RECENT PRONOUNCEMENTS OF THE SUPREME COURT IN
CIVIL and COMMERCIAL LAWS
for the 2019 Bar Examinations
Prepared by: Dean Eduardo JF Abella
____________________________________________________________________________________
BANKS –
1. The Court agrees with the appellate court
that in cases of unauthorized payment of
checks to a person other than the payee named
therein, the drawee bank may be held liable to
the drawer. The drawee bank, in turn, may
seek reimbursement from the collecting bank
for the amount of the check. This rule on the
sequence of recovery in case of unauthorized
check transactions had already been deeply
embedded in jurisprudence. (Bank of America
vs. Associated Citizens Bank, 588 SCRA 51 cited
in BDO Unibank, Inc. vs. Lao, 827 SCRA 493-
494)
The liability of the drawee bank is based on its
contract with the drawer and its duty to charge
to the latter’s accounts only those payables
authorized by him. A drawee bank is under
strict liability to pay the check only to the payee
or to the payee’s order. When the drawee
bank pays a person other than the payee
named in the check, it does not comply with
the terms of the check and violates its duty to
charge the drawer’s account only for properly
payable items. (PNB vs. Rodriguez, 566 SCRA
513 cited in BDO vs. Lao, 827 SCRA 494)
2. On the other hand, the liability of the
collecting bank is anchored on its guarantees as
the last endorser of the check. Under Section
66 of the Negotiable Instruments Law, an
endorser warrants “that the instrument is
genuine and in all respects what it purports to
be; that he has good title to it; that all prior
parties had capacity to contract; and that the
instrument is at the time of his endorsement
valid and subsisting.”
It has been repeatedly held that in check
transactions, the collecting bank generally
suffers the loss because it has the duty to
ascertain the genuineness of all prior
endorsements considering that the act of
presenting the check for payment to the
drawee is an assertion that the party making
the presentment has done its duty to ascertain
the genuineness of the endorsements. If any of
the warranties made by the collecting bank
turns out to be false, then the drawee bank
may recover from it up to the amount of the
check. (Areza vs. Express Savings Bank, Inc.,
734 SCRA 588 cited in BDO vs. Lao, 827 SCRA
494-495)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
3. The Court agrees with the appellate court
that in cases of unauthorized payment of
checks to a person other than the payee named
therein, the drawee bank may be held liable to
the drawer. The drawee bank, in turn, may
seek reimbursement from the collecting bank
for the amount of the check. This rule on the
sequence of recovery in case of unauthorized
check transactions had already been deeply
embedded in jurisprudence. (Bank of America
vs. Associated Citizens Bank, 588 SCRA 51 cited
in BDO Unibank, Inc. vs. Lao, 827 SCRA 493-
494)
 2

4. The liability of the drawee bank is based on
its contract with the drawer and its duty to
charge to the latter’s accounts only those
payables authorized by him. A drawee bank is
under strict liability to pay the check only to the
payee or to the payee’s order. When the
drawee bank pays a person other than the
payee named in the check, it does not comply
with the terms of the check and violates its
duty to charge the drawer’s account only for
properly payable items. (PNB vs. Rodriguez,
566 SCRA 513 cited in BDO vs. Lao, 827 SCRA
494)
which took effect on 13 June 2000,
declares that the State recognizes the
“fiduciary nature of banking that
requires high standards of integrity
and performance.” This new provision
in the general
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.

5. On the other hand, the liability of the banking law, introduced in 2000,
collecting bank is anchored on its guarantees as is a statutory affirmation of
the last endorser of the check. Under Section Supreme Court decisions,
66 of the Negotiable Instruments Law, an starting with the 1990 case of
endorser warrants “that the instrument is Simex International v. Court of
genuine and in all respects what it purports to Appeals, holding that “the bank
be; that he has good title to it; that all prior is under obligation to treat the
parties had capacity to contract; and that the accounts of its depositors with
instrument is at the time of his endorsement meticulous care, always having
valid and subsisting.” in mind the fiduciary nature of
their relationship.”
It has been repeatedly held that in check
transactions, the collecting bank generally This fiduciary relationship means
suffers the loss because it has the duty to that the bank’s obligation to
ascertain the genuineness of all prior observe “high standards of
endorsements considering that the act of integrity and performance” is
presenting the check for payment to the deemed written into every
drawee is an assertion that the party making deposit agreement between a
the presentment has done its duty to ascertain bank and its depositor. The
the genuineness of the endorsements. If any of fiduciary nature of banking
the warranties made by the collecting bank requires banks to assume a
turns out to be false, then the drawee bank degree of diligence higher than
may recover from it up to the amount of the that of a good father of a family.
check. (Areza vs. Express Savings Bank, Inc., Article 1172 of the Civil Code
734 SCRA 588 cited in BDO vs. Lao, 827 SCRA states that the degree of
494-495) diligence required of an obligor is
that prescribed by law or
6. Banks assume a degree of prudence and contract, and absent such
diligence higher than that of a good father of a stipulation then the diligence of
family, because their business is imbued with a good father of a family. Section
public interest and is inherently fiduciary. Thus, 2 of RA 8791 prescribes the
banks have the obligation to treat the amounts statutory diligence required from
of its clients “meticulously and with the highest banks – that banks must observe
degree of care.” With respect to its fiduciary “high standards of integrity and
duties, this Court explained: performance” in servicing their
depositors.”
“The law imposes on banks high
standards in view of the fiduciary The high degree of diligence required of banks
nature of banking. Section 2 of equally holds true in their dealing with
Republic Act No. 8791 (“RA 8791”), mortgaged real properties, and subsequently

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 3
acquired through foreclosure, such as the Unit
purchased by petitioner.
In the same way that banks are “presumed to
be familiar with the rules on land registration,”
given that they are in the business of extending
loans secured by real estate mortgage, banks
are also expected to exercise the highest
degree of diligence. This is especially true
when investigating real properties offered as
security, since they are aware that such
property may be passed on to an innocent
purchaser in the event of foreclosure. Indeed,
“the ascertainment of the status or condition
of a property offered to it as security for a loan
must be a standard and indispensable part of
a bank’s operations.” (Poole-Blundenr vs.
Union Bank of the Phil. 847 SCRA 170-172)
BUILDER IN GOOD FAITH –
The settled rule is bad faith should be
established by clear and convincing evidence
since the law always presumes good faith. In
this particular case, petitioners were not able
to prove that respondents were in bad faith in
constructing the house on the subject land.
Bad faith does not simply connote bad
judgment or negligence. It imports a dishonest
purpose or some moral obliquity and
conscious doing of a wrong. It means breach
of a known duty through some motive, interest
or ill will that partakes of the nature of fraud.
For anyone who claims that someone is in bad
faith, the former has the duty to prove such.
Hence, petitioners err in their argument that
respondents failed to prove that they are
builders in good faith in spite of the findings of
the RTC and the CA that they are.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
As such, Article 448 of the Civil Code must be
applied. It applies when the builder believes
that he is the owner of the land or that by some
title he has the right to build thereon, or that,
at least, he has a claim of title thereto. In
Tuatis v. Spouses Escol, et al. (604 SCRA 471),
this Court ruled that the seller (the owner of
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the land) has two options under Article 448: (1)
he may appropriate the improvements for
himself after reimbursing the buyer (the builder
in good faith) the necessary and useful
expenses under Articles 546 and 548 of the Civil
Code; or (2) he may sell the land to the buyer,
unless its value is considerably more than that
of the improvements, in which case, the buyer
shall pay reasonable rent, thus:
The rule that the choice under Article 448 of the
Civil Code belongs to the owner of the land is in
accord with the principle of accession, i.e., that
the accessory follows the principal and not the
other way around. Even as the option lies with
the landowner, the grant to him, nevertheless,
is preclusive. The landowner cannot refuse to
exercise either option and compel instead the
owner of the building to remove it from the
land.
The raison d’etre for this provision has been
enunciated thus: Where the builder, planter or
sower has acted in good faith, a conflict of
rights arises between the owners, and it
becomes necessary to protect the owner of the
improvements without causing injustice to the
owner of the land. In view of the
impracticability of creating a state of forced co-
ownership, the law has provided a just solution
by giving the owner of the land the option to
acquire the improvements after payment of the
proper indemnity, or to oblige the builder or
planter to pay for the land and the sower the
proper rent. He cannot refuse to exercise either
option. It is the owner of the land who is
authorized to exercise the option, because his
right is older, and because, by the principle of
accession, he is entitled to the ownership of
the accessory thing.
The rule that the right of choice belongs to the
owner of the land is in accordance with the
principle of accession. However, even if this
right of choice is exclusive to the landowner, he
cannot refuse to exercise either option and
demand, instead for the removal of the
building.
Instead of requiring defendants-appellants to
sell the land, the court a quo must determine
the option which they would choose. The first
option, to appropriate the building upon
payment of indemnity or the second option, to
 4

sell the land to the plaintiffs-appellees. transcribing or typing an entry in

Moreover, the civil register that is harmless
and innocuous, such as
NOTE – misspelled name or misspelled
place of birth, mistake in the
The preceding notes were quoted from various entry of day and month in the
volumes of the S.C.R.A and are provided date of birth or the sex of the
GRATUITOUSLY to those preparing to take the person or the like, which is visible
2019 bar examinations. to the eyes or obvious to the
understanding, and can be
the court a quo should also corrected or changed only by
ascertain: (a) under the first reference to other existing record
option, the amount of or records: Provided, however,
indemnification for the building; that no correction must involve
or (b) under the second option, the change of nationality, age, or
the value of the subject property status of the petitioner.
vis-à-vis that of the building, and
depending thereon, the price of, Likewise, Republic Act No. 9048 states:
or the reasonable rent for, the
subject property. Section 2. Definition of Terms. –
As used in this Act, the following
Hence, following the ruling in the recent case of terms shall mean:
Briones vs. Macabagdal, (626 SCRA 300), this
case must be remanded to the court a quo for NOTE –
the conduct of further proceedings to assess
the current fair market of the kind and to The preceding notes were quoted from various
determine other matters necessary for the volumes of the S.C.R.A and are provided
proper application of Article 448, in relation to GRATUITOUSLY to those preparing to take the
Articles 546 and 548 of the New Civil Code. 2019 bar examinations.
(Sps. Espinoza vs. Sps. Mayandoc, 828 SCRA
610 – 613) xxx

CHANGE OF NAME – (3) “Clerical or typographical

error” refers to a mistake
1. On changes of first name, Republic Act No. committed in the performance of
10172, which amended Republic Act No. 9048, clerical work in writing, copying,
is helpful in identifying the nature of the transcribing or typing an entry in
determination sought. the civil register that is harmless
and innocuous, such as
Republic Act No. 10172 defines a clerical or misspelled name or misspelled
typographical error as a recorded mistake, place of birth or the like, which is
“which is visible to the eyes or obvious to the visible to the eyes or obvious to
understanding.” Thus: the understanding, and can be
corrected or changed only by
Section 2. Definition of Terms. – reference to other existing record
As used in this Act, the following or records: Provided, however,
terms shall mean: That no correction must involve
the change of nationality, age,
xxx status or sex of the petitioner.

(3) “Clerical or typographical By qualifying the definition of a clerical,

error” refers to a mistake typographical error as a mistake “visible to the
committed in the performance of eyes or obvious to the understanding,” the law
clerical work in writing, copying, recognizes that there is a factual determination

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 5

made after reference to and evaluation of jurisdiction, if an administrative tribunal has

existing documents presented.
Thus, corrections may be made even though
the error is not typographical if it is “obvious
to the understanding,” even if there is no
proof that the name or circumstance in the
birth certificate was ever used. (Republic vs.
Gallo, 851 SCRA 585-586)
jurisdiction over a controversy, courts should
not resolve the issue even if it may be within
its proper jurisdiction. This is especially true
when the question involves its sound
discretion requiring special knowledge,
experience, and services to determine
technical and intricate matters of fact.
(Republic vs. Gallo, 851 SCRA 606-607)

2. In 2012, Republic Act No. 9048 was COMMON CARRIERS –

amended by Republic Act No. 10172.
In addition to the change of the first name, the
day and month of birth, and the sex of a person
may now be changed without judicial
proceedings. Republic Act No. 10172 clarifies
that these changes may now be
administratively corrected where it is patently
clear that there is a clerical or typographical
mistake in the entry. It may be changed by
filing a subscribed and sworn affidavit with the
local civil registry office of the city or
municipality where the record being sought to
be corrected or changed is kept.
Section 1. Authority to Correct
Clerical or Typographical Error
and Change of First Name or
Nickname – No entry in a civil
register shall be changed or
corrected without a judicial
order, except for clerical or
typographical errors and change
of first name or nickname, the
day and month in the date of
birth or sex of a person where it
is patently clear that there was a
clerical or typographical error or
mistake in the entry, which can
be corrected or changed by the
concerned city or municipal civil
registrar or consul general in
accordance with the provisions
of this Act and its implementing
rules and regulations.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Under the doctrine of primary administrative
1. While the immediate beneficiaries of the
standard of extraordinary diligence are the
passengers, they are not the only persons the
law seeks to benefit. If we were to solely
require this standard of diligence for a common
carrier’s passengers, this would be incongruent
to the State’s responsibility to curb accidents
on the road. That common carriers should
carefully observe the statutory standard of
extraordinary diligence in respect of their
passengers, such diligence should similarly
benefit pedestrians and the owners and
passengers of other vehicles who are equally
entitled to the safe and convenient use of our
roads and highways.
2. Since the damages imposed were the result
of a complaint for damages based on a quasi-
delict, the interest on these awards must be
computed from the date when the RTC
rendered its decision in the civil case, or on 26
January 2004, as it was at this time that a
quantification of the damages may be deemed
to have been reasonably ascertained. From
the finality of a judgment awarding a sum of
money until it is satisfied, the award shall be
considered a forbearance of credit, regardless
of whether the award in fact pertained to one.
To be consistent with the foregoing, the
interest on the monetary awards shall then be
fixed at six percent (6%) per annum, until the
damages are fully paid. (Cacho, et al., etc. vs.
Manahan, et al., 851 SCRA 502-503)
3. Extraordinary diligence is that extreme
measure of care and caution which persons of
unusual prudence and circumspection use for
securing and preserving their own property or
rights. When the copper concentrates
delivered were contaminated with seawater,
the petitioners have failed to exercise
extraordinary diligence in the carriage thereof.

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 6
(Loadstar Shipping Company, Inc. et al. vs.
Malayan Insurance Company, Inc., 825 SCRA
22)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
COMPROMISE AGREEMENT –
A compromise is defined under the Civil Code
as “a contract whereby the parties, by making
reciprocal concessions avoid a litigation or put
an end to one already commenced.” It may
either be judicial or extrajudicial depending on
its object or the purpose of the parties. A
compromise is judicial if the parties purpose is
to terminate a suit already commenced. On
the other hand, a compromise is extra-judicial if
its object is to avoid litigation.
In any case, a compromise validly entered into
has the authority and effect of res judicata as
between the parties. To this extent, a judicial
compromise and an extra-judicial compromise
are no different from each other.
However, unlike an extrajudicial compromise, a
compromise that has received judicial
imprimatur “becomes more than a mere
contract.” A judicial compromise is regarded
as a “determination of the controversy”
between the parties and has the force and
effect of [a final] judgment. In other words, it
is both a contract and “a judgment on the
merits.” It may neither be disturbed nor set
aside except in cases where there is forgery or
when either of the parties’ consent has been
vitiated. (Chiquita Brands, Inc., et al. vs.
Omelio, et al., 826 SCRA 256 – 265)
CONDONATION, WAIVER and REFUND,
explained –
The “plain meaning rule” or verba legis in
statutory construction enjoins that if the
statute is clear, plain and free from ambiguity,
it must be given its literal meaning and applied
without interpretation. This rule of
interpretation is in deference to the plenary
power of Congress to make, alter and repeal
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laws as this power is an embodiment of the
People’s sovereign will. Accordingly, when the
words of a statute are clear and unambiguous,
courts cannot deviate from the text of the law
and resort to interpretation lest they end up
betraying their solemn duty to uphold the law
and worse, violating the constitutional principle
of separation of powers.
Condonation or remission of debt is an act of
liberality, by virtue of which, without receiving
any equivalent, the creditor renounces the
enforcement of the obligation, which is
extinguished in its entirety or in that part or
aspect of the same to which the remission
refers. It is essentially gratuitous for no
equivalent is received for the benefit given.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Relatedly, waiver is defined as a voluntary and
intentional relinquishment or abandonment of
a known existing legal right, advantage, benefit,
claim or privilege, which except for such waiver
the party would have enjoyed; the voluntary
abandonment or surrender, by a capable
person, of a right to known by him to exist, with
the intent that such right shall be surrendered
and such person forever deprived of its benefit;
or such conduct as warrants an inference of the
relinquishment of such right; or the intentional
doing of an act inconsistent with claiming it.
On the other hand, refund is an act of giving
back or returning what was received. In cases
of monetary obligations, a claim for refund
exists only after the payment has been made
and, in the act of doing so, the debtor either
delivered excess funds or there exists no
obligation to pay in the first place. This right
arises either by virtue of solution indebiti as
provided for in Articles 2154 to 2163 of the Civil
Code or by provision of another positive law,
such as tax laws or amnesty laws. (H. Villarica
Pawnshop, Inc., et al. vs. Social Security
Commission, et al., 853 SCRA 193 - 194)
CORPORATION & CORPORATE
REHABILITATION –
 7
1. BENEFICIAL OWNERSHIP OF SHARES –
The definition of “beneficial owner or
beneficial ownership” in the SRC-IRR, which is
in consonance with the concept of “full
beneficial ownership” in the FIA-IRR, is, as
stressed in the Decision, relevant in resolving
only the question of who is the beneficial
owner or has beneficial ownership of each
“specific stock” of the public utility company
whose stocks are under review.
If the Filipino has the voting power of the
“specific stock,” i.e., he can vote the stock or
direct another to vote for him, or the Filipino
has the investment power over the “specific
stock,” i.e., he can dispose of the stock or direct
another to dispose of it for him, or both, i.e.,
he can vote and dispose of that “specific stock”
or direct another to vote or dispose it for him,
then such Filipino is the “beneficial owner” of
that “specific stock.”
Being considered Filipino, that “specific stock”
is then to be counted as part of the 60% Filipino
ownership requirement under the Constitution.
The right to the dividends, jus fruendi – a right
emanating from ownership of that “specific
stock” necessarily accrues to its Filipino
“beneficial owner.”
So long as Filipinos have controlling interest of
a public utility corporation, their decision to
declare more dividends for a particular stock
over other kinds of stock is their sole
prerogative – an act of ownership that would
presumably be for the benefit of the public
utility corporation itself. (Roy III vs. Herbosa,
et al. 823 SCRA 147 – 148)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
2. To be considered a close corporation, an
entity must abide by the requirements laid out
in Section 96 of the Corporation Code, which
reads:
Definition and applicability of
Title. - A close corporation, within
the meaning of this Code, is one
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whose articles of
incorporation provide that: (1)
all the corporation's issued stock
of all classes, exclusive of treasury
shares, shall be held of record by
not more than a specified number
of persons, not exceeding twenty
(20); (2) all the issued stock of all
classes shall be subject to one or
more specified restrictions on
transfer permitted by this Title;
and (3) the corporation shall not
list in any stock exchange or make
any public offering of any of its
stock of any class.
Notwithstanding the foregoing, a
corporation shall not be deemed
a close corporation when at least
two-thirds (2/3) of its voting stock
or voting rights is owned or
controlled by another corporation
which is not a close corporation
within the meaning of this Code.
In San Juan Structural and Steel Fabricators.
Inc. v. Court ol Appeals (296 SCRA 631) this
Court held that a narrow distribution of
ownership does not, by itself, make a close
corporation. Courts must look into the articles
of incorporation to find provisions expressly
stating that: (l) the number of stockholders
shall not exceed 20; or (2) a pre-emption of
shares is restricted in favor of any stockholder
or of the corporation; or (3) the listing of the
corporate stocks in any stock exchange or
making a public offering of those stocks is
prohibited.
Section 97 of the Corporation Code only
specifies that "the stockholders of the
corporation shall be subject to all liabilities of
directors." Nowhere in that provision do we
find any inference that stockholders of a close
corporation are automatically liable for
corporate debts and obligations.
Parenthetically, only Section 100, paragraph 5,
of the Corporation Code explicitly provides for
personal liability of stockholders of close
corporation, viz:
Agreements by stockholders. –
x xxx
 8
5. To the extent that the
stockholders are actively
engaged in the management or
operation of the business and
affairs of a close corporation,
the stockholders shall be held to
strict fiduciary duties to each
other and among themselves.
Said stockholders shall
be personally
liable for corporate torts unless
the corporation has obtained
reasonably adequate liability
insurance.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
As can be read in that provision, several
requisites must be present for its applicability.
None of these were alleged in the case of
Spouses Cruz. Neither did the RTC or the CA
explain the factual circumstances for this Court
to discuss the personally liability of
respondents to their creditors because of
corporate torts." (Naguiat vs NLRC, 269 SCRA
564)
We thus apply the general doctrine of separate
juridical personality, which provides that a
corporation has a legal personality separate
and distinct from that of people comprising
it. By virtue of that doctrine, stockholders of a
corporation enjoy the principle of limited
liability: the corporate debt is not the debt of
the stockholder. (PNB vs. Hydro Resources
Contractors Corp., 693 SCRA 294) Thus, being
an officer or a stockholder of a corporation
does not make one's property the property also
of the corporation. (Traders Royal Bank vs. CA,
177 SCRA 788)
Situs Development Corp. v. Asiatrust Bank (677
SCRA 495) is analogous to the case at bar. We
held therein that the parcels of land mortgaged
to creditor banks were owned not by the
corporation, but by the spouses who were its
stockholders. Applying the doctrine of separate
juridical personality, we ruled that the parcels
of land of the spouses could not be considered
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part of the corporate assets that could be
subjected to rehabilitation proceedings.
In rehabilitation proceedings, claims of
creditors are limited to demands of whatever
nature or character against a debtor or its
property, whether for money or otherwise. In
several cases, we have already held that stay
orders should only cover those claims directed
against corporations or their properties, against
their guarantors, or their sureties who are not
solidarily liable with them, to the exclusion of
accommodation mortgagors.
To repeat, properties merely owned by
stockholders cannot be included in the
inventory of assets of a corporation under
rehabilitation. (Bustos vs. Millians Shoe, Inc.,
et al., (824 SCRA 73-77)
3. The doctrine of piercing the veil of
corporate fiction is a legal percept that allows
a corporation’s separate personality to be
disregarded under certain circumstances, so
that a corporation and its stockholders or
members, or a corporation and another
related corporation could be treated as a
single entity. The doctrine is an equitable
principle, it being meant to apply only in a
situation where the separate corporate
personality of a corporation is being abused or
being used for wrongful purposes. As Manila
Hotel Corporation v. NLRC (343 SCRA 1)
explains:
“Piercing the veil of corporate entity is an
equitable remedy. It is resorted to when
the corporate fiction is used to defeat
public convenience, justify wrong, protect
fraud or defend a crime. It is done only
when a corporation is a mere alter ego or
business conduit of a person or another
corporation.”
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
In Concept Builders, Inc. v. NLRC (257 SCRA
149), we laid down the following test to
determine when it would be proper to apply
the doctrine of piercing the veil of corporate
 9
fiction:
1. Control, not mere majority or
complete stock control, but complete
domination, not only of finances but
of policy and business practice in
respect to the transaction attacked so
that the corporate entity as to this
transaction had at the time no
separate mind, will or existence of its
own;
2. Such control must have been used
by the defendant to commit fraud or
wrong, to perpetuate the violation of
a statutory or other positive legal
duty, or dishonest and unjust act in
contravention of plaintiff’s legal
rights; and
3. The aforesaid control and breach of
duty must proximately cause the
injury or unjust loss complained of.
The absence of any one of these elements
prevents piercing the corporate veil.
In applying the instrumentality or alter ego
doctrine, the courts are concerned with reality
and not forum, with how the corporation
operated and the individual defendant’s
relationship to that operation.
Relative to the Concept Builders test are the
following critical ruminations from Rufina Luy
Lim v. CA (323 SCRA 102):
“More ownership by a single
stockholder or by another corporation
of all or nearly all of the capital stock
of a corporation is not of itself a
sufficient reason for disregarding the
fiction of separate corporate
personalities.”
Moreover, to disregard the separate juridical
personality of a corporation, the wrongdoing
must be clearly and convincingly established. It
cannot be presumed. (Veterans Federation of
the Philippines vs. Montenegro, et al., (847
SCRA 26-28)
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4. While a corporation may exist for any lawful
purpose, the law will regard it as an association
of person, or in case of two corporations,
merge them into one, when its corporate legal
entity is used as a cloak for fraud or illegality.
This is the doctrine of piercing the veil of
corporate fiction which applies only when such
corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or
defend crime, or when it is made as a shield to
confuse the legitimate issues, or where a
corporation is the mere alter ego or business
conduit of a person, or where
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
the corporation is so organized and controlled
and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or
adjunct of another corporation.
To disregard the separate juridical personality
of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot
be presumed.
Thus, to hold a director or officer personally
liable for corporate obligations, two requisites
must concur: (1) complainant must allege in
the complaint that the director or officer
assented to patently unlawful acts of the
corporation, or that the officer was guilty of
gross negligence or bad faith; and (2)
complainant must clearly and convincingly
prove such unlawful acts, negligence or bad
faith.
Also, the existence of interlocking directors,
corporate officers and shareholders, which the
LA considered, without more, is not enough
justification to pierce the veil of corporate
fiction in the absence of fraud or other public
policy considerations.
Any piercing of the corporate veil has to be
done with caution. The wrongdoing must be
clearly and convincingly established. It cannot
just be presumed. (Zaragoza vs. Tan, et al.,
(847 SCRA 450-456)
 10
5. Any piercing of the corporate veil must be
done with caution (Vda de Roxas vs. Our
Lady’s Foundation, Inc., 692 SCRA 578). As the
CA had correctly observed, it must be certain
that the corporate fiction was misused to such
an extent that injustice, fraud, or crime was
committed against another, in disregard of
rights. Moreover, the wrongdoing must be
clearly and convincingly established. Sarona v.
NLRC (663 SCRA394) instructs, thus:
“Whether the separate
personality of the corporation
should be pierced hinges on
obtaining facts appropriately
pleaded or proved. However,
any piercing of the corporate veil
has to be done with caution,
albeit, the Court will not hesitate
to disregard the corporate veil
when it is misused or when
necessary in the interest of
justice. After all, the concept of
corporate entity was not meant
to promote unfair objectives.”
The doctrine of piercing the corporate veil
applies only in three (3) basic areas, namely:
(1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the
evasion of an existing obligation; (2) fraud
cases or
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or (3)
alter ego cases, where a corporation is merely
a farce since it is a mere alter ego or business
conduit of a person, or where the corporation
is so organized and controlled and its affairs
are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation.
CMCI 's alter ego theory rests on the alleged
interlocking boards of directors and stock
ownership of the two corporations. The CA,
however, rejected this theory based on the
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settled rule that mere ownership by a single
stockholder of even all or nearly all of the
capital stocks of a corporation, by itself, is not
sufficient ground to disregard the corporate
veil. We can only sustain the CA's ruling.
The instrumentality or control test of the alter
ego doctrine requires not mere majority or
complete stock control, but complete
domination of finances, policy and business
practice with respect to the transaction in
question. The corporate entity must be shown
to have no separate mind, will, or existence of
its own at the time of the transaction.
(California Manufacturing, Co., Inc. vs.
Advanced Technology System, Inc., 824 SCRA
303-305)
6. A corporation is an artificial being created by
operation of law. It possesses the right of
succession and such powers, attributes, and
properties expressly authorized by law or
incident to its existence. It has a personality
separate and distinct form the persons
composing it, as well as from any other legal
entity to which it may be related.
Equally well-settled is the principle that the
corporate mask may be removed or the
corporate veil pierced when the corporation is
just an alter ego of a person or of another
corporation. For reasons of public policy and in
the interest of justice, the corporate veil will
justifiably be impaled only when it becomes a
shield for fraud, illegality or inequity committed
against third persons.
Hence, any application of the doctrine of
piercing the corporation veil should be done
with caution. A court should be mindful of the
milieu where it is to be applied. It must be
certain that the corporate fiction was misused
to such an extent that injustice, fraud, or crime
was committed against another, in disregard of
rights. The wrongdoing must be clearly and
convincingly established; it cannot be
presumed. Otherwise, an injustice that was
never unintended may result from an
erroneous application.
Further, the Court’s ruling in Philippine National
Bank v. Hydro Resources Contractors
Corporation, (693 SCRA 294) in enlightening,
viz.:
 11

NOTE – perpetuate the violation of a

statutory or other positive
The preceding notes were quoted from various legal duty, or dishonest and
volumes of the S.C.R.A and are provided unjust act in contravention of
GRATUITOUSLY to those preparing to take the plaintiff’s legal right; and
2019 bar examinations.
(3) The aforesaid control and
The doctrine of piercing the
breach of duty must have
corporate veil applies only in
proximately caused the injury
three (3) basic areas, namely: (1)
defeat of public convenience as or unjust loss complained of.
when the corporate fiction is
used as a vehicle for the evasion The first prong is the
of an existing obligation; (2) “instrumentality” or “control”
fraud cases or when the test.” This test requires that the
corporate entity is used to justify subsidiary be completely under
a wrong, protect fraud, or the control and domination of
defend a crime; or (3) alter ego the parent. It examines the
cases, where a corporation is parent corporation’s relationship
merely a farce since it is a mere with the subsidiary. It inquires
alter ego or business conduit of a whether a subsidiary corporation
person, or where the corporation is so organized and controlled
is so organized and controlled and its affairs are so conducted
and its affairs are so conducted as to make it a mere
as to make it merely an instrumentality or agent of the
instrumentality, agency, conduit parent corporation such that its
or adjunct of another separate existence as a distinct
corporation. corporate entity will be ignored.
It seeks to establish whether the
xxx subsidiary corporation has no
autonomy and the parent
In this connection, case law lays corporation, though acting
down a three-pronged test to through the subsidiary in form
determine the application of the and appearance, “is operating
alter ego theory, which is also the business directly for itself.”
known as the instrumentality
theory, namely: NOTE –

(1) Control, not mere majority The preceding notes were quoted from various
or complete stock control, volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
but complete domination,
2019 bar examinations.
not only of finances but of
The second prong is the “fraud”
policy and business practice test. This test requires that the
in respect to the transaction parent corporation’s conduct in
attacked so that the using the subsidiary corporation
corporate entity as to this be unjust, fraudulent or
transaction had at the time wrongful. It examines the
no separate mind, will or relationship of the plaintiff to
existence of its own; the corporation. It recognizes
that piercing is appropriate only
(2) Such control must have if the parent corporation uses
been used by the defendant the subsidiary in a way that
to commit fraud or wrong, to harms and plaintiff creditor. As

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 12

such, it requires a showing of by a single stockholder or by another

“an element of injustice or corporation of all or nearly all of the capital
fundamental unfairness.” stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate
The third prong is the “harm” personality. It has likewise ruled that the
test. This test requires the “existence of interlocking directors, corporate
plaintiff to show that the officers and shareholders is not enough
defendant’s control, exerted in a justification to pierce the veil of corporate
fraudulent, illegal or otherwise fiction in the absence of fraud or other public
unfair manner toward it, caused policy considerations. (Pantranco Employees
the harm suffered. A causal Association vs. NLRC, 581 SCRA 598, cited in
connection between the Zambrano vs. Philippine Carpet Manufacturing
fraudulent conduct committed Corporation, et al. 828 SCRA 162– 166)
through the instrumentality of
the subsidiary and the injury NOTE –
suffered or the damage incurred
by the plaintiff should be The preceding notes were quoted from various
established. The plaintiff must volumes of the S.C.R.A and are provided
prove that, unless the corporate GRATUITOUSLY to those preparing to take the
veil is pierced, it will have been 2019 bar examinations.
treated unjustly by the
defendant’s exercise of control 7. Section 74 of the Corporation Code provides
and improper use of the for the liability for damages of any officer or
corporate form and, thereby, agent of the corporation for refusing to allow
suffer damages. any director, trustee, stockholder or member of
the corporation to examine and copy excerpts
To summarize, piercing the from its records or minutes. Section 144 of the
corporate veil based on the same Code further provides for other
alter ego theory requires the applicable penalties in case of violation of any
concurrence of three elements: provision of the Corporation Code.
control of the corporation by Hence, to prove any violation under the
the stockholder or parent aforementioned provisions, it is necessary that:
corporation, fraud or (1) a director, trustee, stockholder or member
fundamental unfairness has made a prior demand in writing for a copy
imposed on the plaintiff, and of excerpts from the corporation records or
harm or damage caused to the minutes; (2) any officer or agent of the
plaintiff by the fraudulent or concerned corporation shall refuse to allow the
unfair act of the corporation. said director, trustee, stockholder or member
The absence of any of these of the corporation to examine and copy said
elements prevents piercing the excerpts; (3) if such refusal is made pursuant
corporate veil. to a resolution or order of the board of
directors of trustees, the liability under this
Although ownership by one corporation of all section for such action shall be imposed upon
or a great majority of stocks of another the directors or trustees who voted for such
corporation and their interlocking directorates refusal; and (4) where the officer or agent of
may serve as indicia of control, by themselves the corporation sets up the defense that the
and without more, these circumstances are person demanding to examine and copy
insufficient to establish an alter ego excerpts from the corporation’s records and
relationship or connection between Philippine minutes has improperly used any information
Carpet on the one hand and Pacific Carpet on secured through any prior examination of the
the other hand, that will justify the puncturing records or minutes of such corporation or of
of the latter’s corporate cover. any other corporation, or was not acting in
good faith or for a legitimate purpose in making
This Court has declared that “mere ownership his demand, the contrary must be shown or

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 13
proved.
Clearly, Ongjoco, as a member of BMTODA, had
a right to examine documents and records
pertaining to said association. To recall,
Ongjoco made a prior demand in writing for
copy of pertinent records of BMTODA from
Roque and Singson. Onjoco sent his letters
dated December 13, 2003 and August 29, 2004
to Roque and Singson, respectively. However,
both of them refused to furnish Ongjoco copies
of such pertinent records. (Roque vs. People,
826 SCRA 622- 623)
8. In any case, the revocation of a
corporation’s Certificate of Registration does
not automatically warrant the extinction of the
corporation itself such that its rights and
liabilities are likewise altogether extinguished.
In the case of Clemente v. Court of Appeals,
(242 SCRA 717) the Court explained that the
termination of the life of a juridical entity does
not, by itself, cause the extinction or diminution
of the rights and liabilities of such entity nor
those of its owners and creditors. (Roque vs.
People, 826 SCRA 622- 624)
CREDIT CARDS –
1. After all, credit card arrangements are simple
loan arrangements between the card issuer and
the card holder.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Simply put, every credit card transaction
involves three contracts, namely: (a) the sales
contract between the credit card holder and
the merchant or the business establishment
which accepted the credit card; (b) the loan
agreement between the credit card issuer and
the credit card holder; and lastly, (c) the
promise to pay between the credit card issuer
and the merchant or business establishment.
(Bankard, Inc. vs. Alarte, 824 SCRA 13)
2. Since credit card is “any card, plate, coupon
book, or other credit device existing for the
purpose of obtaining money, goods, property,
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labor or services or anything of value on credit,
it is considered an access device.
A counterfeit access device is “any access
device that is counterfeit, fictitious, altered, or
forged, or an identifiable component of an
access device or counterfeit access device.”
Under Section 9(a) and (e) of Republic Act No.
8484, the possession and use of an access
device is not illegal. Rather, what is prohibited
is the possession and use of a counterfeit
access device. Therefore, the corpus delicti of
the crime is not merely the access device, but
also any evidence that proves that it is
counterfeit. (Cruz vs. People, 826 SCRA 574 –
575)
CROSSED CHECKS –
1. A crossed check is one where two parallel
lines are drawn across its face or across the
corner thereof. A check may be crossed
generally or specially. A check is crossed
especially when the name of a particular
banker or company is written between the
parallel lines drawn. It is crossed generally
when only the words “and company” are
written at all between the parallel lines. (Go vs.
Metrobank, 628 SCRA 107 cited in BDO vs. Lao,
827 SCRA 495-496)
2. Jurisprudence dictates that the effects of
crossing a check are: (1) that the check may
not be encashed but only deposited in the
bank; (2) that the check may be negotiated
only once – to one who has an account with a
bank; and (3) that the act of crossing the
check serves as a warning to the holder that
the check has been issued for a definite
purpose so that he must inquire if he has
received the check pursuant to that purpose.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
The effects of crossing a check, thus, relate to
the mode of payment, meaning that the drawer
had intended the check for deposit only by the
 14
rightful person. i.e., the payee named therein.
3. In Associated Bank vs. Court of Appeals
(Associated Bank) (208 SCRA465), the person
who suffered the loss as a result of the
unauthorized encashment of crossed checks
was allowed to recover the loss directly from
the negligent bank despite the latter’s
contention of lack of privity of contract. The
Court said:
There being no evidence that
the crossed checks were actually
received by the private
respondent, she would have a
right of action against the
drawer companies, which in
turn could go against their
respective drawee banks, which
in turn could sue the herein
petitioner as collecting bank. In
a similar situation, it was held
that, to simplify proceedings,
the payee of the illegally
encashed checks should be
allowed to recover directly from
the bank responsible for such
encashment regardless of
whether or not the checks were
actually delivered to the payee.
We approve such direct action
in the case at bar. (cited in BDO
vs. Lao, 827 SCRA 497)
4. The Court is of the considered view that the
pronouncements made in Associated Bank as
regards the simplification of the recovery
proceedings are applicable in the present case.
The factual milieu of this case are substantially
similar with that of Associated Bank, i.e., a
crossed check was presented and deposited,
without authority, in the account of a person
other than the payee named therein; the
collecting bank endorsed the crossed check and
warrant the validity of all prior endorsements
and/or lack of it; the warranty turned out to be
false; and, a party to the check transaction,
which would otherwise be held liable to the
party aggrieved, was not made a party in the
proceedings in court.” (BDO vs. Lao, 827 SCRA
499)
DAMAGES –
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1. The cases when moral damages may be
awarded are specific. Unless the case falls
under the enumeration as provided in Article
2219, which is exclusive, and Article 2220 of
the Civil Code, moral damages may not be
awarded.
*Article 2219 provides: Moral damages may be
recovered in the following and analogous cases:
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
(1) A criminal offense resulting
in physical injuries;
(2) Quasi-delicts causing
physical injuries;
(3) Seduction, abduction, rape,
or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention
or arrest;
(6) Illegal search;
(7) Libel, slander or any other
form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article
309;
(10) Acts and actions referred
to in Articles 21, 26, 27, 28,
29, 30, 32, 34 and 35.
Article 2220 provides the following additional
legal grounds for awarding moral damages: (1)
willful injury to property if the court should find
that, under the circumstances, such damages
are justly due; and (2) breaches of contract
where the defendant acted fraudulently or in
bad faith.
2. As to exemplary or corrective damages,
these may be granted in quasi-delicts if the
defendant acted with gross negligence
pursuant to Article 2231 of the Civil Code.
(Coca-Cola Bottlers Phils., Inc.vs. Meñez, 846
SCRA 304-306)
 15
3. Present jurisprudence holds that when the
circumstances surrounding the crime call for
the imposition of reclusion perpetua only, there
being no ordinary aggravating circumstance,
the proper amounts for damages should be
P75,000.00 as civil indemnity, P75,000.00 as
moral damages, and P75,000.00 as exemplary
damages, regardless of the number of
qualifying aggravating circumstances present.
In conformity thereto, the Court awards the
foregoing damages in the instant case. (People
vs. Pantoja, 847 SCRA 320)
4. The award of temperate damage is proper
since under Article 2224 of the Civil Code,
temperate damages may be recovered when
the court finds that some pecuniary loss had
been suffered but its amount cannot, from the
nature of the case, be proved with certainty.
Likewise, the Court finds the deletion of
nominal damages proper.
The CA is correct in holding that temperate
and nominal damages are incompatible and
thus, cannot be granted concurrently. Under
Article 2221 of the Civil Code, nominal damages
are given in order that a right of the plaintiff
which has been violated or invaded by the
defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the
plaintiff for any loss suffered by him. (People
vs. De la Peña, 853 SCRA 577 – 578)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
5. Following the new jurisprudential ruling in
People vs. Jugueta (788 SCRA 331), where the
penalty for the crime committed is death
which, however, cannot be imposed, we
increase the amounts of indemnity and
damages to be imposed as follows: PhP100,000
as civil indemnity; PhP100,000 as moral
damages; and PhP100,000 as exemplary
damages. The Court likewise affirms the actual
damages of PhP30,000 awarded by the RTC as
it was expressly provided on record that the
heirs of the victim actually incurred such
expense for the wake and burial of the victim
evidenced by the corresponding receipts.
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Lastly, interest at the rate of 6% per annum is
imposed on all damages awarded reckoned
from the date of the finality of this judgment
until fully paid. (People vs. Sabida, 827 SCRA
389)
6. Moral damages are awarded to enable the
injured party to obtain means, diversions, or
amusements that will serve to alleviate the
moral suffering he has undergone, by reason of
the defendant’s culpable action. For a claim for
moral damages to prosper, the claimant must
prove that: first, there must be an injury,
whether physical, mental or psychological,
clearly sustained by the claimant; second,
there must be culpable act or omission
factually established; third, the wrongful act
or omission of the defendant is the proximate
cause of the injury sustained by the claimant;
and fourth, the award of damages is
predicated on any of the cases stated in Article
2219 of the Civil Code. (Arco Pulp and Paper
vs. Lim, 727 SCRA 275 cited in Santos-Yllana
Realty vs. Deang, 827 SCRA 638-639)
7. Moral damages are awarded to allow a
plaintiff to obtain means, diversion, or
amusement that will serve to alleviate the
moral suffering he has undergone due to the
defendant’s culpable action. (LADECO vs.
Angala, 525 SCRA 229)
DAMNUM ABSQUE INJURIA –
In The Orchard Golf & Country Club, Inc. vs. Yu,
(253 SCRA 483), The Court has fittingly pointed
out the distinction, viz.:
x xx Injury is the illegal invasion
of a legal right, damage is the
loss, hurt, or harm which results
from the injury; and damages
are the recompense or
compensation awarded for the
damage suffered. Thus, there
can be damage without injury in
those instances in which the loss
or harm was not the result of a
violation of a legal duty. These
situations are often called
damnum absque injuria.
NOTE –
 16

The preceding notes were quoted from various of carrying out the ordinary duties required in a
volumes of the S.C.R.A and are provided marriage; (b) juridical antecedence, i.e., it
GRATUITOUSLY to those preparing to take the must be rooted in the history of the party ante-
2019 bar examinations. dating the marriage, although the overt
manifestations may emerge only after the
In every situation of damnum absque injuria, marriage; and (c) incurability, i.e., it must be
therefore, the injured person alone bears the incurable, or even if it were otherwise, the cure
consequences because the law affords no would be beyond the means of the party
remedy for damages resulting from an act that involved.
does not amount to a legal injury or wrong.
The case of Republic of the Philippines vs. Court
For instance, in BPI Express Card Corporation v. of Appeals (268 SCRA 198) has set out the
Court of Appeals, (296 SCRA 260), the Court guidelines that has been the core of discussion
turned down the claim for damages of a of practically all declarations of nullity of
cardholder whose credit card had been marriage on the basis of psychological
cancelled after several defaults in payment, incapacity cases that we have decided:
holding therein that there could be damage
without injury where the loss or harm was not NOTE –
the result of a violation of a legal duty towards
the plaintiff. In such situation, the injured The preceding notes were quoted from various
person alone should bear the consequences volumes of the S.C.R.A and are provided
because the law afforded no remedy for GRATUITOUSLY to those preparing to take the
damages resulting from an act that did not 2019 bar examinations.
amount to a legal injury or wrong. Indeed, the
lack of malice in the conduct complained of (1) that he burden of proof to show
precluded the recovery of damages. the nullity of the marriage
belongs to the plaintiff. Any
Here, although the petitioners suffered doubt should be resolved in favor
humiliation resulting from their unwitting use of the existence and continuation
of the counterfeit US dollar bills, the of the marriage and against its
respondent, by virtue of its having observed the dissolution and nullity. xxx
proper protocols and procedure in handling the
US dollar bills involved, did not violate any legal (2) that the root cause of the
duty towards them. Being neither guilty of psychological incapacity must
negligence nor remiss in its exercise of the be: (a) medically or clinically
degree of diligence required by law or the identified; (b) alleged in the
nature of its obligation as a banking institution, complaint; (c) sufficiently proven
the latter was not liable for damages. Given by experts; and (d) clearly
the situation being one of damnum absque explained in the decision. xxx
injuria, they could not be compensated for the
damage sustained. (Sps. Carbonell, vs. (3) that the incapacity must be
Metrobank, (825 SCRA 12 –13) proven to be existing at “the
time of the celebration” of the
DECLARATION OF NULLITY OF MARRIAGE – marriage. xxx

1. Time and again, it has been held that (4) that such incapacity must also
“psychological incapacity” has been intended be shown to be medically or
by law to be confined to the most serious cases clinically permanent or incurable.
of personality disorders clearly demonstrative xxx
of an utter insensitivity or inability to give
meaning and significance to the marriage. (5) that such illness must be grave
Psychological incapacity must be characterized enough to bring about the
by: (a) gravity, i.e., it must be grave and disability of the party to assume
serious such that the party would be incapable

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 17
the essential obligations of
marriage. xxx
(6) that the essential marital
obligations must be those
embraced by Articles 68 up to 71
of the Family Code as regards
the husband and wife as well as
Articles 220, 221 and 225 of the
same Code in regard to parents
and their children. xxx
(7) that interpretations given by
the National Appellate
Matrimonial Tribunal of the
Catholic Church in the
Philippines, while not controlling
or decisive, should be given great
respect by our courts. xxx
(8) The trial court must order the
prosecuting attorney or fiscal
and the Solicitor General to
appear as counsel for the state.
No decision shall be handed
down unless the Solicitor General
issues a certification, which will
be quoted in the decision, briefly
stating therein his reasons for his
agreement or opposition, as the
case may be, to the petition. xxx
(Republic vs. Tobora-Tionglico,
851 SCRA 113-115)
2. In declaration of nullity and annulment of
marriage cases, the investigation report of the
prosecutor on whether there is collusion
between the parties is a condition sine qua
non for setting the case for pre-trial or further
proceedings. Thus, it matters not that the
public prosecutors manifested
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
before Judges Felicen, Quisumbing and
Mangrobang that they would just actively
participate in the proceedings to safeguard
against collusion or fabricated evidence, in lieu
of an investigation report on collusion. No
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Magnificus Juris Reviews and Seminars, Inc. (“Magnificus”).
further proceedings should have been held
without the investigation report. In Corpus vs.
Ochotorena (435 SCRA 446), the Court found
the respondent judge therein administratively
liable for failure to observe the mandatory
requirement of ordering the investigating
public prosecutor to determine whether
collusion existed between the parties. The
Court emphasized that the active participation
of the public prosecutor in the proceedings of
the case could not take the place of the
investigation report. (Office of the Court
Administrator vs. Cabrera-Faller), 851 SCRA
290)
3. In Maquilan vs. Maquilan (524 SCRA 166),
we enunciated that the appearances of the
Solicitor General and/or public prosecutor in
proceedings for the declaration of nullity and
annulment of marriage are mandatory.
Under A.M. No. 02-11-10-SC, the failure of the
petitioner to file a pre-trial brief or even
comply with its required contents has the
same effect as the failure to appear at the
pretrial, which means the dismissal of the
case. (OCA vs. Cabrera-Faller, et al., 851 SCRA
298 )
4. Under Section 19(3) of A.M. No. 02-11-10-
SC, a decision of the court granting the petition
for declaration of nullity or annulment of
marriage becomes final upon the expiration of
15 days from notice to the parties. Entry of
judgment shall be made if no motion for
reconsideration or new trial, or appeal, is filed
by any of the parties, the public prosecutor, or
the Solicitor General. If the parties have no
properties, the court shall forthwith issue the
corresponding decree of declaration of
absolute nullity or annulment of marriage upon
the finality of the decision. Otherwise, upon
the finality of the decision, the court shall
observe the procedure prescribed for the
liquidation, partition and distribution of the
properties of the spouses, including custody,
support of common children, and delivery of
their presumptive legitimes. In both cases, the
entry of judgment shall be registered in the
civil registry where the marriage was recorded
and in the civil registry where the family court
granting the petition for the declaration of
absolute nullity or annulment of marriage is
located. (OCA vs. Cabrera-Faller, et al.,
 18
851SCRA 295)
If the parties have properties, the decree of
declaration of absolute nullity or annulment of
marriage shall be issued only after the
registration of the approved partition and
distribution of the properties of the spouses in
the proper Register of Deeds where the real
properties are located; and after the delivery
of the children’s presumptive legitimes in
cash, property, or sound securities. The
approved deed of partition shall be attached
to the decree.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Again, in both cases in which the parties have
or do not have properties, the decree shall be
registered: (a) in the civil registry where the
marriage was registered; (b) the civil registry
of the place where the family court is situated,
(c) as well as in the National Census and
Statistics Office. (OCA vs. Cabrera-Faller, et
al., 851 SCRA 295-296)
EARNEST MONEY –
1. 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 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 vs. Court
of Appeals (262 SCRA 464) construed earnest
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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.
There is no unjust enrichment on the part of
the seller should the initial payment be
deemed forfeited. After all, the owner could
have found other offers or a better deal. The
earnest money given by respondents is the cost
of holding this search in abeyance. (Racelis vs.
Javier, 853 SCRA 274)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
2. Whenever earnest money is given in a
contract of sale, it shall be considered as part of
the price and as proof of perfection of the
contract. The earnest money forms part of the
consideration only if the sale is consummated
upon full payment of the purchase price.
(Umigpig vs. People, 677 SCRA 53)
GOOD FAITH, defined –
1. Good faith is ordinarily used to describe that
state of mind denoting “honesty of intention,
and freedom from knowledge of circumstances
which ought to put the holder upon inquiry; an
honest intention to abstain from taking any
unconscientious advantage of another, even
through technicalities of law, together with
absence of all information, notice, or benefit or
 19

belief of facts which render the transaction

unconscientious. (Gambito vs. Bacena, 853 The law “requires a higher
SCRA 102) degree of prudence from one
who buys from a person who is
2. The doctrine of mortgage in good faith not the registered owner,
presupposes that the mortgagor, who is not the although the land object of the
rightful owner of the property, has already transaction is registered. While
succeeded in obtaining a Torrens title over the one who buys from the
property in his or her name and that, after registered owner does not need
obtaining the said title, he or she succeeds in to look behind the certificate of
mortgaging the property to another who relies title, one who buys from one
on what appears on the said title. In this case, who is not the registered owner
Marissa is undoubtedly not the registered is expected to examine not only
owner of the subject lot; and the certificate of the certificate of title but all
title was in the name of her parents at the time factual circumstances necessary
of the mortgage transaction. She merely acted for [one] to determine if there
as the attorney-in-fact of Corazon and Delfin by are any flaws in the title of the
virtue of the falsified SPA. The protection transferor, or in [the] capacity to
accorded by law to mortgages in good faith transfer the land.” Although the
cannot be extended to mortgagees of instant case does not involve a
properties that are not yet registered with the sale but only a mortgage, the
RD or registered but not under the same rule applies inasmuch as
mortgagor’s name. (Dadis vs. De Guzman, et the law itself includes a
al. 826 SCRA 509) mortgagee in the term
“purchaser.” (Dadis vs. De
3. When the mortgagee does not directly deal Guzman, et al. 826 SCRA 510)
with the registered owner of the real property,
like an attorney-in-fact of the owner, it is LACHES –
incumbent upon the mortgagee to exercise
greater care and a higher degree of prudence in The defense of laches is based on equity.
dealing with such mortgagor. As Abad v. Sps. (Pabalate vs. Echarri, 37 SCRA 518) It is not
Guimba (465 SCRA 356) reminded: based on the title of the party invoking it, but
on the right holder’s “long inaction or
xxx A person who deals with inexcusable neglect” to assert his claim.
registered land through someone
who is not the registered owner This Court rules that the Spouses Po are not
is expected to look behind the barred by laches. There is no showing that they
certificate of title and examine abandoned their right to the property. The
all factual circumstances, in factual findings reveal that the Spouses Po had
order to determine if the their rights over the property registered in the
mortgagor/vendee has the assessor’s office. They testified that they
capacity to transfer any interest introduced improvements by cultivating fruit
in the land. One has the duty to trees after they purchased the lots. When the
ascertain the identity of the Spouses Po discovered that Ciriaco executed a
person with whom one is quitclaim renouncing his interest over Lot No.
dealing, as well as the latter’s 2807 in favor of Roberto, the Spouses Po
legal authority to convey. executed a Memorandum of Agreement with
Ciriaco to protect their interest in Lot No. 2835.
NOTE –
The Spouses Po also had the property declared
The preceding notes were quoted from various for taxation purposes in their names and Tax
volumes of the S.C.R.A and are provided Declaration No. 0634-A was issued. Thus, when
GRATUITOUSLY to those preparing to take the the Spouses Aboitiz also had the property
2019 bar examinations. declared for taxation purposes, it had the

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 20
annotation: “This tax declaration is also
declared in the name of Mrs. Victoria Lee Po,
married to Peter Po under Tax Dec. No. 0634-A
so that one may be considered a duplicate to
the other.” (Aboitiz vs. Po, 825 SCRA 488)
LAND REGISTRATION –
1. There is indeed a situation where, despite
the fact that the mortgagor is not the owner of
the mortgaged property, his title being
fraudulent, the mortgage contract and any
foreclosure sale arising therefrom are given
effect by reason of public policy. This is the
doctrine of “the mortgagee in good faith”
based on the rule that buyers or mortgagees
dealing with property covered by a Torrens
Certificate of Title are not required to be
beyond what appears on the face of the title.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Indeed, a mortgagee has a right to rely in good
faith on the certificate of title of the mortgagor
of the property given as security, and in the
absence of any sign that might arouse
suspicion, the mortgagee has no obligation to
undertake further investigation. This doctrine
presupposes, however, that the mortgagor,
who is not the rightful owner of the property,
has already succeeded in obtaining Torrens title
over the property in his name and that, after
obtaining the said title, he succeeds in
mortgaging the property to another who relies
on what appears on the title.
The Court, in the case of Andres, et al. vs.
Philippine National Bank (738 SCRA 344),
explained the dynamics of the burden of
discovery in said doctrine, to wit:
“The doctrine protecting
mortgagees and innocent
purchasers in good faith
emanates from the social
interest embedded in the legal
concept granting indefeasibility
of titles. The burden of discovery
of invalid transactions relating to
the property covered by a title
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appearing regular on its face is
shifted from the third party
relying on the title to the co-
owners or the predecessors of
the title holder. Between the
third party and the co-owners, it
will be the latter that will be
more intimately knowledgeable
about the status of the property
and its history. The costs of
discovery of the basis of
invalidity, thus, are better borne
by them because it would
naturally be lower. A reverse
presumption will only increase
costs for the economy, delay
transactions, and, thus, achieve
a less optimal welfare level for
the entire society.” (Miles vs.
Lao, 846 SCRA 288-289)
2. The Torrens system was adopted to “obviate
possible conflicts of title by giving the public
the right to rely upon the face of the Torrens
certificate and to dispense, as a rule, with the
necessity of inquiring further.” (Leong vs. See,
743 SCRA 677). From this sprung the doctrinal
rule that every person dealing with registered
land may safely rely on the correctness of the
certificate of title issued therefor and is in no
way obliged to go beyond the certificate to
determine the condition of the property.
(Locsin vs. Hizon, 735 SCRA 547)
To be sure, this Court is not unaware of the
recognized exceptions to this rule, to wit: (1)
when the party has actual knowledge of facts
and circumstances that would impel a
reasonably cautious man to make further
inquiry; (2) when the buyer has knowledge of
a defect or the lack of title in his vendor; or (3)
when the buyer/mortgagee is a bank or an
institution of similar nature as they are
enjoined to exert a higher degree of diligence,
care, and prudence than individuals in
handling real estate transactions. (Arguelles
vs. Malarayat Rural Bank, Inc. 719 SCRA 563)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
 21
Complementing this doctrinal rule is the
concept of an innocent purchaser for value,
which refers to someone who buys the
property of another without notice that some
other person has a right to or interest in it,
and who pays in full and fair the price at the
time of the purchase or without receiving any
notice of another person’s claim. (Leong – See
case cited earlier) (Calma vs. Lachica, 846
SCRA 463)
3. It is settled that a defective title may still be
the source of a completely legal and valid title
in the hands of an innocent purchaser for value.
(Leong vs. See cited earlier)
4. The rule on double or multiple sales applies
only when all the purchasers are in good faith.
(Alfaro vs. Dumalagan, 715 SCRA 476)
5. The rule that persons dealing with registered
lands can rely solely on the certificate of title is
not applicable to banks. (Jalbay, Sr. vs.
Philippine National Bank, 764 SCRA 569)
6. Respondents were not obliged to look
beyond the title before they purchased the
property. They may rely solely on the face of
the title.
The only exception to the rule is when the
purchaser has actual knowledge of any defect
or other circumstance that would cause “a
reasonably cautions man” to inquire into the
title of the seller. If there is anything which
arouses suspicion, the vendee is obliged to
investigate beyond the face of the title.
Otherwise, the vendee cannot be deemed a
purchaser in good faith entitled to protection
under the law. (Aboitiz vs. Po, 825 SCRA 512)
7. We note, too, that under Section 9 of the
Rules and Regulations Implementing
Presidential Decree No. 957, as amended by
Presidential Decree No. 1216, the registered
owner or developer of the subdivision who has
secured the certificate of completion and has
executed the deed of donation in favor of the
city or municipality “shall be deemed relieved
of the responsibility of maintaining the road
lots and open space of the subdivision
notwithstanding the refusal of the
City/Municipality concerned to accept the
donation.” (TGN Realty Corp. vs. Villa Teresa
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Homeowners Association, Inc., 823 SCRA 496)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
LEASE –
This Court in Chua Tee Dee vs. Court of Appeals,
(429 SCRA 418) struck down the lessee’s
argument and held that “the duty ‘to maintain
the lessee in the peaceful and adequate
enjoyment of the lease for the duration of the
contract’ mentioned in No. 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
 22

disconnection of electrical service as the records” and replacing it

justification to suspend the payment of rent. with “Failure to disclose the
required information would
Assuming that respondents were entitled to subject the counsel to
invoke their right under Article 1658 of the Civil appropriate penalty and
Code, this does exonerate them from their disciplinary action.” Thus, under
obligation under Article 1657 of the Civil Code the amendatory Resolution, the
“to pay the price of the lease according to the failure of a lawyer to indicate in
terms stipulated.” Lessees who exercise their his or her pleadings the number
right under Article 1658 of the Civil Code are and date of issue of his or her
not freed from the obligations imposed by law MCLE Certificate of Compliance
or contract. will no longer result in the
dismissal of the case and
Moreover, respondents’ obligation to pay rent expunction of the pleadings
was not extinguished when they transferred to from the records. Nonetheless,
their new residence. Respondents are liable for such failure will subject the
a reasonable amount of rent for the use and lawyer to the prescribed fine
continued occupation of the property upon the and/or disciplinary action. (Luis
expiration of the lease. To hold otherwise S. Doble, Jr. vs. ABB, Inc./Nitin
would unjustly enrich respondents at Desai, 825 SCRA 577 - 578)
petitioner’s expense. (Racelis vs. Javier, 853
SCRA 269-270) NUISANCE (Torre de Manila case) –

NOTE – In Manila Electric Company v. Public Service

The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Commission, (60 Phil. 658), the Court held
that "what is not expressly or impliedly
prohibited by law may be done, except when
the act is contrary to morals, customs and
public order."

MCLE REQUIREMENT IN PLEADINGS – This principle is fundamental in a democratic

On point is People vs. Arrojado (774 SCRA 193)
where it was held that the failure of a lawyer to
indicate in his or her pleadings the number and
date of issue of his or her MCLE Certificate of
Compliance will no longer result in the
dismissal of the case:
In any event, to avoid inordinate
delays in the disposition of cases
brought about by a counsel’s
failure to indicate in his or her
pleadings the number and date
of issue of his or her MCLE
Certificate of Compliance, this
Court issued an En Banc
Resolution, dated January 14,
2014 which amended B.M. No.
1922 by repealing the phrase
“Failure to disclose the required
information would cause the
dismissal of the case and the
expunction of the pleadings from
society, to protect the weak against the strong,
the minority against the majority, and the
individual citizen against the government. In
essence, this principle, which is the foundation
of a civilized society under the rule of law,
prescribes that the freedom to act can be
curtailed only through law. Without this
principle, the rights, freedoms, and civil
liberties of citizens can be arbitrarily and
whimsically trampled upon by the shifting
passions of those who can spout the loudest, or
those who can gather the biggest crowd or the
most number of Internet trolls. In other
instances, the Court has allowed or upheld
actions that were not expressly prohibited by
statutes when it determined that these acts
were not contrary to morals, customs, and
public order, or that upholding the same would
lead to a more equitable solution to the
controversy.
NOTE –

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 23
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
However, it is the law itself - Articles 1306 and
1409 (1) of the Civil Code - which prescribes
that acts not contrary to morals, good customs,
public order, or public policy are allowed if also
not contrary to law.
In this case, there is no allegation or proof that
the Torre de Manila project is "contrary to
morals, customs, and public order" or that it
brings harm, danger, or hazard to the
community. On the contrary, the City of Manila
has determined that DMCI-PDI complied with
the standards set under the pertinent laws and
local ordinances to construct its Torre de
Manila project.
Pro hac vice means a specific decision does not
constitute a precedent because the decision is
for the specific case only, not to be followed in
other cases. A pro hac vice decision violates
statutory law - Article 8 of the Civil Code -
which states that "judicial decisions applying or
interpreting the laws or the Constitution shall
form part of the legal system of the
Philippines." The decision of the Court in this
case cannot be pro hac vice because by
mandate bf the law every decision of the Court
forms part of the legal system of the
Philippines. If another case comes up with the
same facts as the present case, that case must
be decided in the same way as this case to
comply with the constitutional mandate of
equal protection of the law. Thus, a pro
hac vice decision also violates the equal
protection clause of the Constitution.
The Court recognizes two kinds
of nuisances. The first, nuisance
per se, is one "recognized as a
nuisance under any and all
circumstances, because it
constitutes a direct menace to
public health or safety, and, for
that reason, may be abated
summarily under the undefined
law of necessity." The second,
nuisance per accidens, is that
which "depends upon certain
conditions and circumstances,
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and its existence being a
question of fact, it cannot be
abated without due hearing
thereon in a tribunal authorized
to decide whether such a thing in
law constitutes a nuisance."
(Aquino vs. Municipality of
Malay, Aklan, 737 SCRA 145)
It can easily be gleaned that the Torre de
Manila is not a nuisance per se. The Torre de
Manila project cannot be considered as a
"direct menace to public health or safety."
Not only is a condominium project
commonplace in the City of Manila, DMCI-PDI
has, according to the proper government
agencies, complied with health and safety
standards set by law. DMCI-PDI has been
granted the following permits and clearances
prior to starting the project: (1) Height
Clearance Permit from the Civil Aviation
Authority of the Philippines; (2) Development
Permit from the HLURB; (3) Zoning
Certification from the HLURB; (4) Certificate of
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Environmental Compliance Commitment from
the Environment Management Bureau of the
Department of Environment and Natural
Resources; (5) Barangay Clearance; (6) Zoning
Permit; (7) Building Permit; and (8) Electrical
and Mechanical Permit.
Later, DMCI-PDI also obtained the right to build
under a variance recommended by the MZBAA
and granted by the City Council of Manila.
Thus, there can be no doubt that the Torre de
Manila project is not a nuisance perse.
On the other hand, the KOR now claims that
the Torre de Manila is a nuisance per accidens.
By definition, a nuisance per accidens is
determined based on its surrounding
conditions and circumstances. These
conditions and circumstances must be well
established, not merely alleged. The Court
 24
cannot simply accept these conditions and
circumstances as established facts as the KOR
would have us do in this case.
The KOR itself concedes that the question of
whether the Torre de Manila is a nuisance per
accidens is a question of fact.
The authority to decide when a nuisance exists
is an authority to find facts, to estimate their
force, and to apply rules of law to the case thus
made. This Court is no such authority. It is not
a trier of facts. It cannot simply take the
allegations in the petition and accept these as
facts, more so in this case where these
allegations are contested by the respondents.
The task to receive and evaluate evidence is
lodged with the trial courts. The question, then,
of whether the Torre de Manila project is a
nuisance per accidens must be settled after due
proceedings brought before the proper
Regional Trial Court. The KOR cannot
circumvent the process in the guise be
protecting national culture and heritage.
(Knights of Rizal vs. DMCI Homes, Inc., et al.,
824 SCRA 388-412)
QUASI-DELICTS –
1. The CA (Court of Appeals) correctly ruled
that prior resort to BFD (Bureau of Food and
Drugs) is not necessary for a suit for damages
under Article 2187 of the Civil Code to prosper.
Article 2187 unambiguously provides:
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Art. 2187. Manufacturers and
processors of foodstuffs, drinks,
toilet articles and similar goods
shall be liable for death or
injuries caused by any noxious or
harmful substances used,
although no contractual relation
exists between them and the
consumers.
Quasi-delict being the source of obligations
upon which Meñez bases his cause of action
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for damages against CCBPI, the doctrine of
exhaustion of administrative remedies is not
applicable. Such is not a condition precedent
required in a complaint for damages with
respect to obligations arising from quasi-delicts
under Chapter 2, Title XVII on Extra-Contractual
Obligations, Article 2176, et seq. of the Civil
Code which includes Article 2187. (Coca-Cola
Bottlers Phils., Inc.vs. Meñez, 846 SCRA 304-
306)
2. An action for damages due to the negligence
of another may be instituted on the basis of
Article 2176 of the Civil Code, which defines a
quasi-delict:
Whoever by act or omission
causes damage to another, there
being fault or negligence, is
obliged to pay for the damage
done. Such fault or negligence, it
there is no preexisting
contractual relation between the
parties, is called a quasi-delict
and is governed by the provisions
of this Chapter.
The elements of a quasi-delict are: (1) an act or
omission; (2) the presence of fault or
negligence in the performance or non-
performance of the act; (3) injury; (4) a
causal connection between the negligent act
and the injury; and (5) no pre-existing
contractual relation. (St. Martin Polyclinic, Inc.
vs. LWC Construction Corporation, 847 SCRA
390-391)
REAL ESTATE MORTGAGE –
1. In Sps. Yap and Guevarra vs. First e-Bank
Corp. (601 SCRA 250), this Court already
recognized that if the debtor fails (or unjustly
refuses) to pay his debt when it falls due and
the debt is secured by a mortgage and by a
check, the creditor has three options against
the debtor and the exercise of one will bar the
exercise of the others. The remedies include
foreclosure and filing of a criminal case for
violation of BP 22 (Bouncing Checks Law).
Verily, when respondent opted to foreclosure,
he merely exercised a privilege granted to him
by law as a secured creditor. Hence, without
sufficient justification, we cannot impute bad
faith on respondent by her exercise of such
 25

right. (cited in Miles vs. Lao, (846 SCRA 292) 1. Paragraph 5 of the Circular
A.M. No. 99-10-05-0
NOTE – provides

The preceding notes were quoted from various No auction sale shall be
volumes of the S.C.R.A and are provided held unless there are at
GRATUITOUSLY to those preparing to take the least two (2)
2019 bar examinations. participating bidders,
(Note – The remedies are: 1. an action for otherwise the sale shall
specific performance [collection case]; 2. be postponed to another
foreclosure of the mortgage; and 3. an action date. If on the new date
for Violation of B.P. No. 22) set for the sale there shall
not be at least two
2. It is settled that a mortgagee does not bidders, the sale shall
become the owner of the mortgaged property then proceed. The names
until he has foreclosed the mortgage and, of the bidders shall be
thereafter, purchased the property at the reported by the sheriff or
foreclosure sale. (Quintos vs. Dept. of the notary public who
Agrarian Reform, 715 SCRA 592) conducted the sale to the
Clerk of Court before the
3. In extra-judicial foreclosure of mortgage, issuance of the certificate
where the proceeds of the sale are insufficient of sale.
to pay the debt, the mortgagee has the right to
recover the deficiency from the debtor. It is contended that this
(Metrobank vs. CPR Promotions and requirement is not found in Act
Marketing, Inc., 760 SCRA 59) No. 3135 and that it is
impractical and burdensome,
4. That only Boston Equity Resources, Inc. had considering that not all auction
participated in the bidding during the sales are commercially attractive
foreclosure sale did not constitute a defect that to prospective bidders.
nullified or voided the foreclosure sale
considering that the Court had already NOTE –
dispensed with the two-bidder rule for
purposes of the foreclosure sale of private The preceding notes were quoted from various
properties. volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
In A.M. No. 99-10-05-0 dated January 30, 2019 bar examinations.
2001(Re: Procedure in Extra-Judicial The observation is well taken, Neither
Foreclosure of Mortgage), therefore, the Court, Act No. 3135 nor the previous circulars
acting on letters containing observations and issued by the Court governing
proposals about the rules of procedure to be extrajudicial foreclosures provide for a
undertaken in the extrajudicial foreclosure of similar requirement. The two-bidder
mortgages as embodied in Circular A.M. No. 99- rule is provided under P.D. No. 1594
10-05-0 (inclusive of the bidding requirements, and its implementing rules with respect
and the publication of notices), expressly to contracts for government
resolved: infrastructure projects because of the
public interest involved. Although
“After due deliberation on the there is a public interest in the
points raised by the parties and regularity of extrajudicial foreclosure of
considering the report of the mortgages, the private interest is
OCA, the Court resolved as predominant. The reason, therefore,
follows: for the requirement that there must be
at least two bidders is not as exigent as

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 26

in the case of contracts for government of the court or the written

infrastructure projects. consent of the other spouse. In
the absence of such authority or
On the other hand, the new consent, the disposition or
requirement will necessitate encumbrance shall be void.
republication of the notice of However, the transaction shall
auction sale in case only one be
bidder appears at the scheduled
auction sale. This is not only NOTE –
costly but, more importantly, it
would render naught the The preceding notes were quoted from various
binding effect of the publication volumes of the S.C.R.A and are provided
of the originally scheduled sale. GRATUITOUSLY to those preparing to take the
Prior publication of the 2019 bar examinations.
extrajudicial foreclosure sale in construed as a continuing offer
a newspaper of general on the part of the consenting
circulation operates as spouse and the third person, and
constructive notice to the whole may be perfected as a binding
world.” (Boston Equity xxx vs. contract upon the acceptance by
Del Rosario, (846- SCRA 565- the other spouse or
568) authorization by the court before
the offer is withdrawn by either
5. The findings of the CA on the lack of Rosie’s or both offerors.”
written consent to the REM and its amendment
stand unrefuted. Such findings warrant the What the CA declared void was the REM. Since
nullification not only of the REM and its the REM was an encumbrance on the conjugal
amendment, but also of all the proceedings properties, the contracting thereof by Edgardo
taken to foreclose the REM. Such invalidity sans the written consent of Rosie rendered only
applied to the entire mortgage, even to the the REM void and legally inexistent. The
portion corresponding to the share of Edgardo petitioners could still recover the loan from the
in the conjugal estate. Article 124 of the Family conjugal partnership in a proper case for the
Code clearly so provides: purpose. Where the mortgage was not valid,
the principal obligation that the mortgage
“Art. 124. The administration guaranteed was not thereby rendered null and
and enjoyment of the conjugal void. The liability of the debtor under the
partnership shall belong to both principal contract of the loan subsisted despite
spouses jointly. In case of the illegality of the REM. That obligation
disagreement, the husband’s matured and became demandable in
decision shall prevail, subject to accordance with the stipulation pertaining to it.
recourse to the court by the wife What was lost was only the right to foreclose
for proper remedy, which must the REM as a special remedy for satisfying or
be availed of within five years settling the debt that was the principal
form the date of the contract obligation. In case of its nullity, the mortgage
implementing such decision. deed remained as evidence or proof of the
debtor’s personal obligation, and the amount
In the event that one spouse is due to the creditor could be enforced in an
incapacitated or otherwise ordinary action. (Boston Equity xxx vs. Del
unable to participate in the Rosario, (846- SCRA 573-575)
administration of the conjugal
properties, the other spouse 6. There is no dispute that Mahinay had a lien
may assume sole powers of on the property subsequent to the mortgage.
administration. These powers Consequently, he had the right to buy it back
do not include disposition or from the purchaser at the sale, Dura Tire in this
encumbrance without authority case, “from and at any time within the term of

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 27

one year from and after the date of the sale.”
Section 6 of Act No. 3135 provides:
In all cases in which an
extrajudicial sale is made under
the special power hereinbefore
referred to, the debtor, his
successors-in-interest or any
judicial creditor or judgment
creditor of said debtor, or any
person having a lien on the
property subsequent to the
mortgage or deed of trust under
which the property is sold, may
redeem the same at any time
within the term of one year from
and after the date of the sale;
and such redemption shall be
governed by the provisions of
sections four hundred and sixty-
four to four hundred and sixty-
six, inclusive, of the Code of Civil
Procedure, in so far as these are
not inconsistent with the
provisions of this Act.
year period of redemption is fixed, hence, non-
extendible, to “avoid prolonged economic
uncertainty over the ownership of the thing
sold.”
Since the period of redemption is fixed, it
cannot be tolled or interrupted by the filing of
cases to annul the foreclosure sale or to
enforce the right of redemption. “To rule
otherwise . . . would constitute a dangerous
precedent. A likely offshoot of such a ruling is
the institution of frivolous suits for annulment
of mortgage intended merely to give the
mortgagor more time to redeem the
mortgaged property. (Mahinay vs. Dura Tire &
Rubber Industries, Inc., 825 SCRA 392 –393)
7. In Mobil Oil Philippines, Inc. v. Diocares, et
al. (29 SCRA 656), the trial court refused to
order the foreclosure of the mortgaged
properties on the ground that while an
unregistered REM contract created a personal
obligation between the parties, the same did
not validly establish a REM. In reversing the
trial court, the Court said:

The “date of the sale” referred to in Section 6 “The lower court predicated its
is the date the certificate of sale is registered inability to order the foreclosure
with the Register of Deeds. This is because the in view of the categorical nature
sale of registered land does not “take effect as of the opening sentence of
a conveyance, or bind the land’ until it is [Article 2125] that it is
registered.” indispensable, “in order that a
mortgage may be validly
NOTE – constituted, that the document
in which it appears be recorded
The preceding notes were quoted from various in the Registry of Property.”
volumes of the S.C.R.A and are provided Note that it ignored the
GRATUITOUSLY to those preparing to take the succeeding sentence: “If the
2019 bar examinations. instrument is not recorded, the
mortgage is nevertheless binding
The right of redemption being statutory, the between the parties.” Its
mortgagor may compel the purchaser to sell conclusion, however, is that
back the property within the one (1)-year what was thus created was
period under Act No. 3135. merely “a personal obligation
but did not establish a [REM].”
If the purchaser refuses to sell back the
property, the mortgagor may tender payment Such a conclusion does not
to the Sheriff who conducted the foreclosure commend itself for approval.
sale. The codal provision is clear and
explicit. Even if the instrument
As early as 1956, this Court held in Mateo vs. were not recorded, “the
Court of Appeals (99 Phil. 1042) that “the right mortgage is nevertheless binding
of redemption . . .must . . . be exercised in the between the parties.” The law
mode prescribed by the statute.” The one (1)- cannot be any clearer. Effect

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 28

must be given to it as written. general rule, or its exception, renders the

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.
foreclosure proceedings null and void. (Global
Holiday Ownership Corp. vs. Metrobank, 590
SCRA 188 cited in Paradigm Dev. Corp. of the
Phil. vs. BPI, 826 SCRA 294)
OBLIGATIONS –

NOTE – 1. In Ajax Marketing and Development

Corporation vs. CA (248 SCRA 222), the Court
The preceding notes were quoted from various had already ruled that:
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the The well-settled rule is that
2019 bar examinations. novation is never presumed.
Novation will not be allowed
8. A dragnet clause is a stipulation in a REM unless it is clearly shown by
contract that extends the coverage of a express agreement, or by acts of
mortgage to advances or loans other than equal import. Thus, to effect an
those already obtained or specified in the objective novation it is imperative
contract. Where there are several advances, that the new obligation expressly
however, a mortgage containing a dragnet declare that the old obligation is
clause will not be extended to cover future thereby extinguished, or that the
advances, unless the document evidencing the new obligation be on every point
subsequent advance refers to the mortgage as incompatible with the new one.
providing security therefor or unless there are In the same vein, to effect
clear and supportive evidence to the contrary.
NOTE –
This is especially true in this case where the
advances were not only several but were The preceding notes were quoted from various
covered by different sub-facilities. (Paradigm volumes of the S.C.R.A and are provided
Development Corporation of the Philippines GRATUITOUSLY to those preparing to take the
vs. BPI, 826 SCRA 288) 2019 bar examinations.
a subjective novation by a change
In the absence of clear, supportive evidence of in the person of the debtor it is
a contrary intention, a mortgage containing a necessary that the old debtor be
“dragnet clause” will not be extended to cover released expressly from the
future advances unless the document obligation, and the third person
evidencing the subsequent advance refers to or new debtor assumes his place
the mortgage as providing security therefor. in the relation. There is no
(Paradigm Development Corporation of the novation without such release as
Philippines vs. BPI, 826 SCRA 290) the third person who has
assumed the debtor’s obligation
9. We restate: the general rule is that personal becomes merely a co-debtor or
notice to the mortgagor in extra-judicial surety. (Paradigm Development
foreclosure proceedings is not necessary, and Corp. of the Phil. vs. BPI, 826
posting and publication will suffice. Sec. 3 of SCRA 280 – 295)
Act 3135 governing extra-judicial foreclosure of
[REMs], as amended by Act 4118, requires only 2. Solidary liability under Philippine law is not
posting of the notice of sale in three public to be inferred lightly but must be clearly
places and the publication of that notice in a expressed. Under Article 1207 of the Civil
newspaper of general circulation. The Code, there is solidary liability when “the
exception is when the parties stipulate that obligation expressly so states, or when the law
personal notice is additionally required to be or the nature of the obligation requires
given the mortgagor. Failure to abide by the solidarity.”

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 29
The Compromise Agreement provided:
25. Affiliates and Successors
This Agreement and the rights,
obligations, and covenants
contained herein shall inure to
the benefit of and be binding
upon The Plaintiffs and Settling
Defendants and their respective
subsidiaries, affiliates, controlled
and related entities, successors,
and assigns.
Clearly, the Compromise Agreement did not
impose solidary liability on the parties’
subsidiaries, affiliates, controlled, and related
entities, successors, and assigns but merely
allowed them to benefit from its effects. Thus,
respondent Judge Omelio gravely abused his
discretion in holding that the petitioners’
subsidiaries and affiliates were solidarily liable
under the Compromise Agreement.
Furthermore, there is no reason for respondent
court to pierce the veil of corporate fiction.
There is hardly any evidence to show that
petitioners abused their separate juridical
identity to evade their obligation under the
Compromise Agreement. (Chiquita Brands,
Inc., et al. vs. Omelio, et al., 826 SCRA 256 –
265)
RECONVEYANCE vs. ANNULMENT OF TITLE –
A complaint for reconveyance is an action
which admits the registration of title of
another party but claims that such registration
was erroneous or wrongful. It seeks the
transfer of the title to the rightful and legal
owner, or to the party who has a superior right
over it, without prejudice to innocent
purchasers in good faith. It seeks the transfer
of a title issued in a valid proceeding. The relief
prayed for may be granted on the basis of
intrinsic fraud – fraud committed on the true
owner instead of fraud committed on the
procedure amounting to lack of jurisdiction.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
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GRATUITOUSLY to those preparing to take the
2019 bar examinations.
An action for annulment of title questions the
validity of the title because of lack of due
process of law. There is an allegation of nullity
in the procedure and thus the invalidity of the
title that is issued. (Aboitiz vs. Po, 825 SCRA
475)
A complaint for reconveyance is a remedy
where the plaintiff argues for an order for the
defendant to transfer its title issued in a
proceeding not otherwise invalid. The relief
prayed for may be granted on the basis of
intrinsic rather than extrinsic fraud; that is,
fraud committed on the real owner rather than
fraud committed on the procedure amounting
to lack of jurisdiction.
An action for annulment of title, on the other
hand, questions the validity of the grant of title
on grounds which amount to lack of due
process of law. The remedy is premised in the
nullity of the procedure and thus the invalidity
of the title that is issued. (Aboitiz vs. Po, 825
SCRA 479)
SALES –
1. In Hian v. Court of Tax Appeals (109 SCRA
470), this Court construed an as-is-where-is
stipulation as pertaining to the “physical
condition” of the thing sold and “not to [its]
legal situation.”
As further explained in National Development
Company vs. Madrigal Wan Hai Lines
Corporation (412 SCRA 375):
In Hian v. Court of Tax Appeals, we had
the occasion to construe the phrase
“as is, where is” basis, thus:
“We cannot accept the
contention in the Government’s
Memorandum of March 31, 1976
that Condition No. 5 in the
Notice of Sale to the effect that
“The above mentioned articles
(the tobacco) are offered for sale
‘AS IS’ and the Bureau of
Customs gives no warranty as to
their condition’ relieves the
Bureau of Customs of liability for
 30
the storage fees in dispute. As
we understand said Condition
No. 5, it refers to the physical
condition of the tobacco and not
to the legal situation in which it
was at the time of the sale, as
could be implied from the right
of inspection to prospective
bidders under Condition No. 1.”
The phrase “as is, where is” basis pertains
solely to the physical condition of the thing
sold, not to its legal situation. In the case at
bar, the US tax liabilities constitute a potential
lien which applies to NSCP’s legal situation, not
to its physical aspect. Thus, respondent as a
buyer, has no obligation to shoulder the same.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Thus, in Asset Privatization v. T.J. Enterprises
(587 SCRA 481), the as-is-where-is stipulation
was understood as one which “merely
describes the actual state and location of the
machinery and equipment sold, and nothing
else. Features that may be physical but which
can only be revealed after examination by
persons with technical competence cannot be
covered by as-is-where-is stipulations. A
buyer cannot be considered to have agreed
“to take possession of the things sold ‘in the
condition where they are found and from the
place where they are located” if the critical
defect is one which he or she cannot even
readily sense.
(Poole-Blunden vs. Union Bank of the Phil.,
847 SCRA 165-166)
2. This Court is not unaware of the practice by
many vehicle buyers and second-hand car
traders of not transferring registration and
ownership over vehicles purchased from their
original owners, and rather instructing the
latter to execute and sign in blank deeds of sale
covering these vehicles, so that these buyers
and dealers may freely and readily trade or re-
sell the vehicles in the second-hand car market
without difficulty. This way, multiple transfers,
sales, or trades of the vehicle using these
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undated deeds signed in blank become
possible, until the latest purchaser decides to
actually transfer the certificate of registration
in his name. For many car owners-sellers, this
is an easy concession; so long as they actually
receive the sale price, they will sign sale deeds
in blank and surrender them to the buyers or
dealers; and for the latter, this is convenient
since they can "flip'' or re-sell the vehicles to
the public many times over with ease, using
these blank deeds of sale.
In many cases as well, busy vehicle owners
selling their vehicles actually leave them,
together with all the documents of title, spare
keys, and deeds of sale signed in blank, with
second-hand car traders they know and trust,
in order for the latter to display these vehicles
for actual viewing and inspection by
prospective buyers at their lots, warehouses,
garages, or showrooms, and to enable the
traders to facilitate sales on-the-spot, as-is-
where-is, without having to inconvenience the
owners with random viewings and inspections
of their vehicles.
For this kind of arrangement, an agency
relationship is created between the vehicle
owners, as principals, and the car traders, as
agents. The situation is akin to an owner of
jewelry who sells the same through an agent,
who receives the jewelry in trust and offers it
for sale to his/her regular clients; if a sale is
made, the agent takes payment under the
obligation to remit the same to the jewelry
owner, minus the agreed commission or other
compensation.
Since Ong was able to sell the subject vehicle to
Chua, petitioner thus ceased to be the owner
thereof. Nor is he entitled to the possession of
the vehicle; together with his ownership,
petitioner lost his right of possession over the
vehicle. His
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
argument that respondent is a buyer in bad
faith, when the latter nonetheless proceeded
 31

with the purchase and registration of the Instead, following the ruling of this Court in
vehicle on March 7, 2011, despite having been Harrison Motors Corporation v. Navarro (331
apprised of petitioner's earlier November, 2010 SCRA 202), Article 1599 of the Civil Code
"Failed to Return Vehicle" report filed with the applies when an express warranty is breached.
PNP-HPG, is unavailing. Petitioner had no right The provision reads:
to file said report, as he was no longer the
owner of the vehicle at the time; indeed, his Where there is a breach of
right of action is only against Ong, for collection warranty by the seller, the buyer
of the proceeds of the sale. (Siy vs. Tomlin, may, at his election:
824 SCRA 120-122)
NOTE –
3. As held in Carrascoso, Jr. vs. CA (477 SCRA
666), the following requisites must be The preceding notes were quoted from various
established in order to prove that there is an volumes of the S.C.R.A and are provided
express warranty in a contract of sale: (1) the GRATUITOUSLY to those preparing to take the
express warranty must be an affirmation of fact 2019 bar examinations.
or any promise by the seller relating to the
subject matter of the sale; (2) the natural (1) Accept or keep the goods
effect of the affirmation or promise is to induce and set up against the seller,
the buyer to purchase the thing; and (3) the the breach of warranty by
buyer purchases the thing relying on the way of recoupment in
affirmation or promise. diminution or extinction of
the rice;
A warranty is a statement or representation
made by the seller of goods –
(2) Accept or keep the goods
contemporaneously and as part of the
and maintain an action
contract of sale – that has reference to the
character, quality or title of goods; and is against the seller for
issued to promise or undertake to insure that damages for the breach of
certain facts are or shall be as the seller warranty;
represents them. A warranty is not necessarily
written. It may be oral as long as it is not given (3) Refuse to accept the goods,
as a mere opinion or judgment. Rather, it is a and maintain an action
positive affirmation of a fact that buyers rely against the seller for
upon, and that influences or induces them to damages for the breach of
purchase the product. warranty;

There being an express warranty, this Court (4) Rescind the contract of sale
holds that the prescription period applicable to and refuse to receive the
the instant case is that prescribed for breach of
goods or if the goods have
an express warranty. The applicable
already been received, return
prescription period is therefore that which is
them or offer to return them
specified in the contract; in its absence, that
period shall be based on the general rule on the to the seller and recover the
rescission of contracts: four years (see Article price or any part thereof
1389, Civil Code). In this case, no prescription which has been paid.
period specified in the contract between the
parties has been put forward. Quiñones filed When the buyer has claimed and
the instant case on 6 September 1996 or been granted a remedy in
several months after the last delivery of the anyone of these ways, no other
thing sold. His filing of the suit was well within remedy can thereafter be
the prescriptive period of four years; hence, his granted, without prejudice to the
action has not prescribed. provisions of the second
paragraph of Article 1191.

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 32
Where the goods have been
delivered to the buyer, he cannot
rescind the sale if he knew of the
breach of warranty when he
accepted the goods without
protest, or if he fails to notify the
seller within a reasonable time of
the election to rescind, or if he
fails to return or to offer to
return the goods to the seller in
substantially as good condition
as they were in at the time the
ownership was transferred to the
buyer. But if deterioration or
injury of the goods is due to the
breach of warranty, such
deterioration or injury shall not
prevent the buyer from returning
or offering to return the goods to
the seller and rescinding the sale.
Where the buyer is entitled to
rescind the sale and elects to do
so, he shall cease to be liable for
the price upon returning or
offering to return the goods. If
the price or any part thereof has
already been paid, the seller
shall be liable to repay so much
thereof as he has been paid,
concurrently with the return of
the goods, or immediately after
an offer to return the goods in
exchange for repayment of the
price.
Where the buyer is entitled to
rescind the sale and elects to do
so, if the seller refuses to accept
an offer of the buyer to return
the goods, the buyer shall
thereafter be deemed to hold the
goods as bailee for the seller, but
subject to a lien to secure the
payment of any portion of the
price which has been paid, and
with the remedies for the
enforcement of such lien allowed
to an unpaid seller by Article
1526.
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NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
(5) In the case of breach of
warranty of quality, such
loss, in the absence of special
circumstances showing
proximate damage of a
greater amount, is the
difference between the value
of the goods at the time of
delivery to the buyer and the
value they would have had if
they had answered to the
warranty.
According to the provision, recoupment refers
to the reduction or extinction of the price of
the same item, unit, transaction or contract
upon which a plaintiff’s claim is founded.
(Philippine Steel Coating Corp. vs. Quiñones,
(823 SCRA 637 –646)
4. The sale (or encumbrance) of conjugal
property without the consent of the husband
was not merely voidable but void; hence, it
could not be ratified. A void contract is
equivalent to nothing and is absolutely
wanting in civil effects; it cannot be validated
either by ratification or prescription. (Fuentes
vs. Roca, 618 SCRA 702 cited in Dadis vs. De
Guzman, et al. 826 SCRA 518)
TRADEMARK –
1. The Intellectual Property Code defines a
“mark” as “any visible sign capable of
distinguishing the goods (trademark) or
services (service mark) of an enterprise.” Case
law explains that trademarks deal with the
psychological function of symbols and the
effect of these symbols on the public at large.”
It is a merchandising shortcut, and, “whatever
the means employed, the aim is the same to
convey through the mark, in the minds of
potential customers, the desirability of the
commodity upon which it appears.” Thus, the
protection of trademarks as intellectual
property is intended not only to preserve the
 33
goodwill and reputation of the business
established on the goods or services bearing
the mark through actual use over a period of
time, but also to safeguard the public as
consumers against confusion on these goods
or services.
2. As viewed by modern authorities on
trademark law, trademarks perform three (3)
distinct functions: (1) they indicate origin or
ownership of the articles to which they are
attached; (2) they guarantee that those
articles come up to a certain standard of
quality; and (3) they advertise the articles
they symbolize.
In Berries Agricultural Co., Inc. v. Abyadang
(647 SCRA 517), this Court explained that “the
ownership of a trademark is acquired by its
registration and its actual use by the
manufacturer or distributor of the goods made
available to the purchasing public. xxx A
certificate of registration of a mark, once
issued,
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
constitutes prima facie evidence of the validity
of the registration, of the registrant’s
ownership of the mark, and of the registrant’s
exclusive right to use the same in connection
with the goods or services and those that are
related thereto specified in the certificate.”
However, “the prima facie presumption
brought about by the registration of a mark
may be challenged and overcome, in an
appropriate action, by proof of, among others,
non-use of the mark, except when excused.
The actual use of the mark representing the
goods or services introduced and transacted in
commerce over a period of time creates that
goodwill which the law seeks to protect. For
this reason, the IP Code, under Section 124.2,
requires the registrant or owner of a registered
mark to declare “actual use of the mark” (DAU)
and present evidence of such use within the
prescribed period. Failing in which, the IPO DG
may cause the motu propio removal from the
register of the mark’s registration.
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The IP Code and the Trademark Regulations
have not specifically defined “use.” However, it
is understood that the “use” which the law
requires to maintain the registration of a mark
must be genuine, and not merely token. (W
Land Holdings, Inc. vs. Starwood Hotels …, 847
SCRA 414-418)
3. The following shall be accepted as proof of
actual use of the mark: (a) labels of the mark
as these are used; (b) downloaded pages from
the website of the applicant or registrant
clearly showing that the goods are being sold
or the services are being rendered in the
Philippines; (c) photographs (including digital
photographs printed on ordinary paper) of
goods bearing the marks as these are actually
used or of the stamped or marked container of
goods and of the establishment/s where the
services are being rendered; (d) brochures or
advertising materials showing the actual use of
the mark on the goods being sold or services
being rendered in the Philippines; (e) for
online sale, receipts of sale of the goods or
services rendered or other similar evidence of
use, showing that the goods are placed on the
market or the services are available in the
Philippines or that the transaction took place
in the Philippines; (f) copies of contracts for
sevices showing the use of the mark. (ditto, p.
423)
4. Computer printouts of the drawing or
reproduction of marks will not be accepted as
evidence of use. (ditto, p. 423)
5. Goodwill is no longer confined to the
territory of actual market penetration; it
extends to zones where the marked article has
been fixed in the public mind through
advertising. Whether in the print, broadcast
or electronic communications medium,
particularly on the Internet, advertising has
paved the way for growth and expansion of
the product by creating and earning a
reputation that crosses over borders, virtually
turning the whole world into one vast
marketplace. (ditto, p. 426)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
 34
2019 bar examinations.
6. It must be emphasized, however, that the
mere exhibition of goods or services over the
Internet, without more, is not enough to
constitute actual use. To reiterate, the “use”
contemplated by law is genuine use – that is, a
bona fide kind of use tending towards a
commercial transaction in the ordinary course
of trade. Since the Internet creates a
borderless marketplace, it must be shown that
the owner has actually transacted, or at the
very least, intentionally targeted customers of
a particular jurisdiction in order to be
considered as having used the trademark in
the ordinary course of his trade in that
country. A showing of an actual commercial
link to the country is therefore imperative.
Otherwise, an unscrupulous registrant would
be able to maintain his mark by the mere
expedient of setting up a website, or by posting
his goods or services on another’s site,
although no commercial activity is intended to
be pursued in the Philippines. This type of
token use renders inutile the commercial
purpose of the mark, and hence, negates the
reason to keep its registration active. As the IP
Code expressly requires, the use of the mark
must be “within the Philippines.” (ditto, p.
427)
As earlier intimated, mere use of a mark on a
website which can be accessed anywhere in the
world will not automatically mean that the
mark has been used in the ordinary course of
trade of a particular country. Thus, the use of
mark on the internet must be shown to result
into a within-State sale, or at the very least,
discernibly intended to target customers that
reside in that country. This being so, the use of
the mark on an interactive website, for
instance, may be said to target local customers
when they contain specific details regarding or
pertaining to the target State, sufficiently
showing an intent towards realizing a within-
State commercial activity or interaction.
These details may constitute a local contact
phone number, specific reference being
available to local customers, a specific local
webpage, whether domestic language and
currency is used on the website, and/or
whether domestic payment methods are
accepted. (ditto, p. 430)
7. To establish trademark infringement, the
*No part of this material may be reproduced in any manner or form without permission by the Lecturer and
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following elements must be shown: (a) the
validity of plaintiff’s mark; (b) the plaintiff’s
ownership of the mark; and (c) the use of the
mark or its colorable imitation by the alleged
infringer results in “likelihood of confusion.”
(Ong vs. People, 661 SCRA 104 [2011]).
8. The first condition of the proscription
requires resemblance or similarity between a
prospective mark and an earlier mark.
Similarity does not mean absolute identity of
marks. To be regarded as similar to an earlier
mark, it is enough that a prospective mark be
a colorable imitation of the former. Colorable
imitation denotes such likeness in form,
content, words, sound, meaning, special
arrangement or general appearance of one
mark with respect to another as would likely
mislead an average buyer in the ordinary
course of purchase.
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
In determining whether there is similarity or
colorable imitation between two marks,
authorities employ either: (a) the dominancy
test or (b) the holistic test. In Mighty
Corporation vs. E. & J. Gallo Winery (434 SCRA
473), we distinguished between the two tests
as follows:
The Dominancy Test focuses on the
similarity of the prevalent features of
the competing trademarks which
might cause confusion or deception,
and thus infringement. If the
competing trademark contains the
main, essential or dominant features
of another, and confusion or
deception is likely to result,
infringement takes place. Duplication
or imitation is not necessary; nor is it
necessary that the infringing label
should suggest an effort to imitate.
The question is whether the use of the
marks involved is likely to cause
confusion or mistakes in the mind of
the public or deceive purchasers.
On the other hand, the Holistic Test
 35

requires that the entirety of the marks
is question be considered in resolving
confusing similarity. Comparison of
words is not the only determining
factor. The trademarks in their
entirety as they appear in their
respective labels or hang tags must
also be considered in relation to the
goods to which they are attached. The
discerning eye of the observer must
focus not only on the predominant
words but also on the other features
appearing in both labels in order that
he may draw his conclusion whether
one is confusingly similar to the other.
bearing a registered trademark is connection
with the sale, distribution or advertising of
goods or services which is likely to cause
confusion, mistake or deception among the
buyers or consumers can be considered as
trademark infringement. (Republic Gas
Corporation vs. Petron Corporation, 698 SCRA
666)
TRUSTS –
1. Article 1456 of the Civil Code provides that a
person acquiring a property through fraud
becomes an implied trustee of the property’s
true and lawful owner.

There are currently no fixed rules as to which of An implied trust is based on equity and is
the two tests can be applied in any given case. either: (1) a constructive trust, or (2) a
However, recent case law on trademark seems resulting trust. A resulting trust is created by
to indicate an overwhelming judicial preference implication of law and is presumed as
towards applying the dominancy test. (UFC intended by the parties. A constructive trust is
Phil, Inc. vs. Barrio Fiesta Mfg. Corp., 781 SCRA created by force of law such as when a title is
424) registered in favor of a person other than the
true owner. (Salvatierra vs. CA, 261 SCRA 45)
The second condition of the proscription
requires that the prospective mark pertain to The implied trustee only acquires the right “to
goods or services that are either identical, the beneficial enjoyment of the property.” The
similar or related to the goods or services legal title remains with the true owner. In
represented by the earlier mark. While there Crisostomo v. Garcia, Jr. (481 SCRA 402):
can be no quibble that the curl snack product
for which the registration of the OK Hotdog Art. 1456 of the Civil Code
Inasal mark is sought cannot be considered as provides:
identical or similar to the restaurant services
represented by the Mang Inasal mark, there is If property is acquired through
ample reason to conclude that the said product mistake or fraud, the person
and services may nonetheless be regarded as obtaining it is by force or law,
related to each other. considered a trustee of an
implied trust for the benefit of
Related goods and services are those that, the person from whom the
though non-identical or non-similar, are so property comes.
logically connected to each other that they
may reasonably be assumed to originate from Thus, it was held that when a
one manufacturer or from economically-linked party uses fraud or concealment
manufacturers. (Mang Inasal Phil., Inc. vs. IFP to obtain a certificate of title of
Manufacturing Corp., 827 SCRA 472-476) property, a constructive trust is
created in favor of the defrauded
NOTE – party.

The preceding notes were quoted from various Constructive trusts are “created
volumes of the S.C.R.A and are provided by the construction of equity in
GRATUITOUSLY to those preparing to take the order to satisfy the demands of
2019 bar examinations. justice and prevent unjust
enrichment. They arise contrary
9. The mere unauthorized use of a container to intention against one who, by

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Magnificus Juris Reviews and Seminars, Inc. (“Magnificus”).
 36

fraud, duress or abuse of of Title is based on an implied

confidence, obtains or holds the
legal right to property which he
ought not, in equity and good
conscience, to hold.”
When property is registered in
another’s name, an implied or
constructive trust is created by
law in favor of the true owner.
The action for reconveyance of
the title to the rightful owner
prescribes in 10 years from the
issuance of the title.”
(Crisostomo vs. Garcia, 481
SCRA 412-413)
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
Thus, the law creates a trust in favor of the
property’s true owner. (Aboitiz vs. Po, 825
SCRA 481-482)
The prescriptive period to enforce this trust is
10 years from the time the right of action
accrues. Article 1144 of the Civil Code
provides:
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.
In an action for reconveyance, the right of
action accrues from the time the property is
registered. (Crisostomo vs. Garcia, 481 SCRA
406)
2. This Court, however, ruled that the right of
action accrued from the time the property was
registered because registration is the act that
signifies that the adverse party repudiates the
implied trust:
In the case at bar, respondent’s
action which is for
Reconveyance and Cancellation
trust under Art. 1456 of the Civil
Code since he averred in his
complaint that through fraud
petitioners were able to obtain
a Certificate of Title over the
property. He does not seek the
annulment of a voidable
contract whereby Articles 1390
and 1391 of the Civil Code
would find application such that
the cause of action would
prescribe in four years.
An action for reconveyance
based on implied or constructive
trust prescribes in ten years
from the alleged fraudulent
registration or date of issuance
of the certificate of title over the
property.
It is now well-settled that the
prescriptive period to recover
property obtained by fraud or
mistake, giving rise to an
implied trust under Art. 1456 of
the Civil Code, is 10 years
pursuant to Art. 1144. This ten
year prescriptive period begins
to run from the date the
adverse party repudiates the
implied trust, which repudiation
takes place when the adverse
party registers the land.
(Crisostomo vs. Garcia, 481
SCRA 412, quoted in Aboitiz vs.
Po)
Likewise, in Duque vs. Domingo (80 SCRA 654):
NOTE –
The preceding notes were quoted from various
volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.
The registration of an instrument
in the Office of the Register of
Deeds constitutes constructive
notice to the whole world, and,
therefore, discovery of the fraud
is deemed to have taken place at

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 37

the time of registration. Such

registration is deemed to be a
constructive notice that the
alleged fiduciary or trust
relationship has been
repudiated. It is now settled that
an action on an implied or
constructive trust prescribes in
ten (10) years from the date of
action accrued. The issuance of
Transfer Certificate of Title No.
7501 in 1931 to Mariano Duque
commenced the effective
assertion of adverse title for the
purpose of the statute of
limitations.

Registration of the property is a “constructive

notice to the whole world.” Thus, in
registering the property, the adverse party
repudiates the implied trust. Necessarily, the
cause of action accrues upon registration.

In Nielson & Co., Inc. vs. Lepanto Consolidated

Mining Co. (18 SCRA 1040):

Appellee is correct in its

contention that the defense of
laches applies independently of
prescription. Laches is different
from the statute of limitations.
Prescription is concerned with
the fact of delay. Whereas
laches is concerned with the
effect of delay. Prescription is a
matter of time; laches is
principally a question of inequity
of permitting a claim to be
enforced, this inequity being
founded on some change in the
condition of the property or the
relation of the parties.
Prescription is statutory; laches is
not. Laches applies in equity,
whereas prescription applies at
law. Prescription is based on
fixed time, laches is not.

NOTE –

The preceding notes were quoted from various

volumes of the S.C.R.A and are provided
GRATUITOUSLY to those preparing to take the
2019 bar examinations.

*No part of this material may be reproduced in any manner or form without permission by the Lecturer and
Magnificus Juris Reviews and Seminars, Inc. (“Magnificus”).