I.

OBLIGATIONS
A. IN GENERAL
Prescription of Actions

1) FLORO MERCENE vs. GSIS

G.R. NO. 192971, JANUARY 10, 2018
(THIRD DIVISION)

MARTIRES, J.:

NATURE OF THE ACTION: This petition for review on certiorari seeks to reverse and
set aside the 29 April 2010 Decision and 20 July 2010 Resolution of the Court of Appeals
(CA) in CA-G.R. CV No. 86615 which reversed the 15 September 2005 Decision of the
Regional Trial Court, Branch 220, Quezon City (RTC).

FACTS:
On 19 January 1965, defendant GSIS lent a loan amounting to ₱29,500.00 to
petitioner Floro Mercene (Mercene), secured by a real estate mortgage over his property
in Quezon City which was registered and annotated on the title on 24 March 1965.
Thereafter, another loan with GSIS was contracted on May 14, 1986 amounting to P14,
500.00 secured by a real estate mortgage on the same parcel of land. However, on June
11, 2004, Mercene filed a complaint for Quieting of Title against GSIS alleging that GSIS
never exercised its rights as a mortgagee since 1968 up to the filing of the such complaint
and that there was already a cloud on the title over the real estate mortgage. Thereby,
GSIS' right to foreclose had prescribed. On the other hand, GSIS answered that the
complaint shall not prosper for failure to state a cause of action and being a government
entity, the prescription does not run against it.

The trial court ruled that since more than ten (10) years had lapsed from the time
the cause of action had accrued, it resulted to the prescription on the right of GSIS as
mortgagee considering also that GSIS is a juridical person with a separate personality,
and with the power to sue and be sued. However, the CA reversed the trial court’s
decision stating that prescription commences only upon the accrual of the cause of
action, and that a cause of action in a written contract accrues only when there is an
actual breach or violation. In Mercene’s complaint, maturity date of the loans and the
fact that a demand for payment was made were not alleged. No prescription had set in
against GSIS because it has not made a demand to Mercene.

ISSUE:
Whether the real estate mortgages had prescribed

HELD:
No, the real estate mortgages had not prescribed.

Prescription runs in mortgage contract from the time the cause of action arose
and not from the time of its execution (University of Mindanao, Inc. v. Bangko Sentral
ng Pilipinas) Also, the right to foreclose prescribes after ten (10) years from the time a
demand for payment is made, or when then loan becomes due and demandable in cases
where demand is unnecessary (Maybank Philippines, Inc. v. Spouses Tarrosa). Thus, the
CA correctly ruled that there was a failure to state the cause of action on the complaint
of Mercene and that GSIS' right to foreclose had prescribed because of the insufficiency
of allegations in Mercene's complaint to establish such prescription such as the maturity
date of the loan contracted and the need for demand under the terms and conditions of
the loan. What were only included by Mercene in the allegations in the complaint were
the dates of the execution of the loan and the annotation of the mortgages on the title.

Page 4 of 79
 The date of execution of the contract should not be the basis of prescription of the
right to foreclose mortgages as it should commence from the time the cause of action
accrues or from the time the obligation becomes due and demandable, or upon demand
by the creditor/mortgagor, as the case may be. In other words, ten (10) years may lapse
from the date of the execution of contract, without barring a cause of action on the
mortgage when there is a gap between the period of execution of the contract and the
due date or between the due date and the demand date in cases when demand is
necessary. The mortgage contracts in this case were executed by Saturnino 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.

The prescriptive period for filing an action may run either (1) from 1990 when
the loan became due, if the obligation was covered by the exceptions under Article 1169
of the Civil Code; (2) or from 1999 when respondent demanded payment, if the
obligation was not covered by the exceptions under Article 116919 of the Civil Code.

An action to enforce a right arising from a mortgage should be enforced within

ten (10) years from the time the right of action accrues, i.e., when the mortgagor defaults
in the payment of his obligation to the mortgagee; otherwise, it will be barred by
prescription and the mortgagee will lose his rights under the mortgage. However, mere
delinquency in payment does not necessarily mean delay in the legal concept. To be in
default is different from mere delay in the grammatical sense, because it involves the
beginning of a special condition or status which has its own peculiar effects or results.
(Maybank Philippines, Inc. v. Spouses Tarrosa)

In order that the debtor may be in default, it is necessary that: (a) the obligation
be demandable and already liquidated; (b) the debtor delays performance; and (c) the
creditor requires the performance judicially or extrajudicially, unless demand is not
necessary - i.e., when there is an express stipulation to that effect; where the law so
provides; when the period is the controlling motive or the principal inducement for the
creation of the obligation; and where demand would be useless. Moreover, 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. Thus, it is only when
demand to pay is unnecessary in case of the aforementioned circumstances, or when
required, such demand is made and subsequently refused that the mortgagor can be
considered in default and the mortgagee obtains the right to file an action to collect the
debt or foreclose the mortgage.

2) SPECIFIED CONTRACTORS & DEVELOPMENT, INC., AND SPOUSES

ARCHITECT ENRIQUE O. OLONAN AND CECILIA R. OLONAN vs. JOSE
A. POBOCAN

Page 5 of 79
 G.R. NO. 212472; JANUARY 11, 2018
(FIRST DIVISION)

TIJAM, J.:

NATURE OF THE ACTION: A Petition for Review on Certiorari under Rule 45 urging

the Court to reverse and set aside the November 27, 2013 Decision and April 28, 2014
Resolution of the Court of Appeals (CA), and to affirm instead the June 4, 2012 Order of
the Regional Trial Court (RTC) of Quezon City. The court  a quo had granted the Motion
to Dismiss of Specified Contractors & Development Inc. (Specified Contractors), and
Spouses Architect Enrique O. Olonan and Cecilia R. Olonan, thereby dismissing the
action for specific performance filed by respondent Jose A. Pobocan. The dismissal of the
case was subsequently set aside by the CA in the assailed decision and resolution. It is
undisputed that respondent was in the employ of Specified Contractors until his
retirement sometime in March 2011. His last position was president of Specified
Contractors and its subsidiary, Starland Properties Inc., as well as executive assistant of
its other subsidiaries and affiliates.

FACTS:
This case involves an oral agreement between the petitioners and respondent
wherein Architect Olonan was alleged to have given Pobocan one unit for every
building Specified Contractors has to construct as part of Pobocan’s compensation
package to entice him to stay with the company. Two (2) of these projects that Specified
Contractors and respondent were able to build were the Xavierville Square
Condominium in Quezon City and the Sunrise Holiday Mansion Bldg. I in Alfonso,
Cavite. It was alleged that Specified Contractors ceded, assigned and transferred Unit
708 of Xavierville Square Condominium and Unit 208 of Sunrise Holiday Mansion Bldg.
I in favor of respondent. However, Pobocon filed a Complaint after the petitioners
disregarded his request for the execution of Deeds of of Assignment or Deeds of Sale
over the subject units in his favor. Petitioners filed a Motion to Dismiss denying the
existence of such oral agreement and argued that even in the existence of such, aside for
being unenforceable in violation of the statute of frauds, there was also no any written
document, note or memorandum showing that the subject units have in fact been ceded,
assigned or transferred to respondent. Further, the petitioners raised that the cause of
action had long prescribed because the alleged agreements were supposedly entered
into in 1994 and 1999 as indicated in respondent's March 14, 2011 demand letter.

ISSUE:
Whether prescription had already set in involving an oral contract

HELD:
The Court ruled that it was erroneous for it to have treated the complaint as a
real action which prescribes after 30 years under Article 1141 of the New Civil Code
because the present suit is essentially for specific performance which is a personal action
over which the court a quo had jurisdiction. A personal action involves the recovery of
personal property, the enforcement of a contract, or the recovery of damages. On the
other hand, real actions pertain to those affecting title to or possession of real property,
or interest therein. Hence, Article 1145 providing a prescriptive period of six years
should apply in this case with regard to a personal action based upon an oral contract.
By reason of frailty of human memory, the law allows a shorter period to institute an
action based on an oral contract.

In this case, the Complaint for specific performance was instituted on November
21, 2011 which is 17 years from the oral agreement of 1994 and almost 12 years after the
December 1, 1999 oral agreement. It is clear that the action upon an oral contract by the
respondent was filed beyond the six-year period for the lawful institution. His cause of
action has already prescribed as it this case involves an oral contract which must be
brought within six years from the accrual of the right.

Page 6 of 79
 3) AMPARO S. CRUZ, ET AL. vs ANGELITO S. CRUZ, ET AL.
G.R NO. 211153; February 28, 2018
(FIRST DIVISION)

DEL CASTILLO, J.:

Page 7 of 79
NATURE OF THE ACTION: This Petition for Review on Certiorari seeks to set aside the
June 25, 2013 Decision2 and January 29, 2014 Resolution of the Court of Appeals (CA) in
CA G.R. CV. No. 96345 which, respectively, granted herein respondents' appeal and
reversed the June 1, 2010 Decision of the Regional Trial Court of San Mateo, Rizal,
Branch 75 (RTC) in Civil Case No. 1380-98 SM, and denied petitioners' motion for
reconsideration thereto.

FACTS:
Alleged in the complaint filed by Respondents Angelito S. Cruz, Concepcion S.
Cruz, and Serafin S. Cruz involved the 940-square-meter parcel of land which the
respondents, together with their siblings, petitioner Amparo S. Cruz and Antonia Cruz,
inherited from their late parents. A deed of extrajudicial settlement of estate was
executed by the parties covering such property on the agreement that each heir was to
receive an equal portion of the property as mandated by law. However, in 1998, it
revealed that Antonia was allocated two lots, as against one (1) each for the respondents;
that Antonia's allocation of two lots contravened the agreement among the heirs that
they would receive equal shares in the subject property; that Amparo and Antonia were
able to perpetrate the fraud by inducing Concepcion - who was illiterate - to sign the
deed of extrajudicial settlement of estate, which was written in the English language,
without previously reading and explaining the contents thereof to the latter; that
Amparo and Antonia fraudulently took advantage of Concepcion's ignorance and
mental weakness, deceiving and cajoling her into signing the deed of extrajudicial
settlement, to her damage and injury; and that Antonia passed away, but left as her heirs
herein other who are in possession of the two lots allocated to Antonia.

In the Answer filed by the petitioners, aside from claiming that the deed of
extrajudicial settlement of estate was voluntarily and freely executed on July 31,1986 by
the parties free from vitiated consent; that the complaint failed to state a cause of action;
and that no earnest efforts toward compromise have been made; the petitioners also
argued that the cause of actions of the respondents had prescribed.

ISSUE:
Whether the cause of action of the respondents had already prescribed

HELD:
No, prescription has not set in yet in so far as it seeks to annul the extrajudicial
settlement of the estate. Under Art. 1144 Civil Code, an actionable document prescribes
in 10 years. But under Art. 1456, if a property is allegedly acquired thru fraud or
mistake, the person obtaining it is, by force of law, considered an implied trustee for the
benefit of the person deprived of it, in which case the action based thereon is 10 years
from date of registration of the extra-judicial settlement or issuance of new certificate of
title.

In this case, the Extra-Judicial Settlement was executed and signed on July 13,
1986, and alleged fraud was discovered on May 12, 1986 when subdivision survey was
conducted and defendants started to build their houses. As such, this petition was filed
only on August 14, 1998 or more than 10 years from date of execution or date of
discovery of alleged fraud. Hence, prescription has not set in yet. Considering the period
which is not too long or short, laches has also not set in yet. The illiteracy of Concepcion
deprives her of the true inheritance and not through fraud. As such, the Court ruled that
as the partition was a total nullity and did not affect the excluded heirs, it was not
correct for the trial court to hold that their right to challenge the partition had prescribed
after two years from its execution. The CA erred in favoring Concepcion upon applying
the four-year prescriptive period when considering the total nullity of deed of
extrajudicial settlement, the action for its declaration of nullity does not prescribe in this
case.

Page 8 of 79
 4) LAND BANK OF THE PHILIPPINES vs. HEREDEROS DE CIRIACO
CHUNACO DISTILERIA, INC.
G.R. NO. 206992, June 11, 2018
(FIRST DIVISION)

GESMUNDO, J.:

NATURE OF THE ACTION: This is an appeal by certiorari seeking to reverse and set

aside the April 26, 2013 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 98113.

Page 9 of 79
The CA denied the petition for certiorari seeking to annul and set aside the
Resolutions2 dated July 7, 2005 and December 19, 2006, respectively, of the Department
of Agrarian Reform Adjudication Board (DARAB) in DSCA No. 0383, a case for
preliminary determination of just compensation.

FACTS:
By virtue of its mandate under Republic Act (R.A.) No. 6657, Petitioner Land
Bank of the Philippines (LBP) decided to accept the voluntary offer of the respondent for
the sale of the subject lots located in Guinobatan, Albay to the Republic of the
Philippines under the Comprehensive Agrarian Reform Program (CARP). LBP offered
the respondent to give a compensation in the amount of P957,991.30 for the subject lots
to which respondent rejected upon receipt of the valuation of the properties. The case
was set for preliminary administrative determinations of just compensation covering the
said parcels of land conducted by the Provincial Agrarian Reform Adjudicator (PARAD)
of Albay. During the trial, respondent argued that the subject lands were worth
P195,410.07 per hectare, or a total of P4,455,349.00, to which PARAD ruled in favor of the
respondent. Hence, petitioner filed a petition for certiorari before the DARAB to which
the latter denied for lack of merit because aside from its finding that the petition for
determination of just compensation in the RTC-SAC was filed beyond the fifteen (15)-
day reglementary period under Section 11, Rule XIII of the DARAB Rules, it also ruled
that the said petition was filed out of time because a total of twenty-four (24) days had
lapsed before it was filed. Thus, DARAB agrees to the ruling of PARAD. Petitioner then
appealed to the CA by way of petition for certiorari  to which the latter also denied as the
decision of the PARAD already attained finality because the petition for judicial
determination of just compensation was belatedly filed in the RTC-SAC, beyond the 15-
day reglementary period. It added that the fresh fifteen (15)-day period under Neypes v.
Court of Appeals is not applicable in administrative proceedings. The CA also held that
the determination of just compensation by the PARAD was proper because the latter's
determination was not limited to the factors enumerated in DAR Administrative Order
05, series of 1998, and it could properly consider other factors.

ISSUE:
Whether a petition for judicial determination of just compensation in the RTC-
SAC proscribes if not filed within the 15-day period under the DARAB Rules

HELD:
The Court ruled that the petition for judicial determination of just compensation
was timely filed.

Since the determination of just compensation is a judicial function, the Court

must abandon the previous jurisprudence that a petition for determination of just
compensation before the SAC shall be proscribed and adjudged dismissible if not filed
within the 15-day period prescribed under the DARAB Rules. To maintain the rulings
would be incompatible and inconsistent with the legislative intent to vest the original
and exclusive jurisdiction in the determination of just compensation with the SAC.
Indeed, such rulings judicially reduced the SAC to merely an appellate court to review
the administrative decisions of the DAR which was never the intention of the Congress.

Under Section 57 of R.A. No. 6657, “Congress expressly granted the RTC, acting as
SAC, the original and exclusive jurisdiction over all petitions for the determination of just
compensation to landowners. Only the legislature can recall that power. The DAR has no
authority to qualify or undo that.”  While R.A. No. 6657 itself does not provide for a period
within which a landowner can file a petition for the determination of just compensation
before the SAC, it cannot be imprescriptible because the parties cannot be placed in
limbo indefinitely.

Considering that the payment of just compensation is an obligation created by

law, it should only be ten (10) years from the time the landowner received the notice of

Page 10 of 79
coverage. The Constitution itself provides for the payment of just compensation in
eminent domain cases. Under Article 1144, such actions must be brought within ten (10)
years from the time the right of action accrues:

Art. 1144. The following actions must be brought within ten years from the time
the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law; 

(3) Upon a judgment.

Nevertheless, any interruption or delay caused by the government like

proceedings in the DAR should toll the running of the prescriptive period. The statute of
limitations has been devised to operate against those who slept on their rights, but not
against those desirous to act but cannot do so for causes beyond their control. In this
case, Dalauta received the Notice of Coverage on February 7, 1994. He then filed a
petition for determination of just compensation on February 28, 2000. Clearly, the filing
date was well within the ten-year prescriptive period under Article 1141.

It was also determined in Dalauta that the proper prescriptive period to file a

petition for judicial determination of just compensation under R.A. No. 6657 is ten (10)
years pursuant to Article 1144 (2) of the Civil Code. Considering that payment of just
compensation is an obligation created by law, it is only proper that the ten (10)-year
period start from the time the landowner receives the notice of coverage under the
CARP. In addition, any interruption or delay caused by the government, like
proceedings in the DAR, should toll the running of the prescriptive period. The statute
of limitations has been devised to operate against those who slept on their rights, but not
against those desirous to act but cannot do so for causes beyond their control.

In this case, respondent voluntarily offered for sale its twelve (12) parcels of land
in November 2001. Accordingly, the 10-year prescriptive period began at that moment
because respondent knew that its lands would be covered by the CARP. Thus, the
petition for judicial determination of just compensation filed on April 12, 2004 before the
RTC-SAC, which was even tolled by the proceedings before the PARAD, was squarely
and timely filed within the 10-year prescriptive period. As the fifteen (15)-day
reglementary period under Section 11, Rule XIII of the DARAB Rules had been set aside,
it is now immaterial to determine whether a fresh fifteen (15)-day period should be
given to a party when the PARAD denies its motion for reconsideration to file a petition
for judicial determination of just compensation. To recapitulate, the correct period to file
a petition for judicial determination of just compensation under R.A. No. 6657 before the
RTC-SAC is ten (10) years pursuant to Article 1144 (2) of the Civil Code.

B. SOURCES OF CIVIL OBLIGATIONS

LAW

5) ASTRID A. VAN DE BRUG vs. PHILIPPINE NATIONAL BANK (PNB)

G.R NO. 207004, JUNE 06, 2018
(SECOND DIVISION)

CAGUIOA, J.:

NATURE OF THE ACTION: A petition for review (Petition) under Rule 45 of the Rules
of Court assailing the Decision of the Court of Appeals3 (CA) dated March 23, 2012 in
CA-G.R. CV No. 00708, which granted the appeal of the respondent Philippine National
Bank (PNB) and reversed the Decision4 dated December 10, 2004 of the Regional Trial
Court, 6th Judicial Region, Branch 58, San Carlos City, Negros Occidental (RTC) in Civil

Page 11 of 79
Case No. RTC-725 in favor of the petitioners. Likewise, the Resolution 5 of the CA dated
April 1, 2013, denying the petitioners' motion for reconsideration, is being assailed.

FACTS:
This case arose from failure of spouses Romulus and Evelyn Aguilar, who used
to be borrowing clients of PNB, to pay their obligations with the latter pertaining to
sugar crop loans secured by real estate mortgage over four registered parcels of land all
situated in Negros Occidental. Upon failure to pay, the mortgage was foreclosed in 1985
and subsequently, ownership of the subject four pieces of property was consolidated
under the name of PNB. With the enactment of RA 7202 on February 29, 1992, Romulus
Aguilar wrote to PNB on July 5, 1995 which states: "Since our indebtedness with the
PNB had been foreclosed, we are asking your good Office for a reconsideration of our
account based on the Sugar Restitution Law." However, Romulus subsequently died and
PNB, while the subject loan account was covered by the provisions of RA 7202 and have
been audited by the Commission on Audit (COA), sent a letter to Evelyn Aguilar
obliging her to comply with the following matters: (1) to arrange and implement
restructuring of accounts within sixty (60) days from receipt of the notice, (2) to signify
her conformity to the computation of the account, and (3) to submit the ten (10) year
crop production for the period 1974/1975 to 1984/1985. Evelyn raised that the stated
requirements have already been complied with reflecting a total amount due of
P2,236,337.91 to which PNB denied. The Aguilars then filed a case for implementation
of R.A 7202 with prayer for damages. PNB argued that the Aguilars have no cause of
action against the former because whatever rights the latter have under RA 7202 were
already forfeited when they failed to comply with the requirements. PNB replied in
writing and stated, among other matters, that: "Since PNB has already acquired the
properties at the foreclosure sale, it can now exercise its rights as owner of these
properties, including the right to convey the same to the DAR and to receive the
proceeds thereof from Land Bank of the Philippines, without any right to the excess
proceeds, if any, inuring/accruing to your favor." PNB asserted that the Aguilars did not
sign the restructuring agreement but Glenn Aguilar claimed that the Aguilars failed to
do so primarily because of the exclusion of the value of the agricultural lands, which
were already conveyed to the DAR, in the recomputation of the account of the late
spouses Aguilar. The RTC, on the other hand, ruled in favor of the Aguilar. The RTC
explained that denying to the [Aguilars] the benefits of the Sugar Restitution Law is
against the spirit that created the said Law, i.e. to help the sugar producers, the Aguilars
herein included, who suffered due to the acts of government agencies. Hence, the RTC
found PNB guilty of malice and bad faith in not pursuing its duty in helping the
Aguilars avail of the benefits of RA 7202.

ISSUES:
1. Whether or not [the Aguilars] were entitled to the benefits of RA 7202;

2. Whether PNB has an obligation to accord the Aguilars the same treatment as
it accorded the spouses Pfleider regarding the crediting of the VOS or CARP
proceeds of their respective agricultural lots against their respective sugar
crop loans covered by RA 7202

HELD:
1. Yes. The declared policy of R.A 7202 is "to restitute the losses suffered by the
sugar producers due to actions taken by government agencies in order to
revive the economy in the sugar-producing areas of the country." Section 3 of
RA 7202 provides: “The Philippine National Bank, the Republic Planters Bank, the
Development Bank of the Philippines and other government-owned and controlled
financial institutions which have granted loans to the sugar producers shall extend
to accounts of said sugar producers incurred from Crop Year 1974-1975 up to and
including Crop Year 1984-1985 the following:

(a) Condonation of interest charged by the banks in excess of twelve percent

(12%)  per annum and all penalties and surcharges; (b) The recomputed loans shall

Page 12 of 79
 be amortized for a period of thirteen (13) years inclusive of a three-year grace period
on principal effective upon the approval of this Act. The principal portion of the loan
will carry an interest rate of twelve percent (12%)  per annum and on the
outstanding balance effective when the original promissory notes were signed and
funds released to the producer.”
Section 4 of RA 7202 provides which accounts of sugar producers are covered,
thus: “Accounts of sugar producers pertaining to Crop Year 1974-1975 up to and
including Crop Year 1984-1985 which have been fully or partially paid, or may have
been the subject of restructuring and other similar arrangements with government banks
shall be covered by the provisions above-stated. The benefit of this Act shall not be
extended to any sugar producer with a pending sequestration or ill-gotten wealth case
before any administrative or judicial body. Any recovery shall be placed in escrow until
the case has been finally resolved.”
Based on the foregoing, the entitlement of the Aguilars to the benefits of RA 7202
has been correctly recognized by the CA. Based on the foregoing provisions, it appeared
that the account of the late spouses Aguilar qualified under RA 7202 since indisputably,
the sugar crop loans of the late spouses Aguilar, which were considered fully paid upon
foreclosure of the mortgaged pieces of property, were obtained within the period
covered by the law.

2. No. Under Article 1157 of the Civil Code, the sources of obligations are: (1) law;
(2) contracts; (3) quasi-contracts; (4) acts or omissions punished by law; and (5) quasi-
delicts. Immediately, sources (2), (3) and (4) are inapplicable in this case. The Aguilars
are not privies to the Compromise Agreement between PNB and the spouses Pfleider.
Regarding law, as PNB's source of obligation, the CA correctly ruled that the Aguilars
are not entitled to restitution under RA 7202. Thus, RA 7202 cannot be invoked as the
statutory basis to compel PNB to treat the Aguilars similarly with the spouses Pfleider.
Aside from Chapter 2, Quasi-Delicts, of Title XVII. - Extra-Contractual Obligations, Book
IV of the Civil Code, it is recognized that quasi-delict may arise under Chapter 2,
Human Relations of the Preliminary Title of the Civil Code.A person should be
protected only when he acts in the legitimate exercise of his right; that is, when he acts
with prudence and in good faith, but not when he acts with negligence or abuse. There
is an abuse of right when it is exercised only for the purpose of prejudicing or injuring
another. The exercise of a right must be in accordance with the purpose for which it was
established, and must not be excessive or unduly harsh; there must be no intention to
injure another. In order to be liable for damages under the abuse of rights principle, the
following requisites must concur: (a) the existence of a legal right or duty; (b) which is
exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another. In this
case, the Aguilars failed to substantiate the above requisites to justify the award of
damages in their favor against PNB, who merely exercised its legal right as a creditor
pursuant to RA 7202.

QUASI-CONTRACTS

6) H. VILLARICA PAWNSHOP vs. SOCIAL SECURITY COMMISSION

G.R NO. 228087, JANUARY 24, 2018
(THIRD DIVISION)

GESMUNDO J.:

NATURE OF THE ACTION: Condonation statutes—being an act of liberality on the

part of the State—are strictly construed against the applicants unless the laws
themselves clearly state a contrary rule of interpretation.
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed
by petitioners H. Villarica Pawnshop, Inc., HL Villarica Pawnshop, Inc., HRV Villarica

Page 13 of 79
Pawnshop, Inc. and Villarica Pawnshop, Inc., (petitioners)  seeking to reverse and set
aside the Decision1 dated February 26, 2016 and Resolution dated November 2, 2016, of
the Court of Appeals (CA) in CA-G.R. SP No. 140916, which affirmed the
Resolution dated November 6, 2013, and Order 4 dated January 21,2015, of the Social
Security Commission  (SSC) denying petitioners' claim for refund.

FACTS:
This case involves the claim of Petitioners, private corporations engaged in the
pawnshop business and are compulsory registered with the Social Security System
(SSS), for reimbursement of the accrued penalties after paying their delinquent
contributions and accrued penalties with the different branches of the SSS prior to the
enactment of R.A No. 9903, otherwise known as the Social Security Condonation Law of
2009, which took effect on February 1, 2010. Such law offers delinquent employers the
opportunity to settle, without penalty, their accountabilities or overdue contributions
within six (6) months from the date of its effectivity. Invoking Section 4 of R.A. No. 9903
and Section 2 (f) of the Social Security Commission (SSC) Circular No. 2010-004 or the
Implementing Rules and Regulations of R.A. No. 9903 (IRR), petitioners claimed that the
benefits of the condonation program extend to all employers who have settled their
arrears or unpaid contributions even prior to the effectivity of the law. However, in a
Letter dated August 16, 2010, the SSS - San Francisco Del Monte Branch denied
petitioner Villarica Pawnshop, Inc.'s request for refund amounting to P3,119,400.15
stating that there was no provision under R.A. No. 9903 allowing reimbursement of
penalties paid before its effectivity. The applications for refund filed by petitioners H.
Villarica Pawnshop, Inc. and HL Villarica Pawnshop, Inc. were likewise denied in
separate letters for the same reason of being filed outside the coverage of R.A. No. 9903.

Having denied their request for reimbursement, petitioners filed their respective
petitions before the SSC for reimbursement claims of the 3% per month penalties they
paid in 2009 arguing that they were entitled of the benefits under R.A. No. 9903 by
reason of equity because "one of the purposes of the law is to favor employers,
regardless of the reason for the non-payment of the arrears in contribution;" and that the
interpretation of the SSS "is manifestly contrary to the principle that, in enacting a
statute, the legislature intended right and justice to prevail."

The SSS filed its Answer rebutting that petitioners were not entitled to avail of
the condonation program under R.A. No. 9903 because they were not considered
delinquent at the time the law took effect in 2010; and that there was nothing more to
condone on the part of petitioners for they have settled their obligations even before the
enactment of the law. The SSS explained that the term "accrued penalties" had been
properly defined as unpaid penalties under the IRR and, considering that laws granting
condonation constitute acts of benevolence on the part of the State, they should be
strictly construed against the applicant. The SSC favored SSS that there could be no
remission or refund in their favor as petitioners did not have unpaid contributions at the
time the law took effect. The CA likewise affirmed SSC’s ruling.

ISSUE:
Whether the petitioners herein are entitled to refund or reimbursement of
penalties paid prior to the effectivity of R.A 9903crop loans covered by RA 7202

HELD:
Sections 1 and 2 of the IRR of R.A. No. 9903 state that "Accrued penalty" refers to
the unpaid three percent (3%) penalty imposed upon any delayed remittance of
contribution m accordance with Section 22 (a) of R.A. No. 1161, as amended.
Consequently, R.A. No. 9903 covers those employers who (1) have existing delinquent
contributions and/or (2) have accrued penalties at the time of its effectivity. Evidently,
there is nothing in R.A. No. 9903, particularly Section 4 thereof, that benefits an

Page 14 of 79
employer who has settled their delinquent contributions and/or their accrued penalties
prior to the effectivity of the law. Once an employer pays all his delinquent
contributions and accrued penalties before the effectivity of R.A. No. 9903, it cannot
avail of the condonation program because there is no existing obligation anymore. It is
the clear intent of the law to limit the benefit of the condonation program to the
delinquent employers. Condonation statutes—being an act of liberality on the part of the
State—are strictly construed against the applicants unless the laws themselves clearly
state a contrary rule of interpretation.

Settling the contributions in arrears within the availment period only entitles
delinquent employers to a remission of their corresponding accrued and outstanding
penalties—not a refund of the penalties which have already been paid. There is nothing
in R.A. No. 9903 which explicitly imposes or even implicitly recognizes a positive or
natural obligation on the part of the SSS to return the penalties which have already been
settled before its effectivity. It is absurd to revive obligations that have already been
extinguished by payment or performance just to be re-extinguished by condonation or
remission so that it may create a resulting obligation on the basis of solutio indebiti.
More importantly, there is no violation of the equal protection clause because there is a
substantial distinction in the classes of employers. Therefore, the Court deems it fitting
to deny petitioners' claim for refund for lack of substantial and legal basis.

7) ROSEMARIE Q. REY vs. CESAR G. ANSON

G.R. NO. 211206, NOVEMBER 07, 2018
(THIRD DIVISION)

PERALTA J.:

NATURE OF THE ACTION: This is a petition for review on certiorari, under Rule 45 of

the Rules of Court, of the Decision of the Court of Appeals dated September 6, 2013 in
CA-G.R. CV No. 95012, which reversed and set aside the Decision3 dated February 5,
2010 of the Regional Trial Court (RTC) of Legazpi City, Branch 5, and entered a new
judgment ordering herein petitioner Rosemarie Q. Rey to pay respondent Cesar G.
Anson the sum of P902,847.87, plus twelve percent (12%) interest per annum from
September 1, 2013 until fully paid, and to pay legal interest of twelve percent (12%) per
annum on the total award due, to be computed from the time the judgment becomes
final and executory until the same is fully satisfied.

FACTS:

Page 15 of 79
 The petitioner herein, Rosemarie Rey, the President and one of the owners of
Southern Luzon Technological College Foundation Incorporated, a computer school in
Legazpi City, entered into a loan agreement with Respondent Cesar Anson for the
purpose of a quick infusion of cash for Rey’s school. In this case, there were four series
of loans contracted by the Rey which involved the following: (1) P200,000.00 payable in
one year, and subject to 7.5% interest per month or 90% interest per annum, which
would be paid bi-monthly by way of postdated checks and secured by a real estate
mortgage on Spouses Teodoro and Rosemarie Rey's property; (2) P350,000.00, subject to
7% interest per month or 84% per annum and payable in four months, secured by a real
estate mortgage over a parcel of land registered in the name of Rosemarie Rey's mother,
Isabel B. Quinto; (3) Pl00,000.00, which was not put in writing but the parties verbally
agreed that the same would be subject to 3% monthly interest; and (4) another
P100,000.00, which was not also not put in writing, but there was an oral agreement of
4% monthly interest.

In the first loan, although Rey had paid the interest for 12 months, she failed to
pay the principal amount of P200,000.00 when it became due and requested Anson not
to foreclose the mortgage or to impose the stipulated penalty charges, but instead to
extend the terms thereof to which Anson agreed. This was reduced to a promissory note
and a Deed of Real Estate Mortgage was executed with the agreement to pay the
principal obligation of P200,000 within four (4) months from its such execution. After
issuing postdated checks, Rey still failed to pay the first loan. With regard to the second
loan, Rey failed to pay again the monthly interest of the amount as well as the principal
amount when it became due. Again, Rey requested Anson not to foreclose the mortgage
or to impose the stipulated penalty charges, but instead to extend the terms thereof to
which Anson agreed. A new Deed of Real of Estate Mortgage was executed wherein Rey
acknowledged her indebtedness to Anson in the amount of P611,340.00, payable within
four months from the execution of such Deed. However, Rey still failed again to fulfill
her obligation on the second loan and requested Anson not to foreclose the mortgage or
to impose the stipulated penalty charges, but instead to extend the terms thereof to
which Anson again agreed. Rey acknowledged indebtedness to Anson in the amount of
P761,450.00, payable within six months from the execution of the Deed, including the
interest.

Through a Statement of Account sent by Anson to Rey, instead of paying the

obligations, Anson sought the full payment of all four loans from Rey amounting to
P2,214,587.50 but the latter raised that the four loans were irregular, if not contrary to
law. Rey alleged that the 7.5% and 7% monthly interest rates imposed on the first and
second loans, respectively, were excessive and unconscionable and should be adjusted
to the legal rate. She also argued that no interest should have been imposed on the third
and fourth loans in the absence of any written agreement imposing interest. Rey further
claimed that she had overpaid the amount of P283,434.19 and demanded from Cesar
Anson the return of such excess payment. RTC ruled in favor of the Spouses Rey but the
CA reversed the former’s decision.

ISSUE:
Whether the computation of payment of interest and the principal amount in the
first and second loans are correct

HELD:
Yes, the computation is correct.

The Court agrees with Rey that Articles 1253 and 2154 of the Civil Code apply to
this case, thus obliging Anson to return to Rey excess payments received by him. Under
Article 1253, “If the debt produces interest, payment of the principal shall not be deemed
to have been made until the interests have been covered.”

In this case, the Court found that the computations made by Rey for the first and
second loans are correct. In the first loan, Rey already paid in full the principal amount

Page 16 of 79
of P200,000.00 and the monthly interest thereof, leaving an excess payment of P1,759.64.
Payments made by Rey from November 23, 2003 to August 23, 2004 also resulted in
overpayment amounting to P144,259.64. The excess payment of P9,259.64 as of
November 23, 2003 plus excess payments made from December 23, 2003 to April 23,
2004 amounting to P84,259.64 in the first loan may be applied to second loan, leaving a
final excess payment of P60,000.00 for the first loan. Meanwhile, in the second loan, Rey
fully paid the principal amount of P350,000.00 and the monthly interest thereof, leaving
an excess payment of P31,856.68. Payments made thereafter resulted in excess payments
amounting to Pl 50,380.68 for the second loan. In the third loan, Rey has made excess
payments of P41,360.00 and P17,960.00 in the fourth loan. In total, the excess payments
made by Rey in the four loans amounted to P269,700.68 and is obliged to return such
amount to Anson based on the principle of solutio indebiti under Article 2154 of the Civil
Code. Under Article 2154. “If something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises.”

In the case of Nacar v. Gallery Frames, et al., it was held that "When the judgment of
the court awarding a sum of money becomes final and executory, the rate of legal
interest x xx 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." Since the
excess payments made by Rey were also borne out of a mistake, Cesar is not held liable
for interest on the excess payment.

C. KINDS OF CIVIL OBLIGATIONS

As to Perfection and Extinguishment

8) LILY S. VILLAMIL, SUBSTITUTED BY HER HEIRS RUDY E. VILLAMIL,

ET AL. vs. SPOUSES ERGUIZA
G.R. NO. 195999, JUNE 20, 2018
(THIRD DIVISION)

MARTIRES J.:

NATURE OF THE ACTION: This is a petition for review on certiorari seeking to

reverse and set aside the Decision, dated 29 June 2010, and Resolution, dated 2 February
2011, of the Court of Appeals (CA) in CA-G.R. SP No. 109813 which nullified the
Decision, dated 2 October 2008, of the Regional Trial Court, Dagupan City, Branch 44
(RTC), in Civil Case No. 2007-0014-D, an action for recovery of possession.

FACTS:
This case involves the action for recovery of possession filed by the Petitioner
against Respondents claiming that the former is the absolute and exclusive owner of a

Page 17 of 79
parcel of land located in District of Pantal, City of Dagupan. An agreement was made
between the Petitioner, together with her deceased sister, Corazon Villamil, and
deceased brother, Teddy Villamil, and the Respondent to sell the subject property to the
latter under the condition that the Petitioner and her siblings would file a petition to
secure authorization for minor children from the proper courts. In case the Petitioner
fails to do so, the partial payment made by Juanito Erguiza shall be applied as rent for
twenty (20) years of the premises. However, upon the expiration of the 20 years of lease
in year 1992, the Villamils demanded from the Erquizas to return possession of the
property but the latter failed and refused, and still fails and refuses to return possession
of the property to the damage and prejudice of the former.

ISSUE:
Whether the agreement entered into by the parties involved a contract to sell

HELD:
Yes, it is a contract to sell by which 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.

Under Article 1458 of the Civil Code, a contract of sale is defined as when “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.” Sale, by its very nature, is a consensual contract because it is perfected by
mere consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership
in exchange for the price; b) Determinate subject matter; and c) Price certain in money or
its equivalent.

In this case, the agreement of the parties cannot be considered a Contract of  Sale
because the first essential element is lacking. A contract to sell 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 said
property exclusively to the latter upon his fulfillment of the conditions agreed upon
such as the full payment of the purchase price and/or compliance with the other
obligations stated in the contract to sell. In Contract to Sell, there is no transferring of
ownership of the property yet by a prospective seller until the happening of an event.
Ownership is retained by the prospective seller without further remedies by the
prospective buyer whereby full payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to sell from arising. On
the oher hand, under Article 1479 of the Civil Code, a promise to buy and sell a
determinate thing for a price certain is reciprocally demandable.

Page 18 of 79
 9) FEDERAL EXPRESS CORPORATION vs. LUWALHATI R. ANTONINO
G.R NO. 199455, JUNE 27, 2018
(THIRD DIVISION)

LEONEN J.:

NATURE OF THE ACTION: The duty of common carriers to observe extraordinary

diligence in shipping goods does not terminate until delivery to the consignee or to the
specific person authorized to receive the shipped goods. Failure to deliver to the person
authorized to receive the goods is tantamount to loss of the goods, thereby engendering
the common carrier's liability for loss. Ambiguities in contracts of carriage, which are
contracts of adhesion, must be interpreted against the common carrier that prepared
these contracts.
This resolves a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules
of Civil Procedure praying that the assailed Court of Appeals August 31, 2011
Decision2 and November 21, 2011 Resolution in CA-G.R. CV No. 91216 be reversed and
set aside and that Luwalhati R. Antonino (Luwalhati) and Eliza Bettina Ricasa Antonino
(Eliza) be held liable on Federal Express Corporation's (FedEx) counterclaim.

FACTS:
The subject property herein involves Unit 22-A in Allegro Condominium, located
at 62 West 62nd St., New York, United States which is owned by Respondent Eliza.
Sometime in December 15, 2003, Luwalhati and Eliza came back to Philippines as the

Page 19 of 79
common charges on the Unit became due. Respondents thus sent several Citibank
checks for the payment of monthly charges and of real estate taxes to Veronica Sison
who was then based in New York. Such checks were sent by Luwalhati through FedEx
to Sison who was tasked to deliver the checks to for payment to Maxwell-Kates, Inc. and
to the New York County Department of Finance. However, such delivery was not
reached to Sison which results default in payment on the part of Luwalhati and Eliza
and thereafter, the foreclosure of the Unit. The shipment was released unsigned by the
actual recipient, as authorized by the shipper or recipient. As a result, Respondents sent
a demand letter to FedEx due to the latters failure to deliver the package but the latter
disregarded their demand which made the Respondents to file their Complaint for
damages.
FedEx claimed that Luwalhati and Eliza "ha[d] no cause of action against it because
[they] failed to comply with a condition precedent, that of filing a written notice of claim
within the 45 calendar days from the acceptance of the shipment." It added that it was
absolved of liability as Luwalhati and Eliza shipped prohibited items and misdeclared
these items as "documents." It pointed to conditions under its Air Waybill prohibiting
the "transportation of money (including but not limited to coins or negotiable
instruments equivalent to cash such as endorsed stocks and bonds)."

ISSUE:
Whether respondent shall be liable because of his failure to comply with a
condition precedent, that is, the filing of a written notice of a claim for non-delivery or
misdelivery within 45 days from acceptance of the shipment

HELD:
Yes, FedEx is liable. A provision in a contract of carriage requiring the filing of a
formal claim within a specified period is a valid stipulation. Jurisprudence maintains
that compliance with this provision is a legitimate condition precedent to an action for
damages arising from loss of the shipment.

The right to damages against us shall be extinguished unless an action is brought

within two (2) years from the date of delivery of the shipment or from the date on which
the shipment should have been delivered. Within forty-five (45) days after notification of
the claim, it must be documented by sending to us [all the] relevant information about it.
For their claim to prosper, respondents must, thus, surpass two (2) hurdles: first, the
filing of their formal claim within 45 days; and second, the subsequent filing of the
action within two (2) years. There is no dispute on respondents' compliance with the
second period as their Complaint was filed on April 5, 2004. In appraising respondents'
compliance with the first condition, this Court is guided by settled standards in
jurisprudence.

In Philippine Airlines, Inc. v. Court of Appeals, Philippine Airlines alleged that

shipper Gilda Mejia (Mejia) failed to file a formal claim within the period stated in the
Air Waybill. This Court ruled that there was substantial compliance with the period
because of the zealous efforts demonstrated by Mejia in following up her claim. These
efforts coupled with Philippine Airlines' "tossing around the claim and leaving it
unresolved for an indefinite period of time" led this Court to deem the requisite period
satisfied. This is pursuant to Article 1186 of the New Civil Code which provides that
"[t]he condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment."

Considering the abovementioned incident and private respondent Mejia's own

zealous efforts in following up the claim, it was clearly not her fault that the letter of
demand for damages could only be filed, after months of exasperating follow-up of the
claim, on August 13, 1990. If there was any failure at all to file the formal claim within
the prescriptive period contemplated in the air waybill, this was largely because of
PAL's own doing, the consequences of which cannot, in all fairness, be attributed to
private respondent.

Page 20 of 79
 Even if the claim for damages was conditioned on the timely filing of a formal
claim, 'under Article 1186 of the Civil Code that condition was deemed fulfilled,
considering that the collective action of PAL's personnel in tossing around the claim and
leaving it unresolved for an indefinite period of time was tantamount to "voluntarily
preventing its fulfillment." On grounds of equity, the filing of the baggage freight claim,
which sufficiently informed PAL of the damage sustained by private respondent's cargo,
constituted substantial compliance with the requirement in the contract for the filing of a
formal claim. (Citations omitted)

Here, the Court of Appeals detailed the efforts made by respondent Luwalhati
and consignee Sison. It also noted petitioner's ambiguous and evasive responses,
nonchalant handling of respondents' concerns, and how these bogged down
respondents' actions and impaired their compliance with the required 45-day period:

Anent the issues concerning lack of cause of action and their so-called "run-
around" matter, We uphold the lower court's finding that the herein appellees complied
with the requirement for the immediate filing of a formal claim for damages as required
in the Air Waybill or, at least, We find that there was substantial compliance therewith.
Luwalhati testified that the addressee, Veronica Z. Sison promptly traced the
whereabouts of the said package, but to no avail. The foregoing event show Luwalhati's
own ardent campaign in following up the claim. To the Court's mind, it is beyond her
control why the demand letter for damages was only sent subsequent to her infuriating
follow-ups regarding the whereabouts of the said package. We can surmise that if there
was any omission at all to file the said claim within the prescriptive period provided for
under the Air Waybill it was mostly due to herein appellant's own behavior, the
outcome thereof cannot, by any chance, be imputed to the herein appellees.44
(Grammatical errors in the original) Petitioner has been unable to persuasively refute
Luwalhati's recollection of the efforts that she and Sison exerted, and of the responses it
gave them. It instead insists that the 45-day period stated in its Air Waybill is sacrosanct.
This Court is unable to bring itself to sustaining petitioner's appeal to a convenient
reprieve. It is one with the Regional Trial Court and the Court of Appeals in stressing
that respondents' inability to expediently file a formal claim can only be attributed to
petitioner hampering its fulfillment. Thus, respondents must be deemed to have
substantially complied with the requisite 45-day period for filing a formal claim.

BREACH OF OBLIGATIONS
Manner of Breach
(Negligence)

10) DR. CONSOLACION S. CALLANG vs. COMMISSION ON AUDIT

G.R. NO. 210683, JANUARY 8, 2019
(THIRD DIVISION)

REYES, J., JR., J.:

NATURE OF THE ACTION: A petition for certiorari under Rule 64 of the Revised
Rules of Court which seeks to reverse and set aside the November 20, 2013 Decision No.
2013-199 of the Commission on Audit (COA).

FACTS:
Petitioner Callang, as a District Supervisor of, Bambang District I, Bayombong,
Nueva Vizcaya, Department of Education (DepEd), encashed various checks for the
payment of the Year-End Bonus and Cash Gift of the teaching and non-teaching
personnel and personally distributed the bonuses to the personnel. As the other
personnel were absent, a total of P537,454.50 from the bonuses was left and the same
was brought home by Callang after the District Statistician, Rizalino Lubong, refused to
safe-keep the remaining cash. The following day, after bringing snacks to her
granddaughter at Saint Mary’s University before going to her office, she rode a jeepney

Page 21 of 79
and while along the way, she was victimized of robbery after one of her co-passengers
declared robbery and took her bag containing the subject cash, as well as her personal
belongings.

The Audit Team Leader (ATL) of Bambang District I, DepEd, Nueva Vizcaya
held Callang not negligent for the loss of the cash and granted her request for Relief of
Cash Accountability, to which the Supervising Auditor of the same district office agreed.
In the contrary, the Officer-in-Charge-Regional Director (OIC-RD) of COA Regional
Office opposed that Callang is not to be held negligent for the loss of the cash which was
affirmed by the Commission on Audit (COA).

ISSUE:
Whether Callang was negligent in the loss of subject cash

HELD:
No, Callang was not negligent.

Under Section 105 of Presidential Decree (P.D.) No. 1445, “officers accountable for
government property or funds shall be liable in case of its loss, damage or deterioration
occasioned by negligence in the keeping or use thereof. Absent any showing that the accountable
officer acted negligently in the handling of government funds, he or she is not liable for its value
and should be relieved from any accountability.” However, a person shall be held liable even
if the loss was caused by force majeure if such person’s negligence contributed to the
such loss.
In this case, the Court considered the proximity of the school of her granddaughter to
her house which were only close to each other in the same neighborhood and which
could not have been materially different if she decided to go straight to her office as she
would probably have taken the same jeepney. Also, the robbery happened when she
was on board a jeep from her granddaughter’s school to her office. The Court also ruled
that Callang exercised sufficient diligence in her decision of bringing home the money
considering that her office had been subjected to numerous burglaries in the past and it
was not equipped with an adequate compartment where the money can be safely stored
until the following day. Such decision of Callang is what a reasonable and diligent
person would have acted under the same circumstance

Manner of Breach
(Delay)

11) SPS. FRANCISCO ONG AND BETTY LIM ONG vs.

BPI FAMILY SAVINGS BANK
GR NO. 208638, JANUARY 24, 2018
(SECOND DIVISION)

REYES, JR., J.:

NATURE OF THE ACTION: This is a Petition for Review under Rule 45 of the Rules of
Court, as amended, seeking to reverse and set aside the Decision 1 dated January 31, 2013
and Resolution2 dated August 16, 2013 of the Court of Appeals (CA) in CA-G.R. CV No.
92348.

FACTS:
A complaint for action for damages with Temporary Restraining Order and
Preliminary Injunction praying for P23,570,881.32 as actual damages and other damages
was filed against Respondent BPI after the latter filed a petition for extrajudicial

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foreclosure of the real estate mortgage for Petitioners' default in the payment of their
term loan. BPI acquired all the rights and assumed the obligations of Bank of Southeast
Asia's (BSA) after the merger happened between the two. BSA was the original bank
creditor of Petitioners who offered the latter loan and credit facilities which the former
accepted. Such loan and credit facilities were to be used by Petitioners (together with
Spouses Joseph Ong Chuan and Esperanza Ong Chuan) to buy machineries and
equipment for their printing business under the name and style "Melbros Printing
Center.” As a security for the loan, Petitioners executed a real estate mortgage over their
property located in Paco, Manila in favor of BSA for a P15,000,000.00 term loan and
P5,000,000.00 credit line or a total of P20,000,000.00. However, only P10,444,271.49 was
initially released from the term loan and only P3,000,000.00 from the credit line. BSA
promised to release the remaining P2,000,000.00 conditioned upon the payment of the
P3,000,000.00 initially released to Petitioners. Despite Petitioners’ compliance to such
condition, BPI still refused to release the P2,000,000.00 amount so the former also
refused to pay the amortizations due on their term loan. Hence, such complaint was
filed by Petitioners to which the latter was awarded by the Court
Php20,469,498.00 actual damages plus attorney’s fees.

ISSUE:
Whether BSA incurred delay in the performance of its obligations

HELD:
Yes, BSA incurred delay.

Under Article 1934 of the Civil Code, “a loan contract is perfected only upon the
delivery of the object of the contract.”

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. Hence, in a loan, the creditor should release the full loan
amount and the debtor repays it when it becomes due and demandable.
BSA incurred delay in this case upon its failure to release the pre-agreed credit line of
P5,000,000.00 and violated the terms of its agreement with the Petitioners upon BSA’s
deliberate failure to release the remaining amount of P2,000,000.00. Petitioners cannot be
held in default for its failure to pay such amortizations because BSA had already first
reneged on its obligation to release the amount previously agreed upon.

Under Article 1170 of the Civil Code, “those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.”

The Court ruled that “Pursuant to such merger and consolidation, BPI's right to
foreclose the mortgage on petitioner's property depends on the status of the contract and the
corresponding obligations of the parties originally involved, that is, the agreement between its
predecessor BSA and petitioner.” In this case, the delay incurred by BSA subsequently
cancelled the omnibus line without Petitioners' consent. Thereby, BPI, as the success of
BSA, is of no right to foreclose the loan as BSA violated the terms of its contract with
Petitioners even prior to the latter’s justified refusal to continue paying the
amortizations.

Page 23 of 79
 E. MODES OF EXTINGUISHMENT OF OBLIGATIONS
1. Payment or Performance

12) DEMOSTHENES R. ARBILON vs. SOFRONIO MANLANGIT

G.R. NO. 197920, JANUARY 22, 2018
(FIRST DIVISION)

TIJAM, J.:

NATURE OF THE ACTION: This is a petition for review on certiorari under Rule 45 of

the Rules of Court filed by Demosthenes R. Arbilon (petitioner) assailing the
Decision2 dated January 14, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 00038,
which reversed and set aside the Decision dated May 5, 2003 of the Regional Trial Court
(RTC) of Davao City, Branch 33 in Civil Case No. 27,498-99 dismissing the case filed by
Sofronio Manlangit (respondent) and ordering the return of the possession of the Atlas
Copco Compressor (compressor) to petitioner.

FACTS:
An action for recovery of possession of personal properties with writ of replevin
and/or sum of money was instituted by Respondent Manlangit against Petitioner
Arbilon. It was alleged that despite demand, Arbilon failed to return the subject
compressor in his possession but the former argued that Manlangit is not the owner of

Page 24 of 79
such compressor and was never vested to him as he failed to pay the purchase price of
P200,000.00. Arbilon further argued that he voluntarily assumed the obligation to pay
the compressor to Davao Diamond in four installments as it was indispensable in the
mining operations of Double A.

In the Complaint, the following facts were alleged to exist in this case:
1. [Respondent] purchased on installment from [Davao Diamond] on July 17,
1996, one (1) unit [compressor] and one (1) SS Pump 3HP, among others;

2. He failed to pay the purchase price of these items;

3. He wrote [Davao Diamond] a letter on August 5, 1999, voluntarily

surrendering the compressor and the pump because he could not pay for it;

4. Before he wrote the letter to [Davao Diamond], [Leanillo] had already paid
[Davao Diamond] the purchase price for the compressor in four installments.
Thus was evidenced by Cash Vouchers all dated in 1998 x x x and the
corresponding receipts issued in behalf of [Davao Diamond] by Atty. George
Cabebe x x x, each for P50,000.00.

From the foregoing facts, it appeared that Manlangit was aware that he was no
longer the owner of the compressor the time he was voluntarily surrendering it and the
pump to Davao Diamond. Hence, as of such time of the surrender, Manlangit has no
more right and interest over the compressor and the pump.

ISSUE:
Whether the payment of Leanillo can be considered as payment by a third party

HELD:
Yes. Since Respondent failed to prove that the money used to pay the compressor
was Respondent's partnership share nor the existence of a partnership among them, the
payment of Leanillo can be considered as payment by a third party.

Under Article 1236 of the Civil Code, “the creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.

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, the Court did not agree with the respondent’s claim that there is
nothing to be reimbursed since the money used by Leanillo to pay the compressor came
from his partnership share. As such, as it was Leanillo who paid the price of the
compressor in behalf of Manlangit, the former can validly demand reimbursement from
the latter. However, the Court cannot acquire jurisdiction over Leanillo as he was not
impleaded as a party in this case.

Page 25 of 79
 13) SPOUSES CELONES vs. METROPOLITAN BANK AND TRUST
COMPANY AND ATTY. CRISOLITO O. DIONIDO
G.R. NO. 215691, November 21, 2018
(FIRST DIVISION)

TIJAM, J.:

NATURE OF THE ACTION: This is a petition for review on certiorari filed by

petitioners Spouses Francis N. Celones and Felicisima Celones (Spouses Celones),
against respondents Metropolitan Bank and Trust Company (Metrobank) and Atty.
Crisolito O. Dionido (Atty. Dionido), assailing the Decision dated April 14, 2014 and the
Resolution dated December 11, 2014 of the Court of Appeals (CA) in CA-G.R. CV No.
96236, reversing the Order4 dated September 1, 2010 of the Regional Trial Court (RTC) of
Pasig City, Branch 154, declaring the Memorandum of Agreement5 (MOA) without force
and effect and declaring that Spouses Celones were the ones who redeemed the
mortgaged properties.

FACTS:
This case involves various loans obtained by Spouses Celones together with their
company, Processing Partners and Packaging Corporation (PPPC), for a total amount of
P64,474,058.73, secured by a real estate mortgage over the properties of the spouses.
However, upon default of payment of the spouses, Metrobank foreclosed such
mortgaged properties and it became the winning bidder during the foreclosure sale. The
spouses offered to redeem their properties from Metrobank in the amount of P55M
which was approved by the latter and subsequently issued a Conditional Notice of
Approval for Redemption (CNAR) stating that the offer of the Spouses to redeem the

Page 26 of 79
property in the amount of P55 Million has been approved to be paid on or before
December 20, 2007. The spouses needed to loan from other banking and financing
institutions to which they found Atty. Dionido who issued them two (2) manager's
check, one amounting to P35 Million and another amounting to P20 Million. Spouses
Celones, PPPC, Metrobank and Atty. Dionido executed a Memorandum of Agreement
(MOA) agreeing to subrogate Atty. Dionido in all the rights, interests of Metrobank over
the loan obligation of Spouses Celones and the foreclosed properties. Spouses Celones
demanded from Metrobank the issuance of a Certificate of Redemption believing that
they have redeemed the foreclosed properties to which Metrobank refused because all
its rights and interests over the foreclosed properties had been transferred to Atty.
Dionido. After the expiration of the redemption period, demand letters were sent to
Spouses for the latter to vacate the foreclosed properties which prompted the Spouses to
seek before the trial court a Declaratory Relief and Injunction to compel Metrobank to
issue the certificates of redemption and to deliver to them the certificates of title over the
foreclosed properties.

Having failed to redeem the property within the redemption period, the Spouses
Celones are hereby directed to immediately and voluntarily surrender the possession of
the foreclosed properties to Atty. Dionido in accordance with the provisions of the said
MOA. The court ordered to the Spouses to pay Atty. Diokno the P2.5M loan amount
with legal interest thereon at the rate of six (6%) percent per annum from the time of its
availment until fully paid plus damages.

ISSUES:
1. Whether implied novation exists in this case;
2. Whether the Spouses have an obligation to pay Atty. Dionido

HELD:
1. No, novation did not apply in this case.
In order for an obligation to 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. It is thus imperative
that novation must be stated in clear and unequivocal terms to extinguish an obligation.
It cannot be presumed and may be implied only if the old and new contracts are
incompatible on every point.
In the MOA of the parties, there was no express stipulation as to the novation or
extinction of the CNAR. Thus, for implied novation to exist, it is necessary to determine
whether the CNAR and the MOA are incompatible on every point such that they cannot
be reconciled and stand together. Metrobank’s approval of the offer of the Spouses to
redeem the subject property amounting to P55M was included under the CNAR while
the MOA includes the assignment of Metrobank of all its rights and interests to Atty.
Dionido over the foreclosed properties including the issuance of a certificate of
redemption. The Court found that the CNAR only deals with the redemption right of
Spouses Celones while the MOA deals with the assignment of credit of Metrobank to
Atty. Dionido. As such, the CNAR and the MOA can be reconciled and can both stand
together.

Hence, what Atty. Dionido acquired upon the execution of the MOA was merely
the right of Metrobank which was the issuance of a Certificate of Redemption, because
as of the date of such MOA execution, the foreclosed properties have already been
redeemed by the Spouses from Metrobank. As such foreclosed properties had already
been redeemed by the Spouses, the Certificate of Redemption should naturally be issued
by Atty. Dionido as the assignee.

2. Yes, Atty. Dionido has the right to demand payment of the amount of P55
Million from Spouses Celones with legal interest.

Under Article 1236 of the Civil Code, it is provided that, “the creditor is not bound
to accept payment or performance by a third person who has no interest in the fulfillment of the

Page 27 of 79
obligation, unless there is a stipulation to the contrary.”
“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.”

It is therefore just for the Spouses to pay Atty. Dionido the amount of P55 Million
with legal interest as this amount came from the latter; otherwise, non-payment would
constitute unjust enrichment to Atty. Dionido.

Special Forms of Payment

(Dation in Payment)

14) DESIDERIO DALISAY INVESTMENTS, INC. vs.

SOCIAL SECURITY SYSTEM
G.R. NO. 231053, APRIL 04, 2018
(THIRD DIVISION)

VELASCO, JR., J.:

NATURE OF THE ACTION: This Petition for Review on Certiorari under Rule 45 of the
Rules of Court seeks the reversal and setting aside of the August 12, 2016 Decision 1 and
March 10, 2017 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 03233-MIN.

FACTS:
A complaint was filed by respondent Social Security System (SSS) before the
Social Security Commission (SSC) against the Dalisay Group of Companies (DGC)
alleging that the latter failed to remit SSS premium contributions of its employees and
thus, seeking for the collection of the same from DGC. Consequently, then Desiderio
Dalisay Investments, Inc. (DDII) President Desiderio Dalisay sent a Letter to SSS offering
the subject land and building to offset DGC's liabilities at P3,500,000. However, no
negotiation took place as the parties failed to arrive at an agreement as to the appraised
value of the property. Another letter was sent by Dalisay for further negotiation with
regard to the appraisal of the property. As Asian Appraisal, Co. Inc. did not respond to
Dalisay’s request, it was Joson, Capili and Associates who did such appraisal which was
thereby approved. Two of the properties of DDII, together with the improvements
thereon, were sold to SSS to settle the former’s unremitted premiums and penalty
obligations. Subsequently, Joson, Capili and Associates informing Dalisay that the total
value of the lots is One Million Nine Hundred Fifty Four Thousand Seven Hundred

Page 28 of 79
Seventy-Seven & 78/100 (P1,954,777.78), rounded to P1,955,000. This Appraisal Report
was then indorsed to the SSC. In 1982, during a meeting of the SSS' Committee on
Buildings, Supplies and Equipment (Committee), DGC representative Atty.
Cabarroguis, explained that DGC is in financial distress and is in no way capable of
settling its obligation in cash and stated that he has "the authority to offer the properties
in the amount of 2 million pesos to be applied first to the unpaid premiums and the
excess be used to settle part of the penalties due. He assured that DGC is ready to vacate
the premises and respondent can have it occupied anytime. The offer for dacion was
accepted at the appraised value of P2,000,000. As additional conditions, the parties
agreed that: (1) the part of P2M is to be applied to DGC’s outstanding
educational/salary loans obligations; and (2) the criminal cases against the DGC shall
not be withdrawn as the penalties are not being paid in full and it is up to them to make
the necessary representations with the Fiscal's Office. The SSC then informed DDII of its
acceptance of the proposed dacion in payment, including its specified terms and
conditions, via a Letter.

On September 18, 1989, Desiderio Dalisay passed away. Despite repeated written
and verbal demands made by SSS for DDII to deliver the titles of the subject property,
free from all liens and encumbrances, DDII still failed to comply. DDII thereafter filed a
complaint for Quieting of Title, Recovery of Possession and Damages against SSS with
the Regional Trial Court (RTC), Branch 14, in Davao City. DDII alleged there was no
meeting of the minds between the parties. Consequently, there was no dation in
payment to speak of, contrary to the claim of SSS. With these, DDII asserted that SSS
owes it P43,208,270.99 as back rentals for its use of the property from 1982 onwards. It
also prayed for attorney's fees and costs of litigation. In its Answer, SSS argued that the
offer for dacion was categorically accepted by SSS, thereby perfecting such.

ISSUE:
Whether or not there was a perfected "Dacion en Pago"

HELD:
The petition was denied by the SC.

For an action to quiet title to prosper, two indispensable requisites must concur,
namely: (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.

In this case, if it can be proved that the proposed dacion was perfected, or even

consummated, then SSS' claim which allegedly casts a cloud on DDII's title is valid and
operative, and consequently, the action for quieting of title filed by DDII will not
prosper. Dacion en pago extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the parties
by agreement—express or implied, or by their silence—consider the thing as equivalent
to the obligation, in which case the obligation is totally extinguished. It requires delivery
and transmission of ownership of a thing owned by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. There is no dacion in payment
when there is no transfer of ownership in the creditor's favor, as when the possession of
the thing is merely given to the creditor by way of security. In order to determine here
whether or not there was indeed a perfected, or even consummated, dacion in payment,
it is necessary to review and assess the evidence and events that transpired and see
whether these correspond to the three stages of a contract of sale. This is so since, as
previously mentioned, dacion en pago agreements are governed, among others, by the
law on sales. While it is true that the value of the property has definitely significantly
increased over the years compared to the P2,000,000 amount for which it was offered to
SSS, still, such is not sufficient justification for DDII to turn its back on its obligations
under the dacion en pago agreement. The turn of events convinces the Court that DDII's

Page 29 of 79
actions are tainted with bad faith. If the Court were to grant the reliefs prayed for by
DDII, an injustice will definitely be caused to SSS, which in good faith relied upon the
company's representations.

2. Loss of the Thing Due or Impossibility of Performance

15) SM INVESTMENTS CORPORATION vs. MAC GRAPHICS CARRANZ

INTERNATIONAL CORP
G.R NOS. 224131-32; JUNE 25, 2018
(SECOND DIVISION)

CAGUIOA, J.:

NATURE OF THE ACTION: This are petitions for review on certiorari  (Petitions) under
Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals (CA) dated
December 22, 2015 in CA-G.R. SP Nos. 132392 and 132412 and the Resolution 5 dated
March 31, 2016. The CA Decision denied the petitions for certiorari under Rule 65 filed by
petitioner SM Investments Corporation (SMIC) and petitioner Prime Metroestate, Inc.
(PMI) before the CA while the CA Resolution denied their motions for reconsideration

FACTS:
A Contract of Lease (COL) was entered between, respondent Mac Graphics
Carranz International Corp. (MGCIC) and Pilipinas Makro, Inc. for exclusive use of the
latter's billboard sites located at Makro EDSA Cubao, Quezon City (Makro-Cubao) and
Makro Makati City (Makro-Makati) for a period of 20 years. It was stipulated in the COL
that should lessee fail to obtain the necessary permits and licenses to legally conduct its
business in the leased premises on the commencement dates mentioned above, the lessor
may pre terminate this Contract immediately, and the security deposits shall be forfeited
in favor of lessor. Under the Warranties of Lessee, it provides that “before the actual
start of construction of its structures, that it has covered all the improvements built on
the Lot with sufficient "All Risk" property insurance cover in an amount not lower than
Php 15,000,000 for Sucat site, Php 2,000,000 for Cubao site, and 1,000,000 for Makati
including third party liability cover in an amount not lower than Php 10,000,000 for each
site or per location during the construction phase of said improvements, and

Page 30 of 79
subsequently during the entire term of this Contract including the time of actual and
total vacation of the leased premises by lessee.”

MGCIC is one of the companies where SM Investments Corporation (SMIC), as

an incorporator, has substantial interest and such interest existed at the time when Mac
Graphics and Makro entered into COL. SMIC raised the following allegations: (1) that it
is a publicly-listed holding company of the SM Group of Companies and while it is not
engaged in the business of shopping mall development and management, retail
merchandising, financial services, real estate development, and tourism, it has interests
in the respective companies belonging to the SM Group of Companies that are engaged
therein; and (2) that it has never operated the properties which Makro used to operate
and it does not operate SM Hypermart, which is being operated by an independent
corporation. SMIC herein was not a party to the COL and contended that Makro
operated independently and its management was left to its own corporate officers.
Subsequently, Makro sent a letter to MGCIC terminating the COL effective immediately
because of the latter's alleged failure to obtain the relevant Metro Manila Development
Authority (MMDA) and local government permits and to obtain a comprehensive all-
risk property insurance for the sites. Makro and SMIC then removed Mac Graphics'
billboards and other advertising media installed at Makro-Cubao and Makro-Makati
and prevented MGCIC from entering the leased premises. After the letter of MGCIC to
Makro and SMIC demanding them to cease and desist from further infringing upon its
rights under the COL was refused, MGCIC then filed before the Regional Trial Court
(RTC), Muntinlupa City, a Complaint for "Permanent Injunction and Declaration of
Subsistence of Contract; Damages with Application for Temporary Restraining Order
and/or Writ of Preliminary Injunction" against Makro and SMIC. In its Answer with
Complusory Counterclaim, SMIC argued that MGCIC has no cause of action against it
because SMIC is not privy or party, successor-in-interest, or assign of the COL and the
termination of the COL was legal.

ISSUE:
Whether the CA erred in granting injunctive relief despite it being clear that it
has become impossible to compel PMI to do the acts subject of the mandatory injunctive
writ because the leased properties were sold by PMI to Super Shopping Market, Inc.
prior to the rendition of the RTC Order granting the Writ of Preliminary Mandatory
Injunction (WPMI)

HELD:
Yes, the CA committed grave error for upholding the grant of the WPMI by the
RTC in favor of Mac Graphics given the patent absence of a clear and unmistakable right
of Mac Graphics and its injury, if any, that is easily quantifiable and reparable. Mac
Graphics reiterated its position in its Complaint and invoked Articles 1266 and 1267 of
the Civil Code to excuse itself from securing the stipulated insurance for the billboards
and other outdoor advertising materials since the circumstances brought about by
typhoon Milenyo had "not only rendered the obligation so difficult as to be manifestly beyond
the contemplation of the parties, but in fact made it  legally and physically impossible under the
circumstances  then prevailing."

With regard to the issuance of WPMI, the court reiterated its ruling in Heirs of
Melencio Yu v. Court of Appeals which states:

“x x x To justify the issuance of a writ of preliminary mandatory injunction, it must be

shown that: (1) the complainant has a clear legal right; (2) such right has been violated
and the invasion by the other party is material and substantial; and (3) there is an urgent
and permanent necessity for the writ to prevent serious damage. [70]  An injunction will
not issue to protect a right not  in esse, or a right which is merely contingent and may
never arise since, to be protected by injunction, the alleged right must be clearly founded
on or granted by law or is enforceable as a matter of law.”

Page 31 of 79
 Meanwhile, in Power Sites and Signs, Inc. v. United Neon (a Division of Ever
Corporation), the Court ruled that “before a court grants injunctive relief, the complainant
must demonstrate that: he is entitled to the relief sought, the actual or threatened violation of
complainant's rights, the probability of irreparable injury, and the inadequacy of pecuniary
compensation as relief.”  
It is settled that a writ of preliminary injunction should be issued only to prevent grave
and irreparable injury, that is, injury that is actual, substantial, and demonstrable. In this
case, it is clear that “irreparable injury” as provided by the law is absent in this case and
the damages alleged by the petitioner, namely, "immense loss in profit and possible
damage claims from clients" and the cost of the billboard which is "a considerable
amount of money" is easily quantifiable, and certainly does not fall within the concept of
irreparable damage or injury as described in Social Security Commission v. Bayona by
which the Court ruled:
“Damages are irreparable within the meaning of the rule relative to the issuance of
injunction where there is no standard by which their amount can be measured with
reasonable accuracy. "An irreparable injury which a court of equity will enjoin includes
that degree of wrong of a repeated and continuing kind which produce hurt,
inconvenience, or damage that can be estimated only by conjecture, and not by any
accurate standard of measurement ." An irreparable injury to authorize an injunction
consists of a serious charge of, or is destructive to, the property it affects, either
physically or in the character in which it has been held and enjoined, or when the
property has some peculiar quality or use, so that  its pecuniary value will not fairly
recompense the owner of the loss thereof . (Emphasis supplied)” As to this case,
preliminary injunction cannot be issued as the damage suffered by herein
petitioner is easily subject to mathematical computation and, if proven, is fully
compensable by damages.

II. CONTRACTS
A. IN GENERAL

16) ROLANDO DE ROCA vs. EDUARDO C. DABUYAN

G.R NO. 215281, March 05, 2018
(FIRST DIVISION)

DEL CASTILLO, J.:

NATURE OF THE ACTION: This Petition for Review on Certiorari seeks to set aside the
June 19, 2014 Decision and October 28, 2014 Resolution 3 of the Court of Appeals (CA)
dismissing the Petition for Certiorari in CA-G.R. SP No. 127974 and denying herein
petitioner's Motion for Reconsideration, respectively.

FACTS:
A complaint for illegal dismissal was filed by private respondents against RAF
Mansion Hotel Oki Management and New Management and Victoriano Ewayan. The
complaint was subsequently amended including Petitioner Rolando De Roca as co-
respondent. De Roca filed his Motion to Dismiss on the ground of lack of jurisdiction
alleging that while he was the owner of RAF Mansion Hotel building, the same was
being leased by Victoriano Ewayan, the owner of Oceanics Traveland Tour Agency and
that it was Ewayan who was the employer of private respondents. He argued that there
can be no employer-employee relationship between him and private respondents as he
did not hire the latter, pay their salaries, exercise supervision or control over them, nor
did he have the power to terminate their services. Thus, he asserted that the Labor
Arbiter had no jurisdiction over him. However, such Motion to Dismiss was denied by
the Labor Arbiter for having been filed out of the prescribed time and ordered De Roca
and the others to pay private respondents backwages and other monetary award. De
Roca appealed but was thereby denied.

Page 32 of 79
ISSUE:
Whether employer-employee relationship exists between the petitioner and
private respondents.

HELD:
As evidenced by the Contract of Lease executed by him and Oceanic Tours and
Travel Agency (Oceanic) represented by Ewayan through his attomey-in-fact Marilou
Buenafe, it can be shown that “petitioner was the owner of a building called the RAF
Mansion Hotel in Roxas Boulevard, Baclaran, Paranaque City; that on September 25,
2007, Oceanic agreed to lease the entire premises of RAF Mansion Hotel, including the
elevator, water pump, air-conditioning units, and existing furnishings and all items
found in the hotel and included in the inventory list attached to the lease agreement,
except for certain portions of the building where petitioner conducted his personal
business and which were leased out to other occupants, including a bank; that the lease
would be for a period of five years, or from October 15, 2007 up to October 15, 2012; that
the monthly rental would beP450,000.00; and that all expenses, utilities, maintenance,
and taxes -except real property truces -incurred and due on the leased building would
be for the lessee's account.” There is also no connection between De Roca and Oceanic
oilier than through the lease agreement executed by them as they are not partners in the
operation of RAF Mansion Hotel. It just so happens that Oceanic decided to continue
operating the hotel using the original name- "RAF Mansion Hotel".

As provided under Article 1311 of the Civil Code, “Contracts take effect only
between the parties, their assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision
of law." In this case, the contract of employment between private respondents and
Oceanic and Ewayan cannot be extended to De Roca who is not a part to the contract.
The claim of private respondents pointing De Roca as their employer is not meritorious
not even under the pretext that he took over as the "new management" of the hotel
operated by Oceanic. Here, De Roca only acted as the lessor of the premises which
Oceanic leased to operate as a hotel.

Page 33 of 79
 17) DALE STRICKLAND vs. ERNST
GR NO. 193782, AUGUST 01, 2018
(FIRST DIVISION)

JARDELEZA, J.:

NATURE OF THE ACTION: These are consolidated petitions for review

on certiorari under Rule 45 of the Rules of Court both filed by petitioner Dale Strickland
(Strickland): (1) G.R. No. 193782 is against respondent Ernst & Young LLP (EYLLP)
assailing the Decision dated June 17, 2010 of the Court of Appeals (CA) in CA-G.R. SP
No. 102805 which annulled and set aside the Orders of the Regional Trial Court, Branch
150, Makati City, ordered EYLLP to be dropped as defendant in Civil Case No. 05-692,
and referred the dispute between Strickland and EYLLP to arbitration; and (2) G.R. No.
210695, which is against respondent Punongbayan & Araullo (PA), and assails the
Decision dated August 5, 2013 of the CA in CA-G.R. SP No. 120897 which declared null
and void the Orders of the RTC and directed it to suspend proceedings in the same Civil
Case No. 05-692.
Civil Case No. 05-692 is a complaint8 filed by Strickland against, among others,
respondents PA and EYLLP praying for collection of sum of money.

FACTS:
An action for collection of sum of money was filed by Strickland against, among
others, respondents Punongbayan & Araullo (PA) and Ernst & Young LLP (EYLLP).
National Home Mortgage Finance Corporation (NHMFC) and PA entered into a
Financial Advisory Services Agreement (FASA) for the liquidation of the NHMFC's
Unified Home Lending Program (UHLP) while PA was the Philippine member of
respondent global company, EYLLP, during such time. It was Strickland who negotiated
the FASA between PA and NHMFC. Subsequently, EYLLP notified PA through a Letter
that the former is terminating its membership in EYLLP but thereafter, the working
relationship among the parties still continued. Meanwhile, as a result of Strickland's
resignation from EYLLP and/or EYAPFS, NHMFC was notified of PA's intention to
remove Strickland from the NHMFC Engagement Team. Thereafter, there was no actual
written and final agreement among PA, NHMFC, and Strickland in covering the new

Page 34 of 79
engagement and Strickland’s participation within the UHLP Project. PA intended to
discuss the mutual voluntary termination of the NHMFC Agreement. During the
meeting between PA and the president of NHMFC, Angelico T. Salud, Salud asked that
P&A and EYAPFS continue with the project and remain as financial advisors to
NHMFC. But he also proposed that NHMFC will hire Mr. Strickland for a nominal
compensation from NHMFC so that Mr. Strickland can continue to participate in the
project and work together. P&A and EYAPFS decided to accept its proposal but before
anything can be finalized, there was a change in the management of NHMFC.

Counsel for Strickland wrote PA claiming for "equitable compensation for

professional services" rendered to NHMFC on the UHLP Project from the time of his
separation from EYLLP and/or EYAPFS in July 2004 "up and through the recent Signing
and Closing Ceremony held on 22 April 2004 and his continued provision of services as
the final closing approaches." However, counsel for PA denied any contractual
relationship with Strickland and his assertion that he effectively substituted EYLLP
and/or EYAPFS for the portion of the work he carried out in the UHLP Project. Hence,
this complaint filed by Strickland and other defendants claiming P18M recovery for
equitable compensation for services they rendered. EYLLP and/or EYAPFS then filed a
"Motion to Refer to Arbitration. Strickland filed an Amended Complaint, dated June 29,
2006, adding more causes of action and including Strickland's replacement
Mark Grinis as a party-defendant while deleting several defendants but retaining
EYLLP and/or EYAPFSJ, NHMFC and PA.

Strickland maintains also that the CA's suspension of the proceedings in the case
is grave error because: (1) the Partnership Agreement containing the arbitration clause
was not sufficiently proved and authenticated; (2) the CA should have ordered the RTC
to conduct an evidentiary hearing on the factual assertions that PA is an agent of
EYLLP/EYAPFS and that the causes of action of Strickland against EYLLP are intricately
intertwined with those against PA and the other defendants; and (3) Strickland has
distinct causes of action against other defendants such as NHMFC.

ISSUE:
Whether the CA erred in its ruling

HELD:
No, the CA did not err in its ruling.

First, the SC maintained CA’s ruling that PA was unequivocally an agent of

EYLLP at the time it executed, as Philippine Member of the EYLLP global company, the
FASA with NHMFC for the UHLP Project. The March 26, 2002 letter covering the FASA
between NHMFC and PA, where PA, as one of the parties, was designated in all
references as "P&A/ERNST & YOUNG" or "P&A/E&Y." This fact of agency relationship
between PA and EYLLP cannot be denied and avoided by Strickland, given Articles
1868 and 1873 of the Civil Code which provides:
“Art. 1868. By the contract of agency a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or authority of
the latter.”

“Art. 1873. If a person specially informs another or states by public advertisement that
he has given a power of attorney to a third person, the latter thereby becomes a duly
authorized agent, in the former case with respect to the person who received the special
information, and in the latter case with regard to any person.”

PA is clearly considered an agent of EYLLP based on the documents. Strickland

admitted the following: (1) that he is an employee of Ernst & Young Asia, assigned to
different projects in Korea, Japan, Thailand, China and the Philippines; and (2) that x x x
P&A is an agent of Ernst & Young Asia. Such agency is also reflected in the letter
addressed to Strickland, dated April 15, 2002, stating that P&A was representing Ernst &
Young Asia, being its member firm located in the Philippines. P&A, as agent of Ernst &

Page 35 of 79
Young Asia, was authorized to act in behalf of the latter with regard to the liquidation of
the UHLP as financial advisor for NHMFC.

Meanwhile, the Court does not find the designation of Strickland in the
Engagement Team of the FASA as a stipulation pour atrui as Article 1311, paragraph 2 of
the Civil Code reads:

Art. 1311. If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not sufficient.
The contracting parties must have clearly and deliberately conferred a favor upon a third
person.

The clear applicability of the Partnership Agreement and the terms of the
arbitration clause, and absent a clear right-duty correlative which supports Strickland's
causes of action, it manifests that the CA correctly ruled the case.

18) MILAGROS P. ENRIQUEZ vs.

THE MERCANTILE INSURANCE CO., INC.
GR NO. 193782, AUGUST 01, 2018
(THIRD DIVISION)

LEONEN, J.:

NATURE OF THE ACTION: A surety bond remains effective until the action or
proceeding is finally decided, resolved, or terminated, regardless of whether the
applicant fails to renew the bond. The applicant will be liable to the surety for any
payment the surety makes on the bond, but only up to the amount of this bond.

This is a Petition for Review on Certiorari1 assailing the August 13, 2013

Decision and January 14, 2014 Resolution3 of the Court of Appeals in CA-G.R. CV No.
95955, which affirmed the Regional Trial Court's finding that Milagros P. Enriquez
(Enriquez) was liable for the full amount of the replevin bond issued by The Mercantile
Insurance Company, Inc. (Mercantile Insurance).

FACTS:
A Complaint for Replevin was filed by Milagros Enriquez against Wilfred
Asuten before the Regional Trial Court (RTC) of Angeles City, Pampanga for the
recovery of her Toyota Hi-Ace van valued at P300,000.00. In the Complaint, it was
alleged that Asuten refused to return her van, claiming that it was given by Enriquez's
son as a consequence of a gambling deal. As applied by Enriquez, Mercantile Insurance
issued a bond for P600,000.00, which had a period of one (1) year. Consequently, an
indemnity agreement was executed by Enriquez agreeing to indemnify the latter "for all
damages, payments, advances, losses, costs, taxes, penalties, charges, attorney's fees and
expenses of whatever kind and nature" that it would incur as surety of the replevin
bond.

However, aside from failure to present evidence on the part of Enriquez, the RTC
found that: (1) Enriquez surrendered the van to the Bank of the Philippine Islands, San
Fernando Branch but did not comply when ordered to return it to the sheriff within 24
hours from receipt of the RTC Order; and (2)she did not comply with prior court orders
to prove payment of her premiums on the replevin bond or to post a new bond. Thus,
the bond was forfeited and the Complaint herein was dismissed.

Page 36 of 79
 The RTC directed Mercantile Insurance to pay Asuten the amount of P600,000.00.
Mercantile Insurance paid Asuten P600,000.00 after Enriquez failed to remit such
amount when Mercantile Insurance requested Enriquez to do so. Hence, an action for
the collection of such amount was filed by Mercantile Insurance against Enriquez with
the RTC Manila, ruling in favor of Mercantile Insurance.

ISSUE:
Whether Enriquez should be made liable for the full amount of the bond paid by
Mercantile Insurance

HELD:
Yes, Enriquez should be made liable.

The Court ruled that any writ of seizure, being merely ancillary to the main
action, becomes functus oficio. The parties returned to the status quo as if no case for
replevin had been filed. Thus, upon the dismissal of the case, it was imperative for
Enriquez to return the van to Asuten. This case is an extraordinary one because the writ
of seizure here is dissolved due to the dismissal without prejudice, but the bond stands
because the case has yet to be finally terminated by the RTC.

In applying for the replevin bond, Enriquez voluntarily undertook with

Mercantile Insurance an Indemnity Agreement. As a rule, "a contract is law between the
parties" for as long as it is "not contrary to law, morals, good customs, public order, or
public policy." In the Indemnity Agreement entered upon between Enriquez and
Mercantile Insurance, Enriquez held herself liable for any payment made by Mercantile
Insurance by virtue of the replevin bond. Enriquez contends that the Indemnity
Agreement was a contract of adhesion since Mercantile Insurance made the extent of
liability "so comprehensive and all-encompassing to the point of being ambiguous."

The Court ruled that a contract of insurance is, by default, a contract of adhesion.
It is prepared by the insurance company and might contain terms and conditions too
vague for a layperson to understand; hence, they are construed liberally in favor of the
insured.

Any losses which petitioner has suffered were due to the consequences of her
actions, or more accurately, her inactions. The case filed by Enriquez herein was
dismissed due to her failure to prosecute and the RTC forfeited the replevin bond which
the former had filed for her refusal to return the property. Thus, she is liable for the
replevin bond for failing to appeal its forfeiture.

Page 37 of 79
 B. FUNDAMENTAL CHARACTERTISTICS/
PRINCIPLES OF CONTRACTS
1. Mutuality of Contracts

19) SECURITY BANK CORPORATION vs.

SPS. RODRIGO AND ERLINDA MERCADO 
G.R No. 192934, June 27, 2018 (FIRST DIVISION)

JARDELEZA., J:

NATURE OF THE ACTION: These are consolidated petitions seeking to nullify the

Court of Appeals (CA) July 19, 2010 Decision and May 2, 2011 Resolution in CA-G.R. CV
No. 90031. The RTC nullified the extrajudicial foreclosure sales over petitioners-spouses
Rodrigo and Erlinda Mercado's (spouses Mercado) properties, and the interest rates
imposed by petitioner Security Bank Corporation (Security Bank).

FACTS:
There was a credit line agreement between spouses Mercado and Security Bank
Corporation (SBC), the latter granting the former a revolving credit line in the amount of
P1M with the terms and conditions agreed upon which states that spouses Mercado
agree to pay Security Bank interest on outstanding Availments at a per annum rate
determined from time to time, by Security Bank and advised through their Statement of
Account every month. The basis for the determination of the interest rate by Security
Bank on their outstanding Availments will be Security Bank's prevailing lending rate at
the date of availment and the interest on each availment will be computed daily from
date of availment until paid. If their account is delinquent, they agree to pay Security
Bank the payment penalty of 2% per month computed on the amount due and unpaid or
in excess of their Credit Limit. The interest will be paid on outstanding availments based
on annual rate computed and billed monthly by SBC on the basis of its prevailing
monthly rate. The annual rate shall in no case exceed the total monthly prevailing rate as
computed by SBC. The spouses give their continuing consent without need of additional
confirmation to the interests stipulated as computed by SBC. The interests shall be due
on the first day of every month after date of availment. In line with this agreement, a
Real Estate Mortgage over their properties in Lipa City, Batangas and in San Jose,
Batangas was executed by the spouses in favor of SBC, and in Batangas City, Batangas to
secure an additional amount of P7,000,000.00 under the same revolving credit
agreement. Due to the consecutive defaults in payment of Spouses Mercado in their
revolving credit line agreement, filed a petition for extrajudicial foreclosure with the
Office of the Clerk of Court and Ex-Officio Sheriff of the RTC of Lipa City with respect to
the parcel of land situated in Lipa City and of the RTC of Batangas City with respect to
the parcels of land located in San Jose, Batangas and Batangas City. Thereafter, Spouses

Page 38 of 79
Mercado filed a complaint for annulment of foreclosure sale, damages, injunction,
specific performance, and accounting with application for temporary restraining order
and/or preliminary injunction with the RTC of Batangas City averring that: (1) the
parcel of land in San Jose, Batangas should not have been foreclosed together with the
properties in Batangas City; (2) the requirements of posting and publication of the notice
under Act No. 3135, as amended, were not complied with; (3) Security Bank acted
arbitrarily in disallowing the redemption of the foreclosed properties for P10,000,000.00;
(4) the total price for all of the parcels of land only amounted to P4723,620.00; and (5) the
interests and the penalties imposed by Security Bank on their obligations were
iniquitous and unconscionable. Security Bank, on the other hand, after having
consolidated its titles to the foreclosed parcels of land, filed an ex-parte petition for
issuance of a writ of possession over the parcels of land located in Batangas City and San
Jose, Batangas with the RTC of Batangas City. In its Decision, the RTC declared that: (1)
the foreclosure sales of the five parcels of land void; (2) the interest rates contained in the
revolving credit line agreement void for being potestative or solely based on the will of
Security Bank; and (3) thesum of P8,000,000.00 as the true and correct obligation of the
spouses Mercado to Security Bank. The RTC declared the foreclosure sales void because
"the act of making only one corrective publication x x x is a fatal omission committed by the
mortgagee bank." The RTC ruled that since the spouses Mercado offered to pay the higher
amount of P10,000,000.00 and the bank unjustifiably refused to accept it, no interest shall
be due and demandable after the offer.

ISSUE:
Whether the provisions on interest rate in the revolving credit line agreement
and its addendum are void for being violative of the principle of mutuality of contracts

HELD:
The interest rate provisions in the parties' agreement violate the principle of
mutuality of contracts. The principle of mutuality of contracts is found in Article 1308 of
the New Civil Code, which states that contracts must bind both contracting parties, and its
validity or compliance cannot be left to the will of one of them. The binding effect of any
agreement between parties to a contract is premised on two settled principles: (I) that
any obligation arising from contract has the force of law between the parties; and (2) that there
must be mutuality between the parties based on their essential equality. As such, any contract
which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Likewise, any stipulation regarding the validity or
compliance of the contract that is potestative or is left solely to the will of one of the
parties is invalid. This holds true not only as to the original terms of the contract but also
to its modifications. Consequently, any change in a contract must be made with the
consent of the contracting parties, and must be mutually agreed upon. Otherwise, it has
no binding effect. Stipulations as to the payment of interest are subject to the principle of
mutuality of contracts. As a principal condition and an important component in
contracts of loan, interest rates are only allowed if agreed upon by express stipulation of
the parties, and only when reduced into writing. Any change to it must be mutually
agreed upon, or it produces no binding effect: Basic is the rule that there can be no
contract in its true sense without the mutual assent of the parties. If this consent is
absent on the part of one who contracts, the act has no more efficacy than if it had been
done under duress or by a person of unsound mind. Similarly, contract changes must be
made with the consent of the contracting parties. The minds of all the parties must meet
as to the proposed modification, especially when it affects an important aspect of the
agreement In the case of loan contracts, the interest rate is undeniably always a vital
component, for it can make or break a capital venture. Thus, any change must be
mutually agreed upon, otherwise, it produces no binding effect. (Citation omitted.)
Thus, in several cases, the Court declared void stipulations that allowed for the
unilateral modification of interest rates. In Philippine National Bank v. Court of Appeals, the
Court disallowed the creditor-bank from increasing the stipulated interest rate at will for
being violative of the principle of mutuality of contracts. Besides violating P.D. 116, the
unilateral action of the PNB in increasing the interest rate on the private respondent's
loan, violated the mutuality of contracts under Article 1308 of the Civil Code which

Page 39 of 79
reads: "ART. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them."

In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on their essential
equality. A contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia
vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan
agreement between the PNB and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during the term of
the loan, that license would have been null and void for being violative of the principle
of mutuality essential in contracts. It would have invested the loan agreement with the
character of a contract of adhesion, where the parties do not bargain on equal footing,
the weaker party's (the debtor) participation being reduced to the alternative "to take it
or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a
veritable trap for the weaker party whom the courts of justice must protect against abuse
and imposition.

20) VILLA CRISTA MONTE REALTY & DEV’T CORP.

vs. EQUITABLE PCI BANK
G.R. No. 208336, November 21, 2018
(FIRST DIVISION)

BERSAMIN., J:

NATURE OF THE ACTION: An escalation clause without a concomitant de-escalation

clause is void and ineffectual for violating Presidential Decree No. 1684, 1 otherwise
known as Amending Further Act No. 2655, As Amended, Otherwise Known as "The Usury
Law," as well as the principle of mutuality of contracts unless the established facts and
circumstances, as well as the admissions of the parties, indicate that the lender at times
lowered the interest rates, or, at least, allowed the borrower the discretion to continue
with the repriced rates.

Not all contracts of adhesion are invalid. Only a contract of adhesion in which
one of the parties is shown to be the weaker as to have been imposed upon may be
invalidated and set aside.

FACTS:
Real estate developer Petitioner Villa Crista Monte Realty Corporation (Villa
Crista) acquired from Alfonso Lim an 80,000 sq.m or 8 hectares parcel of land located in
Old Balara, Quezon City, with the purpose of developing such land into a residential
subdivision. Subsequently after a clubhouse was erected therein, Villa Crista purchased
the adjoining 13.5-hectare land, consolidating its ownership over the 21.5 hectares of
land. As security for the credit line of P80M granted by Equitable PCI Bank (E-PCIB),
Villa Crista executed a Real Estate Mortgage over the 80 hectares of land. Thereafter, an
additional P50M credit line was granted by E-PCIB together with the release of the
remaining 133 titles from the earlier mortgage provided that the mortgage contract
would be amended to conform to the changes in the amount of credit line and
mortgaged properties to which Villa Crista agreed. After obtaining the amount of credit
line on various occasions, Villa Crista was informed by E-PCIB that the interest rates
have increased ranging from 21% to 36% anchored on the uniform provision in the
promissory notes. However, due to Villa Crista’s default in payment of its obligations
amounting to P129,700,000.00, E-PCIB initiated the foreclosure proceedings and an
auction sale of the subject lots was conducted where E-PCIB emerged as the highest
bidder. Villa Crista assailed such auction sale in its complaint filed before the RTC of
Quezon City and prayed for the nullification of the titles under the name of E-PCIB. In
its contention, Villa Crista argued that the increases in the interest rates were not

Page 40 of 79
discussed by both parties; that the mortgage and its amendment were contrary to law
and public policy and that E-PCIB prematurely initiated the foreclosure proceedings,
thus, claim for reparation of damages and attorney’s fees.

E-PCIP, on the other hand, argued that such complaint cannot prosper for having
no cause of action against it because Villa Crista voluntarily agreed to the monthly re-
pricing interest. E-PCIB maintained that it merely complied with the provisions of the
Promissory Notes. RTC ruled in favor of E-PCIB.

ISSUE:
Whether the promissory notes, though contracts of adhesion, bound petitioner
absent any proof of domination done by the bank to agree on the monthly repricing

HELD:
Yes. The SC ruled that the promissory notes, among others, were valid.

What is involved in the promissory notes is the escalation clause which refers to
the stipulation allowing increases in the interest rates agreed upon by the contracting
parties and is validly stipulated in commercial contracts. The escalation clause is not
void per se; the clause would only be void if it violates the principle of mutuality of
contracts wherein it grants the creditor an unbridled right to adjust the interest
independently and deprive the debtor of the right to assent to an important modification
in the agreement. The Court ruled that the inescapable conclusion is that a de-escalation
clause is an indispensable requisite to the validity and enforceability of an escalation
clause in the contract. In other words, in the absence of a corresponding de-escalation
clause, the escalation clause shall be considered null and void. No express de-escalation
clause was stipulated in the promissory notes. Yet, its absence did not invalidate the
repricing of the interest rates. The repricing notices indicated that on some occasions, the
bank had reduced or adjusted the interest rates downward.

The binding effect on the parties of any agreement is premised on two settled
principles, namely: (1) that any obligation arising from contract has the force of law
between the parties; and (2) that there must be mutuality between the parties based on
their essential equality. Any contract that appears to be heavily weighed in favor of only
one of the parties so as to lead to an unconscionable result is void. Specifically, any
stipulation regarding the validity or compliance of the contract that is left solely to the
will of one of the parties is likewise invalid. As provided under Article 1308 of the Civil
Code, the principle of mutuality of contracts explains that “the contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them.”

Here, mutuality of contracts arose between Villa Crista and E-PCIB when the
former’s president signed the promissory notes and was aware of the certain provision
on the interest rates. Despite being obliged, respondent accorded the petitioner the
notice of any repricing of the interest rates to give the petitioner the option to reject the
repricing or has implemented the downward repricing. Nevertheless, the Court affirmed
the CA's findings despite the showing of the promissory notes being contracts of
adhesion. The Court explained that “a contract of adhesion is one wherein one party imposes
a ready-made form of contract on the other in which almost all of the provisions are drafted by
one party, thereby reducing the participation of the other to affixing its signature or to adhering
to the contract. However, the contract of adhesion is not invalid per se  but is as binding as any
other contract. The only occasions in which the Court has struck down contracts of adhesion as
void have happened only when the weaker party has been imposed upon in dealing with the
dominant bargaining party as to be reduced to the alternative of taking it or leaving it, being
completely deprived of the opportunity to bargain on equal footing. Thus, the validity or
enforceability of the impugned contracts will have to be determined by the peculiar circumstances
obtaining in each case and by the situation of the parties concerned. ”

Page 41 of 79
 2. Relativity of Contracts

21) EXCELLENT ESSENTIALS INTERNATIONAL CORPORATION vs.

EXTRA EXCEL INTERNATIONAL PHILIPPINES, INC.
G.R. No. 192797, April 18, 2018
(THIRD DIVISION)

MARTIRES., J:

NATURE OF THE ACTION: This is a petition for review on certiorari assailing the 28
June 2010 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 88388. The CA
decision, in effect, reversed the Regional Trial Court, Branch 138, Makati City (RTC,
Branch 138), by ordering petitioner Excellent Essentials International Corporation
(Excellent Essentials) to pay respondent Extra Excel International Philippines, Inc. (Excel
Philippines) damages, attorney's fees, and costs of suit.

FACTS:
This case involves an action for damages filed by E. Excel International, Inc.
(Excel International) and Excellent Essentials against Excel Philippines enjoining the latter
from selling, distributing, and marketing E. Excel products in the Philippines. This arose
from the exclusive rights contract entered upon between Excel International and Excel
Philippines wherein Excel International reserved the right to discontinue or alter their
agreement at any time. When Jau-Hwa Stewart (Stewart) became the president of Excel
International and succeeded in gaining control of the company, he revoked Excel
Philippines' exclusive rights contract and appointed Excellent Essentials as its new
exclusive distributor in the Philippines. However, Excel Philippines still continued its
operation in violation of the new exclusive distributorship agreement. Hence, this
complaint. In its Answer, Excel Philippines countered that Excel International had no
right to unilaterally revoke its exclusive right to distribute E. Excel products in the
Philippines as an agreement between Excel International and Bright Vision Consultants,
Ltd. (Bright Vision) showing that Excel Philippines' exclusive distributorship was
irrevocable. In fact, it was because of this agreement that Excel Philippines was
incorporated so that it would become Excel International's exclusive distributor within
the Philippines. The RTC ruled in favor of Excel Philippines and enjoined Excellent
Essentials from: (1) interfering with Excel Philippines' exclusive right to distribute; (2)
claiming, publishing, and announcing that Excel Philippines has ceased to be Excel
International's exclusive distributor in the Philippines; (3) intimidating, enticing, or
persuading Excel Philippines' agents to abandon the company; and (4) infringing and
using in its products, packaging, and promotional materials the trademarks, logos,
designs, and other intellectual property that Excel International has exclusively licensed
to Excel Philippines.

Page 42 of 79
 Prior to this, however, Excel International and Excel Philippines filed a joint
motion for a judgment based on their compromise agreement wherein both parties
agreed to dismiss their claims against each other, without prejudice to the continuation
of the case with respect to Excellent Essentials and Excel Philippines. Subsequently, the
RTC approved the compromise agreement and dismissed the claims and counterclaims
of both parties accordingly. However, CA contested RTC’s ruling.

ISSUE:
Whether Excellent Essentials' corporate existence and its business operations
caused damage to Excel Philippines

HELD:
Yes. The Court reiterated the ruling that “a corporation, who is a third party to a
contract, may be held liable for damages if used as a means to breach the obligations between the
contracting parties.”

Under the principle of relativity of contracts, only those who are parties to a
contract are liable to its breach. Under Article 1314 of the Civil Code, however, any third
person who induces another to violate his contract shall be liable to damages to the other
contracting party. Said provision of law embodies what we often refer to as tortuous or
contractual interference. The Court ruled that the elements of tortuous interference
consist of the following: (1) existence of a valid contract; (2) knowledge on the part of the
third person of the existence of contract; and (3) interference of the third person is
without legal justification or excuse.

Excel International in this case had already breached its contractual obligations
by unilaterally revoking Excel Philippines' exclusive distributorship even if it was
prohibited from doing so under its agreement with Excel Philippines. Stewart could not
even have done what she did during her temporary control over Excel International
because, under clause 8.5 of the agreement, any change in the management of Excel
International shall not affect the validity and continuity of the rights and obligations of
both parties. In other words, Stewart, as Excel International's interim president, was
bound by the company's grant of exclusive distributorship to Excel Philippines and the
conditions that came with it.

The Court also found that even before Excellent Essentials was organized, its
incorporators had the preconceived plan to maneuver around Excel Philippines and
there is evidence from the record showing that Excellent Essentials' incorporators were
officers of and/or affiliated with Excel Philippines. In fact, these incorporators remained
at work with Excel Philippines during this time and started to pirate its supervisors,
employees, and agents to join Excellent Essentials' multi-level marketing system. Hence,
Excel International also conspired with Stewart to undermine Excel Philippines.
The Court ruled that Excel International committed an unjust conduct exhibited by
Excellent Essentials tantamount to tortuous interference.

Excellent Essentials became the vessel for the breach of Excel International's
contractual undertaking with Excel Philippines.

Page 43 of 79
 C. STAGES OF CONTRACTS

22) DESIDERIO DALISAY INVESTMENTS, INC. vs. SSS

G.R. NO. 231053, APRIL 04, 2018
(THIRD DIVISION)

VELASCO, JR., J.:

NATURE OF THE ACTION: This Petition for Review on Certiorari under Rule 45 of the
Rules of Court seeks the reversal and setting aside of the August 12, 2016 Decision 1 and
March 10, 2017 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 03233-MIN.

FACTS:
A complaint was filed by respondent Social Security System (SSS) before the
Social Security Commission (SSC) against the Dalisay Group of Companies (DGC)
alleging that the latter failed to remit SSS premium contributions of its employees and
thus, seeking for the collection of the same from DGC. Consequently, then Desiderio
Dalisay Investments, Inc. (DDII) President Desiderio Dalisay sent a Letter to SSS offering
the subject land and building to offset DGC's liabilities at P3,500,000. However, no
negotiation took place as the parties failed to arrive at an agreement as to the appraised
value of the property. Another letter was sent by Dalisay for further negotiation with
regard to the appraisal of the property. As Asian Appraisal, Co. Inc. did not respond to
Dalisay’s request, it was Joson, Capili and Associates who did such appraisal which was
thereby approved. Two of the properties of DDII, together with the improvements
thereon, were sold to SSS to settle the former’s unremitted premiums and penalty
obligations. Subsequently, Joson, Capili and Associates informing Dalisay that the total
value of the lots is One Million Nine Hundred Fifty Four Thousand Seven Hundred
Seventy-Seven & 78/100 (P1,954,777.78), rounded to P1,955,000. This Appraisal Report
was then indorsed to the SSC. In 1982, during a meeting of the SSS' Committee on
Buildings, Supplies and Equipment (Committee), DGC representative Atty.
Cabarroguis, explained that DGC is in financial distress and is in no way capable of
settling its obligation in cash and stated that he has "the authority to offer the properties
in the amount of 2 million pesos to be applied first to the unpaid premiums and the
excess be used to settle part of the penalties due. He assured that DGC is ready to vacate
the premises and respondent can have it occupied anytime. The offer for dacion was
accepted at the appraised value of P2,000,000.

As additional conditions, the parties agreed that: (1) the part of P2M is to be
applied to DGC’s outstanding educational/salary loans obligations; and (2) the criminal
cases against the DGC shall not be withdrawn as the penalties are not being paid in full
and it is up to them to make the necessary representations with the Fiscal's Office. The
SSC then informed DDII of its acceptance of the proposed dacion in payment, including
its specified terms and conditions, via a Letter. On September 18, 1989, Desiderio Dalisay
passed away. Despite repeated written and verbal demands made by SSS for DDII to
deliver the titles of the subject property, free from all liens and encumbrances, DDII still
failed to comply. DDII thereafter filed a complaint for Quieting of Title, Recovery of
Possession and Damages against SSS with the Regional Trial Court (RTC), Branch 14, in

Page 44 of 79
Davao City. DDII alleged there was no meeting of the minds between the parties.
Consequently, there was no dation in payment to speak of, contrary to the claim of SSS.
With these, DDII asserted that SSS owes it P43,208,270.99 as back rentals for its use of the
property from 1982 onwards. It also prayed for attorney's fees and costs of litigation. In
its Answer, SSS argued that the offer for dacion was categorically accepted by SSS,
thereby perfecting such.

ISSUE:
Whether or not there was a perfected "Dacion en Pago"

HELD:
Yes. The Court ruled that in order to determine whether or not there was indeed
a perfected, or even consummated, dacion in payment, it is necessary to review and
assess the evidence and events that transpired and see whether these correspond to the
three stages of a contract of sale. This is so since, as previously mentioned, dacion en
pago agreements are governed, among others, by the law on sales.

The Court briefly enumerates the stages of a contract of sale are: (1) negotiation,

covering the period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is perfected; (2) perfection, which takes place upon
the concurrence of the essential elements of the sale, which is the meeting of the minds
of the parties as to the object of the contract and upon the price; and (3) consummation,
which begins when the parties perform their respective undertakings under the contract
of sale, culminating in the extinguishment thereof.

In the first stage on negotiation, the Court states that while petitioner is correct
that there is no evidence of Atty. Cabarroguis' authority to represent the company in
said meeting, this however is outweighed by the fact that no one questioned his
representations and authority after the conclusion of the negotiations; and that a few
days after the said meeting, the company immediately arranged for the property's
turnover through Dalisay-Tirol, Acting President and General Manager, and eventually
delivered possession thereof to SSS. The Petitioner was even well-aware of what
transpired during the meeting and the agreements reached whereby it accepted DDII's
proposed dacion en pago at P2,000,000 through a letter. As provided under Article 1910 of
the Civil Code, “the principal must comply with all the obligations which the agent may
have contracted within the scope of his authority… As for any obligation wherein the
agent has exceeded his power, the principal is not bound except when he ratifies it
expressly or tacitly.”

With regard to the second stage on perfection, on the other hand, the Court
agrees with the CA that there was perfection of the contract in this case. Under Article
1319 of the Civil Code, “Consent is manifested by the meeting of the offer and the
acceptance upon the tiling and the cause which are to constitute the contract. The offer
must be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer.” Within the purview of the law on sales, a contract of sale is perfected by
mere consent, upon a meeting of the minds on the offer and the acceptance thereof
based on subject matter, price and terms of payment. It is perfected at the moment there
is a meeting of the minds upon the thing which is the object of the contract and upon the
price. Applying said principles to the case at bar convinces us that SSS' acceptance of the
offer at P2,000,000 resulted in a perfected dation.

As for the third stage on consummation, the Court agrees with the CA in holding
that the agreement on dacion en pago was consummated by DDII's delivery of the
property to SSS. The third stage of a contract of sale is consummation which begins
when the parties perform their respective undertakings under the contract of sale,
culminating in the extinguishment thereof. Under Article 1496 of the Civil Code, “the
ownership of the thing sold is acquired by the vendee from the moment it is delivered to
him in any of the ways specified in Articles 1497 to 1501, or in any other manner

Page 45 of 79
signifying an agreement that the possession is transferred from the vendor to the
vendee.”

D. ESSENTIAL ELEMENTS OF CONTRACTS

1. Consent of the Contracting Parties

23) METRO RAIL TRANSIT DEVELOPMENT CORPORATION vs.

GAMMON PHILIPPINES, INC.
G.R. NO. 200401, JANUARY 17, 2018
(THIRD DIVISION)

LEONEN, J.:

NATURE OF THE ACTION: This resolves a Petition for Review on Certiorari assailing
the Court of Appeals October 14, 2011 Decision and January 25, 2012 Resolution in CA-
GR. SP No. 98569. The assailed Decision affirmed the Construction Industry Arbitration
Commission (CIAC) Decision, which awarded Gammon Philippines, Inc. (Gammon) its
monetary claims for lost profits and reimbursements for engineering services, design
work, and site de-watering and clean up, due to breach of contract. The assailed
Resolution denied Metro Rail Transit Development Corporation's (MRT) Motion for
Reconsideration.

FACTS:
A contract by way of a Build Lease and Transfer Agreement to undertake the
MRT 3 North Triangle Development Project was awarded to Metro Rail Transit
Development Corporation (MRTDC) by the government for the MRT 3 North Triangle
Development Project which includes the construction of a four level podium structure.
However, because of the currency crisis at that time, MRTDC suspended all the
undertakings with notice to Gammon Philippines, the one that was previously awarded
the work on the construction of the Podium Structure for such project. Thereafter,
Gammon has proceeded to de-water and clean up the Project site but MRTDC
subsequently claims that before any construction activity could proceed, it formally
served Gammon a notice confirming the temporary suspension of all requirements
under the terms of the contract until such time as clarification of scope has been received
from the owner, except for the re-design of the projects floor slabs and the site de-
watering and clean up. The impact of the currency crisis urged MTDC to downsize the
podium structure to two levels so the reduction of the contract price was proposed by
Gammon to which MRTDC accepted, but manifested its willingness to consider
revisions to the terms and conditions of the NOA/NTP.

MRTDC notified Gammon that it was awarding the contract to Filsystems since
Gammon did not accept the terms and conditions of the Notice of Agreement
(NOA)/Notice to Proceed (NOP). Hence, the direct and indirect expenses made by
Gammon pertaining to the Project was sought to be reimbursed by Gammon. MRTDC
and Gammon did not meet as to the real amount of reimbursement. Hence, this case.

ISSUE:

Page 46 of 79
 Whether there is a perfected contract between MTRDC and Gammon

HELD:
Yes, there is a perfected contract between MRT and Gammon.

The Court of Appeals affirmed CIAC 's finding that the contract was perfected
when the contract documents were returned to MRT. It found that the contract was
merely suspended and not terminated when MRT was studying the effects of the foreign
exchange rates and interests on the Project. Moreover, it noted that MRT found it
necessary to expressly cancel the First Notice to Proceed, implying that a contract was
perfected.

Meanwhile, this Court ruled that there is a perfected contract between the parties
as based on Article 1305 of the Civil Code which reads: “A contract is a meeting of
minds between two persons whereby one binds himself, with respect to the other, to
give something or to render some service.” On the other hand, under Article 1315 of the
Civil Code, contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good faith,
usage and law.

With regard to the requisites of a valid contract, Article 1318 of the Civil Code
provides the following: (1) Consent of the contracting parties; (2) Object certain which is
the subject matter of the contract; and (3) Cause of the obligation which is established.
The Court reiterated that a contract is perfected when both parties have consented to the
object and cause of the contract. There is consent when the offer of one party is
absolutely accepted by the other party. The acceptance of the other party may be express
or implied; however, the offering party may impose the time, place, and manner of
acceptance by the other party, and the other party must comply. Thus, there are three (3)
stages in a contract: negotiation, perfection, and consummation.

Meanwhile, under Article 1319 of the New Civil Code, the consent by a party is
manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. An offer may be reached at any time until it is
accepted. An offer that is not accepted does not give rise to a consent. The contract does
not come into existence. To produce a contract, there must be acceptance of the offer
which may be express or implied but must not qualify the terms of the offer. The
acceptance must be absolute, unconditional and without variance of any sort from the
offer. The acceptance of an offer must be made known to the offeror. Unless the offeror
knows of the acceptance, there is no meeting of the minds of the parties, no real
concurrence of offer and acceptance. The offeror may withdraw its offer and revoke the
same before acceptance thereof by the offeree. The contract is perfected only from the
time an acceptance of an offer is made known to the offeror. If an offeror prescribes the
exclusive manner in which acceptance of his offer shall be indicated by the offeree, an
acceptance of the offer in the manner prescribed will bind the offeror. On the other hand,
an attempt on the part of the offeree to accept the offer in a different manner does not
bind the offeror as the absence of the meeting of the minds on the altered type of
acceptance. An offer made  inter praesentes must be accepted immediately. If the parties
intended that there should be an express acceptance, the contract will be perfected only
upon knowledge by the offeror of the express acceptance by the offeree of the offer. An
acceptance which is not made in the manner prescribed by the offeror is not effective but
constitutes a counter-offer which the offeror may accept or reject. The contract is not
perfected if the offeror revokes or withdraws its offer and the revocation or withdrawal
of the offeror is the first to reach the offeree. The acceptance by the offeree of the offer
after knowledge of the revocation or withdrawal of the offer is inefficacious. The
termination of the contract when the negotiations of the parties terminate and the offer
and acceptance concur, is largely a question of fact to be determined by the trial
court. (Citations omitted)

Page 47 of 79
 Thus, the Court finds that there is a perfected contract between the parties. MRT
has already awarded the contract to Gammon, and Gammon's acceptance of the award
was communicated to MRT before MRT rescinded the contract.

24) COCA-COLA BOTTLERS PHILS., INC.

vs. SPOUSES EFREN AND LOLITA SORIANO
G.R. No. 211232, April 11, 2018
(FIRST DIVISION)

TIJAM, J.:

NATURE OF THE ACTION: This petition for review on certiorari under Rule 45 of the
Rules of Court seeks to reverse and set aside the Decision dated June 18, 2013 and
Resolution dated February 4, 2014 of the Court of Appeals (CA) in CA G.R. CV No.
97687, affirming the Decision4 dated February 9, 2011 of the Regional Trial Court (RTC),
Branch 01, Tuguegarao, Cagayan, in Case No. 6821.

FACTS:
Spouses Efren and Lolita Soriano, with their business of selling Coca-Cola
products in Tuguegarao City, Cagayan, handed over two (2) certificates of titles over
their property to Coca-Cola thru Cipriano and signed a document as required by Coco-
Cola as security for the continuation of the former’s business. These requirements were
alleged to be a mere formality and will never be notarized. However, when time came
that the Spouses informed Coca-Cola of their intention to stop the business due to their
advanced age and orally demanded for the return of their certificate of titles, the titles
were not given back to them by Coca-Cola. The Spouses subsequently discovered that
their land was mortgaged in favor of Coca-Cola and the mortgage land was already
foreclosed which urged the former to file a complaint for annulment of sheriff’s
foreclosure sale asserting that they never signed a mortgaged document, that they were
never notified of the foreclosure sale, and that they never had monetary obligations or
debts with Coca-Cola as they always paid their product deliveries in cash. The Spouses
also denied signing a document in Tuguegarao and in Ilagan, lsabela nor did they
appear before a certain Atty. Reymundo Ilagan on January 6, 2000 for the notarization of
the said mortgage document.

Coca-Cola, on the other hand, rebutted that the Spouses are indebted to them
and that latter’s admission of signing the real estate mortgage document in Tuguegarao,
Cagayan indicates that the mortgage agreement was duly executed. Coca-Cola further
asserted that the document cannot be null and void or unenforceable for not having
been notarized.

The RTC rendered its decision nullifying the real estate mortgage and the
foreclosure proceedings; declaring the claim of Coca-Cola that the land of the Spouses
had been mortgaged to Coca-Cola to be unlawful; and among others, ordering the cloud
over the title and interest of the Spouses to be removed and their certificate titles of the
properties to be surrendered. The CA affirmed the RTC’s decision in toto.

ISSUE:
Whether Real Estate Mortgage (REM) is valid despite its non-registration or not
being in a public document

HELD:
Yes. The Court ruled that the registration of a REM deed is not essential to its
validity. The law is clear on the requisites for the validity of a mortgage, to wit:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

Page 48 of 79
 (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.

In relation thereto, Article 2125 reads:

Article 2125. In addition to the requisites stated in Article 2085, it is
indispensable, in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between the
parties.  (Emphasis supplied)

Hence, as between the parties to a mortgage, the non-registration of a REM deed

is immaterial to its validity. Even if the instrument were not recorded, "the mortgage is
nevertheless binding between the parties." The law cannot be any clearer.

Effect must be given to it as written. The mortgage subsists; the parties are
bound. As between them, the mere fact that there is as yet no compliance with the
requirement that it be recorded cannot be a bar to foreclosure (Mobil Oil Philippines, Inc.,
v. Ruth R. Diocares, et al.). With or without the registration of the REMs, as between the
parties thereto, the same is valid and [the mortgagor] is bound thereby (Paradigm
Development Corporation of the Philippines, v. Bank of the Philippine Islands).

Although Article 1358 of the New Civil Code requires that the form of a contract
transmitting or extinguishing real rights over immovable property should be in a public
document, the failure to observe such required form does not render the transaction
invalid. The necessity of a public document for the said contracts is only for convenience
and is not essential for its validity or enforceability. Consequently, when there is a defect
in the notarization of a document, the clear and convincing evidentiary standard
originally attached to a duly-notarized document is dispensed with, and the measure to
test the validity of such document is preponderance of evidence. The defective
notarization of the REM agreement merely strips it of its public character and reduces it
to a private document. 

Under Article 1344 of the Civil Code, fraud, as a ground for annulment of a
contract, should be serious and should not have been employed by both contracting
parties. Article 1338 of the same Code further provides that there is fraud when, through
insidious words or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to. In PDCP[24], this
Court refused to annul the REMs on the ground of fraud consisting of the mortgagee's
assurances that the REMs already signed by the mortgagor would not be registered,
thus:
In the present case, even if FEBTC represented that it will not register one of the
REMs, PDCP cannot disown the REMs it executed after FEBTC reneged on its alleged
promise. As earlier stated, with or without the registration of the REMs, as between the
parties thereto, the same is valid and PDCP is already bound thereby. The signature of
PDCP's President coupled with its act of surrendering the titles to the four properties to
FEBTC is proof that no fraud existed in the execution of the contract. Arguably at most,
FEBTC's act of registering the mortgage only amounted to  dolo incidente which is not the
kind of fraud that avoids a contract. (Emphasis supplied)

The foregoing factual circumstances in PDCP are attendant in the present case.
The respondents herein also signed the REM deed and surrendered the titles of the
properties to the petitioner. Thus, the Court finds that a claim of fraud in favor of the
respondents does not persuade.

Page 49 of 79
 25) NORTHERN MINDANAO INDUSTRIAL PORT AND SERVICES
CORPORATION VS. ILIGAN CEMENT CORPORATION
G.R. NO. 215387, April 23, 2018
(FIRST DIVISION)

DEL CASTILLO, J.:

NATURE OF THE ACTION: Assailed in this Petition for Review on Certiorari are the
March 18, 2014 Decision of the Court of Appeals (CA) in CA-G.R. SP No. 03789-MTN,
which set aside the August 6, 2009 Order of the Regional Trial Court of Iligan City,
Branch 3 (RTC) in Civil Case No. 7201, and the CA's October 17, 2014 Resolution
denying herein petitioner's motion for reconsideration.

FACTS:
Iligan Cement Corporation (ICC), a domestic corporation engaged in the
manufacturing and distribution of cement and other building materials invited, among
others, Northern Mindanao Industrial & Port Services Corporation (NOMIPSCO), also a
domestic corporation involved, among others, in the arrastre or stevedoring business to
a pre-bidding conference for a two-year cargo handling contract. As a requirement set
by ICC, technical proposals and commercial bids were submitted by the participants
whereby NOMIPSCO offered the lowest bid of P1.788 per a [sic] 40-kilogram bag.
However, ICC awarded the cargo handling contract to Europort Logistics and
Equipment Incorporated (Europort). Hence, NOMIPSCO filed a Complaint for Damages
and Attorney's fees against ICC alleging that, as per information from an ICC employee,
its bid folder was marked as "no bid submitted'; that Nestor Camus from ICC, upon
inquiry, revealed that, the bid award was based on the recommendation of the end-user;
and a new company policy to prioritize new contractors which were never made known
to the bidders. NOMIPSCO further claimed that ICC was guilty of bad faith when it still
invited NOMIPSCO to join the pre-bidding conference despite prior knowledge of its
status as an old contractor. NOMIPSCO, thus, contended that the acts of ICC amounted
to an abuse of its rights or authority, the same acts that led NOMIPSCO to suffer great
losses and unearned income.

In its Answer with Compulsory Counterclaim, ICC rebutted that NOMIPSCO

had no cause of action since its complaint failed to state a cause of action. ICC stressed
that for abuse of right to exist there must be: 1) an act which is legal; 2) but which is
contrary to morals, good customs, public order, or public policy; and 3) it is done with
intent to injure.' ICC argued that in the instant controversy the last two requisites were
wanting.

The RTC rendered an Order denying ICC's affirmative and special defenses -
complaint failed to state a cause of action and defective verification.

On the other hand, the CA finds that NOMIPSCO has no legal right to impute to
ICC an abuse of its right or authority in the bidding selection or to impugn the validity
of the cargo handling contract executed between the latter and Europort.
Considering that NOMIPSCO was not selected as the winner and that ICC cannot be
legally obliged to accept its bid, the former therefore has no legal right against the latter.
Considering that the existence of a legal right is wanting, it is thus ineluctable that
Complaint failed to state a cause of action.

ISSUE:

Page 50 of 79
 Whether the CA erred in finding that NOMIPSCO has no legal right to impute to
ICC an abuse of its right or authority in the bidding selection or to impugn the validity
of the cargo handling contract executed between the latter and Europort

HELD:
No. The Court affirmed CA’s arguments that an advertisement to possible
bidders is simply an invitation to make proposals, and that an advertiser is not bound,
to accept the lowest bidder unless the contrary appears; respondent had the right to
reject bids, and it cannot be compelled to accept a bidder's proposal, and execute a
contract in its favor.

Under Article 1326 of the Civil Code, ''advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears."

"As the discretion to accept or reject bids and award contracts is of such wide latitude,
courts will not interfere, unless it is apparent that such discretion is exercised arbitrarily, or used
as a shield to a fraudulent award. The exercise of that discretion is a policy decision that
necessitates prior inquiry, investigation, comparison, evaluation, and deliberation."

Article 1326 of the Civil Code, which specifically tackles offer and acceptance of
bids, provides that advertisements for bidders are simply invitations to make proposals, and
that an advertiser is not bound to accept the highest bidder unless the contrary appears. In the
present case, Section 4.3 of the ASBR explicitly states that APT reserves the right to reject
any or all bids, including the highest bid. Undoubtedly, APT has a legal right to reject
the offer of Dong-A Consortium, notwithstanding that it submitted the highest bid.

The right to reject bids signifies that the participants of the bidding process
cannot compel the party who called for bids to accept the bid or execute a deed of sale in
the former's favor (Leoquinco v. The Postal Savings Bank and C & C Commercial Corporation
v. Menor).

Page 51 of 79
 26) PNB vs. ANTONIO BACANI, RODOLFO BACANI, ROSALIA VDA. DE
BAYAUA, JOSE BAYAUA AND JOVITA VDA. DE BAYAUA
G.R. NO. 194983, June 20, 2018
(SECOND DIVISION)

REYES, JR., J.:

NATURE OF THE ACTION: This is a petition for review on certiorari filed under Rule
45 of the Rules of Court, seeking to reverse and set aside the Decision dated September
30, 2010 and Resolution dated January 5, 2011 of the Court of Appeals (CA) in CA-G.R.
CV No. 82923. In these issuances, the CA affirmed the trial court's decision, which held
that petitioner Philippine National Bank (PNB) fraudulently sold the subject property to
the prejudice of Antonio Bacani, Rodolfo Bacani (Rodolfo), Rosalia Vda. De Bayaua, Jose
Bayaua and Jovita Vda. De Bayaua (collectively referred to as the respondents). This
resulted in the nullification of the sale and the buyer's certificate of title over the subject
property.

FACTS:
Respondent Rodolfo was the registered owner of a parcel of land located in
Centro East, Santiago, Isabela, with an area of 618 square meters (subject property),
covered by a Transfer Certificate of Title (TCT). The other respondents in this case were
the occupants of the subject property. The subject property herein was used to secure the
Php 80,000.00 loan that Rodolfo and his wife, Nellie Bacani (collectively, the Spouses
Bacani) obtained from PNB. When the Spouses Bacani failed to pay their loan, PNB
extrajudicially foreclosed the subject property which was thereafter awarded to PNB as
the highest bidder, who had a bid amount of Php 148,960.74. The Spouses Bacani failed
to redeem the property. Consequently, Rodolfo's title was cancelled, and in its place, the
TCT of the property was issued in the name of PNB.

Thereafter, PNB issued SEL Circular No. 8-7/89, revising its policy on the
disposition of acquired assets. Subject to certain conditions, former owners or their heirs,
as the case may be, were given priority in the re-acquisition of their foreclosed assets
'"on negotiated basis without public bidding. Because of this Circular, Spouses Bacani
initiated negotiations with PNB regarding the re-acquisition of their property. Their
intention to buy back the subject property was manifested at the earliest through a
written offer, followed by another letter to PNB addressed to Mr. Antonio C. Santos (Mr.
Santos), then the Branch Manager of PNB Cauayan Branch. From Php 150,000.00,
Spouses Bacani sent another letter, increasing the offer to Php 220,000.00 and continued
to follow-up on their request to repurchase. After being advised by Mr. Santos to
increase their offer because their initial proposal was low, Spouses Bacani accordingly
offered to repurchase the subject property for Php 200,000.00 in cash and Php 100,000.00
payable in installments for two years, or an aggregate amount of Php 300,000.00.

However, PNB later informed the Spouses Bacani in its letter that the request for
repurchase was refused and instead, the subject property would be sold in a public
auction. Such refusal was due to the low offer from the Spouses Bacani, which amounted
to less than the fair market value of the subject property and PNB's total claim. At that
time, the subject property's fair market value was appraised at Php 494,000.00. Hence,
Spouses Bacani increased their offer to Php 350,000.00 and continue their
communication with PNB. However, Mr. Santos was succeeded by a new Branch
Manager, Mr. Bartolome Pua (Mr. Pua) and the latter notified the spouses that the PNB
Special Assets Management Department (SAMD) had begun to accept offers for the
purchase of various properties, including the subject property. PNB sold the subject

Page 52 of 79
property through a negotiated sale to Renato de Leon (Renata), for the price of
Php1,500,000.00. The respondents were consequently directed to vacate the subject
property, and their houses were later on demolished. Hence, Spouses Bacani filed a
complaint for the annulment of the sale and Renato's title over the subject property,
together with a prayer for the payment of damages.

ISSUE:
Whether the publication of the Invitation to Bid constitute a binding obligation
on the part of PNB to sell the subject property to the Spouses Bacani.

HELD:
No. At most, the PNB circular grants a privilege to the Spouses Bacani as the
former owners, to be given priority in the disposition of the subject property. It does not
confer an enforceable and absolute right to reacquire the property, to the prejudice of
PNB as the absolute owner. Neither does the publication of the Invitation to Bid
constitute a binding obligation on the part of PNB to sell the subject property to the
Spouses Bacani.
With respect to the allegation of fraud, it is settled that fraud is never presumed—it must
be proven by clear and convincing evidence. In this case, the Spouses Bacani were
unable to establish that PNB and Renato committed fraud in the disposition of the
subject property. There was no showing that PNB assured the sale of the subject
property to the Spouses Bacani during the auction. As a matter of fact, the Spouses
Bacani did not even attend the scheduled auction sale to make an offer on the subject
property.

The publication of the Invitation to Bid, which included the subject property, was
not a binding obligation on the part of PNB. Article 1326 of the Civil Code clearly
provides that “Advertisements for bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.”

Thus, the fact that the Invitation to Bid was published cannot bind PNB to any
offer from any party. PNB merely notified interested parties to submit their proposals
for the purchase of the subject property, which PNB may either accept or reject as the
absolute owner thereof. In the same manner, the published bidding schedule was not an
offer from PNB, notice and acceptance of which would compel the bank to sell the
subject property to such party. There being no guarantee that the highest or lowest bid
was entitled to purchase the property, the Spouses Bacani cannot rely on the publication
of the Invitation to Bid to support their claim of fraud.

Ultimately, the Spouses Bacani do not have a cause of action, especially

following the consolidation of the subject propet1y's title in favor of PNB. At the time of
the sale to Renato, PNB was the absolute owner of the subject property. It had the right
to dispose or alienate the property, notwithstanding the intention of the Spouses Bacani
to repurchase it. Accordingly, the sale to Renato was valid. The complaint for the
annulment of said sale, as well as the annulment of Renato's title over the subject
property, must be dismissed.

Page 53 of 79
 27) AYALA LAND V. ASB REALTY CORPORATION
GR No. 210043, September 26, 2018
(SECOND DIVISION)

DEL CASTILLO, J.:

NATURE OF THE ACTION: Under the doctrine of apparent authority, the question in
every case is whether the principal has by his/her voluntary act placed the agent in such
a situation that a person of ordinary prudence, conversant with business usages and the
nature of the particular business, is justified in presuming that such agent has authority
to perform the particular act in question.

FACTS:
ALI and ASBRC are domestic corporations engaged in real estate development.
On the other hand, EMRASON is a domestic corporation principally organized to
manage a 372- hectare property located in Dasmariñas, Cavite (Dasmariñas Property).
EMRASON's brokers sent a proposal for a joint venture agreement (JVA) between ALI
and EMRASON for the development of EMRASON's Dasmariñas Property. ALI initially
declined but eventually negotiated with Ramos, Jr., Antonio B. Ramos (Antonio), and
Januario to discuss the terms of the JVA. According to ALI, EMRASON made it appear
that Ramos, Jr., Antonio, and Januario had full authority to act on EMRASON's behalf in
relation to the JVA. ALI alleged that Emerita Ramos, Sr. (Ramos, Sr.), then EMRASON's
President and Chairman, wrote to ALI and therein acknowledged that Ramos, Jr. and
Antonio were fully authorized to represent EMRASON in the JVA, as shown in Ramos,
Sr.'s letter. Thereafter, ALI and the Ramos children subsequently entered into a Contract
to Sell, under which ALI agreed to purchase the Dasmariñas Property.

ALI alleged that it came to know that a Letter-Agreement and a Real Estate
Mortgage respecting the Dasmariñas Property had been executed by Ramos, Sr. and
Antonio for and in behalf of EMRASON, on one hand, and ASBRC on the other. It also
alleged that the Ramos children wrote to Luke C. Roxas, ASBRC's President, informing
the latter of the Contract to Sell between ALI and EMRASON.

In their answer, respondents averred that ALI submitted to EMRASON and

Ramos, Sr. its proposal to purchase the Dasmariñas Property which proposal was
however rejected. Thereafter, EMRASON, through Ramos, Sr., informed ALI that it had
decided to accept the proposal of ASBRC because the latter's terms were more beneficial
and advantageous to EMRASON. Prior to the execution of the Letter-Agreement, a
special stockholders' meeting was held during which EMRASON's stockholders
"authorized, approved, confirmed and ratified" the Resolution of EMRASON's Board of
Directors (Board Resolution). The Board Resolution, which approved the Letter-
Agreement and authorized Ramos, Sr. and Antonio to sign the same, was in tum
likewise approved by EMRASON 's stockholders on the same date.

After ASBRC learned about the Contract to Sell executed between ALI and the
Ramos children and the annotation of the Contract to Sell on the transfer certificates of
title (TCTs) covering the Dasmariñas Property, ASBRC and EMRASON filed a
Complaint for the nullification of Contract to sell and the cancellation of the annotations
on the TCTs over the Dasmariñas Property.

The RTC declared the Contract to Sell between ALI and the Ramos children void
because of the latter's lack of authority to sign the Contract to Sell on behalf of
EMRASON. The CA affirmed the RTC's findings and reiterated the RTC's

Page 54 of 79
pronouncement that the Ramos children failed to prove their authority to enter into a
Contract to Sell on behalf of EMRASON.

ISSUE:
Whether the Contract to Sell between Petitioner and EMRASON shall be anulled
notwithstanding clear evidence consistent with statute and case law showing
EMRASON’s own confirmation that the Ramos children with whom petitioner dealt,
had both authority and capacity to close the sale between them

HELD:
Yes, the contract to sell shall be annulled. The Court denied the Petition for
raising factual issues and failure to show that the CA committed any reversible error in
its assailed Decision and Resolution as to warrant the exercise of this Court's
discretionary appellate jurisdiction.

"A contract is void if one of the essential requisites of contracts under Article
1318 of the New Civil Code is lacking." Consent, being one of these requisites, is vital to
the existence of a contract "and where it is wanting, the contract is non-existent."

For juridical entities, consent is given through its board of directors. As this
Court held in First Philippine Holdings Corporation v. Trans Middle East (Phils.)
Equities, Inc., a juridical entity, like EMRASON, "cannot act except through its board of
directors as a collective body, which is vested with the power and responsibility to
decide whether the corporation should enter in a contract that will bind the corporation,
subject to the articles incorporation, by-laws, or relevant provisions of law." Although
the general rule is that "no person, not even its officers, can validly bind a corporation "
without the authority of the corporation's board of directors, this Court has recognized
instances where third persons' actions bound a corporation under the doctrine of
apparent authority or ostensible agency.

In Nogales v. Capitol Medical Center, this Court explained the doctrine of

apparent authority or ostensible agency, which is actually a species of the doctrine of
estoppel, thus –

The doctrine of apparent authority is a species of the doctrine of estoppel. Article

1431 of the Civil Code provides that “Through estoppel, an admission or representation
is rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. Estoppel rests on this rule: 'Whenever a party has, by
his own declaration, act, or omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be permitted to falsify it.”

A perusal of the August 3, 1993 letter shows that EMRASON, through Ramos, Sr.
authorized Ramos, Jr. and Antonio merely to "collaborate and continue negotiating and
discussing with [ALI] terms and conditions that are mutually beneficial" to the parties
therein. Nothing more, nothing less. To construe the letter as a virtual carte blanche for
the Ramos children to enter into a Contract to Sell regarding the Dasmariñas Property
would be unduly stretching one's imagination. "Acts done by the corporate officers
beyond the scope of their authority cannot bind the corporation unless it has ratified
such acts expressly or is estopped from denying them." What is clear from the letter is
that EMRASON authorized the Ramos children only to negotiate the terms of a potential
sale over the Dasmariñas Property, and not to sell the property in an absolute way or act
as signatories in the contract.

Page 55 of 79
 E. FORMS OF CONTRACTS

28) NORMA M. DIAMPOC vs.

JESSIE BUENAVENTURA AND THE REGISTRY OF DEEDS FROM THE
CITY OF TAGUIG
G.R. No. 200383, March 19, 2018
(FIRST DIVISION)

DEL CASTILLO, J.:

NATURE OF THE ACTION: This Petition for Review on Certiorari1 seeks to set aside
the February 21, 2011 Decision2 and May 6, 2011 Resolution of the Court of Appeals
(CA) in CA-G.R, CV No. 92453 which denied herein petitioner's appeal and affirmed the
December 20, 2007 Decision of the Regional Trial Court of Pasig City, Branch 268 (RTC)
in Civil Case No. 70076.

FACTS:
This case pertains to the Complaint for annulment of deed of sale and recovery
of duplicate original copy of title, with damages filed by petitioner Norma M. Diampoc
and her husband Wilbur L. Diampoc (the Diampocs) against respondent Jessie
Buenaventura (Buenaventura) and the Registry of Deeds for the Province of Rizal. It was
alleged in the Complaint that Diampocs owned a 174- square meter parcel of land
(subject property) in Signal Village, Taguig City covered by Transfer Certificate of Title
No. 25044 (TCT 25044); that Buenaventura became their friend; that Buenaventura asked
to borrow the owner's copy of TCT 25044 to be used as security for a ₱1 million loan she
wished to secure; that they acceded, on the condition that Buenaventura should not sell
the subject property; that Buenaventura promised to give them ₱300,000.00 out of the ₱1
million loan proceeds; that on July 2, 2000, Buenaventura cause them to sign a folded
document without giving them the opportunity to read its contents; that Buenaventura
filed to give them a copy of the document which they signed; that they discovered later
on that Buenaventura became the owner of a one· half portion (87 square meters) of the
subject property by virtue of a supposed deed of sale in her favor; that they immediately
proceeded to the notary public who notarized the said purported deed of sales and
discovered that the said 87-square meter portion was purportedly sold to Buenaventura
for ₱200,000.00; that barangay conciliation proceedings were commenced, but proved
futile; that the purported deed of sale is spurious; and that the deed was secured
through fraud and deceit, and thus null and void. The Diampocs thus prayed that the
purported deed of sale be annulled and the annotation thereof on TCT 25044 be
canceled; that the owner's duplicate copy of TCT 25044 be returned to them; and that
attorney's fees and costs of suit be awarded to them.
In her Answer, Buenaventura claimed that the Diampocs have no cause of action; that
the case is a rehash of an estafa case they previously filed against her but which was
dismissed; and that the case is dismissible for lack of merit and due to procedural lapses.
The RTC finds that plaintiffs fall short of the required evidence to substantiate their
allegations that subject Deed of Sale x x x is illegal and spurious. "The Deed of Sale being
a publicdocument, it is prima facie evidence of the facts state therein’ (Domingo versus
Domingo, 455 SCRA 555). Under the rule, the terms of a contract are rendered
conclusive upon the parties and evidence aliunde is not admissible to vary or contradict
a complete and enforceable agreement embodied in a document. (Rosario Textile Mills
Corp. versus Home Bankers Savings, 462 SCRA 88).

The pertinent provision of the New Civil Code reads: “Art. 1159. Obligations
arising from contracts have the force of law between the contracting parties and should
be complied with in good faith.”

Page 56 of 79
 Respondents filed an appeal before the CA, which denied the same. As aptly
declared by the court a quo, notarized documents, like the deed in question, enjoy the
presumption of regularity which can be overturned only by clear, convincing and more
than merely preponderant evidence. Miserably, appellants failed to discharge this
burden. Appellants are not illiterate, but educated persons who understood the meaning
of the word ‘vendor’ printed [ vividly] under their names. They could easily read such
word before they could affix their signatures. The CA is simply appalled by appellant
Wilbur's pathetic explanation that it was ‘dark’ at the time he signed the deed so that he
failed to read the word 'vendor'.

ISSUE:
Whether the CA erred in applying the prima facie presumption of regularity of
notarized documents and upholding the validity of the notarized deed of sale
notwithstanding the undisputed fact that there were irregularities in the execution and
notarization of the deed of sale

HELD:
No, the CA did not err in its Decision. The Court denies the Petition.

Petitioner's arguments center on the claim that the deed of sale suffers from
defects relative to its notarization, which thus render the deed ineffective, if not null and
void. Petitioner claims that the deed was not signed by the parties before the notary
public; that it was notarized in her and her husband's absence; that there was only one
Community Tax Certificate used for both petitioner and her husband; and that
Buenaventura failed to present the notary public as her witness.

It must be remembered, however, that "the absence of notarization of the deed of

sale would not invalidate the transaction evidenced therein"; it merely "reduces the
evidentiary value of a document to that of a private document, which requires proof of
its due execution and authenticity to be admissible as evidence." 1 "A defective
notarization will strip the document of its public character and reduce it to a private
instrument. Consequently, 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."

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. Even a sale of real property, though not contained
in a public instrument or formal writing, is nevertheless valid and binding, for even a
verbal contract of sale or real estate; produces legal effects between the parties.
Consequently, when there is a defect in the notarization of a document, the clear and
convincing evidentiary standard originally attached to a duly-notarized document is
dispensed with, and the measure to test the validity of such document is preponderance
of evidence.

Nevertheless, the defective notarization of the deed does not affect the validity of
the sale of the house. Although Article 1358 of the Civil Code states that the sale of real
property must appear in a public instrument, the formalities required by this article is
not essential for the validity of the contract but is simply for its greater efficacy or
convenience, or to bind third persons, and is merely a coercive means granted to the
contracting parties to enab1e them to reciprocally compel the observance of the
prescribed form. Consequently, the private conveyance of the house is valid between the
parties.

Page 57 of 79
 F. REFORMATION OF CONTRACTS

29) MAKATI TUSCANY CONDOMINIUM CORPORATION VS. MULTI-

REALTY DEVELOPMENT CORPORATION
G.R. NO. 185530, APRIL 18, 2018
(THIRD DIVISION)

LEONEN, J.:

NATURE OF THE ACTION: Reformation of an instrument may be allowed if

subsequent and contemporaneous acts of the parties show that their true intention was
not accurately reflected in the written instrument.

This resolves the Petition for Review on Certiorari filed by Makati Tuscany
Condominium Corporation (Makati Tuscany), assailing the April 28, 2008 Amended
Decision and December 4, 2008 Resolution of the Court of Appeals in CA-G.R. CV No.
44696.

FACTS:
This case involves the complaint for damages and/or reformation of instrument
with prayer for temporary restraining order and/or preliminary injunction filed by
Multi-Realty against MATUSCO before the Makati Regional Trial Court alleging that of
the 106 parking slots designated in the Master Deed which was executed and signed by
Multi-Realty, through its president Henry Sy, Sr ., as part of the common areas, only
eight (8) slots were actually intended to be guest parking slots; thus, it retained
ownership of the remaining 98 parking slots. Multi-Realty claimed that its ownership
over the 98 parking slots was mistakenly not reflected in the Master Deed "since the
documentation and the terms and conditions therein were all of first impression,"
considering that Makati Tuscany was one of the first condominium developments in the
Philippines. Way back 1977, pursuant to Republic Act No. 4726, or the Condominium
Act, Multi-Realty created and incorporated Makati Tuscany Condominium Corporation
(MATUSCO) to hold title over and manage Makati Tuscany's common areas. That same
year, Multi-Realty executed a Deed of Transfer of ownership of Makati Tuscany's
common areas to MATUSCO.

The RTC dismissed Multi-¬Realty's complaint as the latter itself prepared the
Master Deed and Deed of Transfer; thus, it was unlikely that it had mistakenly included
the 98 parking slots among the common areas transferred to MATUSCO. It also
emphasized that Multi-Realty's prayer for the reformation of the Master Deed could not
be granted absent proof that MATUSCO acted fraudulently or inequitably towards
Multi-Realty. Finally, it ruled that Multi-Realty was guilty of estoppel by deed.

On the other hand, the Court of Appeals (CA) held that an action for reformation
of an instrument must be brought within 10 years from the execution of the contract. As
to the dismissal of MATUSCO's appeal, the Court of Appeals ruled that its claim was
based on a personal right to collect a sum of money, which had a prescriptive period of
four (4) years, and not based on a real right, with a prescriptive period of 30 years. It
further held that the Master Deed could only be read to mean that the 98 parking slots
being claimed by Multi-Realty belonged to MATUSCO. It highlighted that the language
of the Master Deed, as prepared by Multi-Realty, was clear and not susceptible to any
other interpretation. The CA also upheld the Regional Trial Court's finding that Multi-
Realty was guilty of estoppel by deed and likewise declared that MATUSCO was not
estopped from questioning Multi-Realty's claimed ownership over and sales of the
disputed parking slots.

Page 58 of 79
ISSUE:
Whether or not there is a need to reform the Master Deed and the Deed of
Transfer

HELD:
No, there is no need for such reformation.

Reformation of an instrument is a remedy in equity where a valid existing

contract is allowed by law to be revised to express the true intentions of the contracting
parties. The rationale is that it would be unjust to enforce a written instrument which
does not truly reflect the real agreement of the parties. In reforming an instrument, no
new contract is created for the parties, rather, the reformed instrument establishes the
real agreement between the parties as intended, but for some reason, was not embodied
in the original instrument.

An action for reformation of an instrument finds its basis in Article 1359 of the
Civil Code which provides: “When, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the instrument purporting to
embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one
of the parties may ask for the reformation of the instrument to the end that such true
intention may be expressed. If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper remedy is not reformation of
the instrument but annulment of the contract. There must be a concurrence of the
following requisites for an action for reformation of instrument to prosper: (1) there
must have been a meeting of the minds of the parties to the contract; (2) the instrument
does not express the true intention of the parties; and (3) the failure of the instrument to
express the true intention of the parties is due to mistake, fraud, inequitable conduct or
accident (The National Irrigation Administration v. Gamit).

The burden of proof then rests upon the party asking for the reformation of the
instrument to overturn the presumption that a written instrument already sets out the
true intentions of the contracting parties. It is not disputed that the parties entered into a
contract regarding the management of Makati Tuscany's common areas. A Master Deed
and a Deed of Transfer were executed to contain all the terms and conditions on the
individual ownership of Makati Tuscany's units and the co-ownership over the common
areas. The question to be resolved is whether the provisions in the Master Deed and
Deed of Transfer over the 98 parking slots, as part of the common areas, expressed the
true intentions of the parties, and if not, whether it was due to mistake, fraud,
inequitable conduct, or accident. The Court pointed out that Petitioner herein never
rebutted any of respondent's statements regarding the subsequent acts of the parties
after the execution and registration of the Master Deed and Deed of Transfer. Petitioner
even adopted the narration of facts in Multi-Realty Development Corporation and
declared in its Reply.

Petitioner does not deny that it stayed silent when respondent sold the parking
slots on several occasions or that it offered to buy the parking slots from respondent on
at least two (2) occasions. It excuses itself by saying that just like respondent, it "also
labored under a mistaken appreciation of the nature and ownership of the ninety[-]eight
(98) parking slots in question."

Both parties recognized respondent's ownership of the parking slots. Petitioner

initially respected respondent's ownership despite the Master Deed's and Deed of
Transfer's stipulations. It was petitioner that changed its position decades after it acted
as if it accepted respondent's ownership.

Petitioner cannot claim the benefits of estoppel. It was never made to rely on any
false representations. It knew from its inception as a corporation that ownership of the
parking slots remained with respondent. Its dealings with respondent and the actuations

Page 59 of 79
of its Board of Directors convincingly show that it was aware of and respected
respondent's ownership.
G. INTERPRETATION OF CONTRACTS
KINDS OF CONTRACTS AS TO VALIDITY (Void or Inexistent)
30) ASIAN TRANSMISSION CORPORATION vs. CIR
G.R No. 230861, September 19, 2018
(FIRST DIVISION)

BERSAMIN, J.:

NATURE OF THE ACTION: The taxpayer has the primary responsibility for the proper
preparation of the waiver of the prescriptive period for assessing deficiency taxes.
Hence, the Commissioner of Internal Revenue (CIR) may not be blamed for any defects
in the execution of the waiver.

FACTS:
Asian Transmission Corporation (ATC) is a corporation duly organized and
existing under Philippine Laws and with business address at Carmelray Industrial Park,
Canlubang, Calamba City, Laguna. It is a SEC registered manufacturer of motor vehicle
transmission component parts and engines of Mitsubishi vehicles. On January 3, 2003
and March 3, 2003, ATC filed its Annual Information Return of Income Taxes Withheld
on Compensation and Final Withholding Taxes and Annual Information Return of
Creditable Income Taxed Withheld (Expanded)/Income Payments Exempt from
Withholding Tax, respectively.

Subsequently, ATC received Letter of Authority from the CIR informing ATC
that its revenue officers from the Large Taxpayers Audit and Investigation Division II
shall examine its books of accounts and other accounting records for the taxable year
2002. Thereafter, [the CIR] issued a Preliminary Assessment Notice (PAN) to ATC.
Consequently, on various dates, ATC, through its Vice President for Personnel and
Legal Affairs, Mr. Roderick M. Tan, executed several documents denominated as
"Waiver of the Defense of Prescription Under the Statute of Limitations of the National
Internal Revenue Code" (Waiver). ATC availed of the Tax Amnesty Program under
Republic Act No. 9480. Thereafter, ATC received a Formal Letter of Demand from CIR
for deficiency [WTC] in the amount of Php62,977,798.02, [EWT] in the amount of
Php6,916,910.51, [FWT] in the amount of Php501,077.72. Hence, ATC filed its Protest
Letter in regard thereto and received the Final Decision on Disputed Assessment
whereby the CIR found ATC liable to pay deficiency tax in the amount of
Php75,696,616.75. Thus, on May 14, 2009, ATC filed an appeal letter/request for
reconsideration with the CIR to which the latter denied such motion. Thus, ATC filed
the instant Petition for Review (with Application for Preliminary Injunction and
Temporary Restraining Order). The CTA in Division rendered its decision granting the
petition for review of ATC. It held that ATC was not estopped from raising the
invalidity of the waivers inasmuch as the Bureau of Internal Revenue (BIR) had itself
caused the defects thereof, namely: (a) the waivers were notarized by its own employee
despite not being validly commissioned to perform notarial acts; (b) the BIR did not
indicate the date of its acceptance; (c) the BIR did not specify the amounts of and the
particular taxes involved; and (d) respondent CIR did not sign the waivers despite the
clear mandate of RMO 20-90 to that effect. It ruled that the waivers, being invalid, did
not operate to toll or extend the three-year period of prescription. The CTA En Banc
promulgated the assailed decision reversing and setting aside the decision of the CTA in
Division, and holding that the waivers were valid. It observed that the CIR's right to
assess deficiency withholding taxes for CY 2002 against ATC had not yet prescribed.

ISSUE:
Whether the CTA En Banc acted in excess of jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction in applying the ruling
in  Commissioner of Internal Revenue v. Next Mobile Inc. as well as the equitable principles
of in pari delicto, unclean hands, and estoppel

Page 60 of 79
HELD:
No. The appeal has no merit. In Commissioner of Internal Revenue v. Next
Mobile Inc., the Court declared that as a general rule a waiver that did not comply with
the requisites for validity specified in RMO No. 20-90 and RDAO 01-05 was invalid and
ineffective to extend the prescriptive period to assess the deficiency taxes. However, due
to peculiar circumstances obtaining, the Court treated the case as an exception to the
rule, and considered the waivers concerned as valid for the following reasons, viz.:

First, the parties in this case are in pari delicto or "in equal fault." In pari delicto
connotes that the two parties to a controversy are equally culpable or guilty and they
shall have no action against each other. However, although the parties are in pari
delicto, the Court may interfere and grant relief at the suit of one of them, where public
policy requires its intervention, even though the result may be that a benefit will be
derived by one party who is in equal guilt with the other. Here, to uphold the validity of
the Waivers would be consistent with the public policy embodied in the principle that
taxes are the lifeblood of the government, and their prompt and certain availability is an
imperious need. Taxes are the nation's lifeblood through which government agencies
continue to operate and which the State discharges its functions for the welfare of its
constituents. As between the parties, it would be more equitable if petitioner's lapses
were allowed to pass and consequently uphold the Waivers in order to support this
principle and public policy. Second, the Court has repeatedly pronounced that parties
must come to court with clean hands. Parties who do not come to court with clean hands
cannot be allowed to benefit from their own wrongdoing. Following the foregoing
principle, respondent should not be allowed to benefit from the flaws in its own Waivers
and successfully insist on their invalidity in order to evade its responsibility to pay taxes.
Third, respondent is estopped from questioning the validity of its Waivers. While it is
true that the Court has repeatedly held that the doctrine of estoppel must be sparingly
applied as an exception to the statute of limitations for assessment of taxes, the Court
finds that the application of the doctrine is justified in this case. Verily, the application of
estoppel in this case would promote the administration of the law, prevent injustice and
avert the accomplishment of a wrong and undue advantage. Respondent executed five
Waivers and delivered them to petitioner, one after the other. It allowed petitioner to
rely on them and did not raise any objection against their validity until petitioner
assessed taxes and penalties against it. Moreover, the application of estoppel is
necessary to prevent the undue injury that the government would suffer because of the
cancellation of petitioner's assessment of respondent's tax liabilities. Finally, the Court
cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one
hand, after voluntarily executing waivers, insisted on their invalidity by raising the very
same defects it caused. On the other hand, the BIR miserably failed to exact from
respondent compliance with its rules. The BIR's negligence in the performance of its
duties was so gross that it amounted to malice and bad faith. Moreover, the BIR was so
lax such that it seemed that it consented to the mistakes in the Waivers. Such a situation
is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their
responsibility to pay taxes by mere expedient of hiding behind technicalities.

It is true that petitioner was also at fault here because it was careless in
complying with the requirements of RMO No. 20-90 and RDAO 01-05. Nevertheless,
petitioner's negligence may be addressed by enforcing the provisions imposing
administrative liabilities upon the officers responsible for these errors. The BIR's right to
assess and collect taxes should not be jeopardized merely because of the mistakes and
lapses of its officers, especially in cases like this where the taxpayer is obviously in bad
faith.

Moreover, the principle of estoppel was applicable. The execution of the waivers
was to the advantage of ATC because the waivers would provide to ATC the sufficient
time to gather and produce voluminous records for the audit. It would really be unfair,
therefore, were ATC to be permitted to assail the waivers only after the final assessment
proved to be adverse.

Page 61 of 79
 31) HEIRS OF JOSE MARIANO vs. CITY OF NAGA
G.R. No. 197743, March 12, 2018
(FIRST DIVISION)

TIJAM, J.:

NATURE OF THE ACTION: This is a Petition for Review on Certiorari, filed under
Rule 45 of the Rules of Court, assailing the July 20, 2011 Amended Decision1 rendered
by the Court of Appeals (CA) in CA-G.R. SP No. 90547 which reconsidered its March 7,
2011 Decision,2 annulling the June 20, 2005 Decision3 of the Regional Trial Court (RTC),
Branch 26 of Naga City in Civil Case No. RTC 2005-0030, and reinstating the February
14, 2005 Decision4 of the Municipal Trial Court (MTC), Branch 1 of Naga City in Civil
Case No. 12334 dismissing the ejectment case instituted by petitioners.

FACTS:
An offer to construct the Naga City Hall within the premises of the Subdivision
was made thru a letter, addressed to the mayor of the City of Naga (City), by Eusebio M.
Lopez, Sr., Soledad L. Dolor, Jose A. Gimenez and Eusebio Lopez, Jr. (Lopez Jr.), as the
President, Secretary, Treasurer and General Manager of the City Heights Subdivision
(Subdivision). Their letter indicated that the City Hall would be built on an area of not
less than two hectares within the Subdivision, which would be designated as the open
space reserved for a public purpose. The Subdivision granted the City’s request and
amended its offer and agreed to donate five hectares to the City of which such portion a
portion was registered in the names of Macario Mariano and Jose Gimenez under TCT
No. 671 measuring a total of 22.9301 hectares. To indicate their "conforme," Mariano and
Gimenez, together with their respective spouses as marital consent, signed the amended
offer together their respective spouses. Afterwards, the Municipal Board adopted
Resolution No. 89 accepting the Subdivision's offer of donation and its proposed
contract.

According to the City, the Mayor Imperial and the registered landowners,
Mariano and Gimenez, executed a Deed of Donation on August 16, 1954, whereby the
latter donated five hectares of land (subject property), two hectares of which to be used
as the City Hall site, another two hectares for the public plaza, and the remaining
hectare for the public market. By virtue thereof, the City entered the property and began
construction of the government center. It also declared the five-hectare property in its
name for tax purposes. Subsequently, other government agencies and instrumentalities
entered the
same property and built their offices thereon. Meanwhile, Petitioners Heir of Mariano
claimed that the plan to donate five hectares to the City did not materialize as the
contract to build the City Hall was not awarded to the Subdivision but to a another
contractor (Francisco Sabaria). Hence, Mariano and officers of the Subdivision arranged
a meeting with Mayor Imperial to demand the return of the five-hectare lot as the
condition for the donation was not complied with. Mayor Imperial purportedly assured
them that the City would buy the property from them. On May14, 1968, Mariano
instructed the Subdivision's President to make a follow-up on the City's payment for the
subject lot. The purchase, however, did not materialize. In 1971, Mariano died without
receiving payment from the City. Subsequently, an action for partition of Mariano's
estate was filed by Tirso Mariano which was opposed by his widow, Irene, and their
adopted children, Jose and Erlinda. Irene died in 1988. Jose's heirs and Erlinda were
declared as Irene's heirs. As administrator of Irene's estate, Danilo Mariano demanded
upon then City Mayor of Naga, Jesse M. Robredo, to vacate and return the subject
property, but the City did not comply which urged the petitioners, as heirs of Jose and
Erlinda, to file a Complaint for unlawful detainer against the City. The complaint was
dismissed by the MTC as the City's defense, which involved a claim of ownership,
removed the issue from the case of unlawful detainer. However, the RTC reversed the
dismissal of the case and issue its order to the City of Naga occupying the subject
property for it to vacate therefrom and pay back rentals to petitioners. On the other

Page 62 of 79
hand, the Court of Appeals (CA), in an amended decision, overturned the RTC and
upheld the dismissal of the MTC, concluding that the existence and due execution of the
Deed of Donation had been duly established, warranting the dismissal of the ejectment
case and that petitioners' claim was barred by laches as the City had been in open, public
and adverse possession of the subject property for 49 years at the time the ejectment case
was filed.

ISSUE:
Whether the purported donation is void for lack of the formalities required for
validity

HELD:
Yes, the said donation is void. Generally, contracts are obligatory in whatever
form they may have been entered into, provided all the essential requisites for their
validity are present. However, when the law requires that a contract be in some form to
be valid, such requirement is absolute and indispensable; its non-observance renders the
contract void and of no effect.55 One such law is Article 749 of the Civil Code of the
Philippines which requires that: “In order that the donation of an immovable may be valid, it
must be made in a public document, specifying therein the property donated and the value of the
charges which the donee must satisfy.”

The acceptance may be made in the same deed of donation or in a separate

public document, but it shall not take effect unless it is done during the lifetime of the
donor. If the acceptance is made in a separate instrument, the donor shall be notified
thereof in an authentic form, and this step shall be noted in both instruments. Thus,
donation of real property, which is a solemn contract, is void without the formalities
specified in the foregoing provision. Article 749 of the Civil Code requires that donation
of real property must be made in a public instrument to be valid. A deed of donation
acknowledged before a notary public is a public document. The notary public shall
certify that he knows the person acknowledging the instrument and that such person is
the same person who executed the instrument, acknowledging that the instrument is his
free act and deed. The acceptance may be made in the same deed of donation or in a
separate instrument. An acceptance made in a separate instrument must also be in a
public document. If the acceptance is in a separate public instrument, the donor shall be
notified in writing of such fact. Both instruments must state the fact of such notification
(Department of Education, Culture and Sports (DECS) v. Del Rosario). The purported
Deed of Donation submitted by the City cannot be considered a public document. While
it contains an Acknowledgment before a notary public, the same is manifestly defective
as it was made neither by the alleged donors (Macario and Gimenez) and their
respective spouses, or by the donee (the City, through Mayor Imperial), but only by
Eusebio M.¬Lopez, Faustino Dolor, Soledad Lirio Dolor and Lopez, Jr., as the
Subdivision's President, Vice President, Secretary and General Manager, respectively.
Said Deed also shows that Mayor Imperial affixed his signature thereon on August 21,
1954, or four days after it was notarized, thus he could not have acknowledged the same
before the notary public on August 16, 1954. Verily, the notary public could not have
certified to knowing the parties to the donation, or to their execution of the instrument,
or to the voluntariness of their act. This glaring defect is fatal to the validity of the
alleged donation. It is settled that a defective notarization will strip the document of its
public character and reduce it to a private instrument. Not being a public document, the
purported Deed of Donation is void. A void or inexistent contract has no force and effect
from the very beginning, as if it had never been entered into. It is equivalent to nothing
and is absolutely wanting in civil effects. It cannot be validated either by ratification or
prescription.

Void contracts may not be invoked as a valid action or defense in any court
proceeding, including an ejectment suit. Since void contracts cannot be the source of
rights, the City has no possessory right over the subject property. In this light, to resolve
whether to admit the copy of the purported Deed of Donation as secondary evidence
will be futile as the instrument in any case produces no legal effect.

Page 63 of 79
 32) RAYMOND A. SON vs. UNIVERSITY OF SANTO TOMAS
G.R. No. 211273, April 18, 2018
(FIRST DIVISION)

DEL CASTILLO, J.:

NATURE OF THE ACTION: This Petition for Review on Certiorari1 seeks to set aside
the September 27, 2013 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No.
128666 setting aside the August 10, 2011 Decision3 and October 30, 2012 Decision4 and
January 22, 2013 Resolution5 of the National Labor Relations Commission (NLRC) in
NLRC LAC Case No. 04-001131-11 and reinstating the March 26, 2012 Decision6 of the
NLRC, as well as the CA's January 29, 2014 Resolution7 denying petitioners' Motion for
Reconsideration.

FACTS:
Respondent University of Santo Tomas (UST) is an educational institution
operating under the authority of the Commission on Higher Education (CHED). The rest
of the herein respondents are impleaded as officers and administrators of the school.
Petitioners Raymond A. Son (Son), Raymond S. Antiola (Antiola), and Wilfredo E.
Pollarco (Pollarco) are full time professors of the UST Colleges of Fine Arts and Design
and Philosophy, and are members of the UST Faculty Union, with which UST at the time
had a Collective Bargaining Agreement (CBA). Son and Antiola were hired in June, 2005,
while Pollarco was employed earlier, or in June, 2004. Under their respective
appointment papers, petitioners were designated as "faculty member[s] on
PROBATIONARY status," whose "accession to tenure status is conditioned by [sic] your
meeting all the requirements provided under existing University rules and regulations
and other applicable laws including, among others, possession of the [prerequisite]
graduate degree before the expiration of the probationary period and by your
satisfactory performance of the duties and responsibilities set forth in the job description
hereto attached.

Petitioners did not possess the required Master's degree, as provided in the UST-
UST Faculty Union CBA, but were nonetheless hired by UST on the condition that they
fulfill the requirement within the prescribed period. Petitioners enrolled in the Master's
program, but were unable to finish the same. In spite of their failure to obtain the
required Master's degree, they continued to teach even beyond the period given for
completion thereof. On March 3, 2010, then CHED Chairman Emmanuel Angeles issued
a Memorandum addressed to the Presidents of public and private higher education
institutions, directing the strict implementation of the minimum qualification for faculty
members of undergraduate programs, particularly the Master's degree and licensure
requirements, as mandated by Memorandum Order No. 40-08, "to ensure the highest
qualification of their faculty." Thus, UST wrote the petitioners and other affected faculty
members, informing them of the university's decision to cease re-appointment of those
who failed to complete their Master's degrees, but allow a written appeal from the
concerned faculty members who are due for thesis defense/completion of their Master's
degrees.

Petitioners did not make a written appeal, operating under the belief that they
have been vested tenure under the CBA for their continued employment despite failure
to obtain the required Master's degree. Thereafter, petitioners received
termination/thank you letters signed by respondent Dr. Cynthia Loza, Dean of the
College of Fine Arts and Design. The reason given for non-renewal of their
appointments is their failure to obtain the required Master's degree. Hence, petitioners
filed a labor case against the respondents for unfair labor practice, illegal dismissal, and
recovery of money claims.
Thereafter, Labor Arbiter Joel S. Lustria rendered his Decision finding for petitioners
and declaring respondents guilty of illegal dismissal and unfair labor practice, as well as

Page 64 of 79
malice and bad faith in illegally dismissing the former. The Labor Arbiter upheld the
CBA provision granting tenure by default to petitioners, and declared that petitioners
were not accorded due process prior to dismissal. Thus, petitioners were awarded
money claims, damages, and attorney's fees.

The NLRC, on the other hand, issued its Decision dismissing the appeal for lack
of merit and affirming the Labor Arbiter's Decision. It held that the UST-UST Faculty
Union CBA took precedence over CHED Memorandum Order No. 40-08; that by said
CBA provision, petitioners acquired tenure by default; that UST continued to hire
faculty members without the required Master's degree in their field of instruction even
after petitioners were dismissed from work; and that the only cause for petitioners'
dismissal was their refusal to submit a written appeal, which is not a valid ground for
dismissal or non-renewal of their appointment. The CA rendered the assailed Decision
granting the Petition and was satisfied that private respondents' termination from
employment was valid and legal.

ISSUE:
Whether petitioners were illegally dismissed

HELD:
No, the petitioners were not illegally dismissed. The Court denies the Petition.

As early as in 1992, the requirement of a Master's degree in the undergraduate

program professor's field of instruction has been in place, through DECS Order 92
(series of 1992, August 10, 1992) or the Revised Manual of Regulations for Private
Schools. Article IX, Section 44, paragraph 1 (a) thereof provides that college faculty
members must have a master's degree in their field of instruction as a minimum
qualification for teaching in a private educational institution and acquiring regular
status therein.

DECS Order 92, Series of 1992 was promulgated by the DECS in the exercise of
its mle-making power as provided for under Section 70 of Batas PambansaBlg. 232,
otherwise known as the Education Act of 1982.29 As such, it has the force and effect of
law.30 In University of the East v. Pepanio,31 the requirement of a masteral degree for
tertiary education teachers was held to be not unreasonable but rather in accord with the
public interest.

Thus, when the CBA was executed between the parties in 2006, they had no right
to include therein the provision relative to the acquisition of tenure by default, because it
is contrary to, and thus violative of, the 1992 Revised Manual of Regulations for Private
Schools that was in effect at the time. As such, said CBA provision is null and void, and
can have no effect as between the parties. "A void contract is equivalent to nothing; it
produces no civil effect; and it does not create, modify or extinguish a juridical relation."
Under Article 1409 of the Civil Code, one of the contracts that is inexistent and void
from the beginning includes (1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy. When CHED Memorandum Order No.
40-08 came out, it merely carried over the requirement of a masteral degree for faculty
members of undergraduate programs contained in the 1992 Revised Manual of
Regulations for Private Schools. It cannot therefore be said that the requirement of a
master's degree was retroactively applied in petitioners' case, because it was already the
prevailing rule with the issuance of the 1992 Revised Manual of Regulations for Private
Schools.

Thus, going by the requirements of law, it is plain to see that petitioners are not
qualified to teach in the undergraduate programs of UST. And while they were given
ample time and opportunity to satisfy the requirements by obtaining their respective
master's degrees, they failed in the endeavor. Petitioners knew this - that they cannot
continue to teach for failure to secure their master's degrees - and needed no reminding

Page 65 of 79
of this fact; "those who are seeking to be educators are presumed to know these
mandated qualifications.

33) HEIRS OF TOMAS ARAO, REP. BY PROSESO ARAO, ET AL. vs. HEIRS
OF PEDRO ECLIPSE, REP. BY BASILIA CUARESMA; HEIRS OF
HONORATO ECLIPSE, REPRESENTED BY VICENTE ECLIPSE, ET AL.
G.R. No. 211425, November 19, 2018
(THIRD DIVISION)

REYES, JR., J.:

NATURE OF THE ACTION: This is a Petition for Review on Certiorari1 filed under
Rule 45 of the Rules of Court assailing the Decision2 dated June 7, 2013 and the
Resolution3 dated January 30, 2014 of the Court of Appeals (CA), in CA-G.R. CV No.
93660, which reversed and set aside the Decision4 dated April 23, 2009 of the Regional
Trial Court (RTC) of Tuguegarao City, Cagayan, Branch 5, in Civil Case No. 5892, for
Declaration of Nullity of a Deed of Absolute Sale and Reconveyance of Lot No. 1667,
Recovery of Ownership and Possession with Damages.

FACTS:
Subject of the controversy is a 5,587-square-meter land, known as Lot No. 1667
situated in Ugac Sur, Tuguegarao City, Cagayan, originally owned by Policarpio Eclipse
(Policarpio), married to Cecilia Errera (spouses Eclipse), and covered by Original
Certificate of Title (OCT) No. 1546. Respondents herein (spouses Eclipse's successors-in-
interest) discovered that the land in question had been subject of a Deed of Absolute Sale
dated September 5, 1969 by which the registered owner, Policarpio, with the consent of
his wife Cecilia, sold the land in question to Tomas Arao (Tomas), married to Tomasa
Balubal. They averred that the sale was registered, resulting in the cancellation of OCT
No. 1546, which was replaced by Transfer Certificate of Title (TCT) No. T-13798 in the
name of Tomas, married to Terasa Balubal. On June 30, 1977, Tomas executed a Deed of
Absolute Sale10 of the subject land in favor of his children Eulalia, Proceso and Felipa
Arao, whose heirs are herein petitioners. Eventually, Eulalia and Felipa registered the
land in their names as TCT No. T-39071.

Respondents maintained that the said Deed of Sale dated September 5, 1969 was
a forgery because at the time of its execution, Policarpio and Cecilia already died.
Respondents thus argued that on the basis of the said forged deed, the subsequent
transfer from Tomas to Eulalia and Felipa was likewise void. Hence, they filed the
present action for Nullity of a Deed of Absolute Sale and Reconveyance of Lot No. 1667,
Recovery of Ownership and Possession with Damages against herein petitioners, the
heirs of Tomas. Petitioners moved for the dismissal of the complaint on the ground of
prescription, arguing that actions for annulment of title and reconveyance prescribe in
10 years. In their Answer with Counterclaim, petitioners countered respondents'
allegation by stating that the children of spouses Eclipse, namely, Pedro, Eufemia,
Honorato and Maria Eclipse sold the subject land to Paulino Arao (Paulino), married to
Balbina Cancino, per Deed of Sale. Paulino and Balbina died intestate and without an
heir except Paulino's brother, Tomas. On June 30, 1977, Tomas sold it to his children
Eulalia, Proceso and Felipa, and the latter registered the land in their names as TCT No.
T-39071. During trial, petitioners also presented a Deed of Sale dated November 14, 1949
executed by a certain Gavino Arao (Gavino), who was later identified as the son of
Paulino, in favor of Tomas. The RTC rendered a Decision dismissing the complaint and
counterclaim on the ground of laches and ruled that the Deed of Sale dated September 5,
1969 in favor of Tomas was a forgery. Since the said Deed was a forgery, it conferred no
right in favor of Tomas' heirs. But despite the findings of nullity, the RTC still dismissed
the complaint as laches had set in. On the other hand, the CA ruled that the doctrine of
laches is not applicable since respondents' cause of action is imprescriptible pursuant to
Article 1410 of the Civil Code. But nonetheless, the CA upheld the RTC 's findings that
there was forgery and irregularities in the execution of the deed to Tomas, such that it
conveys no title either to Tomas or to his children.

Page 66 of 79
ISSUES:
1. Whether laches is not applicable in this case
2. Whether the Deed of Sale dated June 25, 1940 shall be disregarded

HELD:
Before resolving whether laches has set in, it is important to determine first how
and by what contract Tomas (petitioners' predecessor-in-interest) acquired the title of
the subject lot in his name. This is because if the assailed contract is void ab initio, then
laches will not apply.

Article 1410 of the Civil Code states that an "action to declare the inexistence of a
void contract does not prescribe." The foregoing provision is echoed by this Court in the
case of Fil-Estate Golf and Development, Inc. v. Navarro27 when it held that a complaint
for cancellation of title based on the nullity of the deed of conveyance does not prescribe.
In other words, an action that is predicated on the fact that the conveyance complained
of was null and void ab initio is imprescriptible. And if the action is imprescriptible, it
follows then that the defense of laches cannot be invoked. Laches is a doctrine in equity
and our courts are basically courts of law and not courts of equity. Equity, which has
been aptly described as "justice outside legality," should be applied only in the absence
of, and never against, statutory law. The positive mandate of Art. 1410 of the New Civil
Code conferring imprescriptibility to actions for declaration of the inexistence of a
contract should pre-empt and prevail over all abstract arguments based only on equity.
Certainly, laches cannot be set up to resist the enforcement of an imprescriptible legal
right, and petitioners can validly vindicate their inheritance despite the lapse of time.
Records of the case reveal three different Deeds of Absolute Sale which directly and
indirectly conveyed title to Tomas over the property in question; (1) the September 5,
1969 Deed of Absolute Sale purportedly executed by the original owner, Policarpio, in
favor of Tomas; (2) the November 14, 1949 Deed of Sale executed by Gavino, (the son of
Tomas' brother, Paulino) in favor of Tomas; and (3) the June 25, 1940 Deed of Sale
executed by the children of Policarpio, namely, Pedro, Eufemia, Honorato and Maria, in
favor of Paulino, who, upon his death, transmitted, by operation of law, the subject
property to his sole heir and brother, Tomas. Respondents' present action is based on the
nullity of the September 5, 1969 Deed of Absolute Sale. When this 1969 Deed of Sale was
executed, the seller thereof, Policarpio, was already deceased, having died on November
21, 1936. It is settled that the death of a person terminates contractual capacity. If any
one party to a supposed contract was already dead at the time of its execution, such
contract is undoubtedly simulated and false, and, therefore, null and void by reason of
its having been made after the death of the party who appears as one of the contracting
parties therein. There is no doubt, therefore, that this 1969 Deed of Sale is spurious and
the signature of the seller appearing thereon is forged. Suffice it to say, a forged deed is a
nullity and conveys no title. As a forged deed is null and void, and conveys no title, all
the transactions subsequent to the alleged sale are likewise void. Since the Deed of
Absolute Sale dated September 5, 1969 is null and void, it follows then that all the TCTs
which were issued by virtue of the said spurious and forged document are also null and
void. The Court PARTLY GRANTED the petition. The assailed Decision of the Court of
Appeals, is AFFIRMED with MODIFICATION, to read as follows:
1. Declaring as NULL and VOID the Deed of Absolute Sale dated
September 5, 1969 for being fictitious, inexistent and without any legal
force and effect.
2. Consequently, Transfer Certificates of Title No. T-13798 and T-39071 are
likewise declared NULL and VOID for being issued based on the
aforesaid
forged and fictitious Deed of Sale dated September 5, 1969.
3. Declaring as VALID the Deed of Sale dated June 25, 1940.
4. Declaring petitioners to be the LAWFUL owners and possessors of the
subject Lot No. 1667 by virtue of the valid Deed of Sale dated June 25,
1940.

Page 67 of 79
 5. Directing the parties to EXECUTE pertinent documents required by law
to effect the issuance of a new Transfer Certificate of Title in favor of
petitioners, heirs of Tomas Arao represented by Proceso Arao, Eulalia
Arao-Maggay, Gabriel Arao and Felipa A. Delelis.

SPECIAL CONTRACTS
A. SALES
1. In General
34) LILY S. VILLAMIL, SUBSTITUTED BY HER HEIRS RUDY E. VILLAMIL,
ET AL., vs. SPOUSES JUANITO ERGUIZA AND MILA ERGUIZA
G.R. NO. 195999, JUNE 20, 2018
(THIRD DIVISION)

MARTIRES, J.:

NATURE OF THE ACTION: This is a petition for review on certiorari seeking to

reverse and set aside the Decision,1 dated 29 June 2010, and Resolution,2 dated 2
February 2011, of the Court of Appeals (CA) in CA-G.R. SP No. 109813 which nullified
the Decision,3 dated 2 October 2008, of the Regional Trial Court, Dagupan City, Branch
44 (RTC), in Civil Case No. 2007-0014-D, an action for recovery of possession.

FACTS:
This involves the Complaint for recovery of possession and damages filed by
petitioner Lily Villamil against respondent-spouses Juanito and Mila Erguiza before the
Municipal Trial Court in Cities (MTCC) of Dagupan City. The complaint alleges, among
others, the following: (1) that plaintiff is the absolute and exclusive owner of the one
hundred ninety-one (191) square meters, more or less certain parcel of land situated in
the District of Pantal, City of Dagupan; (2) that previously, said parcel of land was
covered by Transfer Certificate of Title No. 23988 registered under the names of plaintiff
Corazon Villamil and relatives; (3) that plaintiff together with her deceased sister,
Corazon Villamil, and deceased brother, Teddy Villamil, entered into an agreement with
Juanito Erguiza for the purpose of selling the above-described property to the latter
subject to the condition that plaintiff and her siblings would file a petition to secure
authorization for minor children from the proper courts. Likewise, that in case of failure
of the plaintiff and her siblings to obtain said authority, the partial payment made by the
defendant Juanito Erguiza shall be applied as rent for twenty (20) years of the premises;
(4) that during the course of time, TCT No. 23988 was cancelled and TCT No. 30049 was
issued by virtue of a quitclaim executed by Corazon Villamil and her children in favor of
the plaintiff. Likewise, TCT No. 30049 was cancelled and TCT No. 31125 was issued by
virtue of a Deed of Sale executed by Efren Villamil and Teddy Villamil in favor of the
plaintiff; (5) that plaintiff has been paying religiously the real estate taxes due on said
property; (6) that sometime in 1992 or after the lapse of twenty (20) years and the
expiration of the twenty (20) years lease, plaintiff demanded from the defendants to
return possession of the property but the latter failed and refused, and still fails (sic) and
refuses (sic) to return possession of the property to the damage and prejudice of the
plaintiff; (7) that the continued occupation by the defendants of the property is by mere
tolerance of the plaintiff and has been staying thereon without paying any rent to the
plaintiff; (8) that on 7 January 2002, plaintiff again demanded from the defendant[s] to
return the possession of the property by way of a formal letter dated December 18, 2001
which was received by the defendant[s] on January 11, 2002. Notwithstanding receipt of
said letter, defendants just ignored the valid pleas of the plaintiff; (9) that a period of
thirty (30) [days] had lapsed without the said agreement having been enforced, hence,
the defendants have lost whatever rights they have under said agreement; and (9) that
the matter was brought to the Office of the Barangay of Pantal District but no
conciliation or settlement was reached between the parties hence, a certification to file
action was issued by said office.

ISSUE:

Page 68 of 79
 Whether the petitioner had a better right to possess the property after petitioners
failed to pay the balance of the purchase price and the second condition had set in, that
is, the down payment was applied as rentals for 20 years from 1972 to 1992

HELD:
The parties entered into a contract to sell

A Contract to Sell may not be considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the prospective seller explicitly reserves
the transfer of title to the prospective buyer, meaning, the prospective seller does not as
yet agree or consent to transfer ownership of the property subject of the contract to sell
until the happening of an event, which for present purposes we shall take as the full
payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill
his promise to sell the subject property when the entire amount of the purchase price is
delivered to him. In other words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from
arising and thus, ownership is retained by the prospective seller without further
remedies by the prospective buyer. Stated positively, upon the fulfillment of the
suspensive condition which is the full payment of the purchase price, the prospective
seller's obligation to sell the subject property by entering into a contract of sale with the
prospective buyer becomes demandable as provided in Article 1479 of the Civil Code
which states: “a promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.” An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a consideration
distinct from the price. An examination of the agreement would reveal that the parties
entered into a contract to sell the subject property. First, petitioner and her siblings who
were then co-owners merely promised to sell the subject property, thus, signifying their
intention to reserve ownership. Second, the execution of a deed of absolute sale was
made dependent upon the proper court's approval of the sale of the shares of the minor
owners. Third, the agreement between the parties was not embodied in a deed of sale.
The absence of a formal deed of conveyance is a strong indication that the parties did
not intend immediate transfer of ownership. Fourth, petitioner retained possession of
the certificate of title of the lot.

Now, the next question to be resolved is whether the suspensive condition, i.e.,
judicial approval of the sale of the minor owners' shares, upon which the obligation of
the sellers to execute a deed of sale depends, is fulfilled. Principle of constructive
fulfillment applies in this case. Under Article 1186 of the Civil Code, “the condition shall
be deemed fulfilled when the obligor voluntarily prevents its fulfillment.” This provision refers
to the constructive fulfillment of a suspensive condition, whose application calls for two
requisites, namely: (a) the intent of the obligor to prevent the fulfillment of the condition,
and (b) the actual prevention of the fulfillment. Mere intention of the debtor to prevent
the happening of the condition, or to place ineffective obstacles to its compliance,
without actually preventing the fulfillment, is insufficient. Petitioner and her then co-
owners undertook, upon receipt of the down payment from respondent-spouses, the
filing of a petition in court, after which they promised the latter to execute the deed of
absolute sale whereupon the latter shall, in turn, pay the entire balance of the purchase
price. The balance of the consideration shall be paid only upon grant of the court's
approval and upon execution of the deed of absolute sale. Here, there is no doubt that
petitioner prevented the fulfillment of the suspensive condition. She herself admitted
that they did not file any petition to seek approval of the court as regards the sale of the
shares of the minor owners. In addition, the other co-owners sold their shares to
petitioner such that she was able to consolidate the title in her name. Thus, the condition
is deemed constructively fulfilled, as the intent to prevent fulfillment of the condition
and actual prevention thereof were definitely present. Consequently, it was incumbent
upon the sellers to enter into a contract with respondent-spouses for the purchase of the
subject property.

Page 69 of 79
 RIGHTS AND OBLIGATIONS OF THE VENDEE
Payment of Price

(35) VICTORIA N. RACELIS, IN HER CAPACITY AS ADMINISTRATOR,

vs. SPOUSES GERMIL JAVIER AND REBECCA JAVIER
G.R. No. 189609, January 29, 2018
(THIRD DIVISION)

LEONEN, J.:

NATURE OF THE ACTION: Through this Petition for Review, petitioner Victoria N.
Racelis (Racelis) challenges the Court of Appeals January 13, 2009 Decision and
September 17, 2009 Resolution, which ordered her to reimburse the sum of P24,000.00 to
respondents Spouses Germil Javier and Rebecca Javier (the Spouses Javier).

FACTS:
Before his death, the late Pedro Nacu, Sr. (Nacu) appointed his daughter, Racelis,
to administer his properties, among which was a residential house and lot located in
Marikina City. Nacu requested his heirs to sell this property first. Acting on this request,
Racelis immediately advertised it for sale. In August 2001, the Spouses Javier offered to
purchase the Marikina property. However, they could not afford to pay the price of
P3,500,000.00. They offered instead to lease the property while they raise enough money.
Racelis hesitated at first but she eventually agreed. The parties agreed on a month-to-
month lease and rent of P10,000.00 per month. This was later increased to P11,000.00.
The Spouses Javier used the property as their residence and as the site of their tutorial
school, the Niño Good Shepherd Tutorial Center. Sometime in July 2002, Racelis
inquired whether the Spouses Javier were still interested to purchase the property. The
Spouses Javier reassured her of their commitment and even promised to pay P100,000.00
to buy them more time within which to pay the purchase price. On July 26, 2002, the
Spouses Javier tendered the sum of P65,000.00 representing "initial payment or goodwill
money." On several occasions, they tendered small sums of money to complete the
promised P100,000.00, but by the end of 2003, they only delivered a total of P78,000.00.
Meanwhile, they continued to lease the property. They consistently paid rent but started
to fall behind by February 2004. Realizing that the Spouses Javier had no genuine
intention of purchasing the property, Racelis wrote to inform them that her family had
decided to terminate the lease agreement and to offer the property to other interested
buyers. In the same letter, Racelis demanded that they vacate the property by May 30,
2004.Racelis also stated that: It is a common practice that earnest money will be forfeited
in favor of the seller if the buyer fails to consummate [the] sale after the lapse of a
specified period for any reason so that we have the legal right to forfeit your P78,000 on
account of your failure to pursue the purchase of the property you are leasing. However,
as a consideration to you, we undertake to return to you the said amount after we have
sold the property and received the purchase price from the prospective buyer. The
Spouses Javier refused to vacate due to the ongoing operation of their tutorial business.
They wrote Racelis on March 16, 2004, informing her of their inability to purchase the
property at P3,500,000.00 because "Mrs. Rebecca Javier's plan for overseas employment
did not materialize."They also informed her that they had "purchased a more affordable
lot." They insisted that the sum of P78,000.00 was advanced rent and proposed that this
amount be applied to their outstanding liability until they vacate the premises.
Disagreeing on the application of the P78,000.00, Racelis and the Spouses Javier brought
the matter to the barangay for conciliation. Unfortunately, the parties failed to reach a
settlement. During the proceedings, Racelis demanded the Spouses Javier to vacate the
premises by the end of April 30, 2004. However, the Spouses Javier refused to give up
possession of the property and even refused to pay rent for the succeeding months.
Racelis thereafter caused the disconnection of the electrical service over the property
forcing the Spouses Javier to purchase a generator. This matter became the subject of a

Page 70 of 79
complaint for damages filed by the Spouses Javier against Racelis. Racelis was absolved
from liability. The Spouses Javier no longer interposed an appeal. Meanwhile, Racelis
filed a complaint for ejectment against the Spouses Javier before the Metropolitan Trial
Court in Marikina City. The case was docketed as Civil Case No. 04-7710. In her
Complaint, she alleged that she agreed to lease the property to the Spouses Javier based
on the understanding that they would eventually purchase it. She also claimed that they
failed to pay rent from March 2004 to September 2004 and the balance of P7,000.00 for
the month of February, or a total of P84,000.00. She prayed that the Spouses Javier be
ordered to: (1) vacate the leased premises; (2) pay accrued rent; and (3) pay moral and
exemplary damages, and attorney's fees. In their Answer, the Spouses Javier averred
that they never agreed to purchase the property from Racelis because they found a more
affordable property at Greenheights Subdivision in Marikina City. They claimed that the
amount of P78,000.00 was actually advanced rent. During trial, the Spouses Javier
vacated the property and moved to their new residence at Greenheights Subdivision on
September 26, 2004. The Metropolitan Trial Court then determined that the only issue
left to be resolved was the amount of damages in the form of unpaid rentals to which
Racelis was entitled.

ISSUE:
Whether the P78, 000.00 initial payment is considered an advanced rent, not an
earnest money

HELD:
No. The P78,000.00 initial payment cannot be considered as advanced rent, but
characterized as earnest money.

Records show that respondents continued to pay monthly rent until February
2004 despite having delivered the P78,000.00 to petitioner on separate dates in 2003.
Second, as observed by the Metropolitan Trial Court, respondents indicated in the
receipt that the P78,000.00 was initial payment or goodwill money. They could have
easily stated in the receipt that the P78,000.00 was advanced rent instead of
denominating it as "initial payment or goodwill money." Respondents even proposed
that the initial payment be used to offset their accrued rent. Both the Metropolitan Trial
Court and the Regional Trial Court rejected respondents' assertion that the P78,000.00
was advanced rent and characterized it as earnest money. Based on the evidence on
record, petitioner and respondents executed a contract to sell, not a contract of sale.
Petitioner reserved ownership of the property and deferred the execution of a deed of
sale until receipt of the full purchase price. Earnest money, under Article 1482 of the
Civil Code, is ordinarily given in a perfected contract of sale. However, earnest money
may also be given in a contract to sell. In a contract to sell, earnest money is generally
intended to compensate the seller for the opportunity cost of not looking for any other
buyers. It is a show of commitment on the part of the party who intimates his or her
willingness to go through with the sale after a specified period or upon compliance with
the conditions stated in the contract to sell. Opportunity cost is defined as "the cost of the
foregone alternative." In a potential sale, the seller reserves the property for a potential
buyer and foregoes the alternative of searching for other offers. This Court in Philippine
National Bank v. Court of Appeals construed earnest money given in a contract to sell as
"consideration for [seller's] promise to reserve the subject property for [the buyer]." The
seller, "in excluding all other prospective buyers from bidding for the subject property ...
[has given] up what may have been more lucrative offers or better deals."

Earnest money, therefore, is paid for the seller's benefit. It is part of the purchase
price while at the same time proof of commitment by the potential buyer. Absent proof
of a clear agreement to the contrary, it is intended to be forfeited if the sale does not
happen without the seller's fault. The potential buyer bears the burden of proving that
the earnest money was intended other than as part of the purchase price and to be
forfeited if the sale does not occur without the fault of the seller. Respondents were
unable to discharge this burden.
B. LEASE

Page 71 of 79
 KINDS OF LEASE
Lease of Things
(36) INTRAMUROS ADMINISTRATION, vs. OFFSHORE CONSTRUCTION
DEVELOPMENT COMPANY
G.R. No. 196795, March 07, 2018
(THIRD DIVISION)

LEONEN, J.:

NATURE OF THE ACTION: The sole issue in ejectment proceedings is determining

which of the parties has the better right to physical possession of a piece of property.
The defendant's claims and allegations in its answer or motion to dismiss do not oust a
trial court's jurisdiction to resolve this issue.

FACTS:
In 1998, Intramuros leased certain real properties of the national government,
which it administered to Offshore Construction. Three (3) properties were subjects of
Contracts of Lease and were leased for five (5) years. All their lease contracts also made
reference to an August 20, 1998 memorandum of stipulations, which included a
provision for lease renewals every five (5) years upon the parties' mutual agreement.
Offshore Construction occupied and introduced improvements in the leased premises.
However, Intramuros and the Department of Tourism halted the projects due to
Offshore Construction's non-conformity with Presidential Decree No. 1616, which
required 16th to 19th centuries' Philippine-Spanish architecture in the area.
Consequently, Offshore Construction filed a complaint with prayer for preliminary
injunction and temporary restraining order against Intramuros and the Department of
Tourism before the Manila RTC.

Eventually, the parties executed a Compromise Agreement where they affirmed

the validity of the two (2) lease contracts but terminated the one (over Revellin de
Recoletos). The Compromise Agreement retained the five (5)-year period of the existing
lease contracts and stated only certain areas that may be occupied by Offshore
Construction. During the lease period, Offshore Construction failed to pay its utility bills
and rental fees, despite several demand letters. Intramuros tolerated the continuing
occupation, hoping that Offshore Construction would pay its arrears. As of July 31, 2004,
these arrears allegedly totaled P6,762,153.70.

To settle its arrears, Offshore Construction proposed to pay the Department of

Tourism's monthly operational expenses for lights and sound equipment, electricity, and
performers at the Baluarte Plano Luneta de Sta. Isabel. Intramuros and the Department
of Tourism accepted the offer, and the parties executed a Memorandum of Agreement
covering the period of August 15, 2004 to August 25, 2005. However, Offshore
Construction continued to fail to pay its arrears. Intramuros filed a Complaint for
Ejectment. The MTC granted Offshore’s motion and dismissed the case on the ground of
forum shopping. First, it pointed out that there were two (2) pending cases at the time
Intramuros filed its complaint: one for specific performance filed by Offshore
Construction against Intramuros, and another for interpleader against Offshore
Construction and Intramuros filed by 4H Intramuros, Inc. (4H Intramuros), which
claimed to be a group of respondent's tenants. The Metropolitan Trial Court found that
the cause of action in Intramuros' complaint was similar with those in the specific
performance and interpleader cases. Any judgment in any of those cases would affect
the resolution or outcome in the ejectment case, since they would involve Offshore
Construction's right to have its expenses offset from the rentals it owed Intramuros, and
the determination of the rightful lessor of Puerta de Isabel II. It also found that the
specific performance case was anchored on Offshore Construction's rights under the
Compromise Agreement. In that case, Offshore Construction claimed that it complied
with its undertakings, but Intramuros failed to perform its obligations when it refused to
offset Offshore Construction's expenses with the alleged unpaid rentals. The
interpleader case, on the other hand, dealt with Offshore Construction's threats to evict

Page 72 of 79
the tenants of Puerta de Isabel II. 4H Intramuros prayed that the Regional Trial Court
determine which between Offshore Construction and Intramuros was the rightful lessor
of Puerta de Isabel.
ISSUE:
Whether or not Intramuros Administration is entitled to possess the leased
premises and to collect unpaid rentals.

HELD:
The Court agrees with the defendant. The various contracts of lease between the
parties notwithstanding, the existence of the other agreements involved herein cannot
escape the scrutiny of this Court. Although couched in such words as "contracts of
lease", the relationship between the parties has evolved into another kind – that of a
concession agreement whereby defendant [Offshore Construction] undertook to develop
several areas of the Intramuros District, defendant [Offshore Construction] actually
commenced the development of the subject premises and incurred expenses for the said
development, effectively making the relationship more than an ordinary lessor-lessee
but one governed by concession whereby both parties undertook other obligations in
addition to their basic obligations under the contracts of lease. Consensus facit legem
(The parties make their own law by their agreement). It behooves this Court to respect
the parties' contracts, including the memoranda of agreement that ensued after it.

Respondent claims that the parties' agreement was for it to operate the leased
premises to recover its investments and to make profits. However, a review of the
Contracts of Lease show that they are lease contracts, as defined in Article 1643 of the
Civil Code, “in the lease of things, one of the parties binds himself to give to another the
enjoyment or use of a thing for a price certain, and for a period which may be definite or
indefinite. However, no lease for more than ninety-nine years shall be valid.

The restrictions and limitations on respondent's use of the leased premises are
consistent with petitioner's right as lessor to stipulate the use of the properties being
leased. Neither the Contracts of Lease nor their respective Addendums to the Contract
contain any stipulation that respondent may occupy and use the leased premises until it
recovers the expenses it incurred for improvements it introduced there. Instead, the
lease period was fixed at five (5) years, renewable for another five (5) years upon mutual
agreement.

The subsequent contracts, namely, the July 26, 1999 Compromise Agreement and
the July 27, 2004 Memorandum of Agreement, also do not point to any creation of a
"concession" in favor of respondent. The Compromise Agreement affirms the validity of
the lease contracts, while the Memorandum of Agreement was for the payment of
respondent's arrears until July 2004.

However, this Court cannot award unpaid rentals to petitioner pursuant to the
ejectment proceeding, since the issue of rentals in Civil Case No. 08-119138 is currently
pending with Branch 37, Regional Trial Court, Manila, by virtue of petitioner's
counterclaim. As the parties dispute the amounts to be offset under the July 27, 2004
Memorandum of Agreement and respondent's actual back and current rentals due, the
resolution of that case is better left to the Regional Trial Court for trial on the merits.

The Court granted the Petition for Review on Certiorari. The April 14, 2011
Decision of Branch 173, Regional Trial Court, Manila in Civil Case No. 10-124740 is
REVERSED AND SET ASIDE, and a new decision was rendered ordering respondent
Offshore Construction and Development Company and any and all its sublessees and
successors-in-interest to vacate the leased premises immediately

Lease of Work or Service

(37) MARSMAN & COMPANY, INC. vs. RODIL C. STA. RITA
G.R. No. 194765, April 23, 2018 (FIRST DIVISION)

Page 73 of 79
LEONARDO-DE CASTRO,[*] J.:

NATURE OF THE ACTION: This involves the Petition for Review on Certiorari under
Rule 45 of the Rules of Court filed by Marsman & Company, Inc. (Marsman), now Metro
Alliance Holdings & Equities Corporation, seeking the annulment and reversal of the
Decision  dated June 25, 2010 and the Resolution2 dated December 9, 2010 of the Court of
Appeals in CA-G.R. SP No. 106516. The Court of Appeals instead found Marsman guilty
of illegal dismissal and ordered the company to pay for backwages, separation pay,
moral damages, exemplary damages and attorney's fees.

FACTS:
Marsman was a domestic corporation formerly engaged in the business of
distribution and sale of pharmaceutical and consumer products for different
manufacturers within the country. It purchased Metro Drug Distribution, Inc. (Metro
Drug), now Consumer Products Distribution Services, Inc. (CPDSI), which later became
its business successor-in-interest. The business transition from Marsman to CPDSI
generated confusion as to the actual employer of Sta. Rita at the time of his dismissal.
Marsman temporarily hired Sta. Rita on November 16, 1993 as a warehouse helper with
a contract that was set to expire on April 16, 1994, and paid him a monthly wage of
P2,577.00. After the contract expired, Marsman rehired Sta. Rita as a warehouseman and
placed him on probationary status on April 18, 1994 with a monthly salary of P3,166.00.
Marsman then confirmed Sta. Rita's status as a regular employee on September 18, 1994
and adjusted his monthly wage to P3,796.00. Later, Sta. Rita joined Marsman Employees
Union (MEU), the recognized sole and exclusive bargaining representative of Marsman's
employees. Marsman administered Sta. Rita's warehouse assignments. Initially,
Marsman assigned Sta. Rita to work in its GMA warehouse. Marsman then transferred
Sta. Rita to Warehouses C and E of Kraft General Foods, Inc. on September 5, 1995.
Thereafter, Marsman reassigned Sta. Rita to Marsman Consumer Product Division
Warehouse D in ACSIE, Parañaque. Concomitant to the integration of employees is the
transfer of all office, sales and warehouse personnel of Marsman to Metro Drug and the
latter's assumption of obligation with regard to the affected employees' labor contracts
and Collective Bargaining Agreement. The integration and transfer of employees ensued
out of the transitions of Marsman and CPDSI into, respectively, a holding company and
an operating company. Thereafter, on November 7, 1997, Metro Drug amended its
Articles of Incorporation by changing its name to "Consumer Products Distribution
Services, Inc." (CPDSI) which was approved by the Securities and Exchange
Commission. In the meantime, on an unspecified date, CPDSI contracted its logistic
services to EAC Distributors (EAC). CPDSI and EAC agreed that CPDSI would provide
warehousemen to EAC's tobacco business which operated in EAC-Libis Warehouse. A
letter issued by Marsman confirmed Sta. Rita's appointment as one of the
warehousemen for EAC-Libis Warehouse, effective October 13, 1997, which also stated
that the assignment was a "transfer that is part of our cross-training program."
Parenthetically, EAC's use of the EAC-Libis Warehouse was dependent upon the lease
contract between EAC and Valiant Distribution (Valiant), owner of the EAC-Libis
Warehouse. Hence, EAC's operations were affected when Valiant decided to terminate
their contract of lease on January 31, 2000.

ISSUE:
Whether an employer-employee relationship existed between Marsman and Sta.
Rita at the time of Sta. Rita's dismissal

HELD:
No, employer-employee relationship did not exist between Marsman and Sta.
Rita at the time of Sta. Rita's dismissal. The Memorandum of Agreement effectively
transferred Marsman's employees to CPDSI. However, there was nothing in the
agreement to negate CPDSI's power to select its employees and to decide when to
engage them. This is in line with Article 1700 of the Civil Code which provides that: The
relations between capital and labor are not merely contractual. They are so impressed with public
interest that labor contracts must yield to the common good. Therefore, such contracts are subject

Page 74 of 79
to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop,
wages, working conditions, hours of labor and similar subjects.

A labor contract merely creates an action in personam and does not create any real
right which should be respected by third parties. This conclusion draws its force from
the right of an employer to select his/her employees and equally, the right of the
employee to refuse or voluntarily terminate his/her employment with his/her new
employer by resigning or retiring. That CPDSI took Sta. Rita into its employ and
assigned him to one of its clients signified the former's acquiescence to the transfer. It
would be amiss to read this letter independent of the Memorandum of Agreement
because the Memorandum of Agreement clearly reflected Marsman's intention to
transfer all employees to CPDSI. When read in isolation, the use of "cross-training
program" may be subject to a different interpretation but reading it together with the
MOA indicates that the "cross training program" was in relation to the transition phase
that Marsman and CPDSI were then undergoing. It is clear under the terms of the
Memorandum of Agreement that Marsman may continue to negotiate and address
issues with the Union even after the signing and execution of said agreement in the
course of fully implementing the transfer to, and the integration of operations with,
CPDSI. To prove the element on the payment of wages, Sta. Rita submitted forms for
leave application, with either Marsman's logo or CPDSI's logo. Significantly, the earlier
leave forms bore Marsman's logo but the latest leave application of Sta. Rita already had
CPDSI's logo. In any event, the forms for leave application did not sufficiently establish
that Marsman paid Sta. Rita's wages. Sta. Rita could have presented pay slips, salary
vouchers, payrolls, certificates of withholding tax on compensation income or
testimonies of his witnesses. The submission of his Social Security System (SSS)
identification card (ID) only proved his membership in the social insurance program.
Sta. Rita should have instead presented his SSS records which could have reflected his
contributions, and the name and address of his employer. Thus, Sta. Rita fell short in his
claim that Marsman still had him in its payroll at the time of his dismissal. As to the
power of dismissal, the letter dated January 14, 2000 clearly indicated that CPDSI, and
not Marsman, terminated Sta. Rita's services by reason of redundancy. Finally, Sta. Rita
failed to prove that Marsman had the power of control over his employment at the time
of his dismissal. The power of an employer to control the work of the employee is
considered the most significant determinant of the existence of an employer-employee
relationship. Control in such relationships addresses the details of day to day work like
assigning the particular task that has to be done, monitoring the way tasks are done and
their results, and determining the time during which the employee must report for work
or accomplish his/her assigned task. The Court likewise takes notice of the company IDs
attached in Sta. Rita's pleading. The "old" ID bore Marsman's logo while the "new" ID
carried Metro Drug's logo. The Court has held that in a business establishment, an
identification card is usually provided not only as a security measure but mainly to
identify the holder thereof as a bona fideemployee of the firm that issues it. Thus the
"new" ID confirmed that Sta. Rita was an employee of Metro Drug, which, to reiterate,
later changed its name to CPDSI. Having established that an employer-employee
relationship did not exist between Marsman and Sta. Rita at the time of his dismissal,
Sta. Rita's original complaint must be dismissed for want of jurisdiction on the part of
the Labor Arbiter to take cognizance of the case. For this reason, there is no need for the
Court to pass upon the other issues raised.

38) FEDERAL EXPRESS CORPORATION vs. LUWALHATI R. ANTONINO

G.R NO. 199455, JUNE 27, 2018
(THIRD DIVISION)

LEONEN J.:

Page 75 of 79
NATURE OF THE ACTION: The duty of common carriers to observe extraordinary
diligence in shipping goods does not terminate until delivery to the consignee or to the
specific person authorized to receive the shipped goods. Failure to deliver to the person
authorized to receive the goods is tantamount to loss of the goods, thereby engendering
the common carrier's liability for loss. Ambiguities in contracts of carriage, which are
contracts of adhesion, must be interpreted against the common carrier that prepared
these contracts.
This resolves a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules
of Civil Procedure praying that the assailed Court of Appeals August 31, 2011
Decision2 and November 21, 2011 Resolution in CA-G.R. CV No. 91216 be reversed and
set aside and that Luwalhati R. Antonino (Luwalhati) and Eliza Bettina Ricasa Antonino
(Eliza) be held liable on Federal Express Corporation's (FedEx) counterclaim.

FACTS:
The subject property herein involves Unit 22-A in Allegro Condominium, located
at 62 West 62nd St., New York, United States which is owned by Respondent Eliza.
Sometime in December 15, 2003, Luwalhati and Eliza came back to Philippines as the
common charges on the Unit became due. Respondents thus sent several Citibank
checks for the payment of monthly charges and of real estate taxes to Veronica Sison
who was then based in New York. Such checks were sent by Luwalhati through FedEx
to Sison who was tasked to deliver the checks to for payment to Maxwell-Kates, Inc. and
to the New York County Department of Finance. However, such delivery was not
reached to Sison which results default in payment on the part of Luwalhati and Eliza
and thereafter, the foreclosure of the Unit. The shipment was released unsigned by the
actual recipient, as authorized by the shipper or recipient. As a result, Respondents sent
a demand letter to FedEx due to the latters failure to deliver the package but the latter
disregarded their demand which made the Respondents to file their Complaint for
damages.
FedEx claimed that Luwalhati and Eliza "ha[d] no cause of action against it because
[they] failed to comply with a condition precedent, that of filing a written notice of claim
within the 45 calendar days from the acceptance of the shipment." It added that it was
absolved of liability as Luwalhati and Eliza shipped prohibited items and misdeclared
these items as "documents." It pointed to conditions under its Air Waybill prohibiting
the "transportation of money (including but not limited to coins or negotiable
instruments equivalent to cash such as endorsed stocks and bonds)."

ISSUE:
Whether Petitioner FedEx shall be held liable for its failure to deliver the checks
shipped by Respondents to the consignee Veronica Sison

HELD:
Yes, FedEx is liable.

The Court ruled that compliance with a provision in a contract of carriage

requiring the filing of a formal claim within the period required by the law is a
legitimate condition precedent to an action for damages arising from loss of the
shipment.

In this case, Petitioner's Air Waybill stipulates the following on filing of claims:
Claims for Loss, Damage, or Delay. All claims must be made in writing and within strict
time limits. See any applicable tariff, our service guide or our standard conditions for
carriage for details.

The right to damages against us shall be extinguished unless an action is brought

within two (2) years from the date of delivery of the shipment or from the date on which
the shipment should have been delivered.

Within forty-five (45) days after notification of the claim, it must be documented
by sending to us [all the] relevant information about it. Petitioner in this case was not

Page 76 of 79
able to rebut Luwalhati’s argument of their efforts and responses. The former instead
raised the necessity of the 45-day period stated in its Air Waybill. The Court held that
respondents' inability to expediently file a formal claim can only be attributed to
petitioner hampering its fulfillment. Thus, respondents must be deemed to have
substantially complied with the requisite 45-day period for filing a formal claim.

On the other hand, in transporting goods by common carriers, which in this case
is FedEx, the Civil Code requires them to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case. This also involves common carriers’ duty
to ensure that shipments are received by only person who has a right to receive them.

(39) VICTORIA N. RACELIS, IN HER CAPACITY AS ADMINISTRATOR vs.

SPOUSES GERMIL JAVIER AND REBECCA JAVIER
G.R. NO. 189609, JANUARY 29, 2018
(THIRD DIVISION)

LEONEN, J.:

Page 77 of 79
NATURE OF THE ACTION: Through this Petition for Review, petitioner Victoria N.
Racelis (Racelis) challenges the Court of Appeals January 13, 2009 Decision and
September 17, 2009 Resolution, which ordered her to reimburse the sum of P24,000.00 to
respondents Spouses Germil Javier and Rebecca Javier (the Spouses Javier).

FACTS:
Before his death, the late Pedro Nacu, Sr. (Nacu) appointed his daughter, Racelis,
to administer his properties, among which was a residential house and lot located in
Marikina City. Nacu requested his heirs to sell this property first. Acting on this request,
Racelis immediately advertised it for sale.

In August 2001, the Spouses Javier offered to purchase the Marikina property.
However, they could not afford to pay the price of P3,500,000.00. They offered instead to
lease the property while they raise enough money. Racelis hesitated at first but she
eventually agreed. The parties agreed on a month-to-month lease and rent of P10,000.00
per month. This was later increased to P11,000.00. The Spouses Javier used the property
as their residence and as the site of their tutorial school, the Niño Good Shepherd
Tutorial Center. Sometime in July 2002, Racelis inquired whether the Spouses Javier
were still interested to purchase the property. The Spouses Javier reassured her of their
commitment and even promised to pay P100,000.00 to buy them more time within
which to pay the purchase price. On July 26, 2002, the Spouses Javier tendered the sum
of P65,000.00 representing "initial payment or goodwill money." On several occasions,
they tendered small sums of money to complete the promised P100,000.00, but by the
end of 2003, they only delivered a total of P78,000.00. Meanwhile, they continued to
lease the property. They consistently paid rent but started to fall behind by February
2004. Realizing that the Spouses Javier had no genuine intention of purchasing the
property, Racelis wrote to inform them that her family had decided to terminate the
lease agreement and to offer the property to other interested buyers. In the same letter,
Racelis demanded that they vacate the property by May 30, 2004.Racelis also stated that:
It is a common practice that earnest money will be forfeited in favor of the seller if the
buyer fails to consummate [the] sale after the lapse of a specified period for any reason
so that we have the legal right to forfeit your P78,000 on account of your failure to
pursue the purchase of the property you are leasing. However, as a consideration to
you, we undertake to return to you the said amount after we have sold the property and
received the purchase price from [the] prospective buyer. The Spouses Javier refused to
vacate due to the ongoing operation of their tutorial business. They insisted that the sum
of P78,000.00 was advanced rent and proposed that this amount be applied to their
outstanding liability until they vacate the premises. Disagreeing on the application of
the P78,000.00, Racelis and the Spouses Javier brought the matter to the barangay for
conciliation. Unfortunately, the parties failed to reach a settlement. During the
proceedings, Racelis demanded the Spouses Javier to vacate the premises by the end of
April 30, 2004.[26] However, the Spouses Javier refused to give up possession of the
property and even refused to pay rent for the succeeding months. On May 12, 2004,
Racelis caused the disconnection of the electrical service over the property forcing the
Spouses Javier to purchase a generator. This matter became the subject of a complaint
for damages filed by the Spouses Javier’

ISSUE:
Whether respondents Spouses can invoke their right to suspend the payment of
rent under Art.. 1658 of the Civil Code

HELD:
No. The Spouses Germil and Rebecca Javier cannot invoke their right to suspend
the payment of rent under Article 1658 of the Civil Code. A contract of lease is a
"consensual, bilateral, onerous and commutative contract by which the owner
temporarily grants the use of his property to another who undertakes to pay rent
therefor.

Page 78 of 79
 Article 1658 of the Civil Code allows a lessee to postpone the payment of rent if
the lessor fails to either (1) "make the necessary repairs" on the property or (2) "maintain
the lessee in peaceful and adequate enjoyment of the property leased." This provision
implements the obligation imposed on lessors under Article 1654(3) of the Civil Code. -
The failure to maintain the lessee in the peaceful and adequate enjoyment of the
property leased does not contemplate all acts of disturbance. Lessees may suspend the
payment of rent under Article 1658 of the Civil Code only if their legal possession is
disrupted. True it is that, pursuant to paragraph 3, of article 1554, the lessor must
maintain the lessee in the peaceful enjoyment of the lease during all of the time covered
by the contract, and that, in consequence thereof, he is obliged to remove such obstacles
as impede said enjoyment; but, as in warranty in a case of eviction (to which doctrine the
one we are now examining is very similar, since it is necessary, as we have explained,
that the cause of eviction be in a certain manner imputable to the vendor, which must be
understood as saying that it must be prior to the sale), the obstacles to enjoyment which
the lessor must remove are those that in some manner or other cast doubt upon the right
by virtue of which the lessor himself executed the lease and, strictly speaking, it is this
right that the lessor should guarantee to the lessee.

The principle in Goldstein was reiterated in Chua Tee Dee v. Court of Appeals.
In Chua Tee Dee, the lease contract stated that the lessor was obliged to "maintain the
[lessee] in the quiet peaceful possession and enjoyment of the leased premises during
the effectivity of the lease."The lessees were harassed by claimants of the leased
property. Hence, the lessee withheld rental payments for the lessor's failure to comply
with his contractual obligation. Citing Goldstein, this Court in Chua Tee Dee struck
down the lessee's argument and held that "[t]he duty 'to maintain the lessee in the
peaceful and adequate enjoyment of the lease for the duration of the contract' mentioned
in [N]o. 3 of [Article 1654] is merely a warranty that the lessee shall not be disturbed in
his legal, and not physical, possession." Furthermore, this Court found that there was no
disturbance in the lessee's legal possession because her right to possess the property was
neither questioned nor raised as an issue in any legal proceeding. Hence, she was not
entitled to suspend the payment of rent. In this case, the disconnection of electrical
service over the leased premises on May 14, 2004 was not just an act of physical
disturbance but one that is meant to remove respondents from the leased premises and
disturb their legal possession as lessees. Ordinarily, this would have entitled
respondents to invoke the right accorded by Article 1658 of the Civil Code. However,
this rule will not apply in the present case because the lease had already expired when
petitioner requested for the temporary disconnection of electrical service. Petitioner
demanded respondents to vacate the premises by May 30, 2004. Instead of surrendering
the premises to petitioner, respondents unlawfully withheld possession of the property.
Respondents continued to stay in the premises until they moved to their new residence
on September 26, 2004. At that point, petitioner was no longer obligated to maintain
respondents in the "peaceful and adequate enjoyment of the lease for the entire duration
of the contract. Therefore, respondents cannot use the disconnection of electrical service
as justification to suspend the payment of rent. Assuming that respondents were entitled
to invoke their right under Article 1658 of the Civil Code, this does exonerate them from
their obligation under Article 1657 of the civil Code "to pay the price of the lease
according to the terms stipulated." Lessees who exercise their right under Article 1658 of
the Civil Code are not freed from the obligations imposed by law or contract.

C. PLEDGE, MORTGAGE, AND ANTICHRESIS

Chattel and Real Estate Mortgage

(40) SPS. FELIX A. CHUA AND CARMEN L. CHUA, ET AL., vs. UNITED
COCONUT PLANTERS BANK, ET AL.
G.R. NO. 215999, AUGUST 16, 2017
(THIRD DIVISION)

Page 79 of 79
BERSAMIN, J.:

NATURE OF THE ACTION: This appeal assails the decision promulgated on March 25,
2014 and the resolution promulgated on December 23, 2014, whereby, the Court of
Appeals (CA) respectively reversed and set aside the decision rendered on January 6,
2009 by the Regional Trial Court (RTC), Branch 59, in Lucena City and granted the
appeal of respondent United Coconut Planters Bank (UCPB), Revere Realty and
Development Corporation (Revere), Jose Go and The Register of Deeds of Lucena City;
and denied the petitioners' motion for reconsideration.

FACTS:
On March 3, 1997, petitioner Spouses Felix and Carmen Chua, for themselves
and representing their co-petitioners, entered into a Joint Venture Agreement (JVA) with
Gotesco Properties, Inc. (Gotesco) for the development of their 44-hectare property
situated in Ilayang Dupay, Lucena City into a mixed use, residential and commercial
subdivision. Gotesco was then represented by respondent Jose Go.[4] It appears,
however, that the development project under this JVA did not ultimately materialize.

Pursuant to the JVA, several deeds of absolute sale were executed over
petitioners' 12 parcels of land situated in Lucena City in favor of Revere, a corporation
controlled and represented by Jose Go. The deeds of absolute sale were complemented
by a deed of trust dated April 30, 1998[6] under which it was confirmed that Revere did
not part with any amount in its supposed acquisition of the 12 parcels of land. The deed
of trust further confirmed petitioners' absolute ownership of the properties. Also on the
same date, Gotesco, also represented by Jose Go, and petitioners, represented by Felix
Chua, executed another deed of trust covering 20 parcels of land distinct from the 12
parcels of land already covered by the first deed of trust.

Prior to the execution of the JVA, petitioners and Jose Go had separate
outstanding loan obligations with UCPB. On June 2, 1997, the Spouses Chua executed a
real estate mortgage (REM) in favor of UCPB involving several parcels of land registered
in the names of petitioners to secure the loans obtained in their personal capacities and
in their capacities as corporate officers and stockholders of the Lucena Grand Central
Terminal, Inc. (LGCTI).

On March 21, 2000, petitioners entered into a Memorandum of Agreement

(MOA) with UCPB to consolidate the obligations of the Spouses Chua and LGCTI,
which was determined at P204,597,177.04 as of November 30, 1999. The parties thereby
agreed to deduct the sum of P103,893,450.00 from said total in exchange for 30 parcels of
land including the improvements thereon;[9] and that the remaining balance of
P68,000,000.00 would be converted by UCPB into equity interest in LGCTI.

To implement the March 21, 2000 MOA, UCPB drafted a REM covering the
properties listed in the MOA, which petitioners signed to secure a credit accommodation
for P204,597,177.04. Under its terms, this REM covered the payment of all loans,
overdrafts, credit lines and other credit facilities or accommodations obtained or
hereinafter obtained by the mortgagors, LGCTI, Spouses Chua and Jose Go.

On even date, Jose Go, acting in behalf of Revere, and UCPB executed another
REM (Revere REM) involving the properties held in trust by Revere for petitioners. The
execution of the Revere REM was unknown to petitioners. Revere submitted a
secretary's certificate signed by Lourdes Ortiga to the effect that the Board of Directors
had approved the mortgage of various corporate properties situated in Ilayang Dupay,
Lucena City to secure any and all obligation of the Spouses Chua, LGCTI, and Jose Go.

Enforcing petitioners' REM as well as the Revere REM, UCPB foreclosed the
mortgages, and the properties were sold for a total bid price of P227,700,000.00. On
February 14, 2003, UCPB and LGCTI executed a deed of assignment of liabilities
whereby LGCTI would issue 680,000 preferred shares of its stocks to UCPB to offset its

Page 80 of 79
remaining obligations totaling P68,000,000.00. On September 4, 2003, UCPB wrote a
letter to the Spouses Chua and LGCTI regarding the transfer of LGCTI shares of stock to
its favor pursuant to the deed of assignment of liabilities. On November 11, 2003,
Spouses Chua wrote UCPB to request an accounting of Jose Go's liabilities that had been
mistakenly secured by the mortgage of petitioners' properties, as well as to obtain a list
of all the properties subject of their REM as well as of the Revere REM for reappraisal by
an independent appraiser. The Spouses Chua further requested that the proceeds of the
foreclosure sale of the properties be applied only to petitioners' obligation of
P204,597,177.04; and that the rest of the properties or any excess of their obligations
should be returned to them. However, UCPB did not heed petitioners' requests.

Thus, on February 3, 2004, petitioners filed their complaint against UCPB,

Revere, Jose Go, and the Register of Deeds of Lucena City in the RTC in Lucena City.
The RTC issued a writ of preliminary injunction at the instance of petitioners.

ISSUE:
Whether the obligations evidenced by the 1997 and 1998 promissorny notes and
secured by the 1997 Real Estate mortgage had been extinguished by the execution of
MOA

HELD:
Yes. the obligations evidenced by the 1997 and 1998 promissory notes and
secured by the 1997 REM had been extinguished by novation in the form of
consolidation of all of petitioners' loans under the 21 March 2000 MOA.

On March 21, 2000, UCPB and petitioners entered into the MOA consolidating
the outstanding obligations of the Spouses Chua and LGCTI. It is clear that petitioners
exchanged their 30 parcels of land to effectively reduce their total unpaid obligations to
only P 68,000,000.00. To settle the balance, they agreed to convert it into equity in LGCTI
in case they would default in their payment. To implement the MOA, they signed the
REM drafted by UCPB, which included the properties listed in the MOA as security for
the credit accommodation of P204,597,177.04.

The MOA referred to the outstanding obligations of LGCTI and the Spouses
Chua as being in the amount of P204,597,177.04 as of November 30, 1999. This meant
that all of the Spouses Chua's obligations with UCPB on or prior to November 30, 1999
had already been combined. It was plain enough to see that the MOA constituted the
entire, complete and exclusive agreement between the parties. Its Section 5.4 of the MOA
expressly stipulated that: "xxxx No statement or agreement, oral or written, made prior
to the signing hereof and no prior conduct or practice by either party shall vary or
modify the written terms embodied hereof, and neither party shall claim any
modification of any provision set forth herein unless such modification is in writing and
signed by both parties." Furthermore, the REM executed by petitioners in support of the
MOA indicated that the mortgage would secure the payment of all loans, overdrafts,
credit lines and other credit facilities or accommodations obtained or hereinafter to be
obtained by the mortgagors. In light of the pertinent provisions of the MOA, the only
rational interpretation was that the parties agreed to consolidate the Spouses Chua's past
and future obligations, which would be secured by the REM executed between the
parties.

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