memorandum of agreement, thus, his
conformity to the contract need not be secured. If the memorandum of agreement was intended to

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novate the original agreement between the parties, respondent must have first agreed to the
substitution of Eric Sy as his new debtor.

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. Lim delivered scrap papers worth 7,220,968.31 to Arco Pulp and Paper
Company, Inc. 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 as partial payment, with the assurance that the check would not
bounce. When he deposited the check, 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.

Despite repeated demands by Lim, Arco Pulp and Paper did not pay. Lim filed a
complaint for collection of sum of money with prayer for attachment with the RTC. The trial
court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint, holding
that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement,
novation took place, which extinguished Arco Pulp and Paper’s obligation to. Lim. The CA
reversed said decision.

Issue:

Whether or not the obligation between the parties was extinguished by novation

Ruling:

No. The obligation between the parties was an alternative obligation.

The rule on alternative obligations is governed by Article 1199 of the Civil Code, which
states:

Article 1199. A person alternatively bound by different prestations shall completely


perform one of them. The creditor cannot be compelled to receive part of one and
part of the other undertaking.

"In an alternative obligation, there is more than one object, and the fulfillment of one is
sufficient, determined by the choice of the debtor who generally has the right of election." The
right of election is extinguished when the party who may exercise that option categorically and
unequivocally makes his or her choice known.

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The choice of the debtor must also be communicated to the creditor who must receive
notice of it since: The object of this notice is to give the creditor . . . opportunity to express his
consent, or to impugn the election made by the debtor, and only after said notice shall the
election take legal effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.

The appellate court correctly identified the obligation between the parties as an
alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw materials
from respondent, would either pay him the price of the raw materials or, in the alternative,
deliver to him the finished products of equivalent value.

When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment
for the scrap papers, they exercised their option to pay the price. Respondent’s receipt of the
check and his subsequent act of depositing it constituted his notice of petitioner Arco Pulp and
Paper’s option to pay. This choice was also shown by the terms of the memorandum of
agreement, which was executed on the same day. The memorandum declared in clear terms that
the delivery of petitioner Arco Pulp and Paper’s finished products would be to a third person,
thereby extinguishing the option to deliver the finished products of equivalent value to
respondent.

The trial court erroneously ruled that the execution of the memorandum of agreement
constituted a novation of the contract between the parties. When petitioner Arco Pulp and Paper
opted instead to deliver the finished products to a third person, it did not novate the original
obligation between the parties.

The rules on novation are outlined in the Civil Code, thus:

Article 1291. Obligations may be modified by:

1. Changing their object or principal conditions;


2. Substituting the person of the debtor;
3. Subrogating a third person in the rights of the creditor.

Article 1292. In order that an obligation may be extinguished by another which


substitute the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each other.
(1204)

Article 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in Articles 1236 and 1237.

Novation extinguishes an obligation between two parties when there is a substitution of


objects or debtors or when there is subrogation of the creditor. It occurs only when the new
contract declares so "in unequivocal terms" or that "the old and the new obligations be on every
point incompatible with each other."

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In general, there are two modes of substituting the person of the debtor: (1) expromision
and (2) delegacion. In expromision, the initiative for the change does not come from — and may
even be made without the knowledge of — the debtor, since it consists of a third person’s
assumption of the obligation. As such, it logically requires the consent of the third person and the
creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to
the substitution and assumes the obligation; thus, the consent of these three persons are
necessary. Both modes of substitution by the debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is


terminated by the creation of a new one that takes the place of the former. It is merely
modificatory when the old obligation subsists to the extent that it remains compatible with the
amendatory agreement. Whether extinctive or modificatory, novation is made either by changing
the object or the principal conditions, referred to as objective or real novation; or by substituting
the person of the debtor or subrogating a third person to the rights of the creditor, an act known
as subjective or personal novation. For novation to take place, the following requisites must
concur:

1. There must be a previous valid obligation.


2. The parties concerned must agree to a new contract.
3. The old contract must be extinguished.
4. There must be a valid new contract.

The consent of the creditor must also be secured for the novation to be valid: Novation
must be expressly consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with which to deduce a clear
and unequivocal intent by the parties to novate the old agreement.

In this case, respondent was not privy to the memorandum of agreement, thus, his
conformity to the contract need not be secured. If the memorandum of agreement was intended
to novate the original agreement between the parties, respondent must have first agreed to the
substitution of Eric Sy as his new debtor. The memorandum of agreement must also state in clear
and unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and
Paper to respondent. Neither of these circumstances is present in this case.

Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also
conflicts with their alleged intent to pass on their obligation to Eric Sy. When respondent sent his
letter of demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it showed that the former
neither acknowledged nor consented to the latter as his new debtor. These acts, when taken
together, clearly show that novation did not take place. Since there was no novation, petitioner
Arco Pulp and Paper’s obligation to respondent remains valid and existing. Petitioner Arco Pulp
and Paper, therefore, must still pay respondent the full amount of P7,220,968.31.

NOVATION BY SUBROGATION

FORT BONIFACIO DEVELOPMENT CORPORATION vs. VALENTIN L. FONG.


G.R. No. 209370, March 25, 2015, J. Perlas-Bernabe

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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 nonnegotiable chose in action acquires no greater
right than what was possessed by his assignor and simply stands into the shoes of the latter.55
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

Facts:

FBDC, a domestic corporation engaged in the real estate development business, entered
into a Trade Contract with MS Maxco Company, Inc. (MS Maxco), then operating under the name
“L&M Maxco, Specialist Engineering Construction,” for the execution of the structural and partial
architectural works of one of its condominium projects in Taguig City, the Bonifacio Ridge
Condominium (Project).

Under the Trade Contract, FBDC had the option to hire other contractors to rectify any
errors committed by MS Maxco by reason of its negligence, act, omission, or default, as well as to
deduct or set-off any amount from the contract price in such cases. Hence, when MS Maxco
incurred delays and failed to comply with the terms of the Trade Contract, FBDC took over and
hired other contractors to complete the unfinished construction. Unfortunately, corrective work
had to likewise be done on the numerous defects and irregularities caused by MS Maxco, which
cost P11,567,779.12. The Trade Contract likewise provided that MS Maxco is prohibited from
assigning or transferring any of its rights, obligations, or liabilities under the said Contract
without the written consent of FBDC.

Sometime in April 2005, FBDC received a letter from the counsel of Fong informing it that
MS Maxco had already assigned its receivables from FBDC to him (Fong) by virtue of a notarized
Deed of Assignment. Said Deed of Assignment includes the payment of the FDC’s obligation to
the latter, which amount was to be taken from the retention money with FBDC.

Despite Fong’s repeated requests, FBDC refused to deliver to Fong the amount assigned by
MS Maxco. This prompted Fong, doing business under the name “VF Industrial Sales” to file the
instant before the RTC, against MS Maxco or FBDC. The RTC found FBDC liable to pay Fong. On
appeal, the CA denied FBDC’s appeal and affirmed the RTC ruling. FBDC’s motion for
reconsideration was denied in a Resolution, hence, this petition.

Issue:

Whether or not FBDC was bound by the Deed of Assignment between MS Maxco and
Fong, and even assuming that it was, whether or not FBDC was liable to pay Fong the amount
representing a portion of MS Maxco’s retention money.

Ruling:

Case law states that when a person assigns his credit to another person, the latter is
deemed subrogated to the rights as well as to the obligations of the former. By virtue of the Deed
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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, the Client, in view of Clause 19.0 on “Assignment and Sub-letting” of the
Trade Contract between FBDC and MS Maxco which explicitly requires the written consent of
the Client [FBDC], assign or transfer any of his rights, obligations or liabilities in sub-letting any
portion of the Works and such consent, if given, shall not relieve the Trade Contractor from any
liability or obligation under this Contract.

Fong, as mere assignee of MS Maxco’s rights under the Trade Contract it had previously
entered with FBDC, i.e., the right to recover any credit owing to any unutilized retention money,
is equally bound by the foregoing provision and hence, cannot validly enforce the same without
FBDC’s consent.

Without any proof showing that FBDC had consented to the assignment, Fong cannot
validly demand from FBDC the delivery of the sum of P1,577,115.90 that was supposedly assigned
to him by MS Maxco as a portion of its retention money with FBDC. The practical efficacy of the
assignment, although valid between Fong and MS Maxco, remains contingent on FBDC’s consent.
Without the happening of said condition, only MS Maxco, and not Fong, can collect on the credit.
Note, however, that this finding does not preclude any recourse that Fong may take against MS
Maxco. After all, an assignment of credit for a consideration and covering a demandable sum of
money is considered as a sale of personal property.

COMPENSATION

FIRST UNITED CONSTRUCTORS CORPORATION AND BLUE STAR CONSTRUCTION


CORPORATION vs. BAYANIHAN AUTOMOTIVE CORPORATION
G.R. No. 164985. January 15, 2014
J. Bersamin

Recoupment is allowed when a part of a claim upon which one is sued by means of a legal or
equitable right resulting from a counterclaim arises out of the same transaction. Even if there is a
series of transaction, such cannot be considered as one and the same transaction for the purpose of
recoupment. In a case where there is an earlier purchase of the six dump trucks and a latter
purchase of the Hino Prime Mover and the Isuzu Transit Mixer, and as such constitutes a series of
transaction, these transactions cannot be considered as the same transactions for purposes of
recoupment. A series of transaction is different from one and the same transaction.

Legal compensation, on the other hand, applies even if the claims and counterclaims do not
stem from the same transactions. The important factor to consider in legal compensation is that the
parties must be creditors and debtors of each other. Since petitioners spent for the repairs and spare
parts of the alleged defective dump truck, they become the creditor of the respondent as well as their

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debtor since the former has not paid its obligation to the latter. Thus, the requisites of legal
compensation are met.

Facts:

FUCC ordered from the respondent one unit of Hino Prime Mover that the respondent delivered
on the same date it was ordered. Thereafter, 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.

Due to the nonpayment of the obligation, the respondents commenced the present action. In
their answer, the petitioners averred that they had stopped the payment on the two checks
because of the respondent’s 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. 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 one 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.

The RTC ruled in favor of the respondent. The CA affirmed the RTC decision. Hence, this
petition.

Issue:

1. Whether the petitioners validly exercised the right of recoupment through the withholding
of payment of the unpaid balance of the purchase price of the Hino Prime Mover and the
Isuzu Transit Mixer
2. Whether the costs of the repairs and spare parts for the alleged defective dump truck could
be offset for the petitioners’ obligations to the respondent

Ruling:

Petitioners could not validly resort to recoupment against respondent

Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon which one is
sued by means of a legal or equitable right resulting from a counterclaim arising out of the same
transaction. It is the setting up of a demand arising from the same transaction as the plaintiff’s
claim, to abate or reduce that claim.

The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of the Civil Code,
viz:
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Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:

(1) Accept or keep the goods and set up against the seller, the breach of warranty
by way of recoupment in diminution or extinction of the price;

xxxx

When the buyer has claimed and been granted a remedy in anyone of these ways, no other
remedy can thereafter be granted, without prejudice to the provisions of the second
paragraph of article 1191. (Emphasis supplied)

xxxx

It was improper for petitioners to set up their claim for repair expenses and other spare
parts of the dump truck against their remaining balance on the price of the prime mover and
the transit mixer they owed to respondent. Recoupment must arise out of the contract or
transaction upon which the plaintiff’s claim is founded. To be entitled to recoupment,
therefore, the claim must arise from the same transaction, i.e., the purchase of the prime
mover and the transit mixer and not to a previous contract involving the purchase of the
dump truck. That there was a series of purchases made by petitioners could not be considered
as a single transaction, for the records show that the earlier purchase of the six dump trucks
was a separate and distinct transaction from the subsequent purchase of the Hino Prime
Mover and the Isuzu Transit Mixer. Consequently, the breakdown of one of the dump trucks
did not grant to petitioners the right to stop and withhold payment of their remaining balance
on the last two purchases.

Legal compensation was permissible

Legal compensation takes place when the requirements set forth in Article 1278 and Article 1279 of
the Civil Code are present, to wit:

Article 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.”

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consists in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

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Considering that preponderant evidence showing that petitioners had spent for the repairs and
spare parts of the alleged defective dump truck within the warranty period of three months
supported the finding of the two lower courts, the Court accepts their finding. Verily, factual
findings of the trial court, when affirmed by the CA, are conclusive on the Court when supported
by the evidence on record.

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 plaintiff’s 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.

UNION BANK OF THE PHILIPPINES vs. DEVELOPMENT BANK OF THE PHILIPPINES


G.R. No. 191555. January 20, 2014
J. Perlas-Bernabe

For legal compensation to apply, all the requisites under Article 1279 of the New Civil Code
must be present. When all the requisites are present, legal compensation applies by operation of law.
Thus, absent any of the requisites enumerated in Article 1279, legal compensation will not take
effect. Hence, when a party’s assumed obligation to another becomes due and demandable upon the
happening of condition, unless the condition happens, the debts are not due and demandable. As
such, the requisite that the debts or obligations should be due and demandable for legal
compensation to apply is not met.

Facts:

Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s predecessor-in-
interest, Bancom Development Corporation (Bancom), and to DBP.

DBP entered into a separate agreement with Bancom (Assumption Agreement) whereby the
former confirmed its assumption of FI’s obligations to Bancom undertook to remit up to 30% of
any and all rentals due from FI to Bancom (subject rentals) which would serve as payment
of the assumed obligations, to be paid in monthly installments.

Meanwhile, FI assigned its leasehold rights under the Lease Agreement to Foodmasters
Worldwide, Inc. (FW). Bancom conveyed all its receivables, including, among others, DBP’s
assumed obligations, to Union Bank.

Claiming that the subject rentals have not been duly remitted despite its repeated demands,
Union Bank filed a collection case against DBP before the RTC. In opposition, DBP countered,
among others, that the obligations it assumed were payable only out of the rental payments made
by FI. Thus, since FI had yet to pay the same, DBP’s obligation to Union Bank had not arisen. In
addition, DBP sought to implead FW as third party-defendant in its capacity as FI’s assignee and,
thus, should be held liable to Union Bank.

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The RTC ruled in favor of Union Bank. DBP then elevated the matter to the CA. The CA set aside
the RTC ruling. It rejected Union Bank’s claim that DBP has the direct obligation to remit the
subject rentals not only from FW’s rental payments but also out of its own resources since said
claim contravened the “plain meaning” of the Assumption Agreement which specifies that the
payment of the assumed obligations shall be made “out of the portion of the lease rentals
or part of the proceeds of the sale of those properties of [FI] conveyed to DBP.” The
monthly installments in satisfaction of the assumed obligations would still have to be first
sourced from said lease rentals as stipulated in the assumption agreement. The CA ruled
that DBP did not default in its obligations to remit the subject rentals to Union Bank precisely
because it had yet to receive the rental payments of FW.

Both DBP and Union Bank elevated the matter to the Supreme Court via petition for review on
certiorari. The SC upheld the CA’s finding that while DBP directly assumed FI’s obligations to
Union Bank, DBP was only obliged to remit to the latter 30% of the lease rentals collected from
FW, from which any deficiency was to be settled by DBP. The Court resolution became final and
executory. Union Bank, then, filed a motion for execution before the RTC. A writ of execution and
garnishment was issued. DBP filed a motion for reconsideration. The motion was denied, thus,
prompting DBP to file a petition for certiorari. The CA dismissed the petition. DBP elevated the
case to the SC. The SC set aside the CA ruling. The court upheld the CA’s finding that while DBP
directly assumed FI’s obligations to Union Bank, DBP was only obliged to remit to the latter 30%
of the lease rentals collected from FW, from which any deficiency was to be settled by DBP.

Union Bank filed a Manifestation and Motion to Affirm Legal Compensation praying that the RTC
apply legal compensation between itself and DBP in order to offset the return of the funds it
previously received from DBP. Union Bank anchored its motion on two grounds which were
allegedly not in existence prior to or during trial, namely: (a) DBP’s assumed obligations became
due and demandable; and (b) considering that FWI became non-operational and non-existent,
DBP became primarily liable to the balance of its assumed obligation, which as of Union Bank’s
computation after its claimed set-off. The CA dismissed the petition. Hence, this petition.

Issue:

Whether Union Bank’s motion to affirm legal compensation must be granted

Ruling:

Compensation is defined as a mode of extinguishing obligations whereby two persons in their


capacity as principals are mutual debtors and creditors of each other with respect to equally
liquidated and demandable obligations to which no retention or controversy has been timely
commenced and communicated by third parties. The requisites therefor are provided under
Article 1279 of the Civil Code which reads as follows:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of

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the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (Emphases and underscoring
supplied)

The rule on legal compensation is stated in Article 1290 of the Civil Code which provides
that “[w]hen all the requisites mentioned in Article 1279 are present, compensation takes
effect by operation of law, and extinguishes both debts to the concurrent amount, even though
the creditors and debtors are not aware of the compensation.”

In this case, Union Bank filed a motion to seek affirmation that legal compensation had taken
place in order to effectively offset (a) its own obligation to return the funds it previously received
from DBP as directed under the Writ of Execution with (b) DBP’s assumed obligations under the
Assumption Agreement. However, legal compensation could not have taken place between these
debts for the apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code are
not present. Since DBP’s assumed obligations to Union Bank for remittance of the lease
payments are “contingent on the prior payment thereof by [FW] to DBP,” it cannot be said
that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in the same ruling, the
Court observed that any deficiency that DBP had to make up for the full satisfaction of the
assumed obligations “cannot be determined until after the satisfaction of Foodmasters’
obligation to DBP.” In this regard, it cannot be concluded that the same debt had already been
liquidated, and thereby became demandable (requisite 4 of Article 1279 of the Civil Code).

CONTRACTS

GENERAL PROVISIONS
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK, INC., PETITIONERS, vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, RESPONDENTS
G.R. NO.185798. January 13, 2014
J. Perez

The 1997 Asian Financial Crisis cannot be said to be unforeseeable and beyond the control of
a business corporation, especially a corporation engaged in real estate enterprise. Such corporation
is considered a master in projections of commodities and currency movements and business risks. It
has the ability to foresee such situation. Thus, the 1997 Asian Financial Crisis is not an instance of
caso fortuito.

Facts:

Respoundents Spouses Conrado and Maria Victoria Ronquillo bought a condominium unit at
Central Park Tower for a pre-selling contract price. The respondents paid the full downpayment
and had been paying the monthly amortizations until 1998. They stopped paying said monthly
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amortization upon learning that construction works had stopped. Respondents demanded a full
refund of their payment with interest. The demand being left unheeded, the respondents were
constrained to file a Complaint for Refund and Damages before the Housing and Land Use
Regulatory Board (HLURB). They prayed for reimbursement/refund of their total amortization
payments, moral damages, attorney’s fees and other litigation expenses.

The HLURB issued an Order of Default against the petitioners for failing to file their Answer
within the reglementary period despite service of summons. Petitioner filed a motion to lift order
of default and attached their position paper attributing delay in the construction to the 1997
financial crisis. They also denied committing fraud or misrepresentation which could entitle the
respondents to an award of moral damages.

Consequently, the HLURB rendered a judgment against petitioners and ordering them to jointly
and severally pay the respondents, among others, the amount equal to their total amortizations
payments with 12% interest and P100,000 as moral damages.

Petitioners appealed to the HLURB but the same was denied. Thereafter, they filed a motion for
reconsideration but the same was also denied. A Notice of Appeal was then filed with the Office of
the President but it such was dismissed for lack of merit. Petitioners moved for reconsideration
but the same was denied. Hence, this petition.

Issues:

1. Whether the 1997 Asian Financial Crisis constitute as fortuitous event which will exempt
petitioners from the performance of their contractual obligations
2. Whether the award of moral damages is proper
Ruling:

Petition denied.

This petition did not present any justification for us to deviate from the rulings of the HLURB, the
Office of the President and the Court of Appeals.

Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under


Article 1191 of the New Civil Code which states:

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

The injured party may choose between the fulfillment and the rescission of the
obligation, with payment of damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible.

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
condominiums, which provides:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a


subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the
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owner or developer, desists from further payment due to the failure of the owner or
developer to develop the subdivision or condominium project according to the
approved plans and within the time limit for complying with the same. Such buyer
may, at his option, be reimbursed the total amount paid including
amortization interests but excluding delinquency interests, with interest
thereon at the legal rate. (Emphasis supplied).

Conformably with these provisions of law, respondents are entitled to rescind the contract and
demand reimbursement for the payments they had made to petitioners.

Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc.
v. Spouses Go promulgated on 17 August 2007, where the Court stated that the Asian financial
crisis is not an instance of caso fortuito. Bearing the same factual milieu as the instant case, G.R.
No. 165164 involves the same company, Fil-Estate, albeit about a different condominium property.
The company likewise reneged on its obligation to respondents therein by failing to develop the
condominium project despite substantial payment of the contract price. Fil-Estate advanced the
same argument that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of
the construction project. First off, the Court classified the issue as a question of fact which may
not be raised in a petition for review considering that there was no variance in the factual findings
of the HLURB, the Office of the President and the Court of Appeals. Second, the Court cited the
previous rulings of Asian Construction and Development Corporation v. Philippine Commercial
International Bank and Mondragon Leisure and Resorts Corporation v. Court of Appeals holding
that the 1997 Asian financial crisis did not constitute a valid justification to renege on obligations.
The Court expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable
and beyond the control of a business corporation. It is unfortunate that petitioner
apparently met with considerable difficulty e.g. increase cost of materials and labor,
even before the scheduled commencement of its real estate project as early as 1995.
However, a real estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements and
business risks. The fluctuating movement of the Philippine peso in the foreign
exchange market is an everyday occurrence, and fluctuations in currency exchange
rates happen everyday, thus, not an instance of caso fortuito.

The aforementioned decision becomes a precedent to future cases in which the facts are
substantially the same, as in this case. The principle of stare decisis, which means adherence to
judicial precedents, applies.

The court also sustains the award of moral damages. In order that moral damages may be
awarded in breach of contract cases, the defendant must have acted in bad faith, must be found
guilty of gross negligence amounting to bad faith, or must have acted in wanton disregard of
contractual obligations. The Arbiter found petitioners to have acted in bad faith when they
breached their contract, when they failed to address respondents’ grievances and when they
adamantly refused to refund respondents’ payment.

In fine, the court finds no reversible error on the merits in the impugned Court of Appeals’
Decision and Resolution.

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THE METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, vs. ANA GRACE
ROSALES AND YO YUK TO, RESPONDENTS
G.R. NO. 183204. January 13, 2014
J. Del Castillo

The Hold Out Clause on the Application and Agreement for Deposit Account may apply to
assert a lien on any balance of the account and apply all or any part thereof against any valid and
existing obligation or indebtedness arising from the law, contracts, quasi-contracts, delicts or quasi-
delicts, matured or unmatured, that any of or all the depositors may owe to the Bank. It does not
apply in instances wherein the case is still pending and no final judgment of conviction has been
rendered. In this latter instance, there is still no valid and existing obligation to speak of. Therefore,
the Hold Out Clause cannot be applied.

Thus, since petitioner failed to show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a criminal case was filed by petitioner
against respondent Rosales, this is not enough reason for petitioner to issue a “Hold Out” order as
the case is still pending and no final judgment of conviction has been rendered against respondent
Rosales.

Facts:

In 2000, respondents opened a Joint Peso Account with petitioner. In 2004, respondent Rosales
accompanied her client Liu Chiu Fang, a Taiwanese National applying for a retiree’s visa from the
Philippine Leisure and Retirement Authority (PLRA), to petitioner’s Escolta branch to open a
savings account, as required by PLRA. Since Liu Chiu Fang could only speak in Mandarin, Rosales
acted as an interpreter for her. Subsequently, respondents opened with petitioner a Joint Dollar
Accont.

In 2003, petitioner issued a ‘Hold Out’ order against respondents’ accounts. Petitioner, through its
Special Audit Department Head Antonio Ivan Aguirre, filed before the Office of the Prosecutor
(OCP) a criminal case for Estafa through False Pretenses, Misrepresentation, Deceit, and Use of
Falsified Documents against respondent Rosales. The OCP issued an order dismissing the
criminal case for lack of probable cause. Petitioner moved for reconsideration.

Meanwhile, the respondents filed before the RTC a Complaint for Breach of Obligation and
Contract with Damages against petitioner. They alleged that they attempted several times to
withdraw their deposits but were unable to because petitioner had placed their accounts under
‘Hold Out’ status. No explanation, however, was given by petitioner as to why it issued the ‘Hold
Out’ order. Thus, they prayed that the ‘Hold Out’ order be lifted and that they be allowed to
withdraw their deposits. Petitioner, on the other hand, alleged that the respondents have no
cause of action because it has a valid reason for issuing the ‘Hold Out’ order. It averred that due to
the fraudulent scheme of Rosales, it was compelled to reimburse Liu Chiu Fang and to file a
criminal case against Rosales.

While the civil case for breach of contract was being tried, the City Prosecutor of Manila issued a
resolution reversing the dismissal of the criminal complaint.

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The RTC rendered a decision finding the petitioner liable for damages for breach of contract. It
ruled that it is the duty of petitioner to release the deposit to respondents as the act of withdrawal
of a bank deposit is an act of demand by the creditor. It also stated that the recourse of the
petitioner should be against its negligent employees and not against the respondents. The CA
affirmed the decision with modification on the award of actual damages. The petitioner moved for
reconsideration but the same was denied; hence, this petition.

Issue:

Whether the petitioner breached its contract with the respondents

Ruling:

Petitioner claims that it did not breach its contract with respondents because it has a valid reason
for issuing the “Hold Out” order. Petitioner anchors its right to withhold respondents’ deposits
on the Application and Agreement for Deposit Account, which reads:

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with
the Bank, all monies, properties or securities of the Depositor now in or which may
hereafter come into the possession or under the control of the Bank, whether left with
the Bank for safekeeping or otherwise, or coming into the hands of the Bank in any way,
for so much thereof as will be sufficient to pay any or all obligations incurred by
Depositor under the Account or by reason of any other transactions between the same
parties now existing or hereafter contracted, to sell in any public or private sale any of
such properties or securities of Depositor, and to apply the proceeds to the payment of
any Depositor’s obligations heretofore mentioned.

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the
Depositors, assert a lien on any balance of the Account and apply all or any part
thereof against any indebtedness, matured or unmatured, that may then be owing to
the Bank by any or all of the Depositors. It is understood that if said indebtedness is
only owing from any of the Depositors, then this provision constitutes the consent by
all of the depositors to have the Account answer for the said indebtedness to the
extent of the equal share of the debtor in the amount credited to the Account.

Petitioner’s reliance on the “Hold Out” clause in the Application and Agreement for Deposit
Account is misplaced.

The “Hold Out” clause applies only if there is a valid and existing obligation arising from any of
the sources of obligation enumerated in Article 1157of the Civil Code, to wit: law, contracts, quasi-
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contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a
criminal case was filed by petitioner against respondent Rosales, this is not enough reason for
petitioner to issue a “Hold Out” order as the case is still pending and no final judgment of
conviction has been rendered against respondent Rosales. In fact, it is significant to note that at
the time petitioner issued the “Hold Out” order, the criminal complaint had not yet been
filed. Thus, considering that respondent Rosales is not liable under any of the five sources of
obligation, there was no legal basis for petitioner to issue the “Hold Out” order. Accordingly, we
agree with the findings of the RTC and the CA that the “Hold Out” clause does not apply in the
instant case.

In view of the foregoing, the court finds that petitioner is guilty of breach of contract when it
unjustifiably refused to release respondents’ deposit despite demand. Having breached its
contract with respondents, petitioner is liable for damages.

SM LAND, INC. vs. BASES CONVERSION AND DEVELOPMENT AUTHORITY AND ARNEL
PACIANO D. CASANOVA, ESQ., IN HIS OFFICIAL CAPACITY AS PRESIDENT AND CEO OF
BCDA
G.R. No. 203655, August 13, 2014, J. Velasco Jr.

BCDA and SMLI have agreed to subject SMLI’s Original Proposal to Competitive Challenge.
This agreement is the law between the contracting parties with which they are required to comply in
good faith. Verily, it is BCDA’s subsequent unilateral cancellation of this perfected contract which
this Court deemed to have been tainted with grave abuse of discretion. BCDA could not validly
renege on its obligation to subject the unsolicited proposal to a competitive challenge in view of this
perfected contract, and especially so after BCDA gave its assurance that it would respect the rights
that accrued in SMLI’s favor arising from the same.

Facts:

Pursuant to RA 7227 or the Bases Conversion and Development Act of 1992, the BCDA
opened for disposition and development its Bonifacio South Property. Jumping on the
opportunity, petitioner SM Land, Inc. submitted to the BCDA an unsolicited proposal for the
development of the lot through a public-private joint venture agreement.

Thereafter, the BCDA created a Joint Venture Selection Committee (JV-SC) following the
procedures prescribed NEDA JV Guidelines. The said committee recommended the acceptance of
the unsolicited proposal, which recommendation was favorably acted upon by the BCDA. The
BCDA communicated to petitioner its acceptance of the unsolicited proposal. Despite its
acceptance, however, the BCDA clarified that its act should not be construed to bind the agency
to enter into a joint venture agreement with the petitioner but only constitutes an authorization
granted to the JV-SC to conduct detailed negotiations with petitioner SMLI.

The JV-SC and SMLI embarked on a series of detailed negotiations, and on July 23, 2010,
SMLI submitted its final revised proposal with guaranteed secured payments amounting to a total
of PhP 25.9 billion. Afterwards, upon arriving at mutually acceptable terms and conditions, a
Certification of Successful Negotiations was issued by the BCDA and signed by both parties.
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Through the said Certification, the BCDA undertook to “subject SMLI’s Original Proposal to
Competitive Challenge” and committed itself to “commence the activities for the
solicitation for comparative proposals.”

Instead of proceeding with the Competitive Challenge, the BCDA sent a letter to SMLI,
stating that it will welcome any “voluntary and unconditional proposal” to improve the original
offer, with the assurance that the BCDA will nonetheless respect any right which may have
accrued in favor of SMLI. However, the BCDA sent a memorandum to the Office of the President
categorically recommending the termination of the Competitive Challenge.

Alarmed by this development, SMLI urged the BCDA to proceed with the Competitive
Challenge as agreed upon. However, the BCDA terminated the Competitive Challenge altogether.
Thereafter, the BCDA informed SMLI of the OP’s decision to subject the development of the
subject property to public bidding. The BCDA likewise caused the publication of an Invitation to
Bid. This impelled SMLI to file an Urgent Manifestation with Reiterative Motion to Resolve SMLI’s
Application for Temporary Restraining Order and Preliminary Injunction on the same day. The
Court issued the TRO prayed for by petitioner and enjoined respondent BCDA from proceeding
with the new selection process for the development of the property.

The Court dated August 13, 2014, which granted the petition for certiorari filed by SMLI
and directed BCDA and its president to, among other things, subject SMLI’s duly accepted
unsolicited proposal for the development of the Bonifacio South Property to a competitive
challenge. The gravamen of respondents’ motion is that BCDA and SMLI do not have a contract
that would bestow upon the latter the right to demand that its unsolicited proposal be subjected
to a competitive challenge. Assuming arguendo the existence of such an agreement between the
parties, respondents contend that the same may be terminated by reasons of public interest.

Issue:

Whether or not the BCDA gravely abused its discretion in unilaterally aborting the
Competitive Challenge, and in subjecting the development of the project to public bidding.

Ruling:

The Court is not convinced.

There exists a valid agreement between SMLI and BCDA. There is, between BCDA
and SMLI, a perfected contract––a source of rights and reciprocal obligations on the part of both
parties. Consequently, a breach thereof may give rise to a cause of action against the erring party.

The first requisite, consent, is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. In the case at bar, when SMLI
submitted the first Unsolicited Proposal to BCDA, the submission constituted an offer to
undertake the development of the subject property. BCDA then entered into negotiations with
SMLI until the BCDA finally accepted the terms of the final unsolicited proposal. Then, to
manifest their assent to the terms thereof and their respective obligations, both parties
respectively––affixed their signatures on the Certification of Successful Negotiations and had
it notarized on August 6, 2010. The cause of the agreement in the case at hand is their interest in
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the sale or acquisition and development of the property and their undertaking to perform their
respective obligations, among others, as reflected in the Certificate of Successful Negotiations and
in the TOR issued by BCDA. When the BCDA Board issued, on August 6, 2010, the Certification of
Successful Negotiations, it not only accepted SMLI’s Unsolicited Proposal and declared SMLI
eligible to enter into the proposed JV activity.

The elements of a valid contract being present, there thus exists between SMLI and
BCDA a perfected contract, embodied in the Certification of Successful Negotiations,
upon which certain rights and obligations spring forth, including the commencement of
activities for the solicitation for comparative proposals.

The NEDA JV Guidelines has the force and effect of law. Under the Administrative
Code of 1987, acts of the President providing for rules of a general or permanent character in
implementation or execution of constitutional or statutory powers shall be promulgated in
Executive Orders (EOs). In other words, it is through these orders that the President ensures that
laws are faithfully executed, by handing out instructions to subordinate executive officials and the
public, in the form of implementing rules and regulations, on how the law should be executed by
subordinate officials and complied with by the public.

For government contracts and procurement in the Philippines, then President Gloria
Macapagal-Arroyo issued EO 109. As its title indicates, EO 109 streamlined the rules and
procedures on the review and approval of all contracts of departments, bureaus, offices and
agencies of the government, including government-owned and controlled corporations and their
subsidiaries. The NEDA issued the JV Guidelines providing the procedures for the coagulation of
joint ventures between the government and a private entity. In this regard, attention must be
drawn to the well-established rule that administrative issuances, such as the NEDA JV
Guidelines, duly promulgated pursuant to the rule-making power granted by statute,
have the force and effect of law.

MALAYAN INSURANCE COMPANY, INC. vs. ST. FRANCIS SQUARE REALTY


CORPORATION / ST. FRANCIS SQUARE REALTY CORPORATION vs. MALAYAN
INSURANCE COMPANY, INC.
G.R. Nos. 198916-17 / G.R. No. 198920-21, January 11, 2016, J. Velasco, Jr.

FACTS:

Malayan, as Owner, and St. Francis, as Developer, executed a Joint Project Development
Agreement (JPDA) on 09 November 1995 for the construction, development and completion of
what was then known as "ASB Malayan Tower" ("the Project"), originally a 50-storey
office/residential condominium located at the ADB Avenue cor. Opal St., Ortigas Center, Pasig
City.

Malayan is the absolute and registered owner of the parcel of land (the Lot) in Pasig City
where the Project is located, as evidenced by Transfer Certificate of Title No. PT-78585.

ASB Realty Corporation [now, St. Francis] was not able to complete the Project. The
parties executed a Memorandum of Agreement (MOA) on 30 April 2002, under which Malayan
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undertook to complete the condominium project then known as "ASB Malayan Project" that later
became "Malayan Plaza Tower."

The Lot was the subject of a Contract to Sell between Malayan as seller and [St. Francis] as
buyer, but St. Francis was unable to completely perform its obligation under the Contract to Sell.
Under Sec. 2 of the MOA, Malayan "shall invest the amount necessary to complete the Project",
among other obligations.

The basis for the distribution and disposition of the condominium units is the parties’
respective capital investments in the Project as provided in Sec. 4 of the MOA. St. Francis
represented and warranted to Malayan that Malayan can complete the Project at a cost not
exceeding Php452,424,849.00 (the Remaining Construction Cost [RCC]) [Sec. 9 of MOA].

On 24 August 2006, St. Francis sent a letter to Malayan seeking to reconcile several items
amounting to P133.64 million.

Malayan made interest expense, amounting to P37,705,346.62 as of August 2006, as part of


its actual construction cost on that date.

Malayan has included some of the units under Schedule 4 of the MOA in the condotel
pool managed by Quantum Hotels and Resorts from which it derives income.
Despite the completion of the Project and the turnover of the units to St. Francis, Malayan, and
other buyers of units, the issue of actual cost of construction has not been resolved to the mutual
satisfaction of the parties.

On November 7, 2008, St. Francis filed with the CIAC a Complaint with Prayer for Interim
Relief against Malayan. St. Francis alleged that in August 2006, it secured a copy of a document
entitled "cost to complete" from Malayan which fixed the Actual Remaining Construction Cost
(ARCC) at P614,593,565.96. It disputed several cost items in the ARCC, amounting to
P145,487,496.42, and argued that their exclusion would entitle it to some reserved units.

ISSUES:

1) Whether interest expenses is part of the actual remaining construction cost.


2) Whether Malayan will be unjustly enriched if VAT is considered as part of the
ARCC.
3) Whether Malayan, as the owner of the project, is entitled to all of the civil fruits,
including the rents from the lease of the reserved units.
4) Whether the parties are entitled to attorney’s fees.

RULING:

1) Interest expenses is not part of the actual remaining construction cost.

Only costs directly related to construction costs should be included in the ARCC. Interest
expense should not be included in the computation of the ARCC because it is not an actual
expenditure necessary to complete the project, but a mere financial cost. If it were the intention
of the parties to include interest expense as part of their investments, or even the ARCC, then the
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MOA would have expressly indicated such intent in the provisions on investments of Malayan
and of ASB. Nowhere in the provisions of the MOA can it be gathered that interest expense is
included in the computation of the ARCC.

2) Malayan will not be unjustly enriched if VAT is considered as part of the ARCC. Unjust
enrichment claims do not lie simply because one party benefits from the efforts or obligations of
others, but instead it must be shown that a party was unjustly enriched in the sense that the term
unjustly could mean illegally or unlawfully. In offsetting its input VAT against output VAT,
Malayan is merely availing of the benefits of the tax credit provisions of the law, and it cannot be
said to have benefitted at the expense or to the damage of St. Francis.

3) Malayan is not entitled to all of the civil fruits including the rents from the lease of the
reserved units.

Malayan’s obligation to give the reserved units is unilateral because it was subject to 2
suspensive conditions, i.e., the completion of the project and the determination of the ARCC, the
happening of which are entirely dependent upon Malayan, without any equivalent prestation on
the part of St. Francis. Even if the obligation is unilateral, Malayan cannot appropriate all the civil
fruits received because it could be inferred from the nature and circumstances of the obligation
that the intention of the person constituting the same was different. Section 9(b) of the MOA
states that in the event that Malayan shall pay additional cost and expenses in excess of the RCC,
it shall be entitled to such net saleable areas indicated in Schedule 4 that corresponds to the
increase in the remaining construction costs, while St. Francis shall be entitled to such remaining
areas, if any.

4) The parties are not entitled to attorney’s fees. None of the exceptions under Article
2208 of the New Civil Code is present in this case. As held in ABS-CBN Broadcasting Corporation
v. Court of Appeals:

The general rule is that attorney’s fees cannot be recovered as part


of damages because of the policy that no premium should be placed
on the right to litigate. They are not to be awarded every time a
party wins a suit. The power of the court to award attorney’s fees
under Article 2208 demands factual, legal, and equitable
justification. Even when a claimant is compelled to litigate with
third persons or to incur expenses to protect his rights, still
attorney’s fees may not be awarded where no sufficient showing of
bad faith could be reflected in a party’s persistence in a case other
than an erroneous conviction of the righteousness of his cause.

VICENTE D. CABANTING and LALINE V. CABANTING


vs. BPI FAMILY SAVINGS BANK, INC.
G.R. No. 201927, February 17, 2016, J. Peralta

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Facts:

Petitioners bought on installment basis from Diamond Motors Corporation a Mitsubishi


Adventure and executed a Promissory Note (PN) with Chattel Mortgage in favor of Diamond
Motors. Diamond Motors assigned the said PN with Chattel Mortgage to BPI Family Savings
Bank, Inc. (BPI Family) by virtue of a Deed of Assignment.

Subsequently BPI Family filed a complaint against petitioners for Replevin and damages
praying that petitioners be ordered to pay the unpaid portion of the vehicle's purchase price,
accrued interest thereon, attorney's fees and liquidated damages, as stipulated on the PN with
Chattel Mortgage. BPI Family alleged that petitioners failed to pay three (3) consecutive
installments despite written demand.

In their Answer, petitioners alleged that they sold the subject vehicle to one Victor S.
Abalos, with the agreement that the latter shall assume the obligation to pay the remaining
monthly installments. Allegedly, the first few checks issued by Abalos was goo but the subsequent
checks were dishonored and not paid. Petitioners claim that BPI Family should have sued Abalos
instead of them.

Despite numerous opportunities given to petitioners to present evidence, they were never
able to present their witness. Hence, their right to present evidence was deemed waived.

The RTC later rendered judgment against petitioners, which was affirmed by the CA.

Issue:

Whether respondent bank may be held entitled to the possession of the motor vehicle
subject of the instant case for replevin, or the payment of its value and damages, without proof of
prior demand.

Ruling:

Respondent bank may be entitled to the possession of the motor vehicle, or the payment
of its value and damages, without proof of prior demand.

The PN with Chattel Mortgage is a contract of adhesion – one wherein a party imposes a
ready-made form of contract on the other. Contracts of adhesion are not entirely prohibited. The
one who adheres to the contract is free to reject it entirely; otherwise, he gives his consent.

In determining the validity or enforceability of a contract, the peculiar circumstances


obtaining in each case and the situation of the parties concerned will have to be considered.
Article 24 of the New Civil Code provides that "[in] all contractual, property or other relations,
when one of the parties 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.

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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.

Article 1169 (1) of the Civil Code allows a party to waive the need for notice and demand.
In this case the PN with Chattel Mortgage clearly stipulated that notice and demand are being
waived. Petitioners are bound by the said stipulation.

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) vs. HEIRS OF GAVINA


IJORDAN, ET AL.
G.R. No. 173140, January 11, 2016, C.J. Sereno

Facts:

On October 14, 1957, Julian Chizon (Julian) executed a Deed of Extrajudicial Settlement
and Sale (Deed) covering Lot No. 4539 (subject lot) situated in Ibo, Municipality of Opon (now
Lapu-Lapu City) in favor of the Civil Aeronautics Administration (CAA), the predecessor-in-
interest of petitioner Manila Cebu International Airport Authority (MCIAA). Since then until the
present, MCIAA remained in material, continuous, uninterrupted and adverse possession of the
subject lot through the CAA, later renamed the Bureau of Air Transportation (BAT), and is
presently known as the Air Transportation Office (ATO). The subject lot was transferred and
conveyed to MCIAA by virtue of Republic Act No. 6958.

In 1980, the respondents caused the judicial reconstitution of the original certificate of
title covering the subject lot (issued by virtue of Decree No. 531167). Consequently, Original
Certificate of Title (OCT) No. R0-2431 of the Register of Deeds of Cebu was reconstituted for Lot
No. 4539 in the names of the respondents' predecessors-in-interest, namely, Gavina Ijordan, and
Julian, Francisca, Damasina, Marciana, Pastor, Angela, Mansueto, Bonifacia, Basilio, Moises and
Florencio, all surnamed Cuison. The respondents' ownership of the subject lot was evidenced by
OCT No. R0-2431. They asserted that they had not sold their shares in the subject lot, and had not
authorized Julian to sell their shares to MCIAA's predecessor-in-interest.

The failure of the respondents to surrender the owner's copy of OCT No. R0-2431
prompted MCIAA to sue them for the cancellation of title in the RTC, alleging in its complaint
that the certificate of title conferred no right in favor of the respondents because the lot had
already been sold to the Government in 1957; that the subject lot had then been declared for
taxation purposes under Tax Declaration No. 00387 in the name of the BAT; and that by virtue of
the Deed, the respondents came under the legal obligation to surrender the certificate of title for
cancellation to enable the issuance of a new one in its name.

Issues:

1) Whether the subject lot was validly conveyed in its entirety to the petitioner.
2) Whether estoppel or ratification applies in this case.
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3) Whether acquisitive prescription applies in this case.


Ruling:

1) No, the subject lot was not validly conveyed in its entirety to the petitioner.

Firstly, both the CA and the RTC found the Deed and the Tax Declaration with which
MCIAA would buttress its right to the possession and ownership of the subject lot insufficient to
substantiate the right of MCIAA to the relief sought. Secondly, the Deed was void as far as the
respondents' shares in the subject lot were concerned, but valid as to Julian's share, because of the
absence of the authority from his co-heirs in favor of Julian to convey their shares in the subject
lot. Hence, the conveyance by Julian of the entire property pursuant to the Deed did not bind the
respondents for lack of their consent and authority in his favor.

Article 1317 of the Civil Code provides that no person could contract in the name of
another without being authorized by the latter, or unless he had by law a right to represent him;
the contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, is unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party.

But the conveyance by Julian through the Deed had full force and effect with respect to his
share of 1/22 of the entire property consisting of 546 square meters by virtue of its being a
voluntary disposition of property on his part. As ruled in Torres v. Lapinid:

x x x even if a co-owner sells the whole property as his, the sale


will affect only his own share but not those of the other co-owners
who did not consent to the sale. This is because the sale or other
disposition of a co-owner affects only his undivided share and the
transferee gets only what would correspond to his grantor in the
partition of the thing owned in common.

The intention of the parties to bind themselves to an indivisible obligation can be further
discerned through their direct acts in relation to the package deal. There was only one agreement
covering all three (3) units of the Minilab Equipment and their accessories. The Letter Agreement
specified only one purpose for the buyer, which was to obtain these units for three different
outlets. If the intention of the parties were to have a divisible contract, then separate agreements
could have been made for each Minilab

This intent must prevail even though the articles involved are physically separable and
capable of being paid for and delivered individually, consistent with the New Civil Code:

Article 1225. For the purposes of the preceding articles,


obligations to give definite things and those which are not

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susceptible of partial performance shall be deemed to be


indivisible.

When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical
units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.

However, even though the object or service may be physically


divisible, an obligation is indivisible if so provided by law or
intended by the parties.

In Nazareno v. Court of Appeals, the indivisibility of an obligation is tested against


whether it can be the subject of partial performance:

An obligation is indivisible when it cannot be validly performed in


parts, whatever may be the nature of the thing which is the object
thereof. The indivisibility refers to the prestation and not to the
object thereof.

2) Estoppel or ratification to bar the respondents' contrary claim of ownership of their shares
in the subject lot does not apply. The doctrine of estoppel applied only to those who were parties
to the contract and their privies or successors-in-interest. Moreover, the respondents could not be
held to ratify the contract that was declared to be null and void with respect to their share, for
there was nothing for them to ratify. Verily, the Deed, being null and void, had no adverse effect
on the rights of the respondents in the subject lot.

3) Acquisitive prescription likewise does not apply. Aside from the absence of the satisfactory
showing of MCIAA's supposed possession of the subject lot, no acquisitive prescription could arise
in view of the indefeasibility of the respondents' Torrens title. Under the Torrens System, no
adverse possession could deprive the registered owners of their title by prescription. The real
purpose of the Torrens System is to quiet title to land and to stop any question as to its legality
forever. Thus, once title is registered, the owner may rest secure, without the necessity of waiting
in the portals of the court, or sitting on the mirador su casa to avoid the possibility of losing his
land.

SPS. ALEXANDER and JULIE LAM vs. KODAK PHILIPPINES, LTD.


G.R. No. 167615, January 11, 2016, J. Carpio

Facts:

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an
agreement (Letter Agreement) for the sale of three (3) units of the Minilab Equipment in the

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amount of ₱1,796,000.00 per unit. On January 15, 1992, Kodak Philippines, Ltd. delivered one (1)
unit.

The Lam Spouses issued postdated checks for 12 months as payment for the first delivered
unit, with the first check due on March 31, 1992. The Lam Spouses requested that Kodak
Philippines, Ltd. not to negotiate the first 2 checks. However, both checks were negotiated by
Kodak Philippines, Ltd. and were honored by the depository bank. The 10 other checks were
subsequently dishonored. Kodak Philippines, Ltd. canceled the sale and demanded that the Lam
Spouses return the unit it delivered.

The Lam Spouses ignored the demand but also rescinded the contract through the letter
dated November 18, 1992 on account of Kodak Philippines, Ltd.’s failure to deliver the two (2)
remaining Minilab Equipment units.

Issues:

1) Whether the contract between petitioners Spouses Alexander and Julie Lam and
respondent Kodak Philippines, Ltd. pertained to obligations that are severable, divisible,
and susceptible of partial performance under Article 1225 of the New Civil Code
2) Upon rescission of the contract, what the parties are entitled to under Article 1190 and
Article 1522 of the New Civil Code.
3) Whether court intervention must be invoked before the resolution produces effects.
4) Whether the damages awarded are proper?

Ruling:

1) With both parties opting for rescission of the contract under Article 1191, it was correctly
ordered for restitution.

The intention of the parties to bind themselves to an indivisible obligation can be further
discerned through their direct acts in relation to the package deal. There was only one agreement
covering all three (3) units of the Minilab Equipment and their accessories. The Letter Agreement
specified only one purpose for the buyer, which was to obtain these units for three different
outlets. If the intention of the parties were to have a divisible contract, then separate agreements
could have been made for each Minilab

This intent must prevail even though the articles involved are physically separable and
capable of being paid for and delivered individually, consistent with the New Civil Code:

Article 1225. For the purposes of the preceding articles,


obligations to give definite things and those which are not
susceptible of partial performance shall be deemed to be
indivisible.

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When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical
units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.

However, even though the object or service may be physically


divisible, an obligation is indivisible if so provided by law or
intended by the parties.

In Nazareno v. Court of Appeals, the indivisibility of an obligation is tested against


whether it can be the subject of partial performance:

An obligation is indivisible when it cannot be validly performed in


parts, whatever may be the nature of the thing which is the object
thereof. The indivisibility refers to the prestation and not to the
object thereof.

2) With both parties opting for rescission of the contract under Article 1191, it was correctly
ordered for restitution. The contract between the parties is one of sale, where one party
obligates himself or herself to transfer the ownership and deliver a determinate thing, while
the other pays a certain price in money or its equivalent.

Rescission under Article 1191 has the effect of mutual restitution. Both parties must be
restored to their original situation as far as practicable, as if the contract was never entered into.
The effect of rescission under Article 1191 is to bring the parties back to their original positions
before the contract was entered into.

3) Since both parties in this case have exercised their right to resolve under Article 1191, there
is no need for a judicial decree before the resolution produces effects.

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially
invoked because the power to resolve is implied in reciprocal obligations. The right to resolve
allows an injured party to minimize the damages he or she may suffer on account of the other
party’s failure to perform what is incumbent upon him or her.

When a party fails to comply with his or her obligation, the other party’s right to resolve
the contract is triggered. The resolution immediately produces legal effects if the non-performing
party does not question the resolution. Court intervention only becomes necessary when the
party who allegedly failed to comply with his or her obligation disputes the resolution of the
contract.

4) The damages awarded are proper. However, the actual damages must be tempered on
account of their own failure to pay the rest of the installments for the delivered unit, pursuant to
Article 1192 of the New Civil Code.

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Moral damages are granted to alleviate the moral suffering suffered by a party due to an
act of another, but it is not intended to enrich the victim at the defendant’s expense. It is not
meant to punish the culpable party and, therefore, must always be reasonable vis-a-vis the injury
caused. Exemplary damages, on the other hand, are awarded when the injurious act is attended by
bad faith. In this case, respondent was found to have misrepresented its right over the generator
set that was seized. As such, it is properly liable for exemplary damages as an example to the
public. Since the award of exemplary damages is proper in this case, attorney’s fees and cost of the
suit may also be recovered as provided under Article 2208 of the Civil Code.

SPS. POON V. PRIME SAVINGS BANK REPRESENTED BY PDIC


G.R. No. 183794, June 13, 2016; Sereno

Facts:

On 3 November 2006, the Spouses Poon rented out their commercial building in Naga to Prime
Savings Bank (“PSB”). They agreed to a fixed monthly rental of P60,000.00 with an advanced
payment of the rentals for the first 100 months, amounting to P6,000.00. The Lease Contract
contained a provision stating that in the event that the leased premises be closed, deserted, or
vacated by PSB, the Spouses Poon may terminate the lease, and all advanced rentals shall be
forfeited in their favor.

Barely three years later, the BSP placed PSB under receivership of PDIC. After the closure of PSB,
the leased premises were vacated. PDIC then demanded that the Spouses Poon return the unused
advanced rental, arguing that the closure of PSB constituted force majeure. It further argued that
the principle of rebus sic stantibus under Article 1267 of the Civil Code justifies the refund. When
the Spouses Poon refused to heed its demand, PDIC filed a case for partial rescission of contract
and/or recovery of a sum of money.

The RTC ruled that the provision in the lease contract for the forfeiture of advanced rentals is
valid and penal in nature. However, it ordered the spouses to return half of the amount based on
equity under Article 1229 of the Civil Code, since the closure of PSB was supposedly involuntary.

The CA affirmed the RTC Decision, but ruled that the closure of PSB was not involuntary since
PSB was found to have committed fraudulent acts and is therefore not a fortuitous event.
However, the CA still applied the principle of equity under Article 1229 since PSB already partially
performed the obligation.

Issues:

1) Whether the closure of PSB is a fortuitous event which releases it from its obligation
under the lease contract.
2) Whether the forfeiture provision in the lease contract is a penal clause.
3) Whether the equitable reduction of the penalty may be reduced under Article 1229 of the
Civil Code.

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Ruling:

1) No. The closure of PSB was neither a fortuitous nor an unforeseen event that rendered the
lease agreement functus offcio.

PSB was partly accountable for the closure of its banking business. The period during which the
bank cannot do business due to insolvency is not a fortuitous event, unless it is shown that the
government's action to place a bank under receivership or liquidation proceedings is tainted with
arbitrariness, or that the regulatory body has acted without jurisdiction.
Rebus sic stantibus under Article 1267 does not apply to release PSB from its obligation under the
lease contract. The application of Article 1267 requires the following: 1) The event or change in
circumstance could not have been foreseen at the time of the execution of the contract; 2) It
makes the performance of the contract extremely difficult but not impossible; 3) It must not be
due to the act of any of the parties; 4) The contract is for a future prestation. Since the closure of
PSB was actually foreseen and was caused partly through its own actions, then Article 1267 does
not apply.

2) Yes, the forfeiture provision in the lease contract is a penal clause.

It is settled that a provision is a penal clause if it calls for the forfeiture of any remaining deposit
still in the possession of the lessor, without prejudice to any other obligation still owing, in the
event of the termination or cancellation of the agreement by reason of the lessee's violation of any
of the terms and conditions thereof. The forfeiture clauses of the Contract, therefore, served the
two functions of a penal clause, i.e., (1) to provide for liquidated damages and (2) to strengthen
the coercive force of the obligation by the threat of greater responsibility in case of breach.

2) Yes, PDIC instituted the case against the Spouses Poon to recover whatever they can to
satisfy PSB’s debts to its depositors and creditors.

PDIC’s filed the case against the Spouses Poon in furtherance of its statutory role as the fiduciary
of PSB. Considering that this may be the last chance for the depositors and creditors of PSB to
recover their losses, the partial reduction of the penalty imposed by the forfeiture is proper in
accordance with Article 1229 of the Civil Code.

VIL-REY PLANNERS AND BUILDERS V. LEXBER, INC. (G.R. No. 189401)


STRONGHOLD INSURANCE COMPANY INC. V. LEXBER, INC. (G.R. No. 189447)
June 15, 2016; Reyes

Facts:

Vil-Rey and Lexber entered into three consecutive constructions contracts. The first contract was
dated April 17, 1996 whereby Vil-Rey undertook to finish the project in 60 days for a consideration
of P5,100,000.00. Lexber released a mobilization fund in the amount of P500,00.00 which was
secured by a surety bond issued by Stronghold.

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Vil-Rey and Lexber mutually terminated the first contract and entered into the second
construction contract dated July 1, 1996 to cover the remaining works, but under revised terms
and conditions. The consideration for the second contract was P2,988,700.20, to be completed by
Vil-Rey in 60 days.

Subsequently, on December 23, 1996, Vil-Rey and Lexber executed the third contract for the
completion of the remaining works by January 15, 1997. The consideration for the third contract
amounts to P1,168,728.37, half of which was to be paid upon the completion of the works.
Stronghold issued the second security bond in the amount of P584.364.19 in favor of Lexber.

Vil-Rey requested an extension of the contract period from January 21, 1997 to January 31, 1997,
which Lexber granted. However, when Vil-Rey still failed to complete the project despite the
extensions given, Lexber wrote Stronghold seeking to collect on the two surety bonds issued in its
favor. When negotiations failed, Lexber filed a complaint for sum of money and damages against
Vil-Rey and Stronghold.

Vil-Rey argued that Lexber underpaid it in the first contract, and still remain unpaid for half of
the balance of the third contract.

Stronghold argued that it cannot be made liable under the two security bonds since the first only
secured the mobilization fund which was fully liquidated, and the second because it only secured
against defects in the materials used and workmanship of Vil-Rey.

The RTC ruled in favor of Lexber and held Vil-Rey and Stronghold solidarily liable to pay Lexber
the amount of P2,988,700.20. The amount was later reduced to Php1,084,364.19 which
represented the true value of the security bonds. The RTC emphasized that parties to a contract
are bound by the stipulations therein. When the contract requires the accomplishment of tasks at
a given time and the obligor fails to deliver, there is breach of contract that entities the obligee to
damages. In this case, when Vil-Rey failed to finish the works on time, it became liable to Lexber
for damages brought about by the breach.

On appeal, the CA modified the RTC’s Decision and ruled that there was no breach of the first
and second contract since they were mutually terminated. The CA however, ruled that there was
breach of the third contract, and since Lexber was only able to prove damages in the amount of
P284,084.46, this is the only amount that Vil-Rey and Stronghold are solidarily liable to pay.

Issues:

1) Whether or not Vil-Rey is liable for breach of contract.


2) Whether Stronghold’s liability under the security bond was extinguished by the extension
of the third contract.

Ruling:

1) Yes. The failure of Vil-Rey to complete the works constitutes a breach of the third
contract.

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Breach of contract is the failure of a party, without legal reason, to comply with the terms of a
contract or perform any promise that forms either a part or the whole of it. The failure of Vil-Rey
to complete the works under the third contract was never an issue in this case. In fact, that failure
was readily admitted by Moises Villarta, its managing partner.

It is clear from the provisions of the third contract that the parties took on reciprocal obligations.
These are obligations that arise from the same cause, such that the obligation of one is dependent
upon that of the other.

The reciprocal obligation in this case was Lexber's payment of the 50% balance upon Vil-Rey's
completion of the works on or before January 15, 1997. However, despite the grant of extension
until January 31, 1997, and even after the lapse of another five-day grace period, Vil-Rey failed to
finish the works under the third contract.

The law provides that the obligation of a person who fails to fulfill it shall be executed at that
person's cost. the absence of a clear showing of bad faith on the part of Vil-Rey, it shall be liable
for damages only with regard to those that are the natural and probable consequences of its
breach. In this case, the failure of Vil-Rey to finish the works compelled Lexber to secure the
services of another contractor, to which the latter paid a total of P284,084.46. Vil-Rey should thus
pay Lexber the amount of P284,084.46 plus interest.

However, Lexber is also guilty of its own breach for only releasing P500,000.00 as its initial
payment for the third contract, which is P84,364.19 short of the amount agreed upon. Therefore,
it is liable to pay Vil-Rey such amount, plus interest.

2) No. no release from the obligation shall take place when the change in the contract does
not have the effect of making the obligation more onerous to the surety.

It is true that a surety is discharged from its obligation when there is a material alteration of the
principal contract, such as a change that imposes a new obligation on the obligor; or takes away
some obligation already imposed; or changes the legal effect, and not merely the form, of the
original contract. Nevertheless, no release from the obligation shall take place when the change in
the contract does not have the effect of making the obligation more onerous to the surety.

ESSENTIAL REQUISITES

CONSENT

SPOUSES VICTOR AND EDNA BINUA vs. LUCIA P. ONG


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

When a person was merely informed that she was convicted of an offense and that caused
her to seek measures to avoid criminal liability, the contracts entered into by the said person cannot
be considered executed under duress, threat or intimidation. 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.

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Facts:

Edna Binua 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. Edna was also ordered to pay the respondent the amount
of P2,285,000.00, with ten percent (10%) interest, and damages. To avoid criminal liability, Edna
sought to settle her indebtedness through the execution of separate real estate mortgages over
petitioner Victor’s properties.

Thereafter, petitioner Edna filed a motion for new trial, which was granted by the RTC
and subsequently ruled that the presentation of a promissory note novated the original agreement
between them into a civil obligation. 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.

Spouses Binua then filed an action to nullify the mortgage contracts, alleging that the
mortgage documents were "executed under duress, as the Spouses Binua at the time of the
execution of said deeds were still suffering from the effect of the conviction of Edna, and could
not have been freely entered into said contracts. The RTC dismissed the complaint for lack of
factual and legal merit holding that: "A threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate consent." Spouses Binua appealed with the
CA which was denied. Hence, the present petition.

Issue:

Whether or not the mortgage documents were executed under duress, threat or fear

Ruling:

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. Article 1335
of the Civil Code, meanwhile, states that "[t]here is intimidation when one of the contracting
parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon
his person or property, or upon the person or property of his spouse, descendants or ascendants,
to give his consent." The same article, however, further states that "[a] threat to enforce one’s
claim through competent authority, if the claim is just or legal, does not vitiate consent."

In De Leon v. Court of Appeals, the Court held that in order that 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.

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In cases involving mortgages, a preponderance of the evidence is essential to establish its


invalidity, and in order to show fraud, duress, or undue influence of a mortgage, clear and
convincing proof is necessary.

Based on the spouses’ own allegations, what the respondent did was merely inform them
of petitioner Edna’s 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. The petitioners must remember that
petitioner Edna's conviction was a result of a valid judicial process and even without the
respondent allegedly "ramming it into petitioner Victor's throat," petitioner Edna's imprisonment
would be a legal consequence of such conviction. In Callanta v. National Labor Relations
Commission, the Court stated that 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. As
correctly ruled by the CA, "[i]f the judgment of conviction is the only basis of the spouses 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 Victor execute the real estate mortgages."

SPOUSES FRANCISCO SIERRA (substituted by DONATO, TERESITA, TEODORA,


LORENZA, LUCINA, IMELDA, VILMA, and MILAGROS SIERRA) and ANTONINA SANTOS,
SPOUSES ROSARIO SIERRA and EUSEBIO CALUMA LEYVA, and SPOUSES SALOME
SIERRA and FELIX GATLABAYAN (substituted by BUENA VENTURA, ELPIDIO, PAULINO,
CATALINA, GREGORIO, and EDGARDO GATLABAYAN, LORETO REILLO, FERMINA
PEREGRINA, and NIDA HASHIMOTO) vs.PAIC SAVINGS AND MORTGAGE BANK, INC.
G.R. No. 197857, September 10, 2014, J. Perlas-Bernabe

One who alleges any defect or the lack of a valid consent contract must establish the same
by full, clear, and convincing evidence, not merely by preponderance of evidence. The rule is that he
who alleges mistake affecting a transaction must substantiate his allegation, since it is presumed
that a person takes ordinary care of his concerns and that private transactions have been fair and
regular. Where mistake or error is alleged by parties who claim to have not had the benefit of a good
education, as in this case, they must establish that their personal circumstances prevented them
from giving their free, voluntary, and spontaneous consent to a contract.

Facts:

On May 31, 1983, Goldstar Conglomerates, Inc. (GCI), represented by Guillermo Zaldaga
(Zaldaga), obtained from First Summa Savings and Mortgage Bank (Summa Bank), now
respondent Paic Savings and Mortgage Bank, Inc. (PSMB), a loan in the amount of P1,500,000.00
as evidenced by a Loan Agreement dated May 31, 1983. As security therefor, GCI executed in favor
of PSMB six (6) promissory notes in the aggregate amount ofP1,500,000.00 as well as a Deed of
Real Estate Mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No.
308475. As additional security, petitioners Francisco Sierra, Rosario Sierra, and Spouses Felix
Gatlabayan and Salome Sierra mortgaged four(4) parcels of land in Antipolo City, covered by TCT
Nos. 308476, 308477, 308478, and 308479, and respectively registered in their names (subject
properties). Records show that after the signing of the mortgage deed, Zaldaga gave petitioner
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Francisco Sierra four (4) manager’s checks with an aggregate amount of P200,000.00, which were
later successfully encashed, as well as several post-dated checks.

Eventually, GCI defaulted in the payment of its loan to PSMB, thereby prompting the
latter to extrajudicially foreclose the mortgage on the subject properties in accordance with Act
No. 3135, as amended, with due notice to petitioners. In the process, PSMB emerged as the highest
bidder in the public auction sale. Since petitioners failed to redeem the subject properties within
the redemption period, their certificates of title were cancelled and new ones were issued in
PSMB’s name.

Petitioners filed a complaint for the declaration of nullity of the real estate mortgage and
its extrajudicial foreclosure, and damages against PSMB and Summa Bank before the RTC.

In the said complaint, petitioners averred that under pressing need of money, with very
limited education and lacking proper instructions, they fell prey to a group who misrepresented
to have connections with Summa Bank and, thus, could help them secure a loan. They were made
to believe that they applied for a loan, the proceeds of which would be released through checks
drawn against Summa Bank. Relying in good faith on the checks issued to them, petitioners
unsuspectingly signed a document denominated as Deed of Real Estate Mortgage (subject deed),
couched in highly technical legal terms, which was not interpreted in a language/dialect known to
them, and which was not accompanied by the loan documents. However, when they presented for
payment the earliest-dated checks to the drawee bank, the same were dishonored for the reason
"Account Closed." Upon confrontation, some members of the group assured petitioners that there
was only a misunderstanding and that their certificates of titles would be returned. Subsequently,
petitioners learned that: (a) the loan account secured by the real estate mortgage was in the
nameof another person and not in their names as they were made to understand; (b) despite lack
of special authority from them, foreclosure proceedings over the subject properties were initiated
by PSMB and not Summa Bank in whose favor the mortgage was executed; (c) the period of
redemption had already lapsed; and (d) the ownership over the subject properties had already
been consolidated in the name of PSMB. Petitioners likewise lamented that they were not
furnished copies of the loan and mortgage documents, or notified/apprised of the assignment to
PSMB, rendering them unable to comply with their obligations under the subject deed. They
further claimed that they were not furnished a copy of the statement of account, which was
bloated with unconscionable and unlawful charges, assessments, and fees, nor a copy of the
petition for foreclosure prior to the precipitate extrajudicial foreclosure and auction sale which
failed to comply with the posting and notice requirements. In light of the foregoing, petitioners
prayed that the real estate mortgage and the subsequent foreclosure proceedings, and all
derivative titles and rights arising therefrom be declared null and void ab initio, and that the
subject properties be reconveyed back to them, with further prayer for compensatory and
exemplary damages, and attorney’s fees.

The RTC: (a) declared the subject deed and the extrajudicial foreclosure proceedings null
and void; (b) cancelled the certificates of title of PSMB; and (c) directed the reinstatement of
petitioners’ certificates of title.

Aggrieved, PSMB filed a motion for reconsideration, while petitioners filed a motion for
discretionary execution which were, however, denied. Dissatisfied, PSMB interposed an appeal to

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the CA. The CA reversed and set aside the RTC Decision and dismissed petitioners’ complaint for
lack of merit. Unperturbed, petitioners filed the instant petition.

Issue:

Whether or not the CA erred in ruling that petitioners were aware that they were mere
accommodation mortgagors.

Ruling:

The Court finds petitioners’ claim of mistake or error (that they acted merely as
accommodation mortgagors) grounded on their "very limited education" and "lack of proper
instruction" not to be firmly supported by the evidence on record.

Time and again, the Court has stressed that allegations must be proven by sufficient
evidence because mere allegation is not evidence. Thus, one who alleges any defect or the lack of
a valid consent contract must establish the same by full, clear, and convincing evidence, not
merely by preponderance of evidence. The rule is that he who alleges mistake affecting a
transaction must substantiate his allegation, since it is presumed that a person takes ordinary care
of his concerns and that private transactions have been fair and regular. Where mistake or error is
alleged by parties who claim to have not had the benefit of a good education, as in this case, they
must establish that their personal circumstances prevented them from giving their free,
voluntary, and spontaneous consent to a contract.

As correctly observed by the CA, the testimony of petitioner Francisco Sierra as to


petitioners’ respective educational backgrounds remained uncorroborated. The other petitioners-
signatories to the deed never testified that their educational background prevented them from
knowingly executing the subject deed as mere accommodation mortgagors. Petitioners’ claim of
lack of "proper instruction on the intricacies in securing the loan from the bank" is further belied
by the fact that petitioners Francisco and Rosario Sierra had previously mortgaged two (2) of the
subject properties twice to the Rural Bank of Antipolo. Moreover, petitioners did not: (a) demand
for any loan document containing the details of the transaction, i.e., monthly amortization,
interest rate, added charges, etc., and the release of the remaining amount of their alleged loan;
and (b) offer to pay the purported partial loan proceeds they received at any time, complaining
thereof only in 1991 when they filed their complaint. Indeed, the foregoing circumstances clearly
show that petitioners are aware that they were mere accommodation mortgagors, debunking
their claim that mistake vitiated their consent to the mortgage.

Thus, there being valid consent on the part of petitioners to act as accommodation
mortgagors, no reversible error was committed by the CA in setting aside the RTC’s Decision
declaring the real estate mortgage as void for vices of consent and awarding damages to
petitioners.

ECE REALTY AND DEVELOPMENT INC. vs. RACHEL G. MANDAP


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

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Petitioner questions the decision of the CA holding that it employed fraud to induce
respondent to enter a contract with it. The SC ruled that though petitioner was guilty of fraud, such
fraud however is not sufficient to nullify its contract with respondent. 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. Second, the fraud must be proven by clear and convincing evidence and
not merely by a preponderance thereof. In the present case, respondent failed to prove that the
misrepresentation made by petitioner was the causal consideration or the principal inducement
which led her into buying her unit in the said condominium project. Such being the case, petitioner’s
misrepresentation 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.

Facts:

Petitioner ECE Realty (ECE) 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. Respondent Rachel G. Mandap (Mandap) bought a unit from the above project.
Subsequently, Mandap and the representatives of ECE executed a Contract to Sell. In the said
Contract, it was indicated that the condominium project is located in Pasay City.

Thereafter, Mandap wrote ECE 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.

However, instead of answering Mandap's letter, ECE sent her a written communication
informing her that her unit is 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, Mandap filed a complaint with the Expanded National Capital Region Field Office
(ENCRFO) of the Housing and Land Use Regulatory Board (HLURB) seeking the annulment of
her contract with ECE, the return of her payments, and damages.

The ENCRFO dismissed Mandap's complaint for lack of merit and directed the parties to
resume the fulfillment of the terms and conditions of their sales contract. The ENCRFO held that
respondent Mandap "failed to show or substantiate the legal grounds that consist of a fraudulent
or malicious dealing with her by ECE, 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. Both the HLURB Board of Commissioners and the
Office of the President affirmed the decision of the ENCRFO. The Court of Appeals, however,
reversed the decision and held that ECE employed fraud and machinations to induce Mandap to
enter into a contract with it. Hence, this petition.

Issue:

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Whether or not ECE was guilty of fraud and if so, whether such fraud is sufficient ground
to nullify its contract with respondent.

Ruling:

Yes, petitioner ECE was guilty of fraud. Such fraud however is not sufficient to nullify its
contract with respondent Mandap.

Article 1338 of the Civil Code provides that "[t]here is fraud when through insidious words
or machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to."

In addition, under Article 1390 of the same Code, a contract is voidable or annullable
"where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud."

Also, Article 1344 of the same Code provides that "[i]n order that fraud may make a
contract voidable, it should be serious and should not have been employed by both contracting
parties." 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 ECE 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. The Court agrees with the
Housing and Land Use Arbiter, the HLURB Board of Commissioners, and the Office of the
President, in condemning petitioner's ECE deplorable act of making misrepresentations in its
advertisements and in issuing a stern warning that a repetition of this act shall be dealt with more
severely.

However, insofar as the present case is concerned, the Court agrees with the Housing and
Land Use Arbiter, the HLURB Board of Commissioners, and the Office of the President, that the
misrepresentation made by petitioner ECE in its advertisements does not constitute causal fraud
which would have been a valid basis in annulling the Contract to Sell between petitioner ECE and
respondent Mandap.

In his decision, the Housing and Land Use Arbiter found that respondent Mandap failed
to show that "the essential and/or moving factor that led Mandap 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 cityx x x." Both the HLURB Board of Commissioners and the Office of
the President affirmed the finding of the Arbiter and unanimously held that Mandap failed to
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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.

AVELINA ABARIENTOS REBUSQUILLO [substituted by her heirs, except Emelinda R.


Gualvez] and SALVADOR A. OROSCO, vs. SPS. DOMINGO and EMELINDA REBUSQUILLO
GUALVEZ and the CITY ASSESSOR OF LEGAZPI CITY
G.R. No. 204029, June 4, 2014, J. Velasco, Jr.

The Deed of Absolute Sale executed by Avelina in favor of respondents was correctly nullified
and voided by the RTC. Avelina was not in the right position to sell and transfer the absolute
ownership of the subject property to respondents. As she was not the sole heir of Eulalio and her
Affidavit of Self-Adjudication is void, the subject property is still subject to partition. Avelina, in fine,
did not have the absolute ownership of the subject property but only an aliquot portion. It is
apparent from the admissions of respondents and the records of this case that Avelina had no
intention to transfer the ownership, of whatever extent, over the property to respondents. Hence, the
Deed of Absolute Sale is nothing more than a simulated contract.

Facts:

Petitioners Avelina Abarientos Rebusquillo (Avelina) and Salvador Orosco (Salvador) filed
a Complaint for annulment and revocation of an Affidavit of Self-Adjudication and a Deed of
Absolute Sale before the court. Petitioners alleged that Avelina was one of the children of Eulalio
Abarientos (Eulalio) and Victoria Villareal (Victoria). Eulalio died intestate survived by his wife
Victoria, six legitimate children, and one illegitimate child and he left behind an untitled parcel of
land in Legazpi City.

In 2001, Avelina was made to sign two (2) documents by her daughter Emelinda
Rebusquillo-Gualvez (Emelinda) and her son-in-law Domingo Gualvez (Domingo), respondents
in this case, that the documents were needed for the titling of the lot. In 2003, Avelina realized
that what she signed was an Affidavit of Self-Adjudication and a Deed of Absolute Sale in favor of
respondents. As respondents ignored her when she tried to talk to them, Avelina filed in the RTC
to declare null and void the two (2) documents to reinstate and correct the injustice done to the
other heirs of Eulalio.

In their answer, respondents admitted that the execution of the Affidavit of Self-
Adjudication and the Deed of Sale was intended to facilitate the titling of the subject property.
Petitioner Avelina together with the other heirs brought out the idea to respondent Emelinda to
have the property registered. It was agreed that the property’s tax declaration could be transferred
to respondents Spouses Emelinda and Domingo Gualvez who will spend all the cost subject to
reimbursement; It was agreed that all the heirs will be given their shares; That Avelina
Abarientos-Rebusquillo with the consent of the other heirs signed an Affidavit of Self-
Adjudication and a Deed of Absolute Sale in favor of respondents Gualvez.

The RTC ruled that the Affidavit of Self-Adjudication and the Deed of Absolute Sale
should be annulled on the ground that in the case of the Deed of Absolute Sale, Avelina did not
really intend to sell her share in the property as it was only executed to facilitate the titling of
such property.
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Pending the resolution of respondents’ appeal, Avelina died intestate leaving behind
several living heirs including respondent Emelinda.

The appellate court reversed and set aside the Decision of the RTC. The CA held that the
RTC erred in annulling the Affidavit of Self-Adjudication on petitioners’ allegation of the
existence of the heirs of Eulalio, that issues on heirship must be made in administration or
intestate proceedings, not in an ordinary civil action. The appellate court observed that the Deed
of Absolute Sale cannot be nullified as it is a notarized document that has in its favor the
presumption of regularity and is entitled to full faith and credit upon its face.

Aggrieved by the CA’s Decision, petitioner Avelina, as substituted by her heirs except
respondent Emelinda, and petitioner Salvador are now before this Court ascribing reversible error
on the part of the appellate court.

Issue:

Can Avelina executed a Deed of Absolute Sale even if she did not have the absolute
ownership of the subject property but only an aliquot portion thereof?

Ruling:

No, Avelina cannot validly executed a Deed of Absolute Sale not being the sole heir.

In like manner, the Deed of Absolute Sale executed by Avelina in favor of respondents was
correctly nullified and voided by the RTC. Avelina was not in the right position to sell and transfer
the absolute ownership of the subject property to respondents. As she was not the sole heir of
Eulalio and her Affidavit of Self-Adjudication is void, the subject property is still subject to
partition. Avelina, in fine, did not have the absolute ownership of the subject property but only an
aliquot portion. What she could have transferred to respondents was only the ownership of such
aliquot portion. It is apparent from the admissions of respondents and the records of this case
that Avelina had no intention to transfer the ownership, of whatever extent, over the property to
respondents. Hence, the Deed of Absolute Sale is nothing more than a simulated contract.

The Civil Code provides:

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.

In Heirs of Policronio Ureta Sr. v. Heirs of Liberato Ureta, this Court explained the
concept of the simulation of contracts:

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In absolute simulation, there is a colorable contract but it has no substance


as the parties have no intention to be bound by it. The main characteristic of an
absolute simulation is that the apparent contract is not really desired or intended
to produce legal effect or in any way alter the juridical situation of the parties. As a
result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract. However, if
the parties state a false cause in the contract to conceal their real agreement, the
contract is relatively simulated and the parties are still bound by their real
agreement. Hence, where the essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract, the agreement is
absolutely binding and enforceable between the parties and their successors in
interest.

In the present case, the true intention of the parties in the execution of the Deed of
Absolute Sale is immediately apparent from respondents’ very own Answer to petitioners’
Complaint. As respondents themselves acknowledge, the purpose of the Deed of Absolute Sale
was simply to "facilitate the titling of the property," not to transfer the ownership of the lot to
them. Furthermore, respondents concede that petitioner Salvador remains in possession of the
property and that there is no indication that respondents ever took possession of the subject
property after its supposed purchase. Such failure to take exclusive possession of the subject
property or, in the alternative, to collect rentals from its possessor, is contrary to the principle of
ownership and is a clear badge of simulation that renders the whole transaction void.

CAUSE

TIMOTEO BACALSO and DIOSDADA BACALSO vs. GREGORIA B. ACA-AC, ET AL.


G.R. No. 172919, January 13, 2016, J. Reyes

Facts:

The Bacus siblings were the registered owners of a parcel of land described as Lot No.
1809-G-2 located in San Roque, Talisay, Cebu with an area of 1,200 square meters and covered by
Transfer Certificate of Title (TCT) No. 59260. The Bacus siblings inherited the said property from
their mother Matea Bacalso (Matea).

On October 15, 1987, the Bacus siblings executed a Deed of Absolute Sale conveying a
portion of Lot No. 1809-G-2 with an area of 271 sq m, described as Lot No. 1809-G-2-C, in favor of
their cousin, Timoteo for and in consideration of the amount of P8,000.00.

On March 4, 1988, however, Timoteo, together with his sisters Lucena and Victoria and
some of his cousins filed a complaint for declaration of nullity of documents, certificates of title,
reconveyance of real property and damages against the Bacus siblings and four other persons
before the RTC of Cebu City, Branch 12, and was docketed as Civil Case No. CEB-6693. They
claimed that they are co-owners of the three-fourths portion of Lot No. 1809-G (which Lot No.
1809-G-2-C was originally part of) as Matea had paid for the said property for and in behalf of her
brother Alejandro (father of petitioner Timoteo) and sisters Perpetua and Liberata, all surnamed
Bacalso.

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Petitioners argue that the Deed of Absolute Sale has all the requisites of a valid contract.
The petitioners contend that there is no lack of consideration that would prevent the existence of
a valid contract. They assert that the testimonies of Timoteo and witness Roberto Ybas sufficiently
established that the purchase price of P5,000.00 for Lot No. 1809-G-2-C was paid to Julian at Sto.
Nifio Church in Cebu City before the execution of the Deed of Absolute Sale. They also claim that
even assuming that they failed to pay the purchase price, such failure does not render the sale
void for being fictitious or simulated, rather, there is only non-payment of the consideration
within the period agreed upon for payment.

Issue:

Whether the Deed of Absolute Sale dated October 15, 1987 is void for want of
consideration.

Ruling:

The Deed of Absolute Sale is void.

Under the Civil Code, a contract is a meeting of minds, with respect to the other, to give
something or to render some service. Article 1318 provides:

Art. 1318. There is no contract unless the following requisites


concur:
(l) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Contrary to the petitioners' claim, this is not merely a case of failure to pay the purchase
price which can only amount to a breach of obligation with rescission as the proper remedy. As
correctly observed by the RTC, the disputed sale produces no effect and is considered void ab
initio because it lacks cause - one of the three essential requisites of a valid contract. Failure to pay
the consideration is different from lack of consideration. The former results in a right to demand
the fulfillment or cancellation of the obligation under an existing valid contract while the latter
prevents the existence of a valid contract.

It is a well-entrenched rule that where the deed of sale states that the purchase price has
been paid but in fact has never been paid, the contract of sale is null and void ab initio for lack of
consideration. Here, o portion of the P8,000.00 consideration indicated in the Deed of Absolute
Sale was ever paid by the petitioners.

PHILIPPINE STOCK EXCHANGE, INC. vs. ANTONIO K. LITONJUA AND AURELIO K.


LITONJUA, JR.
G.R. No. 204014, December 5, 2016, J. Perez

For a contract to be binding: there must be consent of the contracting parties; the subject
matter of the contract must be certain; and the cause of the obligation must be established.

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Facts:

On 20 April 1999, the Litonjua Group wrote a letter-agreement to Trendline Securities,


Inc. (Trendline) through its President Priscilla D. Zapanta (Zapanta), confirming a previous
agreement for the acquisition of the 85% majority equity of Trendline's membership seat in PSE.
In a letter-confirmation dated 21 April 1999, the Litonjua Group undertook to pay the amount of
Pl8,547,643.81 directly to PSE within 3 working days upon confirmation that it will be for the full
settlement of all claims and outstanding obligations including interest of Trendline to lift its
membership suspension and the resumption to normal trading operation. Further in the letter,
Trendline was obligated to secure the approval and written confirmation of PSE for a new
corporation to be incorporated that will own a seat.

On 29 April 1999, the PSE, through Atty. Ruben L. Almadro (Atty. Almadro), Vice-
President for Compliance and Surveillance Department, sent a letter to Trendline advising the
latter that PSE has resolved to accept the amount of Pl9,000,000.00 as full and final settlement of
its outstanding obligation. In compliance, the Litonjua Group in a letter dated 12 May 1999,
delivered to PSE through Atty. Almadro 3 check payments, all dated 13 May 1999 and payable to
PSE, totaling to an amount of Pl9,000,000.00.

Despite several exchange of letters of conformity and delivery of checks representing


payment of full settlement of Trendline's obligations, PSE failed to lift the suspension imposed on
Trendline's seat. On 30 July 2006, the Litonjua Group, through a letter, requested PSE to
reimburse the P19,000,000.00 it had paid with interest, upon knowledge that the specific
performance by PSE of transferring the membership seat under the agreement will no longer be
possible. PSE, however, refused to refund the claimed amount as without any legal basis. As a
result, the Litonjua Group on 10 October 2006 filed a Complaint for Collection of Sum of Money
with Damages against PSE.

Declining reimbursement, PSE in its Answer Ad Cautelam raised primarily that it received
the amount not from the Litonjua Group but from Trendline as a settlement of its obligation. It
insisted that the cause of action of the Litonjua Group is against Trendline and not the exchange,
the latter being a non-party to the letter agreement.

The RTC held that the Litonjua Group is entitled to claim a refund from PSE based on the
principle of solutio indebiti as defined in Article No. 2154 of the New Civil Code. The CA affirmed
the decision of the RTC but principally relied on the principle of constructive trust instead of
solutio indebiti as an appropriate remedy against the unjust enrichment of PSE.

Issues:

1) Whether PSE is considered a party to the letter-agreement.


2) Whether PSE is liable to return the payment received.
3) Whether the PSE is liable to pay exemplary damages.

Ruling:

1) No. According to Article 1305 of the Civil Code, "a contract is a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or render
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some service." For a contract to be binding: there must be consent of the contracting parties; the
subject matter of the contract must be certain; and the cause of the obligation must be
established. Admittedly in this case, no board resolution was issued to authorize PSE to become a
party to the letter-agreement. No consent was given by PSE to be bound by the terms of the
letter-agreement. Hence, PSE is not considered as a party to the letter-agreement.

2) Yes. This is pursuant to the principles of unjust enrichment and estoppel; it is only but
rightful to return the money received since PSE has no intention from the beginning to be a party
to the agreement. There is unjust enrichment when a person unjustly retains a benefit to the loss
of another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience. The principle of unjust enrichment requires two
conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such
benefit is derived at the expense of another. The main objective of the principle against unjust
enrichment is to prevent one from enriching himself at the expense of another without just cause
or consideration. Applying law and jurisprudence, the principle of unjust enrichment requires
PSE to return the money it had received at the expense of the Litonjua Group since it benefited
from the use of it without any valid justification.

3) Yes. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Exemplary
damages cannot be recovered as a matter of right; the court will decide whether or not they
should be adjudicated. While the amount of the exemplary damages need not be proven, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages before the
court may consider the question of whether or not exemplary damages should be awarded.

PSE, despite demands by the Litonjua Group, continuously refused to return the money
received despite the fact that it received it without any legal right to do so. This conduct, as found
by the trial court, falls within the purview of wanton, oppressive and malevolent in nature. Thus,
absent any other compelling reason to overturn the findings, we uphold the award of exemplary
damages.

RESCISSION OF THE CONTRACT

SPS. ALEXANDER and JULIE LAM vs. KODAK PHILIPPINES, LTD.


G.R. No. 167615, January 11, 2016, J. Carpio

FACTS:

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an
agreement (Letter Agreement) for the sale of three (3) units of the Minilab Equipment in the
amount of ₱1,796,000.00 per unit. On January 15, 1992, Kodak Philippines, Ltd. delivered one (1)
unit.

The Lam Spouses issued postdated checks for 12 months as payment for the first delivered
unit, with the first check due on March 31, 1992. The Lam Spouses requested that Kodak
Philippines, Ltd. not to negotiate the first 2 checks. However, both checks were negotiated by
Kodak Philippines, Ltd. and were honored by the depository bank. The 10 other checks were

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subsequently dishonored. Kodak Philippines, Ltd. canceled the sale and demanded that the Lam
Spouses return the unit it delivered.

The Lam Spouses ignored the demand but also rescinded the contract through the letter
dated November 18, 1992 on account of Kodak Philippines, Ltd.’s failure to deliver the two (2)
remaining Minilab Equipment units.

ISSUES:

5) Whether the contract between petitioners Spouses Alexander and Julie Lam and
respondent Kodak Philippines, Ltd. pertained to obligations that are severable, divisible,
and susceptible of partial performance under Article 1225 of the New Civil Code
6) Upon rescission of the contract, what the parties are entitled to under Article 1190 and
Article 1522 of the New Civil Code.
7) Whether court intervention must be invoked before the resolution produces effects.
8) Whether the damages awarded are proper?

RULING:

1) With both parties opting for rescission of the contract under Article 1191, it was correctly
ordered for restitution.

The intention of the parties to bind themselves to an indivisible obligation can be further
discerned through their direct acts in relation to the package deal. There was only one agreement
covering all three (3) units of the Minilab Equipment and their accessories. The Letter Agreement
specified only one purpose for the buyer, which was to obtain these units for three different
outlets. If the intention of the parties were to have a divisible contract, then separate agreements
could have been made for each Minilab

This intent must prevail even though the articles involved are physically separable and
capable of being paid for and delivered individually, consistent with the New Civil Code:

Article 1225. For the purposes of the preceding articles,


obligations to give definite things and those which are not
susceptible of partial performance shall be deemed to be
indivisible.

When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical
units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.

However, even though the object or service may be physically


divisible, an obligation is indivisible if so provided by law or
intended by the parties.

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In Nazareno v. Court of Appeals, the indivisibility of an obligation is tested against


whether it can be the subject of partial performance:

An obligation is indivisible when it cannot be validly performed in


parts, whatever may be the nature of the thing which is the object
thereof. The indivisibility refers to the prestation and not to the
object thereof.

2) With both parties opting for rescission of the contract under Article 1191, it was correctly
ordered for restitution. The contract between the parties is one of sale, where one party
obligates himself or herself to transfer the ownership and deliver a determinate thing, while
the other pays a certain price in money or its equivalent.

Rescission under Article 1191 has the effect of mutual restitution. Both parties must be
restored to their original situation as far as practicable, as if the contract was never entered into.
The effect of rescission under Article 1191 is to bring the parties back to their original positions
before the contract was entered into.

3) Since both parties in this case have exercised their right to resolve under Article 1191, there
is no need for a judicial decree before the resolution produces effects.

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially
invoked because the power to resolve is implied in reciprocal obligations. The right to resolve
allows an injured party to minimize the damages he or she may suffer on account of the other
party’s failure to perform what is incumbent upon him or her.

When a party fails to comply with his or her obligation, the other party’s right to resolve
the contract is triggered. The resolution immediately produces legal effects if the non-performing
party does not question the resolution. Court intervention only becomes necessary when the
party who allegedly failed to comply with his or her obligation disputes the resolution of the
contract.

4) The damages awarded are proper. However, the actual damages must be tempered on
account of their own failure to pay the rest of the installments for the delivered unit, pursuant to
Article 1192 of the New Civil Code.

Moral damages are granted to alleviate the moral suffering suffered by a party due to an
act of another, but it is not intended to enrich the victim at the defendant’s expense. It is not
meant to punish the culpable party and, therefore, must always be reasonable vis-a-vis the injury
caused. Exemplary damages, on the other hand, are awarded when the injurious act is attended by
bad faith. In this case, respondent was found to have misrepresented its right over the generator
set that was seized. As such, it is properly liable for exemplary damages as an example to the
public. Since the award of exemplary damages is proper in this case, attorney’s fees and cost of the
suit may also be recovered as provided under Article 2208 of the Civil Code.

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NISSAN CAR LEASE PHILS., INC. vs. LICA MANAGEMENT, INC.


and PROTON PILIPINAS, INC.
G.R. No. 201417, January 13, 2016, J. Jardeleza

Facts:

LMI is the absolute owner of a property located at Pasong Tamo Extension, Makati City. It
entered into a contract with NCLPI for the latter to lease the property for a term of ten (10) years
with a monthly rental of ₱308,000.00. Subsequently, NCLPI became delinquent in paying the
monthly rent. Nissan and Lica verbally agreed to convert the arrearages into a debt to be covered
by a promissory note and twelve (12) postdated checks each amounting to ₱162,541.95 as monthly
payments starting June 1996 until May 1997.

While NCLPI was able to deliver the postdated checks per its verbal agreement with LMI,
it failed to sign the promissory note and pay the checks for June to October 1996. Thus, in a letter
dated October 16, 1996, LMI informed NCLPI that it was terminating their Contract of Lease due
to arrears in the payment of rentals. It also demanded that NCLPI (1) pay the amount of
₱2,651,570.39 for unpaid rentals and (2) vacate the premises within five (5) days from receipt of
the notice.

In the meantime, Proton sent NCLPI an undated request to use the premises as a
temporary display center for "Audi" brand cars for a period of ten (10) days. NCLPI entered into a
Memorandum of Agreement with Proton whereby the former agreed to allow Proton "to
immediately commence renovation work even prior to the execution of the Contract of Sublease.
LMI entered into a Contract of Lease with Proton over the subject premises.

NCLPI demanded Proton to vacate the leased premises. However, Proton replied that it
was occupying the property based on a lease contract with LMI. In a letter of even date addressed
to LMI, NCLPI asserted that its failure to pay rent does not automatically result in the termination
of the Contract of Lease nor does it give LMI the right to terminate the same.

Issues:

1) Whether a contract can be rescinded extra-judicially despite the absence of a special


contractual stipulation therefor.
2) How much interest should be paid in the delay of the release of a security deposit in a
lease contract?

Ruling:

1) A contract can be rescinded extra-judicially despite the absence of a special contractual


stipulation therefor.

Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases
where one of the obligors should fail to comply with what is incumbent upon him. Otherwise
stated, an aggrieved party is not prevented from extra-judicially rescinding a contract to protect
its interests, even in the absence of any provision expressly providing for such right.

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The rationale for this rule is that the law definitely does not require that the contracting
party who believes itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will
have to passively sit and watch its damages accumulate during the pendency of the suit until the
final judgment of rescission is rendered when the law itself requires that he should exercise due
diligence to minimize its own damages (Civil Code, Article 2203).

It is clear from the records that NCLPI committed substantial breaches of its Contract of
Lease with LMI. Aside from non-payment of rentals, it appears that NCLPI also breached its
obligations under Paragraphs 4th and 5th of the Contract of Lease which prohibit it from
subleasing the premises or introducing improvements or alterations thereon without LMI’s prior
written consent. As revealed from the evidence presented by PROTON however, even before
NCLPI represented that it would try to negotiate a possible sub-lease of the premises, it
had, without any semblance of authority from LMI, already effectively subleased the subject
premises to PROTON and allowed the latter not only to enter the premises but to renovate the
same. It is true that NCLPI and LMI’s Contract of Lease does not contain a provision expressly
authorizing extrajudicial rescission. LMI can nevertheless rescind the contract, without prior
court approval, pursuant to Art. 1191 of the Civil Code.

An extrajudicial rescission based on grounds not specified in the contract would not
preclude a party to treat the same as rescinded. The rescinding party, however, by such course of
action, subjects himself to the risk of being held liable for damages when the extrajudicial
rescission is questioned by the opposing party in court. In other words, the party who deems the
contract violated may consider it resolved or rescinded, and act accordingly, without previous
court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or was not correct in
law.

2) Having upheld LMI’s extrajudicial rescission of its Contract of Lease, we hold that NCLPI
is required to pay all rental arrearages owing to LMI. The Contract of Lease shows that the parties
did not stipulate an applicable interest rate in case of default in the payment of rentals. Thus, the
foregoing amount of rental arrearages shall earn interest at the rate of six percent (6%) per annum
computed from October 18, 1996, the date of LMI’s extrajudicial demand, until the date of finality
of this judgment. The total amount shall thereafter earn interest at the rate of six percent (6%)
per annum from such finality of judgment until its satisfaction.

As to the security deposit, paragraph 3 of the Contract of Lease provides that, in case of
termination of the lease, the balance of the security deposit must be returned to NCLPI within
seven (7) days. Since there is no question that LMI is retaining the security deposit (after
deduction of the expenses for water and telephone services), LMI must return the same to NCLPI,
with interest also at the rate shall be six percent (6%) from the time of judicial or extrajudicial
demand.

The records of this case show that the first time NCLPI raised the issue on the security
deposit was in its Brief dated March 25, 2003 filed with the CA. Thus, the interest should be
computed starting only on said date until the finality of this Decision, after which the total
amount shall earn interest at the rate of six percent (6%) from the finality of this Decision until
satisfaction by LMI.
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NISSAN CAR LEASE PHILS., INC. vs. LICA MANAGEMENT, INC.


and PROTON PILIPINAS, INC.
G.R. No. 201417, January 13, 2016, J. Jardeleza

Facts:

LMI is the absolute owner of a property located at Pasong Tamo Extension, Makati City. It
entered into a contract with NCLPI for the latter to lease the property for a term of ten (10) years
with a monthly rental of ₱308,000.00. Subsequently, NCLPI became delinquent in paying the
monthly rent. Nissan and Lica verbally agreed to convert the arrearages into a debt to be covered
by a promissory note and twelve (12) postdated checks each amounting to ₱162,541.95 as monthly
payments starting June 1996 until May 1997.

While NCLPI was able to deliver the postdated checks per its verbal agreement with LMI,
it failed to sign the promissory note and pay the checks for June to October 1996. Thus, in a letter
dated October 16, 1996, LMI informed NCLPI that it was terminating their Contract of Lease due
to arrears in the payment of rentals. It also demanded that NCLPI (1) pay the amount of
₱2,651,570.39 for unpaid rentals and (2) vacate the premises within five (5) days from receipt of
the notice.

In the meantime, Proton sent NCLPI an undated request to use the premises as a
temporary display center for "Audi" brand cars for a period of ten (10) days. NCLPI entered into a
Memorandum of Agreement with Proton whereby the former agreed to allow Proton "to
immediately commence renovation work even prior to the execution of the Contract of Sublease.
LMI entered into a Contract of Lease with Proton over the subject premises.

NCLPI demanded Proton to vacate the leased premises. However, Proton replied that it
was occupying the property based on a lease contract with LMI. In a letter of even date addressed
to LMI, NCLPI asserted that its failure to pay rent does not automatically result in the termination
of the Contract of Lease nor does it give LMI the right to terminate the same.

Issues:

1) Whether a contract can be rescinded extra-judicially despite the absence of a special


contractual stipulation therefor.
2) How much interest should be paid in the delay of the release of a security deposit in a
lease contract?

Ruling:

1) A contract can be rescinded extra-judicially despite the absence of a special contractual


stipulation therefor.

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Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases
where one of the obligors should fail to comply with what is incumbent upon him. Otherwise
stated, an aggrieved party is not prevented from extra-judicially rescinding a contract to protect
its interests, even in the absence of any provision expressly providing for such right.

The rationale for this rule is that the law definitely does not require that the contracting
party who believes itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will
have to passively sit and watch its damages accumulate during the pendency of the suit until the
final judgment of rescission is rendered when the law itself requires that he should exercise due
diligence to minimize its own damages (Civil Code, Article 2203).

It is clear from the records that NCLPI committed substantial breaches of its Contract of
Lease with LMI. Aside from non-payment of rentals, it appears that NCLPI also breached its
obligations under Paragraphs 4th and 5th of the Contract of Lease which prohibit it from
subleasing the premises or introducing improvements or alterations thereon without LMI’s prior
written consent. As revealed from the evidence presented by PROTON however, even before
NCLPI represented that it would try to negotiate a possible sub-lease of the premises, it
had, without any semblance of authority from LMI, already effectively subleased the subject
premises to PROTON and allowed the latter not only to enter the premises but to renovate the
same. It is true that NCLPI and LMI’s Contract of Lease does not contain a provision expressly
authorizing extrajudicial rescission. LMI can nevertheless rescind the contract, without prior
court approval, pursuant to Art. 1191 of the Civil Code.

An extrajudicial rescission based on grounds not specified in the contract would not
preclude a party to treat the same as rescinded. The rescinding party, however, by such course of
action, subjects himself to the risk of being held liable for damages when the extrajudicial
rescission is questioned by the opposing party in court. In other words, the party who deems the
contract violated may consider it resolved or rescinded, and act accordingly, without previous
court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or was not correct in
law.

2) Having upheld LMI’s extrajudicial rescission of its Contract of Lease, we hold that NCLPI
is required to pay all rental arrearages owing to LMI. The Contract of Lease shows that the parties
did not stipulate an applicable interest rate in case of default in the payment of rentals. Thus, the
foregoing amount of rental arrearages shall earn interest at the rate of six percent (6%) per annum
computed from October 18, 1996, the date of LMI’s extrajudicial demand, until the date of finality
of this judgment. The total amount shall thereafter earn interest at the rate of six percent (6%)
per annum from such finality of judgment until its satisfaction.

As to the security deposit, paragraph 3 of the Contract of Lease provides that, in case of
termination of the lease, the balance of the security deposit must be returned to NCLPI within
seven (7) days. Since there is no question that LMI is retaining the security deposit (after
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deduction of the expenses for water and telephone services), LMI must return the same to NCLPI,
with interest also at the rate shall be six percent (6%) from the time of judicial or extrajudicial
demand.
The records of this case show that the first time NCLPI raised the issue on the security
deposit was in its Brief dated March 25, 2003 filed with the CA. Thus, the interest should be
computed starting only on said date until the finality of this Decision, after which the total
amount shall earn interest at the rate of six percent (6%) from the finality of this Decision until
satisfaction by LMI.

KINDS OF CONTRACTS

UNENFORCEABLE CONTRACTS

IGLESIA FILIPINA INDEPENDIENTE vs. HEIRS of BERNARDINO TAEZA


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

Unenforceable contracts are those which cannot be enforced by a proper action in court,
unless they are ratified, because either they are entered into without or in excess of authority or they
do not comply with the statute of frauds or both of the contracting parties do not possess the
required legal capacity. In the present case, however, respondents' predecessor-in-interest,
Bernardino Taeza, had already obtained a transfer certificate of title in his name over the property in
question. Since the person supposedly transferring ownership was not authorized to do so, the
property had evidently been acquired by mistake. This case clearly falls under the category of
unenforceable contracts mentioned in Article 1403, paragraph (1) of the Civil Code, which provides,
thus: (1) 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.
Facts:

Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious corporation,
was the owner of a parcel of land described as Lot 3653, containing an area of 31,038 square
meters, situated at Ruyu (now Leonarda), Tuguegarao, Cagayan, and covered by Original
Certificate of Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B,
3653-C, and 3653-D. Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, were
likewise sold by Rev. Macario Ga, in his capacity as the Supreme Bishop of the IFI, to Bernardino
Taeza, for the amount of P100,000.00, through installment, with mortgage to secure the payment
of the balance. Subsequently, the defendant allegedly completed the payments.

Bernardino Taeza then occupied a portion of the land. The IFI allegedly demanded the d
Bernardino Taeza to vacate the said land which he failed to do. In January 1990, a complaint for
annulment of sale was filed by the plaintiff-appellee IFI, this time through Supreme Bishop Most
Rev. Tito Pasco, against the Bernardino Taeza.

IFI 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 sanction of the Supreme Council, and finally with the approval of the Supreme
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Bishop, as administrator of all the temporalities of the Church." It is alleged that the sale of the
property in question was done without the required approval and conformity of the entities
mentioned in the Canons; hence, IFI argues that the sale was null and void. In the alternative, IFI
contends that if the contract is not declared null and void, it should nevertheless be found
unenforceable, as the approval and conformity of the other entities in their church was not
obtained, as required by their Canons.

Issue:

Whether then Supreme Bishop Rev. Ga is authorized to enter into a contract of sale in
behalf of IFI

Ruling:

IFI’s Canons, any sale of real property requires not just the consent of the Supreme Bishop
but also the concurrence of the laymen's committee, the parish priest, and the Diocesan Bishop,
as sanctioned by the Supreme Council. However, IFI's Canons do not specify in what form the
conformity of the other church entities should be made known. Thus, as petitioner's witness
stated, in practice, such consent or approval may be assumed as a matter of fact, unless some
opposition is expressed.

Here, the trial court found that the laymen's committee indeed made its objection to the
sale known to the Supreme Bishop. The CA, on the other hand, glossed over the fact of such
opposition from the laymen's committee, opining that the consent of the Supreme Bishop to the
sale was sufficient, especially since the parish priest and the Diocesan Bishop voiced no objection
to the sale. The Court finds it erroneous for the CA to ignore the fact that the laymen's committee
objected to the sale of the lot in question. The Canons require that ALL the church entities listed
in Article IV (a) thereof should give its approval to the transaction. Thus, when the Supreme
Bishop executed the contract of sale of IFI's lot despite the opposition made by the laymen's
committee, he 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: (1) 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;

In Mercado v. Allied Banking Corporation, the Court explained that:

Unenforceable contracts are those which cannot be enforced by a proper action in


court, unless they are ratified, because either they are entered into without or in
excess of authority or they do not comply with the statute of frauds or both of the
contracting parties do not possess the required legal capacity.

In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had


already obtained a transfer certificate of title in his name over the property in question. Since the
person supposedly transferring ownership was not authorized to do so, the property had evidently
been acquired by mistake. In Vda. de Esconde v. Court of Appeals, the Court affirmed the trial
court's ruling that the applicable provision of law in such cases is Article 1456 of the Civil Code
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which states that "[i]f property is acquired through mistake or fraud, the person obtaining it is, by
force of law, considered a trustee of an implied trust for the benefit of the person from whom the
property comes." Thus, in Aznar Brothers Realty Company v. Aying, citing Vda. de Esconde, the
Court clarified the concept of trust involved in said provision, to wit:

Construing this provision of the Civil Code, in Philippine National Bank v. Court of
Appeals, the Court stated:

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a
typical trust, confidence is reposed in one person who is named a trustee for the benefit of
another who is called the cestui que trust, respecting property which is held by the trustee for the
benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate
from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are
linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor
any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends
holding the property for the beneficiary.

HEIRS OF LEANDRO NATIVIDAD and JULIANA V. NATIVIDAD vs. JUANA MAURICIO-


NATIVIDAD and SPOUSES JEAN NATIVIDAD CRUZ and JERRY CRUZ
G.R. No. 198434, February 29, 2016, J. Peralta

Facts:

Sergio Natividad (Sergio), husband of respondent Juana Mauricio-Natividad (Juana) and


father of respondent Jean Natividad-Cruz (Jean), obtained a loan from the Development Bank of
the Philippines (DBP). As security for the loan, Sergio mortgaged two parcels of land, one of
which is co-owned and registered in his name and that of his siblings namely, Leandro, Domingo
and Adoracion. The other mortgaged parcel of land was registered in the name of Sergio and
Juana.

Sergio died without being able to pay his obligations with DBP so Leandro paid Sergio's
loan obligations to prevent the mortgaged properties from being foreclosed.

Since respondents were unable to reimburse Leandro for the advances he made in Sergio's
favor, respondents agreed that Sergio's share in the lot which he co-owned with his siblings and
the other parcel of land in the name of Sergio and Juana, shall be assigned in favor of Leandro and
Juliana. However, respondents failed and refused to honor their undertaking.

Leandro and Juliana (predecessors of herein petitioners) then filed an action for pecific
performance and/or recovery of sum of money against respondents. Respondents denied the
allegations in the complaint and claimed that there is neither verbal nor written agreement
between petitioners and respondents that the latter shall reimburse whatever payment was made
by the former or their predecessor-in-interest.

The RTC ruled in favor of petitioners and ordered respondents to transfer the title of the
subject properties to petitioners. The CA, however, modified the RTC’s Decision and ordered
respondents to reimburse petitioners the amount paid by Leandro with interest.
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Issues:

1) Whether there is a verbal agreement to convey the property shares of Sergio Natividad in
the payment of his obligation and, if so, whether it can be executed.
2) Whether respondents are liable to reimburse the amount paid by Leandro.
3) Whether the interest should be reckoned from the time the date of the demand for
payment or when the parties verbally agreed to convey their property rights.

Ruling:

1) Petitioners failed to prove that there was a verbal agreement. Even granting that the
verbal agreement existed, the assignment of the shares of Sergio in the subject properties in
petitioners' favor cannot be enforced if there is no written contract to such effect.

Under the Statute of Frauds, an agreement to convey real properties shall be


unenforceable by action in the absence of a written note or memorandum thereof and subscribed
by the party charged or by his agent. The respondents' acknowledgment of Sergio's loan
obligations with DBP as embodied in the Extrajudicial Settlement Among Heirs, as well as the
cash voucher which allegedly represents payment for taxes and transfer of title in petitioners'
name do not serve as written notes or memoranda of the alleged verbal agreement.

2) Respondents are liable to reimburse petitioners the amount paid by Leandro.

Article 1236 of the Civil Code provides that “whoever pays for another may demand
from the debtor what he has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment has been beneficial to
the debtor.” In this case, respondents had already acknowledged that Sergio had, in fact,
incurred loan obligations with the DBP.

Moreover, respondents, being Sergio's heirs, succeed not only to the rights of Sergio but
also to his obligations. The following provisions of the Civil Code are clear on this matter, to wit:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to the extent of the value of the inheritance, of a person are
transmitted through his death to another or others either by will or by operation of
law.

Art. 776. The inheritance includes all the property, rights and obligations of a
person which are not extinguished by his death.

Art. 781. The inheritance of a person includes not only the property and the
transmissible rights and obligations existing at the time of his death, but also those
which have accrued thereto since the opening of the succession.

Respondents, being heirs of Sergio, are now liable to settle his transmissible obligations,
which include the amount due to petitioners, prior to the distribution of the remainder of Sergio's
estate to them, in accordance with Section I, Rule 90 of the Rules of Court.
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3) Interest should be computed from the date when petitioners made a written demand for
the payment of respondents' obligation and not from the date when respondents executed the
Extrajudicial Settlement Among Heirs, because there is nothing therein to prove that petitioners,
at that time, made a demand for reimbursement.

However, the rate of interest should be modified in view of Circular No. 799, Series of 2013
by the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), which reduced the "rate of interest
for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest," from 12% to 6% per annum.

HEIRS OF LEANDRO NATIVIDAD and JULIANA V. NATIVIDAD vs. JUANA MAURICIO-


NATIVIDAD and SPOUSES JEAN NATIVIDAD CRUZ and JERRY CRUZ
G.R. No. 198434, February 29, 2016, J. Peralta

Facts:

Sergio Natividad (Sergio), husband of respondent Juana Mauricio-Natividad (Juana) and


father of respondent Jean Natividad-Cruz (Jean), obtained a loan from the Development Bank of
the Philippines (DBP). As security for the loan, Sergio mortgaged two parcels of land, one of
which is co-owned and registered in his name and that of his siblings namely, Leandro, Domingo
and Adoracion. The other mortgaged parcel of land was registered in the name of Sergio and
Juana.

Sergio died without being able to pay his obligations with DBP so Leandro paid Sergio's
loan obligations to prevent the mortgaged properties from being foreclosed.

Since respondents were unable to reimburse Leandro for the advances he made in Sergio's
favor, respondents agreed that Sergio's share in the lot which he co-owned with his siblings and
the other parcel of land in the name of Sergio and Juana, shall be assigned in favor of Leandro and
Juliana. However, respondents failed and refused to honor their undertaking.

Leandro and Juliana (predecessors of herein petitioners) then filed an action for pecific
performance and/or recovery of sum of money against respondents. Respondents denied the
allegations in the complaint and claimed that there is neither verbal nor written agreement
between petitioners and respondents that the latter shall reimburse whatever payment was made
by the former or their predecessor-in-interest.

The RTC ruled in favor of petitioners and ordered respondents to transfer the title of the
subject properties to petitioners. The CA, however, modified the RTC’s Decision and ordered
respondents to reimburse petitioners the amount paid by Leandro with interest.

Issues:

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1) Whether there is a verbal agreement to convey the property shares of Sergio Natividad in
the payment of his obligation and, if so, whether it can be executed.
2) Whether respondents are liable to reimburse the amount paid by Leandro.
3) Whether the interest should be reckoned from the time the date of the demand for
payment or when the parties verbally agreed to convey their property rights.

Ruling:

1) Petitioners failed to prove that there was a verbal agreement. Even granting that the
verbal agreement existed, the assignment of the shares of Sergio in the subject properties in
petitioners' favor cannot be enforced if there is no written contract to such effect.

Under the Statute of Frauds, an agreement to convey real properties shall be


unenforceable by action in the absence of a written note or memorandum thereof and subscribed
by the party charged or by his agent. The respondents' acknowledgment of Sergio's loan
obligations with DBP as embodied in the Extrajudicial Settlement Among Heirs, as well as the
cash voucher which allegedly represents payment for taxes and transfer of title in petitioners'
name do not serve as written notes or memoranda of the alleged verbal agreement.

2) Respondents are liable to reimburse petitioners the amount paid by Leandro.

Article 1236 of the Civil Code provides that “whoever pays for another may demand
from the debtor what he has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment has been beneficial to
the debtor.” In this case, respondents had already acknowledged that Sergio had, in fact,
incurred loan obligations with the DBP.

Moreover, respondents, being Sergio's heirs, succeed not only to the rights of Sergio but
also to his obligations. The following provisions of the Civil Code are clear on this matter, to wit:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to the extent of the value of the inheritance, of a person are
transmitted through his death to another or others either by will or by operation of
law.

Art. 776. The inheritance includes all the property, rights and obligations of a
person which are not extinguished by his death.

Art. 781. The inheritance of a person includes not only the property and the
transmissible rights and obligations existing at the time of his death, but also those
which have accrued thereto since the opening of the succession.

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Respondents, being heirs of Sergio, are now liable to settle his transmissible obligations,
which include the amount due to petitioners, prior to the distribution of the remainder of Sergio's
estate to them, in accordance with Section I, Rule 90 of the Rules of Court.

3) Interest should be computed from the date when petitioners made a written demand for
the payment of respondents' obligation and not from the date when respondents executed the
Extrajudicial Settlement Among Heirs, because there is nothing therein to prove that petitioners,
at that time, made a demand for reimbursement.

However, the rate of interest should be modified in view of Circular No. 799, Series of 2013
by the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), which reduced the "rate of interest
for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest," from 12% to 6% per annum.

VOID CONTRACTS

DOMINGO GONZALO vs. JOHN TARNATE, JR.


G.R. No. 160600. January 15, 2014
J. Bersamin

Tarnate provided the equipment, labor and materials for the project in compliance with his
obligations under the subcontract and the deed of assignment. It was Gonzalo as the contractor
who received the payment for his contract with the DPWH as well as the 10% retention fee that
should have been paid to Tarnate pursuant to the deed of assignment. Considering that Gonzalo
refused despite demands to deliver to Tarnate the stipulated 10% retention fee that would have
compensated the latter for the use of his equipment in the project, Gonzalo would be unjustly
enriched at the expense of Tarnate if the latter was to be barred from recovering because of the rigid
application of the doctrine of in pari delicto.

The application of the principle of in pari delicto is not always rigid. Where there exists a
reasonable justification for the non-application of the said principle, such as public policy, the court
will not apply the principle.

Facts:

Petitioner Domingo Gonzalo (Gonzalo) subcontracted to respondent John Tarnate, Jr. (Tarnate)
the supply of materials and labor for the project under the latter’s business known as JNT
Aggregates. Their agreement stipulated, among others, that Tarnate would pay to Gonzalo eight
percent and four percent of the contract price, respectively, upon Tarnate’s first and second
billing in the project.

In furtherance of their agreement, Gonzalo executed a deed of assignment whereby he, as the
contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the
DPWH for the project. This 10% retention fee was the rent for Tarnate’s equipment that had been
utilized in the project. In the deed of assignment, Gonzalo further authorized Tarnate to use the
official receipt of Gonzalo Construction in the processing of the documents relative to the
collection of the 10% retention fee and in encashing the check to be issued by the DPWH for that
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purpose. The deed of assignment was submitted to the DPWH. During the processing of the
documents for the retention fee, however, Tarnate learned that Gonzalo had unilaterally
rescinded the deed of assignment by means of an affidavit of cancellation of deed of assignment
and that the disbursement voucher for the 10% retention fee had then been issued in the name of
Gonzalo, and the retention fee released to him.

Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he
brought this suit against Gonzalo. In his answer, Gonzalo admitted the deed of assignment and
the authority given therein to Tarnate, but averred that the project had not been fully
implemented because of its cancellation by the DPWH, and that he had then revoked the deed of
assignment. He insisted that the assignment could not stand independently due to its being a
mere product of the subcontract that had been based on his contract with the DPWH; and that
Tarnate, having been fully aware of the illegality and ineffectuality of the deed of assignment from
the time of its execution, could not go to court with unclean hands to invoke any right based on
the invalid deed of assignment or on the product of such deed of assignment.

The RTC ruled in favor of Tarnate. The CA affirmed the RTC.

Issue:

Whether the parties are in pari delicto

Ruling:

According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot
recover from one another and are not entitled to an affirmative relief because they are in pari
delicto or in equal fault. The doctrine of in pari delicto is a universal doctrine that holds that no
action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold or delivered, or the money agreed to be
paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of
any kind will be given to one against the other.

Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An accepted
exception arises when its application contravenes well-established public policy. In this
jurisdiction, public policy has been defined as “that principle of the law which holds that no
subject or citizen can lawfully do that which has a tendency to be injurious to the public or
against the public good.”

Unjust enrichment exists, according to Hulst v. PR Builders, Inc., “when a person unjustly retains a
benefit at the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience.” The prevention of unjust
enrichment is a recognized public policy of the State, for Article 22 of the Civil Code explicitly
provides that “[e]very 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 to him.” It is well to note that Article 22 “is part of the chapter of
the Civil Code on Human Relations, the provisions of which were formulated as basic principles
to be observed for the rightful relationship between human beings and for the stability of the
social order; designed to indicate certain norms that spring from the fountain of good conscience;

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guides for human conduct that should run as golden threads through society to the end that law
may approach its supreme ideal which is the sway and dominance of justice.”

There is no question that Tarnate provided the equipment, labor and materials for the project in
compliance with his obligations under the subcontract and the deed of assignment; and that it was
Gonzalo as the contractor who received the payment for his contract with the DPWH as well as
the 10% retention fee that should have been paid to Tarnate pursuant to the deed of
assignment. Considering that Gonzalo refused despite demands to deliver to Tarnate the
stipulated 10% retention fee that would have compensated the latter for the use of his equipment
in the project, Gonzalo would be unjustly enriched at the expense of Tarnate if the latter was to
be barred from recovering because of the rigid application of the doctrine of in pari delicto. The
prevention of unjust enrichment called for the exception to apply in Tarnate’s favor.

FLORANTE VITUG vs. EVANGELINE A. ABUDA


G.R. No. 201264, January 11, 2016, J. Leonen

Facts:

On March 17, 1997, Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug. As
security for the loan, Vitug mortgaged to Abuda his property in Tondo Foreshore along R-10,
Block A-50-3, Del Pan to Kagitingan Streets, Tondo, Manila. The property was then subject of a
conditional Contract to Sell between the National Housing Authority and Vitug.

On November 17, 1997, the parties executed a "restructured" mortgage contract on the
property to secure the amount of P600,000.00 representing the original P250,000.00 loan,
additional loans,5 and subsequent credit accommodations given by Abuda to Vitug with an
interest of five (5) percent per month. By then, the property was covered by Transfer Certificate of
Title No. 234246 under Vitug's name.

Spouses Vitug failed to pay their loans despite Abuda's demands. Hence, on November 21,
2003, Abuda filed a Complaint for Foreclosure of Property before the Regional Trial Court of
Manila.

Issues:

1) Whether the restriction clause in petitioner's title rendered invalid the real estate
mortgage he and respondent Evangeline Abuda executed.
2) Whether petitioner's property is a family home that is free from execution, forced sale, or
attachment under the Family Code.
3) Whether the interest rate imposed on the loan is unconscionable.

Ruling:

1) Contracts entered into in violation of restrictions on a property owner's rights do not


always have the effect of making them void ab initio.

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Contracts that contain provisions in favor of one party may be void ab initio or
voidable. Contracts that lack consideration, those that are against public order or public policy,
and those that are attended by illegality or immorality are void ab initio.

Contracts that only subject a property owner's property rights to conditions or limitations
but otherwise contain all the elements of a valid contract are merely voidable by the person in
whose favor the conditions or limitations are made.

The mortgage contract entered into by petitioner and respondent contains all the
elements of a valid contract of mortgage. The trial court and the Court of Appeals found no
irregularity in its execution. There was no showing that it was attended by fraud, illegality,
immorality, force or intimidation, and lack of consideration.

At most, therefore, the restrictions made the contract entered into by the parties
voidable by the person in whose favor they were made-in this case, by the National Housing
Authority. Petitioner has no actionable right or cause of action based on those restrictions.

Having the right to assail the validity of the mortgage contract based on violation of the
restrictions, the National Housing Authority may seek the annulment of the mortgage
contract. Without any action from the National Housing Authority, rights and obligations,
including the right to foreclose the property in case of non-payment of the secured loan, are still
enforceable between the parties that executed the mortgage contract.

The voidable nature of contracts entered into in violation of restrictions or conditions


necessarily implies that the person in whose favor the restrictions were made has two (2) options.
It may either: (1) waive its rights accruing from such restrictions, in which case, the duly executed
subsequent contract remains valid; or (2) assail the subsequent contract based on the breach of
restrictions imposed in its favor.

2) Petitioner’s property is not free from execution, forced sale, or attachment. Even though
petitioner's property has been constituted as a family home, it is not exempt from execution.
Article 155 of the Family Code explicitly provides that debts secured by mortgages are exempted
from the rule against execution, forced sale, or attachment of family home:

Art. 155. The family home shall be exempt from execution, forced
sale or attachment except:
xxx
(3) For debts secured by mortgages on the premises before or after
such constitution [.]

Since petitioner's property was voluntarily used by him as security for a loan he obtained
from respondent, it may be subject to execution and attachment.

3) Parties are free to stipulate interest rates in their loan contracts in view of the suspension
of the implementation of the Usury Law ceiling on interest effective January 1, 1983. In stipulating
interest rates, parties must ensure that the rates are neither iniquitous nor unconscionable.
Iniquitous or unconscionable interest rates are illegal and, therefore, void for being against public

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morals. Thus, even if the parties voluntarily agree to an interest rate, courts are given the
discretionary power to equitably reduce it if it is later found to be iniquitous or unconscionable.

An interest rate is not inherently conscionable or unconscionable. Interest rates become


unconscionable in light of the context in which they were imposed or applied. Under the
circumstances of this case, we find no reason to uphold the stipulated interest rates of 5% to 10%
per month on petitioner's loan. Petitioner obtained the loan out of extreme necessity. As pointed
out by respondent, the property would have been earlier foreclosed by the National Housing
Authority if not for the loan. Moreover, it would be unjust to impose a heavier burden upon
petitioner, who would already be losing his and his family's home. Respondent would not be
unjustly deprived if the interest rate is reduced.

However, the interest rates should be modified according to the guidelines set forth
in Nacar v. Gallery Frames:

II. With regard particularly to an award of interest in the concept of


actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
credit.

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REBECCA FULLIDO vs. GINO GRILLI


G.R. No. 202223, February 29, 2016, J. Mendoza

Facts:

Gino Grilli, an Italian national, met Rebecca in Bohol and courted her. To build a
residential house where he can stay during his visits in the Philippines, Gino helped Rebecca buy
for her parents a lot located in Dauis, Bohol; the lot was eventually registered in her name under
TCT No. 30626, and a house was constructed thereon where Gino and Rebecca maintained their
common-law relationship.

In 1998, Gino and Rebecca executed a contract of lease, a memorandum of agreement, and
a special power of attorney to define their respective rights over the property. Under their
agreements, Gino as lessee, would rent the lot for a period of 50 years, to be automatically
renewed fro another 50 years upon its expiration, for the amount of P10,000.00 for the whole term
of the lease, and Rebecca as the lessor is prohibited from selling, donating, or encumbering the lot
without the consent of Gino. The MOA on the other hand stated that Gino owned the house and
lot, and that should their common-law relationship be terminated, Rebecca could only sell the lot
to whomever Gino so desired. The SPA on the other hand allowed Gino to administer, manage
and transfer the lot in favor of Rebecca.

At first, their relationship were harmonious; however, it soon turned sour, both charging
each other with infidelity. They could not agree on who should manage the property. Gino thus
sent Rebecca notice to vacate. Gino later filed a complaint for unlawful detainer against Rebecca
before the MCTC. In his complaint, Gino alleged that their relationship turned sour when she
gave birth to a child, which she alleged was Gino’s child. Gino doubted it as the child’s features
clearly did not resemble his. Rebecca later admitted that it was not his child. Because of this,
Gino allowed her to stay in one of the rooms, but did not demand rent.

After a year, Rebecca became more hostile; allowing her relatives to stay in the house,
necessitating repairs every time he comes back to the Philippines; since he could not tolerate
anymore Rebecca’s hostility, he decided to file the complaint.

Rebecca on the other hand alleged that their common-law relationship lasted for 18 years
when Gino found a younger woman. He then began to harass her and physically hurt her. When
she refused to leave their house, Gino again harassed, intimidated and threatened to hurt her,
forcing her to file a petition for issuance of temporary restraining order and PPO under RA 9262
against him. The RTC granted her petition and ordered Gino excluded from the property.

The MCTC ruled in favor of Rebecca, dismissing the case. The RTC, however, reversed the
MCTC’s ruling and held that Grilli had the exclusive right to use and possess the house and lot by
virtue of the contract of lease executed by the parties. Since the period of lease had not yet
expired, Fullido, as lessor, had the obligation to respect the peaceful and adequate enjoyment of
the leased premises by Grilli as lessee. As to the TPO, the RTC held that the same had no bearing
in the present case, which merely involved the possession of the leased property.

The CA affirmed the RTC ruling, emphasizing that in an ejectment case, the only issue to
be resolved would be the physical possession of the property. The CA was also of the view that as
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Fullido executed both the MOA and the contract of lease, which gave Grilli the possession and
use of the house and lot, the same constituted as a judicial admission that it was Grilli who had
the better right of physical possession. Lastly, the CA stated that the TPO was without prejudice
to any other action that might be filed by the parties.

Issues:

1) Whether a contract could be declared void in a summary action of unlawful detainer.


2) Whether the assailed lease contract and MOA are null and void.
3) Whether Grilli has a cause of action for unlawful detainer against Fullido.

Ruling:

1) A contract could be declared void in a summary action of unlawful detainer.

Contracts may be declared void even in a summary action for unlawful detainer because,
precisely, void contracts do not produce legal effect and cannot be the source of any rights. Void
contracts may not be invoked as a valid action or defense in any court proceeding, including an
ejectment suit.

2) The assailed lease contract and MOA are null and void.

Under Section 1 of Article XIII of the 1935 Constitution, natural resources shall not be
alienated, except with respect to public agricultural lands and in such cases, the alienation is
limited to Filipino citizens. Concomitantly, Section 5 thereof states that, save in cases of
hereditary succession, no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain
in the Philippines.

The prohibition, however, is not limited to the sale of lands to foreigners. It also covers
leases of lands amounting to the transfer of all or substantially all the rights of dominion. 2)
Respondents are liable to reimburse petitioners the amount paid by Leandro. Where a
scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens is
readily revealed as the purpose for the contracts, then the illicit purpose becomes the illegal cause
rendering the contracts void. Thus, if an alien is given not only a lease of, but also an option to
buy, a piece of land by virtue of which the Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years. However, a lease contract in favor of aliens for a reasonable
period was valid as long as it did not have any scheme to circumvent the constitutional
prohibition.

Presidential Decree (P.D.) No. 471 provides that the maximum period allowable for the
duration of leases of private lands to aliens or alien-owned corporations, associations, or entities
not qualified to acquire private lands in the Philippines shall be twenty-five (25) years, renewable
for another period of twenty-five (25) years upon mutual agreement of both lessor and lessee.⁠ It
also provides that any contract or agreement made or executed in violation thereof shall be null
and void ab initio.

Here, the lease in favor of Grilli was for a period of 50 years, automatically extended for
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another 50) years upon the expiration of the original period. Moreover, it strictly prohibited
Fullido from selling, donating, or encumbering her land to anyone without the written consent of
Grilli. For a measly consideration of P 10,000.00, Grilli would be able to absolutely occupy the
land of Fullido for 100 years, and she is powerless to dispose the same. The terms of lease
practically deprived Fullido of her property rights and effectively transferred the same to Grilli.
Worse, the dominion of Grilli over the land had been firmly cemented by the terms of the MOA
as it reinforced Grilli’s property rights over the land. Clearly, the lease contract and the MOA in
the present case are null and void for virtually transferring the reigns of the land to a foreigner.

3) Grilli does not have a cause of action for unlawful detainer against Fullido.

One of the requirements for filing a complaint for unlawful detainer under Section 1 of
Rule 70 of the Rules of Court is that it should be filed by a lessor, vendor, vendee, or other person
against whom the possession of any land or building is unlawfully withheld. Considering that the
lease contract and the MOA are null and void for being unconstitutional, Grilli cannot be said to
have a right of possession over the property. A person who does not have any right over a
property from the beginning cannot eject another person possessing the same.

TOMAS P. TAN, JR. vs. JOSE G. HOSANA


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

Facts:

On January 14, 1979, Jose Hosana (Jose) married Milagros Hosana (Milagros). They bought
a house and lot during their marriage in Naga City. On January 13, 1998, Milagros sold to Tomas
Tan (Tomas) the said property for P200,000.00. On October 19, 2001, Jose filed a Complaint for
Annulment of Sale against Milagros averring that while he was working in Japan, Milagros,
without his consent and knowledge, conspired with Tomas to execute the SPA by forging Jose’s
signature making it appear that Jose had authorized Milagros to sell the subject property to
Tomas.

Jose was furious when he learned of the sale and went back to the Philippines. Jose and
Bonifacio verified with the Register of Deeds and discovered that the title covering the disputed
property had been transferred to Tomas. Bonifacio further testified that Jose’s signature in the
SPA was forged. He presented documents containing the signature of Jose for comparison.

With the assurance that all the documents were in order, Tomas made a partial payment
of P350,000.00 and another P350,000.00 upon the execution of the Deed of Absolute Sale.
Tomas noticed that the consideration written by Milagros on the Deed was only P200,000.00; he
inquired why it was lower than the actual consideration paid. Milagros explained that it was done
to save on taxes. She told Tomas she needed money badly and had to sell the house because Jose
had stopped sending her money.

Issue:

Whether the Deed of Sale is void.

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Ruling:

The Deed of Sale is void.

A void or inexistent has no force and effect from the very beginning. This rule applies to
contracts that are declared void by positive provision of law, as in the case of a sale of conjugal
property without the other spouse’s 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.

There is no question on the presence of the consideration of the sale, except with respect
to the actual amount paid. While the deed of sale has no force and effect as a contract, it remains
prima facie evidence of the actual consideration paid.

MERCEDES N. ABELLA, ET AL. 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
G.R. No. 182629 February 24, 2016, J. Jardeleza

Facts:

Francisca San Juan (Francisca) was a tenant to a six thousand-square meter parcel of land
located at Balatas, Naga City (Balatas property) owned by petitioners. On January 28, 1981, Dr.
Manuel Abella (Dr. Abella) and Francisca entered into an Agreement whereby the Balatas
property will be exchanged with a 6000-square meter agricultural lot situated at Cararayan, Naga
City (Cararayan property). They also agreed that Francisca shall receive the amount of P5,250.00
as disturbance compensation and a 120-square meter home lot situated at Balatas, Naga City.

Subsequently, the Cararayan property was declared in the name of Francisca and the
home lot at Balatas, Naga City was sold to Felimon Delfino Jr. (Delfino) for the amount of
P7,200.00. However, the previous title of the portion lot was not cancelled. Sometime in 1983,
Benigna San Juan Vasquez (Benigna), daughter of Francisca, sought permission from, and was
allowed by Mercedes Abella (Mrs. Abella), wife of Dr. Abella, to construct a small house on the
Balatas property.

Thus, on different occasions, Benigna and her children constructed their residential
houses on the property. Later, when Mrs. Abella requested Benigna and her children to vacate the
property, they refused, claiming ownership. This prompted Mrs. Abella to file an action for
unlawful detainer against them. In 2004, the MTC ruled in favor of Dr. Abella in the unlawful
detainer case. The following year, Benigna and Francisca’s heirs filed a complaint for quieting of
title and declaration of ownership against Mrs. Abella.

Issue:

Whether the agreement between Dr. Abella and Francisca is valid.

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Ruling:

No. The agreement is void for contravening Presidential Decree 27.

PD 27 provides for only two exceptions to the prohibition on transfer, namely, (1) transfer
by hereditary succession and (2) transfer to the Government. To insure the owner’s continued
possession and enjoyment 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.

The then Ministry of Agrarian Reform issued the following Memorandum Circular:

"Despite the above prohibition, however, there are reports that many farmer-
beneficiaries of PD 27 have transferred the owners/tip, rights, and/or
possession of their farms/home lots 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 prohibition against transfers to persons other than the heirs of other qualified
beneficiaries stems from the policy of the Government to develop generations of farmers to attain
its avowed goal to have an adequate and sustained agricultural production.

The Court ruled in Caliwag-Carmona v. Court of Appeals, that sales or transfers of lands
made in violation of PD 27 and EO 228 in favor of persons other than the Government by other
legal means or to the farmer's successor by hereditary succession are null and void. The
prohibition even extends to the surrender of the land to the former landowner.

In the case at bar, the kind of transfer contemplated by the parties is one which is
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.

Moreover, 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. 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.

TOMAS P. TAN, JR. vs. JOSE G. HOSANA


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

Facts:

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On January 14, 1979, Jose Hosana (Jose) married Milagros Hosana (Milagros). They bought
a house and lot during their marriage in Naga City. On January 13, 1998, Milagros sold to Tomas
Tan (Tomas) the said property for P200,000.00. On October 19, 2001, Jose filed a Complaint for
Annulment of Sale against Milagros averring that while he was working in Japan, Milagros,
without his consent and knowledge, conspired with Tomas to execute the SPA by forging Jose’s
signature making it appear that Jose had authorized Milagros to sell the subject property to
Tomas.

Jose was furious when he learned of the sale and went back to the Philippines. Jose and
Bonifacio verified with the Register of Deeds and discovered that the title covering the disputed
property had been transferred to Tomas. Bonifacio further testified that Jose’s signature in the
SPA was forged. He presented documents containing the signature of Jose for comparison.

With the assurance that all the documents were in order, Tomas made a partial payment
of P350,000.00 and another P350,000.00 upon the execution of the Deed of Absolute Sale.
Tomas noticed that the consideration written by Milagros on the Deed was only P200,000.00; he
inquired why it was lower than the actual consideration paid. Milagros explained that it was done
to save on taxes. She told Tomas she needed money badly and had to sell the house because Jose
had stopped sending her money.

Issue:

Whether the Deed of Sale is void.

Ruling:

The Deed of Sale is void.

A void or inexistent has no force and effect from the very beginning. This rule applies to
contracts that are declared void by positive provision of law, as in the case of a sale of conjugal
property without the other spouse’s 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.

There is no question on the presence of the consideration of the sale, except with respect
to the actual amount paid. While the deed of sale has no force and effect as a contract, it remains
prima facie evidence of the actual consideration paid.

SALES

ASSIGNMENT OF CREDIT

SPOUSES MICHELLE M. NOYNAY and NOEL S. NOYNAY vs. CITIHOMES BUILDER AND
DEVELOPMENT, INC.
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G.R. No. 204160, September 22, 2014, J. Mendoza

The assignment of all contractual rights of an assignor in favor of an assignee relegates the
former to the status of a mere stranger to the jural relations established under the contract to sell.

Facts:

On December 29, 2004, Citihomes and Spouses Noynay executed a contract to sell
covering the sale of a house and lot located in San Jose Del Monte, Bulacan covered by Transfer
Certificate of Title (TCT) No. T-43469. Under the terms of the contract, the price of the property
was fixed at P915,895.00, with a downpayment of P183,179.00, and the remaining balance to be
paid in 120 equal monthly installments with an annual interest rate of 21% commencing on
February 8, 2005 and every 8th day of the month thereafter.

Subsequently, on May 12, 2005, Citihomes executed the Deed of Assignment of Claims and
Accounts in favor of United Coconut Planters Bank on May 12, 2005. Under the said agreement,
UCPB purchased from Citihomes various accounts, including the account of Spouses Noynay, for
a consideration of P100,000,000.00. In turn, Citihomes assigned its rights, titles, interests, and
participation in various contracts to sell with its buyers to UCPB.

In February of 2007, Spouses Noynay allegedly started to default in their payments. On


June 15, 2009, Citihomes sent its final demand letter asking Spouses Noynay to vacate the
premises due to their continued failure to pay the arrears. Spouses Noynay did not heed the
demand, forcing Citihomes to file the complaint for unlawful detainer before the MTCC on July
29, 2009.

In its March 26, 2010 Decision, the MTCC dismissed the complaint. It considered the
annotation in the certificate of title, which was dated prior to the filing of the complaint, which
showed that Citihomes had executed the Assignment favor of UCPB, as having the legal effect of
divesting Citihomes of its interest and right over the subject property. In its September 17, 2010
Decision, the RTC stated that the MTCC erred in interpreting the deed of assignment as having
the effect of relinquishing all of Citihomes’ rights over the subject property.

Issue:

Whether or not Citihomes had cause of action for ejectment against Spouses Noynay

Ruling:

No, it did not.

The determination of whether Citihomes has a right to ask for the eviction of Spouses
Noynay entirely depends on the review of the Assignment of Claims and Accounts it executed in
favor of UCPB. If it turns out that what was assigned merely covered the collectible amounts or
receivables due from Spouses Noynay, Citihomes would necessarily have the right to demand the
latter’s eviction as only an aspect of the contract to sell passed on to UCPB. Simply put, because
an assignment covered only credit dues, the relation between Citihomes as the seller and Spouses
Noynay as the buyer under their Contract to Sell remained. If on the other hand, it appears that
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the assignment covered all of Citihomes’ rights, obligations and benefits in favor of UCPB, the
conclusion would certainly be different.

Clearly, the conclusion of the MTCC had factual and legal bases. Evident from the tenor of
the agreement was the intent on the part of Citihomes, as assignor, to assign all of its rights and
benefits in favor of UCPB. Specifically, what Citihomes did was an assignment or transfer of all
contractual rights arising from various contracts to sell, including the subject contract to sell, with
all the rights, obligations and benefits appurtenant thereto in favor of UCPB for a consideration of
P100,000,000.00. Indeed, the intent was more than just an assignment of credit. This intent to
assign all rights under the contract to sell was even fortified by the delivery of documents such as
the pertinent contracts to sell and the TCTs. Had it been the intent of Citihomes to assign merely
its interest in the receivables due from Spouses Noynay, the tenor of the deed of assignment
would have been couched in very specific terms.

In this case, the execution of the Assignment in favor of UCPB relegated Citihomes to the
status of a mere stranger to the jural relations established under the contract to sell. With UCPB
as the assignee, it is clear that Citihomes has ceased to have any right to cancel the contract to sell
with Spouses Noynay. Without this right, which has been vested in UCPB, Citihomes
undoubtedly had no cause of action against Spouses Noynay.

SPOUSES CHIN KONG WONG CHOI AND ANA O. CHUA vs. UNITED COCONUT
PLANTERS BANK
G.R. No. 207747, March 11, 2015, J. Carpio

UCPB assigned accounts receivable to Primetown. Thereafter, Spouses filed a complaint


against the latter for refund for payment. The court ruled that the agreement conveys the
straightforward intention of Primetown to “sell, assign, transfer, convey and set over” to UCPB
the receivables, rights, titles, interests and participation over the units covered by the contracts to
sell. It explicitly excluded any and all liabilities and obligations, which Primetown assumed under
the contracts to sell. In every case, the obligations between assignor and assignee will depend upon
the judicial relation which is the basis of the assignment. An assignment will be construed in
accordance with the rules of construction governing contracts generally, the primary object being
always to ascertain and carry out the intention of the parties. This intention is to be derived from a
consideration of the whole instrument, all parts of which should be given effect, and is to be sought
in the words and language employed.

Facts:

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.

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On 23 April 1998, respondent United Coconut Planters Bank (UCPB) 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 [Primetown’sKiener] x xx 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.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.

Ruling:

No. Primetown will not assume UCPB obligation to pay Sps Choi

An assignment of credit has been defined as an agreement by virtue of which the owner of
a credit, known as the assignor, by a legal cause - such as sale, dation in payment or exchange or
donation - and without need of the debtor’s consent, transfers that credit and its accessory rights
to another, known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could have enforced it against the debtor. In every case, the obligations between assignor
and assignee will depend upon the judicial relation which is the basis of the assignment.An
assignment will be construed in accordance with the rules of construction governing contracts
generally, the primary object being always to ascertain and carry out the intention of the
parties.This intention is to be derived from a consideration of the whole instrument, all parts of
which should be given effect, and is to be sought in the words and language employed.

In the present case, the Agreement between Primetown and UCPB provided that
Primetown, in consideration of P748,000,000.00, “assigned, transferred, conveyed and set over
unto [UCPB] all Accounts Receivables accruing from [Primetown’sKiener] x xx 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.”

The Agreement conveys the straightforward intention of Primetown to “sell, assign,


transfer, convey and set over” to UCPB the receivables, rights, titles, interests and
participation over the units covered by the contracts to sell. It explicitly excluded any and all
liabilities and obligations, which Primetown assumed under the contracts to sell.

The intention to exclude Primetown’s liabilities and obligations is further shown by


Primetown’s subsequent letters to the buyers, which stated that “this payment arrangement shall
in no way cause any amendment of the other terms and conditions, nor the cancellation of the
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Contract to Sell you have executed with [Primetown].”It is a basic rule that if the terms of a
contract are clear and leave no doubt upon the intention of the parties, the literal meaning shall
control. The words should be construed according to their ordinary meaning, unless something in
the assignment indicates that they are being used in a special sense.Furthermore, in order to
judge the intention of the contracting parties, their contemporaneous and subsequent acts shall
be principally considered.

CONDITIONAL SALE

SPOUSES JOSE C. ROQUE AND BEATRICE DELA CRUZ ROQUE, ET AL vs. MA.
PAMELA AGUADO, ET AL
G.R. No. 193787, April 7, 2014, J. Perlas- Bernabe

It is essential to distinguish between a contract to sell and a conditional contract of sale


specially in cases where the subject property is sold by the owner not to the party the seller
contracted with, but to a third person. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfilment of the suspensive condition such
as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and
the prospective buyer cannot seek the relief of reconveyance of the property. There is no doublesale
in such case. Title to the property will transfer to the buyer after registration because there is no
defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the
intending buyer.

Facts:

Petitioners-spouses Jose C. Roque and Beatriz dela Cruz Roque (Sps. Roque) and the
original owners of the then unregistered Lot 18089,Rivero, et al. executed a Deed of Conditional
Sale of Real Property(1977 Deedof Conditional Sale) over a portion of Lot 18089 for a
consideration. The parties agreed that Sps. Roque shall make an initial payment upon signing,
while the remaining balance of the purchase price shall be payable upon the registration of Lot
18089, as well as the segregation and the concomitant issuance of a separate title over the subject
portion in their names. After the deed’s execution, Sps. Roque took possession and introduced
improvements on the subject portion. The spouses failed to pay the remaining balance of the
price as agreed in the Conditional Deed of Sale.

Subsequently, Sabug Jr. applied for a free patent over the entire Lot 18089 and was
eventually issued Original Certificate of Title in his name. Later, Sabug, Jr., through a Deed of
Absolute Sale(1999 Deed of Absolute Sale), sold Lot 18089 to Ma. Pamela P. Aguado (Aguado),
who, in turn, caused the cancellation of OCT and the issuance of Transfer Certificate of Title in
her name. Thereafter, Aguado obtained an P8, 000,000.00 loan from the Land Bank of the
Philippines (Land Bank) secured by a mortgage over Lot 18089.When she failed to pay her loan
obligation, Land Bank commenced extrajudicial foreclosure proceedings and eventually tendered
the highest bid in the auction sale. Upon Aguado’s failure to redeem the subject property, Land
Bank consolidated its ownership, and TCT was issued in its name.

Later, Sps. Roque filed a complaint for reconveyance, annulment of sale, deed of real
estate mortgage, foreclosure, and certificate of sale, and damages before the RTC. RTC dismissed
the complaint and found that the latter failed to establish their ownership over the subject
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portion. On appeal, the Court of Appeals (CA) affirmed the RTC’s findings. Sps. Roque argued
that being the first purchasers and in actual possession of the disputed portion, they assert that
they have a better right over the portion of Lot 18089 and, hence, cannot be ousted therefrom by
Land Bank.

Isuue:

Whether or not the 1977 Deed of Conditional Sale is one of contract of sale that vests title
and ownership to Spouses Roque

Ruling:

No. Examining its provisions, the Court finds that the stipulation above-highlighted shows
that the 1977 Deed of Conditional Sale is actually in the nature of a contract to sell and not one of
sale contrary to Sps. Roque’s belief.

No. Examining its provisions, the Court finds that the stipulation above-highlighted shows
that the 1977 Deed of Conditional Sale is actually in the nature of a contract to sell and not one of
sale contrary to Sps. Roque’s belief.

In this relation, it has been consistently ruled that where the seller promises to execute a
deed of absolute sale upon the completion by the buyer of the payment of the purchase price, the
contract is only a contract to sell even if their agreement is denominated as a Deed of Conditional
Sale, as in this case. This treatment stems from the legal characterization of a contract to sell, that
is, a bilateral contract whereby the prospective seller, while expressly reserving the ownership of
the subject property despite delivery thereof to the prospective buyer, binds himself to sell the
subject property exclusively to the prospective buyer upon fulfillment of the condition agreed
upon, such as, the full payment of the purchase price. Elsewise stated, in a contract to sell,
ownership is retained by the vendor and is not to pass to the vendee until full payment of the
purchase price.

In contracts to sell the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition, that is, the full payment of the purchase price by the
buyer. It is only upon the existence of the contract of sale that the seller becomes obligated to
transfer the ownership of the thing sold to the buyer. Prior to the existence of the contract of sale,
the seller is not obligated to transfer the ownership to the buyer, even if there is a contract to sell
between them. Here, it is undisputed that Sps. Roque have not paid the final installment of the
purchase price as such, the condition which would have triggered the parties’ obligation to enter
into and thereby perfect a contract of sale in order to effectively transfer the ownership of the
subject portion from the sellers (i.e., Rivero, et al.) to the buyers (Sps. Roque) cannot be deemed
to have been fulfilled. Consequently, the latter cannot validly claim ownership over the subject
portion even if they had made an initial payment and even took possession of the same.

DELIVERY

NFF INDUSTRIAL CORPORATION vs. G & L ASSOCIATED BROKERAGE


AND/OR GERARDO TRINIDAD
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G.R. No. 178169, January 12, 2015, J. Peralta

Under the Civil Code, the vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale. The ownership of thing sold is considered acquired
by the vendee once it is delivered to him. Thus, ownership does not pass by mere stipulation but only
by delivery.In the Law on Sales, delivery may be either actual or constructive, but both forms of
delivery contemplate "the absolute giving up of the control and custody of the property on the part
of the vendor, and the assumption of the same by the vendee."

Facts:

Petitioner NFF Industrial Corporation is engaged in the business of manufacturing bulk


bags, while respondent G& L Associated Brokerage, Inc. is among its customers.

According to NFF Industrial, G&L Associated ordered 1,000 pieces of bulk bags from
petitioner, at P380.00 per piece, payable within 30)days from delivery. In the Purchase Order, an
instruction was made that the bulk bags were for immediate delivery to “G & L Associated
Brokerage, Inc., c/o Hi-Cement Corporation, Norzagaray, Bulacan.”Shortly thereafter, respondent
company ordered an additional 1,000 pieces of bulk bags. NFF Industrial Corporation alleged that
the aforementioned deliveries were duly acknowledged. NFF Industrial Corporation also averred
that all the delivery receipts were rubber stamped, dated and signed by the security guard-on-
duty, as well as other representatives of respondent company. All deliveries made were likewise
covered by sales invoices. Based on the said invoices, the total sales price is P760,000.00.

On the other hand, respondents alleged, it ordered from petitioner 1,000 pieces of bulk
bags from petitioner at a unit price of P380.00 per piece. The said bulk bags were to be used by
respondent company for the purpose of hauling cement from Hi-Cement Corporation at
Norzagaray, Bulacan, to a dam project, the respondent company having been designated as one of
the many haulers at the Hi-Cement Corporation. According to respondents, the Purchase Order
specifically provides that the bulk bags were to be delivered at Hi-Cement Corporation to Mr.
Raul Ambrosio, however, the ordered bulk bags were not delivered to respondent company, the
same not having been received by the authorized representative in conformity with the terms of
the Purchase Order. Meanwhile, 30 days elapsed from the time the last alleged delivery was made
but no payment was effected by respondent company. This prompted petitioner to send a
demand letter to respondent company. As respondent company failed to respond to the demand
letter, petitioner followed up its claim from the former through a series of telephone calls. As the
demands remained unheeded, petitioner filed a complaint for sum of money against respondents.

The RTC rendered a judgment in favor of NFF INDUSTRIAL CORPORATION and against
the G & L Associated Brokerage, Inc. The decision of the RTC was reversed by CA. Hence, this
appeal. Petitioner avers that it has delivered the bulk bags to respondent company, which
effectively placed the latter in control and possession thereof, as in fact, respondent company had
made use of the said bulk bags in the ordinary course of its business activities.

Issue:

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Whether or not there was valid delivery on the part of petitioner in accordance with law,
which would give rise to an obligation to pay on the part of respondent for the value of the bulk
bags.

Ruling:

The Court found that there were various occasions of delivery by petitioner to
respondents, and the same was duly acknowledged by respondent Trinidad.It is clear that
petitioner has actually delivered the bulk bags to respondent company, albeit the same was not
delivered to the person named in the Purchase Order. In addition, by allowing petitioner’s
employee to pass through the guard-on-duty, who allowed the entry of delivery into the premises
of Hi-Cement, which is the designated delivery site, respondents had effectively abandoned
whatever infirmities may have attended the delivery of the bulk bags. As a matter of fact, if
respondents were wary about the manner of delivery, such issue should have been brought up
immediately after the first delivery was made. Instead, Mr. Trinidad acknowledged receipt of the
first batch of the bulk bags and even followed up the remaining balance of the orders for delivery.

The Court reiterated the correct decision of RTC:

Initial delivery of 400 pieces of bulk bags were made on July 31, 1999 and
then followed by another delivery of additional bulk bags on August 5, 1999 while
the remaining 600 pieces of bags were delivered on August 6, 1999 to complete the
2,000 pieces ordered by the defendant. All these deliveries were made to defendant’s
designated address at “G & L Associated Brokerage, Inc., C/O HI CEMENT
CORPORATION, NORZAGARAY BULACAN.” These deliveries were made in
compliance with Hi-Cement’s standard/regular operating procedure. It
passed thru guard on duty, who allowed the entry of delivery into the
premises of Hi-Cement, which is the designated delivery site and then a
representative of the defendant thereat received the delivered items in
behalf of the defendant.

However, the Court found merit in petitioner’s argument that despite its failure to strictly
comply with the instruction to deliver the bulk bags to the specified person, acceptance of
delivery may be inferred from the conduct of the respondents. Accordingly, respondents may be
held liable to pay for the price of the bulk bags. The use by respondent of the bulk bags is an act
of dominion, which is inconsistent with the ownership of petitioner. The bulk bags delivered by
petitioner at the Union Cement Plant were actually used by respondents, and the Court cannot
allow respondents to enrich themselves at the expense of another. The evidence of petitioner
preponderantly established that there was valid delivery of bulk bags, which gives rise to
respondent company’s corresponding obligation to pay therefor.

PURCHASE IN GOOD FAITH

RAUL SABERON, JOAN F. SABERON and JACQUELINE SABERON vs. OSCAR VENTANILLA,
JR., and CARMEN GLORIA D. VENTANILLA
G.R. No. 192669, April 21, 2014, J. Mendoza

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While a third party may not be considered as innocent purchaser for value, he can still
rightfully claim for actual and compensatory damages, considering that he did not join the other
defendants in their efforts to frustrate plaintiffs’ rights over the disputed properties and who might
well be an unwilling victim of the fraudulent scheme employed by the other defendants.

Nonetheless, even if when no bad faith can be ascribed to the parties alike, an equal footing
of the parties necessarily tilts in favor of the superiority of the notice of levy and the constructive
notice against the whole world which the original party to the contract of sale had produced and
which effectively bound third persons. Thus, the latter has two options available: 1) they may
exercise the right to appropriate after payment of indemnity representing the value of the
improvements introduced and the necessary and useful expenses defrayed on the subject lots; or 2)
they may forego payment of the said indemnity and instead, oblige the Saberons to pay the price of
the land.

Facts:

Manila Remnant Co., Inc. (MRCI) being the owner of several parcels of land situated in
Quezon City, constituting the subdivision known as Capitol Homes Subdivision Nos. I and II.
MRCI and A.U. Valencia & Co. Inc. (AUVC) executed two (2) contracts to sell covering Lots 1 and
2 of Block 17, in favor of Oscar C. Ventanilla, Jr. and Carmen Gloria D. Ventanilla (Ventanillas).
The Ventanillas paid the down payment as stipulated in the two (2) contracts.

Valencia (President of AUVC), holding out himself as president of MRCI, and without the
knowledge of the Ventanillas, resold the same property to Carlos Crisostomo (Crisostomo),
without any consideration. All the amounts paid by the latter were deposited in Valencia’s bank
account and remitted to MRCI as payments of Crisostomo. The Ventanillas continued to pay the
monthly installment. It was not until March 1978 when the Ventanillas discovered Valencia’s
deception. To their shock, their names as lot buyers did not appear in MRCI’s records. Instead,
MRCI showed them a copy of the contract to sell signed by Valencia, in favor of Crisostomo.
MRCI refused the Ventanillas’ offer to pay for the remainder of the contract price.

Aggrieved, the Ventanillas commenced an action for specific performance, annulment of


deeds and damages against MRCI, AUVC, and Crisostomo where Crisostomo was declared in
default for his failure to file an answer. The CFI Quezon City rendered a decision declaring the
contracts to sell in favor of the Ventanillas as valid and subsisting, and annulling the contract to
sell in favor of Crisostomo. The Ventanillas moved for the issuance of a writ of execution which
was issued and served upon MRCI.

The Ventanillas accepted the amount of P210,000.00 as damages and attorney’s fees but
rejected the reimbursement offered by MRCI in lieu of the execution of the absolute deed of sale
alleging it to be void, fraudulent, and in contempt of court. Because of this, the Ventanillas were
constrained to go to court to seek the annulment of the deed of sale executed between MRCI and
Marquez as well as the deed of sale between Marquez and the Saberons, as the fruits of void
conveyances with the Regional Trial Court which rendered a decision in favour of plaintiffs, the
spouses Ventanillas. This was affirmed by the CA.

With the RTC and the CA rulings against their title over the properties, the Saberons now
come to the Court with their vehement insistence that they were purchasers in good faith and for
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value. Before purchasing the lots, they exercised due diligence and found no encumbrance or
annotations on the said titles, other than restrictions for construction and negotiation At the
same time, the Ventanillas also failed to rebut the presumption of their good faith as there was no
showing that they confederated with MRCI and its officers to deprive the Ventanillas of their right
over the subject properties.

Issues:

1. Whether or not the Ventanillas’ registration of the notice of levy had produced
constructive notice that would bind third persons including the Saberons despite the
failure of the ROD-QC to annotate the same in the certificates of title.

2. Whether or not Saberons could be deemed purchasers in good faith.

Ruling:

1. Yes, their notice of levy had produced constructive notice.

In ultimately ruling for the Ventanillas, the courts a quo focused on the superiority of
their notice of levy and the constructive notice against the whole world which it had produced
and which effectively bound third persons including the Saberons. The Court explicitly declared
that MRCI’s transaction with Marquez "cannot prevail over the final and executory judgment
ordering MRCI to execute an absolute deed of sale in favor of the Ventanillas.

These favorable findings prompted the Ventanillas to register the notice of levy on the
properties. The records show that on the strength of a final and executory decision by the Court,
they successfully obtained a writ of execution from the RTC and a notice of levy was then entered,
albeit on the primary entry book only. The contract to sell to Marquez was registered on May 21,
1991, while the notice of levy was issued ten (10) days later, or on May 31, 1991. In February 1992,
MRCI executed the Deed of Sale with Marquez, under whose name the clean titles, sans the
notice of levy, were issued. A year later, or on March 11, 1992, MRCI registered the deed of sale to
Marquez who later sold the same property to the Saberons.

This complex situation could have been avoided if it were not for the failure of ROD
Cleofe to carry over the notice of levy to Marquez’s title, serving as a senior encumbrance that
might have dissuaded the Saberons from purchasing the properties.

It is undeniable, therefore, that no title was transferred to Marquez upon the annotation
of the contract to sell on MRCI’s title. As correctly found by the trial court, the contract to sell
cannot be substituted by the Deed of Absolute Sale as a "mere conclusion" of the previous
contract since the owners of the properties under the two instruments are different. Considering
that the deed of sale in favor of Marquez was of later registration, the notice of levy should have
been carried over to the title as a senior encumbrance.

From the foregoing, ROD Cleofe’s theory that a deed of sale, as a mere conclusion of a
contract to sell, turns into a senior encumbrance which may surpass a notice of levy, has no leg to
stand on. It was, in fact, properly rejected by the courts a quo. Verily, the controversy at hand
arose not from the Ventanillas’ fault, but from ROD Cleofe’s misplaced understanding of his duty
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under the law. Surely, the Ventanillas had every right to presume that the Register of Deeds
would carry over the notice of levy to subsequent titles covering the subject properties. The notice
was registered precisely to bind the properties and to serve as caution to third persons who might
potentially deal with the property under the custody of the law.

While the Court is not unmindful that a buyer is charged with notice only of such burdens
and claims as are annotated on the title, the RTC and the CA are both correct in applying the rule
as to the effects of involuntary registration. In cases of voluntary registration of documents, an
innocent purchaser for value of registered land becomes the registered owner, and, in
contemplation of law the holder of a certificate of title, the moment he presents and files a duly
notarized and valid deed of sale and the same is entered in the day book and at the same time he
surrenders or presents the owner's duplicate certificate of title covering the land sold and pays the
registration fees, because what remains to be done lies not within his power to perform. The
Register of Deeds is duty bound to perform it. In cases of involuntary registration, an entry
thereof in the day book is a sufficient notice to all persons even if the owner's duplicate certificate
of title is not presented to the register of deeds. Therefore, in the registration of an attachment,
levy upon execution, notice of lis pendens, and the like, the entry thereof in the day book is a
sufficient notice to all persons of such adverse claim.

In the case at bench, the notice of levy covering the subject property was annotated in the
entry book of the ROD QC prior to the issuance of a TCT in the name of the Saberons. Clearly, the
Ventanillas’ levy was placed on record prior to the sale. This shows the superiority and preference
in rights of the Ventanillas over the property as against the Saberons.

2. No, they are not buyer in good faith but no fault can be attributed to them.

The RTC was correct when it pointed out that Saberons suspicion should have been
aroused by the circumstance that Marquez, who was not engaged in the buy-and-sell business
and had the property for only a few months, would offer the same for sale. Although the RTC
found that the Saberons may not be considered as innocent purchasers for value because of this
circumstance, it, nonetheless, ruled that they, who might well be unwilling victims of the
fraudulent scheme employed by MRCI and Marquez, were entitled to actual and compensatory
damages.

The Saberons could not be said to have authored the entanglement they found themselves
in. No fault can be attributed to them for relying on the face of the title presented by Marquez.
This is bolstered by the fact that the RTC decision shows no categorical finding that the Saberons’
purchase of the lots from Marquez was tainted with bad faith. That the Saberons should have
harbored doubts against Marquez is too high a standard to impose on a buyer of titled land. This
is in consonance to the rule that the one who deals with property registered under the Torrens
system is charged with notice only of such burdens and claims as are annotated on the title. All
persons dealing with property covered by Torrens certificate of title are not required to explore
further than what the Torrens title upon its face indicates in quest for any hidden defect or
inchoate right that may subsequently defeat his right thereto. These rules remain as essential
features of the Torrens system. The present case does not entail a modification or overturning of
these principles.

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Suffice it to say, no bad faith can be ascribed to the parties alike. Nevertheless, the equal
footing of the parties necessarily tilts in favor of the superiority of the Ventanillas’ notice of levy,
as discussed.

This Court is not convinced that defendants Saberon took part in the fraudulent scheme
employed by the other defendants against the plaintiffs. Although they may not be considered as
innocent purchasers for value shown in the discussion above, this Court is not ready to conclude
that the Saberons joined the other defendants in their efforts to frustrate plaintiffs’ rights over the
disputed properties. On the contrary, they may be considered victims of the same fraudulent
employed by defendants MRCI and Marquez, and thus can rightfully claim damages from the
same.

Consequently, Article 448 in relation to Article 546 of the Civil Code will apply. Thus, the
two options available to the Ventanillas: 1) they may exercise the right to appropriate after
payment of indemnity representing the value of the improvements introduced and the necessary
and useful expenses defrayed on the subject lots; or 2) they may forego payment of the said
indemnity and instead, oblige the Saberons to pay the price of the land.

Should the Ventanillas elect to appropriate the improvements, the trial court is ordered to
determine the value of the improvements and the necessary and useful expenses after hearing and
reception of evidence. Should the Ventanillas, however, pursue the option to oblige the Saberons
to pay the "price of the land," the trial court is ordered to determine said price to be paid to the V
entanillas.

KRYSTLE REALTY DEVELOPMENT CORPORATION, rep. by CHAIRMAN OF THE BOARD,


WILLIAM C. CU vs. DOMINGO ALIBIN, as substituted by his heirs
G.R. No. 196117/G.R. No. 196129, August 13, 2014, J. Perlas-Bernabe

One is considered a buyer in bad faith not only when he purchases real estate with
knowledge of a defect or lack of title in his seller but also when he has knowledge of facts which
should have alerted him to conduct further inquiry or investigation, as Krystle Realty in this case.
Further, as one asserting the status of a buyer in good faith and for value, it had the burden of
proving such status, which goes beyond a mere invocation of the ordinary presumption of good
faith.

The agreement of the parties to submit the determination of the genuineness of Domingo’s
signature to a handwriting expert of the NBI does not, authorize the RTC to accept the findings of
such expert.The opinion of a handwriting expert, therefore, does not mandatorily bind the court, the
expert's function being to place before the court data upon which it can form its own opinion.

Facts:

Domingo Alibinowned an undivided one-half portion of Lot No. 1680 containing an


aggregate area of 9,188 square meters, situated at Tahao, Legazpi City, Albay, and registered in his
name and that of Mariano Rodrigueza under OCT No. 0-206. On the strength of a contract to sell
which was notarized on July 10, 1962 and a Deed of Sale dated August 23, 1962 purporting to
convey Domingo’s one-half share of the said lot to CaridadRodrigueza, as well as a Deed of
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Absolute Sale dated August 23, 1962 whereby Mariano and Caridad transferred their respective
rights to the subject lot infavor of petitioner Krystle Realty Development Corporation the original
certificate of title was cancelled. In lieu thereof, three TCTs were issued all on the same day of
December 5, 1994, as follows: TCT Nos. 40467 and 40468 in the names of the Rodrigueza’s at one-
half (1/2) share each, and TCT No. 4046911 in the name of Krystle Realty covering the entire lot.

Claiming that he had not sold his share to Caridad nor received any consideration for the
alleged transfer, and that the signature on the deed of sale was not his, Domingo sought to annul
the said deed, as well as TCT Nos. 40467, 40468, and 40469, before the RTC of Legazpi City. He
died, however, during the pendency of the case, and was consequently substituted by his heirs.
Caridad, on the other hand, insisted that she had paid Domingo in two (2) installments: 500.00 as
down payment on July 10, 1962, and the balance of 400.00 on August 23, 1962 during which he
signed the Deed of Sale. She then took possession of Domingo’s one-half (1/2) portion of the
subject lot and declared the same for taxation purposes. Krystle Realty claimed that it was a
purchaser in good faith, and that the action, should be directed against Caridad. In addition, it
argued that the action of respondents had already prescribed considering that the questioned
deed of sale between Caridad and Domingo was executed on August 23, 1962, whereas the latter’s
complaint was filed only on February 15, 1995.

Caridad likewise died, and was substituted first by her brother, Mariano, and upon the
latter’s death, by RufinoRodrigueza.The parties agreed to submit to a handwriting expert of the
National Bureau of Investigation the determination of the genuineness of Domingo’s signature on
the deed of sale. the NBI issued Questioned Document Report stating that the questioned and the
standard/sample signatures of Domingo submitted to it for examination were written by one and
the same person.

After due trial, the RTC of Legazpi City rendered a Decision annulling the Deed of Sale
dated August 23, 1962.The CA affirmed the findingsof the RTC in a Decision on the ground that
respondents were able to establish that the Deed of Sale dated August 23, 1962 was not valid and,
hence, should be annulled. The CA concluded that Krystle Realty and the Rodriguezas were
"obviously in cahoots" with the formerRegister of Deeds of Legazpi City, Atty. Elmer A. Rañeses.
Krystle Realty and Caridad, as substituted by RufinoRodrigueza, instituted this petition.

Issue:

Whether or not the CA correctly affirmed the nullification of the Deedof Sale dated
August 23, 1962 and the declaration of Krystle Realty as a purchaser in bad faith

Ruling:

Yes, the CA correctly affirmed the RTC decision.

Contrary to the contention of Krystle, the CA has not overlooked any relevant fact which,
if properly considered, would justify a different conclusion. That the parties herein agreed to
submit the determination of the genuineness of Domingo’s signature to a handwriting expert of
the NBI does not, by any stretch of the imagination,authorize the RTC to accept the findings of
such expert hook, line, and sinker. The trial court is the most capable trier of facts and, as such,
should not abdicate its judicial duty to decide. The authenticity of a signature is a matter that is
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not so highly technical as to preclude a judge from examining the signature himself and ruling
upon the question of whether the signature on a document is forged or not. The opinion of a
handwriting expert, therefore, does not mandatorily bind the court, the expert's function being to
place before the court data upon which it can form its own opinion.In this case, both the RTC and
the CA unanimously concluded that the questioned signature on the Deed of Sale dated August
23, 1962 is different from the standard signatures of Domingo as appearing on documents
submitted in evidence by CaridadRodrigueza. Absent any cogent reasonto deviate from such
finding of forgery, which is the basis for the annulment of the said deed, the same should be
deemed conclusive and binding upon the Court.

On Krystle Realty’s claim that it is a buyer in good faith, the Court finds that the latter
cannot veer away from the admission of its representative, Mr. William Cu, that he was aware of
Domingo’s interest in the subject lot, and that Caridad had no title in her name at the time of the
sale, thus, giving rise to the conclusion that it Krystle Realty had been reasonably apprised of the
ownership controversy over the subject lot. This notwithstanding, records show that Krystle
Realty proceeded with the transaction without further examining the seller’s title and thus, could
not claim to have purchased the subject lot in good faith. One is considered a buyer in bad faith
not only when he purchases real estate with knowledge of a defect or lack of titlein his seller but
also when he has knowledge of facts which should have alerted him to conduct further inquiry or
investigation, as Krystle Realty in this case. Further, as one asserting the status of a buyer in good
faith and for value, it had the burden of proving such status, which goes beyond a mere
invocation of the ordinary presumption of good faith.

The Court likewise rejects the belated claim of res judicata anchored on the dismissal of
the petition for certiorariin G.R. No. 127995 filed by Domingo as per its Resolution dated April 28,
1997, which became final and executory on June 16, 1997.43 As the records disclose, petitioners
never raised this issue in the appeal in CA-G.R. CV No. 54912 before the CA, and even in the
subsequent proceedings before the RTC and the CA in CA-G.R. CV No. 92765.44 Settled is the
rule that points of law, theories, issues and arguments not brought to the attention of the lower
court need not be considered by a reviewing court, as they cannot be raised for the first time at
that late stage. Basic considerations of fairness and due process impel this rule.

MAE FLOR M. GALIDO vs. NELSON P. MAGRARE, ET AL.


G.R. No. 206584, January 11, 2016, J. Carpio

Facts:
On 19 August 2004, Mae Flor Galido (petitioner) filed before the RTC of San Jose, Antique
a petition5 to cancel all entries appearing on Transfer Certificate of Title (TCT) Nos. T-22374, T-
22375 and T-22376, all in the name of Isagani Andigan (Andigan), and to annul TCT No. T-24815
and all other TCTs issued pursuant to the Order dated 18 October 2011 of RTC Branch 11, San Jose,
Antique (Branch 11) in RTC Civil Case No. 2001-2-3230.

The controversy revolves around three parcels of land, designated as Lot 1052-A-1, Lot
1052-A-2 and Lot 1052-A-3, all of the San Jose, Antique Cadastre. These parcels of land were, prior
to subdivision in 1999, part of Lot 1052-A which was covered by TCT No. T-21405 in the name of
Andigan.
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On 28 December 1998, Andigan sold undivided portions of Lot 1052-A to Nelson P.


Magrare (Magrare), Evangeline M. Palcat (Palcat) and Rodolfo Bayombong (Bayombong). To
Magrare was sold an undivided portion with an area of 700 square meters, more or less; to Palcat,
1,000 square meters, more or less; and to Bayombong, 500 square meters, more or less.

Andigan caused the subdivision of Lot 1052-A into five lots, namely: Lot 1052-A-1, Lot 1052-
A-2, Lot 1052-A-3, Lot 1052-A-4 and Lot 1052-A-5. On 18 October 1999, TCT No. T-21405 was
cancelled and new certificates were issued for the subdivided portions. Pertinent to the case are
TCT No. T-22374 which was issued for Lot 1052-A-1, TCT No. T-22375 for Lot 1052-A-2 and TCT
No. T-22376 for Lot 1052-A-3, all in the name of Andigan. Andigan did not turn over the new TCTs
to Magrare, Palcat and Bayombong, and the latter were unaware of the subdivision.

On 8 May 2000, Andigan mortgaged the same three lots to petitioner and the latter came
into possession of the owner’s duplicate copies of TCT Nos. T-22374, T-22375 and T-22376.

On 6 February 2001, at 11:00 a.m., Magrare, Palcat and Bayombong registered their
respective adverse claims on TCT Nos. T-22374, T-22375 and T-22376. On the same day, at 3:00
p.m., petitioner also registered her mortgage on the same TCTs, such that the certificates in the
custody of the Register of Deeds were annotated.

Issues:

1) Who has a better right to the properties concerned: petitioner on the one hand, and
Magrare, Palcat and Bayombong on the other.
2) Whether petitioner is a buyer in good faith.

Ruling:

Magrare, Palcat and Bayombong have the better right to the properties concerned.

First, there was no valid mortgage in favor of petitioner. Petitioner derives her title from
Andigan, as mortgagor. However, at the time Andigan mortgaged the lots to petitioner he had
already sold the same to Magrare, Palcat and Bayombong. In Civil Case No. 2001-2-3230, Andigan
admitted that Lot Nos. 1052-A-1, 1052-A-2 and 1052-A-3 were the parcels of land he sold to
Magrare, Palcat and Bayombong, respectively, on 28 December 1998. Hence, when Andigan
mortgaged the lots to petitioner on 8 May 2000, he no longer had any right to do so.

Notably, there were already adverse claims registered on the respective titles of the
property when when petitioner filed her case for foreclosure of mortgage. One who deals with
property registered under the Torrens system need not go beyond the certificate of title, but only
has to rely on the certificate of title. Every subsequent purchaser of registered land taking a
certificate of title for value and in good faith shall hold the same free from all encumbrances
except those noted on said certificate and any of the encumbrances provided by law.

Preference is given to the prior registered adverse claim because registration is the
operative act that binds or affects the land insofar as third persons are concerned. Thus, upon
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registration of respondents’ adverse claims, notice was given the whole world, including
petitioner.

2) Petitioner is not a buyer in good faith.


Even assuming that the mortgage was valid, petitioner can hardly be considered a buyer in
good faith. A purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property and pays a full
and fair price for the same at the time of such purchase, or before he has notice of the claims or
interest of some other person in the property.

As discussed above, petitioner had notice as early as 2001 of the adverse claims of Magrare,
Palcat and Bayombong. The decision in Civil Case No. 2001-2-3230 became final and executory
before the Certificate of Sale was issued by the Provincial Sheriff on 14 July 2004 in Civil Case No.
3345.

SALE OF SAME THING/S TO DIFFERENT VENDEES

ORION SAVINGS BANKvs. SHIGEKANE SUZUKI


G.R. No. 205487, November 12, 2014, J. Brion

The petitioner asserts that it has a better right of ownership over the disputed property in
the case at bar by virtue of a Dacion En Pago. The Supreme Court ruled that the most prominent
index of simulation is the complete absence of an attempt on the part of the vendee to assert his
rights of ownership over the property in question. After the sale, the vendee should have entered the
land and occupied the premises.

Facts:

The respondent Suzuki purchased a condominium unit and a parking space from a Korean
nation named Kang. The CCT did not reflect any encumbrances. Hence, Suzuki pushed through
with the sale and caused the execution of a Deed of Sale in his favor. Kang made representations
that he would subsequently deliver the CCT to Suzuki. Meanwhile, Suzuki took physical
possession over the property.

The CCT was never delivered to Suzuki which caused him to investigate and look into the
title of Kang. He found out that the condominium he bought was also a subject of a DacionEn
Pago between petitioner Orion Savings Bank. Because of this, Suzuki filed with the register of
deeds an adverse claim to protect his interest. On the part of Orion, it asserted that it became the
owner of the said unit because Kang had defaulted in his payment.

Suzuki then filed an action for specific performance and damages against Kang and Orion.
The Regional Trial Court ruled in favor of Suzuki and ordered Orion and Kang to deliver the
ownership of the unit to him. The Court of Appeals affirmed the decision of the RTC. Hence, the
current petition.

Issue:

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Who between petitioner Orion Savings Bank and Suzuki has a better right in the
condominium unit and parking lot disputed in the case at bar.

Ruling:

The petitioner Suzuki shall be deemed as the rightful owner of the disputed property. The
Supreme Court anchored this decision on the conclusion that Orion failed to provide sufficient
evidence to support its claim that a Dacion En Pago has been duly executed between it and Kang.

Article 1544 of the New Civil Code of the Philippines provides that:

ART. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.

Although Orion claims priority in right under the principle of prius tempore, potior jure
(i.e., first in time, stronger in right), it failed to prove the existence and due execution of the
Dacion en Pago in its favor. Even if we consider Exhibit “5” and its submarkings and Exhibit “12” in
the present petition, the copious inconsistencies and contradictions in the testimonial and
documentary evidence of Orion, militate against the conclusion that the Dacion en Pago was duly
executed.

First, there appears to be no due and demandable obligation when the Dacion en
Pago was executed, contrary to the allegations of Orion. Orion’s witness Perez tried to impress
upon the RTC that Kang was in default in his P1,800,000.00 loan.Second, Perez, the supposed
person who prepared the Dacion en Pago, appears to only have a vague idea of the transaction he
supposedly prepared. Third, the Dacion en Pago, mentioned that the P1,800,000.00 loan was
secured by a real estate mortgage. However, no document was ever presented to prove this real
estate mortgage aside from it being mentioned in the Dacion en Pago itself. Fourth, the Dacion en
Pago was first mentioned only two (2) months after Suzuki and Samin demanded the delivery of
the titles sometime in August 2003, and after Suzuki caused the annotation of his affidavit of
adverse claim. Records show that it was only on October 9, 2003, when Orion, through its
counsel, Cristobal Balbin Mapile& Associates first spoke of the Dacion en Pago. Not even Perez
mentioned any Dacion en Pago on October 1, 2003, when he personally received a letter
demanding the delivery of the titles. Instead, Perez refused to accept the letter and opted to first
consult with his lawyer. Fifth, it is undisputed that notwithstanding the supposed execution of the
Dacion en Pago on February 2, 2003, Kang remained in possession of the condominium unit. In
fact, nothing in the records shows that Orion even bothered to take possession of the property
even six (6) months after the supposed date of execution of the Dacion en Pago. Kang was even
able to transfer possession of the condominium unit to Suzuki, who then made immediate
improvements thereon. If Orion really purchased the condominium unit on February 2, 2003 and
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claimed to be its true owner, why did it not assert its ownership immediately after the alleged sale
took place? Why did it have to assert its ownership only after Suzuki demanded the delivery of
the titles? These gaps have remained unanswered and unfilled.

The most prominent index of simulation is the complete absence of an attempt on the
part of the vendee to assert his rights of ownership over the property in question. After the sale,
the vendee should have entered the land and occupied the premises. The absence of any attempt
on the part of Orion to assert its right of dominion over the property allegedly sold to it is a clear
badge of fraud. That notwithstanding the execution of the Dacion en Pago, Kang remained in
possession of the disputed condominium unit – from the time of the execution of the Dacion en
Pago until the property’s subsequent transfer to Suzuki – unmistakably strengthens the fictitious
nature of the Dacion en Pago.

These circumstances, aside from the glaring inconsistencies in the documents and
testimony of Orion’s witness, indubitably prove the spurious nature of the Dacion en Pago.

CONTRACT OF SALE/ CONTRACT TO SELL

ROBERTO R. DAVID vs. EDUARDO C. DAVID


G.R. NO. 162365. January 15, 2014
J. Bersamin

In sales with the right to repurchase, the title and ownership of the property sold are
immediately vested in the vendee, subject to the resolutory condition of repurchase by the vendor
within the stipulated period. Once the conditions for the repurchase are complied with, the
ownership of the subject property is reverted back to the original vendor. Since, Eduardo fulfilled the
conditions for the exercise of the right to repurchase, he cannot be denied of acquiring the property
by exercising his right to repurchase the same.

Facts:

Eduardo C. David (Eduardo) and his brother Edwin C. David (Edwin), acting on their own and in
behalf of their co-heirs, sold their inherited properties to Roberto. A deed of sale with assumption
of mortgage (deed of sale) embodied the terms of their agreement, stipulating that the
consideration for the sale was P6,000,000.00, of which P2,000,000 was to be paid to Eduardo and
Edwin, and the remaining P4,000,000.00 to be paid to Development Bank of the Philippines
(DBP) in Baguio City to settle the outstanding obligation secured by a mortgage on such
properties. The parties further agreed to give Eduardo and Edwin the right to repurchase the
properties within a period of three years from the execution of the deed of sale based on the
purchase price agreed upon, plus 12% interest per annum.

Roberto and Edwin executed a memorandum of agreement (MOA) with the Spouses Marquez
and Soledad Go (Spouses Go), by which they agreed to sell the Baguio City lot to the latter for a
consideration of P10,000,000.00. The MOA stipulated that “in order to save payment of high and
multiple taxes considering that the x x x subject matter of this sale is mortgaged with DBP, Baguio
City, and sold [to Roberto], Edwin will execute the necessary Deed of Absolute Sale in favor of
[the Spouses Go], in lieu of [Roberto].” The Spouses Go then deposited the amount of
P10,000,000.00 to Roberto’s account. After the execution of the MOA, Roberto gave Eduardo
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P2,800,000.00 and returned to him one of the truck tractors and trailers subject of the deed of
sale. Eduardo demanded for the return of the other truck tractor and trailer, but Roberto refused
to heed the demand.

Thus, Eduardo initiated this replevin suit against Roberto, alleging that he was exercising the
right to repurchase under the deed of sale; and that he was entitled to the possession of the other
motor vehicle and trailer. In his answer, Roberto denied that Eduardo could repurchase the
properties in question; and insisted that the MOA had extinguished their deed of sale by
novation.

The RTC ruled in favor of Eduardo holding that the stipulation giving Eduardo the right to
repurchase had made the deed of sale a conditional sale; that Eduardo had fulfilled the conditions
for the exercise of the right to repurchase; that the ownership of the properties in question had
reverted to Eduardo; that Roberto’s defense of novation had no merit. The CA affirmed the RTC
decision. Hence, this instant petition.

Issues:

1. Whether the respondent has exercised their right to repurchase

2. Whether there was novation when the parties executed the MOA

Ruling:

A sale with right to repurchase is governed by Article 1601 of the Civil Code, which provides that:
“Conventional redemption shall take place when the vendor reserves the right to repurchase the
thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations
which may have been agreed upon.” Conformably with Article 1616, the seller given the right to
repurchase may exercise his right of redemption by paying the buyer: (a) the price of the sale, (b)
the expenses of the contract, (c) legitimate payments made by reason of the sale, and (d) the
necessary and useful expenses made on the thing sold.

The CA and the RTC both found and held that Eduardo had complied with the conditions
stipulated in the deed of sale and prescribed by Article 1616 of the Civil Code. Pertinently, the CA
stated:

It should be noted that the alleged repurchase was exercised within the stipulated
period of three (3) years from the time the Deed of Sale with Assumption of Mortgage
was executed. The only question now, therefore, which remains to be resolved is
whether or not the conditions set forth in the Deed of Sale with Assumption of
Mortgage, i.e. the tender of the purchase price previously agreed upon, which is
Php2.0 Million, plus 12% interest per annum, and the amount paid by the defendant to
DBP, had been satisfied.

From the testimony of the defendant himself, these preconditions for the exercise of
plaintiff's right to repurchase were adequately satisfied by the latter. Thus, as stated,
from the Php10 Million purchase price which was directly paid to the defendant, the
latter deducted his expenses plus interests and the loan, and the remaining amount he
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turned over to the plaintiff. This testimony is an unequivocal acknowledgement from


defendant that plaintiff and his co-heirs exercised their right to repurchase the
property within the agreed period by satisfying all the conditions stipulated in the
Deed of Sale with Assumption of Mortgage. Moreover, defendant returned to plaintiff
the amount of Php2.8 Million from the total purchase price of Php10.0 Million. This
only means that this is the excess amount pertaining to plaintiff and co-heirs after the
defendant deducted the repurchase price of Php2.0 Million plus interests and his
expenses. Add to that is the fact that defendant returned one of the trucks and trailers
subject of the Deed of Sale with Assumption of Mortgage to the plaintiff. This is, at
best, a tacit acknowledgement of the defendant that plaintiff and his co-heirs had in
fact exercised their right to repurchase. x x x

Considering that the factual findings of the trial court, when affirmed by the CA, are binding on
the Court, the Court affirms the judgment of the CA upholding Eduardo’s exercise of the right of
repurchase. Roberto could no longer assail the factual findings because his petition for review
on certiorari was limited to the review and determination of questions of law only. A question of
law exists when the doubt centers on what the law is on a certain set of undisputed facts, while a
question of fact exists when the doubt centers on the truth or falsity of the alleged facts. Whether
the conditions for the right to repurchase were complied with, or whether there was a tender of
payment, is a question of fact. With both the RTC and the CA finding and holding that Eduardo
had fulfilled the conditions for the exercise of the right to repurchase, therefore, we conclude that
Eduardo had effectively repurchased the properties subject of the deed of sale.

The Court dismisses as devoid of merit Roberto’s insistence that the MOA had extinguished the
obligations established under the deed of sale by novation.

The issue of novation involves a question of fact, as it necessarily requires the factual
determination of the existence of the various requisites of novation, namely: (a) there must be a
previous valid obligation; (b) the parties concerned must agree to a new contract; (c) the old
contract must be extinguished; and (d) there must be a valid new contract. With both the RTC
and the CA concluding that the MOA was consistent with the deed of sale, novation whereby the
deed of sale was extinguished did not occur. In that regard, it is worth repeating that the factual
findings of the lower courts are binding on the Court.

In sales with the right to repurchase, the title and ownership of the property sold are immediately
vested in the vendee, subject to the resolutory condition of repurchase by the vendor within the
stipulated period. Accordingly, the ownership of the affected properties reverted to Eduardo once
he complied with the condition for the repurchase, thereby entitling him to the possession of the
other motor vehicle with trailer.

SKUNAC CORPORATION and ALFONSO F. ENRIQUEZ vs. ROBERTO S. SYLIANTENG and


CAESAR S. SYLIANTENG
G.R. No. 205879, April 23, 2014, J. Peralta

Indeed, not being an heir of Luis, Romeo never acquired any right whatsoever over the
subject lots even if he was able to subsequently obtain a title in his name. It is a well-settled principle
that no one can give what one does not have, nemo dat quod non habet. One can sell only what one

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owns or is authorized to sell, and the buyer can acquire no more right than what the seller can
transfer legally.

Facts:

The dispute in this case involves two parcels of land located in San Juan City which was
previously registered in the name of Luis Pujalte.

Roberto Sylianteng and Caesar Sylianteng based their claim of ownership over the subject
lots a Deed of Absolute Sale executed in their favor by their mother, Emerenciana Sylianteng. It
was further alleged that Emerenciana acquired the lots from the late Luis Pujalte.

On the other hand, Skunac Corporation and Alfonso Enriquez claim that Romeo Pujalte
who was declared as the sole heir of Luis Pujalte sold the lots to Skunac and Enriquez.

Roberto and Cesar Sylianteng contended that they have a better right to the lots in
question because the transactions conveying the same preceded those claimed by Skunac and
Enriquez and they could not be considered as innocent purchasers in good faith and for value
because they had prior knowledge of the previous transactions as annotated on the titles covering
the subject lots.

Skunac and Enriquez for their part, maintain that Syliantengs acquired the lots under
questionable circumstances appearing that there was no copy of the Deed of Sale between
Emerenciana and Luis Pujalte, on file with the Office of the Register of Deeds.

Issue:

Whether Emerenciana validly acquired the subject lots from Luis Pujalte, in turn whether
Roberto Sylianteng and Caesar Sylianteng validly acquired the same lots from Emerenciana

Ruling:

Yes.

Evidence shows that Romeo who sold the land to Skunac and Alfonso Enriquez never
became the owner of the subject properties for two reasons.

First, the disputed lots were already sold by Luis Pujalte during his lifetime. Thus these
parcels of land no longer formed part of his estate when he died. Romeo’s sale of the disputed lots
to Skunac and Alfonso Enriquez was not affirmed by the estate court, because the subject parcels
of land were not among those included in the estate at the time Romeo was appointed as
administrator.

Second, even if granting the subject lots formed part of the estate of Luis, it was
subsequently proven in a separate case that Romeo is not an heir. In a criminal case filed against
Romeo, it was proven that his claim of heirship is spurious.

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Indeed, not being an heir of Luis, Romeo never acquired any right whatsoever over the subject
lots even if he was able to subsequently obtain a title in his name. It is a well-settled principle that
no one can give what one does not have, nemo dat quod non habet. One can sell only what one
owns or is authorized to sell, and the buyer can acquire no more right than what the seller can
transfer legally. Since Romeo has no right to the subject lots, petitioners, who simply stepped into
the shoes of Romeo, in turn, acquired no rights to the same.

HEIRS OR REYNALDO DELA ROSA, Namely: TEOFISTA DELA ROSA, JOSEPHINE


SANTIAGO AND JOSEPH DELA ROSA vs. MARIO A. BA TONGBACAL, IRENEO
BATONGBACAL, JOCELYN BA TONGBACAL, NESTOR BATONGBACAL AND LOURDES BA
TONGBACAL
G.R. No. 179205, July 30, 2014, J. Perez

The primary consideration in determining the true nature of a contract is the intention of
the parties. If the words of a contract appear to contravene the evident intention of the parties, the
latter shall prevail. Such intention is determined not only from the express terms of their agreement,
but also from the contemporaneous and subsequent acts of the parties. Such that when the
contract denominated as Resibo reveals that nothing therein suggests, even remotely, that the
subject property was given to secure a monetary obligation but an intent to sell his share in the
property, said contract is a contract of sale and not an equitable mortgage.

Facts:

The subject property consists of a parcel of land situated in Barrio Saog, Marilao, Bulacan
denominated as Lot No. 1, and registered under Transfer Certificate of Title (TCT) No. T-
1074494 under the names of Reynaldo Dela Rosa (Reynaldo), Eduardo Dela Rosa (Eduardo),
Araceli Dela Rosa (Araceli) and Zenaida Dela Rosa (Zenaida).

Sometime in 1984, Reynaldo offered to sell the subject property to Guillermo Batongbacal
(Guillermo) and Mario Batongbacal (Mario) for P50.00 per square meter or for a total
of P187,500.00. Pursuant to the agreement, Reynaldo received an advance payment of P31,500.00
leaving a balance of P156,000.00. As shown in the document denominated as Resibo and signed
by Reynaldo on 18 February 1987, the parties agreed that the amount of P20,000.00 as part of the
advance payment shall be paid upon the delivery of the Special Power-of-Attorney (SPA), which
would authorize Reynaldo to alienate the subject property on behalf of his co-owners and siblings
namely, Eduardo, Araceli and Zenaida. The balance thereon shall be paid in P10,000.00 monthly
installments until the purchase price is fully settled.

Subsequent to the execution of the said agreement, Mario and Guillermo, on their own
instance, initiated a survey to segregate the area of 3,750 square meters from the whole area
covered by TCT No. T-107449, delineating the boundaries of the subdivided parts. Consequently,
Guillermo and Mario initiated an action for Specific Performance or Rescission and Damages
before the Regional Trial Court (RTC) of Malolos, Bulacan, seeking to enforce their Contract to
Sell dated 18 February 1987. To protect their rights on the subject property, Mario and Guillermo
filed a Notice of Lis Pendens registering their claim on the certificate of title covering the entire
property.

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Reynaldo in his Answer countered that the purported Contract to Sell is void, because he
never gave his consent thereto. Reynaldo insisted that he was made to understand that the
contract between him and the Batongbacals was merely an equitable mortgage whereby it was
agreed that the latter will loan to him the amount of P3 l ,500.00 payable once he receives his
share in the proceeds of the sale of the land registered under TCT No. T-107449.

For failure of Mario and Guillermo as plaintiffs therein to adduce sufficient evidence to
support their complaint, the RTC dismissed it which was subsequently affirmed by the Court of
Appeals. In seeking modification of the appellate court's decision, Mario and Guillermo pointed
out that the title of the subject property has not yet been transferred to third persons, and thus,
Reynaldo can still be compelled to execute a deed of conveyance over his undivided share of the
entire property. The Court of Appeals granted the Motion for Reconsideration of Mario and
Guillermo and directed Reynaldo to convey the subject property to them.

Issue:

Whether or not the contract entered into by parties was a Contract to Sell or an equitable
mortgage.

Ruling:

It is a contract of sale.

An equitable mortgage is defined as one although lacking in some formality, or form or


words, or other requisites demanded by a 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.
For the presumption of an equitable mortgage to arise, two requisites must concur: (1) that the
parties entered into a contract denominated as a sale; and (2) the intention was to secure an
existing debt by way of mortgage. Consequently, the non-payment of the debt when due gives the
mortgagee the right to foreclose the mortgage, sell the property and apply the proceeds of the sale
for the satisfaction of the loan obligation. While there is no single test to determine whether the
deed of absolute sale on its face is really a simple loan accommodation secured by a mortgage, the
Civil Code, however, enumerates several instances when a contract is presumed to be an equitable
mortgage, to wit:

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

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A perusal of the contract denominated as Resibo reveals the utter frailty of petitioners'
position because nothing therein suggests, even remotely, that the subject property was given to
secure a monetary obligation. The terms of the contract set forth in no uncertain terms that the
instrument was executed with the intention of transferring the ownership of the subject property
to the buyer in exchange for the price. Nowhere in the deed is it indicated that the transfer was
merely intended to secure a debt obligation. On the contrary, the document clearly indicates the
intent of Reynaldo to sell his share in the property. The primary consideration in determining the
true nature of a contract is the intention of the parties. If the words of a contract appear to
contravene the evident intention of the parties, the latter shall prevail. Such intention is
determined not only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties. That the parties intended some other acts
or contracts apart from the express terms of the agreement, was not proven by Reynaldo during
the trial or by his heirs herein. Beyond their bare and uncorroborated asseverations that the
contract failed to express the true intention of the parties, the record is bereft of any evidence
indicative that there was an equitable mortgage.

Neither could the allegation of gross inadequacy of the price carry the day for the
petitioners. It must be underscored at this point that the subject of the Contract to Sell was
limited only to '14 pro-indiviso share of Reynaldo consisting an area of 3,750 square meter and not
the entire 15,001-square meter parcel of land. As a co-owner of the subject property, Reynaldo's
right to sell, assign or mortgage his ideal share in the property held in common is sanctioned by
law. The applicable law is Article 493 of the New Civil Code, which spells out the rights of co-
owners over a co-owned property. Pursuant to this law, a co-owner has the right to alienate his
proindiviso share in the co-owned property even without the consent of his coowners. This right
is absolute and in accordance with the well-settled doctrine that a co-owner has a full ownership
of his pro-indiviso share and has the right to alienate, assign or mortgage it, and substitute
another person for its enjoyment. In other words, the law does not prohibit a co-owner from
selling, alienating, mortgaging his ideal share in the property held in common.

In the same breadth, a co-owner cannot be compelled by the court to give their consent to
the sale of his share in a co-owned property. In the language of Rodriguez v. Court of first
Instance of Rizal, "each party is the sole judge of what is good for him." (Underscoring ours).
Thus, even if the impression of the Court of Appeals were true, i.e., that the entire property has
been sold to thirds persons, such sale could not have affected the right of Mario and Guillermo to
recover the property from Reynaldo. In view of the nature of co-ownership, the Comi of Appeals
correctly ruled that the terms in the Contract to Sell, which limited the subject to Reynaldo's ideal
share in the property held in common is perfectly valid and binding.

In fact, no authority from the other co-owners is necessary for such disposition to be valid
as he is afforded by the law full ownership of his paii and of the fruits and benefits pertaining
thereto. A condition set forth in a sale contract requiring a co-owner to secure an authority from
his co-owners for the alienation of his share, as seemingly indicated in this case, should be
considered mere surplusage and docs not, in any way, affect the validity or the enforceability of
the contract.

A contract of sale is a consensual contract, which becomes valid and binding upon the
meeting of minds of the parties on the price and the object of the sale. The mere inadequacy of
the price docs not affect its validity when both parties are in a position to form an independent
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judgment concerning the transaction, unless fraud, mistake or undue influence indicative of a
defect in consent is present. A contract may consequently be annulled on the ground of vitiated
consent and not due to the inadequacy of the price. In the case at bar, however, no evidence to
prove fraud, mistake or undue influence indicative of vitiated consent is attendant.

As the parties invoking equitable mortgage, the Heirs of Reynaldo did not even come close
to proving that the parties intended to charge the property as security for a debt, leaving us with
no other choice but to uphold the stipulations in the contract. Basic is the rule that if the terms of
the contract are clear and leave no doubt upon the intention of the parties, the literal meaning of
its stipulations shall control, we find that the Court of Appeals cannot be faulted for ruling, in
modification of its original judgment, that the sale effected by Reynaldo of his undivided share in
the property is valid and enforceable.

JUAN P. CABRERA vs. HENRY YSAAC


G.R. No. 166790, November 19, 2014, J. Leonen

Unless all the co-owners have agreed to partition their property, none of them may sell a
definite portion of the land. The co-owner may only sell his or her proportionate interest in the co-
ownership. A contract of sale which purports to sell a specific or definite portion of unpartitioned
land is null and void ab initio.

At best, the agreement between Juan and Henry is a contract to sell, not a contract of sale. A
contract to sell is a promise to sell an object, subject to suspensive conditions. Without the
fulfillment of these suspensive conditions, the sale does not operate to determine the obligation of
the seller to deliver the object.

A co-owner could enter into a contract to sell a definite portion of the property. Such
contract is still subject to the suspensive condition of the partition of the property, and that the
other co-owners agree that the part subject of the contract to sell vests in favor of the co-owner’s
buyer. Hence, the co-owners’ consent is an important factor for the sale to ripen.

Facts:

The heirs of Luis and Matilde Ysaac co-owned a 5,517-square-meter parcel of land in
Sabang, Naga City. One of the co-owners is respondent, Henry Ysaac.

Henry leased out portions of the property to several lessees. Juan Cabrera leased a 95sq.m
portion of the land since 1986.

Henry offered to sell the 95sq.m land to Juan. He told Henry that the land was too small
for his needs and in order to address Juan concerns, Henry include the 2 adjoining lands that
Henry was then leasing to the Borbe family and the Espiritu family. But Henry warned Juan that
the sale for those two parcels could only proceed if the two families agree to it. Juan accepted the
new offer. Henry demanded for an initial payment of P1,500.00, which Juan paid.

According to Juan, Henry informed him that the Borbe family and the Espiritu family were
no longer interested in purchasing the properties they were leasing. Juan tried to pay the balance
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of the purchase price to Henry. However,at that time, Henry was in the United States. The only
person in Henry residence was his wife. The wife refused to accept Juan’s payment.

In September 1993, Juan alleged that Henry approached him, requesting to reduce the
land in their transaction. Part of the land was going to be made into a barangay walkway, and
another part was being occupied by a family that was difficult to eject. Juan agreed to the
proposal.
Juan intended to pay the amount due for the payment of the lot. However, Henry was in Manila.
Once more, Henry's wife refused to receive the payment because of lack of authority from her
husband.

Henry’s counsel, wrote a letter addressed to Juan’s counsel, informing that his client is
rescinding the contract of sale because Juan failed to pay the balance of the purchase price of the
land. The letter also stated that Juan’s initial payment of P1,500.00 and the payment of P6,100.00
were going to be applied as payment for overdue rent of the land Juan was leasing from Henry.
Juan went to Henry’s house to settle the matter. Henry told Juan that he could no longer sell the
property because the new administrator of the property was his brother, Franklin.

Juan decided to file a specific performance, and prayed for the execution of a formal deed
of sale and for the transfer of the title of the property in his name. He tendered the sum of
P69,650.00 to the clerk of court as payment of the remaining balance.

Before the RTC decided the case, Franklin sold their property to the local government of
Naga City which will be a project for the urban poor. During the trial, Corazon Borbe of the Borbe
family testified that contrary to what Juan claimed, her family never agreed to sell the land they
were formerly leasing from Henry in favor of Juan. The Borbe family bought the property from
Naga City’s urban poor program after the sale between the Ysaacs and the local government.

The RTC ruled that the contract of sale between Juan and Henry was duly rescinded when
the former failed to pay the balance of the purchase price in the period agreed upon. The RTC
found that there was no evidence that the other lot occupants agreed to sell to Juan.

The Court of Appeals agreed with the RTC that there was a perfected contract of sale
between Juan and Henry. However, it also ruled that the contract of sale was not validly
rescinded. For the rescission to be valid under Article 1592 of the Civil Code, it should have been
done through a judicial or notarial act and not merely through a letter.

Issues:

1) Whether or not there was a valid contract of sale between Henry and Juan;
2) Whether or not the contract was terminated through rescission;
3) Whether or not there was a double sale in this case.

Ruling:

The petition should be denied.

1) There was no valid contract of sale between Juan and Henry.


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We find that there was no contract of sale. It was null ab initio.

As defined by the Civil Code, "a contract is a meeting of minds between two persons
whereby one binds himself, to give something or to render some service." For there to be a valid
contract, there must be consent of the contracting parties, an object certain which is the subject
matter of the contract, and cause of the obligation which is established. Sale is a special contract.
The seller obligates himself to deliver a determinate thing and to transfer its ownership to the
buyer. In turn, the buyer pays for a price certain in money or its equivalent. A "contract of sale is
perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price." The seller and buyer must agree as to the certain thing that will be
subject of the sale as well as the price in which the thing will be sold. The thing to be sold is the
object of the contract, while the price is the cause or consideration.

The object of a valid sales contract must be owned by the seller. If the seller is not the
owner, the seller must be authorized by the owner to sell the object. Specific rules attach when
the seller co-owns the object of the contract. Sale of a portion of the property is considered an
alteration of the thing owned in common. Such disposition requires the unanimous consent of
the other co-owners. The rules also allow a co-owner to alienate his or her part in the co-
ownership.

If the alienation precedes the partition, the co-owner cannot sell a definite portion of the
land without consent from his or her co-owners. He or she could only sell the undivided interest
of the co-owned property. Prior to partition, a sale of a definite portion of common property
requires the consent of all co-owners because it operates to partition the land with respect to the
co-owner selling his or her share.

The object of the sales contract between Henry and Juan was a definite portion of a co-
owned parcel of land. At the time of the sale, the entire property was still held in common. The
rules allow Henry to sell his undivided interest in the co-ownership. However, this was not the
object of the sale between him and petitioner. The object of the sale was a definite portion. Henry
has "no right to sell or alienate a concrete, specific or determinate part of the thing owned in
common, because his right over the thing is represented by quota or ideal portion without any
physical adjudication."

There was no showing that Henry was authorized by his co-owners to sell the portion of
land occupied by Juan, the Espiritu family, or the Borbe family. Without the consent of his co-
owners, Henry could not sell a definite portion of the co-owned property.

At best, the agreement between Juan and Henry is a contract to sell, not a contract of sale.
A contract to sell is a promise to sell an object, subject to suspensive conditions. Without the
fulfillment of these suspensive conditions, the sale does not operate to determine the obligation
of the seller to deliver the object.

A co-owner could enter into a contract to sell a definite portion of the property. Such
contract is still subject to the suspensive condition of the partition of the property, and that the
other co-owners agree that the part subject of the contract to sell vests in favor of the co-owner’s
buyer. Hence, the co-owners’ consent is an important factor for the sale to ripen.
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2) A non-existent contract cannot be a source of obligations, and it cannot be enforced by the courts

We rule in favor of Henry.

The absence of a contract of sale means that there is no source of obligations for Henry, as
seller, or Juan, as buyer. Rescission is impossible because there is no contract to rescind.

Even if we assume that Henry had full ownership of the property and that he agreed to sell
a portion of the property to Juan, the letter was enough to cancel the contract to sell. Generally,
"the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent on him."

For the sale of immovable property, the following provision governs its rescission:

Article 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall take
place, the vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by notarial act. After the
demand, the court may not grant him a new term.

This provision contemplates (1) a contract of sale of an immovable property and (2) a
stipulation in the contract that failure to pay the price at the time agreed upon will cause the
rescission of the contract. The vendee or the buyer can still pay even after the time agreed upon, if
the agreement between the parties has these requisites. This right of the vendee to pay ceases
when the vendor or the seller demands the rescission of the contract judicially or extra judicially.
In case of an extra judicial demand to rescind the contract, it should be notarized.

Hence, this provision does not apply if it is not a contract of sale of an immovable
property and merely a contract to sell an immovable property. A contract to sell is "where the
ownership or title is retained by the seller and is not to pass until the full payment of the price,
such payment being a positive suspensive condition and failure of which is not a breach, casual or
serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force."

In Manuel v. Rodriguez this court categorically stated that Article 1592 "does not apply to a
contract to sell or promise to sell, where title remains with the vendor until fulfillment to a
positive suspensive condition, such as full payment of the price." This court upheld that the
contract to sell was validly cancelled through the non-payment of Eusebio Manuel. The same
conclusion applies in this case.

The law does not prescribe a form to rescind a contract to sell immovable property. In
Manuel, the non-payment operated to cancel the contract. If mere non-payment is enough to
cancel a contract to sell, the letter given to Juan’s lawyer is also an acceptable form of rescinding
the contract. The law does not require notarization for a letter to rescind a contract to sell
immovable property. Notarization is only required if a contract of sale is being rescinded.

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Juan argued that he was willing to comply with the suspensive condition on the contract
to sell because he was ready to pay the balance of the purchase price on June 15, 1992. However,
his argument is unmeritorious. As ruled by the RTC Juan should have resorted to the various
modes of consignment when Henry’s wife refused to accept the payment on Juan’s behalf.

Even if we assumed that the contract between Juan and Henry were perfected, the strict
requisites in Article 1592 did not apply because the only perfected contract was a contract to sell,
not a contract of sale. The courts cannot enforce the right of Juan to buy Henry’s property.

3) The question of double sale also becomes moot and academic.

There was no valid sale between Juan and Henry, while there was a valid sale between the
local government of Naga City and Henry and his co-owners. Since there is only one valid sale,
the rule on double sales under Article 1544 of the Civil Code does not apply.

We rule that petitioner is entitled to the return of the amount of money because he paid it
as consideration for ownership of the land. Since the ownership of the land could not be
transferred to him, the money he paid for that purpose must be returned to him. Otherwise,
respondent will be unjustly enriched. Henry’s claim for rent in arrears is a separate cause of action
from this case. It was not proven during trial if Juan's rental liability is due, or if it is already
liquidated and demandable.

SPOUSES ROBERTO and ADELAIDA PEN vs. SPOUSES SANTOS and LINDA JULIAN
G.R. No. 160408, January 11, 2016, J. Bersamin

Facts:

On April 9, 1986, the Julians obtained a P60,000.00 loan from Adelaida Pen. On May 23,
1986 and on the (sic) May 27, 1986, they were again extended loans in the amounts of P50,000.00
and P10,000.00, respectively by Adelaida. The initial interests were deducted by Adelaida. Two (2)
promissory notes were executed by the Julians in favor of Adelaida to evidence the foregoing
loans, one dated April 9, 1986 and payable on June 15, 1986 for the P60,000.00 loan and another
dated May 22, 1986 payable on July 22, 1986 for the P50,000.00 loan. Both loans were charged
interest at 6% per month. As security, on May 23, 1986, the Julians executed a Real Estate
Mortgage over their property covered by TCT No. 327733 registered under the name of appellee
Santos Julian, Jr. The owner's duplicate of TCT No. 327733 was delivered to the appellants.

At the time the mortgage was executed, the Julians were likewise required by the Adelaida
to sign a one (1) page document purportedly an "Absolute Deed of Sale". Said document did not
contain any consideration, and was "undated, unfilled and unnotarized". They allege that their
total payments amounted to P115,400.00 and that their last payment was on June 28, 1990 in the
amount of P100,000.00.

In December 1992, Linda Julian offered to pay Adelaida the amount of P150,000.00. The
latter refused to accept the offer and demanded that she be paid the amount of P250,000.00.

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Unable to meet the demand, Linda desisted from the offer and requested that she be shown the
land title which she conveyed to Adelaida, but the latter refused. Upon verification with the
Registry of Deeds of Quezon City, she was informed that the title to the mortgaged property had
already been registered in the name of Adelaida under TCT No. 364880, and that the transfer was
entered on July 17, 1987. A reconstituted title, TCT No. RT-45272 (364880), also appeared on file in
the Registry of Deeds replacing TCT No. 364880.

On September 8, 1994, the Julians filed a suit for the Cancellation of Sale, Cancellation of
Title issued to the spouses Roberto and Adelaida Pen; Recovery of Possession; Damages with
Prayer for Preliminary Injunction. The complaint alleged that Adelaida, through obvious bad
faith, maliciously typed, unilaterally filled up, and caused to be notarized the Deed of Sale earlier
signed by Julian, and used this spurious deed of sale as the vehicle for her fraudulent transfer unto
herself the parcel of land covered by TCT No. 327733.

Issues:

1) Whether the deed of sale is valid.


2) Whether monetary interest can validly be imposed.

Ruling:

1) The deed of sale is not valid.

Article 2088 of the Civil Code prohibits the creditor from appropriating the things given by
way of pledge or mortgage, or from disposing of them; any stipulation to the contrary is null and
void. The elements for pactum commissorium to exist are as follows, to wit: (a) that there should
be a pledge or mortgage wherein property is pledged or mortgaged by way of security for the
payment of the principal obligation; and (b) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of
the principal obligation within the stipulated period. The first element was present considering
that the property of the respondents was mortgaged by Linda in favor of Adelaida as security for
the farmer's indebtedness. As to the second, the authorization for Adelaida to appropriate the
property subject of the mortgage upon Linda's default was implied from Linda's having signed the
blank deed of sale simultaneously with her signing of the real estate mortgage. The haste with
which the transfer of property was made upon the default by Linda on her obligation, and the
eventual transfer of the property in a manner not in the form of a valid dacion en pago ultimately
confirmed the nature of the transaction as a pactum commissorium.

It cannot be argued that the transaction was a dacion en pago. For a valid dacion en
pago to transpire, the attendance of the following elements must be established, namely: (a) the
existence of a money obligation; (b) the alienation to the creditor of a property by the debtor with
the consent of the former; and (c) the satisfaction of the money obligation of the debtor. To have
a valid dacion en pago, therefore, the alienation of the property must fully extinguish the debt.
Yet, the debt of the respondents subsisted despite the transfer of the property in favor of Adelaida.

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2) Monetary interest cannot be imposed.

Interest that is the compensation fixed by the parties for the use or forbearance of money
is referred to as monetary interest. On the other hand, interest that may be imposed by law or by
the courts as penalty or indemnity for damages is called compensatory interest.

The CA correctly deleted the monetary interest from the judgment. Pursuant to Article
1956 of the Civil Code, no interest shall be due unless it has been expressly stipulated in writing. In
order for monetary interest to be imposed, therefore, two requirements must be present,
specifically: (a) that there has been an express stipulation for the payment of interest; and (b) that
the agreement for the payment of interest has been reduced in writing. Considering that the
promissory notes contained no stipulation on the payment of monetary interest, monetary
interest cannot be validly imposed.

The CA properly imposed compensatory interest to offset the delay in the respondents'
performance of their obligation. Nonetheless, the imposition of the legal rate of interest should be
modified from 12% to 6%. This is pursuant to BSP Monetary Board Resolution No. 796, lowering
to 6% per annum the legal rate of interest for a loan or forbearance of money, goods or credit
starting July 1, 2013. It should be noted, however, that imposition of the legal rate of interest at
6% per annum is prospective in application.

TIMOTEO BACALSO and DIOSDADA BACALSO vs. GREGORIA B. ACA-AC, ET AL.


G.R. No. 172919, January 13, 2016, J. Reyes

Facts:

The Bacus siblings were the registered owners of a parcel of land described as Lot No.
1809-G-2 located in San Roque, Talisay, Cebu with an area of 1,200 square meters and covered by
Transfer Certificate of Title (TCT) No. 59260. The Bacus siblings inherited the said property from
their mother Matea Bacalso (Matea).

On October 15, 1987, the Bacus siblings executed a Deed of Absolute Sale conveying a
portion of Lot No. 1809-G-2 with an area of 271 sq m, described as Lot No. 1809-G-2-C, in favor of
their cousin, Timoteo for and in consideration of the amount of P8,000.00.

On March 4, 1988, however, Timoteo, together with his sisters Lucena and Victoria and
some of his cousins filed a complaint for declaration of nullity of documents, certificates of title,
reconveyance of real property and damages against the Bacus siblings and four other persons
before the RTC of Cebu City, Branch 12, and was docketed as Civil Case No. CEB-6693. They
claimed that they are co-owners of the three-fourths portion of Lot No. 1809-G (which Lot No.
1809-G-2-C was originally part of) as Matea had paid for the said property for and in behalf of her
brother Alejandro (father of petitioner Timoteo) and sisters Perpetua and Liberata, all surnamed
Bacalso.

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Petitioners argue that the Deed of Absolute Sale has all the requisites of a valid contract.
The petitioners contend that there is no lack of consideration that would prevent the existence of
a valid contract. They assert that the testimonies of Timoteo and witness Roberto Ybas sufficiently
established that the purchase price of P5,000.00 for Lot No. 1809-G-2-C was paid to Julian at Sto.
Nifio Church in Cebu City before the execution of the Deed of Absolute Sale. They also claim that
even assuming that they failed to pay the purchase price, such failure does not render the sale
void for being fictitious or simulated, rather, there is only non-payment of the consideration
within the period agreed upon for payment.

Issue:

Whether the Deed of Absolute Sale dated October 15, 1987 is void for want of
consideration.

Ruling:

The Deed of Absolute Sale is void.

Under the Civil Code, a contract is a meeting of minds, with respect to the other, to give
something or to render some service. Article 1318 provides:

Art. 1318. There is no contract unless the following requisites


concur:

(l) Consent of the contracting parties;


(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Contrary to the petitioners' claim, this is not merely a case of failure to pay the purchase
price which can only amount to a breach of obligation with rescission as the proper remedy. As
correctly observed by the RTC, the disputed sale produces no effect and is considered void ab
initio because it lacks cause - one of the three essential requisites of a valid contract. Failure to pay
the consideration is different from lack of consideration. The former results in a right to demand
the fulfillment or cancellation of the obligation under an existing valid contract while the latter
prevents the existence of a valid contract.

It is a well-entrenched rule that where the deed of sale states that the purchase price has
been paid but in fact has never been paid, the contract of sale is null and void ab initio for lack of
consideration. Here, o portion of the P8,000.00 consideration indicated in the Deed of Absolute
Sale was ever paid by the petitioners.

ILONA HAPITAN vs. SPOUSES JIMMY LAGRADILLA and


WARLILY LAGRADILLA and ESMERALDA BLACER
G.R. No. 170004, January 13, 2016, J. Jardeleza

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Facts:

Between September to December 1994, respondent Esmeralda Blacer Hapitan (Esmeralda)


issued thirty-one (31) United Coconut Planters Bank (UCPB) checks in various amounts in the
total amount of ₱510,463.98, payable to the order of respondent Warlily Lagradilla (Warlily). The
checks were dishonored by UCPB for reasons of “account closed” when presented for payment by
Warlily.

On January 6, 1995, Warlily, with her husband Jimmy Lagradilla (Jimmy), filed a civil case for sum
of money against Nolan (Nolan) and Esmeralda Hapitan, Ilona Hapitan (Ilona), and Spouses Jessie
and Ruth Terosa (Spouses Terosa), with a prayer that a writ for preliminary attachment be issued
against the real property of Esmeralda and Nolan, consisting of a house and lot, as security for the
satisfaction of any judgment that might be recovered. In their complaint, Jimmy and Warlily
alleged that they made several demands on Nolan and Esmeralda for the latter to settle their
outstanding obligations. The latter spouses promised to convey and transfer to Jimmy and Warlily
the title of their house and lot, located at Barangay M. V. Hechanova, Jaro, Iloilo City.

Esmeralda alleged that due to the failure of Nolan, who was a seaman at that time, to
send her substantial amounts and on account of the losses she sustained in her jewelry business,
she failed to fund the checks she issued. Also, although she executed an SPA in favor of Ilona
authorizing the latter to sell the house and lot owned by her and Nolan, she subsequently revoked
the said SPA.

Nolan and Ilona denied the allegations of Jimmy and Warlily. They argued that the debts
were incurred solely by Esmeralda and were not intended to benefit the conjugal partnership.

The RTC ruled in favor of Jimmy and Warlily. The CA agreed with the RTC. Nolan and
Ilona filed a Motion for Reconsideration/Modification based mainly on the Affidavit of Waiver,
Quitclaim and Satisfaction of Claim (Waiver) dated October 22, 2003 executed by Warlily. In the
same motion, they moved that the CA reconsider its finding that: 1) the sale to the Spouses Terosa
was fraudulent, and 2) Esmeralda is entitled to damages.

Jimmy and Warlily, and Nolan and Ilona later filed a Motion for Approval of Amicable
Settlement. The CA, however, denied the Motion for Reconsideration/Modification filed by Nolan
and Ilona.

Issues:

1) Whether the Waiver and the Amicable Settlement can modify the Decision of the CA.
2) Whether the Amicable Settlement is valid.
3) Whether Nolan can waive his and Esmeralda’s rights over the house and lot sold to the
Spouses Terosa.

Ruling:

1) The nullity of the Deed of Sale could not be affected by the subsequent waiver of Warlily.
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The general rule is that a person may waive any matter which affects his property, and any
alienable right or privilege of which he is the owner or which belongs to him or to which he is
legally entitled, whether secured by contract, conferred with statute, or guaranteed by
constitution, provided such rights and privileges rest in the individual, are intended for his sole
benefit, do not infringe on the rights of others, and further provided the waiver of the right or
privilege is not forbidden by law, and does not contravene public policy.

Warlily’s Waiver cannot cover the issue of the validity of the sale of the property to the
Spouses Terosa since the property is neither a right nor a benefit she is entitled to. Moreover, the
declaration of nullity due to the existence of fraud was both a finding of fact and of law by the
lower courts, and the parties cannot agree amongst themselves and decide otherwise.

2) The Amicable Settlement is not valid.

A compromise agreement is defined as a contract whereby the parties make reciprocal


concessions in order to resolve their differences and thus avoid or put an end to a lawsuit. To have
the force of law between the parties, a compromise agreement must comply with the requisites
and principles of contracts. Thus, it must have the following elements: 1) the consent of the
parties to the compromise; 2) an object certain that is the subject matter of the compromise; and
3) the cause of the obligation that is established.

While compromise agreements are generally favored and encouraged by the courts, it
must be proved that they were voluntarily, freely, and intelligently entered into by the parties,
who had full knowledge of the judgment. The allegations of Jimmy and Warlily cast doubt on
whether they fully understood the terms of the Amicable Settlement when they signed it. They
further argued that they did not fully comprehend the CA Decision in their favor. Thus, it may be
reasonably inferred that Jimmy and Warlily did not give consent to the Amicable Settlement with
Nolan and Ilona.

3) Nolan cannot waive his and Esmeralda’s rights over the house and lot sold to the Spouses
Terosa.

The Amicable Settlement, which Nolan signed, aims to recall the lower courts’ finding of
nullity of the sale of the house and lot to the Spouses Terosa. In effect, by agreeing to the validity
of the sale, Nolan disposed of or waived his and Esmeralda’s rights over the house and lot, which
the lower courts found to be part of their conjugal property.

Such disposal or waiver by Nolan is not allowed by law. Article 12447 of the Family Code
requires that any disposition or encumbrance of conjugal property must have the written consent
of the other spouse; otherwise, such disposition is void. 48 Further, under Article 8949 of the
Family Code, no waiver of rights, interests, shares, and effects of the conjugal partnership of
gains50 during the marriage can be made except in case of judicial separation of property. Clearly,
Esmeralda did not consent to Nolan disposing or waiving their rights over the house and lot
through the Amicable Settlement.

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FLORITA LIAM V. UNITED COCONUT PLANTERS BANK


G.R. No. 194664, June 15, 2016; Reyes

Facts:

On April 11, 1996, Liam entered into a contract to sell with Primetown Property Group, Inc.
(“PPGI”) for the purchase of Condominium Unit in the latter’s Makati Prime City condominium
project for the price of P2,614,652.66. The parties stipulated that the unit will be delivered not
later than six (6) months from the start of actual construction.

To finance its project, PPGI obtained a loan from UCPB. Later on, PPGI settled its loan by
transferring to UCPB its right to collect all receivables from condominium buyers, including Liam.
Such arrangement was executed through a Memorandum of Agreement (“MOA”) and a document
denominated as Sale of Receivables and Assignment of Rights and Interests.

On May 29, 1998, PPGI notified Liam of the sale of its receivables and directed her to remit any
remaining balance of the purchase price to UCPB, to which Liam obeyed. However, on March 9,
1999, Liam wrote UCPB asking for the deferment of her payments until such time that the unit is
ready for delivery. Thereafter, Liam stopped making payments. On February 28, 2001, Liam wrote
UCPB again complaining of delay in the delivery of the unit and reiterating that she will not
resume payments until the until is delivered. Liam likewise requested for UCPB to waive the
interests and penalties on her payments. Receiving no reply from UCPB, Liam demanded for the
refund of all her payments.

On July 1, 2005, UCPB proposed a financing package to Liam for the full settlement of her
remaining balance. On October 17, 2005, Liam saw UCPB’s newspaper advertisement offering for
sale to the public units in another tower of the project for a much lower price.

Liam then requested for UCPB to suspend the restructuring of her loan, and instead asked for the
downgrading of her initial purchase to any of the units available equal in value to payments she
made so far amounting to P1,223,000.00. When her requests remained unheeded, she filed a
complaint for specific performance against UCPB before the HLURB.

In its answer, UCPB argued that it had no legal obligation to deliver the unit to Liam because it is
merely a creditor of PPGI. UCPB argued that it only acquired PPGI’s right to collect its
receivables. UCPB also contended that the units offered for sale in the newspaper advertisements
pertain to units it received from PPGI as payment for its other loans and did not have any
connection to the unit involved in the contract to sell between Liam and PPGI.

The HLURB ruled in favor of Liam, finding and ordered that she be allowed to choose from the
available units, or in the alternative, to maintain the previous unit subject of the contract to sell.
On appeal to the HLURB Board of Commissioners, the HLURB’s initial decision was modified.
Liam was no longer allowed to choose from the available units, but was given the option to push
through with the sale or get a refund plus interest. The Office of the President affirmed the
decision of the HLURB Board of Commissioners. It ruled that The OP held that the Deed of
Sale/Assignment between UCPB and PPGI covered all the rights and interests arising from or out
of the contract to sell between Liam and PPGI.
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On appeal to the CA, it ruled in favor of UCPB ruling that Liam had no right to demand specific
performance from UCPB because it was not privy to the contract to sell. The obligations of PPGI
to Liam remained subsisting and it continued to be Liam's obligor with respect to the delivery of
the condominium units even after the assignment. Thus, UCPB cannot be held liable for PPGI's
breach of its obligation to Liam. The CA concluded that UCPB was wrongly impleaded in the
complaint for specific performance.

Issues:

1) Whether or not UCPB may be held liable under the contract to sell.

Ruling:

1) No. The transaction between UCPB and PPGI was an assignment of credit and not
subrogation.

An assignment of credit is the process of transferring the right of the assignor to the assignee who
would then have the right to proceed against the debtor. The assignment may be done either
gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale.
On the other hand, subrogation is a process by which the third party pays the obligation of the
debtor to the creditor with the latter's consent. As a consequence, the paying third party steps
into the shoes of the original creditor as subrogee of the latter. It results in a subjective novation
of the contract in that a third person is subrogated to the rights of the creditor.

The crucial distinction between assignment and subrogation actually deals with the necessity of
the consent of the debtor in the original transaction. In an assignment of credit, the consent of
the debtor is not necessary in order that the assignment may fully produce legal effects. What the
law requires in an assignment of credit is not the consent of the debtor but merely notice to him
as the assignment takes effect only from the time he has knowledge thereof. A creditor may,
therefore, validly assign his credit and its accessories without the debtor's consent.

Meanwhile, subrogation requires an agreement among the three parties concerned — the original
creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual
agreement among all the necessary parties.
The terms of the MOA and Deed of Sale/Assignment between PPGI and UCPB unequivocally
show that the parties intended an assignment of PPGI's credit in favor of UCPB. Therefore, being
a mere assignee of PPGI’s credit, UCPB was improperly impleaded in Liam’s complaint and there
is no ground to hold the UCPB solidarily liable with PPGI.

WARRANTIES

BIGNAY EX-IM PHILIPPINES, INC. vs. UNION BANK OF THE PHILIPPINE


XXX
UNION BANK OF THE PHILIPPINES vs. BIGNAY EX-IM PHILIPPINES, INC.
G.R. No. 171590 & G.R. No. 171598. February 12, 2014
J. Del Castillo

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Bignay purchased the property without knowledge of the pending Civil Case filed by Rosario.
Union Bank represented to Bignay that it had title to the property, and by assuming the obligation
to defend such title, it promised to do so at least in good faith and with sufficient prudence, if not to
the best of its abilities. The failure of Union Bank to do so constitutes as breach of warranty against
eviction.

More so, the gross negligence of Union Bank in defending its title to the property subject
matter of the sale – thereby contravening the express undertaking under the deed of sale to protect
its title against the claims of third persons resulting in the buyer’s eviction from the property –
amounts to bad faith, and the buyer is entitled to the remedies afforded under Article 1555 of the
Civil Code.

Eviction shall take place whenever by a final judgment based on a right prior to the sale or
an act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing
purchased. In case eviction occurs, the vendee shall have the right to demand of the vendor, among
others, the return of the value which the thing sold had at the time of the eviction, be it greater or
less than the price of the sale; the expenses of the contract, if the vendee has paid them; and the
damages and interests, and ornamental expenses, if the sale was made in bad faith.

Facts:

Alfonso de Leon (Alfonso) mortgaged in favor of Union Bank of the Philippines (Union Bank) real
property situated at Esteban Abada, Loyola Heights, Quezon City, which was registered in his and
his wife Rosario’s name. The property was foreclosed and sold at auction to Union Bank. After the
redemption period expired, the bank consolidated its ownership. However, Rosario filed against
Alfonso and Union Bank a case for annulment in the RTC of the mortgage claiming that Alfonso
mortgaged the property without her consent, and for reconveyance.

Meanwhile, in a Letter-Proposal, Bignay Ex-Im Philippines, Inc. (Bignay), through its President,
Milagros Ong Siy (Siy), offered to purchase the property. Thereafter, a Deed of Absolute Sale was
executed by and between Union Bank and Bignay whereby the property was conveyed to Bignay.
Bignay mortgaged the property to Union Bank, presumably to secure a loan obtained from the
latter.

In the case filed by the Rosario, the RTC rendered a decision finding that defendant Alfonso de
Leon, Jr. had alone executed the mortgage on their conjugal property upon a forged signature of
his wife plaintiff Rosario T. de Leon.

Union Bank appealed the decision to the CA. The CA appeal was dismissed for failure to file
appellant’s brief; the ensuing Petition for Review with this Court was similarly denied for late
filing and payment of legal fees. Union Bank next filed with the CA an action to annul the
decision, which was dismissed. After the Motion for Reconsideration was denied, it was Bignay
who filed a petition for the Annulment of the RTC decision.

Meanwhile, as a result of the RTC decision, Bignay was evicted from the property; by then, it had
demolished the existing structure on the lot and begun construction of a new building.

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Subsequently, Bignay filed a civil case for breach of warranty against eviction under Articles 1547
and 1548 of the Civil Code, with damages, against Union Bank and Robles. Robles was dropped as
party defendant upon agreement of the parties and in view of Union Bank’s admission and
confirmation that it had authorized all of Robles’s acts relative to the sale.

Union Bank interposed a Motion to Dismiss grounded on lack of or failure to state a cause of
action, claiming that it made no warranties in favor of Bignay when it sold the property to the
latter.

The trial court thus declared that Union Bank acted in bad faith in selling the subject property to
Bignay. Thus, it held that Bignay was entitled to the return of the value of the property, as well as
the cost of the building erected since Union Bank acted in bad faith. The CA held that Union
Bank is liable pursuant to its commitment under the deed of sale to defend the title to the
property against the claims of third parties.

Issue:

Whether Union Bank is liable for the breach of warranty against eviction

Ruling:

Art. 1555. When the warranty has been agreed upon or nothing has been stipulated on this point,
in case eviction occurs, the vendee shall have the right to demand of the vendor:

(1) The return of the value which the thing sold had at the time of the eviction, be it greater or
less than the price of the sale;

(2) The income or fruits, if he has been ordered to deliver them to the party who won the suit
against him;

(3) The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought
against the vendor for the warranty;

(4) The expenses of the contract, if the vendee has paid them;

(5) The damages and interests, and ornamental expenses, if the sale was made in bad faith.

The Court is convinced – from an examination of the evidence and by the concurring opinions of
the courts below – that Bignay purchased the property without knowledge of the pending Civil
Case filed by Rosario. Union Bank is therefore answerable for its express undertaking under the
deed of sale to “defend its title to the Parcel/s of Land with improvement thereon against the
claims of any person whatsoever.” By this warranty, Union Bank represented to Bignay that it had
title to the property, and by assuming the obligation to defend such title, it promised to do so at
least in good faith and with sufficient prudence, if not to the best of its abilities.

The record reveals, however, that Union Bank was grossly negligent in the handling and
prosecution of the civil case filed by Rosario. Its appeal of the December 12, 1991 Decision in said
case was dismissed by the CA for failure to file the required appellant’s brief. Next, the ensuing
Petition for Review on Certiorari filed with this Court was likewise denied due to late filing and
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payment of legal fees. Finally, the bank sought the annulment of the RTC judgment, yet again, the
CA dismissed the petition for its failure to comply with Supreme Court Circular No. 28-91. As a
result, the RTC Decision became final and executory, and Bignay was evicted from the property.
Such negligence in the handling of the case is far from coincidental; it is decidedly glaring, and
amounts to bad faith. “[N]egligence may be occasionally so gross as to amount to malice [or bad
faith].” Indeed, in culpa contractual or breach of contract, gross negligence of a party amounting
to bad faith is a ground for the recovery of damages by the injured party.

Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the whole or of a part of the thing
purchased. In case eviction occurs, the vendee shall have the right to demand of the vendor,
among others, the return of the value which the thing sold had at the time of the eviction, be it
greater or less than the price of the sale; the expenses of the contract, if the vendee has paid them;
and the damages and interests, and ornamental expenses, if the sale was made in bad faith. There
appears to be no dispute as to the value of the building constructed on the property by Bignay;
the only issue raised by Union Bank in these Petitions is the propriety of the award of damages,
and the amount thereof is not in issue. The award in favor of Bignay of P4 million, or the
consideration or cost of the property, and P20 million – the value of the building it erected
thereon – is no longer in issue and is thus in order

EARNEST MONEY

FIRST OPTIMA REALTY CORPORATION vs. SECURITRON SECURITY SERVICES, INC.


G.R. No. 199648, January 28, 2015, J. Del Castillo

In a potential sale transaction, the prior payment of earnest money even before the property
owner can agree to sell his property is irregular, and cannot be used to bind the owner to the
obligations of a seller under an otherwise perfected contract of sale; to cite a well-worn cliché, the
carriage cannot be placed before the horse. Securitron’s sending of the February 4, 2005 letter to
FORC which contains earnest money constitutes a mere reiteration of its original offer which was
already rejected previously. FORC can never be made to push through a sale which they never agreed
to in the first place.

Facts:

Petitioner First Optima Realty Corporation (FORC) is a domestic corporation engaged in


the real estate business. It is the registered owner of a 256-square meter parcel of land with
improvements located in Pasay City, covered by Transfer Certificate of Title No. 125318 (the
subject property). Respondent Securitron Security Services, Inc., (Securitron) on the other hand,
is a domestic corporation with offices located beside the subject property. Looking to expand its
business and add to its existing offices, Securitron – through its General Manager, Antonio
Eleazar (Eleazar) – sent a December 9, 2004 Letter addressed to FORC – through its Executive
Vice-President, Carolina T. Young (Young) – offering to purchase the subject property at
P6,000.00 per square meter. A series of telephone calls ensued, but only between Eleazar and
Young’s secretary; Eleazar likewise personally negotiated with a certain Maria Remoso (Remoso),
who was an employee of FORC. At this point, Eleazar was unable to personally negotiate with
Young or the FORC’s board of directors.

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Sometime thereafter, Eleazar personally went to FORC’s 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 sister’s advice on the matter. She likewise
informed Eleazar that prior approval of FORC’s Board of Directors was required for the
transaction, to which remark Eleazar replied that Securitron shall instead await such approval. On
February 4, 2005, Securitron sent a Letter of even date to FORC. It was accompanied by
Philippine National Bank Check No. 24677 (the subject check), issued for P100,000.00 and made
payable to FORC. The letter states Antonio Eleazar is tendering P100,000.00 as earnest money.

Thereafter, Securitron through counsel demanded in writing that FORC proceed with the
sale of the property. On April 18, 2006, Securitron filed with the Pasay RTC a civil case against
FORC for specific performance with damages to compel the latter to consummate the supposed
sale of the subject property. In its Answer with Compulsory Counterclaim, FORC argued that it
never agreed to sell the subject property; that its board of directors did not authorize the sale
thereof to Securitron, as no corresponding board resolution to such effect was issued; that the
Securitron’s P100,000.00 check payment cannot be considered as earnest money for the subject
property, since said payment was merely coursed through FORC’s receiving clerk, who was forced
to accept the same; and that Securitron was simply motivated by a desire to acquire the subject
property at any cost. Thus, FORC prayed for the dismissal of the case.

In ruling for the Securitron, the trial court held that FORC’s acceptance of P100,000.00
earnest money indicated the existence of a perfected contract of sale between the parties; that
there is no showing that when Securitron gave the February 4, 2005 letter and check to FORC’s
receiving clerk, the latter was harassed or forced to accept the same. On September 30, 2011, the
CA issued the assailed Decision affirming the trial court’s February 16, 2009 Decision. Hence, this
petition.

Issue:

Whether the money Securiton delivered to First Optima Realty Corporation was earnest
money thereby providing a perfected contract of sale

Ruling:

No. The trial and appellate courts failed to appreciate that Securitron’s offer to purchase
the subject property was never accepted by the FORC at any instance, even after negotiations
were held between them. Thus, as between them, there is no sale to speak of. “When there is
merely an offer by one party without acceptance of the other, there is no contract.”

Securitron’s subsequent sending of the February 4, 2005 letter and check to FORC –
without awaiting the approval of FORC’s board of directors and Young’s decision, or without
making a new offer – constitutes a mere reiteration of its original offer which was already rejected
previously; thus, FORC 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. 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 FORC to sell
its property arose as a consequence. Under Art. 1482 of the Civil Code, “there must first be a
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perfected contract of sale before we can speak of earnest money.” “Where the parties merely
exchanged offers and counter-offers, no contract is perfected since they did not yet give their
consent to such offers. Earnest money applies to a perfected sale.”

In a potential sale transaction, the prior payment of earnest money even before the
property owner can agree to sell his property is irregular, and cannot be used to bind the owner to
the obligations of a seller under an otherwise perfected contract of sale; to cite a well-worn cliché,
the carriage cannot be placed before the horse. The property owner-prospective seller may not be
legally obliged to enter into a sale with a prospective buyer through the latter’s employment of
questionable practices which prevent the owner from freely giving his consent to the transaction;
this constitutes a palpable transgression of the prospective seller’s rights of ownership over his
property, an anomaly which the Court will certainly not condone. An agreement where the prior
free consent of one party thereto is withheld or suppressed will be struck down, and the Court
shall always endeavor to protect a property owner’s rights against devious practices that put his
property in danger of being lost or unduly disposed without his prior knowledge or consent.

FORGERY

THE HEIRS OF VICTORINO SARILI, NAMELY: ISABEL A. SARILI, MELENCIA S. MAXIMO,


ALBERTO A. SARILI, IMELDA S. HIDALGO, ALL HEREIN REPRESENTED BY CELSO A.
SARILI vs. PEDRO F. LAGROSA, REPRESENTED IN THIS ACT BY HIS ATTORNEY-IN-
FACT, LOURDES LABIOS MOJICA
G.R. No. 193517. January 15, 2014
J. Perlas-Bernabe

Sps. Sarili purchased the subject property from Ramos on the strength of the latter’s
ostensible authority to sell under the subject SPA. The said document, however, readily indicates
flaws in its notarial acknowledgment since the respondent’s community tax certificate (CTC)
number was not indicated thereon. The due execution and authenticity of the subject SPA are of
great significance in determining the validity of the sale entered into by Victorino and Ramon since
the latter only claims to be the agent of the purported seller. The rule that even if the procurement
of a certificate of title was tainted with fraud and misrepresentation, such defective title may be the
source of a completely legal and valid title in the hands of an innocent purchaser for value is not
applicable to the Sps. Sarili. A higher degree of prudence is required from one who buys from a
person who is not the registered owner, although the land object of the transaction is registered.
Since Sps. Sarili’s claim over the subject property is based on forged documents, no valid title had
been transferred to them and, in turn, to petitioners.

Facts:

Respondent, represented by his attorney-in-fact Lourdes Labios Mojica (Lourdes) via a special
power of attorney filed a complaint against Sps. Sarili and the Register of Deeds of Caloocan City
(RD) before the RTC, alleging, among others, that he is the owner of a certain parcel of land
situated in Caloocan City (subject property) and has been religiously paying the real estate taxes
therefor since its acquisition on November 29, 1974. Respondent claimed that he is a resident of
California, USA, and that during his vacation in the Philippines, he discovered that a new
certificate of title to the subject property was issued by the RD in the name of Victorino married
to Isabel Amparo (Isabel by virtue of a falsified Deed of Absolute Sale dated February 16,
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1978 purportedly executed by him and his wife, Amelia U. Lagrosa (Amelia). He averred that the
falsification of the said deed of sale was a result of the fraudulent, illegal, and malicious acts
committed by Sps. Sarili and the RD in order to acquire the subject property and, as such, prayed
for the annulment of the TCT and that Sps. Sarili deliver to him the possession of the subject
property, or, in the alternative, that Sps. Sarili and the RD jointly and severally pay him the
amount of P1,000,000.00, including moral damages as well as attorney’s fees.

In their answer, Sps. Sarili maintained that they are innocent purchasers for value, having
purchased the subject property from Ramon B. Rodriguez (Ramon), who possessed and presented
a Special Power of Attorney (subject SPA) to sell/dispose of the same, and, in such capacity,
executed a Deed of Absolute Sale dated November 20, 1992 conveying the said property in their
favor. In this relation, they denied any participation in the preparation of the February 16, 1978
deed of sale. Further, they interposed a counterclaim for moral and exemplary damages, as well as
attorney’s fees, for the filing of the baseless suit.

The RTC ruled that respondent’s signature on the subject SPA as “the same and exact replica” of
his signature in the November 25, 1999 SPA in favor of Lourdes. Thus, with Ramon’s authority
having been established, it declared the November 20, 1992 deed of sale executed by the latter as
“valid, genuine, lawful and binding” and, as such, had validly conveyed the subject property in
favor of Sps. Sarili. It further found that respondent “acted with evident bad faith and malice” and
was, therefore, held liable for moral and exemplary damages.

The CA declared the deeds of sale dated February 16, 1978 and November 20, 1992, as well as the
subject SPA as void.

Issue:

Whether or not there was a valid conveyance of the subject property to Sps. Sarili

Ruling:

It is well-settled that even if the procurement of a certificate of title was tainted with fraud and
misrepresentation, such defective title may be
the source of a completely legal and valid title in the hands of an innocent
purchaser for value. Where innocent third persons, relying on the correctness of the certificate
of title thus issued, acquire rights over the property, the court cannot disregard such rights and
order the total cancellation of the certificate. The effect of such an outright cancellation would be
to impair public confidence in the certificate of title, for everyone dealing with property registered
under the Torrens system would have to inquire in every instance whether the title has been
regularly or irregularly issued. This is contrary to the evident purpose of the law.

The general rule is that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in no way oblige him to go
beyond the certificate to determine the condition of the property. Where there is nothing in the
certificate of title to indicate any cloud or vice in the ownership of the property, or any
encumbrance thereon, the purchaser is not required to explore further than what the Torrens
Title upon its face indicates in quest for any hidden defects or inchoate right that may
subsequently defeat his right thereto.

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However, a higher degree of prudence is required from one who buys from a person who is not
the registered owner, although the land object of the transaction is registered. In such a case, the
buyer is expected to examine not only the certificate of title but all factual circumstances
necessary for him to determine if there are any flaws in the title of the transferor. The buyer also
has the duty to ascertain the identity of the person with whom he is dealing with and the latter’s
legal authority to convey the property.

In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on
the strength of the latter’s ostensible authority to sell under the subject SPA. The said document,
however, readily indicates flaws in its notarial acknowledgment since the respondent’s
community tax certificate (CTC) number was not indicated thereon. The due execution and
authenticity of the subject SPA are of great significance in determining the validity of the sale
entered into by Victorino and Ramon since the latter only claims to be the agent of the purported
seller (i.e., respondent). Article 1874 of the Civil Code provides that “[w]hen a sale of a piece of
land or any interest therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void.” In other words, if the subject SPA was not proven to
be duly executed and authentic, then it cannot be said that the foregoing requirement had been
complied with; hence, the sale would be void.

After a judicious review of the case, taking into consideration the divergent findings of the RTC
and the CA on the matter, the Court holds that the due execution and authenticity of the subject
SPA were not sufficiently established under Section 20, Rule 132 of the Rules of Court.

At this juncture, it is well to note that it was, in fact, the February 16, 1978 deed of sale which – as
the CA found – was actually the source of the issuance of TCT No. 262218. Nonetheless, this
document was admitted to be also a forgery. Since Sps. Sarili’s claim over the subject property
is based on forged documents, no valid title had been transferred to them (and, in turn, to
petitioners). Verily, when the instrument presented is forged, even if accompanied by the
owner’s duplicate certificate of title, the registered owner does not thereby lose his title,
and neither does the assignee in the forged deed acquire any right or title to the property.

SERCONSISION R. MENDOZA vs. AURORA MENDOZA FERMIN


G.R. No. 177235, July 7, 2014, J.Peralta

Fermin filed a case for Annulment of Deed of Absolute Sale, Transfer Certificate of Title and
Damages alleging that the signature of her father was forged. While the Court recognize that the
technical nature of the procedure in examining forged documents calls for handwriting
experts, resort to these experts is not mandatory or indispensable, because a finding of forgery does
not depend entirely on their testimonies. Judges must also exercise independent judgment in
determining the authenticity or genuineness of the signatures in question, and not rely merely on
the testimonies of handwriting experts.

Facts:

Leonardo G. Mendoza, allegedly married to Serconsision R. Mendoza, died on November


25, 1986. In the testate proceedings of her father’s estate, Aurora Mendoza Fermin, being the
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legitimate and eldest daughter of Leonardo, was appointed as one of the administratix. Sometime
in 1990, when Fermin was the one preparing an inventory of the properties of her late father, she
discovered that her father and Mendoza purportedly sold the said property to one Eduardo C.
Sanchez as evidenced by a Deed of Absolute Sale dated September 22, 1986. However, the Deed of
Absolute Sale was registered with the Register of Deeds for the City of Parañaque only on April 30,
1991, or five (5) years after the alleged transfer.
On March 19, 1992, Fermin filed a case for Annulment of Deed of Absolute Sale, Transfer
Certificate of Title and Damages alleging that the signature of her father was forged. The
RTC rendered a decision finding that there was no forgery and declaring the sale of the property
as valid. The CA reversed the decision of the RTC.
Mendoza denied that the signatures of Leonardo on the Deed of Absolute Sale were
forgeries. To augment her position, she presented an expert witness, a document examiner of
PNP, who testified that there is no forgery.

Issue:

Whether or not the signature was forged

Ruling:

Yes.

With regard to the issue on forgery, the general rule is, the same cannot be presumed and
must be proved by clear, positive and convincing evidence; the burden of proof of which lies on
the party alleging forgery. The best evidence of a forged signature in the instrument is the
instrument itself reflecting the alleged forged signature. The fact of forgery can only be
established by comparison between the alleged forged signature and the authentic and genuine
signature of the person whose signature is theorized upon to have been forged.

A scrutiny of the comparison charts of the NBI handwriting expert witness and the PNP
handwriting expert witness, would reveal that there are marked differences between Leonardo’s
signature on the Deed of Absolute Sale vis-à-vis the specimen signatures submitted by the parties.
While the Court recognize that the technical nature of the procedure in examining forged
documents calls for handwriting experts, resort to these experts is not mandatory or
indispensable, because a finding of forgery does not depend entirely on their testimonies. Judges
must also exercise independent judgment in determining the authenticity or genuineness of the
signatures in question, and not rely merely on the testimonies of handwriting experts.

Although there is no direct evidence to prove forgery, preponderance of evidence


indubitably favors the respondent. Preponderance of evidence is the weight, credit, and value of
the aggregate evidence on either side and is usually considered to be synonymous with the term
“greater weight of the evidence” or “greater weight of the credible evidence.” It is evidence which
is more convincing to the court as worthier of belief than that which is offered in opposition
thereto.
Being a forgery, the Deed of Absolute Sale conveyed nothing in favor of Eduardo C. Sanchez, as
claimed by Mendoza.

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Considering that the questioned sale was concluded on September 22, 1986, before the
Family Code took effect, the transaction could still be aptly governed by the then governing
provisions of the Civil Code. Article 173 provides that the wife may, during the marriage, and
within ten years from the transaction questioned, ask the courts for the annulment of any
contract of the husband entered into without her consent, when such consent is required, or any
act or contract of the husband which tends to defraud her or impair her interest in the conjugal
partnership property. Should the wife fail to exercise this right, she or her heirs, after the
dissolution of the marriage, may demand the value of the property fraudulently alienated by the
husband.

RECISSION

BANK OF THE PHILIPPINE ISLANDS vs. VICENTE VICTOR C. SANCHEZ ET


AL./GENEROSO TULAGAN ET AL. vs. VICENTE VICTOR C. SANCHEZ ET AL./REYNALDO V.
MANIWANG vs. VICENTE VICTOR C. SANCHEZ and FELISA GARCIA YAP
G.R. No. 179518, G.R. No. 179835, G.R. No. 179954, November 19, 2014, J. Velasco Jr.

The failure of TSEI to pay the consideration for the sale of the subject property entitled the
Sanchezes to rescind the Agreement. And in view of the finding that the intervenors acted in bad
faith in purchasing the property, the subsequent transfer in their favor did not and cannot bar
rescission. Contrary to the contention of BPI, although the case was originally an action for
rescission, it became a direct attack on the title, certainly there is no indication that when the
Sanchezes filed their complaint with the RTC they already knew of the existence of TCT 383697.

Facts:

Vicente Victor C. Sanchez, Kenneth Nereo Sanchez and Imelda C. V da. De Sanchez
owned a parcel of land located at No. 10 Panay Avenue, Quezon City consisting of 900 square
meters. The property was registered under TCT 156254 of the Registry of Deeds of Quezon City.
On October 10, 1988, Jesus V. Garcia, doing business under the name TransAmerican Sales and
Exposition, Inc., wrote a letter to Vicente offering to buy the Subject Property for One Million
Eight Hundred Thousand Pesos under subject terms and conditions. The offer was good for only
seven (7) days. The period elapsed with the parties failing to come to an agreement. Sometime in
the third week of October 1988, Felisa Yap, the widow of Kenneth Nereo Sanchez, and Garcia had
a meeting at the Quezon City Sports Club wherein the parties agreed to the sale of the subject
property. Pursuant to this agreement, Yap turned over to Garcia the original owner’s copy of TCT
156254, the copy of the filed Application for Restitution of Title to the property, and copies of all
receipts for the payment of real estate taxes on the property,while Garcia paid Yap 50,000 as
earnest money.

Afterwards, Yap required the occupants of the subject property to vacate the same.
Immediately after it was vacated, Garcia, without Yap’s knowledge and consent, took possession
of the lot and installed his own caretaker thereon with strict instructions not to allow anyone to
enter the property. Yap later learned that Garcia had also demolished the house on the property
and advertised the construction and sale of "Trans American Townhouse V" thereon. The
foregoing developments notwithstanding and despite numerous demands, Garcia failed to pay the
balance of the purchase price as agreed upon.

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Yap was informed that the checks representing the purchase price of the subject property
were ready but that Vicente must pick up his checks personally. However, out of the six (6)
checks that were presented to them, four (4) of them were post-dated, further delaying their
overdue payment. In order to properly document such check payments, the parties executed an
Agreement dated December 8, 1988, which relevantly provide: That the total consideration of sale
of the rights, interest, participation and title of the Yap and Vicente of the aforestated parcel of
land to Garcia shall be One Million Eight Hundred Fifty Thousand Pesos (P1,850,000.00),
Philippine Currency, payable in check.That the parties hereto agree that once the aforestated
checks are honored by the bank and encashed by the payees thereof, the First and Second Parties
shall execute an EXTRA-JUDICIAL SETTLEMENT OF ESTATE WITH SALE distributing and
dividing among themselves. Subsequently, the first four (4) checks were deposited with no issue.
However, the last two (2) checks, amounting toP400,000 each, were dishonored for the reason of
"DAIF" or drawn against insufficient funds.Thus, Yap wrote a letter to Garcia informing him that
the two (2) checks were dishonored and asking that the checks be replaced within five (5) days
from receipt of the letter. Such request was left unheeded. Yap informed Garcia in a letter that she
and Vicente were rescinding the Agreement while demanding the return of the original owner’s
copy of TCT 156254. This prompted Garcia to offer two (2) manager’s checks in the aggregate
amount of P300,000 which Yap flatly refused, reiterating the rescission of their Agreement and
demanding for the return of all documents entrusted to Garcia through a January 21, 1989 letter.

Garcia’s counsel, Atty. Francisco Beato, Jr, informed Yap that they had an agreement that
the P800,000 balance of the purchase price was due to be paid by Garcia only upon Yap and
Vicente’s payment of the realty, inheritance and capital gains taxes due on the transfer of the
property. Thus, Garcia effectively refused to return the documents and to vacate the subject
property. Yap referred Beato’s letter to her own counsel, Atty. Julian S. Yap, who wrote back in a
letter refuting the claim of Garcia that the P800,000 was not yet due and reiterating their decision
to rescind the Agreement and demanding that Garcia vacate the property and return the
documents that were surrendered to him by Yap. On February 19, 1989, Yap and Vicente
discovered that Garcia posted an advertisement in the classified ads of the Manila Bulletin
offering to sell units at the Trans American Townhouse V situated at the subject property. Thus,
on February 27, 1989, Atty. Yap wrote the Housing and Land Use Regulatory Board (HLURB)
informing the latter of the existing public advertisement of TSEI offering for sale townhouses
illegally constructed on the subject property and urging the HLURB to cancel any existing permit
or license to sell the said townhouse units or to deny any application therefor. On March 17, 1989,
the HLURB issued a Cease and Desist Order (CDO) enjoining TSEI and Garcia from further
developing and selling the townhouses.

In a delayed response to the CDO, TSEI wrote a letter to the HLURB alleging that only
ground leveling works were being undertaken on the project. Yap and Vicente also inquired from
the City Building Official of Quezon City, in a letter the office found that the construction on the
subject property was indeed illegal and at its 5% initial stage. Yap also wrote a letter to the
Register of Deeds in Quezon City informing it that TCT 156254 was no longer in their possession
and requesting that the office clear the matter with them first before acting on any transaction
pertaining to the subject property. Then, on August 21, 1989, Yap filed a formal complain twith the
Office of the City Building Official of Quezon City. However, both Garcia and TSEI failed to
attend the said hearing. Thereafter, Yap and Vicente, in his own behalf and representing the heirs
of Imelda C.Vda. De Sanchez, RTC in Quezon City a Complaint for the rescission of contract,
restitution and damages with prayer for TRO/preliminary injunction against TSEI and Garcia.
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Meanwhile, Garcia managed to cause the cancellation of TCT 156254 and its replacement
with TCT 383697 in the name of TSEI. TCT 383697, however, bore the date of issuance as June 9,
1988,way before the parties agreed on the sale sometime in October 1988. Garcia apparently used
TCT 383697 to entice several buyers to buy the townhouse units being constructed by TSEI on the
subject lot. Claiming to have bought townhouse units sometime in early 1989, the following
intervened in the instant case: the spouses Jose and Visitacion Caminas, Reynaldo V. Maniwang,
Generoso C. Tulagan, Varied Traders Concept, Inc, and Arturo Marquez. TSEI left the townhouse
units unfinished, leaving these intervenors to finish their townhouses by themselves. Notably,
except for the Absolute Deeds of Sale executed between TSEI and VTCI, all the other intervenors’
contracts conveying townhouses in their favor identified their purchased lots as covered by TCT
156254.

Far East Bank and Trust Company entered into a Loan Agreement with TSEI secured by a
Real Estate Mortgage over TCT 156254.FEBTC later merged with the Bank of the Philippine
Islands with the latter as the surviving bank. Garcia purportedly explained to FEBTC that the
parties were still in the process of transferring the title. Garcia submitted a copy of TCT 383697 in
TSEI’s name. Upon default, FEBTC foreclosed the subject lot and had the Foreclosure Certificate
of Sale annotated on TCT 383697. The RTC rendered a Decision in favor of the Sanchezes. The CA
rendered, the assailed Decision affirming the RTC Decision with modifications.

Issue:

1. Whether or not there was a valid rescission of the Agreement between the Sanchezes
and TSEI/Garcia.

2. Whether or not TCT 383697 in the name of TSEI may be cancelled.

Ruling:
1. No, rescission of the Agreement was not barred by the subsequent transfer.

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. In this case, indemnity for damages may be
demanded from the person causing the loss. In the extant case, the failure of TSEI to pay the
consideration for the sale of the subject property entitled the Sanchezes to rescind the
Agreement. And in view of the finding that the intervenors acted in bad faith in purchasing the
property, the subsequent transfer in their favor did not and cannot bar rescission.

Moreover, bad faith on the part of TSEI, Garcia and the intervenors leads to the
application of Articles 449-450 of the New Civil Code. Consequently, the Sanchezes have the
following options: (1) acquire the property with the townhouses and other buildings and
improvements that may be thereon without indemnifying TSEI or the intervenors; (2) demand
from TSEI or the intervenors to demolish what has been built on the property at the expense of
TSEI or the intervenors; or (3) ask the intervenors to pay the price of the land.

2. No, the suit is not a collateral attack on TSEI’s title.

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An action is deemed an attack on a title when the object of the action or proceeding is to
nullify the title, and thus challenge the judgment pursuant to which the title was decreed. The
attack is direct when the object of the action is to annul or set aside such judgment, or enjoin its
enforcement. On the other hand, the attack is indirect or collateral when, in an action to obtain a
different relief, an attack on the judgment is nevertheless made as an incident thereof.In the
instant case, contrary tothe contention of BPI, although the case was originally an action for
rescission, it became a direct attack on TCT 383697. To be sure, there is no indication that when
the Sanchezes filed their complaint with the RTC they already knew of the existence of TCT
383697. However, when they were confronted with the title through the filing of the various
Answers of the intervenors, the Sanchezes directly stated that the title was a fake.

HEIRS OF JOSE MA. GEPUELA vs. HERNITA MENEZ-ANDRES, ET AL. /


HERNITA MENEZ-ANDRES & NELIA MENEZ CAYETANO
vs. HEIRS OF JOSE MA. GEPUELA
G.R. No. 173636, January 13, 2016, J. Jardeleza

Facts:

Basilia was the widow of Pedro Cruz, with whom she had five children, namely, Perfecto,
Alberto, Luz, Benita and Isagani. Basilia executed a Huling Habilin, where she named her
daughter Benita’s children Hernita, Nelia, Rosemarie, Angel and Gracita as voluntary heirs to ten
percent (10%) of the free portion of her estate. Basilia’s Huling Habilin was admitted into ante-
mortem probate on March 1, 1957. Her daughter Luz Cruz Salonga (Luz) was appointed
Administratrix of Basilia’s estate on August 18, 1976.

When Basilia died, she left behind considerable properties, including a 36/72 pro
indiviso share in a 5,492 square meter property in San Juan, then province of Rizal. This property
was co-owned with some of Basilia’s children and grandchildren

Perfecto and Flavia sold their interests (14/72 pro indiviso share) in the property to
Severino Etorma (Etorma), who later on sold the same to Gepuela and one Antonio Cinco
(Cinco). In 1978, Cinco sold his share to Gepuela. Luz also disposed, by way of a Sale of Rights
with Mortgage, her 12/72 pro indiviso share in the property to Gepuela in another transaction.

On July 29, 1986, Basilia’s 36/72 pro indiviso share was sold in a public auction to satisfy
the judgment in civil case filed by Benita. Benita, as judgment creditor in the case, emerged as the
highest bidder.

On May 14, 1987, Gepuela redeemed Basilia’s 36/72 pro indiviso share from Benita by
paying the auction price. Accordingly, Basilia’s estate, through Administratrix Luz, executed a
Deed of Sale and Waiver of Redemption over the share, subject to the following conditions: 1)
Gepuela should obtain court approval of the sale; and 2) Gepuela should inform all heirs of the
sale formally in writing.

After the expiration of the periods to redeem, Gepuela filed an action to consolidate his
ownership over the 36/72 pro indiviso share he acquired by way of redemption from Basilia’s
estate. This was docketed as LRC Case No. R-3855 and assigned to Branch 166 of the Regional
Trial Court of Pasig. The other registered co-owners Isagani, Perfecto, Jr., Pedrito, and Vito
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(Isagani, et al.) opposed this action, raising Gepuela’s lack of standing to redeem given that he is
not a co-owner of Basilia’s one-half portion. In a Decision dated December 6, 1989, the trial court
granted Gepuela’s petition, declared him the owner of Basilia’s 36/72 pro indiviso share in the
parcel of land covered by TCT No. 95524 and ordered the issuance of a new certificate of title to
reflect this change in ownership.

Aggrieved, oppositors Isagani, Perfecto, Jr., Pedrito, Vito and Alberto appealed the trial
court’s Decision to the CA. The CA, however, affirmed the trial court’s findings. The CA’s
Decision in CA G.R. CV No. 25605 was not appealed and became final and executory on
February 26, 1992. TCT No. 5033-R was issued that same year, reflecting Gepuela’s ownership of
the 36/72 pro indiviso share previously owned by Basilia.

In the meantime, Basilia’s grandchildren Hernita and Nelia filed a Complaint for
Redemption and Consignation with Damages and a subsequent Amended Complaint for
Declaration of Nullity of Redemption, Cancellation of Notation in Title, and Consignation with
Damages against Gepuela.

Issues:

1) Whether Gepuela's redemption of Basilia's 36/72 pro indiviso share in the subject property
was valid.
2) Whether Hernita et al. could still redeem the 36/72 pro indiviso share.

Ruling:

1) Gepuela's redemption of Basilia's 36/72 pro indiviso share in the subject property was valid.
The disputed 36/72 pro indiviso share was sold at public auction to satisfy the judgment claim of a
creditor (Benita) of the estate. When it was redeemed by Gepuela, no further redemption was
made. Upon expiration of the periods to redeem, Gepuela became entitled, as a matter of right, to
the consolidation of the ownership of the share in his name.
2) Hernita et al. could no longer redeem the 36/72 pro indiviso share.

As instituted heirs only to a part of the free portion of Basilia's estate, Hernita, et al. are
entitled to receive their share of the same, if any, only after payment of all debts, funeral charges,
expenses of administration, allowance to the widow and inheritance tax. Otherwise stated, their
share would be dependent on whether anything is left of the estate after payment of all its
obligations.

In this case, upon expiration of the periods to redeem the disputed 36/72 pro indiviso
share, Gepuela became entitled, as a matter of right, to the consolidation of the ownership of the
share in his name. The share no longer formed part of the estate, which can theoretically be
distributed to Hernita, et al. as Basilia's voluntary heirs.

More importantly, as voluntary heirs to the free portion, Hernita, et al. have no right to
claim any specific property of the estate, such as the contested 36/72 pro indiviso share in the
property, until after the estate had been settled and distributed in accordance with law.

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ANECITA GREGORIO vs. MARIA CRISOLOGO VDA. DE CULIG


G.R. No. 180559, January 20, 2016, J. Jardeleza

Facts:

Respondent Maria Crisologo V da. De Culig (respondent) is the widow of Alfredo Culig, Sr.
(Alfredo). During his lifetime, Alfredo was granted a homestead patent under the Public Land Act
(C.A. 141) over a parcel of land (the property). Alfredo died sometime in 1971, and on October 9,
1974, his heirs, including respondent, executed an extra-judicial settlement of estate with
simultaneous sale of the property in favor of spouses Andres Seguritan and Anecita Gregorio
(petitioner). The property was sold for P25,0000.00, and title to the property was issued in the
name of the spouses.

On September 26, 1979, respondent filed a complaint demanding the repurchase of the
property under the provisions of the Public Land Act.

Issue:

Whether tender of payment is not a requisite for the valid exercise of redemption.

Ruling:

Tender of payment is not a requisite for the valid exercise of redemption. The bona
fide tender of the redemption price or its equivalent—consignation of said price in court is not
essential or necessary where the filing of the action itself is equivalent to a formal offer to
redeem.

Moreover, tender of payment of the repurchase price is not among the requisites, and thus
unnecessary for redemption under the Public Land Act. It is not even necessary for the
preservation of the right of redemption to make an offer to redeem or tender of payment of
purchase price within five years. The filing of an action to redeem within that period is equivalent
to a formal offer to redeem, and that there is even no need for consignation of the redemption
price. Thus, even in the case before us, it is immaterial that the repurchase price was not
deposited with the Clerk of Court.

Indeed, the main purpose in the grant of a free patent or homestead is to preserve and
keep in the family of the homesteader that portion of public land which the State has given to him
so he may have a place to live with his family and become a happy citizen and a useful member of
the society. We have ruled in several instances, that the right to repurchase of a patentee should
fail if the purpose was only speculative and for profit, or "to dispose of it again for greater
profit" or "to recover the land only to dispose of it again to amass a hefty profit to themselves." In
all these instances, we found basis for ruling that there was intent to sell the property for a higher
profit. We find no such purpose in this case.

EXTINGUISHMENT OF DEBT

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EAGLE RIDGE DEVELOPMENT CORPORATION, MARCELO N. NAVAL and CRISPIN I.


OBEN vs. CAMERON GRANVILLE 3 ASSET MANAGEMENT, INC.
G.R. No. 204700, November 24, 2014, J. Leonen

Cameron Grandville filed a motion for reconsideration for the April 10, 2013 decision of the
Supreme Court. It argues that the right of Eagle Ridge Development to extinguish the obligation has
already lapsed. However, the Court in resolving this case stated that nder the circumstances of this
case, the 30-day period under Article 1634 within which Eagle Ridge Developments could exercise
their right to extinguish their debt should begin to run only from the time they were informed of the
actual price paid by the assignee for the transfer of their debt.

Facts:

This case is a motion for reconsideration of the decision of the Supreme Court. Cameron
Granville 3 Asset Management (Cameron Granville), Inc. filed a motion for reconsideration of the
Court’s April 10, 2013 decision, which reversed and set aside the Court of Appeals' resolutions and
ordered Cameron Granville to produce the Loan Sale and Purchase Agreement (LSPA).

The facts stated herein are the corresponding arguments of both parties.

Cameron Granville in its motion for reconsideration poses the following arguments; first,
there was no "insistent refusal" on its part to present the LSPA, but that Eagle Ridge
Developments filed their motion for production way out of time, even beyond the protracted pre-
trial.

Second, that even assuming arguendo that Art. 1634 of the New Civil Code is applicable,
the Eagle Ridge Developments are still liable to pay because pursuant to Article 1634, they should
have exercised their right of extinguishment within 30 days from the substitution of Export and
Industry Bank or EIB (the original creditor) by Cameron Granville in December 2006. According
to Cameron Granville, the trial court order "granting the substitution constituted sufficient
judicial demand as contemplated under Article 1634." Also, maintaining that the LSPA is
immaterial or irrelevant to the case, Cameron Granville contends that the "[o]rder of substitution
settled the issue of [Cameron Granville’s] standing before the [c]ourt and its right to fill in the
shoes of [EIB]." It argues that the production of the LSPA will neither prevent Cameron Granville
from pursuing its claim of 10,232,998.00, exclusive of interests and penalties, from Eagle Ridge
Development EDC, nor write off Eagle Ridge Development EDC’s liability to Cameron Granville.

Cameron Granville also contends that: (1) the production of the LSPA will violate the parol
evidence rule under Rule 130, Section 9 of the Rules of Court; (2) the LSPA is a
privileged/confidential bank document; and (3) under the Special Purpose Vehicle Act.

On the other hand, Eagle Ridge Development posits the following arguments. They argue
that their motion for production was not filed out of time, and "[t]here is no proscription, under
Rule 27 or any provision of the Rules of Court, from filing motions for production, beyond the
pre-trial.

Moreover, Eagle Ridge Development argues that there was a valid transfer of the loan
obligation of Eagle Ridge Development EDC, Article 1634 is applicable and, therefore, Eagle Ridge
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Developments must be informed of the actual transfer price, which information may only be
supplied by the LSPA. Eagle Ridge Developments next argue that the parol evidence rule is not
applicable to them because they were not parties to the deed of assignment, and "they cannot be
prevented from seeking evidence to determine the complete terms of the Deed of Assignment."
Besides, the deed of assignment made express reference to the LSPA, hence, the latter cannot be
considered as extrinsic to it.

Issue:

Whether or not the Eagle Ridge Development’s right to extinguish the debt has already
lapsed

Ruling:

The right to extinguish the debt has not yet lapsed.

Under the last paragraph of Article 1634, the debtor may extinguish his or her debt within
30 days from the date the assignee demands payment. In this case, insofar as the actual parties to
the deed of assignment are concerned, no demand has yet been made, and the 30-day period did
not begin to run. Indeed, Eagle Ridge Developments assailed before the trial court the validity of
the deed of assignment on the grounds that it did not comply with the mandatory requirements
of the Special Purpose Vehicle Act, and it referred to Cameron Granville Asset Management (SPV-
AMC), Inc., as the assignee, and not Cameron Granville Cameron Granville 3 Asset Management,
Inc. The law requires that payment should be made only "to the person in whose favor the
obligation has been constituted, or his [or her] successor in interest, or any person authorized to
receive it." It was held that payment made to a person who is not the creditor, his or her
successor-in-interest, or a person who is authorized to receive payment, even through error or
good faith, is not effective payment which will bind the creditor or release the debtor from the
obligation to pay. Therefore, it was important for Eagle Ridge Developments to determine for sure
the proper assignee of the EIB credit or who to pay, in order to effectively extinguish their debt.

Moreover, even assuming that Cameron Granville is the proper assignee of the EIB credit,
Eagle Ridge Developments could not exercise their right of extinguishment because they were not
informed of the consideration paid for the assignment.

Cameron Granville must, pursuant to Article 1634 of the Civil Code, disclose how much it
paid to acquire the EIB credit, so that Eagle Ridge Developments could make the corresponding
offer to pay, by way of redemption, the same amount in final settlement of their obligation.

Under the circumstances of this case, the 30-day period under Article 1634 within which
Eagle Ridge Developments could exercise their right to extinguish their debt should begin to run
only from the time they were informed of the actual price paid by the assignee for the transfer of
their debt.

P.D. 957
THE SUBDIVISION AND CONDOMINIUM BUYERS' PROTECTIVE DECREE

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AMBROSIO ROTAIRO (SUBSTITUTED BY HIS SPOUSE MARIA RONSAYRO ROTAIRO,


AND HIS CHILDREN FELINA ROTAIRO, ERLINDA ROTAIRO CRUZ, EUDOSIA ROTAIRO
CRIZALDO, NIEVES ROTAIRO TUBIG, REMEDIOS ROTAIRO MACAHILIG, FELISA
ROTAIRO TORREVILLAS, AND CRISENCIO R. ROTAIRO, MARCIANA TIBAY, EUGENIO
PUNZALAN, AND VICENTE DEL ROSARIO vs. ROVIRA ALCANTARA AND VICTOR
ALCANTARA
G.R. No. 173632, September 29, 2014, J. Reyes

In this case, the contract to sell between Rotairo and Ignacio & Company was entered into in
1970, and the agreement was fully consummated with Rotairo’s completion of payments and the
execution of the Deed of Sale in his favor in 1979. Clearly, P.D. No. 957 (Sale of Subdivision Lots and
Condominiums) is applicable in this case.

It was error for the CA to rule that the retroactive application of P.D. No. 957 is “warranted
only where the subdivision is mortgaged after buyers have purchased individual lots.” According to
the CA, the purpose of Sec. 18 requiring notice of the mortgage to the buyers is to give the buyer the
option to pay the installments directly to the mortgagee; hence, if the subdivision is mortgaged
before the lots are sold, then there are no buyers to notify. What the CA overlooked is that Sec. 21
requires the owner or developer of the subdivision project to complete compliance with its obliga-
tions within two years from 1976. The two-year compliance provides the developer the opportunity
to comply with its obligation to notify the buyers of the existence of the mortgage, and conse-
quently, for the latter to exercise their option to pay the installments directly to the mortgagee.

Facts:

In 1988, Respondent Rovira Alcantara instituted an action for the recovery of possession of
a parcel of land situated in Cainta, Rizal. She disclosed that the property was formerly owned by
his father, Victor Alcantara (Alcantara), and Alfredo Ignacio, who mortgaged the property to
Pilipinas Bank and Trust Company in 1968. Through their firm, Ignacio & Company, the two were
able to parcel out the property and separately sold the subdivided lots to different buyers. One of
the buyers was Ambrosio Rotairo (Rotairo) who took the property identified as Lot C-1 and
completed the payments therefor on September 25, 1979. However, Alcantara and Ignacio earlier
defaulted in their loan obligation with Pilipinas Bank which led to the foreclosure of the
mortgage. Without redemption being made, title was consolidated in the name of Pilipinas Bank
and it later sold the property in a Deed of Absolute Sale dated June 6, 1975 to Rovira, who happens
to be the daughter of Alcantara.

The RTC ruled that the transaction between Ignacio & Company and Rotairo was covered
by P.D. No. 957. Thus, Rovira, “as successor-in-interest of Wilfredo S. Ignacio [and Victor
Alcantara] was well aware of the condition of the property which she bought from the Pilipinas
Bank, because she lives near the land, and at the time she purchased it she was aware of the existing
houses or structures on the land.” She was, therefore, not entitled to the relief prayed for in her
complaint.

On appeal, the CA set aside the RTC decision and ordered the turnover of possession of
the property to Rovira. The CA held that P.D. No. 957 is not applicable since the mortgage was
constituted prior to the sale to Rotairo and so the law does not confer “more” rights to an

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unregistered buyer like him, as against a registered prior mortgagee like Pilipinas Bank and its
buyer, Rovira.

Issue:

Whether or not the provisions of P.D. No. 957 should be applied in the instant case.

Ruling:

YES, by express terms of P.D. No. 957, technically, it should be applied in this case.

The retroactive application of P.D. No. 957 to transactions entered into prior to its
enactment in 1976 is already settled. In Eugenio v. Exec. Sec. Drilon, which involved a land
purchase agreement entered into in 1972, the Court stated that the unmistakeable intent of the
legislature is to have P.D. No. 957 operate retrospectively … even to contracts and transactions
entered into prior to its enactment.

In this case, the contract to sell between Rotairo and Ignacio & Company was entered into
in 1970, and the agreement was fully consummated with Rotairo’s completion of payments and
the execution of the Deed of Sale in his favor in 1979. Clearly, P.D. No. 957 is applicable in this
case.

It was error for the CA to rule that the retroactive application of P.D. No. 957 is “warranted
only where the subdivision is mortgaged after buyers have purchased individual lots.” According to
the CA, the purpose of Sec. 18 requiring notice of the mortgage to the buyers is to give the buyer
the option to pay the installments directly to the mortgagee; hence, if the subdivision is
mortgaged before the lots are sold, then there are no buyers to notify. What the CA overlooked is
that Sec. 21 requires the owner or developer of the subdivision project to complete compliance
with its obligations within two years from 1976. The two-year compliance provides the developer
the opportunity to comply with its obligation to notify the buyers of the existence of the
mortgage, and consequently, for the latter to exercise their option to pay the installments directly
to the mortgagee.

Nevertheless, such concomitant obligation of the developer under Sec. 21 did not arise in
this case. It must be noted that at the time of the enactment of P.D. No. 957 in 1976 and as early
as 1974, Pilipinas Bank had already foreclosed the mortgage and bought the properties in the
foreclosure sale. There was … no mortgage to speak of such that Rotairo should be notified
thereof so that he could properly exercise his option to pay the installments directly to Pilipinas
Bank.

SUCCESSION

GENERAL PROVISIONS

NORA B. CALALANG-PARULAN and ELVIRA B. CALALANG vs.


ROSARIO CALALANG-GARCIA, LEONORA CALALANG-SABILE, and CARLITO S.
CALALANG
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G.R. No. 184148, June 9, 2014, J. Villarama, Jr.

It is hornbook doctrine that successional rights are vested only at the time of death. Article
777 of the New Civil Code provides that "the rights to the succession are transmitted from the
moment of the death of the decedent. Thus, in this case, it is only upon the death of Pedro Calalang
on December 27, 1989 that his heirs acquired their respective inheritances, entitling them to their
pro indiviso shares to his whole estate. At the time of the sale of the disputed property, the rights to
the succession were not yet bestowed upon the heirs of Pedro Calalang. And absent clear and
convincing evidence that the sale was fraudulent or not duly supported by valuable consideration (in
effect an officious donation inter vivos), the respondents have no right to question the sale of the
disputed property on the ground that their father deprived them of their respective shares. Well to
remember, fraud must be established by clear and convincing evidence.

Facts:

Rosario Calalang-Garcia, Leonora Calalang-Sabile, and Carlito S. Calalang (Respondents)


asserted their ownership over a certain parcel of land against Nora B. Calalang-Parulan and Elvira
B. Calalang (Petitioners). The said lot was allegedly acquired by the respondents from their
mother Encarnacion Silverio, through succession as the latter’s compulsory heirs.

Respondents alleged that their father, Pedro Calalang (Pedro) contracted two marriages
during his lifetime. The first marriage was with their mother Encarnacion Silverio. During the
subsistence of this marriage, their parents acquired the above-mentioned parcel of land from
their maternal grandmother Francisca Silverio. Despite enjoying continuous possession of the
land, however, their parents failed to register the same. The first marriage was dissolved with the
death of Encarnacion Silverio.

Pedro entered into a second marriage with Elvira B. Calalang who then gave birth to Nora
B. Calalang-Parulan and Rolando Calalang. According to the respondents, it was only during this
time that Pedro Calalang filed an application for free patent over the parcel of land with the
Bureau of Lands. Pedro Calalang committed fraud in such application by claiming sole and
exclusive ownership over the land since 1935 and concealing the fact that he had three children
with his first spouse. As a result, the Register of Deeds of Bulacan issued the Original Certificate
of Title (OCT) No. P-2871 in favor of Pedro only.

Pedro sold the said parcel of land to Nora B. Calalang-Parulan (Nora). Accordingly, the
Register of Deeds of Bulacan cancelled OCT No. P-2871 and issued Transfer Certificate of Title
(TCT) No. 283321 in the name of Nora. On December 27, 1989, Pedro Calalang died.

Respondents assailed the validity of TCT No. 283321 on two grounds. First, the
respondents argued that the sale of the land was void because Pedro failed to obtain the consent
of the respondents who were co-owners of the same. Second, the sale was absolutely simulated as
Nora did not have the capacity to pay for the consideration stated in the Deed of Sale.

Petitioners argued that the parcel of land was acquired during the second marriage of
Pedro Calalang with Elvira B. Calalang. They stressed that OCT No. P-2871 itself stated that it was
issued in the name of "Pedro Calalang, married to Elvira Berba Calalang." Thus, the property
belonged to the conjugal partnership of the spouses Pedro and Elvira Calalang. The petitioners
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likewise denied the allegation that the sale of the land was absolutely simulated as Nora was
gainfully employed in Spain at the time of the sale.

RTC rendered a decision in favor of the plaintiffs and against the defendants. The trial
court declared that the parcel of land was jointly acquired by the spouses Pedro Calalang and
Encarnacion Silverio from the parents of the latter. Thus, it was part of the conjugal property of
the first marriage of Pedro Calalang. The trial court then ordered all of Pedro’s share to be given
to Nora B. Calalang-Parulan on account of the sale.

The CA reversed the factual findings of the trial court and held that Pedro Calalang was
the sole and exclusive owner of the subject parcel of land. Firstly, it held that there was
insufficient evidence to prove that the disputed property was indeed jointly acquired from the
parents of Encarnacion Silverio during the first marriage. Secondly, the CA upheld the
indefeasibility of OCT No. P-2871. It held that although the free patent was issued in the name of
"Pedro Calalang, married to Elvira Berba Calalang" this phrase was merely descriptive of the civil
status of Pedro Calalang at the time of the registration of the disputed property.

Issue:

Whether or not CA erred in ruling that Pedro Calalang deprived his heirs of their
respective shares over the disputed property when he alienated the same.

Ruling:

Yes. The CA therefore erred in ruling that Pedro Calalang deprived his heirs of their
respective shares over the disputed property when he alienated the same.

It is hornbook doctrine that successional rights are vested only at the time of death.
Article 777 of the New Civil Code provides that "the rights to the succession are transmitted from
the moment of the death of the decedent.

The principle of transmission as of the time of the predecessor's death is basic in our Civil
Code, and is supported by other related articles. Thus, the capacity of the heir is determined as of
the time the decedent died (Art. 1034); the legitime is to be computed as of the same moment
(Art. 908), and so is the in officiousness of the donation inter vivos (Art. 771). Similarly, the
legacies of credit and remission are valid only in the amount due and outstanding at the death of
the testator (Art. 935), and the fruits accruing after that instant are deemed to pertain to the
legatee (Art. 948).

Thus, it is only upon the death of Pedro Calalang on December 27, 1989 that his heirs
acquired their respective inheritances, entitling them to their pro indiviso shares to his whole
estate. At the time of the sale of the disputed property, the rights to the succession were not yet
bestowed upon the heirs of Pedro Calalang. And absent clear and convincing evidence that the
sale was fraudulent or not duly supported by valuable consideration (in effect an in officious
donation inter vivas), the respondents have no right to question the sale of the disputed property
on the ground that their father deprived them of their respective shares. Well to remember, fraud
must be established by clear and convincing evidence. Mere preponderance of evidence is not

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even adequate to prove fraud. The Complaint for Annulment of Sale and Reconveyance of
Property must therefore be dismissed.

PROVISIONS COMMON TO TESTATE AND INTESTATE SUCCESSION

SPOUSES DOMINADOR MARCOS and GLORIA MARCOS, vs. HEIRS OF ISIDRO BANGI
and GENOVEVA DICCION, represented by NOLITO SABIANO
G.R. No. 185745, October 15, 2014, J. Reyes

Partition is the separation, division and assignment of a thing held in common among those
to whom it may belong. Every act which is intended to put an end to indivision among co-heirs and
legatees or devisees is deemed to be a partition. Partition may be inferred from circumstances
sufficiently strong to support the presumption. Thus, after a long possession in severalty, a deed of
partition may be presumed. The evidence presented by the parties indubitably show that, after the
death of Alipio, his heirs – Eusebio, Espedita and Jose Bangi – had orally partitioned his estate,
including the subject property, which was assigned to Eusebio. Accordingly, considering that
Eusebio already owned the subject property at the time he sold the one-third portion thereof.

Facts:

On June 26, 1998, the heirs of Isidro Bangi (Isidro) and Genoveva Diccion (Genoveva),
filed with the RTC a complaint for the annulment of documents, cancellation of transfer
certificates of titles, restoration of original certificate of title and recovery of ownership plus
damages against spouses Dominador Marcos (Dominador) and Gloria Marcos (Gloria). Likewise
impleaded in the said complaint are spouses Jose Dilla (Jose) and Pacita Dilla (Pacita), Ceasaria
Alap (Ceasaria), and spouses Emilio Sumajit (Emilio) and Zenaida Sumajit (Zenaida).

In their complaint, the respondents averred that on November 5, 1943, their parents,
Isidro and Genoveva, bought the one-third portion of a 2,138-square meter parcel of land situated
in San Manuel, Pangasinan and covered by Original Certificate of Title (OCT) (subject property)
from Eusebio Bangi (Eusebio), as evidenced by a Deed of Absolute Sale executed by the latter.
OCT was registered in the name of Alipio Bangi (Alipio), Eusebio’s father. After the sale, the
respondents claimed that Isidro and Genoveva took possession of the subject property until they
passed away. The respondents then took possession of the same.

Further, the respondents alleged that sometime in 1998, they learned that the title to the
subject property, including the portion sold to Isidro and Genoveva, was transferred to herein
petitioner Dominador, Primo Alap (Primo), Ceasaria’s husband, Jose, and Emilio through a Deed
of Absolute Sale dated August 10, 1995, supposedly executed by Alipio with the consent of his wife
Ramona Diccion (Ramona). The respondents claimed that the said deed of absolute sale is a
forgery since Alipio died in 1918 while Ramona passed away on June 13, 1957.

Consequently, by virtue of the alleged Deed of Absolute Sale dated August 10, 1995, OCT
was cancelled and Transfer Certificate of Title (TCT) was issued to Dominador, Primo, Jose and
Emilio. On November 21, 1995, Primo, Jose and Emilio executed another deed of absolute sale
over the same property in favor of herein petitioners. The said TCT was then cancelled and a new
TCT was issued in the names of herein petitioners. The respondents claimed that the Deed of

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Absolute Sale dated November 21, 1995 was likewise a forgery since Primo could not have signed
the same on the said date since he died on January 29, 1972.

The petitioners, in their Answer, claimed that their father Eusebio could not have validly
sold the one-third portion of the subject property to Isidro and Genoveva. They explained that
Eusebio supposedly acquired the parcel of land covered by OCT No. 22361 by virtue of a donation
propter nuptias from his father Alipio when he married Ildefonsa Compay (Ildefonsa) in 1928.
They claimed that the donation propter nuptias in favor of Eusebio was fictitious since Alipio died
in 1918 and that, in any case, the said donation, even if not fictitious, is void since the same was
not registered.

The RTC opined that the Deed of Absolute Sale dated August 10, 1995 is a nullity; that the
same was falsified considering that Alipio could not have executed the same in the said date since
he died in 1918. Consequently, all the documents and certificates of title issued as a consequence
of the Deed of Absolute Sale dated August 10, 1995 are void.

On September 30, 2008, the CA rendered the herein assailed Decision, which affirmed the
Decision dated March 26, 2007 of the RTC. The CA upheld the petitioners’ claim that the
supposed donation propter nuptias of the subject property in favor of Eusebio from his parents
was not sufficiently established. The CA pointed out that the purported Deed of Donation was
not recorded in the Register of Deeds; that there is no showing that the said donation was made
in a public instrument as required by the Spanish Civil Code, the law in effect at the time of the
supposed donation in favor of Eusebio.

Issue:

Whether or not the CA committed reversible error in affirming the RTC Decision, which
upheld the Deed of Absolute Sale dated November 5, 1943 over the one-third portion of the
subject property executed by Eusebio in favor of the spouses Isidro and Genoveva.

Ruling:

No. The petition is denied.

Ultimately, the resolution of the instant controversy is hinged upon the question of
whether the heirs of Alipio had already effected a partition of his estate prior to the sale of the
one-third portion of the subject property to the spouses Isidro and Genoveva on November 5,
1943. However, the foregoing question is a factual question, which this Court may not pass upon
in a petition for review under Rule 45 of the Rules of Court.

Even granting arguendo that the petition falls under any of the exceptions justifying a
factual review of the findings of the appellate court, the petition cannot prosper. The Court is of
the opinion, and so holds, that the CA did not commit any reversible error in ruling that an oral
partition of the estate of Alipio had already been effected by his heirs prior to the sale by Eusebio
of the one-third portion of the subject property to the spouses Isidro and Genoveva on November
5, 1943.

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Partition is the separation, division and assignment of a thing held in common among
those to whom it may belong. Every act which is intended to put an end to indivision among co-
heirs and legatees or devisees is deemed to be a partition. Partition may be inferred from
circumstances sufficiently strong to support the presumption. Thus, after a long possession in
severalty, a deed of partition may be presumed.

The evidence presented by the parties indubitably show that, after the death of Alipio, his
heirs – Eusebio, Espedita and Jose Bangi – had orally partitioned his estate, including the subject
property, which was assigned to Eusebio.

Accordingly, considering that Eusebio already owned the subject property at the time he
sold the one-third portion thereof to the spouses Isidro and Genoveva on November 5, 1943,
having been assigned the same pursuant to the oral partition of the estate of Alipio effected by his
heirs, the lower courts correctly nullified the Deeds of Absolute Sale dated August 10, 1995 and
November 21, 1995.

TESTAMENTARY SUCCESSION

IRIS MORALES vs. ANA MARIA OLONDRIZ, ALFONSO JUAN OLONDRIZ, JR., ALEJANDRO
MORENO OLONDRIZ, ISABEL ROSA OLONDRIZ and FRANCISCO JAVIER MARIA
OLONDRIZ
G.R. No. 198994, February 3, 2016, J. Carpio

Facts:

Alfonso Juan P. Olondriz, Sr. (the decedent) died on June 9, 2003. Believing that the
decedent died intestate, the respondent heirs filed a petition partition of the decedent’s estate and
the appointment of a special administrator. The RTC appointed Alfonso Juan O. Olondriz, Jr. one
of the heirs as special administrator. However, Iris Morales filed a separate petition with the RTC
alleging that the decedent left a will and prayed for the probate of the will and for her
appointment as special administratrix. The will omitted Francisco Javier Maria Bautista Olondriz,
an illegitimate son of the decedent. Morales filed a manifestation moved to suspend the intestate
proceedings in order to give way to the probate proceedings. The respondent heirs opposed
Morales’ motion for suspension and her petition for allowance of the will. The respondent heirs
moved to dismiss the probate proceedings because Francisco was preterited from the will.

Morales agreed to the holding of an evidentiary hearing to resolve the issue of preterition.
Only the respondent heirs complied with this order. The RTC, however suspended the intestate
proceedings and set the case or probate. The RTC reasoned that probate proceedings take
precedence over intestate proceedings.

IssueS:

3. Whether there was preterition.


4. Whether it was proper for the RTC to pass upon the intrinsic validity of the will during
probate proceedings.

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5. Whether it was proper for the RTC to order the case to proceed intestate because of
preterition.

Ruling:

1) There was preterition.

Preterition consists in the omission of a compulsory heir from the will, either because he
is not named or, although he is named as a father, son, etc., he is neither instituted as an heir nor
assigned any part of the estate without expressly being disinherited – tacitly depriving the heir of
his legitime.

Preterition requires that the omission is total, meaning the heir did not also receive any
legacies, devises, or advances on his legitime. In other words, preterition is the complete and total
omission of a compulsory heir fromthe testator’sinheritance without the heir’s express
disinheritance.

Article 854 of the Civil Code states the legal effects of preterition:

Art. 854. The preterition or omission of one, some, or all of the


compulsory heirs in the direct line, whether living at the time of the execution of
the will or born after the death of the testator, shall annul the institution of heir;
but the devises and legacies shall be valid insofar as they are not inofficious.

If the omitted compulsory heirs should die before the testator, the institution shall
be effectual, without prejudice to the right of representation. (emphasis supplied)

Under the Civil Code, the preterition of a compulsory heir in the direct line shall annul the
institution of heirs, but the devises and legacies shall remain valid insofar as the legitimes are not
impaired. Consequently, if a will does not institute any devisees or legatees, the preterition
of a compulsory heir in the direct line will result in total intestacy.

The decedent’s will evidently omitted Francisco Olondriz as an heir, legatee, or devisee. As
the decedent’s legitimate son, Francisco is a compulsory heir in the direct line. Unless Morales
could show otherwise, Francisco’s omission from the will leads to the conclusion of his
preterition. During the proceedings in the RTC, Morales had the opportunity to present evidence
that Francisco received donations inter vivos and advances on his legitime from the decedent.
However, Morales did not appear during the hearing dates, effectively waiving her right to present
evidence on the issue.

2) It was proper for the RTC to pass upon the intrinsic validity of the will during the probate
proceedings.

The general rule is that in probate proceedings, the scope of the court’s inquiry is limited
to questions on the extrinsic validity of the will; the probate court will only determine the will’s
formal validity and due execution. However, this rule is not inflexible and absolute. It is not
beyond the probate court’s jurisdiction to pass upon the intrinsic validity of the will when so

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warranted by exceptional circumstances. When practical considerations demand that the intrinsic
validity of the will be passed upon even before it is probated, the probate court should meet the
issue

3) It was proper for the RTC to order the case to proceed intestate because of preterition.

The decedent’s will does not contain specific legacies or devices and Francisco’s
preterition annulled the institution of heirs. The annulment effectively caused the total
abrogation of the will, resulting in total intestacy of the inheritance. The decedent’s will, no
matter how valid it may appear extrinsically, is null and void. The conduct of separate
proceedings to determine the intrinsic validity of its testamentary provisions would be
superfluous.

IRIS MORALES vs. ANA MARIA OLONDRIZ, ALFONSO JUAN OLONDRIZ, JR., ALEJANDRO
MORENO OLONDRIZ, ISABEL ROSA OLONDRIZ and FRANCISCO JAVIER MARIA
OLONDRIZ
G.R. No. 198994, February 3, 2016, J. Carpio

Facts:

Alfonso Juan P. Olondriz, Sr. (the decedent) died on June 9, 2003. Believing that the
decedent died intestate, the respondent heirs filed a petition partition of the decedent’s estate and
the appointment of a special administrator. The RTC appointed Alfonso Juan O. Olondriz, Jr. one
of the heirs as special administrator. However, Iris Morales filed a separate petition with the RTC
alleging that the decedent left a will and prayed for the probate of the will and for her
appointment as special administratrix. The will omitted Francisco Javier Maria Bautista Olondriz,
an illegitimate son of the decedent. Morales filed a manifestation moved to suspend the intestate
proceedings in order to give way to the probate proceedings. The respondent heirs opposed
Morales’ motion for suspension and her petition for allowance of the will. The respondent heirs
moved to dismiss the probate proceedings because Francisco was preterited from the will.

Morales agreed to the holding of an evidentiary hearing to resolve the issue of preterition.
Only the respondent heirs complied with this order. The RTC, however suspended the intestate
proceedings and set the case or probate. The RTC reasoned that probate proceedings take
precedence over intestate proceedings.

IssueS:

9) Whether there was preterition.


10) Whether it was proper for the RTC to pass upon the intrinsic validity of the will during
probate proceedings.
11) Whether it was proper for the RTC to order the case to proceed intestate because of
preterition.

Ruling:
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4) There was preterition.

Preterition consists in the omission of a compulsory heir from the will, either because he
is not named or, although he is named as a father, son, etc., he is neither instituted as an heir nor
assigned any part of the estate without expressly being disinherited – tacitly depriving the heir of
his legitime.

Preterition requires that the omission is total, meaning the heir did not also receive any
legacies, devises, or advances on his legitime. In other words, preterition is the complete and total
omission of a compulsory heir fromthe testator’sinheritance without the heir’s express
disinheritance.

Article 854 of the Civil Code states the legal effects of preterition:

Art. 854. The preterition or omission of one, some, or all of the


compulsory heirs in the direct line, whether living at the time of the execution of
the will or born after the death of the testator, shall annul the institution of heir;
but the devises and legacies shall be valid insofar as they are not inofficious.

If the omitted compulsory heirs should die before the testator, the institution shall
be effectual, without prejudice to the right of representation. (emphasis supplied)

Under the Civil Code, the preterition of a compulsory heir in the direct line shall annul the
institution of heirs, but the devises and legacies shall remain valid insofar as the legitimes are not
impaired. Consequently, if a will does not institute any devisees or legatees, the preterition
of a compulsory heir in the direct line will result in total intestacy.

The decedent’s will evidently omitted Francisco Olondriz as an heir, legatee, or devisee. As
the decedent’s legitimate son, Francisco is a compulsory heir in the direct line. Unless Morales
could show otherwise, Francisco’s omission from the will leads to the conclusion of his
preterition. During the proceedings in the RTC, Morales had the opportunity to present evidence
that Francisco received donations inter vivos and advances on his legitime from the decedent.
However, Morales did not appear during the hearing dates, effectively waiving her right to present
evidence on the issue.

5) It was proper for the RTC to pass upon the intrinsic validity of the will during the probate
proceedings.

The general rule is that in probate proceedings, the scope of the court’s inquiry is limited
to questions on the extrinsic validity of the will; the probate court will only determine the will’s
formal validity and due execution. However, this rule is not inflexible and absolute. It is not
beyond the probate court’s jurisdiction to pass upon the intrinsic validity of the will when so
warranted by exceptional circumstances. When practical considerations demand that the intrinsic

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validity of the will be passed upon even before it is probated, the probate court should meet the
issue

6) It was proper for the RTC to order the case to proceed intestate because of preterition.

The decedent’s will does not contain specific legacies or devices and Francisco’s
preterition annulled the institution of heirs. The annulment effectively caused the total
abrogation of the will, resulting in total intestacy of the inheritance. The decedent’s will, no
matter how valid it may appear extrinsically, is null and void. The conduct of separate
proceedings to determine the intrinsic validity of its testamentary provisions would be
superfluous.
PARTNERSHIP
MICHAEL C. GUY vs. ATTY. GLENN C. GACOTT
G.R. No. 206147, January 13, 2016, J. Mendoza

Facts:

On March 3, 1997, Atty. Glenn Gacott (Gacott) from Palawan purchased two (2) brand new
transreceivers from Quantech Systems Corporation (QSC) in Manila through its employee Rey
Medestomas (Medestomas), amounting to a total of P18,000.00. On May 10, 1997, due to major
defects, Gacott personally returned the transreceivers to QSC and requested that they be
replaced. Medestomas received the returned transreceivers and promised to send him the
replacement units within two (2) weeks from May 10, 1997.

Time passed and Gacott did not receive the replacement units as promised. QSC informed
him that there were no available units and that it could not refund the purchased price. Despite
several demands, both oral and written, Gacott was never given a replacement or a refund. The
demands caused Gacott to incur expenses in the total amount of P40,936.44. Thus, Gacott filed a
complaint for damages.

Issues:

1) Whether petitioner Guy was properly impleaded in the case.


2) Whether petitioner Guy is solidarily liable with the partnership for damages arising from
the breach of the contract of sale with respondent Gacott.

Ruling:

1) Petitioner Guy was not properly impleaded in the case.

Article 1821 of the Civil Code does not state that there is no need to implead a
partner in order to be bound by the partnership liability. The provision shows that notice to any
partner, under certain circumstances, operates as notice to or knowledge to the partnership only.
It does not provide for the reverse situation, or that notice to the partnership is notice to the
partners. Unless there is an unequivocal law which states that a partner is automatically charged
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in a complaint against the partnership, the constitutional right to due process takes precedence
and a partner must first be impleaded before he can be considered as a judgment debtor. To rule
otherwise would be a dangerous precedent, harping in favor of the deprivation of property
without ample notice and hearing, which the Court certainly cannot countenance.

2) Petitioner Guy is not solidarily liable with the partnership.

Article 1816 of the Civil Code governs the liability of the partners to third persons, which
states that “[a]ll partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted.”

This provision clearly states that, first, the partners’ obligation with respect to the
partnership liabilities is subsidiary in nature. It provides that the partners shall only be liable with
their property after all the partnership assets have been exhausted. To say that one’s liability is
subsidiary means that it merely becomes secondary and only arises if the one primarily liable fails
to sufficiently satisfy the obligation. The subsidiary nature of the partners’ liability with the
partnership is one of the valid defenses against a premature execution of judgment directed to a
partner.

In this case, had he been properly impleaded, Guy’s liability would only arise after the
properties of QSC would have been exhausted. The records, however, miserably failed to show
that the partnership’s properties were exhausted.

Second, Article 1816 provides that the partners’ obligation to third persons with respect to
the partnership liability is pro rata or joint. Liability is joint when a debtor is liable only for the
payment of only a proportionate part of the debt. In contrast, a solidary liability makes a debtor
liable for the payment of the entire debt. In the same vein, Article 1207 does not presume solidary
liability unless: 1) the obligation expressly so states; or 2) the law or nature requires solidarity.
With regard to partnerships, ordinarily, the liability of the partners is not solidary. The joint
liability of the partners is a defense that can be raised by a partner impleaded in a complaint
against the partnership.

In other words, only in exceptional circumstances shall the partners’ liability be solidary in
nature. Articles 1822, 1823 and 1824 of the Civil Code provide for these exceptional conditions.
These provisions articulate that it is the act of a partner which caused loss or injury to a third
person that makes all other partners solidarily liable with the partnership. In the case at bench, it
was not shown that Guy or the other partners did a wrongful act or misapplied the money or
property he or the partnership received from Gacott.

MICHAEL C. GUY vs. ATTY. GLENN C. GACOTT


G.R. No. 206147, January 13, 2016, J. Mendoza

Facts:

On March 3, 1997, Atty. Glenn Gacott (Gacott) from Palawan purchased two (2) brand new
transreceivers from Quantech Systems Corporation (QSC) in Manila through its employee Rey
Medestomas (Medestomas), amounting to a total of P18,000.00. On May 10, 1997, due to major

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defects, Gacott personally returned the transreceivers to QSC and requested that they be
replaced. Medestomas received the returned transreceivers and promised to send him the
replacement units within two (2) weeks from May 10, 1997.

Time passed and Gacott did not receive the replacement units as promised. QSC informed
him that there were no available units and that it could not refund the purchased price. Despite
several demands, both oral and written, Gacott was never given a replacement or a refund. The
demands caused Gacott to incur expenses in the total amount of P40,936.44. Thus, Gacott filed a
complaint for damages.

Issues:

1) Whether petitioner Guy was properly impleaded in the case.


2) Whether petitioner Guy is solidarily liable with the partnership for damages arising from
the breach of the contract of sale with respondent Gacott.

Ruling:

1) Petitioner Guy was not properly impleaded in the case.

Article 1821 of the Civil Code does not state that there is no need to implead a
partner in order to be bound by the partnership liability. The provision shows that notice to any
partner, under certain circumstances, operates as notice to or knowledge to the partnership only.
It does not provide for the reverse situation, or that notice to the partnership is notice to the
partners. Unless there is an unequivocal law which states that a partner is automatically charged
in a complaint against the partnership, the constitutional right to due process takes precedence
and a partner must first be impleaded before he can be considered as a judgment debtor. To rule
otherwise would be a dangerous precedent, harping in favor of the deprivation of property
without ample notice and hearing, which the Court certainly cannot countenance.

2) Petitioner Guy is not solidarily liable with the partnership.

Article 1816 of the Civil Code governs the liability of the partners to third persons, which
states that “[a]ll partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted.”

This provision clearly states that, first, the partners’ obligation with respect to the
partnership liabilities is subsidiary in nature. It provides that the partners shall only be liable with
their property after all the partnership assets have been exhausted. To say that one’s liability is
subsidiary means that it merely becomes secondary and only arises if the one primarily liable fails
to sufficiently satisfy the obligation. The subsidiary nature of the partners’ liability with the
partnership is one of the valid defenses against a premature execution of judgment directed to a
partner.

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In this case, had he been properly impleaded, Guy’s liability would only arise after the
properties of QSC would have been exhausted. The records, however, miserably failed to show
that the partnership’s properties were exhausted.

Second, Article 1816 provides that the partners’ obligation to third persons with respect to
the partnership liability is pro rata or joint. Liability is joint when a debtor is liable only for the
payment of only a proportionate part of the debt. In contrast, a solidary liability makes a debtor
liable for the payment of the entire debt. In the same vein, Article 1207 does not presume solidary
liability unless: 1) the obligation expressly so states; or 2) the law or nature requires solidarity.
With regard to partnerships, ordinarily, the liability of the partners is not solidary. The joint
liability of the partners is a defense that can be raised by a partner impleaded in a complaint
against the partnership.

In other words, only in exceptional circumstances shall the partners’ liability be solidary in
nature. Articles 1822, 1823 and 1824 of the Civil Code provide for these exceptional conditions.
These provisions articulate that it is the act of a partner which caused loss or injury to a third
person that makes all other partners solidarily liable with the partnership.

AGENCY

POWERS AND DUTIES

BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE, CORP. v. LAINGO


G.R. No. 205206, March 16, 2016; Carpio

Facts:

On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo),
opened a "Platinum 2-in-1 Savings and Insurance" account with petitioner Bank of the Philippine
Islands (BPI) in its Claveria, Davao City branch. The Platinum 2-in-1 Savings and Insurance
account is a savings account where depositors are automatically covered by an insurance policy
against disability or death issued by petitioner FGU Insurance Corporation (FGU Insurance), now
known as BPI/MS Insurance Corporation. BPI issued Passbook No. 50298 to Rheozel
corresponding to Savings Account No. 2233-0251-11. A Personal Accident Insurance Coverage
Certificate No. 043549 was also issued by FGU Insurance in the name of Rheozel with Laingo as
his named beneficiary.

On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a Certificate of


Death issued by the Office of the Civil Registrar General of Tagum City, Davao del Norte. Since
Rheozel came from a reputable and affluent family, the Daily Mirror headlined the story in its
newspaper on 26 September 2000. Thereafter, due to Laingo's credit standing and relationship
with BPI, BPI accommodated Laingo who was allowed to withdraw P995,000 from the account of
Rheozel.

More than two years later or on 21 January 2003, Rheozel's sister found the Personal Accident
Insurance Coverage Certificate No. 043549 issued by FGU Insurance. Rhealyn immediately
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conveyed the information to Laingo who then sent two letters dated 11 September 2003 and 7
November 2003 to BPI and FGU Insurance requesting them to process her claim as beneficiary of
Rheozel's insurance policy. On 19 February 2004, FGU Insurance sent a reply-letter to Laingo
denying her claim. FGU Insurance stated that Laingo should have filed the claim within three
calendar months from the death of Rheozel as required under Paragraph 15 of the Personal
Accident Certificate of Insurance. This prompted Laingo to file a Complaint for Specific
Performance with Damages and Attorney’s Fees with the RTC of Davao against BPI and FGU
Insurance.

The RTC ruled in favor of the respondents. The trial court ruled that the prescriptive period of 90
days shall commence from the time of death of the insured and not from the knowledge of the
beneficiary. Since the insurance claim was filed more than 90 days from the death of the insured,
the case must be dismissed.

On appeal, the CA reversed the ruling of the RTC. It held that Laingo could not be expected to do
an obligation which she did not know existed. The appellate court added that Laingo was not a
party to the insurance contract entered into between Rheozel and petitioners. Thus, she could not
be bound by the 90-day stipulation.

Issues:

1) Whether the CA correctly held that the claim of Laingo as beneficiary on the insurance
policy of Rheozel could still prosper despite the lapse of the three month period to claim
on the said policy.

Ruling:

1) Yes, BPI in this case acted as an agent of FGU Insurance. As an agent of FGU Insurance,
BPI had the duty to inform the beneficiaries of Rheozel upon his death that he had a
policy. BPI failed to fulfill its duty, thus, the effects thereof should not be borne by Laingo.

In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial
product, offering the insurance coverage for free for every deposit account opened, Rheozel
directly communicated with BPI, the agent of FGU Insurance. BPI not only facilitated the
processing of the deposit account and the collection of necessary documents but also the
necessary endorsement for the prompt approval of the insurance coverage without any other
action on Rheozel's part. Rheozel did not interact with FGU Insurance directly and every
transaction was coursed through BPI.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1 account
be reasonably carried out with full disclosure to the parties concerned, particularly the
beneficiaries. Thus, it was incumbent upon BPI to give proper notice of the existence of the
insurance coverage and the stipulation in the insurance contract for filing a claim to Laingo, as
Rheozel's beneficiary, upon the latter's death.

Under Articles 1884 and 1887 of the Civil Code, an agent is bound to carry out the agency. The
relationship existing between principal and agent is a fiduciary one, demanding conditions of
trust and confidence. It is the duty of the agent to act in good faith for the advancement of the
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interests of the principal. In this case, BPI had the obligation to carry out the agency by informing
the beneficiary, who appeared before BPI to withdraw funds of the insured who was BPI's
depositor, not only of the existence of the insurance contract but also the accompanying terms
and conditions of the insurance policy in order for the beneficiary to be able to properly and
timely claim the benefit.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the
insurance policy, Laingo had no means to ascertain that she was entitled to the insurance claim. It
would be unfair for Laingo to shoulder the burden of loss when BPI was remiss in its duty to
properly notify her that she was a beneficiary.

DRA. MERCEDES OLIVER v. PHILIPPINE SAVINGS BANK and LILIA CASTRO


G.R. No. 214567, April 4, 2016; Mendoza

Facts:

Sometime in 1997, petitioner made an initial deposit of P12 million into her PSBank account.
During that time, respondent Castro who was the then the Acting Branch Manager of PSBank San
Pedro, Laguna, convinced petitioner to loan out her deposit as interim or bridge financing for the
approved loans of bank borrowers who were waiting for the actual release of their loan proceeds.

Under this arrangement, Castro would first show the approved loan documents to Oliver.
Thereafter, Castro would withdraw the amount needed from Oliver’s account. Upon the actual
release of the loan by PSBank to the borrower, Castro would then charge the rate of 4% a month
from the loan proceeds as interim or bridge financing interest. Together with the interest income,
the principal amount previously withdrawn from Oliver’s bank account would be deposited back
to her account. Meanwhile, Castro would earn a commission of 10% from the interest.

After a few months with the arrangement going smoothly, petitioner entrusted her passbook to
respondent Castro. Petitioner was subsequently convinced by respondent Castro to avail of an
additional credit line in the amount of P10 million, which was secured by a real estate mortgage
on her house and lot in Ayala Alabang. Petitioner instructed Castro to pay P2 million monthly to
PSBank until her P10 million credit line was paid.

Beginning Beginning September 1998, respondent Castro stopped rendering an accounting for
petitioner. The latter then demanded the return of her passbook. When respondent Castro
showed her the passbook sometime in late January or early February 1995, she noticed several
erasures and superimpositions therein and became suspicious and requested for her transaction
history. Her transaction history revealed that the amount of P4,491,250.00 (estimated at P4.5
million) was entered into her account on December 21, 1998. While a total of P7 million was
withdrawn from her account on the same day, petitioner asserted that she neither applied for an
additional loan of P4.5 million nor authorized the withdrawal of P7 million. She also discovered
another loan for P1,396,310.45, acquired on January 5, 1999 and allegedly issued in connection with
the P10 million credit line.

Thereafter, petitioner received collection letters and a final demand letter from PSBank referring
to the non-payment of unpaid loans. When petitioner refused to pay, her property in Ayala
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Alabang was foreclosed to satisfy her debt, which prompted her to file a complaint against
PSBank and Castro.

Castro and PSBank both share the position that the additional loans were duly authorized by
petitioner as her signature appears on the documents in relation to both loans. Castro further
contends that the withdrawal of P7 million was authorized by petitioner and that the funds
thereof was deposited to the account of one Ben Lim who was a businessman who regularly
borrowed from petitioner

The RTC initially ruled in favor of PSBank and Castro and held petitioner liable for her the
additional loans and that the foreclosure of her Ayala Alabang property was proper. However,
upon Motion for Reconsideration of petitioner, the RTC reversed its earlier ruling insofar as it
held that the P7 million withdrawal was authorized by petitioner. As the latter duly pointed out, if
indeed the P7 million withdrawal was duly authorized, there should be a corresponding
withdrawal slip for such transaction, which PSBank and Castro failed to present. The RTC further
held that had the P7 million unlawful withdrawal not occurred, there would be sufficient funds to
cover petitioner’s additional loans.

On appeal to the CA, the appellate court reinstated the RTC’s initial order. The CA ruled that
there is no compelling evidence to prove that fraud attended the P7 million withdrawal from
petitioner’s account.

Issues:

1) Whether the CA correctly reinstated the RTC’s initial order in favor of PSBank and Castro,
ruling that the P7 million withdrawal from petitioner’s account was valid.

Ruling:

1) No, in view of the arrangement between petitioner and Castro, an agency was formed.
Castro exceeded her authority in withdrawing P7 million pesos from petitioner’s account
and should therefore be held liable.

A contract of agency may be inferred from all the dealings between petitioner 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, petitioner and Castro had a business agreement wherein petitioner 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. Petitioner 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
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service in representation or on behalf of Oliver, in the furtherance of their business pursuit.

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.

While the evidence presented show that petitioner indeed authorized the procurement of the
additional loans, no evidence prove that petitioner authorized the withdrawal of P7 million. On
the witness stand, Castro declared that she could not remember in what form or manner she was
actually authorized by petitioner to withdraw the P7 million.

Moreover, considering that the P7 million withdrawal was deemed unauthorized, PSBank
necessarily failed to exercise the highest degree of diligence required of banking institutions. For
its failure, PSBank should be held solidarily liable with Castro applying Article 2180 of the Civil
Code.

Lastly, considering that had the P7 million unauthorized withdrawal would have fulfilled
petitioner’s additional loans, the foreclosure of petitioner’s Ayala Alabang property was therefore
invalid.

BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE, CORP. v. LAINGO


G.R. No. 205206, March 16, 2016; Carpio

Facts:

On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo),
opened a "Platinum 2-in-1 Savings and Insurance" account with petitioner Bank of the Philippine
Islands (BPI) in its Claveria, Davao City branch. The Platinum 2-in-1 Savings and Insurance
account is a savings account where depositors are automatically covered by an insurance policy
against disability or death issued by petitioner FGU Insurance Corporation (FGU Insurance), now
known as BPI/MS Insurance Corporation. BPI issued Passbook No. 50298 to Rheozel
corresponding to Savings Account No. 2233-0251-11. A Personal Accident Insurance Coverage
Certificate No. 043549 was also issued by FGU Insurance in the name of Rheozel with Laingo as
his named beneficiary.

On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a Certificate of


Death issued by the Office of the Civil Registrar General of Tagum City, Davao del Norte. Since
Rheozel came from a reputable and affluent family, the Daily Mirror headlined the story in its
newspaper on 26 September 2000. Thereafter, due to Laingo's credit standing and relationship
with BPI, BPI accommodated Laingo who was allowed to withdraw P995,000 from the account of
Rheozel.

More than two years later or on 21 January 2003, Rheozel's sister found the Personal Accident
Insurance Coverage Certificate No. 043549 issued by FGU Insurance. Rhealyn immediately
conveyed the information to Laingo who then sent two letters dated 11 September 2003 and 7
November 2003 to BPI and FGU Insurance requesting them to process her claim as beneficiary of
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Rheozel's insurance policy. On 19 February 2004, FGU Insurance sent a reply-letter to Laingo
denying her claim. FGU Insurance stated that Laingo should have filed the claim within three
calendar months from the death of Rheozel as required under Paragraph 15 of the Personal
Accident Certificate of Insurance. This prompted Laingo to file a Complaint for Specific
Performance with Damages and Attorney’s Fees with the RTC of Davao against BPI and FGU
Insurance.

The RTC ruled in favor of the respondents. The trial court ruled that the prescriptive period of 90
days shall commence from the time of death of the insured and not from the knowledge of the
beneficiary. Since the insurance claim was filed more than 90 days from the death of the insured,
the case must be dismissed.

On appeal, the CA reversed the ruling of the RTC. It held that Laingo could not be expected to do
an obligation which she did not know existed. The appellate court added that Laingo was not a
party to the insurance contract entered into between Rheozel and petitioners. Thus, she could not
be bound by the 90-day stipulation.

Issues:

1) Whether the CA correctly held that the claim of Laingo as beneficiary on the insurance
policy of Rheozel could still prosper despite the lapse of the three month period to claim
on the said policy.

Ruling:

1) Yes, BPI in this case acted as an agent of FGU Insurance. As an agent of FGU Insurance,
BPI had the duty to inform the beneficiaries of Rheozel upon his death that he had a
policy. BPI failed to fulfill its duty, thus, the effects thereof should not be borne by Laingo.

In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial
product, offering the insurance coverage for free for every deposit account opened, Rheozel
directly communicated with BPI, the agent of FGU Insurance. BPI not only facilitated the
processing of the deposit account and the collection of necessary documents but also the
necessary endorsement for the prompt approval of the insurance coverage without any other
action on Rheozel's part. Rheozel did not interact with FGU Insurance directly and every
transaction was coursed through BPI.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1 account
be reasonably carried out with full disclosure to the parties concerned, particularly the
beneficiaries. Thus, it was incumbent upon BPI to give proper notice of the existence of the
insurance coverage and the stipulation in the insurance contract for filing a claim to Laingo, as
Rheozel's beneficiary, upon the latter's death.

Under Articles 1884 and 1887 of the Civil Code, an agent is bound to carry out the agency. The
relationship existing between principal and agent is a fiduciary one, demanding conditions of
trust and confidence. It is the duty of the agent to act in good faith for the advancement of the
interests of the principal. In this case, BPI had the obligation to carry out the agency by informing
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the beneficiary, who appeared before BPI to withdraw funds of the insured who was BPI's
depositor, not only of the existence of the insurance contract but also the accompanying terms
and conditions of the insurance policy in order for the beneficiary to be able to properly and
timely claim the benefit.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the
insurance policy, Laingo had no means to ascertain that she was entitled to the insurance claim. It
would be unfair for Laingo to shoulder the burden of loss when BPI was remiss in its duty to
properly notify her that she was a beneficiary.

DRA. MERCEDES OLIVER v. PHILIPPINE SAVINGS BANK and LILIA CASTRO


G.R. No. 214567, April 4, 2016; Mendoza

Facts:

Sometime in 1997, petitioner made an initial deposit of P12 million into her PSBank account.
During that time, respondent Castro who was the then the Acting Branch Manager of PSBank San
Pedro, Laguna, convinced petitioner to loan out her deposit as interim or bridge financing for the
approved loans of bank borrowers who were waiting for the actual release of their loan proceeds.

Under this arrangement, Castro would first show the approved loan documents to Oliver.
Thereafter, Castro would withdraw the amount needed from Oliver’s account. Upon the actual
release of the loan by PSBank to the borrower, Castro would then charge the rate of 4% a month
from the loan proceeds as interim or bridge financing interest. Together with the interest income,
the principal amount previously withdrawn from Oliver’s bank account would be deposited back
to her account. Meanwhile, Castro would earn a commission of 10% from the interest.

After a few months with the arrangement going smoothly, petitioner entrusted her passbook to
respondent Castro. Petitioner was subsequently convinced by respondent Castro to avail of an
additional credit line in the amount of P10 million, which was secured by a real estate mortgage
on her house and lot in Ayala Alabang. Petitioner instructed Castro to pay P2 million monthly to
PSBank until her P10 million credit line was paid.

Beginning Beginning September 1998, respondent Castro stopped rendering an accounting for
petitioner. The latter then demanded the return of her passbook. When respondent Castro
showed her the passbook sometime in late January or early February 1995, she noticed several
erasures and superimpositions therein and became suspicious and requested for her transaction
history. Her transaction history revealed that the amount of P4,491,250.00 (estimated at P4.5
million) was entered into her account on December 21, 1998. While a total of P7 million was
withdrawn from her account on the same day, petitioner asserted that she neither applied for an
additional loan of P4.5 million nor authorized the withdrawal of P7 million. She also discovered
another loan for P1,396,310.45, acquired on January 5, 1999 and allegedly issued in connection with
the P10 million credit line.

Thereafter, petitioner received collection letters and a final demand letter from PSBank referring
to the non-payment of unpaid loans. When petitioner refused to pay, her property in Ayala
Alabang was foreclosed to satisfy her debt, which prompted her to file a complaint against
PSBank and Castro.
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Castro and PSBank both share the position that the additional loans were duly authorized by
petitioner as her signature appears on the documents in relation to both loans. Castro further
contends that the withdrawal of P7 million was authorized by petitioner and that the funds
thereof was deposited to the account of one Ben Lim who was a businessman who regularly
borrowed from petitioner

The RTC initially ruled in favor of PSBank and Castro and held petitioner liable for her the
additional loans and that the foreclosure of her Ayala Alabang property was proper. However,
upon Motion for Reconsideration of petitioner, the RTC reversed its earlier ruling insofar as it
held that the P7 million withdrawal was authorized by petitioner. As the latter duly pointed out, if
indeed the P7 million withdrawal was duly authorized, there should be a corresponding
withdrawal slip for such transaction, which PSBank and Castro failed to present. The RTC further
held that had the P7 million unlawful withdrawal not occurred, there would be sufficient funds to
cover petitioner’s additional loans.

On appeal to the CA, the appellate court reinstated the RTC’s initial order. The CA ruled that
there is no compelling evidence to prove that fraud attended the P7 million withdrawal from
petitioner’s account.

Issues:

1) Whether the CA correctly reinstated the RTC’s initial order in favor of PSBank and Castro,
ruling that the P7 million withdrawal from petitioner’s account was valid.

Ruling:

1) No, in view of the arrangement between petitioner and Castro, an agency was formed.
Castro exceeded her authority in withdrawing P7 million pesos from petitioner’s account
and should therefore be held liable.

A contract of agency may be inferred from all the dealings between petitioner 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, petitioner and Castro had a business agreement wherein petitioenr 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. Petitioner 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.

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
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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.

While the evidence presented show that petitioner indeed authorized the procurement of the
additional loans, no evidence prove that petitioner authorized the withdrawal of P7 million. On
the witness stand, Castro declared that she could not remember in what form or manner she was
actually authorized by petitioner to withdraw the P7 million.

Moreover, considering that the P7 million withdrawal was deemed unauthorized, PSBank
necessarily failed to exercise the highest degree of diligence required of banking institutions. For
its failure, PSBank should be held solidarily liable with Castro applying Article 2180 of the Civil
Code.

Lastly, considering that had the P7 million unauthorized withdrawal would have fulfilled
petitioner’s additional loans, the foreclosure of petitioner’s Ayala Alabang property was therefore
invalid.

SPECIAL POWER OF ATTORNEY

SPOUSES ROLANDO AND HERMINIA SALVADOR vs. SPOUSES ROGELIO AND


ELIZABETH RABAJA AND ROSARIO GONZALES,
G.R. No. 199990, February 04, 2015, J. Mendoza

According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an
act is deemed to have been performed within the scope of the agent's authority, if such act is within
the terms of the power of attorney, as written. In this case, Spouses Rabaja did not recklessly enter
into a contract to sell with Gonzales. They required her presentation of the power of attorney before
they transacted with her principal. And when Gonzales presented the SPA to Spouses Rabaja, the
latter had no reason not to rely on it.

Facts:

Spouses Rabaja learned that Spouses Salvador were looking for a buyer of their land
where Spouses Rabaja also leased. Spouses Rabaja and Spouses Salvador then entered into a
contract of sale wherein Gonzales, administrator of the subject property, received the
considerations paid by Spouses Rabaja pursuant to the Special Power of Attorney issued by
Spouses Salvador in favor of Gonzales. 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. Spouses Rabaja filed
an action for rescission of contract against Spouses Salvador and Gonzales.

In their complaint, the Spouses Rabaja’s 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-
claimcontending 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
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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 answerstating 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.

Issue:

Whether or not Gonzales, as agent of Spouses Salvador, could validly receive the payments
of Spouses Rabaja.

Ruling:

Yes.

The Following provisions of the New Civil Code provides:

Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within
the scope of the agent's authority, if such act is within the terms of the power of attorney, as
written, even if the agent has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent.

Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may
require the presentation of the power of attorney, or the instructions as regards the agency.
Private or secret orders and instructions of the principal do not prejudice third persons who have
relied upon the power of attorney or instructions shown them.

Art. 1910. The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.

According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an
act is deemed to have been performed within the scope of the agent's authority, if such act is
within the terms of the power of attorney, as written. In this case, Spouses Rabaja did not
recklessly enter into a contract to sell with Gonzales. They required her presentation of the power
of attorney before they transacted with her principal. And when Gonzales presented the SPA to
Spouses Rabaja, the latter had no reason not to rely on it.

The law mandates an agent to act within the scope of his authority which what appears in
the written terms of the power of attorney granted upon him. The Court holds that, indeed,
Gonzales acted within the scope of her authority. The SPA precisely stated that she could
administer the property, negotiate the sale and collect any document and all payments related to
the subject property. As the agent acted within the scope of his authority, the principal must
comply with all the obligations. Considering that it was not shown that Gonzales exceeded her
authority or that she expressly bound herself to be liable, then she could not be considered
personally and solidarily liable with the principal, Spouses Salvador.

IMPLIED TRUST

IGLESIA FILIPINA INDEPENDIENTE vs. HEIRS OF BERNARDINO TAEZA


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G.R. No. 179597. February 03, 2014


J. Peralta

Since respondent’s predecessor-in-interest obtained a transfer certificate of title in his name


over the property in question and the person supposedly transferring ownership was not authorized
to do so, the property had evidently been acquired by mistake. Thus, an implied trust for the benefit
of the person from whom the property comes is created since the party acquired the property
through mistake or fraud. An implied trust arises from the nature of circumstances of the
consideration involved in a transaction. It is created to satisfy the demands of justice and equity.

Facts:

The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious
corporation, was the owner of a parcel of land described as Lot 3653, containing an area of 31,038
square meters, situated at Ruyu (now Leonarda), Tuguegarao, Cagayan, and covered by Original
Certificate of Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B,
3653-C, and 3653-D.

The plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga, sold Lot 3653-D to one
Bienvenido de Guzman and Lot Nos. 3653-A and 3653-B to the defendant Bernardino Taeza on
installment. Taeza allegedly completed the payments.

A complaint for the annulment of the Deed of Sale with Mortgage between plaintiff-appellee,
through its then Supreme Bishop Rev. Macario Ga, and Bernardino Taeza was filed by the Parish
Council of Tuguegarao, Cagayan with the then Court of First Instance of Tuguegarao, Cagayan,
against their Supreme Bishop Macario Ga and the defendant Bernardino Taeza.

The said complaint was, however, subsequently dismissed on the ground that the plaintiffs
therein lacked the personality to file the case. Meanwhile, the defendant Bernardino Taeza
registered the subject parcels of land. In January 1990, a complaint for annulment of sale was
again filed by the plaintiff-appellee IFI, this time through Supreme Bishop Most Rev. Tito Pasco,
against the defendant-appellant, with the Regional Trial Court.

The RTC ruled that the deed of sale executed by and between Rev. Ga and the defendant-
appellant is null and void. Petitioner appealed the foregoing Decision to the CA. The CA reversed
and set aside the RTC ruling. The CA ruled that petitioner, 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.” Petitioner then elevated the matter to
this Court via a petition for review on certiorari.

Issue:

Whether Bernardino Taeza acquired ownership over the subject parcels of land

Ruling:

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The Constitution and Canons of the Philippine Independent Church provides in Art. IV (a) that
“[a]ll 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 sanction of the Supreme Council, and finally with the approval of the Supreme Bishop, as
administrator of all the temporalities of the Church.”

Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the
Supreme Bishop but also the concurrence of the laymen's committee, the parish priest, and the
Diocesan Bishop, as sanctioned by the Supreme Council. However, petitioner's Canons do not
specify in what form the conformity of the other church entities should be made known. Thus, as
petitioner's witness stated, in practice, such consent or approval may be assumed as a matter of
fact, unless some opposition is expressed.

The Canons require that ALL the church entities listed in Article IV (a) thereof should give its
approval to the transaction. Thus, when the Supreme Bishop executed the contract of sale of
petitioner's lot despite the opposition made by the laymen's committee, he 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:

(1) 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;

In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had already
obtained a transfer certificate of title in his name over the property in question. Since the person
supposedly transferring ownership was not authorized to do so, the property had evidently been
acquired by mistake. In Vda. de Esconde v. Court of Appeals the Court affirmed the trial court's
ruling that the applicable provision of law in such cases is Article 1456 of the Civil Code which
states that “[i]f property is acquired through mistake or fraud, the person obtaining it is, by force
of law, considered a trustee of an implied trust for the benefit of the person from whom the
property comes.” Thus, in Aznar Brothers Realty Company v. Aying, citing Vda. de Esconde, the
Court clarified the concept of trust involved in said provision, to wit:

Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals,
the Court stated:

A deeper analysis of Article 1456 reveals that it is not a trust in the technical
sense for in a typical trust, confidence is reposed in one person who is named a
trustee for the benefit of another who is called the cestui que trust, respecting
property which is held by the trustee for the benefit of the cestui que trust. A
constructive trust, unlike an express trust, does not emanate from, or generate a
fiduciary relation. While in an express trust, a beneficiary and a trustee are
linked by confidential or fiduciary relations, in a constructive trust, there is
neither a promise nor any fiduciary relation to speak of and the so-called

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trustee neither accepts any trust nor intends holding the property for the
beneficiary.

The concept of constructive trusts was further elucidated in the same case, as follows:

. . . implied trusts are those which, without being expressed, are deducible from
the nature of the transaction as matters of intent or which are superinduced on
the transaction by operation of law as matters of equity, independently of the
particular intention of the parties. In turn, implied trusts are either resulting or
constructive trusts. These two are differentiated from each other as follows:

Resulting trusts are based on the equitable doctrine that valuable


consideration and not legal title determines the equitable title or interest
and are presumed always to have been contemplated by the parties. They
arise from the nature of circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the benefit of another.
On the other hand, constructive trusts are created by the construction
of equity in order to satisfy the demands of justice and prevent unjust
enrichment. They arise contrary to intention against one who, by
fraud, duress or abuse of confidence, obtains or holds the legal right
to property which he ought not, in equity and good conscience, to
hold. (Italics supplied)

A constructive trust having been constituted by law between respondents as trustees and
petitioner as beneficiary of the subject property, may respondents acquire ownership over the said
property? The Court held in the same case of Aznar, that unlike in express trusts and resulting
implied trusts where a trustee cannot acquire by prescription any property entrusted to him
unless he repudiates the trust, in constructive implied trusts, the trustee may acquire the
property through prescription even if he does not repudiate the relationship. It is then
incumbent upon the beneficiary to bring an action for reconveyance before prescription bars the
same.

An action for reconveyance based on an implied or constructive trust must perforce


prescribe in ten years and not otherwise. A long line of decisions of this Court, and of very
recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action
for reconveyance based on an implied or constructive trust prescribes in ten years from the
issuance of the Torrens title over the property.

It has also been ruled that the ten-year prescriptive period begins to run from the date
of registration of the deed or the date of the issuance of the certificate of title over
the property, x x x.

Here, the present action was filed on January 19, 1990, while the transfer certificates of title
over the subject lots were issued to respondents' predecessor-in-interest, Bernardino Taeza,
only on February 7, 1990. Clearly, therefore, petitioner's complaint was filed well within the
prescriptive period stated above, and it is only just that the subject property be returned to
its rightful owner.

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JOSE JUAN TONG, ET AL.vs.GO TIAT KUN, ET AL.


G.R. No. 196023, April 21, 2014, J.Reyes

The Court is in conformity with the finding of the trial court that an implied resulting trust was
created as provided under the first sentence of Article 1448which is sometimes referred to as a
purchase money resulting trust, the elements of which are: (a) an actual payment of money,
property or services, or an equivalent, constituting valuable consideration; and (b) such
consideration must be furnished by the alleged beneficiary of a resulting trust. In this case, the
petitioners have shown that the two elements are present. Luis, Sr. was merely a trustee of Juan
Tong and the petitioners in relation to the subject property, and it was Juan Tong who provided the
money for the purchase of Lot 998 but the corresponding transfer certificate of title was placed in
the name of Luis, Sr.

Facts:

The petitioners are nine of the ten children of Spouses Juan Tong (Juan Tong) and SyUn
(Spouses Juan Tong). Completing the ten children of Spouses Juan Tong is the deceased Luis Juan
Tong, Sr. (Luis, Sr.) whose surviving heirs are: his spouse Go Tiat Kun, and their children, Leon,
Mary, Lilia, Tomas, Luis, Jr., and Jaime, who being already dead, is survived by his wife, Roma
Cokee Juan Tong who are the respondents.

Sometime in 1957, Juan Tong informed them of his intention to purchase Lot 998 to be
used for the family’s lumber business. However, since he was a Chinese citizen and was
disqualified from acquiring the said lot, the title to the property will be registered in the name of
his eldest son, Luis, Sr., who at that time was already of age and was the only Filipino citizen
among his children. Subsequently, Juan Tong bought Lot 998 from the heirs of Jose Ascencio.
Accordingly, TCT No. 10346 was issued by the Register of Deeds in the name of Luis, Sr.

SyUn and Juan Tong later on died intestate on 1984, and 1990, respectively. Meanwhile, on
1981, Luis, Sr. died and the respondents, being his surviving heirs, claimed ownership over Lot 998
by succession, alleging that no trust agreement exists and it was Luis, Sr. who bought Lot 998. On
1982, the respondents executed a Deed of Extra-Judicial Settlement of Estate of Luis, Sr.,
adjudicating unto themselves Lot 998 and claiming that the said lot is the conjugal property of
Luis, Sr., and his wife, which the Juvenile and Domestic Relations Court of Iloilo City approved.
Later on, the said deed was registered causing the cancellation of TCT No. 10346 and the issuance
of TCT No. T-60231 in the name of the respondents.Subsequently, the respondents agreed to
subdivide Lot 998. After Lot 998 was subdivided, Luis, Jr. sold Lot 998-B to Fine Rock
Development Corporation (FRDC), which in turn sold the same to Visayas Goodwill Credit
Corporation (VGCC). It was only after the petitioners received a letter from VGCC, on 1995, that
they discovered about the breach of the trust agreement committed by the respondents.To
protect their rights, the petitioners filed an action for Annulment of Sales, Titles, Reconveyance
and Damages of Lot 998-B against Luis, Jr., FRDC and VGCC. On 1997, the trial court ruledin
favor of the petitioners which were later affirmed by the CA and this Court on appeal.
Consequently, Lot 998-B was reconveyed to the petitioners and TCT No. T-14839 was issued
under their names including the late Luis, Sr.

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Then, on 2001, Go Tiat Kun ( wife of Luis Sr.) executed a Deed of Sale of Undivided
Interest over Lot 998-A in favor of her children, Leon, Mary, Lilia, Tomas, and the late Jaime.
Hence, on August 2, 2005, the petitioners filed the instant case for Nullification of Titles, and
Deeds of Extra-judicial Settlement and Sale and Damages claiming as owners of Lot 998-A.

Issue:

1. Whether or not there was an implied resulting trust constituted over Lot 998 when Juan
Tong purchased the property and registered it in the name of Luis, Sr.

2. Whether or not the petitioners’ action are barred by prescription, estoppel and laches.

Ruling:

1. Yes.

The appellate court’s conclusion that an express trust was created because there was a direct
and positive act by Juan Tong to create a trust must inevitably yield to the clear and positive
evidence on record which showed that what was truly created was an implied resulting trust. As
what has been fully established, in view of the mutual trust and confidence existing between said
parties who are family members, the only reason why Lot 998 was registered in the name of Luis,
Sr. was to facilitate the purchase of the said property to be used in the family’s lumber business
since Luis, Sr. is the only Filipino Citizen in the Juan Tong family at that time. As the registered
owner of Lot 998, it is only natural that tax declarations and the corresponding tax payment
receipts be in the name of Luis, Sr. so as to effect payment thereof.

The principle of a resulting trust is based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or interest and are presumed
always to have been contemplated by the parties. They arise from the nature or circumstances of
the consideration involved in a transaction whereby one person thereby becomes invested with
legal title but is obligated in equity to hold his legal title for the benefit of another. On the other
hand, a constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary
relation. Constructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention against one
who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he
ought not, in equity and good conscience, to hold.

Guided by the foregoing definitions, the Court is in conformity with the finding of the trial
court that an implied resulting trust was created as provided under the first sentence of Article
1448which is sometimes referred to as a purchase money resulting trust, the elements of which
are: (a) an actual payment of money, property or services, or an equivalent, constituting valuable
consideration; and (b) such consideration must be furnished by the alleged beneficiary of a
resulting trust. Here, the petitioners have shown that the two elements are present in the instant
case. Luis, Sr. was merely a trustee of Juan Tong and the petitioners in relation to the subject
property, and it was Juan Tong who provided the money for the purchase of Lot 998 but the
corresponding transfer certificate of title was placed in the name of Luis, Sr.

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2. No.

As a rule, implied resulting trusts do not prescribe except when the trustee repudiates the
trust.Further, the action to reconvey does not prescribe so long as the property stands in the
name of the trustee. It should be noted that the title of Lot 998 was still registered in the name of
Luis Sr. even when he predeceased Juan Tong. Considering that the implied trust has been
repudiated through such death, Lot 998 cannot be included in his estate except only insofar as his
undivided share thereof is concerned. It is well-settled that title to property does not vest
ownership but it is a mere proof that such property has been registered. And, the fact that the
petitioners are in possession of all the tax receipts and tax declarations of Lot 998 all the more
amplify their claim of ownership over Lot 998-A. Although these tax declarations or realty tax
payments of property are not conclusive evidence of ownership, nevertheless, they are good
indicia of possession in the concept of owner, for no one in his right mind would be paying taxes
for a property that is not in his actual or at least constructive possession. Such realty tax payments
constitute proof that the holder has a claim of title over the property. Therefore, the action for
reconveyance of Lot 998-A, which forms part of Lot 998, is imprescriptible and the petitioners are
not estopped from claiming ownership thereof.

Moreso, when the petitioners received a letter from VGCC, and discovered about the breach
of the trust agreement committed by the heirs of Luis, Sr., they immediately instituted an action
to protect their rights, as well as upon learning that respondent Go Tiat Kun executed a Deed of
Sale of Undivided Interest over Lot 998-A in favor of her children. Clearly, no delay may be
attributed to them. The doctrine of laches is not strictly applied between near relatives, and the
fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise
unreasonable delay.

CREDIT TRANSACTIONS

LOAN

INTEREST RATE

PHILIPPPINE NATIONAL BANK vs. SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO,
ARNOLD J. MANALO, ARNEL J. MANALO, AND ARMA J. MANALO
G.R. No. 174433. February 24, 2014
J. Bersamin

A contract where there is no mutuality between the parties partakes of the nature of a
contract of adhesion. Any obscurity will be construed against the party who prepared the contract;
the latter being presumed the stronger party to the agreement, and who caused the obscurity.

Moreover, in an increase of interest rate, the creditor, as in the case of PNB, cannot validly
increase the interest rate unilaterally. Even if the borrower paid the increased interest without
protest, such cannot be construed to mean that the borrower is estopped from assailing the
unilateral increase of interest rate.

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Facts:

Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo) applied for an All-
Purpose Credit Facility with Philippine National Bank (PNB) to finance the construction of their
house. After PNB granted their application, they executed a Real Estate Mortgage in favor of PNB
over their property as security for the loan. The credit facility was renewed and increased several
times over the years. As a consequence, the parties executed a Supplement to and Amendment of
Existing Real Estate Mortgage whereby another property was added as security for the loan. The
additional security was registered in the names of respondents Arnold, Arnel, Anthony, and
Arma, all surnamed Manalo, who were their children.

After the Spouses Manalo still failed to settle their unpaid account despite two demand letters,
PNB foreclosed the mortgage. During the foreclosure sale, PNB was the highest bidder of the
mortgaged properties of the Spouses Manalo. The sheriff issued to PNB the Certificate of Sale.

After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo
instituted this action for the nullification of the foreclosure proceedings and damages. They
alleged that they had obtained a loan for P1,000,000.00 from a certain Benito Tan upon
arrangements made by Antoninus Yuvienco, then the General Manager of PNB’s Bangkal Branch
where they had transacted; that they had been made to understand and had been assured that the
P1,000,000.00 would be used to update their account, and that their loan would be restructured
and converted into a long-term loan; that they had been surprised to learn, therefore, that had
been declared in default of their obligations, and that the mortgage on their property had been
foreclosed and their property had been sold; and that PNB did not comply with Section 3 of Act
No. 3135, as amended.

PNB and Antoninus Yuvienco countered that the P1,000,000.00 loan obtained by the Spouses
Manalo from Benito Tan had been credited to their account; that they did not make any
assurances on the restructuring and conversion of the Spouses Manalo’s loan into a long-term
one; that PNB’s right to foreclose the mortgage had been clear especially because the Spouses
Manalo had not assailed the validity of the loans and of the mortgage; and that the Spouses
Manalo did not allege having fully paid their indebtedness.

The RTC ruled in favor of PNB. The RTC held, among others, that the Spouses Manalo’s “contract
of adhesion” argument was unfounded because they had still accepted the terms and conditions
of their credit agreement with PNB and had exerted efforts to pay their obligation and that the
Spouses Manalo were now estopped from questioning the interest rates unilaterally imposed by
PNB because they had paid at those rates for three years without protest. The CA affirmed the
decision of the RTC insofar as it upheld the validity of the foreclosure proceedings initiated by
PNB, but modified the Spouses Manalo’s liability for interest. It directed the RTC to see to the
recomputation of their indebtedness, and ordered that should the recomputed amount be less
than the winning bid in the foreclosure sale, the difference should be immediately returned to the
Spouses Manalo.

Issue:

Whether PNB can unilaterally impose the interest rate of the loan

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Ruling:

The credit agreement executed succinctly stipulated that the loan would be subjected to interest
at a rate “determined by the Bank to be its prime rate plus applicable spread, prevailing at the
current month.” This stipulation was carried over to or adopted by the subsequent renewals of the
credit agreement. PNB thereby arrogated unto itself the sole prerogative to determine and
increase the interest rates imposed on the Spouses Manalo. Such a unilateral determination of the
interest rates contravened the principle of mutuality of contracts embodied in Article 1308 of
the Civil Code.

The Court has declared that a contract where there is no mutuality between the parties partakes
of the nature of a contract of adhesion, and any obscurity will be construed against the party who
prepared the contract, the latter being presumed the stronger party to the agreement, and who
caused the obscurity. PNB should then suffer the consequences of its failure to specifically
indicate the rates of interest in the credit agreement.

PNB could not also justify the increases it had effected on the interest rates by citing the fact that
the Spouses Manalo had paid the interests without protest, and had renewed the loan several
times. The SC ruled that the CA, citing Philippine National Bank v. Court of Appeals, rightly
concluded that “a borrower is not estopped from assailing the unilateral increase in the interest
made by the lender since no one who receives a proposal to change a contract, to which he is a
party, is obliged to answer the same and said party’s silence cannot be construed as an acceptance
thereof.”

Lastly, the CA observed, and properly so, that the credit agreements had explicitly provided that
prior notice would be necessary before PNB could increase the interest rates. In failing to notify
the Spouses Manalo before imposing the increased rates of interest, therefore, PNB violated the
stipulations of the very contract that it had prepared. Hence, the varying interest rates imposed
by PNB have to be vacated and declared null and void, and in their place an interest rate of
12% per annum computed from their default is fixed pursuant to the ruling in Eastern Shipping
Lines, Inc. v. Court of Appeals.

Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court,
in Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, already applied Monetary
Board Circular No. 799 by reducing the interest rates allowed in judgments from 12% per
annum to 6% per annum. According to Nacar v. Gallery Frames, MB Circular No. 799 is applied
prospectively, and judgments that became final and executory prior to its effectivity on July 1, 2013
are not to be disturbed but continue to be implemented applying the old legal rate of 12% per
annum. Hence, the old legal rate of 12% per annum applied to judgments becoming final and
executory prior to July 1, 2013, but the new rate of 6% per annum applies to judgments becoming
final and executory after said date.

Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, therefore,
the proper interest rates to be imposed in the present case are as follows:

1. Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per
annum computed from March 28, 2006, the date of the promulgation of the CA decision,

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until June 30, 2013; and 6% per annum computed from July 1, 2013 until finality of this
decision; and

2. The amount to be refunded and its accrued interest shall earn interest of 6% per
annum until full refund.

CONRADO A. LIM vs. HMR PHILIPPINES, INC., TERESA SANTOS-CASTRO, HENRY


BUNAG AND NELSON CAMILLER
G.R. No. 201483, August 04, 2014, J.Mendoza

Lim argues that legal interest in accordance with the case of Eastern Shipping must also be
awarded. The rules on legal interest in Eastern Shipping have, however, been recently modified
by Nacar in accordance with Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) Circular No.
799, which became effective on July 1, 2013. Pertinently, it amended the rate of legal interest in
judgments from 12% to 6% per annum, with the qualification that the new rate be applied
prospectively. Thus, the 12% per annum legal interest in judgments under Eastern Shipping shall
apply only until June 30, 2013, and the new rate of 6% per annum shall be applied from July 1, 2013
onwards.

Facts:

Petitioner Conrado A. Lim filed a case for illegal dismissal and money claims against
respondents, HMR Philippines, Inc. (HMR) and its officers, Teresa G. Santos-Castro, Henry G.
Bunag and Nelson S. Camiller. The Labor Arbiter (LA) dismissed the complaint for lack of merit
but later on the NLRC reversed the LA and declared Lim to have been illegally dismissed. The
dispositive portion of the NLRC decision reads among others that the “HMR is hereby ordered to
pay the complainant-appellant his full backwages, reckoned from his dismissal on February 3, 2001
up to the promulgation of this Decision. The Computation and Research Unit (CRU) of this
Commission is hereby directed to compute the backwages and the 10% annual increase from 1998 to
2000.”

Both Lim and HMR filed their respective petitions for certiorari before the CA which were
consolidated. On November 15, 2005, the CA affirmed the NLRC decision with modification. On
February 7, 2007, the Supreme Court dismissed the petition for certiorarifiled by HMR assailing
the November 15, 2005 CA decision. Entry of judgment was ordered on July 27, 2007.
Subsequently, Lim moved for execution and the Computation and Research Unit (CRU) of the
NLRC computed the total award to amount to P2,020,053.46, which computed the backwages
from February 3, 2001, the date of the illegal dismissal, up to October 31, 2007, the date of actual
reinstatement.

HMR opposed the computation arguing that the backwages should be computed until
April 11, 2003 only, the date of promulgation of the NLRC decision, as stated in the dispositive
portion of the NLRC decision. It also noted that the 10% annual increase was computed from 1998
to 2007, instead of only from 1998 to 2000 as decreed.

Issue:

Whether or not the interest in accordance with Eastern Shipping should be awarded
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Ruling:

No.

Lim argues that legal interest in accordance with the case of Eastern Shipping must also be
awarded, as follows:

1. the unpaid 10% annual increase from 1998 to 2000 shall earn a 6% interest annually
starting 1998 until October 23, 2003 (Entry of Judgment of the April 11, 2003 NLRC
decision); and 12% legal interest per annum thereafter until the same is fully paid; and

2. the backwages, 13th month pay as well as unpaid vacation and sick leaves shall earn a
6% per annum interest starting at the time of petitioner’s illegal dismissal on February 3,
2001 until October 23, 2003; and 12% legal interest per annumt hereafter until the same is
fully paid.

The rules on legal interest in Eastern Shipping have, however, been recently modified
by Nacar in accordance with Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) Circular No.
799, which became effective on July 1, 2013. Pertinently, it amended the rate of legal interest in
judgments from 12% to 6% per annum, with the qualification that the new rate be applied
prospectively. Thus, the 12% per annum legal interest in judgments under Eastern Shipping shall
apply only until June 30, 2013, and the new rate of 6% per annum shall be applied from July 1, 2013
onwards.

Lim also prays that he be awarded interest at a rate of 6% per annum on the amounts
awarded from the time they became legally due him until entry of judgment, presumably under
the second paragraph in Eastern Shipping (which was not modified by Nacar), which states:

When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

It is plain from the above that the interest of 6% per annum for obligations not
constituting a loan or forbearance of money is one that may be imposed at the discretion of the
court. This form of interest is not mandatory but discretionary in nature and therefore, not
necessarily owing to the petitioner in the present case.

ECE REALTY and DEVELOPMENT, INC. vs. HAYDYN HERNANDEZ


G.R. No. 212689, August 6, 2014, J. Reyes

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There is no doubt that ECE incurred in delay in delivering the subject condominium unit, for
which reason the trial court was justified in awarding interest to Hernandez from the filing of his
complaint. There being no stipulation as to interest, under Article 2209 the imposable rate is six
percent (6%) by way of damages. Section 1 of Resolution No. 796 of the Monetary Board of the
Bangko Sentral ng Pilipinas dated May 16, 2013 provides: "The rate of interest for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per annum." Thus, the rate of
interest to be imposed from finality of judgments is now back at six percent (6%), the rate provided
in Article 2209 of the Civil Code.

Facts:

On September 7, 2006, Haydyn Hernandez filed a Complaint for specific performance,


with damages, against Emir Realty and Development Corporation (EMIR) and ECE Realty and
Development Incorporated (ECE) before the Housing and Land Use Regulatory Board Expanded
National Capital Region Field Office (HLURB-Regional Office). Hernandez alleged that ECE and
EMIR, engaged in condominium development and marketing, respectively, sold tohim a 30-
square meter condominium unit in the "Harrison Mansion" described as Unit 808.

In the parties’ Contract to Sell dated November 5, 1997, EMIR and ECE promised that Unit
808 would be ready for occupancy by December 31, 1999. EMIR and ECE failed to deliver Unit 808
to Hernandez on December 31, 1999, by which date he had already paid a total of P452,551.65.

The HLURB-Regional Office ordered EMIR and ECE to reimburse Hernandez the amount
of P452,551.65, plus legal interest, from the filing of the complaint. The HLURB Board of
Commissioners upheld the HLURB-Regional Office but dropped EMIR as defendant. ECE
appealed to the OP, but the OP dismissed ECE’s appeal.

On petition for review to the CA, ECE argued that the OP erred in affirming the rescission
of the parties’ contract to sell and the order to refund Hernandez’s payments with legal interest
from filing of the complaint. ECE pointed out that Hernandez did not ask for rescission and
refund on account of the delay in the delivery of Unit 808, but only for a reduction in the price. It
further argued that interest may be imposed only from finality of judgment.

In upholding the OP, the CA cited Section 23 of Presidential Decree (P.D.) No. 957
(Regulating the Sale of Subdivision Lots and Condominiums, Providing for Penalties for
Violations Thereof). The CA then ruled that under P.D. No. 957, when the owner of the
subdivision or condominium fails to develop the same according to the plan within the period
agreed, the buyer, after notifying the owner, may desist from paying the balance, and may
demand the reimbursement of all that he has paid.

On the imposition of six percent (6%)interest, the appellate court cites Eastern Shipping
Lines, Inc. v. Court of Appeals and in Fil-Estate Properties, Inc. v. Spouses Go, the amount to be
refunded being neither a loan nor a forbearance of money, goods or credit.

Issue:

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Whether or not the rate of interest to be imposed from finality of judgments is now back
at six percent (6%), the rate provided in Article 2209 of the Civil Code

Ruling:

Yes, the rate of twelve percent (12%) per annum from finality of the judgment until
satisfaction has been brought back to six percent (6%).

Article 2209 of the New Civil Code provides that "If the obligation consists in the payment
of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum."

There is no doubt that ECE incurred in delay in delivering the subject condominium unit,
for which reason the trial court was justified in awarding interest to Hernandez from the filing of
his complaint. There being no stipulation as to interest, under Article 2209 the imposable rate is
six percent (6%) by way of damages, following the guidelines laid down in the landmark case of
Eastern Shipping Lines v. Court of Appeals:

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

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the
courtat the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially(Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph
2, above, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.

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Thus, from the finality of the judgment awarding a sum of money until it is satisfied, the
award shall be considered a forbearance of credit, regardless of whether the award in fact
pertained to one.

Pursuant to Central Bank Circular No. 416 issued on July 29, 1974, in the absence of
written stipulation the interest rate to be imposed in judgments involving a forbearance of credit
was twelve percent (12%) per annum, up from six percent (6%) under Article 2209 of the Civil
Code. This was reiterated in Central Bank Circular No. 905, which suspended the effectivity of the
Usury Law beginning on January 1, 1983.

But since July 1, 2013, the rate of twelve percent (12%) per annum from finality of the
judgment until satisfaction has been brought back to six percent (6%).

Section 1 of Resolution No. 796 of the Monetary Board of the BangkoSentral ng Pilipinas
dated May 16, 2013 provides: "The rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of an express contract as to such rate
of interest, shall be six percent (6%) per annum."

Thus, the rate of interest to be imposed from finality of judgments is now back at six
percent (6%), the rate provided in Article 2209 of the Civil Code.

The SC modified the decision of the CA and ordered ECE Realty and Development, Inc. to
pay Haydyn Hernandez P452,551.65 representing the total amount he paid to petitioner ECE
Realty and Development Incorporated, plus six percent (6%) interest per annum from September
7, 2006 until finality hereof by way of actual and compensatory damages. From finality until full
satisfaction, the total amount due now compounded with interest due from September 7, 2006 up
to finality, shall likewise earn interest at six percent (6%) per annum until fully paid.

ANCHOR SAVINGS BANK vs. PINZMAN REALTY AND DEVELOPMENT CORPORATION,


MARYLIN MANALAC AND RENATO GONZALES
G.R. No. 192304, August 13, 2014, J. Villarama Jr.

It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage cannot
be given legal effect. This Court has previously struck down a foreclosure sale where the amount
declared as mortgage indebtedness involved excessive, unreasonable, and unconscionable interest
charges. In no uncertain terms, this Court ruled that a mortgagor cannot be legally compelled to
pay for a grossly inflated loan.In the case at bar, the unlawful interest charge which led to the
amount demandedwill result to the invalidity of the subsequent foreclosure sale.

Facts:

Sometime in December 1997, the Pinzman et al. obtained a loan from the Anchor Savings
Bank in the amount of P3,000,000 secured by a real estate mortgage over parcels of land located
in Cubao, Quezon City which were registered in the name of MarylinMafialac. Mafialac executed
a Promissory Note and Disclosure Statement in favor of the Anchor in the total amount of
P3,308,447.74 which amount already included payment for three months interest. The loan
documents stipulated that the first installment shall be for P148,640 and will be due on December

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26, 1997, the second installment will be for the same amount and shall be due on January 26, 1998,
and the third installment will be for P3,011,167.74 and will be due on February 26, 1998.

The Promissory Note and Disclosure Statement imposed a monthly 5% late payment
charge, 25% attorney’s fees, and 25% liquidated damages in case of unpaid installments on the
part of Mañalac. The proceeds of the loan were released to Mañalac who then issued three checks
for the payment of monthly installments to the Anchor. The first check was for P144,000 and was
for the first installment. The second check in the same amount was for the second installment.
Finally, the third check in the amount of P3,300,000. However, among the three checks, only the
first one was cleared for payment, and the Pinzman et al. incurred an outstanding balance of
P3,012,252.32 which they failed to settle.

Pinzman et al. received a Second Notice of Extrajudicial Sale for the satisfaction of an
obligation, which amounted to P4,577,269.42, excluding penalties, charges, attorney’s fees and
costs of foreclosure. The assailed foreclosure sale was held where the Anchor emerged as the
highest bidder of the disputed properties, and a Certificate of Sale was issued in favor of the
Anchor. Still, Mañalac allegedly tried to settle the loan but was surprised when Anchor issued a
Statement of Account stating that, Pinzman Realty owed the Anchor P12,525,673.44

As Mañalac failed to redeem the properties, ownership of the foreclosed properties was
eventually consolidated in Anchor’s name. Anchor later succeeded in acquiring certificates of title
over the disputed properties. Pinzman et al. filed a Complaint for the Annulment of Extrajudicial
Foreclosure of Mortgaged Properties, Auction Sale, Certificate of Sale and Damages against the
Anchor before the RTC. The Pinzmanprayed for the nullification of the foreclosure sale alleging
that the amount demanded in the Notice of Extrajudicial Sale was exorbitant and excessive. The
RTC dismissed the complaint and found that the Pinzman et al. did not question the compliance
of the Anchor with the procedural requirements for extrajudicial foreclosure. On appeal, the CA
reversed and set aside the court a quo. The CA declared that the loan agreement as embodied in
the Promissory Note and Disclosure Statement failed to stipulate a rate of interest. The CA held
that said rate was excessive, iniquitous, unconscionable and blatantly contrary to law and morals.

Issue:

Whether or not the imposition of usurious interest rates on a loan obligation secured by a
real estate mortgage will result in the invalidity of the subsequent foreclosure sale of the mortgage

Ruling:

No, the usurious interest will result to the invalidity of the foreclosure sale.

It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage cannot
be given legal effect. This Court has previously struck down a foreclosure sale where the amount
declared as mortgage indebtedness involved excessive, unreasonable, and unconscionable
interestcharges. In no uncertain terms, this Court ruled that a mortgagor cannot be legally
compelled to pay for a grossly inflated loan.

Recently this Court affirmed the above doctrinal pronouncements as we also nullified a
foreclosure proceeding where the amount demanded as outstanding loanwas clearly overstated
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due to exorbitant interest rates. In the case at bar, the unlawful interest charge which led to the
demand for P4,577,269.42 as stated in the Notice of Extrajudicial Sale resulted in the invalidity of
the subsequent foreclosure sale held on June 1, 1999.Pinzman et al. cannot beobliged to pay an
inflated or overstated mortgage indebtedness on account of excessive interest charges without
offending the basic tenetsof due process and equity.

The argument of Anchor that defects in the Notice of Sale cannot affect the validity of the
foreclosure sale cannot be given credence. In relying on a long litany of cases, Anchor failed to
realize that the issue in those cases was the validity of the Notice of Sale per se. Meanwhile, in the
present case, the issue is the validity of the foreclosure sale in view of the presence of usurious
interest charges.

ROLANDO C. DE LA PAZ vs. L & J DEVELOPMENT COMPANY


G.R. No. 183360, September 8, 2014, J. Del Castillo

When a person granted an unsecured loan without a maturity date in favor of a corporation
and its president and general manager (who is a lawyer) without reducing the loan transaction in
writing, the creditor cannot enforce payment of 6% monthly interest. The payments of the debtor to
the creditor must be considered as payment of the principal amount of the loan because Article 1956
was not complied with. In addition, even if the interest was in writing, it cannot be collected because
it is unconscionable.

Facts:

Petitioner Rolando De La Paz lent P 350,000.00 without any security to respondent L & J
Development Company (L & J), with Atty. Salonga as its president and general manager. Ronaldo
had never known Atty. Salonga prior to the transaction, and lent him the money when he learned
from his associate that Atty. Salonga and L&J needed money to finish their projects. The loan,
with no specified maturity date, carried a 6% monthly interest, upon the suggestion of Atty.
Salonga. The loan transaction was also not reduced into writing. From December 2000 to August
2003, L&J paid interest to Rolando. When L&J failed to pay despite repeated demands, Rolando
filed a complaint for collection of sum of money with damages.

L&J and Atty. Salonga claimed that they failed to pay the debt due to financial difficulties,
and that Rolando cannot enforce the 6% monthly interest for being unconscionable andshocking
to the morals. Hence, the payments already made should be applied tothe P350,000.00 principal
loan.

The MeTCupheld the 6% monthlyinterest. In so ruling, it ratiocinated that since L&J


agreed thereto and voluntarilypaid the interest at such rate from 2000 to 2003, it is already
estopped fromimpugning the same. Nonetheless, for reasons of equity, the said court reduced
theinterest rate to 12% per annum on the remaining principal obligation ofP350,000.00. The RTC
affirmed the MeTC, but the CA reversed the RTC. The parties failed to stipulate in writing the
impositionof interest on the loan. Hence, no interest shall be due thereon pursuant to Article1956
of the Civil Code. And even if payment of interest has been stipulated inwriting, the 6% monthly
interest is still outrightly illegal and unconscionablebecause it is contrary to morals, if not against
the law. Being void, this cannot beratified and may be set up by the debtor as defense. For these
reasons, Rolandocannot collect any interest even if L&J offered to pay interest.
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Issue:

Was the 6% monthly interest valid?

Ruling:

The petition is denied.

The lack of a written stipulation to payinterest on the loaned amount disallowsa


creditor from charging monetaryinterest.

Here, it is undisputed that the parties did not put down in writing theiragreement. Thus,
no interest is due. The collection of interest without anystipulation in writing is prohibited by
law.

But Rolando asserts that his situation deserves an exception to theapplication of Article
1956. He blames Atty. Salonga for the lack of a writtendocument, claiming that said lawyer used
his legal knowledge to dupe him.Rolando thus imputes bad faith on the part of L&J and Atty.
Salonga. The Court,however, finds no deception on the part of L&J and Atty. Salonga. For
one,despite the lack of a document stipulating the payment of interest, L&Jnevertheless devotedly
paid interests on the loan. It only stopped when it sufferedfrom financial difficulties that
prevented it from continuously paying the 6%monthly rate. For another, regardless of Atty.
Salonga’s profession, Rolando whois an architect and an educated man himself could have been a
more reasonablyprudent person under the circumstances. To top it all, he admitted that he had
noprior communication with Atty. Salonga. Despite Atty. Salonga being a completestranger, he
immediately trusted him and lent his company P350,000.00, asignificant amount. Moreover, as
the creditor, he could have requested or requiredthat all the terms and conditions of the loan
agreement, which include the payment of interest, be put down in writing to ensure that he and
L&J are on thesame page. Rolando had a choice of not acceding and to insist that their contractbe
put in written form as this will favor and safeguard him as a lender.Unfortunately, he did not. It
must be stressed that “[c]ourts cannot follow oneevery step of his life and extricate him from bad
bargains, protect him fromunwise investments, relieve him from one-sided contracts, or annul the
effects offoolish acts. Courts cannot constitute themselves guardians of persons who are not
legally incompetent.”

It may be raised that L&J is estopped from questioning the interest rateconsidering that it
has been paying Rolando interest at such rate for more than twoand a half years. In fact, in its
pleadings before the MeTC and the RTC, L&Jmerely prayed for the reduction of interest from 6%
monthly to 1% monthly or12% per annum. However, in Ching v. Nicdao, the daily payments of the
debtorto the lender were considered as payment of the principal amount of the loanbecause
Article 1956 was not complied with. This was notwithstanding thedebtor’s admission that the
payments made were for the interests due. The Courtcategorically stated therein that estoppel
cannot give validity to an act that isprohibited by law or one that is against public policy.

Even if the payment of interest has beenreduced in writing, a 6% monthlyinterest


rate on a loan is unconscionable,regardless of who between the partiesproposed the rate.

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Time and again, it has been ruled in a plethora of cases that stipulatedinterest rates of 3%
per month and higher, are excessive, iniquitous,unconscionable and exorbitant. Such stipulations
are void for being contrary tomorals, if not against the law. The Court, however, stresses that
these rates shallbe invalidated and shall be reduced only in cases where the terms of the loans
areopen-ended, and where the interest rates are applied for an indefinite period.Hence, the
imposition of a specific sum of P40,000.00 a month for six months ona P1,000,000.00 loan is not
considered unconscionable.30 In the case at bench,there is no specified period as to the payment
of the loan. Hence, levying 6%monthly or 72% interest per annum is “definitely outrageous and
inordinate.

The situation that it was the debtor who insisted on the interest rate will notexempt
Rolando from a ruling that the rate is void. As this Court cited in AsianCathay Finance and
Leasing Corporation v. Gravador, the imposition of anunconscionable rate of interest on a money
debt, even if knowingly andvoluntarily assumed, is immoral and unjust. It is tantamount to a
repugnantspoliation and an iniquitous deprivation of property, repulsive to the commonsense of
man.Indeed, voluntariness does not make the stipulation on an unconscionable interest valid.

As exhaustibly discussed, no monetary interest is due Rolando pursuant toArticle 1956.


The CA thus correctly adjudged that the excess interest paymentsmade by L&J should be applied
to its principal loan. As computed by the CA,Rolando is bound to return the excess payment of
P226,000.00 to L&J followingthe principle of solutioindebiti.

However, pursuant to Central Bank Circular No. 799 s. 2013 which tookeffect on July 1,
2013, the interest imposed by the CA must be accordinglymodified. The P226,000.00 which
Rolando is ordered to pay L&J shall earn aninterest of 6% per annum from the finality of this
Decision.

SUN LIFE OF CANADA (PHILIPPINES), INC. vs. SANDRA TAN KIT and The Estate of the
Deceased NORBERTO TAN KIT
G.R. No. 183272, October 15, 2014, J.Del Castillo

Monetary interest refers to the compensation set by the parties for the use or forbearance of
money.” No such interest shall be due unless it has been expressly stipulated in writing. “On the
other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or
by the courts.This being the case and judging from the tenor of the CA, there can be no other
conclusion than that the interest imposed by the appellate-court is in the nature of compensatory
interest.

Facts:

Sandra Tan Kit (Tan Kit) is the widow and designated beneficiary of Norbeto Tan Kit
(Norberto), whose application for a life insurance policy, with face value of P300,000.00, was
granted by Sun Life on October 28, 1999. On February 19,2001, or within the two-year
contestability period, Norberto died of disseminated gastric carcinoma. Consequently, Tan Kit
filed a claim under the subject policy.

In a Letter dated September 3, 2001, Sun Life of Canada (Philippines), Inc. (Sun Life)
denied TanKit’s claim on account of Norberto’s failure to fully and faithfully disclose in his
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insurance application certain material and relevant information about his health and smoking
history. Specifically, Norberto answered “No” to the question inquiring whether he had smoked
cigarettes or cigars within the last 12 months prior to filling out said application. However, the
medical report of Dr. Anna Chua (Dr. Chua), one of the several physicians that Norberto
consulted for his illness, reveals that he was a smoker and had only stopped smoking in
August1999. According to Sun Life, its underwriters would not have approved Norberto’s
application for life insurance had they been given the correct information. Believing that the
policy is null and void, Sun Life opined that its liability is limited to the refund of all the
premiums paid. Accordingly, it enclosed n the said letter a check for P13,080.93 representing the
premium refund.

In a letter dated September 13, 2001, Tan Kit refused to accept the check and insisted on
the payment of the insurance proceeds.

On October 4, 2002, Sun Life filed a Complaint for Rescission of Insurance Contract before
the Regional Trial Court (RTC) of Makati City.

The RTC ruled in favor of Tan Kit because the RTC opined that the affidavit of Dr. Chua,
presented as part of Sun Life’s evidence and which confirmed the fact that the insured was a
smoker and only stopped smoking a year ago [1999], is hearsay since Dr. Chua did not testify in
court. Further, since Norberto had a subsisting insurance policy with Sun Life during his
application for insurance subject of this case, it was incumbent upon Sun Life to ascertain the
health condition of Norberto considering the additional burden that it was assuming. Lastly, Sun
Life did not comply with the requirements for rescission of insurance contract.

On appeal, the CA reversed and set aside the RTC’s ruling in its Decision dated October 17,
2007.From the records, the CA found that prior to his death, Norberto had consulted two
physicians, Dr. Chua on August 19, 2000, and Dr. John Ledesma(Dr. Ledesma) on December 28,
2000, to whom he confided that he had stopped smoking only in 1999. At the time therefore that
he applied for insurance policy on October 28, 1999, there is no truth to his claim that he did not
smoke cigarettes within 12 months prior to the said application. The CA thus held that Norberto
isguilty of concealment which misled Sun Life in forming its estimates of the risks of the
insurance policy. This gave Sun Life the right to rescind the insurance contract which it properly
exercised in this case.

Accordingly, Sun Life is ordered to reimburse Tan Kit the sumof P13,080.93 representing
the premium paid by the insured with interest at the rate of 12% per annum from the time of the
death of the insured until fully paid.

Issue:

Whether Sun Life is liable to pay interest on the premium to be refunded to Tan Kit

Ruling:

No. Sun Life is not liable to pay compensatory interest.

There are two kinds of interest – monetary and compensatory.


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“Monetary interest refers to the compensation set by the parties for the use or forbearance
of money.” No such interest shall be due unless it has been expressly stipulated in writing. “On
the other hand, compensatory interest refers to the penalty or indemnity for damages imposed by
law or by the courts.” The interest mentioned in Articles 2209 and 2212 of the Civil Code applies to
compensatory interest.

Clearly and contrary to Tan Kit’s assertion, the interest imposed by the CA is not
monetary interest because aside from the fact that there is no use or forbearance of money
involved in this case, the subject interest was not one which was agreed upon by the parties in
writing. This being the case and judging from the tenor of the CA, there can be no other
conclusion than that the interest imposed by the appellate-court is in the nature of compensatory
interest.

In this case, it is undisputed that simultaneous to its giving of notice to Tan Kit that it was
rescinding the policy due to concealment, Sun Life tendered the refund of premium by attaching
to the said notice a check representing the amount of refund. However, Tan Kit refused to accept
the same since they were seeking for the release of the proceeds of the policy. Because of this
discord, Sun Life filed for judicial rescission of the contract. Sun Life, after receiving an adverse
judgment from the RTC, appealed to the CA. And as may be recalled, the appellate court found
Norberto guilty of concealment and thus upheld the rescission of the insurance contract and
consequently decreed the obligation of Sun Life to return to Tan Kit the premium paid by
Norberto. Moreover, we find that Sun Life did not incur delay or unjustifiably deny the claim.

Based on the foregoing, we find that Sun Life properly complied with its obligation under
the law and contract. Hence, it should not be made liable to pay compensatory interest.

SPOUSES TAGUMPAY N. ALBOS AND AIDA C. ALBOS vs. SPOUSES NESTOR M. EMBISAN
AND ILUMINADA A. EMBISAN, DEPUTY SHERIFF MARINO V. CACHERO, AND THE
REGISTER OF DEEDS OF QUEZON CITY
G.R. No. 210831, November 26, 2014, J. Velasco Jr.

The compounding of interest should be in writing. Article 1956 of the New Civil Code, which
refers to monetary interest provides that No interest shall be due unless it has been expressly
stipulated in writing. As mandated by the foregoing provision, payment of monetary interest shall be
due only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement
for such payment was reduced in writing.

The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust.

In the case at bar, it is undisputed that the parties have agreed for the loan to earn 5%
monthly interest, the stipulation to that effect put in writing. When the petitioners defaulted, the
period for payment was extended, carrying over the terms of the original loan agreement, including
the 5% simple interest. However, by the third extension of the loan, respondent spouses decided to
alter the agreement by changing the manner of earning interest rate, compounding it beginning June
1986. This is apparent from the Statement of Account prepared by the spouses Embisan themselves.
Thus, Spouses Embisan, having imposed, unilaterally at that, the compounded interest rate, had the
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correlative duty of clarifying and reducing in writing how the said interest shall be earned. Having
failed to do so, the silence of the agreement on the manner of earning interest is a valid argument for
prohibiting them from charging interest at a compounded rate.

Facts:

Spouses Tagumpay Albos and Aida Albos (spouses Albos) entered into an agreement,
denominated as “Loan with Real Estate Mortgage,” with respondent spouses Nestor and Iluminada
Embisan (spouses Embisan) in the amount of P84,000.00 payable within 90 days with a monthly
interest rate of 5%. To secure the indebtedness, petitioners mortgaged to the spouses Embisan a
parcel of land in Project 3, Quezon City, measuring around 207.6 square meters and registered
under their name, as evidenced by TCT No. 257697.

For failure to settle their account upon maturity, Aida Albos requested and was given an
extension of eleven months, or until December 17, 1985, within which to pay the loan obligation.
However, spouses Albos once again defaulted and another extension of five (5) months, or until
May 17, 1986, was set.

May 17, 1986 came and went but the obligation remained unpaid. Thus, when the spouses
Albos requested a third extension, as will later be alleged by the spouses Embisan, an additional
eight (8) months was granted on the condition that the monthly 5% interest from then on, i.e.
June 1986 onwards, will be compounded. This stipulation, however, was not reduced in writing.

On February 9, 1987, respondent spouses addressed a letter to petitioners demanding the


payment of P234,021.90, representing the unpaid balance and interests from the loan. This was
followed by another letter of the same tenor, but this time demanding from the petitioners the
obligation due amounting to P258,009.15.

Obviously in a bid to prevent the foreclosure of their mortgaged property, petitioners paid
respondent spouses the sum of P44,500.00 on October 2, 1987. The spouses Embisan accepted the
partial payment of the principal loan amount owed to them, which, based on the Statement of
Account the spouses Embisan prepared, by that time, has already ballooned to P296,658.70.

Due to spouses Albos’ failure to settle their indebtedness, spouses Embisan proceeded to
extra-judicially foreclose the mortgaged property. Spouses Embisan were the highest bidders and
were later issued a Sheriff’s Certificate of Sale. The property was never redeemed, and so the
spouses Embisan executed an Affidavit of Consolidation over the property.

Spouses Albos filed a complaint for the annulment of the Loan with Real Estate Mortgage,
Certificate of Sale, Affidavit of Consolidation, Deed of Final Sale, and Contract of Lease before the
Regional Trial Court of Quezon City (RTC).RTC dismissed the complaint for lack of merit.

On appeal, Spouses Albos argued that the imposition by the respondent spouses of a 5%
compounded interest on the loan, without the petitioners’ consent or knowledge, is fraudulent
and contrary to public morals. While spouses Embisan insisted that the compounding of the
interest was agreed upon as a condition for the third and final extension of time given for the
petitioners to make good their promise to pay.

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CA held that inasmuch as the request for the third extension–for another eight months––
was made after the expiration of one year and four months from when the payment first became
due, the agreement to compound the interest was just and reasonable

Issues:

1. Whether or not there is no documentary proof to show that the petitioners agreed in writing
to the imposition of the 5% compounded monthly interest, contrary to Article 1956 of the Civil
Code

2. Whether or not the 5% compounded monthly interest unilaterally imposed by Spouses


Embisan on the petitioners is excessive, exorbitant, oppressive, iniquitous and
unconscionable, therefore, the same is void for being contrary to law and morals

3. Whether or not the extra-judicial foreclosure proceedings should be nullified for being based
on an allegedly erroneous computation of the loan’s interest.

Ruling:

The petition is meritorious.

1. The compounding of interest should be in writing.

Article 1956 of the New Civil Code, which refers to monetary interest, provides:

Article 1956. No interest shall be due unless it has been expressly


stipulated in writing.
As mandated by the foregoing provision, payment of monetary interest
shall be due only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for such payment was reduced in writing.

Thus, the Court has held that collection of interest without any stipulation thereof in
writing is prohibited by law.In the case at bar, it is undisputed that the parties have agreed for
the loan to earn 5% monthly interest,the stipulation to that effect put in writing. When the
petitioners defaulted, the period for payment was extended, carrying over the terms of the
original loan agreement, including the 5% simple interest. However, by the third extension of
the loan, respondent spouses decided to alter the agreement by changing the manner of
earning interest rate, compounding it beginning June 1986. This is apparent from the
Statement of Account prepared by the spouses Embisan themselves.

Given the circumstances, the Court rules that the first requirement––that there be an
express stipulation for the payment of interest––is not sufficiently complied with, for purposes
of imposing compounded interest on the loan. The requirement does not only entail reducing
in writing the interest rate to be earned but also the manner of earning the same, if it is to be
compounded. Failure to specify the manner of earning interest, however, shall not
automatically render the stipulation imposing the interest rate void since it is readily apparent
from the contract itself that the parties herein agreed for the loan to bear interest. Instead, in
default of any stipulation on the manner of earning interest, simple interest shall accrue.
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Settled is the rule that ambiguities in a contract are interpreted against the party that
caused the ambiguity. Any ambiguity in a contract whose terms are susceptible of different
interpretations must be read against the party who drafted it. In the extant case, Spouses
Embisan, having imposed, unilaterally at that, the compounded interest rate, had the
correlative duty of clarifying and reducing in writing how the said interest shall be earned.
Having failed to do so, the silence of the agreement on the manner of earning interest is a
valid argument for prohibiting them from charging interest at a compounded rate.

2. Imposing 5% monthly interest, whether compounded or simple, is unconscionable.

Nevertheless, even if there was such an agreement that interest will be compounded, the
Court agrees with the petitioners that the 5% monthly rate, be it simple or compounded,
written or verbal, is void for being too exorbitant, thus running afoul of Article 1306 of the
New Civil Code, which provides:

Article 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.

As case law instructs, the imposition of an unconscionable rate of interest on a money


debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the common
sense of man. It has no support in law, in principles of justice, or in the human conscience nor
is there any reason whatsoever which may justify such imposition as righteous and as one that
may be sustained within the sphere of public or private morals

3. The foreclosure sale should be nullified.

In view of the above disquisitions, the Court is constrained to nullify the foreclosure
proceedings with respect to the mortgaged property in this case, following the doctrine
in Heirs of Zoilo and Primitiva Espiritu v. Landrito.In Heirs of Espiritu, the spouses Maximo
and Paz Landrito, sometime in 1986, borrowed from the spouses Zoilo and Primitiva Espiritu
the amount of P350,000.00, secured by a real estate mortgage. Because of the Landritos’
continued inability to pay the loan, the due date for payment was extended on the condition
that the interest that has already accrued shall, from then on, form part of the principal. As
such, after the third extension, the principal amounted to P874,125.00 in only two years.
Despite the extensions, however, the debt remained unpaid, prompting the spouses Espiritu
to foreclose the mortgaged property.

The foreclosure proceeding in Heirs of Espiritu, however, was eventually nullified by this
Court because the Landritos were deprived of the opportunity to settle the debt, in view of the
overstated amount demanded from them. As held by the Court, since the Spouses Landrito,
the debtors in this case, were not given an opportunity to settle their debt, at the correct
amount and without the iniquitous interest imposed, no foreclosure proceedings may be
instituted. A judgment ordering a foreclosure sale is conditioned upon a finding on the
correct amount of the unpaid obligation and the failure of the debtor to pay the said amount.
In this case, it has not yet been shown that the Spouses Landrito had already failed to pay the
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correct amount of the debt and, therefore, a foreclosure sale cannot be conducted in order to
answer for the unpaid debt.

As a result, the subsequent registration of the foreclosure sale cannot transfer any rights over
the mortgaged property to the Spouses Espiritu. The registration of the foreclosure sale,
herein declared invalid, cannot vest title over the mortgaged property.

Applying Espiritu, the extra-judicial foreclosure of the mortgaged property dated October
12, 1987 is declared null, void, and of no legal effect.

CONTRACT OF LOAN

MARIANO LIM vs. SECURITY BANK CORPORATION


G.R. No. 188539. March 12, 2014
J. Peralta

Where a debtor obtained a loan six months after the execution of a Continuing Suretyship,
such obligation of the debtor is still covered by such Continuing Suretyship. This is further bolstered
when the contract clearly states that the surety is liable for all credit accommodations extended to
the debtor, both present and future obligations.

Hence, there is no shadow of doubt that petitioner Lim is liable for the principal of the loan,
together with the interest and penalties due thereon, even if said loan was obtained by the principal
debtor even after the date of execution of the Continuing Suretyship.

Facts:

Petitioner executed a Continuing Suretyship in favor of respondent to secure “any and all types of
credit accommodation that may be granted by the bank hereinto and hereinafter” in favor of Raul
Arroyo.

The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner received a
Notice of Final Demand informing him that he was liable to pay the loan obtained by Raul and
Edwina Arroyo, including the interests and penalty fees, and demanding payment thereof. For
failure of petitioner to comply with said demand, respondent filed a complaint for collection of
sum of money against him and the Arroyo spouses. Since the Arroyo spouses can no longer be
located, summons was not served on them, hence, only petitioner actively participated in the
case.

After trial, the Regional Trial Court of Davao (RTC) rendered judgment against petitioner
ordering him to pay the following sums:

• The principal sum of two million pesos plus nineteen percent interest of the outstanding
principal interest due and unpaid to be computed from January 28, 1997 until fully paid,
plus two percent interest per month as penalty to be computed from February 28, 1997
until fully paid.

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• Four hundred thousand pesos as attorney's fees.

• Thirty thousand pesos as litigation expenses.Petitioner appealed to the CA, but the appellate
court affirmed the RTC decision.

Petitioner, thus, elevated the matter to the Supreme Court via a petition for review on certiorari.

Issue:

Whether petitioner may validly be held liable for the principal debtor's loan obtained six months
after the execution of the Continuing Suretyship

Ruling:

The nature of a suretyship is elucidated in Philippine Charter Insurance Corporation v. Petroleum


Distributors & Service Corporation in this wise:

A contract of suretyship is an agreement whereby a party, called the surety,


guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of another party, called the obligee. Although
the contract of a surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or
personal interest over the obligations nor does it receive any benefit therefrom.

This was explained in the case of Stronghold Insurance Company, Inc. v. Republic-Asahi Glass
Corporation, where it was written:

The surety's obligation is not an original and direct one for the performance of his
own act, but merely accessory or collateral to the obligation contracted by the
principal. Nevertheless, although the contract of a surety is in essence
secondary only to a valid principal obligation, his liability to the creditor or
promisee of the principal is said to be direct, primary and absolute; in other
words, he is directly and equally bound with the principal.

xxxx

Thus, suretyship arises upon the solidary binding of a person deemed the
surety with the principal debtor for the purpose of fulfilling an obligation. A surety
is considered in law as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter, and their
liabilities are interwoven as to be inseparable. x x x.

The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking
Corporation in this wise:

Comprehensive or continuing surety agreements are, in fact, quite commonplace in


present day financial and commercial practice. A bank or financing company
which anticipates entering into a series of credit transactions with a
particular company, normally requires the projected principal debtor to
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execute a continuing surety agreement along with its sureties. By executing


such an agreement, the principal places itself in a position to enter into the
projected series of transactions with its creditor; with such suretyship
agreement, there would be no need to execute a separate surety contract or
bond for each financing or credit accommodation extended to the principal
debtor.

The terms of the Continuing Suretyship executed by petitioner are very clear. It states that
petitioner, as surety, shall, without need for any notice, demand or any other act or deed,
immediately become liable and shall pay “all credit accommodations extended by the Bank to
the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or
novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to
the Bank, as appears in the accounts, books and records of the Bank, whether direct or
indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights,
powers and remedies under the Credit Instruments as defined hereinbelow.” Such stipulations are
valid and legal and constitute the law between the parties, as Article 2053 of the Civil Code
provides that “[a] guaranty may also be given as security for future debts, the amount of which is
not yet known; x x x.” Thus, petitioner is unequivocally bound by the terms of the Continuing
Suretyship. There can be no cavil then that petitioner is liable for the principal of the loan,
together with the interest and penalties due thereon, even if said loan was obtained by the
principal debtor even after the date of execution of the Continuing Suretyship.

PHILIPPINE NATIONAL BANK vs. SPOUSES EDUARDO AND MA. ROSARIO TAJONERA
AND EDUAROSA REALTY DEVELOPMENT, INC.
G.R. No. 195889, September 24, 2014, J. Mendoza

The agreement between PNB and [Spouses Tajonera] was one of a loan. Under the law, a
loan requires the delivery of money or any other consumable object by one party to another who
acquires ownership thereof, on the condition that the same amount or quality shall be paid. Loan is
a reciprocal obligation, as it arises from the same cause where one party is the creditor, and the
other the debtor. The obligation of one party in a reciprocal obligation is dependent upon the
obligation of the other, and the performance should ideally be simultaneous. This means that in a
loan, the creditor should release the full loan amount and the debtor repays it when it becomes due
and demandable.

PNB, not having released the balance of the last loan proceeds in accordance with the 3rd
Amendment had no right to demand from [Spouses Tajonera’s] compliance with their own
obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform its
obligation, the other party cannot be obliged to perform what is expected of them while the other's
obligation remains unfulfilled.

Facts:

Respondent Eduarosa Realty (or ERDI) was engaged in realty construction and sale of
condominium buildings. In addition to her capacity as Vice President, Mrs. Tajonera performed
the duties of marketing director of ERDI, which includes dealing with banks, suppliers and
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contractors. ERDI, through Rosario, obtained loans from Petitioner PNB and entered into several
credit agreements to finance the completion of the construction of its 20-storey project in Roxas
Boulevard, Paranaque City.

Pursuant to the Credit Agreement, PNB extended to ERDI the amount of PhP60,000,
000.00, which was secured by a REM consisting of three (3) parcels of land with an aggregate area
of 1,352 square meters situated in Roxas Boulevard, Paranaque City. In addition, the loan was
secured by the assignment of proceeds of contract receivables arising from the sale of
condominium units to be constructed on the mortgaged Paranaque properties.

Thereafter, the Credit Agreement was amended and/or extended thrice by the parties. For
the 1st amendment, PNB gave an additional loan of PhP40,000,000.00 while it received from ERDI
another security in the form of the conjugal property of Spouses Tajonera in Greenhills. For the 3rd
amendment, an additional loan of PhP55,000,000.00 was released to ERDI.

On September 30, 1994, ERDI’s liabilities with PNB already ballooned to PhP211,935,
067.40.9. Consequently, PNB sought the foreclosure of the Greenhills property and eventually the
property was not redeemed by ERDI, thus, paving the way for the former to consolidate its title
over the same.

Spouses Tajonera then filed a complaint against PNB for annulment of sale, cancellation of
title, cancellation of mortgage, and damages before the RTC. They alleged, among others, that the
mortgage obligation had been novated and the foreclosure proceedings were defective. In
response, PNB asserts the other way around as the obligations of Spouses Tajonera remained
subsisting and considering also that they were able to fully utilize the credit extended to them.

The RTC annulled the mortgage contract constituted over the Greenhills property on the
ground of breach of contract on the part of PNB by violating the credit agreements. The CA for its
part denied the appeal of PNB and upheld the decision of the RTC with modification as to the
deletion of the award of moral and exemplary damages.

Issue:

Whether or not the annulment of the mortgage contract constituted over the Greenhills
property is proper under the circumstances of this case.

Ruling:

YES, the annulment of the contract is warranted by PNB’s violations of its undertakings
stated on the main contract.

PNB contends that the Supplement to the REM was supported by sufficient and valuable
consideration because the loan proceeds secured by it under the 3rd Amendment had been
substantially released to [Spouses Tajonera]. Contrary to the findings of the courts below, PNB
insists that there was no breach, substantial or otherwise, of its contractual obligation when it did
not release the remaining balance of the approved loan to the respondents considering that the
latter had no history of any payment either on interest or principal of the loan.

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The agreement between PNB and [Spouses Tajonera] was one of a loan. Under the law, a
loan requires the delivery of money or any other consumable object by one party to another who
acquires ownership thereof, on the condition that the same amount or quality shall be paid. Loan
is a reciprocal obligation, as it arises from the same cause where one party is the creditor, and the
other the debtor. The obligation of one party in a reciprocal obligation is dependent upon the
obligation of the other, and the performance should ideally be simultaneous. This means that in a
loan, the creditor should release the full loan amount and the debtor repays it when it becomes
due and demandable.

PNB, not having released the balance of the last loan proceeds in accordance with the 3rd
Amendment had no right to demand from [Spouses Tajonera’s] compliance with their own
obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform
its obligation, the other party cannot be obliged to perform what is expected of them while the
other's obligation remains unfulfilled.

When PNB and the respondents entered into the 1st, 2nd and 3rd Amendments …, they
undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other; and when one party has performed or is ready and
willing to perform his part of the contract, the other party who has not performed or is not ready
and willing to perform incurs in delay. The promise of the respondents to pay was the
consideration for the obligation of PNB to furnish the PhP40,000,000.00 additional loan under
the 1st Amendment as well as the PhP55,000,000.00 the second additional loan under the 3rd
Amendment. When the respondents executed the Supplement to REM covering their Greenhills
property, they signified their willingness to pay the additional loans. It should be noted, as
correctly found by the CA, that the Supplement to REM was constituted not only as security for
the execution of the 1st Amendment but also in consideration of the 2nd and 3rd Amendments.

The obligation of PNB was to furnish the PhP55,000,000.00 additional loan accrued on
November 3, 1993, the date the parties entered into the 3rd Amendment. Thus, PNB’s delay in
furnishing the entire additional loan started from the said date. Considering that PNB refused to
release the total amount of the additional loan granted to ERDI under the 3rd Amendment
amounting to PhP39,503,088.84, the CA was correct in affirming the RTC’s conclusion that there
was no sufficient valuable consideration in the execution of the Supplement to REM.

Equally without merit is PNB’s reliance on the case of Sps. Omengan v. PNB. The said case
finds no application inasmuch as the circumstances in that case are not in all fours with the
present case. In Omengan case, there was no actual meeting of the minds with respect to the
conditionally approved additional loan as the condition attached to the increase in borrowers’
credit line was not acknowledged and accepted by them. Hence, there being no perfected
contract over the increase in credit line, it was held that no breach of contract could be attributed
to PNB in not releasing the additional loan. In the present case, there was a perfected contract in
so far as the 3rd Amendment was concerned. Thus, PNB’s action in not releasing the entire
amount of the additional loan was not justified.

Still in the said case, at the time the original loan was approved, the title to the property
offered as collateral appeared to pertain exclusively to Spouses Omengan. By the time the
application for increase was considered, PNB had acquired information that the said property,
although in the name of spouses petitioners was owned in co-ownership. The Court justified
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PNB’s act of withholding the release of the additional loan because it already had reason to
suspect the spouses’ claim of exclusive ownership over the mortgaged collateral. In this case,
[Spouses Tajonera] were unquestionably the exclusive owners of the mortgaged property
(Greenhills property) at the time the initial and the additional loans were approved.

PHILIPPINE NATIONAL BANK vs. SPOUSES EDUARDO AND MA. ROSARIO TAJONERA
and EDUAROSA REALTY DEVELOPMENT, INC.
G.R. No. 195889, September 24, 2014, J. Mendoza

A loan requires the delivery of money or any other consumable object by one party to
another who acquires ownership thereof, on the condition that the same amount orquality shall be
paid. Loan is a reciprocal obligation, as it arises from the same causewhere one party is the creditor,
and the other the debtor. The obligation of one party in a reciprocal obligation is dependent upon
the obligation of the other, and the performance should ideally be simultaneous. This means that in
a loan, the creditor should release the full loan amountand the debtor repays it when it becomes due
and demandable.

Facts:

Respondent Eduarosa Realty Development, Inc. (ERDI) was engaged in realty construction
and sale of condominium buildings while Rosario is the Vice-President or ERDI. ERDI, through
Rosario, obtained loans from petitioner Philippine National Bank (PNB)and entered into several
credit agreements to finance the completion of the construction of their 20-storey Eduarosa
Tower Condominium. Pursuant to the Credit Agreement, the principal amount of loan extended
by PNB to ERDI was P60,000,000.00. As security for the initial loan, ERDI executed the Real
Estate Mortgage (REM) consisting of 3 parcels of land covered by TCT Nos. 38845, 38846 and
38847 registered in the name of ERDI (Paranaque properties).In addition, the loan was secured by
the assignment of proceeds of contract receivables arising from the sale of condominium units to
be constructed on the mortgaged Paranaque properties.

On January 31, 1992, ERDI executed an amendment to the Credit Agreementand obtained
an additional loan of PP40,000,000.00. As additional security to the increased amounts of loan,
the respondent spouses’ lot situated in Greenhills, San Juan, Metro Manila (Greenhills property)
was mortgaged in favor of PNB. A Second Amendment to Credit Agreementwas executed by the
parties to extend the repayment dates of the loan and the additional loan subject to the terms set
forth in the said agreement. A Third Amendment to the Credit Agreement was entered into by
the parties wherein PNB granted an additional loan of PP55,000,000.00 to ERDI, subject to several
conditions stated in the said agreement. ERDI’s outstanding loan obligation with PNB amounted
to P211,935,067.40. ERDI failed to settle its obligation. As a consequence, PNB filed an application
for foreclosure of the Greenhills property. As the highest bidder, PNB was issued the Certificate of
Sale. Upon ERDI’s failure to redeem the property, PNB consolidated its title and caused the
cancellation of TCT No. 29733.A new title was issued in the name of PNB.

Respondents filed a complaint against PNB for annulment of sale, cancellation oftitle,
cancellation of mortgage, and damages before the RTC. Respondents alleged that: the title to the
mortgaged property that was transferred to PNB as a consequence of the foreclosure proceedings
was null and void as their mortgage obligation had been novated and no new loans were released
to them, in violation of the provisions of the Supplement to REM; the foreclosure proceedings
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were defective due to PNB’s failure to send personal notice to the respondent spouses; PNB’s
delay in the release of loan proceeds under the credit agreements caused the non-completion of
the condominium project; and the properties mortgaged under the original mortgage contract
covering the respondents’ condominium titles should now be discharged, as the property of the
respondent spouses had already been foreclosed.In its Answer with Counterclaim, PNB denied the
respondents’ allegations and raised the following defenses: 1) the mortgage contract was
supported by valuable consideration a sthe loan proceeds under the credit agreements were fully
released to them; 2) there was no novation of the contract; 3) demand letters were given to and
duly received by the respondents; and 4) the sufficiency of the mortgage over the condominium
titles cannot be determined because the court has no jurisdiction over such issue.

The RTC annulled the mortgage contract constituted over the Greenhills property on the
ground of breach of contract on the part of PNB by violating the credit agreements. The CA
agreed with the RTC ruling. There was, according to the CA, breach of contract on the part of
PNB that warranted the annulment and cancellation of the Supplement to REM covering the
Greenhills property. Further, the CA rejected PNB’s claim that its refusal to release the balance of
the last loan was due to the respondents’ failure to comply with the undertaking of bringing new
investors with additional collaterals to secure the additional loan as such requirement was not
categorically stated in the terms of the credit agreement. Also, such claim was belied by PNB’s
own witness who testified that the reason for its refusal to release was simply the respondents’
failure to settle their amortization. Hence, this appeal.PNB insists that there was no breach,
substantial or otherwise, of its contractual obligation when it did not release the remaining
balance of the approved loan to the respondents considering that the latter had no history of any
payment either on interest or principal of the loan.

Issue:

Whether the CA erred in annulling the mortgage contract constituted over the Greenhills
property of the respondents.

Ruling:

The agreement between PNB and the respondents was one of a loan.PNB, not having
released the balance of the last loan proceeds in accordance with the Third Amendment had no
right to demand from the respondents compliance with their own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other
party cannot be obliged to perform what is expected of them while the other's obligation remains
unfulfilled.

When PNB and the respondents entered into the First, Second and Third they undertook
reciprocal obligations.The promise of the respondents to pay was the consideration for the
obligation of PNB to furnish the P40,000,000.00 additional loan under the First Amendment as
well as theP55,000,000.00 the second additional loan under the Third Amendment. When the
respondents executed the Supplement to REM covering their Greenhills property, they signified
their willingness to pay the additional loans. The Supplement to REM was constituted not only as
security for the execution of the First Amendment but also in consideration of the Second and
Third Amendments.

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The obligation of PNB was to furnish the P55,000,000.00 additional loan accrued on
November 3, 1993, the date the parties entered into the Third Amendment. Thus, PNB’s delay in
furnishing the entire additional loan started from the said date.Considering that PNB refused to
release the total amount of the additional loan granted to ERDI under the Third Amendment
amounting to P39,503,088.84, the CA was correct in affirming the RTC’s conclusion that there was
no sufficient valuable consideration in the execution of the Supplement to REM.Undoubtedly,
PNB breached its contractual obligation when it failed to release to Appellees the remaining
balance. The petition is DENIED.

CHECKS

NEIL B. AGUILAR AND RUBEN CALIMBAS vs. LIGHTBRINGERS CREDIT COOPERATIVE


G.R. No. 209605, January 12, 2015, J. Mendoza

The Court holds that there was indeed a contract of loan between the petitioners and
respondent. The signatures of the petitioners were present on both the PNB checks and the cash
disbursement vouchers. The checks were also made payable to the order of the petitioners. The
Court pointed out that a check functions more than a promissory note since it not only contains an
undertaking to pay an amount of money but is an "order addressed to a bank and partakes of a
representation that the drawer has funds on deposit against which the check is drawn, sufficient to
ensure payment upon its presentation to the bank."

Facts:

This case stemmed from the three (3) complaints for sum of money separately filed by
respondent Lightbringers Credit Cooperative against petitioners Aguilar and Calimbas, and one
Perlita Tantiangco. The complaints alleged that Tantiangco, Aguilar and Calimbas were members
of the cooperative who borrowed the following funds:

1. In Civil Case No. 1428, Tantiangco allegedly borrowed P206,315.71 as evidenced by Cash
Disbursement Voucher No. 4010 but the net loan was only P45,862.00 as supported by
PNB Check No. 0000005133.
2. In Civil Case No. 1429, petitioner Calimbas allegedly borrowed P202,800.18 as evidenced
by Cash Disbursement Voucher No. 3962 but the net loan was only P60,024.00 as
supported by PNB Check No. 0000005088;
3. In Civil Case No. 1430, petitioner Aguilar allegedly borrowed P126,849.00 as evidenced by
Cash Disbursement Voucher No. 3902 but the net loan was only P76,152.00 as supported
by PNB Check No. 0000005026;

In their answers, Petitioners claimed that the discrepancy between the principal amount of
the loan evidenced by the cash disbursement voucher and the net amount of loan reflected in the
PNB checks showed that they never borrowed the amounts being collected. They also asserted
that no interest could be claimed because there was no written agreement as to its imposition.

On the scheduled pre-trial conference, only Lightbringers Credit Cooperative and its
counsel appeared. The MCTC then allowed Lightbringers to present evidence ex parte. It
presented Fernando Manalili, its incumbent General Manager, as its sole witness. In his
testimony, Manalili explained that the discrepancy between the amounts of the loan reflected in
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the checks and those in the cash disbursement vouchers were due to the accumulated interests
from previous outstanding obligations, withheld share capital, as well as the service and
miscellaneous fees.

The MCTC dismissed the complaint against Tantiangco because there was no showing
that she received the amount being claimed. Moreover, the PNB check was made payable to
“cash” and was encashed by a certain Violeta Aguilar. There was, however, no evidence that she
gave the proceeds to Tantiangco. Further, the dates indicated in the cash disbursement voucher
and the PNB check varied from each other and suggested that the voucher could refer to a
different loan.

The MCTC however, found both Calimbas and Aguilar liable to respondent for their
respective debts. The PNB checks issued to the petitioners proved the existence of the loan
transactions. Their receipts of the loan were proven by their signatures appearing on the dorsal
portions of the checks as well as on the cash disbursement vouchers. As a matter of practice,
banks would allow the encashment of checks only by the named payee and subject to the
presentation of proper identification. Nonetheless, the MCTC ruled that only the amount shown
in the PNB check must be awarded because respondent failed to present its bookkeeper to justify
the higher amounts being claimed. The RTC affirmed the MCTC decisions. The CA dismissed the
petition on the ground that it was formally defective.

Issue:

Whether or not there was a contract of loan between Lightbringers and the petitioners

Ruling:

Yes. The Court holds that there was indeed a contract of loan between the petitioners and
respondent. The Court agrees with the findings of fact of the MCTC and the RTC that a check was
a sufficient evidence of a loan transaction. The findings of fact of the trial court, its calibration of
the testimonies of the witnesses and its assessment of the probative weight thereof, as well as its
conclusions anchored on the findings are accorded high respect, if not conclusive effect.

The case of Pua v. Spouses Lo Bun Tiong discussed the weight of a check as an evidence of
a loan:

In Pacheco v. Court of Appeals, this Court has expressly recognized that a check constitutes
an evidence of indebtedness and is a veritable proof of an obligation. Hence, it can be used in lieu
of and for the same purpose as a promissory note. In fact, in the seminal case of Lozano v.
Martinez, We pointed out that a check functions more than a promissory note since it not only
contains an undertaking to pay an amount of money but is an "order addressed to a bank and
partakes of a representation that the drawer has funds on deposit against which the check is
drawn, sufficient to ensure payment upon its presentation to the bank." This Court reiterated this
rule in the relatively recent Lim v. Mindanao Wines and Liquour Galleria stating that a check, the
entries of which are in writing, could prove a loan transaction.

There is no dispute that the signatures of the petitioners were present on both the PNB
checks and the cash disbursement vouchers. The checks were also made payable to the order of
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the petitioners. Hence, respondent can properly demand that they pay the amounts borrowed. If
the petitioners believe that there is some other bogus scheme afoot, then they must institute a
separate action against the responsible personalities. Otherwise, the Court can only rule on the
evidence on record in the case at bench, applying the appropriate laws and jurisprudence.

MORTGAGE

EQUITABLE MORTGAGE

SPS. FELIPE SOLITARIOS and JULIA TORDA vs. SPS. GASTON JAQUE and LILIA JAQUE
G.R. No. 199852, November 12, 2014, J. Velasco, Jr.

A transaction is deemed to be an equitable mortgage, not an absolute sale, when a party


have remained in possession of the subject property and exercised acts of ownership over the lot
even after the purported absolute sale and it could be gleaned from the intention of the parties that
the transaction is intended secure the payment of a debt.

Facts:

In a Complaint for Ownership and Recovery of Possession with the RTC of Calbayog City,
the respondents spouses Jaque alleged that they purchased Lot 4089 from the petitioners, spouses
Solitarios in stages. According to respondents, they initially bought one-half of the said lot. This
sale is allegedly evidenced by a notarized Deed of Sale. Two months later, the spouses Solitarios
supposedly mortgaged the remaining half of the lot to the Jaques via a Real Estate Mortgage
(REM), to secure a loan.

After almost two (2) years, the spouses Solitarios finally agreed to sell the mortgaged half.
However, instead of executing a separate deed of sale for the second half, they executed a Deed of
Sale for the whole lot to save on taxes, by making it appear that the consideration for the sale of
the entire lot was only P12,000.00 when the Jaques actually paid P19,000.00 in cash and condoned
the spouses Solitarios’ P3,000.00 loan. On the basis of this second notarized deed, the Jaques had
OCT No. 1249 cancelled and registered Lot 4089 in their name under Transfer Certificate of Title
(TCT) No. 745.

In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios, allowed
the latter to retain possession of Lot 4089, subject only to the condition that the spouses
Solitarios will regularly deliver a portion of the property’s produce. In an alleged breach of their
agreement, however, the spouses Solitarios stopped delivering any produce sometime in 2000.
Worse, the spouses Solitarios even claimed ownership over Lot 4089. Thus, the Jaques filed the
adverted complaint with the RTC.

For their part, the spouses Solitarios denied selling Lot 4089 and explained that they
merely mortgaged the same to the Jaques after the latter helped them redeem the land from the
Philippine National Bank (PNB).

On April 15, 2004, the RTC rendered a Decision upholding the validity of the deeds of sale
in question and TCT No. 745, rejecting the allegations of forgery and fraud. On appeal, the

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CA reversed and set aside the RTC Decision, rejecting the trial court’s holding that the contract
between the parties constituted an equitable mortgage.

Issue:

Whether or not the parties effectively entered into a contract of absolute sale or
anequitable mortgage of Lot 4089.

Ruling:

It is a contract of equitable mortgage.

There is no single conclusive test to determine whether a deed of sale, absolute on its face,
is really a simple loan accommodation secured by a mortgage. However, Article 1602 in relation to
Article 1604 of the Civil Code enumerates several instances when a contract, purporting to be, and
in fact styled as, an absolute sale, is presumed to be an equitable mortgage, thus:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:

(2) When the vendor remains in possession as lessee or otherwise;

With the foregoing in mind, the Court thus declares that the transaction between the
parties of the present case is actually one of equitable mortgage pursuant to the foregoing
provisions of the Civil Code. It has never denied by respondents that the petitioners, the spouses
Solitarios, have remained in possession of the subject property and exercised acts of ownership
over the said lot even after the purported absolute sale of Lot 4089.

During the period material to the present controversy, the petitioners, spouses Solitarios,
retained actual possession of the property. This was never disputed. If the transaction had really
been one of sale, as the Jaques claim, they should have asserted their rights for the immediate
delivery and possession of the lot instead of allowing the spouses Solitarios to freely stay in the
premises for almost seventeen (17) years from the time of the purported sale until their filing
ofthe complaint. Human conduct and experience reveal that an actual owner of a productive land
will not allow the passage of a long period of time, as in this case, without asserting his rights of
ownership.

Furthermore, the fact that defendants’ witness Leonora Solitarios [Felipe’s sister] resides
and has a house in the land in question without having been disturbed by the plaintiffs and the
fact that the plaintiffs never have a tenant in the land even if they reside in Cebu City also show in
some manner that they are not really the owners of the land, but the defendants.

Aside from remaining in possession of the subject property, it can also be gleaned from
the circumstances of the case that the intention of the parties was for the transaction to secure
the payment of a debt.

To stress, Article 1602(6) of the Civil Code provides that a transaction is presumed to be an
equitable mortgage:
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(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance of
any other obligation.

This provision may very well be applied in this case. There is sufficient basis to indulge in
the presumption that the transaction between the parties was that of an equitable mortgage and
that the spouses Solitarios never wanted to sell the same to the Jaques.

The Jaques extended two loans to the spouses Solitarios, who in exchange, offered to the
former the subject property, not to transfer ownership thereto, but to merely secure the payment
of their debts. This may be deduced from the testimonies of both Felipe Solitarios and Gaston
Jaque, revealing the fact that they agreed upon terms for the payment of the loans, in particular,
the sharing in the produce of the lot.

Verily, the fact that the parties agreed on payment terms is inconsistent with the claim of
the Jaques that when the spouses Solitarios executed the questioned deeds of sale they had no
other intention but to transfer ownership over the subject property. Thus, there is ground to
presume that the transaction between the parties was an equitable mortgage and not a sale. There
is nothing in the records sufficient enough to overturn this presumption.

Finally, the Court cannot allow the transfer of ownership o f Lot 4098 to the Jaques as it
would amount to condoning the prohibited practice of pactum comissorium. Article 2088 of the
Civil Code clearly provides that a creditor cannot appropriate or consolidate ownership over a
mortgaged property merely upon failure of the mortgagor to pay a debt obligation.

Indeed, all the circumstances, taken together, are familiar badges of an equitable
mortgage. Private respondents could not in a pactum commissorium fashion appropriate the
disputed property for themselves as they appeared to have done; otherwise, their act will not be
countenanced by this Court being contrary to goodmorals and public policy hence void. If they
wish to secure a perfect title over the mortgaged property, they should do so in accordance with
law, i.e., by foreclosing the mortgage and buying the property in the auction sale.
It does not appear, under the premises, that the Jaques availed themselves of the remedy
of foreclosure, or that they bought the subject property in an auction sale after the spouses
Solitarios failed to pay their debt obligation. What seems clear is that the Jaques took advantage
of the spouses Solitarios’ intellectual and educational deficiency and urgent need of money and
made it appear that the latter executed in their favor the questioned Deeds of Sale, thereby
automatically appropriating unto themselves the subject property upon their debtors’ default.

Further, it can be gleaned from the testimony of Gaston Jaque that when the spouses
Solitarios failed to pay their loan of P3,000.00, reflected in the July 15, 1981 REM covering the
remaining half of the subject property, the Jaques did not foreclose the mortgage and purchase
the said lot in an auction sale. Rather, they supposedly bought the lot directly from the spouses
Solitarios and offset the loan amount against a portion of the supposed purchase price they
agreed upon.

Indubitably, the subject property was transferred to the Jaques in a prohibited pactum
commisorium manner and, therefore, void. Thus, the foregoing transaction and the registration of
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the deeds of sale, by virtue of which the Jaques were able to obtain the impugned TCT No. 745
must be declared void.

OSCAR S. VILLARTA. vs. GAUDIOSO TALAVERA, JR.


G.R. No. 208021, February 3, 2016, J. Carpio

Facts:

Appellant Oscar Villarta filed the complaint a quo for reformation of contracts, moral
damages, and attorney’s fees against appellee Gaudioso Talavera, Jr. He alleged: he owned four
parcels of land, all situated in Santiago City viz: that he obtained several loans from appellee who
was a distant relative; that appellee employed insidious words and machinations in convincing
him to execute a deed of absolute sale over the proerties; however, the real agreement was that
the lot would only serve as security for the several loans he obtained; Later, appellee took
advantage of the caused the cancellation of TCT T-214950, by utilizing the deed of absolute
sale, contrary to their real agreement that the property should only serve as collateral; the Deeds
of Absolute Sale dated March 1995 and May 18, 2001 were in reality an equitable mortgage; the
P500,000.00 consideration for the Deed of Absolute Sale dated May 18, 2001 was grossly
inadequate because the actual market value of the subject land was P5,900,000.00;. on the other
hand, the appellee argued that there could be no equitable mortgage over TCT T-214950 for the
same was never made a collateral for the loan; there could also be no equitable mortgage over
TCT T-130095 for though it was true that the same initially served as security, the
arrangement was novated when appellant offered the lot as payment.

Issue:

Whether there is an equitable mortgage.

Ruling:

There is no equitable mortgage in this case.

The relevant provisions of the Civil Code read:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in


any of the following cases:

(1) When the price of a sale with right to repurchase is unusually


inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention
of the parties is that the transaction shall secure the payment of a debt or
the performance of any other obligation.
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In any of the foregoing cases, any money, fruits, or other benefit to be


received by the vendee as rent or otherwise shall be considered as interest
which shall be subject to the usury laws.

Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale.

Respondent was able to sufficiently explain why the presumption of an equitable


mortgage does not apply in the present case. The inadequacy of the purchase price in the
two deeds of sale was supported by an Affidavit of True Consideration of the Absolute Sale of
the Property. Respondent did not tolerate petitioner’s possession of the lots. Respondent caused
the registration and subsequent transfer of Titles in his name, and paid taxes thereon. There were
no extensions of time for the payment of petitioner’s loans; rather, petitioner offered different
modes of payment for his loans. It was only after three instances of bounced checks that
petitioner offered the Titles as payment for his loans and executed deeds of sale in respondent’s
favor. The transaction between petitioner and respondent is thus not an equitable
mortgage, but is instead a dacion en pago.

Dacion en pago is the delivery and transmission of ownership of a thing by the debtor
to the creditor as an accepted equivalent of the performance of an existing obligation. It is a
special mode of payment where the debtor offers another thing to the creditor who accepts it as
equivalent to the payment of an outstanding debt. For dacion en pago to exist, the following
elements must concur: (a) existence of a money obligation; (b) the alienation to the
creditor of a property by the debtor with the consent of the former; and ( c) satisfaction
of the money obligation of the debtor.

OSCAR S. VILLARTA. vs. GAUDIOSO TALAVERA, JR.


G.R. No. 208021, February 3, 2016, J. Carpio

Facts:

Appellant Oscar Villarta filed the complaint a quo for reformation of contracts, moral
damages, and attorney’s fees against appellee Gaudioso Talavera, Jr. He alleged: he owned four
parcels of land, all situated in Santiago City viz: that he obtained several loans from appellee who
was a distant relative; that appellee employed insidious words and machinations in convincing
him to execute a deed of absolute sale over the proerties; however, the real agreement was that
the lot would only serve as security for the several loans he obtained; Later, appellee took
advantage of the caused the cancellation of TCT T-214950, by utilizing the deed of absolute
sale, contrary to their real agreement that the property should only serve as collateral; the Deeds
of Absolute Sale dated March 1995 and May 18, 2001 were in reality an equitable mortgage; the
P500,000.00 consideration for the Deed of Absolute Sale dated May 18, 2001 was grossly
inadequate because the actual market value of the subject land was P5,900,000.00;. on the other
hand, the appellee argued that there could be no equitable mortgage over TCT T-214950 for the
same was never made a collateral for the loan; there could also be no equitable mortgage over

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TCT T-130095 for though it was true that the same initially served as security, the
arrangement was novated when appellant offered the lot as payment.

Issue:

Whether there is an equitable mortgage.

Ruling:

There is no equitable mortgage in this case.

The relevant provisions of the Civil Code read:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in


any of the following cases:

(1) When the price of a sale with right to repurchase is unusually


inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention
of the parties is that the transaction shall secure the payment of a debt or
the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be


received by the vendee as rent or otherwise shall be considered as interest
which shall be subject to the usury laws.

Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale.

Respondent was able to sufficiently explain why the presumption of an equitable


mortgage does not apply in the present case. The inadequacy of the purchase price in the
two deeds of sale was supported by an Affidavit of True Consideration of the Absolute Sale of
the Property. Respondent did not tolerate petitioner’s possession of the lots. Respondent caused
the registration and subsequent transfer of Titles in his name, and paid taxes thereon. There were
no extensions of time for the payment of petitioner’s loans; rather, petitioner offered different
modes of payment for his loans. It was only after three instances of bounced checks that
petitioner offered the Titles as payment for his loans and executed deeds of sale in respondent’s

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favor. The transaction between petitioner and respondent is thus not an equitable
mortgage, but is instead a dacion en pago.

Dacion en pago is the delivery and transmission of ownership of a thing by the debtor
to the creditor as an accepted equivalent of the performance of an existing obligation. It is a
special mode of payment where the debtor offers another thing to the creditor who accepts it as
equivalent to the payment of an outstanding debt. For dacion en pago to exist, the following
elements must concur: (a) existence of a money obligation; (b) the alienation to the
creditor of a property by the debtor with the consent of the former; and ( c) satisfaction
of the money obligation of the debtor.

REAL ESTATE MORTGAGE

DEVELOPMENT BANK OF THE PHILIPPINES vs. GUARIÑA AGRICULTURAL AND REALTY


DEVELOPMENT CORPORATION
G.R. NO. 160758. January 15, 2014
J. Bersamin

Loans are often secured by a mortgage. However, a mortgage contract is an accessory


contract, dependent upon the fulfillment or non-fulfillment of the principal contract, which is the
contract of loan. The mortgage contract cannot be enforced unless the obligation in the contract of
loan is due and demandable but left unpaid.

Although it is true that the contract may dictate the order of how the creditor and debtor
will fulfill their reciprocal obligations, it is presumed that the creditor will release the full amount of
loan before he can demand payment from the debtor thereof. Thus, the loan of Guariña Corporation
becomes due and demandable only after DBP has released the full amount of the said loan.

Facts:

Guariña Corporation applied for a loan from DBP to finance the development of its resort
complex situated in Trapiche, Oton, Iloilo. The loan and Guariña Corporation executed a
promissory note. Guariña Corporation executed a real estate mortgage over several real properties
in favor of DBP as well as a chattel mortgage over the personal properties existing at the resort
complex and those yet to be acquired out of the proceeds of the loan to secure the performance of
the obligation. Prior to the release of the loan, DBP required Guariña Corporation to put up a cash
equity of P1,470,951.00 for the construction of the buildings and other improvements on the resort
complex.

The loan was released in several instalments, and Guariña Corporation used the proceeds to
defray the cost of additional improvements in the resort complex. Guariña Corporation demanded
the release of the balance of the loan, but DBP refused. Instead, DBP directly paid some suppliers
of Guariña Corporation over the latter’s objection. DBP found upon inspection of the resort
project, its developments and improvements that Guariña Corporation had not completed the
construction works. DBP thus demanded that Guariña Corporation expedite the completion of
the project, and warned that it would initiate foreclosure proceedings should Guariña
Corporation not do so
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Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated extrajudicial
foreclosure proceedings. A notice of foreclosure sale was sent to Guariña Corporation. Thereafter,
DBP applied for the issuance of a writ of possession by the RTC. At first, the RTC denied the
application but later granted it upon DBP’s motion for reconsideration.

The RTC ruled that the extra-judicial sales of the mortgaged properties. The CA affirmed said
decision. Hence, this petition.

Issue:

Whether the foreclosure sales of the mortgaged properties were valid

Ruling:

The agreement between DBP and Guariña Corporation was a loan. Under the law, a loan requires
the delivery of money or any other consumable object by one party to another who acquires
ownership thereof, on the condition that the same amount or quality shall be paid. Loan is a
reciprocal obligation, as it arises from the same cause where one party is the creditor, and the
other the debtor. The obligation of one party in a reciprocal obligation is dependent upon the
obligation of the other, and the performance should ideally be simultaneous. This means that in a
loan, the creditor should release the full loan amount and the debtor repays it when it becomes
due and demandable.

By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on
Guariña Corporation the latter’s compliance with its own obligation under the loan. Indeed, if a
party in a reciprocal contract like a loan does not perform its obligation, the other party cannot be
obliged to perform what is expected of it while the other’s obligation remains unfulfilled. In other
words, the latter party does not incur delay.

Still, DBP called upon Guariña Corporation to make good on the construction works pursuant to
the acceleration clause written in the mortgage contract (i.e., Stipulation No. 26), or else it would
foreclose the mortgages.

DBP’s actuations were legally unfounded. It is true that loans are often secured by a mortgage
constituted on real or personal property to protect the creditor’s interest in case of the default of
the debtor. By its nature, however, a mortgage remains an accessory contract dependent on the
principal obligation, such that enforcement of the mortgage contract will depend on whether or
not there has been a violation of the principal obligation. While a creditor and a debtor could
regulate the order in which they should comply with their reciprocal obligations, it is
presupposed that in a loan the lender should perform its obligation – the release of the full loan
amount – before it could demand that the borrower repay the loaned amount. In other words,
Guariña Corporation would not incur in delay before DBP fully performed its reciprocal
obligation.

Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an
effective demand for payment upon Guariña Corporation to perform its obligation under the loan.
According to Development Bank of the Philippines v. Licuanan, it would only be when a demand to
pay had been made and was subsequently refused that a borrower could be considered in default,

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and the lender could obtain the right to collect the debt or to foreclose the mortgage. Hence,
Guariña Corporation would not be in default without the demand.

Under the circumstances, DBP’s foreclosure of the mortgage and the sale of the mortgaged
properties at its instance were premature, and, therefore, void and ineffectual.

Being a banking institution, DBP owed it to Guariña Corporation to exercise the highest degree of
diligence, as well as to observe the high standards of integrity and performance in all its
transactions because its business was imbued with public interest. The high standards were also
necessary to ensure public confidence in the banking system, for, according to Philippine National
Bank v. Pike: “The stability of banks largely depends on the confidence of the people in the
honesty and efficiency of banks.” Thus, DBP had to act with great care in applying the stipulations
of its agreement with Guariña Corporation, lest it erodes such public confidence. Yet, DBP failed
in its duty to exercise the highest degree of diligence by prematurely foreclosing the mortgages
and unwarrantedly causing the foreclosure sale of the mortgaged properties despite Guariña
Corporation not being yet in default. DBP wrongly relied on Stipulation No. 26 as its basis to
accelerate the obligation of Guariña Corporation, for the stipulation was relevant to an Omnibus
Agricultural Loan, to Guariña Corporation’s loan which was intended for a project other than
agricultural in nature.

PHILIPPINE NATIONAL BANK vs. TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC.,
(NOW PRIME EAST PROPERTIES, INC.) AND AFP-RSBS, INC.
G.R. No. 182128. February 19, 2014
J. Reyes

Petitioner is not obliged to perform any of the undertaking of respondent PEPI and AFP-
RSBS in its transactions with Dee under the contract to sell because it is not a privy thereto.
However, it is asked to respect the rights of the buyer Dee.

In a contract to sell, the seller retains ownership of the subject property. Thus, the seller may
still enter into a valid contract of mortgage. However, when the contract to sell ripens to an absolute
contract of sale, the mortgagor and mortgagee must respect the rights of the buyer over the subject
property. Such buyer is not privy to the contract between the mortgagor and mortgagee; hence, the
buyer can make the necessary actions to protect her rights over the property. Despite the apparent
validity of the mortgage between the petitioner and PEPI, the former is still bound to respect the
transactions between respondents PEPI and Dee.

Facts:

Respondent Teresita Tan Dee (Dee) bought from respondent Prime East Properties Inc. (PEPI) on
an installment basis a residential lot located in Binangonan, Rizal. Subsequently, PEPI assigned its
rights over a 213,093-sq m property to respondent Armed Forces of the Philippines-Retirement
and Separation Benefits System, Inc. (AFP-RSBS), which included the property purchased by Dee.

PEPI obtained a loan from petitioner Philippine National Bank (petitioner), secured by a
mortgage over several properties, including Dee’s property.

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After Dee’s full payment of the purchase price, a deed of sale was executed by respondents PEPI
and AFP-RSBS on July 1998 in Dee’s favor. Consequently, Dee sought from the petitioner the
delivery of the owner’s duplicate title over the property, to no avail. Thus, she filed with the
HLURB a complaint for specific performance to compel delivery of TCT No. 619608 by the
petitioner, PEPI and AFP-RSBS, among others. The HLURB ruled in favor of Dee.

The HLURB decision was affirmed by its Board of Commissioners. On appeal, the Board of
Commissioners’ decision was affirmed by the OP. Hence, the petitioner filed a petition for review
with the CA, which affirmed the OP decision.

Issue:

Whether Dee is bound by the contract of mortgage between PNB and AFP-RSBS

Ruling:

The petitioner is correct in arguing that it is not obliged to perform any of the undertaking
of respondent PEPI and AFP-RSBS in its transactions with Dee because it is not a privy thereto.
The basic principle of relativity of contracts is that contracts can only bind the parties who
entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract
and has acted with knowledge thereof.

The petitioner, however, is not being tasked to undertake the obligations of PEPI and
AFP-RSBS. In this case, there are two phases involved in the transactions between respondents
PEPI and Dee – the first phase is the contract to sell, which eventually became the second phase,
the absolute sale, after Dee’s full payment of the purchase price. In a contract of sale, the parties’
obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to
deliver the thing that is the object of sale. On the other hand, the principal obligation of a vendee
is to pay the full purchase price at the agreed time. Based on the final contract of sale between
them, the obligation of PEPI, as owners and vendors of Lot 12, Block 21-A, Village East Executive
Homes, is to transfer the ownership of and to deliver Lot 12, Block 21-A to Dee, who, in turn, shall
pay, and has in fact paid, the full purchase price of the property. There is nothing in the decision
of the HLURB, as affirmed by the OP and the CA, which shows that the petitioner is being
ordered to assume the obligation of any of the respondents. There is also nothing in the HLURB
decision, which validates the petitioner’s claim that the mortgage has been nullified. The order of
cancellation/release of the mortgage is simply a consequence of Dee’s full payment of the
purchase price, as mandated by Section 25 of P.D. No. 957, to wit:

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or
unit to the buyer upon full payment of the lot or unit. No fee, except those required
for the registration of the deed of sale in the Registry of Deeds, shall be collected for
the issuance of such title. In the event a mortgage over the lot or unit is outstanding at
the time of the issuance of the title to the buyer, the owner or developer shall redeem
the mortgage or the corresponding portion thereof within six months from such
issuance in order that the title over any fully paid lot or unit may be secured and
delivered to the buyer in accordance herewith.

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It must be stressed that the mortgage contract between PEPI and the petitioner is merely an
accessory contract to the principal three-year loan takeout from the petitioner by PEPI for its
expansion project. It need not be belaboured that “[a] mortgage is an accessory undertaking to
secure the fulfillment of a principal obligation,” and it does not affect the ownership of the
property as it is nothing more than a lien thereon serving as security for a debt.

Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract
between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the
purchase price of the property. On this point, PEPI was acting fully well within its right when it
mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the
seller and is not to pass until full payment of the purchase price. In other words, at the time of the
mortgage, PEPI was still the owner of the property. Moreover, the mortgage bore the clearance of
the HLURB, in compliance with Section 18 of P.D. No. 957, which provides that “[n]o mortgage on
any unit or lot shall be made by the owner or developer without prior written approval of the
[HLURB].”

Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the
former is still bound to respect the transactions between respondents PEPI and Dee. The
petitioner was well aware that the properties mortgaged by PEPI were also the subject of existing
contracts to sell with other buyers. While it may be that the petitioner is protected by Act No.
3135, as amended, it cannot claim any superior right as against the installment buyers. This is
because the contract between the respondents is protected by P.D. No. 957, a social justice
measure enacted primarily to protect innocent lot buyers. Thus, in Luzon Development Bank v.
Enriquez, the Court reiterated the rule that a bank dealing with a property that is already subject
of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to
sell.

NICANORA G. BUCTON (DECEASED), SUBSTITUTED BY REQUILDA B. YRAY, PETITIONER,


VS. RURAL BANK OF EL SALVADOR, INC., MISAMIS ORIENTAL, AND REYNALDO
CUYONG vs. ERLINDA CONCEPCION AND HER HUSBAND AND AGNES BUCTON
LUGOD
G.R. No. 179625. February 24, 2014
J. Del Castillo

In a contract executed by an agent for a principal, the contract must upon its face purport to
be made, signed and sealed in the name of the principal. When the Real Estate Mortgage, explicitly
shows on its face, that it was signed by Concepcion, the agent, in her own name and in her own
personal capacity, and without indicating that he is signing for and in behalf of his principal, the
mortgage is only binding upon her, the agent, and not upon the principal.

Facts:

Nicanora G. Bucton filed with the Regional Trial Court (RTC). Petitioner alleged that she is the
owner of a parcel of land, covered by Transfer Certificate of Title (TCT) No. T-3838. She further
alleged that Erlinda Concepcion (Concepcion) borrowed the title on the pretext that she was
going to show it to an interested buyer; that Concepcion obtained a loan in the amount of
P30,000.00 from respondent bank; that Concepcion failed to pay the loan; that petitioner’s house
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and lot were foreclosed by respondent sheriff without a Notice of Extra-Judicial Foreclosure or
Notice of Auction Sale; and that petitioner’s house and lot were sold in an auction sale in favor of
respondent bank.

Respondent bank filed an Answer interposing lack of cause of action as a defense. It denied the
allegation of petitioner that the SPA was forged. It averred that petitioner went to the bank and
promised to settle the loan of Concepcion. By way of cross-claim, respondent bank prayed that in
the event of an adverse judgment against it, Concepcion, its co-defendant, be ordered to
indemnify it for all damages. Since summons could not be served upon Concepcion, petitioner
moved to drop her as a defendant. This prompted the respondent bank to file a Third-Party
Complaint against spouses Concepcion and Agnes Bucton Lugod (Lugod), the daughter of
petitioner. Respondent bank claimed that it would not have granted the loan and accepted the
mortgage were it not for the assurance of Concepcion and Lugod that the SPA was valid. Thus,
respondent bank prayed that in case it be adjudged liable, it should be reimbursed by third-party
defendants.

The RTC issued a Decision sustaining the claim of petitioner that the SPA was forged as the
signatures appearing on the SPA are different from the genuine signatures presented by
petitioner. The CA reversed the findings of the RTC. The CA found no cogent reason to invalidate
the SPA, the Real Estate Mortgage, and Foreclosure Sale as it was not convinced that the SPA was
forged. Petitioner moved for reconsideration but the same was denied.

Hence, this petition.

Issue:

Whether the petitioner is bound by the contract of mortgage between respondent bank and
Concepcion

Ruling:

The Real Estate Mortgage was entered into by Concepcion in her own personal
capacity.

As early as the case of Philippine Sugar Estates Development Co. v. Poizat, the court already ruled
that “in order to bind the principal by a deed executed by an agent, the deed must upon its face
purport to be made, signed and sealed in the name of the principal.” In other words, the mere
fact that the agent was authorized to mortgage the property is not sufficient to bind the principal,
unless the deed was executed and signed by the agent for and on behalf of his principal.

In this case, the authorized agent failed to indicate in the mortgage that she was acting for and on
behalf of her principal. The Real Estate Mortgage, explicitly shows on its face, that it was signed
by Concepcion in her own name and in her own personal capacity. In fact, there is nothing in the
document to show that she was acting or signing as an agent of petitioner. Thus, consistent with
the law on agency and established jurisprudence, petitioner cannot be bound by the acts of
Concepcion.

In light of the foregoing, there is no need to delve on the issues of forgery of the SPA and the
nullity of the foreclosure sale. For even if the SPA was valid, the Real Estate Mortgage would still
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not bind petitioner as it was signed by Concepcion in her personal capacity and not as an agent of
petitioner. Simply put, the Real Estate Mortgage is void and unenforceable against petitioner.

HOMEOWNERS SAVINGS AND LOAN BANK vs. ASUNCION P. FELONIA AND LYDIA C. DE
GUZMAN, REPRESENTED BY MARIBEL FRIAS
MARIE MICHELLE P. DELGADO, REGISTER OF DEEDS OF LAS PIÑAS CITY AND
RHANDOLFO B. AMANSEC, IN HIS CAPACITY AS CLERK OF COURT EX-OFFICIO
SHERIFF, OFFICE OF THE CLERK OF COURT, LAS PIÑAS CITY
G.R. No. 189477. February 26, 2014
J. Perez

Even if on the outset, a party is a mortgagee in good faith, if he subsequently purchases the
property with notice of lis pendens, he cannot claim to have a better right over the said property by
interposing the argument that he is a mortgagee in good faith.

Facts:

Respondents Asuncion Felonia (Felonia) and Lydia de Guzman (De Guzman) were the registered
owners of a parcel of land covered by TCT No. T-402. Felonia and De Guzman mortgaged the
property to Delgado to secure the loan. However, instead of a real estate mortgage, the parties
executed a Deed of Absolute Sale with an Option to Repurchase. Felonia and De Guzman filed an
action for Reformation of Contract (Reformation case) before the RTC. The RTC rendered a
judgment in their favor. Aggrieved, Delgado elevated the case to the CA. The CA affirmed the RTC
decision. Such CA decision eventually became final.

Inspite of the pendency of the Reformation case in which she was the defendant, Delgado filed a
“Petition for Consolidation of Ownership of Property Sold with an Option to Repurchase and
Issuance of a New Certificate of Title” (Consolidation case) in the RTC. After an ex parte hearing,
the RTC ordered the issuance of a new title under Delgado’s name.

By virtue of the RTC decision, Delgado transferred the title to her name. Hence, TCT No. T-402,
registered in the names of Felonia and De Guzman, was canceled and TCT No. 44848 in the name
of Delgado, was issued. Aggrieved, Felonia and De Guzman elevated the case to the CA through a
Petition for Annulment of Judgment.

Meanwhile, Delgado mortgaged the subject property to Homeowners Savings and Loan Bank
(HSLB) using her newly registered title. Three (3) days later HSLB caused the annotation of the
mortgage. Three months after, Felonia and De Guzman caused the annotation of a Notice of Lis
Pendens on Delgado’s title, TCT No. 44848. HSLB foreclosed the subject property and later
consolidated ownership in its favor, causing the issuance of a new title in its name, TCT No.
64668.

The CA rendered a decision in favor of Felonia and De Guzman. The decision of the CA, declaring
Felonia and De Guzman as the absolute owners of the subject property and ordering the
cancellation of Delgado’s title, became final and executor.

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Claiming to be the absolute owners of the subject property, instituted the instant complaint
against Delgado, HSLB, Register of Deeds of Las Piñas City and Rhandolfo B. Amansec before the
RTC of Las Piñas City for Nullity of Mortgage and Foreclosure Sale, Annulment of Titles of
Delgado and HSLB, and finally, Reconveyance of Possession and Ownership of the subject
property in their favor. HSLB asserted that Felonia and De Guzman are barred from laches as they
had slept on their rights to timely annotate, by way of Notice of Lis Pendens, the pendency of the
Reformation case. HSLB also claimed that it should not be bound by the decisions of the CA in
the Reformation and Consolidation cases because it was not a party therein. Finally, HSLB
asserted that it was a mortgagee in good faith because the mortgage between Delgado and HSLB
was annotated on the title on 5 June 1995, whereas the Notice of Lis Pendens was annotated only
on 14 September 1995.

The RTC ruled in favor of Felonia and De Guzman as the absolute owners of the subject property.
The CA affirmed the RTC decision with modification. Hence, this instant petition.

Issue:

Whether HLSB has a better right over the property

Ruling:

The rights of the parties to the present case are defined not by the determination of whether or
not HSLB is a mortgagee in good faith, but of whether or not HSLB is a purchaser in good faith.
And, HSLB is not such a purchaser.

A purchaser in good faith is defined as one who buys a property without notice that some other
person has a right to, or interest in, the property and pays full and fair price at the time of
purchase or before he has notice of the claim or interest of other persons in the property.

When a prospective buyer is faced with facts and circumstances as to arouse his suspicion, he
must take precautionary steps to qualify as a purchaser in good faith.

In the case at bar, HSLB utterly failed to take the necessary precautions. At the time the subject
property was mortgaged, there was yet no annotated Notice of Lis Pendens. However, at the time
HSLB purchased the subject property, the Notice of Lis Pendens was already annotated on the
title.

Lis pendens is a Latin term which literally means, “a pending suit or a pending litigation” while a
notice of lis pendens is an announcement to the whole world that a real property is in litigation,
serving as a warning that anyone who acquires an interest over the property does so at his/her
own risk, or that he/she gambles on the result of the litigation over the property. It is a warning to
prospective buyers to take precautions and investigate the pending litigation.

The purpose of a notice of lis pendens is to protect the rights of the registrant while the case is
pending resolution or decision. With the notice of lis pendens duly recorded and remaining
uncancelled, the registrant could rest secure that he/she will not lose the property or any part
thereof during litigation.

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The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of
which is to keep the subject matter of the litigation within the Court’s jurisdiction until the
judgment or the decree have been entered; otherwise, by successive alienations pending the
litigation, its judgment or decree shall be rendered abortive and impossible of execution.

Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of the
annotated Notice of Lis Pendens. Instead of heeding the same, HSLB continued with the purchase
knowing the legal repercussions a notice of lis pendens entails. HSLB took upon itself the risk that
the Notice of Lis Pendens leads to. As correctly found by the CA, “the notice of lis pendens was
annotated on 14 September 1995, whereas the foreclosure sale, where the appellant was declared
as the highest bidder, took place sometime in 1997. There is no doubt that at the time appellant
purchased the subject property, it was aware of the pending litigation concerning the same
property and thus, the title issued in its favor was subject to the outcome of said litigation.”

The subject of the lis pendens on the title of HSLB’s vendor, Delgado, is the “Reformation case”
filed against Delgado by the herein respondents. The case was decided with finality by the CA in
favor of herein respondents. The contract of sale in favor of Delgado was ordered reformed into a
contract of mortgage. By final decision of the CA, HSLB’s vendor, Delgado, is not the property
owner but only a mortgagee. As it turned out, Delgado could not have constituted a valid
mortgage on the property.

Insofar as the HSLB is concerned, there is no longer any public interest in upholding the
indefeasibility of the certificate of title of its mortgagor, Delgado. Such title has been nullified in a
decision that had become final and executory. Its own title, derived from the foreclosure of
Delgado’s mortgage in its favor, has likewise been nullified in the very same decision that restored
the certificate of title in respondents’ name. There is absolutely no reason that can support the
prayer of HSLB to have its mortgage lien carried over and into the restored certificate of title of
respondents.

MACARIA ARGUELLES AND THE HEIRS OF THE DECEASED PETRONIO ARGUELLES vs.
MALARAYAT RURAL BANK, INC.,
G.R. No. 200468, March 19, 2014
J. Villarama, Jr.

It is incumbent upon the respondent Malarayat Rural Bank to be more cautious in dealing
with the spouses Guia, and inquire further regarding the identity and possible adverse claim of those
in actual possession of the property, especially since the spouses Guia were not the registered
owners of the land being mortgaged. Since the subject land was not mortgaged by the owner thereof
and since the respondent Malarayat Rural Bank is not a mortgagee in good faith, said bank is not
entitled to protection under the law.

Facts:

The late Fermina M. Guia was the registered owner of Lot 3 as evidenced by Original Certificate of
Title (OCT) No. P-12930. Fermina M. Guia sold the south portion of the land to the spouses
Petronio and Macaria Arguelles. Although the spouses Arguelles immediately acquired possession
of the land, the Deed of Sale was neither registered with the Register of Deeds nor annotated on
OCT No. P-12930. At the same time, Fermina M. Guia ordered her son Eddie Guia and the latter’s
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wife Teresita Guia to subdivide the land covered by OCT No. P-12930 into three lots and to apply
for the issuance of separate titles therefor, to wit: Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she
directed the delivery of the Transfer Certificate of Title (TCT) corresponding to Lot 3-C to the
vendees of the unregistered sale or the spouses Arguelles. However, despite their repeated
demands, the spouses Arguelles claimed that they never received the TCT corresponding to Lot 3-
C from the spouses Guia.

The spouses Guia obtained a loan from the respondent Malarayat Rural Bank and secured the
loan with a Deed of Real Estate Mortgage over Lot 3-C. The loan and Real Estate Mortgage were
made pursuant to the Special Power of Attorney purportedly executed by the registered owner of
Lot 3-C, Fermina M. Guia, in favor of the mortgagors, spouses Guia. Moreover, the Real Estate
Mortgage and Special Power of Attorney were duly annotated in the memorandum of
encumbrances of TCT No. T-83944 covering Lot 3-C.

The spouses Arguelles filed a complaint for Annulment of Mortgage and Cancellation of Mortgage
Lien with Damages against the respondent Malarayat Rural Bank with the RTC. In asserting the
nullity of the mortgage lien, the spouses Arguelles alleged ownership over the land that had been
mortgaged in favor of the respondent Malarayat Rural Bank. The respondent Malarayat Rural
Bank filed an Answer with Counterclaim and Cross-claim against cross-claim-defendant spouses
Guia wherein it argued that the failure of the spouses Arguelles to register the Deed of Sale was
fatal to their claim of ownership.

The RTC found that the spouses Guia were no longer the absolute owners of the land described as
Lot 3-C and covered by TCT No. T-83944 at the time they mortgaged the same to the respondent
Malarayat Rural Bank in view of the unregistered sale in favor of the vendee spouses Arguelles.
On appeal, the CA reversed and set aside the decision of the court a quo. Hence, this petition.

Issue:

Whether the respondent Malarayat Rural Bank is a mortgagee in good faith who is entitled to
protection on its mortgage lien

Ruling:

In this case, the court finds that the respondent Malarayat Rural Bank fell short of the required
degree of diligence, prudence, and care in approving the loan application of the spouses Guia.

Respondent should have diligently conducted an investigation of the land offered as


collateral. Although the Report of Inspection and Credit Investigation found at the dorsal portion
of the Application for Agricultural Loan proved that the respondent Malarayat Rural Bank
inspected the land, the respondent turned a blind eye to the finding therein that the “lot is
planted [with] sugarcane with annual yield (crops) in the amount of P15,000.” The court disagrees
with respondent’s stance that the mere planting and harvesting of sugarcane cannot reasonably
trigger suspicion that there is adverse possession over the land offered as mortgage. Indeed, such
fact should have immediately prompted the respondent to conduct further inquiries, especially
since the spouses Guia were not the registered owners of the land being mortgaged. They merely
derived the authority to mortgage the lot from the Special Power of Attorney allegedly executed
by the late Fermina M. Guia. Hence, it was incumbent upon the respondent Malarayat Rural

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Bank to be more cautious in dealing with the spouses Guia, and inquire further regarding the
identity and possible adverse claim of those in actual possession of the property.

Pertinently, in Land Bank of the Philippines v. Poblete, the Supreme Court ruled that “[w]here the
mortgagee acted with haste in granting the mortgage loan and did not ascertain the ownership of
the land being mortgaged, as well as the authority of the supposed agent executing the mortgage,
it cannot be considered an innocent mortgagee.”

Since the subject land was not mortgaged by the owner thereof and since the respondent
Malarayat Rural Bank is not a mortgagee in good faith, said bank is not entitled to protection
under the law. The unregistered sale in favor of the spouses Arguelles must prevail over the
mortgage lien of respondent Malarayat Rural Bank.

PHILIPPINE NATIONAL BANK vs. JOSE GARCIA and CHILDREN et al.


G.R. No. 182839, June 2, 2014, J. Brion

The Amendment of Real Estate Mortgage constituted by Jose Sr. over the entire property
without his co-owners' consent is not necessarily void in its entirety. The right of the PNB as
mortgagee is limited though only to the portion which may be allotted to Jose Sr. in the event of a
division and liquidation of the subject property. Registration of a property alone in the name of one
spouse does not destroy its conjugal nature. What is material is the time when the property was
acquired.

Facts:

The subject of the case is a parcel of residential land with all its improvements located in
Barrio Olango, Mallig, Isabela. The land is covered by TCT No. T-44422 under the name of Jose
Garcia Sr. who acquired the subject property during his marriage with Ligaya Garcia.Ligaya died
on January 21, 1987.The marriage of Jose Sr. and Ligaya produced the following children: Nora,
Jose Jr., Bobby and Jimmy, all surnamed Garcia, who are the respondents in the present case.In
1989, the spouses Rogelio and Celedonia Garcia obtained a loan facility from the Philippine
National Bankfor P150,000.00. The loan was secured by a Real Estate Mortgage over their property
covered by TCT No. 177585. The spouses Garcia increased their loan to P220,000.00 and
eventually to P600,000.00. As security for the increased loan, they offered their property covered
by TCT No. 75324 and the subject property covered by TCT No. T-44422.

Jose Sr. agreed to accommodate the spouses Garcia by offering the subject property as
additional collateral security for the latter’s increased loan. Jose Sr. executed Special Powers of
Attorney, expressly authorizing the Spouses Garcia to apply for, borrow, or secure any loan from
PNB, and to convey and transfer the subject property by way of mortgage. Jose Sr. also executed
an Amendment of Real Estate Mortgage in favor of the PNB. The SPAs and the Amendment of
Real Estate Mortgage are both inscribed on TCT No. T-44422. All of these transactions, however,
were without the knowledge and consent of Jose Sr.’s children.On maturity of the loan on April
20,1994, the spouses Garcia failed to pay their loan to the petitioner bank despite repeated
demands.

The Jose Garcia’s children et al. filed before the RTC a Complaint for Nullity of the
Amendment of Real Estate Mortgage, Damages with Preliminary Injunction against the spouses
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Garcia and the PNB. They claimed that the Amendment of Real Estate Mortgage was null and
void as to respondents Nora, Jose Jr., Bobby and Jimmy as they were not parties to the contract.
The Jose Garcia’s children et al. alleged that the subject property was a conjugal property of Jose
Sr. and his deceased spouse, Ligaya, as they acquired the subject property during their marriage;
that upon Ligaya’s death, Jose Sr., together with his children Nora, Jose Jr., Bobby and Jimmy, by
law, became owners pro indiviso of the subject property; that the petitioner bank was at fault for
not including Jose Sr. as payee to the check representing the loan despite its knowledge that Jose
Sr. was a signatory to the real estate mortgage; that the real estate mortgage executed by Jose Sr.
could not bind his children as they did not give their consent or approval to the encumbrance.
The Spouses Garcia alleged that Jose Sr. was indebted to them in the amount of P133,800.00. To
settle this indebtedness, Jose Sr. volunteered to give the subject property as additional security for
their loan to PNB. PNB claimed that the mortgage was made in good faith and for value. It alleged
that the real estate mortgage over the properties was duly registered and inscribed on their titles
and was thus binding on the whole world. Nora, Jose Jr., Bobby and Jimmy executed an SPA
authorizing Jose Sr. to act as their attorney-in-fact during the pretrial of the case.

The RTC dismissed the complaint for lack of cause of action. The respondents disagreed
with the RTC ruling and elevated the case to the CA via an ordinary appeal.CA ruled that the
encumbrance Jose Sr. made over the entire conjugal property, without his children’s conformity,
was null and void because a mere part owner could not alienate the shares of the other co-owners.
It ruled that Jose Sr. could not escape liability from the mortgage since he voluntarily bound
himself as the Spouses Garcia’s accommodation mortgagor.

Issue:

1. Whether or not the CA’s finding that the subject property was Conjugal in nature.

2. Whether or not the mortgage in its entirety should be declared valid.

Ruling:

1. The subject property is Conjugal.

All property acquired during marriage is presumed conjugal. Since Jose Sr. and Ligaya were
married prior to the effectivity of the Family Code, their property relations were governed by the
conjugal partnership of gains as provided under Article 119 of the Civil Code. In his testimony, Jose
Sr. admitted that at the time he acquired the land through sale, he was already married.
Registration of the subject property in the name of one spouse does not destroy the presumption
that the property is conjugal. Registration of a property alone in the name of one spouse does not
destroy its conjugal nature. What is material is the time when the property was acquired. The
registration of the property is not conclusive evidence of the exclusive ownership of the husband
or the wife. Although the property appears to be registered in the name of the husband, it has the
inherent character of conjugal property if it was acquired for valuable consideration during
marriage. In order to rebut the presumptive conjugal nature of the property, the petitioner must
present strong, clear and convincing evidence of exclusive ownership of one of the spouses. The
burden of proving that the property belongs exclusively to the wife or to the husband rests upon
the party asserting it.

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2. No, mortgage is limited though only to the portion which may be allotted to Jose Sr.

The conjugal partnership was converted into an implied ordinary co-ownership upon the
death of Ligaya. Consequently, the conjugal partnership was converted into an implied ordinary
co-ownership between the surviving spouse, on the one hand, and the heirs of the deceased, on
the other. Should a co-owner alienate or mortgage the co-owned property itself, the alienation or
mortgage shall remain valid but only to the extent of the portion which may be allotted to him in
the division upon the termination of the co-ownership.

In the present case, Jose Sr. constituted the mortgage over the entire subject property after
the death of Ligaya, but before the liquidation of the conjugal partnership. While under Article
493 of the Civil Code, even if he had the right to freely mortgage or even sell his undivided
interest in the disputed property, he could not dispose of or mortgage the entire property without
his children’s consent. As correctly emphasized by the trial court, Jose Sr.’s right in the subject
property is limited only to his share in the conjugal partnership as well as his share as an heir on
the other half of the estate which is his deceased spouse’s share. Accordingly, the mortgage
contract is void insofar as it extends to the undivided shares of his children because they did not
give their consent to the transaction.

RURAL BANK OF CABADBARAN, INC. vs. JORGITA A. MELECIO-YAP, LILIA MELECIO


PACIFICO (deceased, substituted by her only child ERILL*ISAAC M. PACIFICO, JR.),
REYNALDO A. MELECIO DELOSO, and SARAH MELECIO PALMA-GIL
G.R. No. 178451, July 30, 2014, J. Perlas-Bernabe

When a bank relied on a forged SPA, it has the burden to prove its authenticity and due
execution as when there is a defect in the notarization of a document, the clear and convincing
evidentiary standard normally attached to a duly-notarized document is dispensed with, and the
measure to test the validity of such document is preponderance of evidence.

However, where a mortgage is not valid due to a forged SPA, the principal obligation which it
guarantees is not thereby rendered null and void. What is lost is merely the right to foreclose the
mortgage as a special remedy for satisfying or settling the indebtedness which is the principal
obligation. In case of nullity, the mortgage deed remains as evidence or proof of a personal
obligation of the debtor and the amount due to the creditor may be enforced in an ordinary action.

The partial invalidity of the subject real estate mortgage brought about by the forged status
of the subject SPA would not, therefore, result into the partial invalidation of the loan obligation
principally entered into by the parties; thus, absent any cogent reason to hold otherwise, the need
for the recomputation of said loan obligation should be dispensed with.

Facts:

Erna Melecio-Mantala (Erna) and respondents Jorgita A. Melecio-Yap (Jorgita), Lilia


Melecio Pacifico (Lilia), Reynaldo A. Melecio, Rosie Melecio-Deloso (Rosie), and Sarah Melecio
Palma-Gil (Sarah) are the children of the late spouses Melecio (Melecio Heirs). They inherited a
3,044 square meter-residential lot located in Tolosa, Cabadbaran, Agusan del Norte, together with
the ancestral house and two (2) other structures erected thereon (subject properties). The

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administration and management of the said properties were left to the care of Erna who was then
residing in their ancestral home.

The Melecio Heirs purportedly executed a notarized Special Power of Attorney


7
(SPA) authorizing Erna to apply for a loan with petitioner Rural Bank of Cabadbaran, Inc. (RBCI)
and mortgage the subject properties. Armed with the said SPA, Erna applied for and was granted
a commercial loan by RBCI. The loan was secured by a Real Estate Mortgage over the subject
properties. Erna, however, defaulted in the payment of her loan obligation when it fell due,
causing RBCI to extra-judicially foreclose the mortgaged properties in accordance with Act No.
3135, as amended. In the process, RBCI emerged as the highest bidder in the public auction.

In view of respondents’ refusal to vacate the premises, RBCI applied for and was issued a
writ of possession. The writ of Possession was, thereafter, served and returned duly satisfied and
complied with by the Sheriff who turned over the subject properties to RBCI.

Consequently, respondents filed a complaint for declaration of nullity of documents,


recovery of possession and ownership, and damages with prayer for the issuance of a writ of
preliminary injunction against Spouses Erna and Bonifacio Mantala (Sps. Mantala), RBCI, the
Office of the Provincial Sheriff, and Spouses Jimmyrando and Teresita Morales (Sps.
Morales). They alleged that they did not participate in the execution of the said SPA and prayed
that the same, as well as the mortgage contract, the writ of possession, the sheriff’s turn-over
receipt, and all derivative titles, documents, issuances, and registrations arising therefrom be
declared null and void and that the subject properties be reconveyed back to them. Having relied
on the SPA, RBCI invoked the defense of a mortgagee in good faith whose subsequent ownership
and possession of the subject properties must be respected.

The RTC of Butuan City rendered a decision in favor of RBCI, declaring the real estate
mortgage and the consequential foreclosure proceedings to be valid and binding against
respondents, notwithstanding the allegation of forgery in the questioned documents. However,
CA reversed the RTC Decision, finding that Erna had no authority to mortgage the subject
properties to RBCI since the SPA was actually a forgery, and, hence, null and void.

Issues:

1. Whether or not the presumption of regularity accorded to the notarized SPA was rebutted
by clear and convincing evidence.
2. Whether or not the principal obligation subsists notwithstanding the illegality of the
mortgage.
3. Whether or not the respondents are guilty of laches and, thus, estopped from questioning
the validity of the real estate mortgage and subsequent foreclosure proceedings.
4. Whether or not RBCI can be considered as a mortgagee in good faith.

Ruling:

1. No, it was not.

Generally, a notarized document carries the evidentiary weight conferred upon it with
respect to its due execution, and documents acknowledged before a notary public have in their
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favor the presumption of regularity which may only be rebutted by clear and convincing evidence.
However, the presumptions that attach to notarized documents can be affirmed only so long as it
is beyond dispute that the notarization was regular. A defective notarization will strip the
document of its public character and reduce it to a private document. Hence, when there is a
defect in the notarization of a document, the clear and convincing evidentiary standard normally
attached to a duly-notarized document is dispensed with, and the measure to test the validity of
such document is preponderance of evidence.

In the present case, RBCI failed to show that the subject SPA which it relied upon as proof
of Erna’s ostensible authority to mortgage the entirety of the subject properties was regularly
notarized. Aside from the respondents who denied having participated in the execution and
notarization of the subject SPA, the witnesses to the instrument, i.e., Guendelyn Lopez Salas-
Montaus and Carmelita Cayeta Bunga, categorically denied having appeared before Notary Public
Alan M. Famador (Atty. Famador) on August 24, 1990 to witness the respondents sign the SPA in
the notary public’s presence. Despite this irregularity, RBCI did not present Atty. Famador to
refute the same and establish the authenticity of the contested SPA. It may not be amiss to point
out that the principal function of a notary public is to authenticate documents. When a notary
public certifies to the due execution and delivery of a document under his hand and seal, he gives
the document the force of evidence.

Thus, having failed to sufficiently establish the regularity in the execution of the SPA, the
presumption of regularity accorded by law to notarized documents can no longer apply and the
questioned SPA is to be examined under the parameters of Section 20, Rule 132 of the Rules of
Court which provides that "[b]efore any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either (a) [b]y anyone who saw the
document executed or written, or (b) [b]y evidence of the genuineness of the signature or
handwriting of the maker."

Correspondingly, the burden falls upon RBCI to prove the authenticity and due execution
of the subject SPA. In the case at bar, RBCI merely relied on the presumption of authenticity and
due execution accorded to a notarized document, without presenting any other evidence to
bolster their case. However, these presumptions had been overcome and effectively negated by
respondents’ claims of forgery which had been duly substantiated by them through their
testimonial and documentary evidence. Hence, absent any cogent reason to the contrary, the
Court hereby sustains the CA’s conclusion that respondents were able to prove, by preponderance
of evidence, that the subject SPA was a forgery.

To be clear, the above-stated conclusion is only made with respect to the subject SPA and
not the Extra-Judicial Adjudication Documents as the latter should be excluded from any forgery
analysis since they were not among those documents sought to be nullified by respondents in its
complaint. Yet, the forged status of the subject SPA alone is already enough for the Court to
declare the real estate mortgage contract null and void but only with respect to the shares of the
other co-owners (i.e., respondents) whose consent thereto was not actually procured by Erna.
While Erna, as herself a co-owner, by virtue of Article 493 of the Civil Code, had the right to
mortgage or even sell her undivided interest in the said properties, she, could not, however,
dispose of or mortgage the subject properties in their entirety without the consent of the other
co-owners. Accordingly, the validity of the subject real estate mortgage and the subsequent

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foreclosure proceedings therefore conducted in favor of RBCI should be limited only to the
portion which may be allotted to it (as the successor-in-interest of Erna) in the event of partition.

2. Yes, the principal obligation subsists.

Indeed, where a mortgage is not valid, the principal obligation which it guarantees is not
thereby rendered null and void. That obligation matures and becomes demandable in accordance
with the stipulation pertaining to it. Under the foregoing circumstances, what is lost is merely the
right to foreclose the mortgage as a special remedy for satisfying or settling the indebtedness
which is the principal obligation. In case of nullity, the mortgage deed remains as evidence or
proof of a personal obligation of the debtor and the amount due to the creditor may be enforced
in an ordinary action.

Based on the foregoing, the partial invalidity of the subject real estate mortgage brought
about by the forged status of the subject SPA would not, therefore, result into the partial
invalidation of the loan obligation principally entered into by RBCI and Sps. Mantala; thus, absent
any cogent reason to hold otherwise, the need for the recomputation of said loan obligation
should be dispensed with.

3. No, RBCI is not a buyer in good faith.

Two reasons impel this conclusion: first, the doctrine of mortgagee in good faith applies
only to lands registered under the Torrens system and not to unregistered lands, as the properties
in suit;71 and second, the principle is inapplicable to banking institutions which are behooved to
exercise greater care and prudence before entering into a mortgage contract. Hence, the
ascertainment of the status or condition of properties offered as security for loans must be a
standard and an indispensable part of its operations.

In this case, RBCI failed to observe the required level of caution in ascertaining the
genuineness of the SPA considering that Erna owns only an aliquot part of the properties offered
as security for the loan. It should not have simply relied on the face of the documents submitted
since its undertaking to lend a considerable amount of money as a banking institution requires a
greater degree of diligence. Hence, its rights as mortgagee and, now, as co-owner, should only be
limited to Erna’s share to the subject properties and not, absent the other co-owners’ consent, to
its entirety.

4. No, respondents are not barred by laches.

Laches is principally a doctrine of equity. It is negligence or omission to assert a right


within a reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned or declined to assert it. In this case, the complaint for nullification of the SPA was filed
before the RTC on April 17,1996, or barely three years from respondents' discovery of the averred
forgery in 1993, which is within the four-year prescriptive period provided under Article 114674 of
the Civil Code to institute an action upon the injury to their rights over the subject properties. A
delay within the prescriptive period is sanctioned by law and is not considered to be a delay that
would bar relief. Laches applies only in the absence of a statutory prescriptive
period. Furthermore, the doctrine of laches cannot be used to defeat justice or perpetrate fraud
and injustice. It is the more prudent rule that courts, under the principle of equity, will not be
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guided or bound strictly by the statute of limitations or the doctrine of laches when by doing so,
manifest wrong or injustice would result, as in this case.
Neither is there estoppel. Under Article 1431 of the Civil Code, an essential element of
estoppel is that the person invoking it has been influenced and has relied on the representations
or conduct of the person sought to be estopped. Said element is, however, wanting in this
case.1âwphi1

LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO vs. SECURITY BANK


CORPORATION, JRC POULTRY FARMS or SPOUSES LEON C. CASTILLO, JR., and
TERESITA FLORESCASTILLO
G.R. No. 196118, July 30, 2014, J. Peralta

In a real estate mortgage, allegations of forgery, like all other allegations, must be proved by
clear, positive, and convincing evidence by the party alleging it. But even if there is variation on the
date of issuance of the Community Tax Certificate (CTC) as indicated on the notarization of the
alleged SPA and on the day it was actually secured, such defect in the SPA does not automatically
render it invalid. Defective notarization will simply strip the document of its public character and
reduce it to a private instrument, but nonetheless, binding, provided its validity is established by
preponderance of evidence.

The law requires that the form of a contract that transmits or extinguishes real rights over
immovable property should be in a public document, yet the failure to observe the proper form does
not render the transaction invalid. The necessity of a public document for said contracts is only for
convenience; it is not essential for validity or enforceability.

Facts:

Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are siblings. Leon and
Teresita Flores-Castillo (the Spouses Castillo) were doing business under the name of JRC Poultry
Farms. Sometime in 1994, the Spouses Castillo obtained a loan from respondent SBC in the
amount of P45,000,000.00. To secure said loan, they executed a real estate mortgage on over
eleven (11) parcels of land belonging to different members of the Castillo family and which are all
located in San Pablo City. They also procured a second loan amounting to P2,500,000.00, which
was covered by a mortgage on a land in Pasay City.

Subsequently, the Spouses Castillo failed to settle the loan, prompting SBC to proceed
with the foreclosure of the properties. SBC was then adjudged as the winning bidder in the
foreclosure sale. Thereafter, they were able to redeem the foreclosed properties, with the
exception of the lots covered by Torrens Certificate of Title (TCT) Nos. 28302 and 28297.

Leonardo filed a complaint for the partial annulment of the real estate mortgage. He
alleged that he owns the property covered by TCT No. 28297 and that the Spouses Castillo used it
as one of the collaterals for a loan without his consent. He contested his supposed Special Power
of Attorney (SPA) in Leon’s favor, claiming that it is falsified. According to him, the date of
issuance of his Community Tax Certificate (CTC) as indicated on the notarization of said SPA is
January 11, 1993, when he only secured the same on May 17, 1993. He also assailed the foreclosure
of the lots under TCT Nos.20030 and 10073 which were still registered in the name of their
deceased father.
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The RTC of San Pablo City ruled in Leonardo’s favor, declaring as null and void the Real
Estate Mortgage dated August 5, 1994, the Memorandum of Agreement dated October 28, 1997
and the Certificate of Sale dated August 27, 1999 insofar as plaintiff’s property with Transfer
Certificate of Title No. T-28297 is concerned. The CA reversed and set aside the RTC Decision,
essentially ruling that the real estate mortgage is valid.

Issue:

Whether or not the real estate mortgage constituted over the property under TCT No T-
28297 is valid and binding

Ruling:

Yes, the real estate mortgage is valid and binding.

The following are the legal requisites for a mortgage to be valid:


(1) It must be constituted to secure the fulfilment of a principal obligation;
(2) The mortgagor must be the absolute owner of the thing mortgaged;
(3) The persons constituting the mortgage must have the free disposal of their property, and in
the absence thereof, they should be legally authorized for the purpose.

Leonardo asserts that his signature in the SPA authorizing his brother, Leon, to mortgage
his property covered by TCT No. T-28297 was falsified. He claims that he was in America at the
time of its execution. As proof of the forgery, he focuses on his alleged CTC used for the
notarization of the SPA on May 5, 1993 and points out that it appears to have been issued on
January 11, 1993 when, in fact, he only obtained it on May 17, 1993.

But it is a settled rule that allegations of forgery, like all other allegations, must be proved
by clear, positive, and convincing evidence by the party alleging it. It should not be presumed, but
must be established by comparing the alleged forged signature with the genuine signatures.

Here, Leonardo simply relied on his self-serving declarations and refused to present
further corroborative evidence, saying that the falsified document itself is the best evidence. He
did not even bother comparing the alleged forged signature on the SPA with samples of his real
and actual signature. What he consistently utilized as lone support for his allegation was the
supposed discrepancy on the date of issuance of his CTC as reflected on the subject SPA’s notarial
acknowledgment. On the contrary, in view of the great ease with which CTCs are obtained these
days, there is reasonable ground to believe that, as the CA correctly observed, the CTC could have
been issued with the space for the date left blank and Leonardo merely filled it up to
accommodate his assertions. Also, upon careful examination, the handwriting appearing on the
space for the date of issuance is different from that on the computation of fees, which in turn was
consistent with the rest of the writings on the document. He did not likewise attempt to show any
evidence that would back up his claim that at the time of the execution of the SPA on May 5, 1993,
he was actually in America and therefore could not have possibly appeared and signed the
document before the notary.

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And even if the Court were to assume, simply for the sake of argument, that Leonardo
indeed secured his CTC only on May 17, 1993, this does not automatically render the SPA invalid.
The appellate court aptly held that defective notarization will simply strip the document of its
public character and reduce it to a private instrument, but nonetheless, binding, provided its
validity is established by preponderance of evidence.

Article 1358 of the Civil Code requires that the form of a contract that transmits or
extinguishes real rights over immovable property should be in a public document, yet the failure
to observe the proper form does not render the transaction invalid. The necessity of a public
document for said contracts is only for convenience; it is not essential for validity or
enforceability.

Here, the preponderance of evidence indubitably tilts in favor of the respondents, still
making the SPA binding between the parties even with the aforementioned assumed irregularity.
There are several telling circumstances that would clearly demonstrate that Leonardo was aware
of the mortgage and he indeed executed the SPA to entrust Leon with the mortgage of his
property. Leon had in his possession all the titles covering the eleven (11) properties mortgaged,
including that of Leonardo. Leonardo and the rest of their relatives could not have just blindly
ceded their respective TCTs to Leon. It is likewise ridiculous how Leonardo seemed to have been
totally oblivious to the status of his property for eight (8) long years, and would only find out
about the mortgage and foreclosure from a nephew who himself had consented to the mortgage
of his own lot. Considering the lapse of time from the alleged forgery on May 5, 1993 and the
mortgage on August 5, 1994, to the foreclosure on July 29, 1999, and to the supposed discovery in
2001, it appears that the suit is a mere afterthought or a last-ditch effort on Leonardo’s part to
extend his hold over his property and to prevent SBC from consolidating ownership over the
same. More importantly, Leonardo himself admitted on cross-examination that he granted Leon
authority to mortgage, only that, according to him, he thought it was going to be with China
Bank, and not SBC. But as the CA noted, there is no mention of a certain bank in the subject SPA
with which Leon must specifically deal. Leon, therefore, was simply acting within the bounds of
the SPA’s authority when he mortgaged the lot to SBC.

True, banks and other financing institutions, in entering into mortgage contracts, are
expected to exercise due diligence. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of its operations. In
this case, however, no evidence was presented to show that SBC was remiss in the exercise of the
standard care and prudence required of it or that it was negligent in accepting the mortgage. SBC
could not likewise be faulted for relying on the presumption of regularity of the notarized SPA
when it entered into the subject mortgage agreement.

ROLANDO ROBLES, REPRESENTED BY ATTY. CLARA C. ESPIRITU vs. FERNANDO FIDEL


YAPCINCO, PATROCINIO B. YAPCINCO, MARIA CORAZON B. YAPCINCO, and MARIA
ASUNCION B. YAPCINCO-FRONDA
G.R. No. 169569, October 22, 2014, J. Bersamin

The effect of the failure of Apolinario Cruz, the predecessor-in-interest of Rolando Robles,
petitioner to this case, to obtain the judicial confirmation was only to prevent the title to the
property from being transferred to him. For sure, such failure did not give rise to any right in favor of
the mortgagor or the respondents as his successors-in-interest to take back the property already
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validly sold through public auction. Nor did such failure invalidate the foreclosure proceedings. To
maintain otherwise would render nugatory the judicial foreclosure and foreclosure sale, thus unduly
disturbing judicial stability.

Facts:

The dispute involves the ownership of a judicially-foreclosed parcel of land sold at a public
auction, but which sale was not judicially confirmed. On one side is the petitioner Rolando
Robles, the successor in interest of the purchaser in the public auction, and, on the other, the
heirs of the mortgagor, who never manifested interest in redeeming the property from the time of
the foreclosure.

RTC ruled in favor of the petitioner Rolando Robles. It further pronounced that the
respondents could not claim to have no knowledge that the property in litis was no longer part of
the estate of the late Fernando F. Yapcinco; that one of them had substituted the late Fernando F.
Yapcinco in the judicial foreclosure proceedings, and even appealed the adverse decision to the
CA; that they could not argue that they were not bound by the foreclosure of the mortgage due to
the nonregistration of the certificate of sale because as between the parties registration was not a
requisite for the validity of the foreclosure; and that they did not redeem the property until the
present.

On February 24, 2005, the CA promulgated its assailed decision, reversing the judgment of
the RTC, and holding that due to the nonregistration of the certificate of sale, the period of
redemption did not commence to run. Hence, this petition.

Issue:

Whether the lack of confirmation of title after foreclosure of the mortgage affects the title
of the purchaser in the sale

Ruling:

No.

It was not denied that Fernando F. Yapcinco, as the mortgagor, did not pay his obligation,
and that his default led to the filing of the action for judicial foreclosure against him, in which he
actively participated in the proceedings, and upon his death was substituted by the administratrix
of his estate. In the end, the decision in the action for judicial foreclosure called for the holding of
the public sale of the mortgaged property. Due to the subsequent failure of the estate of Fernando
F. Yapcinco to exercise the equity of redemption, the property was sold at the public sale, and
Apolinario Cruz was declared the highest bidder. Under the circumstances, the respondents as
the successors-in-interest of Fernando F. Yapcinco were fully bound by that decision and by the
result of the ensuing foreclosure sale. Although the respondents admitted the existence of the
mortgage, they somehow denied knowledge of its foreclosure. Yet, in asserting their superior right
to the property, they relied on and cited the entry dated February 11, 1992 concerning the release
of mortgage inscribed on TCT No. 20458. This duplicity the Court cannot countenance. Being the
heirs and successors-in-interest of the late Fernando F. Yapcinco, they could not repudiate the
foreclosure sale and its consequences, and escape such consequences that bound and concluded
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their predecessor-in-interest whose shoes they only stepped into.40 Given their position on the
lack of judicial confirmation of the sale in favor of Apolinario Cruz, they should have extinguished
the mortgage by exercising their equity of redemption through paying the secured debt. They did
not do so, and, instead, they sought the annulment of TCT No. 243719 and caused the issuance of
another title in their name.

Even assuming that there was no foreclosure of the mortgage, such that the respondents
did not need to exercise the equity of redemption, the legal obligation to pay off the mortgage
indebtedness in favor of Apolinario Cruz nonetheless devolved on them and the estate of
Fernando F. Yapcinco. They could not sincerely rely on the entry about the release or cancellation
of the mortgage in TCT No. 20458, because such entry appeared to be unfounded in the face of
the lack of any showing by them that either they or the estate of Fernando F. Yapcinco had settled
the obligation

The effect of the failure of Apolinario Cruz to obtain the judicial confirmation was only to
prevent the title to the property from being transferred to him. For sure, such failure did not give
rise to any right in favor of the mortgagor or the respondents as his successors-in-interest to take
back the property already validly sold through public auction. Nor did such failure invalidate the
foreclosure proceedings. To maintain otherwise would render nugatory the judicial foreclosure
and foreclosure sale, thus unduly disturbing judicial stability. The non-transfer of the title
notwithstanding, Apolinario Cruz as the purchaser should not be deprived of the property
purchased at the foreclosure sale. With the respondents having been fully aware of the mortgage,
and being legally bound by the judicial foreclosure and consequent public sale, and in view of the
unquestioned possession by Apolinario Cruz and his successors-in-interest (including the
petitioner) from the time of the foreclosure sale until the present, the respondents could not
assert any better right to the property. It would be the height of inequity to still permit them to
regain the property on the basis alone of the lack of judicial confirmation of the sale. After all,
under the applicable rule earlier cited, the judicial confirmation operated only "to divest the
rights of all the parties to the action and to vest their rights in the purchaser, subject to such
rights of redemption as may be allowed by law."

SPOUSES JOSE O. GATUSLAO AND ERMILA LEONILA LIMSIACO-GATUSLAO


vs. LEO RAY V. YANSON
G.R. No. 191540, January 21, 2015, J. Del Castillo

Yanson, as a transferee or successor-in-interest of PNB by virtue of the contract of sale


between them, is considered to have stepped into the shoes of PNB. As such, he is necessarily
entitled to avail of the provisions of Section 7 of Act No. 3135. Verily, one of the rights that PNB
acquired as purchaser of the subject properties at the public auction sale, which it could validly
convey by way of its subsequent sale of the same to respondent, is the availment of a writ of
possession. This can be deduced from the stipulation that “[t]he [v]endee further agrees to
undertake, at xxx his expense, the ejectment of any occupant of the [p]roperty.” Accordingly,
Yanson filed the contentious ex parte motion for a writ of possession to eject Spouses Gatuslao
therefrom and take possession of the subject properties.

Further, respondent may rightfully take possession of the subject properties through a writ
of possession, even if he was not the actual buyer thereof at the public auction sale, in consonance
with the Court’s ruling in Ermitaño v. Paglas. The Court ruled that after the expiration of the
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redemption period without redemption having been made by petitioner, respondent became the
owner thereof and consolidation of title becomes a right. Being already then the owner, respondent
became entitled to possession. Petitioner already lost his possessory right over the property after the
expiration of the said period.

Facts:

Ermila Leonila Limsiaco-Gatuslao is the daughter of the late Felicisimo Limsiaco


(Limsiaco) who died intestate on February 7, 1989. Limsiaco was the registered owner of two
parcels of land with improvements in the City of Bacolod. Limsiaco mortgaged the said lots along
with the house standing thereon to Philippine National Bank (PNB). Upon Limsiaco’s failure to
pay, PNB extrajudicially foreclosed on the mortgage and caused the properties’ sale at a public
auction on June 24, 1991 where it emerged as the highest bidder. When the one-year redemption
period expired without Limsiaco’s estate redeeming the properties, PNB caused the consolidation
of titles in its name. Subsequently, PNB conveyed the subject properties in favor of Leo Ray V.
Yanson (Yanson). Then, as a registered owner in fee simple of the contested properties, Yanson
filed with the RTC an Ex-Parte Motion for Writ of Possession pursuant to Section 7 of Act No.
3135.

On the other hand, spouses Jose O. Gatuslao and Ermila Leonila Limsiaco- Gatuslao
(Spouses Gatuslao) argued that Yanson is not entitled to the issuance of an ex-parte writ of
possession since he was not the buyer of the subject properties at the public auction sale and only
purchased the same through a subsequent sale made by PNB. Not being the purchaser at the
public auction sale, Yanson cannot file and be granted an ex parte motion for a writ of possession.
Spouses Gatuslao also asserted that the intestate estate of Limsiaco has already instituted an
action for annulment of foreclosure of mortgage and auction sale affecting the contested
properties. They argued that the existence of the said civil suit bars the issuance of the writ of
possession and that whatever rights and interests respondent may have acquired from PNB by
virtue of the sale are still subject to the outcome of the said case.

The RTC granted the issuance of the writ of possession, hence, Yanson moved to execute
the possessory writ while Spouses Gatuslao filed with this Court the present Petition for Review
on Certiorari.

Issues:

1. Whether a pending action for annulment of foreclosure of mortgage and the


corresponding sale at public auction of the subject properties operates as a bar to the
issuance of a writ of possession;
2. Whether Spouses Gatuslao may be evicted by a mere ex parte writ of possession as
they were not parties to the foreclosure, thus, denied of due process.
3. Whether Yanson may avail a writ of possession as he is not the purchaser at the public
auction sale, pursuant to Sec. 7 of Act No. 3135.

Ruling: The Petition is denied.

1. It is settled that the issuance of a Writ of Possession may not be stayed by a pending action for
annulment of mortgage or the foreclosure itself.
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In BPI Family Savings Bank, Inc. v. Golden Power Diesel Sales Center, Inc., the Court
reiterates the long-standing rule that:
[I]t is settled that a pending action for annulment of mortgage or foreclosure sale
does not stay the issuance of the writ of possession. The trial court, where the application
for a writ of possession is filed, does not need to look into the validity of the mortgage or
the manner of its foreclosure. The purchaser is entitled to a writ of possession without
prejudice to the outcome of the pending annulment case.

This is in line with the ministerial character of the possessory writ. Thus, in Bank of the
Philippine Islands v. Tarampi, it was held:

To stress the ministerial character of the writ of possession, the Court has
disallowed injunction to prohibit its issuance, just as it has held that its issuance may
not be stayed by a pending action for annulment of mortgage or the foreclosure
itself.

Clearly then, until the foreclosure sale of the property in question is annulled by a
court of competent jurisdiction, the issuance of a writ of possession remains the
ministerial duty of the trial court. The same is true with its implementation;
otherwise, the writ will be a useless paper judgment – a result inimical to the
mandate of Act No. 3135 to vest possession in the purchaser immediately.

2. Spouses Gatuslao are not strangers or third parties to the foreclosure sale; they were not
deprived of due process.

Upon the expiration of the period to redeem and no redemption was made, the purchaser,
as confirmed owner, has the absolute right to possess the land and the issuance of the writ of
possession becomes a ministerial duty of the court upon proper application and proof of title.

Where the extrajudicially foreclosed real property is in the possession of a third party who
is holding the same adversely to the judgment debtor or mortgagor, the RTC’s duty to issue a writ
of possession in favor of the purchaser of said real property ceases to be ministerial and, as such,
may no longer proceed ex parte. In such a case, the trial court must order a hearing to determine
the nature of the adverse possession. For this exception to apply, however, it is not enough that
the property is in the possession of a third party, the property must also be held by the third party
adversely to the judgment debtor or mortgagor, such as a co-owner, agricultural tenant or
usufructuary.

In this case, Spouses Gatuslao do not fall under any of the above examples of such a third
party holding the subject properties adversely to the mortgagor; nor is their claim to their right of
possession analogous to the foregoing situations. Admittedly, they are the mortgagor Limsiaco’s
heirs. It was precisely because of Limsiaco’s death that petitioners obtained the right to possess
the subject properties and, as such, are considered transferees or successors-in-interest of the
right of possession of the latter. As Limsiaco’s successors-in-interest, petitioners merely stepped
into his shoes and are, thus, compelled not only to acknowledge but, more importantly, to respect
the mortgage he had earlier executed in favor of respondent.38 They cannot effectively assert that
their right of possession is adverse to that of Limsiaco as they do not have an independent right of
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possession other than what they acquired from him.39 Not being third parties who have a right
contrary to that of the mortgagor, the trial court was thus justified in issuing the writ and in
ordering its implementation.

3. Respondent is entitled to the issuance of writ of possession.

Yanson, as a transferee or successor-in-interest of PNB by virtue of the contract of sale


between them, is considered to have stepped into the shoes of PNB. As such, he is necessarily
entitled to avail of the provisions of Section 7 of Act No. 3135, as amended, as if he is PNB. This is
apparent in the Deed of Absolute Sale between the two, viz:
1. The Vendor hereby sells, transfer[s] and convey[s] unto[, and] in
favor of the Vendee, and the latter’s assigns and successors-in-interest, all of the
former’s rights and title to, interests and participation in the Property on an “AS IS,
WHERE IS” basis. It is thus understood that the Vendee has inspected the Property and
has ascertained its condition.
xxxx
3. The Vendor is selling only whatever rights and title to, interests and
participation it has acquired over the Property, and the Vendee hereby acknowledges
full knowledge of the nature and extent of the Vendor’s rights and title to, [and] interests
and participation in the Property.

4. x x x The Vendee further agrees to undertake, at its/his/her expense,


the ejectment of any occupant of the Property.

Verily, one of the rights that PNB acquired as purchaser of the subject properties at the
public auction sale, which it could validly convey by way of its subsequent sale of the same to
respondent, is the availment of a writ of possession. This can be deduced from the above-quoted
stipulation that “[t]he [v]endee further agrees to undertake, at xxx his expense, the ejectment of any
occupant of the [p]roperty.” Accordingly, Yanson filed the contentious ex parte motion for a writ
of possession to eject Spouses Gatuslao therefrom and take possession of the subject properties.

Further, respondent may rightfully take possession of the subject properties through a
writ of possession, even if he was not the actual buyer thereof at the public auction sale, in
consonance with our ruling in Ermitaño v. Paglas. In the said case, therein respondent was
petitioner’s lessee in a residential property owned by the latter. During the lifetime of the lease,
respondent learned that petitioner mortgaged the subject property in favor of Charlie Yap (Yap)
who eventually foreclosed the same. Yap was the purchaser thereof in an extrajudicial foreclosure
sale. Respondent ultimately bought the property from Yap. However, it was stipulated in the
deed of sale that the property was still subject to petitioner’s right of redemption. Subsequently
and despite written demands to pay the amounts corresponding to her monthly rental of the
subject property, respondent did not anymore pay rents. Meanwhile, petitioner’s period to
redeem the foreclosed property expired on February 23, 2001. Several months after, petitioner
filed a case for unlawful detainer against respondent. When the case reached this Court, it ruled
that therein respondent’s basis for denying petitioner’s claim for rent was insufficient as the latter,
during the period for which payment of rent was being demanded, was still the owner of the
foreclosed property. This is because at that time, the period of redemption has not yet
expired. Thus, petitioner was still entitled to the physical possession thereof subject, however, to
the purchaser’s right to petition the court to give him possession and to file a bond pursuant to
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the provisions of Section 7 of Act No. 3135, as amended. However, after the expiration of the
redemption period without redemption having been made by petitioner, respondent became the
owner thereof and consolidation of title becomes a right. Being already then the owner,
respondent became entitled to possession. Consequently, petitioner’s ejectment suit was held to
have been rendered moot by the expiration of the period of redemption without petitioner
redeeming the properties. This is considering that petitioner already lost his possessory right over
the property after the expiration of the said period.

Although the main issue in Ermitaño was whether respondent was correct in refusing to
pay rent to petitioner on the basis of her having bought the latter’s foreclosed property from
whom it was mortgaged, the case is enlightening as it acknowledged respondent’s right, as a
subsequent buyer of the properties from the actual purchaser of the same in the public auction
sale, to possess the property after the expiration of the period to redeem sans any
redemption. Verily, Ermitaño demonstrates the applicability of the provisions of Section 7 of Act
No. 3135 to such a subsequent purchaser like respondent in the present case.

ATTY. LEO N. CAUBANG vs. JESUS G. CRISOLOGO AND NANETTE B. CRISOLOGO


G.R. No. 174581, February 04, 2015, J. Peralta

In an extrajudicial foreclosure of a real estate mortgage, failure to comply with the


publication requirement by the mortgagee brought by the failure of its lawyer to make an effort to
inquire as to whether the Oriental Daily Examiner was indeed a newspaper of general circulation, as
required by law, and as a result, the mortgagee became the sole bidder, will invalidate the notice and
render the sale voidable. The principal object of a notice of sale in a foreclosure of mortgage is to
notify the mortgagor and to inform the public generally of the nature and condition of the property
to be sold, and of the time, place, and terms of the sale. These are given to secure bidders and
prevent a sacrifice of the property.

Facts:

Respondent spouses Jesus and Nannette Crisologo obtained an Express Loan in the
amount of P200,000.00 from PDCP Development Bank Inc. Subsequently, the Spouses Crisologo
acquired a Term Loan from the same bank of P1,500,000.00 covered by a Loan Agreement. The
spouses mortgaged their property for security on both loans. Upon release of the Term Loan, they
were able to pay the Express Loan, however, after few installments for the other loans the spouses
defaulted in the amortizations. The spouses failed to pay the bank despite the latter’s several
demands.

The spouses received a detailed breakdown of their outstanding obligation and found the
charges to be excessive prompting them to write a letter to the bank. They proposed to pay their
loan in full with a request that the interest and penalty charges be waived but the bank sent a
letter denying the spouses’ counter-offer and demanding payment of the loan. For failure to settle
the account, the bank recommended the foreclosure of the mortgage thus filed a petition.

Petitioner Leo Caubang, as Notary Public, prepared the Notices of Sale, announcing the
foreclosure of the real estate mortgage and the sale of the mortgaged property at public
auction. He posted the said notices in three public places: the Barangay Hall of Matina, City Hall
of Davao, and Bangkerohan Public Market. Publication was, likewise, made in theOriental Daily
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Examiner, one of the local newspapers in Davao City. Caubang conducted the auction sale of the
mortgaged property, with the bank as the only bidder. Thereafter, a Certificate of Sale in favor of
the bank was issued.

Later, the Spouses Crisologo were surprised to learn that their mortgaged property had
already been sold to the bank. Thus, they filed a Complaint for Nullity of Extrajudicial
Foreclosure and Auction Sale and Damages against PDCP Bank and Caubang.

The Davao RTC rendered a Decision nullifying the extrajudicial foreclosure of the real
estate mortgage for failure to comply with the publication requirement. The Spouses Crisologo
appealed before the CA, seeking a partial modification of the RTC Decision, insofar as their claims
for moral and exemplary damages, attorney’s fees, and costs of suit were concerned which was
later granted.

Issue:

Whether or not the sale of the mortgage property conducted by petitioner Caubang is
valid?

Ruling:

No, it is not valid.

Under Section 3 of Act No. 3135: Section 3. Notice of sale; posting; when publication
required. – Notice shall be given by posting notices of the sale for not less than twenty days in at
least three public places of the municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notices shall also be published once a week
for at least three consecutive weeks in a newspaper of general circulation in the municipality or
city.

Caubang never made an effort to inquire as to whether the Oriental Daily Examiner was
indeed a newspaper of general circulation, as required by law. It was shown that the Oriental
Daily Examiner is not even on the list of newspapers accredited to publish legal notices, as
recorded in the Davao RTC’s Office of the Clerk of Court. It also has no paying subscribers and it
would only publish whenever there are customers. Since there was no proper publication of the
notice of sale, the Spouses Crisologo, as well as the rest of the general public, were never informed
that the mortgaged property was about to be foreclosed and auctioned. As a result, PDCP Bank
became the sole bidder. This allowed the bank to bid for a very low price and go after the spouses
for a bigger amount as deficiency.

The principal object of a notice of sale in a foreclosure of mortgage is not so much to


notify the mortgagor as to inform the public generally of the nature and condition of the property
to be sold, and of the time, place, and terms of the sale. These are given to secure bidders and
prevent a sacrifice of the property. Therefore, statutory provisions governing publication of
notice of mortgage foreclosure sales must be strictly complied with and slight deviations
therefrom will invalidate the notice and render the sale, at the very least, voidable. Failure to
advertise a mortgage foreclosure sale in compliance with the statutory requirements constitutes a

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jurisdictional defect, and any substantial error in a notice of sale will render the notice insufficient
and will consequently vitiate the sale.

Since it was Caubang who caused the improper publication of the notices which, in turn,
compelled the Spouses Crisologo to litigate and incur expenses involving the declaration of nullity
of the auction sale for the protection of their interest on the property, the CA aptly held that
Caubang shall be the one liable for the spouses’ claim for litigation expenses and attorney’s fees.

MAE FLOR M. GALIDO vs. NELSON P. MAGRARE, ET AL.


G.R. No. 206584, January 11, 2016, J. Carpio

FACTS:

On 19 August 2004, Mae Flor Galido (petitioner) filed before the RTC of San Jose, Antique
a petition5 to cancel all entries appearing on Transfer Certificate of Title (TCT) Nos. T-22374, T-
22375 and T-22376, all in the name of Isagani Andigan (Andigan), and to annul TCT No. T-24815
and all other TCTs issued pursuant to the Order dated 18 October 2011 of RTC Branch 11, San Jose,
Antique (Branch 11) in RTC Civil Case No. 2001-2-3230.

The controversy revolves around three parcels of land, designated as Lot 1052-A-1, Lot
1052-A-2 and Lot 1052-A-3, all of the San Jose, Antique Cadastre. These parcels of land were, prior
to subdivision in 1999, part of Lot 1052-A which was covered by TCT No. T-21405 in the name of
Andigan.

On 28 December 1998, Andigan sold undivided portions of Lot 1052-A to Nelson P.


Magrare (Magrare), Evangeline M. Palcat (Palcat) and Rodolfo Bayombong (Bayombong). To
Magrare was sold an undivided portion with an area of 700 square meters, more or less; to Palcat,
1,000 square meters, more or less; and to Bayombong, 500 square meters, more or less.

Andigan caused the subdivision of Lot 1052-A into five lots, namely: Lot 1052-A-1, Lot 1052-
A-2, Lot 1052-A-3, Lot 1052-A-4 and Lot 1052-A-5. On 18 October 1999, TCT No. T-21405 was
cancelled and new certificates were issued for the subdivided portions. Pertinent to the case are
TCT No. T-22374 which was issued for Lot 1052-A-1, TCT No. T-22375 for Lot 1052-A-2 and TCT
No. T-22376 for Lot 1052-A-3, all in the name of Andigan. Andigan did not turn over the new TCTs
to Magrare, Palcat and Bayombong, and the latter were unaware of the subdivision.

On 8 May 2000, Andigan mortgaged the same three lots to petitioner and the latter came
into possession of the owner’s duplicate copies of TCT Nos. T-22374, T-22375 and T-22376.

On 6 February 2001, at 11:00 a.m., Magrare, Palcat and Bayombong registered their
respective adverse claims on TCT Nos. T-22374, T-22375 and T-22376. On the same day, at 3:00
p.m., petitioner also registered her mortgage on the same TCTs, such that the certificates in the
custody of the Register of Deeds were annotated.

ISSUES:

1) Who has a better right to the properties concerned: petitioner on the one hand, and
Magrare, Palcat and Bayombong on the other.
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2) Whether petitioner is a buyer in good faith.

RULING:

Magrare, Palcat and Bayombong have the better right to the properties concerned.

First, there was no valid mortgage in favor of petitioner. Petitioner derives her title from
Andigan, as mortgagor. However, at the time Andigan mortgaged the lots to petitioner he had
already sold the same to Magrare, Palcat and Bayombong. In Civil Case No. 2001-2-3230, Andigan
admitted that Lot Nos. 1052-A-1, 1052-A-2 and 1052-A-3 were the parcels of land he sold to
Magrare, Palcat and Bayombong, respectively, on 28 December 1998. Hence, when Andigan
mortgaged the lots to petitioner on 8 May 2000, he no longer had any right to do so.

Notably, there were already adverse claims registered on the respective titles of the
property when when petitioner filed her case for foreclosure of mortgage. One who deals with
property registered under the Torrens system need not go beyond the certificate of title, but only
has to rely on the certificate of title. Every subsequent purchaser of registered land taking a
certificate of title for value and in good faith shall hold the same free from all encumbrances
except those noted on said certificate and any of the encumbrances provided by law.

Preference is given to the prior registered adverse claim because registration is the
operative act that binds or affects the land insofar as third persons are concerned. Thus, upon
registration of respondents’ adverse claims, notice was given the whole world, including
petitioner.

2) Petitioner is not a buyer in good faith.

Even assuming that the mortgage was valid, petitioner can hardly be considered a buyer in
good faith. A purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property and pays a full
and fair price for the same at the time of such purchase, or before he has notice of the claims or
interest of some other person in the property.

As discussed above, petitioner had notice as early as 2001 of the adverse claims of Magrare,
Palcat and Bayombong. The decision in Civil Case No. 2001-2-3230 became final and executory
before the Certificate of Sale was issued by the Provincial Sheriff on 14 July 2004 in Civil Case No.
3345.

SPOUSES ROBERTO and ADELAIDA PEN vs. SPOUSES SANTOS and LINDA JULIAN
G.R. No. 160408, January 11, 2016, J. Bersamin

FACTS:

On April 9, 1986, the Julians obtained a P60,000.00 loan from Adelaida Pen. On May 23,
1986 and on the (sic) May 27, 1986, they were again extended loans in the amounts of P50,000.00
and P10,000.00, respectively by Adelaida. The initial interests were deducted by Adelaida. Two (2)
promissory notes were executed by the Julians in favor of Adelaida to evidence the foregoing
loans, one dated April 9, 1986 and payable on June 15, 1986 for the P60,000.00 loan and another
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dated May 22, 1986 payable on July 22, 1986 for the P50,000.00 loan. Both loans were charged
interest at 6% per month. As security, on May 23, 1986, the Julians executed a Real Estate
Mortgage over their property covered by TCT No. 327733 registered under the name of appellee
Santos Julian, Jr. The owner's duplicate of TCT No. 327733 was delivered to the appellants.

At the time the mortgage was executed, the Julians were likewise required by the Adelaida
to sign a one (1) page document purportedly an "Absolute Deed of Sale". Said document did not
contain any consideration, and was "undated, unfilled and unnotarized". They allege that their
total payments amounted to P115,400.00 and that their last payment was on June 28, 1990 in the
amount of P100,000.00.

In December 1992, Linda Julian offered to pay Adelaida the amount of P150,000.00. The
latter refused to accept the offer and demanded that she be paid the amount of P250,000.00.
Unable to meet the demand, Linda desisted from the offer and requested that she be shown the
land title which she conveyed to Adelaida, but the latter refused. Upon verification with the
Registry of Deeds of Quezon City, she was informed that the title to the mortgaged property had
already been registered in the name of Adelaida under TCT No. 364880, and that the transfer was
entered on July 17, 1987. A reconstituted title, TCT No. RT-45272 (364880), also appeared on file in
the Registry of Deeds replacing TCT No. 364880.

On September 8, 1994, the Julians filed a suit for the Cancellation of Sale, Cancellation of
Title issued to the spouses Roberto and Adelaida Pen; Recovery of Possession; Damages with
Prayer for Preliminary Injunction. The complaint alleged that Adelaida, through obvious bad
faith, maliciously typed, unilaterally filled up, and caused to be notarized the Deed of Sale earlier
signed by Julian, and used this spurious deed of sale as the vehicle for her fraudulent transfer unto
herself the parcel of land covered by TCT No. 327733.

ISSUES:

1) Whether the deed of sale is valid.


2) Whether monetary interest can validly be imposed.

RULING:

1) The deed of sale is not valid.

Article 2088 of the Civil Code prohibits the creditor from appropriating the things given by
way of pledge or mortgage, or from disposing of them; any stipulation to the contrary is null and
void. The elements for pactum commissorium to exist are as follows, to wit: (a) that there should
be a pledge or mortgage wherein property is pledged or mortgaged by way of security for the
payment of the principal obligation; and (b) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of
the principal obligation within the stipulated period. The first element was present considering
that the property of the respondents was mortgaged by Linda in favor of Adelaida as security for
the farmer's indebtedness. As to the second, the authorization for Adelaida to appropriate the
property subject of the mortgage upon Linda's default was implied from Linda's having signed the
blank deed of sale simultaneously with her signing of the real estate mortgage. The haste with
which the transfer of property was made upon the default by Linda on her obligation, and the
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eventual transfer of the property in a manner not in the form of a valid dacion en pago ultimately
confirmed the nature of the transaction as a pactum commissorium.

It cannot be argued that the transaction was a dacion en pago. For a valid dacion en
pago to transpire, the attendance of the following elements must be established, namely: (a) the
existence of a money obligation; (b) the alienation to the creditor of a property by the debtor with
the consent of the former; and (c) the satisfaction of the money obligation of the debtor. To have
a valid dacion en pago, therefore, the alienation of the property must fully extinguish the debt.
Yet, the debt of the respondents subsisted despite the transfer of the property in favor of Adelaida.

2) Monetary interest cannot be imposed.

Interest that is the compensation fixed by the parties for the use or forbearance of money
is referred to as monetary interest. On the other hand, interest that may be imposed by law or by
the courts as penalty or indemnity for damages is called compensatory interest.

The CA correctly deleted the monetary interest from the judgment. Pursuant to Article
1956 of the Civil Code, no interest shall be due unless it has been expressly stipulated in writing. In
order for monetary interest to be imposed, therefore, two requirements must be present,
specifically: (a) that there has been an express stipulation for the payment of interest; and (b) that
the agreement for the payment of interest has been reduced in writing. Considering that the
promissory notes contained no stipulation on the payment of monetary interest, monetary
interest cannot be validly imposed.

The CA properly imposed compensatory interest to offset the delay in the respondents'
performance of their obligation. Nonetheless, the imposition of the legal rate of interest should be
modified from 12% to 6%. This is pursuant to BSP Monetary Board Resolution No. 796, lowering
to 6% per annum the legal rate of interest for a loan or forbearance of money, goods or credit
starting July 1, 2013. It should be noted, however, that imposition of the legal rate of interest at
6% per annum is prospective in application.

UNIVERSITY OF MINDANAO, INC. vs. BANGKO SENTRAL NG PILIPINAS, ET AL.


G.R. No. 194964, January 11, 2016, J. Carpio

FACTS:

Before 1982, Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2)
thrift banks: (1) First Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and
Loan Association, Inc. (DSLAI). Guillermo chaired both thrift banks. He acted as FISLAI’s
President, while his wife, Dolores, acted as DSLAI’s President and FISLAI’s Treasurer.

Upon Guillermo’s request, Bangko Sentral ng Pilipinas (BSP) issued a P1.9 million standby
emergency credit to FISLAI. On May 25, 1982, University of Mindanao’s (UM) Vice President for
Finance, Saturnino Petalcorin, executed a deed of real estate mortgage over UM’s property in
Cagayan de Oro City (covered by Transfer Certificate of Title No. T-14345) in favor of BSP. "The
mortgage served as security for FISLAI’s P1.9 Million loan [.]" It was allegedly executed on UM’s
behalf.

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As proof of his authority to execute a real estate mortgage for UM, Petalcorin showed a
Secretary’s Certificate signed on April 13, 1982 by UM’s Corporate Secretary, Aurora de Leon. The
Secretary’s Certificate was supported by an excerpt from the minutes of the January 19, 1982
alleged meeting of UM’s Board of Trustees.

On October 21, 1982, BSP granted FISLAI an additional loan of P620,700.00. Guillermo and
Edmundo Ramos executed a promissory note on October 21, 1982 to cover that amount.

On November 5, 1982, Petalcorin executed another deed of real estate mortgage, allegedly
on behalf of UM, over its two properties in Iligan City. This mortgage served as additional security
for FISLAI’s loans. The two Iligan City properties were covered by TCT Nos. T-15696 and T-15697.

On January 11, 1985, FISLAI, DSLAI, and Land Bank of the Philippines entered into a
Memorandum of Agreement intended to rehabilitate the thrift banks, which had been suffering
from their depositors’ heavy withdrawals. Among the terms of the agreement was the merger of
FISLAI and DSLAI, with DSLAI as the surviving corporation. DSLAI later became known as
Mindanao Savings and Loan Association, Inc. (MSLAI).

Guillermo died on March 2, 1989. MSLAI failed to recover from its losses and was
liquidated on May 24, 1991.

On June 18, 1999, BSP sent a letter to UM, informing it that the bank would foreclose its
properties if MSLAI’s total outstanding obligation of P12,534,907.73 remained unpaid. UM,
however, denied that its properties were mortgaged. It also denied having received any loan
proceeds from BSP. UM later filed two Complaints for nullification and cancellation of mortgage.

Issues:

1) Whether respondent BSP’s action to foreclose the mortgaged properties had already
prescribed.
2) Whether petitioner UM is bound by the real estate mortgage contracts executed
by Petalcorin.
3) Whether ratification applies to the instant case.

Ruling:

1) BSP’s action to foreclose the mortgaged properties is not yet barred by prescription.

The prescriptive period for actions on mortgages is ten (10) years from the day they may
be brought. Actions on mortgages may be brought not upon the execution of the mortgage
contract but upon default in payment of the obligation secured by the mortgage. A debtor is
considered in default when he or she fails to pay the obligation on due date and, subject to
exceptions, after demands for payment were made by the creditor.

As a general rule, a person defaults and prescriptive period for action runs when (1) the
obligation becomes due and demandable; and (2) demand for payment has been made. In other
words, prescriptive period runs from the date of demand, subject to certain exceptions.

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The mortgage contracts in this case were executed by Petalcorin in 1982. The maturity
dates of FISLAI’s loans were repeatedly extended until the loans became due and demandable
only in 1990. Respondent informed petitioner of its decision to foreclose its properties and
demanded payment in 1999.

Under Article 1155 of the Civil Code, prescription of actions may be interrupted by (1) the
filing of a court action; (2) a written extrajudicial demand; and (3) the written acknowledgment of
the debt by the debtor.

Therefore, the running of the prescriptive period was interrupted when respondent sent
its demand letter to petitioner on June 18, 1999. This eventually led to petitioner’s filing of its
annulment of mortgage complaints on July 16, 1999.

Assuming that demand was necessary, respondent’s action was within the ten (10)-year
prescriptive period. Respondent demanded payment of the loans in 1999 and filed an action in the
same year.

2) The mortgage contract is not binding on petitioner.

The relationship between a corporation and its representatives is governed by the general
principles of agency. Article 1317 of the Civil Code provides that there must be authority from the
principal before anyone can act in his or her name. Without delegation by the board of directors
or trustees, acts of a person—including those of the corporation’s directors, trustees,
shareholders, or officers—executed on behalf of the corporation are generally not binding on the
corporation.

Contracts entered into in another’s name without authority or valid legal representation
are generally unenforceable, pursuant to Articles 1317 and 1403 of the Civil Code.

BSP failed to prove that the UM Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real properties. Hence, not having the proper
board resolution to authorize Petalcorin to execute the mortgage contracts for petitioner, the
contracts he executed are unenforceable against petitioner.

3) Ratification does not apply to the instant case.

Even though a person did not give another person authority to act on his or her behalf, the
action may be enforced against him or her if it is shown that he or she ratified it or allowed the
other person to act as if he or she had full authority to do so.

Implied ratification may take the form of silence, acquiescence, acts consistent with
approval of the act, or acceptance or retention of benefits. However, silence, acquiescence,
retention of benefits, and acts that may be interpreted as approval of the act do not by themselves
constitute implied ratification. For an act to constitute an implied ratification, there must be no
acceptable explanation for the act other than that there is an intention to adopt the act as his or
her own. "[It] cannot be inferred from acts that a principal has a right to do independently of the
unauthorized act of the agent." No act by petitioner can be interpreted as anything close to
ratification.
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Ratification must also be knowingly and voluntarily done. Here, petitioner’s lack of
knowledge about the mortgage executed in its name precludes an interpretation that there was
any ratification on its part.

Corporate acts may be ultra vires but not void. Mere ultra vires acts, or those which are
not illegal and void ab initio, but are not merely within the scope of the articles of incorporation,
are merely voidable and may become binding and enforceable when ratified by the stockholders.

There can be no apparent authority and the corporation cannot be estopped from denying
the binding affect of an act when there is no evidence pointing to similar acts and other
circumstances that can be interpreted as the corporation holding out a representative as having
authority to contract on its behalf.

Petalcorin’s authority to transact on behalf of petitioner cannot be presumed based on a


Secretary’s Certificate and excerpt from the minutes of the alleged board meeting that were found
to have been simulated. These documents cannot be considered as the corporate acts that held
out Petalcorin as petitioner’s authorized representative for mortgage transactions. They were not
supported by an actual board meeting.

BANCO DE ORO UNIBANK vs. SUNNYSIDE HEIGHTS


HOMEOWNERS ASSOCIATION, INC.
G.R. No. 198745, January 13, 2016, J. Reyes

Facts:

Mover Enterprises, Inc. (Mover) is the owner and developer of the Sunnyside Heights
Subdivision located in Batasan Hills, Quezon City. In March 1988, Mover mortgaged Lot 5, Block
10 of Phase I of the said subdivision containing 5,764 square meters to the Philippine Commercial
International Bank (PCIB) to secure a loan. Mover failed to pay its loan and PCIB foreclosed on
the mortgage. After title was consolidated in PCIB, the Registry of Deeds of Quezon City issued
Transfer Certificate of Title (TCT) No. 86389 to the said bank on May 17, 1993.

Sometime in mid-1994, PCIB advertised the aforesaid lot for sale in the newspapers. This
prompted the Sunnyside Heights Homeowners Association (SI-IHA) to file before the Housing
and Land Use Regulatory Board (I-ILURB) a letter-complaint, docketed as HLURB Case No. REM-
091594-6077, to declare the mortgage between Mover and PCIB void on the ground that the
subject property, originally covered by TCT No. 366219, has been allocated as SHJ-IA's open space
pursuant to law. SHI-IA thus sought reconveyance of the property.

Issues:

1) Whether the HLURB has jurisdiction over the subject matter of the case.
2) Whether Mover should be held liable for the nullity of the mortgage.

Ruling:

1) The HLURB has jurisdiction over the subject matter of the case.
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The jurisdiction of the HLURB to regulate the real estate trade is broad enough to include
jurisdiction over complaints for annulment of mortgage. To disassociate the issue of nullity of
mortgage and lodge it separately with the liquidation court would only cause inconvenience to
the parties and would not serve the ends of speedy and inexpensive administration of justice as
mandated by the laws vesting quasi-judicial powers in the agency.

2) Mover should be held liable for the nullity of the mortgage.

It would be unjust enrichment on the part of Mover not to acknowledge its indebtedness
to BDO in view of the nullity of the mortgage. It should have known that its mortgage security
was invalid considering the alteration in its subdivision plan in May 1987. In equity, it must
therefore compensate PCIB for the loss thereat: reckoned from the filing of SHHA's letter-
complaint on September 14, 1994.

The Supreme Court, in the case of Eastern Shipping Lines, Inc. synthesized the rules on the
imposition of interest, if proper, and the applicable rate, as follows: The 12% per annum rate
under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as
well as to judgments involving such loan or forbearance of money, goods, or credit, while the. 6%
per annum under Art. 2209 of the Civil Code applies "when the transaction involves the payment
of indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general," with the application of both rates reckoned "from the time the complaint
was filed until the [adjudged] amount is fully paid." In either instance, the reckoning period for
the commencement of the running of the legal interest shall be subject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on the award of
interest."

In view of absence of bad faith by PCIB in the questioned mortgage loan, in addition to
the loan amount of Pl,700,000.00, Mover should pay to BDO legal interest at 12% per annum from
the time it is due pursuant to Eastern Shipping Lines, except that with the effectivity of Monetary
Board Circular No. 799, the rate of interest for the loan shall be reduced to six percent (6%) per
annum from and after July 1, 2013.

FABIO CAHAYAG and CONRADO RIVERA vs. COMMERCIAL CREDIT CORPORATION, ET


AL. / DULOS DEVELOPMENT CORPORATION, ET AL. vs. COMMERCIAL CREDIT
CORPORATION, ET AL.
G.R. No. 168078 / G.R. No. 168357, January 13, 2016, C.J. Sereno

Facts:

Petitioner Dulos Realty was the registered owner of certain residential lots covered by
Transfer Certificate of Title (TCT) Nos. S-39767, S-39775, S-28335, S-39778 and S-29776, located at
Airmen's Village Subdivision, Pulang Lupa II, Las Pinas, Metro Manila.

Dulos Realty obtained a loan from respondent CCC in the amount of P300,000. To secure
the loan, the realty executed a Real Estate Mortgage over the subject properties in favor of
respondent. The mortgage was duly annotated on the certificates of title.

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Dulos Realty defaulted in the payment of the mortgage loan, prompting respondent CCC
to initiate extrajudicial foreclosure proceedings. An auction sale was held, with respondent CCC
emerging as the highest bidder. Consequently, TCT Nos. S-39775, S-28335, S-39778 and S-29776 -
all in the name of Dulos Realty - were cancelled and TCT Nos. 74531, 74532, 74533 and 74534 were
issued in the name of respondent CCC.

Meanwhile, Dulos Realty entered into Contracts to Sell with petitioners Cahayag, Rivera,
Escalona and a Deed of Absolute Sale with Baldoza over the houses and lots covered by TCT No.
S-39775, TCT No. S-28335, TCT No. S-29776 and S-39778, respectively.

On 21 December 1983, respondent CCC, through a Deed of Absolute Sale, sold to


respondent Qua the same subject properties, now covered by TCT Nos. 74531, 74532, 74533 and
74534, in the name of respondent CCC. Accordingly, TCT Nos. 74531, 74532, 74533 and 74534 were
cancelled; and TCT Nos. 77012, 77013, 77014 and 770015 were issued to respondent Qua.

Subsequently, respondent Qua filed ejectment suits individually against petitioners Dulos
Realty, Cahayag, Escalona, and Rivera.

Petitioners, on the other hand filed a Complaint against respondents for the Annulment of
Sheriff’s Sale and Other Documents with Preliminary Injunction and/or Temporary Restraining
Order. The Complaint alleged that petitioners Cahayag, Rivera, Escalona and Baldoza were
owners of the properties in question by virtue of Contracts of Sale individually executed in their
favor, and that the Real Estate Mortgage between Dulos Realty and defendant-appellant CCC did
not include the houses, but merely referred to the lands themselves. Thus, the inclusion of the
housing units in the Deed of Sale executed by respondent CCC in favor of respondent Qua was
allegedly illegal.

Issues:

1) Whether the real mortgage covers the lands only or the housing units as well.
2) Whether Dulos Realty was the owner of the properties it had mortgaged at the time of its
execution.
3) Whether petitioners were bound to the mortgage by virtue of its registration.
4) Who, as between petitioners-buyers and respondent Qua, has a better right over the
properties?
5) Whether there was a valid sale and transfer of title to Baldoza.
6) Whether respondent Qua is guilty of bad faith in the purchase of the properties.

Ruling:

1) The real mortgage covers the not only the lands but also the housing units.

The contra proferentem rule finds no application to this case. The doctrine provides that in
the interpretation of documents, ambiguities are to be construed against the drafter. By its very
nature, the precept assumes the existence of an ambiguity in the contract, which is why contra
proferentem is also called the ambiguity doctrine. In this case, the Deed of Real Estate
Mortgage clearly establishes that the improvements found on the real properties listed therein are

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included as subject-matter of the contract. It covers not only the real properties, but the buildings
and improvements thereon as well.

2) Dulos Realty was the owner of the properties it had mortgaged at the time of its execution.
The Contracts to Sell and Deed of Absolute Sale could not have posed an impediment at all to the
mortgage, given that these contracts had yet to materialize when the mortgage was
constituted. They were all executed after the constitution of the Real Estate Mortgage on
20 December 1980.

Petitioners equate a contract to sell to a contract of sale, in which the vendor loses
ownership over the property upon its delivery. But a contract to sell, standing alone, does not
transfer ownership. At the point of perfection, the seller under a contract to sell does not even
have the obligation to transfer ownership to the buyer. The obligation arises only when the buyer
fulfills the condition: full payment of the purchase price. In other words, the seller retains
ownership at the time of the execution of the contract to sell.

There is no evidence to show that any of petitioners Cahayag, Rivera and Escalona were
able to effect full payment of the purchase price, which could have at least given rise to the
obligation to transfer ownership.

3) Petitioners Cahayag, Rivera and Escalona, were bound to the mortgage executed between
mortgagor Dulos Realty and mortgagee CCC, by virtue of its registration, which preceded the
execution of the Contracts to Sell.

Registration of the mortgage establishes a real right or lien in favor of the mortgagee, as
provided by Articles 1312 and 2126 of the Civil Code. Corollary to the rule, the lien has been treated
as "inseparable from the property inasmuch as it is a right in rem." In other words, it binds third
persons to the mortgage.

The purpose of registration is to notify persons other than the parties to the contract that
a transaction concerning the property was entered into. Ultimately, registration, because it
provides constructive notice to the whole world, makes the certificate of title reliable, such that
third persons dealing with registered land need only look at the certificate to determine the status
of the property.

4) Respondent Qua has a better right over the properties.

When it comes to extrajudicial foreclosures, the law grants mortgagors or their successors-
in-interest an opportunity to redeem the property within one year from the date of the sale. The
one-year period has been jurisprudentially held to be counted from the registration of the
foreclosure sale with the Register of Deeds. An exception to this rule has been carved out by
Congress for juridical mortgagors. Section 47 of the General Banking Law of 2000 shortens the
redemption period to within three months after the foreclosure sale or until the registration of
the certificate of sale, whichever comes first. The General Banking Law of 2000 came into law on
13 June 2000.

If the redemption period expires and the mortgagors or their successors-in-interest fail to
redeem the foreclosed property, the title thereto is consolidated in the purchaser. The
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consolidation confirms the purchaser as the owner of the property; concurrently, the mortgagor-
for failure to exercise the right of redemption within the period-loses all interest in the property.

As the foreclosure sale took place prior to the advent of the General Banking Law of 2000,
the applicable redemption period is one year. In this case, because the Certificate of Sale in favor
of respondent CCC was registered on 8 March 1982, the redemption period was until 8 March
1983. It lapsed without any right of redemption having been exercised by Dulos Realty.
Consequently, the right of respondent CCC, as purchaser of the subject lots, became absolute.
Further, the right of respondent CCC over the lots was transferred to respondent Qua by virtue of
the Deed of Sale executed between them.

5) While there was a valid sale to Baldoza, there was no valid transfer of title to him since
Dulos Realty was no longer the owner at the time of the execution of the Deed of Absolute Sale.

For title to pass to the buyer, the seller must be the owner of the thing sold at
the consummation stage or at the time of delivery of the item sold. The seller need not be the
owner at the perfection stage of the contract, whether it is of a contract to sell or a contract of
sale. Ownership is not a requirement for a valid contract of sale; it is a requirement for a valid
transfer of ownership'. The fact that Dulos Realty was no longer the owner of the property in
question at the time of the sale did not affect the validity of the contract.

On the contrary, lack of title goes into the performance of a contract of sale. It is
therefore crucial to determine in this case if the seller was the owner at the time of delivery of the
object of the sale. For this purpose, it should be noted that execution of a public instrument
evidencing a sale translates to delivery. It transfers ownership of the item sold to the buyer.

In this case, the delivery coincided with the perfection of the contract -The Deed of Absolute Sale
covering the real property in favor of petitioner Baldoza was executed on 10 December 1983. As
already mentioned, Dulos Realty was no longer the owner of the property on that date.
Accordingly, it could not have validly transferred ownership of the real property it had sold to
petitioner.

6) Respondent Qua is not guilty of bad faith in the purchase of the properties.

An innocent purchaser for value is one who "buys the property of another without notice
that some other person has a right to or interest in it, and who pays a full and fair price at the
time of the purchase or before receiving any notice of another person's claim." The concept thus
presupposes that there must be an adverse claim or defect in the title to the property to be
purchased by the innocent purchaser for value.

Respondent Qua traces her title to respondent CCC, whose acquisition over the property
proceeded from a foreclosure sale that was valid. As there is no defect in the title of respondent
CCC to speak of in this case, there is no need to go into a discussion of whether Qua is an
innocent purchaser for value.

SPOUSES GALLENT v. JUAN G. VELASQUEZ


G.R. No. 203949 & 205071, April 6, 2016; Reyes

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Facts:

George A. Gallent, Sr. (George) was the registered owner of a 761-square-meter residential
property covered by Transfer Certificate of Title (TCT) No. S-99286, located at Alabang Hills
Village, Muntinlupa City, with improvements thereon consisting of a two-storey house and a
swimming pool. On December 20, 1996, the Spouses George and Mercedes Gallent (Spouses
Gallent) mortgaged the said property to Allied Banking Corporation (Allied Bank) as security for a
loan of Pl.5 Million. The Spouses Gallent failed to pay their loan, which had ballooned to
P4,631,974.66; thus, Allied Bank extrajudicially foreclosed the mortgaged property wherein it
emerged as the highest bidder and was issued a corresponding certificate of sale dated September
25, 2000. Since the Spouses Gallent failed to redeem the subject property after one year, Allied
Bank consolidated its ownership over the subject property.

On June 11, 2003, Allied Bank agreed to sell back the foreclosed property to the Spouses Gallent for
P4 Million, as evidenced by an Agreement to Sell, wherein the Spouses Gallent paid a down
payment of P3.5 Million, evidenced by an Official Receipt (O.R.) No. 0990687-A6 dated March 12,
2003, and the balance thereof was payable in 12 monthly amortizations. The Spouses Gallent were
allowed to keep the possession of the subject property as tenants or lessees of Allied Bank.

However, due to financial difficulties, sometime in October 2003, the Spouses Gallent were
constrained to ask help from Juan Velasquez (Velasquez), to help them settle their remaining
monthly amortizations. As an inducement, they agreed that Velasquez would have the subject
property registered under his name until they have repaid him. On October 24, 2003, the Spouses
Gallent executed a Deed of Assignment of Rights whereby they assigned to Velasquez all their
rights, interests, and obligations under their Agreement to Sell with Allied Bank. Velasquez paid
Allied Bank the remaining balance amounting to P216,635.97.

On November 5, 2003, Allied Bank and Velasquez executed a Deed of Absolute Sale over the
subject property for the price of P4 Million, wherein George himself signed as an instrumental
witness. However, the said instrument was not registered. Subsequently, Velasquez caused
another Deed of Sale dated November 19, 2003, over the subject property which showed a lower
selling price of P1.2 Million to be registered, purportedly for tax purposes. On November 28, 2003,
TCT No. 1181414 was issued under the name of Velasquez.

After more than four years, or on June 27, 2008, Velasquez sent a demand letter to the Spouses
Gallent to vacate the subject property, but the latter refused to do so, prompting the former to file
an ex parte petition for issuance of a writ of possession, docketed as LRC Case No. 09-055, in the
RTC of Muntinlupa City. The Spouses Gallent sought to dismiss the petition by filing
Consolidated Motions for Leave to Intervene and to Dismiss Petition on January 14, 2010.

The RTC Muntinlupa denied the Spouses Gallent’s consolidated motions in an Order dated
February 12, 2010. The trial court ratiocinated that the issuance of the writ of possession is a
ministerial duty of the court upon filing of the proper application and proof of title and by its
nature does not require notice upon persons interested in the subject properties. By virtue of the
sale of the properties involved, Velasquez became the new owner of the lots entitled to all rights
and interests its predecessor Allied Bank had therein, including the right to file an application for
writ of possession. The trial court subsequently denied the Spouses Gallent’s Motion for
Reconsideration in an Order dated April 13, 2010.
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Thereafter the Spouses Gallent filed a Petition for Certiorari before the CA docketed as CA-G.R.
SP No. 114527 assailing the February 12 and April 13 Orders of the RTC Muntinlupa. They argued
that the RTC had no jurisdiction to issue an ex parte writ of possession to Velasquez since he did
not acquire the property at a foreclosure sale, but purchased the same from the mortgagee,
winning bidder and purchaser, Allied Bank, and only after it had consolidated its title thereto.
The Spouses allege that Velasquez should have filed an action for ejectment or for recovery of
ownership or possession.

Subsequently, the Spouses Gallent filed another Petition for Certiorari before the CA, this time
docketed as CA-G.R. SP No. 116097 arguing that the deed of sale between Velasquez and Allied
Bank was a forgery. The two cases pending before the CA were not consolidated.

In CA-G.R. SP No. 116097, the CA ruled that that Velasquez, as the bank's transferee of the said
property may also petition the court for an ex parte writ of possession since he merely stepped
into the shoes of Allied Bank.

However, in CA-G.R. SP No. 114527, the CA held that Velasquez was not entitled to a writ of
possession because the ministerial duty to issue a writ of possession ceases to be so with
particular regard to petitioners who are actual possessors of the property under a claim of
ownership. Actual possession under claim of ownership raises a disputable presumption of
ownership. This conclusion is supported by Article 433 of the Civil Code.

Both parties filed their respective Motions for Reconsideration and Petitions for Review on
Certiorari.

Issues:

1) Whether or not Velasquez entitled to the issuance of a writ of possession.

Ruling:

1) No, as an exception, the ministerial duty of the court to issue an ex parte writ of
possession ceases once it appears that a third party, not the debtor-mortgagor, is in
possession of the property under a claim of title adverse to that of the applicant.

The general rule in extrajudicial foreclosure of mortgage is that after the consolidation of the title
over the foreclosed property in the buyer, it is the ministerial duty of the court to issue a writ of
possession upon an ex parte petition by the new owner as a matter of right. Furthermore, when
the thing purchased at a foreclosure sale is in turn sold or transferred, the right to the possession
thereof, along with all other rights of ownership, follows the thing sold to its new owner.
However, as an exception, the ministerial duty of the court to issue an ex parte writ of possession
ceases once it appears that a third party, not the debtor-mortgagor, is in possession of the
property under a claim of title adverse to that of the applicant. Section 33 of Rule 39 of the Rules
of Court provides that in an execution sale, the possession of the property shall be given to the
purchaser or last redemptioner, unless a third party is actually holding the property adversely to
the judgment obligor.

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Thus, applying the foregoing discussion, Velasquez is indeed be entitled to a writ of possession as
the successor-in-interest of Allied Bank except that the exception to the general rule applies in
this case.

SPOUSES JONSAY v. JUAN G. SOLIDBANK CORPORATION


G.R. No. 206549 , April 6, 2016; Reyes

Facts:

Momarco, controlled and owned by the Spouses Jonsay, is an importer, manufacturer and
distributor of animal health and feedmill products catering to cattle, hog and poultry producers.
On November 9, 1995, and again on April 28, 1997, Momarco obtained loans of P40,000,000.00
and P20,000,000.00, respectively, from Solidbank for which the Spouses Jonsay executed a
blanket mortgage over three parcels of land they owned in Calamba City, Laguna registered in
their names under Transfer Certificates of Title Nos. T-224751, T-210327 and T-269668 containing
a total of 23,733 square meters. On November 3, 1997, the loans were consolidated under one
promissory note for the combined amount of P60,000,000.00, signed by Florante as President of
Momarco, with his wife Luzviminda also signing as co-maker. The stipulated rate of interest was
18.75% per annum, along with an escalation clause tied to increases in pertinent Central Bank-
declared interest rates, by which Solidbank was eventually able to unilaterally increase the
interest charges up to 30% per annum.

Eventually, due to the reverses brought on by the 1997 Asian financial crisis, Momarco failed to
pay its interest payments. Solidbank then proceeded to extrajudicially foreclose on the mortgage,
and at the auction sale held on March 5, 1999, it submitted the winning bid of P82,327,249.54,
representing Momarco's outstanding loans, interests and penalties, plus attorney's fees of
P3,600,000.00. On March 22, 1999, Sheriff Adelio Perocho (Sheriff Perocho) issued a certificate of
sale to Solidbank, duly annotated on April 15, 1999 on the lots' titles.

On March 9, 2000, a month before the expiration of the period to redeem the lots, the petitioners
filed a Complaint against Solidbank, Sheriff Perocho and the Register of Deeds of Calamba,
Laguna, docketed as Civil Case No. 2912-2000-C, for Annulment of the Extrajudicial Foreclosure of
Mortgage, Injunction, Accounting and Damages with Prayer for the Immediate Issuance of a Writ
of Preliminary Prohibitory Injunction.

The RTC granted the injunction prayed for by the Spouses Jonsay and eventually ruled in their
favor. The RTC ruled that the mortgage contract and the promissory notes prepared by Solidbank,
which the Spouses Jonsay signed in blank, were contracts of adhesion; that Solidbank failed to
take into account Momarco’s payments in the two years preceding 1998 totaling P24,277,293.22
(this amount was not disputed by Solidbank); that the interest rates, ranging from 19% to 30%, as
well as the penalties, charges and attorney's fees imposed by Solidbank, were excessive,
unconscionable and immoral, and that Solidbank has no carte blanche authority under the Usury
Law to unilaterally raise the interest rates to levels as to enslave the borrower and hemorrhage its
assets; that the Morning Chronicle, in which the notice of auction was published, was not a
newspaper of general circulation because it had no bona fide list of paying subscribers; that
Solidbank manipulated the foreclosure sale through a defective publication of the notice of
auction and by submitting an unconscionably low bid of P82,327,000.00, whereas the value of the
lots had risen sevenfold since the rehabilitation of the SLEX.
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On appeal, the CA initially rendered judgment affirming the RTC in toto. It agreed that Solidbank
did not comply with the publication requirements under Section 3, Act No. 3135. According to the
CA, the Morning Chronicle was not a newspaper of general circulation, notwithstanding the
affidavit of publication issued by its publisher, Turing R. Crisostomo (Crisostomo), to that effect
as well as the certification of the Clerk of Court of RTC-Calamba City that it was duly accredited
by the court since May 28, 1997 to publish legal notices. The CA ruled that it was not enough for
Crisostomo to merely state in his affidavit that the Morning Chronicle was published and edited
in the province of Laguna and in San Pablo City without a showing that it was published to
disseminate local news and general information, that it had a bona fide list of paying subscribers,
that it was published at regular intervals, and that it was in general circulation in Calamba City
where the subject properties are located.

However, on Motion for Reconsideration of Solidbank, the CA completely reversed its earlier
decision. The CA decalred that declared that Solidbank's extrajudicial foreclosure of the mortgage
enjoyed the presumption of regularity. The CA stressed that since the selection of Morning
Chronicle to publish the notice was through a court-supervised raffle, Solidbank was fully justified
in relying on the regularity of the publication of its notice in the aforesaid newspaper, in the
choice of which it had no hand whatsoever. The CA however still limited the interest to 12% per
annum.

Issues:

1) Whether or not Solidbank sufficiently complied with the publication requirement under
Section 3 of Act No. 3135.

Ruling:

1) Yes, petitioners were not able to present sufficient evidence to overcome the presumption
of regularity of the forecfoosure sale.

In the case at bar, there is no dispute that there was publication of the auction notice, which the
CA in its amended decision now held to have sufficiently complied with the requirement of
publication under Section 3 of Act No. 3135. Unfortunately, against the fact of publication and the
presumption of regularity of the foreclosure proceedings, the petitioners' only contrary evidence
is Florante's testimonial assertion that the Morning Chronicle was not a newspaper of general
circulation in Calamba City and that it could not be found in the local newsstands.

While it is true that the accreditation by the presiding judge of a trial court is not decisive of
whether a certain publication is a newspaper of general circulation, nonetheless, when the RTC
accredited the Morning Chronicle to publish legal notices in Calamba City, it can be presumed
that the RTC had made a prior determination that the said newspaper had met the requisites for
valid publication of legal notices in the said locality, guided by the understanding that for the
publication of legal notices in Calamba City to serve its intended purpose, it must be in general
circulation therein. This presumption lays the burden upon the petitioners to show otherwise,
contrary to the CA's first ruling.

Moreover, an escalation clause in a loan agreement granting the lending bank authority to
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unilaterally increase the interest rate without prior notice to and consent of the borrower is void.
Therefore, applying the adjusted interest rates and penalties, Solidbank should return the amount
of P14,100,271.05 to Spouses Jonsay as excess of the proceeds of the foreclosure sale.

UNIVERSITY OF MINDANAO, INC. vs. BANGKO SENTRAL NG PILIPINAS, ET AL.


G.R. No. 194964, January 11, 2016, J. Carpio

Facts:

Before 1982, Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2)
thrift banks: (1) First Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and
Loan Association, Inc. (DSLAI). Guillermo chaired both thrift banks. He acted as FISLAI’s
President, while his wife, Dolores, acted as DSLAI’s President and FISLAI’s Treasurer.

Upon Guillermo’s request, Bangko Sentral ng Pilipinas (BSP) issued a P1.9 million standby
emergency credit to FISLAI. On May 25, 1982, University of Mindanao’s (UM) Vice President for
Finance, Saturnino Petalcorin, executed a deed of real estate mortgage over UM’s property in
Cagayan de Oro City (covered by Transfer Certificate of Title No. T-14345) in favor of BSP. "The
mortgage served as security for FISLAI’s P1.9 Million loan [.]" It was allegedly executed on UM’s
behalf.

As proof of his authority to execute a real estate mortgage for UM, Petalcorin showed a
Secretary’s Certificate signed on April 13, 1982 by UM’s Corporate Secretary, Aurora de Leon. The
Secretary’s Certificate was supported by an excerpt from the minutes of the January 19, 1982
alleged meeting of UM’s Board of Trustees.

On October 21, 1982, BSP granted FISLAI an additional loan of P620,700.00. Guillermo and
Edmundo Ramos executed a promissory note on October 21, 1982 to cover that amount.

On November 5, 1982, Petalcorin executed another deed of real estate mortgage, allegedly
on behalf of UM, over its two properties in Iligan City. This mortgage served as additional security
for FISLAI’s loans. The two Iligan City properties were covered by TCT Nos. T-15696 and T-15697.

On January 11, 1985, FISLAI, DSLAI, and Land Bank of the Philippines entered into a
Memorandum of Agreement intended to rehabilitate the thrift banks, which had been suffering
from their depositors’ heavy withdrawals. Among the terms of the agreement was the merger of
FISLAI and DSLAI, with DSLAI as the surviving corporation. DSLAI later became known as
Mindanao Savings and Loan Association, Inc. (MSLAI).

Guillermo died on March 2, 1989. MSLAI failed to recover from its losses and was
liquidated on May 24, 1991.

On June 18, 1999, BSP sent a letter to UM, informing it that the bank would foreclose its
properties if MSLAI’s total outstanding obligation of P12,534,907.73 remained unpaid. UM,
however, denied that its properties were mortgaged. It also denied having received any loan
proceeds from BSP. UM later filed two Complaints for nullification and cancellation of mortgage.
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Issues:

1) Whether respondent BSP’s action to foreclose the mortgaged properties had already
prescribed.
2) Whether petitioner UM is bound by the real estate mortgage contracts executed
by Petalcorin.
3) Whether ratification applies to the instant case.

Ruling:

1) BSP’s action to foreclose the mortgaged properties is not yet barred by prescription.

The prescriptive period for actions on mortgages is ten (10) years from the day they may
be brought. Actions on mortgages may be brought not upon the execution of the mortgage
contract but upon default in payment of the obligation secured by the mortgage. A debtor is
considered in default when he or she fails to pay the obligation on due date and, subject to
exceptions, after demands for payment were made by the creditor.

As a general rule, a person defaults and prescriptive period for action runs when (1) the
obligation becomes due and demandable; and (2) demand for payment has been made. In other
words, prescriptive period runs from the date of demand, subject to certain exceptions.

The mortgage contracts in this case were executed by Petalcorin in 1982. The maturity
dates of FISLAI’s loans were repeatedly extended until the loans became due and demandable
only in 1990. Respondent informed petitioner of its decision to foreclose its properties and
demanded payment in 1999.

Under Article 1155 of the Civil Code, prescription of actions may be interrupted by (1) the
filing of a court action; (2) a written extrajudicial demand; and (3) the written acknowledgment of
the debt by the debtor.

Therefore, the running of the prescriptive period was interrupted when respondent sent
its demand letter to petitioner on June 18, 1999. This eventually led to petitioner’s filing of its
annulment of mortgage complaints on July 16, 1999.

Assuming that demand was necessary, respondent’s action was within the ten (10)-year
prescriptive period. Respondent demanded payment of the loans in 1999 and filed an action in the
same year.

2) The mortgage contract is not binding on petitioner.

The relationship between a corporation and its representatives is governed by the general
principles of agency. Article 1317 of the Civil Code provides that there must be authority from the
principal before anyone can act in his or her name. Without delegation by the board of directors
or trustees, acts of a person—including those of the corporation’s directors, trustees,

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shareholders, or officers—executed on behalf of the corporation are generally not binding on the
corporation.

Contracts entered into in another’s name without authority or valid legal representation
are generally unenforceable, pursuant to Articles 1317 and 1403 of the Civil Code.

BSP failed to prove that the UM Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real properties. Hence, not having the proper
board resolution to authorize Petalcorin to execute the mortgage contracts for petitioner, the
contracts he executed are unenforceable against petitioner.

3) Ratification does not apply to the instant case.

Even though a person did not give another person authority to act on his or her behalf, the
action may be enforced against him or her if it is shown that he or she ratified it or allowed the
other person to act as if he or she had full authority to do so.

Implied ratification may take the form of silence, acquiescence, acts consistent with
approval of the act, or acceptance or retention of benefits. However, silence, acquiescence,
retention of benefits, and acts that may be interpreted as approval of the act do not by themselves
constitute implied ratification. For an act to constitute an implied ratification, there must be no
acceptable explanation for the act other than that there is an intention to adopt the act as his or
her own. "[It] cannot be inferred from acts that a principal has a right to do independently of the
unauthorized act of the agent." No act by petitioner can be interpreted as anything close to
ratification.

Ratification must also be knowingly and voluntarily done. Here, petitioner’s lack of
knowledge about the mortgage executed in its name precludes an interpretation that there was
any ratification on its part.

Corporate acts may be ultra vires but not void. Mere ultra vires acts, or those which are
not illegal and void ab initio, but are not merely within the scope of the articles of incorporation,
are merely voidable and may become binding and enforceable when ratified by the stockholders.

There can be no apparent authority and the corporation cannot be estopped from denying
the binding affect of an act when there is no evidence pointing to similar acts and other
circumstances that can be interpreted as the corporation holding out a representative as having
authority to contract on its behalf.

Petalcorin’s authority to transact on behalf of petitioner cannot be presumed based on a


Secretary’s Certificate and excerpt from the minutes of the alleged board meeting that were found
to have been simulated. These documents cannot be considered as the corporate acts that held
out Petalcorin as petitioner’s authorized representative for mortgage transactions. They were not
supported by an actual board meeting.

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FLORANTE VITUG vs. EVANGELINE A. ABUDA


G.R. No. 201264, January 11, 2016, J. Leonen

Facts:

On March 17, 1997, Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug. As
security for the loan, Vitug mortgaged to Abuda his property in Tondo Foreshore along R-10,
Block A-50-3, Del Pan to Kagitingan Streets, Tondo, Manila. The property was then subject of a
conditional Contract to Sell between the National Housing Authority and Vitug.

On November 17, 1997, the parties executed a "restructured" mortgage contract on the
property to secure the amount of P600,000.00 representing the original P250,000.00 loan,
additional loans,5 and subsequent credit accommodations given by Abuda to Vitug with an
interest of five (5) percent per month. By then, the property was covered by Transfer Certificate of
Title No. 234246 under Vitug's name.

Spouses Vitug failed to pay their loans despite Abuda's demands. Hence, on November 21,
2003, Abuda filed a Complaint for Foreclosure of Property before the Regional Trial Court of
Manila.

Issues:

1) Whether the restriction clause in petitioner's title rendered invalid the real estate
mortgage he and respondent Evangeline Abuda executed.
2) Whether petitioner's property is a family home that is free from execution, forced sale, or
attachment under the Family Code.
3) Whether the interest rate imposed on the loan is unconscionable.

Ruling:

1) Contracts entered into in violation of restrictions on a property owner's rights do not


always have the effect of making them void ab initio.

Contracts that contain provisions in favor of one party may be void ab initio or
voidable. Contracts that lack consideration, those that are against public order or public policy,
and those that are attended by illegality or immorality are void ab initio.

Contracts that only subject a property owner's property rights to conditions or limitations
but otherwise contain all the elements of a valid contract are merely voidable by the person in
whose favor the conditions or limitations are made.

The mortgage contract entered into by petitioner and respondent contains all the
elements of a valid contract of mortgage. The trial court and the Court of Appeals found no
irregularity in its execution. There was no showing that it was attended by fraud, illegality,
immorality, force or intimidation, and lack of consideration.

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At most, therefore, the restrictions made the contract entered into by the parties
voidable by the person in whose favor they were made-in this case, by the National Housing
Authority. Petitioner has no actionable right or cause of action based on those restrictions.

Having the right to assail the validity of the mortgage contract based on violation of the
restrictions, the National Housing Authority may seek the annulment of the mortgage
contract. Without any action from the National Housing Authority, rights and obligations,
including the right to foreclose the property in case of non-payment of the secured loan, are still
enforceable between the parties that executed the mortgage contract.

The voidable nature of contracts entered into in violation of restrictions or conditions


necessarily implies that the person in whose favor the restrictions were made has two (2) options.
It may either: (1) waive its rights accruing from such restrictions, in which case, the duly executed
subsequent contract remains valid; or (2) assail the subsequent contract based on the breach of
restrictions imposed in its favor.

2) Petitioner’s property is not free from execution, forced sale, or attachment. Even though
petitioner's property has been constituted as a family home, it is not exempt from execution.
Article 155 of the Family Code explicitly provides that debts secured by mortgages are exempted
from the rule against execution, forced sale, or attachment of family home:

Art. 155. The family home shall be exempt from execution, forced
sale or attachment except:
xxx
(3) For debts secured by mortgages on the premises before or after
such constitution [.]

Since petitioner's property was voluntarily used by him as security for a loan he obtained
from respondent, it may be subject to execution and attachment.

3) Parties are free to stipulate interest rates in their loan contracts in view of the suspension
of the implementation of the Usury Law ceiling on interest effective January 1, 1983. In stipulating
interest rates, parties must ensure that the rates are neither iniquitous nor unconscionable.
Iniquitous or unconscionable interest rates are illegal and, therefore, void for being against public
morals. Thus, even if the parties voluntarily agree to an interest rate, courts are given the
discretionary power to equitably reduce it if it is later found to be iniquitous or unconscionable.

An interest rate is not inherently conscionable or unconscionable. Interest rates become


unconscionable in light of the context in which they were imposed or applied. Under the
circumstances of this case, we find no reason to uphold the stipulated interest rates of 5% to 10%
per month on petitioner's loan. Petitioner obtained the loan out of extreme necessity. As pointed
out by respondent, the property would have been earlier foreclosed by the National Housing
Authority if not for the loan. Moreover, it would be unjust to impose a heavier burden upon
petitioner, who would already be losing his and his family's home. Respondent would not be
unjustly deprived if the interest rate is reduced.

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However, the interest rates should be modified according to the guidelines set forth
in Nacar v. Gallery Frames:

II. With regard particularly to an award of interest in the concept of


actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
credit.

BANCO DE ORO UNIBANK vs. SUNNYSIDE HEIGHTS HOMEOWNERS ASSOCIATION,


INC.
G.R. No. 198745, January 13, 2016, J. Reyes

Facts:

Mover Enterprises, Inc. (Mover) is the owner and developer of the Sunnyside Heights
Subdivision located in Batasan Hills, Quezon City. In March 1988, Mover mortgaged Lot 5, Block
10 of Phase I of the said subdivision containing 5,764 square meters to the Philippine Commercial
International Bank (PCIB) to secure a loan. Mover failed to pay its loan and PCIB foreclosed on

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the mortgage. After title was consolidated in PCIB, the Registry of Deeds of Quezon City issued
Transfer Certificate of Title (TCT) No. 86389 to the said bank on May 17, 1993.

Sometime in mid-1994, PCIB advertised the aforesaid lot for sale in the newspapers. This
prompted the Sunnyside Heights Homeowners Association (SI-IHA) to file before the Housing
and Land Use Regulatory Board (I-ILURB) a letter-complaint, docketed as HLURB Case No. REM-
091594-6077, to declare the mortgage between Mover and PCIB void on the ground that the
subject property, originally covered by TCT No. 366219, has been allocated as SHJ-IA's open space
pursuant to law. SHI-IA thus sought reconveyance of the property.

Issues:

1) Whether the HLURB has jurisdiction over the subject matter of the case.
2) Whether Mover should be held liable for the nullity of the mortgage.

Ruling:

1) The HLURB has jurisdiction over the subject matter of the case.

The jurisdiction of the HLURB to regulate the real estate trade is broad enough to include
jurisdiction over complaints for annulment of mortgage. To disassociate the issue of nullity of
mortgage and lodge it separately with the liquidation court would only cause inconvenience to
the parties and would not serve the ends of speedy and inexpensive administration of justice as
mandated by the laws vesting quasi-judicial powers in the agency.

2) Mover should be held liable for the nullity of the mortgage.

It would be unjust enrichment on the part of Mover not to acknowledge its indebtedness
to BDO in view of the nullity of the mortgage. It should have known that its mortgage security
was invalid considering the alteration in its subdivision plan in May 1987. In equity, it must
therefore compensate PCIB for the loss thereat: reckoned from the filing of SHHA's letter-
complaint on September 14, 1994.

The Supreme Court, in the case of Eastern Shipping Lines, Inc. synthesized the rules on the
imposition of interest, if proper, and the applicable rate, as follows: The 12% per annum rate
under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as
well as to judgments involving such loan or forbearance of money, goods, or credit, while the. 6%
per annum under Art. 2209 of the Civil Code applies "when the transaction involves the payment
of indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general," with the application of both rates reckoned "from the time the complaint
was filed until the [adjudged] amount is fully paid." In either instance, the reckoning period for
the commencement of the running of the legal interest shall be subject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on the award of
interest."

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In view of absence of bad faith by PCIB in the questioned mortgage loan, in addition to
the loan amount of Pl,700,000.00, Mover should pay to BDO legal interest at 12% per annum from
the time it is due pursuant to Eastern Shipping Lines, except that with the effectivity of Monetary
Board Circular No. 799, the rate of interest for the loan shall be reduced to six percent (6%) per
annum from and after July 1, 2013.

FABIO CAHAYAG and CONRADO RIVERA vs. COMMERCIAL CREDIT CORPORATION, ET


AL. / DULOS DEVELOPMENT CORPORATION, ET AL. vs. COMMERCIAL CREDIT
CORPORATION, ET AL.
G.R. No. 168078 / G.R. No. 168357, January 13, 2016, C.J. Sereno

Facts:

Petitioner Dulos Realty was the registered owner of certain residential lots covered by
Transfer Certificate of Title (TCT) Nos. S-39767, S-39775, S-28335, S-39778 and S-29776, located at
Airmen's Village Subdivision, Pulang Lupa II, Las Pinas, Metro Manila.

Dulos Realty obtained a loan from respondent CCC in the amount of P300,000. To secure
the loan, the realty executed a Real Estate Mortgage over the subject properties in favor of
respondent. The mortgage was duly annotated on the certificates of title.

Dulos Realty defaulted in the payment of the mortgage loan, prompting respondent CCC
to initiate extrajudicial foreclosure proceedings. An auction sale was held, with respondent CCC
emerging as the highest bidder. Consequently, TCT Nos. S-39775, S-28335, S-39778 and S-29776 -
all in the name of Dulos Realty - were cancelled and TCT Nos. 74531, 74532, 74533 and 74534 were
issued in the name of respondent CCC.

Meanwhile, Dulos Realty entered into Contracts to Sell with petitioners Cahayag, Rivera,
Escalona and a Deed of Absolute Sale with Baldoza over the houses and lots covered by TCT No.
S-39775, TCT No. S-28335, TCT No. S-29776 and S-39778, respectively.

On 21 December 1983, respondent CCC, through a Deed of Absolute Sale, sold to


respondent Qua the same subject properties, now covered by TCT Nos. 74531, 74532, 74533 and
74534, in the name of respondent CCC. Accordingly, TCT Nos. 74531, 74532, 74533 and 74534 were
cancelled; and TCT Nos. 77012, 77013, 77014 and 770015 were issued to respondent Qua.

Subsequently, respondent Qua filed ejectment suits individually against petitioners Dulos
Realty, Cahayag, Escalona, and Rivera.

Petitioners, on the other hand filed a Complaint against respondents for the Annulment of
Sheriff’s Sale and Other Documents with Preliminary Injunction and/or Temporary Restraining
Order. The Complaint alleged that petitioners Cahayag, Rivera, Escalona and Baldoza were
owners of the properties in question by virtue of Contracts of Sale individually executed in their
favor, and that the Real Estate Mortgage between Dulos Realty and defendant-appellant CCC did
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not include the houses, but merely referred to the lands themselves. Thus, the inclusion of the
housing units in the Deed of Sale executed by respondent CCC in favor of respondent Qua was
allegedly illegal.

Issues:

1) Whether the real mortgage covers the lands only or the housing units as well.
2) Whether Dulos Realty was the owner of the properties it had mortgaged at the time of its
execution.
3) Whether petitioners were bound to the mortgage by virtue of its registration.
4) Who, as between petitioners-buyers and respondent Qua, has a better right over the
properties?
5) Whether there was a valid sale and transfer of title to Baldoza.
6) Whether respondent Qua is guilty of bad faith in the purchase of the properties.

Ruling:

1) The real mortgage covers the not only the lands but also the housing units.

The contra proferentem rule finds no application to this case. The doctrine provides that in
the interpretation of documents, ambiguities are to be construed against the drafter. By its very
nature, the precept assumes the existence of an ambiguity in the contract, which is why contra
proferentem is also called the ambiguity doctrine. In this case, the Deed of Real Estate
Mortgage clearly establishes that the improvements found on the real properties listed therein are
included as subject-matter of the contract. It covers not only the real properties, but the buildings
and improvements thereon as well.

2) Dulos Realty was the owner of the properties it had mortgaged at the time of its execution.
The Contracts to Sell and Deed of Absolute Sale could not have posed an impediment at all to the
mortgage, given that these contracts had yet to materialize when the mortgage was
constituted. They were all executed after the constitution of the Real Estate Mortgage on
20 December 1980.

Petitioners equate a contract to sell to a contract of sale, in which the vendor loses
ownership over the property upon its delivery. But a contract to sell, standing alone, does not
transfer ownership. At the point of perfection, the seller under a contract to sell does not even
have the obligation to transfer ownership to the buyer. The obligation arises only when the buyer
fulfills the condition: full payment of the purchase price. In other words, the seller retains
ownership at the time of the execution of the contract to sell.

There is no evidence to show that any of petitioners Cahayag, Rivera and Escalona were
able to effect full payment of the purchase price, which could have at least given rise to the
obligation to transfer ownership.

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3) Petitioners Cahayag, Rivera and Escalona, were bound to the mortgage executed between
mortgagor Dulos Realty and mortgagee CCC, by virtue of its registration, which preceded the
execution of the Contracts to Sell.

Registration of the mortgage establishes a real right or lien in favor of the mortgagee, as
provided by Articles 1312 and 2126 of the Civil Code. Corollary to the rule, the lien has been treated
as "inseparable from the property inasmuch as it is a right in rem." In other words, it binds third
persons to the mortgage.

The purpose of registration is to notify persons other than the parties to the contract that
a transaction concerning the property was entered into. Ultimately, registration, because it
provides constructive notice to the whole world, makes the certificate of title reliable, such that
third persons dealing with registered land need only look at the certificate to determine the status
of the property.

4) Respondent Qua has a better right over the properties.

When it comes to extrajudicial foreclosures, the law grants mortgagors or their successors-
in-interest an opportunity to redeem the property within one year from the date of the sale. The
one-year period has been jurisprudentially held to be counted from the registration of the
foreclosure sale with the Register of Deeds. An exception to this rule has been carved out by
Congress for juridical mortgagors. Section 47 of the General Banking Law of 2000 shortens the
redemption period to within three months after the foreclosure sale or until the registration of
the certificate of sale, whichever comes first. The General Banking Law of 2000 came into law on
13 June 2000.

If the redemption period expires and the mortgagors or their successors-in-interest fail to
redeem the foreclosed property, the title thereto is consolidated in the purchaser. The
consolidation confirms the purchaser as the owner of the property; concurrently, the mortgagor-
for failure to exercise the right of redemption within the period-loses all interest in the property.

As the foreclosure sale took place prior to the advent of the General Banking Law of 2000,
the applicable redemption period is one year. In this case, because the Certificate of Sale in favor
of respondent CCC was registered on 8 March 1982, the redemption period was until 8 March
1983. It lapsed without any right of redemption having been exercised by Dulos Realty.
Consequently, the right of respondent CCC, as purchaser of the subject lots, became absolute.
Further, the right of respondent CCC over the lots was transferred to respondent Qua by virtue of
the Deed of Sale executed between them.

5) While there was a valid sale to Baldoza, there was no valid transfer of title to him since
Dulos Realty was no longer the owner at the time of the execution of the Deed of Absolute Sale.

For title to pass to the buyer, the seller must be the owner of the thing sold at
the consummation stage or at the time of delivery of the item sold. The seller need not be the
owner at the perfection stage of the contract, whether it is of a contract to sell or a contract of
sale. Ownership is not a requirement for a valid contract of sale; it is a requirement for a valid

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transfer of ownership'. The fact that Dulos Realty was no longer the owner of the property in
question at the time of the sale did not affect the validity of the contract.

On the contrary, lack of title goes into the performance of a contract of sale. It is
therefore crucial to determine in this case if the seller was the owner at the time of delivery of the
object of the sale. For this purpose, it should be noted that execution of a public instrument
evidencing a sale translates to delivery. It transfers ownership of the item sold to the buyer.

In this case, the delivery coincided with the perfection of the contract -The Deed of Absolute Sale
covering the real property in favor of petitioner Baldoza was executed on 10 December 1983. As
already mentioned, Dulos Realty was no longer the owner of the property on that date.
Accordingly, it could not have validly transferred ownership of the real property it had sold to
petitioner.

6) Respondent Qua is not guilty of bad faith in the purchase of the properties.

An innocent purchaser for value is one who "buys the property of another without notice
that some other person has a right to or interest in it, and who pays a full and fair price at the
time of the purchase or before receiving any notice of another person's claim." The concept thus
presupposes that there must be an adverse claim or defect in the title to the property to be
purchased by the innocent purchaser for value.

Respondent Qua traces her title to respondent CCC, whose acquisition over the property
proceeded from a foreclosure sale that was valid. As there is no defect in the title of respondent
CCC to speak of in this case, there is no need to go into a discussion of whether Qua is an
innocent purchaser for value.

EXTRA JUDICIAL FORECLOSURE

SPOUSES RODOLFO and MARCELINA GUEVARRA vs. THE COMMONER LENDING


CORPORATION, INC.
G.R. No. 204672, J. Perlas-Bernabe

In an extra-judicial foreclosure of registered land acquired under a free patent, the


mortgagor may redeem the property within two (2) years from the date of foreclosure if the land is
mortgaged to a rural bank under Republic Act No. (RA) 720, as amended, otherwise known as the
Rural Banks Act, or within one (1) year from the registration of the certificate of sale if the land is
mortgaged to parties other than rural banks pursuant to Act No. 3135. If the mortgagor fails to
exercise such right, he or his heirs may still repurchase the property within five (5) years from the
expiration of the redemption period pursuant to Section 119 of the Public Land Act. The RTC and CA
both correctly ruled that Sps. Guevarra’s right to repurchase the subject property had not yet
expired when Cadastral Case No. 122 was filed on September 8, 2005.

Facts:

Sps. Guevarra obtained a P320,000.00 loan from The Commoner Lending Corporation
(TCLC), which was secured by a real estate mortgage over a 5,532 square meter parcel of land,
emanating from a free patent granted to Sps. Guevarra on February 25, 1986.
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Sps. Guevarra, defaulted in the payment of their loan, prompting TCLC to extra-judicially
foreclose the mortgage on the subject property in accordance with Act No. 3135, as amended.
TCLC emerged as the highest bidder at the public auction sale for the bid amount of 150,000.00
and on August 25, 2000, the certificate of sale was registered with the Registry of Deeds of Iloilo.

Sps. Guevarra failed to redeem the subject property within the one-year reglementary
period, which led to the cancellation of the title and the issuance of a new Transfer Certificate of
Title in the name of TCLC. Thereafter, TCLC demanded that Sps. Guevarra vacate the property,
but to no avail.

TCLC applied for a writ of possession before the RTC, docketed as Cadastral Case No. 118.
Sps. Guevarra opposed the same by challenging the validity of the foreclosure proceedings due to
failure of TCLC to comply with the notice and publication requirements. Sps. Guevarra also
assailed the issuance by the Sheriff of a Final Deed of Sale to be premature, as they were still
entitled to redeem the subject property within five (5) years from the expiration of the one-year
period to repurchase.

Sps. Guevarra filed before the RTC a petition for redemption, docketed as Cadastral Case
No. 122, maintaining that the redemption period did not expire on August 25, 2001, or one (1) year
from the registration of the certificate of sale, but will still expire five (5) years therefrom, or on
August 25, 2006. They averred that they pleaded to be allowed to redeem the subject property but
TCLC unjustifiably refused the same, constraining them to file said petition, offering to redeem
the subject property at 150,000.00, plus one percent (1%) interest per month for five (5) years from
August 25, 2000, or in the amount of 240,000.00 which they consigned to the RTC.

Cadastral Case Nos. 118 and 122 were later consolidated.

The RTC granted TCLC’s petition in Cadastral Case No. 118, resulting in the issuance of the
Writ of Possession and Notice to Vacate which were duly served upon Sps. Guevarra. The latter
filed a motion for reconsideration and Motion to Hold in Abeyance the Implementation of the
Writ of Possession.

The RTC denied the motion for reconsideration in Cadastral Case No. 118, but granted Sps.
Guevarra’s petition in Cadastral Case No. 122. RTC recognized Sps. Guevarra’s right to repurchase
the subject property, pointing out that they were able to file their petition within the five-year
period provided under Section 119 of Commonwealth Act No. 141, otherwise known as the Public
Land Act (Public Land Act). The RTC directed TCLC to reconvey the subject property to Sps.
Guevarra and execute the deed of reconveyance upon payment of the purchase price of
150,000.00, plus one percent (1%) interest per month from the date of the auction sale on June 15,
2000 up to August 8, 2006, as well as the tax assessments and foreclosure expenses.

Dissatisfied, TCLC filed a motion for reconsideration which was denied; thus, it filed an
appeal before the CA.

The CA affirmed the RTC, upholding Sps. Guevarra’s right to repurchase the subject
property pursuant to Section 119 of the Public Land Act, with modification that the same be
conditioned upon the payment of the purchase price fixed by TCLC. It ruled that after the
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expiration of the redemption period, the present owner, i.e., TCLC, has the discretion to set a
higher price.

Sps. Guevarra filed a motion for reconsideration which was denied in a Resolution, hence,
this petition.

Issue:

Whether or not the CA committed a reversible error in ruling that the repurchase price for
the subject property should be fixed by TCLC.

Ruling:

In an extra-judicial foreclosure of registered land acquired under a free patent, the


mortgagor may redeem the property within two (2) years from the date of foreclosure if the land
is mortgaged to a rural bank under Republic Act No. (RA) 720, as amended, otherwise known as
the Rural Banks Act, or within one (1) year from the registration of the certificate of sale if the
land is mortgaged to parties other than rural banks pursuant to Act No. 3135. If the mortgagor fails
to exercise such right, he or his heirs may still repurchase the property within five (5) years from
the expiration of the redemption period pursuant to Section 119 of the Public Land Act, which
states:

SEC. 119. Every conveyance of land acquired under the free patent or homestead provisions, when
proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period
of five years from the date of the conveyance.

In this case, the subject property was mortgaged to and foreclosed by TCLC, which is a
lending or credit institution, and not a rural bank; hence, the redemption period is one (1) year
from the registration of the certificate of sale on August 25, 2000, or until August 25, 2001. Given
that Sps. Guevarra failed to redeem the subject property within the redemption period, TCLC was
entitled, as a matter of right, to consolidate its ownership and to possess the same.

Such right should not negate Sps. Guevarra’s right to repurchase said property within five
(5) years from the expiration of the redemption period on August 25, 2001, or until August 25,
2006, in view of Section 119 of the Public Land Act.

It is apt to clarify that contrary to TCLC’s claim, the tender of the repurchase price is not
necessary for the preservation of the right of repurchase, because the filing of a judicial action for
such purpose within the five-year period under Section 119 of the Public Land Act is already
equivalent to a formal offer to redeem. On this premise, consignation of the redemption price is
equally unnecessary.

The RTC and CA both correctly ruled that Sps. Guevarra’s right to repurchase the subject
property had not yet expired when Cadastral Case No. 122 was filed on September 8, 2005. That
being said, the Court now proceeds to determine the proper amount of the repurchase price.

Sps. Guevarra insist that the repurchase price should be the purchase price at the auction
sale plus interest of one percent (1%) per month and other assessment fees. On the other hand,
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TCLC maintains that it is entitled to its total claims under the promissory note and the mortgage
contract in accordance with Section 47 of the General Banking Law of 2000.

TCLC’s argument is partly correct.

The Court has ruled that redemptions from lending or credit institutions, like TCLC, are
governed by Section 78 of the General Banking Act (now Section 47 of the General Banking Law of
2000), which amended Section 6 of Act No. 3135 in relation to the proper redemption price when
the mortgagee is a bank, or a banking or credit institution.

But the Court cannot subscribe to TCLC’s contention that it is entitled to its total claims
under the promissory note and the mortgage contract in view of the settled rule that an action to
foreclose must be limited to the amount mentioned in the mortgage. Hence, amounts not stated
therein must be excluded, like the penalty charges of three percent (3%) per month included in
TCLC’s claim. A penalty charge is likened to a compensation for damages in case of breach of the
obligation. Being penal in nature, it must be specific and fixed by the contracting parties.

The Court notes that the stipulated three percent (3%) monthly interest is excessive and
unconscionable. As such, the stipulated 3% monthly interest should be equitably reduced to 1%
per month or 12% per annum reckoned from the execution of the real estate mortgage on
December 12, 1996, until the filing of the petition in Cadastral Case No. 122 on September 8, 2005.

In addition to the principal and interest, the repurchase price should also include all the
expenses of foreclosure,i.e.,Judicial Commission, Publication Fee, and Sheriff’s Fee, in accordance
with Section 47 of the General Banking Law of 2000. Considering that Sps. Guevarra failed to
redeem the subject property within the one-year reglementary period, they are liable to
reimburse TCLC for the corresponding Documentary Stamp Tax (DST) and Capital Gains Tax
(CGT) it paid pursuant to Bureau of Internal Revenue (BIR) Revenue Regulations No. 4-99, which
requires the payment of DST on extra-judicial foreclosure sales of capital assets initiated by banks,
finance and insurance companies, as well as CGT in cases of non-redemption. CGT and DST are
expenses incident to TCLC’s custody of the subject property, hence, likewise due, under the above
provision of law.

From this repurchase price shall be deducted the amount consigned to the RTC, or
240,000.00. Sps. Guevarra may repurchase the subject property within thirty (30) days from
finality of this Decision upon payment of the net amount of 449,460.11.

METROPOLITAN BANK AND TRUST COMPANY vs. S.F. NAGUIAT ENTERPRISES, INC.
G.R. No. 178407, March 18, 2015, J. Leonen

The insolvency court has exclusive jurisdiction to deal with the property of the insolvent.
Consequently, after the mortgagor-debtor has been declared insolvent and the insolvency court has
acquired control of his estate, a mortgagee may not, without the permission of the insolvency court,
institute proceedings to enforce its lien.

Facts:

Spouses Rommel Naguiat and Celestina Naguiat and S.F. Naguiat Enterprises, Inc.
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executed a real estate mortgage in favor of Metropolitan Bank and Trust Company to secure
certain credit accommodations obtained from the latter amounting to P17 million. On March 3,
2005, S.F. Naguiat obtained a loan from Metrobank in the amount of P1,575,000.00. The loan was
likewise secured by the 1997 real estate mortgage by virtue of the Agreement on Existing
Mortgage(s) executed between the parties on March 15, 2004. S.F. Naguiat filed a Petition for
Voluntary Insolvency with Application for the Appointment of a Receiver. Presiding Judge Irin
Zenaida S. Buan issued an Order declaring S.F. Naguiat insolvent. Subsequently, S.F. Naguiat
defaulted in paying its loan. On November 8, 2005, Metrobank instituted an extrajudicial
foreclosure proceeding against the mortgaged property covered by TCT No. 58676 and sold the
property at a public auction held on December 9, 2005 to Phoenix Global Energy, Inc., the highest
bidder. Executive Judge Gabitan-Erum issued the Order denying her approval of the Certificate of
Sale in view of the July 12, 2005 Order issued by the insolvency court.

Aggrieved by both Orders of Executive Judge Gabitan-Erum, Metrobank filed a Petition


for certiorari and mandamus before the Court of Appeals on June 22, 2006. MTBC argues that
nowhere in Act No. 1956 does it require that a secured creditor must first obtain leave or
permission from the insolvency court before said creditor can foreclose on the mortgaged
property. It adds that this procedural requirement applies only to civil suits, and not when the
secured creditor opts to exercise the right to foreclose extrajudicially the mortgaged property
under Act No. 3135, as amended, because extrajudicial foreclosure is not a civil suit. The Court of
Appeals held that leave of court must be obtained from the insolvency court whether the
foreclosure suit was instituted judicially or extrajudicially so as to afford the insolvent estate's
proper representation (through the assignee) in such action and "to avoid the dissipation of the
insolvent debtor's assets in possession of the insolvency court without the latter's knowledge.

Issue:

Whether or not the Court of Appeals erred in ruling that prior leave of the insolvency
court is necessary before a secured creditor, like petitioner Metropolitan Bank and Trust
Company, can extrajudicially foreclose the mortgaged property.

Ruling:

No, it did not.

It was held that concurrence and preference of credits can only be ascertained in the
context of a general liquidation proceeding that is in rem, such as an insolvency proceeding,
where properties of the debtor are inventoried and liquidated and the claims of all the creditors
may be bindingly adjudicated. The application of this order of priorities established under the
Civil Code in insolvency proceedings assures that priority of claims are respected and credits
belonging to the same class are equitably treated.

Conformably, it is the policy of Act No. 1956 to place all the assets and liabilities of the
insolvent debtor completely within the jurisdiction and control of the insolvency court without
the intervention of any other court in the insolvent debtor's concerns or in the administration of
the estate. It was considered to be of prime importance that the insolvency proceedings follow
their course as speedily as possible in order that a discharge, if the insolvent debtor is entitled to
it, should be decreed without unreasonable delay. Act No. 1956 impliedly requires a secured
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creditor to ask the permission of the insolvent court before said creditor can foreclose the
mortgaged property.

With the declaration of insolvency of the debtor, insolvency courts "obtain full and
complete jurisdiction over all property of the insolvent and of all claims by and against it.” It
follows that the insolvency court has exclusive jurisdiction to deal with the property of the
insolvent. Consequently, after the mortgagor-debtor has been declared insolvent and the
insolvency court has acquired control of his estate, a mortgagee may not, without the permission
of the insolvency court, institute proceedings to enforce its lien. In so doing, it would interfere
with the insolvency court's possession and orderly administration of the insolvent's properties.

Here, the foreclosure and sale of the mortgaged property of the debtor, without leave of
court, contravene the provisions of Act No. 1956 and violate the Order dated July 12, 2005 of the
insolvency court which declared S.F. Naguiat insolvent and forbidden from making any transfer of
any of its properties to any person.

SPOUSES JONSAY v. JUAN G. SOLIDBANK CORPORATION


G.R. No. 206549 , April 6, 2016; Reyes

Facts:

Momarco, controlled and owned by the Spouses Jonsay, is an importer, manufacturer and
distributor of animal health and feedmill products catering to cattle, hog and poultry producers.
On November 9, 1995, and again on April 28, 1997, Momarco obtained loans of P40,000,000.00
and P20,000,000.00, respectively, from Solidbank for which the Spouses Jonsay executed a
blanket mortgage over three parcels of land they owned in Calamba City, Laguna registered in
their names under Transfer Certificates of Title Nos. T-224751, T-210327 and T-269668 containing
a total of 23,733 square meters. On November 3, 1997, the loans were consolidated under one
promissory note for the combined amount of P60,000,000.00, signed by Florante as President of
Momarco, with his wife Luzviminda also signing as co-maker. The stipulated rate of interest was
18.75% per annum, along with an escalation clause tied to increases in pertinent Central Bank-
declared interest rates, by which Solidbank was eventually able to unilaterally increase the
interest charges up to 30% per annum.

Eventually, due to the reverses brought on by the 1997 Asian financial crisis, Momarco failed to
pay its interest payments. Solidbank then proceeded to extrajudicially foreclose on the mortgage,
and at the auction sale held on March 5, 1999, it submitted the winning bid of P82,327,249.54,
representing Momarco's outstanding loans, interests and penalties, plus attorney's fees of
P3,600,000.00. On March 22, 1999, Sheriff Adelio Perocho (Sheriff Perocho) issued a certificate of
sale to Solidbank, duly annotated on April 15, 1999 on the lots' titles.

On March 9, 2000, a month before the expiration of the period to redeem the lots, the petitioners
filed a Complaint against Solidbank, Sheriff Perocho and the Register of Deeds of Calamba,
Laguna, docketed as Civil Case No. 2912-2000-C, for Annulment of the Extrajudicial Foreclosure of
Mortgage, Injunction, Accounting and Damages with Prayer for the Immediate Issuance of a Writ
of Preliminary Prohibitory Injunction.

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The RTC granted the injunction prayed for by the Spouses Jonsay and eventually ruled in their
favor. The RTC ruled that the mortgage contract and the promissory notes prepared by Solidbank,
which the Spouses Jonsay signed in blank, were contracts of adhesion; that Solidbank failed to
take into account Momarco’s payments in the two years preceding 1998 totaling P24,277,293.22
(this amount was not disputed by Solidbank); that the interest rates, ranging from 19% to 30%, as
well as the penalties, charges and attorney's fees imposed by Solidbank, were excessive,
unconscionable and immoral, and that Solidbank has no carte blanche authority under the Usury
Law to unilaterally raise the interest rates to levels as to enslave the borrower and hemorrhage its
assets; that the Morning Chronicle, in which the notice of auction was published, was not a
newspaper of general circulation because it had no bona fide list of paying subscribers; that
Solidbank manipulated the foreclosure sale through a defective publication of the notice of
auction and by submitting an unconscionably low bid of P82,327,000.00, whereas the value of the
lots had risen sevenfold since the rehabilitation of the SLEX.

On appeal, the CA initially rendered judgment affirming the RTC in toto. It agreed that Solidbank
did not comply with the publication requirements under Section 3, Act No. 3135. According to the
CA, the Morning Chronicle was not a newspaper of general circulation, notwithstanding the
affidavit of publication issued by its publisher, Turing R. Crisostomo (Crisostomo), to that effect
as well as the certification of the Clerk of Court of RTC-Calamba City that it was duly accredited
by the court since May 28, 1997 to publish legal notices. The CA ruled that it was not enough for
Crisostomo to merely state in his affidavit that the Morning Chronicle was published and edited
in the province of Laguna and in San Pablo City without a showing that it was published to
disseminate local news and general information, that it had a bona fide list of paying subscribers,
that it was published at regular intervals, and that it was in general circulation in Calamba City
where the subject properties are located.

However, on Motion for Reconsideration of Solidbank, the CA completely reversed its earlier
decision. The CA decalred that declared that Solidbank's extrajudicial foreclosure of the mortgage
enjoyed the presumption of regularity. The CA stressed that since the selection of Morning
Chronicle to publish the notice was through a court-supervised raffle, Solidbank was fully justified
in relying on the regularity of the publication of its notice in the aforesaid newspaper, in the
choice of which it had no hand whatsoever. The CA however still limited the interest to 12% per
annum.

Issues:

1) Whether or not Solidbank sufficiently complied with the publication requirement under
Section 3 of Act No. 3135.

Ruling:

1) Yes, petitioners were not able to present sufficient evidence to overcome the presumption
of regularity of the forecfoosure sale.

In the case at bar, there is no dispute that there was publication of the auction notice, which the
CA in its amended decision now held to have sufficiently complied with the requirement of
publication under Section 3 of Act No. 3135. Unfortunately, against the fact of publication and the
presumption of regularity of the foreclosure proceedings, the petitioners' only contrary evidence
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is Florante's testimonial assertion that the Morning Chronicle was not a newspaper of general
circulation in Calamba City and that it could not be found in the local newsstands.

While it is true that the accreditation by the presiding judge of a trial court is not decisive of
whether a certain publication is a newspaper of general circulation, nonetheless, when the RTC
accredited the Morning Chronicle to publish legal notices in Calamba City, it can be presumed
that the RTC had made a prior determination that the said newspaper had met the requisites for
valid publication of legal notices in the said locality, guided by the understanding that for the
publication of legal notices in Calamba City to serve its intended purpose, it must be in general
circulation therein. This presumption lays the burden upon the petitioners to show otherwise,
contrary to the CA's first ruling.

Moreover, an escalation clause in a loan agreement granting the lending bank authority to
unilaterally increase the interest rate without prior notice to and consent of the borrower is void.
Therefore, applying the adjusted interest rates and penalties, Solidbank should return the amount
of P14,100,271.05 to Spouses Jonsay as excess of the proceeds of the foreclosure sale.

PNB V. SPOUSES RIVERA


G.R. No. 189577, April 20, 2016; Jardaleza

Facts:

On September 18, 1995, the Spouses Victoriano and Jovita Faricia Rivera (Spouses Rivera)
executed a real estate mortgage in favor of the Philippine National Bank (PNB) over a parcel of
land (land) covered by Transfer Certificate of Title (TCT) No. 288169 of the Register of Deeds of
Marikina City.

The mortgage was executed to secure the payment of the housing loans and revolving credit line
obtained by the Spouses Rivera from PNB. The mortgage was eventually foreclosed and the land
was sold at public auction.

On December 28, 2005, the Spouses Rivera filed a Complaint for Annulment of Sheriff's Sale with
Damages (Complaint) against PNB and Julia Coching Sosito (Sosito). The Spouses Rivera allege
that they were not properly notified of the auction sale and that they had already fully paid their
obligation to PNB.

On the other hand, PNB filed a Motion to Dismiss on the ground of lack of cause of action. It
further argued that Act No. 3135 does not require personal notice to the mortgagor in case of
auction sale and that the Spouses Rivera filed to attach receipts to prove payment of their
obligation.

The RTC ruled in favor of PNB finding that the allegations in the Complaint failed to state a cause
of action.

The CA subsequently reversed the RTC’s ruling, finding that indeed the Spouses Rivera’s
Complaint sufficiently stated a cause of action, and remanded the case to the RTC for further
proceedings.

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Issues:

1) Whether the CA was correct in remanding the case to the RTC.


2) Whether personal notice is required in extrajudicial foreclosures.

Ruling:

1) Yes. The Complaint of the Spouses Rivera sufficiently stated a cause of action.

Lack of cause of action and failure to state a cause of action are two different legal concepts. Lack
of cause of action refers to the insufficiency of the factual basis for the action. It is a proper
ground for a demurrer to evidence under Rule 33 of the Revised Rules of Civil Procedure. In this
case, the RTC could not have dismissed the Complaint due to lack of cause of action for as stated
above, such ground may only be raised after the plaintiff has completed the presentation of his
evidence.

On the other hand, if the allegations of the complaint do not state the concurrence of the above
elements, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to
state a cause of action. Since a defendant hypothetically admits the truth of the material
allegations in the plaintiff’s complaint when a motion to dismiss is filed, the Spouses Rivera’s
complaint sufficiently states a cause of action because they allege payment of their obligation.
2) No. Personal notice to the mortgagor in extrajudicial foreclosure proceedings is not
necessary.

The rule is that personal notice to the mortgagor in extrajudicial foreclosure proceedings is not
necessary, unless otherwise stipulated by the parties. Section 3 of Act No. 3135 only requires the
posting of the notice of sale in three public places and the publication of that notice in a
newspaper of general circulation.

REDEMPTION

GE MONEY BANK, INC. (FORMERLY KEPPEL BANK PHILIPPINES) vs. SPOUSES


VICTORINO M. DIZON AND ROSALINA L. DIZON
G.R. No. 184301, March 23, 2015, J. Peralta

An insufficient sum was tendered by the Spouses Dizon during the redemption period.
Whether the total redemption price is PhP 251,849.77 as stated in the Petition for Review, or PhP
232,904.60 as stated in the Bank’s Motion for Reconsideration of the CA Decision, or PhP 428,019.16
as stated in its Appellant’s Brief, is immaterial. What cannot be denied is that the amount of PhP
90,000.00 paid by the Spouses Dizon during the redemption period is less than half of PhP 181,956.72
paid by the Bank at the extrajudicial foreclosure sale... If only to prove their willingness and ability
to pay, the Spouses Dizon could have tendered a redemption price that they believe as the correct
amount or consigned the same. Seventeen long years passed since the filing of the complaint but
they did not do either. Indeed, they manifestly failed to show good faith.

The Spouses Dizon’s own evidence show that, after payment of PhP 90,000.00, the earliest
date they exerted a semblance of effort to re-acquire the subject property was on October 15, 1996.
Apart from being way too late, the tender was not accompanied by the remaining balance of the
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redemption price. The same is true with respect to their letter dated February 27, 1998, wherein they
were still making proposals to the Bank. The court’s intervention was resorted to only on April 3,
1998 after the redemption period expired on October 18, 1994, making it too obvious that such
recourse was merely a delayed afterthought to recover a right already lost.

Facts:

In September 1991, Respondent Spouses Dizon obtained a loan in the amount of PhP
100,000.00 from predecessor-in-interest of GE Money Bank, Inc., which was secured by a real
estate mortgage over their two lots located in Manila. Spouses Dizon defaulted in the payment of
their loan obligation as they were only able to pay at that point in time the total amount of PhP
22,000.00. Consequently, the Bank extra-judicially foreclosed the mortgaged properties. Within
the redemption period, Spouses Dizon tendered the sum of PhP 90,000.00 which was less than
the total redemption price in the tune of PhP 181,956.72. The Bank rejected this offer of Spouses
Dizon.

Spouses Dizon then filed a case for redemption and recovery of ownership. Both the RTC
and CA upheld the contentions of Spouses Dizon. In the main, the courts a quo agreed that the
Bank accepted partial redemption of Spouses Dizon and assured them that they can still enforce
their right of redemption.

Issue:

Whether or not the redemption tried to be enforced by herein Spouses Dizon should be
sustained.

Ruling:

NO, the redemption can no longer be allowed under the circumstances of this case.

Sec. 6 of Act No. 3135, as amended by Act No. 4118, provides:

Sec. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on the property subsequent
to the mortgage or deed of trust under which the property is sold, may redeem the same
at any time within the term of one year from and after the date of sale; and such
redemption shall be governed by the provisions of sections four hundred and sixty-four
to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, insofar as these
are not inconsistent with the provisions of this Act.

The right of redemption should be exercised within the period required by law, which
should be counted not from the date of foreclosure sale but from the time the certificate of sale is
registered with the Register of Deeds. Fixing a definite term within which a property should be
redeemed is meant to avoid prolonged economic uncertainty over the ownership of the thing
sold.

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In this case, considering that the creditor-mortgagee is a banking institution, the


determination of the redemption price is governed by Sec. 78 of R.A. No. 337 or “The General
Banking Act,” as amended by PD No. 1828.

“xxxx In Ponce de Leon vs. Rehabilitation Finance Corporation, this Court had occasion
to rule that Sec. 78 of the General Banking Act had the effect of amending Sec. 6 of Act
No. 3135 insofar as the redemption price is concerned when the mortgagee is a bank, as
in this case, or a banking or credit institution. The apparent conflict between the
provisions of Act No. 3135 and the General Banking Act was, therefore, resolved in favor
of the latter, being a special and subsequent legislation. This pronouncement was
reiterated in the case of Sy vs. [CA] where [the Court] held that the amount at which the
foreclosed property is redeemable is the amount due under the mortgage deed, or the
outstanding obligation of the mortgagor plus interest and expenses in accordance with
Sec. 78 of the General Banking Act. It was, therefore, manifest error on the part of the
[CA] to apply in the case at bar the provisions of Sec. 30, Rule 39 of the Rules of Court in
fixing the redemption price of the subject foreclosed property.”

Redemption within the period allowed by law is not a matter of intent but a question of
payment or valid tender of the full redemption price. It is irrelevant whether the mortgagor is
diligent in asserting his or her willingness to pay. What counts is that the full amount of the
redemption price must be actually paid; otherwise, the offer to redeem will be ineffectual and the
purchaser may justly refuse acceptance of any sum that is less than the entire amount. In
Metropolitan Bank and Trust Co. vs. Spouses Tan, et al., [the Court] held:

“The general rule in redemption is that it is not sufficient that a person offering to
redeem manifests his/her desire to do so. The statement of intention must be accom-
panied by an actual and simultaneous tender of payment. This constitutes the exercise
of the right to repurchase. Bona fide redemption necessarily implies a reasonable and
valid tender of the entire purchase price, otherwise, the rule on the redemption period
fixed by law can easily be circumvented. There is no cogent reason for requiring the
vendee to accept payment by installments from the redemptioner, as it would ultimately
result in an indefinite extension of the redemption period”

To be valid and effective, the offer to redeem must be accompanied by an actual tender of
the redemption price. Redemption price should either be fully offered in legal tender or validly
consigned in court. Only by such means can the auction winner be assured that the offer to
redeem is being made in good faith.

None of the [compelling justifications expounded in past precedents] are present in this
case to exempt it from the application of the general rules on redemption. Here, the offer of the
Spouses Dizon was an invalid and ineffectual exercise of their right of redemption; hence, the
refusal of the offer by the Bank was completely justified.

An insufficient sum was tendered by the Spouses Dizon during the redemption period.
Whether the total redemption price is PhP 251,849.77 as stated in the Petition for Review, or PhP
232,904.60 as stated in the Bank’s Motion for Reconsideration of the CA Decision, or PhP
428,019.16 as stated in its Appellant’s Brief, is immaterial. What cannot be denied is that the
amount of PhP 90,000.00 paid by the Spouses Dizon during the redemption period is less than
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half of PhP 181,956.72 paid by the Bank at the extrajudicial foreclosure sale... If only to prove their
willingness and ability to pay, the Spouses Dizon could have tendered a redemption price that
they believe as the correct amount or consigned the same. Seventeen long years passed since the
filing of the complaint but they did not do either. Indeed, they manifestly failed to show good
faith.

The Spouses Dizon’s own evidence show that, after payment of PhP 90,000.00, the earliest
date they exerted a semblance of effort to re-acquire the subject property was on October 15, 1996.
Apart from being way too late, the tender was not accompanied by the remaining balance of the
redemption price. The same is true with respect to their letter dated February 27, 1998, wherein
they were still making proposals to the Bank. The court’s inter-vention was resorted to only on
April 3, 1998 after the redemption period expired on October 18, 1994, making it too obvious that
such recourse was merely a delayed afterthought to recover a right already lost.

The official receipts issued by the Bank cannot be relied upon by the Spouses Dizon. As
pointed out by the Bank, the receipts issued categorically stated that the partial payments were
without prejudice to the foreclosure proceedings already instituted and without prejudice to the
consolidation of title. Thus, the Bank never really intended to waive its rights to foreclose and to
consolidate its ownership over the subject property in case of the Spouses Dizon’s failure to fully
and effectively pay their outstanding obligation.

With the disclaimer noticeably expressed on the official receipts and as admitted during
the trial by petitioner Rosalina L. Dizon, who solely testified for the plaintiffs, the Bank cannot be
held guilty of estoppel. Estoppel in pais arises when one, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully relies and
acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of
such facts. The principle of estoppel would step in to prevent one party from going back on his or
her own acts and representations to the prejudice of the other party who relied upon them. It is a
principle of equity and natural justice, expressly adopted in Art. 1431 of the New Civil Code and
articulated as one of the conclusive presumptions in Rule 131, Sec. 2 (a) of our Rules of Court.

The Spouses Dizon claimed that they negotiated with the Bank for the extension of the
period to redeem and that the latter granted the same. Aside from the Bank’s vehement denial of
the allegation, the Court cannot give credence to their assertions as they failed to present any
documentary evidence to prove the conferment of the purported extension. Assuming, but with-
out admitting, that an additional period was granted to them, the extension would constitute a
mere offer on the part of the Bank to re-sell the subject property; it does not constitute a binding
contract. The right to redeem of the Spouses Dizon already expired on October 18, 1994.
Thereafter, their offer should aptly be termed as a repurchase, not redemption. The Bank is not
bound by the bid price, at the very least, and has the discretion to even set a higher price. As [the
Court] explained:

“The right to redeem becomes functus officio on the date of its expiry, and its exercise
after the period is not really one of redemption but a repurchase. Distinction must be
made because redemption is by force of law; the purchaser at public auction is bound to
accept redemption. Repurchase, however, of foreclosed property, after redemption
period, imposes no such obligation. After expiry, the purchaser may or may not re-sell
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the property but no law will compel him to do so. And, he is not bound by the bid price;
it is entirely within his discretion to set a higher price, for after all, the property already
belongs to him as owner.”

HEIRS OF JOSE MA. GEPUELA vs. HERNITA MENEZ-ANDRES, ET AL. /


HERNITA MENEZ-ANDRES & NELIA MENEZ CAYETANO
vs. HEIRS OF JOSE MA. GEPUELA
G.R. No. 173636, January 13, 2016, J. Jardeleza

Facts:

Basilia was the widow of Pedro Cruz, with whom she had five children, namely, Perfecto,
Alberto, Luz, Benita and Isagani. Basilia executed a Huling Habilin, where she named her
daughter Benita’s children Hernita, Nelia, Rosemarie, Angel and Gracita as voluntary heirs to ten
percent (10%) of the free portion of her estate. Basilia’s Huling Habilin was admitted into ante-
mortem probate on March 1, 1957. Her daughter Luz Cruz Salonga (Luz) was appointed
Administratrix of Basilia’s estate on August 18, 1976.

When Basilia died, she left behind considerable properties, including a 36/72 pro
indiviso share in a 5,492 square meter property in San Juan, then province of Rizal. This property
was co-owned with some of Basilia’s children and grandchildren

Perfecto and Flavia sold their interests (14/72 pro indiviso share) in the property to
Severino Etorma (Etorma), who later on sold the same to Gepuela and one Antonio Cinco
(Cinco). In 1978, Cinco sold his share to Gepuela. Luz also disposed, by way of a Sale of Rights
with Mortgage, her 12/72 pro indiviso share in the property to Gepuela in another transaction.

On July 29, 1986, Basilia’s 36/72 pro indiviso share was sold in a public auction to satisfy
the judgment in civil case filed by Benita. Benita, as judgment creditor in the case, emerged as the
highest bidder.

On May 14, 1987, Gepuela redeemed Basilia’s 36/72 pro indiviso share from Benita by
paying the auction price. Accordingly, Basilia’s estate, through Administratrix Luz, executed a
Deed of Sale and Waiver of Redemption over the share, subject to the following conditions: 1)
Gepuela should obtain court approval of the sale; and 2) Gepuela should inform all heirs of the
sale formally in writing.

After the expiration of the periods to redeem, Gepuela filed an action to consolidate his
ownership over the 36/72 pro indiviso share he acquired by way of redemption from Basilia’s
estate. This was docketed as LRC Case No. R-3855 and assigned to Branch 166 of the Regional
Trial Court of Pasig. The other registered co-owners Isagani, Perfecto, Jr., Pedrito, and Vito
(Isagani, et al.) opposed this action, raising Gepuela’s lack of standing to redeem given that he is
not a co-owner of Basilia’s one-half portion. In a Decision dated December 6, 1989, the trial court
granted Gepuela’s petition, declared him the owner of Basilia’s 36/72 pro indiviso share in the
parcel of land covered by TCT No. 95524 and ordered the issuance of a new certificate of title to
reflect this change in ownership.

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Aggrieved, oppositors Isagani, Perfecto, Jr., Pedrito, Vito and Alberto appealed the trial
court’s Decision to the CA. The CA, however, affirmed the trial court’s findings. The CA’s
Decision in CA G.R. CV No. 25605 was not appealed and became final and executory on
February 26, 1992. TCT No. 5033-R was issued that same year, reflecting Gepuela’s ownership of
the 36/72 pro indiviso share previously owned by Basilia.

In the meantime, Basilia’s grandchildren Hernita and Nelia filed a Complaint for
Redemption and Consignation with Damages and a subsequent Amended Complaint for
Declaration of Nullity of Redemption, Cancellation of Notation in Title, and Consignation with
Damages against Gepuela.

Issues:

1) Whether Gepuela's redemption of Basilia's 36/72 pro indiviso share in the subject property
was valid.
2) Whether Hernita et al. could still redeem the 36/72 pro indiviso share.

Ruling:

1) Gepuela's redemption of Basilia's 36/72 pro indiviso share in the subject property was valid.
The disputed 36/72 pro indiviso share was sold at public auction to satisfy the judgment claim of a
creditor (Benita) of the estate. When it was redeemed by Gepuela, no further redemption was
made. Upon expiration of the periods to redeem, Gepuela became entitled, as a matter of right, to
the consolidation of the ownership of the share in his name.
2) Hernita et al. could no longer redeem the 36/72 pro indiviso share.

As instituted heirs only to a part of the free portion of Basilia's estate, Hernita, et al. are
entitled to receive their share of the same, if any, only after payment of all debts, funeral charges,
expenses of administration, allowance to the widow and inheritance tax. Otherwise stated, their
share would be dependent on whether anything is left of the estate after payment of all its
obligations.

In this case, upon expiration of the periods to redeem the disputed 36/72 pro indiviso
share, Gepuela became entitled, as a matter of right, to the consolidation of the ownership of the
share in his name. The share no longer formed part of the estate, which can theoretically be
distributed to Hernita, et al. as Basilia's voluntary heirs.

More importantly, as voluntary heirs to the free portion, Hernita, et al. have no right to
claim any specific property of the estate, such as the contested 36/72 pro indiviso share in the
property, until after the estate had been settled and distributed in accordance with law.

CHATTEL MORTGAGE

EQUITABLE SAVINGS BANK (BDO UNIBANK, INC. v. ROSALINDA C. PALCES


G.R. No. 214752, March 9, 2016; Perlas-Bernabe
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CIVIL LAW DIGESTS 2014- June 2016

Facts:

On August 15 2005, respondent Rosalinda Palces purchased a Hyundai Starex GRX Jumbo through
a loan granted by petitioner Equitable Savings Bank in the amount of P1,196,100.00. Respondent
executed a Promissory Note with Chattel Mortgage in favor of petitioner stating that (a)
respondent shall pay petitioner the aforesaid amount in 36-monthly installments of P33,225.00
per month, beginning September 18, 2005 and every 18th of the month thereafter until full
payment of the loan; (b) respondent's default in paying any installment renders the remaining
balance due and payable; and (c) respondent's failure to pay any installments shall give petitioner
the right to declare the entire obligation due and payable and may likewise, at its option, x x x
foreclose this mortgage; or file an ordinary civil action for collection and/or such other action or
proceedings as may be allowed under the law.

Respondent failed to pay the monthly installments in January and February 2007, thereby
triggering the acceleration clause in the Promissory Note with Chattel Mortgage and prompting
petitioner to send a demand letter to respondent. When the demand went unheeded, petitioner
went ahead and filed the instant Complaint for Recovery of Possession with Replevin with
Alternative Prayer for Sum of Money and Damages.

Pending the filing of respondent’s Answer, summons and a writ of replevin were already issued
and served to her personally, resulting in the sheriff taking possession of the subject vehicle.

Respondent admits to defaulting on her installments for January and February 2007. However, in
her defense, she argues that a certain Rodrigo Dumagpi, an officer of petitioner, gave his consent
for respondent to catch-up on her payments on March. Thus, she paid the amount of P70,000.00
and P33,000.00 on March 8 and March 20 respectively.

The RTC ruled in favor of petitioner and confirmed its right to possess the subject vehicle. The
RTC found that respondent’s default in her installments rendered the entire balance of the loan
amounting to P664,500.00 due and demandable. While respondent paid the installments due in
March, the same were late, irregular, and insufficient to fully satisfy respondent’s entire
obligation. The RTC, however, ruled that since its right to possess had already been confirmed,
petitioner is no longer entitled to the payment of the remaining balance of the loan.

On appeal, the CA modified the RTC’s ruling, ordering petitioner to return the amount of
P103,000.00 to respondent. Applying Article 1484 of the Civil Code, the CA ruled that by choosing
to recover the subject vehicle by writ of replevin, petitioner had already waived its right to recover
any unpaid installments.

Issues:

1) Whether the CA correctly applied rule 1484 of the Civil Code in ruling that petitioner had
already waived its right to recover an unpaid installments by choosing to recover the
subject vehicle subject of a chattel mortgage via a writ of replevin.

Ruling:

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CIVIL LAW DIGESTS 2014- June 2016

1) No, Article 1484 of the Civil Code does not apply since there is no vendor-vendee
relationship between respondent and petitioner.

Article 1484 of the Civil Code applies in a contract of sale of personal property the price of which
is payable in installments. The records of this case reveal that respondent never bought the
subject vehicle from petitioner but from a third party, and merely sought financing from
petitioner for its full purchase price. In order to document the loan transaction between
petitioner and respondent, a Promissory Note with Chattel Mortgage29 dated August 18, 2005 was
executed wherein, inter alia, respondent acknowledged her indebtedness to petitioner in the
amount of P1,196,100.00 and placed the subject vehicle as a security for the loan. Indubitably, a
loan contract with the accessory chattel mortgage contract - and not a contract of sale of personal
property in installments - was entered into by the parties with respondent standing as the debtor-
mortgagor and petitioner as the creditor-mortgagee.

Since it is undisputed that petitioner had regained possession of the subject vehicle, it is only
appropriate that foreclosure proceedings, if none yet has been conducted/concluded, be
commenced in accordance with the provisions of Act No. 1508, otherwise known as "The Chattel
Mortgage Law," as intended. Otherwise, respondent will be placed in an unjust position where
she is deprived of possession of the subject vehicle while her outstanding debt remains unpaid,
either in full or in part, all to the undue advantage of petitioner - a situation which law and equity
will never permit. The P103,000.00 payment of respondent will only operate to reduce her
outstanding obligation to petitioner from P664,500.00 to P561,500.00. Such a reduction in
respondent's outstanding obligation should be accounted for when petitioner conducts the
impending foreclosure sale of the subject vehicle. Once such foreclosure sale has been made, the
proceeds thereof should be applied to the reduced amount of respondent's outstanding
obligation, and the excess of said proceeds, if any, should be returned to her.

VICENTE D. CABANTING and LALINE V. CABANTING vs.


BPI FAMILY SAVINGS BANK, INC.
G.R. No. 201927, February 17, 2016, J. Peralta

Facts:

Petitioners bought on installment basis from Diamond Motors Corporation a Mitsubishi


Adventure and executed a Promissory Note (PN) with Chattel Mortgage in favor of Diamond
Motors. Diamond Motors assigned the said PN with Chattel Mortgage to BPI Family Savings
Bank, Inc. (BPI Family) by virtue of a Deed of Assignment.

Subsequently BPI Family filed a complaint against petitioners for Replevin and damages
praying that petitioners be ordered to pay the unpaid portion of the vehicle's purchase price,
accrued interest thereon, attorney's fees and liquidated damages, as stipulated on the PN with
Chattel Mortgage. BPI Family alleged that petitioners failed to pay three (3) consecutive
installments despite written demand.

In their Answer, petitioners alleged that they sold the subject vehicle to one Victor S.
Abalos, with the agreement that the latter shall assume the obligation to pay the remaining
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CIVIL LAW DIGESTS 2014- June 2016

monthly installments. Allegedly, the first few checks issued by Abalos was goo but the subsequent
checks were dishonored and not paid. Petitioners claim that BPI Family should have sued Abalos
instead of them.

Despite numerous opportunities given to petitioners to present evidence, they were never
able to present their witness. Hence, their right to present evidence was deemed waived.

The RTC later rendered judgment against petitioners, which was affirmed by the CA.

Issue:

Whether respondent bank may be held entitled to the possession of the motor vehicle
subject of the instant case for replevin, or the payment of its value and damages, without proof of
prior demand.

Ruling:

Respondent bank may be entitled to the possession of the motor vehicle, or the payment
of its value and damages, without proof of prior demand.

The PN with Chattel Mortgage is a contract of adhesion – one wherein a party imposes a
ready-made form of contract on the other. Contracts of adhesion are not entirely prohibited. The
one who adheres to the contract is free to reject it entirely; otherwise, he gives his consent.

In determining the validity or enforceability of a contract, the peculiar circumstances


obtaining in each case and the situation of the parties concerned will have to be considered.
Article 24 of the New Civil Code provides that "[in] all contractual, property or other relations,
when one of the parties 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.

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.

Article 1169 (1) of the Civil Code allows a party to waive the need for notice and demand.
In this case the PN with Chattel Mortgage clearly stipulated that notice and demand are being
waived. Petitioners are bound by the said stipulation.

EQUITABLE SAVINGS BANK (BDO UNIBANK, INC. v. ROSALINDA C. PALCES


G.R. No. 214752, March 9, 2016; Perlas-Bernabe

Facts:

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CIVIL LAW DIGESTS 2014- June 2016

On August 15 2005, respondent Rosalinda Palces purchased a Hyundai Starex GRX Jumbo through
a loan granted by petitioner Equitable Savings Bank in the amount of P1,196,100.00. Respondent
executed a Promissory Note with Chattel Mortgage in favor of petitioner stating that (a)
respondent shall pay petitioner the aforesaid amount in 36-monthly installments of P33,225.00
per month, beginning September 18, 2005 and every 18th of the month thereafter until full
payment of the loan; (b) respondent's default in paying any installment renders the remaining
balance due and payable; and (c) respondent's failure to pay any installments shall give petitioner
the right to declare the entire obligation due and payable and may likewise, at its option, x x x
foreclose this mortgage; or file an ordinary civil action for collection and/or such other action or
proceedings as may be allowed under the law.

Respondent failed to pay the monthly installments in January and February 2007, thereby
triggering the acceleration clause in the Promissory Note with Chattel Mortgage and prompting
petitioner to send a demand letter to respondent. When the demand went unheeded, petitioner
went ahead and filed the instant Complaint for Recovery of Possession with Replevin with
Alternative Prayer for Sum of Money and Damages.

Pending the filing of respondent’s Answer, summons and a writ of replevin were already issued
and served to her personally, resulting in the sheriff taking possession of the subject vehicle.

Respondent admits to defaulting on her installments for January and February 2007. However, in
her defense, she argues that a certain Rodrigo Dumagpi, an officer of petitioner, gave his consent
for respondent to catch-up on her payments on March. Thus, she paid the amount of P70,000.00
and P33,000.00 on March 8 and March 20 respectively.

The RTC ruled in favor of petitioner and confirmed its right to possess the subject vehicle. The
RTC found that respondent’s default in her installments rendered the entire balance of the loan
amounting to P664,500.00 due and demandable. While respondent paid the installments due in
March, the same were late, irregular, and insufficient to fully satisfy respondent’s entire
obligation. The RTC, however, ruled that since its right to possess had already been confirmed,
petitioner is no longer entitled to the payment of the remaining balance of the loan.

On appeal, the CA modified the RTC’s ruling, ordering petitioner to return the amount of
P103,000.00 to respondent. Applying Article 1484 of the Civil Code, the CA ruled that by choosing
to recover the subject vehicle by writ of replevin, petitioner had already waived its right to recover
any unpaid installments.

Issues:

1) Whether the CA correctly applied rule 1484 of the Civil Code in ruling that petitioner had
already waived its right to recover unpaid installments by choosing to recover the subject
vehicle subject of a chattel mortgage via a writ of replevin.

Ruling:

1) No, Article 1484 of the Civil Code does not apply since there is no vendor-vendee
relationship between respondent and petitioner.

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CIVIL LAW DIGESTS 2014- June 2016

Article 1484 of the Civil Code applies in a contract of sale of personal property the price of which
is payable in installments. The records of this case reveal that respondent never bought the
subject vehicle from petitioner but from a third party, and merely sought financing from
petitioner for its full purchase price. In order to document the loan transaction between
petitioner and respondent, a Promissory Note with Chattel Mortgage29 dated August 18, 2005 was
executed wherein, inter alia, respondent acknowledged her indebtedness to petitioner in the
amount of P1,196,100.00 and placed the subject vehicle as a security for the loan. Indubitably, a
loan contract with the accessory chattel mortgage contract - and not a contract of sale of personal
property in installments - was entered into by the parties with respondent standing as the debtor-
mortgagor and petitioner as the creditor-mortgagee.

Since it is undisputed that petitioner had regained possession of the subject vehicle, it is only
appropriate that foreclosure proceedings, if none yet has been conducted/concluded, be
commenced in accordance with the provisions of Act No. 1508,36 otherwise known as "The
Chattel Mortgage Law," as intended. Otherwise, respondent will be placed in an unjust position
where she is deprived of possession of the subject vehicle while her outstanding debt remains
unpaid, either in full or in part, all to the undue advantage of petitioner - a situation which law
and equity will never permit. The P103,000.00 payment of respondent will only operate to reduce
her outstanding obligation to petitioner from P664,500.00 to P561,500.00. Such a reduction in
respondent's outstanding obligation should be accounted for when petitioner conducts the
impending foreclosure sale of the subject vehicle. Once such foreclosure sale has been made, the
proceeds thereof should be applied to the reduced amount of respondent's outstanding
obligation, and the excess of said proceeds, if any, should be returned to her.

SURETYSHIP/ GUARANTY

TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES


(FORMERLY PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION.)
vs. ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION, NICOLAS C.
BALDERRAMA, SIDDCOR INSURANCE CORPORATION (NOW MEGA PACIFIC
INSURANCE CORPORATION), PHILIPPINE PHOENIX SURETY AND INSURANCE, INC.,
PARAMOUNT INSURANCE CORPORATION, AND FORTUNE LIFE AND GENERAL
INSURANCE COMPANY
G.R. No. 187403. February 12, 2014
J. Perlas-Bernabe

The Surety Bonds are suretyship contracts which secure the debt of ASPAC, the principal
debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it
may incur under the Letters of Guarantee, within the bounds of the bonds’ respective coverage
periods and amounts. The payment extensions granted by Banque Indosuez and PCI Capital pertain
to TIDCORP’s own debt under the Letters of Guarantee wherein it (TIDCORP) irrevocably and
unconditionally guaranteed full payment of ASPAC’s loan obligations to the banks in the event of its
(ASPAC) default.

Thus, there are two separate contracts involved. One involves a suretyship agreement and
another a contract of guaranty. A surety is an insurer of the debt, whereas a guarantor is an insurer
of the solvency of the debtor. In a suretyship agreement, when a debtor fails to pay, the surety
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CIVIL LAW DIGESTS 2014- June 2016

undertakes to pay the debt. A surety is considered as a solidary debtor. On the other hand, when a
person acts as a guarantor, he undertakes to pay the debt if, after going after the debtor, the creditor
remains unpaid.

Facts:

Respondents Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered
into a sub-contracting agreement with the Electrical Projects Company of Libya (ELPCO), as main
contractor, for the construction and erection of a double circuit bundle phase conductor
transmission line in the country of Libya. To finance its working capital requirements, ASPAC
obtained loans from foreign banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI
Capital) which, upon the latter’s request, were secured by several Letters of Guarantee issued by
petitioner Trade and Investment Development Corporation of the Philippines (TIDCORP), then
Philippine Export and Foreign Loan Guarantee Corp. Under the Letters of Guarantee, TIDCORP
irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations to Banque
Indosuez and PCI Capital in the event of default by the latter.

As a condition precedent to the issuance by TIDCORP of the Letters of Guarantee, ASPAC, PICO,
and ASPAC’s President, respondent Nicolas C. Balderrama (Balderrama) had to execute several
Deeds of Undertaking, binding themselves to jointly and severally pay TIDCORP for whatever
damages or liabilities it may incur under the aforementioned letters. In the same light, ASPAC, as
principal debtor, entered into surety agreements (Surety Bonds) with Paramount, Phoenix, Mega
Pacific and Fortune (bonding companies), as sureties, also holding themselves solidarily liable to
TIDCORP, as creditor, for whatever damages or liabilities the latter may incur under the Letters
of Guarantee.

ASPAC eventually defaulted on its loan obligations to Banque Indosuez and PCI Capital,
prompting them to demand payment from TIDCORP under the Letters of Guarantee. TIDCORP
fully settled its obligations under the Letters of Guarantee to both Banque Indosuez and PCI
Capital. Seeking payment for the damages and liabilities it had incurred under the Letters of
Guarantee and with its previous demands therefor left unheeded, TIIDCORP filed a collection
case against: (a) ASPAC, PICO, and Balderrama on account of their obligations under the deeds of
undertaking; and (b) the bonding companies on account of their obligations under the Surety
Bonds.

The RTC partially granted TIDCORP’s complaint and thereby found ASPAC, PICO, and
Balderrama jointly and severally liable to TIDCORP but absolved the bonding companies from
liability on the ground that the moratorium request and the consequent payment extensions
granted by Banque Indosuez and PCI Capital in TIDCORP’s favor without their consent
extinguished their obligations under the Surety Bonds. As basis, the RTC cited Article 2079 of the
Civil Code which provides that an extension granted to the debtor by the creditor without the
consent of the guarantor/surety extinguishes the guaranty/suretyship, and, in this relation, added
that the bonding companies “should not be held liable as sureties for the extended period.” The
CA upheld the RTC decision with modifications. This led to the filing of separate motions for
reconsideration by TIDCORP and Balderrama, which were both denied. Only TIDCORP elevated
the matter to the SC.

Issue:

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Whether the bonding companies’ liabilities to TIDCORP under the Surety Bonds have been
extinguished by the payment extensions granted by Banque Indosuez and PCI Capital to
TIDCORP under the Restructuring Agreement

Ruling:

A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable. Although the contract of a surety is in essence secondary only to a valid principal
obligation, his liability to the creditor is direct, primary and absolute; he becomes liable for the
debt and duty of another although he possesses no direct or personal interest over the obligations
nor does he receive any benefit therefrom. The fundamental reason therefor is that a contract of
suretyship effectively binds the surety as a solidary debtor. This is provided under Article 2047 of
the Civil Code.

Thus, since the surety is a solidary debtor, it is not necessary that the original debtor first failed to
pay before the surety could be made liable; it is enough that a demand for payment is made by the
creditor for the surety’s liability to attach. Article 1216 of the Civil Code provides that ‘the creditor
may proceed against any one of the solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully collected.’

Comparing a surety’s obligations with that of a guarantor, the Court, in the case of Palmares v.
CA, illumined that a surety is responsible for the debt’s payment at once if the principal debtor
makes default, whereas a guarantor pays only if the principal debtor is unable to pay, viz.:

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency


of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty,
an undertaking that the debtor shall pay. Stated differently, a surety promises to pay
the principal’s debt if the principal will not pay, while a guarantor agrees that the
creditor, after proceeding against the principal, may proceed against the guarantor if
the principal is unable to pay. A surety binds himself to perform if the principal does
not, without regard to his ability to do so. A guarantor, on the other hand, does not
contract that the principal will pay, but simply that he is able to do so. In other
words, a surety undertakes directly for the payment and is so responsible at once if
the principal debtor makes default, while a guarantor contracts to pay if, by the use
of due diligence, the debt cannot be made out of the principal debtor. (Emphases
and underscoring supplied; citations omitted)

Applying these principles, the Court finds that the payment extensions granted by Banque
Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement did not have the
effect of extinguishing the bonding companies’ obligations to TIDCORP under the Surety
Bonds, notwithstanding the fact that said extensions were made without their consent.
This is because Article 2079 of the Civil Code refers to a payment extension granted by the
creditor to the principal debtor without the consent of the guarantor or surety. In this case, the
Surety Bonds are suretyship contracts which secure the debt of ASPAC, the principal debtor,
under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may
incur under the Letters of Guarantee, within the bounds of the bonds’ respective coverage periods

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CIVIL LAW DIGESTS 2014- June 2016

and amounts. No payment extension was, however, granted by TIDCORP in favor of ASPAC in
this regard; hence, Article 2079 of the Civil Code should not be applied with respect to the
bonding companies’ liabilities to TIDCORP under the Surety Bonds.

The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORP’s own
debt under the Letters of Guarantee wherein it (TIDCORP) irrevocably and unconditionally
guaranteed full payment of ASPAC’s loan obligations to the banks in the event of its (ASPAC)
default. In other words, the Letters of Guarantee secured ASPAC’s loan agreements to the banks.
Under this arrangement, TIDCORP therefore acted as a guarantor, with ASPAC as the principal
debtor, and the banks as creditors.

Proceeding from the foregoing discussion, it is quite clear that there are two sets of transactions
that should be treated separately and distinctly from one another following the civil law principle
of relativity of contracts “which provides that contracts can only bind the parties who entered into
it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has
acted with knowledge thereof.” Verily, as the Surety Bonds concern ASPAC’s debt to TIDCORP
and not TIDCORP’s debt to the banks, the payments extensions (which conversely concern
TIDCORP’s debt to the banks and not ASPAC’s debt to TIDCORP) would not deprive the bonding
companies of their right to pay their creditor (TIDCORP) and to be immediately subrogated to
the latter’s remedies against the principal debtor (ASPAC) upon the maturity date. It must be
stressed that these payment extensions did not modify the terms of the Letters of Guarantee but
only provided for a new payment scheme covering TIDCORP’s liability to the banks. In fine,
considering the inoperability of Article 2079 of the Civil Code in this case, the bonding
companies’ liabilities to TIDCORP under the Surety Bonds – except those issued by Paramount
and covered by its Compromise Agreement with TIDCORP – have not been extinguished. Since
these obligations arose and have been duly demanded within the coverage periods of all the
Surety Bonds, TIDCORP’s claim is hereby granted and the CA’s ruling on this score consequently
reversed.

GILAT SATELLITE NETWORKS, LTD.,vs.


UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC
G.R. No. 189563, April 7, 2014, CJ. Sereno

In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that of
the principal debtor. This undertaking makes a surety agreement an ancillary contract, as it
presupposes the existence of a principal contract. Nevertheless, although the contract of a surety is
in essence secondary only to a valid principal obligation, its liability to the creditor or "promise" of
the principal is said to be direct, primary and absolute; in other words, a surety is directly and
equally bound with the principal. He becomes liable for the debt and duty of the principal obligor,
even without possessing a direct or personal interest in the obligations constituted by the latter.
Thus, a surety is not entitled to a separate notice of default or to the benefit of excussion. It may in
fact be sued separately or together with the principal debtor.

After a thorough examination of the pieces of evidence presented by both parties, the RTC
found that Gilathad delivered all the goods to One Virtual and installed them. Despite these
compliances, One Virtual still failed to pay its obligation, triggering UCPB’s liability to Gilat as the
former’s surety. In other words, the failure of One Virtual, as the principal debtor, to fulfill its
monetary obligation to Gilat gave the latter an immediate right to pursue UCPB as the surety.
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Facts:

One Virtual placed with GILAT a purchase order for various telecommunications
equipment (sic), accessories, spares, services and software, at a total purchase price of Two
Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2,128,250.00). Of
the said purchase price for the goods delivered, One Virtual promised to pay a portion thereof
totalling US$1.2 Million in accordance with the payment schedule. To ensure the prompt payment
of this amount, it obtained defendant UCPB General Insurance Co., Inc.’s surety bond in favor of
GILAT.

One Virtual failed to pay GILAT (US$400,000.00) on the due date in accordance with the
payment schedule attached to the surety bond, prompting GILAT to write the surety defendant
UCPB for payment of the said amount. No part of the amount set forth in this demand has been
paid to date by either One Virtual or defendant UCPB. One Virtual likewise failed to pay on the
succeeding payment instalment, prompting GILAT to send a second demand letter for the
payment of the full amount of guaranteed and which letter was received by the defendant surety.
However, defendant UCPB failed to settle the amount of US$1,200,000.00 or a part thereof, hence,
the instant complaint."

Petitoner, Gilat Satellite Networks, Ltd., filed a Complaintagainst respondent UCPB


General Insurance Co., Inc., RTC renders judgment for Gilat, and against UCPB. Latter, appealed
to the CA which dismissed the case for lack of jurisdiction. RTC’s decision is Vacated.

Issue:

Whether or not CA erred in dismissing the case and ordering Gilatand One Virtual to
arbitrate

Ruling:

Yes, the CA erred in dismissing the case and ordering Gilat and One Virtual to arbitrate

Existence of a suretyship agreement does not give the surety the right to intervene in the
principal contract, nor can an arbitration clause between the buyer and the seller be invoked by a
non-party such as the surety.

Moreover, Articles 1216 and 2047 of the Civil Code clearly provide that the creditor may
proceed against the surety without having first sued the principal debtor. Even the Surety
Agreement itself states that respondent becomes liable upon "mere failure of the Principal to
make such prompt payment." Thus, Gilat should not be ordered to make a separate claim against
One Virtual (via arbitration) before proceeding against the latter.

In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that
of the principal debtor. This undertaking makes a surety agreement an ancillary contract, as it
presupposes the existence of a principal contract. Nevertheless, although the contract of a surety
is in essence secondary only to a valid principal obligation, its liability to the creditor or "promise"
of the principal is said to be direct, primary and absolute; in other words, a surety is directly and
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equally bound with the principal. He becomes liable for the debt and duty of the principal
obligor, even without possessing a direct or personal interest in the obligations constituted by the
latter.Thus, a surety is not entitled to a separate notice of default or to the benefit of excussion. It
may in fact be sued separately or together with the principal debtor.

After a thorough examination of the pieces of evidence presented by both parties, the RTC
found that Gilathad delivered all the goods to One Virtual and installed them. Despite these
compliances, One Virtual still failed to pay its obligation, triggering UCPB’s liability to Gilat as the
former’s surety. In other words, the failure of One Virtual, as the principal debtor, to fulfill its
monetary obligation to Gilat gave the latter an immediate right to pursue UCPB as the surety.

Consequently, Court cannot sustain UCPB’s claim that the Purchase Agreement, being the
principal contract to which the Suretyship Agreement is accessory, must take precedence over
arbitration as the preferred mode of settling disputes.

First, the acceptance [of a surety agreement], however, does not change in any material
way the creditor’s relationship with the principal debtor nor does it make the surety an active
party to the principal creditor-debtor relationship. In other words, the acceptance does not give
the surety the right to intervene in the principal contract. The surety’s role arises only upon the
debtor’s default, at which time, it can be directly held liable by the creditor for payment as a
solidary obligor." Hence, the surety remains a stranger to the Purchase Agreement. Court agrees
with Gilat that UCPB cannot invoke in its favor the arbitration clause in the Purchase Agreement,
because it is not a party to that contract.An arbitration agreement being contractual in nature, it
is binding only on the parties thereto, as well as their assigns and heirs.

Second, Section 24 of Republic Act No. 9285 is clear in stating that a referral to arbitration
may only take place "if at least one party so requests not later than the pre-trial conference, or
upon the request of both parties thereafter." UCPB has not presented even an iota of evidence to
show that either Gilat or One Virtual submitted its contesting claim for arbitration.

Third, sureties do not insure the solvency of the debtor, but rather the debt itself.They are
contracted precisely to mitigate risks of non-performance on the part of the obligor. This
responsibility necessarily places a surety on the same level as that of the principal debtor. The
effect is that the creditor is given the right to directly proceed against either principal debtor or
surety. This is the reason why excussion cannot be invoked.To require the creditor to proceed to
arbitration would render the very essence of suretyship nugatory and diminish its value in
commerce.

At any rate, if the surety is dissatisfied with the degree of activity displayed by the creditor
in the pursuit of his principal, he may pay the debt himself and become subrogated to all the
rights and remedies of the creditor.

PEOPLE'S TRANS-EAST ASIA INSURANCE CORPORATION, a.k.a. PEOPLE'S GENERAL


INSURANCE CORPORATION vs. DOCTORS OF NEW MILLENNIUM HOLDINGS, INC.
G.R. No. 172404, August 13, 2014, J. Leonen

The liabilities of an insurer under the surety bond are not extinguished when the
modifications in the principal contract do not substantially or materially alter the principal's
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obligations. The surety is jointly and severally liable with its principal when the latter defaults from
its obligations under the principal contract. On the basis of petitioner’s own admissions, the
principal contract of the suretyship is the signed agreement. The surety, therefore, is presumed to
have acquiesced to the terms and conditions embodied in the principal contract when it issued its
surety bond.

Facts:

Doctors of New Millennium Holdings, Inc. is a domestic corporation comprised of about


80 doctors. On March 2, 1999, it entered into a construction and development agreement with
Million State Development Corporation, a contractor, for the construction of a 200-bed capacity
hospital in Cainta, Rizal.

Doctors of New Millennium obliged itself to pay P10,000,000.00 to Million State


Development at the time of the signing of the agreement to commence the construction of the
hospital. Million State Development was to shoulder 95% of the project cost and committed itself
to secure P385,000,000.00 within 25 banking days from Doctors of New Millennium’s initial
payment, part of which was to be used for the purchase of the lot where the hospital was to be
constructed.

As part of the conditions prior to the initial payment, Million State Development
submitted a surety bond of P10,000,000.00 to Doctors of New Millennium. The surety bond was
issued by People’s Trans-East Asia Insurance Corporation, now known as People’s General
Insurance Corporation (PGIC). Doctors of New Millennium, on the other hand, made the initial
payment of P10,000,000.00.

Million State Development, however, failed to comply with its obligation to secure
P385,000,000.00 within 25 banking days from initial payment.

When Million State Development reneged on its obligations, Doctors of New Millennium
sent a demand letter dated June 14, 1999 to People’s General Insurance for the return of its initial
payment of P10,000,000.00, in accordance with its surety bond. On July 9, 1999, Doctors of New
Millennium sent another letter to People’s General Insurance, this time furnishing a copy to the
Insurance Commission.

After several conferences, People’s General Insurance sent a letter to then Insurance
Commissioner Eduardo T. Malinis, stating that Doctors of New Millennium’s surety claim was
denied on the ground that the guarantee only extended to "the full and faithful construction of a
First Class 200 hospital bed building" and not to "the ‘funding’ of the construction of the
hospital." As a result of the letter, Doctors of New Millennium filed an administrative complaint
for unfair claim settlement practice against People’s General Insurance.

While the administrative complaint was pending before the Insurance Commission,
Doctors of New Millennium sent a demand letter to Million State Development for the return of
their initial payment of P10,000,000.00. Due to Million State Development’s inaction, Doctors of
New Millennium filed a complaint for breach of contract with damages with prayer for the
issuance of preliminary attachment against Million State Development and People’s General
Insurance with the RTC.
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Million State Development did not appear or submit any responsive pleading and was
declared in default. The trial court resolved the issues of the case only as to the remaining parties
and primarily involving the surety bond.

Doctors of New Millennium, represented by its President, Dr. Cenon Alfonso, testified
that the surety bond was entered into to protect the release of the P10,000,000.00 initial
mobilization fund. People’s General Insurance, represented by its President, Manual Liboro,
testified that its liability was only limited to the construction of the hospital.

Mr. Liboro also argued that the terms of the surety bond were based on the Draft
Construction and Development Agreement (draft agreement). It alleged that without its
knowledge and consent, Doctors of New Millennium and Million State Development substantially
altered the conditions of the draft agreement by inserting the clause"or the Project Owner’s
waiver," which appeared in the signed agreement. Mr. Liboro claimed that they became aware of
the alteration during the conciliation proceedings before the Insurance Commission.

The trial court rendered its decision finding only Million State Development liable to
Doctors of New Millennium. It discharged People’s General Insurance from any liability on the
ground that the inclusion of the clause "or the Project Owner’s waiver" in the signed agreement
was a novation of the draft agreement.

The Court of Appeals rendered a decision granting the appeal and holding People’s
General Insurance jointly and severally liable with Million State Development. It ruled that
People’s General Insurance guaranteed not only the construction of the hospital but also secured
the initial payment in case the contractor defaults.

Issue:

Whether or not the surety bond guaranteeing respondent Doctors of New Millennium’s
initial payment was impliedly novated by the insertion of a clause in the principal contract, which
waived the conditions for the initial payment’s release.

Ruling:

The petition is without merit

The principal contract of the suretyship is the signed agreement

The obligations of the surety to the principal under the surety bond are different from the
obligations of the contractor to the client under the principal contract. The surety guarantees the
performance of the contractor’s obligations. Upon the contractor’s default, its client may demand
against the surety bond even if there was no privity of contract between them. This is the essence
of a surety agreement.

The definition of a surety is provided for under the Civil Code, which states:

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Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

In this case, the surety bond was executed "to guarantee the repayment of the
downpayment" and "to secure the full and faithful performance" of Million State Development.
According to the terms of the bond, People’s General Insurance bound itself to be liable in the
amount of P10,000,000.00 in the event that Million State Development defaults in its obligations.

Petitioner, however, contends that the inclusion of the clause "or the Project Owner’s
waiver" in the signed agreement made its obligations more onerous and, the surety must be
released from its bond.

A suretyship consists of two different contracts: (1) the surety contract and (2) the
principal contract which it guarantees. Since the insurer’s liability is strictly based only on the
terms stated in the surety contract in relation to the principal contract, any change in the
principal contract, which materially alters the principal’s obligations would, in effect, constitute
an implied novation of the surety contract:

A surety is released from its obligation when there is a material alteration of the contract
in connection with which the bond is given, such as a change which imposes a new obligation on
the promising party, or which takes away some obligation already imposed, or one which changes
the legal effect of the original contract and not merely its form. A surety, however, is not released
by a change in the contract which does not have the effect of making its obligation more onerous.

Petitioner PGIC insists that the principal contract of the suretyship was the draft
agreement since it was assured by its principal that the draft would embody the same terms and
conditions as the final signed agreement. The insertion of the disputed clause in the signed
agreement, it argues, "effectively deprived petitioner of the opportunity to objectively assess the
real risk of its undertaking and fix the reasonable rate of premium thereon."

This argument is unmeritorious.

In his testimony before the trial court, Mr. Liboro, representing petitioner, admitted that
the signed copy of the agreement was attached to the surety bond when it was returned to them
by Million State Development and respondent.

Petitioner, as the surety, had the responsibility to read through the terms of the principal
contract; it cannot simply rely on the assurances of its principal. It was petitioner’s duty to
carefully scrutinize the agreement. If petitioner had any objection to the terms of the signed
agreement, it could have pointed it out before its principal defaults and it becomes liable under
the surety bond. The silence of petitioner must be taken against it since it was responsible for
exerting diligence in the conduct of its affairs.

Petitioner’s failure to notice the changes in the signed agreement was due to its own fault
and not to any deception on the part of respondent. Respondent was not privy to the terms of the
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surety bond entered into by petitioner and Million State Development. If there were any changes
in the contract that petitioner should have been aware of, it was Million State Development, as its
principal, which had the duty to inform them about the changes.

On the basis of petitioner’s own admissions, the principal contract of the suretyship is the
signed agreement. The surety, therefore, is presumed to have acquiesced to the terms and
conditions embodied in the principal contract when it issued its surety bond.

Petitioner cannot argue that the insertion of the clause in the signed agreement
constituted an implied novation of the obligation which extinguished its obligations as a surety
since there was nothing to novate: in order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that
the old and new obligation be in every point incompatible with each other. Novation of a contract
is never presumed. In the absence of an express agreement, novation takes place only when the
old and the new obligations are incompatible on every point.

Even if we were to assume, for the sake of argument, that the principal contract in the
suretyship was the draft agreement, the addition of the clause "or the Project Owner’s waiver" in
the signed agreement does not operate as a novation of petitioner’s liability under the surety
bond.

Petitioner cannot feign ignorance of Million State Development’s obligation to provide the
funds for the balance since this provision was present in both the draft agreement and the signed
agreement. Since Million State Development failed to fulfill its obligation, the surety becomes
jointly and severally liable for the amount of the bond.

CENTENNIAL GUARANTEE ASSURANCE CORPORATION vs. UNIVERSAL MOTORS


CORPORATION, RODRIGO T. JANEO, JR., GERARDO GELLE, NISSAN CAGAYAN DE ORO
DISTRIBUTORS, INC., JEFFERSON U. ROLIDA, and PETER YAP
G.R. No. 189358, October 8, 2014, J. Perrlas-Bernabe

Verily, in a contract of suretyship, one lends his credit by joining in the principal debtor’s
obligation so as to render himself directly and primarily responsible with him, and without reference
to the solvency of the principal. Thus, execution pending appeal against NSSC means that the same
course of action is warranted against its surety, CGAC. The same reason stands for CGAC’s other
principal, Orimaco, who was determined to have permanently left the country with his family to
evade execution of any judgment against him.

Facts:

The instant petition originated from a Complaint for Breach of Contract with Damages
and Prayer for Preliminary Injunction and Temporary Restraning Order filed by Nissan Specialist
Sales Corporation (NSSC) and its President and General Manager, Reynaldo A. Orimaco
(Orimaco), against herein respondents Universal Motors Corporation and private respondents.
The temporary restraining order (TRO) prayed for was eventually issued by the RTC upon the
posting by NSSC and Orimaco of a 1,000,000.00 injunction bond issued by their surety,
CGAC.Respondents filed a petition for certiorari and prohibition before the CA. Consequently,

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the April 2, 2002 Writ of Preliminary Injunction issued by the RTC was ordered dissolved.

On October 31, 2007, the RTC rendered a Decision dismissing the complaint for breach of
contract with damages for lack of merit. The RTC ordered NSSC, Orimaco, and CGAC to jointly
and severally pay respondents damages and attorney’s fees. Upon respondents’ motion, the RTC
granted Execution Pending Appeal of its October 31, 2007 Decision through an Order16 dated
January 16, 2008. It ruled that there exists good reasons to justify the immediate execution of the
Decision. CGAC assailed the RTC’s January 16, 2008 Order before the CA through a petition for
certiorari, questioning the existence of good reasons to warrant the grant of execution pending
appeal and the propriety of enforcing it against one which is not the losing party in the case but a
mere bondsman whose liability is limited to the surety bond it issued. The CA affirmed in part
the assailed order by allowing the execution pending appeal of the RTC’s October 31, 2007
Decision but limiting the amount of CGAC’s liability to only 1,000,000.00.

Issue:

Whether or not CGAC as surety is directly liable to the execution of judgment pending
appeal.

Ruling:

Yes.

That CGAC’s financial standing differs from that of NSSC does not negate the order of
execution pending appeal. As the latter’s surety, CGAC is considered by law as being the same
party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and
their liabilities are interwoven as to be inseparable. Verily, in a contract of suretyship, one lends
his credit by joining in the principal debtor’s obligation so as to render himself directly and
primarily responsible with him, and without reference to the solvency of the principal. Thus,
execution pending appeal against NSSC means that the same course of action is warranted against
its surety, CGAC. The same reason stands for CGAC’s other principal, Orimaco, who was
determined to have permanently left the country with his family to evade execution of any
judgment against him.

OFFICE OF THE OMBUDSMAN, vs. AMALIO A. MALLARI


G.R. No. 183161, December 03, 2014, J. Mendoza

Mallari was administratively charged due to the fact the he approved surety bond in favor of
ECOBEL without consideration of the policies by GSIS. The court finds substantial evidence to prove
Mallari’s administrative liability. The Court notes that irregularities, defects and infirmities
attended the processing, approval, issuance, and the actual drawdown of the US$10,000,000.00
ECOBEL bond in which Mallari actively participated. In a letter, dated September 13, 2002, to the
FFIB, Mr. Reynaldo R. Nograles, OIC-Office of the President, Internal Audit Service, GSIS, attached
a copy of the excerpts from the Final Report on the GSIS Audit of Underwriting Departments. Said
Audit Report found that: there was non-adherence to existing policies/SOPs in the processing and
release of the Ecobel Land, Inc. guaranty payment bond, as well as non-adherence to GSIS GIG’s
business policy statement on survey, inspection or assessment of risks/properties to be insured
including re-inspection and survey of insured properties
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Facts:

ECOBEL applied for a two-year surety bond with GSIS to guarantee payment of a Ten
Million US Dollar (US$10,000,000.00) loan with the Philippine Veterans Bank (PVB) acting as the
obligee.ECOBEL bond application was approved in principle "subject to analysis/evaluation of the
project and the offered collaterals.”March 11, 1998, the GSIS Surety Bond or G (16) GIF Bond No.
029132(ECOBEL bond) in the amount of Ten Million US Dollars (US$10,000,000.00) was
correspondingly issued in favor of ECOBEL with PVB as the obligee. The ECOBEL bond was
signed by Mallari on behalf of the GSIS GIG to guarantee the repayment of the principal and
interest on the loan granted to ECOBEL through the obligee to be used for the construction of its
tower building.

On February 9, 1999, almost a year from the issuance of the ECOBEL bond,
Valencerina(vice president of the London Representative Office (LRO) received from Boright the
premium payment for the bond in the amount of ?12,731,520.00, in FEBTC check, post-dated
February 26, 1999 as a one-year premium for the period, March 11, 1998 to March 11,
1999.Thereafter, Transfer Certificate of Title (TCT) No. 66289 covering the land located in Lipa
City, Batangas, consisting of 205,520 square meters, submitted as collateral, turned out to be “not
genuine” or spurious. The said land, with an appraised value of ?202,437,200.00, was the major
collateral for the issuance of the ECOBEL bond. The land was titled in the name of Vicente
Yupangco who did not appear to hold any interest in ECOBEL, either as officer or
stockholder.Thus, on February 12, 1999, the ECOBEL bond was cancelled by GSIS, through Atty.
Saludares of the Underwriting Department II. On the same day, Valencerina informed Boright
that the bond was invalid and unenforceable and that the FEBTC check, postdated February 26,
1999, was disregarded by GSIS.On February 19, 1999, despite the notice of the bond cancellation,
ECOBEL was granted a loan by Bear and Stearns International Ltd. (BSIL) in the face amount of
US$10,000,000.00 using the ECOBEL bond. The amount actually drawn and received by ECOBEL
was US$9,307,000.00. After the drawdown, Campaña at the LRO received the surety bond
premium check payments, dated April 1, 1999 and April 15, 1999, in the total amount of
US$200,629.00. The said checks were remitted to GSIS Manila on May 10, 1999.On March 7, 2000,
a Notice of Default on Payment was issued against ECOBEL which placed GSIS under threat of a
suit. GSIS was furnished with a copy of the said notice and was similarly advised on March 9,
2000.In a Certification, dated March 20, 2000,PVB stated that it did not accept the proposal for it
to be named “obligee” in the ECOBEL bond, as there was no contract or agreement executed
between ECOBEL and PVB.

Issue:

Whether or not Mallari should held administratively liable in granting the surety bond

Ruling:

Yes, Mallari should be held administrative liable.

At the outset it is well to quote the principles, policies and procedural guidelines involved
in a regularly issued surety bond. A contract of suretyship is an agreement whereby a party,
called the surety, guarantees the performance by another party, called the principal or obligor, of
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an obligation or undertaking in favor of another party, called the obligee. Although the contract
of a surety is secondary only to a valid principal obligation, the surety becomes liable for the debt
or duty of another although it possesses no direct or personal interest over the obligations nor
does it receive any benefit therefrom. The contract of suretyship is further elucidated, in this wise:
The surety's obligation is not an original and direct one for the performance of his own
act, but merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the principal is said to be
direct, primary and absolute; in other words, he is directly and equally bound with the
principal.Thus, suretyship arises upon the solidary binding of a person deemed the surety
with the principal debtor for the purpose of fulfilling an obligation. A surety is considered
in law as being the same party as the debtor in relation to whatever is adjudged touching
the obligation of the latter, and their liabilities are interwoven as to be inseparable.

With the aforecited GSIS policies and procedures as guidelines and the basic rule that, in
administrative cases, the quantum of evidence necessary to find an individual administratively
liable is substantial evidence, the Court assesses the liability of Mallari in this administrative case.
The Court finds substantial evidence to prove Mallari’s administrative liability. The Court notes
that irregularities, defects and infirmities attended the processing, approval, issuance, and the
actual drawdown of the US$10,000,000.00 ECOBEL bond in which Mallari actively participated. In
a letter, dated September 13, 2002, to the FFIB, Mr. Reynaldo R. Nograles, OIC-Office of the
President, Internal Audit Service, GSIS, attached a copy of the excerpts from the Final Report on
the GSIS Audit of Underwriting Departments. Said Audit Report found that: there was non-
adherence to existing policies/SOPs in the processing and release of the Ecobel Land, Inc.
guaranty payment bond, as well as non-adherence to GSIS GIG’s business policy statement on
survey, inspection or assessment of risks/properties to be insured including re-inspection and
survey of insured properties.

The Sworn Statement, dated September 23, 2002, of Atty. Nora M. Saludaresmerely
confirms the findings of the GSIS Internal Audit and Legal Services Group, viz: at the time the
surety bond was issued that bore the signatures of Josephine Edralin Boright as Principal and PVB
as Obligee and likewise of Amalio A. Mallari for the Surety or GSIS, there was yet no premium
payment and no sufficient collateral; the collateral that was subsequently submitted was found to
be spurious; Fernando U. Campana received premium payment at the GSIS London Office
subsequent to the cancellation of the surety bond; Alex M. Valencerina’s assurance that the bond
is fully secured from the inception of the transaction contributed to the eventual release and
issuance of the surety bond that bore the confirmation/approval of Amalio A. Mallari.On the basis
of these findings, the Court agrees with the Ombudsman’s conclusion that Mallari’s liability for
the administrative act of grave misconduct was established by substantial evidence.

Indeed, Mallari was duty bound to ensure that the procedural and documentary requisites
were duly complied with before affixing his signature on the bond. In the same way, he should not
have signed the attestation clause as the required underwriting work had not been diligently
complied with. His failure to act accordingly was a gross and inexcusable violation of the GSIS
avowed policy on strict underwriting. His act constituted an obvious disregard of the
aforementioned GSIS policies and guidelines which evidently rendered undue benefit and
advantage to ECOBEL to the detriment of GSIS, whose right and interest he was duty bound to

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protect.

YULIM INTERNATIONAL COMPANY LTD., JAMES YU, JONATHAN YU, and ALMERICK
TIENG LIM vs. INTERNATIONAL EXCHANGE BANK (now Union Bank of the
Philippines),
G.R. No. 203133, February 18, 2015, J. Reyes

“A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable.” And it is well settled that when the obligor or obligors undertake to be “jointly and
severally” liable, it means that the obligation is solidary, as in this case.

Facts:

IBank, a commercial bank, granted Yulim, a domestic partnership, a credit facility for
5,000,000.00, as evidenced by a Credit Agreement secured by a Chattel Mortgage. As further
guarantee, the partners, namely, James, Jonathan and Almerick, executed a Continuing Surety
Agreement in favor of iBank.

Yulim also executed a promissory note for 4,246,310.00, to mature on February 28,
2002. But Yulim defaulted on the said note. IBank sent demand letters to Yulim, through its
President, James but without success. iBank then filed a Complaint for Sum of Money with
Replevin against Yulim and its sureties.

The Court granted the application for a writ of replevin. Pursuant to the Sheriff’s
Certificate of Sale the items seized from Yulim’s warehouse were worth only 140,000.00, not
500,000.00 as the petitioners have insisted.

The petitioners moved to dismiss the complaint insisting that their loan had been fully
paid after they assigned to iBank their Condominium Unit with parking space. They claimed that
while the pre-selling value of the condominium unit was 3.3 Million, its market value has since
risen to 5.5 Million. The RTC did not entertain the motion to dismiss for non-compliance with
Rule 15 of the Rules of Court.

The petitioners filed their Answer reiterating that they have paid their loan by way of
assignment of a condominium unit to iBank.

The RTC rendered judgment and finds the individual defendants James Yu, Jonathan Yu
and Almerick Tieng Lim, not liable to the plaintiff, iBank, hence the complaint against them is
dismissed. But the defendant corporation Yulim International Company Ltd. is liable; and it
orders defendant corporation to pay plaintiff the sum of P4,246,310.00 with interest at 16.50% per
annum from February 28, 2002 until fully paid plus cost of suit.

The factual issue on appeal to the CA, raised by petitioners James, Jonathan and Almerick,
was whether Yulim’s loans have been extinguished with the execution of a Deed of Assignment of
their condominium unit in favor of iBank, while the legal issue, raised by iBank, was whether they
should be held solidarily liable with Yulim for its loans and other obligations to iBank.

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The CA ruled that the petitioners failed to prove that they have already paid Yulim’s
consolidated loan obligations totaling 4,246,310.00. The CA found the records bereft of any
evidence to show that Yulim had fully settled its obligation to iBank, further stating that the so-
called assignment by Yulim of its condominium unit to iBank was nothing but a mere temporary
arrangement to provide security for its loan pending the subsequent execution of a real estate
mortgage. Specifically, the CA found nothing in the Deed of Assignment which could signify that
iBank had accepted the said property as full payment of the petitioners’ loan.

Thus, the appellate court granted the appeal of iBank, and denied that of the petitioners,
and ruled that James Yu, Jonathan Yu and Almerick Tieng Lim are held jointly and severally liable
with defendant-appellant Yulim for the payment of the monetary awards.

Issues:

1) Whether or not petitioners James, Jonathan and Almerick should be held jointly and severally
liable with petitioner Yulim to pay iBank the amount of 4,246,310.00 with interest at 16.5%
per annum from February 28, 2002 until fully paid.
2) Whether or not the loan obligations have been paid by executing the deed of assignment of
the said condominium unit in favor of iBank

Ruling:

1) The individual petitioners do not deny that they executed the Continuing Surety Agreement,
wherein they “jointly and severally with the principal Yulim, unconditionally guarantee full and
complete payment when due, whether at stated maturity or otherwise, of any and all credit
accommodations that have been granted” to Yulim by iBank, including interest, fees, penalty and
other charges.

Under Article 2047 of the Civil Code, these words are said to describe a contract of
suretyship:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

In a contract of suretyship, one lends his credit by joining in the principal debtor’s obligation so
as to render himself directly and primarily responsible with him without reference to the solvency
of the principal. According to the above Article, if a person binds himself solidarily with the
principal debtor, the provisions of Articles 1207 to 1222, or Section 4, Chapter 3, Title I, Book IV of
the Civil Code 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, “there is a solidary liability
only when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.”

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“A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable.” And it is well settled that when the obligor or obligors undertake to be “jointly and
severally” liable, it means that the obligation is solidary, as in this case.

In addition to binding themselves “jointly and severally” with Yulim to “unconditionally


guarantee full and complete payment” of any and all credit accommodations that have been
granted to Yulim, the petitioners warrant that their liability as sureties “shall be direct, immediate
and not contingent upon the pursuit by the bank of whatever remedies it may have against the
pricipal of other securities.” There can be no doubt that the individual petitioners have bound
themselves to be solidarily liable with Yulim for the payment of its loan with iBank.

2) As regards the petitioners’ contention that iBank in its letter had “accepted” the assignment of
its condominium unit in Tomas Morato Avenue as full and final payment of their various loan
obligations, the Court is far from persuaded.

What the letter accepted was only the collaterals provided for the loans. Nowhere can it
be construed that the Deed of Assignment would 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, the Deed of Assignment expressly states, by way of a resolutory condition


concerning the purpose or use of the Deed of Assignment, that after the petitioners have
delivered or caused the delivery of their title to iBank, the Deed of Assignment shall then become
null and void. Shorn of its legal efficacy as an interim security, the Deed of Assignment would
then become functus officio once title to the condominium unit has been delivered to iBank. This
is so because the petitioners would then execute a Deed of Real Estate Mortgage over the
property in favor of iBank as security for their loan obligations.

To stress, the assignment being in its essence a mortgage, it was but a security and
not a satisfaction of the petitioners’ indebtedness.

Article 1255 of the Civil Code invoked by the petitioners contemplates the existence of two
or more creditors and involves the assignment of the entire debtor’s property, not a dacion en
pago.

Under Article 1245 of the Civil Code, “dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be governed by the law on sales.” Nowhere in
the Deed of Assignment can it be remotely said that a sale of the condominium unit was
contemplated by the parties, the consideration for which would consist of the amount of
outstanding loan due to iBank from the petitioners.

ORIX METRO FINANCE CORPORATION vs. CARDLINE, INC., ET AL.


G.R. No. 201417, January 13, 2016, J. Brion

Facts:
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Cardline leased four machines (machines) from Orix as evidenced by three similarly-
worded lease agreements. Cardline’s principal stockholders and officers - Mary C. Calubad, Sony
N. Calubad, and Ng Beng Sheng (individual respondents) – signed the suretyship agreements in
their personal capacities to guarantee Cardline’s obligations under each lease agreement.

Cardline defaulted in paying the rent: the unpaid obligations amounted to P9,369,657.00
as of July 12, 2007. Orix formally demanded payment from Cardline but the latter refused to pay.

Orix filed a complaint for replevin, sum of money, and damages with an application for a
writ of seizure against Cardline and the individual respondents (collectively, the respondents)
before the RTC. On May 6, 2008, the RTC rendered judgment in Orix’s favor. On appeal, the
respondents argued that the RTC erred in declaring them in default. The CA, and subsequently
this Court, denied the respondents’ appeal. Our denial in G.R. No. 189877 became final and
executory.

Orix filed a motion for the issuance of a writ of execution, which the RTC granted in
its December 1, 2010 order. Thereafter, the respondents filed a petition for prohibition under Rule
65 of the Rules of Court before the CA. They assailed the issuance of the December 1, 2010 order,
arguing that their rental obligations were offset by the market value of the returned machines and
by the guaranty deposit.

Issue:

Whether the individual respondents can invoke the benefit of excussion.

Ruling:

The individual respondents cannot avail of the benefit of excussion.

The terms of a contract govern the parties’ rights and obligations. When a party
undertakes to be "jointly and severally" liable, it means that the obligation is
solidary. Furthermore, even assuming that a party is liable only as a guarantor, he can be held
immediately liable without the benefit of excussion if the guarantor agreed that his liability is
direct and immediate. In effect, the guarantor waived the benefit of excussion pursuant to Article
2059(1) of the Civil Code.

In the present case, the records show that the individual respondents bound themselves
solidarily with Cardline. Section 31.1 of the lease agreements states that the persons who sign
separate instruments to secure Cardline’s obligations to Orix shall be jointly and severally liable
with Cardline.

Even assuming arguendo that the individual respondents signed the continuing surety
agreements merely as guarantors, they still cannot invoke the benefit of excussion. The surety
agreements provide that the individual respondents’ liability is "solidary, direct, and
immediate and not contingent upon" Orix’s remedies against Cardline. The continuing suretyship
agreements also provide that the individual respondents "individually and collectively waive(s) in
advance the benefit of excussion xxx under Articles 2058 and 2065 of the Civil Code."
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ROSALINA CARODAN vs. CHINA BANKING CORPORATION


G.R. No. 210542 February 24, 2016, C.J. Sereno

Facts:

Barbara Perez (Barbara), Rebecca Perez-Viloria (Rebecca) obtained a loan from China
Banking Corporation (China Bank) and executed a Promissory Note in favor of the latter. As
security for the payment of the loan, Barbara, Rebecca and Rosalina Carodan (Rosalina) also
executed a Real Estate Mortgage (REM) over 8 properties owned by the Barbara and Rebecca and 1
property owned by Rosalina. A Surety Agreement was likewise executed by Barbara and Rebecca
as principals and Rosalina and her niece Madeline Carodan (Madeline) as sureties.

Barbara and Rebecca failed to pay their loan obligation so China Bank foreclosed the
mortgaged property. Since the proceeds of the extra-judicial sale were insufficient to cover the
total outstanding obligation, China Bank instituted a Complaint for sum of money against the
principal debtors and the sureties. Subsequently, Barbara and Rebecca paid a potion of the loan,
which resulted to the release of their mortgaged property.

Rosalina claimed that a) she did not obtain any pecuniary benefit from the loan; and b)
China Bank's act of releasing the principal debtors' properties resulted in the extinguishment of
the obligation.

The RTC ruled that Rebecca, Barbara and Rosalina are jointly and severally liable to China
Bank for the deficiency between the acquisition cost of the foreclosed real estate property and the
outstanding loan obligation of Barbara and Rebecca at the time of the foreclosure sale. The CA
later affirmed the RTC’s ruling.

Issues:

1) Whether petitioner Rosalina is liable jointly and severally with Barbara and Rebecca for
the payment of respondent China Bank's claims.
2) Whether respondent China Bank can still recover the unpaid balance on the principal
obligation even after it already foreclosed the property subject of the REM extra-judicially.
3) Whether Rosalina was discharged from her liability as surety.

Ruling:

1) Petitioner Rosalina is liable jointly and severally with the principal debtors for the
payment of respondent China Bank's claims because Rosalina is not only an accommodation
mortgagor but also a surety.

An accommodation mortgagor is not a party to the principal obligation but secures the
latter by pledging or mortgaging their own property. Ordinarily, he is not a recipient of the loan.

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A surety is a person who binds himself solidarity with the principal debtor. A surety is
distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and
thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt,
and he obligates himself to pay if the principal does not pay.

When Rosalina affixed her signature to the REM as mortgagor and to the Surety
Agreement as surety, which covered the loan transaction represented by the PN, she bound
herself to be liable to China Bank in case the principal debtors failed to pay.

2) Respondent bank can still recover the unpaid balance despite having foreclosed the
mortgaged property.

A mortgage is simply a security for, and not a satisfaction of indebtedness.69 If the


proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage,
the mortgagee is entitled to claim the deficiency from the debtor

3) Rosalina was not discharged from her liability as a surety.

The terms of the Surety Agreement clearly state that Rosalina not only waived waived the
rights to demand payment and to receive notice of nonpayment and protest, but she also
expressly agreed that the time for payment may be extended. More significantly, she agreed that
the securities may be "substituted, withdrawn or surrendered at any time" without her consent or
without notice to her. That China Bank indeed surrendered the properties of the principal debtors
was precisely within the ambit of this provision in the contract. Rosalina cannot now contest that
act in light of her express agreement to that stipulation.

A surety may only be discharged for the following reasons: a) the creditor has acted
negligently or has caused the material alteration of the contract; or b) the creditor has granted the
principal debtor an extension of time to pay for a definite period, pursuant to an enforceable
agreement, which was made without the consent of the surety or with the reservation of rights
with respect to him. None of the following reasons apply in this case.

ORIX METRO FINANCE CORPORATION vs. CARDLINE, INC., ET AL.


G.R. No. 201417, January 13, 2016, J. Brion

Facts:

Cardline leased four machines (machines) from Orix as evidenced by three similarly-
worded lease agreements. Cardline’s principal stockholders and officers - Mary C. Calubad, Sony
N. Calubad, and Ng Beng Sheng (individual respondents) – signed the suretyship agreements in
their personal capacities to guarantee Cardline’s obligations under each lease agreement.

Cardline defaulted in paying the rent: the unpaid obligations amounted to P9,369,657.00
as of July 12, 2007. Orix formally demanded payment from Cardline but the latter refused to pay.

Orix filed a complaint for replevin, sum of money, and damages with an application for a
writ of seizure against Cardline and the individual respondents (collectively, the respondents)
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CIVIL LAW DIGESTS 2014- June 2016

before the RTC. On May 6, 2008, the RTC rendered judgment in Orix’s favor. On appeal, the
respondents argued that the RTC erred in declaring them in default. The CA, and subsequently
this Court, denied the respondents’ appeal. Our denial in G.R. No. 189877 became final and
executory.

Orix filed a motion for the issuance of a writ of execution, which the RTC granted in
its December 1, 2010 order. Thereafter, the respondents filed a petition for prohibition under Rule
65 of the Rules of Court before the CA. They assailed the issuance of the December 1, 2010 order,
arguing that their rental obligations were offset by the market value of the returned machines and
by the guaranty deposit.

Issue:

Whether the individual respondents can invoke the benefit of excussion.

Ruling:

The individual respondents cannot avail of the benefit of excussion.

The terms of a contract govern the parties’ rights and obligations. When a party
undertakes to be "jointly and severally" liable, it means that the obligation is
solidary. Furthermore, even assuming that a party is liable only as a guarantor, he can be held
immediately liable without the benefit of excussion if the guarantor agreed that his liability is
direct and immediate. In effect, the guarantor waived the benefit of excussion pursuant to Article
2059(1) of the Civil Code.

In the present case, the records show that the individual respondents bound themselves
solidarily with Cardline. Section 31.1 of the lease agreements states that the persons who sign
separate instruments to secure Cardline’s obligations to Orix shall be jointly and severally liable
with Cardline.

Even assuming arguendo that the individual respondents signed the continuing surety
agreements merely as guarantors, they still cannot invoke the benefit of excussion. The surety
agreements provide that the individual respondents’ liability is "solidary, direct, and
immediate and not contingent upon" Orix’s remedies against Cardline. The continuing suretyship
agreements also provide that the individual respondents "individually and collectively waive(s) in
advance the benefit of excussion xxx under Articles 2058 and 2065 of the Civil Code."

ROSALINA CARODAN vs. CHINA BANKING CORPORATION


G.R. No. 210542 February 24, 2016, C.J. Sereno

Facts:

Barbara Perez (Barbara), Rebecca Perez-Viloria (Rebecca) obtained a loan from China
Banking Corporation (China Bank) and executed a Promissory Note in favor of the latter. As
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security for the payment of the loan, Barbara, Rebecca and Rosalina Carodan (Rosalina) also
executed a Real Estate Mortgage (REM) over 8 properties owned by the Barbara and Rebecca and 1
property owned by Rosalina. A Surety Agreement was likewise executed by Barbara and Rebecca
as principals and Rosalina and her niece Madeline Carodan (Madeline) as sureties.

Barbara and Rebecca failed to pay their loan obligation so China Bank foreclosed the
mortgaged property. Since the proceeds of the extra-judicial sale were insufficient to cover the
total outstanding obligation, China Bank instituted a Complaint for sum of money against the
principal debtors and the sureties. Subsequently, Barbara and Rebecca paid a potion of the loan,
which resulted to the release of their mortgaged property.

Rosalina claimed that a) she did not obtain any pecuniary benefit from the loan; and b)
China Bank's act of releasing the principal debtors' properties resulted in the extinguishment of
the obligation.

The RTC ruled that Rebecca, Barbara and Rosalina are jointly and severally liable to China
Bank for the deficiency between the acquisition cost of the foreclosed real estate property and the
outstanding loan obligation of Barbara and Rebecca at the time of the foreclosure sale. The CA
later affirmed the RTC’s ruling.
Issues:

1) Whether petitioner Rosalina is liable jointly and severally with Barbara and Rebecca for
the payment of respondent China Bank's claims.
2) Whether respondent China Bank can still recover the unpaid balance on the principal
obligation even after it already foreclosed the property subject of the REM extra-judicially.
3) Whether Rosalina was discharged from her liability as surety.

Ruling:

1) Petitioner Rosalina is liable jointly and severally with the principal debtors for the
payment of respondent China Bank's claims because Rosalina is not only an accommodation
mortgagor but also a surety.

An accommodation mortgagor is not a party to the principal obligation but secures the
latter by pledging or mortgaging their own property. Ordinarily, he is not a recipient of the loan.

A surety is a person who binds himself solidarity with the principal debtor. A surety is
distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and
thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt,
and he obligates himself to pay if the principal does not pay.

When Rosalina affixed her signature to the REM as mortgagor and to the Surety
Agreement as surety, which covered the loan transaction represented by the PN, she bound
herself to be liable to China Bank in case the principal debtors failed to pay.

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2) Respondent bank can still recover the unpaid balance despite having foreclosed the
mortgaged property.

A mortgage is simply a security for, and not a satisfaction of indebtedness.69 If the


proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage,
the mortgagee is entitled to claim the deficiency from the debtor

3) Rosalina was not discharged from her liability as a surety.

The terms of the Surety Agreement clearly state that Rosalina not only waived waived the
rights to demand payment and to receive notice of nonpayment and protest, but she also
expressly agreed that the time for payment may be extended. More significantly, she agreed that
the securities may be "substituted, withdrawn or surrendered at any time" without her consent or
without notice to her. That China Bank indeed surrendered the properties of the principal debtors
was precisely within the ambit of this provision in the contract. Rosalina cannot now contest that
act in light of her express agreement to that stipulation.

A surety may only be discharged for the following reasons: a) the creditor has acted
negligently or has caused the material alteration of the contract; or b) the creditor has granted the
principal debtor an extension of time to pay for a definite period, pursuant to an enforceable
agreement, which was made without the consent of the surety or with the reservation of rights
with respect to him. None of the following reasons apply in this case.

PLEDGE

PACTUM COMMISSORIUM

PHILNICO INDUSTRIAL CORPORATION vs. PRIVATIZATION AND MANAGEMENT


OFFICE
G.R. No. 199420, August 27, 2014, J. Leonardo-De Castro

Petitioner assails the decision of the CA ruling that Section 8.02 of the ARD does not
constitute pactum commissorium, on the ground that since the ARDA and the Pledge
Agreement are entirely separate and distinct contract and that neither contract contains
both elements of pactum commissorium: the ARDA solely has the second element, while the
Pledge Agreement only has the first element, such provision cannot be considered as one of
pactum commissorium. The SC however ruled that the agreement of the parties may be
embodied in only one contract or in two or more separate writings. In case of the latter, the
writings of the parties should be read and interpreted together in sucha way as to render their
intention effective. The ARDA and the Pledge Agreement herein, although executed in
separate written instruments, are integral to one another. It was the intention of the parties
to enter into and execute both contracts for a complete effectuation of their agreement.

Facts:
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This case involves the consolidated Petitions for Review on Certiorari under Rule 45 of the
Rules of Court filed by Philnico Industrial Corporation (PIC) and Privatization and Management
Office (PMO).

In 1987, the shares of stock owned by DPB and PNB in Philnico Processing Corporation
(PPC), a corporation engaged in nickel mining and refining business, were transferred to
respondent PMO. Thereafter, PMO, PIC and PPC executed a contract, denominated as the
Amended and Restated Definitive Agreement (ARDA), which laid down the terms and conditions
of the purchase and acquisition by petitioner PIC from PMO of 22,500,000 shares of stock of PPC
(representing 90% of ownership of PPC), as well as receivables of PMO from PPC. Under the
ARDA, PIC agreed to pay PMO the peso equivalent of US$333,762,000.00 as purchase price,
payable in instalments and in accordance with the schedule also set out in the ARDA.

Under the ARDA the parties agreed that respondent PMO shall execute and deliver to
petitioner PIC the necessary deed of sale transferring to the latter all of the former’s right, title
and interest in and to the Shares and deliver to PIC the stock certificates representing such
shares, each duly endorsed, or with separate stock transfer powers attached, in favor of PIC.
Likewise stipulated in the ARDA is the agreement of the parties that in case petitioner PIC
defaults in the payment of its obligations, the shares shall ipso facto revertto PMO without need
of any further demand. The parties further agreed that PIC shall execute and deliver a Pledge
Agreement in favor of PMO covering the PPC Shares.

In accordance with the ARDA, PMO executed and delivered to PIC the necessary
documents to transfer the former’s rights, title, and interests to and in the PPC shares of stock to
the latter; and PPC issued new certificates for the same shares of stock in the name of PIC and/or
its nominees. Also, in accordance with the ARDA, PIC and PMO executed a Pledge Agreement
stating therein that respondent PMO may conduct a public or private sale of the shares of stock,
wherein PMO may opt to buy the same.

Three years later, on account of economic problems, petitioner PIC failed to pay its
obligations. Consequently PMO demanded that PIC settle its unpaid amortizations or else PMO
would enforce the automatic reversion of the PPC shares provided under the ARDA. Due to the
refusal of respondent PMO to give PIC an opportunity to conclude its fund-raising efforts, PIC
filed before the RTC a Complaint against respondent PMO, PPC and the PPC Corporate Secretary
praying that they be enjoined from effecting the reversion of the PPC shares.

After hearing, the RTC rendered a decision and ordered the issuance of a Writ of
Preliminary Injunction restraining PMO, PPC, and the PPC Corporate Secretary from effecting the
reversion of the 22,500,000 shares of stock of PPC. In ruling as such, the RTC concluded that the
provision in the ARDA providing for ipso facto reversion of the shares of stock is null and void for
being a pactum commissorium. The Court of Appeals however disagreed with the finding of the
RTC that the said provision constitutes pactum commissorium, but still affirmed the denial by the
RTC of the motion of PMO to dissolve the Writ of Preliminary Injunction issued by it. Hence, the
instant petitions.

Issue:

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Whether or not Section 8.02 of the ARDA on ipso facto or automatic reversion of the PPC
shares of stock to PMO in case of default by PIC constitutes pactum commissorium.

Ruling:

Yes, Section 8.02 of the ARDA constitutes pactum commissorium and, thus, null and void
for being contrary to Article 2088 of the Civil Code.

Article 1305 of the Civil Code allows contracting parties to establish such stipulation,
clauses, terms, and conditions as they may deem convenient, provided, however, that they are not
contrary to law, morals, good customs, public order, or public policy.

Pactum commissorium is among the contractual stipulations that are deemed contrary to
law. It is defined as "a stipulation empowering the creditor to appropriate the thing given as
guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his
undertakings, without further formality, such as foreclosure proceedings, and a public sale." It is
explicitly prohibited under Article 2088 of the Civil Code.

There are two elements for pactum commissorium to exist: (1) that there should be a
pledge or mortgage wherein a property is pledged or mortgaged by way of security for the
payment of the principal obligation; and (2) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of
the principal obligation within the stipulated period.

Both elements of pactum commissoriumare present in the instant case: (1) By virtue of the
Pledge Agreement dated May 2,1997, PIC pledged its PPC shares of stock in favor of PMO as
security for the fulfillment of the former’s obligations under the ARDA dated May 10, 1996 and the
Pledge Agreement itself; and (2) There is automatic appropriation as under Section 8.02 of the
ARDA, in the event of default by PIC, title to the PPC shares of stock shall ipso factorevert from
PIC to PMO without need of demand.

The Court of Appeals, in ruling that there is no pactum commissorium, adopted the
position of PMO that the ARDA and the Pledge Agreement are entirely separate and distinct
contracts. Neither contract contains both elements of pactum commissorium: the ARDA solely
has the second element, while the Pledge Agreement only has the first element.

The Court disagrees.

In Blas v. Angeles-Hutalla, the Court recognized that the agreement of the parties may be
embodied in only one contract or in two or more separate writings. In case of the latter, the
writings of the parties should be read and interpreted together in sucha way as to render their
intention effective.

The agreement between PMO and PIC isthe sale of the PPC shares of stock by the former
to the latter, to besecured by a pledge on the very same shares of stock. The ARDA and the Pledge
Agreement herein, although executed in separate written instruments, are integral to one
another. On one hand, Section 2.04 of the ARDA explicitly requires the execution of a pledge
agreement as security for the payment by PIC of the purchase price for the PPC shares of stock
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CIVIL LAW DIGESTS 2014- June 2016

and receivables, and even provides the form for said pledge agreement in Annex A thereof.
Section 2.07 of the ARDA also states that the closing of the sale and purchase of the PPCshares of
stock and receivables shall take place on the same date that PIC shall execute and deliver the
pledge agreement, together with the certificates of shares of stock, to PMO. On the other hand,
the "Whereas Clauses" of the Pledge Agreement expressly mentions the ARDA and explains that
the Pledge Agreement is being executed to securepayment by PIC of the purchase price and all
other amounts due to PMO under the ARDA, aswell as the performance by PIC of its other
obligations under the ARDA and the Pledge Agreement itself. Clearly, itwas the intention of the
parties to enter into and execute both contracts for a complete effectuation of their agreement.

LEASE

OWEN PROSPER A. MACKAY vs. SPOUSES DANA CASWELL AND CERELINA CASWELL
G.R. No. 183872, November 17, 2014, J. Del Castillo

Under Article 1715 of the Civil Code, if the work of a contractor has defects which destroy or
lessen its value or fitness for its ordinary or stipulated use, he may be required to remove the defect
or execute another work. If he fails to do so, he shall be liable for the expenses by the employer for
the correction of the work. In the case at bar, Mackay was given the opportunity to rectify his work.
Subsequent to Zameco II’s disapproval to supply the spouses Caswell electricity for several reasons,
credence must be given to the latter’s claim that they looked for said Mackay to demand a
rectification of the work, but said Mackay and his group were nowhere to be found.

Facts:

In their search for someone who could provide electrical installation service in their newly
built home, Spouses Dana and Cerelina Caswell asked the sole distributor of electricity in the
area, Zambales II Electric Cooperative (Zameco II), thru its sub-office manager how much its
service for the installation would be in which the latter estimated at P456, 000.00.

However, the Spouses Caswell hired Petitioner Owen Prosper Mackay who offered to do
the job for only P250,000.00. With the help of two companions, Mackay claimed that the
installation was completed and ready for power service connection then. By then, the said spouses
had paid him P227,000.00.

At the spouses Caswell’s request, Zameco II inspected the installation work and tested the
distribution transformers. The inspection showed defects and result of such they were not
granted energization to their homes. The spouses Caswell thus looked for Mackay but he could
not be found. Hence, they were constrained to ask Zameco II to correct all the problems it found.

They then charged Mackay for swindling having misrepresented themselves as working
for NAPOCOR and as a result of the installation they suffered damages, such lead to filing of a
case for estafa. Mackay on the other hand also filed for a collection of the remaining P23, 000.00
for the full payment under their agreement along with damages. The MTC ruled in the said
spouses favor and ordered Mackay to pay the former for rectification and deducting his claim
from said amount.

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Upon appeal to the RTC it then reversed the decision opined that the Spouses Caswell
should have first filed a judicial action for specific performance where there could have been an
exhaustive determination of the quality and acceptability of Macaky’s installation work.

On appeal to the Court of Appeals, it reinstated the decision of the MTC based on Res Ipsa
Loquitur. Furthermore, it was noted that the efforts of the spouses Caswell for communicate with
Mackay shows their intention to seek rectification of the work from the latter.

Issues:

Whether or not there was a demand to remove the defects or execute another work in
accordance with Article 1715 of the Civil Code by the spouses Caswell?

Ruling:

Yes, there was such a demand.

Under Article 1715 of the Civil Code, if the work of a contractor has defects which destroy
or lessen its value or fitness for its ordinary or stipulated use, he may be required to remove the
defect or execute another work. If he fails to do so, he shall be liable for the expenses by the
employer for the correction of the work. The demand required of the employer under the subject
provision need not be in a particular form.

In the case at bar, Owen Prosper Mackay was given the opportunity to rectify his work.
Subsequent to Zameco II’s disapproval to supply the spouses Caswell electricity for several
reasons, credence must be given to the latter’s claim that they looked for said Mackay to demand
a rectification of the work, but said Mackay and his group were nowhere to be found. Had the
latter really been readily available to the spouses Caswell to correct any deficiency in the work,
the latter would not have entertained the thought that they were deceived and would not have
been constrained to undergo the rigors of filing a criminal complaint and testifying therein.

In fact, the act by the spouses Caswell of demanding that Mackay, to secure the permit
and to subject the transformer to testing can already be construed as a substantial compliance
with Article 1715.

MANUEL JUSAYAN,ALFREDO JUSAYAN, AND MICHAEL JUSAYAN vs. JORGE SOMBILLA


G.R. No. 163928, January 21, 2015, J. Bersamin

By virtue of Republic Act No. 3844, the sharing of the harvest in proportion to the respective
contributions of the landholder and tenant (share tenancy) was abolished. Hence, to date, the only
permissible system of agricultural tenancy is leasehold tenancy, a relationship wherein a fixed
consideration is paid instead of proportionately sharing the harvest as in share tenancy. Its elements
are: (1) the object of the contract or the relationship is an agricultural land that is leased or rented
for the purpose of agricultural production; (2) the size of the landholding is such that it is
susceptible of personal cultivation by a single person with the assistance of the members of his
immediate farm household; (3) the tenant-lessee must actually and personally till, cultivate or
operate the land, solely or with the aid of labor from his immediate farm household; and (4) the
landlord-lessor, who is either the lawful owner or the legal possessor of the land, leases the same to
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the tenant-lessee for a price certain or ascertainable either in an amount of money or produce. In
the case at bar, there is no doubt that a land with a total area of 7.9 hectares were susceptible of
cultivation by a single person with the help of the members of his immediate farm household. Also,
one’s knowledge of and familiarity with the landholding, its production and the instances when the
landholding was struck by drought definitely established that the lessee personally cultivated the
land. Moreover, the fact that an agricultural lessee has a regular employment does not render his
ability to farm physically impossible.

Facts:

Wilson Jesena (Wilson) owned four parcels of land situated in New Lucena, Iloilo. On June
20, 1970, he 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. 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 Timoteo’s 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. Thereafter, due to the failure of Jorge to render
accounting and to return the possession of the parcels of land despite demands, Timoteo filed on
June 30, 1986 a complaint for recovery of possession and accounting against Jorge in the RTC.
Following Timoteo’s death on October 4, 1991, the petitioners substituted him as the plaintiffs.

In his answer, Jorge asserted that he enjoyed security of tenure as the agricultural lessee of
Timoteo; and that he could not be dispossessed of his landholding without valid cause.

Eventually, the RTC upheld the contractual relationship of agency between Timoteo and
Jorge; and ordered Jorge to deliver the possession of the parcels of land to the petitioners. The CA
reversed the RTC and dismissed the case, declaring that the contractual relationship between the
parties was one of agricultural tenancy; and that the demand of Timoteo for the delivery of his
share in the harvest and the payment of irrigation fees constituted an agrarian dispute that was
outside the jurisdiction of the RTC, and well within the exclusive jurisdiction of the Department
of Agriculture (DAR) pursuant to Section 3(d) of Republic Act No. 6657 (Comprehensive Agrarian
Reform Law of 1988).

Issues:

1) Whether a lease of agricultural land between the Jorge and Timoteo was a civil law lease
or an agricultural lease.
2) Whether or not the Regional Trial Court (RTC) had original exclusive jurisdiction over
the action commenced by the predecessor of the petitioners against the respondent.

Ruling:

1) Jorge was able to establish the existence of agricultural tenancy by substantial evidence.

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The claim of Timoteo that Jorge was his agent contradicted the verbal agreement he had
fashioned with Jorge. By assenting to Jorge’s 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.
Timoteo’s 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.

On the other hand, to prove the tenancy relationship, Jorge presented handwritten
receipts indicating that the sacks of palay delivered to and received by one Corazon Jusayan
represented payment of rental. Thus, the receipts substantially proved that the contractual
relationship between Jorge and Timoteo was a lease.

Yet, the lease of an agricultural land can be either a civil law or an agricultural lease. In
Gabriel vs. Pangilinan, this Court differentiated between a leasehold tenancy and a civil law lease
in the following manner, namely: (1) the subject matter of a leasehold tenancy is limited to
agricultural land, but that of a civil law lease may be rural or urban property; (2) as to attention
and cultivation, the law requires the leasehold tenant to personally attend to and cultivate the
agricultural land; the civil law lessee need not personally cultivate or work the thing leased; (3) as
to purpose, the landholding in leasehold tenancy is devoted to agriculture; in civil law lease, the
purpose may be for any other lawful pursuits; and (4) as to the law that governs, the civil law lease
is governed by the Civil Code, but the leasehold tenancy is governed by special laws. However, by
virtue of Republic Act No. 3844, the sharing of the harvest in proportion to the respective
contributions of the landholder and tenant (share tenancy) was abolished. Hence, to date, the
only permissible system of agricultural tenancy is leasehold tenancy, a relationship wherein a
fixed consideration is paid instead of proportionately sharing the harvest as in share tenancy.

In Teodoro vs. Macaraeg, this Court has synthesized the elements of agricultural tenancy
to wit: (1) the object of the contract or the relationship is an agricultural land that is leased or
rented for the purpose of agricultural production; (2) the size of the landholding is such that it is
susceptible of personal cultivation by a single person with the assistance of the members of his
immediate farm household; (3) the tenant-lessee must actually and personally till, cultivate or
operate the land, solely or with the aid of labor from his immediate farm household; and (4) the
landlord-lessor, who is either the lawful owner or the legal possessor of the land, leases the same
to the tenant-lessee for a price certain or ascertainable either in an amount of money or produce.

It can be gleaned that in both civil law lease of an agricultural land and agricultural lease,
the lessor gives to the lessee the use and possession of the land for a price certain. Although the
purpose of the civil law lease and the agricultural lease may be agricultural cultivation and
production, the distinctive attribute that sets a civil law lease apart from an agricultural lease is
the personal cultivation by the lessee. An agricultural lessee cultivates by himself and with the aid
of those of his immediate farm household. Conversely, even when the lessee is in possession of

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the leased agricultural land and paying a consideration for it but is not personally cultivating the
land, he or she is a civil law lessee.

In the case at bar, nor was there any question that the parcels of agricultural land with a
total area of 7.9 hectares involved herein were susceptible of cultivation by a single person with
the help of the members of his immediate farm household. Also, Jorge’s knowledge of and
familiarity with the landholding, its production and the instances when the landholding was
struck by drought definitely established that he personally cultivated the land. His ability to farm
the seven hectares of land despite his regular employment as an Agricultural Technician at the
Municipal Agriculture Office was not physically impossible for him to accomplish considering
that his daughter, a member of his immediate farm household, was cultivating one of the parcels
of the land. Indeed, the law did not prohibit him as the agricultural lessee who generally worked
the land himself or with the aid of member of his immediate household from availing himself
occasionally or temporarily of the help of others in specific jobs.

Section 7 of Republic Act No. 3844 provides that once there is an agricultural tenancy, the
agricultural tenant’s right to security of tenure is recognized and protected. The landowner
cannot eject the agricultural tenant from the land unless authorized by the proper court for
causes provided by law. However, none of such grounds for valid dispossession of landholding
was attendant in Jorge’s case.

2) The rule is settled that the jurisdiction of a court is determined by the statute in force at
the time of the commencement of an action. In 1980, upon the passage of Batas Pambansa Blg. 129
(Judiciary Reorganization Act), the Courts of Agrarian Relations were integrated into the Regional
Trial Courts and the jurisdiction of the Courts of Agrarian Relations was vested in the Regional
Trial Courts. It was only on August 29, 1987, when Executive Order No. 229 took effect, that the
general jurisdiction of the Regional Trial Courts to try agrarian reform matters was transferred to
the DAR. Therefore, the RTC still had jurisdiction over the dispute at the time the complaint was
filed in the RTC on June 30, 1986.

NEW WORLD DEVELOPERS AND MANAGEMENT INC. vs.


AMA COMPUTER LEARNING CENTER INC.
G.R. Nos. 187930 & 188250, February 23, 2015, C.J. Sereno

New World and AMA entered into a lease agreement whereby New World agreed to lease to
AMA its commercial building located in Manila. AMA failed to pay its rentals citing financial losses.
AMA then preterminated the 8 year lease agreement and demanded the refund of its security deposit
and advance rentals. It also prayed that its liabilities be reduced on account of its financial
difficulties. The Supreme Court ruled that in the sphere of personal and contractual relations
governed by laws, rules and regulations created to promote justice and fairness, equity is deserved,
not demanded. The application of equity necessitates a balancing of the equities involved in a case,
for “[h]e who seeks equity must do equity, and he who comes into equity must come with clean
hands.” Persons in dire straits are never justified in trampling on other persons’ rights. Litigants
shall be denied relief if their conduct has been inequitable, unfair and dishonest as to the controversy
in issue. The actions of AMA smack of bad faith.

Facts:

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New World is the owner of a commercial building located at No. 1104-1118 España 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. In the said contract, 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.

For the first three years, AMA paid the monthly rent as stipulated in the contract. In the
succeeding years, AMA requested the deferment of the annual increase in the monthly rent which
was stipulated in the Lease Agreement citing financial constraints. New World agreed to reduce
the escalation rate. In 2004, AMA decided to preterminate the contract effective immediately on
the ground of business losses. AMA also demanded the refund of its advance rental and security
deposit. New World then computed the remaining liability of AMA. The deduction of the advance
rental and security deposit paid by AMA still left an unpaid balance in the amount of 1,049,486.59.
However, despite the meetings between the parties, they failed to arrive at a settlement regarding
the payment of the foregoing amounts. Hence, New World filed a complaint for a sum of money
and damages against AMA.

The RTC ordered AMA to pay New World 466,620 as unpaid rentals plus 3% monthly
penalty interest until payment; 1,399,860 as liquidated damages equivalent to six months’ rent.
On appeal with the CA, the CA ordered AMA to pay New World 466,620 for unpaid rentals and -
933,240 for liquidated damages equivalent to four months’ rent, with the advance rental and
security deposit paid by AMA to be deducted therefrom. Hence, this petition.

Issues:

1. Whether or not AMA is liable to pay six months’ worth of rent as liquidated damages.

2. Whether or not AMA remained liable for the rental arrears.

Ruling:

1. AMA is liable to pay six months’ worth of rent 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.

The law does not relieve a party from the consequences of a contract it entered into with
all the required formalities. Courts have no power to ease the burden of obligations voluntarily
assumed by parties, just because things did not turn out as expected at the inception of the
contract. It must also be emphasized that AMA is an entity that has had significant business
experience, and is not a mere babe in the woods.

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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.

In the sphere of personal and contractual relations governed by laws, rules and regulations
created to promote justice and fairness, equity is deserved, not demanded. The application of
equity necessitates a balancing of the equities involved in a case, for “[h]e who seeks equity must
do equity, and he who comes into equity must come with clean hands.” Persons in dire straits are
never justified in trampling on other persons’ rights. Litigants shall be denied relief if their
conduct has been inequitable, unfair and dishonest as to the controversy in issue. The actions of
AMA smack of bad faith.

2. AMA’s liability for the rental arrears has already been extinguished.

Based on Item No. 4 of the Lease contract, the security deposit was paid precisely to
answer for unpaid rentals that may be incurred by AMA while the contract was in force. The
security deposit was held in trust by New World, and whatever may have been left of it after the
termination of the lease shall be refunded to AMA.

Unlike the security deposit, no part of the advance rental was ever meant to be refunded
to AMA. Instead, the parties intended to apply the advance rental, on a staggered basis, to a
portion of the monthly rental in the last year of the lease term. Considering the pretermination of
the lease contract in the present case, this intent of the parties as regards the advance rental failed
to take effect. The advance rental, however, retains its purpose of answering for the outstanding
amounts that AMA may owe New World.

The Court then applies the advance rental of 450,000 to this amount to arrive at a total
extinguishment of the liability for the unpaid rentals and a partial extinguishment of the liability
for liquidated damages. This shall leave AMA still liable to New World in the amount of 966,480
(1,416,480 total liability less 450,000 advance rental).

LAND, TITLES AND DEEDS

TORRENS TITLE

JESUS G. CRISOLOGO AND NANETTE B. CRISOLOGO vs. JEWM AGRO-INDUSTRIAL


CORPORATION
G.R. No. 196894. March 03, 2014
J.Mendoza

Pursuant to Section 108 of PD No. 1529, in an action for the cancellation of memorandum
annotated at the back of a certificate of title, the persons considered as indispensable include those
whose liens appear as annotations. As indispensable parties, they must be given the proper notice of
any proceeding involving the subject properties.
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Thus, in a case where two (2) parcels of land were attached by various creditors and the
levies are annotated on the back of the titles of the subject properties, one creditor cannot file an
action for cancellation of lien without giving notice to all parties-in- interest, like other creditors
whose lien over the subject properties appear on the back of the titles of the subject properties.

Facts:

This controversy stemmed from various cases of collection for sum of money filed against So Keng
Kok, the owner of various properties including two (2) parcels of land covered by TCT Nos.
292597 and 292600 (subject properties), which were attached by various creditors including the
petitioners in this case. As a result, the levies were annotated on the back of the said titles.

Petitioners Jesus G. Crisologo and Nannette B. Crisologo (Spouses Crisologo) were the plaintiffs in
two (2) collection cases before RTC branch 15 against Robert Limso, So Keng Koc, et
al. Respondent JEWM Agro-Industrial Corporation (JEWM) was the successor-in-interest of one
Sy Sen Ben, the plaintiff in another collection case before RTC branch 8 against the same
defendants.

RTC branch 8 rendered its decision based on a compromise agreement between the parties
wherein the defendants in said case were directed to transfer the subject properties in favor of Sy
Sen Ben. The latter subsequently sold the subject properties to one Nilda Lam who, in turn, sold
the same to JEWM. Thereafter, TCT Nos. 325675 and 325676 were eventually issued in the name
of JEWM, both of which still bearing the same annotations as well as the notice of lis pendens in
connection with the other pending cases filed against So Keng Kok.

A year thereafter, Spouses Crisologo prevailed in the separate collection case filed before RTC-Br.
15 against Robert Lim So and So Keng Koc (defendants). Thus, the said defendants were ordered to
solidarily pay the Spouses Crisologo. When this decision attained finality, they moved for
execution. Acting on the same, the Branch Sheriff issued a notice of sale scheduling an auction.
The notice of sale included, among others, the subject properties covered by TCT Nos. 325675 and
325676, now, in the name of JEWM.

In the same proceedings, JEWM immediately filed its Affidavit of Third Party Claim and the
Urgent Motion Ad Cautelam. It prayed for the exclusion of the subject properties from the notice
of sale. However, the same were denied.

To protect its interest, JEWM filed a separate action for cancellation of lien with prayer for the
issuance of a preliminary injunction before RTC-Br. 14. It prayed for the issuance of a writ of
preliminary injunction to prevent the public sale of the subject properties covered in the writ of
execution issued pursuant to the ruling of RTC-Br. 15; the cancellation of all the annotations on
the back of the pertinent TCTs; and the issuance of a permanent injunction order after trial on the
merits.

Spouses Crisologo filed an Omnibus Motion praying for the denial of the application for writ or
preliminary injuction filed by JEWM and asking for their recognition as parties. No motion to
intervene was, however, filed as the Spouses Crisologo believed that it was unnecessary since they
were already the John and Jane Does named in the complaint.

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Thereafter, RTC-Br. 14 denied Spouses Crisologo’s Omnibus Motion and granted JEWM’s
application for a writ of preliminary injunction. Thus, Spouses Crisologo filed a Very Urgent
Omnibus Motion before RTC-Br. 14 praying for reconsideration. This was denied for lack of legal
standing in court considering that their counsel failed to make the written formal notice of
appearance. JEWM moved to declare the “defendants” in default which was granted in an order
given in open court. Spouses Crisologo then filed their Very Urgent Manifestation arguing that
they could not be deemed as defaulting parties because they were not referred to in the pertinent
motion and order of default.

Spouses Crisologo filed with the CA a petition for certiorari under Rule 65 of the Rules of
Court assailing the RTC-Br. 14 orders. Pending disposition of the Amended Petition by the CA,
JEWM filed a motion before RTC-Br. 14 asking for the resolution of the case on the merits.
Subsequently, RTC-Br. 14 ruled in favor of JEWM.

The CA eventually denied the Petition filed by Spouses Crisologo for lack of merit. It ruled that
the writ of preliminary injunction subject of the petition was already fait accompli and, as such,
the issue of grave abuse of discretion attributed to RTC-Br. 14 in granting the relief had become
moot and academic.

Hence, this petition.

Issue:

Whether the Spouses Crisologo are indispensable parties

Ruling:

Spouses Crisologo restate the applicability of Section 108 of P.D. No. 1529 to the effect that any
cancellation of annotation of certificates of title must be carried out by giving notice to all parties-
in- interest. This they forward despite their recognition of the mootness of their assertion over the
subject properties.

In an action for the cancellation of memorandum annotated at the back of a certificate of title, the
persons considered as indispensable include those whose liens appear as annotations pursuant to
Section 108 of P.D. No. 1529, to wit:

Section 108. Amendment and alteration of certificates. -No erasure, alteration or


amendment shall be made upon the registration book after the entry of a certificate of
title or of a memorandum thereon and the attestation of the same by the Register of
Deeds, except by order of the proper Court of First Instance. A registered owner or
other person having an interest in registered property, or, in proper cases, the
Register of Deeds with the approval of the Commissioner of Land Registration, may
apply by petition to the court upon the ground that the registered interests of any
description, whether vested, contingent, expectant inchoate appearing on the
certificate, have terminated and ceased; or that new interest not appearing upon the
certificates have arisen or been created; or that an omission or error was made in
entering a certificate or memorandum thereon, or on any duplicate certificate; x x x or
upon any other reasonable ground; and the court may hear and determine the petition
after notice to all parties in interest, and may order the entry or cancellation of a new
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certificate, the entry or cancellation of a memorandum upon a certificate, or grant any


other relief upon such terms and conditions, requiring security or bond if necessary,
as it may consider proper.

Here, undisputed is the fact that Spouses Crisologo’s liens were indeed annotated at the back of
TCT Nos. 325675 and 325676. Thus, as persons with their liens annotated, they stand to be
benefited or injured by any order relative to the cancellation of annotations in the pertinent TCTs.
In other words, they are as indispensable as JEWM itself in the final disposition of the case for
cancellation, being one of the many lien holders.

The reason behind this compulsory joinder of indispensable parties is the complete determination
of all possible issues, not only between the parties themselves but also as regards other persons
who may be affected by the judgment.

In this case, RTC-Br. 14, despite repeated pleas by Spouses Crisologo to be recognized as
indispensable parties, failed to implement the mandatory import of the aforecited rule. Clearly,
the cancellation of the annotation of the sale without notifying the buyers, Sps. Crisologo, is a
violation of the latter’s right to due process.

AZNAR BROTHERS REALTY COMPANY vs. SPOUSES JOSE AND MAGDALENA YBAÑEZ
G.R. No. 161380, April 21, 2014, J. Bersamin

The settled rule is that a free patent issued over a private land is null and void, and produces
no legal effects whatsoever. Private ownership of land – as when there is a prima facie proof of
ownership like a duly registered possessory information or a clear showing of open, continuous,
exclusive, and notorious possession, by present or previous occupants – is not affected by the
issuance of a free patent over the same land, because the Public Land Law applies only to lands of
the public domain. Lot No. 18563, not being land of the public domain as it was already owned by
Aznar Brothers, was no longer subject to the free patent issued to the Spouses Ybañez.

Facts:

On 1964, Casimiro Ybañez (Casimiro), with the marital consent of Maria Daclan, executed
a Deed of Absolute Sale in favor of Aznar Brothers.

Meanwhile on 1968, Casimiro died intestate leaving as heirs his wife Maria, and their
children, namely, Fabian and Adriano, both surnamed Ybañez, and Carmen Ybañez-Tagimacruz,
Fe Ybañez-Alison, and Dulcisima Ybañez-Tagimacruz. On 1977, the heirs of Casimiro executed a
document entitled Extrajudicial Declaration of Heirs with an Extrajudicial Settlement of Estate of
Deceased Person and Deed of Absolute Sale, whereby they divided and adjudicated among
themselves Lot No. 18563. By the same document, they sold the entire lot to their co-heir,
Adriano. On 1978, Adriano sold Lot No. 18563 to Spouses Ybañez. On 1979, Jose R. Ybañez filed
Free Patent Application in respect of the land he had bought from Adriano. In due course,
Original Certificate of Title (OCT) was issued to Jose R. Ybañez.

On 1989, Aznar Brothers filed in the RTC a complaint against Spouses Ybañez claiming
absolute ownership of Lot No. 18563 by virtue of the Deed of Absolute Sale dated 1964 executed in
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its favor by Casimiro. Alleging that the free patent issued in favor of Jose R. Ybañez covered the
same property “already adjudicated as private property,” Aznar Brothers sought judgment to
compel Jose R. Ybañez to surrender all the documents pertaining to the free patent for
cancellation. Aznar Brothers averred that Spouses Ybañez held “no legal right nor just title to
apply for free patent over the lot in question,” for the land was “no longer a public disposable
agricultural land but a private residential land” that it already owned; that the issuance of OCT
No. 2150 was erroneous and without factual and legal bases; that it learned about the registration
of the land in the name of Jose R. Ybañez only when his agent offered to sell the land to it; that it
refused the offer because it was already the owner of the land; and that consequently OCT No.
2150 should be cancelled, and Jose R. Ybañez should be ousted from the land.

Issues:

1. Whether or not Spouses Ybañez have a right of ownership over the subject lot.

2. Whether or not Aznar Brothers are barred by laches.

3. Whether or not the Issuance of patent to Spouses Ybañez is valid.

Ruling:

1. None. Aznar Brothers owned Lot No. 18563 and that Spouses Ybañez were not buyers in good
faith.

Spouses Ybañez were guilty of bad faith, and that they acquired Lot No. 18563 from sellers
who were not the owners. The Spouses Ybañez held no right to Lot No. 18563 because Adriano,
their seller, and his siblings were not the owners of Lot No. 18563. Indeed, Casimiro had
absolutely conveyed his interest in Lot No. 18563 to Aznar Brothers under the Deed of Absolute
Sale of March 21, 1964 with the marital consent of Maria Daclan, Casimiro’s surviving spouse and
the mother of Adriano and his siblings. Considering that such conveyance was effective and
binding on Adriano and his siblings, there was no valid transmission of Lot No. 18563 upon
Casimiro’s death to any of said heirs, and they could not legally adjudicate Lot No. 18563 unto
themselves, and validly transfer it to Adriano. The conveyance by Adriano to Jose R. Ybañez on
June 21, 1978 was absolutely void and ineffectual.

There is also no question that the Spouses Ybañez were aware of the conveyance of Lot No.
18563 by Casimiro to Aznar Brothers considering that the Deed of Absolute Sale of March 21, 1964
between Casimiro and Aznar Brothers was registered in the book of registry of unregistered land
on the same day pursuant to their agreement. Such registration constituted a constructive notice
of the conveyance on the part of the Spouses Ybañez pursuant to Section 194 of the Revised
Administrative Code of 1917, as amended by Act No. 3344.

Finally, Section 3 of P.D. No. 1529, albeit expressly discontinuing the system of registration
under the Spanish Mortgage Law, has considered lands recorded under that system as
unregistered land that could still be recorded under Section 113 of P.D. No. 1529 “until the land
shall have been brought under the operation of the Torrens system;” and has provided that “the
books of registration for unregistered lands provided under Section 194 of the Revised
Administrative Code, as amended by Act No. 3344, shall continue to remain in force; provided,
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that all instruments dealing with unregistered lands shall henceforth be registered under Section
113 of this Decree.” It is clear, therefore, that even with the effectivity of P.D. No. 1529, all
unregistered lands may still be registered pursuant to Section 113 of P.D. No. 1529, which
essentially replicates Section 194, as amended by Act No. 3344, to the effect that a deed or
instrument conveying real estate not registered under the Torrens system should affect only the
parties thereto unless the deed or instrument was registered in accordance with the same section.

2. No.

Aznar Brothers immediately registered the purchase in accordance with Act No. 3344, the law
then governing the registration of unregistered land. Its action in that regard ensured the
protection of the law as to its ownership of the land, and evinced that it did not abandon its
ownership. Secondly, the supposed acts of possession of Lot No. 18563 exercised by the Spouses
Ybañez from the time of their purchase from Adriano, including causing it to be surveyed for
purposes of the application for free patent, did not prejudice Aznar Brothers’ interest because the
registration under Act No. 3344 had given constructive notice to the Spouses Ybañez of its prior
acquisition of the land. Thereby, the Spouses Ybañez became bound by the sale from Casimiro to
Aznar Brothers, and rendered them incapable of acquiring the land in good faith from Adriano.
Consequently, Jose R. Ybañez’s intervening application for the free patent, the grant of the free
patent and the issuance of OCT No. 2150 thereafter did not supplant the superior rights and
interest of Aznar Brothers in Lot No. 18563.

3. No. Lot No. 18563, not being land of the public domain as it was already owned by Aznar
Brothers, was no longer subject to the free patent issued to the Spouses Ybañez.

The settled rule is that a free patent issued over a private land is null and void, and produces
no legal effects whatsoever. Private ownership of land – as when there is a prima facie proof of
ownership like a duly registered possessory information or a clear showing of open, continuous,
exclusive, and notorious possession, by present or previous occupants – is not affected by the
issuance of a free patent over the same land, because the Public Land Law applies only to lands of
the public domain. The Director of Lands has no authority to grant free patent to lands that have
ceased to be public in character and have passed to private ownership. Consequently, a certificate
of title issued pursuant to a homestead patent partakes of the nature of a certificate issued in a
judicial proceeding only if the land covered by it is really a part of the disposable land of the
public domain.

DOLORES CAMPOS vs. DOMINADOR ORTEGA, SR. AND JAMES SILOS


G.R. No. 171286, June 02, 2014, J. Peralta

It cannot be argued that Dolores had already acquired a vested right over the subject
property when the NHA recognized her as the censused owner by assigning to her a tag number
TAG No. 77-0063. While it is true that NHA recognizes Dolores as the censused owner of the
structure built on the lot, the issuance of the tag number is not a guarantee for lot allocation. The
census, tagging, and Dolores’ petition, did not vest upon her a legal title to the lot she was
occupying, but a mere expectancy that the lot will be awarded to her. The expectancy did not ripen
into a legal title when the NHA, informed her that her petition for the award of the lot was denied.

Facts:
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On August 17, 1999, Dolores Campos, through her attorney-in-fact, Salvador Pagunsan,
filed a case for specific performance with damages against respondents Dominador Ortega, Sr.
and James Silos. The “Petition” stated that, Dolores and her husband Ernesto, along with their
family, occupied the entire second level as well as the front portion of the ground level of a
residential structure located at No. 2085 F. Blumentritt Street, Mandaluyong City. The lot on
which the said structure is standing is owned by the government, while the structure itself is
owned by Dominga Boloy from whom Dolores leased the same beginning in 1966. Dolores had
paid the real estate taxes in behalf of Dominga Boloy in 1987, in view of the apparent
abandonment by Dominga Boloy on these obligations. In 1977, pursuant to the Zonal
Improvement Program, a census, where Dolores’ dwelling is located, was conducted wherein
Dolores was among those censused and qualified as a bona fide occupant. As a consequence of
having qualified, Dolores was assigned an identifying house tag number 77-00070-08 on August
20, 1977.

After the death of the owner Dominga Boloy, Dolores had a verbal understanding with
Clarita Boloy, daughter-in-law of the former, to allow Dolores to introduce improvements and
renovations on the structure. It was further agreed that said amount shall be accordingly applied
to their monthly rentals. The foregoing agreement, was never followed and Dolores was made to
continue paying the monthly obligations but even this latter agreement never materialized.

In 1987, Walter Boloy stepped into the situation and demanded from the Dolores and
family the immediate vacation of the subject premises. An ejectment suit was filed against
Dolores but it was later dismissed by the MTC. Dolores authorized her nephew Salvador
Pagunsan to follow up with the NHA the matter concerning the award of lot to them in line with
the ZIP, after learning that all bona fide occupants may be allowed to buy the structure if the
owner has already died. Salvador Pagunsan was informed by one Antonio Fernando that if
Ernesto Campos, who was duly censused as a bona fide occupant, may be able to buy the property
from Mr. Walter Boloy, Ernesto Campos may be awarded the lot on which the structure is
located.

Salvador Pagunsan attended the meeting scheduled by the Arbitration and Awards
Committee, Atty. Fernandez gave Dolores one month to buy the property. Dolores did not accede
to the offer since the lot occupied by them and where they were duly censused as occupants is Lot
18, Block 7, whereas the one offered to be sold is Lot 17, which pertains to a different owner. But it
was learned by Dolores, that the property was already awarded to James Silos and Dominador
Ortega, Sr., and that a Deed of Absolute Sale was executed by and between Clarita Boloy and
Dominador Ortega Sr. over Lot 17, Block 7. This despite the fact that during the said initial
meeting, Dolores was given one month to exercise the option of buying the property.

Dolores inquired with the NHA and questioned the award of the lot to Ortega Sr. and
Silos. Dolores only came to know later that a TCT was already issued to Dominador Ortega, Sr.
and James Silos over the lot despite the appeal. Ortega Sr. and Silos countered that the complaint
stated no cause of action, and such cause of action is already barred by prior judgment. Lastly,
they argued that they are registered owners of the land in question as well as the house built
thereon by virtue of TCT No. 13342 and tax declarations, and that the Torrens title cannot be
altered, modified or cancelled except through a direct proceeding. Trial ensued. RTC ruled in
favor of Dolores Campos. The RTC rejected the allegation that respondents are guilty of
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committing fraud and, consequently, denied Dolores’ claim for damages. Upon appeal, the CA
reversed the trial court’s decision. Campos moved for reconsideration, but it was denied. Hence,
this petition.

Issues:

1. Whether or not the Court of Appeals erred in failing to recognize that Dolores has already
acquired a vested and cognizable right respecting the property.

2. Whether or not the Court of Appeals erred in upholding the presumption of regularity of
official acts respecting the process of award of the property made to the Ortega Sr.

Ruling:

1. No, the Court of Appeals did not err.

Neither can it be successfully argued that Dolores had already acquired a vested right over
the subject property when the NHA recognized her as the censused owner by assigning to her a
tag number TAG No. 77-0063. While it is true that NHA recognizes Dolores as the censused
owner of the structure built on the lot, the issuance of the tag number is not a guarantee for lot
allocation. Dolores had petitioned the NHA for the award to her of the lot she is occupying.
However, the census, tagging, and Dolores’ petition, did not vest upon her a legal title to the lot
she was occupying, but a mere expectancy that the lot will be awarded to her. The expectancy did
not ripen into a legal title when the NHA, sent a letter informing her that her petition for the
award of the lot was denied. Moreover, the NHA, after the conduct of studies and consultation
with residents, had designated Area 1, where the lot petitioned by Dolores is located, as an Area
Center.

A vested right is one that is absolute, complete and unconditional and no obstacle exists
to its exercise. It is immediate and perfect in itself and not dependent upon any contingency. To
be vested, a right must have become a title – legal or equitable – to the present or future
enjoyment of property. Contrary to Dolores’ position, the issuance of a tag number in her favor
did not grant her irrefutable rights to the subject property. The "tagging of structures" in the
Bagong Barrio area was conducted merely to determine the qualified beneficiaries and bona fide
residents within the area. Her possession and occupancy of the said property could not be
characterized as fixed and absolute. As such, Dolores cannot claim that she was deprived of her
vested right when the NHA ordered her relocation to another area. Neither does Campos have a
“cognizable” right respecting the lot in question. Notably, she readily admitted not exercising
their option to buy Boloy’s property despite the knowledge that one of the requirements before an
entitlement to an award of the government-owned lot is that they must own the subject house.
There should be no doubt that the object of the sale is a determinate thing, a semi-apartment
house owned by Boloy and not the specific lot on which it was built. Thus, it is totally immaterial
if the land on which the structure stood was indicated as Lot 17 or Lot 18.

2. No, the Court of Appeals did not err.

In this case, Dolores, as the party alleging fraud in the transaction and the one who bears
the burden of proof, miserably failed to demonstrate that Ortega Sr. and Silos committed fraud or
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that they connived with government officials and employees to cause undue damage or prejudice
to Dolores. Dolores did not present even a single evidence to support the view that the repetitive
absences of the persons necessary for the meetings before the Arbitration and Awards Committee
were intentional or done with malicious intent.

The Court agrees with the CA that the case for specific performance with damages
instituted by Dolores effectively attacks the validity of Ortega’s Torrens title over the subject lot.
It is evident that, the objective of such claim is to nullify the title of Ortega Sr. and Silos to the
property in question, which, challenges the judgment pursuant to which the title was decreed.
This is a collateral attack that is not permitted under the principle of indefeasibility of Torrens
title. The appropriate legal remedy that Dolores should have availed is an action for reconveyance.
Proof of actual fraud is not required as it may be filed even when no fraud intervened such as
when there is mistake in including the land for registration.

Under the Principle of constructive trust, registration of property by one person in his
name, whether by mistake or fraud, the real owner being another person, impresses upon the title
so acquired the character of a constructive trust for the real owner, which would justify an action
for reconveyance. The Court agrees with the CA’s disquisition that an action for reconveyance can
indeed be barred by prescription. In a long line of cases decided by this Court, Supreme Court
ruled that an action for reconveyance based on implied or constructive trust must perforce
prescribe in ten (10) years from the issuance of the Torrens title over the property.

VERGEL PAULINO AND CIREMIA PAULINO


vs.
COURT OF APPEALS AND REPUBLIC OF THE PHILIPPINES, represented by the
ADMINISTRATOR of the LAND REGISTRATION AUTHORITY
G.R. No. 205065, June 4, 2014

x-----------------------x

SPOUSES DR. VERGEL L. PAULINO & DR. CIREMIA G. PAULINO


vs.
REPUBLIC OF THE PHILIPPINES, represented by the ADMINISTRATOR of the LAND
REGISTRATION AUTHORITY
G.R. No. 207533, J. Mendoza

In reconstitution proceedings, the Court has repeatedly ruled that before jurisdiction over
the case can be validly acquired, it is a condition sine quo non that the certificate of title has not
been issued to another person. If a certificate of title has not been lost but is in fact in the possession
of another person, the reconstituted title is void and the court rendering the decision has not
acquired jurisdiction over the petition for issuance of new title. In the case at bench, the CA found
that the RTC lacked jurisdiction to order the reconstitution of the original copy of TCT No. 301617,
there being no lost or destroyed title over the real property, the respondent having duly proved that
TCT No. 301617 was in the name of a different owner, Florendo, and the technical description
appearing on that TCT No. 301617 was similar to the technical description appearing in Lot 939,
Piedad Estate covered by TCT No. RT-55869 (42532) in the name of Antonino.

Facts:
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The late Celso Fernandez purchased, in a public auction conducted by the Quezon City
government, a real property owned and registered in the name of Lolita G. Javier (Javier) as
evidenced by a certificate of sale of delinquent property. The subject property appeared to be
covered by an owner’s duplicate of TCT No. 301617 of the QCRD.

After his death, the surviving heirs executed an Extra-Judicial Settlement of Estate with
Absolute Sale covering the property, selling it in favor of the petitioners, spouses Vergel L. Paulino
and Ciremia Paulino (Spouses Paulino).

On June 11, 1988, a fire broke out in the Quezon City Hall which burned a portion thereof
which included the office of the QCRD.

On March 9, 2010, Spouses Paulino filed a petition for reconstitution of the original copy
of TCT No. 301617 with the RTC, alleging that its original copy was among those titles that were
razed during the fire.

The RTC directed the LRA to submit a report within five (5) days from notice. Without
awaiting the LRA Report, the RTC rendered the assailed July Decision, granting the petition for
reconstitution and ordering the Registrar of Deeds of the QCRD to reconstitute the original copy
of TCT No. 301617. The RTC issued the Certificate of Finality, there being no motion for
reconsideration or appeal filed by any of the interested parties.

The RTC received the LRA Report, stating that TCT No. 301617 was registered in the name
of a certain Emma B. Florendo (Florendo) and that it was previously the subject of an application
for administrative reconstitution; that the original copy of the title on file in the Registry of Deeds
was among those saved titles from the fire that gutted the office of QCRD. When the technical
description of the property was plotted, it was identical with Lot 939,Piedad Estate covered by
TCT No. RT-55869 (42532), in the name of Magnolia W. Antonino (Antonino).

Spouses Paulino filed with the QCRD an application for registration of the judicial
reconstitution of TCT No. 301617 based on the RTC decision. The Registrar of Deeds refused to
reconstitute the original copy of the TCT.

Respondent Republic of the Philippines, represented by the Administrator of the LRA,


filed its Petition for Annulment of Judgment with Urgent Prayer for Issuance of Temporary
Restraining Order and/or Writ of Preliminary Injunction assailing the RTC decision granting the
petition for reconstitution of the original title.

The CA issued the assailed resolution, granting the prayer for the issuance of a writ of
preliminary injunction.

The CA ruled that the RTC lacked jurisdiction to order the reconstitution of the original
copy of TCT No. 301617, there being no lost or destroyed title.

Issue:

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Can the court overturn the decision of the RTC granting the petition for reconstitution
even if it lacked jurisdiction?

Ruling:

Yes, the court can overturn the decision of the RTC since the petition for reconstitution is
considered null and void.

The governing law for judicial reconstitution of title is R.A. No. 26. Sec. 15 thereof provides
when an order for reconstitution should issue, as follows:

Section 15. If the court, after hearing, finds that the documents presented, as supported by parole
evidence or otherwise, are sufficient and proper to warrant the reconstitution of the lost or
destroyed certificate of title, and that petitioner is the registered owner of the property or has an
interest therein, that the said certificate of title was in force at the time it was lost or destroyed,
and that the description, area and boundaries of the property are substantially the same as those
contained in the lost or destroyed certificate of title, an order of reconstitution shall be issued.
The clerk of court shall forward to the register of deeds a certified copy of said order and all the
documents which, pursuant to said order, are to be sued as the basis of the reconstitution. If the
court finds that there is no sufficient evidence or basis to justify the reconstitution, the petition
shall be dismissed, but such dismissal shall not preclude the right of the party or parties entitled
thereto to file an application for confirmation of his or their title under the provisions of the Land
Registration Act.

The following must be present for an order for reconstitution to issue: (a) that the
certificate of title had been lost or destroyed; (b) that the documents presented by petitioner are
sufficient and proper to warrant the reconstitution of the lost or destroyed certificate of title; (c)
that the petitioner is the registered owner of the property or had an interest therein; (d) that the
certificate of title was in force at the time it was lost and destroyed; and (e) that the description,
area and boundaries of the property are substantially the same as those contained in the lost or
destroyed certificate of title.

In reconstitution proceedings, the Court has repeatedly ruled that before jurisdiction over
the case can be validly acquired, it is a condition sine quo non that the certificate of title has not
been issued to another person. If a certificate of title has not been lost but is in fact in the
possession of another person, the reconstituted title is void and the court rendering the decision
has not acquired jurisdiction over the petition for issuance of new title. The courts simply have no
jurisdiction over petitions by such third parties for reconstitution of allegedly lost or destroyed
titles over lands that are already covered by duly issued subsisting titles in the names of their duly
registered owners. The existence of a prior title ipso facto nullifies the reconstitution proceedings.
The proper recourse is to assail directly in a proceeding before the regional trial court the validity
of the Torrens title already issued to the other person.

In the case at bench, the CA found that the RTC lacked jurisdiction to order the
reconstitution of the original copy of TCT No. 301617, there being no lost or destroyed title over
the subject real property, the respondent having duly proved that TCT No. 301617 was in the name
of a different owner, Florendo, and the technical description appearing on that TCT No. 301617

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was similar to the technical description appearing in Lot 939, Piedad Estate covered by TCT No.
RT-55869 (42532) in the name of Antonino.

The Court finds no reversible error in the findings of the CA. It is clear from the records
that the subject TCT No. 301617 is in the name of a different owner, Florendo, and the technical
description appearing therein pertains to a parcel of land covered by TCT No. RT-55869 (42532) in
the name of one Antonino.

It must be remembered that the reconstitution of a certificate of title denotes restoration


in the original form and condition of a lost or destroyed instrument attesting the title of a person
to a piece of land. The purpose of the reconstitution of title is to have, after observing the
procedures prescribed by law, the title reproduced in exactly the same way it has been when the
loss or destruction occurred. Reconstitution apparently presupposes the existence of an original
certificate of title which was lost or destroyed. If there was no loss or destruction like in the case
at bench, there is actually nothing to reconstitute. The same rule applies if in fact there is an
earlier valid certificate of title in the name and in the possession of another person and said title is
existing. The RTC never acquired jurisdiction over the same, and its judgment rendered is null
and void, which may be attacked anytime.

In addition, Spouses Paulino also raised the irregularity in the issuance of TCT No. RT-
558969 (42532), arguing that a reconstitution would not constitute a collateral attack on a title
that was irregularly and illegally issued in the first place. They argued that it was an error on the
part of the CA to deny their right to have their title reconstituted based on the fake title of
Antonino. They assert that the rule, that a title issued under the Torrens System is presumed valid
and, hence, is the best proof of ownership of a piece of land, does not apply where the certificate
itself is faulty as to its purported origin.

The Court, however, finds the argument of Spouses Paulino misplaced. It is a well settled
rule that a certificate of title, once registered, cannot be impugned, altered, changed, modified,
enlarged or diminished except in a direct proceeding permitted by law. The validity of the
certificate of title can be threshed out only in a direct proceeding filed for the purpose. A Torrens
title cannot be attacked collaterally.

It is also a well-known doctrine that the issue as to whether the title was procured by
falsification or fraud as advanced by Spouses Paulino can only be raised in an action expressly
instituted for the purpose. A Torrens title can be attacked only for fraud, within one year after the
date of the issuance of the decree of registration. Such attack must be direct, and not by a
collateral proceeding. The title represented by the certificate cannot be changed, altered,
modified, enlarged, or diminished in a collateral proceeding.

The reconstitution proceeding constituted a collateral attack on the Torrens title of


Antonino. The proper recourse of the Spouses Paulino to contest the validity of the certificate of
title is not through the subject petition for reconstitution, but in a proper proceeding instituted
for such purpose. Even if their arguments of fraud surrounding the issuance of the title of
Antonino is correct, such allegation must be raised m a proper proceeding which is expressly
instituted for that purpose.

REPUBLIC OF THE PHILIPPINES vs. FRANKLIN M. MILLADO


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G.R. No. 194066, June 4, 2014, J. Villarama, Jr.

Where the authority to proceed is conferred by a statute and the manner of obtaining
jurisdiction is mandatory, the same must be strictly complied with, or the proceedings will be void.
For non-compliance with the actual notice requirement to all other persons who may have interest
in the property, in this case the registered owners and/or their heirs, in accordance with Section 13 in
relation to Section 12 of RA 26, the trial court did not acquire jurisdiction over L.R.A. The
proceedings therein were therefore a nullity and the Decision was void.

Facts:

Franklin M. Millado (Millado) filed a petition for reconstitution of Original Certificate of


Title (OCT) No. 2108 issued in favor of the following, in undivided equal shares: Isabel, Sixto and
Apolonia (all surnamed Bautista). Millado alleged that he and his wife are the vendees of the
property covered by the said title, by virtue of a Deed of Extra-Judicial Settlement of Estate with
Sale executed by the heirs of spouses Sixto and Elena Bautista. That the owner's duplicate of OCT
No. 2108 was in his possession while he was securing clearances for the transfer of title in their
names but he either left or misplaced the same.

Millado claimed that despite efforts he exerted to locate the owner’s duplicate of OCT he
was unable to find it.

The trial court ordered Millado to submit the names and addresses of the occupants or
persons in possession of the property, the owners of the adjoining properties and all persons who
may have any interest in the property. In compliance, Millado submitted only the names and
addresses of the owners/actual occupants of the adjoining lots.

The hearing date for the petition was set on December 13, 2007, and directing that (a) the
notice/order be published twice in the successive issues of the Official Gazette, posted in the
premises of the property, the main entrance of the Provincial Capitol and at the entrance of the
municipal building of San Narciso, Zambales; (b) copies of the notice/order together with the
petition be sent to the Office of the Solicitor General, the Provincial Prosecutor, the Register of
Deeds, the Land Registration Authority (National Land Titles and Deeds, LRA), Atty. Jose T. Pacis,
Engr. Franklin M. Millado and the adjoining lot owners, namely; Remedios Fernandez and
Pascual Fernandez, Letecia Mariano and Harris Fogata; (c) the LRA thru its Records Section
submit its report within 30 days from receipt of the order/notice, pursuant to Sections 10 and 12 of
LRC Circular No. 35; and (d) the Register of Deeds to submit her verification in accordance with
the aforesaid rule, within 30 days from receipt of notice/order.

At the hearing, Millado took the witness stand and confirmed the loss of the owner’s
duplicate copy of OCT No. 2108 while he was securing clearances from the Bureau of Internal
Revenue for the payment of capital gains tax. At that time he had a bunch of documents in an
envelope but he forgot about it. He went back to the said office looking for the envelope but there
were many people going in and out of said office. He secured a certification from the Register of
Deeds on the lost or missing original OCT No. 2108 in their files, and also a certification from the
LRA regarding the issuance of the decree of registration.

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The trial court granted the petition for reconstitution. The CA affirmed the trial court’s
ruling. It held that Millado had complied with the statutory notice requirements so that the
adjoining owners and any other persons who may have an interest in the property may be duly
notified of the proceedings and given the opportunity to oppose the petition.

Issue:

Can the court grant the petition for reconstitution even if Millado failed to comply with all
the jurisdictional requisites?

Ruling:

No, the court cannot grant the petition for reconstitution without complying with the
jurisdictional requisites.

The nature of judicial reconstitution proceedings is the restoration of an instrument


which is supposed to have been lost or destroyed in its original form and condition. The purpose
of the reconstitution of title or any document is to have the same reproduced, after proper
proceedings in the same form they were when the loss or destruction occurred.

In order for the court to acquire jurisdiction over the petition for reconstitution, the
following provisions must be observed, to wit:

SEC. 12. Petitions for reconstitution from sources enumerated in Sections 2(c),
2(d), 2(e), 2(f), 3(c), 3(d), 3(e), and/or 3(f) of this Act, shall be filed with the proper
Court of First Instance, by the registered owner, his assigns, or any person having
an interest in the property. The petition shall state or contain, among other things,
the following: (a) that the owner’s duplicate of the certificate of title had been lost
or destroyed; (b) that no co-owner’s, mortgagee’s or lessee’s duplicate had been
issued, or, if any had been issued, the same had been lost or destroyed; (c) the
location, area and boundaries of the property; (d) the nature and description of the
buildings or improvements, if any, which do not belong to the owner of the land,
and the names and addresses of the owners of such buildings or improvements; (e)
the names and addresses of the occupants or persons in possession of the property,
of the owners of the adjoining properties and of all persons who may have any
interest in the property; (f) a detailed description of the encumbrances, if any,
affecting the property; and (g) a statement that no deeds or other instruments
affecting the property have been presented for registration, or, if there be any, the
registration thereof has not been accomplished, as yet. All the documents, or
authenticated copies thereof, to be introduced in evidence in support of the
petition for reconstitution shall be attached thereto and filed with the same:
Provided, That in case the reconstitution is to be made exclusively from sources
enumerated in Section 2(f) or 3(f) of this Act, the petition shall be further
accompanied with a plan and technical description of the property duly approved
by the Chief of the General Land Registration Office, [now Commission of Land
Registration] or with a certified copy of the description taken from a prior
certificate of title covering the same property.

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SEC. 13. The court shall cause a notice of the petition, filed under the preceding
section, to be published, at the expense of the petitioner, twice in successive issues
of the Official Gazette, and to be posted on the main entrance of the provincial
building and of the municipal building of the municipality or city in which the
land is situated, at least thirty days prior to the date of hearing. The court shall
likewise cause a copy of the notice to be sent, by registered mail or otherwise, at
the expense of the petitioner, to every person named therein whose address is
known, at least thirty days prior to the date of hearing. Said notice shall state,
among other things, the number of the lost or destroyed Certificate of Title, if
known, the name of the registered owner, the names of the occupants or persons
in possession of the property, the owners of the adjoining properties and all other
interested parties, the location, area and boundaries of the property, and the date
on which all persons having any interest therein must appear and file their claim
or objections to the petition. The petitioner shall, at the hearing, submit proof of
the publication, posting and service of the notice as directed by the court.

In this case, the source of reconstitution is an authenticated copy of Decree No. 295110
under Section 2(d), which as certified by the LRA, was issued in favor of Isabel, Sixto and
Apolonia, all surnamed Bautista, covering the lot in San Narciso Cadastre. The said co-owners pro
indiviso are supposedly the registered owners named in OCT No. 2108. The Deed of Extra-Judicial
Settlement of Estate with Sale stated that Apolonia and Isabel died single and without any
children and only the alleged heirs of spouses Sixto and Elena Bautista executed the said
document conveying the 7,594-square meter lot to Millado. These supposed vendors claiming to
be heirs of one of the registered owners were not notified of the judicial reconstitution
proceedings.

The registered owners appearing in the title sought to be reconstituted, or in this case,
their surviving heirs, are certainly interested parties who should be notified of reconstitution
proceeding under Section 12 in relation to Section 13 of R.A. 26. Indeed, for petitions based on
sources enumerated in Sections 2(c), 2(d), 2(e), 2(f), 3(c), 3(d), 3(e) and 3(f), Section 13 adds
another requirement aside from publication and posting of notice of hearing: that the notice be
mailed to occupants, owners of adjoining lots, and all other persons who may have an interest in
the property. Notwithstanding the sale supposedly effected by vendors claiming to be heirs of the
registered owners, they remain as interested parties entitled to notice of judicial reconstitution
proceedings.

It is settled that the actual notice requirement in Section 13 in relation to Section 12 of R.A.
26 is mandatory and jurisdictional.

Where the authority to proceed is conferred by a statute and the manner of obtaining
jurisdiction is mandatory, the same must be strictly complied with, or the proceedings will be
void. As such, the court upon which the petition for reconstitution of title is filed is duty-bound to
examine thoroughly the petition for reconstitution of title and review the record and the legal
provisions laying down the germane jurisdictional requirements. Thus, we have held that
notwithstanding compliance with the notice publication, the requirement of actual notice to the
occupants and the owners of the adjoining property under Sections 12 and 13 of R.A. 26 is itself
mandatory to vest jurisdiction upon the court in a petition for reconstitution of title and essential

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in order to allow said court to take the case on its merits. The non-observance of the requirement
invalidates the whole reconstitution proceedings in the trial court.

For non-compliance with the actual notice requirement to all other persons who may have
interest in the property, in this case the registered owners and/or their heirs, in accordance with
Section 13 in relation to Section 12 of RA 26, the trial court did not acquire jurisdiction over L.R.A.
The proceedings therein were therefore a nullity and the Decision was void.

NORA B. CALALANG-PARULAN and ELVIRA B. CALALANG vs.


ROSARIO CALALANG-GARCIA, LEONORA CALALANG-SABILE, and CARLITO S.
CALALANG
G.R. No. 184148, June 9, 2014, J. Villarama, Jr.

Further strong proofs that the properties in question are the paraphernal properties of a
spouse are the very Torrens Titles covering said properties.

The phrase “Pedro Calalang, married to Elvira Berba Calalang” merely describes the civil
status and identifies the spouse of the registered owner Pedro Calalang. Evidently, this does not
mean that the property is conjugal. As the sole and exclusive owner, Pedro Calalang had the right to
convey his property in favor of Nora B. Calalang-Parulan by executing a Deed of Sale on February 17,
1984. A close perusal of the records of this case would show that the records are bereft of any
concrete proof to show that the subject property indeed belonged to respondents’ maternal
grandparents. The evidence respondents adduced merely consisted of testimonial evidence such as
the declaration of Rosario Calalang-Garcia that they have been staying on the property as far as she
can remember and that the property was acquired by her parents through purchase from her
maternal grandparents. However, she was unable to produce any document to evidence the said
sale, nor was she able to present any documentary evidence such as the tax declaration issued in the
name of either of her parents.

Facts:

Rosario Calalang-Garcia, Leonora Calalang-Sabile, and Carlito S. Calalang (Respondents)


asserted their ownership over a certain parcel of land against Nora B. Calalang-Parulan and Elvira
B. Calalang (Petitioners). The said lot was allegedly acquired by the respondents from their
mother Encarnacion Silverio, through succession as the latter’s compulsory heirs.

Respondents alleged that their father, Pedro Calalang (Pedro) contracted two marriages
during his lifetime. The first marriage was with their mother Encarnacion Silverio. During the
subsistence of this marriage, their parents acquired the above-mentioned parcel of land from
their maternal grandmother Francisca Silverio. Despite enjoying continuous possession of the
land, however, their parents failed to register the same. The first marriage was dissolved with the
death of Encarnacion Silverio.

Pedro Calalang entered into a second marriage with Elvira B. Calalang who then gave birth
to Nora B. Calalang-Parulan and Rolando Calalang. According to the respondents, it was only
during this time that Pedro Calalang filed an application for free patent over the parcel of land
with the Bureau of Lands. Pedro Calalang committed fraud in such application by claiming sole
and exclusive ownership over the land since 1935 and concealing the fact that he had three
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children with his first spouse. As a result, the Register of Deeds of Bulacan issued the Original
Certificate of Title (OCT) No. P-2871 in favor of Pedro only.

Pedro sold the said parcel of land to Nora B. Calalang-Parulan (Nora). Accordingly, the
Register of Deeds of Bulacan cancelled OCT No. P-2871 and issued Transfer Certificate of Title
(TCT) No. 283321 in the name of Nora. On December 27, 1989, Pedro Calalang died.

Respondents assailed the validity of TCT No. 283321 on two grounds. First, the
respondents argued that the sale of the land was void because Pedro failed to obtain the consent
of the respondents who were co-owners of the same. Second, the sale was absolutely simulated as
Nora did not have the capacity to pay for the consideration stated in the Deed of Sale.

Petitioners argued that the parcel of land was acquired during the second marriage of
Pedro Calalang with Elvira B. Calalang. They stressed that OCT No. P-2871 itself stated that it was
issued in the name of "Pedro Calalang, married to Elvira Berba Calalang." Thus, the property
belonged to the conjugal partnership of the spouses Pedro and Elvira Calalang. The petitioners
likewise denied the allegation that the sale of the land was absolutely simulated as Nora was
gainfully employed in Spain at the time of the sale.

RTC rendered a decision in favor of the plaintiffs and against the defendants. The trial
court declared that the parcel of land was jointly acquired by the spouses Pedro Calalang and
Encarnacion Silverio from the parents of the latter. Thus, it was part of the conjugal property of
the first marriage of Pedro Calalang. The trial court then ordered all of Pedro’s share to be given
to Nora B. Calalang-Parulan on account of the sale.

The CA reversed the factual findings of the trial court and held that Pedro Calalang was
the sole and exclusive owner of the subject parcel of land. Firstly, it held that there was
insufficient evidence to prove that the disputed property was indeed jointly acquired from the
parents of Encarnacion Silverio during the first marriage. Secondly, the CA upheld the
indefeasibility of OCT No. P-2871. It held that although the free patent was issued in the name of
"Pedro Calalang, married to Elvira Berba Calalang" this phrase was merely descriptive of the civil
status of Pedro Calalang at the time of the registration of the disputed property.

Issue:

Whether or not Pedro Calalang was the exclusive owner of the disputed property prior to
its transfer to his daughter Nora B. Calalang-Parulan.

Ruling:

The petition is meritorious.

As correctly pointed out by the CA, a close perusal of the records of this case would show
that the records are bereft of any concrete proof to show that the subject property indeed
belonged to respondents’ maternal grandparents. The evidence respondents adduced merely
consisted of testimonial evidence such as the declaration of Rosario Calalang-Garcia that they
have been staying on the property as far as she can remember and that the property was acquired
by her parents through purchase from her maternal grandparents. However, she was unable to
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produce any document to evidence the said sale, nor was she able to present any documentary
evidence such as the tax declaration issued in the name of either of her parents.

Moreover, the free patent was issued solely in the name of Pedro Calalang and that it was
issued more than 30 years after the death of Encarnacion and the dissolution of the conjugal
partnership of gains of the first marriage. Thus, the Court cannot subscribe to respondents’
submission that the subject property originally belonged to the parents of Encarnacion and was
acquired by Pedro Calalang and Encarnacion.

The Court likewise cannot sustain the argument of the petitioners that the disputed
property belongs to the conjugal partnership of the second marriage of Pedro Calalang with Elvira
B. Calalang on the ground that the title was issued in the name of "Pedro Calalang, married to
Elvira Berba Calalang."

The contents of a certificate of title are enumerated by Section 45 of Presidential Decree


No. 1529, otherwise known as the Property Registration Decree:

SEC. 45. Statement of personal circumstances in the certificate. – Every certificate of title
shall set forth the full names of all persons whose interests make up the full ownership in
the whole land, including their civil status, and the names of their respective spouses, if
married, as well as their citizenship, residence and postal address. If the property covered
belongs to the conjugal partnership, it shall be issued in the names of both spouses.

A plain reading of the above provision would clearly reveal that the phrase "Pedro
Calalang, married to Elvira Berba Calalang" merely describes the civil status and identifies the
spouse of the registered owner Pedro Calalang. Evidently, this does not mean that the property is
conjugal. As the sole and exclusive owner, Pedro Calalang had the right to convey his property in
favor of Nora B. Calalang-Parulan by executing a Deed of Sale on February 17, 1984.

SPOUSES DOMINADOR PERALTA AND OFELIA PERALTA vs. HEIRS OF BERNARDINA


ABALON / HEIRS OF BERNARDINA ABALON vs. MARISSA ANDAL, LEONIL AND AL,
ARNEL AND AL, SPOUSES DOMINDOR PERALTA AND OFELIA PERALTA, and HEIRS of
RESTITUTO RELLAMA, represented by his children ALEX, IMMANUEL, JULIUS and
SYLVIA, all surnamed RELLAMA
G.R. No. 183448 / G.R. No. 183464, June 30, 2014, CJ. Sereno

The established rule is that a forged deed is generally null and cannot convey title, the
exception thereto, pursuant to Section 55 of the Land Registration Act, denotes the registration of
titles from the forger to the innocent purchaser for value. Thus, the qualifying point here is that
there must be a complete chain of registered titles. This means that all the transfers starting from
the original rightful owner to the innocent holder for value – and that includes the transfer to the
forger – must be duly registered, and the title must be properly issued to the transferee.

Facts:

The subject parcel of land was registered in the name of Bernardina Abalon (Abalon). It
appears that a Deed of Absolute Sale was executed over the subject property in favor of Restituto
M. Rellama (Rellama). By virtue of such conveyance the OCT was cancelled and in lieu thereof
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TCT No. 42108 was issued in the name of Rellama. The subject property was then subdivided into
three (3) portions: Lot 1679-A, Lot 1679-B, Lot 1679-C. Lot 1679-A was sold to Spouses Dominador
P. Peralta, Jr. and Ofelia M. Peralta for which reason TCT No. 42254 was issued in their names. Lot
1679-B, on the other hand, was first sold to Lotivio who thereafter transferred his ownership
thereto to Marissa Andal, Arnel Andal, and Leonil Andal (the Andals) through a Deed of Absolute
Sale. TCT No. 42482 was issued in the name of the Andals. The Andals likewise acquired Lot 1679-
C as evidenced by the issuance of TCT No. 42821 in their favor on December 27, 1995.

Claiming that the Deed of Absolute Sale executed by Abalon in favor of Rellama was a
forged document, and claiming further that they acquired the subject property by succession,
they being the nephew and niece of Abalon who died without issue, they filed a complaint. It was
alleged that Rellama was able to cause the cancellation of OCT and in lieu thereof the issuance of
TCT No. 42108 in his own name from which the defendants-appellants derived their own titles,
upon presentation of a xerox copy of the alleged forged deed of absolute sale. They averred that
the owner’s duplicate copy of OCT had always been with Abalon and that upon her death, it was
delivered to them. Likewise, they alleged that Abalon had always been in possession of the subject
property through her tenant Godofredo Bellen. They further alleged that after the ownership over
the subject property was transferred to them upon the death of Abalon, they took possession
thereof and retained Godofredo as their own tenant. However, they averred that in 1995 the
defendants-appellants were able to wrest possession of the subject property from Godofredo
Bellen. They alleged that the defendants-appellants are not buyers in good faith as they were
aware that the subject land was in the possession of the plaintiffs-appellees at the time they made
the purchase. They thus claim that the titles issued to the defendants-appellants are null and
void. In his answer, Rellama alleged that the deed of absolute sale executed by Abalon is genuine
and that they had been delivered to him upon the execution of the said deed of transfer. As for
Spouses Peralta and the Andals, who filed their separate answers to the complaint, they mainly
alleged that they are buyers in good faith and for value.

The trial court rendered judgment in favor of the plaintiffs-appellees and ordered the
restoration of OCT in the name of Abalon and the cancellation of the titles issued to the
defendants-appellants. On appeal, the CA set aside the RTC Decision. The CA ruled that the
circumstances surrounding the sale of the subject property showed badges of fraud or forgery
against Rellama. It found that Abalon had not parted with her ownership over the subject
property despite the claim of Rellama that they both executed a Deed of Absolute Sale. CA also
found no evidence to show that Rellama exercised dominion over the subject property, because
he had not introduced improvements on the property, despite claiming to have acquired it. The
appellate court considered the Spouses Peralta as buyers in bad faith for relying on a mere
photocopy of TCT No. 42108 when they bought the property from Rellama. On the other hand, it
accorded the Andals the presumption of good faith, finding no evidence that would rebut this
presumption.

Issue:

Whether a forged instrument may become the root of a valid title in the hands of an
innocent purchaser for value, even if the true owner thereof has been in possession of the genuine
title, which is valid and has not been cancelled.

Ruling:
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The established rule is that a forged deed is generally null and cannot convey title, the
exception thereto, pursuant to Section 55 of the Land Registration Act, denotes the registration of
titles from the forger to the innocent purchaser for value. Thus, the qualifying point here is that
there must be a complete chain of registered titles. This means that all the transfers starting from
the original rightful owner to the innocent holder for value – and that includes the transfer to the
forger – must be duly registered, and the title must be properly issued to the transferee.

In the instant case, there is no evidence that the chain of registered titles was broken in
the case of the Andals. Neither were they proven to have knowledge of anything that would make
them suspicious of the nature of Rellama’s ownership over the subject parcel of land. Hence, the
Court sustains the CA’s ruling that the Andals were buyers in good faith. Consequently, the
validity of their title to the parcel of the land bought from Rellama must be upheld.

As for Spouses Peralta, the Court sustain the ruling of the CA that they are indeed buyers
in bad faith. The appellate court made a factual finding that in purchasing the subject property,
they merely relied on the photocopy of the title provided by Rellama. The CA concluded that a
mere photocopy of the title should have made Spouses Peralta suspicious that there was some
flaw in the title of Rellama, because he was not in possession of the original copy. This factual
finding was supported by evidence. Whether or not Spouses Peralta are buyers in good faith, is
without a doubt, a factual issue. Although this rule admits of exceptions, none of these applies to
their case.

HECTOR L. UY vs. VIRGINIA G. FULE; HEIRS OF THE LATE AMADO A. GARCIA, HEIRS OF
THE LATE GLORIA GARCIA ENCARNACION; HEIRS OF THE LATE PABLO GARCIA;
and HEIRS OF THE LATE ELISA G. HEMEDES,
G.R. No. 164961, June 30, 2014, J. Bersamin

The standard is that for one to be a purchaser in good faith in the eyes of the law, he should
buy the property of another without notice that some other person has a right to, or interest in, such
property, and should pay a full and fair price for the same at the time of such purchase, or before he
has notice of the claim or interest of some other persons in the property. He buys the property with
the belief that the person from whom he receives the property was the owner and could convey title
to the property. Indeed, a purchaser cannot close his eyes to facts that should put a reasonable man
on his guard and still claim he acted in good faith.

Facts:

The dispute herein involves the parcel of land registered under TCT No. 30111 located in
San Agustin, Pili, Camarines Sur that was part of the vast tract of land covered by TCT No. 1128
registered in the name of the late Conrado Garcia. Upon the death of Conrado Garcia, his heirs
entered into an extrajudicial settlement of his estate. Thereafter, his heirs caused the registration
on March 7, 1973 of the vast track of land under TCT No. RT-8922.

In September 1985, the Department of Agrarian conducted a survey of the disputed land,
referring to it as Lot 562. It issued a joint certification to the effect that the disputed land was an
"untitled" property owned by Conrado Garcia. The joint certification was buttressed by the
certification by the Register of Deeds of Camarines Sur to the effect that no title covering Lot 562
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appeared on record. As a result, the disputed land was included in the Operation Land Transfer
(OLT) program of the DAR.

In 1988, the DAR and the Register of Deeds of Camarines Sur respectively issued
emancipation patents and original certificates of title covering the disputed land to the farmers
beneficiaries, namely: Catalino Alcaide, Mariano Ronda, Ponciano Ermita, Felipe Marcelo,
Salvador Pedimonte, Fabiana Pedimonte and Leonila Pedimonte. In the interim, farmer-
beneficiary Mariano Ronda sold his portion to Chisan Uy who then registered his title thereto
under TCT No. 29948 and TCT No. 29949 of the Registry of Deeds of Camarines Sur. On the other
hand, the heirs of farmer-beneficiary Mariano Ronda (Isabel Ronda, et al.) sold their land
to petitioner Hector Uy for P10 million. Hector Uy registered his title thereto under TCT No.
31436 and TCT No. 31437, both of the Registry of Deeds of Camarines Sur.

In 1997, TCT No. RT-8922 was cancelled following the partition of the property covered
therein. Subsequently, TCT No. 30136 and TCT No. 30111 were issued in the names of respondents
heirs of the late Conrado Garcia. In 1998, the President, acting through the DAR Secretary, issued
EPs to the farmers-beneficiaries pursuant to P.D. No. 27 and P.D. No. 266. On December 21, 1998,
the respondents filed a complaint for cancellation of titles, quieting of title, recovery of
possession, and damages against the DAR Secretary and the farmer-beneficiaries in the RTC
alleging that they had been denied due process; and that the titles of the defendants (who
included the Hector Uy)in the disputed land constituted clouds on their own title. They prayed
that the farmer-beneficiaries’ certificates of title, including those of their purchasers Chisan Uy
and Hector Uy, be cancelled; that the private defendants be ordered to surrender the possession
of the disputed land to them.

The RTC resolved in favor of the respondents by finding that no notice of the inclusion of
the disputed land under the operation of P.D. No. 27 had been given to them. It ruled declaring
null and void all the proceedings taken by public defendants in the generation of the certificates
of land transfer and emancipation patents and ordered the Register of Deeds of Camarines Sur to
cancel all the OCTs and TCTs mentioned.

On appeal to CA, Hector Uy insisted that the RTC gravely erred in holding that he had not
been an innocent purchaser in good faith and for value; and in declaring void and ordering the
cancellation of TCT No. 31436 and TCT No. 31437, among others. On their part, Catalino Alcaide,
Julia Casaysayan, and Chisan Uy claimed that the RTC erred in assuming jurisdiction over the
case when in fact it had no such jurisdiction; in holding that the titles issued to the tenants
Spouses Alcaides and Chisan Uy were void; and in holding that the proceedings taken by the
public defendants in generating the CLTs and EPs were void. The CA however, denied the appeal.
The CA ruled that Hector Uy and Chisan Uy are not purchasers in good faith and that no valid
title could have passed to them because the transfers are void under PD 27. PD 72 explicitly
provides that “Title to land acquired pursuant to this Decree or the Land Reform Program of the
Government shall not be transferable except by hereditary succession or to the Government x x x”

Issue:

Whether or not Hector Uy was a purchaser in good faith of the property in litis.

Ruling:
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No. The Court affirmed the decision of the CA.

An examination of the deed of sale executed between Isabel Ronda, et al. and Hector Uy
respecting the portions covered by TCT No. 31120 and TCT No. 31121 indicates that the TCTs were
issued only on August 17, 1998 but the deed of sale was executed on July 31, 1998. While it is true,
as Hector Uy argues, that succession occurs from the moment of death of the decedent pursuant
to Article 777 of the Civil Code, his argument did not extend to whether or not he was a buyer in
good faith, but only to whether or not, if at all, Isabel Ronda, et al., as the heirs of Mariano Ronda,
held the right to transfer ownership over their predecessor’s property. The argument did not also
address whether or not the transfer to Hector Uy was valid.

Evidently, Hector Uy entered into the deed of sale without having been able to inspect
TCT No. 31120 and TCT No. 31121 by virtue of such TCTs being not yet in existence at that time. If
at all, it was OCT No. 9852 and OCT No. 9853 that were available at the time of the execution of
the deed of sale, and such OCTs were presumably inspected by Hector Uy before he signed the
deed of sale. It is notable that said OCTs categorically stated that they were entered pursuant to
an emancipation patent of the Ministry of Agrarian Reform pursuant to the Operation Land
Transfer (OLT) Program of the government. Furthermore, said OCTs plainly recited the following
prohibition: "…it shall not be transferred except by hereditary succession or to the Government in
accordance with the provisions of Presidential Decree No. 27, Code of Agrarian Reforms of the
Philippines and other existing laws and regulations…."

The foregoing circumstances negated the third element of good faith cited in Bautista v.
Silva, i.e., that "at the time of sale, the buyer was not aware of any claim or interest of some other
person in the property, or of any defect or restriction in the title of the seller or in his capacity to
convey title to the property." In Bautista v. Silva, the absence of the third condition put Hector Uy
on notice and obliged him to exercise a higher degree of diligence by scrutinizing the certificates
of title and examining all factual circumstances in order to determine the seller’s title and
capacity to transfer any interest in the lots. Consequently, it is not sufficient for him to insist that
he relied on the face of the certificates of title, for he must further show that he exercised
reasonable precaution by inquiring beyond the certificates of title. Failure to exercise such degree
of precaution rendered him a buyer in bad faith. "It is a well-settled rule that a purchaser cannot
close his eyes to facts which should put a reasonable man upon his guard, and then claim that he
acted in good faith under the belief that there was no defect in the title of the vendor."

Hector Uy was not an innocent purchaser for value; hence, he cannot be awarded the
disputed land.

HEIRS OF SPOUSES JOAQUIN MANGUARDIA AND SUSANA MANALO, ET AL vs. HEIRS


OF SIMPLICIO VALLES AND MARTA VALLES, ET AL
G.R. No. 177616, August 27, 2014, J. Del Castillo

The petitioners assail the decision of the CA affirming in toto the decision of the RTC
declaring that their predecessors-in-interest are not buyers in good faith and for value. In denying
the petition the SC ruled that the transfers of the properties in question did not go far, but were
limited to close family relatives by affinity and consanguinity. Good faith among the parties to the
series of conveyances is therefore hard if not impossible to presume. Unfortunately for the
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petitioners, they did not provide any sufficient evidence that would convince the courts that the
proximity of relationships between/among the vendors and vendees in the questioned sales was not
used to perpetrate fraud. Thus there is nothing to dispel the notion that apparent anomalies
attended the transactions among close relations.

It must be emphasized that "the burden of proving the status of a purchaser in good faith
and for value lies upon him who asserts that standing. In discharging the burden, it is not enough
to invoke the ordinary presumption of good faith that everyone is presumed to act in good faith.
The good faith that is here essential is integral with the very status that must be proved. x x x
Petitioners have failed to discharge that burden."

Facts:

Simplicio and Marta were the registered owners of a 42,215-square meter property in
Barrio Cudian, Ivisan, Capiz known as Lot 835. Marta died in 1943 and was survived by her
illegitimate daughter, Encarnacion. On the other hand, Simplicio died on April 20, 1957 and was
survived by his wife Villarica and his children.

It appears, however, that on October 28, 1968, a notarized Deed of Absolute Sale over Lot
835 was executed by Simplicio and Marta in favor of their brothers, Melquiades and Rustico;
Simplicio’s daughter, Adelaida; and Marta’s daughter, Encarnacion. The Deed of Absolute Sale
ostensibly bore the signature of Marta and the thumb marks of Simplicio and his wife. On even
date, said deed was registered in the Registry of Deeds of Capiz, resulting in the cancellation of
OCT No. RO-4017 and the issuance of TCT No.T-9409. The following day, the alleged buyers and
new registered owners executed a Subdivision Agreement, subdividing Lot 835 into four lots.
Said Subdivision Agreement was also registered on the same day in the Registry of Deeds of
Capiz. Hence, TCT No. T-9409 was cancelled and in lieu thereof, individual titles to the
subdivided lots were issued to the putative buyers

Thereafter the subdivided lots were conveyed to different persons and after several
transfers the Spouses Manguardia became the registered owner of Lots 835-B and 835-C;
Leonardo and Rebecca of Lot 835-D while Adelaida of Lot 835-A.

Subsequently, respondents commenced an action for the Declaration of Nullity of


Certificates of Title and Deeds of Sale, Cancellation of Certificates of Title, Recovery of
Possession and Damages with the RTC against herein petitioners. Respondents alleged that the
purported Deed of Absolute Sale is a forgery because Marta and Simplicio were long dead when
the said document was executed. Consequently, all titles emanating therefrom including the
titles covering the subdivided lots of Lot 835 are all null and void.

The trial resulted in the RTC rendering a Decision in favor of herein respondents. It
declared the Deed of Absolute Sale void ab initio because there was no proof that the vendors,
were still alive in 1968 and had signed/thumb marked the sale document. On appeal, the CA
affirmed in toto the decision of the trial court. Hence, this petition.

The Petitioners argue that their predecessors-in-interest were innocent purchasers in


good faith and for value, having acquired Lots 835-B and 835-C in 1980 from their registered
owners and occupants. They further averred that their parents had been in possession of the lots
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since they purchased them in 1980, and had since then constructed four buildings thereon for
their poultry business, without opposition from anyone. They maintained that the titles in the
names of the spouses Manguardia are valid and legal. In addition, since the documents of sale
and Torrens titles were duly registered in the Registry of Deeds, and that actual possession by the
different transferees spanning a period of over 30 years were known to the respondents and their
predecessors without any complaint or opposition, the claim of respondents is barred by
prescription, estoppel and laches.

Issue:

Whether or not petitioners’ predecessors-in-interest are buyers in good faith and for
value.

Ruling:

No, petitioners cannot be considered as buyers in good faith and for value.

Petitioners failed to discharge the burden of proving that their predecessors-in-interest


were buyers in good faith.

Petitioners do not dispute that the original Deed of Absolute Sale is a forgery because the
alleged vendors were already long dead when the questioned deed was executed. While their
ownership rights are ultimately based upon this forged deed, petitioners assert that the good
faith of their predecessors-in-interest validates their title over the lots.

The Court, however, disagrees. It must be noted that the relationships by consanguinity
or affinity, between and among the vendors and vendees in the series of sales of the subject
properties, were established by testimonial evidence. Again, these were not contradicted by
petitioners. And as aptly concluded by the trial court, it can reasonably be assumed from these
relations that the spouses Manguardia and Leonardo were not buyers in good faith, viz:

Are the Manguardias and Leonardo Araza third persons x x x who are innocent purchasers
for value?

The general rule x x x that a person dealing with registered land has a right to rely on the
Torrens Certificate of Title without need of inquiring further cannot apply when the party
has actual knowledge of facts and circumstances that would impel a reasonably cautious man
to make such inquiry or when the purchaser has knowledge of a defect or lack of title in his
vendor or of sufficient facts to induce a reasonably prudent man to [inquire] into the status
of the title of the property in litigation (Voluntad vs. Dizon, 313 SCRA 209). If circumstances
exist that [require] a prudent man to investigate and he does not, he is deemed to have acted
in mala fide, and his mere refusal to believe that a defect exists or his willful closing of his
eyes to the possibility of the existence of a defect in his vendor’s title will not make him an
innocent purchaser for value (Voluntad vs. Dizon, supra).

The transfers of the properties in question did not go far, but were limited to close family
relatives by affinity and consanguinity. Circuitous and convoluted as they may be, and involving
more than two families but belonging to a clan which, although living in different barangays,
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such barangays belong to the same city and [are] adjacent to each other. Good faith among the
parties to the series of conveyances is therefore hard if not impossible to presume.

Unfortunately for the petitioners, they did not provide any sufficient evidence that would
convince the courts that the proximity of relationships between/among the vendors and vendees
in the questioned sales was not used to perpetrate fraud. Thus there is nothing to dispel the
notion that apparent anomalies attended the transactions among close relations. Glaringly
emphasized were the established facts that the parties to the alleged original sale in 1968, and the
witnesses thereto were close relatives (siblings, children and nephew of Marta and Simplicio).
Similarly, the vendors and vendees in subsequent sale transactions were either the co-vendees
themselves in the original sale, first cousins, and close relatives by consanguinity and affinity. In
addition, these transactions between close relatives happened at a time when everybody knew
everyone, in a place where vendees lived in close proximity to the vendors, and to the disputed
properties. This is not to say however, that a sale between close relatives is automatically
anomalous. It is just that in this particular case, the circumstances strongly show that fraud was
committed by relatives against relatives and the evidence adduced by petitioners was insufficient
to remove the cloud of doubt pertaining to the good faith of their predecessors-in-interest in
acquiring the properties in question.

It must be emphasized that "the burden of proving the status of a purchaser in good faith
and for value lies upon him who asserts that standing. In discharging the burden, it is not enough
to invoke the ordinary presumption of good faith that everyone is presumed to act in good faith.
The good faith that is here essential is integral with the very status that must be proved. x x x
Petitioners have failed to discharge that burden."

Anent Petitioners’ contention of acquisitive prescription the same cannot prevail over the
rights of respondents. To begin with, the disputed property is a duly registered land under the
Torrens system. "It is well-settled that no title to registered land in derogation of that of the
registered owner shall be acquired by prescription or adverse possession. Neither can prescription
be allowed against the hereditary successors of the registered owner, because they merely step
into the shoes of the decedent and are merely the continuation of the personality of their
predecessor[-]in[-]interest. Consequently, since a certificate of registration covers it, the disputed
land cannot be acquired by prescription regardless of petitioner's good faith."

On the claim of laches, this Court reiterates that "laches is based upon equity and the
public policy of discouraging stale claims. Since laches is an equitable doctrine, its application is
controlled by equitable considerations. It cannot be used to defeat justice or to [perpetrate] fraud
and injustice. Thus, the assertion of laches to thwart the claim of respondents is foreclosed
because the deed upon which petitioners base their claim is first and foremost a forgery."

ENRIQUETA M. LOCSIN vs. BERNARDO HIZON, CARLOS HIZON, SPS. JOSE MANUEL
AND LOURDES GUEVARA
G.R. No. 204369, September 17, 2014, J. Velasco Jr.

A purchaser of property under the Torrens system cannot simply invoke that he is an
innocent purchaser for value when there are attending circumstances that raise suspicions. In that
case, he cannot merely rely on the title and must look beyond to ascertain the truth as to the right of
the seller to convey the property.
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Facts:

Enriqueta is the owner of a parcel of land located in Quezon City and leased the same to a
certain Billy Aceron. In 1992, she instituted an ejectment case against Aceron and obtained a
favorable judgment. Enriqueta then went to the US and had her lawyer check if Aceron complied
with the order of the court.

To her surprise, Enriqueta was informed that the land was already sold to Bernardo Hizon
by a certain Marylou Bolos who derived her title from a Deed of Absolute Sale allegedly executed
by Enriqueta in 1979. Bernardo secured a new transfer certificate of title in favor of his son Carlos
and filed a motion for execution of judgment to regain possession of the land from Aceron. When
Enriqueta communicated with the Hizons, Carlos contended that he was an innocent buyer in
good faith and for value. Bernardo, on the other hand, suggested a compromise agreement with
Enriqueta’s lawyer to which the latter acceded. Bernardo’s suggestion never materialized as Carlos
sold the property to Spouses Guevara and obtained a new TCT in their favor. Spouses Guevara
then mortgaged the property to Damar Credit Corporation.

Enriqueta filed an action for annulment of Spouses Guevara’s title claiming that her
signature in Bolos’ Deed of Absolute Sale was forged. She also alleged that there was no legitimate
transfer of property from Carlos to Spouses Guevara and the sale was only employed to keep the
property out of her reach. Spouses Guevara instituted Bernardo as attorney-in-fact to represent
them until the termination of the proceedings. In their defense, they contended that they were
innocent purchasers in good faith and for value.

The RTC ruled in favor of Spouse Guevara holding that Enriqueta could not hinge her
claims only on the differences of signatures. On appeal, the CA acknowledged the existence of
forgery but affirmed the ruling of the RTC elucidating that a buyer of a property covered by
Torrens system need not look beyond the title.

Issue:

Whether or not Enriqueta is entitled to recover the land

Ruling:

Yes, she may recover the land.

An innocent purchaser for value is one who buys the property of another without notice
that some other person has a right to or interest in it, and who pays a full and fair price at the
time of the purchase or before receiving any notice of another person’s claim. As such, a defective
title–or one the procurement of which is tainted with fraud and misrepresentation–may be the
source of a completely legal and valid title, provided that the buyer is an innocent third person
who, in good faith, relied on the correctness of the certificate of title, or an innocent purchaser for
value.

Complementing this is the mirror doctrine which echoes the doctrinal rule that every
person dealing with registered land may safely rely on the correctness of the certificate of title
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issued therefor and is in no way obliged to go beyond the certificate to determine the condition of
the property. The recognized exceptions to this rule are stated as follows:

The presence of anything which excites or arouses suspicion should


then prompt the vendee to look beyond the certificate and investigate
the title of the vendor appearing on the face of said certificate. One
who falls within the exception can neither be denominated an innocent
purchaser for value nor a purchaser in good faith and, hence, does not
merit the protection of the law.

In the case at bar, Bolos’ certificate of title was concededly free from liens and
encumbrances on its face. However, the failure of Carlos and the spouses Guevara to exercise the
necessary level of caution in light of the factual milieu surrounding the sequence of transfers from
Bolos to respondents bars the application of the mirror doctrine and inspires the Court’s
concurrence with Locsin’s proposition.

The Court viewed that Bernardo negotiated with Bolos for the property as Carlos’ agent.
This is bolstered by the fact that he was the one who arranged for the sale and eventual
registration of the property in Carlos’ favor. Consistent with the rule that the principal is
chargeable and bound by the knowledge of, or notice to, his agent received in that capacity, any
information available and known to Bernardo is deemed similarly available and known to Carlos,
including the following:

1. Bernardo knew that Bolos, from whom he purchased the subject


property, never acquired possession over the lot.

2. Bolos’ purported Deed of Sale was executed on November 3, 1979 but


the ejectment case commenced by Locsin against Aceron was in 1992,
or thirteen (13) years after the property was supposedly transferred to
Bolos.

3. The August 6, 1993 Judgment, issued by the MTC on the compromise


agreement between Locsin and Aceron, clearly stated therein that “[o]n
August 2, 1993, the parties [Aceron and Locsin] submitted to [the MTC]
for approval a Compromise Agreement dated July 28, 1993.” It further
indicated that “[Aceron] acknowledges [Locsin’s] right of possession to
[the subject property], being the registered owner thereof.”

Having knowledge of the foregoing facts, Bernardo and Carlos should have been impelled
to investigate the reason behind the arrangement. They should have been pressed to inquire into
the status of the title of the property in litigation in order to protect Carlos’ interest. It should
have struck them as odd that it was Locsin, not Bolos, who sought the recovery of possession by
commencing an ejectment case against Aceron, and even entered into a compromise agreement
with the latter years after the purported sale in Bolos’ favor.

At this point it is well to emphasize that entering into a compromise agreement is an act
of strict dominion. If Bolos already acquired ownership of the property as early as 1979, it should
have been her who entered into a compromise agreement with Aceron in 1993, not her
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predecessor-in-interest, Locsin, who, theoretically, had already divested herself of ownership


thereof.

As regards the transfer of the property from Carlos to the spouses Guevara, The Court
finds the existence of the sale highly suspicious. For one, there is a dearth of evidence to support
the respondent spouses’ position that the sale was a bona fide transaction. Even if the Court
repeatedly sift through the evidence on record, still the Court cannot find any document,
contract, or deed evidencing the sale in favor of the spouses Guevara. The same goes for the
purported payment of the purchase price of the property in the amount of PhP 1.5 million in favor
of Carlos.

Indeed, the fact that the spouses Guevara never intended to be the owner in good faith
and for value of the lot is further made manifest by their lack of interest in protecting themselves
in the case. It does not even appear in their testimonies that they, at the very least, intended to
vigilantly protect their claim over the property and prevent Locsin take it away from them. What
they did was to simply appoint Bernardo as their attorney-in-fact to handle the situation and
never bothered acquainting themselves with the developments in the case.

AMBROSIO ROTAIRO (SUBSTITUTED BY HIS SPOUSE MARIA RONSAYRO ROTAIRO,


AND HIS CHILDREN FELINA ROTAIRO, ERLINDA ROTAIRO CRUZ, EUDOSIA ROTAIRO
CRIZALDO, NIEVES ROTAIRO TUBIG, REMEDIOS ROTAIRO MACAHILIG, FELISA
ROTAIRO TORREVILLAS, AND CRISENCIO R. ROTAIRO, MARCIANA TIBAY, EUGENIO
PUNZALAN, AND VICENTE DEL ROSARIO vs. ROVIRA ALCANTARA AND VICTOR
ALCANTARA
G.R. No. 173632, September 29, 2014, J. Reyes

More than the charge of constructive knowledge, the surrounding circumstances of this case
show Rovira’s actual knowledge of the disposition of the subject property and Rotairo’s possession
thereof. It is undisputed that after the contract to sell was executed …, Rotairo imme-diately secured
a mayor’s permit … for the construction of his residential house on the property. Rotairo, and
subsequently, his heirs, has been residing on the property since then. Rovira, who lives only fifty (50)
meters away from the subject property, in fact, knew that there were “structures built on the
property.” Rovira, however, claims that “she did not bother to inquire as to the legitimacy of the
rights of the occupants, because she was assured by the bank of its title to the property.” But Rovira
cannot rely solely on the title and assurances of Pilipinas Bank; it was incumbent upon her to look
beyond the title and make necessary inquiries because the bank was not in possession of the
property. “Where the vendor is not in possession of the property, the prospective vendees are
obligated to investigate the rights of one in possession.” A purchaser cannot simply close his eyes to
facts which should put a reasonable man on guard, and thereafter claim that he acted in good faith
under the belief that there was no defect in the title of the vendor. Hence, Rovira cannot claim a
right better than that of Rotairo's as she is not a buyer in good faith.

Facts:

In 1988, Respondent Rovira Alcantara instituted an action for the recovery of possession of
a parcel of land situated in Cainta, Rizal. She disclosed that the property was formerly owned by
his father, Victor Alcantara (Alcantara), and Alfredo Ignacio, who mortgaged the property to
Pilipinas Bank and Trust Company in 1968. Through their firm, Ignacio & Company, the two were
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able to parcel out the property and separately sold the subdivided lots to different buyers. One of
the buyers was Ambrosio Rotairo (Rotairo) who took the property identified as Lot C-1 and
completed the payments therefor on September 25, 1979. However, Alcantara and Ignacio earlier
defaulted in their loan obligation with Pilipinas Bank which led to the foreclosure of the
mortgage. Without redemption being made, title was consolidated in the name of Pilipinas Bank
and it later sold the property in a Deed of Absolute Sale dated June 6, 1975 to Rovira, who happens
to be the daughter of Alcantara.

The RTC ruled that the transaction between Ignacio & Company and Rotairo was covered
by P.D. No. 957. Thus, Rovira, “as successor-in-interest of Wilfredo S. Ignacio [and Victor
Alcantara] was well aware of the condition of the property which she bought from the Pilipinas
Bank, because she lives near the land, and at the time she purchased it she was aware of the existing
houses or structures on the land.” She was, therefore, not entitled to the relief prayed for in her
complaint.

On appeal, the CA set aside the RTC decision and ordered the turnover of possession of
the property to Rovira. The CA held that P.D. No. 957 is not applicable since the mortgage was
constituted prior to the sale to Rotairo and so the law does not confer “more” rights to an
unregistered buyer like him, as against a registered prior mortgagee like Pilipinas Bank and its
buyer, Rovira.

Issue:

Whether or not Rovira is a buyer in good faith of the subject property.

Ruling:

NO, Rovira is not buyer in good faith.

The rule is that as “[b]etween two transactions concerning the same parcel of land, the
registered transaction prevails over the earlier unregistered right.” This is in accord with Sec. 50 of
the Land Registration Act, which provides [that] “xxx [t]he act of registration shall be the operative
act to convey and affect the land.”

Sec. 51 of the Land Registration Act further states that “[e]very conveyance, mortgage,
lease, lien, attachment, order, decree, instrument, or entry affecting registered land xxx, if registered
xxx be notice to all persons from the time of such registering xxx.”

The rule, however, is not without recognized exceptions. “The conveyance shall not be
valid against any person unless registered, except (1) the grantor, (2) his heirs and devisees, and (3)
third persons having actual notice or knowledge thereof.” Moreover, when the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make such
inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of
sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the
property in litigation, he cannot find solace in the protection afforded by a prior registration.
Neither can such person be considered an innocent purchaser for value nor a purchaser in good
faith.

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In this case, two factors work against Rovira as a buyer in good faith. One, she cannot be
considered a third person for purposes of applying the rule. Rovira does not deny that she is the
daughter and an heir of Victor C. Alcantara, one of the parties to the contract to sell (and the
contract of sale) executed in favor of Rotairo. “The vendor’s heirs are his privies.” Based on such
privity, Rovira is charged with constructive knowledge of prior dispositions or encumbrances
affecting the subject property made by her father. The fact that the contract to sell was unregis-
tered became immaterial and she is, therefore, bound by the provisions of the contract to sell and
eventually, the contract of sale, executed by her father in favor of Rotairo.

Further, more than the charge of constructive knowledge, the surrounding circum-stances
of this case show Rovira’s actual knowledge of the disposition of the subject property and
Rotairo’s possession thereof. It is undisputed that after the contract to sell was executed …,
Rotairo immediately secured a mayor’s permit … for the construction of his residential house on
the property. Rotairo, and subsequently, his heirs, has been residing on the property since then.
Rovira, who lives only fifty (50) meters away from the subject property, in fact, knew that there
were “structures built on the property.” Rovira, however, claims that “she did not bother to inquire
as to the legitimacy of the rights of the occupants, because she was assured by the bank of its title to
the property.” But Rovira cannot rely solely on the title and assurances of Pilipinas Bank; it was
incumbent upon her to look beyond the title and make necessary inquiries because the bank was
not in possession of the property. “Where the vendor is not in possession of the property, the
prospective vendees are obligated to investigate the rights of one in possession.” A purchaser cannot
simply close his eyes to facts which should put a reasonable man on guard, and thereafter claim
that he acted in good faith under the belief that there was no defect in the title of the vendor.
Hence, Rovira cannot claim a right better than that of Rotairo's as she is not a buyer in good faith.

SPOUSES MARIO OCAMPO and CARMELITA F. OCAMPO vs. HEIRS OF BERNARDINO U.


DIONISIO, represented by ARTEMIO SJ. DIONISIO
G.R. No. 191101, October 1, 2014, J. Reyes

Jurisprudence consistently holds that "prescription and laches cannot apply to registered
land covered by the Torrens system" because "under the Property Registration Decree, no title to
registered land in derogation to that of the registered owner shall be acquired by prescription or
adverse possession.

Mario claimed that they have been in possession of the said parcel of land since 1969 and
that cause of action of the Dionisios is already barred by laches. Jurisprudence consistently holds
that "prescription and laches cannot apply to registered land covered by the Torrens system"
because "under the Property Registration Decree, no title to registered land in derogation to that of
the registered owner shall be acquired by prescription or adverse possession.”

Facts:

Dionisio filed a complaint for forcible entry with MTC against Mario and Felix Ocampo.
Dionisio sought to recover the possession of a portion of his property, covered by an original
certificate of title, situated in Dalig, Cardona, Rizal. Mario denied Dionisio’s allegation, claiming
that the disputed parcel of land is owned by his wife, Carmelita, who inherited the same from her
father. Mario further claimed that they have been in possession of the said parcel of land since
1969.
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On September 12, 1997, the MTC rendered a decision, which dismissed the complaint for
forcible entry filed by Dionisio. Dionisio died on September 27, 1997. Consequently, on July 3,
1998, the heirs of Dionisio filed a complaint for recovery of possession with the MTC. On February
18, 2008, the MTC rendered a decision dismissing the complaint for recovery of possession filed
by the respondents on the ground of res judicata.

The RTC ruled that the MTC erred in dismissing the Dionisios' complaint for recovery of
possession of the subject property solely on the ground of res judicata. CA affirmed the decision
of RTC and held that the doctrine of res judicata cannot be applied in this case since there is no
identity of cause of action as between the forcible entry case and the recovery of possession case.

Issue:

Whether the Dionisios’ cause of action is already barred by laches.

Ruling:

No.

As owners of the subject property, the Dionisios have the right to recover the possession
thereof from any person illegally occupying their property. This right is imprescriptible. Assuming
arguendo that the Ocampos indeed have been occupying the subject property for a considerable
length of time, the Dionisios, as lawful owners, have the right to demand the return of their
property at any time as long as the possession was unauthorized or merely tolerated, if at all.

Jurisprudence consistently holds that "prescription and laches cannot apply to registered
land covered by the Torrens system" because "under the Property Registration Decree, no title to
registered land in derogation to that of the registered owner shall be acquired by prescription or
adverse possession.

ELIZA ZUNIGA-SANTOS, represented by her Attorney-in Fact, NYMPHA Z. SALES vs.


MARIA DIVINA GRACIA SANTOS-GRAN and REGISTER OF DEEDS OF MARIKINA CITY
G.R. No. 197380, October 8, 2014, J. Perlas-Bernabe

To determine when the prescriptive period commenced in an action for reconveyance, the
plaintiff’s possession of the disputed property is material. If there is an actual need to reconvey the
property as when the plaintiff is not in possession, the action for reconveyance based on implied
trust prescribes in ten (10) years, the reference point being the date of registration of the deed or the
issuance of the title. On the other hand, if the real owner of the property remains in possession of
the property, the prescriptive period to recover title and possession of the property does not run
against him and in such case, the action for reconveyance would be in the nature of a suit for
quieting of title which is imprescriptible.

In the case at bar, a reading of the allegations of the Amended Complaint failed to show that
Eliza remained in possession of the subject properties in dispute.

Facts:
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Eliza Zuñiga-Santos (Eliza), through her authorized representative, Nympha Z. Sales, filed
a Complaint for annulment of sale and revocation of title against respondents Maria Divina Gracia
Santos-Gran (Gran) and the Register of Deeds of Marikina City before the RTC. Eliza alleged that
(a) she was the registered owner of three (3) parcels of land located in the Municipality of
Montalban, Province of Rizal prior to their transfer in the name of private respondent Gran; (b)
she has a second husband by the name of Lamberto C. Santos (Lamberto), with whom she did not
have any children; (c) she was forced to take care of Lamberto’s alleged daughter, Gran, whose
birth certificate was forged to make it appear that the latter was Eliza’s daughter; (d) pursuant to
void and voidable documents, i.e., a Deed of Sale, Lamberto succeeded in transferring the subject
properties in favor of and in the name of Gran; (e) despite diligent efforts, said Deed of Sale could
not be located; and (f) she discovered that the subject properties were transferred to Gran
sometime in November 2005. Accordingly, Eliza prayed, inter alia, that Gran surrender to her the
subject properties and pay damages, including costs of suit.

Gran filed a Motion to Dismiss, contending that (a) the action filed by Eliza had
prescribed since an action upon a written contract must be brought within ten (10) years from the
time the cause of action accrues, or in this case, from the time of registration of the questioned
documents before the Registry of Deeds; and (b) the Amended Complaint failed to state a cause
of action as the void and voidable documents sought to be nullified were not properly identified
nor the substance thereof set forth, thus, precluding the RTC from rendering a valid judgment in
accordance withthe prayer to surrender the subject properties.

RTC granted Gran’s motion and dismissed the Amended Complaint for its failure to state
a cause of action, considering that the deed of sale sought to be nullified – an "essential and
indispensable part of [Eliza’s] cause of action" – was not attached. It likewise held that the
certificates of title covering the subject properties cannot be collaterally attacked and that since
the action was based on a written contract, the same had already prescribed under Article 1144 of
the Civil Code. On appeal, CA sustained the dismissal of Eliza’s Amended Complaint buton the
ground of insufficiency of factual basis. Aggrieved, Eliza moved for reconsideration 23 and
attached, for the first time, a copy of the questioned Deed of Sale which she claimed to have
recently recovered, praying that the order of dismissal be set aside and the case be remanded to
the RTC for further proceedings. In a Resolution, the CA denied Eliza’s motion and held that the
admission of the contested Deed of Sale at this late stage would be contrary to Gran’s right to due
process. Hence, the instant petition.

Issue:

Whether the action of Eliza had already prescribe.

Ruling:

It is evident that Eliza ultimately seeks for the reconveyance to her of the subject
properties through the nullification of their supposed sale to Gran. An action for reconveyance is
one that seeks to transfer property, wrongfully registered by another, to its rightful and legal
owner. Having alleged the commission of fraud by Gran in the transfer and registration of the
subject properties in her name, there was, in effect, an implied trust created by operation of law
pursuant to Article 1456 of the Civil Code which provides:
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Art. 1456. If property is acquired through mistake or fraud, the person obtaining it
is, by force of law, considered a trustee of an implied trust for the benefit of the
person from whom the property comes.

To determine when the prescriptive period commenced in an action for reconveyance, the
plaintiff’s possession of the disputed property is material. If there is an actual need to reconvey
the property as when the plaintiff is not in possession, the action for reconveyance based on
implied trust prescribes in ten (10) years, the reference point being the date of registration of the
deed or the issuance of the title. On the other hand, if the real owner of the property remains in
possession of the property, the prescriptive period to recover title and possession of the property
does not run against him and in such case, the action for reconveyance would be in the nature of
a suit for quieting of title which is imprescriptible.

In the case at bar, a reading of the allegations of the Amended Complaint failed to show
that Eliza remained in possession of the subject properties in dispute. On the contrary, it can be
reasonably deduced that it was Gran who was in possession of the subject properties, there being
an admission by the Eliza that the property covered by TCT No. 224174 was being used by Gran’s
mother-in-law. In fact, Eliza’s relief in the Amended Complaint for the "surrender" of three (3)
properties to her bolsters such stance. And since the new titles to the subject properties in the
name of Gran were issued by the Registry of Deeds of Marikina on the following dates: TCT No.
224174 on July 27, 1992, TCT No. N-5500 on January 29, 1976, and TCT No. N-4234 on November
26, 1975, the filing of the Eliza’s complaint before the RTC on January 9, 2006 was obviously
beyond the ten-year prescriptive period, warranting the Amended Complaint’s dismissal all the
same.

ONOFRE ANDRES, SUBSTITUTED BY HIS HEIRS, NAMELY: FERDINAND, ROSALINA,


ERIBERTO, FROILAN, MA. CLEO FE, NELSON, GERMAN, GLORIA, ALEXANDER, MAY,
ABRAHAM, AND AFRICA, ALL SURNAMED ANDRES vs. PHILIPPINE NATIONAL BANK
G.R. No. 173548, October 15, 2014, J. Leonen

A bank that accepts a mortgage based upon a title which appears valid on its face and after
exercising the requisite care, prudence, and diligence appropriate to the public interest character of
its business can be deemed a mortgagee in good faith. The subsequent consolidation of title in its
name after a valid foreclosure shall be respected notwithstanding later proof showing that the title
was based upon a void transaction. In this case, PNB is considered as a mortgagee in good faith
because it complied with the standard operating practice expected from banks.

Facts:

This case involves a 4,634-square-meter parcel of land in Nueva Ecija mortgaged to


respondent Philippine National Bank (PNB). PNB later foreclosed the property and consolidated
title in its name. Petitioner Onofre Andres, the uncle of mortgagors Reynaldo Andres and his
wife, Janette de Leon, filed a complaint for cancellation of title and reconveyance of the property
alleging that title in mortgagor's name was based on a falsified document denominated as “Self-
Adjudication of Sole Heir.”

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The trial court ruled in favor of Onofre Andres by voiding all derivative titles. The Court
of Appeals modified this decision by declaring as valid and existing TCT No. N-24660 in PNB’s
name. Onofre Andres filed the instant petition assailing the Court of Appeals’ decision and
resolution.

The Spouses Victor and Filomena Andres acquired during their marriage a 4,634-square-
meter parcel of land in Sto. Domingo, Nueva Ecija, covered by a TCT.

They had nine children. Among them were Onofre Andres and Roman Andres who is the
father of Reynaldo Andres. Victor passed away on June 15, 1955, while his wife, Filomena, died on
April 23, 1973.

After Victor’s death, or on July 1, 1965, his widow, Filomena, and six of their children —
Onofre, Roman, Juana, Guillermo, Felisa, and Maxima — agreed in an extrajudicial partition with
sale to adjudicate one half of the land covered by a TCT to each of them pro indiviso. This
document also provides that for P1,000.00, they all sold, transferred, and conveyed to Roman
Andres their respective rights and participation to the one-half portion of the property. This was
annotated on the title.

Consequently, the said TCT was cancelled, and a new title was issued on August 20, 1965
in the name of Roman Andres and his wife, Lydia Echaus-Andres, under a new TCT.

PNB alleged that on October 22, 1968, the Spouses Roman and Lydia Andres mortgaged
the property to PNB for P3,000.00. According to PNB, no objection was made, even after the
mortgage had been cancelled on July 20, 1972.

PNB also alleged that on October 14, 1992, the Nueva Ecija Regional Trial Court cancelled
the guardianship issued in favor of the Security Bank and Trust Company and transferred
ownership of the properties of the deceased, Spouses Roman and Lydia Andres, to their only
living heir, Reynaldo Andres.

The TCT of the said property was consequently cancelled, and title was transferred to the
Spouses Reynaldo Andres and Janette de Leon, under a new TCT.

On September 4, 1995, the Spouses Reynaldo Andres and Janette de Leon used this title
and mortgaged the property to PNB for a P1.2 million loan. This was without the consent of
Onofre Andres.

Onofre Andres, claiming ownership over the property, filed on November 13, 1996 a
complaint for cancellation of title, reconveyance of property and damages, with prayer for the
issuance of a preliminary injunction against his nephew Reynaldo Andres and Reynaldo’s wife,
Janette de Leon, PNB, Lydia Echaus-Andres, and the Register of Deeds of Nueva Ecija.

The complaint alleged that on November 8, 1994, Onofre Andres’ nephew Reynaldo
Andres was in collusion with his mother, Lydia Echaus-Andres, in executing a falsified document
denominated as “Self- Adjudication of Sole Heir.” This stated that Reynaldo Andres was the sole
heir of his father, Roman Andres, who died on October 12, 1968, and his mother who died on

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CIVIL LAW DIGESTS 2014- June 2016

December 15, 1969. However, his mother was then still alive and his father, Roman Andres, died
only on May 29, 1990.

PNB denied the material allegations in the complaint. It argued that it conducted an
investigation on the property. The title presented to PNB by Reynaldo Andres and his wife was
clear and free from adverse claims.

For their part, the Spouses Reynaldo Andres and Janette de Leon claimed that from the
time title was issued in the name of Reynaldo Andres’ parents, until title transferred to them on
December 27, 1994, his father, Roman Andres, had exercised acts of ownership over the property
until they succeeded in its possession. Onofre Andres’ possession was merely “tolerated
becauseof their close relationship.” The Spouses Reynaldo Andres and Janette de Leon also raised
prescription and estoppel.

In his reply, Onofre Andres countered that the extrajudicial partition with sale executed
on July 1, 1965 was fictitious, thus, void.

Even assuming that the document was valid, only a one-half undivided portion of the land
was sold since the other half was the conjugal share of Filomena Andres who was then still living.
The residential building did not exist yet at the time of the questioned partition so this could not
have been sold to Roman Andres. Onofre Andres also denied that his continuous possession of
the property was by mere tolerance.

Onofre Andres died on March 20, 2001 when the case was in the presentation of evidence
stage. He was substituted by his surviving heirs.

The Regional Trial Court rendered its decision in favor of Onofre Andres.

The Court of Appeals rendered its decision on December 13, 2005, modifying the trial
court’s decision in that TCT No. N-24660 in the name of PNB was declared valid and existing.
The rest of the decision stands. It also denied reconsideration on July 5, 2006, prompting Onofre
Andres to file the instant petition.

Issue:

Whether PNB is an innocent mortgagee for value and in good faith, thus, its right on the
property is protected even if the mortgagor obtained title through fraud.

Ruling:

Yes. PNB is an innocent mortgagee for value and in good faith.

The doctrine protecting mortgagees and innocent purchasers in good faith emanates from
the social interest embedded in the legal concept granting indefeasibility of titles. The burden of
discovery of invalid transactions relating to the property covered by a title appearing regular on
its face is shifted from the third party relying on the title to the co-owners or the predecessors of
the title holder. Between the third party and the co-owners, it will be the latter that will be more
intimately knowledgeable about the status of the property and its history. The costs of discovery
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of the basis of invalidity, thus, are better borne by them because it would naturally be lower. A
reverse presumption will only increase costs for the economy, delay transactions, and, thus,
achieve a less optimal welfare level for the entire society.

The general rule allows every person dealing with registered land to rely on the face of the
title when determining its absolute owner. Thus, cases like Cabuhat vs. Court of Appeals have
held that “a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor
of the property given as security and in the absence of any sign that might arouse suspicion, has
no obligation to undertake further investigation.” The protection of innocent mortgagees for
value finds support in the Land Registration Act.

However, the banking industry belongs to a different category than private individuals.
Banks are considered businesses impressed with public interest, requiring “high standards of
integrity and performance.” Consequently, banks must exercise greater care, prudence, and due
diligence in their property dealings. The standard operating practice for banks when acting on a
loan application is “to conduct an ocular inspection of the property offered for mortgage and to
verify the genuineness of the title to determine the real owners thereof.”

Unlike in Cruz v. Bancom Finance Corporation cited by petitioners, PNB complied with
this standard operating practice.

The petition even attached certified true copies of the transcript of bank appraiser
Gerardo Pestaño’s testimony, offered “to prove that defendant spouses Reynaldo and Jannette
Andres mortgaged the property subject matter of the litigation to secure their loan to PNB
approved in 1995 and at that time the defendant Andres spouses were the owners of the
mortgaged property; that there was no claim filed by the plaintiff Onofre Andres.

AMADA COTONER-ZACARIA vs. SPOUSES ALFREDO REVILLA AND THE HEIRS OF PAZ
REVILLA
G.R. No. 190901, November 12, 2014, J. Leonen

Amada argues that the subsequent buyer of the disputed parcel of land is in good faith. The
court has held that “the rule in land registration law that the issue of whether the buyer of realty is
in good or bad faith is relevant only where the subject of the sale is registered land and the purchase
was made from the registered owner whose title to the land is clean.

Facts:

The respondents spouses Revilla are the owners of the disputed unregistered parcel of
land in the case at bar. Having difficulty in raising money for the travelling expenses of Alfredo
Revilla to Saudi Arabia, the spouses borrowed money from the petitioner Amada Cotoner-Zacaria.
As a security, the spouses verbally agreed that the parcel of land they own would be physically
possessed and cultivated by Amada, the earnings of which is to be applied to the payment of the
loan and realty taxes.

Unknown to the spouses, Amada forged the signature of the spouses in a document
designated as “Kasulatan ng Bilihan ng Lupa”. By virtue of this document, Amada was able to
transfer the ownership of the parcel of land to Casorla. Casorla then sold the land to spouses Sun.
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Upon learning of this, the respondent spouses Revilla filed a complaint for reconveyance
and annulment of the Kasulatan with the Regional Trial Court alleging that there signature in the
said document were forged. The RTC ruled in favor of the spouses Revilla. On appeal, the Court of
Appeals affirmed the decision of the RTC. Hence, the current petition.

Issue:

Whether or not the reconveyance and reinstatement of the tax declaration in favor of the
spouses Revilla over the disputed parcel of land is proper.

Ruling:

The reconveyance of the ownership of the parcel of land to spouses Revilla is proper. The
Supreme Court affirmed the decision of the Court of Appeals.

The reinstatement of the property in favor of respondents Revilla spouses was anchored
on the lower courts’ finding that their signatures as sellers in the “Kasulatan ng Bilihan ng Lupa”
were forged. This court has held that the “question of forgery is one of fact.” Well-settled is the
rule that “[f]actual findings of the lower courts are entitled great weight and respect on appeal,
and in fact accorded finality when supported by substantial evidence on the record.”

Amada contends that the Sun spouses were buyers in good faith for value, thus, the court
erred in ordering reinstatement of the property in favor of respondents Revilla spouses.

The court has held that “the rule in land registration law that the issue of whether the
buyer of realty is in good or bad faith is relevant only where the subject of the sale is registered
land and the purchase was made from the registered owner whose title to the land is clean[.]

Necessarily, those who rely in good faith on a clean title issued under the Torrens system
for registered lands must be protected. On the other hand, those who purchase unregistered
lands do so at their own peril.

This good faith argument cannot be considered as this case involves unregistered land. In
any case, as explained by respondents Revilla spouses in their memorandum, this is a defense
personal to the Sun spouses and cannot be borrowed by Amada. The Sun spouses no longer raised
this argument on appeal, but only made a partial appeal regarding legal interest on the award.

HEIRS OF GREGORIO LOPEZ, REPRESENTED BY ROGELIA LOPEZ, ET AL., vs.


DEVELOPMENT BANK OF THE PHILIPPINES [NOW SUBSTITUTED BY PHILIPPINE
INVESTMENT TWO (SPV-AMC), INC.]
G.R. No. 193551, November 19, 2014, J. Leonen

Marietta could acquire valid title over the whole property if she were an innocent purchaser
for value. An innocent purchaser for value purchases a property without any notice of defect or
irregularity as to the right or interest of the seller. He or she is without notice that another person
holds claim to the property being purchased. Marietta cannot claim the protection to innocent
purchasers for value because the circumstances do not make this available to her. In this case, there
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was no certificate of title to rely on when she purchased the property from Enrique. At the time of
the sale, the property was still unregistered. What was available was only a tax declaration issued
under the name of “Heirs of Lopez.”

Facts:

Gregoria Lopez owned a property in Bustos, Bulacan. She died on March 19, 1922 and was
survived by her three sons: Teodoro, Francisco, and Carlos Lopez. Tax Declaration No. 613 was
issued under the names of Teodoro, Francisco, and Carlos. Teodoro, Francisco, and Carlos died.
Only Teodoro was survived by children: Gregorio, Enrique, Simplicio, and Severino. Petitioners in
this case are Simplicio substituted by his daughter Eliza Lopez, and the heirs of Gregorio and
Severino. Enrique is deceased.

Petitioners discovered that on November 29, 1990, Enrique executed an affidavit of self-
adjudication declaring himself to be Gregoria Lopez’s only surviving heir, adjudicating upon
himself the land in Bulacan and sold it to Marietta Yabut.

Petitioners demanded from Marietta the nullification of Enrique’s affidavit of self-


adjudication and the deed of absolute sale. They also sought to redeem Enrique’s one-fourth
share. However, Marietta refused.

In 1993, Marietta obtained a loan from Development Bank of the Philippines (DBP) and
mortgaged the property to DBP as security. The property was covered by Tax Declaration No.
18727. Subsequently, an original certificate of title(OCT) was issued in Marietta’s name. Marietta
and DBP “executed a supplemental document placing the subject property within the coverage of
the mortgage.” The mortgage was annotated to the title.

Petitioners filed a complaint with the RTC for the annulment of document, recovery of
possession, and reconveyance of the property. Petitioners caused the annotation of a notice of lis
pendens at the back of the OCT.

Marietta failed to pay her loan to DBP. DBP instituted foreclosure proceedings and was
awarded the sale of the property as the highest bidder. The Certificate of Sale was registered with
the Register of Deeds. Later on, the title to the property was consolidated in favor of DBP.

The RTC ruled in favor of petitioners; that the affidavit of self-adjudication and the deed
of absolute sale did not validly transfer to Marietta the title to the property. The RTC also found
that DBP was not a mortgagee in good faith because at the time of the execution of the mortgage
contract, a certificate of title was yet to be issued in favor of Marietta.

The RTC ordered the nullification of Enrique’s affidavit of self-adjudication, the sale of the
three-fourth portion of the subject property in favor of Marietta, the reconveyance of the three-
fourth share of the property in favor of petitioners, the nullification of the real estate mortgage
executed in favor of DBP, and the surrender of possession of the property to petitioners.

DBP, substituted by Philippine Investment Two (PI Two), appealed to the Court of
Appeals.
The CA reversed the decision of the RTC. It held that DBP was a mortgagee in good faith.
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Issues:

3) Whether or not Enrique's affidavit of self-adjudication is valid, thus allowing the sale to
Marietta.

4) Whether or not the mortgage executed by Marietta in favor of DBP is valid.

Ruling:

The Court finds merit in the petition.

1. Validity of Enrique’s affidavit and the sale to Marietta

The Court has upheld the principle that “no one can give what one does not have.” A seller
can only sell what he or she owns, or that which he or she does not own but has authority to
transfer, and a buyer can only acquire what the seller can legally transfer.

This principle is incorporated in our Civil Code. It provides that in a contract of sale, the
seller binds himself to transfer the ownership of the thing sold, thus:

Art. 1458. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

The seller cannot perform this obligation if he or she does not have a right to convey
ownership of the thing. Hence, Article 1459 of the Civil Code provides:

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership
thereof at the time it is delivered.

Title or rights to a deceased person’s property are immediately passed to his or her heirs
upon death. The heirs’ rights become vested without need for them to be declared “heirs.” Before
the property is partitioned, the heirs are co-owners of the property.

In this case, the rights to Gregoria Lopez’s property were automatically passed to her sons
— Teodoro, Francisco, and Carlos when she died. Since only Teodoro was survived by children,
the rights to the property passed to them when Gregoria Lopez’s sons died. The children entitled
to the property were Gregorio, Simplicio, Severino, and Enrique.

Gregorio, Simplicio, Severino, and Enrique became co-owners of the property, with each
of them entitled to an undivided portion of only a quarter of the property. Upon their deaths,
their children became the co-owners of the property, who were entitled to their respective shares,
such that the heirs of Gregorio became entitled to Gregorio’s one-fourth share, and Simplicio’s
and Severino’s respective heirs became entitled to their corresponding one-fourth shares in the
property.

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The heirs cannot alienate the shares that do not belong to them. Article 493 of the Civil
Code provides:

Art. 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.

Since Enrique’s right to the property was limited to his one-fourth share, he had no right
to sell the undivided portions that belonged to his siblings. Any sale by one heir of the rest of the
property will not affect the rights of the other heirs who did not consent to the sale. Such sale is
void with respect to the shares of the other heirs.

Regardless of their agreement, Enrique could only convey to Marietta his undivided one-
fourth share of the property, and Marietta could only acquire that share. This is because Marietta
obtained her rights from Enrique who, in the first place, had no title or interest over the rest of
the property that he could convey.

This is despite Enrique’s execution of the affidavit of self-adjudication wherein he declared


himself to be the only surviving heir of Gregoria Lopez. The affidavit of self-adjudication is invalid
for the simple reason that it was false. At the time of its execution, Enrique’s siblings were still
alive and entitled to the three-fourth undivided share of the property. The affidavit of self-
adjudication did not have the effect of vesting upon Enrique ownership or rights to the property.

The issuance of the original certificate of title in favor of Marietta does not cure Enrique’s
lack of title or authority to convey his co-owners’ portions of the property. Issuance of a certificate
of title is not a grant of title over petitioners’ undivided portions of the property. The physical
certificate of title does not vest in a person ownership or right over a property. It is merely an
evidence of such ownership or right.

Marietta could acquire valid title over the whole property if she were an innocent
purchaser for value. An innocent purchaser for value purchases a property without any notice of
defect or irregularity as to the right or interest of the seller. He or she is without notice that
another person holds claim to the property being purchased.

As a rule, an ordinary buyer may rely on the certificate of title issued in the name of the
seller. He or she need not look “beyond what appears on the face of the certificate of title.”
However, the ordinary buyer will not be considered an innocent purchaser for value if there is
anything on the certificate of title that arouses suspicion, and the buyer failed to inquire or take
steps to ensure that there is no cloud on the title, right, or ownership of the property being sold.

Marietta cannot claim the protection accorded by law to innocent purchasers for value
because the circumstances do not make this available to her. In this case, there was no certificate
of title to rely on when she purchased the property from Enrique. At the time of the sale, the
property was still unregistered. What was available was only a tax declaration issued under the
name of “Heirs of Lopez.”

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The defense of having purchased the property in good faith may be availed of only where
registered land is involved and the buyer had relied in good faith on the clear title of the
registered owner. It does not apply when the land is not yet registered with the Registry of Deeds.

The unregistered status of the property should have prompted Marietta to inquire further
as to Enrique’s right over the property. She did not. Hence, she was not an innocent purchaser for
value. She acquired no title over petitioners’ portions of the property.

2. Validity of the mortgage

One of the requisites of a valid mortgage contract is ownership of the property being
mortgaged. Article 2085 of the Civil Code enumerates the requisites of a mortgage contract:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property,
and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.

Applying this provision and having established that Marietta acquired no valid title or
ownership from Enrique over the undivided portions of the property, this court finds that no valid
mortgage was executed over the same property in favor of DBP. Without a valid mortgage, there
was also no valid foreclosure sale and no transfer of ownership of petitioners’ undivided portions
to DBP.

DBP acquired no right over the undivided portions since its predecessor-in-interest was
not the owner and held no authority to convey the property.

As in sales, an exception to this rule is if the mortgagee is a “mortgagee in good faith.”


This exception was explained in Torbela v. Rosario:

Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the
mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public
policy. This principle is based on the rule that all persons dealing with property covered by a
Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears
on the face of the title. This is the same rule that underlies the principle of "innocent purchasers
for value." The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the
certificate of title of the mortgagor to the property given as security and in the absence of any sign
that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if
the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged
property, the mortgagee in good faith is, nonetheless, entitled to protection.

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DBP claims that it is covered by this exception. DBP is mistaken. The exception applies
when, at the time of the mortgage, the mortgagor has already obtained a certificate of title under
his or her name. It does not apply when the mortgagor had yet to register the property under her
name.

The facts show that DBP disregarded circumstances that should have aroused suspicion.
At the time of the mortgage with DBP, Marietta only had a tax declaration under her name to
show that she was the owner of the property. A tax declaration neither proves ownership of
property nor grants title. Yet, DBP agreed to accept the property as security even though
Marietta’s claim was supported only by the tax declaration, and a certificate of title was yet to be
issued under her name.

DBP should have inquired further as to Marietta’s rights over the property since no
certificate of title was issued to her. DBP took the risks attendant to the absence of a certificate of
title. It should bear the burden of checking the ownership as well as the validity of the deed of
sale. This is despite the eventual issuance of a certificate of title in favor of Marietta.

The rule on “innocent purchasers or mortgagees for value” is applied more strictly when
the purchaser or the mortgagee is a bank. Banks are expected to exercise higher degree of
diligence in their dealings. Banks may not rely simply on the face of the certificate of title.

DBP failed to exercise the degree of diligence required of banks when it accepted the
unregistered property as security for Marietta’s loan despite circumstances that should have
aroused its suspicion.

To reiterate, the protection accorded to mortgagees in good faith cannot be extended to


mortgagees of properties that are not yet registered or registered but not under the mortgagor’s
name.

The RTC did not err in ordering the nullification of the documents of sale and mortgage.
Contracts involving the sale or mortgage of unregistered property by a person who was not the
owner or by an unauthorized person are void.

FLORENTINO W. LEONG AND ELENA LEONG, ET AL. vs. EDNA C. SEE


G.R. No. 194077, December 03, 2014, J. Leonen

Spouses owned the subject property wherein petitioner Elena was allowed to stay. Upon the
spouses’ divorce, the property went to the wife. She sold it to the respondent See. The Court held that
See was a buyer in good faith. She went to the Register of Deeds to verify the title and relied on the
marriage settlement agreement. The Court found that she exerted due diligence. An innocent
purchaser for value refers to someone who buys the property of another without notice that some
other person has a right to or interest in it, and who pays a full and fair price at the time of the
purchase or before receiving any notice of another person’s claim.

Facts:

The spouses Florentino Leong and Carmelita Leong used to own the property located at
De Guzman Street, Quiapo, Manila. Elena Leong is Florentino's sister-in-law. She had stayed with
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her in-laws on the property rental-free for over two decades until the building they lived in was
razed by fire. They then constructed makeshift houses, and the rental-free arrangement
continued.

Florentino and Carmelita immigrated to the United States and eventually had their
marriage dissolved in Illinois. A provision in their marital settlement agreement states that
“Florentino shall convey and quitclaim all of his right, title and interest in and to 540 De Guzman
Street, Manila, Philippines . . . to Carmelita.”

Intercalated in the lower margin of page 12 of the instrument was a long-hand scribbling
of a proviso, purporting to be a footnote remark: “Neither party shall evict or charge rent to
relatives of the parties, or convey title, until it has been established that Florentino has clear title
to the Malabon property. Clear title to be established by the attorneys for the parties or the ruling
of a court of competent jurisdiction. In the event Florentino does not obtain clear title, this court
reserves jurisdiction to reapportion the properties or their values to effect a 50-50 division of the
value of the 2 remaining Philippine properties.”

Carmelita sold the land to Edna. In lieu of Florentino's signature of conformity in the deed
of absolute sale, Carmelita presented to Edna and her father a waiver of interest notarized in
Illinois. In this waiver, Florentino reiterated his quitclaim over his right, title, and interest to the
land. Consequently, the land’s title was transferred to Edna's name. Edna was aware of the Leong
relatives staying in the makeshift houses on the land. Carmelita assured her that her nieces and
nephews would move out, but demands to vacate were unheeded.

Edna filed a complaint for recovery of possession against Elena and the other relatives of
the Leong ex-spouses. Florentino filed a complaint for declaration of nullity of contract, title, and
damages against Carmelita, Edna, and the Manila Register of Deeds, alleging that the sale was
without his consent. The two cases were consolidated.

The trial court granted Edna possession and ownership over the subject property. The
appellate court affirmed the ruling.

Issue:

Whether or not Edna is a buyer in good faith and for value

Ruling:

Yes, the Court held that Edna was a buyer in good faith and for value.

The Torrens system was adopted to obviate possible conflicts of title by giving the public
the right to rely upon the face of the Torrens certificate and to dispense, as a rule, with the
necessity of inquiring further. One need not inquire beyond the four corners of the certificate of
title when dealing with registered property.

An innocent purchaser for value refers to someone who buys the property of another
without notice that some other person has a right to or interest in it, and who pays a full and fair

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price at the time of the purchase or before receiving any notice of another person’s claim. One
claiming to be an innocent purchaser for value has the burden of proving such status.

The Court cited the ruling of the trial court: “By her overt acts, Edna See with her father
verified the authenticity of Carmelita’s land title at the Registry of Deeds of Manila. There was no
annotation on the same, and thus, it is deemed a clean title. Also, she relied on the duly executed
and notarized Certificate of Authority issued by the State of Illinois and Certificate of
Authentication issued by the Consul of the Republic of the Philippines for Illinois in support to
the Waiver of Interest incorporated in the Deed of Absolute Sale presented to her by Carmelita.

Examination of the assailed Certificate of Authority shows that it is valid and regular on its
face. The assailed Certificate of Authority is a notarized document and therefore, presumed to be
valid and duly executed. Thus, Edna See’s reliance on the notarial acknowledgment found in the
duly notarized Certificate of Authority presented by Carmelita is sufficient evidence of good
faith.”

The Court found that Edna exerted due diligence when she ascertained the authenticity of
the documents attached to the deed of sale. These further inquiries were considered by the lower
courts in finding See to be an innocent purchaser in good faith and for value.

Edna, an innocent purchaser in good faith and for value with title in her name, has a
better right to the property than Elena. Elena’s possession was neither adverse to nor in the
concept of owner.

REPUBLIC OF THE PHILIPPINES vs. HEIRS OF SPOUSES DONATO SANCHEZ and


JUANA MENESES represented by RODOLFO S. AGUINALDO
G.R. No. 212388, December 10, 2014, J. Velasco, Jr.

Before a certificate of title which has been lost or destroyed may be reconstituted, it must
first be proved by the claimants that said certificate of title was still in force at the time it was lost or
destroyed, among others.

Facts:

The spouses Sanchez filed an amended petition for reconstitution of Original Certificate
of Title No. 45361 that covered Lot No. 854 of the Cadastral Survey of Dagupan, pursuant to
Republic Act No. 26. In said petition, respondents alleged that OCT No. 45361 was issued in the
name of their predecessor-in-interest, the spouses Sanchez; that said lot was declared for taxation
purposes in the name of the spouses Sanchez and that when the latter died intestate, they
executed a Deed of Extrajudicial Partition. Said Deed, however, could not be registered because
the owner’s copy of OCT No. 45361 was missing; and that Pangasinan issued a certification that
the copies of Decree No. 41812 and OCT No. 45361 could not be found among its records. Upon
order of the LRA, the spouses submitted documents with corresponding evidence as to their due
execution.

On January 11, 2008, the LRA submitted its Report pertaining to the legality of the
reconstitution sought in favor of Sanchez’s. On June 30, 2008, however, the Regional Trial Court
rendered its Decision dismissing the petition for lack of sufficient evidence, ruling that RA No. 26
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only applies in cases where the issuance of the OCT sought to be reconstituted has been
established, only that it was lost or destroyed.

Issue:

Whether the documents presented by spouses Sanchez is sufficient to warrant the


reconstitution of the alleged lost title.

Ruling:

No, they were not.

The Court agrees with the trial court that no clear and convincing proof has been adduced
that OCT No. 45361 was issued by virtue of Decree No. 418121. A petition for reconstitution of lost
or destroyed OCT requires, as a condition precedent, that an OCT has indeed been issued, for
obvious reasons. As explicitly stated in the law, before a certificate of title which has been lost or
destroyed may be reconstituted, it must first be proved by the claimants that said certificate of
title was still in force at the time it was lost or destroyed, among others. Here, the mere existence
of TCT No. 10202, later cancelled by TCT No. 44365, which, in turn, was superseded by TCT No.
80792, clearly shows that the OCT which respondents seek to be reconstituted is no longer in
force, rendering the procedure, if granted, a mere superfluity. Additionally, if indeed OCT No.
45361 was lost or destroyed, it is necessary that the RD issue a certification that such was in force
at the time of its alleged loss or destruction. Definitely, the RD cannot issue such certification
because of the dearth of records in support of the alleged OCT No. 45361 in its file. The
presentation of alleged derivative titles––TCT No. 10202, TCT No. 44365 and TCT No. 80792––will
not suffice to replace this certification because the titles do not authenticate the issuance of OCT
No. 45361 having been issued by the RD without any basis from its official records.

SPOUSES CARLOS J. SUNTAY and ROSARIO R. SUNTAY vs. KEYSER MERCANTILE INC.
G.R. No. 208462, December 10, 2014, J. Mendoza

Every person dealing with a registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to
determine the condition of the property.

Facts:

On October 20, 1989, Eugenia Gocolay, chairperson and president of respondent Keyser
Mercantile, Inc., entered into a contract to sell with Bayfront Development Corporation for the
purchase on installment basis of a condominium unit in Bayfront Tower Condominium. This
Contract to Sell was not registered with the Register of Deeds of Manila. Thus, the subject unit
remained in the name of Bayfront with a clean title.

On July 7, 1990, petitioner spouses Carlos and Rosario Suntay also purchased several
condominium units on the 4th floor of Bayfront Tower Condominium through another contract to
sell. Despite payment of the full purchase price, however, Bayfront failed to deliver the
condominium units. When Bayfront failed to reimburse the full purchase price, Spouses Suntay
filed an action against it.
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In its decision, dated April 23 1994, the HLURB rescinded the Contract to Sell between
Bayfront and Spouses Suntay and ordered Bayfront to pay Spouses Suntay the total amount of
P2,752,068.60 as purchase price with interest. Upon the application of Spouses Suntay, the
Sheriffs of the Regional Trial Court of Manila levied Bayfront’s titled properties, including the
subject condominium of Keyser. Considering that CCT No. 15802 was still registered under
Bayfront with a clean title, the sheriffs deemed it proper to be levied. The levy on execution in
favor of Spouses Suntay was duly recorded in the Register of Deeds of Manila on January 18, 1995.
The auction sale was conducted on February 23, 1995, and Spouses Suntay were the highest
bidder. Consequently, on March 1, 1995, the Certificate of Sale in favor of Spouses Suntay was
issued. Meanwhile, the Deed of Absolute Sale between Bayfront and Keyser involving the subject
property was finally executed on November 9, 1995. The latter allegedly paid the full purchase
price sometime in 1991. When Keyser was about to register the said deed of absolute sale in
February 1996, it discovered the Notice of Levy and the Certificate of Sale annotated at the back of
CCT No. 15802 in favor of Spouses Suntay.

In its decision, dated November 18, 1996, the HLURB ruled in favor of Keyser. In its
September 7, 2012 Decision, the CA denied the appeal as it found that Spouses Suntay did not
acquire the subject property because at the time it was levied, Bayfront had already sold the
condominium unit to Keyser.

Issue:

Whether the spouses Suntay properly relied on Bayfront’s Certificate of Title.

Ruling:

Yes it did.

The main purpose of the Torrens system is to avoid possible conflicts of title to real estate
and to facilitate transactions relative thereto by giving the public the right to rely upon the face of
a Torrens certificate of title and to dispense with the need of inquiring further, except when the
party concerned has actual knowledge of facts and circumstances that should impel a reasonably
cautious man to make such further inquiry. Every person dealing with a registered land may safely
rely on the correctness of the certificate of title issued therefor and the law will in no way oblige
him to go beyond the certificate to determine the condition of the property.

In the case at bench, the subject property was registered land under the Torrens System
covered by CCT No. 15802 with Bayfront as the registered owner. At the time that the Notice of
Levy was annotated on January 18, 1995, the title had no previous encumbrances and liens.
Evidently, it was a clean title. The Certificate of Sale, pursuant to an auction sale, was also
annotated on April 7, 1995, with Bayfront still as the registered owner. It was only on March 12,
1996, almost a year later, that Keyser was able to register its Deed of Absolute Sale with Bayfront.
Prior to such date, Spouses Suntay appropriately relied on the Torrens title of Bayfront to enforce
the latter’s judgment debt.

The settled rule is that levy on attachment, if duly registered, takes preference over a prior
unregistered sale. The preference created by the levy on attachment is not diminished even by the
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subsequent registration of the prior sale.

IMELDA SYJUCO, et.al vs. FELISA D. BONIFACIO and VSD REALTY & CORPORATION
G.R. No. 148748, January 14, 2015, J. Leonardo-De Castro

The filing of an action to quiet title is imprescriptible if the disputed real property is in the
possession of the plaintiff. The rule on the incontrovertibility or indefeasibility of title has no
application in this case given the fact that the contending parties claim ownership over the subject
land based on their respective certificates of title thereon which originated from different sources.
The Syjucos' title, shows that it originated from OCT No. 994 registered on May 3, 1917 while
Bonficacio's title shows that that it likewise originated from OCT No. 994, but registered on April 19,
1917. This case affirmed the earlier finding that “there is only one OCT No. 994, the registration date
of which had already been decisively settled as 3 May 1917 and not 19 April 1917” and categorically
concluded that “OCT No. 994 which reflects the date of 19 April 1917 as its registration date is null
and void.”

Facts:

Imelda, Leonardo, Fidelino, Azucena, Anita, and Sisa, all surnamed Syjuco are the
registered co-owners of the subject land, located in Caloocan City. They inherited the property
from their father Martin Syjuco. They then leased the property to Manufacturers Bank. They also
subleased the property to Kalayaan Development Corporation (KDC).

Sometime in 1994, they learned that their property was being offered for sale. They found
out that respondent Bonifacio, sub-lessee of KDC, was able to register the said property in her
name in another title. Bonifacio’s title was issued pursuant to her petition for segregation which
was granted by RTC of Caloocan City, Branch 125.

Thereafter, they filed a declaration of nullity and cancellation of Bonifacio’s title. It was
also only in 1995 when the Syjucos learned that Bonifacio was able to sell and transfer her title
over the subject land in favor of VSD Realty. According to the Syjucos, the other certificates of
title over the subject land could have only been obtained fraudulently. On January 9, 1998, RTC
rendered a decision the Syjucos declaring VSD as the owner.

The Syjucos' title, shows that it originated from OCT No. 994 registered on May 3, 1917.
The title of Bonifacio shows that it likewise originated from OCT No. 994, but registered on April
19, 1917. Curiously, the title of respondent VSD Realty is supposed to be a direct transfer from the
title of respondent Bonifacio, yet, the certification as to the original registration of its mother title
– OCT No. 994 – provides the registration date of May 3, 1917.

The Syjucos filed an appeal before the Court of Appeals arguing that Bonifacio’s title,
which originated from OCT No. 994 registered in 1912, is null and void as the only authentic OCT
No. 994 is the one issued pursuant to Decree No. 36455 originally registered on May 3, 1917.

Issues:

1. Whether or not the action to quiet title over the subject land by the Syjucos is proper.

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2. Whether or not the title of Bonifacio is null and void.

Ruling:

1. Yes.

The instituted action in this case is clearly a direct attack on a certificate of title to real
property. The relief sought by petitioners is certainly feasible since the objective of an action to
quiet title, as provided under Article 476 of the Civil Code of the Philippines, is precisely to quiet,
remove, invalidate, annul, and/or nullify “a cloud on title to real property or any interest therein
by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid
or effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be
prejudicial to said title.”

It is an established doctrine in land ownership disputes that the filing of an action to quiet
title is imprescriptible if the disputed real property is in the possession of the plaintiff. One who is
in actual possession of a piece of land claiming to be owner thereof may wait until his possession
is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule
being that his undisturbed possession gives him a continuing right to seek the aid of a court of
equity to ascertain and determine the nature of the adverse claim of a third party and its effect on
his own title, which right can be claimed only by one who is in possession. In this case, petitioners
have duly established during the trial that they and/or their predecessors-in-interest have been in
uninterrupted possession of the subject land since 1926.

Moreover, the rule on the incontrovertibility or indefeasibility of title has no application in


this case given the fact that the contending parties claim ownership over the subject land based
on their respective certificates of title thereon which originated from different sources. Certainly,
there cannot be two or even several certificates of title on the same parcel of real property because
“a land registration court has no jurisdiction to order the registration of land already decreed in
the name of another in an earlier land registration case” and “a second decree for the same land
would be null and void, since the principle behind original registration is to register a parcel of
land only once.”

2. Yes.

The Court reiterates that the validity of OCT No. 994 registered on May 3, 1917, and the
non-existence of a purported OCT No. 994 registered on April 19, 1917, have already been
exhaustively passed upon and settled with finality in in the Resolution[s] dated December 14, 2007
and March 31, 2009 in Manotok Realty, Inc. v. CLT Realty Development Corporation.

The fact that respondents claim that their respective titles, TCT Nos. 265778 and 285313,
are derivatives of OCT No. 994 registered on April 19, 1917, which the Court had already
repeatedly declared to be a non-existent and invalid title, the Court rules in favor of the Syjucos.
As held in Manotok, "any title that traces its source to OC'f No. 994 dated [19) April 1917 is void,
for such mother title is inexistent."

UNGAY MALOBAGO MINES, INC. vs. REPUBLIC OF THE PHILIPPINES


G.R. No. 187892, January 14, 2015, J. Peralta
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The persons who can file the petition for reconstitution of a lost certificate are the registered
owner, his assigns or persons in interest in the property. In this case, Ungay Malobago Mines, Inc.
admitted that it was not the owner of the land on which the mining patent was issued as the same
was owned and registered in the name of Rapu Rapu Minerals Inc., thus it has no legal capacity to
institute a petition for reconstitution of a lost certificate.

Facts:

On April 16, 2004, Ungay Malobago Mines, Inc. (Ungay) filed with the Regional Trial
Court (RTC) of Legaspi City, a verified petition seeking the reconstitution of Original Certificate
of Title (OCT) No. 4784 of the Cadastral Survey of Albay, pursuant to the provisions of Republic
Act (RA)
264 and Presidential Decree (PD) No. 1529.

In its petition, Ungay alleged: that it is the registered owner of a mining patent which was
issued by then President Diosdado Macapagal on July 20, 1962 and entered in the Registry of
Deeds of the Province of Albay on September 4, 1962; that sometime in April 2004, it requested
for a certified true copy of OCT No. VH-4784 from the Register of Deeds of Albay, but despite a
diligent search, the said copy could not be located by the said office leading one to believe that
the same was permanently lost or destroyed; that the property was free from all liens and
encumbrances of any kind whatsoever and there existed no deeds or instruments affecting the
same which had been presented for or pending registration with the Register of Deeds of Albay.

During the initial hearing, Ungay, through counsel, showed compliance with the
jurisdictional requirements. Trial thereafter ensued. The Republic opposed the petition. On July
17, 2006, the RTC rendered its decision dismissing the petition.

Ungay filed its appeal with the CA. After the parties had filed their respective pleadings,
the case was then submitted for decision. On January 21, 2009, the CA issued its assailed decision
affirming in toto the decision of the RTC.

In so ruling, the CA found that since Ungay is not the registered owner of the land covered
by the OCT and citing the earlier ruling of the Supreme Court in Ungay Malobago Mines, Inc v.
Intermediate Appellate Court (IAC) where the Court declared that as a grantee of a mining patent,
Ungay did not become the owner of the land where the minerals are located, hence, it has no
personality to file for the reconstitution of lost or destroyed certificate of title. The CA ruled that
Ungay's mining patent did not qualify as an interest in property as contemplated by RA No. 26 so
as to give Ungay the authority under the law to initiate a petition for the reconstitution of said
OCT. The CA affirmed the RTC's findings that the owner's duplicate of OCT presented by Ungay
was insufficient to serve as a basis for the reconstitution of the original of said OCT because of the
absence of the signature of the Register of Deeds.

Ungay filed a motion for reconsideration, which the CA denied.

Issue:

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Whether or not Ungay has the legal capacity to institute a petition seeking the
reconstitution of Original Certificate of Title (OCT) No. 4784 of the Cadastral Survey of Albay,
pursuant to the provisions of RA 264 and PD No. 1529.

Ruling:

No. It has no legal capacity.

The persons who can file the petition for reconstitution of a lost certificate are the
registered owner, his assigns or persons in interest in the property. In this case, petitioner
admitted that it was not the owner of the land on which the mining patent was issued as the same
was owned and registered in the name of Rapu Rapu Minerals Inc.

A petition for judicial reconstitution of a registered interest, lien or encumbrance, may be


filed only when the certificate of title affected has not been totally destroyed, that is, when said
certificate of title is composed of more than one sheet and only the portion of the additional
sheet, on which such interest, lien or encumbrance was noted is missing. The reconstitution in
this case does not only refer to a registered interest which was noted on an additional sheet of a
certificate of title but the reconstitution of a lost certificate. Therefore, Ungay's reliance on
Section 11 to support its claim that it can file for the reconstitution of OCT is misplaced.

Petitioner argues that what it actually sought is the reconstitution of evidence of the grant
by the State in favor of petitioner of the right to explore and extract mineral deposits within the
area described in the original certificate of title. Petitioner's filing of the reconstitution for that
purpose is not within the purview of RA No. 26 which deals with lost or destroyed certificates
attesting title to a piece of land.

MARIFLOR T. HORTIZUELA, represented by JOVIER TAGAUFA vs. GREGORIA TAGUFA,


ROBERTO TAGUFA and ROGELIO LUMABAN
G.R. No. 205867, February 23, 2015, J. Mendoza

Petitioner assails the decision of the CA that the action for reconveyance filed by her was not
the proper remedy on the ground that it constitutes a collateral attack on the validity of the subject
certificate of title. The SC however ruled that it is not unmindful of the principle of indefeasibility of
a Torrens title and that a certificate of title shall not be subject to collateral attack. Contrary to the
pronouncements of the MCTC and the CA, however, the complaint of petitioner was not a collateral
attack on the title warranting dismissal. As a matter of fact, an action for reconveyance is a
recognized remedy, an action in personam, available to a person whose property has been
wrongfully registered under the Torrens system in another’s name. In an action for reconveyance,
the decree is not sought to be set aside. It does not seek to set aside the decree but, respecting it as
incontrovertible and no longer open to review, seeks to transfer or reconvey the land from the
registered owner to the rightful owner.

Facts:

The property involved in this case is a parcel of land titled under the name of defendant
Gregoria. Before it was titled in the name of Gregoria, said property was originally owned by
plaintiff Hortizuela’s parents. Although untitled, Hortizuela’s parents mortgaged the property
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with DBP. For failure to redeem the property, DBP foreclosed the same and sold it to Atty.
Romulo Marquez who in turn sold it back to Runsted Tagufa, husband of Gregoria and brother of
Hortizuela, using the fund sent by Hortizuela who was in America, with the agreement that
Runsted will reconvey the said property to Hortizuela when demanded.

Thereafter, Hortizuela discovered that the said unregistered property was later on titled in
the name of Gregoria by virtue of a free patent application before the DENR. Consequently,
Hortizuela filed a complaint for Reconveyance and Recovery of Possession against herein
defendants with the MCTC.

The MCTC dismissed the complaint on the ground that an action for reconveyance was
not the proper remedy. On appeal, the RTC reversed the decision of the MCTC. The reversal
being unacceptable to them, respondents filed a petition for review before the CA. Ruling in favor
of respondents the CA held that although Hortizuela filed with the MCTC a complaint for
reconveyance and recovery of possession of the subject lot, she was also questioning the validity
of the Torrens title. It cited the well-settled rule that a Torrens title could not be collaterally
attacked; that the issue of whether or not the title was fraudulently issued, could only be raised in
an action expressly instituted for that purpose; and that an action for reconveyance and recovery
of possession was not the direct action contemplated by law. Hence, this petition.

Hortizuela claims that Gregoria was aware that the subject land was actually sold by Atty.
Marquez to her. Runsted, only acted as attorney-in-fact in the sale transaction. Thus, the action
for reconveyance was not a collateral attack on the said title because Hortizuela was not seeking
the nullification of the title, but rather the reconveyance of the property, covered by the said title,
which Gregoria was holding in trust for her benefit as the real owner.

Issue:

Whether or not an action for reconveyance and recovery of possession constitutes an


indirect or collateral attack on the validity of the subject certificate of title.

Ruling:

No it does not.

The Court finds the petition meritorious.

The Court is not unmindful of the principle of indefeasibility of a Torrens title and Section
48 of P.D. No. 1528 where it is provided that a certificate of title shall not be subject to collateral
attack. A Torrens title cannot be altered, modified or cancelled except in a direct proceeding in
accordance with law. When the Court says direct attack, it means that the object of an action is to
annul or set aside such judgment, or enjoin its enforcement. On the other hand, the attack is
indirect or collateral when, in an action to obtain a different relief, an attack on the judgment or
proceeding is nevertheless made as an incident thereof.

Contrary to the pronouncements of the MCTC and the CA, however, the complaint of
Hortizuela was not a collateral attack on the title warranting dismissal. As a matter of fact, an
action for reconveyance is a recognized remedy, an action in personam, available to a person
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whose property has been wrongfully registered under the Torrens system in another’s name. In an
action for reconveyance, the decree is not sought to be set aside. It does not seek to set aside the
decree but, respecting it as incontrovertible and no longer open to review, seeks to transfer or
reconvey the land from the registered owner to the rightful owner. Reconveyance is always available
as long as the property has not passed to an innocent third person for value.

There is no quibble that a certificate of title, like in the case at bench, can only be
questioned through a direct proceeding. The MCTC and the CA, however, failed to take into
account that in a complaint for reconveyance, the decree of registration is respected as
incontrovertible and is not being questioned. What is being sought is the transfer of the property
wrongfully or erroneously registered in another's name to its rightful owner or to the one with a
better right. If the registration of the land is fraudulent, the person in whose name the land is
registered holds it as a mere trustee, and the real owner is entitled to file an action for
reconveyance of the property.

The fact that Gregoria was able to secure a title in her name does not operate to vest
ownership upon her of the subject land. “Registration of a piece of land under the Torrens System
does not create or vest title, because it is not a mode of acquiring ownership. A certificate of title
is merely an evidence of ownership or title over the particular property described therein. It
cannot be used to protect a usurper from the true owner; nor can it be used as a shield for the
commission of fraud; neither does it permit one to enrich himself at the expense of others. Its
issuance in favor of a particular person does not foreclose the possibility that the real property
may be co-owned with persons not named in the certificate, or that it may be held in trust for
another person by the registered owner.”

Also, the Court is not unaware of the rule that a fraudulently acquired free patent may
only be assailed by the government in an action for reversion pursuant to Section 101 of the Public
Land Act.

The foregoing rule is, however, not without exception. A recognized exception is that
situation where plaintiff-claimant seeks direct reconveyance from defendant of public land
unlawfully and in breach of trust titled by him, on the principle of enforcement of a constructive
trust.

In Roco, et al. v. Gimeda, the Court stated that if a patent had already been issued through
fraud or mistake and has been registered, the remedy of a party who has been injured by the
fraudulent registration is an action for reconveyance, thus:

It is to be noted that the petition does not seek for a reconsideration of the granting of
the patent or of the decree issued in the registration proceeding. The purpose is not to annul the
title but to have it conveyed to plaintiffs. Fraudulent statements were made in the application for
the patent and no notice thereof was given to plaintiffs, nor knowledge of the petition known to
the actual possessors and occupants of the property. The action is one based on fraud and under
the law, it can be instituted within four years from the discovery of the fraud. (Art. 1146, Civil
Code, as based on Section 3, paragraph 43 of Act No. 190.) It is to be noted that as the patent here
has already been issued, the land has the character of registered property in accordance with the
provisions of Section 122 of Act No. 496, as amended by Act No. 2332, and the remedy of the party
who has been injured by the fraudulent registration is an action for reconveyance.
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In this case, in filing the complaint for reconveyance and recovery of possession,
Hortizuela was not seeking a reconsideration of the granting of the patent or the decree issued in
the registration proceedings. What she was seeking was the reconveyance of the subject property
on account of the fraud committed by respondent Gregoria. An action for reconveyance is a legal
and equitable remedy granted to the rightful landowner, whose land was wrongfully or
erroneously registered in the name of another, to compel the registered owner to transfer or
reconvey the land to him. Thus, the RTC did not err in upholding the right of Hortizuela to ask for
the reconveyance of the subject property. To hold otherwise would be to make the Torrens system
a shield for the commission of fraud.

GINA ENDAYA vs. ERNESTO V. VILLAOS


G.R. No. 202426, January 27, 2016, J. Del Castillo

Facts:

Gina Endaya (hereinafter petitioner) and the other heirs of Atilano Villaos (hereinafter
Atilano) filed before the RTC, a complaint for declaration of nullity of deeds of sale, recovery of
titles, and accounting of income of the Palawan Village Hotel (hereinafter PVH) against Ernesto
V. Villaos (hereinafter respondent). Docketed thereat as Civil Case No. 4162, the complaint sought
the recovery of several lots, including that on which the PVH and Wooden Summer Homes are
located.

The complaint in the main said that the purported sale of the affected lots, from Atilano to
respondent, was spurious.

Subsequently or on 10 May 2006, respondent filed an ejectment case with preliminary


mandatory injunction against petitioner Gina Endaya and Leny Rivera before MTCC, docketed as
Civil Case No. 1940.

According to respondent, he bought from Atilano eight (8) parcels of land, including
those where PVH and WSH stood. Respondent then took possession of the lots and started to
manage and operate the said hotels. Upon taking possession of the said lots, he told petitioner
and the others who live in residential houses in the lots in question, to vacate the premises, giving
them a period of six (6) months to do so.

However, instead of leaving, petitioner even participated in a violent and unlawful take-
over of portions of PVH and WSH, thus, the filing of the ejectment case.

Issue:

Who, as between a registered owner and a buyer, is entitled to possess the subject
property?

Ruling:

In resolving the issue of possession in an ejectment case, the registered owner of the
property is preferred over the transferee under an unregistered deed of sale.
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In the instant case, the evidence showed that as between the parties, it is the petitioner
who has a Torrens Title to the property. Respondents merely showed their unregistered deeds of
sale in support of their claims.
In Tenio-Obsequio v. Court of Appeals, it was held that the Torrens System was adopted in
this country because it was believed to be the most effective measure to guarantee the integrity of
land titles and to protect their indefeasibility once the claim of ownership is established and
recognized.

It is settled that a Torrens Certificate of title is indefeasible and binding upon the whole
world unless and until it has been nullified by a court of competent jurisdiction. Under existing
statutory and decisional law, the power to pass upon the validity of such certificate of title at the
first instance properly belongs to the Regional Trial Courts in a direct proceeding for cancellation
of title.

The age-old rule is that the person who has a Torrens Title over a land is entitled to
possession thereof.

In the present case, there is no dispute that petitioner is the holder of a Torrens title over
the entire Lot 83. Respondents have only their notarized but unregistered Kasulatan sa Bilihan to
support their claim of ownership. Thus, even if respondents’ proof of ownership has in its favor
a juris tantum presumption of authenticity and due execution, the same cannot prevail over
petitioner’s Torrens title.

Besides, if there are strong reasons of equity, such as when the execution of the judgment
in the unlawful detainer case would result in the demolition of the premises such that the result
of enforcement would be permanent, unjust and probably irreparable, then the unlawful detainer
case should at least be suspended, if not abated or dismissed, in order to await final judgment in
the more substantive case involving legal possession or ownership.

REGALIAN DOCTRINE

RAFAEL VALES, CECILIA VALES-VASQUEZ, and YASMIN VALES-JACINTO


vs. MA. LUZ CHORESCA GALINATO, ERNESTO CHORESCA, TEOFILO AMADO, LORNA
PARIAN MEDIANERO, REBECCA PORCAL, and VIVENCIO ORDOYO
G.R. No. 180134, March 5, 2014
J. PERLAS-BERNABE

Petitioners sought exemption of the subject lands from the OLT Program of the government
by claiming ownership thereof on the basis of a sale thereof by the registered owners, i.e., Sps. Vales,
executed on March 3, 1972. However, said transaction, in order to be valid and equally deemed as
binding against the tenants concerned, should be examined in line with the provisions of the May 7,
1982 DAR Memorandum which provides that tenants should (a) have actual knowledge of
unregistered transfers of ownership of lands covered by Torrens Certificate of Titles prior to October
21, 1972, (b) have recognized the persons of the new owners, and (c) have been paying

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rentals/amortization to such new owners in order to validate the transfer and bind the tenants to
the same.

Facts:

Spouses Perfecto and Marietta Vales (Sps. Vales) executed a Deed of Sale, all situated in Barrio
Manguna, Cabatuan, Iloilo, to their three (3) children, herein petitioners (subject sale). However,
the subject sale was not registered, hence, title to the subject lands remained in the names of Sps.
Vales. At the time of the sale, the subject lands were tenanted.

Several months later, Presidential Decree No. (PD) 27 was passed decreeing the emancipation of
tenants. As required under Letter of Instruction No. (LOI) 41 issued on November 21, 1972,
petitioner Rafael Vales executed a sworn declaration, asserting that he and his sisters are co-
owners of the subject lands. This notwithstanding, the subject lands were placed under the
coverage of the government’s Operation Land Transfer (OLT) Program as properties belonging to
Sps. Vales, not to petitioners.

Petitioners, then, entered into several Agricultural Leasehold Contracts with the several tenants.
These contracts were duly registered with the Office of the Municipal Treasurer of Cabatuan. The
following year, 1988, Emancipation Patents (EPs) were issued to certain tenants of the subject
lands. Petitioners claimed, however, that such issuances were made "without [their] knowledge
and despite their vehement protest and opposition."

Issue:

Whether subject lands are exempt from OLT Program coverage

Whether the petitioners are entitled to avail of any retention right under existing agrarian laws.

Ruling:

The petition lacks merit.

Propriety of the Denial of the Petition for Exemption

Petitioners sought exemption of the subject lands from the OLT Program of the government by
claiming ownership thereof on the basis of a sale thereof by the registered owners, i.e., Sps. Vales,
executed on March 3, 1972. However, said transaction, in order to be valid and equally deemed as
binding against the tenants concerned, should be examined in line with the provisions of the May
7, 1982 DAR Memorandum which provides that tenants should (a) have actual knowledge of
unregistered transfers of ownership of lands covered by Torrens Certificate of Titles prior to
October 21, 1972, (b) have recognized the persons of the new owners, and (c) have been paying
rentals/amortization to such new owners in order to validate the transfer and bind the tenants to
the same.

In the case at bar, it is undisputed that the subject sale was not registered or even annotated on
the certificates of title covering the subject lands. More importantly, the CA, which upheld the
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final rulings of the DAR Secretary and the OP, found that the tenants categorically belied having
actual knowledge of the said sale, and that the tenants still recognized Sps. Vales as the
landowners. In this regard, petitioners failed to show any justifiable reason to warrant a contrary
finding. Thus, keeping in mind that the factual findings of the CA are generally accorded with
finality absent any sufficient countervailing reason therefor, it may be concluded that petitioners
failed to comply with the requirements stated under the May 7, 1982 DAR Memorandum. As a
result, the subject sale could not be considered as valid, especially as against the tenants and/or
their relatives – particularly, herein respondents. The subject lands were therefore correctly
placed under the OLT Program of the government, which thereby warranted the denial of the
petition for exemption.

Propriety of the Denial of the Petition for Retention

Anent the issue on retention, suffice it to state that Sps. Vales had no right to retain the subject
lands considering that their aggregate landholdings, consisting of 58.6060 has., exceeded the 24-
hectare landholding limit as above-explained. Consequently, the subject lands would fall under
the complete coverage of the OLT Program, without any right of retention on petitioners’ part,
either under PD 27 or RA 6657, being mere successors-in-interest of Sps. Vales by virtue of
intestate succession. In this respect, the denial of the petition for retention was likewise proper.

MINDA S. GAERLAN, PETITIONER, VS. REPUBLIC OF THE PHILIPPINES, RESPONDENT


G.R. No. 192717, March 12, 2014
J. Villarama

CENRO Certification stating that Lot 4342 falls within the alienable and disposable area is
inadequate to prove that the subject lot is alienable and disposable. Moreover, the earliest evidence
of possession that petitioner and her predecessor-in-interest Mamerta Tan had over the subject
property was only in 1975 when Mamerta Tan purchased the subject lot from Teresita Tan.

In fine, petitioner failed to prove that the subject property was classified as part of the
disposable and alienable land of the public domain; and she and her predecessors-in-interest have
been in open, continuous, exclusive, and notorious possession and occupation thereof under a bona
fide claim of ownership since June 12, 1945 or earlier. Thus, her application for registration of title of
the subject property under P.D. No. 1529 should be denied.

Facts:

Petitioner filed an Application for original registration of title over a parcel of land known as Lot
18793, Cad-237 of Cagayan Cadastre, with an area of 1,061 square meters, more or less.

In her application, petitioner alleged that she acquired the above-mentioned property from
Mamerta Tan in November 1989 by virtue of a Deed of Absolute Sale of Unregistered Land. She
had the property declared for taxation purposes under her name and was issued Tax Declaration
Nos. 99893 and 058351.

After finding petitioner’s application sufficient in form and substance, the trial court set the case
for initial hearing.
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The Republic of the Philippines, through the Office of the Solicitor General (OSG), filed an
Opposition to petitioner’s application for registration on the ground that (1) neither petitioner
nor her predecessors-in-interest have been in open, continuous, exclusive and notorious
possession and occupation of the subject land since June 12, 1945 or earlier; (2) the muniments of
title and tax declarations attached to the petition do not constitute competent and sufficient
evidence of a bona fide acquisition of the subject land; (3) the claim of ownership based on
Spanish title is no longer available for purposes of registration; and (4) the subject land is a
portion of the public domain, hence, not registrable.

The trial court rendered Judgment granting petitioner’s application for registration of title.

The Republic, through the OSG, appealed from the aforementioned decision asserting that the
trial court erred in ruling that the subject parcel of land is available for private appropriation. The
CA rendered a Decision reversing and setting aside the ruling of the trial court and dismissing the
application for registration of title filed by petitioner.

Hence, petitioner is now before the Supreme Court claiming that the CA erred in denying her
application for registration of title.

Issue:

Whether petitioner’s application for registration of title must be granted

Ruling:

P.D. No. 1529 or the Property Registration Decree in relation to Section 48(b) of Commonwealth
Act No. 141, as amended by Section 4 of P.D. No. 1073 specifies those who are qualified to apply for
registration of land. Section 14 of P.D. No. 1529 and Section 48(b) of Commonwealth Act No. 141,
as amended provide thus:

SEC. 14. Who may apply. — The following persons may file in the proper Court of
First Instance [now Regional Trial Court] an application for registration of title to
land, whether personally or through their duly authorized representatives:

(1) Those who by themselves or through their predecessors-in-interest have been in


open, continuous, exclusive and notorious possession and occupation of alienable
and disposable lands of the public domain under a bona fide claim of ownership
since June 12, 1945, or earlier.

xxxx

SEC. 48. The following described citizens of the Philippines, occupying lands of the
public domain or claiming to own any such lands or an interest therein, but whose
titles have not been perfected or completed, may apply to the Court of First
Instance [now Regional Trial Court] of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title therefor, under
the Land Registration Act, to wit:

xxxx
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(b) Those who by themselves or through their predecessors-in-interest have been in


the open, continuous, exclusive and notorious possession and occupation of
alienable and disposable lands of the public domain, under a bona fide claim of
acquisition or ownership, since June 12, 1945, except when prevented by war or force
majeure. These shall be conclusively presumed to have performed all the
conditions essential to a Government grant and shall be entitled to certificate of
title under the provisions of this chapter.

Based on the above-quoted provisions, applicants for registration of title must establish and
prove: (1) that the subject land forms part of the disposable and alienable lands of the public
domain; (2) that the applicant and his predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of the same; and (3) that his possession has
been under a bona fide claim of ownership since June 12, 1945, or earlier. Each element must
necessarily be proven by no less than clear, positive and convincing evidence; otherwise the
application for registration should be denied.

Under the Regalian doctrine, all lands of the public domain belong to the State. The burden of
proof in overcoming the presumption of State ownership of the lands of the public domain is on
the person applying for registration, who must prove that the land subject of the application is
alienable and disposable. To overcome this presumption, incontrovertible evidence must be
presented to establish that the land subject of the application is alienable and disposable.

To prove that the land subject of the application for registration is alienable, an applicant must
establish the existence of a positive act of the government such as a presidential proclamation or
an executive order; an administrative action; investigation reports of Bureau of Lands
investigators; and a legislative act or statute. The applicant may secure a certification from the
government that the lands applied for are alienable and disposable, but the certification must
show that the DENR Secretary had approved the land classification and released the land of the
public domain as alienable and disposable, and that the land subject of the application for
registration falls within the approved area per verification through survey by the PENRO or
CENRO. The applicant must also present a copy of the original classification of the land into
alienable and disposable, as declared by the DENR Secretary or as proclaimed by the President.

To comply with the first requisite, petitioner submitted a CENRO Certification stating that Lot
4342, Cad-237 located in Patag, Cagayan de Oro City falls within the alienable and disposable area
under Project No. 8, Block I. Petitioner also submitted LC Map No. 543 which was certified and
approved on December 31, 1925. The Court, however, finds that the attached certification is
inadequate to prove that the subject lot is alienable and disposable. The Supreme Court held in
Republic v. T.A.N. Properties, Inc. that a CENRO certification is insufficient to prove the alienable
and disposable character of the land sought to be registered. The applicant must also show
sufficient proof that the DENR Secretary has approved the land classification and released the
land in question as alienable and disposable. The Supreme Court ruled in Republic v. T.A.N.
Properties, Inc. that:

x x x it is not enough for the PENRO or CENRO to certify that a land is alienable
and disposable. The applicant for land registration must prove that the DENR

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Secretary had approved the land classification and released the land of the public
domain as alienable and disposable, and that the land subject of the application for
registration falls within the approved area per verification through survey by the
PENRO or CENRO. In addition, the applicant for land registration must present a
copy of the original classification approved by the DENR Secretary and certified as a
true copy by the legal custodian of the official records. These facts must be
established to prove that the land is alienable and disposable. Respondents failed
to do so because the certifications presented by respondent do not, by themselves,
prove that the land is alienable and disposable.

Thus, as it now stands, aside from the CENRO certification, an application for original registration
of title over a parcel of land must be accompanied by a copy of the original classification approved
by the DENR Secretary and certified as a true copy by the legal custodian of the official records in
order to establish that the land is indeed alienable and disposable.

As to the second and third requisites, the Court agrees with the appellate court that petitioner
failed to establish that she and her predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of the subject land on or before June 12, 1945.
Based on the records, the earliest evidence of possession that petitioner and her predecessor-in-
interest Mamerta Tan had over the subject property was only in 1975 when Mamerta Tan
purchased the subject lot from Teresita Tan. While Mamerta Tan testified that she purchased the
property from Teresita, the records are bereft of any evidence to show Teresita’s mode of
acquisition of ownership over the subject lot or from whom she acquired the property and when
her possession of the subject lot had commenced.

In addition, Honesto Velez, City Assessor of Cagayan de Oro City, merely testified on the tax
declarations issued to certain persons including petitioner and Mamerta Tan as enumerated in
the Land History Card of Cadastral Lot 4342 but his testimony did not prove their possession and
occupation over the subject property. What is required is open, exclusive, continuous and
notorious possession by the applicant and her predecessors-in-interest, under a bona fide claim of
ownership, since June 12, 1945 or earlier. Here, it is not shown by clear and satisfactory evidence
that petitioner by herself or through her predecessors-in-interest had possessed and occupied the
land in an open, exclusive, continuous and notorious manner since June 12, 1945 or earlier.

In fine, since petitioner failed to prove that (1) the subject property was classified as part of the
disposable and alienable land of the public domain; and (2) she and her predecessors-in-interest
have been in open, continuous, exclusive, and notorious possession and occupation thereof under
a bona fide claim of ownership since June 12, 1945 or earlier, her application for registration of title
of the subject property under P.D. No. 1529 should be denied.

REPUBLIC OF THE PHILIPPINES vs. CORAZON C. SESE and FE C. SESE


G.R. No. 185092, June 4, 2014, J. Mendoza

The burden of proof in overcoming the presumption of State ownership of the lands of the
public domain is on the person applying for registration or claiming ownership, who must prove that
the land is alienable or disposable. To overcome this presumption, incontrovertible evidence must be
established that the land is alienable or disposable. There must be an existence of a positive act of
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the government such as a presidential proclamation or an executive order; an administrative action;


investigation reports of Bureau of Lands investigators; or a legislative act or a statute. The applicant
may also secure a certification from the government that the land claimed to have been possessed
for the required number of years is alienable and disposable. In this case, petitioners cite a surveyor
geodetic engineer’s notation indicating that the survey was inside alienable and disposable land.
Such notation does not constitute a positive government act validly changing the classification of
the land. A mere surveyor has no authority to reclassify lands of the public domain. By relying solely
on the said surveyor’s assertion, petitioners have not sufficiently proven that the land in question
has been declared alienable."

Facts:

Corazon C. Sese and Fe C. Sese (respondents Sese) filed with the MTC an application for
original registration of land over a parcel of land situated in the Municipality of Pulilan, Province
of Bulacan. Respondents Sese alleged that on July 22, 1972, they acquired, through a donation
inter vivos from their mother, Resurreccion L. Castro (Resurreccion), the subject agricultural
land; that they, through their predecessors-in-interest, had been in possession of the subject
property; and that the property was not within a reservation.

They submitted the following documents, namely: (1) Tax Declaration (2) Certificate of
Technical Description which was approved by DENR; (3) Official Receipt of payment of real
property tax over the property; (5) Certification from the Office of the Municipal Treasurer of
Pulilan, stating that the registered owners of a property were Corazon Sese and others; and (6)
Survey plan approved by the Regional Technical Director of the Land Management Service,
Region III, of the DENR, stating that the land was alienable and disposable land, and certified by
the Bureau of Forestry, was outside of any civil or military reservation. A note stating that a deed
of absolute sale over the subject property was executed by a certain Luis Santos and Fermina
Santos (the Santoses) in favor of Resurreccion on October 4, 1950.

The MTC rendered its Decision, ordering the registration of the property in the name of
respondents Sese. The MTC reasoned out that there was evidence to show that the subject lots
had been in open, continuous, adverse, and public possession, either by the applicants themselves
or their predecessor-in-interest. Such possession since time immemorial conferred an effective
title on the applicants, whereby the land ceased to be public and became private property. It had
been the accepted norm that open, adverse and continuous possession for at least 30 years was
sufficient.

The OSG appeal with the CA, OSG argued that there was no proof that the subject
property was already segregated from inalienable lands of the public domain. It was only from the
date of declaration of such lands as alienable and disposable that the period for counting the
statutory requirement of possession would start. Also, there was no evidence that respondents
were actually occupying the subject tract of land or that they had introduced improvement
thereon.

The CA rendered a Decision affirming the judgment of the MTC ordering the registration
of the subject property in the name of respondents Sese.

Issue:
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1. Can the respondents Sese validly registered the said land under Section 14(1) of Presidential
Decree (P.D.)No. 1529 or;

2. Under Section 14(2) of P.D. No. 1529, for acquisitive prescription

Ruling:

1. No, the respondents Sese cannot registered the said land under Section 14 (1), respondents
failed to prove (a) that the property is alienable and disposable; and (b) that their possession
of the property dated back to June 12, 1945 or earlier.

SECTION 14. Who may apply. — The following persons may file in the proper
Court of First Instance an application for registration of title to land, whether
personally or through their duly authorized representatives:

(1) Those who by themselves or through their predecessors in-interest have been in
open, continuous, exclusive and notorious possession and occupation of alienable
and disposable lands of the public domain under a bona fide claim of ownership
since June 12, 1945, or earlier.

xxxx

Section 48. The following described citizens of the Philippines, occupying lands of
the public domain or claiming to own any such lands or an interest therein, but
whose titles have not been perfected or completed, may apply to the Court of First
Instance now Regional Trial Court of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title therefor, under
the Land Registration Act, to wit:

xxxx

(b) Those who by themselves or through their predecessors in-interest have been
in open, continuous, exclusive and notorious possession and occupation of
agricultural lands of the public domain, under a bona fide claim of acquisition of
ownership, since June 12, 1945, or earlier, immediately preceding the filing of the
application for confirmation of title except when prevented by war or force
majeure. These shall be conclusively presumed to have performed all the
conditions essential to a Government grant and shall be entitled to a certificate of
title under the provisions of this chapter.

Based on the above-quoted provisions, applicants for registration of land title must
establish and prove: (1) that the subject land forms part of the disposable and alienable lands of
the public domain; (2) that the applicant and his predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and occupation of the same; and (3) that it is
under a bona fide claim of ownership since June 12, 1945, or earlier. Compliance with the
foregoing requirements is indispensable for an application for registration of land title, under

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Section 14(1) of P.D. No. 1529, to validly prosper. The absence of any one requisite renders the
application for registration substantially defective.

Respondents Sese presented evidence to establish the disposable and alienable character
of the land through a survey plan, where a note stated, as follows: "This survey is inside the
alienable and disposable area certified by the Bureau of Forestry. It is outside any civil or military
reservation." It was approved by the DENR, Land Management Services, Regional Office III, San
Fernando, Pampanga on December 3, 1998. The annotation in the survey plan, fell short of the
requirement of the law in proving its disposable and alienable character.

This proof is not sufficient. For the original registration of title, the applicant must
overcome the presumption that the land sought to be registered forms part of the public domain.
Unless public land is shown to have been reclassified or alienated to a private person by the State,
it remains part of the inalienable public domain. Indeed, "occupation thereof in the concept of
owner, no matter how long, cannot ripen into ownership and be registered as a title." To
overcome such presumption, incontrovertible evidence must be shown by the applicant. Absent
such evidence, the land sought to be registered remains inalienable.

In the present case, petitioners cite a surveyor geodetic engineer’s notation in Exhibit "E"
indicating that the survey was inside alienable and disposable land. Such notation does not
constitute a positive government act validly changing the classification of the land in question.
Verily, a mere surveyor has no authority to reclassify lands of the public domain. By relying solely
on the said surveyor’s assertion, petitioners have not sufficiently proven that the land in question
has been declared alienable."

The burden of proof in overcoming the presumption of State ownership of the lands of the
public domain is on the person applying for registration (or claiming ownership), who must prove
that the land subject of the application is alienable or disposable. To overcome this presumption,
incontrovertible evidence must be established that the land subject of the application (or claim) is
alienable or disposable. The applicant must establish the existence of a positive act of the
government such as a presidential proclamation or an executive order; an administrative action;
investigation reports of Bureau of Lands investigators; or a legislative act or a statute. The
applicant may also secure a certification from the government that the land claimed to have been
possessed for the required number of years is alienable and disposable.

Thus, the present rule is that an application for original registration must be accompanied
by (1) a CENRO or PENRO Certification; and (2) a copy of the original classification approved by
the DENR Secretary and certified as a true copy by the legal custodian of the official records.

Here, the only evidence presented by respondents to prove the disposable and alienable
character of the subject land was an annotation by a geodetic engineer in a survey plan. Although
this was certified by the DENR, it clearly falls short of the requirements for original registration.

It must be shown that the possession and occupation of a parcel of land by the applicant,
by himself or through his predecessors-in-interest, started on June 12, 1945 or earlier. A mere
showing of possession and occupation for 30 years or more, by itself, is not sufficient.

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Respondents likewise failed. The earliest that respondents and their predecessor-in-
interest can trace back possession and occupation of the subject land was only in the year
1950,when their mother, Resurreccion, acquired the subject land from the Santoses on October 4,
1950 by virtue of an absolute sale. Evidently, their possession of the subject property commenced
roughly five (5) years beyond June 12, 1945, the reckoning date expressly provided under Section
14(1) of P.D. No. 1529. Thus, their application for registration of land title was legally infirm.

2. No, the respondents Sese cannot registered the said land under Section 14(2) of P.D. No.
1529.

For failing to prove the alienable and disposable nature of the subject land, respondents
all the more cannot apply for registration by way of prescription pursuant to Section 14 (2) which
requires possession for 30 years to acquire or take. Not only did respondents need to prove the
classification of the subject land as alienable and disposable, but also to show that it has been
converted into patrimonial.

Thus, under Section 14(2) of P.D. No. 1529, for acquisitive prescription to commence and
operate against the State, the classification of land as alienable and disposable alone is not
sufficient. There must be an express declaration by the State that the public dominion property is
no longer intended for public service or the development of the national wealth or that the
property has been converted into patrimonial. Without such express declaration, the property,
even if classified as alienable or disposable, remains property of the public dominion, pursuant to
Article 420(2), and, thus, incapable of acquisition by prescription. It is only when such alienable
and disposable lands are expressly declared by the State to be no longer intended for public
service or for the development of the national wealth that the period of acquisitive prescription
can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a
Presidential Proclamation in cases where the President is duly authorized by law.

REPUBLIC OF THE PHILIPPINES vs. FRANCISCA, GERONIMO AND CRISPIN, ALL


SURNAMED SANTOS
G.R. No. 191516, June 4, 2014, J. Peralta

Petitioner Republic assails the decision of the CA affirming in toto the decision of the trial
court holding that the respondents was able to prove that the subject lots had been classified as
alienable and disposable. Ruling in favor of Republic, the SC ruled that the evidence required to
establish that land subject of an application for registration is alienable and disposable are: (1)
CENRO or PENRO Certification; and (2) a copy of the original classification approved by the DENR
Secretary and certified as a true copy by the legal custodian of the official records. In the present
case, the foregoing documents had not been submitted in evidence. There is no copy of the original
classification approved by the DENR Secretary. As ruled by this Court, a mere certification issued by
the Forest Utilization & Law Enforcement Division of the DENR is not enough. Republic is then
correct that evidence on record is not sufficient to prove that subject lots had been declared
alienable and disposable lands.

Facts:

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The respondents, all surnamed Santos, filed an application for Registration of title for four
parcels of land described as Lot Nos. 536, 1101, 12141, 1215 all Mcadm 590-D of the Taguig Cadastre,
covering areas of 12,221, 4,218, 9,237 and 1,000 square meters, respectively.

After the submission of the jurisdictional requirements, trial on the merits followed.
Thereafter, the applicants presented their evidence ex parte.

The trial court, based on the oral and documentary evidence presented, ruled that the
respondents were able to discharge their burden of proving their registrable right over the said
properties. Accordingly, the trial court ordered the registration of the said properties in the names
of the respondents.

The Solicitor General, disagreeing with the decision of the trial court, filed its Appellants’
Brief before the CA. The CA however affirmed in toto the decision of the RTC. Hence, this
petition.

Republic maintains that there is no proof that the subject lots had been classified as
alienable and disposable, because a mere notation in the Conversion Plan, even if it had been
formally offered in evidence, is not the required proof of a positive government act validly
changing the classification of the land in question. Respondents counter that they presented
Exhibit "X," a Certification from the Department of Environment and Natural Resources (DENR)
stating that the subject lots were "verified to be within Alienable and Disposable Land.

Issue:

Whether the respondents were able to prove that the subject parcels of land had been
classified as part of the alienable and disposable land of the public domain.

Ruling:

No, the respondents failed to prove that the subject parcels of land had been classified as
part of the alienable and disposable land of the public domain.

The Court agrees with Republic’s stance. In Republic v. Medida, the Court emphasized
that "anyone who applies for registration of ownership over a parcel of land has the burden of
overcoming the presumption that the land sought to be registered forms part of the public
domain." Expounding on the kind of evidence required to overcome said presumption, the Court
stated, thus:

As the rule now stands, an applicant must prove that the land subject of an application for
registration is alienable and disposable by establishing the existence of a positive act of the
government such as a presidential proclamation or an executive order; an administrative action;
investigation reports of Bureau of Lands investigators; and a legislative act or a statute. The
applicant may also secure a certification from the government that the land claimed to have been
possessed for the required number of years is alienable and disposable. In a line of cases, we have
ruled that mere notations appearing in survey plans are inadequate proof of the covered
properties’ alienable and disposable character.

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In Republic v. T.A.N. Properties, Inc., this Court explained that a Provincial Environment
and Natural Resources Office (PENRO) or CENRO certification, by itself, fails to prove the
alienable and disposable character of a parcel of land. We ruled:

[I]t is not enough for the PENRO or CENRO to certify that a land is alienable and
disposable. The applicant for land registration must prove that the DENR Secretary had
approved the land classification and released the land of the public domain as alienable
and disposable, and that the land subject of the application for registration falls within the
approved area per verification through survey by the PENRO or CENRO. In addition, the
applicant for land registration must present a copy of the original classification approved
by the DENR Secretary and certified as a true copy by the legal custodian of the official
records. These facts must be established to prove that the land is alienable and disposable.
Respondents failed to do so because the certifications presented by respondent do not, by
themselves, prove that the land is alienable and disposable.

To reiterate, the evidence required to establish that land subject of an application for
registration is alienable and disposable are: (1) CENRO or PENRO Certification; and (2) a copy of
the original classification approved by the DENR Secretary and certified as a true copy by the legal
custodian of the official records. In the present case, the foregoing documents had not been
submitted in evidence. There is no copy of the original classification approved by the DENR
Secretary. As ruled by this Court, a mere certification issued by the Forest Utilization & Law
Enforcement Division of the DENR is not enough. Republic is then correct that evidence on
record is not sufficient to prove that subject lots had been declared alienable and disposable
lands.

KASAMAKA-CANLUBANG, INC., represented by PABLITO M. EGILDO vs. LAGUNA ESTATE


DEVELOPMENT CORPORATION
G.R. No. 200491, June 9, 2014, J. Peralta

The approval by city and municipal boards and councils of an application for subdivision
through an ordinance should already be understood to include approval of the reclassification of the
land, covered by said application, from agricultural to the intended non-agricultural use. Otherwise,
the approval of the subdivision application would serve no practical effect; for as long as the
property covered by the application remains classified as agricultural, it could not be subdivided and
developed for non-agricultural use.

Facts:

LEDC Laguna Estate Development Corporation (LEDC) filed a request with the Ministry
of Agrarian Reform (now Department of Agrarian Reform) for the conversion of ten (10) parcels of
land consisting of an aggregate area of 216. 7394 hectares located in the Province of Laguna from
agricultural to residential land, pursuant to RA No. 3844, as amended by P.D. No. 815. On June 4,
1979, then Minister Conrado F. Estrella issued an Order granting LEDC’s request provided that
certain conditions are complied with, one of which was that the development of the site shall
commence within two (2) years from receipt of the order of conversion.

KASAMAKA-Canlubang, Inc. (KASAMAKA) filed a petition with the Department of


Agrarian Reform (DAR) for the revocation of the conversion order, alleging that LEDC failed to
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CIVIL LAW DIGESTS 2014- June 2016

develop the subject parcels of land. Then DAR Secretary Nasser C. Pangandaman issued an Order
partially revoking the conversion order as to eight (8) out of the ten (10) parcels of land consisting
of an aggregate area of 66.7394 hectares, all registered in the name of Canlubang Sugar
Estate. The remaining two (2) parcels of land, each registered in the names of LEDC and Jose
Yulo, Jr., were excluded from the revocation by virtue of a DAR Exemption Order issued on June
26, 1992 which removed said lands from the ambit of the Comprehensive Agrarian Reform Law
(CARL) of 1998.

LEDC then filed a motion for reconsideration, alleging that the eight (8) parcels of land in
question are likewise outside the ambit of the CARL on the basis of zoning ordinances issued by
the municipalities concerned reclassifying said lands as non-agricultural. The DAR, through its
Center for Land Use Policy, Planning and Implementation (CLUPPI) Committee-A, field officials
and personnel, and representatives of both LEDC and KASAMAKA conducted an ocular
inspection of the subject lands and found that out of the eight (8) parcels of land, two (2) parcels
of land, particularly Lot No. 2-C under TCT No. 82523 and Lot No. 1997-X-A under TCT No. T-
82517, remained undeveloped. Despite this, however, the CLUPPI Committee-A declared that,
with the exception of one (1) parcel of land, specifically Lot No. 1-A-4 under TCT No. T-82586,
LEDC failed to substantially comply with the condition of the conversion order to develop the
eight (8) subject parcels of land. DAR Secretary Pangandaman issued an Order affirming his
previous Order with the exception of the land under TCT No. T-82586, as concluded by the
CLUPPI Committee-A.

Aggrieved, LEDC filed an appeal with the Office of the President (OP), which granted the
same and declared the remaining seven (7) parcels of land in question exempt from the coverage
of the CARL and reinstated the Conversion Order. The Motion for Reconsideration filed by
KASAMAKA was further denied by said Office.

KASAMAKA filed a Petition for Review with the CA alleging that the OP erred in
approving LEDC’s appeal in light of the findings of the DAR. The CA dismissed the petition for
lack of merit. KASAMAKA’s Motion for Reconsideration was, subsequently, denied in the CA
Resolution. Hence, this petition.

Issues:

1. Whether or not the undeveloped areas of the landholdings subject of the Estrella
conversion order should no longer be considered agricultural lands.

2. Whether or not the Estrella conversion order and the municipal zoning ordinances as
claimed by LEDC reclassifying the subject landholding to non-agricultural uses prior to
the passage of RA No. 6657 did not ipso facto change the nature of existing agricultural
lands or the legal relationship then existing over such lands.

Ruling:

1. The power of the cities and municipalities, such as the Municipality of Calamba, to adopt
zoning ordinances or regulations converting lands into non-agricultural cannot be denied.

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It may, therefore, be reasonably presumed that when city and municipal boards and
councils approved an ordinance delineating an area or district in their cities or municipalities as
residential, commercial, or industrial zone, pursuant to the power granted to them under Section
3 of the Local Autonomy Act of 1959, they were, at the same time, reclassifying any agricultural
lands within the zone for non-agricultural use; hence, ensuring the implementation of and
compliance with their zoning ordinances. The logic and practicality behind such a presumption is
more evident when considering the approval by local legislative bodies of subdivision ordinances
and regulations. The approval by city and municipal boards and councils of an application for
subdivision through an ordinance should already be understood to include approval of the
reclassification of the land, covered by said application, from agricultural to the intended non-
agricultural use. Otherwise, the approval of the subdivision application would serve no practical
effect; for as long as the property covered by the application remains classified as agricultural, it
could not be subdivided and developed for non-agricultural use.

It cannot be denied that the disputed lands are likewise outside the ambit of the CARL. As
mentioned previously, by virtue of zoning ordinances issued by the Municipality of Calamba,
Laguna, as accepted by the Sangguniang Bayan of Cabuyao and approved by the Human
Settlements Regulatory Commission, the subject lands were effectively converted into residential
areas. These ordinances were issued and accepted in 1979 and 1980, or before the effectivity of the
CARL which took effect on June 15, 1988. It necessarily follows, therefore, that the properties
herein can no longer be subject to compulsory coverage of the CARL.

2. Going now to KASAMAKA’s argument that the municipal zoning ordinances classifying the
disputed lands to non-agricultural did not ipso facto change the nature of said lands, much less
affect the legal relationship of the farmers and workers of the Canlubang Sugar Estate then
existing prior to the granting of the order of conversion and the passage of the municipal zoning
ordinances. In support of said argument, KASAMAKA cites Co v. Intermediate Appellate Court.

According to KASAMAKA, the nature of the subject lands herein remained agricultural
despite the passage of the municipal ordinances, which may not disturb the legal relationship of
the farmers and workers of the Canlubang Sugar Estate. As correctly pointed out by LEDC, there
are essential distinctions between the facts in the Co case and the facts herein.

First, there exists an agricultural tenancy arrangement between the parties involved in the
Co case. The land in question, even prior to the municipal ordinance declaring that the same shall
be used only for residential or light industrial purposes, had already been subject to an
agricultural lease wherein an agricultural tenant continued to cultivate the subject land which
was impliedly allowed by the landowner by accepting a share in the produce.

In the case at bar, however, no such arrangement exists. Apart from a mere statement that
the lands in dispute was once part of the vast portion of the Canlubang Sugar Estate, wherein a
large number of farmworkers tilled the land, KASAMAKA did not present any supporting
evidence that will show an indication of a leasehold arrangement.

Second, the Co case did not involve an order of conversion categorically declaring the land
as converted for residential use. As stated by KASAMAKA, the zoning ordinance in the Co case
does not unequivocally disclose any provision converting the subject lands into residential or light
industrial. Yet it is manifest, even from a plain reading of the order of conversion in this case, that
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the LEDC’s application for converting the disputed lands from agricultural to residential is
granted. As a consequence of such approval, the fact that the subject property is deemed zoned
and reclassified as residential upon compliance with the conditions imposed cannot be
questioned. KASAMAKA cannot, therefore, rely on the Co case given the fundamental differences
of the same from the case at hand.

REPUBLIC OF THE PHILIPPINES vs. CRISANTO S. RANESES


G.R. No. 189970, June 9, 2014, J. Villarama, Jr.

The Regalian doctrine, embodied in Section 2, Article XII of the 1987 Constitution, provides
that all lands of the public domain belong to the State, which is the source of any asserted right to
ownership of land. All lands not appearing to be clearly within private ownership are presumed to
belong to the State. Unless public land is shown to have been reclassified or alienated to a private
person by the State, it remains part of the inalienable public domain for land classification or
reclassification cannot be assumed. It must be proved.

In this case, the records do not support the findings made by the RTC and the CA that the
subject properties are part of the alienable and disposable portion of the public domain. It bears
noting that in support of his claim that the subject properties are alienable and disposable, Raneses
merely presented the Conversion Subdivision Plan which was prepared by Engr. Montallana with the
annotation that the subject properties were "inside alienable and disposable land area Proj. No. 27-B
as per LC Map No. 2623 certified by the Bureau of Forestry on January 3, 1968" and the Inter-Office
Memorandum from the LLDA. Raneses failed to hurdle this burden and his reliance on the said
annotation and Inter-Office Memorandum is clearly insufficient. Clearly, the pieces of evidence
submitted by Raneses before the RTC in this case hardly satisfy the aforementioned documentary
requirements.

Facts:

Crisanto S. Raneses (Raneses) filed an Application for Original Registration of Land Title
over two parcels of land identified as both located at Barangay Napindan, Taguig City, Metro
Manila with a total area of 22,600 square meters(subject properties).

During the initial hearing, Raneses marked several documents to establish compliance
with the jurisdictional requirements. There being no opposition filed, the RTC issued an Order of
General Default against all persons except herein Republic of the Philippines (Republic) and
granted Raneses’ Motion to Present his Evidence Ex-Parte. Raneses testified that despite the fact
that the earliest tax declaration on record over the subject properties was issued only in 1980, his
parents had been in continuous possession and occupation of the same as early as June 1945.

He narrated that his father, the late Pedro Raneses (Pedro), was a farmer who cultivated
the subject properties by planting palay and other crops thereon and that since the subject
properties were near the lake, Pedro used a portable irrigation system to suck water from Laguna
de Bay and a mechanized harvester to harvest the palay.

However, he claimed that when Pedro died, the cultivation of the subject properties was
likewise stopped. Raneses averred that Pedro declared the subject properties for real estate tax
purposes, as evidenced by several tax declarations issued in Pedro’s name. He claimed that he
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acquired ownership over the subject properties when his mother, Nina Raneses, and his sisters,
Annabelle R. San Juan and Belinda R. Bayas, executed an Extrajudicial Settlement of Estate with
Deed of Waiver (Extrajudicial Settlement of Estate) whereby they agreed to partition and
adjudicate among themselves the subject properties, and thereafter, waive all their rights, interest
and participation over the same in favor of Raneses. Subsequently, Raneses had the subject
properties declared for real estate tax purposes under his own name.

Raneses also testified that there were no other persons or entities who occupied the
subject properties. Catalina Raneses (Catalina), the mother of Raneses, also testified that she and
her husband Pedro had been in possession of the subject properties since the Japanese
occupation. She narrated that Pedro cultivated the subject properties for palay production.
However, after Pedro’s death in 1982, the subject properties were no longer used for palay
production, and were, instead, at times leased out for the production of watermelons.

RTC issued its first assailed Order granting Raneses’ application for land registration.

However, the Laguna Lake Development Authority (LLDA) filed its Opposition to the
application alleging that the subject properties are below the 12.50-meter elevation, hence,
forming part of the bed of Laguna Lake and are, therefore, inalienable, indisposable and incapable
of registration. RTC issued its second assailed Order, finding merit in Raneses’ arguments and
dismissing LLDA’s Opposition.

For the LLDA’s failure to take any action against its second assailed Order, the RTC, in its
Order, approved the Notice of Appeal filed by the OSG and directed the transmittal of the records
of this case to the CA.

The CA upheld the RTC which gave more credence to the findings contained in the Inter-
Office Memorandum than that of the ECD Memorandum and in granting Raneses’ application.
The CA found that Raneses had adequately proven that the subject properties form part of the
disposable and alienable lands of the public domain.

Issue:

Whether or not the subject properties in this case are alienable or disposable land of the
public domain.

Ruling:

The petition is impressed with merit.

In this case, the records do not support the findings made by the RTC and the CA that the
subject properties are part of the alienable and disposable portion of the public domain.

Raneses bases his right to registration of title on Section 14 (1) of Presidential Decree
(P.D.) No. 1529, otherwise known as the Property Registration Decree, which provides:

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SEC. 14. Who may apply. – The following persons may file in the proper Court of
First Instance an application for registration of title to land, whether personally or
through their duly authorized representatives:
(1) Those who by themselves or through their predecessors-in-interest have been
in open, continuous, exclusive and notorious possession and occupation of
alienable and disposable lands of the public domain under a bona fide claim of
ownership since June 12, 1945, or earlier.
The afore-quoted provision authorizes the registration of title acquired in
accordance with Section 48 (b) of Commonwealth Act No. 141, otherwise known as
the Public Land Act, as amended by P.D. No. 1073, which reads:

SEC. 48. The following described citizens of the Philippines, occupying lands of the
public domain or claiming to own any such lands or an interest therein, but whose
titles have not been perfected or completed, may apply to the Court of First
Instance of the province where the land is located for confirmation of their claims
and the issuance of a certificate of title therefor, under the Land Registration Act,
to wit:
(a) x x x
(b) Those who by themselves or through their predecessors in interest have been
in the open, continuous, exclusive, and notorious possession and occupation of
alienable and disposable lands of the public domain, under a bona fide claim of
acquisition or ownership, since June 12, 1945, except when prevented by war or
force majeure. These shall be conclusively presumed to have performed all the
conditions essential to a Government grant and shall be entitled to a certificate of
title under the provisions of this chapter.

Thus, under Section 14 (1) of P.D. No. 1529, a petition may be granted upon compliance
with the following requisites: (a) that the property in question is alienable and disposable land of
the public domain; (b) that the applicants by themselves or through their predecessors-in-interest
have been in open, continuous, exclusive and notorious possession and occupation; and (c) that
such possession is under a bona fide claim of ownership since June 12, 1945 or earlier.

The Regalian doctrine, embodied in Section 2, Article XII of the 1987 Constitution,
provides that all lands of the public domain belong to the State, which is the source of any
asserted right to ownership of land. All lands not appearing to be clearly within private ownership
are presumed to belong to the State. Unless public land is shown to have been reclassified or
alienated to a private person by the State, it remains part of the inalienable public domain for
land classification or reclassification cannot be assumed. It must be proved. And the applicant
bears the burden to overturn, by incontrovertible evidence, the presumption that the land subject
of an application for registration is alienable and disposable.

It bears noting that in support of his claim that the subject properties are alienable and
disposable, Raneses merely presented the Conversion Subdivision Plan which was prepared by
Engr. Montallana with the annotation that the subject properties were "inside alienable and
disposable land area Proj. No. 27-B as per LC Map No. 2623 certified by the Bureau of Forestry on
January 3, 1968" and the Inter-Office Memorandum from the LLDA.

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Raneses failed to hurdle this burden and his reliance on the said annotation and Inter-
Office Memorandum is clearly insufficient. Clearly, the pieces of evidence submitted by Raneses
before the RTC in this case hardly satisfy the aforementioned documentary requirements. Given
the lack of evidence that the subject properties are alienable and disposable, it becomes
unnecessary for this Court to resolve whether the Inter-Office Memorandum should be given
more credence over the ECD Memorandum.

CARMEN T. GAHOL, substituted by her heirs, RICARDO T. GAHOL, MARIA ESTER GAHOL
PEREZ, JOSE MARI T. GAHOL, LUISITO T. GAHOL and ALCREJ CORPORATION vs.
ESPERANZA COBARRUBIAS
G.R. No. 187144, September 17, 2014, J. Peralta

Petitioner Gahol applied for Townsite Sales Application with the DENR for the land adjacent
to her property. Respondent Cobarrubias filed a protest, stating that she and her family are
occupying said lot. The Court ruled that Gahol’s application must be rejected because one of the
requirements was that the applicant must not own any other lot but Gahol is a registered owner of a
residential lot. She also stated that there are no signs of improvement or occupation in the said lot
but it was in fact occupied by Cobarrubias. She is disqualified due to the untruthful statements in
her application.

Facts:

Carmen Gahol was the registered owner of a residential lot in Baguio City. Carmen filed a
Townsite Sales Application (TSA) with the Department of Environment and Natural Resources for
a 101 sq. meter land adjacent to her titled property with the purpose of using the land solely for
additional and protection purposes.

Esperanza Cobarrubias filed a Protest against Carmen's TSA claiming that her late mother,
and her heirs are the actual occupants of the subject lot since 1970 and continuously having built
thereon a residential building and that they had also planted on the lot several fruit-bearing trees,
a narra tree and plants. Esperanza Cobarrubias also filed her own TSA over a 215 sq. meter-lot
which included the subject lot.

The Regional Executive Director of DENR-Cordillera Administrative Region denied the


protest and gave due course to the application of Carmen Gahol. DENR-CAR disagreed with
Esperanza’s contention that she is entitled to a direct award of the subject lot because long years
of possession and occupation of the same.

It ruled that all lands within the limits of Baguio City are declared as Townsite Reservation
disposable under Section 58, in relation to Section 79 of Commonwealth Act No. 141 (CA 141), as
amended, which provides that such lands are sold by way of public auction to the highest bidder,
and not as an agricultural public land disposable under Section 44 of the Public Land Act or Free
Patent Application and/or confirmation of an imperfect complete title.

Further, DENR-CAR stated it could not adjudicate the lot to Esperanza based on
Administrative Order No. 504 Clearing Committee Resolution No. 93-1, particularly SITUATION
B which states that minimum area must not be less than 200 sq. m.; and its minimum depth,

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measured perpendicularly from edge of right of way to titled property lot-line should not be less
than 15 meters, otherwise, the subject area is reserved for greenbelt purposes.

DENR dismissed the appeal. DENR reiterated that the subject lot is part of the Baguio
Townsite Reservation, disposable in accordance with CA 141 which does not give preferential right
to actual occupants of lots within townsite reservations. Further, the DENR said that Cobarrubias’
actual occupation of the subject lot will not bar Carmen's TSA for the purpose of conducting a
public bidding on the said lot. It was also found that Esperanza’s application did not meet the
required minimum area of 200 sq. m. Upon appeal to the Office of the President, it was also
dismissed.

Esperanza filed with the CA a petition for review under Rule 43 seeking to set aside the OP
decision. It was granted. CA found that Carmen’s application must be rejected.

Issue:

Whether or not Carmen is not qualified for the TSA

Ruling:

Yes, the Court affirmed CA’s finding that Carmen is not qualified.

One of the requirements for the issuance of a TSA form is a certificate of no homelot, but
Carmen had not submitted any and was issued a TSA. Also, the TSA to which Carmen affixed her
signature, stated among others that she is not the owner of any lot in Baguio City and that such
lot applied for does not contain any improvement or indication of occupation and settlement and
that she understood that submission of false statements shall be punishable and as consequence,
application shall be rejected.

When Carmen filed her TSA, she is the registered owner of a lot in Baguio. In fact, she is
the titled owner of the lot adjacent to the subject lot. Therefore, there is no truth to the statement
in the TSA that she does not own any lot in Baguio.

Moreover, Carmen failed to state in her TSA the fact that there were signs of improvement
or indication of occupation on the subject lot. The records of the ocular inspection indicated that
there were structures that served as residence of Esperanza and plants with economic value such
as coffee, avocado tree and a guava tree and alnus tree and a parking space used by Esperanza.

Carmen had also filed complaints for violations of PD 1096, National Building Code of the
Philippines, and PD 772, anti-squatting and other similar acts, against Camilo Coscolan and
Rolando Clemente with the end in view of evicting them from the subject lot which are
indications of occupation of the subject lot.

As correctly observed by the CA, neither the DENR-CAR, the DENR, nor the OP touched
and discussed the matter of Gahol's disqualification and/or lack of certain qualifications. They
simply denied the protest of Esperanza and gave due course to Carmen’s TSA without any
explanation as to how she was able to hurdle these disqualifications.

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The DENR-CAR and DENR denied Esperanza's TSA based on said Resolution No. 93-1,
that her application did not meet the area requirements. On the other hand, the area applied for
by Carmen was only 101 sq. meters which was less than the minimum area required. She had also
stated untruthful statements in her TSA. Thus, her TSA should have been rejected in the first
place instead of giving due course to it.

HOLY TRINITY REALTY & DEVELOPMENT CORPORATION, vs. VICTORIO DELA CRUZ,
LORENZO MANALAYSAY, RICARDO MARCELO, JR. and LEONCIO DE GUZMAN
G.R. No. 200454, October 22, 2014, J. Lucas P. Bersamin

Consequently, before land may be placed under the coverage of Republic Act No. 6657, two
requisites must be met, namely: (1) that the land must be devoted to agricultural activity; and (2)
that the land must not be classified as mineral, forest, residential, commercial or industrial land. For
land to be covered under Presidential Decree No. 27, it must be devoted to rice or corn crops, and
there must be a system of share-crop or lease-tenancy obtaining therein. Unfortunately, the Dakila
property did not meet these requirements.

Facts:

Subject of the controversy is a parcel of land located in, Bulacan (Dakila property)
registered in the name of Freddie Santiago. The Dakila property used to be tenanted but later on
the tenants freely and voluntarily relinquished their tenancy rights in favor of Santiago through
their respective sinumpaang pahayag in exchange for some financial assistance and individual
homelots titled and distributed in their names.

Subsequently, Holy Trinity Realty purchased the remaining areas of the Dakila property
from Santiago, and later caused the transfer of the title to its name as well as subdivided the
Dakila property into six lots,

The Holy Trinity Realty then developed the property by dumping filling materials on the
topsoil, and by erecting a perimeter fence and steel gate. It established its field office on the
property. Sanggunian Bayan ng Malolos passed Municipal Resolution reclassifying four of the six
subdivided lots belonging to Holy Trinity Realty.

Thereafter, Holy Trinity Realty purchased from Santiago another parcel of land in Bulacan
(Sumapang Matanda property) Few years later, a certain Silvino Manalad and the alleged heirs of
Felix Surio wrote to the Provincial Agrarian Reform Officer (PARO) of Bulacan to request an
investigation of the sale of the Dakila property.

This was followed by the letter request of Sumapang Matanda Barangay Agrarian Reform
Council (BARC) Chairman to place the Dakila property within the coverage of Operation Land
Transfer (OLT) pursuant to Presidential Decree No. 27.

Several days later, the DAR Provincial Office of Bulacan filed a petition to annul the sale of
the Dakila property with the Provincial Agrarian Reform Adjudicator (PARAD). DAR Regional
Office
issued an order granting the letter request of BARC Chairman since the sale of the Dakila
property was a prohibited transaction under Presidential Decree No. 27, Section 6 of Republic Act
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No. 6657 and DAR Administrative Order No. 1, Series of 1989; and that Holy Trinity Realty was
disqualified from acquiring land under Republic Act No. 6657 because it was a corporation.

Register of Deeds issued emancipation patents (EPs) pursuant to the order of the OIC-
Regional Director. The Holy Trinity Realty’s titles were canceled and EPs were issued to the
respondents. Holy Trinity Realty appealed to the DAR Secretary which issued an order denying
the appeal. Office of the President (OP) reversed the ruling of DAR Secretary upon its finding that
the Dakila property had ceased to be suitable for agriculture, and had been reclassified as
residential land pursuant to Municipal Resolution No. 16-98. CA reversed and set aside the
decision of the OP and declared that prior to the effectivity of Republic Act No. 6657 and even
after the passage of Municipal Resolution No. 16-98, the Dakila property was an agricultural land;
that there was no valid reclassification because Section 20 of Republic Act No. 7160 (The Local
Government Code) and Memorandum Circular No. 54 required an ordinance, not a resolution.

Issue:

Whether or not the Dakila property is an agricultural land within the coverage of Republic
Act No. 6657 or Presidential Decree No. 27.

Ruling:

No, the Dakila property was not an agricultural land within the coverage of R.A.No. 6657
nor P.D. No. 27

Under Republic Act No. 7160, local government units, such as the Municipality of Malolos,
Bulacan, are vested with the power to reclassify lands. However, an ordinance is required in order
to reclassify agricultural lands, and such may only be passed after the conduct of public hearings.
Holy Trinity Realty claims the reclassification on the basis of Municipal Resolution. Given the
foregoing clarifications, however, the resolution was ineffectual for that purpose. A resolution was
a mere declaration of the sentiment or opinion of the lawmaking body on a specific matter that
was temporary in nature, and differed from an ordinance in that the latter was a law by itself and
possessed a general and permanent character. Note that, Holy Trinity Realty did not show if the
requisite public hearings were conducted at all. In the absence of any valid and complete
reclassification, therefore, the Dakila property remained under the category of an agricultural
land. Nonetheless, the Dakila property was not an agricultural land subject to the coverage of
Republic Act No. 6657 or Presidential Decree No. 27.

Verily, the basic condition for land to be placed under the coverage of Republic Act No.
6657 is that it must either be primarily devoted to or be suitable for agriculture. Perforce, land
that is not devoted to agricultural activity is outside the coverage of Republic Act No. 6657. An
agricultural land, according to Republic Act No. 6657, is one that is devoted to agricultural
activity and not classified as mineral, forest, residential, commercial or industrial land.
Agricultural activity includes the "cultivation of the soil, planting of crops, growing of fruit trees,
raising livestock, poultry or fish, including the harvesting of such farm products; and other farm
activities and practices performed by a farmer in conjunction with such farming operations done
by persons whether natural or juridical."

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Consequently, before land may be placed under the coverage of Republic Act No. 6657,
two requisites must be met, namely: (1) that the land must be devoted to agricultural activity; and
(2) that the land must not be classified as mineral, forest, residential, commercial or industrial
land.

Considering that the Dakila property has not been classified as mineral, forest, residential,
commercial or industrial, the second requisite is satisfied. For the first requisite to be met,
however, there must be a showing that agricultural activity is undertaken on the property. It must
be remembered that previous tenants said that such land was not fit for being an agricultural land
due to lack of irrigation system.

Even if the Court supplemented the provisions of Presidential Decree No. 27, the outcome
is still the same, because the Dakila property was still not within the scope of the law. For land to
be covered under Presidential Decree No. 27, it must be devoted to rice or corn crops, and there
must be a system of share-crop or lease-tenancy obtaining therein. If either requisite is absent, the
land must be excluded. Hence, exemption from coverage followed when the land was not devoted
to rice or corn even if it was tenanted; or the land was untenanted even though it was devoted to
rice or corn. Based on these conditions, the DAR Regional Office erred in subjecting the Dakila
property under the OLT.

Unfortunately, no such evidence was presented, nor was there any field investigation
conducted to verify whether or not the landholding was primarily devoted to the cultivation of
rice or corn. Accordingly, the Dakila property should be excluded from the OLT.

The evidence to establish in the proceedings below that they or their predecessors had
been tenants of the Holy Trinity’s predecessor in-interest to make them the rightful beneficiaries
of the Dakila property was severely wanting. For tenancy to exist, there must be proof that: (1) the
parties are the landholder and the tenant; (2) the subject is agricultural land; (3) there is consent;
(4) the purpose isagricultural production; (5) there is consideration; and (6) there is a sharing of
the harvests. All these requisites are necessary to create a tenancy relationship, and the absence of
one or more of them will not make the alleged tenant a de facto tenant. Unless a person has
established his status as a de juretenant, he is not entitled to security of tenure; nor is he covered
by the land reform program of the Government under the existing tenancy laws.

Here, the consent to establish a tenant-landlord relationship was manifestly absent. In


view of Holy Trinity Realty’s repeated denial of the tenancy, the respondents ought then to
establish the tenancy relationship, but did not do so. Tenancy could not be presumed, but must
be established by evidence; its mere allegation is neither evidence nor equivalent to proof of its
existence.

DANILO ALMERO, TERESITA ALAGON, CELIA BULASO, LUDY RAMADA, REGINA


GEGREMOSA, ISIDRO LAZARTE, THELMA EMBARQUE, FELIPE LAZARTE, GUILERMA
LAZARTE, DULCESIMA BENIMELE vs. HEIRS OF MIGUEL PACQUING, as represented by
LINDA PACQUING FADRILAN
G.R. No. 199008, November 19, 2014, J. Brion

Thus, in order for the homestead grantees or their direct compulsory heirs to retain their
homestead, the following conditions must be satisfied: (a) they must still be the owners of the
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original homestead at the time of the CARL's effectivity, and (b) they must continue to cultivate the
homestead land. In this case, Linda, as the direct compulsory heir of the original homestead grantee,
is no longer cultivating the homestead land. That parcels of land are covered by homestead patents
will not automatically exempt them from the operation of land reform. It is the continued
cultivation by the original grantees or their direct compulsory heirs that shall exempt their lands
from land reform coverage."

Facts:

Miguel Pacquing acquired agricultural lands (23.6272 hectares) in Cuambogan, Tagum


City through Homestead Patent. These lands were registered on January 6, 1955 with the Register
of Deeds.

On August 5, 1991, the Municipal Agrarian Reform Officer (MARO) sent Miguel a Notice
of Coverage placing the Pacquing Estate under the Comprehensive Agrarian Reform Program
(CARP). Miguel failed to reply, instead he filed a Voluntary Offer to Sell (VOS) with the
Department of Agrarian Reform (DAR). Miguel, however, died during the pendency of the VOS
proceedings. Miguel’s wife had died five years earlier.

In January 1992, respondent Linda Pacquing-Fadrilan, sole heir of the spouses Pacquing,
executed an affidavit adjudicating to herself ownership of the property. She filed an application
for retention with the DAR, who denied Linda’s application. The order denying Linda’s
application for retention later became final and executory.

On June 25, 1994, certain individuals, including the present petitioners who were
identified as farmer-beneficiaries of the land, were issued CLOAs over their respective cultivated
portions of the property.

Linda, through her attorney-in-fact, Samuel Osias, filed with the Office of the Provincial
Adjudicator a petition to cancel the petitioners’ CLOAs. The Provincial Adjudicator later
dismissed the petition due to Linda’s failure to file her position paper. She appealed the dismissal
with the Department of Agrarian Reform Adjudication Board (DARAB). It appears that, Transfer
Certificates of Title (TCTs) of the property were issued to Napoleon Villa Sr., et al. who had been
contracted by Linda, under an agricultural leasehold agreement, to cultivate the lands.

The DARAB nullified the TCTs issued to Napoleon Villa Sr. et. al. and reinstated Linda’s
title. Also, the DARAB ordered the issuance of titles of the land to the petitioners.

Linda again sought to recall and cancel the petitioners’ CLOAs by filing a petition with the
DAR. Linda argued that the DARAB erred in distributing portions of the land to the petitioners
because the property was supposed to be exempt from CARP coverage. The petitioners opposed
Linda’s petition.

The DAR Regional Director ruled that the Pacquing Estate was subject to CARP and that
the CLOAs issued to the petitioners were valid. Linda filed an appeal to the DAR Secretary, who
also denied Linda’s appeal. Linda appealed the DAR Secretary’s order to the Office of the
President (OP).

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The OP, through Executive Secretary Paquito N. Ochoa Jr., reversed the DAR Secretary’s
Order and recalled and cancelled the petitioners’ CLOAs. The OP held that:

"xxx, the fact that respondent Linda, since the beginning, have always protested the issuance of
the CLOAs to the petitioners is a clear demonstration of their willingness to continue with the
cultivation of the subject landholdings, or to start anew with the cultivation or even to direct the
management of the farm.

Respondent Linda should be given the chance to exercise their rights as heirs of the homestead
grantee to continue to cultivate the homestead lots either personally or directly managing the
farm pursuant to the pronouncement in the Paris case. They still own the original homestead
issued to their predecessor-in-interest and have manifested their intention to continue with the
cultivation of the homestead lots."

With no appeal or petition for review filed with the Court of Appeals within the 15 day
appeal period, the resolution of the OP became final and executory. The petitioners, contest the
finality of the OP’s decision, since the copy of the OP's resolution was received late by their
counsel denying their motion for reconsideration.

Hence, the petitioners directly filed with this Court a petition for review on certiorari
under Rule 45 assailing the subject OP’s decision and resolution.

Issue:

Whether or not the lands under the homestead grant, exempt from agrarian reform
coverage under sec. 6 of R.A 6657, even if the heir of the patentee is not cultivating the land, but
and had even offered the same under the voluntary offer to sell scheme.

Ruling:

The Court sees MERIT in the present petition.

The subject land, being agricultural in nature, is clearly not exempt from CARP coverage.

But Linda argues that the subject land is exempt from CARP because it was acquired by
her father via a homestead patent. She claims that the rights of homestead grantees have been
held superior to those of agrarian reform tenants and, thus, her right to the land must be upheld.
The OP, agreeing with Linda, stated that:

"There can be no question that, weighed against each other, the rights of a homesteader prevail
over the rights of the tenants guaranteed by agrarian reform laws.

As early as the case of Patricio v. Bayug, it has been held that the more paramount and
superior policy consideration is to uphold the right of the homesteader and his heirs to own and
cultivate personally the land acquired from the State without being encumbered by tenancy
relations.

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Just right after the promulgation of Republic Act No. 6657, otherwise known as the
Comprehensive Agrarian Reform Law (CARL), the doctrine enunciated in Patricio was applied in
Alita v. Court of Appeals where it was held that Presidential DecreeNo. 27 cannot be invoked to
defeat the very purpose of the enactment of the Public Land Act or Commonwealth Act No. 141. It
was pointed out that even the Philippine Constitution respects the superiority of the
homesteaders’ rights over the rights of the tenants guaranteed by the Agrarian Reform statute."

The right of homestead grantees to retain or keep their homestead is, however, not
absolutely guaranteed by law. Section 6 of R.A 6657 provides that:

"Section 6. Retention Limits.— Except as otherwise provided in this Act, no


person may own or retain, directly or indirectly, any public or private
agricultural land, the size of which shall vary according to factors governing a
viable family-size farm, such as commodity produced, terrain, infrastructure,
and soil fertility as determined by the Presidential Agrarian Reform Council
(PARC) created hereunder, but in no case shall retention by the landowner
exceed five (5) hectares. Three (3) hectares may be awarded to each child of the
landowner, subject to the following qualifications: (1) that he is at least fifteen
(15) years of age; and (2) that he is actually tilling the land or directly managing
the farm: provided, that landowners whose lands have been covered by
Presidential Decree No. 27 shall be allowed to keep the areas originally retained
by them thereunder: provided, further, that original homestead grantees or
their direct compulsory heirs who still own the original homestead at the time
of the approval of this Act shall retain the same areas as long as they continue
to cultivate said homestead.

Thus, in order for the homestead grantees or their direct compulsory heirs to retain or
keep their homestead, the following conditions must first be satisfied: (a) they must still be the
owners of the original homestead at the time of the CARL's effectivity, and (b) they must continue
to cultivate the homestead land.

In this case, Linda, as the direct compulsory heir of the original homestead grantee, is no
longer cultivating the homestead land. The OP misinterpreted our ruling in Paris v. Alfeche when
it held that Linda's mere expression of her desire to continue or to start anew with the cultivation
of the land would suffice to exempt the subject homestead land from the CARL. On the contrary,
the Court held in Paris v. Alfeche that:

"Indisputably, homestead grantees or their direct compulsory heirs can own and retain the
original homestead, only for "as long as they continue to cultivate" them. That parcels of
land are covered by homestead patents will not automatically exempt them from the
operation of land reform. It is the fact of continued cultivation by the original grantees or
their direct compulsory heirs that shall exempt their lands from land reform coverage."

REMMAN ENTERPRISES, INC. vs. REPUBLIC OF THE PHILIPPINES


G.R. No. 188494, November 26, 2014, J. Reyes

It is not enough for the PENRO or CENRO to certify that a land is alienable and disposable.
The applicant for land registration must prove that the DENR Secretary had approved the land
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classification and released the land of the public domain as alienable and disposable, and that the
land subject of the application for registration falls within the approved area per verification
through survey by the PENRO or CENRO. In addition, the applicant for land registration must
present a copy of the original classification approved by the DENR Secretary and certified as a true
copy by the legal custodian of the official records. Thus, the property registration of a corporation
merely relying on the CENRO Certification must be dismissed for failure to prove that the land had
been declared alienable and disposable.

Facts:

Petitioner Remman Enterprises, Inc. filed with the RTC an application for registration of a
parcel of land. Among its evidence were survey plans, tax declarations, and the testimonies of its
employees indicating that the property was acquired by Remman through a sale, and that it had
been occupying the same. It also presented a certification by the Community Environment and
Natural Resources Office of the DENR that the property is alienable and disposable land. The RTC
granted Remman’s application. The State, through the OSG, appealed to the CA, which reversed
the RTC, which held among others, that Remman should have also submitted a certification from
the proper government office stating that the properties were already declared alienable and
disposable.

Issue:

Was the alienable and disposable character of the properties duly established by the
CENRO Certification?

Ruling:

The petition is dismissed.

The CA’s dismissal of the Remman’s application for original registration was proper
considering the latter’s failure to sufficiently establish that the subject properties were already
declared alienable and disposable by the government. Its reliance on a Report, issued by the
CENRO was misplaced. It is not enough for the PENRO or CENRO to certify that a land is
alienable and disposable. The applicant for land registration must prove that the DENR Secretary
had approved the land classification and released the land of the public domain as alienable and
disposable, and that the land subject of the application for registration falls within the approved
area per verification through survey by the PENRO or CENRO. In addition, the applicant for land
registration must present a copy of the original classification approved by the DENR Secretary
and certified as a true copy by the legal custodian of the official records.

The burden of proof in overcoming the presumption of State ownership of the lands of the
public domain is on the person applying for registration, who must prove that the properties
subject of the application are alienable and disposable. Even the notations on the survey plans
submitted by the Remman cannot be admitted as evidence of the subject properties’ alienability
and disposability. Such notations do not constitute incontrovertible evidence to overcome the
presumption that the subject properties remain part of the inalienable public domain.

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Given the foregoing, the dismissal of the Remmanr's application for registration was
proper. Under pertinent laws and jurisprudence, it had to sufficiently establish that: first, the
subject properties form part of the disposable and alienable lands of the public domain; second,
the applicant and his predecessors-in-interest have been in open, continuous, exclusive, and
notorious possession and occupation of the same; and third, the possession is under a bona fide
claim of ownership since June 12, 1945 or earlier.

REPUBLIC OF THE PHILIPPINES vs. SPS. JOSE CASTUERA AND PERLA CASTUERA
G.R. No. 203384, January 14, 2015, J. Carpio

The applicant for land registration must prove that the DENR Secretary had approved the
land classification and released the land of the public domain as alienable and disposable, and that
the land subject of the application for registration falls within the approved area per verification
through survey by the PENRO or CENRO.

Facts:

Andres Valiente owned a 3,135-square meter land which he sold the property to Jose and
Perla Castuera during 1978. On May 2003, the Spouses Castuera filed with the RTC an application
for original registration of title over the property.

The Spouses Castuera presented three witnesses to support their application. The three
witnesses were: 1) former barangay captain and councilman Alfredo Dadural; 2) Senior Police
Officer 2 Teodorico Cudal; and 3) Perla Castuera. All witnesses testified that the Spouses Castuera
owned the property. The Spouses Castuera also presented documentary evidence to support their
application. The documents included tax receipts and an advance plan.

Petitioner Republic of the Philippines, through the Office of the Solicitor General, filed an
opposition to the application for original registration.

The court ruled that they are entitled therefore to a judicial confirmation of their
imperfect title to the said land pursuant to the provisions of P.D. 1529. Republic appealed the RTC
Decision to the Court of Appeals, in which the Spouses Castuera attached to their appellees’ brief
a certification from the Community Environment and Natural Resources Office (CENRO).

In its decision the appellate court affirmed the former’s decision in toto. It based its
decision on the records that there is substantial compliance with the requirement that the subject
land is alienable and disposable land. It bears to emphasize that the Advance Plan has the
following notations. Thus, the present petition.

Issue:

Whether or not the advance plan and the CENRO certification are insufficient proofs of
the alienable and disposable character of the property?

Ruling:

No, such document are insufficient proofs of alienable and disposable character of lands.
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The Spouses Castuera, as applicants for registration of title, must present a certified true
copy of the Department of Environment and Natural Resources Secretary’s declaration or
classification of the land as alienable and disposable.

In Republic of the Philippines v. Heirs of Juan Fabio, citing Republic v. T.A.N. Properties,
Inc., the Court held that, we ruled that it is not enough for the Provincial Environment and
Natural Resources Office (PENRO) or CENRO to certify that a land is alienable and disposable.
The applicant for land registration must prove that the DENR Secretary had approved the land
classification and released the land of the public domain as alienable and disposable, and that the
land subject of the application for registration falls within the approved area per verification
through survey by the PENRO or CENRO.

In addition, the applicant must present a copy of the original classification of the land
into alienable and disposable, as declared by the DENR Secretary, or as proclaimed by the
President. Such copy of the DENR Secretary’s declaration or the President’s proclamation must be
certified as a true copy by the legal custodian of such official record. These facts must be
established to prove that the land is alienable and disposable.

REBECCA FULLIDO vs. GINO GRILLI


G.R. No. 202223, February 29, 2016, J. Mendoza

Facts:

Gino Grilli, an Italian national, met Rebecca in Bohol and courted her. To build a
residential house where he can stay during his visits in the Philippines, Gino helped Rebecca buy
for her parents a lot located in Dauis, Bohol; the lot was eventually registered in her name under
TCT No. 30626, and a house was constructed thereon where Gino and Rebecca maintained their
common-law relationship.

In 1998, Gino and Rebecca executed a contract of lease, a memorandum of agreement, and
a special power of attorney to define their respective rights over the property. Under their
agreements, Gino as lessee, would rent the lot for a period of 50 years, to be automatically
renewed fro another 50 years upon its expiration, for the amount of P10,000.00 for the whole term
of the lease, and Rebecca as the lessor is prohibited from selling, donating, or encumbering the lot
without the consent of Gino. The MOA on the other hand stated that Gino owned the house and
lot, and that should their common-law relationship be terminated, Rebecca could only sell the lot
to whomever Gino so desired. The SPA on the other hand allowed Gino to administer, manage
and transfer the lot in favor of Rebecca.

At first, their relationship were harmonious; however, it soon turned sour, both charging
each other with infidelity. They could not agree on who should manage the property. Gino thus
sent Rebecca notice to vacate. Gino later filed a complaint for unlawful detainer against Rebecca
before the MCTC. In his complaint, Gino alleged that their relationship turned sour when she

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gave birth to a child, which she alleged was Gino’s child. Gino doubted it as the child’s features
clearly did not resemble his. Rebecca later admitted that it was not his child. Because of this,
Gino allowed her to stay in one of the rooms, but did not demand rent.

After a year, Rebecca became more hostile; allowing her relatives to stay in the house,
necessitating repairs every time he comes back to the Philippines; since he could not tolerate
anymore Rebecca’s hostility, he decided to file the complaint.

Rebecca on the other hand alleged that their common-law relationship lasted for 18 years
when Gino found a younger woman. He then began to harass her and physically hurt her. When
she refused to leave their house, Gino again harassed, intimidated and threatened to hurt her,
forcing her to file a petition for issuance of temporary restraining order and PPO under RA 9262
against him. The RTC granted her petition and ordered Gino excluded from the property.

The MCTC ruled in favor of Rebecca, dismissing the case. The RTC, however, reversed the
MCTC’s ruling and held that Grilli had the exclusive right to use and possess the house and lot by
virtue of the contract of lease executed by the parties. Since the period of lease had not yet
expired, Fullido, as lessor, had the obligation to respect the peaceful and adequate enjoyment of
the leased premises by Grilli as lessee. As to the TPO, the RTC held that the same had no bearing
in the present case, which merely involved the possession of the leased property.

The CA affirmed the RTC ruling, emphasizing that in an ejectment case, the only issue to
be resolved would be the physical possession of the property. The CA was also of the view that as
Fullido executed both the MOA and the contract of lease, which gave Grilli the possession and
use of the house and lot, the same constituted as a judicial admission that it was Grilli who had
the better right of physical possession. Lastly, the CA stated that the TPO was without prejudice
to any other action that might be filed by the parties.

Issues:

1) Whether a contract could be declared void in a summary action of unlawful detainer.


2) Whether the assailed lease contract and MOA are null and void.
3) Whether Grilli has a cause of action for unlawful detainer against Fullido.

Ruling:

1) A contract could be declared void in a summary action of unlawful detainer.

Contracts may be declared void even in a summary action for unlawful detainer because,
precisely, void contracts do not produce legal effect and cannot be the source of any rights. Void
contracts may not be invoked as a valid action or defense in any court proceeding, including an
ejectment suit.

2) The assailed lease contract and MOA are null and void.

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Under Section 1 of Article XIII of the 1935 Constitution, natural resources shall not be
alienated, except with respect to public agricultural lands and in such cases, the alienation is
limited to Filipino citizens. Concomitantly, Section 5 thereof states that, save in cases of
hereditary succession, no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain
in the Philippines.

The prohibition, however, is not limited to the sale of lands to foreigners. It also covers
leases of lands amounting to the transfer of all or substantially all the rights of dominion. 2)
Respondents are liable to reimburse petitioners the amount paid by Leandro. Where a
scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens is
readily revealed as the purpose for the contracts, then the illicit purpose becomes the illegal cause
rendering the contracts void. Thus, if an alien is given not only a lease of, but also an option to
buy, a piece of land by virtue of which the Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years. However, a lease contract in favor of aliens for a reasonable
period was valid as long as it did not have any scheme to circumvent the constitutional
prohibition.

Presidential Decree (P.D.) No. 471 provides that the maximum period allowable for the
duration of leases of private lands to aliens or alien-owned corporations, associations, or entities
not qualified to acquire private lands in the Philippines shall be twenty-five (25) years, renewable
for another period of twenty-five (25) years upon mutual agreement of both lessor and lessee.⁠ It
also provides that any contract or agreement made or executed in violation thereof shall be null
and void ab initio.⁠

Here, the lease in favor of Grilli was for a period of 50 years, automatically extended for
another 50) years upon the expiration of the original period. Moreover, it strictly prohibited
Fullido from selling, donating, or encumbering her land to anyone without the written consent of
Grilli. For a measly consideration of P 10,000.00, Grilli would be able to absolutely occupy the
land of Fullido for 100 years, and she is powerless to dispose the same. The terms of lease
practically deprived Fullido of her property rights and effectively transferred the same to Grilli.
Worse, the dominion of Grilli over the land had been firmly cemented by the terms of the MOA
as it reinforced Grilli’s property rights over the land. Clearly, the lease contract and the MOA in
the present case are null and void for virtually transferring the reigns of the land to a foreigner.

3) Grilli does not have a cause of action for unlawful detainer against Fullido.

One of the requirements for filing a complaint for unlawful detainer under Section 1 of
Rule 70 of the Rules of Court is that it should be filed by a lessor, vendor, vendee, or other person
against whom the possession of any land or building is unlawfully withheld. Considering that the
lease contract and the MOA are null and void for being unconstitutional, Grilli cannot be said to
have a right of possession over the property. A person who does not have any right over a
property from the beginning cannot eject another person possessing the same.

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REGISTRATION OF LAND
SPOUSES BERNADETTE AND RODULFO VILBAR vs. ANGELITO L. OPINION
G.R. No. 176043. January 15, 2014
J. Del Castillo

Registration is the operative act which gives validity to the transfer or creates a lien upon the
land. A certificate of title serves as evidence of an indefeasible and incontrovertible title to the
property in favor of the person whose name appears therein. Since the spouses Vilbar did not cause
the transfer of the certificate title in their name, or at the very least, annotate or register such sale
in the original title in the name of Dulos Realty, have no indefeasible and incontrovertible title
over Lot 20 to support their claim.

Facts:

Spouses Vilbar claimed that they and Dulos Realty and Development Corporation (Dulos Realty),
entered into a Contract to Sell a lot designated as Lot 20-B located in Airmen’s Village, Las Piñas
City. Spouses Vilbar and Dulos Realty also executed a Contract to Sell covering Lot 21, Block 4 of
Airmen’s Village. The spouses Vilbar obtained a housing loan from the Development Bank of the
Philippines (DBP) secured by a real estate mortgage over the said lot. The spouses Vilbar were
able to pay the loan in full and DBP issued the requisite Cancellation of Mortgage. The spouses
Vilbar have been in actual, open and peaceful possession of Lot 21 and occupy the same as
absolute owners since 1981.

In contrast, Opinion claimed that he legally acquired Lots 20 and 21 through extra-judicial
foreclosure of mortgage constituted over the said properties by Otilio Gorospe, Sr. and Otilio
“Lito” Gorospe, Jr. (Gorospes) in his favor. Opinion alleged that on the Gorospes borrowed money
and to secure the loan, executed a Deed of Real Estate Mortgage over the subject lots covered by
TCT Nos. T-44796 (Lot 21) and T-44797 (Lot 20). The Gorospes defaulted, prompting Opinion to
file a Petition for Extra-Judicial Foreclosure of Real Estate Mortgage. Subsequently, the subject
properties were sold at a public auction where Opinion emerged as the highest bidder. A
Certificate of Sale was issued in his favor. The Gorospes failed to redeem the properties within the
reglementary period resulting in the eventual cancellation of their titles. Thus, TCT No. T-59010
(Lot 21) and TCT No. T-59011 (Lot 20) in the name of Opinion were issued by the Registry of
Deeds of Las Piñas City.

Opinion filed a Complaint for Accion Reinvindicatoria with Damages for him to be declared as the
lawful owner and possessor of the subject properties and for his titles to be declared as authentic.
He likewise prayed for the cancellation of the titles of spouses Vilbar and Elena.

The RTC ruled in favor of Opinion declaring that he lawfully acquired the disputed properties and
that his titles are valid, the sources of which having been duly established. Aggrieved, the Spouses
Vilbar elevated the matter to the CA. The CA affirmed the RTC decision. Hence, this petition.

Issue:

Who between the parties has a better right over Lots 20 and 21

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Ruling:

Proofs of ownership of spouses Vilbar over Lots 20 and 21 are insufficient to conclude real
ownership, thus, they cannot be considered as owners of subject lots.

A review of these documents in support of the claim of ownership of the spouses Vilbar leads the
Court to the same inescapable conclusion reached by the trial court. With regard to Lot 20,
spouses Vilbar brag of a Deed of Absolute Sale executed by Dulos Realty in their favor and aver
that they have the owner’s copy of TCT No. S-39849 and are presently enjoying actual possession
of said property. However, these are not sufficient proofs of ownership. For some unknown
reasons, the spouses Vilbar did not cause the transfer of the certificate title in their name, or at
the very least, annotate or register such sale in the original title in the name of Dulos Realty. This,
sadly, proved fatal to their cause. Time and time again, this Court has ruled that “a
certificate of title serves as evidence of an indefeasible and incontrovertible title to the
property in favor of the person whose name appears therein.” Having no certificate of title
issued in their names, spouses Vilbar have no indefeasible and incontrovertible title over Lot 20 to
support their claim. Further, it is an established rule that “registration is the operative act
which gives validity to the transfer or creates a lien upon the land.” “Any buyer or mortgagee
of realty covered by a Torrens certificate of title x x x is charged with notice only of such burdens
and claims as are annotated on the title.” Failing to annotate the deed for the eventual transfer of
title over Lot 20 in their names, the spouses Vilbar cannot claim a greater right over Opinion, who
acquired the property with clean title in good faith and registered the same in his name by going
through the legally required procedure.

With respect to Lot 21, the Court is likewise puzzled as to why spouses Vilbar’s TCT No. 36777
does not indicate where it came from. The issuance of the said title also becomes suspect in light
of the fact that no Deed of Absolute Sale was ever presented as basis for the transfer of the title
from Dulos Realty. In fact, the spouses Vilbar do not even know if a Deed of Absolute Sale over
Lot 21 was executed in their favor. As the evidence extant on record stands, only a Contract to Sell
which is legally insufficient to serve as basis for the transfer of title over the property is available.
At most, it affords spouses Vilbar an inchoate right over the property. Absent that important deed
of conveyance over Lot 21 executed between Dulos Realty and the spouses Vilbar, TCT No. 36777
issued in the name of Bernadette Vilbar cannot be deemed to have been issued in accordance
with the processes required by law. In the same manner, absent the corresponding inscription or
annotation of the required transfer document in the original title issued in the name of Dulos
Realty, third parties are not charged with notice of said burden and/or claim over the property.
The aforementioned flaws in the title (TCT No. 36777) of spouses Vilbar is aggravated by the
2nd Indorsement dated May 11, 1988 of the Registry of Deeds of Pasay City which provides that TCT
No. 36777 is presumed not to have been validly issued considering that no inscription or
annotation exists at the back of the original title (TCT No. S-39850) showing that a deed of sale
between Dulos Realty and spouses Vilbar had been registered, coupled with the established
material discrepancies in the certificate of title in the custody of the Registry of Deeds of Las Piñas
City and the title presented by the spouses Vilbar.

Simply, the spouses Vilbar were not able to present material evidence to prove that TCT No.
36777 was issued in accordance with the land registration rules.

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In addition, the real estate mortgage entered into by the spouses Vilbar with the DBP does not, by
itself, result in a conclusive presumption that they have a valid title to Lot 21. The basic fact
remains that there is no proof of conveyance showing how they acquired ownership over Lot 21
justifying the issuance of the certificate of title in their name.

With respect to the tax declarations, the trial court aptly declared, thus:

As to the tax declarations and real property tax payments made by the defendants Sps.
Vilbar for Lot 21 the same are of no moment. It has been held that tax declarations are
not conclusive proofs of ownership, let alone of the private character of the land – at
best, they are merely ‘indicia of a claim of ownership.’ (Seville v. National Development
Company, 351 SCRA 112) However, and with the plaintiff presenting convincing
evidence of the basis and validity of his acquisition of the subject lots, such “indicia” in
favor of the defendant Sps. Vilbar had been effectively impugned or refuted.

REPUBLIC OF THE PHILIPPINES vs. EMMANUEL C. CORTEZ


G.R. No. 186639. February 05, 2014
J. Reyes

Applicants for registration of title must sufficiently establish first, that the subject land
forms part of the disposable and alienable lands of the public domain; second, that the applicant and
his predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and
occupation of the same; and third, that it is under a bona fide claim of ownership since June 12, 1945,
or earlier. In the absence any of the enumerated requisites, the application for registration of title of
a land will not prosper. Since petitioner failed to comply with the legal requirements for the
registration of the subject property, he cannot be granted with a registration of title of the property
under his name.

Facts:

Respondent Emmanuel C. Cortez (Cortez) filed with the RTC an application for judicial
confirmation of title over a parcel of land. In support of his application, Cortez submitted, inter
alia, the following documents: (1) tax declarations for various years from 1966 until 2005; (2)
survey plan of the property, with the annotation that the property is classified as alienable and
disposable; (3) technical description of the property, with a certification issued by a geodetic
engineer; (4) tax clearance certificate; (5) extrajudicial settlement of estate dated March 21, 1998,
conveying the subject property to Cortez; and (6) escritura de particion extrajudicial dated July 19,
1946, allocating the subject property to Felicisima Cotas – Cortez’ mother.

As there was no opposition, the RTC issued an Order of General Default and Cortez was
allowed to present his evidence ex-parte. Subsequently, the RTC rendered a Decision, which
granted Cortez’ application for registration.

The Republic of the Philippines (petitioner), represented by the Office of the Solicitor
General, appealed to the CA, alleging that the RTC erred in granting the application for
registration despite the failure of Cortez to comply with the requirements for original registration

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of title. The petitioner pointed out that, although Cortez declared that he and his predecessors-in-
interest were in possession of the subject parcel of land since time immemorial, no document was
ever presented that would establish his predecessors-in-interest’s possession of the same during
the period required by law. That petitioner claimed that Cortez’ assertion that he and his
predecessors-in-interest had been in open, adverse, and continuous possession of the subject
property for more than thirty (30) years does not constitute well-neigh incontrovertible evidence
required in land registration cases; that it is a mere claim, which should not have been given
weight by the RTC. Further, the petitioner alleged that there was no certification from any
government agency that the subject property had already been declared alienable and disposable.
As such, the petitioner claims, Cortez’ possession of the subject property, no matter how long,
cannot confer ownership or possessory rights.

The CA dismissed petitioner’s appeal and affirmed the RTC decision. Hence, this instant
petition.

Issue:

Whether the Cortez’ application for registration should be granted

Ruling:

Applicants for original registration of title to land must establish compliance with the provisions
of Section 14 of P.D. No. 1529, which pertinently provides that:

Sec. 14. Who may apply. The following persons may file in the proper Court of First
Instance an application for registration of title to land, whether personally or through
their duly authorized representatives:

(1) Those who by themselves or through their predecessors-in interest have been in
open, continuous, exclusive and notorious possession and occupation of alienable and
disposable lands of the public domain under a bona fide claim of ownership since June
12, 1945, or earlier.

(2) Those who have acquired ownership of private lands by prescription under the
provision of existing laws.

xxxx

After a careful scrutiny of the records of this case, the Court finds that Cortez failed to comply
with the legal requirements for the registration of the subject property under Section 14(1) and (2)
of P.D. No. 1529.

Section 14(1) of P.D. No. 1529 refers to the judicial confirmation of imperfect or incomplete titles
to public land acquired under Section 48(b) of C.A. No. 141, as amended by P.D. No. 1073. “Under
Section 14(1) [of P.D. No. 1529], applicants for registration of title must sufficiently establish first,
that the subject land forms part of the disposable and alienable lands of the public
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domain; second, that the applicant and his predecessors-in-interest have been in open,
continuous, exclusive, and notorious possession and occupation of the same; and third, that it is
under a bona fide claim of ownership since June 12, 1945, or earlier.”

The first requirement was not satisfied in this case. To prove that the subject property forms part
of the alienable and disposable lands of the public domain, Cortez adduced in evidence a survey
plan Csd-00-000633 (conversion-subdivision plan of Lot 2697, MCadm 594-D, Pateros Cadastral
Mapping) prepared by Geodetic Engineer Oscar B. Fernandez and certified by the Lands
Management Bureau of the DENR.

However, Cortez’ reliance on the foregoing annotation in the survey plan is amiss; it does not
constitute incontrovertible evidence to overcome the presumption that the subject property
remains part of the inalienable public domain. In Republic of the Philippines v. Tri-Plus
Corporation, the Court clarified that, the applicant must at the very least submit a certification
from the proper government agency stating that the parcel of land subject of the application for
registration is indeed alienable and disposable.

The annotation in the survey plan presented by Cortez is not the kind of evidence required by law
as proof that the subject property forms part of the alienable and disposable land of the public
domain. Cortez failed to present a certification from the proper government agency as to the
classification of the subject property. Cortez likewise failed to present any evidence showing that
the DENR Secretary had indeed classified the subject property as alienable and disposable. Having
failed to present any incontrovertible evidence, Cortez’ claim that the subject property forms part
of the alienable and disposable lands of the public domain must fail.

Anent the second and third requirements, the Court finds that Cortez likewise failed to establish
the same. Cortez failed to present any evidence to prove that he and his predecessors-in-interest
have been in open, continuous, exclusive, and notorious possession and occupation of the subject
property since June 12, 1945, or earlier. Cortez was only able to present oral and documentary
evidence of his and his mother’s ownership and possession of the subject property since 1946, the
year in which his mother supposedly inherited the same.

Other than his bare claim that his family possessed the subject property since time immemorial,
Cortez failed to present any evidence to show that he and his predecessors-in-interest indeed
possessed the subject property prior to 1946; it is a mere claim and not factual proof of possession.
“It is a rule that general statements that are mere conclusions of law and not factual proof of
possession are unavailing and cannot suffice. An applicant in a land registration case cannot just
harp on mere conclusions of law to embellish the application but must impress thereto the facts
and circumstances evidencing the alleged ownership and possession of the land.”

Further, the earliest tax declaration presented by Cortez was only in 1966. Cortez failed to explain
why, despite his claim that he and his predecessors-in-interest have been in possession of the
subject property since time immemorial, it was only in 1966 that his predecessors-in-interest
started to declare the same for purposes of taxation.

That Cortez and his predecessors-in-interest have been in possession of the subject property for
fifty-seven (57) years at the time he filed his application for registration in 2003 would likewise
not entitle him to registration thereof under Section 14(2) of P.D. No. 1529.

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Section 14(2) of P.D. No. 1529 sanctions the original registration of lands acquired by prescription
under the provisions of existing laws. “As Section 14(2) [of P.D. No. 1529] categorically provides,
only private properties may be acquired thru prescription and under Articles 420 and 421 of the
Civil Code, only those properties, which are not for public use, public service or intended for the
development of national wealth, are considered private.”

The Court emphasized that there must be an official declaration by the State that the public
dominion property is no longer intended for public use, public service, or for the development of
national wealth before it can be acquired by prescription; that a mere declaration by government
officials that a land of the public domain is already alienable and disposable would not suffice for
purposes of registration under Section 14(2) of P.D. No. 1529. The Court further stressed that the
period of acquisitive prescription would only begin to run from the time that the State officially
declares that the public dominion property is no longer intended for public use, public service, or
for the development of national wealth.

Accordingly, although lands of the public domain that are considered patrimonial may be
acquired by prescription under Section 14(2) of P.D. No. 1529, before acquisitive prescription
could commence, the property sought to be registered must not only be classified as alienable and
disposable; it must also be declared by the State that it is no longer intended for public use, public
service or the development of the national wealth. Thus, absent an express declaration by the
State, the land remains to be property of public dominion.

The Court finds no evidence of any official declaration from the state attesting to the patrimonial
character of the subject property. Cortez failed to prove that acquisitive prescription has begun to
run against the State, much less that he has acquired title to the subject property by virtue
thereof. It is of no moment that Cortez and his predecessors-in-interest have been in possession
of the subject property for 57 years at the time he applied for the registration of title thereto. “[I]t
is not the notorious, exclusive and uninterrupted possession and occupation of an alienable and
disposable public land for the mandated periods that converts it to patrimonial. The
indispensability of an official declaration that the property is now held by the State in its private
capacity or placed within the commerce of man for prescription to have any effect against the
State cannot be overemphasized.”

REPUBLIC OF THE PHILIPPINES vs. REMMAN ENTERPRISES, INC., REPRESENTED BY


RONNIE P. INOCENCIO
G.R. No. 199310. February 19, 2014
J. Reyes

Applicants for registration of title must sufficiently establish: first, that the subject land
forms part of the disposable and alienable lands of the public domain; second, that the applicant and
his predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and
occupation of the same; and third, that it is under a bona fide claim of ownership since June 12, 1945,
or earlier.

For the second requisite, mere cultivation of the portions of land cannot constitute as
possession. Even if the claimant continuously cultivated the land, he cannot be said to have

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occupied the same. The claimant must prove possession, as well as occupation, in the performance
of acts of ownership of the property.

Under the Regalian Doctrine, all lands of public domain belong to the state. So unless there
is an unequivocal showing that a party met all the requirements for the application of registration,
the ownership remains with the state.

Facts:

Remman Enterprises, Inc. (respondent), filed an application with the RTC for judicial
confirmation of title over two parcels of land identified as Lot Nos. 3068 and 3077.

The RTC issued the Order finding the respondent’s application for registration sufficient in form
and substance and setting it for initial hearing

When the RTC called the case for initial hearing, only the Laguna Lake Development Authority
(LLDA) appeared as oppositor. Thus, the LLDA filed its Opposition to the respondent’s
application for registration, asserting that Lot Nos. 3068 and 3077 are not part of the alienable and
disposable lands of the public domain. On the other hand, the Republic of the Philippines
(petitioner), on July 16, 2002, likewise filed its Opposition, alleging that the respondent failed to
prove that it and its predecessors-in-interest have been in open, continuous, exclusive, and
notorious possession of the subject parcels of land since June 12, 1945 or earlier.

The RTC rendered a judgment confirming the title of the applicant Remman Enterprises
Incorporated over the parcels of land. The CA affirmed the RTC decision. Hence, this instant
petition.

Issue:

Whether the respondent’s application for registration should be granted

Ruling:

The petitioner maintains that the lower courts erred in granting the respondent’s application for
registration since the subject properties do not form part of the alienable and disposable lands of
the public domain. The petitioner insists that the elevations of the subject properties are below
the reglementary level of 12.50 m and, pursuant to Section 41(11) of R.A. No. 4850, are considered
part of the bed of Laguna Lake.

That the subject properties are not part of the bed of Laguna Lake, however, does not necessarily
mean that they already form part of the alienable and disposable lands of the public domain. It is
still incumbent upon the respondent to prove, with well-nigh incontrovertible evidence, that the
subject properties are indeed part of the alienable and disposable lands of the public domain.
While deference is due to the lower courts’ finding that the elevations of the subject properties
are above the reglementary level of 12.50 m and, hence, no longer part of the bed of Laguna Lake
pursuant to Section 41(11) of R.A. No. 4850, the Court nevertheless finds that the respondent failed
to substantiate its entitlement to registration of title to the subject properties.

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The respondent filed its application for registration of title to the subject properties under Section
14(1) of Presidential Decree (P.D.) No. 1529, which provides that:

Sec. 14. Who may apply. The following persons may file in the proper Court of First
Instance an application for registration of title to land, whether personally or through
their duly authorized representatives:

(1) Those who by themselves or through their predecessors-in interest have been in
open, continuous, exclusive and notorious possession and occupation of alienable and
disposable lands of the public domain under a bona fide claim of ownership since June
12, 1945, or earlier.

xxx

Section 14(1) of P.D. No. 1529 refers to the judicial confirmation of imperfect or incomplete
titles to public land acquired under Section 48(b) of Commonwealth Act (C.A.) No. 141, or
the Public Land Act, as amended by P.D. No. 1073. Under Section 14(1) of P.D. No. 1529,
applicants for registration of title must sufficiently establish: first, that the subject land
forms part of the disposable and alienable lands of the public domain; second, that the
applicant and his predecessors-in-interest have been in open, continuous, exclusive, and
notorious possession and occupation of the same; and third, that it is under a bona
fide claim of ownership since June 12, 1945, or earlier.

The first requirement was not satisfied in this case. To prove that the subject property forms part
of the alienable and disposable lands of the public domain, the respondent presented two
certifications issued by Calamno, attesting that Lot Nos. 3068 and 3077 form part of the alienable
and disposable lands of the public domain “under Project No. 27-B of Taguig, Metro Manila as per
LC Map 2623, approved on January 3, 1968.”

However, the said certifications presented by the respondent are insufficient to prove that the
subject properties are alienable and disposable. In Republic of the Philippines v. T.A.N. Properties,
Inc., the Court clarified that, in addition to the certification issued by the proper government
agency that a parcel of land is alienable and disposable, applicants for land registration must
prove that the DENR Secretary had approved the land classification and released the land of
public domain as alienable and disposable. They must present a copy of the original classification
approved by the DENR Secretary and certified as true copy by the legal custodian of the records.

The DENR certifications that were presented by the respondent in support of its application for
registration are thus not sufficient to prove that the subject properties are indeed classified by the
DENR Secretary as alienable and disposable. It is still imperative for the respondent to present a
copy of the original classification approved by the DENR Secretary, which must be certified by the
legal custodian thereof as a true copy. Accordingly, the lower courts erred in granting the
application for registration in spite of the failure of the respondent to prove by well-nigh
incontrovertible evidence that the subject properties are alienable and disposable.

Anent the second and third requirements, the Court finds that the respondent failed to present
sufficient evidence to prove that it and its predecessors-in-interest have been in open, continuous,

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exclusive, and notorious possession and occupation of the subject properties since June 12, 1945,
or earlier.

To prove that it and its predecessors-in-interest have been in possession and occupation of the
subject properties since 1943, the respondent presented the testimony of Cerquena. The foregoing
are but unsubstantiated and self-serving assertions of the possession and occupation of the
subject properties by the respondent and its predecessors-in-interest; they do not constitute the
well-nigh incontrovertible evidence of possession and occupation of the subject properties
required by Section 14(1) of P.D. No. 1529. Indeed, other than the testimony of Cerquena, the
respondent failed to present any other evidence to prove the character of the possession and
occupation by it and its predecessors-in-interest of the subject properties.

For purposes of land registration under Section 14(1) of P.D. No. 1529, proof of specific acts of
ownership must be presented to substantiate the claim of open, continuous, exclusive, and
notorious possession and occupation of the land subject of the application. Applicants for land
registration cannot just offer general statements which are mere conclusions of law rather than
factual evidence of possession. Actual possession consists in the manifestation of acts of dominion
over it of such a nature as a party would actually exercise over his own property.

Although Cerquena testified that the respondent and its predecessors-in-interest cultivated the
subject properties, by planting different crops thereon, his testimony is bereft of any specificity as
to the nature of such cultivation as to warrant the conclusion that they have been indeed in
possession and occupation of the subject properties in the manner required by law. There was no
showing as to the number of crops that are planted in the subject properties or to the volume of
the produce harvested from the crops supposedly planted thereon.

Further, assuming ex gratia argumenti that the respondent and its predecessors-in-interest have
indeed planted crops on the subject properties, it does not necessarily follow that the subject
properties have been possessed and occupied by them in the manner contemplated by law. The
supposed planting of crops in the subject properties may only have amounted to mere casual
cultivation, which is not the possession and occupation required by law.

Further, the Court notes that the tax declarations over the subject properties presented by the
respondent were only for 2002. The respondent failed to explain why, despite its claim that it
acquired the subject properties as early as 1989, and that its predecessors-in-interest have been in
possession of the subject property since 1943, it was only in 2002 that it started to declare the
same for purposes of taxation. “While tax declarations are not conclusive evidence of ownership,
they constitute proof of claim of ownership.” That the subject properties were declared for
taxation purposes only in 2002 gives rise to the presumption that the respondent claimed
ownership or possession of the subject properties starting that year. Likewise, no improvement or
plantings were declared or noted in the said tax declarations. This fact belies the claim that the
respondent and its predecessors-in-interest, contrary to Cerquena’s testimony, have been in
possession and occupation of the subject properties in the manner required by law.

Having failed to prove that the subject properties form part of the alienable and disposable lands
of the public domain and that it and its predecessors-in-interest have been in open, continuous,
exclusive, and notorious possession and occupation of the same since June 12, 1945, or earlier, the
respondent’s application for registration should be denied.

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SPS. ANTONIO FORTUNA AND ERLINDA FORTUNA vs. REPUBLIC OF THE PHILIPPINES
G.R. No. 173423. March 05, 2014
J. Brion

For failure to present incontrovertible evidence that Lot No. 4457 has been reclassified as
alienable and disposable land of the public domain though a positive act of the Executive
Department, as well as present proof of that they possessed Lot No. 4457 since May 8, 1947, the
spouses Fortuna’s application for registration of title must be denied.

Facts:

The spouses Fortuna filed an application for registration of a 2,597-square meter land identified as
Lot No. 4457. The spouses Fortuna stated that Lot No. 4457 was originally owned by Pastora
Vendiola, upon whose death was succeeded by her children, Clemente and Emeteria Nones.
Emeteria renounced all her interest in Lot No. 4457 in favor of Clemente. Clemente later sold the
lot in favor of Rodolfo Cuenca. Rodolfo sold the same lot to the spouses Fortuna through a deed
of absolute sale.

The spouses Fortuna claimed that they, through themselves and their predecessors-in-interest,
have been in quiet, peaceful, adverse and uninterrupted possession of Lot No. 4457 for
more than 50 years, and submitted as evidence the lot’s survey plan, technical description, and
certificate of assessment.

Although the respondent, Republic of the Philippines (Republic), opposed the application, it did
not present any evidence in support of its opposition. Since no private opposition to the
registration was filed, the RTC issued an order of general default against the whole world, except
the Republic.

In its Decision dated May 7, 2001, the RTC granted the application for registration in favor of the
spouses Fortuna.

The Republic appealed the RTC decision with the CA, arguing that the spouses Fortuna did not
present an official proclamation from the government that the lot has been classified as alienable
and disposable agricultural land. It also claimed that the spouses Fortuna’s evidence – Tax
Declaration No. 8366 – showed that possession over the lot dates back only to 1948, thus, failing
to meet the June 12, 1945 cut-off period provided under Section 14(1) of Presidential Decree (PD)
No. 1529 or the Property Registration Decree (PRD).

In its decision dated May 16, 2005, the CA reversed and set aside the RTC decision. The CA denied
the spouses Fortuna’s motion for reconsideration of its decision.

Issue:

Whether petitioner’s application for registration of title should be granted

Ruling:

The nature of Lot No. 4457 as alienable and disposable public land has not been sufficiently
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established

The Constitution declares that all lands of the public domain are owned by the State. Of the four
classes of public land, i.e., agricultural lands, forest or timber lands, mineral lands, and national
parks, only agricultural lands may be alienated. Public land that has not been classified as
alienable agricultural land remains part of the inalienable public domain. Thus, it is essential for
any applicant for registration of title to land derived through a public grant to establish
foremost the alienable and disposable nature of the land. The Public Land Act (PLA)
provisions on the grant and disposition of alienable public lands, specifically, Sections 11 and
48(b), will find application only from the time that a public land has been classified as agricultural
and declared as alienable and disposable.

In this case, the CA declared that the notation in the survey plan established the alienable
nature of the land. It also relied on the from the DENR Community Environment and Natural
Resources Office (CENRO) that “there is, per record, neither any public land application filed nor
title previously issued for the subject parcel[.]” However, the court finds that neither of the
above documents is evidence of a positive act from the government reclassifying the lot as
alienable and disposable agricultural land of the public domain.

Mere notations appearing in survey plans are inadequate proof of the covered properties’
alienable and disposable character. These notations, at the very least, only establish that the
land subject of the application for registration falls within the approved alienable and disposable
area per verification through survey by the proper government office. The applicant, however,
must also present a copy of the original classification of the land into alienable and
disposable land, as declared by the DENR Secretary or as proclaimed by the President.

The survey plan and the DENR-CENRO certification are not proof that the President or the DENR
Secretary has reclassified and released the public land as alienable and disposable. The offices that
prepared these documents are not the official repositories or legal custodian of the issuances
of the President or the DENR Secretary declaring the public land as alienable and disposable.

For failure to present incontrovertible evidence that Lot No. 4457 has been reclassified as
alienable and disposable land of the public domain though a positive act of the Executive
Department, the spouses Fortuna’s claim of title through a public land grant under the PLA
should be denied.

In judicial confirmation of imperfect or incomplete title, the period of possession should


commence, at the latest, as of May 9, 1947

Although the above finding that the spouses Fortuna failed to establish the alienable and
disposable character of Lot No. 4457 serves as sufficient ground to deny the petition and
terminate the case, the court deems it proper to continue to address the other important legal
issues raised in the petition.

The PLA is the law that governs the grant and disposition of alienable agricultural lands. Under
Section 11 of the PLA, alienable lands of the public domain may be disposed of, among others, by
judicial confirmation of imperfect or incomplete title. This mode of acquisition of title is
governed by Section 48(b) of the PLA, the original version of which states:

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Sec. 48. The following-described citizens of the Philippines, occupying lands of the
public domain or claiming to own any such lands or an interest therein, but whose
titles have not been perfected or completed, may apply to the Court of First
Instance of the province where the land is located for confirmation of their claims
and the issuance of a certificate of title therefor, under the Land Registration Act, to
wit:

xxxx

(b) Those who by themselves or through their predecessors-in- interest have been
in open, continuous, exclusive, and notorious possession and occupation of
agricultural lands of the public domain, under a bona fide claim of acquisition or
ownership, except as against the Government, since July twenty-sixth, eighteen
hundred and ninety-four, except when prevented by war or force majeure. These
shall be conclusively presumed to have performed all the conditions essential to a
government grant and shall be entitled to a certificate of title under the provisions
of this chapter. [emphasis supplied]

On June 22, 1957, the cut-off date of July 26, 1894 was replaced by a 30-year period of possession
under RA No. 1942. Section 48(b) of the PLA, as amended by RA No. 1942, read:

(b) Those who by themselves or through their predecessors in interest have been in
open, continuous, exclusive and notorious possession and occupation of
agricultural lands of the public domain, under a bona fide claim of acquisition of
ownership, for at least thirty years immediately preceding the filing of the
application for confirmation of title, except when prevented by war or force
majeure. [emphasis and underscore ours]

On January 25, 1977, PD No. 1073 replaced the 30-year period of possession by requiring
possession since June 12, 1945. Section 4 of PD No. 1073 reads:

SEC. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII of the Public
Land Act are hereby amended in the sense that these provisions shall apply only to
alienable and disposable lands of the public domain which have been in open,
continuous, exclusive and notorious possession and occupation by the applicant
himself or thru his predecessor-in-interest, under a bona fide claim of acquisition of
ownership, since June 12, 1945. [emphasis supplied]

Under the PD No. 1073 amendment, possession of at least 32 years – from 1945 up to its
enactment in 1977 – is required. This effectively impairs the vested rights of applicants who had
complied with the 30-year possession required under the RA No. 1942 amendment, but whose
possession commenced only after the cut-off date of June 12, 1945 was established by the PD No.
1073 amendment. To remedy this, the Court ruled in Abejaron v. Nabasa that “Filipino citizens
who by themselves or their predecessors-in-interest have been, prior to the effectivity of P.D.
1073 on January 25, 1977, in open, continuous, exclusive and notorious possession and occupation
of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership,
for at least 30 years, or at least since January 24, 1947 may apply for judicial confirmation of
their imperfect or incomplete title under Sec. 48(b) of the [PLA].” January 24, 1947 was

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considered as the cut-off date as this was exactly 30 years counted backward from January
25, 1977 – the effectivity date of PD No. 1073.

It appears, however, that January 25, 1977 was the date PD No. 1073 was enacted; based on the
certification from the National Printing Office, PD No. 1073 was published in Vol. 73, No. 19 of
the Official Gazette, months later than its enactment or on May 9, 1977. This uncontroverted
fact materially affects the cut-off date for applications for judicial confirmation of incomplete title
under Section 48(b) of the PLA.

Although Section 6 of PD No. 1073 states that “[the] Decree shall take effect upon its
promulgation,” the Court has declared in Tañada, et al. v. Hon. Tuvera, etc., et al. that the
publication of laws is an indispensable requirement for its effectivity. “[A]ll statutes, including
those of local application and private laws, shall be published as a condition for their effectivity,
which shall begin fifteen days after publication unless a different effectivity date is fixed by the
legislature.” Accordingly, Section 6 of PD No. 1073 should be understood to mean that the decree
took effect only upon its publication, or on May 9, 1977. This, therefore, moves the cut-off date
for applications for judicial confirmation of imperfect or incomplete title under Section
48(b) of the PLA to May 8, 1947. In other words, applicants must prove that they have been
in open, continuous, exclusive and notorious possession and occupation of agricultural
lands of the public domain, under a bona fide claim of acquisition of ownership, for at
least 30 years, or at least since May 8, 1947.

The spouses Fortuna were unable to prove that they possessed Lot No. 4457 since May 8,
1947

Even if the Court assumes that Lot No. 4457 is an alienable and disposable agricultural land of the
public domain, the spouses Fortuna’s application for registration of title would still not prosper
for failure to sufficiently prove that they possessed the land since May 8, 1947.

The spouses Fortuna’s allegation that: (1) the absence of a notation that Tax Declaration No. 8366
was a new tax declaration and (2) the notation stating that Tax Declaration No. 8366 cancels the
earlier Tax Declaration No. 10543 both indicate that Pastora possessed the land prior to 1948 or, at
the earliest, in 1947. We also observe that Tax Declaration No. 8366 contains a sworn statement of
the owner that was subscribed on October 23, 1947. While these circumstances may indeed
indicate possession as of 1947, none proves that it commenced as of the cut-off date of May 8, 1947.
Even if the tax declaration indicates possession since 1947, it does not show the nature of Pastora’s
possession. Notably, Section 48(b) of the PLA speaks of possession and occupation. “Since these
words are separated by the conjunction and, the clear intention of the law is not to make one
synonymous with the other. Possession is broader than occupation because it includes
constructive possession. When, therefore, the law adds the word occupation, it seeks to delimit
the all-encompassing effect of constructive possession. Taken together with the words open,
continuous, exclusive and notorious, the word occupation serves to highlight the fact that for an
applicant to qualify, his possession must not be a mere fiction.” Nothing in Tax Declaration No.
8366 shows that Pastora exercised acts of possession and occupation such as cultivation of or
fencing off the land. Indeed, the lot was described as “cogonal.”

Both under the 1935 and the present Constitutions, the conservation no less than the utilization of
the natural resources is ordained. There would be a failure to abide by its command if the

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judiciary does not scrutinize with care applications to private ownership of real estate. To
be granted, they must be grounded in well-nigh incontrovertible evidence. Where, as in
this case, no such proof would be forthcoming, there is no justification for viewing such claim
with favor. It is a basic assumption of our polity that lands of whatever classification belong to the
state. Unless alienated in accordance with law, it retains its rights over the same as dominus.

SPOUSES MARIO AND JULIA CAMPOS, PETITIONERS, VS. REPUBLIC OF THE


PHILIPPINES, RESPONDENT
G.R. No. 184371, March 05, 2014
J. Brion

Petitioners failure to prove that they and their predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and occupation of the subject land, under a bona
fide claim of ownership, since June 12, 1945, or earlier leads to the conclusion that they cannot be
granted a registration of title of the subject property under their name. The oldest documentary
evidence presented by the petitioners was a 1948 tax declaration over the subject land in the name of
Margarita Laigo. The petitioners failed to present evidence of their possession prior to 1948. Further,
the Spouses Campos placed in their application that they base their possession since 1948.

Facts:

The petitioners applied for the registration of a 6,904 square meter-parcel of land, particularly
described as Lot No. 3876, Cad-474-D, Case 17, Bauang Cadastre. The petitioners bought the
subject land from Roberto Laigo, as evidenced by a Deed of Absolute Sale.

Only the Republic filed a formal opposition to the petitioners’ application, which the MTC later
dismissed due to the Republic’s failure to present testimonial or documentary evidence to
substantiate its grounds for objection.

The MTC rendered a decision granting the petitioners’ application for registration. The Republic
appealed to the CA. The CA reversed and set aside the MTC’s decision and dismissed the
petitioners’ application for registration of title.

The CA held, among others, that the petitioners failed to establish when the subject land became
alienable; that while the DENR-CENRO La Union certified that “Lot 3876 falls within the
Alienable and Disposable land of the Public Domain as per Project No. 9, L.C. Map No. 3330 of
Bauang Cadastre as certified on January 21, 1987,” such certification (as annotated in the lot’s
Advance Plan) was inadequate to prove that the subject land was classified as alienable and
disposable on said date.

The petitioners moved to reconsider the CA’ decision but the CA denied their motion, hence, the
filing of the present petition for review for certiorari with this Court.

Issue:

Whether the application for registration of title should be granted

Ruling:
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Persons applying for registration of title under Section 14(1) of Presidential Decree No. 1529 must
prove: (1) that the land sought to be registered forms part of the disposable and alienable lands of
the public domain, and (2) that they have been in open, continuous, exclusive and notorious
possession and occupation of the same under a bona fide claim of ownership since June 12, 1945,
or earlier.

As the CA did, the Court finds that the petitioners failed to prove that they and their
predecessors-in-interest have been in open, continuous, exclusive and notorious possession and
occupation of the subject land, under a bona fide claim of ownership, since June 12, 1945, or
earlier. The oldest documentary evidence presented by the petitioners was a 1948 tax declaration
over the subject land in the name of Margarita Laigo. The petitioners failed to present evidence of
their possession prior to 1948. In fact, the petitioners, in their application for registration,
base their possession of the subject land only from 1948, and not “since June 12, 1945, or
earlier” as required by law.

The Court emphasizes that since the effectivity of P.D. No. 1073 on January 25, 1977, it must be
shown that possession and occupation of the land sought to be registered by the applicant himself
or through his predecessors-in-interest, started on June 12, 1945 or earlier, which totally
conforms to the requirement under Section 14(1) of P.D. No 1529. A mere showing of possession
and occupation for thirty (30) years or more is no longer sufficient.

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE DIRECTOR OF LANDS vs.


ROSARIO DE GUZMAN VDA. DE JOSON
G.R. No. 163767. March 10, 2014
J. Bersamin

An applicant for registration of title’s mere reliance on a surveyor-geodetic engineer’s


notation in Survey Plan indicating that the survey was inside alienable and disposable land to prove
that the land in question formed part of the alienable and disposable lands of the public domain is
not sufficient to prove such fact. Such notation does not constitute a positive government act validly
changing the classification of the land in question. A mere surveyor has no authority to reclassify
lands of the public domain. Thus, applicant’s failure to prove that the subject land has been
classified as alienable and disposable lands of the public domain, the application for registration of
title must be denied.

Facts:

The respondent filed her application for land registration in the CFI in Bulacan. The jurisdictional
requirements were met. The notice of initial hearing was also posted by the Provincial Sheriff of
Bulacan in a conspicuous place in the municipal building of Paombong, Bulacan as well as on the
property itself. On June 2, 1977, at the initial hearing of the application, Fiscal Liberato L. Reyes
interposed an opposition in behalf of the Director of Lands and the Bureau of Public Works. Upon
motion by the respondent and without objection from Fiscal Reyes, the CFI commissioned the
Acting Deputy Clerk of Court to receive evidence in the presence of Fiscal Reyes.

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The records show that the land subject of the application was a riceland with an area of 12,342
square meters known as Lot 2633, Cad-297, Paombong, Bulacan, and covered by plan Ap-03-
001603; that the riceland had been originally owned and possessed by one Mamerto Dionisio since
1907; that on May 13, 1926, Dionisio, by way of a deed of sale, had sold the land to Romualda
Jacinto; that upon the death of Romualda Jacinto, her sister Maria Jacinto (mother of the
respondent) had inherited the land; that upon the death of Maria Jacinto in 1963, the respondent
had herself inherited the land, owning and possessing it openly, publicly, uninterruptedly,
adversely against the whole world, and in the concept of owner since then; that the land had been
declared in her name for taxation purposes; and that the taxes due thereon had been paid, as
shown in Official Receipt No. H-7100234.

In their opposition filed by Fiscal Reyes, the Director of Lands and the Director of Forest
Development averred that whatever legal and possessory rights the respondent had acquired by
reason of any Spanish government grants had been lost, abandoned or forfeited for failure to
occupy and possess the land for at least 30 years immediately preceding the filing of the
application; and that the land applied for, being actually a portion of the Labangan Channel
operated by the Pampanga River Control System, could not be subject of appropriation or land
registration.

The Office of the Solicitor General (OSG) also filed in behalf of the Government an opposition to
the application, insisting that the land was within the unclassified region of Paombong, Bulacan,
as indicated in BF Map LC No. 637 dated March 1, 1927; that areas within the unclassified region
were denominated as forest lands and thus fell under the exclusive jurisdiction, control and
authority of the Bureau of Forest Development (BFD); and that the CFI did not acquire
jurisdiction over the application considering that: (1) the land was beyond the commerce of man;
(2) the payment of taxes vested no title or ownership in the declarant or taxpayer.

The CFI rendered its decision, ordering the registration of the land in favor of the respondent on
the ground that she had sufficiently established her open, public, continuous, and adverse
possession in the concept of an owner for more than 30 years.

The Republic, through the OSG, appealed to the CA, contending that the trial court had erred in
granting the application for registration despite the land not being the subject of land registration
due to its being part of the unclassified region denominated as forest land.

The CA promulgated its assailed judgment, affirming the decision of the trial court.

Issue:

Whether the land subject of the application for registration is susceptible of private acquisition

Ruling:

Section 14 (1) and (2) of the Property Registration Decree state:

Section 14. Who may apply. — The following persons may file in the proper [Regional
Trial Court] an application for registration of title to land, whether personally or through
their duly authorized representatives:

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(1) Those who by themselves or through their predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and occupation of alienable and
disposable lands of the public domain under a bona fide claim of ownership since June 12,
1945, or earlier.

(2) Those who have acquired ownership of private lands by prescription under the
provision of existing laws.

xxxx

Section 14(1) deals with possession and occupation in the concept of an owner while Section 14(2)
involves prescription as a mode of acquiring ownership. In Heirs of Mario Malabanan v. Republic,
the Court set the guidelines concerning land registration proceedings brought under these
provisions of the Property Registration Decree in order provide clarity to the application and scope
of said provisions.

The respondent sought to have the land registered in her name by alleging that she and her
predecessors-in-interest had been in open, peaceful, continuous, uninterrupted and adverse
possession of the land in the concept of owner since time immemorial. However, the Republic
counters that the land was public land; and that it could not be acquired by prescription. The
determination of the issue hinges on whether or not the land was public; if so, whether the
respondent satisfactorily proved that the land had already been declared as alienable and
disposable land of the public domain; and that she and her predecessors-in-interest had been in
open, peaceful, continuous, uninterrupted and adverse possession of the land in the concept of
owner since June 12, 1945, or earlier.

Under Section 14(1), therefore, the respondent had to prove that: (1) the land formed part of the
alienable and disposable land of the public domain; and (2) she, by herself or through her
predecessors-in-interest, had been in open, continuous, exclusive, and notorious possession and
occupation of the subject land under a bona fide claim of ownership from June 12, 1945, or earlier.
It is the applicant who carries the burden of proving that the two requisites have been met.
Failure to do so warrants the dismissal of the application.

The respondent unquestionably complied with the second requisite by virtue of her having been
in open, continuous, exclusive and notorious possession and occupation of the land since June 12,
1945, or earlier. Nonetheless, what is left wanting is the fact that the respondent did not discharge
her burden to prove the classification of the land as demanded by the first requisite. She did not
present evidence of the land, albeit public, having been declared alienable and disposable by the
State. During trial, she testified that the land was not within any military or naval reservation, and
Frisco Domingo, her other witness, corroborated her. Although the Republic countered that the
verification made by the Bureau of Forest Development showed that the land was within the
unclassified region of Paombong, Bulacan as per BF Map LC No. 637 dated March 1, 1927, such
showing was based on the 1st Indorsement dated July 22, 1977 issued by the Bureau of Forest
Development, which the CA did not accord any evidentiary weight to for failure of the Republic to
formally offer it in evidence. Still, Fiscal Reyes, in the opposition he filed in behalf of the
Government, argued that the land was a portion of the Labangan Channel operated by the
Pampanga River Control System, and could not be the subject of appropriation or land
registration. Thus, the respondent as the applicant remained burdened with proving her

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compliance with the first requisite.

Belatedly realizing her failure to prove the alienable and disposable classification of the land, the
petitioner attached to her appellee’s brief the certification issued by the Department of
Environment and Natural Resources–Community Environment and Natural Resources Office
(DENR-CENRO).

However, in its resolution of July 31, 2000, the CA denied her motion to admit the appellee’s brief,
and expunged the appellee’s brief from the records. Seeing another opportunity to make the
certification a part of the records, she attached it as Annex A of her comment here. Yet, that
attempt to insert would not do her any good because only evidence that was offered at the trial
could be considered by the Court.

Even had the respondent’s effort to insert the certification been successful, the same would
nonetheless be vain and ineffectual. In Menguito v. Republic, the Court pronounced that a survey
conducted by a geodetic engineer that included a certification on the classification of the land as
alienable and disposable was not sufficient to overcome the presumption that the land still
formed part of the inalienable public domain, to wit:

To prove that the land in question formed part of the alienable and disposable lands of the public
domain, petitioners relied on the printed words which read: “This survey plan is inside Alienable
and Disposable Land Area, Project No. 27-B as per L.C. Map No. 2623, certified by the Bureau of
Forestry on January 3, 1968,” appearing on Exhibit “E” (Survey Plan No. Swo-13-000227).

This proof is not sufficient. Section 2, Article XII of the 1987 Constitution, provides: “All lands of
the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential
energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are
owned by the State. x x x.” (Emphasis supplied.)

For the original registration of title, the applicant (petitioners in this case) must overcome the
presumption that the land sought to be registered forms part of the public domain. Unless public
land is shown to have been reclassified or alienated to a private person by the State, it remains
part of the inalienable public domain. Indeed, “occupation thereof in the concept of owner, no
matter how long, cannot ripen into ownership and be registered as a title.” To overcome such
presumption, incontrovertible evidence must be shown by the applicant. Absent such evidence,
the land sought to be registered remains inalienable.

In the present case, petitioners cite a surveyor-geodetic engineer’s notation in Exhibit “E”
indicating that the survey was inside alienable and disposable land. Such notation does not
constitute a positive government act validly changing the classification of the land in
question. Verily, a mere surveyor has no authority to reclassify lands of the public domain. By
relying solely on the said surveyor’s assertion, petitioners have not sufficiently proven that the
land in question has been declared alienable.

SPOUSES JOSE M. ESTACION, JR. AND AGELINA T. ESTACION vs. HON. SECRETARY,
DEPARTMENT OF AGRARIAN REFORM, ET AL.
G.R. NO. 163361. March 12, 2014
J. Reyes

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The Regional Trial Court, acting as a Special Agrarian Court, has jurisdiction to
determine just compensation at the very first instance, and the petitioner need not pass through
the DAR for initial valuation. The determination of just compensation is essentially a judicial
function, which is vested in the Regional Trial Court acting as a Special Agrarian Court.

Facts:

Spouses Jose M. Estacion, Jr. and Angelina T. Estacion (petitioners) initially filed a petition for
just compensation with the Regional Trial Court (RTC) of Negros Oriental, acting as a Special
Agrarian Court (SAC). In their petition, they alleged that they are the owners of two parcels of
adjacent land in Guihulngan, Negros Oriental. According to the petitioners, sometime in
February 1974, they were informed that their properties were placed under the coverage of
the Operation Land Transfer program of Presidential Decree (P.D.) No. 27.

On May 12, 1998, the petitioners filed an Amended Petition and included the Philippine
National Bank (PNB) as respondent. It appears that sometime in October 1974, the petitioners
mortgaged the properties covered as security for a P449,200.00-loan they obtained from PNB.
The mortgage was foreclosed on December 10, 1984 and title was already transferred to the name
of PNB. In including PNB as respondent, the petitioners contended that its foreclosure of the
mortgaged properties was done in violation of P.D. No. 27 and subsequently, Republic Act (R.A.)
No. 6657, which prohibits the foreclosure of properties covered by the agrarian laws.

The SAC dismissed the case for lack of jurisdiction and lack of cause of action. The SAC sustained
PNB’s claim that it has already acquired the rights over the property by virtue of the extrajudicial
foreclosure of the mortgage. The SAC also ruled that the petitioners failed to exhaust
administrative remedies when they failed to secure prior determination of just compensation by
the DAR. The SAC further ruled that being a SAC of limited jurisdiction, it does not have
jurisdiction to nullify the extrajudicial foreclosure proceedings as indirectly sought by the
petitioners. On appeal, The CA dismissed the appeal for lack of merit.

Issue:

1. Whether or not SAC has jurisdiction to determine just compensation and there is no need
to pass through the DAR

2. Whether or not the petitioners have no personality to file the petition for the determination
of just compensation

Ruling:

The Regional Trial Court, acting as a Special Agrarian Court, has jurisdiction to determine just
compensation at the very first instance, and the petitioner need not pass through the DAR for
initial valuation. The determination of just compensation is essentially a judicial function, which
is vested in the Regional Trial Court acting as a Special Agrarian Court. The Special Agrarian
Court is not an appellate reviewer of the DAR decision in administrative cases involving
compensation. The Special Agrarian Court has jurisdiction over the complaint for determination
of just compensation, despite the absence of summary administrative proceedings before the DAR
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Adjudication Board. Special Agrarian Court's jurisdiction vested by Section 57 of RA 6657, as


amended, is limited only to petitions for the determination of just compensation to landowners
and the prosecution of all criminal offenses under RA 6657.

Records bear out the fact that at the time the petitioners filed the Amended Petition in 1998,
ownership of the properties sought to be compensated for was already transferred to respondent
PNB. As early as 1969, the petitioners already mortgaged the properties as security for the sugar
crop loan they originally obtained from respondent PNB, and as admitted by the petitioners,
respondent PNB foreclosed the mortgage on the property in 1982. As a result, title to the
properties was consolidated in the name of PNB. Moreover, as disclosed by PNB, the properties
were already transferred to the government pursuant to the mandate of Executive Order No.
407,which directed all government-owned and -controlled corporations to surrender to the DAR
all landholdings suitable for agriculture. Clearly, the petitioners have no personality to seek
determination of just compensation given that ownership of and title to the properties have
already passed on to PNB and eventually, the State.

REPUBLIC OF THE PHILIPPINES vs. ZURBARAN REALTY AND DEVELOPMENT


CORPORATION
G.R. No. 164408. March 24, 2014
J. Bersamin

The respondent’s application does not enlighten as to whether it was filed under Section 14(1)
or Section 14(2) of P.D. No. 1529. Nevertheless, the totality of the evidence presented by respondent
show that its application was filed under Section 14(2) of P.D. No. 1529, that is an application for
registration of land based on possession and occupation of a land of the public domain by those who
have acquired ownership of private lands by prescription under the provision of existing laws.

However, respondent failed to adduce evidence showing that the land in question was within
an area expressly declared by law either to be the patrimonial property of the State, or to be no
longer intended for public service or the development of the national wealth. As such, the court is
constrained to deny respondent’s application.

Facts:

Respondent Zurbaran Realty and Development Corporation filed in the Regional Trial Court
(RTC) an application for original registration covering a 1,520 square meter parcel of land
denominated as Lot 8017-A of Subdivision Plan CSD-04-006985-D, Cad. 455-D, Cabuyao Cadastre,
alleging that it had purchased the land on March 9, 1992 from Jane de Castro Abalos, married to
Jose Abalos, for P300,000.00; that the land was declared for taxation purposes in the name of its
predecessor-in-interest under Tax Declaration No. 22711; that there was no mortgage or
encumbrance of any kind affecting the land, nor was there any other person or entity having any
interest thereon, legal or equitable, adverse to that of the applicant; and that the applicant and its
predecessors-in-interest had been in open, continuous and exclusive possession and occupation
of the land in the concept of an owner.

The Republic, represented by the Director of Lands, opposed the application, arguing that the
applicant and its predecessors-in-interest had not been in open, continuous, exclusive and
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notorious possession and occupation of the land since June 12, 1945; that the muniments of title
and tax declaration presented did not constitute competent and sufficient evidence of a bona fide
acquisition of the land; and that the land was a portion of the public domain, and, therefore, was
not subject to private appropriation.

The RTC rendered its decision, holding that the respondent and its predecessors-in-interest had
been in open, public, peaceful, continuous, exclusive and adverse possession and occupation of
the land under a bona fide claim of ownership even prior to 1960 and, accordingly, granted the
application for registration

The Republic appealed, arguing that the issue of whether the applicant and its predecessors-in-
interest had possessed the land within the required length of time could not be determined
because there was no evidence as to when the land had been declared alienable and disposable.
The CA promulgated its judgment affirming the RTC. Hence, the Republic appeals the adverse
judgment of the CA.

Issue:

Whether the respondents presented sufficient evidence to show that it and its predecessors-in-
interest have complied with the period of possession and occupation required by law

Ruling:

Section 14 of P.D. No. 1529 enumerates those who may file an application for registration of land
based on possession and occupation of a land of the public domain, thus:

Section 14. Who may apply. The following persons may file in the proper Court of First
Instance an application for registration of title to land, whether personally or through
their duly authorized representatives:

(1) Those who by themselves or through their predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and occupation of alienable and
disposable lands of the public domain under a bona fide claim of ownership since June
12, 1945, or earlier.

(2) Those who have acquired ownership of private lands by prescription under the
provision of existing laws.

The respondent’s application does not enlighten as to whether it was filed under Section 14(1) or
Section 14(2) of P.D. No. 1529. The application alleged that the respondent and its predecessors-
in-interest had been in open, continuous and exclusive possession and occupation of the property
in the concept of an owner, but did not state when possession and occupation commenced and
the duration of such possession. At any rate, the evidence presented by the respondent and its
averments in the other pleadings reveal that the application for registration was filed based on
Section 14(2), not Section 14(1) of P.D. No. 1529. The respondent did not make any allegation in its
application that it had been in possession of the property since June 12, 1945, or earlier, nor did it
present any evidence to establish such fact.

With the application of the respondent having been filed under Section 14(2) of P.D. No. 1529, the
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crucial query is whether the land subject of the application had already been converted to
patrimonial property of the State. In short, has the land been declared by law as no longer
intended for public service or the development of the national wealth?

The respondent may perhaps object to a determination of this issue by the Court for the same
reason that it objects to the determination of whether it established when the land was declared
alienable and disposable, that is, the issue was not raised in and resolved and by the trial court.
But the objection would be futile because the issue was actually raised in the trial court, as borne
out by the Republic’s allegation in its opposition to the application to the effect “that the land is a
portion of the public domain not subject to prescription.” In any case, the interest of justice
dictates the consideration and resolution of an issue that is relevant to another that was
specifically raised. The rule that only theories raised in the initial proceedings may be taken up by
a party on appeal refers only to independent, not concomitant, matters to support or oppose the
cause of action.

Here, there is no evidence showing that the land in question was within an area expressly
declared by law either to be the patrimonial property of the State, or to be no longer intended for
public service or the development of the national wealth. The Court is left with no alternative but
to deny the respondent’s application for registration.

VILMA MACEDONIO vs. CATALINA RAMO, YOLANDA S. MARQUEZ, SPOUSES ROEL AND
OPHELIA PEDRO, SPOUSES JOEFFRY AND ELIZA BALANAG, AND BPI FAMILY
SAVINGS BANK, INC.
G.R. No. 193516. March 24, 2014
J. Del Castillo

Petitioner, by filing a Protest with the DENR and claiming that Ramo is guilty of fraud and
misrepresentation in filing her application for a sales patent, and prodding the DENR to initiate
reversion proceedings so that she may apply for, bid, and acquire the property, admits that Ramo is
not the owner of the subject property, and was not so when the same was sold to her. This being the
case, petitioner concedes that her purchase of the property is illegal as the same belongs to the
State; thus, her only recourse is to obtain a refund of what she paid.

Facts:

Civil Case No. 5703-R

On January 6, 2004, Vilma Macedonio (petitioner) filed with the Baguio RTC a civil case for
rescission of contract under Article 1191 of the Civil Code, with damages, against respondent
Catalina Ramo (Ramo).

The Complaint alleged that petitioner and Ramo entered into an agreement for the purchase by
petitioner of a 240-square meter portion of Ramo's 637-square meter unregistered lot (the subject
property). During the trial, the parties decided to settle. However, despite several attempts, the
parties failed to settle. The case was eventually terminated.

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While the abovecase was pending, Remo was able to secure in her name a Sales Patent, and on
October 16, 2006, a certificate of title (Katibayan ng Orihinal na Titulo Blg. P-3535 or OCT P-3535)
over the subject property.

Ramo caused the subject property to be subdivided into three lots, which she then transferred to
herein respondents, spouses Roeland Ophelia Pedro (the Pedros), Yolanda S. Marquez (Marquez),
and spouses Joeffry and Elisa Balanag (the Balanags). The transfer to the Pedros and Marquez
were through Acknowledgment Trusts, whereby Ramo admitted that she was not the owner of
the lots but merely held them in trust for the true owners - the Pedros and Marquez. On the other
hand, the transfer of the remaining lot to the Balanags was through a deed of sale. No part of the
subject property was transferred to petitioner.

Petitioner moved to seek a refund of the payment she gave to Remo in their agreement for the
purchase of the 240-sqaure meter portion of the subject property. However, the court did not act
on such motion. Instead, it issued an order stating that the order which declared that Civil Case
5703-R was already terminated has been final and executory.

Department of Environment and Natural Resources (DENR) Protest

Petitioner filed a written Protest with the office of the Regional Executive Director of the DENR
Cordillera Administrative Region, seeking an investigation into Ramo's acquisition of the subject
property, and claiming that Ramo's sales patent was issued despite her having committed
multiple violations of the law. It appears that to this date, no action has been taken on the
protest.

Civil Case No. 7150-R

Petitioner filed with the Baguio RTC another civil case against respondents for specific
performance, annulment of documents and titles, with damages.

Ramo filed her answer with motion to dismiss the case, claiming that in filing the case, petitioner
violated the rule against forum-shopping since there had already been a prior terminated case
(Civil Case No. 5703-R) and a pending Protest with the DENR.

The trial court issued an Order dismissing Civil Case No. 7150-R due to, among others, forum
shopping. Petitioner moved to reconsider, but in an August 16, 2010 Order, the trial court stood its
ground. Thus, petitioner instituted this direct recourse.

Issue:

Whether petitioner is entitled to the reliefs sought (specific performance, annulment of


documents and titles, with damages)

Ruling:

In her pleadings, Ramo admitted and confessed her liability to petitioner: that to this day, she
owes petitioner the amount ofP850,000.00 as a result of the botched sale. A refund of the said
amount is what petitioner prays for in the alternative in her Complaint in Civil Case No. 7150-R.
At the very least, this is what she is entitled to, including interest and attorney's fees for having
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been compelled to litigate. The trial court in Civil Case No. 7150-R should appreciate petitioner's
cause this much. Indeed, if the trial court felt at any point that the DENR Protest should
substantially affect the outcome of the case before it and that it should give deference to the
better judgment of the DENR, it could restrict itself to petitioner's alternative prayer for a refund.

In arriving at the foregoing conclusions, the Court took into consideration the evidence and
Ramo's admissions that while she refuses to honor her obligations under the sale or at least return
petitioner's money, she went on to subdivide and transfer or sell the property to other individuals,
which is absolutely unfair if not perverse. Apparently, this injustice has been lost on the trial
court, having decided the way it did by disregarding the basic facts and adhering to technicalities.

Given the foregoing, if justice is to be truly served, the trial court should not have dismissed Civil
Case No. 7150-R.

Nonetheless, by filing a Protest with the DENR and claiming that Ramo is guilty of fraud and
misrepresentation in filing her application for a sales patent, and prodding the DENR to initiate
reversion proceedings so that she may apply for, bid, and acquire the property, petitioner is
deemed to have admitted that Ramo is not the owner of the subject property, and was not so
when the same was sold to her. This being the case, petitioner concedes that her purchase of the
property is illegal as the same belongs to the State; thus, her only recourse is to obtain a refund of
what she paid.

RODOLFO V. FRANCISCO vs. EMILIANA M. ROJAS, and the legitimate heirs of JOSE A.
ROJAS, namely: JOSE FERDINAND M. ROJAS II, ROLANDO M. ROJAS, JOSE M. ROJAS, JR.,
CARMELITA ROJAS-JOSE, VICTOR M.ROJAS, and LOURDES M. ROJAS, all represented by
JOSEFERDINAND M. ROJAS II
G.R. No. 167120, April 23, 2014, J. Peralta

A land registration court has no jurisdiction to order the registration of land already decreed in
the name of another in an earlier land registration case. After the promulgation of the Guido, it can
no longer be said that an original registration proceeding is proper, since Guido held that certificate
of title are genuine and authentic. What the land registration court should have done was to dismiss
the application for registration upon learning that the same property was already covered by a valid
title.

Facts:

The Republic of the Philippines filed a complaint for declaration of nullity against the
Transfer Certificate Title both in the name of Francisco and Hermogenes Guido, the spouses Jose
Rojas and Emiliana Rojas as succesor-in-interest, on the basis that such title were false, spurious
and fabricated. The trial dismissed the complaint stating that such title was genuine and
authentic which was affirmed by the Court of Appeals.

The Guido case was brought to the Supreme Court which upheld the decision of the lower
court. However, the Court’s decision was subject to bona fide occupants with length of possession
which had ripened to ownership, the latter to be determined in an appropriate proceeding.

It appears that an Application for Registration of Title was instituted by the Franciscos over
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four parcels of land which was overlapping with the land of the Rojases. However, the Rojases
were never impleaded in such application. Eventually, the Franciscos were declared to be the true
and absolute owners of said parcels of land which has become final and executory.

Hence, the Rojases filed a petition for certiorari and prohibition against the Franciscos,
claiming that they came to know of such registration only when a real estate agent discovered the
same and brought to their knowledge.

The Court of Appeals granted the petition for certiorari and declared that such registration of
the Franciscos is null and void on the basis that a title may be challenged only in a proceeding for
that purpose, not in an application for registration of a land already registered in the name of
another person.

Issue:

Whether a land registration proceeding is the “appropriate proceeding” contemplated in the


Supreme Court’s pronouncement in the Guido case?

Ruling:

No.

As the very nature of the action limits the subject matter to alienable and disposable lands of
the public domain, an ordinary registration proceeding cannot be availed of by the Franciscos in
order to establish claims over lands which had already been brought within the coverage of the
Torrens system.

A land registration court has no jurisdiction to order the registration of land already decreed
in the name of another in an earlier land registration case. Issuance of another decree covering
the same land is, therefore, null and void.

After the promulgation of the Guido, it can no longer be said that an original registration
proceeding is proper, since Guido held that certificate of title are genuine and authentic. What the
land registration court should have done was to dismiss the application for registration upon
learning that the same property was already covered by a valid title.

The “appropriate proceeding” referred to in Guido is a case where the Franciscos must present
specific acts of ownership to substantiate their claim that they are bona fide occupants while, at
the same time, the Rojases are accorded due process of law by availing of the opportunity to
oppose and refute the representations made by the Franciscos. Whatever the “appropriate
proceeding” may be, the decisive factor is that the same should be a proceeding in personam
wherein personal service of summons and copy of the complaint/petition is necessary.

JOSEPHINE WEE vs. FELICIDAD MARDO


G.R. No. 202414, June 4, 2014, J. Mendoza

A land registration court has no jurisdiction to order the registration of land already decreed
in the name of another in an earlier land registration case. A second decree for the same land would
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be null and void, since the principle behind the original registration is to register a parcel of land
only once.

The issue of fraudulent alienation raised in the second application for registration of the
subject property is collateral attack which should be directly raised in a separate proceeding filed for
such purpose. It cannot be entertained in this proceeding. In several cases, the Court has ruled that
an attack is indirect or collateral when, in an action to obtain a different relief, an attack on the
judgment or proceeding is nevertheless made as an incident thereof.

Facts:

Felicidad Gonzales, married to Leopoldo Mardo, was granted a registered Free Patent No.
(IV-2) 15284, dated April 26, 1979, covering Lot No. 8348, situated in Puting Kahoy, Silang, Cavite.
Felicidad allegedly conveyed to Josephine Wee, through a Deed of Absolute Sale, a portion of Lot
No. 8348 known as Lot No. 8348-B, for a consideration of P250,000.00 which was fully paid.
However, Felicidad refused to vacate and turn over the subject property claiming that the alleged
sale was falsified.

On December 22, 1994, Josephine Wee filed an Application for Original Registration of Lot
No. 8349. Said application was amended, this time covering a parcel of land known as Lot 8348-B
situated in Barangay Puting Kahoy, Silang, Cavite. Josephine Wee claimed that she is the owner of
the said unregistered land by virtue of a deed of absolute sale. Felicidad filed her Opposition to
the Amended Application alleging that she is the true and lawful owner of the parcel of land. She
also filed a Motion to Dismiss the Application alleging that the land described in the application
was different from the land being claimed for titling. The motion was denied by the RTC.

On June 10, 2003, during the pendency of the case, Felicidad managed to register the land
in her name under Original Certificate of Title (OCT) No. OP-1840. Josephine filed a Notice of Lis
Pendens with the Registry of Deeds of Cavite on May 10, 2005 which was annotated on the title.

A "Motion for Leave to File Supplemental Pleading and to Admit Attached Supplemental
Complaint for Reconveyance" was filed by Josephine which was denied by the RTC on the ground
that a motion for reconveyance was different from an application for registration of title.

The RTC rendered a Decision granting the application of Josephine. Thereby, declaring
her as the person qualified to register the subject land in her name and directed the LRA to issue
the corresponding decree in her name. A motion for reconsideration was filed by Felicidad which
was denied by the RTC.

On appeal, the Court of Appeals reversed and set aside the decision of the RTC. Hence,
this petition.

Issue:

Whether or not the subject property may be registered under the name of Josephine Wee

Ruling:

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No. The subject property cannot be registered under the name of Josephine Wee.

Based on these legal parameters of the Property Registration Decree, applicants for
registration of title under Section 14(1) must sufficiently establish: (1) that the subject land forms
part of the disposable and alienable lands of the public domain; (2) that the applicant and his
predecessors-in-interest have been in open, continuous, exclusive and notorious possession and
occupation of the same; and (3) that it is under a bona fide claim of ownership since June 12, 1945
or earlier.

The Court of Appeals was of the view that she could not have complied with the
requirement of possession and occupation under Sec. 14 (1) of P.D. No. 1529 considering that she
had admitted that it was not physically turned over to her. As she was not in actual and physical
possession, she could not have exercised any acts of dominion over the subject property which
was essential to the requirement of possession and occupation contemplated under Sec. 14 (1) of
P.D. No. 1529.

A more important consideration, however, is that the subject land is already registered
under OCT No. OP-1840 (Patent No. 042118-03-6111) of the Registry of Deeds of Cavite, under the
name of respondent Felicidad Gonzales. It is a veritable Torrens title and becomes as indefeasible
as a Torrens title upon the expiration of one (1) year from the date of its issuance.

For said reason, the order of the RTC directing the Administrator of LRA to issue a
corresponding decree in Josephine Wee’s name is null and void. A land registration court has no
jurisdiction to order the registration of land already decreed in the name of another in an earlier
land registration case. A second decree for the same land would be null and void, since the
principle behind the original registration is to register a parcel of land only once.

Verily, once a title is registered, the owner may rest secure, without the necessity of
waiting in the portals of the court sitting in the mirador de su casa to avoid the possibility of
losing his land. The certificate of title cannot be defeated by adverse, open and notorious
possession. Neither can it be defeated by prescription. As provided under Sec. 47 of PD 1529, no
title to registered land in derogation of the title of the registered owner shall be acquired by
prescription or adverse possession.

Remedy of the Josephine Wee is to file a separate proceeding such as an action for specific
performance or for reconveyance. The issue of fraudulent alienation raised in the second
application for registration of the subject property is collateral attack which should be directly
raised in a separate proceeding filed for such purpose. It cannot be entertained in this proceeding.
In several cases, the Court has ruled that an attack is indirect or collateral when, in an action to
obtain a different relief, an attack on the judgment or proceeding is nevertheless made as an
incident thereof.

The remedy of the Josephine Wee is to file a separate proceeding or action to protect her
alleged interest. As she claimed that she bought the subject property for value from the
respondent Felicidad as evidenced by a deed of sale, she can file an action for specific
performance to compel the respondent Felicidad to comply with her obligation in the alleged
deed of sale and/or an action for reconveyance of the property. She can also file an action for

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rescission. Needless to state, Josephine Wee must prove her entitlement because the respondent
Felicidad claims that the sale was falsified.

AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM [AFP-RSBS] vs. REPUBLIC OF


THE PHILIPPINES
G.R. No.180086, July 2, 2014, J. Leonen

On one hand, AFP-RSBS argued that its and its predecessors-in-interest’s possession before
the declaration that the property was alienable and disposable agricultural land in1982 should be
included in the computation of the period of possession for purposes of registration. On the other
hand, Republic of the Philippines holds the position that possession before the establishment of
alienability of the land should be excluded in the computation. The Court ruled that what is
important in computing the period of possession is that the land has already been declared alienable
and disposable at the time of the application for registration. Upon satisfaction of this requirement,
the computation of the period may include the period of adverse possession prior to the declaration
that land is alienable and disposable.

Facts:

On July 10, 1997, the Armed Forcesof the Philippines Retirement and Separation Benefits
System (AFP-RSBS) filed an application for original registration of parcels of land in Silang,
Cavite. These were allegedly acquired from Narciso Ambrad, Alberto Tibayan, and Restituto
Tibayan on March 13, 1997. It was also alleged that their predecessors-ininterest had been in
possession ofthe properties since June 12, 1945.

The Municipal Circuit Trial Court approved AFP-RSBS’s application for original
registration. The Register of Deeds was directed to cause the registration of the properties in the
name of AFP-RSBS. However, the Republic of the Philippines moved for the reconsideration of
the decision but it was denied,

The Court of Appeals reversed the decision of the trial court and dismissed AFP-RSBS’s
application. According to the Court of Appeals, since Lot 2969 was declared alienable and
disposable only on March 15, 1982, the period of possession of the predecessors-in-interest before
that date should be excluded from the computation of the period of possession. Hence,
AFPRSBS’s and its predecessors-in-interest’s possessions could not ripen into ownership.

On one hand, AFP-RSBS argued that its and its predecessors-in interest’s possession
before the declaration that the property was alienable and disposable agricultural land in1982
should be included in the computation of the period of possession for purposes of
registration. On the other hand, Republic of the Philippines holds the position that possession
before the establishment of alienability of the land should be excluded in the computation.

Issue:

1. Whether the period of possession before the declaration that land is alienable and
disposable agricultural land should be excluded from the computation of the period of
possession for purposes of original registration.

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2. Whether AFP-RSBS, as a private corporation or association, may own alienable lands


of the public domain pursuant to Section 3, Article XII of the Constitution.

Ruling:

1. No. The requirements for the application for original registration of land based on a
claim of open and continuous possession of alienable and disposable lands of public domain are
provided in Section 14(1) of Presidential Decree No. 1529 or the Property Registration Decree. It
provides:
Section 14. Who may apply. The following persons may file in the proper Court of First Instance
an application for registration of title to land, whether personally or through their duly
authorized representatives:

(1) Those who by themselves or through their predecessors-in-interest have been


in open, continuous, exclusive and notorious possession and occupation of
alienable and disposable lands of the public domain under a bona fide claim of
ownership since June 12, 1945, or earlier.

A similar provision can be found in Commonwealth Act No. 141 or Public Land Act:
Sec. 48. The following-described citizens of the Philippines, occupying lands of the public
domain or claiming to own any such lands or an interest therein, but whose titles have not been
perfected or completed, may apply to the Court of First Instance of the province where the land is
located for confirmation of their claims and the issuance of a certificate of title therefor under the
Land Registration Act, to wit:
....
(b) Those who by themselves or through their predecessors-in-interest have been in open,
continuous, exclusive, and notorious possession and occupation of agricultural lands of the public
domain, under a bona fide claim of acquisition or ownership, since June 12, 1945, immediately
preceding the filing of the application for confirmation of title, except when prevented by war or
force majeure. Those shall be conclusively presumed to have performed all the conditions
essential to a government grant and shall be entitled to a certificate of title under the provisions
of this chapter. (As amended by Presidential Decree No. 1073)

Based on these provisions, an applicant for original registration based on a claim of


exclusive and continuous possession or occupation must show the existence of the following:

1) Open, continuous, exclusive, and notorious possession, by themselves or through their


predecessors-in-interest, of land;
2) The land possessed or occupied must have been declared alienable and disposable
agricultural land of public domain;
3) The possession or occupation was under a bona fide claim of ownership;
4) Possession dates back to June 12, 1945 or earlier.

The more reasonable interpretation of Section 14(1) is that it merely requires the property
sought to be registered as already alienable and disposable at the time the application for
registration of title is filed. If the State, at the time the application is made, has not yet deemed it
proper to release the property for alienation or disposition, the presumption is that the
government is still reserving the right to utilize the property; hence, the need to preserve its
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ownership in the State irrespective of the length of adverse possession even if in good faith.
However, if the property has already been classified as alienable and disposable, as it is in this
case, then there is already an intention on the part of the State to abdicate its exclusive
prerogative over the property.

Moreover, in the resolution of the motions for reconsideration of this Court’s 2009
decision in Heirs of Malabanan, the Court explained that there was no other legislative intent that
could be associated with the date, June 12, 1945, as written in our registration laws except that it
qualifies the requisite period of possession and occupation. The law imposes no requirement that
land should have been declared alienable and disposable agricultural land as early as June 12, 1945.

Therefore, what is important in computing the period of possession is that the land has
already been declared alienable and disposable at the time of the application for registration.
Upon satisfaction of this requirement, the computation of the period may include the period of
adverse possession prior to the declaration that land is alienable and disposable.

Although adverse, open, continuous, and notorious possession in the concept of an owner
is a conclusion of law to be determined by courts, it has more to do with a person’s belief in good
faith that he or she has just title to the property that he or she is occupying. It is unrelated to the
declaration that land is alienable or disposable. A possessor or occupant of property may,
therefore, be a possessor in the concept of an owner prior to the determination that the property
is alienable and disposable agricultural land. His or her rights, however, are still to be determined
under the law.

AFP-RSBS' right to the original registration of title over the property is, therefore,
dependent on the existence of: a) a declaration that the land is alienable and disposable at the
time of the application for registration and b) open and continuous possession in the concept of
an owner through itself or through its predecessors-in-interest since June 12, 1945 or earlier.

In this case, there is no dispute that the properties were already declared alienable and disposable
land on March 15, 1982. Hence, the property was already alienable and disposable at the time of
petitioner’s application for registration on July 10, 1997. As to the required period of
possession, AFP-RSBS was able to show that it, through itself or its predecessors-in-interest, has
been in open, continuous, exclusive, and notorious possession before 1945 through testimonies
and documents.

2. Yes. Republic of the Philippines argues that although petitioner is a government-owned


and -controlled corporation, it cannot acquire title through acquisitive prescription. This
argument is unmeritorious. The type of corporation that petitioner is has nothing to do with the
grant of its application for original registration. Petitioner also acquired title to the property
under Section 14(1) of the Property Registration Decree or Section 48(b) of the Public Land Act,
and not through acquisitive prescription.

If Republic of the Philippines argument stems from the Court of Appeals’ ruling that
petitioner cannot acquire title to the property because of Section 3, Article XII of the Constitution,
which prohibits private corporations from acquiring public land, it is, again, mistaken. The
prohibition in Section 3, Article XII of the Constitution applies only to private corporations. AFP-

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RSBS is a government corporation organized under Presidential Decree No. 361, as amended by
Presidential Decree No. 1656.

REPUBLIC OF THE PHILIPPINES vs. APOSTELITA SAN MATEO, ET AL


G.R. No. 203560, November 10, 2014, J. Velasco, Jr.

It must be emphasized that the present ruling on substantial compliance applies pro hac
vice. It does not in any way detract from our rulings in Republic v. T.A.N. Properties, Inc., and
similar cases which impose a strict requirement to prove that the public land is alienable and
disposable, especially in this case when the decisions of the lower court and the Court of Appeals
were rendered prior to these rulings. To establish that the land subject of the application is alienable
and disposable public land, the general rule remains: all applications for original registration under
the Property Registration Decree must include both(1) a CENRO or PENRO certification and(2) a
certified true copy of the original classification made by the DENR Secretary. As an exception,
however, the courts - in their sound discretion and based solely on the evidence presented on record -
may approve the application, pro hac vice, on the ground of substantial compliance showing that
there has been a positive act of government to show the nature and character of the land and an
absence of effective opposition from the government. This exception shall only apply to applications
for registration currently pending before the trial court prior to this Decision and shall be
inapplicable to all future applications.

Facts:

A Petition for Registration of Title filed by respondents, filed before the RTC.
Respondents averred that the land used to be owned by their grandfather and predecessor-in-
interest, Leocadio Landrito (Leocadio). Leocadio’s occupation of a 5,500 square-meter portion of
the property can be traced from Tax Declaration issued in 1948 under his name. When Leocadio
died, the property was inherited by his three children, Crisanta, Amador, and Juanito. Both
Juanito and Amador subsequently mortgaged their share to Crisanta and her husband, and failed
to settle their obligations. Thus, in 2000 and 2001, the respective widows of Juanito and Amador
executed waivers of rights in favor of the respondents, the heirs of Crisanta. Respondents then
executed an extra-judicial settlement among themselves.

In support of the petition, attached were the following: the original tracing cloth plan AS-
00-000233, together with the blueprints, technical description of the land, in duplicate; surveyor’s
certificate; deed of extrajudicial settlement of the estate of Leocadio; and various TDs and tax
receipts.

The case was set for initial hearing. Globe Steel Corporation (GSC), represented by
Kenneth Yu (Yu), New Donavel Compound Neighborhood Association, Inc.(NDCNAI), and the
Laguna Lake Development Authority (LLDA), all registered their opposition to the petition. GSC
contended that the application might have encroached on its properties, because it owned the
adjoining parcels of land. NDCNAI argued that it had a better right of possession to apply for
registration of ownership, because the lot would have been unfit for human habitation, were it
not for the fillings introduced by the association to the lot. Moreover, its members, who are
informal settlers, are the actual occupants of the lot. LLDA, on the other hand, claimed that the
petition should be denied because the lot is located below the reglementary lake elevation of 12.50

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meters, and, thus, the lot forms part of the Laguna Lake bed, and is considered inalienable and
indisposable public land, and within the jurisdiction of the LLDA.

RTC rendered a decision ordered the registration of the title over the subject lot in the
name of the respondents. CA affirmed.

Issue:

Whether or not RTC, affirmed by the CA, is correct in granting the petition for
registration of the respondents.

Ruling:

No. In view, however, of the erroneous finding of the CA that the land is alienable, and the
failure of the respondents to provide the necessary evidence to support their allegation that the
land is indeed alienable, the assailed CA Decision must be reversed.

However, on the issue of whether the respondents were able to prove that the subject
property is alienable and disposable, the Court finds that the respondents failed to prove that the
property sought to be registered is indeed alienable and thus subject to registration. Respondents
merely relied on the certification of DENR-South CENRO to the effect that the subject property is
alienable. But as discussed below, this is insufficient, as respondents failed to present any proof
that the DENR Secretary approved such certification. The Court rules that the CA’s reliance solely
on the DENR-South CENRO certification constitutes reversible error on its part.

Material to the resolution of thisissue is this Court’s ruling in Republic v. T.A.N.


Properties, Inc., which, similar to the one at bar, is one for registration of property. Hence, the
certification issued by the Regional Technical Director, FMS-DENR, in the form of memorandum
to the trial court, has no probative value.

Further, it is not enough for the PENRO or CENRO to certify that a land is alienable and
disposable. The applicant for land registration must prove that the DENR Secretary had approved
the land classification and released the land of the public domain as alienable and disposable, and
that the land subject of the application for registration falls within the approved area per
verification through survey by the PENRO or CENRO. In addition, the applicant for land
registration must present a copy of the original classification approved by the DENR Secretary
and certified as a true copy by the legal custodian of the official records. These facts must be
established to prove that the land is alienable and disposable. Respondent failed to do so because
the certifications presented by respondent do not, by themselves, prove that the land is alienable
and disposable.

Clearly, therefore, a CENRO certification that a certain property is alienable, without the
corresponding proof that the DENR Secretary had approved such certification, is insufficient to
support a petition for registration of land. Both certification and approval are required to be
presented as proofs that the land is alienable. Otherwise, the petition must be denied.

Indeed, the best proofs in registration proceedings that a land is alienable and disposable
are a certification from the CENRO or Provincial Environment and Natural Resources Office
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(PENRO) and a certified true copy of the DENR’s original classification of the land. The Court,
however, has nonetheless recognized and affirmed applications for land registration on other
substantial and convincing evidence duly presented without any opposition from the LRA or the
DENR on the ground of substantial compliance.

The Court immediately made clear, however, that the ruling in Vega is pro hac vice, and is
not to be considered an exception nor a departure from its ruling in T.A.N. Properties, which
applied the rule on strict compliance with the rules. The Court clarified:

It must be emphasized that the present ruling on substantial compliance applies pro hac
vice. It does not in any way detract from our rulings in Republic v. T.A.N. Properties, Inc., and
similar cases which impose a strict requirement to prove that the public land is alienable and
disposable, especially in this case when the decisions of the lower court and the Court of Appeals
were rendered prior to these rulings. To establish that the land subject of the application is
alienable and disposable public land, the general rule remains: all applications for original
registration under the Property Registration Decree must include both(1) a CENRO or PENRO
certification and(2) a certified true copy of the original classification made by the DENR
Secretary. As an exception, however, the courts - in their sound discretion and based solely on the
evidence presented on record - may approve the application, pro hac vice, on the ground of
substantial compliance showing that there has been a positive act of government to show the
nature and character of the land and an absence of effective opposition from the government.
This exception shall only apply to applications for registration currently pending before the trial
court prior to this Decision and shall be inapplicable to all future applications.

LUZVIMINDA APRAN CANLAS vs. REPUBLIC OF THE PHILIPPINES


G.R. No. 200894, November 10, 2014, J. LEONEN

An applicant for land registration or judicial confirmation of incomplete or imperfect title


under Section 14(1) of Presidential Decree No. 1529 must prove the following requisites:(1) that the
subject land forms part of the disposable and alienable lands of the public domain, and (2) that the
applicant has been in open, continuous, exclusive and notorious possession and occupation of the
same under a bona fide claim of ownership since June 12, 1945, or earlier. Concomitantly, the burden
to prove these requisites rests on the applicant. With regard to the first requisite, it is undisputed
that the land subject of registration is part of the alienable and disposable lands of the public
domain. The trial court found the Department of Environment and Natural Resources’ report
sufficient to prove the existence of the first requisite. The Court of Appeals’ decision was silent on
this matter. Respondent Republic failed to make objections on the issue as well. Thus, we do not see
any reason to deviate from the findings of the lower courts.

Facts:

Petitioner Luzviminda A. Canlas (Canlas) applied for the original registration of title,
under Presidential Decree No. 1529 in Municipality of Binangonan, Province of Rizal.

There was no opposition to Canlas’ application. Respondent Republic of the Philippines


(Republic) did not submit its comment or opposition despite the opportunity given by the trial
court. The case was then submitted for decision. Thus the Regional Trial Court granted Canlas’
application.
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According to the trial court, Canlas complied with the procedural requirements and
substantiated her application. She sufficiently proved that, through her predecessors-in-interest,
she has been in "open, continuous, exclusive and notorious possession of an alienable and
disposable parcel of land of the public domain under a bona fide claim of ownership for more
than 30 years.

Acting on the Republic’s appeal, the Court of Appeals reversed and set aside the decision
of the trial court.

Thus Canlas comes before the Supreme Court, arguing that she has duly overcome the
burden of proof by showing open, continuous, exclusive, adverse, and notorious possession and
occupation of the property. This is allegedly shown in the following acts of Canlas and her
predecessors-in-interest since the 1900’s: declaring the property in their names, paying taxes due
on the property, having the property surveyed, and allowing the excavation in the property for the
retrieval and hauling of "pulang lupa" for the making of clay pots.

Canlas argued further that "residence" is not synonymous with "possession and
occupation" as implied by the Court of Appeals.21 Presidential Decree No. 1529 does not require
the applicant to reside on the land being registered. The law also does not require that a relative
of the applicant be present to oversee the property.

Issue:

Whether or not the CA is correct in reversing the trial court’s decision granting the
original registration of title.

Ruling:

No. The CA is not correct in reversing the trial court’s decision that grants the original
registration of title.

After considering the parties’ arguments and the records of this case, this court resolves to
grant the petition.

In land registration cases, the applicants’ legal basis is important in determining the
required number of years or the reference point for possession or prescription. This court has
delineated the differences in the modes of acquiring imperfect titles under Section 14 of
Presidential Decree No. 1529. Heirs of Mario Malabanan v. Republic extensively discussed the
distinction between Section 14(1) and Section 14(2) of Presidential Decree No. 1529.

In Republic v. Gielczyk, this court summarized and affirmed the differences between
Section 14(1) and Section 14(2) of Presidential Decree No. 1529 as discussed in Heirs of Malabanan:
In Heirs of Mario Malabanan v. Republic, the Court further clarified the difference between
Section 14(1) and Section 14(2) of P.D. No. 1529. The former refers to registration of title on the
basis of possession, while the latter entitles the applicant to the registration of his property on the
basis of prescription. Registration under the first mode is extended under the aegis of the P.D. No.
1529 and the Public Land Act (PLA) while under the second mode is made available both by P.D.
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No. 1529 and the Civil Code. Moreover, under Section 48(b) of the PLA, as amended by Republic
Act No. 1472, the 30-year period is in relation to possession without regard to the Civil Code,
while under Section 14(2) of P.D. No. 1529, the 30-year period involves extraordinary prescription
under the Civil Code, particularly Article 1113 in relation to Article 1137.

An applicant for land registration or judicial confirmation of incomplete or imperfect title


under Section 14(1) of Presidential Decree No. 1529 must prove the following requisites:(1) that the
subject land forms part of the disposable and alienable lands of the public domain, and (2) that
the applicant has been in open, continuous, exclusive and notorious possession and occupation of
the same under a bona fide claim of ownership since June 12, 1945, or earlier. Concomitantly, the
burden to prove these requisites rests on the applicant. With regard to the first requisite, it is
undisputed that the land subject of registration is part of the alienable and disposable lands of the
public domain. The trial court found the Department of Environment and Natural Resources’
report sufficient to prove the existence of the first requisite. The Court of Appeals’ decision was
silent on this matter. Respondent Republic failed to make objections on the issue as well. Thus,
the Court does not see any reason to deviate from the findings of the lower courts.

Canlas has sufficiently overcome the burden of proof required in a judicial confirmation of
incomplete or imperfect title to land. Contrary to Republic’s arguments, the trial court specifically
found that Canlas’ possession and occupation, through her predecessors-in interest, started
earlier than June12, 1945

It is settled that tax declarations are not conclusive evidence of ownership. Other evidence
may be appreciated to determine actual possession and occupation. Documentary evidence, such
as tax declarations, when coupled with positive and clear testimonies of the applicant and his or
her witnesses, may be weighed in favor of the applicant. The fact that a parcel of land is not
declared for tax purposes regularly, or that realty taxes are not paid on a regular basis, does not
automatically contradict the claim of possession. Tax declarations serve as additional indicia of
ownership. It is not conclusive as to the fact of possession, occupation, or ownership. Likewise, to
solely rely on tax declarations and payment of realty taxes would mean that Canlas’ possession of
the land should be reckoned from 1949 or the year the earliest tax declaration was made. Such
interpretation is untenable and goes beyond the text of Section 14(1) of Presidential Decree No.
1529. Moreover, as shown in the records, Canlas, through her predecessors-in-interest, has been in
possession of the land since the early 1900s.

REPUBLIC OF THE PHILIPPINES vs. CECILIA GRACE L. ROASA, married to GREG


AMBROSE ROASA, as herein represented by her Attorneys-in-Fact, BERNARDO M.
NICOLAS, JR. and ALVIN B. ACAYEN,
G.R. No. 176022, February 2, 2015, J. Diosdado M. Peralta

An applicant for original registration of title based on a claim of exclusive and continuous
possession or occupation must show the existence of the following: (1) Open, continuous, exclusive
and notorious possession, by themselves or through their predecessors-in-interest, of land; (2) The
land possessed or occupied must have been declared alienable and disposable agricultural land of
public domain; (3) The possession or occupation was under a bona fide claim of ownership; (4)
Possession dates back to June 12, 1945 or earlier.

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Therefore, what is important in computing the period of possession is that the land has
already been declared alienable and disposable at the time of the application for registration. Upon
satisfaction of this requirement, the computation of the period may include the period of adverse
possession prior to the declaration that land is alienable and disposable.

In the present case, there is no dispute that the subject lot has been declared alienable and
disposable on March 15, 1982. This is more than eighteen (18) years before Roasa's application for
registration, which was filed on December 15, 2000. Moreover, the unchallenged testimonies of two
of Roasa's witnesses established that the latter and her predecessors-in-interest had been in adverse,
open, continuous, and notorious possession in the concept of an owner even before June 12, 1945.

Facts:

Cecilia Roasa alleged, among others, that she is the owner in fee simple of the subject lot,
having acquired the same by purchase as evidenced by a Deed of Absolute Sale; that the said
property is an agricultural land planted with corn, palay, bananas, coconut and coffee by Cecilia
Roasa 's predecessors-in-interest; that Cecilia Roasa and her predecessors-in-interest had been in
open, continuous, exclusive and uninterrupted possession and occupation of the land under bona
fideclaim of ownership since the 1930's and that they have declared the land for taxation purposes.

Subsequently, the Republic of the Philippines, through the Office of the Solicitor General
(OSG), opposed the application contending that the muniments of title, such as tax declarations
and tax payment receipts, did not constitute competent and sufficient evidence of a bona fide
acquisition of the land applied for nor of the alleged open, continuous, exclusive and notorious
possession by respondent and her predecessors-in-interest as owners for the period required by
law. The OSG also argued that the subject lot is a portion of the public domain belonging to the
Republic of the Philippines which is not subject to private appropriation.

RTC rendered its decision denying respondent's application. CA rendered its decision,
granting the application for confirmation of imperfect title. Hence, the instant petition.

Issue:

Whether or not the possession of the subject lot by Cecilia Roasa and her predecessors-in-
interest before the establishment of alienability of the said land, should be excluded in the
computation of the 30-year period of possession.

Ruling:

Section 14(1), Presidential Decree No. 1529 as well as Section 48 of Commonwealth Act
No. 141, otherwise known as The Public Land Act, as amended by Presidential Decree No. 1073,
provides that an applicant for original registration of title based on a claim of exclusive and
continuous possession or occupation must show the existence of the following:
1. Open, continuous, exclusive and notorious possession, by themselves or through their
predecessors-in-interest, of land;
2. The land possessed or occupied must have been declared alienable and disposable
agricultural land of public domain;
3. The possession or occupation was under a bona fide claim of ownership;
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4. Possession dates back to June 12, 1945 or earlier.

Section 14(1) of the Property Registration Decree should be interpreted to include


possession before the declaration of the land’s alienability as long as at the time of the application
for registration, the land has already been declared part of the alienable and disposable
agricultural public lands. This court also emphasized that the absurdity that would result in
interpreting Section 14(1) as requiring that the alienability of public land should have already been
established by June 12, 1945

Instead, the more reasonable interpretation of Section 14(1) is that it merely requires the
property sought to be registered as already alienable and disposable at the time the application
for registration of title is filed. If the State, at the time the application is made, has not yet deemed
it proper to release the property for alienation or disposition, the presumption is that the
government is still reserving the right to utilize the property; hence, the need to preserve its
ownership in the State irrespective of the length of adverse possession even if in good faith.
However, if the property has already been classified as alienable and disposable, as it is in this
case, then there is already an intention on the part of the State to abdicate its exclusive
prerogative over the property.

In the present Petition, the Subject Lots became alienable and disposable only on 25 June
1963. Any period of possession prior to the date when the Subject Lots were classified as alienable
and disposable is inconsequential and should be excluded from the computation of the period of
possession; such possession can never ripen into ownership and unless the land had been
classified as alienable and disposable, the rules on confirmation of imperfect title shall not apply
thereto. It is very apparent then that respondents could not have complied with the period of
possession required by Section 48(b) of the Public LandAct, as amended, to acquire imperfect or
incomplete title to the Subject Lots that may be judicially confirmed or legalized.

The Court explained that there was no other legislative intent that could be associated
with the date, June 12, 1945, as written in our registration laws except that it qualifies the requisite
period of possession and occupation. The law imposes no requirement that land should have been
declared alienable and disposable agricultural land as early as June 12, 1945.

Therefore, what is important in computing the period of possession is that the land has
already been declared alienable and disposable at the time of the application for registration.
Upon satisfaction of this requirement, the computation of the period may include the period of
adverse possession prior to the declaration that land is alienable and disposable.

Although adverse, open,continuous, and notorious possession in the concept of an owner


is a conclusion of law to be determined by courts, it has more to do with a person’s belief in good
faith that he or she has just title to the property that he or she is occupying. It is unrelated to the
declaration that land is alienable or disposable. A possessor or occupant of property may,
therefore, be a possessor in the concept of an owner prior to the determination that the property
is alienable and disposable agricultural land.

Roasa’s right to the original registration of title over the subject property is, therefore,
dependent on the existence of (a) a declaration that the land is alienable and disposable at the

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time of the application for registration and (b) open and continuous possession in the concept of
an owner through itself or through its predecessors-in-interest since June 12, 1945 or earlier.

In the present case, there is no dispute that the subject lot has been declared alienable and
disposable on March 15, 1982. This is more than eighteen (18) years before Roasa's application for
registration, which was filed on December 15, 2000. Moreover, the unchallenged testimonies of
two of respondent's witnesses established that the latter and her predecessors-in-interest had
been inadverse, open, continuous, and notorious possession in the concept ofan owner even
before June 12, 1945.

THE HON. SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM vs. NEMESIO


DUMAGPI, REPRESENTED BY VICENTE DUMAGPI
G.R. No. 195412, February 04, 2015, J. Reyes

The respondent claims that he is the owner of the disputed parcel of land by virtue of his
open, exclusive, notorious and continuous possession of the land for more than 30 years. The
Supreme Court ruled that adverse possession can only ripen into ownership when the land adversely
owned is classified as an agricultural land. If the disputed land is non-agricultural, adverse
possession cannot ripen into ownership.

Facts:

The respondent Nemesio Dumagpi filed a complaint for accion reindivicatoria against
Aguilar, Valencia and Custodia including the Department of Agrarian Reform. He alleges that he
is the owner of the disputed land in Zamboanga City through his open and exclusive possession of
the said lot since July 4, 1945. He asserted that unknown to him, DAR issued titles over the land
he owns to Aguilar, Valencia and Custodia and by virtue of this titles, the latter threatens to
dispossess of his land.

The Regional Trial Court ruled in favor of Nemesio and held that the open, continuous,
notorious and exclusive possession of Nemesio of the disputed land for more than 30 years has
already ripened into title and therefore he is the rightful owner of the property. On appeal, the
Court of Appeals affirmed the decision of the RTC. Hence, the current petition.

Issue:

Whether or not the open, exclusive, notorious and continuous possession of Nemesio for
more than 30 years of the disputed land can ripen into ownership.

Ruling:

The open, notorious, exclusive and continuous possession of Nemesio on the disputed
land cannot ripen into ownership. The Supreme Court reversed and set aside the decision of the
Court of Appeals.

Article XII, Section 2 of the 1987 Constitution provides that “[a]ll lands of the public
domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the
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State. With the exception of agricultural lands, all other natural resources shall not be alienated.”
Under Section 3 of Article XII, lands of the public domain are classified into agricultural, forest or
timber, mineral lands and national parks, and alienable lands of the public domain, which shall be
limited to agricultural lands. Pursuant to Section 48(b) of Commonwealth Act No. 141, or the
Public Land Act, only citizens of the Philippines may be granted title to alienable public
agricultural land, to wit:

Section 48 (b) Those who by themselves or through their predecessors in interest have
been in open, continuous, exclusive, and notorious possession and occupation of
agricultural lands of the public domain, under a bona fide claim of acquisition or
ownership, for at least thirty years immediately preceding the filing of the application for
confirmation of title except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential to a government
grant and shall be entitled to a certificate of title under the provisions of this chapter.

As asserted by the DAR and testified to by Labrador, from 1938 to 1984 the subject lot was
part of a coal mine reservation, established under Proclamation No. 234, Series of 1938, as
amended by Proclamation No. 402, Series of 1953. On March 14, 1984, a portion of the reservation
containing 2,598 has was reclassified under Presidential Proclamation No. 2342 as agricultural
land reserved for resettlement. On June 10, 1988, R.A. No. 6657, or the Comprehensive Agrarian
Reform Law (CARL), placed the said reclassified area under the administration and disposition of
the DAR, pursuant to Section 2 thereof.

Concerning Nemesio’s claim of entitlement to a free patent, Section 44 of Commonwealth


Act No. 141 provides:

Sec. 44. Any natural-born citizen of the Philippines who is not the owner of more than
twenty-four hectares and who since July fourth, nineteen hundred and twenty-six or prior
thereto, has continuously occupied and cultivated, either by himself or through his
predecessors-in-interest, a tract or tracts of agricultural public lands subject to
disposition, or who shall have paid the real estate tax thereon while the same has not been
occupied by any person shall be entitled, under the provisions of this chapter, to have a
free patent issued to him for such tract or tracts of such land not to exceed twenty-four
hectares.

There is no dispute that the land Nemesio is claiming was not alienable public agricultural
land but in truth was classified and reserved as a coal mine from 1938 to 1984, a period which
overlapped with his claimed acquisitive possession. Clearly, he cannot invoke Section 48(b) of
Commonwealth Act No. 141 and assert an acquisitive title thereto by reason of open, continuous,
exclusive, and notorious possession for 30 years.

Then, even granting arguendo that his application for free patent was approved by DENR,
it is not denied that the same was never released. In fact, DAR claimed that it was never approved
precisely because the land was not alienable. Even Nemesio admitted that his free patent
application was not approved due to opposition by several other claimants. And even if the same
was approved and released, it would still have been void under the Constitution, for as held in
Heirs of Santiago v. Heirs of Santiago, free patent applications under the Public Land Act, as
amended, apply only to disposable lands of the public domain.
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REPUBLIC OF THE PHILIPPINES vs. SPOUSES DANTE and LOLITA BENIGNO


G.R. No. 205492, March 11, 2015, J. Del Castillo

The State is not estopped from the acts of the Clerk of Court in land registration cases.
Illegal acts of government agents do not bind the State. Assuming that it is, the respondents did not
prove that the land sought to be registered is an alienable and disposable land. All applications for
original registration under the Property Registration Decree must include both (1) a CENRO or
PENRO certification and (2) a certified true copy of the original classification made by the DENR
Secretary.

Facts:

Spouses Dante and Lolita Benigno filed with the RTC an Application for Registration of
title to a lot in Los Baños, Laguna.

The RTC granted the application for registration. The Republic filed its notice of appeal.
The trial court approved the notice of appeal and directed that the entire records of the case be
forwarded to the CA.

Spouses Benigno filed a Motion to Dismiss the Appeal and Issue a Final Decree of
Registration, claiming among others that the Republic has abandoned its appeal. RTC denied it,
stating that it was the spouses’ failure to submit certain required documents—the Affidavit of
Publication and Certificate of Posting—as earlier directed by the court which caused the non-
transmittal of the records of the case to the CA, thus delaying the appeal proceedings. The
Republic did not file its brief within the reglementary period. Thus, the CA dismissed its appeal.

The Republic filed the instant case, reiterating that it should not be faulted for the delay in
the proceedings on appeal, as it resulted from the Calamba City Office of the Clerk of Court’s
failure to transmit the records of the case to the CA.

Issue:

Should an appeal for land registration cases be dismissed for the failure of the Clerk of
Court to transmit the records of the case to the CA?

Ruling:

No, the Court ruled that illegal acts of government agents do not bind the State, and the
Government is never estopped from questioning the acts of its officials.

Though Republic is admittedly ornery in the prosecution of its case, it is nonetheless true
that as a matter of doctrine, illegal acts of government agents do not bind the State, and the
Government is never estopped from questioning the acts of its officials, more so if they are
erroneous, let alone irregular. This principle applies in land registration cases. Certainly, the State
will not be allowed to abdicate its authority over lands of the public domain just because its
agents and officers have been negligent in the performance of their duties. Under the Regalian

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doctrine, “all lands of the public domain belong to the State, and the State is the source of any
asserted right to ownership in land and charged with the conservation of such patrimony.”

Even if the Office of the Solicitor General was remiss in the handling of the State’s appeal,
respondents’ application for registration must be dismissed since they failed to prove that the
land applied for is alienable and disposable public land.

Applicants for registration of title under PD 152950 must prove: “(1) that the subject land
forms part of the disposable and alienable lands of the public domain; and (2) that they have been
in open, continuous, exclusive and notorious possession and occupation of the land under a bona
fide claim of ownership since 12 June 1945 or earlier. Section 14(1) of the law requires that the
property sought to be registered is already alienable and disposable at the time the application for
registration is filed.”

And, in order to prove that the land subject of the application is alienable and disposable
public land, “the general rule remains: all applications for original registration under the Property
Registration Decree must include both (1) a CENRO or PENRO certification and (2) a certified
true copy of the original classification made by the DENR Secretary.”

In this case, the Spouses did not present any documentary evidence to prove that the land
applied for is alienable and disposable public land. Their Exhibits “A” to “N” are bereft of the
required documentary proof – particularly, a copy of the original classification approved by the
DENR Secretary and certified as a true copy by the legal custodian of the official records, and a
CENRO or PENRO certification – to show that the land applied for registration is alienable and
disposable public land.

Respondents cannot invoke substantial compliance with the requirement of proof of


alienability. There is complete absence of documentary evidence showing that the land applied
for forms part of the alienable and disposable portion of the public domain. Complete absence of
proof is certainly not equivalent to substantial compliance with the required amount of proof.

Applicants for registration of public land should come to court prepared and complete
with the necessary evidence to prove their registrable title. Otherwise, their efforts will be for
naught, and they would only have wasted precious time, resources and energy in advancing a lost
cause.

REPUBLIC OF THE PHILIPPINES vs. EMETERIA G. LUALHATI


G.R. No. 183511, March 25, 2015, J. Peralta

Emeteria G. Lualhati filed with the RTC of Antipolo City an application for original
registration covering Lots 1 and 2 situated in C-5 C-6 Pasong Palanas, Sitio Sapinit, San Juan,
Antipolo, Rizal. To support her contention that the lands subject of her application is alienable and
disposable, Lualhati submitted certifications from the DENR-CENRO, Region IV, Antipolo City,
stating that no public land application or land patent covering the subject lots is pending nor are the
lots embraced by any administrative title. It has been repeatedly ruled that certifications issued by
the CENRO, or specialists of the DENR, as well as Survey Plans prepared by the DENR containing
annotations that the subject lots are alienable, do not constitute incontrovertible evidence to
overcome the presumption that the property sought to be registered belongs to the inalienable
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public domain. Rather, this Court stressed the importance of proving alienability by presenting a
copy of the original classification of the land approved by the DENR Secretary and certified as true
copy by the legal custodian of the official records.

Moreover, as petitioner Republic aptly points out, Lualhati failed to provide any other proof
of acts of dominion over the subject land other than the fact that she, together with her husband and
children, planted fruit-bearing trees and constructed their home thereon considering the vastness of
the same. A mere casual cultivation of portions of the land by the claimant, and the raising thereon
of cattle, do not constitute possession under claim of ownership. In that sense, possession is not
exclusive and notorious as to give rise to a presumptive grant from the State.

Facts:

On August 12, 2004, respondent Emeteria G. Lualhati filed with the RTC of Antipolo City
an application for original registration covering Lots 1 and 2 situated in C-5 C-6 Pasong Palanas,
Sitio Sapinit, San Juan, Antipolo, Rizal. Lualhati maintains that she, together with her deceased
husband, Andres Lualhati, and their four children, have been in possession of the subject lands in
the concept of an owner since 1944. In support of her application, Lualhati submitted the
blueprint of the survey plan and the tracing cloth plan surveyed at the instance of Andres Lualhati
and approved by the Director of Lands in October 1957, the certified true copy of the surveyor’s
certificate, the technical descriptions of Lots 1 and 2, Tax Declaration No. 26437 issued in the
name of Andres Lualhati, which states that the tax on the properties commenced in 1944, the real
property tax register evidencing payment of realty taxes on the subject properties from 1949 to
1958, certifications from the Department of Environment and Natural Resources (DENR), Region
IV, City Environment and Natural Resources Office (CENRO), Antipolo City, that no public land
application/land patent covering the subject lots is pending nor are the lots embraced by any
administrative title, and a letter from the Provincial Engineer that the province has no projects
which will be affected by the registration. Moreover, Lualhati presented several witnesses to prove
her claim that she and her husband, together with their four children, have tilled the soil, planted
fruit-bearing trees, and constructed their conjugal house on the subject properties, where all four
of her children grew up until they got married.

The RTC granted Lualhati’s application finding that she had been in open, public,
continuous, exclusive, adverse, and notorious possession and occupation of the lands for more
than 50 years under a bona fide claim of ownership even prior to June 12, 1945, as required under
Section 14 (1) of Presidential Decree (PD) No. 1529, otherwise known as the Property Registration
Decree.

The CA affirmed the ruling of the RTC, rejecting Republic’s contention that Lualhati failed
to overcome the burden of proving her possession of the subject lots in its entirety, and that even
if they did, such can hardly suffice as possession, being a mere casual cultivation.

Issues:

1. Whether or not Lualhati was able to prove the alienable and disposable character of the land
applied for registration;

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2. Whether or not Lualhati was able to prove possession over the property applied for
registration in the concept and within the period required by law

Ruling:

1. No. Section 14 (1) of PD 1529, otherwise known as the Property Registration Decree
provides:

SEC. 14. Who may apply. - The following persons may file in the proper Court of First
Instance an application for registration of title to land, whether personally or
through their duly authorized representatives:

(1) Those who by themselves or through their predecessors-in-interest have been in


open, continuous, exclusive and notorious possession and occupation of alienable
and disposable lands of the public domain under a bona fide claim of ownership since
June 12, 1945, or earlier.

Thus, pursuant to the aforequoted provision, applicants for registration of title must prove
that: (1) the subject land forms part of the disposable and alienable lands of the public domain;
and (2) they, by themselves or through their predecessors-in-interest, have been in open,
continuous, exclusive, and notorious possession and occupation of the same under a bona
fide claim of ownership since June 12, 1945, or earlier.

To support her contention that the lands subject of her application is alienable and
disposable, Lualhati submitted certifications from the DENR-CENRO, Region IV, Antipolo City,
stating that no public land application or land patent covering the subject lots is pending nor are
the lots embraced by any administrative title.

It has been repeatedly ruled that certifications issued by the CENRO, or specialists of the
DENR, as well as Survey Plans prepared by the DENR containing annotations that the subject lots
are alienable, do not constitute incontrovertible evidence to overcome the presumption that the
property sought to be registered belongs to the inalienable public domain. Rather, this Court
stressed the importance of proving alienability by presenting a copy of the original classification
of the land approved by the DENR Secretary and certified as true copy by the legal custodian of
the official records.

Thus, as it now stands, an application for original registration must be accompanied by: (1)
CENRO or PENRO certification; and (2) a copy of the original classification approved by the
DENR Secretary and certified as a true copy by the legal custodian of the official records, in order
to establish that the land is indeed alienable and disposable.

Here, Lualhati failed to establish, by the required evidence, that the land sought to be
registered has been classified as alienable or disposable land of the public domain. The records of
this case merely bear certifications from the DENR-CENRO, Region IV, Antipolo City, stating that
no public land application or land patent covering the subject lots is pending nor are the lots
embraced by any administrative title. Said CENRO certifications, however, do not even make any
pronouncement as to the alienable character of the lands in question for they merely recognize

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the absence of any pending land patent application, administrative title, or government project
being conducted thereon.

2. No. Other than the bare allegations of Lualhati and her witness, as well as the 1947 tax
declaration, Lualhati did not present any other proof to substantiate her claim of possession
beginning in 1944. Neither did she provide any explanation as to why, if she has truly been
occupying the properties as early as 1994, it was only in 1947 that she sought to declare the same
for purposes of taxation.

In addition to this, the real property tax register presented by Lualhati evidenced payment
of realty taxes only from 1949 up to 1958. Consequently, this Court cannot concede to Lualhati’s
assertion that she had been adversely possessing the properties beginning in 1944 up until the
filing of her complaint in 2004, or for a duration of sixty full years, when the evidence presented
depicts payment of taxes for only nine years. Payment of realty taxes for a brief and fleeting
period simply cannot be considered sufficient proof of ownership.

Furthermore, it bears stressing that tax declarations and receipts are not conclusive
evidence of ownership or of the right to possess land when not supported by any other
evidence. The disputed property may have been declared for taxation purposes in the names of
the applicants for registration, or of their predecessors-in-interest, but it does not necessarily
prove ownership. They are merely indicia of a claim of ownership.

Moreover, as petitioner Republic aptly points out, Lualhati failed to provide any other
proof of acts of dominion over the subject land other than the fact that she, together with her
husband and children, planted fruit-bearing trees and constructed their home thereon
considering the vastness of the same. As enunciated in Republic v. Bacas, et al.:

A mere casual cultivation of portions of the land by the claimant, and the raising thereon
of cattle, do not constitute possession under claim of ownership. In that sense, possession is not
exclusive and notorious as to give rise to a presumptive grant from the State. While grazing
livestock over land is of course to be considered with other acts of dominion to show possession,
the mere occupancy of land by grazing livestock upon it, without substantial enclosures, or other
permanent improvements, is not sufficient to support a claim of title thru acquisitive prescription.

CANCELLATION OF TITLE

ROSARIO BANGUIS-TAMBUYAT vs. WENIFREDA BALCOM-TAMBUYAT


G.R. No. 202805, March 23, 2015, J. Del Castillo

Under Sec. 108 of PD 1529, the proceeding for the erasure, alteration, or amendment of a
certificate of title may be resorted to in seven instances: (1) when registered interests of any
description, whether vested, contingent, expectant, or inchoate, have terminated and ceased; (2)
when new interests have arisen or been created which do not appear upon the certificate; (3) when
any error, omission or mistake was made in entering a certificate or any memorandum thereon or
on any duplicate certificate; (4) when the name of any person on the certificate has been changed;
(5) when the registered owner has been married, or, registered as married, the marriage has been
terminated and no right or interest of heirs or creditors will thereby be affected; (6) when a
corporation, which owned registered land and has been dissolved, has not conveyed the same within
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three years after its dissolution; and (7) when there is reasonable ground for the amendment or
alteration of title. The present case falls under (3) and (7), where the Registrar of Deeds of Bulacan
committed an error in issuing TCT T-145321 in the name of “Adriano M. Tambuyat married to
Rosario E. Banguis” when, in truth and in fact, respondent Wenifreda – and not Banguis – is
Adriano’s lawful spouse.

Facts:

During their marriage, Adriano Tambuyat and Respondent Wenifreda Tambuyat acquired
several real properties including a parcel of land in Bulacan, which was bought by Adriano. On
the deed of sale over this property, one of the witnesses was herein Petitioner Rosario Banguis-
Tambuyat who signed thereon as Rosario Banguis.

All this time, Petitioner Banguis remained married to Eduardo Nolasco and at all stages of
the instant case, Nolasco was alive and his marriage to Banguis subsisted and was never annulled.

On June 7, 1998, Adriano died intestate. On October 19, 1999, Wenifreda filed a petition
seeking the cancellation of TCT-145321 for its defect showing his spouse as married to Petitioner
Banguis. Banguis opposed this petition, saying that she alone bought the subject property and
that she and adriano were married on September 2, 1988.

After due trial, the RTC issued a judgment finding Respondent Wenifreda as having the
lawful title over the property and the same be cancelled the defect stated therein. The trial court
held that it has the sufficient authority under the Property Registration Decree to rectify errors
appearing on certificates of title. Further, the evidence of Wenifreda is preponderant on the point
that she and deceased Adriano were legally married and the latter acquired the subject property.
The CA sustained the ruling the RTC.

Issue:

Whether or not the trial court was invested with proper authority to cause the
cancellation of the certificate of title on the ground that it shows a defect or error.

Ruling:

YES, the Court is not convinced with the contentions of Petitioner Banguis.

The OMB contends that the CA should have dismissed Rigor’s Petition for Certiorari

The trial court in [the subject land registration case] was not precluded from resolving the
objections raised by Banguis in her opposition to the petition for cancellation; a separate action
need not be filed in a different court exercising general jurisdiction. Banguis should be considered
to have acquiesced and freely submitted the case to the trial court for complete determination on
her opposition, when she went to trial and adduced and submitted all her relevant evidence to the
court. “The active participation of the party against whom the action was brought, coupled with his
failure to object to the jurisdiction of the court or quasi-judicial body where the action is pending, is
tantamount to an invocation of that jurisdiction and a willingness to abide by the resolution of the
case and will bar said party from later on impugning the court or body’s jurisdiction.”
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Under Sec. 108 of PD 1529, the proceeding for the erasure, alteration, or amendment of a
certificate of title may be resorted to in seven instances: (1) when registered interests of any
description, whether vested, contingent, expectant, or inchoate, have terminated and ceased; (2)
when new interests have arisen or been created which do not appear upon the certificate; (3)
when any error, omission or mistake was made in entering a certificate or any memorandum
thereon or on any duplicate certificate; (4) when the name of any person on the certificate has
been changed; (5) when the registered owner has been married, or, registered as married, the
marriage has been terminated and no right or interest of heirs or creditors will thereby be
affected; (6) when a corporation, which owned registered land and has been dissolved, has not
conveyed the same within three years after its dissolution; and (7) when there is reasonable
ground for the amendment or alteration of title. The present case falls under (3) and (7), where
the Registrar of Deeds of Bulacan committed an error in issuing TCT T-145321 in the name of
“Adriano M. Tambuyat married to Rosario E. Banguis” when, in truth and in fact, respondent
Wenifreda – and not Banguis – is Adriano’s lawful spouse.

Proceedings under Sec. 108 are “summary in nature, contemplating corrections or


insertions of mistakes which are only clerical but certainly not controversial issues.” Banguis’s
opposition to the petition for cancellation ostensibly raised controversial issues involving her
claimed ownership and the hereditary rights of Adrian, which she claims to be her son by
Adriano. However, apart from the fact that evidence of Banguis’s ownership is irrelevant in
Wenifreda’s petition, the evidence apparently indicates that Banguis could not be the owner of
the subject property, while a resolution of the issue of succession is irrelevant and unnecessary to
the complete determination of Wenifreda’s petition. The Court is thus led to the conclusion that
the Registrar of Deeds of Bulacan simply erred in including Banguis in TCT T-145321 as Adriano’s
spouse.

As correctly ruled by the appellate court, the preponderance of evidence points to the fact
that Wenifreda is the legitimate spouse of Adriano. Documentary evidence – among others, the
parties’ respective marriage contracts, which, together with marriage certificates, are considered
the primary evidence of a marital union – indicates that Adriano was married to Wenifreda, while
Banguis was married to Nolasco – and both marriages were subsisting at the time of the
acquisition of the subject property and issuance of the certificate of title thereto. Thus, it cannot
be said that Adriano and Banguis were husband and wife to each other; it cannot even be said
that they have a common-law relationship at all. Consequently, Banguis cannot be included or
named in TCT T-145321 as Adriano’s spouse; the right and privilege belonged to Wenifreda alone.

ACTION FOR RECONVEYANCE

HEIRS OF FRANCISCO I. NARVASA, SR., ANDHEIRS OF PETRA IMBORNAL AND PEDRO


FERRER,REPRESENTED BY THEIR ATTORNEY-IN-FACT, MRS. REMEDIOS B. NARVASA-
REGACHO vs. EMILIANA, VICTORIANO, FELIPE, MATEO, RAYMUNDO, MARIA,AND
EDUARDO, ALL SURNAMED IMBORNAL
G.R. No. 182908, August 06, 2014, J. Perlas Bernabe

An action for reconveyance based on an implied trust prescribes in ten (10) years, reckoned from
the date of registration of the deed or the date of issuance of the certificate of title over the

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property, if the plaintiff is not in possession. Hence, when a complaint for reconveyance is filed
beyond the 10-year reglementary period, such cause of action is barred by prescription.

Facts:

Basilia Imbornal+ (Basilia) had four (4) children, namely, Alejandra, Balbina, Catalina, and
Pablo.

Francisco I. Narvasa, Sr.(Francisco) and Pedro Ferrer (Pedro) were the children of Alejandra,
while petitioner Petra Imbornal (Petra) was the daughter of Balbina. Petitioners are the heirs
and successors-in-interest of Francisco, Pedro, and Petra (Francisco, et al.). On the other hand,
respondents Emiliana, Victoriano, Felipe, Mateo, Raymundo, Maria, and Eduardo, all surnamed
Imbornal, are the descendants of Pablo.

During her lifetime, Basilia owned a parcel of land (Sabangan property) which she conveyed
to her three daughters, Balbina, Alejandra and Catalina (Imbornal sisters) sometime in 1920.

Meanwhile, Catalina’s husband, Ciriaco Abrio (Ciriaco), applied for and was granted a
homestead patent riparian land. He was eventually awarded Homestead Patent therefor, and, an
original certificate of title was issued in his name.

Claiming rights over the entire Motherland, Francisco, et al., as the children of Alejandra and
Balbina, filed on February 27, 1984 an Amended Complaint for reconveyance, partition, and/or
damages against respondents. They anchored their claim on the allegation that Ciriaco, with the
help of his wife Catalina,urged Balbina and Alejandra to sell the Sabangan property, and that
Ciriaco used the proceeds therefrom to fund his then-pending homestead patent application over
the disputed land. In return, Ciriaco agreed that once his homestead patent is approved, he will
be deemed to be holding the land in trust for the Imbornal sisters.

In their Answer respondents contended that the action was barred by prescription; and that
the properties sought to be reconveyed and partitioned are not the properties of their
predecessors-in-interest but, instead, are covered by Torrens certificates of titles, free from any
encumbrance, and declared for taxation purposes in their names.

The RTC rendered a Decision in favor of Francisco, et al. It found that the factual
circumstances surrounding the present case showed that an implied trust existed between Ciriaco
and the Imbornal sisters with respect to the Motherland. It gave probative weight to Francisco, et
al.’s allegation that the Sabangan property, inherited by the Imbornal sisters from their mother,
Basilia, was sold in order to help Ciriaco raise funds for his then-pending homestead patent
application. In exchange therefor, Ciriaco agreed that he shall hold the land in trust for them once
his homestead patent application had been approved.

However, the CA rendered a Decision reversing and setting aside the RTC Decision. The CA
found that Ciriaco alone was awarded a homestead patent, which later became the basis for the
issuance of a Torrens certificate of title in his name; as such, said certificate of title cannot be
attacked collaterally through an action for reconveyance filed by his wife’s (Catalina’s) relatives.

Issue:
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1. Whether the complaint for reconveyance is already barred by prescription

2. Whether there is the existence of implied trust between the Imbornal sisters and Ciriaco

Ruling:

1. Yes, the cause of action of the petitioners is barred by prescription.

An action for reconveyance is one that seeks to transfer property, wrongfully registered by
another, to its rightful and legal owner. Thus, reconveyance is a remedy granted only to the owner
of the property alleged to be erroneously titled in another’s name.

When property is registered in another’s name, an implied or constructive trust is created by


law in favor of the true owner. Article 1456 of the Civil Code provides that a person acquiring
property through fraud becomes, by operation of law, a trustee of an implied trust for the benefit
of the real owner of the property. An action for reconveyance based on an implied trust prescribes
in ten (10) years, reckoned from the date of registration of the deed or the date of issuance of the
certificate of title over the property, if the plaintiff is not in possession.However, if the plaintiff is
in possession of the property, the action is imprescriptible.

Based on the foregoing, Francisco, et al. had then a period of ten (10) years from the
registration of the respective titles covering the disputed properties within which to file their
action for reconveyance, taking into account the fact that they were never in possession of the
said properties. Hence, the disputed land which was covered by OCT No. 1462 issued
on December 5, 1933 in the name of Ciriaco, an action for reconveyance therefor should have been
filed until December 5,1943.

A judicious perusal of the records, however, will show that the Amended Complaint covering
the disputed properties was filed only on February 27, 1984. As such, it was filed way beyond the
10-year reglementary period.

2. No, there is no existence of implied trust between the Imbornal sisters and Ciriaco.

An implied trust arises, not from any presumed intention of the parties, but by operation of
law in order to satisfy the demands of justice and equity and to protect against unfair dealing or
downright fraud. To reiterate, Article 1456 of the Civil Code states that“[i]f property is acquired
through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property comes.

The burden of proving the existence of a trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the existence of the trust and its elements.While
implied trusts may be proven by oral evidence, the evidence must be trustworthy and received by
the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral evidence can easily be fabricated.

In this case, it cannot be said, merely on the basis of the oral evidence offered by Francisco, et
al.,that the Motherland had been either mistakenly or fraudulently registered in favor of Ciriaco.
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Accordingly, it cannot be said either that he was merely a trustee of an implied trust holding the
Motherland for the benefit of the Imbornal sisters or their heirs.

As the CA had aptly pointed out,a homestead patent award requires proof that the applicant
meets the stringent conditions set forth under Commonwealth Act No. 141, as amended, which
includes actual possession, cultivation, and improvement of the homestead. It must be presumed,
therefore, that Ciriaco underwent the rigid process and duly satisfied the strict conditions
necessary for the grant of his homestead patent application. As such, it is highly implausible that
the property had been acquired and registered by mistake or through fraud as would create an
implied trust between the Imbornal sisters and Ciriaco,.

Hence, when the original certificate of title was issued in his name pursuant to homestead
patent, Ciriaco’s title to the Motherland had become indefeasible. It bears to stress that the
proceedings for land registration that led to the issuance of Homestead Patent No. 24991 and
eventually, OCT No. 1462 in Ciriaco’s name are presumptively regular and proper, which
presumption has not been overcome by the evidence presented by Francisco, et al.

SPOUSES VIRGILIO DE GUZMAN, JR. [substituted by his wife, Lydia S. De Guzman, and
children, namely, Ruel S. De Guzman, et al.] and LYDIA S. DE GUZMAN v. COURT OF
APPEALS, Mindanao Station, LAMBERTO BAJAO, HEIR OF SPOUSES LEONCIO* BAJAO
and ANASTACIA Z. BAJAO
G.R. No. 185757, March 2, 2016; Velasco, Jr.

Facts:

On May 28, 1968, Leoncio Bajao acquired Lot No. 532 located at North Poblacion, Medina,
Misamis Oriental, through Free Patent No. 400087. Lot No. 532 has a total area of 25,178 square
meters.

On May 24, 1969, the Spouses Leoncio (represented herein by heir Lamberto Bajao) and Anastacia
Bajao sold 200 square meters of Lot No. 532 to the Spouses Virgilio (substituted by wife Lydia and
children) and Lydia De Guzman for P1,000. Subsequently, on June 18. 1970 the Spouses Bajao sold
another 280 square meters of Lot No. 532 to the Spouses De Guzman for P1,400. Both transactions
were covered by separate Deeds of Absolute Sale. The Spouses Bajao allegedly promised to
segregate the property from the remaining area of Lot No. 532 and to deliver a separate title to
petitioners covering it. However, because the promise was not forthcoming, Lydia De Guzman
executed an Affidavit of Adverse Claim on April 21, 1980 covering the property. This was
annotated on the title covering Lot No. 532, Original Certificate of Title (OCT) No. P-6903, on
April 25, 1980.

On May 29, 1980, the Spouses De Guzman initiated the segregation of the property from Lot No.
532 through a survey and they were able to acquire Lot 2-A, Psd-10-002692. Thereafter, they
purportedly acquired possession over the land immediately, fenced the area, introduced
improvements, and planted it with fruit-bearing trees.

On September 26, 1980, or after the death of Leoncio Bajao on February 1, 1972, Lamberto and
Anastacia Bajao executed an Extrajudicial Settlement Among Heirs (Extrajudicial Settlement),
which subdivided Lot No. 532 into three parts. The 480 square meter property purchased by the
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Spouses De Guzman was included in Lot No. 532-C, which was adjudicated in favor of Lamberto
Bajaro. The Extrajudicial Settlement was registered on December 10, 1980.

On December 16, 1980, Lamberto Bajao caused the cancellation of the Spouses De Guzman’s
annotated adverse claim over the property and later obtained Transfer Certificate of Title (TCT)
No. T-7133 on February 13 and October 2, 1981. The Spouses De Guzman thereafter requested
Lamberto Bajao to deliver TCT No. T-7133 so they could present it to the Register of Deeds,
together with the two Deeds of Absolute Sale, for proper annotation. The latter, however, refused
to heed their request.

Thus, on January 21, 2000, the Spouses De Guzman filed a Complaint for Reconveyance with Writ
of Preliminary Mandatory Injunction and Damages. They contended that they were innocent
purchasers for value who took possession of the property immediately after the sale and
religiously paid its real property taxes. They also allege that Lamberto Bajao was in bad faith
because he knew of the existence of the Deeds of Absolute Sale yet he still adjudicated such
portion in his share.

On the other hand, Lamberto Bajao argues that the action of the Spouses De Guzman is already
time barred as more than 10 years have already elapsed from the date of the registration of the
Extrajudicial Settlement on December 10, 1980 and the registration of TCT No. T-7133 on February
and October 1981.

The RTC ruled in favor of the Spouses De Guzman ruling that the Deeds of Absolute Sale were
free from infirmities and that the execution thereof was equivalent to the delivery of the thing
sold, registration not being necessary to make the contract of sale valid. The trial court held that
as between the parties and their privies, an unrecorded deed of sale covering land registered
under the Torrens system passes title of ownership once the land is conveyed to the vendee.
Failure of registration does not, at anytime after the sale, vitiate or annul the right of ownership
conferred to such sale. The RTC further held Lamberto Bajao to be in bad faith as he admitted
that he was aware of the adverse claim of the Spouses De Guzman at the time of the registration
of the Extrajudicial Settlement. The RTC held that the “portion” adjudicated to him in the
Extrajudicial Settlement was the remainder of the property taking into account the 480 square
meters sold to the Spouses De Guzman.

On appeal to the CA, it ruled in favor of Lamberto and Anastacia Bajao dismissing the Spouses De
Guzman’s complaint. The CA ruled that an implied trust between the parties under Article 1456 of
the Civil Code was created at the time Anastacia and Lamberto Bajao executed the Extrajudicial
Settlement on September 26, 1980, with Lamberto becoming the trustee who holds the property
in trust for the benefit of the Spouses De Guzman. The CA held that an action for reconveyance
based on an implied trust prescribes in 10 years from the registration of title in the Office of the
Register of Deeds. Thus, the action for reconveyance filed in January 2000 has already prescribed
since more than 10 years have lapsed from October 1981, the date of registration of respondent's
title. Moreover, the CA found that the Spouses De Guzman failed to prove their actual possession
of the property since evidence shows that it was only in the 1980s, or 10 years after the property
was sold, when the Spouses De Guzman gained possession.

Issues:

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1) Whether the CA was correct in ruling that the action for reconveyance had already
prescribed.

Ruling:

1) Yes, the CA correctly held that the action for reconveyance had already prescribed.

Article 1456 of the Civil Code provides that a person acquiring property through mistake or fraud
becomes, by operation of law, a trustee of an implied trust for the benefit of the real owner of the
property. An action for reconveyance based on an implied trust generally prescribes in 10 years,
the reckoning point of which is the date of registration of the deed or the date of issuance of the
certificate of title over the property. Thus, petitioners had 10 years from 1981 or until 1991 to file
their complaint for reconveyance of property. The Complaint, however, was filed only on January
21, 2000, or more than 10 years from the issuance of TCT No. T-7133. Hence, the action is already
barred by prescription.
The exception to the ten-year rule on prescription does not apply here because the Spouses De
Guzman were not able to prove that they were in possession of the property. Otherwise, the
action for reconveyance becomes one for quieting of title, which is imprescriptible.

Moreover, the Deeds of Absolute Sale were null and void due to violation of the Public Land Act,
since they were executed within the 5 year prohibition period. Under the Public Land Act, no sale
or encumbrance of the homestead within 5 years shall be allowed. In this case, portions of Lot No.
532 were conveyed to petitioners by virtue of two Deeds of Absolute Sale executed on May 24,
1969 and June 18, 1970, or after the grant and issuance of Free Patent No. 40008774 on May 28,
1968. Both Deeds of Absolute Sale were executed within the prohibited period of five years. While
the law provides for automatic reversion to the state, the SC has previously held that a private
individual may not bring an action for reversion on behalf of the state, since only the Solicitor
General may do so.

TORTS AND DAMAGES

DAMAGES

ONE NETWORK RURAL BANK, INC., PETITIONER, VS. DANILO G. BARIC, RESPONDENT.
G.R. No. 193684, March 05, 2014
J. Del Castillo

Where a bank was merely a purchaser or transferee of the property that has a pending
forcible entry case, it cannot be made liable for nominal damages since it has not violated or invaded
a right. It is not prohibited from acquiring the property even while the forcible entry case was
pending, because as the registered owner of the subject property, the seller may transfer his title at
any time and the lease merely follows the property as a lien or encumbrance.

Facts:

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Jaime Palado (Palado) was the registered owner of real property with a building containing
commercial spaces for lease (subject property). Respondent Danilo G. Baric (Baric) was a lessee
therein, operating a barber shop on one of the commercial spaces. A written agreement, or
“Kasabutan”, governed the lease.

Baric received a written notice from Palado demanding the return of the leased commercial space
within 40 days from December 15, 2000. Thereafter, the building was demolished.

Baric filed a case for forcible entry with prayer for injunctive relief against Palado and herein
petitioner One Network Rural Bank, Inc. (Network Bank). Baric alleged that he had been
occupying the leased space since 1994; that in 2000, he renovated the leased space with Palado’s
consent and knowledge; that in December 2000, Palado sent him a notice to vacate the premise;
that Palado enclosed and fenced the premises and thus prevented him from entering and using
the same; that he was thus excluded from the leased premises by means of strategy, violence, force
and threat. Baric thus prayed that injunctive relief be granted to restrain Palado and Network
Bank from depriving him of possession; that he be restored in his possession of the commercial
space, and that any structure built thereon in the meantime be demolished. Baric’s Amended
Complaint was prompted by Network Bank’s subsequent purchase of the subject property from
Palado, whereupon TCT 231531 was cancelled and TCT T-338511 was issued in the bank’s name. It
then constructed a new building on the lot.

Network Bank essentially claimed, among others, that as a buyer in good faith and new owner of
the subject property, it should not be made liable.

MTCC rendered its Decision dismissing Baric’s Complaint for forcible entry. The RTC affirmed
the MTCC decision in toto. Upon petition for Review with the CA, the court issued the assailed
Decision reversing the MTCC and RTC decisions. It awarded nominal damages to Baric for which
respondents are solidarily liable.

Issue:

Whether One Network Bank is liable for nominal damages to Baric

Ruling:

“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. Under Article 2221 of the Civil Code, nominal damages may be awarded to a
plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating
or recognizing that right, not for indemnifying the plaintiff for any loss suffered.” “Nominal
damages are not for indemnification of loss suffered but for the vindication or recognition of a
right violated or invaded.”

Network Bank did not violate any of Baric’s rights; it was merely a purchaser or transferee of the
property. Surely, it is not prohibited from acquiring the property even while the forcible entry
case was pending, because as the registered owner of the subject property, Palado may transfer his
title at any time and the lease merely follows the property as a lien or encumbrance. Any invasion
or violation of Baric’s rights as lessee was committed solely by Palado, and Network Bank may not
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be implicated or found guilty unless it actually took part in the commission of illegal acts, which
does not appear to be so from the evidence on record. On the contrary, it appears that Baric was
ousted through Palado’s acts even before Network Bank acquired the subject property or came
into the picture. Thus, it was error to hold the bank liable for nominal damages.

JOSE ESPINELI a.k.a. DANILO ESPINELI vs. PEOPLE OF THE PHILIPPINES


G.R. No. 179535, June 9, 2014, J. Del Castillo

Moral damages 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, such as when the victim was
gunned down in front of his house. If medical and funeral expenses were substantiated, actual
damages may be awarded. However, damages for loss of earning capacity may not be awarded
absent 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 testimony of the wife of
the victim, a Senior Desk Coordinator of a radio station, as to the latter’s monthly salary without
any documentary evidence will not suffice to substantiate the claim.

Facts:

Petitioner Jose Espineli was charged before the RTC with murder for the death of Alberto
Berbon, a 49-year old Senior Desk Coordinator of the radio station DZMM. In the early evening of
December 15, 1996, Berbon was shot in the head and different parts of the body in front of his
house. Meanwhile, Romeo Reyes was arrested, and confided to NBI officers that he was willing to
give vital information regarding the Berbon case. NBI Agent Segunial interviewed Reyes and
reduced his statement into writing whereby Reyes claimed that on December 15, 1996 he saw
Espineli and Sotero Paredes board a red car while armed with a .45 caliber firearm and armalite,
respectively, and that Espineli told Paredes that “ayaw ko nang abutin pa ng bukas yang siBerbon”.
Afterwards, Reyes posted bail and was never again heard of. NBI Agent Segunial testified on these
facts during trial.

Another prosecution witness, Rodolfo Dayao (Rodolfo), testified that he sold his red Ford
Escort car to three persons who came to his residence in the afternoon of September 1, 1996. He
later identified the said car from the photographs presented to him by the police officers.Dr.
Ludivino J. Lagat (Dr. Lagat), the NBI Medico-Legal Officer who conducted a post-mortem
examination on Alberto, declared in his Autopsy Report that the victim suffered multiple gunshot
wounds in the head and body. He also stated that based on the size of the gunshot wounds or
entrance, high-powered guns were used in the killing.

Espineli filed a Demurrer to Evidence without leave of court. The RTC convicted Espineli
and ordered him to likewise ordered to pay the heirs of Berbon, the civil indemnity of P50,000.00,
and actual and compensatory damages in the total amount of P135,000.00 as funeral expenses,
interment fee of P8,360.00, medical expenses in the total amount of P1,519.45 and for the contract
fees of Memorial Park Care the amount of P15,700.00. The CA affirmed the RTC.

Issue:

Was the award of damages proper?


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Ruling:

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 PS0,000.00 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 undercurrent 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.

PEDRITO DELA TORRE vs.DR. ARTURO IMBUIDO, DRA. NORMA IMBUIDO in their
capacity as owners and operators of DIVINE SPIRIT GENERAL HOSPITAL and/or DR.
NESTOR PASAMBA
G.R. No. 192973, September 29, 2014, J. Reyes

Medical malpractice or, more appropriately, medical negligence, is that type of claim which
a victim has available to him or her to redress a wrong committed by a medical professional which
has caused bodily harm. In order to successfully pursue such a claim, a patient, or his or her family
as in this case, "must prove that a health care provider, in most cases a physician, either failed to do
something which a reasonably prudent health care provider would have done, or that he or she did
something that a reasonably prudent provider would not have done; and that failure or action
caused injury to the patient.

As the Court held in Spouses Flores v. Spouses Pineda, et al.,the critical and clinching factor
in a medical negligence case is proof of the causal connection between the negligence and the
injuries. The claimant must prove not only the injury but also the defendant's fault, and that such
fault caused the injury. A verdict in a malpractice action cannot be based on speculation or
conjecture. Causation must be proven within a reasonable medical probability based upon
competent expert testimony,which the Court finds absent in the case at bar. As regards the
respondents' counterclaim, the CA's award of P48,515.58 is sustained.

Facts:

The case stemmed from a complaint for damages filed by PedritoDela Torre (Pedrito),
against herein respondents Dr. ArturoImbuido and Dr. Norma Imbuido (Dr. Norma), in their
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capacity as the ownersand operators of the Divine Spirit General Hospital in Olongapo City, and
Dr. Nestor Pasamba (Dr. Nestor) (Respondents).

At around 3:00 p.m. on February 3, 1992, Carmen Castillo Dela Torre(Carmen), wife of
Pedrito, was brought to the hospital’s operating room for her caesarian section operation, which
was to be performed by Dr. Nestor. By 5:30 p.m. of the same day, Pedrito was informed of his
wife’s delivery of a baby boy. In the early morning of February 4, 1992, Carmen experienced
abdominal pain and difficulty in urinating. She was diagnosed to be suffering from urinary tract
infection (UTI), and was prescribed medications by Dr. Norma. On February 10, 1992, Pedrito
noticed that Carmen’s stomach was getting bigger, but Dr. Normadismissed the patient’s
condition as mere flatulence (kabag).

When Carmen’s stomach still grewbigger despite medications, Dr. Norma advised Pedrito
of the possibility of a second operation on Carmen. Dr. Norma, however, provided no detailson its
purpose and the doctor who would perform it. At around 3:00 p.m. on February 12, 1992, Carmen
had her second operation. Later in the evening, Dr. Norma informed Pedrito that "everything was
going on fine with his wife.”

The condition of Carmen did not improve. It worsened and on February 13, 1992, she
vomited dark red blood. At 9:30 p.m. on the same day, Carmen died. Per her certificate of death,
the immediate cause of Carmen’s death was "cardio-respiratory arrest secondary to cerebro
vascular accident, hypertension and chronic nephritis induced by pregnancy." An autopsy
Reportprepared by Dr. Richard Patilano(Dr. Patilano), Medico-Legal Officer-Designate of
Olongapo City, however, provided that the cause of Carmen’s death was "shock due to peritonitis,
severe, with multiple intestinal adhesions; Status post Caesarian Section and Exploratory
Laparotomy."

Pedrito claimed in his complaint that the respondents "failed to exercise the degree of
diligence required of them" as members of the medical profession, and were "negligent for
practicing surgery on Carmen in the most unskilled, ignorant and cruel manner.”

Herein respondents argued that they "observed the required standard of medical care in
attending to the needs of Carmen." They explained that Carmen was admitted in Divine Spirit
General Hospital for "pregnancy in labor and pre-eclampsia." Her condition was closely
monitored during her confinement. A caesarian section operation became necessary, as she
manifested no significant progress for the spontaneous delivery of her baby and no unusual
events were observed during the course of Carmen’s caesarian section operation. The second
surgery, however, became necessary due to suspected intestinal obstruction and adhesions.

The respondents included in their answer a counterclaim for P48,515.58 as unpaid hospital
charges, professional fees and medicines, P3,000,000.00 for moral damages, P1,500,000.00 for
exemplary damages, and attorney’s fees.

At the trial, Pedrito presented the testimony of Dr. Patilano, the medicolegal officer who
conducted an autopsy on the body of Carmen upon a telephone request made by the City Health
Officer of Olongapo City, Dr. Generoso Espinosa. Dr. Patilano claimed that peritonitis could have
been prevented through proper medical procedures and medicines. He also stated that if the

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cause of Carmen’s death was actually cerebro-vascular accident, there would have been ruptured
blood vessels and blood clot in her head; but there were none in Carmen’s case.

Among those who testified to refute Pedrito’s claim was Dr. Nestor. He claimed that when
Carmen was referred to him on February 3, 1992, she was in full term uterine pregnancy, with pre-
eclampsia, fetal distress and active labor pains. A caesarian section operation became necessary to
terminate the pregnancy for her safety. Carmen was ready to go home four days after giving birth,
but was advised by the doctors to stay more because of her persistent hypertension.The second
surgery performed on Carmen was necessary after she showed symptoms of intestinal
obstruction, which happens as the intestines get twisted due to adhesions and the normal flow of
intestinal contents are obstructed. Both Carmen and Pedrito gave their written consent to this
second procedure.

Regional Trial Court (RTC) of Olongapo City, Branch 75, rendered its Decisionin favor of
Pedrito. Dissatisfied with the RTC ruling, the respondents appealed to the CA. The CA rendered
its Decision reversing and setting aside the decision of the RTC. For the appellate court, it was not
established that the respondents failed to exercisethe degree of diligence required of them by
their profession as doctors. The CA also granted the respondents’ counterclaim for the amount
of P48,515.58,

Hence, this petition for review on certiorariin which Pedrito insists that the respondents
should be held liable for the death of Carmen.

Issue:

Whether or not herein respondents should be held liable for the death of Carmen.

Ruling:

No. The petition is hereby denied.

"Medical malpractice or, more appropriately, medical negligence, is that type of claim
which a victim has available to him or her to redress a wrong committed by a medical
professionalwhich has caused bodily harm." In order to successfully pursue such a claim, a
patient, or his or her family as in this case, "must prove that a health care provider, in most cases
a physician, either failed to do something which a reasonably prudent health care provider would
have done, or that he or she did something that a reasonably prudent provider would not have
done; and that failure or action caused injury to the patient."

The Court emphasized in Lucas, et al. v. Tuaño that in medical negligence cases, there is a
physician-patient relationship between the doctor and the victim, but just like in any other
proceeding for damages, four essential elements must be established by the plaintiff, namely: (1)
duty; (2) breach; (3) injury; and (4) proximate causation. All four elements must be present in
order to find the physician negligent and, thus, liable for damages.

It is settled that a physician’s duty to his patient relates to his exercise of the degree of
care, skill and diligence which physicians in the same general neighborhood, and in the same
general line of practice, ordinarily possess and exercise in like cases. There is breach of this duty
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when the patient is injured in body or in health. Proof of this breach rests upon the testimony of
an expert witness that the treatment accorded to the patient failed to meet the standard level of
care, skill and diligence. To justify an award of damages, the negligence of the doctor must be
established to be the proximate cause of the injury

As the Court held in Spouses Flores v. Spouses Pineda, et al., the critical and clinching
factor in a medical negligence case is proof of the causal connection between the negligence and
the injuries. The claimant must prove not only the injury but also the defendant's fault, and that
such fault caused the injury. A verdict in a malpractice action cannot be based on speculation or
conjecture. Causation must be proven within a reasonable medical probability based upon
competent expert testimony, which the Court finds absent in the case at bar.

As regards the respondents' counterclaim, the CA's award of P48,515.58 is sustained,


considering that among the parties' stipulations during the pre-trial indicated:

That at the time of the death of the patient Carmen, there was an unpaid
balance for hospital bills, professional fees and other expenses in the
amount of P48,515.58, incurred by plaintiff when the patient was confined
at said hospital from February 3 to 13, 1992.

BPI EXPRESS CARD CORPORATION vs. MA. ANTONIA R. ARMOVIT


G.R. No. 163654, October 8, 2014, J. Bersamin

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. Nowhere in the terms and
conditions requires the defendant to submit new application form in order to reactivate her credit
card. Indeed, BPI Express Credit did not observe the prudence expected of banks whose business was
imbued with public interest, hence, defendant is entitled to damages.

Facts:

Ma. Antonina R. Armovit (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. 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, Armovit demanded
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compensation for the shame, embarrassment and humiliation she had suffered in the amount
of P2,000,000.00.

On the other hand, BPI Express Credit claimed that it had sent Armovit a telegraphic
message on March 19, 1992 requesting her to pay her arrears for three consecutive months, and
that she did not comply with the request, causing it to temporarily suspend her credit card
effective March 31, 1992. It further claimed that she had been notified of the suspension and
cautioned to refrain from using the credit card to avoid inconvenience or embarrassment; and
that while the obligation was settled by April, 1992, she failed to submit the required application
form in order to reactivate her credit card privileges. Thus, BPI Express Credit countered that her
demand for monetary compensation had no basis in fact and in law.

As a result, Armovit sued BPI Express Credit for damages in the RTC, insisting that she
had been a credit card holder in good standing, and that she did not have any unpaid bills at the
time of the incident. After hearing, RTC ruled in favor of Armovit, finding BPI Express Credit
guilty of negligence and bad faith, ordering it to pay Armovit moral damages ofP100,000.00;
exemplary damages and attorney’s fees each in the amount of P10,000.00; and the costs of suit.
Both parties appealed to the CA. CA affirmed RTC’s decision, hence, this appeal by petition for
review on certiorari.

Issue:

Whether Armovit is entitled to the award of moral and exemplary damages

Ruling:

The petition for review lacks merit.

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 actfor 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.

BPI Express Credit contends that it was not grossly negligent in refusing to lift the
suspension of Armovit’s credit card privileges inasmuch as she had not complied with the
requisite submission of a new application form; and that under the circumstances its negligence,
if any, was not so gross as to amount to malice or bad faith.

The Court disagrees with the contentions of BPI Express Credit.

The terms and conditions nowhere stated that the card holder must submit the new
application form in order to reactivate her credit card, to allow BPI Express Credit to impose the
duty to submit the new application form in order to enable Armovit to reactivate the credit card
would contravene the Parol Evidence Rule. Indeed, there was no agreement between the parties
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to add the submission of the new application form as the means to reactivate the credit card.
When she did not promptly settle her outstanding balance, BPI Express Credit sent a message on
March 19, 1992 demanding payment with the warning that her failure to pay would force it to
temporarily suspend her credit card effective March 31, 1992. It then sent another demand letter
dated March 31, 1992 requesting her to settle her obligation in order to lift the suspension of her
credit card and prevent its cancellation. In April 1992, she paid her obligation. In the context of
the contemporaneous and subsequent acts of the parties, the only condition for the reinstatement
of her credit card was the payment of her outstanding obligation. Had it intended otherwise, BPI
Express Credit would have surely informed her of the additional requirement in its letters of
March 19, 1992 and March 31, 1992. That it did not do so confirmed that they did not agree on
having her submit the new application form as the condition to reactivate her credit card.

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 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
public interest.

The Court holds that the CA rightly sustained the award of P100,000.00 as moral damages.
To us, too, that amount was fair and reasonable under the circumstances. Similarly, the grant of
exemplary damages was warranted under Article 2232 of the New Civil Code because BPI Express
Credit acted in a reckless and oppressive manner. Finally, with Armovit having been forced to
litigate in order to protect her rights and interests, she was entitled to recover attorney's fees and
expenses of litigation.

S.V. MORE PHARMA CORPORATION and ALBERTO A. SANTILLANA vs. DRUGMAKERS


LABO RA TORIES, INC. and ELIEZER DEL MUNDO; S.V. MORE PHARMA CORPORATION
and ALBERTO A. SANTILLANA vs. DRUGMAKERS LABO RA TORIES, INC. and ELIEZER
DEL MUNDO
G.R. No. 200408; G.R. No. 200416, November 12, 2014, J. Perlas- Bernabe

The existence of contractual breach in this case revolves around the exclusive status of
Drugmakers as the manufacturer of the subject pharmaceutical products. In particular, the
Contract Manufacturing Agreement states that Drugmakers, being the exclusive manufacturer of
the subject pharmaceutical products, had to first give its written consent before S.V. More could
contract the services of another manufacturer. The agreements notwithstanding, S.V More, through
the CMPP and absent the prior written consent of Drugmakers, contracted the services of Hizon
Laboratories to manufacture some of the pharmaceutical products covered by the said contracts.
Considering that Drugmakers palpably suffered some form of pecuniary loss resulting from S.V.
More’s breach of contract, the Court deems it proper to, instead, award in their favor the sum of
P100,000.00 in the form of temperate damages. This course of action is hinged on Article 2224 of the
Civil Code.

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Facts:

Eliezer, Evangeline C. Del Mundo, and Atty. Quirico T. Carag (Atty. Carag) (Del Mundo
Group) are the registered owners of fifty percent (50%) of E.A. Northam Pharma Corporation
(E.A. Northam), 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 fifty percent (50%) in E.A. Northam are
owned by Alberto and Nilo S. Valente (Santillana Group). In an Agreement dated May 31, 1993, the
Del Mundo Group agreed to cede all their rights and interests in E.A. Northam in favor of the
Santillana Group. However, it was agreed therein 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.

On even date, 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 latter’s 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.

In September 1993, or a month prior to the expiration of the CMA, Drugmakers proposed
a new manufacturing agreement which S.V. More found unacceptable. In a letter dated October
20, 1993, S.V. More, for the purpose of renewing its License to Operate with the Bureau of Food
and Drug (BFAD), 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. (Hizon Laboratories), and,
thereafter, caused the latter to manufacture some of the pharmaceutical products covered by the
Deed of Sale/Assignment. Meanwhile, the BFAD issued the corresponding Certificates of Product
Registration (CPR) therefor, with S.V. More as distributor, and Hizon Laboratories as
manufacturer.

Consequently and after their protest on the new registration went unheeded, Drugmakers
and Eliezer (respondents) filed a Complaint for Breach of Contract, Damages, and Injunction
with Prayer for the Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining
Order against S.V. More and Alberto (petitioners), and Hizon Laboratories, and its President,
Rafael H. Hizon, Jr. (Rafael).

Issue:

Whether or not Petitioners S.V. More and Alberto Santillana are liable for breach of
contract.

Ruling:

Yes.

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The existence of contractual breach in this case revolves around the exclusive status of
Drugmakers as the manufacturer of the subject pharmaceutical products which was stipulated
and, hence, recognized under the following contracts: (a) the CMA dated October 30, 1992
between Drugmakers, as manufacturer, and S.V.More, as the holder of the CPR covering the
pharmaceutical products; (b) the Agreement dated May 31, 1993 covering the change in ownership
in E.A. Northam, or the distributor of the pharmaceutical products manufactured by Drugmakers
and covered by S.V. More’s CPR; and (c) the Deed of Sale/Assignment of even date between E.A.
Northam and S.V. More, whereby the former’s distributorship rights were transferred to the
latter.

In particular, the CMA states that Drugmakers, being the exclusive manufacturer of the
subject pharmaceutical products, had to first give its written consent before S.V. More could
contract the services of another manufacturer. In the May 31, 1993 Agreement, the new ownership
of E.A. Northam, or the initial distributor of the same pharmaceutical products, equally
recognized Drugmakers’s status as exclusive manufacturer.

These provisions notwithstanding, records disclose that S.V More, through the CMPP and
absent the prior written consent of respondent Drugmakers, as represented by its President,
respondent Eliezer, 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, as well as its President, petitioner Alberto,
who authorized the foregoing, breached the obligation to recognize Drugmakers as exclusive
manufacturer, thereby causing prejudice to the latter.

While the CA correctly affirmed the existence of the aforementioned breach, the Court,
however, observes that the appellate court’s award of actual damages (due to loss of profits) in the
amount of P6,000,000.00 was erroneous due to improper factual basis.

Records reveal that in their attempt to prove their claim for loss of profits corresponding
to the aforesaid amount, respondents based their computation thereof on a Sales Projection
Form55 for the period November 1993 to February 1995.56 However, it is readily observable that
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. Notably, the CMA – from which stems S.V. More’s
obligation to recognize Drugmakers’s 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, as mentioned, seven (7) days.

Aside from the lack of substantiation as regards the length of time for which supposed
profits were lost, it is also evident that only six (6) of the 28 pharmaceutical products were caused
by petitioners to be manufactured by Hizon Laboratories.

Nevertheless, considering that respondents palpably suffered some form of pecuniary loss
resulting from petitioners’ breach of contract, the Court deems it proper to, instead, award in
their favor the sum of P100,000.00 in the form of temperate damages. This course of action is
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hinged on 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.

SNOW MOUNTAIN DAIRY CORPORATION vs. GMA VETERANS FORCE, INC.,


G.R. No. 192446, November 19, 2014, J. Peralta

Actual or compensatory damages are those awarded in satisfaction of, or in recompense for,
loss or injury sustained. 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. In this case, GMA Veterans had not shown that the security guards were
not assigned to another employer, and that it was compelled to pay the guards despite the pre-
termination of the security agreement to be entitled to the amount of PI6,014.00 per month. Indeed,
no evidence was presented by GMA Veterans 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. 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. The SC also take into
consideration that GMA Veterans certainly spent for the security guard's training, firearms with
ammunitions, uniforms and other necessary things before their deployment to Snow Mountain.
Hence, the SC find it just and proper to award temperate damages in the amount of P200,000.00 in
lieu of actual damages.

Facts:

Snow Mountain Dairy Corporation (Snow Mountain) and GMA Veterans Force, Inc. (GMA
Veterans) entered into a security service agreement. Later, Snow Mountain, through its President
Teodoro T. Po, wrote a letter to GMA Veterans’s General Manager, Domingo de Guzman,
informing the latter of the former's decision to replace the security personnel effective April 15,
2005.

On even date, to GMA Veteran, through its counsel, wrote Snow Mountain a letter
reiterating that their service agreement was good for one year, which could only be terminated for
a just cause and a 30-day prior notice; that the termination of the security contract even in the
absence of just cause and the lack of due notice may only be accepted provided that Snow
Mountain would pay the remaining contract period of 8-1/2 months equivalent to P952,833.00;
and that they were open to amicable settlement at just and reasonable terms. On June 30, 2005,
GMA Veterans, represented by De Guzman, filed with the (RTC) of Pasig City a complaint for
damages against Snow Mountain, represented by AmancioRonquillo, and President Po.

GMA Veterans alleged that 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 expenses; that on April 15, 2005, GMA
Veterans 's security guards were barred by Snow Mountain from entering the service area and
prevented from performing their contractual obligation; that it did not commit any violation of
the service contract; and that it incurred income opportunity loss worth P952,833.00 which it

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could have earned if the agreement was faithfully honored up to the end of the contract period.
GMA Veterans prayed for actual, moral and exemplary damages, and attorney's fees.

Snow Mountain denied the material allegations in the complaint and contended that 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.

The RTC awarded P952,833.50 actual or compensatory damages representing the unserved
portion of the contract. The CA affirmed such award saying that it represented that which
respondent failed to receive as benefit which would have pertained to it had the service contract
not been pre-terminated illegally by Snow Mountain.

Issue:

Whether or not the award of actual damages is proper in this case

Ruling:

No, there was no basis for the lower court's award of actual damages in the absence of
evidence proving the same.

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.

In this case, GMA Veterans had not shown that the security guards were not assigned to
another employer, and that it was compelled to pay the guards despite the pre-termination of the
security agreement to be entitled to the amount of PI6,014.00 per month. Indeed, no evidence was
presented by GMA Veterans 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.

There was no basis for the lower court's award of actual damages in the absence of
evidence proving the same. Undeniably, however, GMA Veterans 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.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 GMA Veterans certainly spent for the security
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guard's training, firearms with ammunitions, uniforms and other necessary things before their
deployment to Snow Mountain.In this case, the SC find it just and proper to award temperate
damages in the amount of P200,000.00 in lieu of actual damages.

LOADSTAR SHIPPINGCOMPANY, INCORPORATED and LOADSTARINTERNATIONAL


SHIPPINGCOMPANY, INCORPORATED vs. MALAYAN INSURANCE COMPANY,
INCORPORATED
G.R. No. 185565, November 26, 2014, J. Reyes

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. Thus, an insurer of copper concentrates which were contaminated by seawater while at
sea, who, along with the consignee, arbitrarily fixed the salvage value of the cargo, and who failed to
refute expert testimony from the common carrier as regards the lack of any adverse effect of
seawater on copper concentrates, then actual damages are not proven.

Facts:

Loadstar International Shipping (Loadstar Shipping) and PASAR entered into a contract of
affreightment of the latter’s copper concentrates. A shipment of cooper concentrates were loaded
in MV Bobcat, the vessel of petitioner Loadstar International Shipping Co., Inc. (Loadstar
International), with Philex as shipper and PASAR as consignee. The cargo was insured by
respondent Malayan Insurance Company, Inc. (Malayan). While out in the sea, the crew of the
vessel found a crack on the vessel which caused seawater to enter and wet the copper
concentrates.

Immediately after the vessel arrived at port, PASAR and Philex’s tested the copper
concentrates and found them to be contaminated. PASAR sent a formal notice of claim to
Loadstar Shipping, and surveyors recommended the value of the claim at P 32,351,102.32. Malayan
paid PASAR said amount.

Meanwhile, Malayan wrote LoadstarShipping informing the latter of a prospective buyer


for the damaged copper concentrates and the opportunity to nominate/refer other salvage buyers
to PASAR. Malayan later wrote LoadstarShipping informing the latter of the acceptance of
PASAR’s proposal to take the damaged copper concentrates at a residual value ofUS$90,000.00.
Loadstar Shipping wrote Malayan requesting for the reversal of its decision to accept PASAR’s
proposal and the conduct of a public bidding to allow Loadstar Shipping to match or topPASAR’s
bid by 10%.

PASAR then signed a subrogation receipt in favor of Malaya. To recover the amount
Malaya paid to PASAR, it demanded reimbursement from Loadstar Shipping, which refused to
comply, prompting Malaya to file a case of damages with the RTC, against Loadstar Shipping, and
later including Loadstar International. Malayan alleged that due to the unseaworthiness of the
vessel, PASAR suffered loss of the cargo. Petitioners maintain, among others, that Malayan’s claim
is excessive, grossly overstated, unreasonable and unsubstantiated; that their liability, if any,
should not exceed the CIF value of the lost/damaged cargo as setforth in the bill of lading, charter
party or customary rules of trade; and that the arbitration clause in the contract of affreightment
should be followed.
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The RTC dismissed the complaint, finding that although contaminated by seawater, the
copper concentrates can still be used. It gave credence to the testimony of Francisco Esguerra,
petitioners expert witness, that despite high chlorine content, the copper concentrates remain
intact and will not lose their value. The gold and silver remain with the grains/concentrates even
if soaked with seawater and does not melt. The RTC observed that the purchase agreement
between PASAR and Philex contains a penalty clause and has no rejection clause. Despite this
agreement, the parties failed to sit down and assess the penalty.

The CA reversed and set aside the RTC, holding that petitioners must pay Malayan the
amount of P33,934,948.74 as actual damages, less $90,000.00-the residual value of the copper
concentrates it sold to PASAR in 2000.

Issue:

Did Malayan fail to establish actual damages?

Ruling:

The petition is granted.

As regards the determination of actual damages, it is axiomatic that actual damages must
be proved with reasonable degree of certainty and a party is entitled only to such compensation
for the pecuniary loss that was duly proven.

Whereas the CA modified its Decision dated April 14, 2008 by deducting the amount of
US$90,000.00 from the award, 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 expertsor the expenses which PASAR incurred for the
restoration of the copper concentrates to its former condition, if there is damage and rectification
isstill possible.

It is also noteworthy that when the expert witness for the petitioners, Engineer Francisco
Esguerra (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 Esguerra’s testimony.
And, even if theCourt will disregard the entirety of his testimony, the effect on Malayan’s cause of
action is nil. As Malayan is claiming for actual damages, it bears the burden of proof to
substantiate its claim.

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. Actual damages cannot be anchored on mere surmises,
speculations or conjectures.

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SEVEN BROTHERS SHIPPING CORPORATION vs. DMC-CONSTRUCTION RESOURCES,


INC.
G.R. No. 193914. November 26, 2014, C.J. Sereno

Petitioner questions the decision of the CA awarding respondent nominal damages after
having ruled that the actual damages awarded by the RTC was unfounded. Petitioner argues that
nominal damages are only awarded to vindicate a right that has been violated and not to indemnify
a party for any loss suffered by the latter. The SC ruled that what should have been awarded was
temperate and not nominal damages. 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. Considering that it has been established that respondent suffered a
loss, even if the amount thereof cannot be proven with certainty, the Court ruled that what should
have been awarded was temperate damages.

Facts:

On February 23, 1996, the cargo ship M/V “Diamond Rabbit” (the Vessel) owned and
operated by Petitioner Seven Brothers Shipping Corporation was anchored at the causeway of the
port of Bislig. The Master of the vessel, however, decided to go to PICOP Pier in Surigao del Sur to
dock there. Due to the bad weather that day, the vessel, while sailing to PICOP Pier, experienced
some difficulties in maneuvering and controlling its engine. Thus, in order to stop the vessel from
drifting and swinging, its Master decided to drop the starboard anchor. However, the
uncontrollable and unmaneuverable vessel drifted and dragged its anchor until it hit several
structures at the pier. One of the structures it hit was the coal conveyor facility owned by
respondent DMC.

Thereafter, DMC sent a formal demand letter to petitioner Seven Brothers claiming
damages for the destruction of its vessel. Petitioner Seven Brothers, however, failed to pay DMC
prompting the latter to file a complaint for damages against it before the RTC.

Finding negligence on the part of the vessel’s captain, the RTC ruled in favor of DMC and
awarded it actual damages in the amount of P3,523,179.92. On appeal, the CA affirmed the
decision of the RTC but modified the nature of the damages awarded, from actual to nominal, on
the premise that actual damages had not been proved. Hence, the instant petition wherein
Petitioner Seven Brothers argues that under Articles 2221 and 2223 of the Civil Code, nominal
damages are only awarded to vindicate or recognize a right that has been violated, and not to
indemnify a party for any loss suffered by the latter. They are not awarded as a simple
replacement for actual damages that were not duly proven during trial. Petitioner Seven Brother
further contends that assuming that nominal damages were properly awarded by the CA,
Petitioner Seven Brothers is of the belief that the amount thereof must be equal or at least
commensurate to the injury sustained by the claimant. Considering that respondent DMC failed
to substantiate its actual loss, it was therefore improper for the CA to award nominal damages of -
3,523,175.92, which was based on DMC’s “highly speculative claims.”

Issue:

Whether or not the CA erred in awarding nominal damages to DMC.

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Ruling:

Yes, it did.

The Court ruled that temperate, and not nominal, damages should be awarded to DMC in
the amount of P3,523,175.92.

In this case, two facts have been established by the appellate and trial courts: that DMC
suffered a loss caused by petitioner Seven Brothers; and that DMC failed to sufficiently establish
the amount due to him, as no actual receipt was presented.

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.

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.” The Court takes this
to mean by credible evidence. Otherwise, the law mandates that other forms of damages must be
awarded, to wit:

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
plaintiff’s 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. The Court
has 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. This principle was thoroughly explained in Araneta v.
Bank of America, which cited the Code Commission, to wit:

The Code Commission, in explaining the concept of temperate damages under Article
2224, makes the following comment:
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In some States of the American Union, temperate damages are allowed. There are cases
where from the nature of the case, definite proof of pecuniary loss cannot be offered,
although the court is convinced that there has been such loss. For instance, injury to one's
commercial credit or to the goodwill of a business firm is often hard to show with certainty in
terms of money. Should damages be denied for that reason? The judge should be empowered to
calculate moderate damages in such cases, rather than that the plaintiff should suffer, without
redress from the defendant's wrongful act.

Given these findings, the Court is of the belief that temperate and not nominal damages
should have been awarded, considering that it has been established that DMC suffered a loss,
even if the amount thereof cannot be proven with certainty.

ALEJANDRO C. ALMENDRAS, JR. vs. ALEXIS C. ALMENDRAS


G.R. No. 179491, January 14, 2015, C.J. Sereno

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 defendant’s 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”), the Court finds him
entitled to moral and exemplary damages. However, the Court equitably reduce the
amounts awarded because even though the letters were libellous, respondent has not suffered such
grave or substantial damage to his reputation to warrant receiving P5,000,000 as moral damages
and P100,000.00 as exemplary damages.

As to the award of attorney’s fees, it is an accepted doctrine that the award thereof as an
item of damages is the exception rather than the rule, and counsel’s fees are not to be awarded every
time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 of the
Civil Code demands factual, legal and equitable justification, without which the award is a
conclusion without a premise, its basis being improperly left to speculation and conjecture. In all
events, the court must explicitly state in the text of the decision, and not only in the decretal portion
thereof, the legal reason for the award of attorney’s fees.

Facts:

Alejandro C. Almendras, Jr. (Alejandro) sent letters with similar contents on 7 February
1996 to House Speaker Jose de Venecia, Jr., and on 26 February 1996 to Dr. Nemesio Prudente,
President of Oil Carriers, Inc. 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. x x x.
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Noteworthy to mention, perhaps, is the fact that Mr. Alexis “Dodong” C. Almendras, a
reknown 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.

xxxx

These letters were allegedly printed, distributed, circulated and published by Alejandro,
assisted by Atty. Roberto Layug, in Digos, Davao del Sur and Quezon City, with evident bad faith
and manifest malice to destroy Alexis C. Almendras’ (Alexis) good name. Hence, Alexis filed an
action for damages arising from libel and defamation against Alejandro in the Regional Trial
Court (RTC).

The RTC ruled in favor of Alexis, ruling that the he was libelled and defamed and granted
the award of damages of P5,000,000.00 as moral damages; P100,000.00 as exemplary damages;
P10,000.00 for litigation expenses; and attorney’s fees in the amount of 25% of whatever amounts
actually received by Alexis for this judgment. Alejandro moved for reconsideration and/or new
trial, but the same was denied by the trial court. On appeal, CA affirmed the decision of the RTC
stating that the letters were not privileged communications, since Alejandro was not acting as a
member of the Congress when he sent them. In fact, his letter stated that he extends his “apology
for bringing this personal matter in the open, Further, the CA upheld the damages awarded by the
trial court, the amounts being consistent with the social and financial standing of the parties
involved. Hence, this petition.

Issue:

Whether or not respondent is entitled to moral and exemplary damages, attorney’s fees
and litigation expenses.

Ruling:

The Court denies the petition.

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 defendant’s acts.”
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Considering that Alexis 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”), the
Court finds him entitled to moral and exemplary damages.

However, the Court equitably reduce the amounts awarded because even though the
letters were libellous, respondent has not suffered such grave or substantial damage to his
reputation to warrant receiving P5,000,000 as moral damages and P100,000.00 as exemplary
damages. In fact, he was able to successfully secure an elected position in recent years.
Accordingly, the Court reduce the award of moral damages from P5,000,000 to P100,000 and
exemplary damages from P100,000 to P20,000.

The award of attorney’s fees is not proper because respondent failed to justify satisfactorily
his claim, and both the trial and appellate courts failed to explicitly state in their respective
decisions the rationale for the award. It is an accepted doctrine that the award thereof as an item
of damages is the exception rather than the rule, and counsel’s fees are not to be awarded every
time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 of the
Civil Code demands factual, legal and equitable justification, without which the award is a
conclusion without a premise, its basis being improperly left to speculation and conjecture. In all
events, the court must explicitly state in the text of the decision, and not only in the decretal
portion thereof, the legal reason for the award of attorney’s fees. The same is true for the award of
litigation expenses because respondent failed to satisfactorily justify his claim.

Hence, the Court ruled that (1) moral damages is reduced from P5,000,000 to P100,000; (2)
the award of exemplary damages is reduced from P100,000 to P20,000; and (3) litigation expenses
and attorney’s fees are deleted.

RICARDO C. HONRADO vs. GMA NETWORK FILMS, INC.


G.R. No. 204702, January 14, 2015, J. Carpio

In a licensing contract, the essence of which is the transfer by the licensor, Honrado to the
licensee, GMA Films, for a fee, of the exclusive right to telecast the films listed in the Agreement.
Stipulations for payment of “commission” to the licensor is incongruous to the nature of such
contracts unless the licensor merely acted as agent of the film owners. Nowhere in the Agreement,
however, did the parties stipulate that Honrado signed the contract in such capacity. Being a
stranger to such arrangements, they are not entitled to complain of any breach by Honrado of his
contracts with the film owners than the film owners are for any breach by a stranger of its
Agreement with aforementioned. The trial court awarded attorney’s fees to Honrado as it “deemed it
just and reasonable” to do so, using the amount provided by Honrado on the witness stand
(P100,000). Undoubtedly, attorney’s fees may be awarded if the trial court “deems it just and
equitable.” Such ground, however, must be fully elaborated in the body of the ruling. Its mere
invocation, without more, negates the nature of attorney’s fees as a form of actual damages.

Facts:

On December 1998, respondent GMA Network Films, Inc. (GMA Films) entered into a “TV
Rights Agreement” with petitioner under which Ricardo Honrado, as licensor of 36 films, granted
to GMA Films, for a fee, the exclusive right to telecast the 36 films for a period of three years.
Under Paragraph 3 of the Agreement, the parties agreed that “all betacam copies of the said films
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should pass through broadcast quality test conducted by GMA-7,” the TV station operated by
GMA Network, Inc. (GMA Network), an affiliate of GMA Films. The parties also agreed to submit
the films for review by the Movie and Television Review and Classification Board (MTRCB) and
stipulated on the remedies in the event that MTRCB bans the telecasting of any of the films.

Two of the films covered by the Agreement were Evangeline Katorse and Bubot for which
GMA Films paid P1.5 million each.

In 2003, GMA Films sued Honrado in the RTC to collect money representing the fee it
paid for mentioned two movies. GMA Films alleged that it rejected Evangeline Katorse because
“its running time was too short for telecast” and Honrado incomplete remittance to the owner of
Bubot, Juanita Alano, keeping for himself the balance of a portion of such. GMA Films prayed for
the return of such amount on the theory that an implied trust arose between the parties as
petitioner fraudulently kept it for himself.c

Honrado denied liability, counter-alleging that after GMA Films rejected Evangeline
Katorse, he replaced it with another film, Winasak na Pangarap, which GMA Films accepted. As
proof of such acceptance, he invoked a certification of GMA Network, attesting that such film “is
of good broadcast quality”, a film certification. Regarding the fee GMA Films paid for Bubot, he
alleged that he had settled his obligation to Alano. Alternatively, he alleged that GMA Films,
being a stranger to the contracts he entered into with the owners of the films in question, has no
personality to question his compliance with the terms of such contracts. Honrado counterclaimed
for attorney’s fees.

The RTC ruled in favor of Honrado, it gave credence to petitioner’s defense that he
replaced Evangeline Katorse with Winasak na Pangarap. On the disposal of the fee GMA Films
paid for Bubot, the trial court rejected GMA Films’ theory of implied trust, finding insufficient
GMA Films’ proof that petitioner pocketed any portion of the fee in question.

On appeal to the Court of Appeals, it reversed the former’s ruling, concluded that
petitioner’s retention of a portion of the fee for Bubot gave rise to an implied trust between him
and GMA Films, obligating Honrado, as trustee, to return to GMA Films, as beneficiary, the
amount claimed by the latter. Thus, the present petition.

Issue:

Whether or not the Court of Apeals erred in finding Honrado liable for breach of the
Agreement and breach of trust?

Ruling:

No, Honrado committed no breach of contract or trust.

GMA Films’ own witness, Jose Marie Abacan, then Vice-President for Program
Management of GMA Network, testified during trial that it was GMA Network which rejected
Winasak na Pangarap because the latter considered the film “bomba.” In doing so, GMA Network
went beyond its assigned role under the Agreement of screening films to test their broadcast
quality and assumed the function of MTRCB to evaluate the films for the propriety of their
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content. This runs counter to the clear terms of Paragraphs 3 and 4 of their Agreement.

The Agreement, is a licensing contract, the essence of which is the transfer by the licensor,
Honrado to the licensee, GMA Films, for a fee, of the exclusive right to telecast the films listed in
the Agreement. Stipulations for payment of “commission” to the licensor is incongruous to the
nature of such contracts unless the licensor merely acted as agent of the film owners. Nowhere in
the Agreement, however, did the parties stipulate that Honrado signed the contract in such
capacity. On the contrary, the Agreement repeatedly refers to Honrado as “licensor” and GMA
Films as “licensee.” Nor did the parties stipulate that the fees paid by GMA Films for the films
listed in the Agreement will be turned over by licensor Honrado to the film owners. Instead, the
Agreement merely provided that the total fees will be paid in three installments as per Paragraph
3.

We entertain no doubt that Honrado forged separate contractual arrangements with the
owners of the films listed in the Agreement, spelling out the terms of payment to the latter.
Whether or not Honrado complied with these terms, however, is a matter to which GMA Films
holds absolutely no interest. Being a stranger to such arrangements, GMA Films is no more
entitled to complain of any breach by Honrado of his contracts with the film owners than the film
owners are for any breach by GMA Films of its Agreement with aforementioned.

We find it unnecessary to pass upon the question whether an implied trust arose between
the parties, as held by the appellate court. Such conclusion was grounded on the erroneous
assumption that GMA Films holds an interest in the disposition of the licensing fees it paid to
licensor Honrado.

The trial court awarded attorney’s fees to Honrado as it “deemed it just and reasonable” to
do so, using the amount provided by Honrado on the witness stand (P100,000). Undoubtedly,
attorney’s fees may be awarded if the trial court “deems it just and equitable.” Such ground,
however, must be fully elaborated in the body of the ruling. Its mere invocation, without more,
negates the nature of attorney’s fees as a form of actual damages.

SPOUSES ROLANDO AND HERMINIA SALVADOR vs. SPOUSES ROGELIO AND


ELIZABETH RABAJA AND ROSARIO GONZALES,
G.R. No. 199990, February 04, 2015, J. Mendoza

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 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.

Facts:

Spouses Rabaja learned that Spouses Salvador were looking for a buyer of their land
where Spouses Rabaja also leased. Spouses Rabaja and Spouses Salvador then entered into a
contract of sale wherein Gonzales, administrator of the subject property, received the
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considerations paid by Spouses Rabaja pursuant to the Special Power of Attorney issued by
Spouses Salvador in favor of Gonzales. 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. Spouses Rabaja filed
an action for rescission of contract against Spouses Salvador and Gonzales.

In their complaint, the Spouses Rabaja’s 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.

Issue:

Whether or not Spouses Rabaja and Gonzales are entitled to awards of actual, moral,
exemplary damages and attorney’s fees.

Ruling:

No.

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 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.

As to the award of exemplary damages, Article 2229 of the New 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. The claimant must first
establish his right to moral, temperate, liquidated or compensatory damages. In this case,
considering that Spouses Rabaja failed to prove moral or compensatory damages, then there could
be no award of exemplary damages.

With regard to attorney’s fees, neither Spouses Rabaja nor Gonzales is entitled to the
award. The settled rule is that no premium should be placed on the right to litigate and that not
every winning party is entitled to an automatic grant of attorney’s fees. The RTC reasoned that
Gonzales was forced to litigate due to the acts of Spouses Salvador. The Court does not agree.
Gonzales, as agent of Spouses Salvador, should have expected that she would be called to
litigation in connection with her fiduciary duties to the principal.

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REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE DEPARTMENT OF PUBLIC


WORKS AND HIGHWAYS vs. ARLENE R. SORIANO
G.R. No. 211666, February 25, 2015, J. Peralta

Effectively, therefore, the debt incurred by the government on account of the taking of the
property subject of an expropriation constitutes a forbearance which runs contrary to the trial
court’s opinion that the same is in the nature of indemnity for damages calling for the application of
Article 2209 of the Civil Code. Nevertheless, in line with the recent circular of the Monetary Board of
the BSP-MB No. 799, Series of 2013, effective July 1, 2013, the prevailing rate of interest for loans or
forbearance of money is six percent (6%) per annum, in the absence of an express contract as to
such rate of interest.

The records of this case reveal that DPWH did not delay in its payment of just compensation
as it had deposited the pertinent amount in full due to respondent on January 24, 2011, or four (4)
months before the taking thereof, which was when the RTC ordered the issuance of a Writ of
Possession and a Writ of Expropriation on May 27, 2011. The amount deposited was deemed by the
trial court to be just, fair, and equitable, taking into account the well-established factors in
assessing the value of land, such as its size, condition, location, tax declaration, and zonal valuation
as determined by the BIR. Considering, therefore, the prompt payment by the DPWH of the full
amount of just compensation as determined by the RTC, the Court finds that the imposition of
interest thereon is unjustified and should be deleted.

Facts:

Petitioner Republic of the Philippines, represented by the Department of Public Works


and Highways (DPWH), filed a Complaint for expropriation against respondent Arlene Soriano
(Soriano), the registered owner of a parcel of land consisting of an area of 200 square meters,
situated at Gen. T. De Leon, Valenzuela City, and covered by TCT No. V-13790. DPWH averred
that pursuant to Republic Act (RA) No. 8974, otherwise known as “An Act to Facilitate the
Acquisition of Right-Of-Way, Site or Location for National Government Infrastructure Projects
and for other Purposes,” the property sought to be expropriated shall be used in implementing
the construction of the North Luzon Expressway (NLEX)- Harbor Link Project (Segment 9) from
NLEX to MacArthur Highway, Valenzuela City.

DPWH duly deposited to the Acting Branch Clerk of Court the amount of P420,000.00
representing 100% of the zonal value of the subject property. RTC ordered the issuance of a Writ
of Possession and a Writ of Expropriation for failure of respondent, or any of her representatives,
to appear despite notice during the hearing called for the purpose. RTC appointed members of
the Board of Commissioners for the determination of just compensation. However, the trial court
subsequently revoked the appointment of the Board for their failure to submit a report as to the
fair market value of the property to assist the court in the determination of just compensation and
directed the parties to submit their respective position papers. Thereafter, the case was set for
hearing.

According to the RTC, the records of the case reveal that DPWH adduced evidence to
show that the total amount deposited is just, fair, and equitable. DPWH alleged that pursuant to a
Certification issued by the Bureau of Internal Revenue (BIR), Revenue Region No. 5, the zonal
value of the subject property in the amount of P2,100.00 per square meter is reasonable, fair, and
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just to compensate the defendant for the taking of her property in the total area of 200 square
meters. In fact, Tax Declaration No. C-018-07994 submitted by DPWH, shows that the value of
the subject property is at a lower rate of P400.00 per square meter. Also, as testified to by
Associate Solicitor III Julie Mercurio, and as affirmed by the photographs submitted, the subject
property is poorly maintained, covered by shrubs and weeds, and not concretely-paved. It is
located far from commercial or industrial developments in an area without a proper drainage
system, can only be accessed through a narrow dirt road, and is surrounded by adjacent dwellings
of sub-standard materials.

RTC considered Soriano to have waived her right to adduce evidence and to object to the
evidence submitted by DPWH for her continued absence despite being given several notices to do
so. RTC rendered its Decision declaring DPWH to have lawful right to acquire possession of and
title to 200 square meters of Soriano’s parcel of land covered by TCT V-13790 necessary for the
construction of the NLEX – Harbor Link Project (Segment 9) from NLEX to MacArthur Highway
Valenzuela City, condemning portion to the extent of 200 square meters of the above-described
parcel of land including improvements thereon, if there be any, free from all liens and
encumbrances and ordering the DPWH to pay Soriano Php2,100.00 per square meter or the sum
of Php420,000.00 for the 200 square meters as fair, equitable, and just compensation with legal
interest at 12% per annum from the taking of the possession of the property.

DPWH filed a Motion for Reconsideration maintaining that pursuant to BSP Circular No.
799, Series of 2013, which took effect on July 1, 2013, the interest rate imposed by the RTC on just
compensation should be lowered to 6% for the instant case falls under a loan or forbearance of
money. RTC reduced the interest rate to 6% per annum not on the basis of the aforementioned
Circular, but on Article 2209 of the Civil Code.

DPWH filed the instant petition invoking that Soriano is not entitled to the legal interest
of 6% per annum on the amount of just compensation of the subject property as there was no
delay on the part of DPWH.

Issue:

Whether or not Soriano is entitled to the legal interest of 6% per annum on the amount of
just compensation of the subject property.

Ruling:

No. Considering, therefore, the prompt payment by the DPWH of the full amount of just
compensation as determined by the RTC, the Court finds that the imposition of interest thereon
is unjustified and should be deleted.

At the outset, it must be noted that the RTC’s reliance on National Power Corporation v.
Angas is misplaced for the same has already been overturned by our more recent ruling
in Republic v. Court of Appeals, wherein we held that the payment of just compensation for the
expropriated property amounts to an effective forbearance on the part of the State, to wit:

Aside from this ruling, Republic notably overturned the Court’s previous ruling
in National Power Corporation v. Angas which held that just compensation due for
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expropriated properties is not a loan or forbearance of money but indemnity for


damages for the delay in payment; since the interest involved is in the nature of
damages rather than earnings from loans, then Art. 2209 of the Civil Code, which
fixes legal interest at 6%, shall apply.

In Republic, the Court recognized that the just compensation due to the landowners for
their expropriated property amounted to an effective forbearance on the part of the
State. Applying the Eastern Shipping Lines ruling, the Court fixed the applicable interest rate at
12% per annum, computed from the time the property was taken until the full amount of just
compensation was paid, in order to eliminate the issue of the constant fluctuation and inflation of
the value of the currency over time.

Effectively, therefore, the debt incurred by the government on account of the taking of the
property subject of an expropriation constitutes a forbearance which runs contrary to the trial
court’s opinion that the same is in the nature of indemnity for damages calling for the application
of Article 2209 of the Civil Code. Nevertheless, in line with the recent circular of the Monetary
Board of the BSP-MB No. 799, Series of 2013, effective July 1, 2013, the prevailing rate of interest for
loans or forbearance of money is six percent (6%) per annum, in the absence of an express
contract as to such rate of interest.

Notwithstanding the foregoing, the Court finds that the imposition of interest in this case
is unwarranted in view of the fact that as evidenced by the acknowledgment receipt signed by the
Branch Clerk of Court, DPWH was able to deposit with the trial court the amount representing
the zonal value of the property before its taking. As often ruled by the Court, the award of interest
is imposed in the nature of damages for delay in payment which, in effect, makes the obligation
on the part of the government one of forbearance to ensure prompt payment of the value of the
land and limit the opportunity loss of the owner. However, when there is no delay in the payment
of just compensation, the Court has not hesitated in deleting the imposition of interest thereon
for the same is justified only in cases where delay has been sufficiently established.

The records of this case reveal that DPWH did not delay in its payment of just
compensation as it had deposited the pertinent amount in full due to respondent on January 24,
2011, or four (4) months before the taking thereof, which was when the RTC ordered the issuance
of a Writ of Possession and a Writ of Expropriation on May 27, 2011. The amount deposited was
deemed by the trial court to be just, fair, and equitable, taking into account the well-established
factors in assessing the value of land, such as its size, condition, location, tax declaration, and
zonal valuation as determined by the BIR.

Considering, therefore, the prompt payment by the DPWH of the full amount of just
compensation as determined by the RTC, the Court finds that the imposition of interest thereon
is unjustified and should be deleted.

PEOPLE OF THE PHILIPPINES vs. BENJAMIN CASAS Y VINTULAN


G.R. No. 212565, February 25, 2015, J. Perlas-Bernabe

The formula for the computation of loss of earning capacity is as follows:


Net earning capacity = Life Expectancy x [Gross Annual Income - Living Expenses (50% of gross
annual income)], where life expectancy = 2/3 (80 - the age of the deceased).
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Facts:

Two (2) criminal Informations were filed before the RTC charging Casas of the Murder of
Joel Tabiley Gulla (Joel)and the Frustrated Murder of Eligio5 Ruiz y Ricardo6 (Eligio). During
arraignment, Casas entered a plea of not guilty. After which, joint trial on the merits ensued.d

The prosecution alleges that on December 24, 2007, Casas, accompanied by a certain
“Ron-Ron” (Ron-Ron), went to a certain taho factory located in San Juan City, looking for a certain
Jesus. Failing to find the person he was looking for, Casas brandished a knife and stuck it into a
pail used for making taho. Consequently, Eligio, an employee of the taho factory, confronted
Casas, saying to the latter, “Benjie [(referring to Casas)], bakit ang yabang mo? Kung hindi mo
makita ang kalaban mo, dapat hanapin mo na lang.” Casas replied “Gusto mo ito? (referring to his
knife).” Eligio told Casas to get rid of the knife, which the latter gave to Ron-Ron. Eligio and Casas
then had a fistfight. During the ensuing melee, Casas took the knife from Ron-Ron and stabbed
Eligio twice while the latter was fleeing. Casas, during his continued pursuit of Eligio, then ran
into Joel, who, for his part, tried to help Eligio with the use of a bamboo pole. However, Joel
slipped, fell face first on the floor, and was prostrate. There and then, Casas stabbed him twice,
the first blow entering his back and exiting at the front of his torso, and the second blow hitting
the left side of his abdomen. Casas managed to overtake Eligio, and stabbed him again on the
stomach. Fearing that Casas would kill him, Eligio grabbed a plastic stool and hit Casas on the
head with it, forcing the latter to drop the knife and cease the attack. PO1 Silverio R. Fuentes (PO1
Fuentes) claimed that he was riding his motorcycle on the date of the incident when he met PO3
Eduardo Fronda (PO3 Fronda) who asked for assistance as the latter saw a bloodied male. The
two immediately proceeded towards the victim, who turned out to be Casas, and asked him what
happened. The latter replied that he had just stabbed someone. After confirming that there was
indeed a stabbing incident nearby, PO1 Fuentes and PO3 Fronda arrested Casas.

After the prosecution rested its case, Casas filed a demurrer to evidence on the basis of the
alleged inconsistencies in the testimonies of the prosecution witnesses, which the RTC denied.
After the demurrer’s denial, the defense changed its theory as Casas admitted that he stabbed
both Joel and Eligio but interposed self-defense to justify his actions. RTC convicted Casas of
Murder and Attempted Homicide. On appeal, CA affirmed the RTC’s conviction of Casas.
Aggrieved, Casas filed the instant appeal.

Issue:

Whether the CA awarded the correct amount of damages.

Ruling:

The downgrading of Casas’s conviction in Crim. Case No. 136842 results in the deletion of
the award of P30,000.00 in exemplary damages. Further, keeping with recent jurisprudence, the
Court is impelled to increase the award of moral damages from P30,000.00 to P75,000.00, as well
as delete the award of P12,500.00 in actual damages and, in lieu thereof, award temperate
damages in the higher amount of P25,000.00. The Court also perceives error in the award of
P37,200.00 in loss of earning capacity since the established formula thereof was incorrectly
applied.
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The formula for the computation of loss of earning capacity is as follows:


Net earning capacity = Life Expectancy x [Gross Annual Income - Living Expenses (50% of
gross annual income)], where life expectancy = 2/3 (80 - the age of the deceased).

Thus, operating under the established facts as found by the RTC that Joel was 22 when he
was killed by Casas, and that he had monthly salary of P1,000.00 to P1,500.00 as a utility man, the
loss of earning capacity is computed as such:
Net earning capacity = [2/3(80-22)] x [(1500 x 12) - ((1,500 x 12) x 50%)]
= [2/3(58)]x [P18,000.00 - P9,000.00]
=P348,000.00

Accordingly, the award of loss of earning capacity is increased from P37,200.00 to


P348,000.00as above-computed. Meanwhile, the civil indemnity award of P75,000.00 stands.

In similar light, the Court modifies the award of moral damages in Crim. Case No.
136843 from P10,000.00 to P20,000.00 to conform with recent jurisprudence.

Finally, interest at the rate of six percent (6%) per annum shall be imposed on all damages
awarded, in both Crim. Case Nos. 136842 and 136843, from the date of finality of judgment until
fully paid.

FAJ CONSTRUCTION & DEVELOPMENT CORPORATION vs. SUSAN M. SAULOG


G.R. No. 200759, March 25, 2015, J. Del Castillo

FAJ Construction was found guilty of violating the construction agreement for its defective
and incomplete work, delay, and for unjustified abandonment of the project. Susan argued that the
issue of whether the trial and appellate courts correctly decided the amount of damages is a factual
issue which is beyond the jurisdiction of this Court. The Supreme Court held that it is not a
trier of facts and does not normally undertake the re-examination of the evidence presented by the
contending parties during trial.

Facts:
FAJ Construction and Development Corporation and Susan M. Saulog entered into an
Agreement6(construction agreement) for the construction of a residential building in San
Lorenzo Village, Makati City for a contract price of P12,500,000.00.Construction of the building
commenced, and Susan made a corresponding total payment to petitioner in the amount of
P10,592,194.80. However, for the October 31 and November 6, 2000 progress billing statements
sent by FAJ in the total amount of P851,601.58, Susan refused to pay.

FAJ filed with the RTC of Quezon City a civil case for collection of a sum of money with
damages against Susan. Susan filed a counterclaim claiming that she stopped paying for the
reason that the construction work of FAJ Construction was not only delayed, but defective; and
that it abandoned the construction work, incomplete and with many defects. She had to finish the
work abandoned by plaintiff, incurring substantial additional expenses therefor.

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The trial court rendered its Decision in favor Susan. It dismissed FAJ's complaint for
failure to prosecute. The CA rendered the assailed decision affirming the decision of the trial
court.

Issues:
1. Whether or not FAJ Construction is liable for actual damages, and in imposing the penalty
for delay and awarding interest onall amounts due

Ruling:
On the issue of liability, the Court finds – relying on the identical findings of the trial and
appellate courts – that FAJ Construction is guilty of violating the construction agreement, for its
defective and incomplete work, delay, and for unjustified abandonment of the project. Indeed, the
Court finds no reason to disturb the identical pronouncements of the trial court and the CA. The
same holds true with respect to the issue of damages raised by FAJ; it requires an inquiry into the
facts, which is no longer this Court’s realm. In a case previously decided by
this ponente concerning a construction contract and where similar allegations of abandonment,
delay and defective workmanship were advanced, it was held that –

"Petitioner endeavors to convince us to determine, yet again, the weight, credence, and
probative value of the evidence presented. This cannot be done in this petition for review on
certiorari under Rule 45 of the Rules of Court where only questions of law may be raised by the
parties and passed upon by us. In Fong v. Velayo, we defined a question of law as distinguished
from a question of fact, viz:

A question of law arises when there is doubt as to what the law is on a certain state of
facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged
facts. For a question to be one of law, the same must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The resolution of the issue must
rest solely on what the law provides on the given set of circumstances. Once it is clear that the
issue invites a review of the evidence presented, the [question] posed is one of fact. Thus, the test
of whether a question is one of law or of fact is not the appellation given to such question by the
party raising the same; rather, it is whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise, it is
a question of fact.

It has already been held that the determination of the existence of a breach of contract is a
factual matter not usually reviewable in a petition filed under Rule 45. We will not review, much
less reverse, the factual findings of the Court of Appeals especially where, as in this case, such
findings coincide with those of the trial court, since we are not a trier of facts x xx."

Since Susan suffered damages as a result of FAJ Constructiondefective and delayed work
and unjustified abandonment of the project, the principle of damnum absque injuria cannot
apply. The principle cannot apply when there is an abuse of a person’s right.

TRAVEL & TOURS ADVISERS, INC. v. CRUZ, SR., ET AL.


G.R. No. 199282, March 14, 2016; Peralta

Facts:
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Respondent Edgar Hernandez was driving an Isuzu Passenger Jitney (jeepney) that he owns with
plate number DSG-944 along Angeles-Magalang Road, Barangay San Francisco, Magalang,
Pampanga, on January 9, 1998, around 7:50 p.m. Meanwhile, a Daewoo passenger bus (RCJ Bus
Lines) with plate number NXM-116, owned by petitioner Travel and Tours Advisers, Inc. and
driven by Edgar Calaycay travelled in the same direction as that of respondent Edgar Hernandez
vehicle. Thereafter, the bus bumped the rear portion of the jeepney causing it to ram into an
acacia tree which resulted in the death of Alberto Cruz, Jr. and the serious physical injuries of
Virginia Muñoz.

Thus, respondents Edgar Hernandez, Virginia Muñoz and Alberto Cruz, Sr., father of the
deceased Alberto Cruz, Jr., filed a complaint for damages, docketed as Civil Case No. 9006 before
the RTC claiming that the collision was due to the reckless, negligent and imprudent manner by
which Edgar Calaycay was driving the bus, in complete disregard to existing traffic laws, rules and
regulations, and praying that judgment be rendered ordering Edgar Calaycay and petitioner
Travel & Tours Advisers, Inc. to pay the respondents expenses and 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 Edgar Calaycay and further argued that it was Edgar
Hernandez who was driving his passenger jeepney in a reckless and imprudent manner by
suddenly entering the lane of the petitioner's bus without seeing to it that the road was clear for
him to enter said lane. In addition, petitioner alleged that at the time of the incident, Edgar
Hernandez violated his franchise by travelling along an unauthorized line/route and that the
jeepney was overloaded with passengers, and the deceased Alberto Cruz, Jr. was clinging at the
back thereof.

The RTC Ruled in favor of the respondents, and ordered petitioner and its driver, Calaycay, to pay
respondents their respective damages.

On appeal, the CA affirmed the RTC’s Decision but modified the amount of damages awarded to
respondents.

Issues:

1) Whether the CA and RTC correctly held petitioner to be solidarily liable with its driver
Calaycay to pay respondents damages.

Ruling:

1) Yes, petitioner failed to clearly show that it exercised the diligence of a good father of a
family in the selection and supervision of his employee.

Petitioner, being the owner of the bus and the employer of the driver cannot escape liability.
Petitioner is liable under Article 2176 in relation to Article 2180 of the Civil Code. 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
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the employer either in the selection of his employee or in the supervision over him after such
selection. The presumption, however, may be rebutted by a clear showing on the part of the
employer 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 solidary liability for quasi-delict committed by
an employee, the employer must adduce sufficient proof that it exercised such degree of care. In
this case, the petitioner failed to do so.

While petitioner has shown evidence to prove that it had issued policies, rules and regulation's to
be followed, conduct seminars and see to it that their drivers and employees imbibe such policies,
rules and regulations, have their drivers and conductors medically checked-up and undergo drug-
testing, it offered no proof which show that all these rudiments were applied to Edgar Calaycay.
Moreover, with respect to the selection process, petitioner’s witness admitted in open court that
Calaycay was not able to produce the clearances required by petitioner upon employment.

In the selection of prospective employees, employers are required to examine them as to their
qualifications, experience, and service records. On the other hand, due diligence in the
supervision of employees includes the formulation of suitable rules and regulations for the
guidance of employees, the issuance of proper instructions intended for the protection of the
public and persons with whom the employer has relations through his or its employees and the
imposition of necessary disciplinary measures upon employees in case of breach or as may be
warranted to ensure the performance of acts indispensable to the business of and beneficial to
their employer. To this, we add that actual implementation and monitoring of consistent
compliance with said rules should be the constant concern of the employer, acting through
dependable supervisors who should regularly report on their supervisory functions. In this case,
as shown by the above findings of the RTC, petitioner was not able to prove that it exercised the
required diligence needed in the selection and supervision of its employee.

However, considering that the jeepney was traversing a route that is out of its line, its owner,
respondent Edgar Hernandez, is guilty of contributory negligence, and was directed to pay the
other respondents 50% of the damages, in accordance with Article 2179 of the Civil Code.

THE ORCHARD GOLF & COUNTRY CLUB, INC., ET AL. vs. ERNESTO V. YU AND MANUEL
C. YUHICO
G.R. No. 191033, January 11, 2016, J. Velasco, Jr.

FACTS:

On May 28, 2000, a Sunday, [respondents] Ernesto Yu and Manuel Yuhico went to the
Orchard Golf & Country Club to play a round of golf with another member of the club. At the last
minute, however, that other member informed them that he could not play with them. Due to the
"no twosome" policy of the Orchard contained in the membership handbook prohibiting groups
of less than three players from teeing off on weekends and public holidays before 1:00
p.m.,[respondents] requested management to look for another player to join them.

Because [Orchard] were unable to find their third player, [respondent] Yu tried to
convince Francis Montallana, Orchard’s assistant golf director, to allow them to play twosome,
even if they had to tee off from hole no. 10 of the Palmer golf course. Montallana refused, stating
that the flights which started from the first nine holes might be disrupted. [Respondent] Yu then
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shouted invectives at Montallana, at which point he told [respondent] Yuhico that they should
just tee off anyway, regardless of what management's reaction would be. [Respondents] then teed
off, without permission from Montallana. They were thus able to play, although they did so
without securing a tee time control slip before teeing off, again in disregard of a rule in the
handbook. As a result of [respondents’] actions, Montallana filed a report on the same day with
the board of directors (the board).

In separate letters dated May 31, 2000, the board, through [petitioner] Clemente,
requested [respondents] to submit their written comments on Montallana’s incident report
dated May 28, 2000. The report was submitted for the consideration of the board.

Subsequently, on June 29, 2000, the board resolved to suspend [respondents] from July 16
to October 15, 2000, and served notice thereof on them.

ISSUE:

Whether there is there factual and legal basis to award moral and exemplary damages,
attorney’s fees and costs of suit in favor of respondents?

RULING:

There is no factual and legal basis to grant moral and exemplary damages, attorney’s fees
and costs of suit in favor of respondents. The damages suffered, if there are any, partake of the
nature of a damnum absque injuria.

“One who makes use of his own legal right does no injury. Qui jure suo utitur nullum
damnum facit. If damage results from a person's exercising his legal rights, it is damnum absque
injuria.” In this case, respondents failed to prove by preponderance of evidence that there is fault
or negligence on the part of petitioners in order to oblige them to pay for the alleged damage
sustained as a result of their suspension as Club members. Certainly, membership in the Club is a
privilege. Regular members are entitled to use all the facilities and privileges of the Club, subject
to its rules and regulations. As correctly pointed out by petitioners, the mental anguish
respondents experienced, assuming to be true, was brought upon them by themselves for
deliberately and consciously violating the rules and regulations of the Club. Considering that
respondents were validly suspended, there is no reason for the Club to compensate them. Indeed,
the penalty of suspension provided for in Section 1, Article XIV of the By- Laws is a means to
protect and preserve the interest and purposes of the Club. This being so, the suspension of
respondents does not fall under any of the provisions of the Civil Code pertaining to the grant
of moral and exemplary damages, attorney’s fees, and litigation costs.

MANILA ELECTRIC COMPANY vs. SPOUSES SULPICIO and PATRICIA RAMOS


G.R. No. 195145, February 10, 2016, J. Brion

Facts:

MERALCO entered into a contract of service with the respondents agreeing to supply the
latter with electric power in their residence. To measure the respondents' electric consumption, it
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installed the electric meter with serial number 330ZN43953 outside the front wall of the property
occupied by Patricia's brother, Isidoro Sales, and his wife, Nieves Sales (Nieves), located beside the
respondents' house.

MERALCO's service inspector inspected the respondents' electrical facilities and found an
outside connection attached to their electric meter. The service inspector traced the connection,
an illegal one, to the residence and appliances of Nieves. Due to the discovery of the illegal
connection, the service inspector disconnected the respondents' electric services on the same day.

Respondents filed a complaint for breach of contract with preliminary mandatory


injunction and damages against MERALCO.

The RTC ruled in favor of respondents and ordered MERALCO to reconnect respondents’
electric service and pay the latter the following amounts, among others: a) P100,000.00 as actual
damages; b) P1,500,000.00 as moral damages; c) P300,000.00 as exemplary damages; and d)
P100,000.00 as attorney's fees.

The CA affirmed the RTC’s ruling.

Issues:

1) Whether MERALCO breached its contract with respondents when it disconnected their
electric connection.
2) Whether the award of damages in favor of respondents is in order.

Ruling:

1) MERALCO breached its contract with respondents.

The disconnection of respondents' electric service is not supported by MERALCO's own


Terms and Conditions of Service, which state that “before disconnection is made in case of or to
prevent fraud, the Company may adjust the bill of said customer accordingly and if the adjusted
bill is not paid, the Company may disconnect the same.”

There is nothing in its contract of service that gives MERALCO the authority to
immediately disconnect a customer's electric connection. MERALCO's contractual right to
disconnect electric service arises only after the customer has been notified of his adjusted bill and
has been afforded the opportunity to pay the differential billing.

In this case, the disconnection of the respondents' electric service happened on November
5, 1999, while the demand for the payment of differential billing was made through a letter dated
December 4, 1999. Thus, MERALCO breached its contract of service with the respondents as it
disconnected the latter's electric service before they were ever notified of the differential billing.

2) The award of damages in favor of respondents is in order but must be modified.

The rule in awarding actual damages is that there must be competent proof of the actual

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amount of loss. Credence can be given only to claims, which are duly supported by receipts.

Here, respondents were not able to show the actual food expenses but were able to prove
that they incurred expenses when they were forced to move to a new residence by presenting
contract of lease and receipts for payment of monthly rentals. The award of actual damages must
thus be increased.

Moral damages, on the other hand, are designed to compensate and alleviate the physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar harm unjustly caused to a person. They may be properly
awarded to persons who have been unjustly deprived of property without due process of law.

In this case, considering the manner of disconnection of electric service, the length of time
that the respondents had to endure without electricity, and the extreme social humiliation and
serious anxiety that they suffered, the award of moral damages is proper. However, the award of
P1,500,000.00 in moral damages is excessive. Moral damages are not intended to enrich the
complainant as a penalty for the defendant. It is awarded as a means to ease the moral suffering
the complainant suffered due to the defendant's culpable action. While prevailing jurisprudence
deems it appropriate to award 100,000.00 in moral damages in cases where MERALCO wrongfully
disconnected electric service, such amount is not commensurate with the injury suffered by the
respondents. Thus, in view of the specific circumstances present in this case, the award of moral
damages must be reduced to P 300,000.00.

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.

In this case, MERALCO totally failed to comply with the two requirements under R.A. 7832 before
disconnecting the respondents' electric service. Hence, exemplary damages must be increased to
persuade MERALCO to be more prudent and responsible in its observance of the requirements
under the law in disconnecting a customer's electrical supply.

Lastly, in view of the award of exemplary damages, the award of attorney's fees is proper pursuant
to Article 2208(1) of the Civil Code.

THE ORCHARD GOLF & COUNTRY CLUB, INC., ET AL. vs. ERNESTO V. YU AND MANUEL
C. YUHICO
G.R. No. 191033, January 11, 2016, J. Velasco, Jr.

Facts:

On May 28, 2000, a Sunday, [respondents] Ernesto Yu and Manuel Yuhico went to the
Orchard Golf & Country Club to play a round of golf with another member of the club. At the last
minute, however, that other member informed them that he could not play with them. Due to the
"no twosome" policy of the Orchard contained in the membership handbook prohibiting groups
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of less than three players from teeing off on weekends and public holidays before 1:00
p.m.,[respondents] requested management to look for another player to join them.

Because [Orchard] were unable to find their third player, [respondent] Yu tried to
convince Francis Montallana, Orchard’s assistant golf director, to allow them to play twosome,
even if they had to tee off from hole no. 10 of the Palmer golf course. Montallana refused, stating
that the flights which started from the first nine holes might be disrupted. [Respondent] Yu then
shouted invectives at Montallana, at which point he told [respondent] Yuhico that they should
just tee off anyway, regardless of what management's reaction would be. [Respondents] then teed
off, without permission from Montallana. They were thus able to play, although they did so
without securing a tee time control slip before teeing off, again in disregard of a rule in the
handbook. As a result of [respondents’] actions, Montallana filed a report on the same day with
the board of directors (the board).

In separate letters dated May 31, 2000, the board, through [petitioner] Clemente,
requested [respondents] to submit their written comments on Montallana’s incident report
dated May 28, 2000. The report was submitted for the consideration of the board.

Subsequently, on June 29, 2000, the board resolved to suspend [respondents] from July 16
to October 15, 2000, and served notice thereof on them.

Issue:

Whether there is there factual and legal basis to award moral and exemplary damages,
attorney’s fees and costs of suit in favor of respondents?

Ruling:

There is no factual and legal basis to grant moral and exemplary damages, attorney’s fees
and costs of suit in favor of respondents. The damages suffered, if there are any, partake of the
nature of a damnum absque injuria.

“One who makes use of his own legal right does no injury. Qui jure suo utitur nullum
damnum facit. If damage results from a person's exercising his legal rights, it is damnum absque
injuria.” In this case, respondents failed to prove by preponderance of evidence that there is fault
or negligence on the part of petitioners in order to oblige them to pay for the alleged damage
sustained as a result of their suspension as Club members. Certainly, membership in the Club is a
privilege. Regular members are entitled to use all the facilities and privileges of the Club, subject
to its rules and regulations. As correctly pointed out by petitioners, the mental anguish
respondents experienced, assuming to be true, was brought upon them by themselves for
deliberately and consciously violating the rules and regulations of the Club. Considering that
respondents were validly suspended, there is no reason for the Club to compensate them. Indeed,
the penalty of suspension provided for in Section 1, Article XIV of the By- Laws is a means to
protect and preserve the interest and purposes of the Club. This being so, the suspension of

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respondents does not fall under any of the provisions of the Civil Code pertaining to the grant
of moral and exemplary damages, attorney’s fees, and litigation costs.

ELIZABETH L. DIAZ vs. GEORGINA R. ENCANTO, ET AL.


G.R. No. 171303, January 20, 2016, J. Leonardo-De Castro

Facts:

Petitioner Diaz has been a professor in UP since 1963. In 1988, she applied for sabbatical
leave with pay for one year. The Chair of the Broadcast Department initially recommended to
CMC Dean Encanto that Diaz’s sabbatical application be granted. Thereafter, Encanto referred
Diaz’s sabbatical application to the Secretary of U.P., recommending its denial. Encanto also
requested her salary be withheld effective July 1, 1988 until further notice since her sabbatical
application has not yet been approved and that she did not teach that semester.

On July 4, 1988, it was recommended that Diaz be granted a leave without pay in order to
enable the CMC to hire a substitute. The next day, the U.P.’s Secretary referred to the Vice-
President for Academic Affairs, the fact of denial of such sabbatical request, for his own
recommendation to the U.P. President. On July 8, 1988, Abad returned the Reference Slip
indicating therein that Diaz had promised him to put down in writing the historical backdrop to
the latest denial of her sabbatical leave, but she did not do so. On Diaz’s request to teach for that
semester, the Vice Chancellor for Academic Affairs and the HRDO Director instructed Encanto
that until Prof. Diaz officially reports for duty, accomplishes the Certificate of Report for Duty,
and the Dean of CMC confirms her date of actual report for duty, she is considered absent
without official leave.

On November 8, 1988, Abad, issued a Memorandum to Diaz to confirm as valid Encanto’s


reason of shortage of teaching staff in denying her sabbatical. Later, he also informed Diaz of her
lack of service during the first semester of AY 1988-89, hence she is not entitled to be paid. While
Diaz was able to teach during the second semester of AY 1988-89, she was not able to claim her
salaries for her refusal to submit the Report for Duty Form.

Diaz instituted a complaint against U.P., Abueva, Encanto, Tabujara and Abad with the
Pasig RTC praying that the latter be adjudged, jointly and severally to pay her damages. She
claimed, among others, that they conspired together as joint tortfeasors, in not paying her salaries
from July 1, 1988 in the first semester of academic year 1988-89, for the entire period when her
sabbatical application was left unresolved, as well as the salaries she earned from teaching in the
second semester from November 1988 to May 1989. She likewise claimed moral and exemplary
damages and attorney’s fees. The RTC held that Diaz was entitled to a sabbatical leave and that
they delay in the resolution of her application was unreasonable and unconscionable but the CA
reversed it on appeal, ruling that there was neither negligence nor bad faith in denying her
application and withholding her salaries.

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Issues:

1) Whether the respondents acted in bad faith when they resolved Diaz’s application for
leave.
2) Whether the respondents are liable for damages.
Ruling:

1) No, they did not act in bad faith. Diaz’s complaint for recovery of damages before the RTC
was based on the alleged bad faith of the respondents in denying her application for sabbatical
leave vis-à-vis Articles 19 and 20 of the Civil Code. Article 19 of the Civil Code “prescribes a
‘primordial limitation on all rights’ by setting certain standards that must be observed in the
exercise thereof.” Abuse of right under Article 19 exists when the following elements are present:
(1) there is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of
prejudicing or injuring another.

No traces of bad faith or malice in the respondents’ denial of petitioner Diaz’s application
for sabbatical leave. They processed her application in accordance with their usual procedure –
with more leeway, in fact, since petitioner Diaz was given the chance to support her application
when she was asked to submit a historical background; and the denial was based on the
recommendation of respondent Encanto, who was in the best position to know whether
petitioner Diaz’s application should be granted or not.

On the question of whether or not there was bad faith int he delay of the resolution of
petitioner Diaz’s sabbatical leave application, the Court still rules in the negative. “It is an
elementary rule in this jurisdiction that good faith is presumed and that the burden of proving
bad faith rests upon the party alleging the same.” Petitioner Diaz has failed to prove bad faith on
the part of the respondents. There is nothing in the records to show that the respondents
purposely delayed the resolution of her application to prejudice and injure her. She has not even
shown that the delay of six months in resolving a sabbatical leave application has never happened
prior to her case. On the contrary, any delay that occurred was due to the fact that petitioner
Diaz’s application for sabbatical leave did not follow the usual procedure; hence, the processing of
said application took time.

2) Given that the respondents have not abused their rights, they should not be held liable for
any damages sustained by petitioner Diaz. “The law affords no remedy for damages resulting from
an act which does not amount to a legal wrong. Situations like this have been appropriately
denominated damnum absque injuria. Similarly, the Court cannot grant petitioner Diaz’s claim for
attorney’s fees as no premium should be placed on the right to litigate. “Even when a claimant is
compelled to litigate or to incur expenses to protect his rights, still attorney’s fees may not be
awarded where there is no sufficient showing of bad faith in a party’s persistence in a case other
than an erroneous conviction of the righteousness of his cause.

MANILA ELECTRIC COMPANY vs. SPOUSES SULPICIO and PATRICIA RAMOS


G.R. No. 195145, February 10, 2016, J. Brion

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Facts:

MERALCO entered into a contract of service with the respondents agreeing to supply the
latter with electric power in their residence. To measure the respondents' electric consumption, it
installed the electric meter with serial number 330ZN43953 outside the front wall of the property
occupied by Patricia's brother, Isidoro Sales, and his wife, Nieves Sales (Nieves), located beside the
respondents' house.

MERALCO's service inspector inspected the respondents' electrical facilities and found an
outside connection attached to their electric meter. The service inspector traced the connection,
an illegal one, to the residence and appliances of Nieves. Due to the discovery of the illegal
connection, the service inspector disconnected the respondents' electric services on the same day.

Respondents filed a complaint for breach of contract with preliminary mandatory


injunction and damages against MERALCO.

The RTC ruled in favor of respondents and ordered MERALCO to reconnect respondents’
electric service and pay the latter the following amounts, among others: a) P100,000.00 as actual
damages; b) P1,500,000.00 as moral damages; c) P300,000.00 as exemplary damages; and d)
P100,000.00 as attorney's fees.

The CA affirmed the RTC’s ruling.

Issues:

3) Whether MERALCO breached its contract with respondents when it disconnected their
electric connection.
4) Whether the award of damages in favor of respondents is in order.

Ruling:

1) MERALCO breached its contract with respondents.

The disconnection of respondents' electric service is not supported by MERALCO's own


Terms and Conditions of Service, which state that “before disconnection is made in case of or to
prevent fraud, the Company may adjust the bill of said customer accordingly and if the adjusted
bill is not paid, the Company may disconnect the same.”

There is nothing in its contract of service that gives MERALCO the authority to
immediately disconnect a customer's electric connection. MERALCO's contractual right to
disconnect electric service arises only after the customer has been notified of his adjusted bill and
has been afforded the opportunity to pay the differential billing.

In this case, the disconnection of the respondents' electric service happened on November
5, 1999, while the demand for the payment of differential billing was made through a letter dated
December 4, 1999. Thus, MERALCO breached its contract of service with the respondents as it
disconnected the latter's electric service before they were ever notified of the differential billing.
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2) The award of damages in favor of respondents is in order but must be modified.

The rule in awarding actual damages is that there must be competent proof of the actual
amount of loss. Credence can be given only to claims, which are duly supported by receipts.

Here, respondents were not able to show the actual food expenses but were able to prove
that they incurred expenses when they were forced to move to a new residence by presenting
contract of lease and receipts for payment of monthly rentals. The award of actual damages must
thus be increased.

Moral damages, on the other hand, are designed to compensate and alleviate the physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar harm unjustly caused to a person. They may be properly
awarded to persons who have been unjustly deprived of property without due process of law.

In this case, considering the manner of disconnection of electric service, the length of time
that the respondents had to endure without electricity, and the extreme social humiliation and
serious anxiety that they suffered, the award of moral damages is proper. However, the award of
P1,500,000.00 in moral damages is excessive. Moral damages are not intended to enrich the
complainant as a penalty for the defendant. It is awarded as a means to ease the moral suffering
the complainant suffered due to the defendant's culpable action. While prevailing jurisprudence
deems it appropriate to award 100,000.00 in moral damages in cases where MERALCO wrongfully
disconnected electric service, such amount is not commensurate with the injury suffered by the
respondents. Thus, in view of the specific circumstances present in this case, the award of moral
damages must be reduced to P 300,000.00.

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.

In this case, MERALCO totally failed to comply with the two requirements under R.A. 7832 before
disconnecting the respondents' electric service. Hence, exemplary damages must be increased to
persuade MERALCO to be more prudent and responsible in its observance of the requirements
under the law in disconnecting a customer's electrical supply.

Lastly, in view of the award of exemplary damages, the award of attorney's fees is proper pursuant
to Article 2208(1) of the Civil Code.

TRAVEL & TOURS ADVISERS, INC. v. CRUZ, SR., ET AL.


G.R. No. 199282, March 14, 2016; Peralta

Facts:

Respondent Edgar Hernandez was driving an Isuzu Passenger Jitney (jeepney) that he owns with
plate number DSG-944 along Angeles-Magalang Road, Barangay San Francisco, Magalang,
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Pampanga, on January 9, 1998, around 7:50 p.m. Meanwhile, a Daewoo passenger bus (RCJ Bus
Lines) with plate number NXM-116, owned by petitioner Travel and Tours Advisers, Inc. and
driven by Edgar Calaycay travelled in the same direction as that of respondent Edgar Hernandez
vehicle. Thereafter, the bus bumped the rear portion of the jeepney causing it to ram into an
acacia tree which resulted in the death of Alberto Cruz, Jr. and the serious physical injuries of
Virginia Muñoz.

Thus, respondents Edgar Hernandez, Virginia Muñoz and Alberto Cruz, Sr., father of the
deceased Alberto Cruz, Jr., filed a complaint for damages, docketed as Civil Case No. 9006 before
the RTC claiming that the collision was due to the reckless, negligent and imprudent manner by
which Edgar Calaycay was driving the bus, in complete disregard to existing traffic laws, rules and
regulations, and praying that judgment be rendered ordering Edgar Calaycay and petitioner
Travel & Tours Advisers, Inc. to pay the respondents expenses and 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 Edgar Calaycay and further argued that it was Edgar
Hernandez who was driving his passenger jeepney in a reckless and imprudent manner by
suddenly entering the lane of the petitioner's bus without seeing to it that the road was clear for
him to enter said lane. In addition, petitioner alleged that at the time of the incident, Edgar
Hernandez violated his franchise by travelling along an unauthorized line/route and that the
jeepney was overloaded with passengers, and the deceased Alberto Cruz, Jr. was clinging at the
back thereof.

The RTC Ruled in favor of the respondents, and ordered petitioner and its driver, Calaycay, to pay
respondents their respective damages.

On appeal, the CA affirmed the RTC’s Decision but modified the amount of damages awarded to
respondents.

Issues:

1) Whether the CA and RTC correctly held petitioner to be solidarily liable with its driver
Calaycay to pay respondents damages.

Ruling:

1) Yes, petitioner failed to clearly show that it exercised the diligence of a good father of a
family in the selection and supervision of his employee.

Petitioner, being the owner of the bus and the employer of the driver cannot escape liability.
Petitioner is liable under Article 2176 in relation to Article 2180 of the Civil Code. 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
selection. The presumption, however, may be rebutted by a clear showing on the part of the
employer 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 solidary liability for quasi-delict committed by
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an employee, the employer must adduce sufficient proof that it exercised such degree of care. In
this case, the petitioner failed to do so.

While petitioner has shown evidence to prove that it had issued policies, rules and regulation's to
be followed, conduct seminars and see to it that their drivers and employees imbibe such policies,
rules and regulations, have their drivers and conductors medically checked-up and undergo drug-
testing, it offered no proof which show that all these rudiments were applied to Edgar Calaycay.
Moreover, with respect to the selection process, petitioner’s witness admitted in open court that
Calaycay was not able to produce the clearances required by petitioner upon employment.

In the selection of prospective employees, employers are required to examine them as to their
qualifications, experience, and service records. On the other hand, due diligence in the
supervision of employees includes the formulation of suitable rules and regulations for the
guidance of employees, the issuance of proper instructions intended for the protection of the
public and persons with whom the employer has relations through his or its employees and the
imposition of necessary disciplinary measures upon employees in case of breach or as may be
warranted to ensure the performance of acts indispensable to the business of and beneficial to
their employer. To this, we add that actual implementation and monitoring of consistent
compliance with said rules should be the constant concern of the employer, acting through
dependable supervisors who should regularly report on their supervisory functions. In this case,
as shown by the above findings of the RTC, petitioner was not able to prove that it exercised the
required diligence needed in the selection and supervision of its employee.
However, considering that the jeepney was traversing a route that is out of its line, its owner,
respondent Edgar Hernandez, is guilty of contributory negligence, and was directed to pay the
other respondents 50% of the damages, in accordance with Article 2179 of the Civil Code.

NEGLIGENCE

DR. ENCARNACION C. LUMANTAS, M.D. vs. HANZ CALAPIZ, REPRESENTED BY HIS


PARENTS, HILARIO CALAPIZ, JR. AND HERLITA CALAPIZ
G.R. NO. 163753. January 15, 2014
J. Bersamin

Where a doctor could have avoided a trauma from happening on the occasion of or
incidental to the circumcision of the petitioner, such doctor cannot escape civil liability even though
he was acquitted in the criminal aspect of the case.

Every person criminally liable is also civilly liable. However, the acquittal of the accused does
not necessarily mean his absolution from civil liability. When there is preponderance of evidence to
sustain the liability of the accused-defendant, the court will enforce such liability on him.

Facts:

Spouses Hilario Calapiz, Jr. and Herlita Calapiz brought a criminal charge against the petitioner
for reckless imprudence resulting to serious physical injuries when their son, Hanz, had a
damaged urethra that could not be fully repaired and reconstructed due to a trauma believed to
be caused by the medical procedures he underwent that were conducted by the petitioner.
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The RTC acquitted the petitioner of the crime charged for insufficiency of the evidence. It held
that the Prosecution’s evidence did not show the required standard of care to be observed by
other members of the medical profession under similar circumstances. Nonetheless, the RTC
ruled that the petitioner was liable for moral damages because there was a preponderance of
evidence showing that Hanz had received the injurious trauma from his circumcision by the
petitioner. On appeal, the CA affirmed the RTC decision. It opined that even if the petitioner had
been acquitted of the crime charged, the acquittal did not necessarily mean that he had not
incurred civil liability considering that the Prosecution had preponderantly established the
sufferings of Hanz as the result of the circumcision.

Issue:

Whether the CA erred in affirming the petitioner’s civil liability despite his acquittal of the crime
of reckless imprudence resulting in serious physical injuries

Ruling:

It is axiomatic that every person criminally liable for a felony is also civilly liable. Nevertheless,
the acquittal of an accused of the crime charged does not necessarily extinguish his civil liability.
In Manantan v. Court of Appeals, the Court elucidates on the two kinds of acquittal recognized by
our law as well as on the different effects of acquittal on the civil liability of the accused, viz:

Our law recognizes two kinds of acquittal, with different effects on the civil liability of
the accused. First is an acquittal on the ground that the accused is not the author of
the act or omission complained of. This instance closes the door to civil liability, for a
person who has been found to be not the perpetrator of any act or omission cannot
and can never be held liable for such act or omission. There being no delict, civil
liability ex delicto is out of the question, and the civil action, if any, which may be
instituted must be based on grounds other than the delict complained of. This is the
situation contemplated in Rule 111 of the Rules of Court. The second instance is an
acquittal based on reasonable doubt on the guilt of the accused. In this case, even if
the guilt of the accused has not been satisfactorily established, he is not exempt from
civil liability which may be proved by preponderance of evidence only.

Conformably with the foregoing, therefore, the acquittal of an accused does not prevent a
judgment from still being rendered against him on the civil aspect of the criminal case unless the
court finds and declares that the fact from which the civil liability might arise did not exist.

Although it found the Prosecution’s evidence insufficient to sustain a judgment of conviction


against the petitioner for the crime charged, the RTC did not err in determining and adjudging
his civil liability for the same act complained of based on mere preponderance of evidence. In this
connection, the Court reminds that the acquittal for insufficiency of the evidence did not require
that the complainant’s recovery of civil liability should be through the institution of a separate
civil action for that purpose.

The petitioner’s contention that he could not be held civilly liable because there was no proof of
his negligence deserves scant consideration. The failure of the Prosecution to prove his criminal
negligence with moral certainty did not forbid a finding against him that there was preponderant

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evidence of his negligence to hold him civilly liable. With the RTC and the CA both finding that
Hanz had sustained the injurious trauma from the hands of the petitioner on the occasion of or
incidental to the circumcision, and that the trauma could have been avoided, the Court must
concur with their uniform findings. In that regard, the Court need not analyze and weigh again
the evidence considered in the proceedings a quo. The Court, by virtue of its not being a trier of
facts, should now accord the highest respect to the factual findings of the trial court as affirmed
by the CA in the absence of a clear showing by the petitioner that such findings were tainted with
arbitrariness, capriciousness or palpable error.

DR. FERNANDO P. SOLIDUM vs. PEOPLE OF THE PHILIPPINES


G.R. No. 192123. March 10, 2014
J. Bersamin

In order to allow resort to the of res ipsa loquitur, the following essential requisites must
first be satisfied, to wit: (1) the accident was of a kind that does not ordinarily occur unless someone
is negligent; (2) the instrumentality or agency that caused the injury was under the exclusive control
of the person charged; and (3) the injury suffered must not have been due to any voluntary action or
contribution of the person injured.

Where the lack of oxygen causing the patient’s bradycardia during the operation could have
been triggered by the vago-vagal and not the negligence of his attending physicians, res ipsa loquitur
cannot apply, the first requisite being wanting.

Facts:

Gerald Albert Gercayo (Gerald) was born with an imperforate anus. Two days after his birth,
Gerald underwent colostomy, a surgical procedure to bring one end of the large intestine out
through the abdominal wall, enabling him to excrete through a colostomy bag attached to the
side of his body.

Gerald, then three years old, was admitted at the Ospital ng Maynila for a pull-through
operation. Dr. Leandro Resurreccion headed the surgical team, and was assisted by Dr. Joselito
Luceño, Dr. Donatella Valeña and Dr. Joseph Tibio. The anesthesiologists included Dr. Marichu
Abella, Dr. Arnel Razon and petitioner Dr. Fernando Solidum (Dr. Solidum). During the
operation, Gerald experienced bradycardia, and went into a coma. His coma lasted for two weeks,
but he regained consciousness only after a month. He could no longer see, hear or move.

Agitated by her son’s helpless and unexpected condition, Ma. Luz Gercayo (Luz) lodged a
complaint for reckless imprudence resulting in serious physical injuries with the City Prosecutor’s
Office of Manila against the attending physicians.

The RTC rendered its judgment finding Dr. Solidum guilty beyond reasonable doubt of reckless
imprudence resulting to serious physical injuries and to indemnify, jointly and severally with the
Ospital ng Maynila, Dr. Anita So and Dr. Marichu Abella, private complainant Luz Gercayo, the
amount of P500,000.00 as moral damages and P100,000.00 as exemplary damages.

Upon motion of Dr. Anita So and Dr. Marichu Abella to reconsider their solidary liability, the RTC
excluded them from solidary liability as to the damages.

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The CA affirmed the conviction of Dr. Solidum. Dr. Solidum filed a motion for reconsideration,
but the CA denied his motion.

Issue:

Whether the doctrine of res ipsa loquitur is applicable

Whether Dr. Solidum has been negligent

Ruling:

Applicability of Res Ipsa Loquitur

Res ipsa loquitur is literally translated as “the thing or the transaction speaks for itself.” The
doctrine res ipsa loquitur means that “where the thing which causes injury is shown to be under
the management of the defendant, and the accident is such as in the ordinary course of things
does not happen if those who have the management use proper care, it affords reasonable
evidence, in the absence of an explanation by the defendant, that the accident arose from want of
care.” It is simply “a recognition of the postulate that, as a matter of common knowledge and
experience, the very nature of certain types of occurrences may justify an inference of negligence
on the part of the person who controls the instrumentality causing the injury in the absence of
some explanation by the defendant who is charged with negligence. It is grounded in the superior
logic of ordinary human experience and on the basis of such experience or common knowledge,
negligence may be deduced from the mere occurrence of the accident itself. Hence, res ipsa
loquitur is applied in conjunction with the doctrine of common knowledge.”

In order to allow resort to the doctrine, therefore, the following essential requisites must first be
satisfied, to wit: (1) the accident was of a kind that does not ordinarily occur unless someone is
negligent; (2) the instrumentality or agency that caused the injury was under the exclusive control
of the person charged; and (3) the injury suffered must not have been due to any voluntary action
or contribution of the person injured.

The Court considers the application here of the doctrine of res ipsa loquitur inappropriate.
Although it should be conceded without difficulty that the second and third elements were
present, considering that the anesthetic agent and the instruments were exclusively within the
control of Dr. Solidum, and that the patient, being then unconscious during the operation, could
not have been guilty of contributory negligence, the first element was undeniably wanting. Luz
delivered Gerald to the care, custody and control of his physicians for a pull-through
operation. Except for the imperforate anus, Gerald was then of sound body and mind at the time
of his submission to the physicians. Yet, he experienced bradycardia during the operation, causing
loss of his senses and rendering him immobile. Hypoxia, or the insufficiency of oxygen supply to
the brain that caused the slowing of the heart rate, scientifically termed as bradycardia, would not
ordinarily occur in the process of a pull-through operation, or during the administration of
anesthesia to the patient, but such fact alone did not prove that the negligence of any of his
attending physicians, including the anesthesiologists, had caused the injury. In fact, the
anesthesiologists attending to him had sensed in the course of the operation that the lack of
oxygen could have been triggered by the vago-vagal reflex, prompting them to administer
atropine to the patient.

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Negligence of Dr. Solidum

In view of the inapplicability of the doctrine of res ipsa loquitur, the Court next determines
whether the CA correctly affirmed the conviction of Dr. Solidum for criminal negligence.

Negligence is defined as the failure to observe for the protection of the interests of another person
that degree of care, precaution, and vigilance that the circumstances justly demand, whereby such
other person suffers injury. Reckless imprudence, on the other hand, consists of voluntarily doing
or failing to do, without malice, an act from which material damage results by reason of an
inexcusable lack of precaution on the part of the person performing or failing to perform such act.

Dr. Antonio Vertido, a Senior Medico-Legal Officer of the National Bureau of Investigation, was
presented as a Prosecution witness, but his testimony concentrated on the results of the physical
examination he had conducted on Gerald.

In fine, Dr. Solidum was criminally charged for “failing to monitor and regulate properly the levels
of anesthesia administered to said Gerald Albert Gercayo and using 100% halothane and other
anesthetic medications.” Indeed, Dr. Vertido’s findings did not preclude the probability that other
factors related to Gerald’s major operation, which could or could not necessarily be attributed to
the administration of the anesthesia, had caused the hypoxia and had then led Gerald to
experience bradycardia. Dr. Vertido revealingly concluded in his report, instead, that “although
the anesthesiologist followed the normal routine and precautionary procedures, still hypoxia and
its corresponding side effects did occur.”

The existence of the probability about other factors causing the hypoxia has engendered in the
mind of the Court a reasonable doubt as to Dr. Solidum’s guilt, and moves us to acquit him of the
crime of reckless imprudence resulting to serious physical injuries.

The court clarifies that the acquittal of Dr. Solidum would not immediately exempt him from civil
liability. But we cannot now find and declare him civilly liable because the circumstances that
have been established here do not present the factual and legal bases for validly doing so. His
acquittal did not derive only from reasonable doubt. There was really no firm and competent
showing how the injury to Gerard had been caused. That meant that the manner of
administration of the anesthesia by Dr. Solidum was not necessarily the cause of the hypoxia that
caused the bradycardia experienced by Gerard. Consequently, to adjudge Dr. Solidum civilly liable
would be to speculate on the cause of the hypoxia. We are not allowed to do so, for civil liability
must not rest on speculation but on competent evidence.

DR. FILOTEO A. ALANO vs.ZENAIDA MAGUD-LOGMAO


G.R. No. 175540, April 7, 2014, J. Diosdado M. Peralta

It also clearly stated that permission or authorization to retrieve and remove the internal
organs of the deceased was being given ONLY IF the provisions of the applicable law had been
complied with. Such instructions reveal that Dr. Alanoacted prudently by directing his subordinates
to exhaust all reasonable means of locating the relatives of the deceased. He could not have made
his directives any clearer. He even specifically mentioned that permission is only being granted IF
the Department of Surgery has complied with all the requirements of the law. Verily, Dr. Alano
could not have been faulted for having full confidence in the ability of the doctors in the Department

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of Surgery to comprehend the instructions, obeying all his directives, and acting only in accordance
with the requirements of the law.

Facts:

Plaintiff-appellee ZenaidaMagud-Logmao is the mother of deceased ArnelitoLogmao.


Defendant-appellant Dr. FiloteoAlano is the Executive Director of the National Kidney Institute
(NKI).ArnelitoLogmao, then eighteen (18) years old, was brought to the East Avenue Medical
Center (EAMC) in Quezon City by two sidewalk vendors, who allegedly saw the former fall from
the overpass near in Cubao, Quezon City.

Dr. Cabrera reported that Logmao was drowsy with alcoholic breath, was conscious and
coherent; that the skull x-ray showed no fracture, that a resident physician of NKI, who was
rotating at EAMC, suggested that Logmao be transferred to NKI; and that after arrangements
were made, Logmao was transferred to NKI

As Lugmoso had no relatives around, Jennifer B. Misa, Transplant Coordinator, was asked
to locate his family by enlisting police and media assistance. Chairman of the Department of
Surgery, observed that the severity of the brain injury of Lugmoso manifested symptoms of brain
death. He requested the Laboratory Section to conduct a tissue typing and tissue cross-matching
examination, so that should Lugmoso expire despite the necessary medical care and management
and he would be found to be a suitable organ donor and his family would consent to organ
donation, the organs thus donated could be detached and transplanted promptly to any
compatible beneficiary.

Jennifer Misa then contacted several radio and television stations to request for air time
for the purpose of locating the family of AngelitoLugmoso. Dr. Ona was informed that Lugmoso
had been pronounced brain dead by Dr. Abdias V. Aquino, a neurologist. As the extensive search
for the relatives of Lugmoso yielded no positive result and time being of the essence in the success
of organ transplantation, Dr. Ona requested Dr. Filoteo A. Alano, Executive Director of NKI, to
authorize the removal of specific organs from the body of Lugmoso for transplantation purposes
upon learning that Lugmoso was a suitable organ donor and that some NKI patients awaiting
organ donation had blood and tissue types compatible with Lugmoso.

Upon receiving the news, Zenaida and her other children went to La Funeraria Oro, where
they saw Arnelito inside a cheap casket. She filed with the court a quo a complaint for damages
against Dr. Emmanuel Lenon, National Kidney Institute et al. They alleged that defendants
conspired to remove the organs of Arnelito while the latter was still alive and that they concealed
his true identity.

RTC rendered judgment finding only Dr. FiloteoAlano liable for damages to plaintiff and
dismissing the complaint against the other defendants for lack of legal basis which was affirmed
by CA.

Issue:

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Whether Zenaida's sufferings were brought about by Dr. Alano’s alleged negligence in
granting authorization for the removal or retrieval of the internal organs of Zenaida's son who had
been declared brain dead.

Ruling:

No, Dr. FiloteoAlano is not negligent in granting authorization for the removal or retrieval
of the internal organs Zenaida's son who had been declared brain dead.

A careful reading of the above shows that Dr. FiloteoAlano instructed his subordinates to
"make certain" that "all reasonable efforts" are exerted to locate the patient's next of kin, even
enumerating ways in which to ensure that notices of the death of the patient would reach said
relatives. It also clearly stated that permission or authorization to retrieve and remove the
internal organs of the deceased was being given ONLY IF the provisions of the applicable law had
been complied with. Such instructions reveal that Dr. Alano acted prudently by directing his
subordinates to exhaust all reasonable means of locating the relatives of the deceased. He could
not have made his directives any clearer. He even specifically mentioned that permission is only
being granted IF the Department of Surgery has complied with all the requirements of the law.
Verily, Dr. FiloteoAlanocould not have been faulted for having full confidence in the ability of the
doctors in the Department of Surgery to comprehend the instructions, obeying all his directives,
and acting only in accordance with the requirements of the law.

Prior to performing the procedure for retrieval of the deceased's internal organs, the
doctors concerned also the sought the opinion and approval of the Medico-Legal Officer of the
NBI.
Thus, there can be no cavil that Dr. Alano employed reasonable means to disseminate
notifications intended to reach the relatives of the deceased.

DAVAO HOLIDAY TRANSPORT SERVICES CORPORATIONvs. SPOUSES EULOGIO AND


CARMELITA EMPHASIS
G.R. No. 211424, November 26, 2014, J. Reyes

Contending that it exercised extraordinary diligence in the selection and supervision of its
drivers, petitioner argues that it should be absolved from any liability for damages caused by its
employee. The SC ruled that when an employee causes damage due to his own negligence while
performing his own duties, there arises the juristantum presumption that his employer is negligent,
rebuttable only by proof of observance of the diligence of a good father of a family. Failure however
of petitioner to establish the modes and measures it adopted to ensure the proper selection and
supervision of its employees, petitioner therefore should be held liable for the damages cause by its
employee.

Facts:

Petitioner Davao Holiday was the owner and operator of Holiday Taxi No. 177 which
figured in an accident that caused the death of a 12 year-old boy named Christian Emphasis. The
taxicab was then being driven by Orlando Tungal along Airport Road in Davao City when it
bumped Christian, who was then riding a bicycle.

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Thereafter, information for reckless imprudence resulting in homicide was filed against
Tungal. Meanwhile, the parents of Christian, the Spouses Emphasis, filed a separate action for
damages and attorney’s fees arising from the vehicular accident against both petitioner Davao
Holiday and Tungal. Upon the agreement of the parties, the two cases were jointly tried.

In the criminal case, the RTC found Tungal guilty beyond reasonable doubt of the crime of
reckless imprudence resulting in homicide. In the civil case, petitioner Davao Holiday and Tungal
were ordered by the RTC to pay the Spouses, jointly and severally, the damages incurred by the
latter. Aggrieved by the RTC decision, petitioner Davao Holiday appealed the decision of the RTC
in the civil case to the CA. It argued that it should be absolved of any liability for damages, as it
exercised extraordinary diligence in the selection and supervision of its drivers, including Tungal.
The Court of Appeals affirmed the decision of the RTC and ruled that petitioner was liable for
damages. Hence, this petition.

Issue:

Whether or not petitioner Davao Holiday is liable for damages.

Ruling:

Yes, it is.

The Court finds the petition devoid of merit.

Article 2180 of the New Civil Code provides that an obligation for damages is demandable
not only for one’s own acts or omissions, but also for those of persons for whom he is responsible.
Employers, in particular, shall be liable for the damages caused by their employees acting within
the scope of their assigned tasks. The responsibility of employers shall only cease upon proof that
they observed all the diligence of the good father of a family to prevent damage.

The CA correctly held that the petitioner, being Tungal’s employer, was presumed liable
to the heirs of Christian after a finding that it was Tungal who should be faulted for the accident
that caused the death of the child. In Cang v. Cullen, the Court emphasized that when an
employee causes damage due to his own negligence while performing his own duties, there arises
the juristantum presumption that his employer is negligent, rebuttable only by proof of
observance of the diligence of a good father of a family. In the selection of prospective employees,
employers are required to examine them as to their qualifications, experience and service records.
With respect to the supervision of employees, employers must formulate standard operating
procedures, monitor their implementation and impose disciplinary measures for breaches thereof.
These facts must be shown by concrete proof, including documentary evidence.

The petitioner failed in this aspect. There then appears no cogent reason for the Court to
depart from the RTC’s and CA’s observation that the petitioner failed to establish the modes and
measures it adopted to ensure the proper selection and supervision of Tungal. This makes proper
the order upon the petitioner to compensate the spouses Emphasis for damages. As the CA
pointed out:

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In the instant case, save for the self-serving testimony of witness Romero, Holiday did not
present documentary proof of Tungal’s qualification, experience and service records. Even the
result of the actual driving tests was not presented to be examined by the court a quo. The claim
of trainings and constant monitoring of all their drivers including Tungal are unsubstantiated.

In addition, Holiday presented no record of Tungal attending those trainings. There was
also no record of their so-called constant monitoring of their drivers. They claimed having
installed radios on every cab they operate for the purpose of reminding their drivers to drive
safely but, no recordings were ever made to prove such call every now and then. Holiday also
failed to establish that they also monitor speed of its taxi during its daily trips, considering that it
is engaged in transportation business, particularly delivering peoplevto and from places. For
these, We uphold the court a quo’s finding that Holiday had been negligent in the selection and
supervision of its driver Tungal.

CAGAYAN ELECTRIC COOPERATIVE, INC. REPRESENTED BY ITS GENERAL MANAGER


AND CHIEF EXECUTIVE OFFICER, GABRIEL A. TORDESILLAS vs. ALAN RAPANAN AND
MARY GINE TANGONAN
G.R. No. 199886, December 3, 2014, J. Villarama Jr.

1 died and 2 suffered injury due to mishap along the highway. The respondents contended
that the cause of death and injuries was due to live tension wire of Cagayan Electric Cooperative Inc.
The court ruled there was no negligence on the part of Cagayan Electric Cooperative Inc. Thus, there
is no negligence on the part of petitioner that was allegedly the proximate cause of Camilo’s death
and Rapanan’s injuries. From the testimonies of petitioner’s employees and the excerpt from the
police blotter, this Court can reasonably conclude that, at the time of that fatal mishap, said wires
were quietly sitting on the shoulder of the road, far enough from the concrete portion so as not to
pose any threat to passing motor vehicles and even pedestrians. Hence, if the victims of the mishap
were strangled by said wires, it can only mean that either the motorcycle careened towards the
shoulder or even more likely, since the police found the motorcycle not on the shoulder but still on
the road, that the three passengers were thrown off from the motorcycle to the shoulder of the road
and caught up with the wires
Facts:
A motorcycle with three of its passengers figured in a mishap along the National Highway
of Maddalero Buguey Cagayan. It was driven by its owner Camilo Tangonan who died from the
accident while his companion respondents suffered injuries. Wives of the respondents filed a
complaint for damages against Cagayan Electric Cooperative Inc. They alleged that while the
victims were traversing the National highway, they were struck and electrocuted by a live tension
wire from one of the electric posts owned by Cagayan Electric Cooperative Inc. They contended
that the mishap was due to the negligence of Cagayan Electric Cooperative Inc. when it failed to
fix and change said live tension wire despite being immediately informed by the residents in the
area that it might pose immediate danger to persons, animals, vehicles that are passing by along
the national highway. Cagayan Electric Cooperative Inc. in its defense contended that the faulted
wires were due to typhoons and they cannot be blamed for such was due to a fortuitous event.
Issue:
Whether or not the Cagayan Electric Cooperative Inc. negligence was the proximate cause
of death of Camilo and injuries of the respondents
Ruling:
No petitioner Cagayan Electric Cooperative Inc. was not negligent
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Negligence is defined as the failure to observe for the protection of the interest of another
person that degree of care, precaution, and vigilance which the circumstances justly demand,
whereby such other person suffers injury.

Article 2176 of the Civil Code provides that “[w]hoever 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 a quasi-delict.”

Under this provision, the elements necessary to establish a quasi-delict case are: (1)
damages to the plaintiff; (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.

The presence of the first element is undisputed because the unfortunate incident brought
about the death of Camilo and physical injuries to Rapanan. This Court, however, finds that the
second and third elements are lacking thus precluding the award of damages in favor of
respondents. Adviento, petitioner’s employee testified that their electric poles along the
highways, including the one where the mishap took place, were erected about four to five meters
from the shoulder of the road. Another employee of petitioner, Rasos, testified that after the
typhoons hit Cagayan, he together with his co-employees, after checking the damage to the
electric lines, rolled the fallen electric wires and placed them at the foot of the electric poles so as
to prevent mishaps to pedestrians and vehicles passing by. Their testimonies were corroborated
by what was recorded in the Police Blotter of the Buguey Police Station, Buguey, Cagayan after
SPO2 Tactac investigated on the incident.

Thus, there is no negligence on the part of petitioner that was allegedly the proximate
cause of Camilo’s death and Rapanan’s injuries. From the testimonies of petitioner’s employees
and the excerpt from the police blotter, this Court can reasonably conclude that, at the time of
that fatal mishap, said wires were quietly sitting on the shoulder of the road, far enough from the
concrete portion so as not to pose any threat to passing motor vehicles and even pedestrians.
Hence, if the victims of the mishap were strangled by said wires, it can only mean that either the
motorcycle careened towards the shoulder or even more likely, since the police found the
motorcycle not on the shoulder but still on the road, that the three passengers were thrown off
from the motorcycle to the shoulder of the road and caught up with the wires. As to how that
happened cannot be blamed on petitioner but should be attributed to Camilo’s over speeding as
concluded by the police after it investigated the mishap. The mishap already occurred even while
they were on the road and away from petitioner's electric wires and was not caused by the latter
as alleged by respondents. It just so happened that after the motorcycle tilted and slid, the
passengers were thrown off to the shoulder where the electric wires were. This Court hence agrees
with the trial court that the proximate cause of the mishap was the negligence of Camilo.

Had Camilo driven the motorcycle at an average speed, the three passengers would not
have been thrown off from the vehicle towards the shoulder and eventually strangulated by the
electric wires sitting thereon. Moreover, it was also negligent of Camilo to have allowed two
persons to ride with him and for. Rapanan to ride with them when the maximum number of
passengers of a motorcycle is two including the driver. This most likely even aggravated the
situation because the motorcycle was overloaded which made it harder to drive and control.

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When the plaintiffs own negligence was the immediate and proximate cause of his injury, he
cannot recover damages.

RUKS KONSULT AND CONSTRUCTION vs. ADWORLD SIGN AND ADVERTISING


CORPORATION* AND TRANSWORLD MEDIA ADS, INC.
G.R. No. 204866, January 21, 2015, J. Perlas-Bernabe

The petitioners was found negligent by both the RTC and the Court of Appeals and ordered
to pay jointly and severally for damages. The petitioners allege that they are not negligent. The
Supreme Court ruled that as the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do. It is the failure to observe for the
protection of the interest of another person that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury. CA correctly affirmed the
RTC’s finding that Transworld and Ruks are guilty of negligence.

Facts:

The instant case arose from a complaint for damages filed by Adworld against Transworld
and Comark International Corporation (Comark) before the RTC. In the complaint, 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 as loss of rental
income. On August 29, 2003, Transworld sent its reply, admitting the damage caused by its
billboard structure on Adworld’s billboard, but nevertheless, refused and failed to pay the
amounts demanded by Adworld. As Adworld’s final demand letter also went unheeded, it was
constrained to file the instant complaint, praying for damages in the aggregate amount of
P474,204.00, comprised of P281,204.00 for materials, P72,000.00 for labor, and P121,000.00 for
indemnity for loss of income.

In its Answer with Counterclaim, 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 Adworld’s billboard structure was hardly noticeable.
Transworld likewise filed a Third-Party Complaint against Ruks, the company which built the
collapsed billboard structure in the former’s favor. It was alleged therein that the structure
constructed by Ruks had a weak and poor foundation not suited for billboards, thus, prone to
collapse, and as such, Ruks should ultimately be held liable for the damages caused to Adworld’s
billboard structure.

RTC ultimately ruled in Adworld’s favor, and accordingly, declared, inter alia, Transworld
and Ruks jointly and severally liable to Adworld. The CA denied Ruks’s appeal and affirmed the
ruling of the RTC. It adhered to the RTC’s finding of negligence on the part of Transworld and
Ruks which brought about the damage to Adworld’s billboard.

Issue:

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The primordial issue for the Court’s resolution is whether or not the CA correctly affirmed
the ruling of the RTC declaring Ruks jointly and severally liable with Transworld for damages
sustained by Adworld.

Ruling:

The petition is without merit.

At the outset, it must be stressed that factual findings of the RTC, when affirmed by the
CA, are entitled to great weight by the Court and are deemed final and conclusive when
supported by the evidence on record. Absent any exceptions to this rule – such as when it is
established that the trial court ignored, overlooked, misconstrued, or misinterpreted cogent facts
and circumstances that, if considered, would change the outcome of the case– such findings must
stand.

Jurisprudence defines negligence as the omission to do something which a reasonable


man, guided by those considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man would not do. It is the
failure to observe for the protection of the interest of another person that degree of care,
precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury.

In this case, the CA correctly affirmed the RTC’s finding that Transworld’s initial
construction of its billboard’s lower structure without the proper foundation, and that of Ruks’s
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 former’s billboard was weak; yet, neither of them took any positive step to
reinforce the same. They merely relied on each other’s 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 former’s billboard, and
perforce, should be held liable for its collapse and the resulting damage to Adworld’s 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 2194 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.” The Court’s pronouncement in People v. Velasco is instructive on this
matter, to wit:

Where several causes producing an injury are concurrent and each is an efficient cause
without which the injury would not have happened, the injury may be attributed to all or
any of the causes and recovery may be had against any or all of the responsible persons
although under the circumstances of the case, it may appear that one of them was more
culpable, and that the duty owed by them to the injured person was not same. No actor’s
negligence ceases to be a proximate cause merely because it does not exceed the
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negligence of other actors. Each wrongdoer is responsible for the entire result and is liable
as though his acts were the sole cause of the injury.

There is no contribution between joint [tortfeasors] whose liability is solidary since both
of them are liable for the total damage. Where the concurrent or successive negligent acts
or omissions of two or more persons, although acting independently, are in combination
the direct and proximate cause of a single injury to a third person, it is impossible to
determine in what proportion each contributed to the injury and either of them is
responsible for the whole injury.

In conclusion, the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and
severally liable with Transworld

R TRANSPORT CORPORATION vs. LUISITO G. YU


G.R. No. 174161, February 18, 2015, J. Peralta

Negligence has been defined as "the failure to observe for the protection of the interests of
another person that degree of care, precaution, and vigilance which the circumstances justly
demand, whereby such other person suffers injury.” Verily, foreseeability is the fundamental test of
negligence. It is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do. The records show that driver Gimena
was clearly running at a reckless speed. He did not take the necessary precaution and instead, drove
on and bumped the deceased despite being aware that he was traversing a commercial center where
pedestrians were crossing the street. Gimena should have observed due diligence of a reasonably
prudent man by slackening his speed and proceeding cautiously while passing the area.

Facts:

At around 8:45a.m of December 12, 1993, Loreta J. Yu, after having alighted from a
passenger bus in front of Robinson's Galleria along EDSA was hit and run over by a bus driven by
Antonio P. Gimena, who was then employed by petitioner R Transport Corporation. Loreta was
immediately rushed to Medical City Hospital where she was pronounced dead on arrival.

On February 3, 1994, the husband of the deceased, respondent Luisito G. Yu, filed a
Complaint for damages before the RTC against petitioner R Transport, Antonio Gimena, and
Metro Manila Transport Corporation (MMTC) for the death of his wife.

MMTC denied its liability since it is merely the registered owner of the bus, the actual
owner, being petitioner R Transport. It explained that under the Bus Installment Purchase
Program of the government, MMTC merely purchased the subject bus, for resale to petitioner R
Transport, which will operate the same within Metro Manila. Since it was not actually operating
the bus which killed respondent’s wife, nor was it the employer of the driver, MMTC alleged that
the complaint against it should be dismissed.

R Transport alleged that respondent had no cause of action against it for it had exercised
due diligence in the selection and supervision of its employees and drivers and that its buses are
in good condition.
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The driver Antonio Gimena was declared in default for his failure to file an answer to the
complaint.

The trial court rendered judgment in favor of respondent Yu. The CA affirmed the
Decision of the RTC. Hence, the present petition.

Issue:

Whether or not the CA erred when it ruled that R transport is liable for the damages
caused by the negligence of its employee.

Ruling:

The Court disagrees.

After a review of the records of the case, we find no cogent reason to reverse the rulings of
the courts below. Both the trial and appellate courts found driver Gimena negligent in hitting and
running over the victim and ruled that his negligence was the proximate cause of her death.

Negligence has been defined as "the failure to observe for the protection of the interests of
another person that degree of care, precaution, and vigilance which the circumstances justly
demand, whereby such other person suffers injury.” Verily, foreseeability is the fundamental test
of negligence. It is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do.

The records show that driver Gimena was clearly running at a reckless speed. As testified
by the police officer on duty at the time of the incident and indicated in the Autopsy Report, not
only were the deceased’s clothes ripped off from her body, her brain even spewed out from her
skull and spilled over the road. Indeed, this Court is not prepared to believe petitioner’s
contention that its bus was travelling at a “normal speed” in preparation for a full stop in view of
the fatal injuries sustained by the deceased. The location wherein the deceased was hit and run
over indicates Gimena’s negligence. The bus driven by Gimena bumped the deceased in a loading
and unloading area of a commercial center. The fact that he was approaching such a busy part of
EDSA should have already cautioned the driver of the bus. In fact, upon seeing that a bus has
stopped beside his lane should have signalled him to step on his brakes to slow down for the
possibility that said bus was unloading its passengers in the area. Unfortunately, he did not take
the necessary precaution and instead, drove on and bumped the deceased despite being aware
that he was traversing a commercial center where pedestrians were crossing the street. Gimena
should have observed due diligence of a reasonably prudent man by slackening his speed and
proceeding cautiously while passing the area.

Under Article 2180 of the New Civil Code, employers are liable for the damages caused by
their employees acting within the scope of their assigned tasks. Once negligence on the part of
the employee is established, a presumption instantly arises that the employer was remiss in the
selection and/or supervision of the negligent employee. To avoid liability for the quasi-delict
committed by its employee, it is incumbent upon the employer to rebut this presumption by
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presenting adequate and convincing proof that it exercised the care and diligence of a good father
of a family in the selection and supervision of its employees.

Article 2180 of the New Civil Code provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
xxxx
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.

Unfortunately, the records of this case are bereft of any proof showing the exercise by
petitioner of the required diligence. As observed by the CA, no evidence of whatever nature was
ever presented depicting petitioner’s due diligence in the selection and supervision of its driver,
Gimena, despite several opportunities to do so. In fact, in its petition, apart from denying the
negligence of its employee and imputing the same to the bus from which the victim alighted,
petitioner merely reiterates its argument that since it is not the registered owner of the bus which
bumped the victim, it cannot be held liable for the damage caused by the same. Nowhere was it
even remotely alleged that petitioner had exercised the required diligence in the selection and
supervision of its employee. Because of this failure, petitioner cannot now avoid liability for the
quasi-delict committed by its negligent employee.

Finally, the petitioner, citing the case of Vargas vs. Langcay, contends that it is the
registered owner of the vehicle, rather than the actual owner, who must be jointly and severally
liable with the driver of the passenger vehicle for damages incurred by third persons as a
consequence of injuries or death sustained in the operation of said vehicle.

The contention is devoid of merit. While the Court therein ruled that the registered owner
or operator of a passenger vehicle is jointly and severally liable with the driver of the said vehicle
for damages incurred by passengers or third persons as a consequence of injuries or death
sustained in the operation of the said vehicle, the Court did so to correct the erroneous findings of
the Court of Appeals that the liability of the registered owner or operator of a passenger vehicle is
merely subsidiary, as contemplated in Art. 103 of the Revised Penal Code.

In no case did the Court exempt the actual owner of the passenger vehicle from liability.
On the contrary, it adhered to the rule followed in the cases of Erezo vs. Jepte, Tamayo vs.
Aquino, and De Peralta vs. Mangusang, that the registered owner or operator has the right to be
indemnified by the real or actual owner of the amount that he may be required to pay as damage
for the injury caused.

The right to be indemnified being recognized, recovery by the registered owner or


operator may be made in any form-either by a crossclaim, third-party complaint, or an
independent action. The result is the same.

While We held in Tamayo that the responsibility of the registered owner and actual
operator of a truck which caused the death of its passenger is not solidary, We noted therein that
the same is due to the fact that the action instituted was one for breach of contract, to wit:
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The decision of the Court of Appeals is also attacked insofar as it holds that inasmuch as
the third-party defendant had used the truck on a route not covered by the registered owner's
franchise, both the registered owner and the actual owner and operator should be considered as
joint tortfeasors and should be made liable in accordance with Article 2194 of the Civil Code. This
Article is as follows:

Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.

But the action instituted in the case at bar is one for breach of contract, for failure of the
defendant to carry safely the deceased for her destination. The liability for which he is made
responsible, i.e., for the death of the passenger, may not be considered as arising from a quasi-
delict. As the registered owner Tamayo and his transferee Rayos may not be held guilty of tort or
a quasi-delict; their responsibility is not solidary as held by the Court of Appeals.

The question that poses, is how should the holder of the certificate of public convenience,
Tamayo, participate with his transferee, operator Rayos, in the damages recoverable by the heirs
of the deceased passenger, if their liability is not that of Joint tortfeasors in accordance with
Article 2194 of the Civil Code.

The following considerations must be borne in mind in determining this question. As


Tamayo is the registered owner of the truck, his responsibility to the public or to any passenger
riding in the vehicle or truck must be direct. But as the transferee, who operated the vehicle when
the passenger died, is the one directly responsible for the accident and death he should in turn be
made responsible to the registered owner for what the latter may have been adjudged to pay. In
operating the truck without transfer thereof having been approved by the Public Service
Commission, the transferee acted merely as agent of the registered owner and should be
responsible to him (the registered owner), for any damages that he may cause the latter by his
negligence.

However, it must be noted that the case at hand does not involve a breach of contract of
carriage, as in Tamayo, but a tort or quasi-delict under Article 2176, in relation to Article 2180 of
the New Civil Code. The liability for which petitioner is being made responsible actually arises not
from a pre-existing contractual relation between petitioner and the deceased, but from a damage
caused by the negligence of its employee. Petitioner cannot, rely on our ruling in Tamayo and
escape its solidary liability for the liability of the employer for the negligent conduct of its
subordinate is direct and primary, subject only to the defense of due diligence in the selection and
supervision of the employee.

This Court has consistently been of the view that it is for the better protection of the
public for both the owner of record and the actual operator to be adjudged jointly and severally
liable with the driver. As stated by the appellate court, "the principle of holding the registered
owner liable for damages notwithstanding that ownership of the offending vehicle has already
been transferred to another is designed to protect the public and not as a shield on the part of
unscrupulous transferees of the vehicle to take refuge in order to free itself from liability arising
from its own negligent act. "

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Hence, considering that the negligence of driver Gimena was sufficiently proven by the
records of the case, and that no evidence of whatever nature was presented by petitioner to
support its defense of due diligence in the selection and supervision of its employees, petitioner,
as the employer of Gimena, may be held liable for damages arising from the death of respondent
Yu's wife.

UNKNOWN OWNER OF THE VESSEL M/V CHINA JOY, SAMSUN SHIPPING LTD., AND
INTER-ASIA MARINE TRANSPORT, INC. vs. ASIAN TERMINALS, INC.
G.R. No. 195661, March 11, 2015, J. Reyes

ATI suffered damage due to the fault of petitioners’ negligence. However, petitioners
contended that they should not be held liable for there was no negligence on their part. The court
ruled that Negligence, on the other hand, is defined as the failure to observe that degree of care,
precaution and vigilance that the circumstances justly demand, whereby another suffers injury. In
the case under consideration, the parties do not dispute the facts of damage upon ATI’s unloader,
and of such damage being the consequence of someone’s negligence. However, the petitioners deny
liability claiming that it was not established with reasonable certainty whose negligence had caused
the co-mingling of the metal bars with the soybean meal cargo. The Court, on this matter, agrees
with the CA’s disquisition that the petitioners should be held jointly and severally liable to ATI. ATI
cannot be faulted for its lack of direct access to evidence determinative as to who among the
shipowner, Samsun, ContiQuincyBunge and Inter-Asia should assume liability. The CA had
exhaustively discussed why the doctrine of res ipsa loquitur applies.

Facts:

Cargo ship M/V “China Joy” (the Vessel) arrived at the Mariveles Grain Terminal Wharf,
operated by ATI. According to the Berth Term Grain Bills of Lading, the Vessel carried soybean
meal that had been shipped by ContiQuincyBungean exporter of soybean meal and related
products, in favor of several consignees in the Philippines. Under the Charter Party
Agreement over M/V “China Joy,” ContiQuincyBunge represented itself as the Charterer of the
Vessel, with San Miguel Foods, Inc. as Co-Charterer, and Samsun represented itself as the Agent
of the Shipowners. Samsun is a foreign corporation not doing business in the Philippines.

On 3 February 1997 ATI used its SiwertellUnloader No. 2 to unload the soybean meal from
the Vessel’s Hold No. 2. The SiwertellUnloader is a pneumatic vacubator that uses compressed gas
to vertically move heavy bulk grain from within the hatch of the ship in order to unload it off the
ship. The unloading operations were suddenly halted when the head of Unloader No. 2 hit a flat
low-carbon or “mild” steel bar measuring around 8 to 10 inches in length, 4 inches in width, and 1
¼ inch in thickness that was in the middle of the mass of soybean meal. The flat steel bar lodged
itself between the vertical screws of Unloader No. 2, causing portions of screw numbers 2 and 3 to
crack and be sheared off under the torsional load.

According to the quotation of BMH Marine AB Sweden, the sole manufacturer of


Siwertellunloaders, the replacement cost of each screw is US$12,395.00 or US$24,790.00 for the 2
screws plus freight. The labor cost to remove and re-assemble the screws is estimated at
US$2,000.00. On 4 February 1997, ATI sent a Note of Protest to the Master of the Vessel for the
damages sustained by its unloading equipment as a result of encountering the flat steel bar
among the soybean meal. However, the Vessel’s Master wrote a note on theProtest stating that it
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is not responsible for the damage because the metal piece came from the cargo and not from the
vessel itself. On 5 March 1997, ATI sent a claim to defendant [Inter-Asia] for the amount of
US$37,185.00 plus US$2,000.00 labor cost representing the damages sustained by its unloading
equipment. Inter-Asia rejected ATI’s claim for the alleged reason that it is not the Shipowner’s
Agent. Inter-Asia informed ATI that its principal is Samsun. Moreover, according to Inter-Asia,
the owner of the Vessel is Trans-Pacific Shipping Co., c/o Lasco Shipping Company. Inter-Asia,
however, offered to relay ATI’s claim to Trans-Pacific through Samsun. As previously noted,
the Charter Party Agreement states Samsun to be the Agent of the Shipowners, but since Samsun
is a foreign corporation not licensed to do business in the Philippines, it transacted its business
through Inter-Asia. Hence, Inter-Asia is the Agent of the Agent of the Shipowners. When
negotiations for settlement failed, ATI filed the instant Complaint for Damages against Samsun,
Inter-Asia and the “Unknown Owner of the Vessel M/V ‘China Joy’”

Issue:

Whether or not petitioners are liable for the damage sustained by ATI

Ruling:

Yes, they are liable.

The Court agrees with the CA that the petitioners are liable to ATI for the damage
sustained by the latter’s unloader. However, the Court finds the petitioners’ liability to be based
on quasi-delict and not on a contract of carriage. The Court likewise deems it proper to modify
the rate of interests on the amount of damages imposed by the CA upon the petitioners.

The Court notes that the shipowner and shipowner’s agent, Samsun, are all juridical
entities not registered and not doing business in the Philippines. It was the charterer’s agent,
Inter-Asia, a duly-registered domestic corporation, which had filed the instant petition for itself
and on behalf of the shipowner and Samsun. In the course of the proceedings too, none of the
parties had raised issues anent the validity of the service of summons and the courts’ acquisition
of jurisdiction over the persons of the petitioners. The petitioners present two issues for the
Court’s resolution, to wit: (a) the applicability of the doctrine of res ipsa loquitur in the case at
bar; and (b) who participated and should thus assume liability for the loading of the soybean meal
cargo.

The Court agrees with the CA anent ATI’s entitlement to the payment of damages from
the petitioners and the applicability of the doctrine of res ipsa loquitur. However, the Court finds
as misplaced the CA’s application of the laws on maritime commerce and contracts of carriage for
reasons discussed below. There is no contract of carriage between the petitioners and ATI.

There is no contract of carriage between ATI, on one hand, and the shipowner, Samsun,
ContiQuincyBunge L.L.C., and Inter-Asia, on the other. It likewise bears stressing that the subject
of the complaint, from which the instant petition arose, is not the damage caused to the cargo,
but to the equipment of an arrastre operator. Further, ATI’s contractual relation is not with the
petitioners, but with the consignee and with the Philippine Ports Authority (PPA).

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In Delgado Brothers, Inc. v. Home Insurance Company and Court of Appeals, the Court
discusses the functions of an arrastre operator, Under this provision, petitioner’s functions as
arrastre operator are (1) to receive, handle, care for, and deliver all merchandise imported and
exported, upon or passing over Government-owned wharves and piers in the Port of Manila, (2) as
well as to record or cheek all merchandise which may be delivered to said port at shipside, and in
general[,] (3) to furnish light and water services and other incidental services in order to
undertake its arrastre service. Note that there is nothing in those functions which relate to the
trade and business of navigation x xx, nor to the use or operation of vessels x xx. Both as to the
nature of the functions and the place of their performance (upon wharves and piers
shipside), petitioner’s services are clearly not maritime. As we held in the Macondray case, they
are no different from those of a depositary or warehouseman. Granting, arguendo, that
petitioner’s arrastre service depends on, assists, or furthers maritime transportation x xx, it may
be deemed merely incidentalto its aforementioned functions as arrastre operator and does not,
thereby, make petitioner’s arrastre service maritime in character.

“The functions of an arrastre operator involve the handling of cargo deposited on the
wharf or between the establishment of the consignee or shipper and the ship’s tackle. Being the
custodian of the goods discharged from a vessel, an arrastre operator’s duty is to take good care of
the goods and to turn them over to the party entitled to their possession.”

“The legal relationship between an arrastre operator and a consignee is akin to that
between a warehouseman and a depositor. As to both the nature of the functions and the place of
their performance, an arrastre operator’s services are clearly not maritime in character.

In Insurance Company of North America v. Asian Terminals, Inc.,the Court explained that
the liabilities of the arrastre operator for losses and damages are set forth in the contract for cargo
handling services it had executed with the PPA. Corollarily then, the rights of an arrastre operator
to be paid for damages it sustains from handling cargoes do not likewise spring from contracts of
carriage.

However, in the instant petition, the contending parties make no references at all to any
provisions in the contract for cargo handling services ATI had executed with the PPA.

In Taylor v. Manila Electric Railroad and Light Co., the Court explained that to establish a
plaintiff’s right to recovery for quasi-delicts, three elements must exist, to wit: (a) damages to the
plaintiff; (b) negligence by act or omission of which defendant personally, or some person for
whose acts it must respond, was guilty; and (c) the connection of cause and effect between the
negligence and the damage.

Negligence, on the other hand, is defined as the failure to observe that degree of care,
precaution and vigilance that the circumstances justly demand, whereby another suffers injury. In
the case under consideration, the parties do not dispute the facts of damage upon ATI’s unloader,
and of such damage being the consequence of someone’s negligence. However, the petitioners
deny liability claiming that it was not established with reasonable certainty whose negligence had
caused the co-mingling of the metal bars with the soybean meal cargo. The Court, on this matter,
agrees with the CA’s disquisition that the petitioners should be held jointly and severally liable to
ATI. ATI cannot be faulted for its lack of direct access to evidence determinative as to who among
the shipowner, Samsun, ContiQuincyBunge and Inter-Asia should assume liability. The CA had
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exhaustively discussed why the doctrine of res ipsa loquitur applies. The metal bars which caused
damage to ATI’s unloader was found co-mingled with the cargo inside Hold No. 2 of the ship,
which was then within the exclusive control of the petitioners. Thus, the presumption that it was
the petitioners’ collective negligence, which caused the damage, stands. This is, however, without
prejudice to the petitioners’ rights to seek reimbursements among themselves from the party
whose negligence primarily caused the damage.

CARLOS BORROMEO vs. FAMILY CARE HOSPITAL, INC.


and RAMON S. INSO, M.D.
G.R. No. 191018, January 25, 2016, J. Brion

Facts:

Carlos Borromeo lost his wife Lillian when she died after undergoing a routine
appendectomy. The hospital and the attending surgeon submit that Lillian bled to death due to a
rare, life-threatening condition that prevented her blood from clotting normally. Carlos believes,
however, that the hospital and the surgeon were simply negligent in the care of his late wife.

Issue:

Whether or not respondents were negligent in their medical practice.

Ruling:

Whoever alleges a fact has the burden of proving it. This is a basic legal principle that
equally applies to civil and criminal cases. In a medical malpractice case, the plaintiff has the duty
of proving its elements, namely: (1) a duty of the defendant to his patient; (2) the
defendant’s breach of this duty; (3) injury to the patient; and (4) proximate causation between the
breach and the injury suffered. In civil cases, the plaintiff must prove these elements by a
preponderance of evidence.

A medical professional has the duty to observe the standard of care and exercise the
degree of skill, knowledge, and training ordinarily expected of other similarly trained medical
professionals acting under the same circumstances. A breach of the accepted standard of care
constitutes negligence or malpractice and renders the defendant liable for the resulting injury to
his patient.

The standard is based on the norm observed by other reasonably competent members of
the profession practicing the same field of medicine. Because medical malpractice cases are often
highly technical, expert testimony is usually essential to establish: (1) the standard of care that the
defendant was bound to observe under the circumstances; (2) that the defendant’s conduct fell
below the acceptable standard; and (3) that the defendant’s failure to observe the industry
standard caused injury to his patient.

The expert witness must be a similarly trained and experienced physician. Thus, a
pulmonologist is not qualified to testify as to the standard of care required of an
anesthesiologist and an autopsy expert is not qualified to testify as a specialist in infectious
diseases.
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In this case, petitioner failed to present an expert witness. The expertise of Dr. Reyes in
traumatic autopsies does not necessarily make him an expert in clinical and pathological
autopsies or in surgery. Moreover, Dr. Reyes’ cross-examination reveals that he was less than
candid about his qualifications during his initial testimony. The petitioner’s failure to present
expert witnesses resulted in his failure to prove the respondents’ negligence.

CARLOS BORROMEO vs. FAMILY CARE HOSPITAL, INC.


and RAMON S. INSO, M.D.
G.R. No. 191018, January 25, 2016, J. Brion

Facts:

Carlos Borromeo lost his wife Lillian when she died after undergoing a routine
appendectomy. The hospital and the attending surgeon submit that Lillian bled to death due to a
rare, life-threatening condition that prevented her blood from clotting normally. Carlos believes,
however, that the hospital and the surgeon were simply negligent in the care of his late wife.

Issue:

Whether or not respondents were negligent in their medical practice.

Ruling:

Whoever alleges a fact has the burden of proving it. This is a basic legal principle that
equally applies to civil and criminal cases. In a medical malpractice case, the plaintiff has the duty
of proving its elements, namely: (1) a duty of the defendant to his patient; (2) the
defendant’s breach of this duty; (3) injury to the patient; and (4) proximate causation between the
breach and the injury suffered. In civil cases, the plaintiff must prove these elements by a
preponderance of evidence.

A medical professional has the duty to observe the standard of care and exercise the
degree of skill, knowledge, and training ordinarily expected of other similarly trained medical
professionals acting under the same circumstances. A breach of the accepted standard of care
constitutes negligence or malpractice and renders the defendant liable for the resulting injury to
his patient.

The standard is based on the norm observed by other reasonably competent members of
the profession practicing the same field of medicine. Because medical malpractice cases are often
highly technical, expert testimony is usually essential to establish: (1) the standard of care that the
defendant was bound to observe under the circumstances; (2) that the defendant’s conduct fell
below the acceptable standard; and (3) that the defendant’s failure to observe the industry
standard caused injury to his patient.

The expert witness must be a similarly trained and experienced physician. Thus, a
pulmonologist is not qualified to testify as to the standard of care required of an
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anesthesiologist and an autopsy expert is not qualified to testify as a specialist in infectious


diseases.
In this case, petitioner failed to present an expert witness. The expertise of Dr. Reyes in
traumatic autopsies does not necessarily make him an expert in clinical and pathological
autopsies or in surgery. Moreover, Dr. Reyes’ cross-examination reveals that he was less than
candid about his qualifications during his initial testimony. The petitioner’s failure to present
expert witnesses resulted in his failure to prove the respondents’ negligence.

GROSS MISCONDUCT

DR. IDOL L. BONDOC vs. MARILOU R. MANTALA


G.R. No. 203080, November 12, 2014, J. Villarma, Jr.

A physician is guilty of gross misconduct when he chose to conduct a normal delivery and
deliberately left her patient to a midwife and two inexperienced assistants despite knowing that the
patient was under prolonged painful labor and about to give birth to a macrosomic baby by vaginal
delivery which resulted to a stillborn baby and the loss of her reproductive capacity. A physician
should be dedicated to provide competent medical care with full professional skill in accordance with
the current standards of care, compassion, independence and respect for human dignity.

Facts:

Respondent Marilou Mantala was admitted at the Oriental Mindoro Provincial Hospital
(OMPH) on April 3, 2009, at around 11:00 in the morning, with referral from the Bansud
Municipal Health Office (BMHO. ) Mantala alleged that inside the delivery room of OMPH, she
was attended to by Dr. Bondoc who instructed the midwife and two younger assistants to press
down on respondent’s abdomen and even demonstrated to them how to insert their fingers into
her vagina. Thereafter, petitioner went out of the delivery room and later, his assistants also left.
As she labored in pain, she felt the movement of her baby inside her womb and the intermittent
stiffening of her abdomen.

At about 4:00 in the afternoon, Bondoc returned to the delivery room. Since Mantala
could no longer bear the pain, she requested Dr. Bondoc to perform a cesarean section but this
was not done. The midwife and the younger assistants again pressed down on her abdomen
causing excruciating pain on her ribs and made her very weak. They repeatedly did this pressing
until the baby and placenta came out. When she regained consciousness, she was already at the
recovery room. She learned that an operation was performed on her by petitioner to remove her
ruptured uterus but what depressed her most was her stillborn baby and the loss of her
reproductive capacity. The next day, she was transferred to a ward. She noticed her very swollen
vulva and her surgical wound open with liquid squirting from it. Her wound was regularly cleaned
by a nurse. On April 9, 2009, she was discharged notwithstanding that the suture on her wound
needs to be fixed and she still has a cough. At home, she took the antibiotics, cough medicine and
multivitamins prescribed by petitioner.

Joel Mantala claimed that at the OMPH at around 2:30 in the afternoon when her wife was
still laboring, petitioner talked to him and told her that the baby is too big and if it comes out
alive it will probably be abnormal so that it would be better if the baby is stillborn. He further

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averred that despite the pleas of her wife for a cesarean operation, petitioner insisted on a normal
delivery during which she almost died. A certain Dr. Fabon also testified on their favor.

In his counter-affidavit, petitioner blamed respondent for risking her own life in not
seeking immediately a higher level of medical care and instead preferring a TBA who is prohibited
under a 2006 provincial circular to handle deliveries at home. He emphasized that upon
admission the fetal heart tone is no longer appreciated and maintained that diligent care was
extended to respondent during her stay at OMPH.

The Office of the Deputy Ombudsman for Luzon rendered a Decision finding Dr. Bondoc
administratively liable for Grave Misconduct, which was subsequently affirmed by the CA.

Issue:

Whether or not Dr. Bondoc is guilty of grave misconduct in failing to attend to Mantala
when she was having prolonged difficult labor and vaginal delivery.

Ruling:

Yes, he is.

Misconduct is defined as a transgression of some established and definite rule of action,


more particularly, unlawful behavior or gross negligence by a public officer, a forbidden act, a
dereliction of duty, willful in character, and implies wrongful intent and not mere error in
judgment. It generally means wrongful, improper or unlawful conduct motivated by a
premeditated, obstinate or intentional purpose. The term, however, does not necessarily imply
corruption or criminal intent. To constitute an administrative offense, misconduct should relate
to or be connected with the performance of the official functions and duties of a public officer. On
the other hand, when the elements of corruption, clear intent to violate the law or flagrant
disregard of established rule are manifest, the public officer shall be liable for grave misconduct.

In this case, both the Ombudsman and CA found the petitioner guilty of grave misconduct
in failing to attend to respondent when she was having prolonged difficult labor and vaginal
delivery after being diagnosed with macrosamia and polyhydramnios.

As per the admitting diagnosis submitted by Dr. Bondoc, the latter was aware of
macrosomia and the fetal heartbeat not appreciated. He also maintains that respondent’s baby
was already dead due to prolonged labor but she had insisted on having a normal delivery.
However, this claim is belied by the sworn statements of respondent, her husband and her sisters,
all of whom averred that they requested for a cesarean section as per the advice given by Dr.
Atienza who examined her in March 2009, and as confirmed at the Bansud Health Center where
she was told that it would be risky for her to have a normal delivery. Moreover, Joel Mantala
asserted that what petitioner said to him was that the baby was too big and if born alive it would
probably have abnormalities so it would be better that the baby is stillborn.

The Court is more inclined to believe respondent’s version which was duly corroborated
by Dr. Fabon who heard petitioner saying that: "Meron pa nga kami sa DR macrosomnia,
polyhydramnios pa, pero paanakin na lang ‘yon. Abnormal din naman ang bata kahit mabuhay."
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This puts into doubt petitioner’s supposed finding that the baby was already dead upon
respondent’s admission at OMPH and that it was respondent who insisted on a normal delivery.
Even assuming that petitioner had actually confirmed intrauterine fetal death, this only
aggravates the patient’s condition and it was incumbent upon petitioner as the obstetrician on
duty to personally attend to her and render appropriate management or treatment.

Furthermore, in deliberately leaving the respondent to a midwife and two inexperienced


assistants despite knowing that she was under prolonged painful labor and about to give birth to a
macrosomic baby by vaginal delivery, petitioner clearly committed a dereliction of duty and a
breach of his professional obligations. The gravity of respondent’s condition is highlighted by the
expected complications she suffered – her stillborn baby, a ruptured uterus that necessitated
immediate surgery and blood transfusion, and vulvar hematomas.

Article II, Section 1 of the Code of Medical Ethics of the Medical Profession in the
Philippines states:

A physician should attend to his patients faithfully and conscientiously. He should secure
for them all possible benefits that may depend upon his professional skill and care. As the sole
tribunal to adjudge the physician’s failure to fulfill his obligation to his patients is, in most cases,
his own conscience, violation of this rule on his part is discreditable and inexcusable.

A doctor’s duty to his patient is not required to be extraordinary. The standard


contemplated for doctors is simply the reasonable average merit among ordinarily good
physicians, i.e.reasonable skill and competence. Even by this standard, petitioner fell short when
he routinely delegated an important task that requires his professional skill and competence to
his subordinates who have no requisite training and capability to make crucial decisions in
difficult childbirths.

Petitioner’s proffered excuse that it was the practice in OMPH to allow midwives to
administer to patients during deliveries, is unacceptable. No proof of such alleged hospital
practice such as an official written directive was presented. Besides, it is doubtful whether
hospital administrators would remedy personnel shortage by permitting inexperienced staff, by
themselves, to handle laboring patients with high-risk pregnancies and maternal/fetal
complications.

As to the two other scheduled CS performed by petitioner on the same day, this will not
exculpate him from administrative liability. As correctly pointed out by the CA, there was no
showing of similar urgency in the said operations, and petitioner could have referred respondent
to another competent physician.

Petitioner thus not only committed a dereliction of duty, but also transgressed the ethical
norms of his profession when he failed to render competent medical care with compassion and
respect for his patient’s dignity. A physician should be dedicated to provide competent medical
care with full professional skill in accordance with the current standards of care, compassion,
independence and respect for human dignity.

Finally, we find no merit in petitioner's argument that the CA should have at least
considered as mitigating circumstances his being a first offender, his 16 years in government
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service, and that he had not acted in bad faith and with clear intent to violate the law and
established rules. Jurisprudence is replete with cases declaring that a grave offense cannot be
mitigated by the fact that the accused is a first time offender or by the length of service of the
accused. While in most cases, length of service is considered in favor of the respondent, it is not
considered where the offense committed is found to be serious or grave.

RES IPSA LOQUITUR

VICENTE JOSEFA vs. MANILA ELECTRICCOMPANY


G.R. No. 182705, July 18, 2014, J.Brion

For the doctrine of res ipsa loquitur 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.

Facts:

At around 1:45 p.m. on April 21, 1991, a dump truck, ajeepney and a car figured in a
vehicular accident along Ortigas Avenue, Pasig City. As a result of the accident, a45-footwooden
electricity post, three 75 KVA transformers ,and other electrical line attachments were damaged.
Upon investigation, respondent Manila Electric Company(Meralco) discovered that it was the
truck with plate number PAK874and registered in Josefa’s name that hit the electricity post.

In a letter dated April 19, 1993, Meralco demanded from Josefa reimbursement for the
replacement cost of the electricity post and its attachments, but Josefa refused to pay. Thus, on
September 28, 1993, Meralco sued Josefa and Pablo Manoco, the truck driver, for damages before
the Regional Trial Court (RTC) of Pasig City.

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 since the accident had long
occurred in 1991. The RTC likewise denied Meralco’s claim for actual damages for lack of
evidentiary support.

The CA reversed the RTC ruling and held that the RTC erred in disregarding the parties’
stipulation at the pretrial that it was the truck that hit the electricity post. TheCA 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.

Josefa filed the present petition after the CA denied his motion for reconsideration.

Issues:

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1. Whether Bautista exercised due diligence in driving when the truck hit the electricity
post;
2. Whether Josefa is vicariously liable for Bautista’s negligence under paragraph 5,
Article 2180 of the Civil Code

Ruling:

1. No. Baustista is presumed to be negligent in driving the truck under the doctrine of
res ipsa loquitur

Nonetheless, in some cases where negligence is difficult to prove, the doctrine of res ipsa
loquitur permits an inference of negligence on the part of the defendant or some other person
who is charged with negligence where the thing or transaction speaks for itself. This doctrine
postulates that, as a matter of common knowledge and experience and in the absence of some
explanation by the defendant who is charged with negligence, the very nature of occurrences may
justify an inference of negligence on the part of the person who controls the instrumentality
causing the injury. In other words, res ipsa loquitur is grounded on the superior logic of ordinary
human experience that negligence may be deduced from the mere occurrence of the accident
itself.

The procedural effect of res ipsa loquitur in quasi-delict cases is that the defendant’s
negligence is presumed. In other words, the burden of evidence shifts to the defendant to prove
that he did not act with negligence. This doctrine thus effectively furnishes a bridge by which the
complainant, without knowledge of the cause of the injury, reaches over to the defendant, who
knows or should know the cause, for any explanation of care exercised by him to prevent the
injury. 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 onthe 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.

2. Yes. Josefa is vicariously liable under paragraph 5, Article 2180of the Civil Code.

The finding that Bautista acted with negligence in driving the truck gives rise to the
application of paragraph5, 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
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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. The purpose of
motorvehicle registration is precisely to identify the owner so that if any injury is caused by the
vehicle, responsibility can be imputed to the registered owner.

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. The Supreme Court is thus left with no other
conclusion other than to rule that Josefa is primarily liable for all natural and probable
consequences of Bautista’s negligence.

TORTFEASORS

RUKS KONSULT AND CONSTRUCTION vs. ADWORLD SIGN AND ADVERTISING


CORPORATION* AND TRANSWORLD MEDIA ADS, INC.,
G.R. No. 204866, January 21, 2015, J. Perlas-Bernabe

Pursuant to Article 2194, joint tortfeasors are solidarily liable. They are each liable as
principals, to the same extent and in the same manner as if they had performed the wrongful act
themselves. When a construction of a billboard’s lower structure without the proper foundation by
the first contractor, and that of the second contractor’s finishing its upper structure and just merely
assuming that the first would reinforce the weak foundation are the two successive acts which were
the direct and proximate cause of the damages sustained by the company who hired their services.
Worse, both contractors were fully aware that the foundation for the billboard was weak; yet,
neither of them took any positive step to reinforce the same. They merely relied on each other’s word
that repairs would be done to such foundation, but none was done at all.
Facts:

Adworld Sign and Advertising Corporation (Adworld) filed a complaint for damages
against Transworld and Comark International Corporation (Comark) before the RTC. In the
complaint, 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 as loss
of rental income. On August 29, 2003, Transworld sent its reply, admitting the damage caused by
its billboard structure on Adworld’s billboard, but nevertheless, refused and failed to pay the
amounts demanded by Adworld. Thus, the latter was constrained to file the instant complaint,
praying for damages and indemnity for loss of income.
In its Answer with Counterclaim, 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 Adworld’s billboard structure was hardly noticeable. It
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likewise filed a Third-Party Complaint against RuksKonsult and Construction (Ruks), the
company which built the collapsed billboard structure in the former’s favor. It was alleged therein
that the structure constructed by Ruks had a weak and poor foundation not suited for billboards,
thus, prone to collapse, and as such, Ruks should ultimately be held liable for the damages caused
to Adworld’s billboard structure.
For its part, Comark denied liability for the damages caused to Adworld’s billboard
structure, maintaining that it does not have any interest on Transworld’s collapsed billboard
structure as it only contracted the use of the same. In this relation, Comark prayed for exemplary
damages from Transworld for unreasonably including it as a party-defendant in the complaint.

Lastly, Ruks admitted that it entered into a contract with Transworld for the construction
of the latter’s billboard structure, but denied liability for the damages caused by its collapse. 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.

Eventually, the RTC ultimately ruled in Adworld’s favor, and accordingly, declared, inter
alia, Transworld and Ruks jointly and severally liable to the former. While Transworld’s appeal
was dismissed due to failure to file an appellant’s brief on time, the CA, in Ruks’ appeal, upheld
the decision of the lower court. Dissatisfied, Ruks moved for reconsideration,which was, however,
denied. Hence, this petition.

Issue:
Whether or not Ruksshall be jointly and severally liable with Transworld for damages
sustained by Adworld.

Ruling:
The petition is without merit.

This Court sees no cogent reason to deviate from the findings of the RTC and the CA and
their uniform conclusion that both Transworld and Ruks committed acts resulting in the collapse
of the former’s billboard, which in turn, caused damage to the adjacent billboard of Adworld.
Hence, the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and severally liable
with Transworld for damages sustained by Adworld.

Jurisprudence defines negligence as the omission to do something which a reasonable


man, guided by those considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man would not do. It is the
failure to observe for the protection of the interest of another person that degree of care,
precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury.

In this case, the CA correctly affirmed the RTC’s finding that Transworld’s initial
construction of its billboard’s lower structure without the proper foundation, and that of Ruks’s
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 former’s billboard was weak; yet, neither of them took any positive step to
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reinforce the same. They merely relied on each other’s 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 former’s billboard, and
perforce, should be held liable for its collapse and the resulting damage to Adworld’s billboard
structure. As joint tortfeasors, pursuant to Article 2194, therefore, they are solidarily liable to
Adworld. 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.” The Court’s
pronouncement in People v. Velasco is instructive on this matter, to wit:

Where several causes producing an injury are concurrent and each is an efficient
cause without which the injury would not have happened, the injury may be
attributed to all or any of the causes and recovery may be had against any or all of
the responsible persons although under the circumstances of the case, it may
appear that one of them was more culpable, and that the duty owed by them to
the injured person was not same. No actor’s negligence ceases to be a proximate
cause merely because it does not exceed the negligence of other actors. Each
wrongdoer is responsible for the entire result and is liable as though his acts were
the sole cause of the injury.

There is no contribution between joint [tortfeasors] whose liability is solidary


since both of them are liable for the total damage. Where the concurrent or
successive negligent acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate cause of a single
injury to a third person, it is impossible to determine in what proportion each
contributed to the injury and either of them is responsible for the whole injury. x
xx. (Emphases and underscoring supplied)

ATTORNEYS FEES

WILLAWARE PRODUCTS CORPORATION vs. JESICHRIS MANUFACTURING


CORPORATION
G.R. No. 195549, September 3, 2014, J. Peralta

When the plaintiff in a case of unfair competition under the Civil Code fails to satisfactorily
prove that it had lost income, yet the trial court awarded actual damages in the amount claimed by
the plaintiff, and the CA deleted such an award and awarded in its place nominal damages, the
award of attorneys’ fees must also be lowered.

Facts:

Respondent Jesichris Manufacturing Company (Jesichris), a partnership engaged in


manufacturing and distributing plastic and metal products, including plastic-made automotive
parts, filed with the RTC a complaint for damages for unfair competition withprayer for
permanent injunction to enjoin petitioner Willaware Products Corporation (Willaware), which is
engaged in the manufacturing and distributing plastic kitchenware products, from manufacturing
and distributing plastic-made automotive parts similar to those of Jesichris.

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Jesichris asserted that as a result of Willaware’s deliberate copying and selling of its
plastic-made automotive products, Jesichris suffered damages in terms of lost and unrealized
profits in the amount of TWO MILLION PESOS (P 2,00,000.00)as of the date of its complaint.
Furthermore, it incurred attorney’s fees and litigation expenses in the amount of FIVE HUNDRED
THOUSAND PESOS (P 500,000.00).

The RTC ruled in favor of Jesichris, holding that Willaware clearly invaded the rights or
interest of respondent by deliberately copying and performing acts amounting to unfair
competition. The RTC found Willaware liable to Jesichris Two Million (P2,000,000.00) Pesos, as
actual damages,

One Hundred Thousand (P100,000.00) Pesos as attorney’s fees and One Hundred Thousand
(P100,000.00) Pesos for exemplary damages.

The CA affirmed with modification the RTC decision. It found however, no basis for the
award of actual damages. The claim of actual damages was not duly proven, as the income
statement of Jesichris which showed a decline in its sales, did not disclose if this pertains to the
subject automotive parts or to the other products of Jesichris. In any event, it was clearly shown
that there was unfair competition on the part of Willaware that prejudiced Jesichris. The award of
nominal damages in the amount of Two Hundred Thousand Pesos (P200,000.00) was proper in
order to recognize and vindicate Jesichris’ rights. The RTC’s award of attorney’s fees and
exemplary damages was also maintained. The CA deleted the P 2 million actual damages and
awarded the P200,000.00 nominal damages in its place.

Issue:

Should the attorney’s fees also be lowered?

Ruling:

Since the award of Two Million Pesos (P2,000,000.00) in actual damages had been deleted
and in its place Two Hundred Thousand Pesos (P200,000.00) in nominal damages is awarded, the
attorney's fees should concomitantly be modified and lowered to Fifty Thousand Pesos
(P50,000.00).

RICARDO A. DALUSONG vs. EAGLE CLARC SHIPPING PHILIPPINES, INC., et al.


G.R. No. 204233, September 3, 2014, Acting C.J. Carpio

Attorneys’ fees is not available when the defendant employer is not guilty of bad faith. Thus,
when the company-designated physician gave the seafarer a final, permanent partial disability
grading beyond the 120-day period but before the 240 day maximum, then the latter is not entitled to
permanent disability benefits. The employer is not in bad faith in refusing to give the seafarer full
disability benefits; thus the award of attorney’s fees in favor of the seafarer is unwarranted.

Facts:

Petitioner Ricardo Dalusong was hired by respondents Eagle Clarc Shipping Philippines,
Inc., Norfield Offshore AS, and/or Capt. Leopoldo Arcillar as Able Seaman on board their vessel.
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While he was working on board, the vessel suddenly moved due to a swell, and a crew member
fell directly on Daluson, injuring his right foot. He was brought to the hospital in Texas, where he
was diagnosed with a fractured ankle and his foot was placed in cast. Later, he was repatriated to
the Philippines.

One month after physical therapy, Dr. Cruz, the company-designated doctor, gave
Dalusongan interim disability grading based on the POEA schedule of disability of “grade 8 thatis
moderate rigidity or one third loss of motion or lifting power of thetrunk.” Upon further
rehabilitation, Dalusong’s condition improved. On July 2010, the company-designated doctor
issued a final disability gradingunder the POEA schedule of disability of “grade 11 - complete
immobilityof an ankle joint in normal position.” Dalusong disagreed with thedisability assessment
and consulted Dr. NicanorEscutin, a physician of hisown choice. In his Disability Report, Dr.
Escutin found Dalusong to be suffering from “PARTIAL PERMANENTDISABILITY.” Dr. Escutin
concluded that Dalusongis “unfit for seaduty inwhatever capacity as seaman.”

Dalusong filed with the NLRC a complaint against privaterespondents, claiming full
disability benefits of US$ 80,000.00, sick wages, damages, andattorney’s fees. The LA ruled that
Dalusong sufferedfrom partial permanent disability, and held respondents liable to Dalusong in
the amount of US$ 12,551 representing disability benefits plus attorney’s fees equivalent to 10% of
the total award.

The NLRC modified the LA decision, and held that Dalusong was totally and permanently
unfit to perform his usual duties and responsibilities, but it did not sustain the US$80,000.00
disability benefits claimed by Dalusong in the absence of a CBA supporting such claim.

The CA reinstated the LA decision, but ruled that the award of attorney’s fees is
unwarranted since there was no showing that private respondents acted in bad faith.

Issue:

Did respondents act with bad faith as to warrant award attorney’s fees?

Ruling:

The petition is denied.

Just because the seafarer is unable to perform his job and is undergoing medical treatment
for more than 120 days does not automatically entitle the seafarer to total and permanent
disability compensation. Before the maximum 240-day medical treatment period expired,
Dalusong was issued a final disability grade 11 which is merely equivalent to a permanent partial
disability, since under Section 32 of the POEA-SEC, only those classified under grade 1 are
considered total and permanent disability. Clearly, Dalusong is only entitled to permanent partial
disability compensation, since his condition cannot be considered as permanent total disability.

The Court likewise agrees with the Court of Appeals in deleting the award of attorney's
fees. Private respondents were justified in insisting that Dalusong is only entitled to US$ 12,551
compensation for his grade 11 disability. There was no bad faith on the part of private respondents
which would warrant the award of attorney's fees.
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CIVIL LIABILITY

ANTONIO M. GARCIA vs. FERRO CHEMICALS, INC.,


G.R. No. 172505, October 01, 2014, J. Leonen

Ferro Chemicals, Inc. joined the public prosecutor in filing the petition for certiorari before
this court. Ramon Garcia, President of Ferro Chemicals, Inc., signed the verification and
certification of non-forum shopping of the petition for certiorari. When the civil action for the
recovery of civil liability ex delicto is instituted with the criminal action, whether by choice of private
complainant (i.e., no reservation is made or no prior filing of a separate civil action) or as required
by the law or rules, the case will be prosecuted under the direction and control of the public
prosecutor. The civil action cannot proceed independently of the criminal case.

Facts:
Antonio Garcia, as seller, and Ferro Chemicals, Inc., through Ramon Garcia, as buyer,
entered into a deed of absolute· sale and purchase of shares of stock on July 15, 1988. These shares
of stock were in the name of Antonio Garcia. On March 3, 1989, a deed of right of repurchase over
the same shares of stock subject of the deed of absolute sale and purchase of shares of stock was
entered into between Antonio Garcia and Ferro Chemicals, Inc.

Before the end of the 180-day period, Antonio Garcia exercised his right to repurchase the
properties. However, Ferro Chemicals, Inc. did not agree to the repurchase of the shares of
stock. Thus, Antonio Garcia filed an action for specific performance and annulment of transfer of
shares.

On September 6, 1989, the class “A” share in Alabang Country Club, Inc. and proprietary
membership in the Manila Polo Club, Inc., which were included in the contracts entered into
between Antonio Garcia and Ferro Chemicals, Inc., were sold at public auction to Philippine
Investment System Organization.

RTC found Antonio Garcia not guilty of estafa, and no civil liability was awarded to Ferro
Chemicals, Inc. However, at present, there is a conflicting decision from the Court of Appeals
awarding Ferro Chemicals, Inc. civil indemnity arising from the offense charged.

On August 25, 1997, Ferro Chemicals, Inc. appealed to the Court of Appeals the order of
the Regional Trial Court as to the civil aspect of the case. On October 15, 1997, the Makati City
Prosecutor’s Office and Ferro Chemicals, Inc. also filed a petition for certiorari the SC, assailing
the Regional Trial Court’s decision which was subsequently dismissed. On the other hand, the
Court of Appeals, in its decision dated August 11, 2005, granted the appeal and awarded Ferro
Chemicals, Inc. the amount of 1 million for actual loss and found that Antonio Garcia failed to
disclose the Philippine Investment and Savings Organization’s lien over the club shares.

Issue:

Whether Ferro Chemicals, Inc. was entitled to the awards given as civil liability ex delicto

Ruling:
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When the civil action for the recovery of civil liability ex delicto is instituted with the
criminal action, whether by choice of private complainant (i.e., no reservation is made or no prior
filing of a separate civil action) or as required by the law or rules, the case will be prosecuted
under the direction and control of the public prosecutor. The civil action cannot proceed
independently of the criminal case. This includes subsequent proceedings on the criminal action
such as an appeal. In any case, Ferro Chemicals, Inc. joined the public prosecutor in filing the
petition for certiorari before this court. Ramon Garcia, President of Ferro Chemicals, Inc., signed
the verification and certification of non-forum shopping of the petition for certiorari.

The Court must clarify, however, that private complainants in criminal cases are not
precluded from filing a motion for reconsideration and subsequently an appeal on the civil aspect
of a decision acquitting the accused. An exception to the rule that only the Solicitor General can
bring actions in criminal proceedings before the Court of Appeals or this court is “when the
private offended party questions the civil aspect of a decision of a lower court.

However, if the state pursues an appeal on the criminal aspect of a decision of the trial
court acquitting the accused and private complainant/s failed to reserve the right to institute a
separate civil action, the civil liability ex delicto that is inherently attached to the offense is
likewise appealed. The appeal of the civil liability ex delicto is impliedly instituted with the
petition for certiorari assailing the acquittal of the accused. Private complainant cannot anymore
pursue a separate appeal from that of the state without violating the doctrine of non-forum
shopping.

On the other hand, the conclusion is different if private complainant reserved the right to
institute the civil action for the recovery of civil liability ex delicto before the Regional Trial Court
or institute a separate civil action prior to the filing of the criminal case in accordance with Rule
111 of the Rules of Court. In these situations, the filing of an appeal as to the civil aspect of the case
cannot be considered as forum shopping. This is not the situation here.

OTHER LAWS WHICH ARE EXCLUDED FROM THE SYLLABUS

RICARDO V. QUINTOS vs. DEPARTMENT OF AGRARIAN REFORM ADJUDICATION


BOARD AND KANLURANG MINDORO FARMER'S COOPERATIVE, INC.
G.R. No. 185838. February 10, 2014
J. Perlas-Bernabe

APT was not authorized by the property’s landowner, GCFI, to install tenants thereon. For a
tenancy relationship to exist between the parties, the following essential elements must be shown:
(a) the parties are the landowner and the tenant; (b) the subject matter is agricultural land; (c) there
is consent between the parties; (d) the purpose is agricultural production; (e) there is personal
cultivation by the tenant; and (f) there is sharing of the harvests between the parties. All the above
elements must concur in order to create a tenancy relationship. The absence of one does not make
an occupant of a parcel of land, a cultivator or a planter thereon, a de jure tenant entitled to security
of tenure under existing tenancy laws. Hence, APT having no authority from GCFI, the 53 KAMIFCI
members could not have been tenants of property, the requisite of consent of both parties being
absent.

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Facts:

Golden Country Farms, Incorporated (GCFI) is a domestic corporation organized for the purpose
of engaging in poultry and livestock production, processing, and trading. Petitioner Ricardo V.
Quintos (Quintos) is the majority stockholder of GCFI who managed its properties until 1975
when management was taken over by Armando Romualdez (Romualdez).

GCFI contracted substantial loans with the Philippine National Bank (PNB) and the Development
Bank of the Philippines (DBP), which were secured by several real estate mortgages over GCFI
properties, including the subject property. In 1981, Romualdez abandoned the management of the
GCFI properties, afterwhich DBP took over. Sometime during the same year, certain people
started to plant palay on the subject property, eventually covering the riceland.

In the meantime, PNB and DBP transferred their financial claims against GCFI to the Asset
Privatization Trust (APT). For GCFI’s continuous failure to pay its loans, PNB and DBP initiated
extra-judicial foreclosure proceedings against the GCFI properties, which were, however, enjoined
by the RTC. Thereafter, APT Officer-in-Charge Cesar Lacuesta (Lacuesta) entered into a verbal
agreement with 53 members of private respondent Kanlurang Mindoro Farmers’ Cooperative, Inc.
(KAMIFCI), allowing the latter to tend the standing mango trees, induce their flowering, and
gather the fruits at P300.00 per tree, the payment of which was to be remitted to Quinto, who was
then managing GCFI.

Quintos reacquired the possession and management of the GCFI properties, including the subject
property, through a Memorandum of Agreement between him and APT, which was further
approved by the RTC.

Quintos was informed by APT of the notice from the Department of Agrarian Reform (DAR)
placing the riceland under compulsory acquisition pursuant to the Comprehensive Agrarian
Reform Program (CARP) of the government. This prompted Quintos to file a petition for
exemption before the Office of the DAR Secretary (exemption case). In the main, Quintos cited
the Court’s ruling in Luz Farms v. Secretary of the Department of Agrarian Reform (Luz Farms)
wherein it declared as unconstitutional the inclusion of lands devoted to commercial raising of
livestock, poultry, and swine under the CARP. The DAR Secretary denied Quintos’s petition for
exemption. On appeal, the Office of the President (OP) rendered a decision in the exemption
case, ruling that the cessation of poultry and livestock activities on the GCFI properties, including
the subject property, a month prior to the effectivity of RA 6657, does not a priori convert the
properties to agricultural lands. In this relation, the OP concluded that the act of the DAR in
declaring the said properties as covered by the CARP without affording GCFI the opportunity to
contest the supposed conversion was arbitrary and confiscatory.

Meanwhile, KAMIFCI filed an action for the peaceful possession and enjoyment of the subject
property (tenancy case) against Quintos before the Office of the Provincial Adjudicator (PARAD)
asserting its rights under an agricultural leasehold tenancy agreement it purportedly entered into
with Lacuesta. In his answer, Quintos denied the personality of KAMIFCI as a registered
cooperative as well as the existence of any tenancy agreement covering the subject property.

The PARAD rendered a Decision holding that there was a verbal lease tenancy agreement entered
into by Lacuesta with the 53 KAMIFCI members with respect to the mango orchard, and such was

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binding upon APT and GCFI notwithstanding the Certification issued by APT denying Lacuesta’s
authority to enter into any tenurial relation and to issue GCFI official receipts. Aggrieved, Quintos
appealed to the DARAB.

DARAB rendered a Decision in the tenancy case, it (a) declared that the farmers in the “palayan
area” covering 355 has. (i.e., the Riceland) may qualify as farmer-beneficiaries in the mango
orchard as may be determined by the Municipal Agrarian Reform Officer; (b) held that
Certificates of Land Ownership Award (CLOAs) should be generated immediately and distributed
to qualified farmer-beneficiaries; and (c) affirmed the directive for Quintos not to disturb the
peaceful possession and cultivation of the farmers in the mango orchard.

Dissatisfied, Quintos appealed to the CA. The CA rendered a Decision, holding that the tenancy
agreement entered by APT with the 53 KAMIFCI members on the mango orchard was binding
upon GCFI since all its business concerns and transactions were coursed through APT at that
time. It, however, declared as premature the generation of CLOAs in favor of the farmer-
beneficiaries pending exercise of the landowner’s right of retention and absent payment of just
compensation. Considering that the OP Decision had already attained finality, the CA no longer
tackled the issues posed with respect to the riceland.

Issue:

Whether the tenancy agreement purported in this case is valid

Ruling:

Tenancy is a legal relationship established by the existence of particular facts as required by


law. For a tenancy relationship to exist between the parties, the following essential elements must
be shown: (a) the parties are the landowner and the tenant; (b) the subject matter is agricultural
land; (c) there is consent between the parties; (d) the purpose is agricultural production; (e) there
is personal cultivation by the tenant; and (f) there is sharing of the harvests between the
parties. All the above elements must concur in order to create a tenancy relationship. Thus, the
absence of one does not make an occupant of a parcel of land, a cultivator or a planter thereon,
a de jure tenant entitled to security of tenure under existing tenancy laws.

The burden of proof rests on the one claiming to be a tenant to prove his affirmative allegation by
substantial evidence. His failure to show in a satisfactory manner the facts upon which he bases
his claim would put the opposite party under no obligation to prove his exception or defense. The
rule applies to civil and administrative cases.

In this relation, it bears stressing that the right to hire a tenant is basically a personal right of a
landowner, except as may be provided by law. Hence, the consent of the landowner should be
secured prior to the installation of tenants.

In the present case, the PARAD, the DARAB and the CA all held that a tenancy relationship exists
between GCFI and the 53 KAMIFCI members who were allegedly installed as tenants by APT, the
“legal possessor” of the mango orchard at that time. Records are, however, bereft of any
showing that APT was authorized by the property’s landowner, GCFI, to install tenants
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thereon. To be sure, APT only assumed the rights of the original mortgagees in this case, i.e.,
PNB and DBP, which, however, have yet to exercise their right to foreclose the mortgaged
properties due to the RTC’s order enjoining the same. It is settled that a mortgagee does not
become the owner of the mortgaged property until he has foreclosed the mortgage and,
thereafter, purchased the property at the foreclosure sale. With the foreclosure proceedings
having been enjoined, APT could not have been regarded as the “landowner” of the subject
property. Thus, since the consent of the standing landowner, GCFI, had not been secured by APT
in this case, it had no authority to enter into any tenancy agreement with the KAMIFCI members.

EUFROCINA NIEVES vs. ERNESTO DULDULAO and FELIPE PAJARILLO


G.R. No. 190276, April 2, 2014, J. Perlas-Bernabe

Agricultural lessees, being entitled to security of tenure, may be ejected from their
landholding only on the grounds provided by law. These grounds — the existence of which is to be
proven by the agricultural lessor in a particular case — are enumerated in Section 36 of Republic Act
No. (RA) 3844, otherwise known as the “Agricultural Land Reform Code.” In this case, it was
established that the agricultural lessees willfully and deliberately failed to pay the lease rentals when
they fell due, which is one of the grounds for dispossession of their landholding as provided in said
provision of law.

Facts:

Eufrocina Nieves (Nieves) is the owner of a piece of agricultural rice land with an area of
six (6) hectares, more or less (subject land). Ernesto Duldulao and Felipe Pajarillo (respondents)
are tenants and cultivators of the subject land who are obligated to each pay leasehold rentals of
45 cavans of palay for each cropping season, one in May and the other in December.

Claiming that respondents failed to pay their leasehold rentals since 1985 which had
accumulated to 446.5 and 327 cavans of palay, respectively, Nieves filed a petition before the
DARAB Office of the Provincial Adjudicator (PARAD), seeking the ejectment of respondents from
the subject land for nonpayment of rentals.

Prior to the filing of the case, a mediation was conducted before the Office of the
Municipal Agrarian Reform Officer and Legal Division where respondents admitted being in
default in the payment of leasehold rentals equivalent to 200 and 327 cavans of palay, respectively,
and promised to pay the same. Subsequently, however, in their answer to the petition, both
respondents manifested their lack of intention to renege on their obligations to pay the leasehold
rentals due, explaining that the supervening calamities, such as the flashfloods and typhoons that
affected the area prevented them from complying.

The PARAD declared that the tenancy relations between the parties had been severed by
respondents’ failure to pay their back leasehold rentals, thereby ordering them to vacate the
subject land and fulfill their rent obligations.

Respondents elevated the case on appeal. The Department of Agrarian Reform


Adjudication Board (DARAB) issued a Decision affirming the findings of the PARAD that indeed,

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respondents were remiss in paying their leasehold rentals and that such omission was willful and
deliberate, justifying their ejectment from the subject land.

Respondents then elevated the matter to the CA. The CA granted respondents’ petition for
review, thereby reversing the ruling of the DARAB terminating the tenancy relations of the
parties. While it found respondents to have been remiss in the payment of their leasehold rentals,
it held that the omission was not deliberate or willful.

Issue:

Whether or not the CA correctly reversed the DARAB’s ruling ejecting respondents from
the subject land.

Ruling:

No. The CA erred in reversing the DARAB’s ruling.

Agricultural lessees, being entitled to security of tenure, may be ejected from their
landholding only on the grounds provided by law. These grounds — the existence of which is to
be proven by the agricultural lessor in a particular case — are enumerated in Section 36 of
Republic Act No. (RA) 3844, otherwise known as the “Agricultural Land Reform Code,” which
read as follows:

Section 36. Possession of Landholding; Exceptions.—Notwithstanding any


agreement as to the period or future surrender, of the land, an agricultural lessee
shall continue in the enjoyment and possession of his landholding except when his
dispossession has been authorized by the Court in a judgment that is final and
executory if after due hearing it is shown that:
x x x
(6) The agricultural lessee does not pay the lease rental when it falls due: Provided,
That if the nonpayment of the rental shall be due to crop failure to the extent of
seventy-five per centum as a result of a fortuitous event, the nonpayment shall not
be a ground for dispossession, although the obligation to pay the rental due that
particular crop is not thereby extinguished; or

To eject the agricultural lessee for failure to pay the leasehold rentals under item 6 of the
abovecited provision, jurisprudence instructs that the same must be willful and deliberate in
order to warrant the agricultural lessee’s dispossession of the land that he tills.

While respondents indeed admit that they failed to pay the full amount of their respective
leasehold rentals as they become due, they claim that their default was on account of the
debilitating effects of calamities like flashfloods and typhoons. This latter assertion is a defense
provided under the same provision which, if successfully established, allows the agricultural
lessee to retain possession of his landholding. The records of this case are, however, bereft of any
showing that the aforestated claim was substantiated by any evidence tending to prove the same.
Keeping in mind that bare allegations, unsubstantiated by evidence, are not equivalent to proof,
the Court cannot therefore lend any credence to respondents’ fortuitous event defense.

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Respondents’ failure to pay leasehold rentals to the landowner also appears to have been
willful and deliberate. They, in fact, do not deny — and therefore admit — the landowner’s
assertion that their rental arrearages have accumulated over a considerable length of time, i.e.,
from 1985 to 2005 but rely on the fortuitous event defense, which as abovementioned, cannot
herein be sustained. The term “willful” means “voluntary and intentional, but not necessarily
malicious,” while the term “deliberate” means that the act or omission is “intentional,”
“premeditated” or “fully considered.” These qualities the landowner herein had successfully
established in relation to respondents’ default in this case. Accordingly, their dispossession from
the subject land is warranted under the law.

CHARLES BUMAGAT, et al. vs. REGALADO ARRIBAY


G.R. No. 194818, June 9, 2014, J. Del Castillo

A case involving agricultural land does not immediately qualify it as an agrarian dispute.
The mere fact that the land is agricultural does not ipso facto make the possessor an agricultural
lessee or tenant; there are conditions or requisites before he can qualify as an agricultural lessee or
tenant, and the subject matter being agricultural land constitutes simply one condition. In order to
qualify as an agrarian dispute, there must likewise exist a tenancy relation between the parties.
Thus, when farmer-beneficiaries of PD 27 who are registered owners of agricultural lands filed a
complaint for forcible entry against a person whose claim of ownership over the same parcels of land
emanates from a donation by the heirs of the original owner, it is a civil case within the jurisdiction
of the ordinary courts, as all the elements for an agrarian dispute are not present.

Facts:

Petitioners Charles Bumagat, et al., registered owners, successors-in-interest or possessors


of agricultural land, filed a complaint with the MCTC for forcible entry against respondent
Regalado Arribay. They alleged that Arribay with the aid of armed goons, and through the use of
intimidation and threats of physical harm – entered the above-described parcels of land and
ousted them from their lawful possession.

Arribay moved to dismiss the complaint, claiming that the subject properties are
agricultural lands, which thus renders the dispute an agricultural matter and subject to the
exclusive jurisdiction of the Department of Agrarian Reform Adjudication Board (DARAB). The
METC denied Arribay’s motion, finding that the pleadings failed to show the existence of a
tenancy or agrarian relationship between the parties. Arribay filed his answer, claiming that the
petitioners’ titles have been ordered cancelled by the DAR and he is now the owner of most of the
parcels of land under the controversy, the remaining portions belonging to his principals. Arribay
also claimed that the petitioners became farmer-beneficiaries under PD 27, and the parcels of
land originally belonging to Romulo Taggueg, Sr. were awarded to them. Subsequently, the heirs
of Romulo, Sr. sought to cancel petitioners’ titles. The heirs won the case and new titles over the
property were issued in their favor. One of the heirs transferred his title in favor of Arribay.

The MCTC ruled in favor of the petitioners, holding that it had jurisdiction over the case
and that while Arribay and his principals have been issued titles over the subject property, Arribay
cannot take the law into his own hands and unilaterally eject the petitioners from the land. The
RTC affirmed the MCTC decision. The CA reversed the RTC and held that the jurisdiction lied
with the DARAB, petitioners’ titles were obtained pursuant to PD 27, and under the 1994 DARAB
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rules of procedure, cases involving the issuance, correction and cancellation of Certificates of
Land Ownership Award (CLOAs) and Emancipation Patents (EPs) which are registered with the
Land Registration Authority fall under DARAB jurisdiction.

Issue:

Did the DARAB lack jurisdiction over the case?

Ruling:

The petition is granted.

What the appellate court failed to realize, however, is the fact that as between petitioners
and Arribay, there is no tenurial arrangement, not even an implied one. As correctly argued by
petitioners, a case involving agricultural land does not immediately qualify it as an agrarian
dispute. The mere fact that the land is agricultural does not ipso facto make the possessor an
agricultural lessee or tenant. There are conditions or requisites before he can qualify as an
agricultural lessee or tenant, and the subject being agricultural land constitutes just one
condition. For the DARAB to acquire jurisdiction over the case, there must exist a tenancy
relation between the parties. “[I]n order for a tenancy agreement to take hold over a dispute, it is
essential to establish all its indispensable elements, to wit:
1) that the parties are the landowner and the tenant or agricultural lessee;
2) that the subject matter of the relationship is an agricultural land;
3) that there is consent between the parties to the relationship;
4) that the purpose of the relationship is to bring about agricultural production;
5) that there is personal cultivation on the part of the tenant or agricultural lessee; and
6) that the harvest is shared between the landowner and the tenant or agricultural lessee.”
In the present case, it is quite evident that not all of these conditions are present. For one, there is
no tenant, as both parties claim ownership over the property.

Besides, when petitioners obtained their emancipation patents and subsequently their
certificates of title, they acquired vested rights of absolute ownership over their respective
landholdings. “It presupposes that the grantee or beneficiary has, following the issuance of a
certificate of land transfer, already complied with all the preconditions required under P.D. No.
27, and that the landowner has been fully compensated for his property. And upon the issuance of
title, the grantee becomes the owner of the landholding and he thereby ceases to be a mere tenant
or lessee. His right of ownership, once vested, becomes fixed and established and is no longer
open to doubt or controversy.” Petitioners “became the owner[s] of the subject property upon the
issuance of the emancipation patents and, as such, [enjoy] the right to possess the same—a right
that is an attribute of absolute ownership.”

MARIANO JOSE, FELICISIMO JOSE, DECEASED, SUBSTITUTED BY HIS CHILDREN


MARIANO JOSE, CAMILO JOSE, TIBURCIA JOSE, FERMINA JOSE, AND VICTORIA JOSE vs.
ERNESTO M. NOVIDA, RODOLFO PALAYPAY, JR., ALEX M. BELARMINO, RODRIGO
LIBED, LEONARDO L. LIBED, BERNARDO B. BELARMINO, BENJAMIN G. ACOSTA,
MODESTO A. ORLANDA, WARLITO B. MEJIA, MAMERTO B. BELARMINO, MARCELO O.
DELFIN AND HEIRS OF LUCINO A. ESTEBAN, REPRESENTED BY CRESENCIA M. VDA.
ESTEBAN
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G.R. No. 177374, July 2, 2014, J. Del Castillo

In Heirs of Lazaro Gallardo vs. Soliman, the DARAB has exclusive jurisdiction over cases
involving the cancellation of registered EPs; the DAR Secretary, on the other hand, has exclusive
jurisdiction over the issuance, recall or cancellation of EPs or Certificates of Land Ownership
Awards that are not yet registered with the Register of Deeds.

Thus, since certificates of title have been issued in the respective names of the respondents
as early as in 1990, the DAR Region I Director had no jurisdiction to cancel their titles; the same is
true with respect to the DAR Secretary. Thus, their respective January 30, 1991 and August 22, 1995
Orders are null and void; consequently, respondents’ EPs and titles subsists, contrary to petitioner’s
claim that they have been cancelled. Void judgments or orders have no legal and binding effect, force
or efficacy for any purpose; in contemplation of law, they are nonexistent.

Facts:

In 1990, respondents were each granted, as farmer beneficiaries, Emancipation Patents


(EPs) and Certificates of Title over portions of land forming part of a 16.4 hectare agricultural
estate in Pangasinan, which was placed within the coverage of Operation Land Transfer (OLT).
On the other hand, in January 1991, petitioners filed with the Region I Office of the DAR a petition
seeking reinvestigation of the issuance of certain emancipation patents in favor of respondents
and claiming therein that they are the bona fide and actual tenant-tillers of the subject
agricultural estate. The DAR Region I Director immediately issued an order upholding the rights
of petitioner over the said estate.

In December 1991, respondents filed a complaint for recovery of possession, accounting,


liquidation and damages against petitioners with the Region I Office of the DARAB. In their suit,
they assert that Felicisimo Jose was the original tenant of the subject property and he obtained
loans from one Benigno Siobal and one Rogelio Cerezo, which were secured by a mortgage over
the subject estate. Furthermore, according to respondents, Felicisimo Jose failed to redeem the
property from the lenders and he abandoned the same when he migrated to the USA and became
a naturalized citizen thereof. Thus, with the sanction of the DAR, the owners subdivided the land
and sold portion thereof to respondents who were unlawfully dispossessed therefrom by
Felicisimo Jose when he returned from the USA. On the contrary, petitioners alleged that in
addition to Felicisimo, Mariano and Virgilio, the subject property was being cultivated by their
other siblings and the loans obtained from Siobal and Cerezo were properly settled.

Subsequently, the DARAB issued a decision which held, among others, that there was
abandonment on the part of Felicisimo Jose of his possession and cultivation of the landholding
or estate in question and so the respondents should be the rightful beneficiaries thereof. In the
meantime, the DAR Secretary issued an order affirming the decision reached by the DAR Region I
Director but upon motion for reconsideration the former conceded jurisdiction over the case with
the DARAB.

Petitioners then interposed an appeal with DARAB Quezon City and later with the CA.
Both appellate bodies affirmed the findings of the Provincial Adjudicator and thus sustaining the
rights of respondents as tenant-beneficiaries of the subject estate.

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Issue:

Whether or not the DARAB has jurisdiction over the instant case.

Ruling:

YES, the DARAB exercises jurisdiction over cases involving cancellation of emancipation
patents, such as the case at bar, that are already registered with the Register of Deeds.

When petitioners filed in January 1991 their petition with the DAR Region I Office,
certificates of title have been issued to the respondents. Consequently, it is the DARAB and not
the DAR Region I or the DAR Secretary that has exclusive jurisdiction over the case pursuant to
law and the DARAB Rules of Procedure. In particular, the jurisdiction of the DARAB in relation to
this case is set forth in Section 1(f), Rule II of the DARAB Rules of Procedure, which provides that
“[t]hose involving the issuance, correction and cancellation of Certificates of Land Ownership
Award (CLOAs) and Emancipation Patents (EPs) which are registered with the Land Registration
Authority.” In contrast, Administrative Order No. 06-00 governing the quasi-judicial functions of
the DAR, under Section 2(d) respecting jurisdiction provides that “[i]ssuance, recall or cancella-
tion of Certificates of Land Transfer (CLTs) and CARP Beneficiary Certificates (CBCs) in cases
outside the purview of P.D. No. 816, including the issuance, recall or cancellation of EPs or CLOAs
not yet registered with the Register of Deeds.”

In Heirs of Lazaro Gallardo vs. Soliman, the DARAB has exclusive jurisdiction over cases
involving the cancellation of registered EPs; the DAR Secretary, on the other hand, has exclusive
jurisdiction over the issuance, recall or cancellation of EPs or Certificates of Land Ownership
Awards that are not yet registered with the Register of Deeds.

Thus, since certificates of title have been issued in the respective names of the
respondents as early as in 1990, the DAR Region I Director had no jurisdiction to cancel their
titles; the same is true with respect to the DAR Secretary. Thus, their respective January 30, 1991
and August 22, 1995 Orders are null and void; consequently, respondents’ EPs and titles subsists,
contrary to petitioner’s claim that they have been cancelled. Void judgments or orders have no
legal and binding effect, force or efficacy for any purpose; in contemplation of law, they are
nonexistent.

LAND BANK OF THE PHILIPPINES vs. JOSE T. LAJOM, represented by PORFIRIO


RODRIGUEZ et al
G.R. No. 184982 & 185048, August 20, 2014, J. Perlas-Bernabe

Properties of the Lajoms were taken due to the Agrarian Reform Program. Just
compensation was partially given. The Lajoms contested the computation of just compensation due
to an alleged error in the applicable law. The Court ruled that the date of taking of the subject land
for purposes of computing just compensation should be reckoned from the issuance dates of the
emancipation patents. An emancipation patent constitutes the conclusive authority for the issuance
of a Transfer Certificate of Title in the name of the grantee. It is from the issuance of an
emancipation patent that the grantee can acquire the vested right of ownership in the landholding,
subject to the payment of just compensation to the landowner.

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Facts:

Jose T. Lajom (Lajom) and his mother Vicenta Vda. De Lajom (Vda. De Lajom) were the
registered owners of several parcels of land with an aggregate area of 27 hectares located at Alua,
San Isidro, Nueva Ecija. Sometime in 1991, a 24-ha., more or less, portion of the subject land was
placed under the government's Operation Land Transfer Program pursuant to Presidential Decree
No. 27,10 otherwise known as the "Tenants Emancipation Decree," as amended. Accordingly, the
Department of Agrarian Reform (DAR), through the Land Bank of the Philippines (LBP), offered
to pay Lajom the following amounts as just compensation for the following constitutive areas of
the subject portion: (a) 19,434.00 for 11.3060 has.; (b) 17,505.65 for 2.4173 has.; and (c) 80,733.45 for
10.3949 has. (DAR valuation). Records show, however, that despite non-payment of the offered
just compensation, DAR granted twelve (12) Emancipation Patents to several farmer-beneficiaries.

Lajom rejected the DAR valuation and, instead, filed an amended Petition for
determination of just compensation and cancellation of land transfers against the DAR, the LBP,
and the said farmer-beneficiaries. He alleged, inter alia, that in computing the amount of just
compensation, the DAR erroneously applied the provisions of PD 27 and Executive Order No.
(EO) 228, that have been repealed by "Comprehensive Agrarian Reform Law of 1988. In sum,
Lajom stressed that the DAR valuation was arrived at without due process, highly prejudicial and
inimical to his and his heirs’ property rights.

The RTC rejected the DAR valuation. On appeal, the CA affirmed with modification the
RTC Decision, deleting the award of 6% interest p.a. and, in lieu thereof, ordered LBP to pay
Lajom, through his representatives and/or heirs, interest by way of damages at the rate of 12% p.a.
on the just compensation award of P3,858,912.00 from March 11, 2004 until fully paid. Hence, this
petition.

Issue:

1. Whether or not Republic Act No. (RA) 6657, otherwise known as the Comprehensive Agrarian
Reform Law of 1988 is the applicable law at the case at hand

2. When is the reckoning point for the payment of just compensation

3. Whether or not the award of damages as held by the CA is proper

Ruling:

1. The applicable law is Republic Act No. (RA) 6657, otherwise known as the Comprehensive
Agrarian Reform Law of 1988.

Case law instructs that when the agrarian reform process under PD 27 remains incomplete
and is overtaken by RA 6657, such as when the just compensation due the landowner has yet to
be settled, as in this case, such just compensation should be determined and the process
concluded under RA 6657, with PD 27 and EO 228 applying only suppletorily. Hence, where RA
6657 is sufficient, PD27 and EO 228 are superseded.

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Records show that even before Lajom filed a petition for the judicial determination of just
compensation in May 1993, RA 6657 had already taken effect on June 15, 1988. Similarly, the
emancipation patents had been issued in favor of the farmer-beneficiaries prior to the filing of the
said petition, and both the taking and the valuation of the subject portion occurred after the
passage of RA 6657. Quite evidently, the matters pertaining to the correct just compensation
award for the subject portion were still in contention at the time RA 6657 took effect; thus, as
correctly ruled by the CA, its provisions should have been applied, with PD 27 and EO 228
applying only suppletorily.

2. The reckoning point of the payment of just compensation is at the time of taking.

As to the proper reckoning point, it is fundamental that just compensation should be


determined at the time of the property’s taking. Taking may be deemed to occur, for instance, at
the time emancipation patents are issued by the government.

Since the emancipation patents in this case had been issued between the years 1994 and
1998, the just compensation for the subject portion should then be reckoned therefrom, being
considered the "time of taking" or the time when the landowner was deprived of the use and
benefit of his property. On this score, it must be emphasized that while the LBP is charged with
the initial responsibility of determining the value of lands placed under the land reform and,
accordingly, the just compensation therefor, its valuation is considered only as an initial
determination and, thus, not conclusive. Verily, it is well-settled that it is the RTC, sitting as a
Special Agrarian Court, which should make the final determination of just compensation in the
exercise of its judicial function.

3. Damages may be awarded however not based on the just compensation but due to the delay in
payment.

With respect to the commonly raised issue on interest, the RTC may impose the same on
the just compensation award as may be justified by the circumstances of the case and in
accordance with prevailing jurisprudence. The Court has previously allowed the grant of legal
interest in expropriation cases where there was delay in the payment of just compensation,
deeming the same to be an effective forbearance on the part of the State. To clarify, this
incremental interest is not granted on the computed just compensation; rather, it is a penalty
imposed for damages incurred by the landowner due to the delay in its payment. Thus, legal
interest shall be pegged at the rate of 12% p.a. from the time of taking until June 30, 2013.
Thereafter, or beginning July 1, 2013, until fully paid, just compensation shall earn interest at the
new legal rate of 6% p.a., conformably with the modification on the rules respecting interest rates
introduced by Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, Series of 2013

RENATO L. DELFINO, SR. (Deceased), Represented by his Heirs, namely: GRACIA


DELFINO, GREGORIO A. DELFINO; MA. ISABEL A. DELFINO, RENATO A. DELFINO, JR.,
MA. REGINA DELFINO ROSELLA, MA. GRACIA A. DELFINO, MARIANO A. DELFINO, MA.
LUISA DELFINO GREGORIO and REV. FR. GABRIELA. DELFINO vs. AVELINO K. ANASAO
and ANGEL K. ANASAO (Deceased and represented by his sole heir, SIXTO C. ANASAO)
G.R. No. 197486, September 10, 2014, J. VILLARAMA, JR.

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The right to choose the area to be retained, which shall be compact or contiguous, shall
pertain to the landowner; Provided, however, That in case the area selected for retention by the
landowner is tenanted, the tenant shall have the option to choose whether to remain therein or be a
beneficiary in the same or another agricultural land with similar or comparable features. In case the
tenant chooses to remain in the retained area, he shall be considered a leaseholder and shall lose his
right to be a beneficiary under this Act. In case the tenant chooses to be a beneficiary in another
agricultural land, he loses his right as a leaseholder to the land retained by the landowner. The
tenant must exercise this option within a period of one (1) year from the time the landowner
manifests his choice of the area for retention.

Facts:

In October 1975, Delfino sold the 20.8108-hectare coconut land covered by TCT No. T-
26381 (T-69595), leaving him with 14.6717 hectares of rice land. The tenanted portion (9.8597
hectares) being tilled by respondents Avelino K. Anasao and Angel K. Anasao, and another
farmer, Rodriguez P. Dacumos was placed under Operation Land Transfer (OLT) pursuant to
Presidential Decree No. 27 (PD 27). After full payment to the Land Bank of the Philippines of the
amortizations, the farmer-beneficiaries were issued Emancipation Patents (EPs). The remaining
area of 3.2942 hectares covered by OLT was not issued with EPs.

On February 8, 1992, prior to the registration of the EPs in the Registry of Deeds, Delfino
filed an Application for Retention over the entire 14.6717-hectare rice land. Upon the
recommendation of the Department of Agrarian Reform (DAR), Laguna Provincial Office, the
DAR Regional Office IV Director issued an Order dated June 22, 1993 denying retention of the
9.8597 hectares but granting retention over the 4.8120 hectares which was not covered by OLT.

Delfino appealed to then DAR Secretary Ernesto D. Garilao who issued an Order dated
February 28, 1995 setting aside the Order of the DAR Regional Director of Region IV dated June
22, 1993, thus petitioner is hereby given the maximum of five (5) hectares from the tenanted
portion as his retained area.

A motion for reconsideration by way of motion for intervention was filed by respondent.
In his Order dated December 13, 1995, Secretary Garilao denied the motion for utter lack of
merit. Respondents appealed to the OP but later withdrew the appeal and instead filed a petition
for review in the CA (CAG.R. SP No. 39761). By Resolution dated March 15, 1996, the CA’s Third
Division dismissed the petition for being insufficient in form and substance. Respondents’ motion
for reconsideration was likewise denied under Resolution dated January 28, 1997. Entry of
judgment was issued by the CA on said case.

Meanwhile, on August 24, 1995, Delfino sold two hectares of his tenanted riceland covered
by TCT Nos. T-26378 (T-69592) situated in Barangay Tagapo, Sta. Rosa, Laguna, to SM Prime
Holdings, Inc. Though covered by OLT, no EP had been issued on this portion under TCT No. T-
26378 (T-69592). A new certificate of title (TCT No. T-389984) in the name of SM Prime Holdings,
Inc. was issued on February 25, 1997.

On September 13, 1995, Delfino filed before the Provincial Agrarian Reform Adjudicator
(PARAD) a petition for cancellation of the EPs previously issued to respondents on the basis of

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the DAR Secretary’s Order dated December 13, 1995 granting him five hectares as retention area
(DCN- IV-La-0437-95).

On February 17, 1997, respondents filed before the Office of the DAR Secretary a Motion
for Clarificatory Judgment praying that an administrative determination be made of the particular
portion to be retained and whether such right of retention will result in the cancellation of EPs
already distributed to farmer-beneficiaries identified as of October 21, 1972.

Meanwhile, in a Joint dated February 19,1997, Provincial Adjudicator Barbara P. Tan


granted Delfino’s petition for cancellation of EPs. A writ of execution was issued on May 19, 1997
directing the DARAB Provincial Sheriff toretrieve the owner’s duplicate copies of the subject EPs
for purposes of cancellation and/or annotation. Respondents then filed a petition for certiorari
inthe CA (CA-G.R. SP No. 44285) to annul the said writ and enjoin its implementation.

In their Supplemental Motion (to the Motion for Clarificatory Judgment), respondents
pointed out that Delfino acted in bad faith when he sold a portion of the OLT-covered land in
favor of SM Prime Holdings, Inc. without the required DAR clearance. They also prayed that the
DAR Secretary order the PARAD to stop the implementation of the Joint Order in DARAB Case
No. DCN-IV-La-0437-95. In his Order dated August 8, 1997, Secretary Garilao denied respondents’
motion.

On September 20, 2001, respondents filed a Petition to Annul and/or Cancel the DAR
Secretary’s Orders dated February 28, 1995, December 13, 1995 and August 8, 1997. On February 2,
2006, DAR Secretary Nasser C. Pangandaman issued an Order denying the petition to
annul/cancel the subject orders and clarifying the February 28, 1995 Order of Secretary Garilao.

Delfino filed a motion for reconsideration which was denied by Secretary Pangandaman in
his Order dated May 30, 2007.

Respondents appealed the Orders dated February 2, 2006 and May 30, 2007 to the OP. On
February 6, 2008, the OP rendered its Decision partly granting the appeal by nullifying the
portion of the May 30, 2007 Order of Secretary Pangandaman which clarified Secretary Garilao’s
February 28, 1995 Order. Said office ruled that the two hectares sold to SM Prime Holdings, Inc.
would not bring about any ambiguity in the execution of the Order dated February 28, 1995, in
relation to the December 13, 1995 and August 8, 1997 Orders, and that whatever remains after
deducting the 9.6717 hectares reserved for the farmer-beneficiaries pertains to Delfino. As to the
remaining portion of the May 30, 2007 Order of Secretary Pangandaman, the same was upheld.

Respondents’ motion for reconsideration was denied under the OP’s Resolution dated
September 30, 2008.

The case was elevated by respondents to the CA via a petition for review under Rule 43. By
Decision dated January 31, 2011, the CA reversed the OP’s ruling and reinstated the Orders dated
February 2, 2006 and May 30, 2007 of Secretary Pangandaman. According to the CA, the
ambiguity in the February 28, 1995 Order of Secretary Garilao lies in its failure to specify as to
which portion of the 14.617 hectares should the five hectares retention area of Delfino be taken.
Thus, even after the said order had become final and executory, the DAR Secretary is not
precluded from making the necessary amendments/clarifications thereof so that the fallo would
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at least conform with the body of said order and so that the same could readily be executed with
dispatch. But since Delfino sold two hectares to SM Prime Holdings, Inc. before the ambiguity
could be properly addressed by DAR, the CA found no reversible error in the February 2, 2006
Order clarifying the ambiguity and in the May 30, 2007 Order stating the rationale for such
clarification.

Delfino, represented by his surviving heirs (petitioners) filed a motion for reconsideration
but the CA denied it. Hence, this petition for review.

Issue:

Whether the inclusion of the two hectare portion sold to SM Prime Holdings, Inc. in
Delfino’s retention area was in derogation of Section 6 of Republic Act No. 6657 (RA 6657),
otherwise known as Comprehensive Agrarian Reform Program.

Ruling:

Heirs of Delfino, Sr., are hereby allowed to choose three hectares of their retention area
from the remaining portions of Delfino, Sr.’s landholding situated in Sta. Rosa, Laguna, subject to
the conditions laid down in Section 6 of RA 6657 and DAR regulations. Respondents are likewise
entitled to exercise the rights granted to tenants-beneficiaries affected by landowner’s retention.

In the landmark case of Association of Small Landowners in the Phils., Inc. v. Secretary of
Agrarian Reform, this Court held that landowners who have not yet exercised their retention
rights under PD 27 are entitled to the new retention rights under RA 6657. Section 6 of the latter
law defines the nature and incidents of the landowner’s right to retention, thus:

SEC. 6. Retention Limits– Except as otherwise provided in this Act, no person may
own or retain, directly or indirectly, any public or private agricultural land, the size
of which shall vary according to factors governing a viable family-sized farm, such
as commodity produced, terrain, infrastructure, and soil fertility as determined by
the Presidential Agrarian Reform Council (PARC) created hereunder, but in no
case shall retention by the landowner exceed five (5) hectares. Three (3) hectares
may be awarded to each child of the landowner, subject to the following
qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is
actually tilling the land or directly managing the farm: Provided, That landowners
whose land have been covered by Presidential Decree No. 27 shall be allowed to
keep the area originally retained by them thereunder; Provided, further, That
original homestead grantees or their direct compulsory heirs who still own the
original homestead at the time of the approval of this Act shall retain the same
areas as long as they continue to cultivate said homestead.

The right to choose the area to be retained, which shall be compact or contiguous, shall
pertain to the landowner; Provided, however, That in case the area selected for retention by the
landowner is tenanted, the tenant shall have the option to choose whether to remain therein or
be a beneficiary in the same or another agricultural land with similar or comparable features. In
case the tenant chooses to remain in the retained area, he shall be considered a leaseholder and
shall lose his right to be a beneficiary under this Act. In case the tenant chooses to be a
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beneficiary in another agricultural land, he loses his right as a leaseholder to the land retained by
the landowner. The tenant must exercise this option within a period of one (1) year from the time
the landowner manifests his choice of the area for retention. In all cases, the security of tenure of
the farmers or farmworkers on the land prior to the approval of this Act shall be respected.

AUTOMAT REALTY AND DEVELOPMENT CORPORATION, LITO CECILIA AND LEONOR


LIM vs. SPOUSES MARCIANO DELA CRUZ, SR. AND OFELIA DELA CRUZ
G.R. No. 192026, October 01, 2014, J. Leonen

When Automat asked the spouses to vacate the premises, the spouses refused to vacate
unless they were paid compensation. They claimed “they were agricultural tenants [who] enjoyed
security of tenure under the law.” The Court ruled that tenancy relationship cannot be presumed.
The allegation of its existence must be proven by evidence, and working on another’s landholding
raises no presumption of an agricultural tenancy. Consequently, the landowner’s consent to an
agricultural tenancy relationship must be shown.

Facts:
Automat is the registered owner of two parcels of land located in Barangay Malitlit, Sta.
Rosa, Laguna. Lim was the real estate broker behind Automat’s purchase of the property. Spouses
Dela Cruz sometimes referred to Lim some Sta. Rosa real estate properties available for sale.
The land was not occupied in 1990 when it was purchased by Automat. Ofelia dela Cruz
volunteered her services to Lim as caretaker to prevent informal settlers from entering the
property. Automat agreed, through its authorized administrator, Lim, on the condition that the
caretaker would voluntarily vacate the premises upon Automat’s demand.

Spouses Dela Cruz family stayed in the property as rent-paying tenants. They cultivated
and improved the land. Sometime in August 2000, Automat asked the spouses to vacate the
premises but the spouses refused to vacate unless they were paid compensation. They claimed
“they were agricultural tenants [who] enjoyed security of tenure under the law.” The spouses filed
a petition for maintenance of peaceful possession agaisnt Automat but it was dismissed.

The PARAD found it undisputed that when petitioners entered the property in 1990, it was
already classified as residential, commercial, and industrial land. Thus, it is legally impossible
for the property to be the subject of an agricultural tenancy relationship However, DARAB
reversed and set aside the PARAD's decision. The Court of Appeals affirmed the DARAB.

Meanwhile, the Department of Agrarian Reform (DAR) Region IV-A CALABARZON issued
two orders, both dated March 30, 2010, exempting the property from coverage of the
Comprehensive Agrarian Reform Program (CARP). Automat submits that in light of the
exemption orders, as a matter of law, the subject properties were never subject to the jurisdiction
of the DARAB, which issued the decision erroneously affirmed by the Court of Appeals.

The spouses argue that petitioners’ inaction or failure to refute their occupation and
cultivation of the land for the past 10 years, coupled with the acceptance of payments for use of
the land, is indicative of consent, if not acquiescence to tenancy relations.

Issues:

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1. Whether an agricultural tenancy relationship exists between Automat and Spouses Dela
Cruz
2. Whether the DAR exemption orders have an effect on the DARAB’s earlier exercise of
jurisdiction.

Ruling:
1. No. The elements to constitute a tenancy relationship are the following: “(1) the parties
are the landowner and the tenant or agricultural lessee; (2) the subject matter of the relationship
is agricultural land; (3) there is consent between the parties to the relationship; (4) the purpose of
the relationship is to bring about agricultural production; (5) there is personal cultivation on the
part of the tenant or agricultural lessee; and (6) the harvest is shared between the landowner and
the tenant or agricultural lessee.”

There must be substantial evidence on the presence of all these requisites; otherwise,
there is no de jure tenant. Only those who have established de jure tenant status are entitled to
security of tenure and coverage under tenancy laws.

(1) This court has held that a MARO certification “concerning the presence or the absence
of a tenancy relationship between the contending parties, is considered merely preliminary or
provisional, hence, such certification does not bind the judiciary.”
The amended certification does not bind this court. Several elements must be present before the
courts can conclude that a tenancy relationship exists. MARO certifications are limited to factual
determinations such as the presence of actual tillers. It cannot make legal conclusions on the
existence of a tenancy agreement. Thus, petitioners’ reliance on the amended MARO certification
fails to persuade.

(2) The land in this case cannot be considered as agricultural land.


The exemption orders clearly provide that the lands were reclassified to non-agricultural prior to
June 15, 1988, or prior to the effectivity of Republic Act No. 6657 known as the Comprehensive
Agrarian Reform Law of 1988 (CARL). Section 3(c) of the CARL defines “agricultural land” as “land
devoted to agricultural activity as defined in this Act and not classified as mineral, forest,
residential, commercial or industrial land.”

(3) This court has ruled that “[t]enancy is not a purely factual relationship dependent on
what the alleged tenant does upon the land [but] is also a legal relationship.” Tenancy
relationship cannot be presumed. The allegation of its existence must be proven by evidence, and
working on another’s landholding raises no presumption of an agricultural
tenancy. Consequently, the landowner’s consent to an agricultural tenancy relationship must be
shown.

While the court agrees with the conclusion that no agricultural tenancy relationship can
exist in this case, the Court finds that the element of consent in establishing a relationship, not
necessarily of agricultural tenancy, is present.

The court finds that Automat consented to a relationship with respondent spouses when
(a) through petitioner Lim, it constituted respondent Ofelia dela Cruz as caretaker of the property
with the understanding that she would vacate when asked by Automat, and (b) it accepted rental
payments from respondent spouses.
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2. No. The DARAB has “primary and exclusive jurisdiction, both original and appellate, to
determine and adjudicate all agrarian disputes involving the implementation of the [CARP] . . .
and other agrarian laws and their implementing rules and regulations:
“Agrarian dispute” has been defined under Section 3(d) of Republic Act No. 6657 as referring to
“any controversy relating to tenurial arrangements, whether leasehold, tenancy, stewardship or
otherwise, over lands devoted to agriculture. . . .”

This court has held that “jurisdiction of a tribunal, including a quasi- judicial office or
government agency, over the nature and subject matter of a petition or complaint is determined
by the material allegations therein and the character of the relief prayed for irrespective of
whether the petitioner or complainant is entitled to any or all such reliefs.”

The DAR exemption orders have determined with certainty that the lands were
reclassified as non-agricultural prior to June 15, 1988. Consequently, the petition filed by
respondent spouses in 2000 before the PARAD did not involve "lands devoted to agriculture" and,
necessarily, it could not have involved any controversy relating to such land. Absent an "agrarian
dispute," the instant case cannot fall under the limited jurisdiction ofthe DARAB as a quasi-
judicial body.

REMIGIO D. ESPIRITU and NOEL AGUSTIN


vs. LUTGARDA TORRES DEL ROSARIO represented by SYLVIA R. ASPERILLA
G.R. No. 204964, October 15, 2014, J. Leonen

Lands classified as non-agricultural in zoning ordinances approved by the Housing and Land
Use Regulatory Board or its predecessors prior to June 15, 1998 are outside the coverage of the
compulsory acquisition program of the Comprehensive Agrarian Reform Law. However, there has
to be substantial evidence to prove that lands sought to be exempted fall within the non-agricultural
classification. In this case del Rosario failed to prove with substantial evidence that the subject
property is industrial property and as such is not sufficient to rebut the findings of both the
Department of Agrarian Reform and the Office of the President.

Facts:

In 1978, the City Council of Angeles City, Pampanga, enacted Zoning Ordinance No. 13,
Series of 1978, classifying areas in Barangay Margot and Barangay Sapang Bato, Angeles City, as
agricultural land.

Pursuant to this ordinance, Lutgarda Torres del Rosario (del Rosario) allegedly requested
the City Zoning Administrator to exempt from the zoning classification Lot Nos. 854 and 855
located in Barangay Margot and Barangay Sapang Bato, Angeles City. The land is covered by
Transfer Certificate of Title with an area of 164.7605 hectares. The request was allegedly approved
on March 7, 1980 by Angeles City Development Coordinator/Zoning Administrator, and the lots
were allegedly reclassified as non-agricultural or industrial lots.

On June 10, 1988, the Comprehensive Agrarian Reform Law (Republic Act No. 6657) was
enacted.

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On October 10, 2000, del Rosario, through her representative Sylvia R. Asperilla
(Asperilla), filed an application for exemption with the Department of Agrarian Reform, seeking
to exempt Lot Nos. 854 and 855 from the Comprehensive Agrarian Reform Program (CARP)
coverage. On February 19, 2004, then Secretary of Agrarian Reform Roberto M. Pagdanganan
(Secretary Pagdanganan) issued an order granting the application for exemption.

On March 26, 2004, farmers in del Rosario’s landholdings, led by Remigio Espiritu
(Espiritu), filed a motion for reconsideration of the order. They argued that under Zoning
Ordinance No. 13, Series of 1978, Housing and Land Use Regulatory Board Resolution No. 705,
Series of 2001, and Angeles City Council Resolution No. 3300, Series of 2001, the landholdings
were classified as agricultural, not industrial. They argued that as per certifications by the
Housing and Land Use Regulatory Board, the landholdings were within the agricultural zone, and
there was no zoning ordinance passed that reclassified the area into other land uses.

The motion was given due course by the Department of Agrarian Reform, this time
headed by Secretary Nasser C. Pangandaman (Secretary Pangandaman). Hence, on June 15, 2006,
then Secretary Pangandaman issued an order granting the motion for reconsideration and
revoking the earlier order of then Secretary of Agrarian Reform Pagdanganan.

She then filed her motion for reconsideration of the order dated June 15, 2006. The motion
was dated February 9, 2007.

Acting on del Rosario’s motion for reconsideration, Secretary Pangandaman found that
the certifications issued by the Housing and Land Use Regulatory Board classified the
landholdings as agricultural before June 15, 1988. Based on the ocular inspections conducted by
the Center for Land Use Policy, Planning and Implementation (CLUPPI), the land remained
agricultural and was planted with sugar cane and corn. Accordingly, Secretary Pangandaman
denied del Rosario’s motion.

Del Rosario filed a notice of appeal before the Office of the President on March 27, 2008.

The Office of the President, through then Deputy Executive Secretary for Legal Affairs
Manuel B. Gaite (Deputy Executive Secretary Gaite), rendered the decision dismissing the appeal
for lack of merit.

Aggrieved, del Rosario filed a petition for review before the Court of Appeals.

The Court of Appeals rendered a decision granting the petition. The Court of Appeals
stated that del Rosario was indeed prevented from participating in the proceedings that led to the
issuance of Secretary Pangandaman’s order when the notices were sent to her other address on
record. It also found that the decision issued by then Deputy Executive Secretary Gaite was void
since it violated Article VII, Section 13 of the Constitution.

Their motion for reconsideration having been denied, petitioners, namely Remigio
Espiritu and Noel Agustin, now come before the Supreme Court via a petition for review on
certiorari, seeking to set aside the ruling of the Court of Appeals.

Issue:
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Whether the subject property is agricultural or industrial.

Ruling:

Respondent’s landholdings were agricultural, not industrial.

Prior to the enactment of Republic Act No. 6657, lands were classified into agricultural,
residential, or industrial by law or by zoning ordinances enacted by local government units. In
Heirs of Luna v. Afable:

It is undeniable that local governments have the power to reclassify agricultural into non-
agricultural lands. Section 3 of RA No. 2264 (The Local Autonomy Act of 1959) specifically
empowers municipal and/or city councils to adopt zoning and subdivision ordinances or
regulations in consultation with the National Planning Commission. By virtue of a zoning
ordinance, the local legislature may arrange, prescribe, define, and apportion the land within
its political jurisdiction into specific uses based not only on the present, but also on the
future projection of needs. It may, therefore, be reasonably presumed that when city and
municipal boards and councils approved an ordinance delineating an area or district in their
cities or municipalities as residential, commercial, or industrial zone pursuant to the power
granted to them under Section 3 of the Local Autonomy Act of 1959, they were, at the same
time, reclassifying any agricultural lands within the zone for non-agricultural use; hence,
ensuring the implementation of and compliance with their zoning ordinances.

Accordingly, lands are considered exempt from the coverage of Republic Act No. 6657 if
the following requisites are present:
1. Lands were zoned for non-agricultural use by the local government unit; and
2. The zoning ordinance was approved by the Housing and Land UseRegulatory Board
before June 15, 1998.

In revoking the prior order of exemption, Secretary Pangandaman took note of the
following considerations:
1. The Certification dated 18 November 2003, of Mr. David D. David, Planning Officer IV
and Zoning Administrator of the City of Angeles states that the City Planning and
Development Office, Zoning Administration Unit (CPDO-ZAU) certifies that subject
property covered by TCT is classified as agricultural based on the certified photocopy
of Zoning Ordinance, Ordinance No. 13, Series of 1978, issued by the Housing and
Land Use Regulatory Board, Regional Office;
2. Also, upon verification with HLURB, we were informed that as per copy of the
approved Zoning Plan of 1978, the subject properties were classified as agricultural.
The said Zoning Plan of 1978 was approved under NCC Plan dated 24 September 1980;
and
3. Based on the ocular inspection conducted by the CLUPPI Inspection Team, it was
found that the area remained agricultural. In fact, it is still dominantly planted with
sugar cane and corn.

These findings were sustained on appeal by the Office of the President


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The factual findings of administrative agencies are generally given great respect and
finality by the courts as it is presumed that these agencies have the knowledge and expertise over
matters under their jurisdiction. Both the Department of Agrarian Reform and the Office of the
President found respondent's lands to be agricultural. We see no reason to disturb these findings.

SPOUSES JAIME SEBASTIAN AND EVANGELINE SEBASTIAN vs.


BPI FAMILY BANK, INC., CARMELITA ITAPO AND BENJAMIN HAO
G.R. No. 160107, October 22, 2014, J. Bersamin

It bears emphasizing that Republic Act No. 6552 aimed to protect buyers of real estate on
installment payments, not borrowers or mortgagors who obtained a housing loan to pay the costs of
their purchase of real estate and used the real estate as security for their loan. The "financing of real
estate in installment payments" referred to in Section 3, should be construed only as a mode of
payment vis-à-vis the seller of the real estate, and excluded the concept of bank financing that was a
type of loan. Accordingly, Sections 3, 4 and 5, supra, must be read as to grant certain rights only to
defaulting buyers of real estate on installment, which rights are properly demandable only against
the seller of real estate

The Sps. Sebastian’s insistence would have been correct if the monthly amortizations being
paid to BPI Family arose from a sale or financing of real estate. In their case, however, the monthly
amortizations represented the installment payments of a housing loan that BPI Family had
extended to them as an employee’s benefit. The monthly amortizations they were liable for was
derived from a loan transaction, not a sale transaction, thereby giving rise to a lender-borrower
relationship between BPI Family and the petitioners.

Facts:

The Jaime and Evangeline are spouses who used to work for BPI Family. At the time
material to this case, Jaime was the Branch Manager of BPI Family in Quezon City and Evangeline
was a bank teller in Manila.

They availed themselves of a housing loan from BPI Family as one of the benefits extended
to its employees. To secure the payment of the loan, they executed a real estate mortgage in favor
of BPI Family over the property in Bulaca. Apart from that, Jaime signed an undated letter-
memorandum addressed to BPI Family, stating he authorize BPI to automatically deduct an
amount from his salary or any money due to him to be applied to his loan.

The Sps. Sebastian’s monthly loan amortizations were regularly deducted from Jaime’s
monthly salary. However, Jaime received a notice of termination from BPI Family’s Vice President,
Severino P. Coronacion, informing him that he had been terminated from employment due to
loss of trust and confidence resulting from his wilful non-observance of standard operating
procedures and banking laws. Evangeline also received a notice of termination, telling her of the
cessation of her employment on the ground of abandonment. Both notices contained a demand
for the full payment of their outstanding loans from BPI Family

They filed a complaint for illegal dismissal against BPI Family in the National Labor
Relations Commission (NLRC). In the meantime, BPI Family instituted a petition for the
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foreclosure of the real estate mortgage. To prevent the foreclosure of their property, the
petitioners filed against the respondents their complaint for injunction and damages with
application for preliminary injunction and restraining order in RTC alleging that their obligation
was not yet due and demandable considering that the legality of their dismissal was still pending
resolution by the labor court and a grace period was made available by virtue of RA 6552. RTC
dismiss the case as well as Bank’s Counterclaim which was affirmed in toto by RTC.

Issues:

Whether or not the foreclosure of appellants’ real estate mortgage was premature.

Ruling:

No, the foreclosure of appellants’ real estate mortgage was not premature.

Republic Act No. 6552 was enacted to protect buyers of real estate on installment
payments against onerous and oppressive conditions. Having paid monthly amortizations for two
years and four months, the petitioners now insist that they were entitled to the grace period
within which to settle the unpaid amortizations without interest. Otherwise, the foreclosure of
the mortgaged property should be deemed premature inasmuch as their obligation was not yet
due and demandable.

The Sps. Sebastian’s insistence would have been correct if the monthly amortizations
being paid to BPI Family arose from a sale or financing of real estate. In their case, however, the
monthly amortizations represented the installment payments of a housing loan that BPI Family
had extended to them as an employee’s benefit. The monthly amortizations they were liable for
was derived from a loan transaction, not a sale transaction, thereby giving rise to a lender-
borrower relationship between BPI Family and the petitioners.

It bears emphasizing that Republic Act No. 6552 aimed to protect buyers of real estate on
installment payments, not borrowers or mortgagors who obtained a housing loan to pay the costs
of their purchase of real estate and used the real estate as security for their loan. The "financing of
real estate in installment payments" referred to in Section 3, should be construed only as a mode
of payment vis-à-vis the seller of the real estate, and excluded the concept of bank financing that
was a type of loan. Accordingly, Sections 3, 4 and 5, supra, must be read as to grant certain rights
only to defaulting buyers of real estate on installment, which rights are properly demandable only
against the seller of real estate.

The CA correctly found that there was basis to declare the Sps. Sebastian’s entire
outstanding loan obligation mature as to warrant the foreclosure of their mortgage. It is settled
that foreclosure is valid only when the debtor is in default in the payment of his obligation. Here,
the records show that the petitioners were defaulting borrowers.

Even if it turns out the appellants were not validly terminated from their employment,
there is valid reason to foreclose the mortgaged property. Appellants themselves admit that they
were in arrears when they made the late payments. While this admission was not in the course of
the testimony of appellant Jaime Sebastian, this was done during the hearing of the case when the
trial judge propounded the question to him. Hence, this constitutes judicial admission. An
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admission, verbal or written, made by a party in the course of the trial or other proceedings in the
same case does not require proof. The admission may be contradicted only by showing that it was
made through palpable mistake or that no such admission is made. Judicial admissions are those
made voluntarily by a party, which appear on record in the proceedings of the court.

LAND BANK OF THE PHILIPPINES vs. JAIME K. IBARRA, ANTONIO K. IBARRA, JR., LUZ
IBARRA VDA. DE JIMENEZ, LEANDRO K IBARRA, and CYNTHIA IBARRA-GUERRERO
G.R. No. 182472, November 24, 2014, J. Peralta

It is on equitable considerations that the Court bases the retroactive application of RA No.
6657 for it would be highly inequitable on the part of the landowners to compute just compensation
using the values not at the time of the payment but at the time of the taking in 1972, considering
that the government and the farmer-beneficiaries have already benefitted from the land. The CA was
correct in ruling that the agrarian reform process in this case was still incomplete for just
compensation due to respondents had yet to be settled. Considering that R.A. No. 6657 was already
in effectivity before the completion of the process, the just compensation should be determined and
the process concluded under this law, notwithstanding the fact that the subject property was
acquired under PD 27.

Facts:

Respondents Jaime K. Ibarra, Antonio K. Ibarra, Jr., Luz Ibarra Vda. de Jimenez, Leandro
K. Ibarra, and Cynthia Ibarra-Guerrero are the registered owners of a parcel of agricultural land
consisting of a total area of 6.2773 hectares, situated in Lubao, Pampanga. Pursuant to the
government’s Land Reform Program, the Department of Agrarian Reform (DAR) acquired 6.0191
hectares of said property and placed it under the coverage of Presidential Decree (PD) No. 27.

Respondents filed a Complaint for the Determination of Just Compensation before the
RTC of San Fernando City, Pampanga. Thereafter, they filed with the RTC an Omnibus Motion for
the Issuance of an Order Authorizing Plaintiffs to Withdraw Amount Deposited in their Name
and Amount to be Withdrawn Must be Fixed in Accordance with Section 18 of Republic Act (RA)
No. 6657.

The RTC issued an Order directing petitioner Land Bank of the Philippines to make a
provisional payment to respondents in the amount of P136,110.64. On March 17, 2005, petitioner
filed its Compliance manifesting its conformity with said Order.

On March 21, 2007, the RTC rendered a Decision, which it later amended in its Amended
Decision, by modifying the computation of the respondent Department of Agrarian Reform
(DAR), as approved by respondent Land Bank of the Philippines (LBP), to wit:

To pay the petitioners the sum of P539,160.08 in cash and bond pursuant to Section 18 of
R. A. No. 6657 less the amount received in cash and bond as provisional payment pending the
determination on the merits of this case with savings bank rate of interest from April 2001 until
the date of finality of this Decisions.

When the RTC denied petitioner’s Motion for Reconsideration, petitioner filed a Petition
for Review with the CA.
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The CA ruled on the basis of our more recent ruling in Land Bank of the Philippines v.
Hon. Natividad, wherein We held that the seizure of landholdings in expropriation proceedings
under PD No. 27 did not take place on the date of effectivity of PD No. 27, but will actually take
effect on the payment of just compensation. The CA explained that in the present case, although
the expropriation proceeding was initiated under PD No. 27, the agrarian reform process was still
incomplete considering that the just compensation to be paid to respondents has yet to be
settled. Taking into account the passage of RA No. 6657 before the completion of the agrarian
reform process, the CA, held that the just compensation should be determined in accordance with
said law, and not with PD No. 27 and EO No. 228. Hence, the formula should necessarily be as
follows: Land Value = (Capitalized Net Income x 0.6) + (Comparable Sales x 0.3) + (Market Value
per Tax Declaration x 0.1).

However, considering that the RTC arrived at the valuation of the subject portion of the
property in the amount of P539,160.88 based on the formula provided by PD No. 27 and EO No.
228 instead of RA No. 6657, the CA remanded the case back to the RTC for the final
determination of just compensation in accordance with RA No. 6657.

Issue:

Whether or not the CA erred when it refused to resolve the issue of valuation for the
acquired property in accordance with P.D no. 27 and E.O no. 228 and jurisprudence applicable
thereto.

Ruling:

We rule in favor of respondents.

The issue in this case has long been laid to rest by this Court. In numerous rulings, We
have held that the seizure of properties covered by PD No. 27 did not take place on October 21,
1972, but upon the payment of just compensation. Acquisition of property under the Operation
Land Transfer Program under PD No. 27 does not mean that the computation of just
compensation must be governed by the same law. In determining the applicable formula, the
date of the payment of just compensation must be taken into consideration for such payment
marks the completion of the agrarian reform process. If the agrarian reform process is still
incomplete as when just compensation is not settled prior to the passage of RA No. 6657, it
should be computed in accordance with said law despite the fact that the property was acquired
under PD No. 27. Clearly, by law and jurisprudence, R.A. No. 6657, upon its effectivity, became
the primary law in agrarian reform covering all then pending and uncompleted processes, with
P.D. No. 27 and E.O. No. 228 being only suppletory to the said law.

As the Court explained in Land Bank of the Philippines v. Natividad in the following wise:

It would certainly be inequitable to determine just compensation based on the guideline


provided by PD 27 and EO 228 considering the DAR’s failure to determine the just
compensation for a considerable length of time. That just compensation should be
determined in accordance with RA 6657, and not PD27 or EO 228, is imperative
considering that just compensation should be the full and fair equivalent of the property
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CIVIL LAW DIGESTS 2014- June 2016

taken from its owner by the expropriator, the equivalent being real, substantial, full and
ample.

It is on equitable considerations that We base the retroactive application of RA No. 6657


for it would be highly inequitable on the part of the landowners to compute just compensation
using the values not at the time of the payment but at the time of the taking in 1972, considering
that the government and the farmer-beneficiaries have already benefitted from the land.

Petitioner’s contention that RA No. 6657 does not apply to tenanted rice and corn lands is
erroneous. We have had several occasions in which we expressly recognized the applicability of
RA No. 6657 to rice and corn lands covered by PD No. 27 on the basis of our ruling in Paris v.
Alfeche which state:

Considering the passage of RA 6657 before the completion of the application of the
agrarian reform process to the subject lands, the same should now be completed under the said
law, with PD 27 and EO 228 having only suppletory effect. This ruling finds support in Land Bank
of the Philippines v. CA, wherein the Court stated:

We cannot see why Sec. 18 of RA 6657 should not apply to rice and corn lands under PD
27. Section 75 of RA 6657 clearly states that the provisions of PD 27 and EO 228 shall only have a
suppletory effect. Section 7 of the Act also provides –

Sec. 7. Priorities. – The DAR, in coordination with the PARC shall plan and program the
acquisition and distribution of all agricultural lands through a period of ten (10) years from the
effectivity of this Act. Lands shall be acquired and distributed as follows:

Phase One: Rice and Corn lands under P.D. 27; all idle or abandoned lands; all private lands
voluntarily offered by the owners for agrarian reform; x x x and all other lands owned by the
government devoted to or suitable for agriculture, which shall be acquired and distributed
immediately upon the effectivity of this Act, with the implementation to be completed within a
period of not more than four (4) years.

This demonstrates that RA 6657 includes PD 27 lands among the properties which the
DAR shall acquire and distribute to the landless. And to facilitate the acquisition and distribution
thereof, Secs. 16, 17, and 18 of the Act should be adhered to.

The CA was, therefore, correct in ruling that the agrarian reform process in this particular
case was still incomplete for just compensation due to respondents had yet to be settled.
Considering that R.A. No. 6657 was already in effectivity before the completion of the process, the
just compensation should be determined and the process concluded under this law,
notwithstanding the fact that the subject property was acquired under PD 27.

MONCAYO INTEGRATED SMALL-SCALE MINERS ASSOCIATION, INC. (MISSMA) vs.


SOUTHEAST MINDANAO GOLD MINING CORP. (SMGMC), BALITE INTEGRATED SMALL-
SCALE MINING CORP., (BISSMICO) ET AL.
G.R. No. 149638 (consolidated), December 10, 2014, J. Leonen

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The issue in these two consolidated cases involves the tightly contested “Diwalwal Gold Rush
Area” (DGRA) in Mt. Diwata, Mindanao, specifically, the 729-hectare portion excluded from
SMGMC’s Mineral Production Sharing Agreement application (MPSA No. 128), and declared as
People’s Small Scale Mining Area. SMGMC was the assignee of the original holder of a permit to
explore (EP 133) covering 4,941 hectares of DGRA. Due to supervening events, [the Court] declares
the petitions moot and academic.

Facts:

The issue in these two consolidated cases involves the tightly contested “Diwalwal Gold
Rush Area” (DGRA) in Mt. Diwata, Mindanao, specifically, the 729-hectare portion excluded from
SMGMC’s Mineral Production Sharing Agreement application (MPSA No. 128), and declared as
People’s Small Scale Mining Area. SMGMC was the assignee of the original holder of a permit to
explore (EP 133) covering 4,941 hectares of DGRA.

Some of the respondent companies, other mining groups and individuals filed adverse
claims against MPSA No. 128. Pursuant to Sec. 77 of the Philippine Mining Act, the DENR consti-
tuted a panel of arbitrators and which later on dismissed all the claims against MPSA No. 128. The
denial was contested before the Mines Adjudication Board (MAB) which reversed the challenged
decision. Consequently, while appeals were pending with the CA, the Provincial Mining
Regulatory Board of Davao (PMRB) acted on the decision of the MAB and undertook the
publication of the MPSA which again met opposition. Nevertheless, the PMRB dismissed the
oppositions and then segregated and declared the 729-hectare gold rich area as People’s Small
Mining Area.

This decision by the PMRB was upheld by the DENR Secretary and then originally by the
CA. Upon motions for reconsideration, the appellate court set aside and annulled the decision of
the DENR Secretary for having been issued with grave abuse of discretion in excess of his juris-
diction. It held that SMGMC “may apply and be entitled to a particular area within the 729-hectare
… People’s Small-Scale Mining Area, subject to the fulfilment of several conditions” and that the
DENR Secretary erred in subdividing and designating the resulting portions to certain entities,
which are not in consonance with the MAB decision.

Issue:

Whether or not SMGMC still has the right to claim the 729-hectare portion.

Ruling:

NO, the recent developments affecting this case have already mooted this issue.

The Court’s decision in Apex Mining vs. SMGMC has rendered inutile deciding squarely
the issue in the instant case.

SMGMC filed the petition docketed as G.R. No. 132475 assailing the January 6, 1998 MAB
decision excluding the 729-hectares area and questioning the validity of DAO No. 66. MISSMA
and other mining claimants filed the other petition docketed as G.R. No. 132528. Both of these
petitions were remanded to the CA, which declared the MAB decision as null and void.
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CIVIL LAW DIGESTS 2014- June 2016

Consequently, Apex filed a petition docketed as G.R. Nos. 152613 and 152628; Balite
Communal Portal Mining Cooperative, Inc. filed a petition docketed as G.R. Nos. 152619-20; and
the MAB and its members filed a petition docketed as G.R. Nos. 152870-71.87 All these petitions
were consolidated, and [the Court] rendered its decision entitled Apex Mining v. SMGMC on June
23, 2006, and resolution on November 20, 2009. The 2006 decision held, among others, that “EP
133 of [Marcopper Mining Corp.] has EXPIRED on 7 July 1994 and that its subsequent transfer to
[SMGMC] on 16 February 1994 is void.”

Furthermore, since [the Court] has declared that the DENR Secretary had no authority to
issue DAO No. 66 declaring 729 hectares of the Agusan-Davao-Surigao Forest Reserve as forest
land open for small-scale mining purposes subject to existing and valid private rights, both the
PMRB decision, and the DENR Secretary’s decision affirming it with modification, are conse-
quently overturned for lack of basis in delineating the 729 hectares from the MPSA.

The 2009 resolution in Apex Mining v. SMGMC also ruled that “the State, through the
Executive Department, should it so desire, may now award mining operations in the disputed area to
any qualified entities it may determine and the Mines and Geosciences Bureau may process
exploration permits pending before it, taking into consideration the applicable mining laws, rules
and regulations relative thereto.”

Indeed, then President Macapagal-Arroyo issued Proclamation No. 297 excluding an area
in Moncayo, Compostela Valley, declaring this as a mineral reservation and as an environ-
mentally critical area. DENR A.O. No. 2002-18 followed, declaring an emergency situation in this
gold rush area and ordering the stoppage of all mining operations. E.O. No. 217 thereafter created
the National Task Force Diwalwal.

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