1.

REFORMATION
G.R. No. 232825, September 16, 2020 

ULYSSES RUDI V. BANICO, PETITIONER,

VS.
LYDIA BERNADETTE M. STAGER A.K.A BERNADETTE D. MIGUEL (SUBSTITUTED BY
HER COMPULSORY HEIRS, NAMELY: BOBBY UNILONGO I, PROSPERO UNILONGO I,
PROSPERO UNILONGO II, MARICON U. BAYOG, GLENN UNILONGO AND LUZVIMINDA
UNILONGO), RESPONDENTS.

PONENTE: LOPEZ, J.

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

Facts:
Lydia Stager owns a real property situated in Barangay Manoc-Manoc, Boracay Island.
The land adjoins the sea on its eastern part and is generally flat at the center but has an
elevated rocky northern part. Ulysses Banico bought the area suitable for building a beach
resort, it is 800 square meters of Stager’s land for the consideration of PHP 350,000. Banico’s
lawyer drafted a Deed of Absolute Sale over the said land.
Banico later discovered that the land described in the deed was the elevated rocky part
of Stager’s land and not the flat area. Banico asked Stager to make the necessary amendment
to the deed which the latter agreed to do. Stager also convinced Banico to purchase an
additional 400 square meters portion which is adjacent to the previously purchased lot. The
second lot was bought by Banico for PHP 160,000 on installment basis. Banico asked Stager to
prepare the amended deed of sale, but she refused because he still has an unpaid balance of
P12,000.00. Yet, Banico maintained that he already paid Lydia more than P160,000.00. The
matter was brought by Banico to the barangay where Stager honored her promise and executed
a new deed of sale. However, Banico refused to sign the deed because it failed to reflect the
true consideration of the transaction.
An action for specific performance and damages was brought by Banico before the
Regional Trial Court (RTC). On the course of the proceeding Stager died and was substituted by
her heirs. The RTC ordered the heirs of Stager to amend/reform the deed and execute a Deed
of Absolute Sale covering the 400 square meter land or to include the 400 square meter land in
the deed meant for the 800 square meter land. On the other hand, Banico was ordered to pay
the remaining balance for the second purchase. Both parties elevated the case to the Court of
Appeals where the court modified the decision of the RTC, denying the reformation of the deed
on the ground of prescription. The motion for reconsideration filed by both parties were denied
by the CA. The CA stated that Banico is the one to blame for the issue because it was only after
the consummation of the sale of the first lot that he decided to visit the same and because it was
his lawyer who drafted the deed. Banico filed this petition claiming that the CA erred in ruling that
the party who caused the ambiguity cannot ask to reform the contract.
Issue/s:
1. Whether or not the CA erred in ruling that the party who caused the ambiguity cannot ask
to reform the contract.
2. Whether or not the period to file an action for reformation of instrument is interrupted.
Rulings:
1. Yes, the CA erred in ruling that the party who caused the ambiguity cannot ask to reform
the contract.
The Supreme Court resolved this issue by first confirming that there is indeed a meeting of
the minds between the parties to the contract. The court also stated that the deed did not
express the true intent of the parties due to mistake in the technical description of the lot. Finally
it ruled that the lawyer's mistake in drafting the written instrument will not prevent its reformation
if the contemporaneous and subsequent acts of the parties show that their true intention was not
disclosed in the document.
A contract is a meeting of the minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. If the contract is reduced into
writing, it is considered as containing all the terms agreed upon and is presumed to set out the
true covenant of the parties. However, equity orders the reformation of a written instrument when
the real intention of the contracting parties is not expressed by reason of mistake, fraud,
inequitable conduct or accident.
An action for reformation of instrument may prosper only upon the concurrence of the
following requisites: (1) there must have been a meeting of the minds of the parties to the
contract; (2) the instrument does not express the true intention of the parties; and (3) the failure
of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable
conduct or accident. The onus probandi is upon the party who insists that the contract should be
reformed. Here, all these requisites are present.
Ulysses was able to substantiate his stance that the Deed of Absolute Sale dated February
8, 1992, did not express the true intention of the parties as to the description of the lot. There is
preponderant evidence that the real object of the contract refers to the flat terrain and not the
elevated and rocky northern part of Lot No. 199, as revealed in the proven and admitted facts as
well as the contemporaneous and subsequent acts of the parties. Corollarily, there is no reason
to consider against Ulysses the mistake of his counsel. As the RTC aptly observed, the parties
are not experts in comprehending technical description of the land. The fact that it was Ulysses'
counsel who prepared the deed of sale will not prevent the reformation of the instrument.
2. Yes, the period to file an action for reformation of instrument is interrupted because of
written acknowledgement of the obligation.
A suit for reformation of an instrument may be barred by lapse of time. The prescriptive period
for actions based upon a written contract and for reformation of an instrument is ten years. The
prescription of actions is interrupted when they are filed before the court, when there is a written
extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt
by the debtor. The effect of interruption is to renew the obligation and to make the full period of
prescription run again.

As discussed earlier, Ulysses brought the dispute before the barangay where Lydia honored the
transaction over the 800-square meter lot and presented a notarized Deed of Absolute Sale
dated December 6, 2001, containing the accurate description of the lot. This is tantamount to an
explicit acknowledgement of the obligation to execute an amended deed of sale. Applying the
above precepts, the ten-year prescriptive period commenced to run anew from December 6,
2001. Thus, the complaint filed on July 9, 2002, is well within the prescriptive period.
2. AUTONOMY OF CONTRACTS

G.R. No. 223621, June 10, 2020

FATHER SATURNINO URIOS UNIVERSITY (FSUU) INC., AND/OR REV. FR. JOHN
CHRISTIAN U. YOUNG - PRESIDENT, PETITIONERS, VS. ATTY. RUBEN B. CURAZA,
RESPONDENT.

CATHOLIC EDUCATIONAL ASSOCIATION OF THE PHILIPPINES, PETITIONER-IN-

INTERVENTION.

PONENTE: LEONEN, J.

Nature of Action:

Facts:

Atty. Curaza is a part-time employee of Father Saturnino Urios University who have been
teaching to the university for 11 years, since 1979 until 2009, with different loads and some
breaks in between semesters.

On November 21, 2008, Atty. Curaza wrote a letter to the university for an early retirement
pursuant to the University's Personnel Policy and Procedure and the Retirement Pay Law. His
request was not approved stating that the university is not granting retirement benefits to part-
time teachers. He reiterated his claim to the university but to no avail. He filed a complaint
against the University, its president and vice president for retirement benefits, damages, and
attorney's fees before the National Labor Relations Commission.

The University argued in its position paper that Atty. Curaza was only a part-time instructor, and
not a permanent employee. The Labor Arbirter ruled in favor of Atty. Curaza which was affirmed
by the NLRC and the Court of Appeals. When the case reached the Supreme Court, the Catholic
Educational Association of the Philippines filed a motion for leave to intervene. The organization
stated that it has 667-member schools, with more than 35,000 personnel, that will be adversely
affected by a precedent declaring that part-time faculty are entitled to retirement benefits, which
"would be the death knell to most" of its member schools. Hence this petition.

Issue/s:
Rulings:
3. DAMAGES

4. CONTRACT OF LEASE
5. NOVATION
G.R. No. 228704 December 2, 2020

DIOSA ARRIVAS, Petitioner,

v.
MANUELA BACOTOC, Respondent.

FIRST DIVISION
Ponente: PERALTA, C.J

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

Facts:

Diosa Arrivas and Manela Bacotoc are both are engaged in the business of buying and
selling of jewelries. Arrivas and Bacotoc had a transaction involving a male’s ring. Arrivas asked
Bacotoc if she could personally bring the ring to a client who was willing to pay a price ranging
from PHP 50,000.00 to PHP 80,000.00, to which the latter agreed. Bacotoc promised to return
the ring if the client would not buy it or immediately deliver the payment if the buyer decides to
purchase. They agreed to execute a trust receipt which was personally signed by them.

Arrivas became unreachebale, it is only after two weeks that Bacotoc was able to meet
with Arrivas where the latter promised to pay the ring in thirty days. However, after the lapse of
the period Arrivas failed to deliver the payment. Arrivas pleaded for reconsideration promising to
pay the price in installments but to no payment was made. A demand letter was sent to Arrivas
for the payment of the PHP 75,000.00. Arrivas promised to pay, however, she again failed to
comply.

On the version of Arrivas, she stated that she made a partial payment of PHP 20,000.00
from her own pocket because the clients, Virgie Valencia and Letty Espinosa, did not appear
after the lapse of two days as agreed in the trust receipt.

Arrivas was charged with Estafa to which she pleaded not guilty. The Regional Trial Court (RTC)
decided against Arrivas. She appealed the decision to the Court of Appeals (CA) which it
affirmed. A motion for reconsideration was subsequently denied by the CA, hence this petition.
In the petition, Arrivas ontended that there was no demand made by Bacotoc prior to the partial
payment of P20,000.00. Thus, the trust relationship between them was novated, and it was
converted into one between a debtor and a creditor. Basing on this premise, Arrivas contends
that Article 1292 of the Civil Code should have been applied since a contract of sale novated the
principal obligation of trust, and this was before the consummation of the crime of Estafa.

Issue/s: Whether or not there was novation of the principal obligation of trust into a debtor-
creditor.
Rulings:
No, there was novation of the principal obligation of trust into a debtor-creditor.
Novation will not apply even if the P20,000.00 was made before demand. Novation is
defined as the extinguishment of an obligation by the substitution or change of the obligation by
a subsequent one which tenninates the first, either by changing the object or principal
conditions, or by substituting the person of the debtor, or subrogating a third person in the rights
of the creditor.
Article 1292 of the Civil Code on novation further provides: Article 1292. In order that an
obligation may be extinguished by another which substitute the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. It is well settled that novation is never presumed - novatio non
praesumitur. As the party alleging novation, the onus of showing clearly and unequivocally that
novation had indeed taken place rests on the petitioner. This, however, she failed to do.

6. FORM OF CONTRACT
G.R. No. 231936 December 2, 2020

FIL-ESTATE PROPERTIES, INC.,

v.
HERMANA REALTY, INC., Respondent.

Second DIVISION
Ponente: LAZARO-JAVIER, J.

Nature of Action: Petition for Review

Facts:

Jose C. Alvarez, chairperson of respondent Hermana Realty, Inc. (HRI), placed an option
to purchase one condominium unit in Fil-Estate Properties, Inc. 's (FEPI) West Tower
Condominium Corporation. FEPI and HRI executed a contract to sell the unit for
P20,998,400.00. After payment FEPI executed an undated and unnotarized Deed of Absolute
Sale in favor of HRI pending the payment of Documentary Stamp Tax (DST) and other
requirements. HRI demanded for the delivery upon payment of full price. Due to FEPI’s refusal
to perform its obligation caused Century Properties, Inc. (CPI) to withdraw its offer.

HRI filed with the Housing and Land Use Regulatory Board Expanded National Capital
Region Field Office (HLURB-ENCRFO) a complaint against FEPI for specific performance with
damages and attorney's fees. HLURB-ENCRFO ruled in favor of HRI and it affirmed with
modification its decision on appeal. The Office of the President affirmed the HLURB-ENCRFO’s
decision and it denied the motion for reconsideration. The Court of Appeals (CA) ruled in favor of
HRI and denied FEPI's motion for reconsideration.

In its petition, FEPI seeks affirmative relief from the Supreme Court. It contended that
HRI's payment of DST and local transfer taxes is a condition sine qua non to the delivery of the
owner's duplicate copy of the CCT per the parties' contract to sell. Without such, HRI's right to
demand the delivery of the owner's duplicate copy of the CCT has not arisen.
Issue/s:
1. Whether or not HRI became rightfully entitled to the execution of a Deed of Absolute Sale
in its favor upon payment of full price.
2. Whether or not HRI may demand as a matter of right a notarized Deed of Absolute Sale
in its favor.
Rulings:
1. Yes, HRI became rightfully entitled to the execution of a Deed of Absolute Sale in its
favor upon payment of full price.
A contract to sell has been defined as "a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds itself to sell the property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the purchase price." In a contract
to sell, "ownership is retained by the seller and is not to pass until the full payment of the price."2
° Consequently, once the buyer has paid the purchase price in full, the contract to sell is
converted to an absolute sale and the buyer has the right to demand the execution of a Deed of
Absolute Sale in its favor.
Here, there is no question that HRI has paid in full the contract price in the amount of
P20,998,400.00. There is no question either that by operation of law, HRI as the buyer has
become rightfully entitled to the execution of a Deed of Absolute Sale in its favor.
3. Yes, HRI may demand as a matter of right a notarized Deed of Absolute Sale in its favor.
Article 1358 provides that the following must appear in a public document:
1. Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable prope1ty; sales of real prope1ty or of an
interest therein are governed by articles 1403, No. 2, and 1405;
In Cenido v. Spouses Apacionado,2 1 the Court ruled that contrary to petitioner's claim, the
"Pagpapatunay " is a valid contract of sale despite being unnotarized since under Article 1358, a
private document, though not reduced to a public one, remains to be valid and is merely
unenforceable. So that after the existence of the contract has been admitted, a party to the sale,
if he or she is so minded, has the right to compel the other pa1iy to execute the proper
document following Article 135722 of the Civil Code.
Section 13 5 of the Local Government Code (LGC) further speaks of the requirements for
registration of deeds on transfer of real property and the corresponding duty of notaries public
who notarized the deeds.
On the strength of Article 1357 of the Civil Code and relevant jurisprudence, in relation to
Section 135 of the LGC, therefore, HRI has the right to compel FEPI to execute a notarized
Deed of Absolute Sale in its favor for purposes of registration.
7. Termination of the Lease  
8. SOLUTIO INDEBITI
G.R. No. 245274
TERESITA P. DE GUZMAN, in her capacity as former General Manager; GODIULA T.
GUINTO, in her capacity as former Internal Auditor; VIVECA V. VILLAFUERTE, in her
capacity as former Administrative Manager; WILHELMINA A. AQUINO, in her capacity as
Senior Accountant; RENATO S. RONDEZ, in his capacity as a member of the Baguio
Water District (BWD) Board of Directors (BOD); MOISES P. CATING, RAMSAY M.
COLORADO, GINA ROMILLO-CO, EMMANUEL M. MALICDEM and MARIA ROSARIO R.
LOPEZ, in their capacities as former members of the BWD BOD; and the EMPLOYEES of
BWD, in their capacities as payees, Petitioners,
v.
COMMISSION ON AUDIT, Respondent.

Second DIVISION
Ponente: LAZARO-JAVIER, J.

Nature of Action: Petition for Review on Certiorari under Rule 64

Facts:

Under Resolution (BR) No. 046-2009, employees of Baguio Water District (BWD) were granted
a bonus that was distributed to them on the occasion of the 100th anniversary of Baguio City.
The bonus was equivalent to 50% of the employee's salary. The Commission on Audit (COA)
Audit Team issued Notice of Disallowance on the granted bonus for being devoid of legal basis,
stating an Administrative Order suspending the grant of new or additional benefits to full-time
officials and employees. With this, recipients were directed to refund the bonus they received.

The Notice was appealed by the BWD officials and employees (petitioners) to the COA-
Cordillera Administrative Region (COA-CAR). The COA-CAR affirmed the decision of the Audit
team. The COA En Banc affirmed the previous decision with modifications and it denied the
motion for reconsideration filed before it. The petitioners in their petition seek affirmative relief
from the Supreme Court (SC). They argued that the absence of the supervising auditor's
signature on the notice of disallowance violated the COA Rules and Regulations on Settlement
of Accounts (COA-RRSA). They also contended that the bonus was granted based on the valid
exercise of the BWD Board’s power under the law and that it was issued in good faith, hence
they should not be required to return them.

Issue/s: Whether or not the petitioners are liable to refund the disallowed amount.
Rulings:
Yes, the petitioners are liable to refund the disallowed amount.
The SC stated Administrative Code provisions and the Madera, et. al. v. COA case to
resolve this issue.
The Administrative Code provisions identify the persons liable to return the disallowed
amounts
In the very recent case of Madera, et. al. v. COA, 19 the Court En Banc, discussed in
detail the respective liabilities of certifying and approving officers and the recipient employees in
case of expenditure disallowance.As clarified in Madera, the general rule is that recipient
employees must be held liable to return disallowed payments on ground of solutio indebiti or
unjust enrichment as a result of the mistake in payment. Under the principle of solutio indebiti, if
something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
None of the exceptions provided in Madera are present in this case. First, the centennial
bonus cannot be considered to have been given in consideration of services rendered or in the
nature of performance incentives, productivity pay, or merit increases. Second, a monetary grant
that contravenes the unambiguous letter of the law cannot be forgone on social justice
considerations. Liability arises and should be enforced when there is disregard for the basic
principle of statutory construction that when the law was clear, there should be no room for
interpretation but only application.
Verily, therefore, the employees must be held liable to return the amounts that they had
received. As earlier discussed, the approving officers of BWD, herein petitioners, are jointly and
severally liable for the disallowed amounts receive~ by the individual employees.
9. Nominal Damages

10. Interpretation of Contracts

G.R. No. 235711, March 11, 2020

TERESITA E. PASCUAL, WIDOW OF THE LATE ROMULO PASCUAL, WHO WAS THE HEIR
OF THE LATE CATALINA DELA CRUZ AND ATTORNEY-IN-FACT OF HER CHILDREN AND
FOR HER OWN BEHALF, PETITIONER,

V.

ENCARNACION PANGYARIHAN-ANG, SPOUSES EMELITA ANG GAN AND VICENTE GAN,

SPOUSES NILDA ANG-ROMAN AND ROBERTO ROMAN, SPOUSES ROSITA ANG-
ESTRELLA AND LUNAVER ESTRELLA, ERNEST ANG, ANTONIO ANG, SPOUSES RUBY
ANG-TAN AND JULIO TAN, SPOUSES MA. VICTORIA ANG-SAN PEDRO AND AMADO
SAN PEDRO, AND DANILO ANG, RESPONDENTS..

Ponente: PERALTA, C.J.

FIRST DIVISION

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

Facts:
Romulo Pascual (Respondent) entered into a sale transaction with Encarnacion P. Ang
(Petitioner) covering three parcels of land located in Navotas City. This was embodied in a
document denominated as "Pagpapatunay at Pananagutan". The contract stated that

The first lot was registered in respondents' names. The two remaining lots were left unpaid by
the respondents leading the petitioner to file a complaint for the rescission of the contract with
claim for damages. The respondent contended that their agreement would show that the title to
the subject lots should first be registered under their names, and not under the name of Romulo
Pascual, before they pay the balance of the purchase price. They also argued that it was
petitioner who breached their agreement as she intentionally refused to register the two lots
under their names because she is asking for a much higher price.

The Regional Trial Court (RTC) ruled in favor of the respondents. The Court of Appeals (CA)
denied petitioner's appeal and affirmed the ruling of the trial court. It also ruled that the petitioner
is not entitled to rescind the contract as she is not the injured party. A motion for reconsideration
was filed but was also denied by the court.
Issue: Whether or not the CA gravely erred when it failed to consider the real intention of the
parties based on their conduct, words, and deeds prior to, during, and immediately after
executing the contract of sale in order to arrive at its correct and just interpretation

Ruling:

No, the CA did not err when it failed to consider the real intention of the parties after executing
the contract of sale in order to arrive at its correct and just interpretation.

Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail
over the former.

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered.

As aptly ruled by the RTC, while the provision in paragraph 5 of the "Pagpapatunay at
Pananagutan" is ambiguous, as it can be interpreted in two ways, that is, the titles mentioned in
the said provision is either in the name of Romulo Pascual and/or plaintiff, or in defendants'
names, the evidence on records would show that the intention of the parties in the said
paragraph 5 is that petitioner should secure first the titles of the subject properties in
respondents' names before they pay the remaining balance of the purchase price of the subject
properties.

It should be recalled that petitioner testified that respondents paid P50,000.00 as downpayment
for the three lots, and respondents made several payments thereafter on installment basis. It
was only after petitioner secured the OCT of the subject first lot under respondents' name that
respondents paid her its full purchase price. Thus, it is clear that paragraph 5 of the
"Pagpapatunay at Pananagutan" should be interpreted according to what transpired on the
payment and registration of the first lot.
 11. Rescission of Contracts

G.R. No. 235711, March 11, 2020

TERESITA E. PASCUAL, WIDOW OF THE LATE ROMULO PASCUAL, WHO WAS THE HEIR
OF THE LATE CATALINA DELA CRUZ AND ATTORNEY-IN-FACT OF HER CHILDREN AND
FOR HER OWN BEHALF, PETITIONER,

V.

ENCARNACION PANGYARIHAN-ANG, SPOUSES EMELITA ANG GAN AND VICENTE GAN,

SPOUSES NILDA ANG-ROMAN AND ROBERTO ROMAN, SPOUSES ROSITA ANG-
ESTRELLA AND LUNAVER ESTRELLA, ERNEST ANG, ANTONIO ANG, SPOUSES RUBY
ANG-TAN AND JULIO TAN, SPOUSES MA. VICTORIA ANG-SAN PEDRO AND AMADO
SAN PEDRO, AND DANILO ANG, RESPONDENTS..

Ponente: PERALTA, C.J.

FIRST DIVISION

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

Facts:
Romulo Pascual (Respondent) entered into a sale transaction with Encarnacion P. Ang
(Petitioner) covering three parcels of land located in Navotas City. This was embodied in a
document denominated as "Pagpapatunay at Pananagutan". The contract stated that

The first lot was registered in respondents' names. The two remaining lots were left unpaid by
the respondents leading the petitioner to file a complaint for the rescission of the contract with
claim for damages. The respondent contended that their agreement would show that the title to
the subject lots should first be registered under their names, and not under the name of Romulo
Pascual, before they pay the balance of the purchase price. They also argued that it was
petitioner who breached their agreement as she intentionally refused to register the two lots
under their names because she is asking for a much higher price.

The Regional Trial Court (RTC) ruled in favor of the respondents. The Court of Appeals (CA)
denied petitioner's appeal and affirmed the ruling of the trial court. It also ruled that the petitioner
is not entitled to rescind the contract as she is not the injured party. A motion for reconsideration
was filed but was also denied by the court.

Issue: Whether or not the petitioner can rescind the contract

Ruling: No, the petitioner cannot rescind the contract.

Respondents' non-payment of the balance of the purchase price is due to the failure of petitioner
to comply with their obligation in the contract. Thus, petitioner is not entitled to rescind the
contract as she is not the injured party.

12. Rescission of Contract/Voidable Contract

February 03, 2020

G.R. No. 208845

ALLAN MAÑAS, JOINED BY WIFE LENA ISABELLE Y. MAÑAS, PETITIONERS,

V.

ROSALINA ROCA NICOLASORA, JANET NICOLASORA SALVA, ANTHONY

NICOLASORA, AND MA. THERESE ROSELLE UY-CUA, RESPONDENTS.

PONENTE: LEONEN, J

Nature of Action: Petition for Review on Certiorari

Facts:

Mañas Spouses (spouses) entered into a Lease Contract with Rosalina Roca Nicolasora
(Rosalina) over a property in Tacloban City that was owned by Rosalina's husband, Chy Tong
Sy Yu. Yu sold several parcels of land including the one leased by the spouses to Ma. Therese
Roselle Uy-Cua (Roselle) and the title was subsequently transferred to the latter.

The spouses claimed that they were not informed of the sale by the recent owners, the only
knew about the purchase through a letter sent to them by the new owner. They were also not
offered to buy the property, alleging that the previous owners violated their right of first refusal
stipulated in their Lease Contract.

The spouses filed a complaint before the Regional Trial Court (RTC) praying the contract of sale
be rescinded, the title be cancelled, and the right of first refusal be enforced. The RTC dismissed
the complaint stating that the spouses never exercised the option to renew the lease contract
after its expiration, thus the condition thereof granting the latter the right of first refusal (Priority to
Buy), was never renewed. Although there was an implied renewal of the contract of lease in (sic)
a month-to-month basis, in accordance with Article 1670 of the New Civil Code, the plaintiffs'
right of first refusal was never renewed for the reason that the said condition is not germane to
possession. The Motion for reconsideration filed by the spouses was denied by the RTC. The
Court of of Appeals (CA) affirmed the decision of the RTC and it eventually denied the motion for
reconsideration filed by the spouses. Hence, this petition.

Issue: Whether the contracting party's incapacity is a ground for the rescission of the contract.

Ruling:

No, the contracting party's incapacity is not a ground for the rescission of the contract.

Even if they were, they still filed the wrong action. The contracting party's incapacity is a ground
for annulment of contract, not rescission. Article 1390 of the Civil Code states:

ARTICLE 1390. The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.

Petitioners pray for the rescission of the contract, but the ground they raised is one for
annulment of contract. Article 1397 of the Civil Code specifies who may institute such action:

ARTICLE 1397. The action for the annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor can those who exerted intimidation, violence,
or undue int1uence, or employed fraud, or caused mistake base their action upon these flaws of
the contract.

Thus, even if this Court were to consider petitioners' action as one for annulment of contract,
they are still not the proper parties to file such action. They are not parties to the Deed of
Absolute Sale, and neither are they obliged principally or subsidiarity with regard to the Deed of
Absolute Sale. Thus, the trial court's dismissal of their Complaint would still be proper.
 13. Rescission of Contracts

G.R. No. 225449, February 26, 2020

SPOUSES RENE LUIS GODINEZ AND SHEMAYNE GODINEZ, PETITIONERS,

V.
SPOUSES ANDREW T. NORMAN AND JANET A. NORMAN, RESPONDENTS.
Ponente: LEONEN, J.
THIRD DIVISION
Nature of Action:

Facts:

Spouses Norman (Respondents) entered into a contract with Spouses Godinez (Petitioners)
where the latter agreed to sell the leasehold rights over a housing unit in Subic Bay Freeport
Zone for USD 175,000.00. Norman Spouses paid USD 10,000.00 to the Godinez Spouses as
partial payment and agreed that the remaining balance be settled within 30 days from the initial
payment. After payment of this initial installment, the respondents moved their furniture and
appliances into the houses, and assigned a house helper to act as their caretaker. The
respondents asked for an extension of the payment of the full price and which was agreed on by
the petitioners with the condition that they pay USD 30,000.00.

Despite the extension, the respondents were still unable to pay the remaining balance. The
respondents removed their furniture and appliances, so that the petitioners could use the units
again. After three months and upon learning that the units were sold to another buyer, the
respondents asked for the return of their payments but to no avail.

The Regional Trial Court granted the respondents’ prayer for the return of the partial payments.
The Court of Appeals affirmed the decision of the RTC but stated that the contract was a
contract to sell. Thus, the nonfulfillment of the obligation to pay the full amount of the purchase
price was not a breach of contract but rather an unfulfilled suspensive condition, which
prevented the seller from conveying title to the buyer. T respondent’s failure to pay was not a
breach that could result in their partial payments being forfeited as compensatory damages.
Instead, it rendered the contract to sell "ineffective and without further force and effect."
Furthermore, their partial payment could not be retained as there was no stipulation to that effect
between the parties.

Issue: Whether or not the contract should be rescinded as provided under Article 1191 of
the Civil Code

Ruling: No, the contract should not be rescinded as provided under Article 1191 of the Civil
Code.

As this case involves a contract to sell, Article 1191 of the Civil Code of the Philippines does not
apply. The contract to sell is instead cancelled, and the parties shall stand as if the obligation to
sell never existed.
As for prospective sellers, this court generally orders the reimbursement of the installments paid
for the property when setting aside contracts to sell. This is true especially if the property's
possession has not been delivered to the prospective buyer prior to the transfer of title.

Here, petitioners turned over possession of the premises to respondents after the latter made
partial payments amounting to USD 10,000.00. Respondents then moved their furniture and
groceries into one of the housing unit's rooms and also hired a house helper to watch over the
premises in the interim. Respondents made subsequent payments, bringing its total to USD
40,000.00, but the contract to sell still failed to take effect because of respondents' subsequent
default in paying the balance. During this five month period, petitioners were unable to enjoy
their property despite retaining a key to the premises. Thus, petitioners should have been
compensated for respondents' use of the property.

The Court of Appeals' insistence that compensation is not warranted because respondents were
unable to fully occupy the property is unmeritorious. Full occupation of the premises is not
required; neither is this Court persuaded by respondents' argument that Olivarez does not apply
because respondents did not illegally withhold possession of the premises or of payment of the
purchase price. The payment of reasonable rentals is not meant to punish the illegality of
respondents' actions, but to compensate petitioners' inability to enjoy or use its own property.71
Here, the record shows that petitioners were unable to use the property for the duration of their
contract with respondents.72 Thus, this Court finds that the partial payments made by
respondents may be converted into rentals.
 14. Interpretation of Contracts

G.R. No. 225449, February 26, 2020

SPOUSES RENE LUIS GODINEZ AND SHEMAYNE GODINEZ, PETITIONERS,

V.
SPOUSES ANDREW T. NORMAN AND JANET A. NORMAN, RESPONDENTS.
Ponente: LEONEN, J.
THIRD DIVISION
Nature of Action:

Facts:

Spouses Norman (Respondents) entered into a contract with Spouses Godinez (Petitioners)
where the latter agreed to sell the leasehold rights over a housing unit in Subic Bay Freeport
Zone for USD 175,000.00. Norman Spouses paid USD 10,000.00 to the Godinez Spouses as
partial payment and agreed that the remaining balance be settled within 30 days from the initial
payment. After payment of this initial installment, the respondents moved their furniture and
appliances into the houses, and assigned a house helper to act as their caretaker. The
respondents asked for an extension of the payment of the full price and which was agreed on by
the petitioners with the condition that they pay USD 30,000.00.

Despite the extension, the respondents were still unable to pay the remaining balance. The
respondents removed their furniture and appliances, so that the petitioners could use the units
again. After three months and upon learning that the units were sold to another buyer, the
respondents asked for the return of their payments but to no avail.

The Regional Trial Court granted the respondents’ prayer for the return of the partial payments.
The Court of Appeals affirmed the decision of the RTC but stated that the contract was a
contract to sell. Thus, the nonfulfillment of the obligation to pay the full amount of the purchase
price was not a breach of contract but rather an unfulfilled suspensive condition, which
prevented the seller from conveying title to the buyer. T respondent’s failure to pay was not a
breach that could result in their partial payments being forfeited as compensatory damages.
Instead, it rendered the contract to sell "ineffective and without further force and effect."
Furthermore, their partial payment could not be retained as there was no stipulation to that effect
between the parties.

Issue: Whether or not the respondents should pay rentals for their use of the units

Ruling:

Yes, the respondents should pay rentals for their use of the units.

The conversion of partial payments into rentals is also consistent with Article 1378 of the Civil
Code, which teaches that doubts in the interpretation of onerous contracts "should be settled in
favor of the greatest reciprocity of interests."65 We find it only proper that respondents
reciprocate their use of the premises with the payment of rentals while full payment on their
contract to sell was still pending.

Olivarez also recognized that compensation for use of the property must be reasonable. In
Olivarez, this Court allowed the seller to retain the partial payments because the buyers
possessed and used the property without paying rentals. Likewise, Gomez considered the
"benefits, financial or otherwise"66 enjoyed by the buyer in determining whether or not to retain
partial payments as reasonable compensation. In both cases, the sellers were unable to use
their respective properties because the buyers were in possession thereof.

While there is no definitive legal standard for computing reasonable rentals on residential
properties, this Court notes that US$40,000.00 amounts to 22.9%, or over a fifth, of the total
purchase price of petitioner's housing unit, which is not commensurate to the value respondents
may have derived from their four (4) month possession of the property. While respondents'
possession prevented petitioners from using the premises, even petitioners recognized that
respondents did not actually occupy the housing unit.67 There is also no evidence before this
Court indicating the "benefits, financial or otherwise,"68 that respondents may have derived from
their possession. Thus, respondents' limited use of the premises requires us to temper the
amount of partial payments that petitioners may reasonably retain.

Determining reasonable rentals would depend on the circumstances of the parties, the nature of
the property being rented, and the prevailing situation in the relevant market at the time of the
transaction, among others. Ordinarily, this would require reception of evidence, and thus, a
remand of the case to the lower courts. However, in order to speedily dispose of this case, and
in view of the time already spent litigating this issue, a recourse to the analogous case of
Olivarez is proper.

In Olivarez, this Court effectively allowed the prospective seller to convert partial payments to
rentals, with such rentals amounting to 13.1% of the property's total purchase price. Having
already determined the applicability of the Olivarez ruling on the retention of partial payments,
the circumstances of this case would warrant the retention of a similar amount. Thus, rentals for
the housing unit may be set at 13.1% of the US$175,000.00 total purchase price, or
US$22,925.00. Petitioners may, therefore, retain US$22,925.00 of the US$40,000.00 partially
paid by respondents, but must return the remaining US$17,075.00 to respondents.
 15. Damages

16. DAMAGES

17. Rescission
G.R. No. 232825, September 16, 2020

ULYSSES RUDI V. BANICO, PETITIONER,

VS.
LYDIA BERNADETTE M. STAGER A.K.A BERNADETTE D. MIGUEL (SUBSTITUTED BY HER
COMPULSORY HEIRS, NAMELY: BOBBY UNILONGO I, PROSPERO UNILONGO I,
PROSPERO UNILONGO II, MARICON U. BAYOG, GLENN UNILONGO AND LUZVIMINDA
UNILONGO), RESPONDENTS.

PONENTE: LOPEZ, J.
Nature of Action: Petition for Review on Certiorari under Rule 45
Facts:
Lydia Stager owns a real property situated in Barangay Manoc-Manoc, Boracay Island. The land
adjoins the sea on its eastern part and is generally flat at the center but has an elevated rocky
northern part. Ulysses Banico bought the area suitable for building a beach resort, it is 800
square meters of Stager’s land for the consideration of PHP 350,000. Banico’s lawyer drafted a
Deed of Absolute Sale over the said land.
Banico later discovered that the land described in the deed was the elevated rocky part of
Stager’s land and not the flat area. Banico asked Stager to make the necessary amendment to
the deed which the latter agreed to do. Stager also convinced Banico to purchase an additional
400 square meters portion which is adjacent to the previously purchased lot. The second lot was
bought by Banico for PHP 160,000 on installment basis. Banico asked Stager to prepare the
amended deed of sale, but she refused because he still has an unpaid balance of P12,000.00.
Yet, Banico maintained that he already paid Lydia more than P160,000.00. The matter was
brought by Banico to the barangay where Stager honored her promise and executed a new deed
of sale. However, Banico refused to sign the deed because it failed to reflect the true
consideration of the transaction.
An action for specific performance and damages was brought by Banico before the Regional
Trial Court (RTC). On the course of the proceeding Stager died and was substituted by her
heirs. The RTC ordered the heirs of Stager to amend/reform the deed and execute a Deed of
Absolute Sale covering the 400 square meter land or to include the 400 square meter land in the
deed meant for the 800 square meter land. On the other hand, Banico was ordered to pay the
remaining balance for the second purchase. Both parties elevated the case to the Court of
Appeals where the court modified the decision of the RTC, denying the reformation of the deed
on the ground of prescription. The motion for reconsideration filed by both parties were denied
by the CA. The CA stated that Banico is the one to blame for the issue because it was only after
the consummation of the sale of the first lot that he decided to visit the same and because it was
his lawyer who drafted the deed. Banico filed this petition claiming that the CA erred in ruling that
the party who caused the ambiguity cannot ask to reform the contract.
Issue: Whether or not there is substantial breach of contract to warrant the rescission of such
Ruling:
No, there is no substantial breach of contract to warrant the rescission of such.

We find no reason to disturb the CA and RTC's findings that Ulysses still has a balance to Lydia
in the contract to sell over the 400-square meter lot. This is a question of fact and is beyond the
ambit of this Court's jurisdiction in a petition for review on certiorari. As to the correct amount, we
quote with approval the CA's computation that Ulysses' unpaid balance is P5,860.00, to wit:

Banico's receipts, marked as Exhibits "C" to "C-30[,"] show payments of a total of PhP
167,840.00 - an amount more than the consideration of PhP 160,000.00 for the sale of the
second lot. The RTC, however, rejected Exhibits "C-3[,"] "C-7[,"] "C-9[,"] "C-10[,"] "C-12[,"] "C-
19" and "C-24" for various reasons.

We agree with the RTC that Exhibits "C-10" for the amount of PhP3,500.00 and "C-24" for the
amount of PhP 1,200.00 were not signed by Stager and do not sufficiently prove payment to her.
We likewise share the RTC's view that Exhibit "C-9" for the amount of PhP1,000.00 is totally
unrelated to this case since the same was issued as payment for pawned earrings. Exhibit "C-
19" evidencing the receipt of PhP500.00 from Banico "for credit" to Stager was also correctly
disregarded, especially since the latter denied having executed the same. Exhibit "C-12" for the
amount of PhP500.00 was also signed only by Stager's son, Bobby Unilongo, without stating
any purpose.

Although Exhibits "C-3" evidencing Stager's receipt of the amount of PhP2,000.00 as

"downpayment[,"] and "C-7" showing the receipt by Stager's nephew of PhP5,000.00 "charged
to Stager[,"] were not denied by Stager in her testimony, they do not establish payment
specifically for the sale of the second lot.

As a general rule, one who pleads payment has the burden of proving it. The debtor has the
burden of showing with legal certainty that the obligation has been discharged by
payment. Banico failed to prove payment in the case of the aforementioned exhibits, totaling
PhP13,700.00.

The RTC, however, committed an error in computing Banico's balance. The receipts marked as
Exhibits "C" to "C-30" show payment of a total of PhP167,840.00. We subtract from this amount
the amounts of the rejected receipts worth PhP 13,700.00, yielding a total payment of [PhP
154.140.00. Thus, Banico should be ordered to pay Stager's heirs the balance of only
PhP5,860.00, and not PhP6,600.00 as ordered by the RTC.37 (Emphases supplied; citation
omitted.)

Applying Nacar v. Gallery Frames, et al.,38 the amount of P5,860.00 shall earn interest at the
rate of 6% per annum from the date of the RTC's Decision on February 18, 2015 until full
payment. Similarly, the CA is correct in requiring the Heirs of Lydia to execute the corresponding
deed of absolute sale over the 400-sq m lot upon satisfaction of the unpaid balance. As the CA
aptly ruled, Ulysses had paid considerable amount to Lydia under the contract to sell. Absent
substantial breach of the contract, the rescission is not allowed and Ulysses must be permitted
to complete the payment.

BANCO DE ORO UNIBANK, INC. (now BDO UNIBANK, INC.), v. EDGARDO C. YPIL, SR.,
CEBU

SUREWAY TRADING CORPORATION, AND LEOPOLDO KHO

GR. No. 212024, 12 October 2020, SECOND DIVISION (Hernando, J.)

Facts:
Edgardo C. Ypil, Sr. was offered by Cebu Sureway Trading Corporation, represented by
Leopoldo Kho, to invest in Prudentiallife Plan where the former agreed. Kho was able to solicit
the total amount of PHP 300,000.00 from Ypil but the latter asked for a refund this amount.
Despite repeated demends, neither Kho nor Cebu Sureway didn’t answer. Due to this, Ypil filed
a complaint for Specific Performance with attachment.
The Regional Trial Court (RTC) issued a Writ of Preliminary Attachment. A Notice of
Garnishment was issued by Sheriff Pascual Guaren to the accounts of Kho and/or Cebu
Sureway addressed to the Manager and/or Cashier of the BDO Unibank, Inc. North Mandaue
Branch. BDO, through its Head, Cyrus M. Polloso, sent a Reply to Guaren stating that neither of
the parties’ accounts have no available funds. It was discovered that BDO debited to Cebu
Sureway’s accounts some of the amounts offsetting the outstanding obligation under a loan
obligation. BDO argued that legal compensation took place since BDO and Cebu Sureway were
creditors and debtors of each other. On the other hand, Kho and Cebu Sureway contended that
there is no legal compensation in their case since Cebu Sureway’s loan is not yet due and
demandable.
The RTC ordered BDO to make available the garnished amount. In its partial Motion for
Reconsideration, the RTC ruled that BDO, cannot unilaterally debit the Kho and Cebu Sureway’s
accounts which are already in custodia legis. The Court of Appeals dismissed the appeal of BDO
stating that not all the elements of legal compensation are present in the case. Hence, this
instant case.

Issue: Whether the CA committed error in holding that the disputed deposit had been the
subject of legal compensation prior to the service of Notice of Garnishment to BDO

Ruling: No, the CA did not commit error in holding that the disputed deposit had been the
subject of legal compensation prior to the service of Notice of Garnishment to BDO.

It is settled that "compensation is a mode of extinguishing to the concurrent amount the debts of
persons who in their own right are creditors and debtors of each other.66 The object of
compensation is the prevention of unnecessary suits and payments thru the mutual extinction by
operation of law of concurring debts."67 The said mode of payment is encapsulated in Article
1279 of the Civil Code, viz.:

ARTICLE 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
In relation to this, Article 1290 of the Civil Code states that "when all the requisites mentioned in
Article 1279 are present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation." Relevantly, this is the Bank's main contention.
Thus, CSTC's indebtedness cannot be considered as due and liquidated. It should be
emphasized that "a claim is liquidated when the amount and time of payment is fixed. If
acknowledged by the debtor, although not in writing, the claim must be treated as liquidated."71
In this case, the time of default and the amount due were not specific and particular. Without this
information, a simple arithmetic computation cannot possibly be done without risking errors
especially with regard to the application of interest and penalties. Similarly, despite CSTC's
failure to contest the Bank's computation, its debt still cannot be considered as liquidated.
Further confirmation is necessary in order to treat CSTC's debt as due, demandable and
liquidated, which the Bank unfortunately did not bother to elaborate on.
As regards respondents' claim that there exists a controversy commenced by a third person
thereby negating legal compensation from taking place, the Bank insists that this did not bar the
legal compensation from taking place by operation of law since CSTC's default happened even
before it was served the Notice of Garnishment. Again, CSTC and Kho did not challenge this
allegation. Nonetheless, given our finding that CSTC's debt cannot be considered as due and
liquidated, thereby legal compensation did not take place by operation of law, it follows that the
Notice of Garnishment served as proof of an existing controversy commenced by a third person,
particularly Ypil, which likewise negated the application of legal compensation.
It is the Bank's position that "legal compensation operates even against the will of the interested
parties and even without the consent of them. Since this compensation takes place ipso jure, its
effects arise on the very day on which all its requisites concur. When used as a defense, it
retroacts to the date when its requisites are fulfilled." There is no debate about the effects of
legal compensation when applicable. However, as already discussed, the Court finds that
CSTC's debt was not due and liquidated properly, and that there is an existing controversy
involving CSTC's funds with the Bank. Stated differently, the subject of the Notice of
Garnishment is likewise the object of the existing controversy.
The Bank should take note that "garnishment has been defined as a specie of attachment for
reaching credits belonging to the judgment debtor and owing to him from a stranger to the
litigation. A writ of attachment is substantially a writ of execution except that it emanates at the
beginning, instead of at the termination, of a suit. It places the attached properties in custodia
legis, obtaining pendente lite a lien until the judgment of the proper tribunal on the plaintiff's
claim is established, when the lien becomes effective as of the date of the levy."
Hence, after service and receipt of the Notice of Garnishment, contrary to the Bank's view, the
deposits of CSTC were placed under custodia legis, under the sole control of the trial court and
remained subject to its orders "until such time that the garnishment is discharged, or the
judgment in favor of Ypil is satisfied or the credit or deposit is delivered to the proper officer of
the court."74 In the case at bench, the RTC already issued a Judgment Based on Compromise
Agreement which ordered the Bank to tender the garnished amount of P300,000.00 to Ypil,
effectively discharging the said amount from the effects of garnishment.