JUSTICE LEONEN CASES FOR THE BAR EXAMS 2021

CIVIL LAW
ALBANO BAR REVIEW CENTER

Obligations and Contracts

Cezar Yatco Rea; Estate Services, Inc., et.al vs Bel-Air Village Association, Inc. G.R.
No. 211780, November 21, 2018, Leonen, J.

Facts: In 1950, Makati Development Corporation developed Bel-Air Village, a residential

subdivision in Makati City, and sold lots to interested buyers. The contract was subject to specific
conditions and easement embodied in a Deed Restrictions which had a lifetime of 50 years.

Bel-Air Village’s homeowners’ association was constituted, and all the lot owners automatically
became members. In 1998, the association created the 2007 committee to amend the Deed
Restrictions in anticipation of its expiration.

In 2006, the association had its annual meeting and proposed amendments and revisions to the
Deed Restrictions. Subsequently, they passed a board resolution extending the term to August
23, 2032.

In 2007, the petitioners filed a collective complaint before the HLURB. The board declared the
extension of the Deed Restrictions as null and void. The association then appealed to the Board
of Commissioners and the latter granted their plea. Petitioners moved for reconsideration, but it
was denied. Eventually, the case reached the SC.

Issue: Whether or not private respondent Bel-Air Village Association, Inc.'s members can, by
majority vote, extend the Deed Restrictions' term of effectivity?

Ruling: Yes, the private respondent can by majority of vote extend the Deed
Restrictions’ term of effectivity.

The cardinal rule in contract interpretation is found in Article 1370 of the Civil Code.

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.

In Abad v. Goldloop Properties, Inc., the Court ruled that the cardinal rule in the interpretation of
contracts is embodied in the first paragraph of Article 1370 of the Civil Code: "[i]f 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." This provision is akin to the "plain meaning rule" applied
by Pennsylvania courts, which assumes that the intent of the parties to an instrument is
"embodied in the writing itself, and when the words are clear and unambiguous the intent is to
be discovered only from the express language of the agreement." It also resembles the "four
comers" rule, a principle which allows courts in some cases to search beneath the semantic
surface for clues to meaning. A court's purpose in examining a contract is to interpret the intent
of the contracting parties, as objectively manifested by them. The process of interpreting a
contract requires the court to make a preliminary inquiry as to whether the contract before it is
ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative
interpretations. Where the written terms of the contract are not ambiguous and can only be read
one way, the court will interpret the contract as a matter of law. If the contract is determined to
be ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity
in the light of the intrinsic evidence.

As held in Abad, courts must first determine whether a stipulation in a contract is ambiguous or
susceptible of multiple interpretations. Absent any ambiguity, or when the terms of the contract
are found to clearly reflect the intentions of the contracting parties, the stipulation will be
interpreted as it is written, and will be treated as the binding law between the contracting parties
The parties present differing interpretations on the Deed Restrictions' term of effectivity.
Petitioners claim that a plain reading of the Deed Restrictions would show that the term is not a
restriction which can be validly amended by private respondent's members, as it is not a limitation
on the use of property. They also assert that the Deed Restrictions never expressly or impliedly
authorized private respondent to extend its term of effectivity.

In contrast, respondent insists that a plain reading of the Deed Restrictions would show that the
term of restrictions may be amended by a majority vote of the members. It emphasizes that the
term of effectivity is a necessary element of the Deed Restrictions; thus, its members may validly
extend its effectivity.

The Deed Restrictions is a restrictive covenant that governs how lot owners can use or enjoy their
properties. It was annotated on the land titles issued to the lot owners and it is not disputed that
lot owners are bound by these annotations under Section 39 of Act 496, or the Land Registration
Act, which provides:

Section 39. Every applicant receiving a certificate of title in pursuance of a decree of

registration, and every subsequent purchaser of registered land who takes a
certificate of title for value in good faith, shall hold the same free of all encumbrances
except those noted on said certificate, and any of the following incumbrances which
may be subsisting, namely:

First. Liens, claims, or rights arising or existing under the laws or Constitution of the
United States or of the Philippine Islands which the statutes of the Philippine Islands
cannot require to appear of record in the registry.

Second. Taxes within two years after the same have become due and payable.

Third. Any public highway, way, or private way established by law, where the
certificate of title does not state that the boundaries of such highway or way have
been determined. But if there are easements or other rights appurtenant to a parcel
of registered land which for any reason have failed to be registered, such easements
or rights shall remain so appurtenant notwithstanding such failure and shall be held
to pass with the land. until cut off or extinguished by the registration of the servient
estate, or in any other manner.

Petitioners admit that the Deed Restrictions may be canceled by a majority vote of private
respondent's members. Nonetheless, they claim that private respondent had no authority to
extend the Deed Restrictions' term of effectivity. Petitioners are mistaken.

The Deed Restrictions is divided into seven parts, with its term of effectivity provided for as
follows: the foregoing restrictions shall remain in force for fifty years from January 15, 1957,
unless sooner cancelled in its entirety by two thirds vote of members in good standing of the Bel-
Air Association. However, the Association may, from time to time, add new ones, amend or abolish
particular restrictions [or] parts thereof by majority rule.

Read as a whole, the Deed Restrictions as a restrictive covenant was intended for the "sanitation,
security and the general welfare of the community," providing the rules and regulations for the
lot owners' privacy and continued enjoyment of their property.

Petitioners' interpretation of limiting amendments to so-called restrictions, then declaring that the
term is not a restriction, cannot be upheld. A plain reading of Part VI, or the Term of Restrictions,
would show that the term of effectivity was not set in stone, and that private respondent was
empowered to cancel it altogether, through its members' majority vote. The contracting parties'
clear intention was to give the lot owners freedom to establish rules and regulations, under which
they could best use their properties and protect their interests. This is apparent from the second
sentence: "However, the Association may, from time to time, add new ones, amend or abolish
particular restrictions [or] parts thereof by majority rule."
This freedom granted to private respondent was confirmed by Ayala Land, Makati Development
Corporation's successor-in-interest, when it stated that it was never its intention to prohibit the
lot owners from extending the term of the Deed Restrictions: the current controversy in Bel-Air
Village Association, Inc. concerning the extension of the Deed Restrictions has come to our
attention. More particularly, we understand that there is a claim by some quarters that it was the
intention of the Makati Development Corporation, the original seller of lots in Bel-Air Village, "to
withhold the power to extend the Deed of Restrictions beyond the fifty years annotated in the
owner's title."

As successor[-]in[-]interest of the former Makati Development Corporation (MDC), we wish to

clarify that it was never the intention to deny the lot-owners/homeowners the right to extend the
Deed Restrictions, nor was this situation contemplated with the preparation of the Deed
Restrictions or the original deeds of sale between MDC and the original buyers of lots in Bel-Air
Village.

This is evident in the fact that Section VI, the provision on amendment, states that "the
association may, from time to time, . . . amend . . . particular restrictions or parts thereof by
majority rule." Clearly, the term of restrictions is part of the restrictions and could therefore, be
amended. The Court of Appeals thus correctly ruled that the term of restrictions was also subject
to amendment by a majority vote of private respondent's members:

Reading Article VI in its entirety will show that the restrictions embodied in the Deed shall be
enforceable for 50 years. This is immediately followed by the following proviso, "However, the
Association may, from time to time, add new ones, amend or abolish particular
restrictions or parts thereof by majority rule." The proviso clearly states that [the
Association] is empowered under a specific provision in the Deed Restrictions to amend or abolish
particular restrictions or parts thereof by majority rule. Note that the term of restrictions is an
integral part of the Deed. Necessarily, when Article VI states that the restrictions may be
amended, the amendment can go as far as amending the entire Deed Restrictions including the
term or duration of the restrictions, which is part and parcel of the Deed.

Corollarily, when [the Association] extended the effectivity of the Deed Restrictions, it did so in
the context of amending particular restrictions as provided in Article VI.

The import of Article VI is so clear that it precludes the Court from giving a different interpretation.
In many instances, the Supreme Court underscored that, as a rule, if the statute is clear, plain
and free from ambiguity, it must be given its literal meaning and applied without interpretation.

Torts and damages; Diligence required of banking institutions

PNB vs. Carmelita Santos, et.al., G.R. No. 208293, December 10, 2014, Leonen, J.

FACTS: Carmelita et al are children of Angel C. Santos, who died in 1991. In 1996, they
discovered that their father maintained a premium savings account and time deposit with PNB,
totaling P2.759Mn. The heirs went to PNB-Sta.Elena-Marikina branch where the money was
deposited to withdraw the said amount.

Lina Aguilar, the branch manager, required them to submit the following documents:

• Original or certified true copy of Death Certificate of Angel Santos

• Certificate of payment of, or exemption from tax estate issued by the BIR
• Deed of Extrajudicial Settlement
• Publisher’s affidavit of publication of the Deed of Extrajudicial Settlement
• Surety bond effective for 2 years in an amount equal to the balance of the deposit
Carmelita et al were able to produce all requirements, but when they tried to withdraw, Aguilar
informed them that P1.882M was released to Bernardito Manimbo upon submission of the
following:

• Affidavit of self-adjudication purportedly executed by Reyme Santos, one of the heirs

• Certificate of Time Deposit amounting to P1Mn
• Death certificate of Angel Santos
• SPA purportedly executed by Reyme Santos in Manimbo’s favor and certain Angel P.
Santos for purposes of withdrawing the money and receiving the proceeds of time deposit

Carmelita et al filed a complaint for sum of money and damages against PNB and Aguilar before
RTC-Marikina. They questioned the release of deposit to Manimbo. In her defense, Aguilar said
that the documents presented by Manimbo including the certificate of payment of estate tax
appeared to be regular.

The trial court ruled in Carmelita et al’s favor and held PNB and Aguilar jointly and severally liable
to pay the respondents P1.882Mn plus interests for being negligent in releasing the deposit to
Manimbo.

On appeal, CA affirmed the decision of the trial court and held PNB and Aguilar negligent in
handling the deposit. The appellate court held that Manimbo was not able to present all the
required documents, particularly the BIR certification proving that estate tax had already been
paid.

Issue:

Whether or not PNB and Aguilar are correct in releasing the deposit to Manimbo
despite the absence of Certificate of Payment of Estate Tax?

Ruling:

PNB and Aguilar were negligent in handling the deposit of Angel C. Santos. In fact, they failed to
exercise the diligence required, which is extraordinary diligence, when they accepted the
fraudulent representations and incomplete documents of Manimbo.

In this case, PNB and Aguilar released the deposit to Manimbo without presenting the BIR-issued
Certificate of Payment of, or exception from, estate tax. This certificate is a legal requirement
before the deposit of a decedent is released pursuant to PD 1158, the tax code applicable when
Angel C. Santos died.

Section 97 of the 1997 National Internal Revenue Code provides:

SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or

Rights. - There shall not be transferred to any new owner in the books of any corporation,
sociedad anonima, partnership, business, or industry organized or established in the
Philippines any share, obligation, bond or right by way of gift inter vivos or mortis causa,
legacy or inheritance, unless a certification from the Commissioner that the taxes fixed in
this Title and due thereon have been paid is shown.

“If a bank has knowledge of the death of a person who maintained a bank
deposit account alone, or jointly with another, it shall not allow any withdrawal
from the said deposit account, unless the Commissioner has certified that the
taxes imposed thereon by this Title have been paid xxx” Provided, however, That
the administrator of the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand
pesos (20,000) without the said certification. For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the joint depositors are still living at the time
of withdrawal by any one of the joint depositors and such statement shall be under oath
by the said depositors.
Taxes are created primarily to generate the maintenance of the government. However, this
particular tax may also serve as guard against the release of deposits to persons who have no
sufficient and valid claim over the deposits. Based on the assumption that only those with
sufficient and valid claim to the deposit will pay the taxes for it, requiring the certificate from
the BIR increases the chance that the deposit will be released only to them.

In their compulsory counterclaim, PNB and Aguilar claimed that Manimbo presented a certificate
of payment of estate tax. During trial, however, it turned out that this certificate was instead an
authority to accept payment, which is not the certificate required for the release of bank deposits.
It appears that Manimbo was not even required to submit the BIR certificate. He, thus, failed to
present such certificate. PNB and Aguilar provided no satisfactory explanation why Angel C.
Santos’ deposit was released without it.

Petitioner PNB is a bank from which a degree of diligence higher than that of a good
father of a family is expected. Petitioner PNB and its manager, petitioner Aguilar, failed to
meet even the standard of diligence of a good father of a family. Their actions and inactions
constitute gross negligence. It is for this reason that the Court sustains the trial court’s and the
Court of Appeals’ rulings that petitioners PNB and Aguilar are solidarily liable with each other.

Torts and Damages; Diligence required; Test of negligence

Manila Electric Company vs. Nordec Philippines, G.R. No.196020, April 18, 2018,
Leonen, J.

Facts: Meralco was contracted to supply electricity to Marvex Industrial Corporation (Marvex). It
installed metering devices at Marvex's premises and Marvex was billed according to the monthly
electric consumption recorded in its meter. On May 29, 1985, Meralco service inspectors inspected
Marvex's electric metering facilities and found that the main meter terminal and cover seals had
been tampered with. During a second inspection Meralco found that the metering devices were
tampered with again. Subsequently, Meralco assessed Marvex a differential billing of P371,919.58
for January 18, 1985 to May 29, 1985, and P124,466.71 for June 17, 1985 to September 18,
1985, in the total amount of P496,386.29. Meralco sent demand letters dated August 7, 1985 and
November 29, 1985, and disconnected Marvex's electric service when it did not pay.

On December 23, 1986, Nordec, the new owner of Marvex, sued Meralco for damages with prayer
for preliminary mandatory injunction with Br. 85, RTC of QC. It alleged that Meralco's service
inspectors conducted the 1985 inspections without its consent or approval. Nordec claimed that
the parties exchanged letters on the alleged unregistered electric bill, and that it requested a
recomputation, which Meralco denied. On August 14, 1986, Meralco required Nordec to pay
P371,919.58 for the unregistered electricity bill. Nordec then informed Meralco of the pending
resolution of the recomputation. Meralco then disconnected its service without prior notice on
December 18, 1986, resulting to loss of income and cancellation of other business opportunities.
In its defense, Meralco claimed that the 1985 inspections had been conducted in the presence of
Nordec's representatives. Further, Meralco had repeatedly warned Nordec of service
disconnection in case of failure to pay the differential bill.

On January 22, 1987, the RTC issued a writ of preliminary injunction directing Meralco to restore
Nordec's electric supply. Nordec filed a second supplemental complaint on January 4, 1991,
praying that Meralco be declared guilty of tampering, and be made to refund its excess bill of not
less than P5,625.10. In its June 15, 2005 Decision, the RTC dismissed Nordec's original complaint
and second supplemental complaint ruling that there was sufficient evidence to prove that the
electric meter and metering installation at Marvex premises had been tampered with. Moreover,
Nordec failed to prove that Meralco's inspectors had ill motives to falsify their findings regarding
the tampered meter, or that the inspectors were responsible for the tampering. There was also
no contractual relationship between Nordec and Meralco, since the service contract was between
Meralco and Marvex. Upon appeal, the CA reversed the RTC’s decision ruling that there was a
contractual relationship between Nordec and Meralco. It found that that Meralco was negligent
in discovering the alleged tampering only on May 29, 1985, or four months after it first found
irregularities in the metering devices, despite the monthly meter readings. Moreover, Meralco
failed to give the' required 48-hour written notice of disconnection before disconnecting Nordec's
power supply.

Meralco claims that the inspections conducted on Marvex's metering facilities were valid and in
accordance with Presidential Decree No. 401 and that Nordec was not Marvex's assignee or
successor-in-interest.

Issue: Whether Meralco was inexcusably negligent when it disconnected Nordec

Philippines' electric supply?

Ruling:

Yes. It is well-settled that electricity distribution utilities, which rely on mechanical devices and
equipment for the orderly undertaking of their business, are duty-bound to make reasonable and
proper periodic inspections of their equipment. If they are remiss in carrying out this duty due to
their own negligence, they risk forfeiting the amounts owed by the customers affected. MERALCO
has the imperative duty to make a reasonable and proper inspection of its apparatus and
equipment to ensure that they do not malfunction, and the due diligence to discover and repair
defects therein. Failure to perform such duties constitutes negligence.

It has been held that notice of a defect need not be direct and express; it is enough that the
same had existed for such a length of time that it is reasonable to presume that it had been
detected, and the presence of a conspicuous defect which has existed for a considerable length
of time will create a presumption of constructive notice thereof. Hence, MERALCO's failure to
discover the defect, if any, considering the length of time, amounts to inexcusable negligence.
Furthermore, we need not belabor the point that as a public utility, MERALCO has the obligation
to discharge its functions with utmost care and diligence. Being a public utility vested with vital
public interest, MERALCO is impressed with certain obligations towards its customers and any
omission on its part to perform such duties would be prejudicial to its interest.

The SC deleted the award of moral damages since the records are bereft of evidence that would
show that Nordec's name or reputation suffered due to the disconnection of its electric supply. It
also deleted the award for temperate damages since Nordec a failed to prove the fact of pecuniary
loss, and not just the amount of this loss. The SC awarded nominal damages based on Meralco's
negligence in not providing Nordec sufficient notice of disconnection of its electric supply,
especially when there was an ongoing dispute between them concerning the recomputation of
the electricity bill to be paid, violated Nordec's rights.

Persons; Waiver of rights

Edna Mabugay- Otamias vs Republic, et.al, G.R. No. 189516, June 08, 2016

Facts: Edna Mabugay-Otamias was married to Colonel Francisco Otamias on 1978. The couple
had five children. On September 2000, they separated. After the separation, their children
remained with Edna. She then demanded support equivalent to 75 percent of the colonel’s
retirement benefits. However, Colonel Otamias executed an affidavit stating that he can commit
only 50 percent of his retirement benefits to his children and wife. Because of this, they entered
into a compromise agreement.

On February 26, 2003, the colonel executed a Deed of Assignment where he waived 50 percent
of his salary and pension in favor of Edna and his children. Colonel Otamias retired on April 1,
2003.

The agreement was honored until January 6, 2006. Edna then alleged that the Armed Forces of
the Philippines (AFP) suddenly decided not to honor the agreement between Colonel Otamias and
his legitimate family.

AFP Pension and Gratuity Management Center informed Edna that a court order was required for
them to recognize the Deed of Assignment. It reiterated that it could not act on Edna's request
to receive a portion of Colonel Otamias' pension unless ordered by the appropriate court. In
compliance, Edna filed before RTC an action for support. The court ruled in favor of Edna and
ordered the automatic deduction of the amount of support from the monthly pension of Colonel
Otamias.

ISSUE/S:

1. Whether or not AFP Finance Center should be directed to automatically deduct the
amount of support needed by the legitimate family of Colonel Otamias?

2. Whether or not Colonel Otamias' pension benefits can be executed upon for the
financial support of his legitimate family?

Ruling:

SC granted the petition.

Article 6 of the Civil Code provides:

Article 6. Rights may be waived, unless the waiver is contrary to law, public
order, public policy, morals or good customs, or prejudicial to a third person
with a right recognized by law.

The concept of waiver has been defined by this Court 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 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.

In determining whether a statutory right can be waived, this Court is guided by the following
pronouncement:

The doctrine of waiver extends to rights and privileges of any character, and, since the
word 'waiver' covers every conceivable right, it is the general rule that a person may
waive any matter which affects his property, and any alienable right or privilege of which
he is the owner or which belongs to him or to which he is legally entitled, whether secured
by contract, conferred with statute, or guaranteed by constitution, provided such rights
and privileges rest in the individual, are intended for his sole benefit, do not
infringe on the rights of others, and further provided the waiver of the right or
privilege is not forbidden by law, and does not contravene public policy; and the
principle is recognized that everyone has a right to waive, and agree to waive, the
advantage of a law or rule made solely for the benefit and protection of the individual in
his private capacity, if it can be dispensed with and relinquished without infringing on any
public right, and without detriment to the community at large.

When Colonel Otamias executed the Deed of Assignment, he effectively waived his right to claim
that his retirement benefits are exempt from execution. The right to receive retirement benefits
belongs to Colonel Otamias. His decision to waive a portion of his retirement benefits does not
infringe on the right of third persons, but even protects the right of his family to receive support.

The Deed of Assignment should be considered as the law between the parties, and its
provisions should be respected in the absence of allegations that Colonel Otamias was coerced
or defrauded in executing it.

In addition, the Deed of Assignment executed by Colonel Otamias was not contrary to law; it
was in accordance with the provisions on support in the Family Code. Hence, there was no reason
for the AFP PGMC not to recognize its validity.
The Court further held that the AFP PGMC was able to grant the request for support of the wives
of the retired military personnel in a similar situation as that of the petitioner in this case. Clearly,
the AFP PGMC allows deductions from a retiree's pension for as long as the retiree executes a
Special Power of Attorney authorizing the AFP PGMC to deduct a certain amount for the benefit
of the retiree's beneficiary. The Court was curious on why the Colonel was allowed to execute a
Deed of Assignment instead of SPA.

On the second issue:

Based on the Family Code, Colonel Otamias is obliged to give support to his family, petitioners
in this case.

Art. 195. Subject to the provisions of the succeeding articles, the following are
obliged to support each other to the whole extent set forth in the preceding
article:

(1) The spouses;

(2) Legitimate ascendants and descendants;
(3) Parents and their legitimate children and the legitimate and
illegitimate children of the latter;
(4) Parents and their illegitimate children and the legitimate and
illegitimate children of the latter; and
(5) Legitimate brothers and sisters, whether of the full or half- blood.

Art. 196. Brothers and sisters not legitimately related, whether of the full or
half-blood, are likewise bound to support each other to the full extent set forth
in Article 194 except only when the need for support of the brother or sister,
being of age, is due to a cause imputable to the claimant's fault or negligence.

Art. 197. For the support of legitimate ascendants; descendants, whether

legitimate or illegitimate; and brothers and sisters, whether legitimately or
illegitimately related, only the separate property of the person obliged to give
support shall be answerable provided that in case the obligor has no separate
property, the absolute community or the conjugal partnership, if financially
capable, shall advance the support, which shall be deducted from the share of
the spouses obliged upon the liquidation of the absolute community or of the
conjugal partnership.

However, he retired in 2003, and his sole source of income is his pension. Judgments in actions
for support are immediately executory, yet under Section 31 of Presidential Decree No. 1638, his
pension cannot be executed upon.

Section 31 of Presidential Decree No. 1638 provides:

Section 31. The benefits authorized under this Decree, except as provided
herein, shall not be subject to attachment, garnishment, levy, execution or any
tax whatsoever; neither shall they be assigned, ceded, or conveyed to any third
person: Provided, That if a retired or separated officer or enlisted man who is
entitled to any benefit under this Decree has unsettled money and/or property
accountabilities incurred while in the active service, not more than fifty per
centum of the pension gratuity or other payment due such officer or enlisted
man or his survivors under this Decree may be withheld and be applied to settle
such accountabilities.

However, considering that Colonel Otamias has waived a portion of his retirement benefits
through his Deed of Assignment, resolution on the conflict between the civil code provisions on
support and Section 31 of Presidential Decree No. 1638 should be resolved in a more appropriate
case.

The Court, in applying the ruling in Republic vs Yahon, held that Section 8(g) of R.A. No.
9262, being a later enactment, should be construed as laying down an exception to the general
rule above stated that retirement benefits are exempt from execution. The law itself declares that
the court shall order the withholding of a percentage of the income or salary of the respondent
by the employer, which shall be automatically remitted directly to the woman notwithstanding
other laws to the contrary.

Moreover, the 1987 Constitution gives much importance to the family as the basic unit of
society, such that Article XV is devoted to it.

The passage of the Family Code further implemented Article XV of the Constitution. The Court
has recognized the importance of granting support to minor children, provided that
the filiation of the child is proven. In this case, the filiation of Jeffren M. Otamias and Jemwel
M. Otamias was admitted by Colonel Otamias in the Deed of Assignment.

Obligations and Contracts; Novation

DBP vs. Sta. Ines Melale Forest Products Coporation, et. al., G.R. No 193068 February
01, 2017

Facts: Galleon Shipping experienced financial difficulties and had to take out several loans from
different sources, including, from its stockholders. Petitioner guaranteed Galleon Shipping’s loan.
In return, Galleon and the respondents executed a Deed of Undertaking and obligated themselves
to guarantee DBP’s potential liabilities. Despite obtaining loans, the financial condition of Galleon
Shipping did not improve. Galleon Shipping’s President then wrote to then President Ferdinand
Marcos and asked for assistance. President Marcos then directed the National Development
Company (NDC) to acquire 100% of the Shareholdings of Galleon Shipping from its present
owners. Pursuant to this, Galleon Shipping and Ongpin, who is then the Chairman of the Board
of Directors of NDC, entered into a Memorandum of Agreement. Among the agreements was that
the respondents will be released from the personal counter-guarantees they issued in DBP in
favor of the Deed of Undertaking.

Acting as Galleon Shipping’s guarantor, DBP paid off Galleon’s debts to its foreign bank creditor
and pursuant to the Deed of Undertaking, Galleon Shipping executed a mortgage contract over
several vessels in favor of DBP. Subsequently, President Marcos instructed the DBP and the NDC
to take immediate steps, including foreclosure of Galleon Vessels and other assets as may be
deemed necessary to limit and protect the Government’s exposure.

Respondents then filed for the issuance of a Writ of Preliminary Injunction. The respondents
alleged that DBP can no longer go after them for any deficiency judgment since NDB had been
subrogated in their place as borrowers, hence, the Deed of Undertaking between the respondents
and DBP had been extinguished and novated.

ISSUE/S:

1. Whether or not the Memorandum of Agreement obligates NDC to purchase

Galleon's shares of stocks and pay the advances made by respondents in
Galleon's favor?
2. Whether or not the Memorandum of Agreement novated the Deed of
Undertaking executed between DBP and the respondents?
3. Whether or not the computation of legal interest should be at the rate of 6%
per annum, instead of the 12% per annum pegged by the Court of Appeals?

Ruling:

1. The court declared Respondents are LIABLE to the National Development Corporation,
the Development Bank of the Philippines, and the Asset Privatization Trust under the deed
of undertaking, pledge, mortgages, and other accessory contracts among the parties. The
SC held that when 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."

The law is categorical that "various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly."
 The Court of Appeals found that the Memorandum of Agreement between NDC and
Galleon was a perfected contract for NDC to purchase 100% of Galleon’s shareholdings.
However, a careful reading of the Memorandum of Agreement shows that what the parties
agreed to was the execution of a share purchase agreement to effect the transfer of 100%
of Galleon’s shareholdings to NDC. DBP’s claims for damages are denied since it failed to
support its claims of malicious prosecution and a deliberate act of Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings to cause loss or injury to DBP.

Taking the provisions of the Memorandum of Agreement as a whole, it is clear that the
transfer of shares from respondents to NDC was to be effected only with the execution of
the share purchase agreement, the terms and conditions of which were laid out in the
Memorandum of Agreement.

NDC and the respondents undertook to prepare and sign a share purchase agreement
over 100% of respondents' shares in Galleon not more than sixty days after the signing
of the Memorandum of Agreement

Considering NDC's delay, the execution of the share purchase agreement should be
considered fulfilled with NDC as the new owner of 100% of Galleon's shares of
stocks.

The due execution of the share purchase agreement is further bolstered by Article
1198(4) of the Civil Code, which states that the debtor loses the right to make use of
the period when a condition is violated, making the obligation immediately demandable

2. The Supreme Court ruled that there exist no novation in the present case.
Novation is a mode of extinguishing an obligation by "changing its object or principal
conditions, substituting the person of the debtor or subrogating a third person in the rights
of the creditor."

It should be noted that in order to give novation its legal effect, the law requires that the
creditor should consent to the substitution of a new debtor. This consent must be
given expressly for the reason that, since novation extinguishes the personality of the first
debtor who is to be substituted by new one, it implies on the part of the creditor a waiver
of the right that he had before the novation, which waiver must be express under the
principle that renuntiatio non praesumitur, recognized by the law in declaring that a waiver
of right may not be performed unless the will to waive is indisputably shown by him who
holds the right.

The general rule is that, “[i]n the absence of an authority from the board of directors, no
person, not even the officers of the corporation, can validly bind the corporation.” A
corporation is a juridical person, separate and distinct from its stockholders and members,
having “powers, attributes and properties expressly authorized by law or incident to its
existence.”

“A corporate officer or agent may represent and bind the corporation in transactions with
third persons to the extent that [the] authority to do so has been conferred upon him,
and this includes powers which have been intentionally conferred, and also such powers
as, in the usual course of the particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the corporation
has caused persons dealing with the officer or agent to believe that it has conferred.”

Aside from Ongpin being the concurrent head of DBP and NDC at the time the
Memorandum of Agreement was executed, there was no proof presented that Ongpin was
duly authorized by the DBP to give consent to the substitution by NDC as a co-guarantor
of Galleon’s debts. Ongpin is not DBP, therefore, it is wrong to assume that DBP impliedly
gave its consent to the substitution simply by virtue of the personality of its Governor.

Novation is never presumed. The animus novandi, whether partial or total, “must
appear by express agreement of the parties, or by their acts which are too clear and
unequivocal to be mistaken.” There was no such animus novandi in the case at bar
 between DBP and respondents, thus, respondents have not been discharged as Galleon’s
co-guarantors under the Deed of Undertaking and they remain liable to DBP.

3. The court held further that the award of the advances made by Respondents in Galleon’s
favor, as well as the award of the payment for their shares of stocks in Galleon, shall earn
an interest rate of 12% per annum from the date of the filing of this case on April 22,
1985 until June 30, 2013, after which, they shall earn interest at the rate of 6% per annum
until the Decision becomes final and executor. These amounts shall earn interest at the
rate of 6% per annum from the finality of this Decision until its satisfaction.

Applying the Nacar Ruling, when an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages.

With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

a. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
b. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion
of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.

c. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.

Credit Transactions; Pactum commissorium

Home Guaranty Corporation vs. La Savoie Development Corporation, G.R. No.

168616, January 28, 2015

Facts: On April 2, 1990, La Savoie Development Corporation as a domestic corporation

commenced its operations. It is engaged in the business of real estate development, subdivision
and brokering.
However, in 1997, La Savoie found itself unable to pay its obligations to its creditors with the
onset of the Asian financial crisis. Thus, La Savoie filed a petition for the declaration of state of
suspension of payments with approval of proposed rehabilitation plan.
The RTC issued the “Stay Order” staying the enforcement of all claims against La Savoie.
However, La Savoie's creditors like Planters Development Bank, Philippine Veterans Bank, and
Robinsons Savings Bank filed their oppositions.
Home Guaranty Corporation also filed an opposition even though it was not their creditor. Home
Guaranty Corporation noted that through the La Savoie Asset Pool Formation and Trust
Agreement, La Savoie obtained financing for some of its projects in Planters Development Bank
who issued PI50 million dubbed as the "La Savoie Development Certificates" (LSDC certificates)
to be sold to investors which were covered by a guaranty extended by Home Guaranty
Corporation.
The RTC denied La Savoie’s Petition for Rehabilitation, thus an appeal was lodged.
In the meantime, Home Guaranty approved and processed the call on the guaranty for the
redemption of the LSDC certificates and paid a total of P128.5 million as redemption value to
certificate holders. This absolutely conveyed and assigned to Home Guaranty Corporation the
ownership and possession of the entire assets of the La Savoie Asset Pool. Thus, this underscores
that the transfer made to it by Planters Development Bank was made after the Stay Order had
been lifted. On the other hand, La Savoie claimed that the supposed assignment and conveyance
to Home Guaranty Corporation was ineffectual considering that at the time of the guaranty call,
the Stay Order was admittedly in effect.
CA reversed and set aside the RTCs decision, reinstated the Stay Order, gave due course to the
Petition for Rehabilitation, and remanded the case to the trial court for further proceedings.
Hence, this review for certiorari.
Issue:
1. Whether the properties comprising the Asset Pool should be excluded from the
proceedings on La Savoie Development Corporation's Petition for Rehabilitation. (The
resolution of this issue hinges on whether the conveyance to Home Guaranty Corporation
of the properties comprising the Asset Pool was valid and effectual.)
2. Whether Atty. Danilo C. Javier was authorized to sign the verification and certificate of
non-forum shopping of Home Guaranty Corporation's Petition; and
3. Whether Home Guaranty Corporation engaged in forum shopping.
Ruling: The Petition is DENIED. The execution of a Deed of Conveyance was a pactum
commissorium which is forbidden by law. Hence, the conveyance is void and ineffectual and does
not serve to vest ownership in Home Guaranty Corporation.

Two key points are established in this case. First, the restoration of La Savoie's status as a
corporation under receivership brings into operation the rule against preference of creditors.

Second, La Savoie's continuing ownership entails the continuing competence of the court having
jurisdiction over the rehabilitation proceedings to rule on how the properties comprising the Asset
Pool shall be disposed, managed, or administered.

The cumulative effect of these is that Home Guaranty Corporation must submit itself, like how La
Savoie's other creditors and La Savoie's Petition for Rehabilitation shall be resolved. As a paying
guarantor, Home Guaranty Corporation was subrogated into the rights of La Savoie's creditors
and now stands as the latter's own creditor. It remains so pending the satisfaction of La Savoie's
obligation and as the void conveyance made to it by Planters Development Bank failed to
terminate in the creditor-debtor relationship with La Savoie.

Torts and Damages; Vicarious liability; Registered-owner rule

Caravan Travel and Tours International, Inc. V Ermilinda R. Abejar, G.R. No. 170631,
February 10, 2016

Facts: On July 13, 2000, Jesmariane Reyes (Reyes) was walking along the west-bound lane of
Sampaguita Street, United Parañaque Subdivision IV, Parañaque City. A Mitsubishi L-300 van with
plate number PKM 195 was travelling along the east-bound lane, opposite Reyes. To avoid an
incoming vehicle, the van swerved to its left and hit Reyes. Alex Espinosa (Espinosa), a witness
to the accident, went to her aid and loaded her in the back of the van. Espinosa told the driver
of the van, Jimmy Bautista (Bautista), to bring Reyes to the hospital. Instead of doing so, Bautista
appeared to have left the van parked inside a nearby subdivision with Reyes still in the van.
Fortunately for Reyes, an unidentified civilian came to help and drove Reyes to the hospital.
Upon investigation, it was found that the registered owner of the van was Caravan. Caravan is a
corporation engaged in the business of organizing travels and tours. Bautista was Caravan's
employee assigned to drive the van as its service driver.

Caravan shouldered the hospitalization expenses of Reyes. Despite medical attendance, Reyes
died two (2) days after the accident.

Respondent Ermilinda R. Abejar (Abejar), Reyes' paternal aunt and the person who raised her
since she was nine (9) years old, filed before the Regional Trial Court of Parañaque a Complaint
for damages against Bautista and Caravan.

Issue:

1. Whether respondent Ermilinda R. Abejar is a real party in interest who may bring an action
for damages against petitioner Caravan Travel and Tours International, Inc. on account
of Jesmariane R. Reyes' death
2. Whether petitioner should be held liable as an employer, pursuant to Article 2180 of the
Civil Code
Ruling: Petition denied, the Decision of the Court of Appeals is affirmed and modified.

I.

Having exercised substitute parental authority, respondent suffered actual loss and is, thus, a real
party in interest in this case.

In her Complaint, respondent made allegations that would sustain her action for damages: that
she exercised substitute parental authority over Reyes; that Reyes' death was caused by the
negligence of petitioner and its driver; and that Reyes' death caused her damage.[54] Respondent
properly filed an action based on quasi-delict. She is a real party in interest.

Rule 3, Section 2 of the 1997 Rules of Civil Procedure defines a real party in interest:

Xxx A real party in interest is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise
authorized by law or these Rules, every action must be prosecuted or defended in the
name of the real party in interest.

"To qualify a person to be a real party in interest in whose name an action must be prosecuted,
he [or she] must appear to be the present real owner of the right sought to be enforced."
Respondent's capacity to file a complaint against petitioner stems from her having exercised
substitute parental authority over Reyes.

Article 216 of the Family Code identifies the persons who exercise substitute parental
authority:

Art. 216. In default of parents or a judicially appointed guardian, the following persons
shall exercise substitute parental authority over the child in the order indicated:

1. The surviving grandparent, as provided in Art. 214;

2. The oldest brother or sister, over twenty-one years of age, unless unfit or disqualified;
and
3. The child's actual custodian, over twenty-one years of age, unless unfit or disqualified.
Whenever the appointment or a judicial guardian over the property of the child becomes
necessary, the same order of preference shall be observed.

Article 233 of the Family Code provides for the extent of authority of persons exercising substitute
parental authority, that is, the same as those of actual parents:

Art. 233. The person exercising substitute parental authority shall have the same authority over
the person of the child as the parents.
Both of Reyes' parents are already deceased. Reyes' paternal grandparents are also both
deceased. The whereabouts of Reyes' maternal grandparents are unknown. There is also no
record that Reyes has brothers or sisters. It was under these circumstances that respondent took
custody of Reyes when she was a child, assumed the role of Reyes' parents, and thus, exercised
substitute parental authority over her.As Reyes' custodian, respondent exercised the full extent
of the statutorily recognized rights and duties of a parent. Consistent with Article 220 of the
Family Code, respondent supported Reyes' education and provided for her personal needs To
echo respondent's words in her Complaint, she treated Reyes as if she were her own daughter.

Respondent's right to proceed against petitioner, therefore, is based on two grounds.

First, respondent suffered actual personal loss. With her affinity for Reyes, it stands to
reason that when Reyes died, respondent suffered the same anguish that a natural parent
would have felt upon the loss of one's child. It is for this injury—as authentic and personal
as that of a natural parent—that respondent seeks to be indemnified.

Second, respondent is capacitated to do what Reyes' actual parents would have been
capacitated to do.

In Metro Manila Transit Corporation v. Court of Appeals, Tapdasan, Jr. v. People, and Aguilar,
Sr. v. Commercial Savings Bank, this court allowed natural parents of victims to recover damages
for the death of their children. Inasmuch as persons exercising substitute parental authority have
the full range of competencies of a child's actual parents, nothing prevents persons exercising
substitute parental authority from similarly possessing the right to be indemnified for their ward's
death.

We note that Reyes was already 18 years old when she died. Having reached the age of majority,
she was already emancipated upon her death. While parental authority is terminated upon
emancipation, respondent continued to support and care for Reyes even after she turned 18.
Except for the legal technicality of Reyes' emancipation, her relationship with respondent
remained the same. The anguish and damage caused to respondent by Reyes' death was no
different because of Reyes' emancipation.

In any case, the termination of respondent's parental authority is not an insurmountable legal bar
that precludes the filing of her Complaint. In interpreting Article 1902 of the old Civil Code, which
is substantially similar to the first sentence of Article 2176 of the Civil Code, this court in The
Receiver For North Negros Sugar Company, Inc. v. Ybañez, et al ruled that brothers and sisters
may recover damages, except moral damages, for the death of their sibling.

This court declared that Article 1902 of the old Civil Code (now Article 2176) is broad enough to
accommodate even plaintiffs who are not relatives of the deceased, thus: This Court said: "Article
1902 of the Civil Code declares that any person who by an act or omission, characterized by fault
or negligence, causes damage to another shall be liable for the damage done ... a person is liable
for damage done to another by any culpable act; and by any culpable act is meant any act which
is blameworthy when judged by accepted legal standards. The idea thus expressed is undoubtedly
broad enough to include any rational conception of liability for the tortious acts likely to be
developed in any society." The word "damage" in said article, comprehending as it does all that
are embraced in its meaning, includes any and all damages that a human being may suffer in any
and all the manifestations of his life: physical or material, moral or psychological, mental or
spiritual, financial, economic, social, political, and religious.

It is particularly noticeable that Article 1902 stresses the passive subject of the obligation to pay
damages caused by his fault or negligence. The article does not limit or specify the active subjects,
much less the relation that must exist between the victim of the culpa aquiliana and the person
who may recover damages, thus warranting the inference that, in principle, anybody who suffers
any damage from culpa aquiliana, whether a relative or not of the victim, may recover damages
from the person responsible therefor.

II.

Respondent's Complaint is anchored on an employer's liability for quasi-delict provided in Article

2180, in relation to Article 2176 of the Civil Code. Articles 2176 and 2180.
The resolution of this case must consider two (2) rules. First, Article 2180's specification that
"employers shall be liable for the damages caused by their employees . . . acting within the scope
of their assigned tasks." Second, the operation of the registered-owner rule that registered
owners are liable for death or injuries caused by the operation of their vehicles.

These rules appear to be in conflict when it comes to cases in which the employer is also the
registered owner of a vehicle. Article 2180 requires proof of two things: first, an employment
relationship between the driver and the owner; and second, that the driver acted within the scope
of his or her assigned tasks. On the other hand, applying the registered-owner rule only requires
the plaintiff to prove that the defendant-employer is the registered owner of the vehicle.

The registered-owner rule was articulated as early as 1957 in Erezo, et al. v. Jepte, where this
court explained that the registration of motor vehicles, as required by Section 5(a) of Republic
Act No. 4136, the Land Transportation and Traffic Code, was necessary "not to make said
registration the operative act by which ownership in vehicles is transferred, . . . but to permit the
use and operation of the vehicle upon any public highway[.]" Its "main aim . . . is to identify the
owner so that if any accident happens, or that any damage or injury is caused by the vehicle on
the public highways, responsibility therefor can be fixed on a definite individual, the registered
owner."

Erezo notwithstanding, Castilex Industrial Corporation v. Vasquez, Jr. relied on Article 2180 of the
Civil Code even though the employer was also the registered owner of the vehicle. The registered-
owner rule was not mentioned.

In Castilex, Benjamin Abad (Abad) was a manager of Castilex Industrial Corporation (Castilex).
Castilex was also the registered owner of a Toyota Hi-Lux pick-up truck. While Abad was driving
the pick-up truck, it collided with a motorcycle driven by Romeo Vasquez (Vasquez). Vasquez
died a few days after. Vasquez's parents filed a case for damages against Abad and Castilex.
Castilex denied liability, arguing that Abad was acting in his private capacity at the time of the
accident.

This court absolved Castilex of liability, reasoning that it was incumbent upon the plaintiff to prove
that the negligent employee was acting within the scope of his assigned tasks. Vasquez's parents
failed to prove this. This court outlined the process necessary for an employer to be held liable
for the acts of its employees and applied the process to the case:

Under the fifth paragraph of Article 2180, whether or not engaged in any business or industry,
an employer is liable for the torts committed by employees within the scope of his assigned tasks.
But it is necessary to establish the employer-employee relationship; once this is done, the plaintiff
must show, to hold the employer liable, that the employee was acting within the scope of his
assigned task when the tort complained of was committed. It is only then that the employer may
find it necessary to interpose the defense of due diligence in the selection and supervision of the
employee. . . . .

Since there is paucity of evidence that ABAD was acting within the scope of the functions
entrusted to him, petitioner CASTILEX had no duty to show that it exercised the diligence of a
good father of a family in providing ABAD with a service vehicle. Thus, justice and equity require
that petitioner be relieved of vicarious liability for the consequences of the negligence of ABAD in
driving its vehicle.

Aguilar, Sr. v. Commercial Savings Bank recognized the seeming conflict between Article 2180
and the registered-owner rule and applied the latter.

In Aguilar, Sr., a Mitsubishi Lancer, registered in the name of Commercial Savings Bank and driven
by the bank's assistant vice-president Ferdinand Borja, hit Conrado Aguilar, Jr. The impact killed
Conrado Aguilar, Jr. His father, Conrado Aguilar, Sr. filed a case for damages against Ferdinand
Borja and Commercial Savings Bank. The Regional Trial Court found Commercial Savings Bank
solidarity liable with Ferdinand Borja.

However, the Court of Appeals disagreed with the trial court's Decision and dismissed the
complaint against the bank. The Court of Appeals reasoned that Article 2180 requires the plaintiff
to prove that at the time of the accident, the employee was acting within the scope of his or her
assigned tasks.

The Court of Appeals found no evidence that Ferdinand Borja was acting as the bank's assistant
vice-president at the time of the accident.[90] The Court of Appeals' ruling was reversed by this
court. Aguilar, Sr. reiterated the following pronouncements made in Erezo in ruling that the bank,
as the registered owner of the vehicle, was primarily liable to the plaintiff:

The main aim of motor vehicle registration is to identify the owner so that if any accident happens,
or that any damage or injury is caused by the vehicle on the public highways, responsibility
therefor can be fixed on a definite individual, the registered owner.... ....

A victim of recklessness on the public highways is usually without means to discover or identify
the person actually causing the injury or damage. He has no means other than by a recourse to
the registration in the Motor Vehicles Office to determine who is the owner. The protection that
the law aims to extend to him would become illusory were the registered owner given the
opportunity to escape liability by disproving his ownership

Thus, Aguilar, Sr. concluded:

In our view, respondent bank, as the registered owner of the vehicle, is primarily liable
for Aguilar, Jr.'s death. The Court of Appeals erred when it concluded that the bank was
not liable simply because

(a) petitioner did not prove that Borja was acting as the bank's vice president at
the time of the accident; and

(b) Borja had, according to respondent bank, already bought the car at the time
of the mishap. For as long as the respondent bank remained the registered owner
of the car involved in the vehicular accident, it could not escape primary liability
for the death of petitioner's son.

Preference for the registered-owner rule became more pronounced in Del Carmen, Jr. v. Bacoy:

Without disputing the factual finding of the [Court of Appeals] that Allan was still his employee
at the time of the accident, a finding which we see no reason to disturb, Oscar Jr. contends that
Allan drove the jeep in his private capacity and thus, an employer's vicarious liability for the
employee's fault under Article 2180 of the Civil Code cannot apply to him.

The contention is no longer novel. In Aguilar Sr. v. Commercial Savings Bank, the car of therein
respondent bank caused the death of Conrado Aguilar, Jr. while being driven by its assistant vice
president. Despite Article 2180, we still held the bank liable for damages for the accident as said
provision should defer to the settled doctrine concerning accidents involving registered motor
vehicles, i.e., that the registered owner of any vehicle, even if not used for public service, would
primarily be responsible to the public or to third persons for injuries caused the latter while the
vehicle was being driven on the highways or streets. We have already ratiocinated that:

The main aim of motor vehicle registration is to identify the owner so that if any accident happens,
or that any damage or injury is caused by the vehicle on the public highways, responsibility
therefor can be fixed on a definite individual, the registered owner. Instances are numerous
where vehicles running on public highways caused accidents or injuries to pedestrians or other
vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public,
that the motor vehicle registration is primarily ordained, in the interest of the determination of
persons responsible for damages or injuries caused on public highways.

Filcar Transport Services v. Espinasn stated that the registered owner of a vehicle can no longer
use the defenses found in Article 2180:

Neither can Filcar use the defenses available under Article 2180 of the Civil Code - that the
employee acts beyond the scope of his assigned task or that it exercised the due diligence of a
good father of a family to prevent damage - because the motor vehicle registration law, to a
certain extent, modified Article 2180 of the Civil Code by making these defenses unavailable to
the registered owner of the motor vehicle. Thus, for as long as Filcar is the registered owner of
the car involved in the vehicular accident, it could not escape primary liability for the damages
caused to Espinas.

Mendoza v. Spouses Gomez reiterated this doctrine.

However, Aguilar, Sr., Del Carmen, Filcar, and face should not be taken to mean that Article 2180
of the Civil Code should be completely discarded in cases where the registered-owner rule
finds application.

As acknowledged in Filcar, there is no categorical statutory pronouncement in the Land

Transportation and Traffic Code stipulating the liability of a registered owner. The source of a
registered owner's liability is not a distinct statutory provision, but remains to be Articles 2176
and 2180 of the Civil Code:

While Republic Act No. 4136 or the Land Transportation and Traffic Code does not contain any
provision on the liability of registered owners in case of motor vehicle mishaps, Article 2176, in
relation with Article 2180, of the Civil Code imposes an obligation upon Filcar, as registered owner,
to answer for the damages caused to Espinas' car.

Thus, it is imperative to apply the registered-owner rule in a manner that harmonizes it with
Articles 2176 and 2180 of the Civil Code. Rules must be construed in a manner that will harmonize
them with other rules so as to form a uniform and consistent system of jurisprudence. In light of
this, the words used in Del Carmen are particularly notable. There, this court stated that Article
2180 "should defer to" the registered-owner rule. It never stated that Article 2180 should be
totally abandoned.

Therefore, the appropriate approach is that in cases where both the registered-owner rule and
Article 2180 apply, the plaintiff must first establish that the employer is the registered owner of
the vehicle in question. Once the plaintiff successfully proves ownership, there arises a disputable
presumption that the requirements of Article 2180 have been proven. As a consequence, the
burden of proof shifts to the defendant to show that no liability under Article 2180 has arisen.

This disputable presumption, insofar as the registered owner of the vehicle in relation to the
actual driver is concerned, recognizes that between the owner and the victim, it is the former
that should carry the costs of moving forward with the evidence. The victim is, in many cases, a
hapless pedestrian or motorist with hardly any means to uncover the employment relationship of
the owner and the driver, or any act that the owner may have done in relation to that
employment.

The registration of the vehicle, on the other hand, is accessible to the public.

Here, respondent presented a copy of the Certificate of Registration of the van that hit Reyes.
The Certificate attests to petitioner's ownership of the van. Petitioner itself did not dispute its
ownership of the van. Consistent with the rule we have just stated, a presumption that the
requirements of Article 2180 have been satisfied arises. It is now up to petitioner to establish that
it incurred no liability under Article 2180. This it can do by presenting proof of any of the following:
first, that it had no employment relationship with Bautista; second, that Bautista acted outside
the scope of his assigned tasks; or third, that it exercised the diligence of a good father of a
family in the selection and supervision of Bautista.

On the first, petitioner admitted that Bautista was its employee at the time of the accident.

On the second, petitioner was unable to prove that Bautista was not acting within the scope of
his assigned tasks at the time of the accident. When asked by the court why Bautista was at the
place of the accident when it occurred, Sally Bellido, petitioner's accountant and supervisor,
testified that she did not "have the personal capacity to answer [the question]" and that she had
no knowledge to answer it:

Sally Bellido's testimony does not affect the presumption that Article 2180's requirements have
been satisfied. Mere disavowals are not proof that suffice to overturn a presumption. To this end,
evidence must be adduced. However, petitioner presented no positive evidence to show that
Bautista was acting in his private capacity at the time of the incident.

On the third, petitioner likewise failed to prove that it exercised the requisite diligence in the
selection and supervision of Bautista.

In its selection of Bautista as a service driver, petitioner contented itself with Bautista's submission
of a non-professional driver's license.

Employing a person holding a non-professional driver's license to operate another's motor vehicle
violates Section 24 of the Land Transportation and Traffic Code, which provides:

SEC. 24. Use of driver's license and badge. — ... . . . .

No owner of a motor vehicle shall engage, employ, or hire any person to operate such motor
vehicle, unless the person sought to be employed is a duly licensed professional driver.

Evidently, petitioner did not only fail to exercise due diligence when it selected Bautista as service
driver; it also committed an actual violation of law.

To prove that it exercised the required diligence in supervising Bautista, petitioner presented
copies of several memoranda and company rules. These, however, are insufficient because
petitioner failed to prove actual compliance. Metro Manila Transit Corporation v. Court of Appeals
emphasized that to establish diligence in the supervision of employees, the issuance of company
policies must be coupled with proof of compliance:

Due diligence in the supervision of employees, on the other hand, includes the formulation of
suitable rules and regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with whom the employer has
relations through his or its employees and the imposition of necessary disciplinary measures upon
employees in case of breach or as may be warranted to ensure the performance of acts
indispensable to the business of and beneficial to their employer. To this, we add that actual
implementation and monitoring of consistent compliance with said rules should be the constant
concern of the employer, acting through dependable supervisors who should regularly report on
their supervisory functions.

In order that the defense of due diligence in the selection and supervision of employees may be
deemed sufficient and plausible, it is not enough to emptily invoke the existence of said company
guidelines and policies on hiring and supervision. As the negligence of the employee gives rise to
the presumption of negligence on the part of the employer, the latter has the burden of proving
that it has been diligent not only in the selection of employees but also in the actual supervision
of their work. The mere allegation of the existence of hiring procedures and supervisory policies,
without anything more, is decidedly not sufficient to overcome presumption.

We emphatically reiterate our holding, as a warning to all employers, that "(t)he mere formulation
of various company policies on safety without showing that they were being complied with is not
sufficient to exempt petitioner from liability arising from negligence of its employees. It is
incumbent upon petitioner to show that in recruiting and employing the erring driver the
recruitment procedures and company policies on efficiency and safety were followed." Paying lip-
service to these injunctions or merely going through the motions of compliance therewith will
warrant stern sanctions from the Court.

For failing to overturn the presumption that the requirements of Article 2180 have been satisfied,
petitioner must be held liable.

III

Petitioner's argument that it should be excused from liability because Bautista was already
dropped as a party is equally unmeritorious. The liability imposed on the registered owner is direct
and primary. It does not depend on the inclusion of the negligent driver in the action. Agreeing
to petitioner's assertion would render impotent the rationale of the motor registration law in fixing
liability on a definite person.
Bautista, the driver, was not an indispensable party under Rule 3, Section 7 of the 1997 Rules of
Civil Procedure. Rather, he was a necessary party under Rule 3, Section 8. Instead of insisting
that Bautista—who was nothing more than a necessary party—should not have been dropped as
a defendant, or that petitioner, along with Bautista, should have been dropped, petitioner (as a
co-defendant insisting that the action must proceed with Bautista as party) could have opted to
file a cross-claim against Bautista as its remedy.

The 1997 Rules of Civil Procedure spell out the rules on joinder of indispensable and necessary
parties. These are intended to afford "a complete determination of all possible issues, not only
between the parties themselves but also as regards to other persons who may be affected by the
judgment."

However, while an exhaustive resolution of disputes is desired in every case, the distinction
between indispensable parties and necessary parties delineates a court's capacity to render
effective judgment. As defined by Rule 3, Section 7, indispensable parties are "[p]arties in interest
without whom no final determination can be had of an action[.]" Thus, their non-inclusion is
debilitating: "the presence of indispensable parties is a condition for the exercise of juridical power
and when an indispensable party is not before the court, the action should be dismissed."

In contrast, a necessary party's presence is not imperative, and his or her absence is not
debilitating. Nevertheless, it is preferred that they be included in order that relief may be
complete.

The concept of indispensable parties, as against parties whose inclusion only allows complete
relief, was explained in Arcelona v. Court of Appeals:

An indispensable party is a party who has such an interest in the controversy or subject matter
that a final adjudication cannot be made, in his absence, without injuring or affecting that interest,
a party who has not only an interest in the subject matter of the controversy, but also has an
interest of such nature that a final decree cannot be made without affecting his interest or leaving
the controversy in such a condition that its final determination may be[ wholly inconsistent with
equity and good conscience. It has also been considered that an indispensable party is a person
in whose absence there cannot be a determination between the parties already before the court
which is effective, complete, or equitable. Further, an indispensable party is one who must be
included in an action before it may properly go forward.

A person is not an indispensable party, however, if his interest in the controversy or subject
matter is separable from the interest of the other parties, so that it will not necessarily be directly
or injuriously affected by a decree which does complete justice between them. Also, a person is
not an indispensable party if his presence would merely permit complete relief between him and
those already parties to the action, or if he has no interest in the subject matter of the action. It
is not a sufficient reason to declare a person to be an indispensable party that his presence will
avoid multiple litigation.

Petitioner's interest and liability is distinct from that of its driver. Regardless of petitioner's
employer-employee relationship with Bautista, liability attaches to petitioner on account of its
being the registered owner of a vehicle that figures in a mishap. This alone suffices. A
determination of its liability as owner can proceed independently of a consideration of how
Bautista conducted himself as a driver. While certainly it is desirable that a determination of
Bautista's liability be made alongside that of the owner of the van he was driving, his non-inclusion
in these proceedings does not absolutely hamper a judicious resolution of respondent's plea for
relief.

IV

The Court of Appeals committed no reversible error when it awarded actual damages to
respondent. Respondent's claim for actual damages was based on the Certificate issued and
signed by a certain Peñaloza showing that respondent paid Peñaloza P35,000.00 for funeral
expenses.

Contrary to petitioner's claim, this Certificate is not hearsay. Evidence is hearsay when its
probative value is based on the personal knowledge of a person other than the person actually
testifying. Here, the Certificate sought to establish that respondent herself paid Peñaloza
P35,000.00 as funeral expenses for Reyes' death:

3. Na ang aking kontrata ay nagkakahalaga ng P35,000-00 [sic] sa lahat ng nagamit na

materiales at labor nito kasama ang lote na ibinayad sa akin ni Gng. ERMILINDA REYES
ABEJAR na siyang aking kakontrata sa pagsasagawa ng naturang paglilibingan.

It was respondent herself who identified the Certificate. She testified that she incurred funeral
expenses amounting to P35,000.00, that she paid this amount to Peñaloza, and that she was
present when Peñaloza signed the Certificate:

Respondent had personal knowledge of the facts sought to be proved by the Certificate, i.e. that
she spent P35,000.00 for the funeral expenses of Reyes. Thus, the Certificate that she identified
and testified to is not hearsay. It was not an error to admit this Certificate as evidence and basis
for awarding P35,000.00 as actual damages to respondent.

The Court of Appeals likewise did not err in awarding civil indemnity and exemplary damages.

Article 2206 of the Civil Code provides:

ARTICLE 2206. The amount of damages for death caused by a crime or quasi-delict shall be at
least three thousand pesos, even though there may have been mitigating circumstances[.]

Further, Article 2231 of the Civil Code provides:

ARTICLE 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted with
gross negligence.

Both the Court of Appeals and the Regional Trial Court found Bautista grossly negligent in driving
the van and concluded that Bautista's gross negligence was the proximate cause of Reyes' death.
Negligence and causation are factual issues. Findings of fact, when established by the trial court
and affirmed by the Court of Appeals, are binding on this court unless they are patently
unsupported by evidence or unless the judgment is grounded on a misapprehension of facts.
Considering that petitioner has not presented any evidence disputing the findings of the lower
courts regarding Bautista's negligence, these findings cannot be disturbed in this appeal. The
evidentiary bases for the award of civil indemnity and exemplary damages stand. As such,
petitioner must pay the exemplary damages arising from the negligence of its driver. For the
same reasons, the award of P50,000.00 by way of civil indemnity is justified.

The award of moral damages is likewise proper.

Article 2206(3) of the Civil Code provides:

ARTICLE 2206. The amount of damages for death caused by a crime or quasi-delict shall be at
least three thousand pesos, even though there may have been mitigating circumstances. In
addition: . . . .

(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased
may demand moral damages for mental anguish by reason of the death of the deceased.

For deaths caused by quasi-delict, the recovery of moral damages is limited to the spouse,
legitimate and illegitimate descendants, and ascendants of the deceased.[133] Persons exercising
substitute parental authority are to be considered ascendants for the purpose of awarding moral
damages.

Persons exercising substitute parental authority are intended to stand in place of a child's parents
in order to ensure the well-being and welfare of a child. Like natural parents, persons exercising
substitute parental authority are required to, among others, keep their wards in their company,
provide for their upbringing, show them love and affection, give them advice and counsel, and
provide them with companionship and understanding. For their part, wards shall always observe
respect and obedience towards the person exercising parental authority. The law forges a
relationship between the ward and the person exercising substitute parental authority such that
the death or injury of one results in the damage or prejudice of the other.
Moral damages are awarded to compensate the claimant for his or her actual injury, and not to
penalize the wrongdoer. Moral damages enable the injured party to alleviate the moral suffering
resulting from the defendant's actions. It aims to restore—to the extent possible—"the spiritual
status quo ante[.]"

Given the policy underlying Articles 216 and 220 of the Family Code as well as the purposes for
awarding moral damages, a person exercising substitute parental authority is rightly considered
an ascendant of the deceased, within the meaning of Article 2206(3) of the Civil Code. Hence,
respondent is entitled to moral damages.

As exemplary damages have been awarded and as respondent was compelled to litigate in order
to protect her interests, she is rightly entitled to attorney's fees.

However, the award of interest should be modified. This modification must be consistent with
Nacar v. Gallery Frames, in which we ruled:

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

Family Law; Filiation

G.R. No. 187273, February 15, 2017, ROMEO F. ARA AND WILLIAM A. GARCIA,
Petitioners, v. DRA. FELY S. PIZARRO AND HENRY ROSSI

Facts: Romeo F. Ara and William A. Garcia, and Dra. Fely S. Pizarro and Henry A. Rossi all
claimed to be children of the late Josefa A. Ara, who died on November 18, 2002.

Petitioners assert that Fely S. Pizarro was born to Josefa and her then husband, Vicente Salgado,
who died during World War II. At some point toward the end of the war, Josefa met and lived
with an American soldier by the name of Darwin Gray. Romeo F. Ara was born from this
relationship. Josefa later met a certain Alfredo Garcia, and, from this relationship, gave birth to
sons Ramon Garcia and William A. Garcia. Josefa and Alfredo married on January 24, 1952. After
Alfredo passed away, Josefa met an Italian missionary named Frank Rossi, who allegedly fathered
Henry Rossi.

Respondent Pizarro claims that, to her knowledge, she is the only child of Josefa. Further,
petitioner Garcia is recorded as a son of a certain Carmen Bucarin and Pedro Garcia, as evidenced
by a Certificate of Live Birth dated July 19, 1950; and petitioner Ara is recorded as a son of
spouses Jose Ara and Maria Flores, evidenced by his Certificate of Live Birth.

Petitioners, together with Ramon and herein respondent Rossi (collectively, plaintiffs a quo),
verbally sought partition of the properties left by the deceased Josefa, which were in the
possession of respondent Pizarro.

Plaintiffs a quo filed a Complaint dated April 9, 2003 for judicial partition of properties left by the
deceased Josefa. In her Answer, respondent Pizarro averred that, to her knowledge, she was the
only legitimate and only child of Josefa.
Issue: Whether petitioners may prove their filiation to Josefa through their open and continuous
possession of the status of illegitimate children, found in the second paragraph of Article 172 of
the Family Code.

Ruling: On establishing the filiation of illegitimate children, the Family Code provides:

Article 175. Illegitimate children may establish their illegitimate filiation in the same way and on
the same evidence as legitimate children.

The action must be brought within the same period specified in Article 173, except when the
action is based on the second paragraph of Article 172, in which case the action may be brought
during the lifetime of the alleged parent.

Articles 172 and 173 of the Family Code provide:

Article 172. The filiation of legitimate children is established by any of the following:

(1)The record of birth appearing in the civil register or a final judgment; or

(2)An admission of legitimate filiation in a public document or a private handwritten instrument

and signed by the parent concerned. In the absence of the foregoing evidence, the legitimate
filiation shall be proved by:

(1)The open and continuous possession of the status of a legitimate child; or

(2)Any other means allowed by the Rules of Court and special laws. (265a, 266a, 267a)

Article 173. The action to claim legitimacy may be brought by the child during his or her lifetime
and shall be transmitted to the heirs should the child die during minority or in a state of insanity.
In these cases, the heirs shall have a period of five years within which to institute the action.

The action already commenced by the child shall survive notwithstanding the death of either or
both of the parties. (268a)

Thus, a person who seeks to establish illegitimate filiation after the death of a putative parent
must do so via a record of birth appearing in the civil register or a final judgment, or an admission
of legitimate filiation. Petitioners did not present evidence that would prove their illegitimate
filiation to their putative parent, Josefa, after her death as provided under Articles 172 and 175
of the Family Code.

None of the foregoing constitutes evidence under the first paragraph of Article 172 of the Family
Code.

Although not raised by petitioners, it may be argued that petitioner Garcia's Certificate of Live
Birth obtained in 2003 through a late registration of his birth is a record of birth appearing in the
civil register under Article 172 of the Family Code.

True, birth certificates offer prima facie evidence of filiation. To overthrow the presumption of
truth contained in a birth certificate, a high degree of proof is needed. However, the
circumstances surrounding the delayed registration prevent us from according it the same weight
as any other birth certificate.

There is a reason why birth certificates are accorded such high evidentiary value.

A delayed registration of birth, made after the death of the putative parent, is tenuous proof of
filiation.

Thus, we are unable to accord petitioner Garcia's delayed registration of birth the same
evidentiary weight as regular birth certificates.

Even without a record of birth appearing in the civil register or a final judgment, filiation may still
be established after the death of a putative parent through an admission of filiation in a public
document or a private handwritten instrument, signed by the parent concerned. However,
petitioners did not present in evidence any admissions of filiation.
An admission is an act, declaration, or omission of a party on a relevant fact, which may be used
in evidence against him.

The evidence presented by petitioners such as group pictures with Josefa and petitioners'
relatives, and testimonies do not show that Josefa is their mother. They do not contain any acts,
declarations, or omissions attributable directly to Josefa, much less ones pertaining to her filiation
with petitioners. Although petitioner Garcia's Baptismal Certificate, Certificate of Marriage, and
Certificate of Live Birth obtained via late registration all state that Josefa is his mother, they do
not show any act, declaration, or omission on the part of Josefa. Josefa did not participate in
making any of them. The same may be said of the testimonies presented. Although Josefa may
have been in the photographs, the photographs do not show any filiation. By definition, none of
the evidence presented constitutes an admission of filiation under Article 172 of the Family Code.

Obligations and Contracts; Recission of contracts

Philippine Economic Zone Authority vs Pilhino Sales Corporation, G.R. No. 185765,
September 28, 2016

Facts: On October 4, 1997, the Philippine Economic Zone Authority published an invitation to bid
for its acquisition of two (2) brand new fire truck units. Pilhino secured the contract for
P2,900,000.00 per truck and was to deliver the fire trucks within 45 days of receipt of a purchase
order.

The contract stipulated that “in case of failure to deliver the good on the date specified, the
Supplier agrees to pay penalty at the rate of 1/10 of 1% of the total contract price for each day
commencing on the first day after the date stipulated.

After the purchase order was furnished, Pilhino failed to deliver the trucks, and this prompted the
petitioner to make formal demands. As respondent still failed to comply, petitioner filed a
complaint for rescission of contract and damages.

The RTC ruled in favor of petitioner and against respondent ordering the latter to pay liquidated
damages and declared the rescission of the contract.

CA modified the order by pegging the liquidated damages in the amount of P1,400,000 because
upon the failure to deliver the goods, petitioner has not yet paid any amount to respondent.

Petitioner moved to reinstate the award of the RTC.

Respondent argued that rescission of the contract nullifies the liquidated damages, thus no liability
for the same.

Issue:
1. Whether or not a rescinded contract carries with it the obliteration of the liability for the
stipulated liquidated damages.
2. On the assumption that such award is proper, whether or not the Court of Appeals'
reduction of the liquidated damages due to petitioner is proper.

Ruling: Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The Decision of the RTC REINSTATED.

1. Respondent's intimation that with the rescission of a contract necessarily and inexorably
follows the obliteration of liability for what the same contracts stipulates as liquidated
damages is entirely misplaced.

A contract of sale, such as that entered into by petitioner and respondent, entails
reciprocal obligations. As explained in Spouses Velarde v. Court of Appeals, "in a contract
of sale, the seller obligates itself to transfer the ownership of and deliver a determinate
thing, and the buyer to pay therefor a price certain in money or its equivalent."
Rescission on account of breach of reciprocal obligations is provided for in Article 1191:

Article 1191. The power to rescind obligations is implied in reciprocal ones,

in case one of the obligors should not comply with what is incumbent upon
him.

The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.

The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.
Respondent correctly notes that rescission under Article 1911 results in mutual restitution.
Jurisprudence has long settled that the restoration of the contracting parties to their
original state is the very essence of rescission. In Spouses Velarde:

Considering that the rescission of the contract is based on Article 1191 of

the Civil Code, mutual restitution is required to bring back the parties to their
original situation prior to the inception of the contract. Accordingly, the initial
payment of P800,000 and the corresponding mortgage payments . . . should
be returned by private respondents, lest the latter unjustly enrich themselves
at the expense of the former.

Rescission creates the obligation to return the object of the contract. It can
be carried out only when the one who demands rescission can return
whatever he may be obliged to restore. To rescind is to declare a contract
void at its inception and to put an end to it as though it never was. It is not
merely to terminate it and release the parties from further obligations to
each other, but to abrogate it from the beginning and restore the parties to
their relative positions as if no contract has been made.
Laperal v. Solid Homes, Inc. has explained how the restitution spoken of in rescission
under Article 1385 of the Civil Code equally holds true for rescission under Art. 1191:

Despite the fact that Article 1124 of the old Civil Code from whence Article
1191 was taken, used the term "resolution", the amendment thereto
(presently, Article 1191) explicitly and clearly used the term "rescission".
Unless Article 1191 is subsequently amended to revert back to the term
"resolution", this Court has no alternative but to apply the law, as it is
written.

Again, since Article 1385 of the Civil Code expressly and clearly states that
"rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest," the
Court finds no justification to sustain petitioners' position that said Article
1385 does not apply to rescission under Article 1191.

In Palay, Inc. vs. Clave, this Court applied Article 1385 in a case involving
"resolution" under Article 1191, thus:
Regarding the second issue on refund of the installment payments made by
private respondent. Article 1385 of the Civil Code provides:
 "ART. 1385. Rescission creates the obligation to return the things which were
the object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.

"Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in
bad faith.

"In this case, indemnity for damages may be demanded from the person
causing the loss."
As a consequence of the resolution by petitioners, rights to the lot should be restored to
private respondent or the same should be replaced by another acceptable lot. However,
considering that the property had already been sold to a third person and there is no
evidence on record that other lots are still available, private respondent is entitled to the
refund of installments paid plus interest at the legal rate of 12% computed from the date
of the institution of the action. It would be most inequitable if petitioners were to be
allowed to retain private respondent's payments and at the same time appropriate the
proceeds of the second sale to another.
Applying the clear language of the law and the consistent jurisprudence on the matter,
therefore, the Court rules that rescission under Article 1191 in the present case, carries
with it the corresponding obligation of restitution.
Contrary to respondent's assertion, mutual restitution under Article 1191 is, however, no
license for the negation of contractually stipulated liquidated damages.

Article 1191 itself clearly states that the options of rescission and specific performance
come with "with the payment of damages in either case." The very same breach or delay
in performance that triggers rescission is what makes damages due.

When the contracting parties, by their own free acts of will, agreed on what these
damages ought to be, they established the law between themselves. Their contemplation
of the consequences proper in the event of a breach has been articulated. When courts
are, thereafter, confronted with the need to award damages in tandem with rescission,
courts must not lose sight of how the parties have explicitly stated, in their own language,
these consequences. To uphold both Article 1191 of the Civil Code and the parties' will,
contractually stipulated liquidated damages must, as a rule, be maintained.

What respondent purports to be the ensuing nullification of liquidated damages is not a

novel question in jurisprudence. This matter has been settled, and respondent's position
has been rebuked.
Similarly with the same condition of default or violation obtaining, as stated in paragraph
10 of said agreement, all advances made and remittances of proceeds from reservations
and sales given by the DEVELOPER to the OWNER as provided for in this agreement shall
be deemed absolutely forfeited in favor of the OWNER, resulting to waiver of
DEVELOPER'S rights, if any, with respect to said amount(s).
If this Court recognized the right of the parties to stipulate on an extrajudicial rescission
under Article 1191, there is no reason why this Court will not allow the parties to stipulate
on the matter of damages in case of such rescission under Book IV, Title VIII, Chapter 3,
Section 2 of the Civil Code governing liquidated damages.
There is no reason for departing from this. It is true that Laperal involved extrajudicial
rescission, while this case involves rescission through judicial action. The distinction
between judicial and extrajudicial rescission is in how extrajudicial rescission is possible
only when the contract has an express stipulation to that effect. This distinction does not
diminish the rights of a contracting party under Article 1191 of the Civil Code and is
immaterial for purposes of the availability of liquidated damages.
 To sustain respondent's claim would be to sustain an absurdity and an injustice.
Respondent's position suggests that with rescission must necessarily come the obliteration
of the punitive consequence which, to begin with, was the product of its own (along with
the other contracting party's) volition. Its position turns delinquency into a profitable
enterprise, enabling contractual breach to itself be the means for evading its own fallout.
It is a position the SC cannot tolerate.

2. In calibrating the amount of liquidated damages, the Court of Appeals relied on how
respondent supposedly attempted to rectify things "by offering to [petitioner] new
specifications at P3,600,000.00 per unit; and expressed willingness to shoulder the
difference between the original price (based on the contract) of P2,900,000.00 per unit
and the price corresponding to the new specifications." As underscored by petitioner,
however, this offer was inconsequential and hardly a remedy to the predicament it found
itself.

Petitioner already suffered damage by respondent's mere delay. Philippine Economic Zone
Authority Director General Lilia B. De Lima's internal memorandum to its Board of Directors
emphasized what was, at the time, the specific urgency of obtaining fire trucks. The CA
itself recognized that "time was of the essence when the contract was awarded to
respondent and the non-compliance therewith exposed petitioner's operations at risk."

Respondent's attempt at rectification came too late and under such circumstances that
petitioner was no longer even in a position to accept respondent's offer. As petitioner
notes, by the time respondent made its offer, the Complaint for rescission and damages
had already been filed before the Regional-Trial Court of Pasay City. If at all, the offer was
nothing more than a belated reaction to undercut litigation.

By the time respondent made its attempt at rectification, petitioner was no longer capable
of accommodating contractual modifications. Jurisprudence has established the
impropriety of modifying awarded contracts that were previously subjected to public
bidding, such as that between petitioner and respondent:

An essential element of a publicly bidded contract is that all bidders must be

on equal footing. Not simply in terms of application of the procedural rules
and regulations imposed by the relevant government agency, but more
importantly, on the contract bidded upon. Each bidder must be able to bid
on the same thing. The rationale is obvious. If the winning bidder is allowed
to later include or modify certain provisions in the contract awarded such
that the contract is altered in any material respect, then the essence of fair
competition in the public bidding is destroyed. A public bidding would indeed
be a farce if after the contract is awarded, the winning bidder may modify
the contract and include provisions which are favorable to it that were not
previously made available to the other bidders. Thus:
It is inherent in public biddings that there shall be a fair
competition among the bidders. The specifications in such
biddings provide the common ground or basis for the bidders. The
specifications should, accordingly, operate equally or
indiscriminately upon all bidders.
The same rule was restated by Chief Justice Stuart of the Supreme Court of
Minnesota:
The law is well settled that where, as in this case, municipal
authorities can only let a contract for public work to the lowest
responsible bidder, the proposals and specifications therefore
must be so framed as to permit free and full competition. Nor can
they enter into a contract with the best bidder containing
substantial provisions beneficial to him, not included or
 contemplated in the terms and specifications upon which the bids
were invited.
By definition, liquidated damages are a penalty, meant to impress upon defaulting
obligors the graver consequences of their own culpability. Liquidated damages
must necessarily make non-compliance more cumbersome than compliance.
Otherwise, contracts might as well make no threat of a penalty at all:
Liquidated damages are those that the parties agree to be paid in
case of a breach. As worded, the amount agreed upon answers for
damages suffered by the owner due to delays in the completion of
the project. Under Philippine laws, these damages take the nature
of penalties. A penal clause is an accessory undertaking to assume
greater liability in case of a breach. It is attached to an obligation
in order to ensure performance.
Respondent cannot now balk at the natural result of its own breach. As for the Court of
Appeals, we find it to be in error in frustrating the express terms of the contract that
respondent actively endeavored to be awarded to it. The exigencies that impelled
petitioner to obtain fire trucks made it imperative for respondent to act with dispatch.
Instead, it dragged its feet, left petitioner with inadequate means for addressing the very
emergencies that engendered the need for fire trucks and forced it into litigation to
enforce its rights.

Obligations and Contracts; Reformation of contracts

MAKATI TUSCANY CONDOMINIUM CORPORATION v. MULTI-REALTY DEVELOPMENT

CORPORATION, G.R. No. 185530, April 18, 2018

FACTS:

In 1974, Multi-Realty Development Corporation (Multi-Realty) built Makati Tuscany, a 26-storey

condominium building located at the corner of Ayala Avenue and Fonda Street, Makati City.

On July 30, 1975, Multi-Realty, through its president Henry Sy, Sr., executed and signed Makati
Tuscany's Master Deed and Declaration of Restrictions (Master Deed).

Sometime in 1977, pursuant to Republic Act No. 4726, or the Condominium Act, Multi-Realty
created and incorporated Makati Tuscany Condominium Corporation (MATUSCO) to hold title over
and manage Makati Tuscany's common areas. That same year, Multi-Realty executed a Deed of
Transfer of ownership of Makati Tuscany's common areas to MATUSCO.

On April 26, 1990, Multi-Realty filed a complaint for damages and/or reformation of instrument
with prayer for temporary restraining order and/or preliminary injunction against MATUSCO.
Multi-Realty alleged in its complaint that of the 106 parking slots designated in the Master Deed
as part of the common areas, only eight (8) slots were actually intended to be guest parking
slots; thus, it retained ownership of the remaining 98 parking slots.

ISSUE/S:

1. Whether or not there is a need to reform the Master Deed and the Deed of Transfer?
2. Whether or not this Court is bound by the factual findings in Multi-Realty Development
Corporation v. The Makati Tuscany Condominium Corporation on the ground of
conclusiveness of judgment?

RULING: Petition for review is denied.

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

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

The National Irrigation Administration v. Gamit stated that there must be a concurrence
of the following requisites for an action for reformation of instrument to prosper:

(1) there must have been a meeting of the minds of the parties to the contract; (2)
the instrument does not express the true intention of the parties; and (3) the
failure of the instrument to express the true intention of the parties is due to
mistake, fraud, inequitable conduct or accident.

The burden of proof then rests upon the party asking for the reformation of the instrument
to overturn the presumption that a written instrument already sets out the true intentions
of the contracting parties.

Sections 5 and 7(d) of the Master Deed provide as follows:

SEC. 5. Accessories to Units. - To be considered as part of each unit and reserved for
the exclusive use of its owner are the balconies adjacent thereto and the parking lot
or lots which are to be assigned to each unit.

....

SEC. 7. The Common Areas. - The common elements or areas of The Makati Tuscany
shall comprise all the parts of the project other than the units, including without
limitation the following:

....

(d) All driveways, playgrounds, garden areas and parking areas other than those
assigned to each unit under Sec. 5 above.

A plain and literal reading of Section 7(d) in relation to Section 5 shows that all parking
areas which are not assigned to units come under petitioner's authority because they are
part of the common areas.

Respondent argues that what was written in the Master Deed and Deed of Transfer failed
to fully capture what was actually intended by the parties. However, intentions involve
a state of mind, making them difficult to decipher; therefore, the subsequent
and contemporaneous acts of the parties must be presented into evidence to
reflect the parties' intentions.

To substantiate its claim that there was a difference between the written terms in the
Master Deed and Deed of Transfer and the parties' intentions, respondent refers to their
prior and subsequent acts.

First, respondent points out that in the color-coded floor plans for the ground floor, upper
basement, and lower basement, only eight (8) guest parking slots were indicated as part
of the common areas. However, respondent alleges that due to its inexperience with
documenting condominium developments, it failed to reflect the correct number of guest
parking slots in the Master Deed and Deed of Transfer.

Second, acting under the honest belief that it continued to own the 98 parking slots,
respondent sold 26 of them to Makati Tuscany's unit owners from 1977 to 1986, without
any hint of a complaint or opposition from petitioner. Respondent also states that
petitioner repeatedly cooperated and supported its sales by issuing Certificates of
Management for the condominium units and parking slots sold by respondent.

Third, petitioner's Board of Directors made repeated offers to purchase the parking slots
from respondent, signifying petitioner's recognition of respondent's retained ownership
over the disputed parking slots.
 Finally, respondent highlights that it was only in September 1989, when the value of the
72 remaining unallocated parking slots had risen to approximately P250,000.00 each or
approximately P18,000,000.00 for the 72 parking slots, that petitioner first claimed
ownership of the remaining parking slots.

At this juncture, it was pointed out that petitioner never rebutted any of respondent's
statements regarding the subsequent acts of the parties after the execution and
registration of the Master Deed and Deed of Transfer. Petitioner even adopted the
narration of facts in Multi-Realty Development Corporation.

The totality of the undisputed evidence proving the parties' acts is consistent with the
conclusion that the parties never meant to include the 98 parking slots among the common
areas to be transferred to petitioner. The evidence is consistent to support the view that
petitioner was aware of this fact.

LTD; Buyer in good faith

G.R. No. 189626, August 20, 2018, GREGORIO AMOGUIS TITO AMOGUIS v.
CONCEPCION BALLADO AND MARY GRACE BALLADO LEDESMA, AND ST. JOSEPH
REALTY

Facts: The Ballado Spouses entered into a contract with St. Joseph Realty to buy on installment
parcels of land. The Ballado Spouses initially paid a total of P500.00 for the lots, and had to pay
P107.138 and P97.159 per month for Lot Nos. 1 and 2, respectively, both for 180 months starting
on December 30, 1969.

St. Joseph Realty characterized the contracts as contracts to sell and provided for automatic
rescission and cancellation, thus:

3) This contract shall be considered automatically rescinded and cancelled and no further
force and effect, upon failure of the VENDEE to pay when due, three (3) consecutive
monthly installments or to comply with any of the terms and conditions hereof, in which
case the VENDORS shall have the right to resell the said parcel of land to any person or
purchaser, as if this contract has never been entered into. In such a case[,] as cancellation
of this contract, all the amounts paid in accordance with the agreement together with all
the improvements made on the premises shall be considered as rents paid for the use and
occupation of the above mentioned premises and as payment for the damages suffered
for the failure of the VENDEE to fulfill his/her part of this agreement and the buyer hereby
renounces his/her right to demand or reclaim the return of the same and obliges
himself/herself to peacefully vacate the premises and deliver the same to the VENDORS.

The Ballado Spouses amortized until 1979 when Crisanto Pinili, St. Joseph Realty's collector,
refused to receive their payments. They erected a small house made of light materials for their
caretaker. Pinili informed them that it was an eyesore and was against the rules of the
subdivision.

On February 17, 1987, the Ballado Spouses discovered that St. Joseph Realty rescinded their
contracts. Concepcion immediately wrote St. Joseph Realty to ask for reconsideration. She
enclosed a check for their remaining balance worth P30,000.00. After six (6) months, St. Joseph
Realty returned the check to the Ballado Spouses. St. Joseph Realty claimed that it only
inadvertently received the check. Francisco confronted the Amoguis Brothers when he saw that
the barbed fences, which he had installed around the lots, were taken down.

Compelled by these events, the Ballado Spouses filed a Complaint for damages, injunction with
writ of preliminary injunction, mandatory injunction, cancellation and annulment of titles, and
attorney's fees on December 23, 1987.

St. Joseph Realty filed its Answer. It was its affirmative defense that the Regional Trial Court had
no jurisdiction to hear the case, and that jurisdiction was properly vested in the Human
Settlements Regulatory Commission.
Issue: Whether or not petitioners Gregorio Amoguis and Tito Amoguis are buyers in good faith
and have preferential right to Lot Nos. 1 and 2.

Ruling: A buyer in good faith is one who purchases and pays fair price for a property without
notice that another has an interest over or right to it. If a land is registered and is covered by a
certificate of title, any person may rely on the correctness of the certificate of title, and he or she
is not obliged to go beyond the four (4) corners of the certificate to determine the condition of
the property. This rule does not apply, however, when the party has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry or when the
purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to
induce a reasonably prudent man to inquire into the status of the title of the property in litigation.

The Regional Trial Court ruled that petitioners were in bad faith because they did not deny
Francisco's testimony that he had informed them of his ownership when they occupied the
properties. Despite this, petitioners continued to make improvements on the lands. The Court of
Appeals, on the other hand, made a conflicting finding. It ruled that it was St. Joseph Realty that
made representations to the Amoguis Brothers and assured them that the previous buyers had
abandoned their purchase of the properties. It appreciated that the Amoguis Brothers found out
about the Ballado Spouses' claim only after they had bought them. Due to these conflicting
findings, this Court is compelled to review whether respondents were bad faith purchasers.

It is incumbent upon a buyer to prove good faith should he or she assert this status. This burden
cannot be discharged by merely invoking the legal presumption of good faith. This Court rules
that based on the evidence on record, petitioners failed to discharge this burden. Though they
were informed by Francisco on his claim to the properties only after their purchase, it is
undisputed from the records that mango and chico trees were planted on the properties, and that
they were cordoned off by barbed wires. St. Joseph Realty also informed them that there were
previous buyers, who allegedly abandoned their purchase. To merely claim that they were buyers
in good faith, absent any proof, does not make the case for them.

The Regional Trial Court found that petitioners were in bad faith. However, it did not order their
solidary liability with St. Joseph Realty. It ordered damages, attorney's fees, and the cost of suit
to be borne by St. Joseph Realty alone. The modification in this regard made by the Court of
Appeals was, therefore, superfluous.

Law on Property; Builder in good faith

G.R. No. 201354, September 21, 2016, PABLO M. PADILLA, JR. AND MARIA LUISA P.
PADILLA, Petitioners, v. LEOPOLDO MALICSI, LITO CASINO, AND AGRIFINO GUANES

Facts:

Spouses Padilla bought a parcel of land in Magsaysay Norte, Cabanatuan City covered by a TCT.
Sometime in 1998, they discovered that Leopoldo Malicsi, Lito Casino, and Agrifino Guanes
constructed houses on their lot. Spouses Padilla made repeated verbal and written demands for
Malicsi, et al. to vacate the premises and pay a monthly rental of P2,000.00, but Malicsi, et al.
refused to heed Spouses Padilla's demands.

Thereafter, they filed a complaint for recovery of possession against Malicsi, et al., along with
three (3) others: Larry Marcelo, Diosdado dela Cruz, and Rolando Pascua.

In their Answer with Compulsory Counterclaim, Malicsi, et al. alleged that they believed in all
honesty and good faith that the lot belonged to Toribia Vda. De Mossessgeld. Malicsi, et al. also
claimed that they and De Mossessgeld agreed that she would sell them the areas occupied by
their houses, provided that pending full payment, they would pay her P40.00 per month as rent.

Between 1980 and 1983, Malicsi, et al. constructed their respective houses on the lot in the belief
that they would eventually own the areas they were occupying. Malicsi and Casino even
introduced improvements to the houses they had built.

Issue: Whether respondents are builders in good faith.

Ruling: A builder in good faith is a builder who was not aware of a defect or flaw in his or her
title when he or she introduced improvements on a lot that turns out to be owned by another.

Philippine National Bank v. De Jesus explains that the essence of good faith is an honest belief of
the strength and validity of one's right while being ignorant of another's superior claim at the
same time:

Good faith, here understood, is an intangible and abstract quality with no technical meaning or
statutory definition, and it encompasses, among other things, an honest belief, the absence of
malice and the absence of design to defraud or to seek an unconscionable advantage. An
individual's personal good faith is a concept of his own mind and, therefore, may not conclusively
be determined by his protestations alone. It implies honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry. The essence of good
faith lies in an honest belief in the validity of one's right, ignorance of a superior claim, and
absence of intention to overreach another[.]

The following provisions of the Civil Code are relevant as regards the remedies available to a
landowner and builder in good faith:

Article 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment
of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted
to pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the building
or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms
of the lease and in case of disagreement, the court shall fix the terms thereof.

....

Article 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
amount of the expenses or of paying the increase in value which the thing may have acquired by
reason thereof.

....

Article 548. Expense for pure luxury or mere pleasure shall not be refunded to the possessor in
good faith; but he may remove the ornaments with which he has embellished the principal thing
if it suffers no injury thereby, and if his successors in the possession do not prefer to refund the
amount expended.

Article 448 of the Civil Code gives a builder in good faith the right to compel the landowner to
choose between two (2) options: (1) to appropriate the building by paying the indemnity required
by law; or (2) to sell the land to the builder. Ignacio v. Hilario summarized the respective rights
of the landowner and builder in good faith as follows:

The owner of the building erected in good faith on a land owned by another, is entitled to retain
the possession of the land until he is paid the value of his building, under article [546]. The owner
of the land, upon the other hand, has the option, under article [448], either to pay for the building
or to sell his land to the owner of the building. But he cannot, as respondents here did, refuse
both to pay for the building and to sell the land and compel the owner of the building to remove
it from the land where it is erected. He is entitled to such remotion only when, after having chosen
to sell his land, the other party fails to pay for the same.

We do not agree with the Court of Appeals.

The Court of Appeals relied heavily on Sarmiento v. Agana and Spouses Macasaet v. Spouses
Macasaet to support its reversal of the Regional Trial Court Decision. A judicious reading of the
cited jurisprudence, however, shows that the facts in this case greatly differ from those in
Sarmiento and Spouses Macasaet.

In Sarmiento, Spouses Ernesto and Rebecca Valentino were allowed by Ernesto's mother to build
a house on what she claimed was her lot. The couple then built their house on the lot, but later
found out that the lot was titled to Mr. and Mrs. Jose C. Santos, who had sold the lot to Leonila
Sarmiento.58 This Court ruled that Spouses Ernesto and Rebecca Valentino were builders in good
faith "in view of the peculiar circumstances under which they had constructed the residential
house."

In Spouses Macasaet, a mother and father owned a parcel of land. They told their son and
daughter-in-law to build a house on a part of the lot so that the family could live near each other
and they could help out in the family business. After some time, relations became strained
between the family members.60 The parents filed an ejectment suit against their son and
daughter-in-law, saying that their stay was only based on tolerance. This Court deemed the son
and daughter-in-law to be builders in good faith as they introduced improvements on the lot with
the knowledge and consent of their parents, the registered lot owners.

No such peculiar circumstance of close family relations can be found here.

Respondents likewise failed to adduce evidence that they entered into an agreement to sell with
De Mossessgeld, or that they paid her P40.00 per month as rent, pending full payment of the
areas they were occupying.

Furthermore, respondents neither presented De Mossessgeld herself nor submitted proof on

which she might have based her purported ownership of the lot. If De Mossessgeld proved elusive,
respondents could then have presented statements from disinterested third parties who could
testify that it was so well-known in the community that De Mossessgeld owned the lot that they
had to believe her claim of ownership. Respondents likewise failed to prove that they exercised
the necessary diligence required by their situation. They did not examine the tax declarations or
the title to the property before they built on it.

Failing to substantiate their claim, respondents cannot be considered as builders in good faith.
Therefore, the benefits and rights provided under Article 448 of the Civil Code do not apply.

As builders in bad faith, respondents have no right to recover their expenses over the
improvements they have introduced to petitioners' lot under Article 449 of the Civil Code, which
provides:

Article 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right to indemnity.

Under Article 452 of the Civil Code, a builder in bad faith is entitled to recoup the necessary
expenses incurred for the preservation of the land. However, respondents neither alleged nor
presented evidence to show that they introduced improvements for the preservation of the land.

Therefore, petitioners as landowners became the owners of the improvements on the lot,
including the residential buildings constructed by respondents, if they chose to appropriate the
accessions. However, they could instead choose the demolition of the improvements at
respondents' expense or compel respondents to pay the price of the land under Article 450 of the
Civil Code, which provides:

Article 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or sowed;
or he may compel the builder or planter to pay the price of the land, and the sower the proper
rent.

Whether petitioners choose to appropriate the improvements, compel their demolition, or compel
respondents to pay the price of the land, they are entitled to damages under Article 45169 of the
Civil Code.
Heirs of Durano v. Spouses Uy has summarized the remedies available to the landowner:

The Civil Code provides:

Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right of indemnity.

Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or sowed;
or he may compel the builder or planter to pay the price of the land, and the sower the proper
rent.

Art. 451. In the cases of the two preceding articles, the landowner is entitled to damages from
the builder, planter or sower.

Based on, these provisions, the owner of the land has three alternative rights: (1) to appropriate
what has been built without any obligation to pay indemnity therefor, or (2) to demand that the
builder remove what he had built, or (3) to compel the-builder to pay the value of the land. In
any case, the landowner is entitled to damages under Article 451, abovecited.

Considering that petitioners pray for the reinstatement of the Regional Trial Court Decision
ordering respondents to vacate the lot and surrender its possession to them, petitioners are
deemed to have chosen to appropriate the improvements built on their lot without any obligation
to pay indemnity to respondents.

LTD; Innocent purchasers for value

SINDOPHIL, INC v. REPUBLIC OF THE PHILIPPINES

G.R. No. 204594, November 7, 2018

FACTS: On July 27, 1993, the Republic of the Philippines filed a complaint for revocation,
annulment, and cancellation of certificates of title before the Regional Trial Court of Pasay City.
It includes a 2,791 square-meter parcel of land (Tramo Property), whose title is under the name
of Sindophil, Inc.

The Republic alleged that the Tramo property was initially registered under the name of Teodoro,
which eventually sold to Puma; then Ty; and Ty sold it to Sindophil. However, Teodoro’s
registration was spurious or of doubtful authenticity because the transfer certificate of title can
be traced from a subdivision plan, owned by the Republic. Thus, Sindophil’s transfer certificate of
title was null and void and should be cancelled.

In their answer, Teodoro, Puma, Ty, and Sindophil contended that the Republic was estopped
from questioning the transfers because it already allowed the transfers; even accepted the capital
gains tax; and that they are innocent purchasers for value.

On November 13, 2009, the Regional Trial Court (RTC) ruled in favor of the Republic. Sindophil
and Teodoro filed their appeal before the Court of Appeals (CA) but have failed to file their
appellant’s brief. Thus, the Court of Appeals dismissed their petition and considered their appeal
as abandoned. Sindophil moved for reconsideration but the CA likewise denied the motion.

Sindophil filed a petition for review on certiorari before the Supreme Court.

ISSUE/S:

1. In determining whether the certificates of title emanating from TCT No. 10354 are null
and void, there is a need to prove that Sindophil are innocent purchasers for value.
2. Whether the Regional Trial Court erred in not awarding Sindophil, compensation from the
Assurance Fund?

RULING:
 1. Sindophil insists that it bought the Tramo property from Ty in good faith and that it was
an innocent purchaser for value. However, the presumption of good faith and that a holder
of a title is an innocent purchaser for value may be overcome by contrary evidence.

Here, the Republic presented evidence that TCT No. 10354, from which Sindophil's TCT
No. 132440 was derived, was void. As found by the Regional Trial Court, the record shows
that Certificate of Title No. 6735, wherein the lot claimed by defendant, Marcelo R.
Teodoro, lot 3270-B, is derived therefrom, is under the name of the Republic of the
Philippines, dated October 17, 1913. Nothing in the subsequent annotations was under
the name of any of the defendants and neither the subject TCT No. 10354.

With the Republic having put forward evidence that the Tramo property claimed by
Sindophil belongs to the Republic, the burden of evidence shifted to Sindophil to prove
that its title to it was valid. Concomitantly, it had the burden of proving that it was indeed
a buyer in good faith and for value. As this Court said in Baltazar v. Court of Appeals, "the
burden of proving the status of a purchaser in good faith and for value lies upon him who
asserts that status" and "in discharging that burden, it is not enough to invoke the ordinary
presumption of good faith, i.e., that everyone is presumed to act in good faith. The good
faith that is essential here is integral with the very status which must be proved."

Unfortunately for Sindophil, it utterly failed to discharge the burden of evidence because
its counsel failed to attend the scheduled initial presentation of evidence.

Further, looking at the records, the defects in Sindophil's title could be inferred from the
annotations in TCT No. 129957, the certificate of title held by Sindophil's immediate
predecessor, Ty. A certain Antonio C. Mercado had filed an adverse claim against Ty
because the Tramo property had been previously sold to him by Puma, Ty's predecessor.
The alleged double sale should have prompted Sindophil to look into Puma's title, TCT No.
128358, where it can be gleaned that Teodoro likewise filed an adverse claim. These
annotations show that the Tramo property is controversial and has been the subject of
several adverse claims, belying Sindophil's contention that it acquired the property in good
faith.

2. With Sindophil failing to prove that it was a buyer in good faith, it cannot recover damages
to be paid out of the Assurance Fund under Section 9592 of the Property Registration
Decree. In La Urbana v. Bernardo, the Court held that "it is a condition sine qua non that
the person who brings an action for damages against the assurance fund be the registered
owner, and, as to holders of transfer certificates of title, that they be innocent purchasers
in good faith and for value.

Agency; Apparent authority

ARTURO C. CALUBAD v. RICARCEN DEVELOPMENT, G.R. No. 202364, August 30, 2017

FACTS:

Ricarcen was a family corporation. Marilyn R. Soliman (Marilyn) was its president from 2001 to
August 2003. The other members of the board of directors during that time were Marilyn's
mother, Erlinda Villanueva (Erlinda), her brother, Josefelix R. Villanueva (Josefelix), her aunt,
Maura Rico, and her sisters, Ma. Elizabeth V. Chamorro (Elizabeth), Ma. Theresa R. Villanueva,
and Annabelle R. Villanueva.

On October 15, 2001, Marilyn, acting on Ricarcen's behalf as its president, took out a
P4,000,000.00 loan from Calubad. This loan was secured by a real estate mortgage over
Ricarcen's Quezon City property. This agreement was later on amended with an additional loan
of P1, 000, 000.00.

On May 8, 2002, Ricarcen, again acting through Marilyn, took out an additional loan of
2,000,000.00 from Calubad.
In 2003, after Ricarcen failed to pay its loan, Calubad initiated extrajudicial foreclosure
proceedings on the real estate mortgage. Calubad was the highest bidder during the auction sale,
thus, certificate of sale was annotated in the Certificate of Title of the subject property.
Meanwhile, Ricaren claimed that it only learned of Marilyn’s loan in July 2003. This led to Marilyn’s
removal as president.

Ricarcen also filed its Complaint for Annulment of Real Estate Mortgage and Extrajudicial
Foreclosure of Mortgage and Sale with Damages against Marilyn, Calubad, and employees of the
Registry of Deeds (ROD) of Quezon City and of the Regional Trial Court of Quezon City. The
employees of the ROD were eventually discharged as party-defendants. He claimed that he never
authorizes Marilyn to obtain loans from Calubad.

ISSUE/S:

Whether Ricarcen Development Corporation is estopped from denying or disowning the authority
of Marilyn R. Soliman, its former President, from entering into a contract of loan and mortgage
with Arturo C. Calubad?

RULING:

As a corporation, Ricarcen exercises its powers and conducts its business through its board of
directors, as provided for by Section 23 of the Corporation Code. The board of directors may
validly delegate its functions and powers to its officers or agents. The authority to bind the
corporation is derived from law, its corporate by-laws, or directly from the board of directors,
"either expressly or impliedly by habit, custom or acquiescence in the general course of business."

The general principles of agency govern the relationship between a corporation and its
representatives. Article 131779 of the Civil Code similarly provides that the principal must delegate
the necessary authority before anyone can act on his or her behalf.

Nonetheless, law and jurisprudence recognize actual authority and apparent authority as the two
(2) types of authorities conferred upon a corporate officer or agent in dealing with third persons.

• Actual authority can either be express or implied. Express actual authority refers to the
power delegated to the agent by the corporation, while an agent's implied authority can
be measured by his or her prior acts which have been ratified by the corporation or whose
benefits have been accepted by the corporation.
• Apparent authority is based on the principle of estoppel. The Civil Code provides:

Article 1431. Through estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying thereon.

....

Article 1869. Agency may be express, or implied from the acts of the principal, from his silence
or lack of action, or his failure to repudiate the agency, knowing that another person is acting on
his behalf without authority.

Agency may be oral, unless the law requires a specific form.

Yao Ka Sin Trading v. Court of Appeals instructed that an agent's apparent authority from the
principal may also be ascertained through:

(1) the general manner by which the corporation holds out an officer or agent as having power
to act or, in other words, the apparent authority with which it clothes him to act in general, or
(2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or without the scope of his ordinary powers.

The doctrine of apparent authority provides that even if no actual authority has been
conferred on an agent, his or her acts, as long as they are within his or her apparent
scope of authority, bind the principal. However, the principal's liability is limited to third
persons who are reasonably led to believe that the agent was authorized to act for
the principal due to the principal's conduct.
Apparent authority is determined by the acts of the principal and not by the acts of
the agent. Thus, it is incumbent upon Calubad to prove how Ricarcen's acts led him
to believe that Marilyn was duly authorized to represent it.

As the former president of Ricarcen, it was within Marilyn's scope of authority to act
for and enter into contracts in Ricarcen's behalf. Her broad authority from Ricarcen can be
seen with how the corporate secretary entrusted her with blank yet signed sheets of paper to be
used at her discretion. She also had possession of the owner's duplicate copy of the land title
covering the property mortgaged to Calubad, further proving her authority from Ricarcen.

The records show that Calubad drew and issued payable to Ricarcen representing the loan
proceeds for the first mortgage. These checks were deposited in Ricarcen 's bank account with
Banco de Oro, Banawe Branch, and were honored by the drawee bank.

Calubad could not be faulted for continuing to transact with Marilyn, even agreeing
to give out additional loans, because Ricarcen clearly clothed her with apparent
authority. Likewise, it reasonably appeared that Ricarcen's officers knew of the mortgage
contracts entered into by Marilyn in Ricarcen's behalf as proven by the issued Banco De Oro
checks as payments for the monthly interest and the principal loan.

Ricarcen claimed that it never granted Marilyn authority to transact with Calubad or use the
Quezon City property as collateral for the loans, but its actuations say otherwise. It appears as if
Ricarcen and its officers gravely erred in putting too much trust in Marilyn. However, Calubad, as
an innocent third party dealing in good faith with Marilyn, should not be made to suffer because
of Ricarcen's negligence in conducting its own business affairs. This finds support in Yao Ka Sin
Trading:

Also, "if a private corporation intentionally or negligently clothes its officers or agents
with apparent power to perform acts for it, the corporation will be estopped to deny
that such apparent authority is real, as to innocent third persons dealing in good faith
with such officers or agents."

Agency;

G.R. No. 205638, August 23, 2017 DEE HWA LIONG FOUNDATION MEDICAL CENTER
AND ANTHONY DEE, Petitioners, v. ASIAMED SUPPLIES AND EQUIPMENT
CORPORATION

Facts:

On August 2, 2002, petitioner Dee Hwa Liong Foundation Medical Center and respondent Asiamed
Supplies and Equipment Corporation entered into a Contract of Sale. This Contract of Sale stated
that DHLFMC agreed to purchase from Asiamed a GammaMed Plus Brachytherapy machine and
a Gammacell Elan 3000 blood irradiator for the price of P31,000,000.00. Regarding payment, the
Contract of Sale provided:

1. PURCHASE PRICE

DEE HWA LIONO FOUNDATION MEDICAL CENTER agrees to purchase the equipment through
ASIAMED SUPPLIES and EQUIPMENT CORPORATION at the total price of THIRTY ONE MILLION
PESOS (P31,000,000.00) Philippine Currency ...

Such payment is to be made no later than (2) two working days upon delivery of the equipment
and prior to the installation of the same.

5. BUYERS GUARANTEE

DEE HWA LIONG FOUNDATION MEDICAL CENTER warrants unto ASIAMED SUPPLIES &
EQUIPMENT CORPORATION the genuineness, validity and enforceability of any check, note or
evidence of obligation as forelisted and DEE HWA LIONG FOUNDATION MEDICAL CENTER, at the
agreed payment terms[,] shall pay to ASIAMED SUPPLIES & EQUIPMENT CORPORATION the
amount due.
These machines were delivered on May 20, 2003 and July 17, 2003. A Sales Invoice and two (2)
Delivery Invoices were signed by petitioner Anthony Dee and DHLFMC Vice President for
Administration, Mr. Alejandro Mateo. These invoices provided:

Interest of 12% per annum is to be charged on all overdue accounts, and a sum equal to 25%
of the amount due is further charged but in no case shall be less than P50.00 for attorney's fees
and cost of collection in case of suit.
On January 26, 2004, Asiamed filed a Complaint against DHLFMC and Anthony for sum of money,
with prayer for issuance of a writ of preliminary attachment, before the Regional Trial Court.
Asiamed alleged that DHLFMC agreed to pay the total purchase price of P31,000,000.00 no later
than two (2) days from receiving the machines. Despite receiving the machines on May 20, 2003
and July 17, 2003, DHLFMC only paid the amounts of P3,500,000.00 on July 25, 2003,
P1,000,000.00 on September 16, 2003, and P800,000.00 on October 30, 2003. Asiamed
demanded payment, but DHLFMC refused to pay the balance.

DHLFMC and Anthony alleged that the purchase of the equipment was conditioned on the
approval of a loan from Planters Development Bank. However, this loan was not approved.

Issue: First, whether or not the Contract of Sale was rescinded; Second, whether or not petitioner
Anthony Dee was properly held solidarily liable with petitioner Dee Hwa Liong Foundation Medical
Center; Third, whether or not the interest rate and attorney's fees stipulated in the delivery
invoices are binding on the parties; and Finally, whether or not the Court of Appeals erred in
granting respondent Asiamed Supplies and Equipment Corporation's motion to procure the
appointment of an administrator for the estate of deceased petitioner Anthony Dee.

Ruling:

Second issue: On petitioner Anthony's liability, the Court of Appeals found that petitioners
admitted that they never represented that petitioner DHLFMC is a corporate entity with separate
personality from petitioner Anthony. Thus, they are estopped from raising its separate personality
as a defense for petitioner Anthony.

It is important to remember, however, that [respondent]'s complaint alleged among other things,
that “[petitioner] DEE HWA LIONG FOUNDATION MEDICAL CENTER, is an entity representing
itself to be a corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines." In reply thereto, [petitioners] answered that "[petitioners] deny the
allegations relating to the corporate circumstances of [petitioner] DHLFMC in paragraph no. 2 of
the Complaint, ... the truth being that the [petitioners] never represented that [petitioner]
DHLFMC is a corporate entity duly organized and existing under and by virtue of the laws of the
Republic of the Philippines[.]" From the foregoing, it cannot be denied that the [petitioners) are
estopped from raising a corporation's separate juridical personality as a defense to shield
[petitioner] Anthony Dee from any liability.

Petitioners do not dispute that they specifically denied the allegation regarding petitioner
DHLFMC's corporate circumstances. Petitioners fail to show how the Court of Appeals appreciation
of this specific denial is an error of law. Petitioners merely insist that petitioner Anthony was not
shown to have acted in bad faith, and thus, cannot be held solidarily liable with petitioner
DHLFMC.70 However, petitioners do not point to anything on record to counter their own specific
denial that would establish DHLFMC's existence as a corporation with separate juridical
personality. Thus, this argument must fail.

Third issue: Petitioners argue that respondent unilaterally imposed the interest and penalty
charges. However, they do not dispute that these charges were specifically provided for in the
delivery invoices, which they signed. The CA did not mention the stipulations on interest and
penalty contained in the delivery invoices; thus, it can be gathered that they sustained the RTC.
Both the Regional Trial Court and the Court of Appeals found that the delivery invoices formed
part of the Contract of Sale. Petitioners claim that the delivery invoice receipts signed by petitioner
Anthony and Mateo could not modify or be considered part of the Contract of Sale.

Petitioners claim that the delivery invoice receipts are contracts of adhesion and that they were
unwittingly signed, without informed consent. However, it is not disputed that the delivery
invoices provided for the interest and attorney's fees or that petitioner Anthony and Mateo signed
these invoices. Thus, the Regional Trial Court and the Court of Appeals ruled that the parties
mutually agreed to the interest and attorney's fees as a factual matter. Although petitioners allege
that these invoices lacked petitioner DHLFMC's informed consent, there is no attempt to prove
this. It is also not proven that the stipulations were somehow hidden or obscured such that
DHLFMC could not have read them, making it impossible tor DHLFMC to agree to the terms. In
any case, it is a question of fact, which is not proper for review in a petition for review. Absent
any other factual or legal basis, the mere allegation that the documents were signed without the
informed consent of petitioner DHLFMC will not suffice to cause this Court to review these
documents.

Agency

G.R. No. 205657, March 29, 2017, INTERNATIONAL EXCHANGE BANK NOW UNION
BANK OF THE PHILIPPINES vs. SPOUSES JEROME AND QUINNIE BRIONES, AND JOHN
DOE, LEONEN, J.

Facts:

On July 2, 2003, spouses Jerome and Quinnie Briones took out a loan of ₱3,789,216.00 from
iBank to purchase a BMW Z4 Roadster. The monthly amortization for two (2) years was
₱78,942.00.

The Spouses Briones executed a promissory note with chattel mortgage that required them to
take out an insurance policy on the vehicle. The promissory note also gave iBank, as the Spouses
Briones' attomey-infact, irrevocable authority to file an insurance claim in case of loss or damage
to the vehicle. The insurance proceeds were to be made payable to iBank.

On November 5, 2003, at about 10:50 p.m., the mortgaged BMW Z4 Roadster was camapped by
three armed men in front of Metrobank Banlat Branch in Tandang Sora, Quezon City. Jerome
Briones immediately reported the incident to the Philippine National Police Traffic Management
Group.

The Spouses Briones declared the loss to iBank, which instructed them to continue paying the
next three (3) monthly installments "as a sign of good faith," a directive they complied with.

On March 26, 2004, or after the Spouses Briones finished paying the three (3)-month installment,
iBank sent them a letter demanding full payment of the lost vehicle.

On April 30, 2004, the Spouses Briones submitted a notice of claim with their insurance company,
which denied the claim on June 29, 2004 due to the delayed reporting of the lost vehicle.

On May 14, 2004, iBank filed a complaint for replevin and/or sum of money against the Spouses
Briones and a person named John Doe. The Complaint alleged that the Spouses Briones defaulted
in paying the monthly amortizations of the mortgaged vehicle.

Issues: First, whether an agency relationship existed between the parties;

Second, whether the agency relationship was revoked or terminated; and

Finally, whether petitioner is entitled to the return of the mortgaged vehicle or, in the alternative,
payment of the outstanding balance of the loan taken out for the mortgaged vehicle.

Ruling:

In a contract of agency, "a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter." Furthermore,
Article 1884 of the Civil Code provides that "the agent is bound by his acceptance to carry out
the agency, and is liable for the damages which, through his non-performance, the principal may
suffer."

Rallos v. Felix Go Chan & Sons Realty Corporation46 lays down the elements of agency:
Out of the above given principles, sprung the creation an acceptance of the relationship of agency
whereby one party, called the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential
elements of agency are: (1) there is consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself; and (4) the agent acts within the scope of his
authority.

All the elements of agency exist in this case. Under the promissory note with chattel mortgage,
Spouses Briones appointed iBank as their attorney-in-fact, authorizing it to file a claim with the
insurance company if the mortgaged vehicle was lost or damaged. Petitioner was also authorized
to collect the insurance proceeds as the beneficiary of the insurance policy.

Article 1370 of the Civil Code is categorical that when "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."

The determination of agency is ultimately factual in nature and this Court sees no reason to
reverse the findings of the Regional Trial Court and the Court of Appeals. They both found the
existence of an agency relationship between the Spouses Briones and iBank, based on the clear
wording of Sections 6 and 22 of the promissory note with chattel mortgage, which petitioner
prepared and respondents signed.

II. Petitioner asserts that the Spouses Briones effectively revoked the agency granted under the
promissory note when they filed a claim with the insurance company. Petitioner is mistaken.

Revocation as a form of extinguishing an agency under Article 1924 of the Civil Code only applies
in cases of incompatibility, such as when the principal disregards or bypasses the agent in order
to deal with a third person in a way that excludes the agent.

In the case at bar, the mortgaged vehicle was carnapped on November 5, 2003 and the Spouses
Briones immediately informed petitioner about the loss. The Spouses Briones continued paying
the monthly installment for the next three (3) months following the vehicle's loss to show their
good faith.

However, on March 26, 2004, petitioner demanded full payment from Spouses Briones for the
lost vehicle. The Spouses Briones were thus constrained to file a claim for loss with the insurance
company on April 30, 2004, precisely because petitioner failed to do so despite being their agent
and being authorized to file a claim under the insurance policy. Not surprisingly, the insurance
company declined the claim for belated filing.

The Spouses Briones' claim for loss cannot be seen as an implied revocation of the agency or
their way of excluding petitioner. They did not disregard or bypass petitioner when they made an
insurance claim; rather, they had no choice but to personally do it because of their agent's
negligence. This is not the implied termination or revocation of an agency provided for under
Article 1924 of the Civil Code.

While a contract of agency is generally revocable at will as it is primarily based on trust and
confidence, Article 1927 of the Civil Code provides the instances when an agency becomes
irrevocable:

Article 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already contracted, or if a partner is appointed manager of a
partnership in the contract of partnership and his removal from the management is unjustifiable.

A bilateral contract that depends upon the agency is considered an agency coupled with an
interest, making it an exception to the general rule of revocability at will. Lim v. Saban emphasizes
that when an agency is established for both the principal and the agent, an agency coupled with
an interest is created and the principal cannot revoke the agency at will.

In the promissory note with chattel mortgage, the Spouses Briones authorized petitioner to claim,
collect, and apply· the insurance proceeds towards the full satisfaction of their loan if the
mortgaged vehicle were lost or damaged. Clearly, a bilateral contract existed between the parties,
making the agency irrevocable. Petitioner was also aware of the bilateral contract; thus, it
included the designation of an irrevocable agency in the promissory note with chattel mortgage
that it prepared for the Spouses Briones to sign.

Credit transactions; Mortgagee in good faith

G.R. No. 206343, February 22, 2017, LAND BANK OF THE PHILIPPINES, Petitioner, vs.
LORENZO MUSNI, EDUARDO SONZA and SPOUSES IRENEO AND NENITA SANTOS,

Facts:

Banks must show that they exercised the required due diligence before claiming to be mortgagees
in good faith or innocent purchasers for value.

Respondent Lorenzo Musni was the compulsory heir of Jovita Musni, who was the owner of a lot
in Comillas, La Paz, Tarlac, under Transfer of Certificate Title No. 07043.

Musni filed before the Regional Trial Court of Tarlac City a complaint for reconveyance of land
and cancellation of TCT No. 333352 against Spouses Nenita Sonza Santos and Ireneo Santos,
Eduardo Sonza, and Land Bank of the Philippines.

Musni alleged that Nenita Sonza Santos falsified a Deed of Sale, and caused the transfer of title
of the lot in her and her brother Eduardo's names. He claimed that the Spouses Santos and
Eduardo mortgaged the lot to Land Bank as security for their loan of ₱1,400,000.00.

Musni said that he was dispossessed of the lot when Land Bank foreclosed the property upon
Nenita and Eduardo's failure to pay their loan. Later, the titles of the lot and another foreclosed
land were consolidated in TCT No. 333352, under the name of Land Bank.

Musni claimed that he filed a criminal case against Nenita and Eduardo for falsification of a public
document. The case was filed before the Municipal Trial Court of Tarlac, and was docketed as
Criminal Case No. 4066-99. According to him, the municipal trial court rendered a decision finding
Nenita guilty of the imputed crime.

In their Answer, the Spouses Santos admitted having mortgaged the lot to Land Bank. They also
admitted that the property was foreclosed because they failed to pay their loan with the bank.
Moreover, they confirmed that Nenita was convicted in the falsification case filed by Musni.

In defense, the Spouses Santos alleged that they, together with Eduardo, ran a lending business
under the name "Sonza and Santos Lending Investors." As security for the loan of ₱286,640.82,
Musni and his wife executed a Deed of Sale over the lot in favor of the Spouses Santos. The title
of the lot was then transferred to Nenita and Eduardo. The lot was then mortgaged to Land Bank,
and was foreclosed later.

Land Bank filed its Amended Answer with Counterclaim and Cross-claim. It asserted that the
transfer of the title in its name was because of a decision rendered by the Department of Agrarian
Reform Adjudication Board, Region III. It countered that its transaction with the Spouses Santos
and Eduardo was legitimate, and that it verified the authenticity of the title with the Register of
Deeds.

Issues: 1. Whether petitioner is a mortgagee in good faith and an innocent purchaser for value;
and

2. Whether petitioner is entitled to the award of damages.

Ruling: Petitioner is neither a mortgagee in good faith nor an innocent purchaser for value.

The determination of whether petitioner acted in good faith is a factual matter, which cannot be
raised before this Court in a Rule 45 petition. To emphasize, "this Court is not a trier of facts and
does not normally embark on a re-examination of the evidence adduced by the parties during
trial." Although this rule admits of exceptions, the present case does not fall under any of them.
Nevertheless, this Court recognized the relevance of the concept of a mortgagee, and a purchaser
in good faith in Andres, et al. v. Philippine National Bank:

The doctrine protecting mortgagees and innocent purchasers in good faith emanates from the
social interest embedded in the legal concept granting indefeasibility of titles. The burden of
discovery of invalid transactions relating to the property covered by a title appearing regular on
its face is shifted from the third party relying on the title to the co-owners or the predecessors of
the title holder. Between the third party and the co-owners, it will be the latter that will be more
intimately knowledgeable about the status of the property and its history. The costs of discovery
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.

In Philippine Banking Corporation v. Dy, et al., this Court explained this concept in relation to
banks:

Primarily, it bears noting that the doctrine of "mortgagee in good faith" is based on the rule that
all persons dealing with property covered by a Torrens Certificate of Title are not required to go
beyond what appears on the face of the title. This is in deference to the public interest in
upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or
of any encumbrance thereon. In the case of banks and other financial institutions, however,
greater care and due diligence are required since they are imbued with public interest, failing
which renders the mortgagees in bad faith. Thus, before approving a loan application, it is a
standard operating practice for these institutions to conduct an ocular inspection of the property
offered for mortgage and to verify the genuineness of the title to determine the real owner(s)
thereof. The apparent purpose of an ocular inspection is to protect the "true owner" of the
property as well as innocent third parties with a right, interest or claim thereon from a usurper
who may have acquired a fraudulent certificate of title thereto.

Had petitioner exercised the degree of diligence required of banks, it would have ascertained the
ownership of one of the properties mortgaged to it.

Where "the findings of fact of the trial courts are affirmed by the Court of Appeals, the same are
accorded the highest degree of respect and, generally, will not be disturbed on appeal[;] Such
findings are binding and conclusive on this Court." Accordingly, this Court finds no reason to
disturb the findings of the Court of Appeals, which affirmed the findings of the trial court, that
petitioner is neither a mortgagee in good faith nor an innocent purchaser for value.

Petitioner is not entitled to the award of ₱448,000.00 as damages.

The Court of Appeals considered the grant of award as a partial extinguishment of the real estate
mortgage, which is not allowed. Since the mortgage is indivisible, the Court of Appeals nullified
the real estate mortgage involving the two properties, and deleted the award.

Although the Court of Appeals' basis for deleting the award is erroneous, this Court affirms the
removal on a different ground.

The Court of Appeals misconstrued the award given by the trial court. When the trial court
awarded the amount of ₱448,000.00, it did so in representation of the damages that petitioner
suffered "by reason of the mortgage, foreclosure[,] and consolidation of the land in its name."
The award was meant to compensate petitioner for the loss it suffered in transacting with
respondents Spouses Santos and Eduardo.

Nonetheless, this Court affirms the removal of the damages since petitioner did not seek relief
from the Court with clean hands. Petitioner may have incurred losses when it entered into the
mortgage transaction with respondents Spouses Santos and Eduardo, and the corresponding
foreclosure sale. However, the losses could have been avoided if only petitioner exercised the
required due diligence.

This Court notes that both lower courts erroneously reconveyed TCT No. 333352 to respondent
Musni, despite finding that only one of the properties covered by the title was in question. Thus,
the consolidated title should be cancelled before the reconveyance of the subject property.
Torts and Damages; Proximate cause

G.R. No. 209910, November 29, 2017, VISAYAN ELECTRIC COMPANY, INC. vs. EMILIO
G. ALFECHE, GILBERT ALFECHE, EMMANUEL MANUGAS, AND M. LHUILLIER
PAWNSHOP AND JEWELRY

Facts:

On the night of January 6, 1998, a fire broke out at 11th Street, South Poblacion, San Fernando,
Cebu, which burned down the house and store of respondent Emilio and his son, Gilbert (the
Alfeches), and the adjacent watch repair shop owned by the Manugas. It was alleged that the
cause of the fire was the constant abrasion of Visayan Electric Company's (VECO) electric wire
with M. Lhuillier's signboard. The next day, the Alfeches and Manugas reported the incident to
the police and to the Sangguniang Bayan of San Fernando. Upon Emilio, Gilbert, and Manugas'
request for site inspection, the Sangguniang Bayan of San Fernando eventually passed Resolution
No. 12 requesting VECO to inspect the area and to repair faulty wires. The Alfeches and Manugas
sent a letter to the management of VECO asking for financial assistance, which VECO denied.
VECO asserted that the fire was due, not to its fault, but to that of M. Lhuillier. The Regional Trial
Court ruled that the proximate cause of the injury suffered by the Alfeches and Manugas was the
negligence of M. Lhuillier. It noted that based on Engr. Banaag's testimony, M. Lhuillier installed
its signage long after VECO moved its poles. Thus, it was its negligence in installing and
positioning its signage which led to the abrasion of VECO's power line and, ultimately, the fire.

On appeal, the Court of Appeals reversed the Regional Trial Court decision and found VECO liable
in M. Lhuillier's stead. The Court of Appeals gave greater credence to the testimonies of Rabor
and Engr. Lauronal, considering them to be impartial witnesses. It noted that the relocation of
the posts came before the fire, occasioned by the road widening and drainage projects. Thus,
VECO transferred the poles and the lines to a distance of merely eight (8) inches from M. Lhuillier's
signboard. This, in turn, caused the abrasion of power lines and the fire.

ISSUE: Was petitioner VECO's negligence the proximate cause of the fire which razed the
properties of the Alfeches and Manugas?

RULING:

Yes. All the elements for liability for a quasi-delict under Article 2176 of the Civil Code have been
shown to be attendant on VECO's part.

The elements of a quasi-delict are: (1) the damages suffered by the plaintiff; (2) the fault or
negligence of the defendant or some other person for whose act he must respond; and (3) the
connection of cause and effect between the fault or negligence and the damages incurred.

On the first element, it is undisputed that the Alfeches and Manugas suffered damage because
of the fire. What has hitherto remained unresolved is which between VECO and M. Lhuillier is
liable to indemnify them.

Fault is "a voluntary act or omission which causes damage to the right of another giving rise to
an obligation on the part of another." On the other hand, "negligence is the failure to observe for
the protection of the interest of another person that degree of care, precaution and vigilance
which the circumstances justly demand." Between VECO and M. Lhuillier, it is VECO which the
Court finds to have been negligent. M. Lhuillier was not negligent in installing its signage. It
installed its signage in 1995 well before the road-widening and drainage projects commenced
and ahead of VECO's relocation of its posts. Solon and Camuta both emphasized that the signage
was installed free of any obstacle. Other than VECO's evasive accusations, there is no proof to
the contrary. It was VECO that was negligent. It is apparent that it transferred its posts and wires
without regard for the hazards that the transfer entailed, particularly with respect to the
installations which had previously been distant from the wires and posts but which had since
come into close proximity.

VECO is a public utility tasked with distributing electricity to consumers. It is its duty to ensure
that its posts are properly and safely installed. As the holder of a public franchise, it is to be
presumed that it has the necessary resources and expertise to enable a safe and effective
installation of its facilities. By installing its posts and wires haphazardly, without regard to how its
wires could come in contact with a previously installed signage, VECO failed to act in keeping with
the diligence required of it.

Proximate cause is defined as "that cause which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the injury and without which the result would not
have occurred." VECO's negligence was the proximate cause of the damage suffered by the
Alfeches and Manugas. It is settled that the confluence of proximity, abrasion, and short circuiting
led to the fire. The first of these-proximity arose because of VECO's relocation of posts and wires.
Installed in such a manner that its wires constantly touched M. Lhuillier's signage, this "led to the
failure of the insulation thereby causing a short circuit which eventually led to the breaking and
burning of the wire." It was this burning wire that fell on the Alfeches' residence's roof and burned
down their house and store, as well as Manugas' adjacent shop.

Persons and Family Relations; Judicial declaration of nullity of first marriage

Norberto A. Vitangcol vs. People of the Philippines, G.R. No. 207406, January 13, 2016

Facts: On December 4, 1994, Norberto married Alice G. Eduardo (Alice). Born into their union
were three children. After some time, Alice eventually discovered that Norberto was previously
married to a certain Gina M. Gaerlan (Gina) on July 17, 1987, as evidenced by a marriage contract
registered with the National Statistics Office. Alice subsequently filed a criminal Complaint for
bigamy against Norberto.

Norberto argues that the first element of bigamy is absent in this case. He presents as evidence
a Certification from the Office of the Civil Registrar of Imus, Cavite, which states that the Office
has no record of the marriage license allegedly issued in his favor and his first wife, Gina.

He argues that with no proof of existence of an essential requisite of marriage—the marriage

license—the prosecution fails to establish the legality of his first marriage. In addition, Norberto
claims that the legal dissolution of the first marriage is not an element of the crime of bigamy.

Issue: Whether the Certification from the Office of the Civil Registrar that it has no record of the
marriage license issued to petitioner Norberto A. Vitangcol and his first wife Gina proves the nullity
of petitioner’s first marriage and exculpates him from the bigamy charge. (NO)

Ruling: Petition is denied. Petitioner Norberto A. Vitangcol is guilty of Bigamy and is sentenced
to suffer the indeterminate penalty of six (6) months and one (1) day of prision correccional as
minimum to eight (8) years and one (1) day of prision mayor as maximum.

Bigamy is punished under Article 349 of the Revised Penal Code:

ARTICLE 349. Bigamy. – The penalty of prision mayor shall be imposed upon any
person who shall contract a second or subsequent marriage before the former
marriage has been legally dissolved, or before the absent spouse has been declared
presumptively dead by means of a judgment rendered in the proper proceedings.
For an accused to be convicted of this crime, the prosecution must prove all of the following
elements:
1. that the offender has been legally married;
2. that the first marriage has not been legally dissolved or, in case his or her spouse
is absent, the absent spouse could not yet be presumed dead according to the
Civil Code;
3. that he contracts a second or subsequent marriage; and
4. that the second or subsequent marriage has all the essential requisites for validity.
The prosecution allegedly fails to prove the validity of his first marriage with Gina because the
civil registrar of the municipality where they were married had no record of the marriage license
allegedly issued in their favor.
Contrary to petitioner’s claim, all the elements of bigamy are present in this case. Petitioner was
still legally married to Gina when he married Alice. Thus, the trial court correctly convicted him of
the crime charged.
Based on the marriage contract presented in evidence, petitioner’s first marriage was solemnized
on July 17, 1987. This was before the Family Code of the Philippines became effective on August
3,1988. Consequently, provisions of the Civil Code of the Philippines govern the validity of his first
marriage.
Article 53 of the Civil Code enumerates the requisites of marriage, the absence of any of which
renders the marriage void from the beginning:
Article 53. No marriage shall be solemnized unless all these requisites are complied with:
(1) Legal capacity of the contracting parties;
(2) Their consent, freely given;
(3) Authority of the person performing the marriage; and
(4) A marriage license, except in a marriage of exceptional character.
The fourth requisite—the marriage license—is issued by the local civil registrar of the municipality
where either contracting party habitually resides. The marriage license represents the state’s
"involvement and participation in every marriage, in the maintenance of which the general public
is interested."
To prove that a marriage was solemnized without a marriage license, "the law requires that the
absence of such marriage license must be apparent on the marriage contract, or at the very least,
supported by a certification from the local civil registrar that no such marriage license was issued
to the parties."
Petitioner presents a Certification from the Office of the Civil Registrar of Imus, Cavite, which
states:
After a diligent search on the files of Registry Book on Application for Marriage License
and License Issuance available in this office, no record could be found on the alleged
issuance of this office of Marriage License No. 8683519 in favor of MR. NORBERTO
A. VITANGCOL and MS. GINA M. GAERLAN dated July 17, 1987.
This Certification does not prove that petitioner’s first marriage was solemnized without a
marriage license. It does not categorically state that Marriage License No. 8683519 does not exist.
Moreover, petitioner admitted the authenticity of his signature appearing on the marriage contract
between him and his first wife, Gina. The marriage contract between petitioner and Gina is a
positive piece of evidence as to the existence of petitioner’s first marriage. This "should be given
greater credence than documents testifying merely as to [the] absence of any record of the
marriage.”
Republic v. Court of Appeals and Castro was originally an action for the declaration of nullity of a
marriage. As part of its evidence, the plaintiff presented a certification that states that the
marriage license "cannot be located as said license . . . does not appear from [the local civil
registrar’s] records."
This court held that "the certification . . . enjoys probative value, [the local civil registrar] being
the officer charged under the law to keep a record of all data relative to the issuance of a marriage
license."
This court further said that "unaccompanied by any circumstance of suspicion and pursuant to
Section 29, Rule 132 of the Rules of Court, a certificate of ‘due search and inability to find’
sufficiently proved that [the local civil registrar] did not issue [a] marriage license . . . to the
contracting parties."
The circumstances in Castro and in this case are different. Castro involved a civil case for
declaration of nullity of marriage that does not involve the possible loss of liberty. The certification
in Castro was unaccompanied by any circumstance of suspicion, there being no prosecution for
bigamy involved. On the other hand, the present case involves a criminal prosecution for bigamy.
To our mind, this is a circumstance of suspicion, the Certification having been issued to Norberto
for him to evade conviction for bigamy.
The appreciation of the probative value of the certification cannot be divorced from the purpose
of its presentation, the cause of action in the case, and the context of the presentation of the
certification in relation to the other evidence presented in the case. We are not prepared to
establish a doctrine that a certification that a marriage license cannot be found may substitute
for a definite statement that no such license existed or was issued. Definitely, the Office of the
Civil Registrar of Imus, Cavite should be fully aware of the repercussions of those words. That
the license now cannot be found is not basis per se to say that it could not have been issued.
A different view would undermine the stability of our legal order insofar as marriages are
concerned. Marriage licenses may be conveniently lost due to negligence or consideration. The
motivation to do this becomes greatest when the benefit is to evade prosecution.
This case is likewise different from Nicdao Cariño v. Yee Cariño. In Cariño, the marriage contract
between Santiago Cariño and his first wife, Susan Nicdao, bore no marriage license number. In
addition, the local civil registrar certified that it has no record of any marriage license issued to
Santiago Cariño and Susan Nicdao. This court declared Santiago Cariño’s first marriage void for
having been solemnized without a marriage license.
In this case, there is a marriage contract indicating the presence of a marriage license number
freely and voluntarily signed and attested to by the parties to the marriage as well as by their
solemnizing officer. The first marriage was celebrated on July 17, 1987. The second marriage was
entered into on December 4, 1994. Within a span of seven (7) years, four (4) months, and 17
(seventeen) days, petitioner did not procure a judicial declaration of the nullity of his first
marriage. Even while the bigamy case was pending, no decision declaring the first marriage as
spurious was presented. In other words, petitioner’s belief that there was no marriage license is
rendered untrue by his own actuations.
This factual context makes the use and issuance of the Certification from the Office of the Civil
Registrar suspect. The prosecution has to prove that despite the existence of a valid first marriage,
petitioner nevertheless contracted a second or subsequent marriage. The admission of a marriage
contract with proof of its authenticity and due execution suffices to discharge the burden of
proving beyond reasonable doubt that a prior marriage exists. The burden of evidence will, thus,
pass on to the defense. Mere presentation of a certification from the civil registrar that the
marriage license cannot be found is not enough to discharge the burden of proving that no such
marriage license was issued.
The parties clearly identified Marriage License No. 8683519 in the marriage contract. There is no
evidence to show that the number series of that license is spurious or is not likely to have been
issued from its source. There is no proof as to whether the licenses issued before or after the
document in question still exists in the custody of the civil registrar. There is no evidence that
relates to the procedures for safekeeping of these vital documents. This would have shown
whether there was unfettered access to the originals of the license and, therefore, would have
contributed to the proper judicial conclusion of what the manifestation by the civil registrar
implies.
This court cannot grant the presumption of good faith and regularity in the performance of official
functions to the civil registrar for the purposes sought by petitioner. In other words, the
presumption of regularity in the performance of official functions is too remotely detached to the
conclusion that there is no marriage license.
At best, the presumption of regularity in the performance of the civil registrar’s function without
the context just discussed can lead to the conclusion that he in good faith could not find the
marriage license in his office. This presumption does not mean that the marriage license did not
exist. Nor does it mean that the marriage license was issued.
However, even the conclusion of good faith is difficult to accept. There was a marriage contract
duly executed by petitioner and his first spouse as well as by the solemnizing officer. The marriage
contract is in the custody of the civil registrar. The presumption of regularity in the performance
of official functions by a public officer should likewise be applicable to infer a conclusion that the
marriage license mentioned in that contract exists.
Conviction in a charge of bigamy will result to a legitimate imposition of a penalty amounting to
a deprivation of liberty. It is not a far-fetched conclusion—although this is not always the case—
that a well-connected accused will use all means, fair or foul, to achieve an acquittal. Many
criminal cases can turn on documentary evidence the issuance of which is within the discretion
of a government employee. The temptations for the employee to issue a document, which may
be accurate but which he knows the accused will be able to use for a different purpose, can easily
be created by an accused. Much of the bases of this conclusion will depend on how the trial court
judge evaluates the demeanor of the witnesses. We can defer to that discretion as much as to
make our own judgment based on evidence conclusively admitted and weighed by the trial court.
Using both, we have no reason to disturb the conclusions of the trial court.
Assuming without conceding that petitioner’s first marriage was solemnized without a marriage
license, petitioner remains liable for bigamy. Petitioner’s first marriage was not judicially
declared void. Nor was his first wife Gina judicially declared presumptively dead under the Civil
Code. The second element of the crime of bigamy is, therefore, present in this case.
As early as 1968, this court held in Landicho v. Relova, et al. that parties to a marriage should
not be permitted to judge for themselves its nullity, only competent courts having such authority.
Prior to such declaration of nullity, the validity of the first marriage is beyond question. A party
who contracts a second marriage then assumes the risk of being prosecuted for bigamy.
The commission that drafted the Family Code considered the Landicho ruling in wording Article
40 of the Family Code:
Art. 40. The absolute nullity of a previous marriage may be invoked for purposes of
remarriage on the basis solely of a final judgment declaring such previous marriage
void.
Should the requirement of judicial declaration of nullity be removed as an element of the crime
of bigamy, Article 349 of Revised Penal Code becomes useless. "All that an adventurous bigamist
has to do is to . . . contract a subsequent marriage and escape a bigamy charge by simply claiming
that the first marriage is void and that the subsequent marriage is equally void for lack of a prior
judicial declaration of nullity of the first." Further, "a party may even enter into a marriage aware
of the absence of a requisite—usually the marriage license—and thereafter contract a subsequent
marriage without obtaining a judicial declaration of nullity of the first on the assumption that the
first marriage is void."
For these reasons, the Landicho ruling remains good law. It need not be revisited by this court
En Banc as petitioner insists.
The third element of bigamy is likewise present in this case. Petitioner admitted that he
subsequently married Alice G. Eduardo on December 4, 1994. As for the last element of bigamy,
that the subsequent marriage has all the essential requisites for validity, it is presumed. The crime
of bigamy was consummated when petitioner subsequently married Alice without his first
marriage to Gina having been judicially declared void.
With all the elements of bigamy present in this case, petitioner was correctly convicted of the
crime charged.

LTD; Registration of land

REPUBLIC OF THE PHILIPPINES v. SPS JOEL AND ANDREA NOVAL, ELLEN N. DELOS
REYES, DALE Y. NOVAL, WINNIE T. REFI, ZENAIDA LAO, AND DAISY N. MORALES, G.R.
No. 170316, September 18, 2017
Facts:
On September 8, 1999, the applicants sought the registration of their titles over the subdivided
portions of a land in Barangay Casili, Consolacion, Cebu, designated as Lot 4287 of Consolacion
Cadastre. They alleged to have acquired their respective portions of this land by "purchase,
coupled with continuous, public, notorious, exclusive and peaceful possession in the concept of
an owner for more than 30 years including [the possession] of their predecessors-in-interest."
They also alleged that they were in actual possession of their respective portions of the property.
The Republic through the Office of the Solicitor General, filed its Opposition on the ground that
the tax declarations and tax payment receipts attached to the application were not competent to
show bona fide acquisition or open and continuous possession of the land.

Issues:
(1) WON Respondents showed that they or their predecessor-in-interest have been in open,
continuous, exclusive, and notorious possession and occupation of the land for the period
required by law.
(2) WON property may be registered without a certification from the Department of
Environment and Natural Resources that it has been declared alienable and disposable.
Ruling:
(1) Yes. The SC is not a trier of questions of facts, only of questions of law. Respondents'
predecessor-in- interest recalled her grandmother to have already cultivated fruit-bearing
trees on Lot 4287 when she was 15 years old. Possession prior to that "can hardly be
estimated . . . the period of time being so long that it is beyond the reach of memory."

Hence, respondents' and their predecessor-in-interest's possession is, with little doubt,
more than 50 years at the time of respondents' application for registration in 1999. This
is more than enough to satisfy the period of possession required by law for acquisition of
ownership. A property applied for judicial confirmation of title may be classified as
alienable and disposable at any time. For the purposes of judicial confirmation of title,
only possession and occupation must be reckoned from June 12, 1945.

(2) Yes. The burden of evidence lies on the party who asserts an affirmative allegation.
Therefore, if the State alleges that lands belong to it, it is not excused from providing
evidence to support this allegation. This specially applies when the land in question has
no indication of being incapable of registration and has been exclusively occupied by an
applicant or his or her predecessor-in-interest without opposition-not even from the State.

The burden of evidence lies on the party who asserts an affirmative allegation. Therefore,
if the State alleges that lands belong to it, it is not excused from providing evidence to
support this allegation. This specially applies when the land in question has no indication
of being incapable of registration and has been exclusively occupied by an applicant or his
or her predecessor-in-interest without opposition-not even from the State.
Hence, when a land has been in the possession of the applicants and their predecessor-
in-interest since time immemorial and there is no manifest indication that it is
unregistrable, it is upon the State to demonstrate that the land is not alienable and
disposable. "[A] mere formal opposition on the part of the [Solicitor General] . . .,
unsupported by satisfactory evidence, will not stop the courts from giving title to the
claimant."
The Court's previous rulings imposing the burden of overcoming the presumption that a
land is public should only be strictly applied when a manifestly unregistrable land is in
danger of fraudulent titling-not when it will promote unfairness and violation of due
process rights.
Respondents' and their predecessor-in-interest's possession was never opposed, even at
the time of application, by the government agencies tasked to ensure that public lands
remain public. There was neither indication nor mention that Lot 4287 was forest, timber
land, or belonging to a reservation.
The State also kept silent on respondents' and their predecessor-in interest's continuously
paid taxes. The burden to prove the public character of Lot 4287 becomes more
pronounced when the State continuously accepts payment of real property taxes. This
Court acknowledges its previous rulings that payment of taxes is not conclusive evidence
of ownership. However, it is good indicia of possession in the concept of an owner, and
when coupled with continuous possession, it constitutes strong evidence of title.
 Therefore, the Court is constrained to hold that respondents' evidence, coupled with the
absence of contradictory evidence from petitioner, substantially establishes that
respondents have complied with the requisites of Section 48(b) of the Public Land Act and
Section 14(1) of the Property Registration Decree.
Torts and Damages; Negligence
LORENZO SHIPPING CORPORATION vs. NATIONAL POWER CORPORATION, G.R. No.
181683, October 07, 2015

Facts: Lorenzo Shipping is the owner and operator of the commercial vessel MV Lorcon
Luzon. National Power Corporation is the owner of Power Barge 104, "a non-propelled power
plant barge."

At the time of the incident, Captain Mariano Villarias (Captain Villarias) served as the Master of
the MV Lorcon Luzon. However, the MV Lorcon Luzon was then being piloted by Captain Homer
Yape (Captain Yape), a Harbor Pilot from the General Santos City pilotage district. Captain Villarias
recalled that while the MV Lorcon Luzon was under Captain Yape's pilotage, he nevertheless
"always" remained at the side of Captain Yape. He likewise affirmed that he heard and knew of
Captain Yape's orders, "because I have to repeat his order."

As the MV Lorcon Luzon was docking and moved "precariously close" to the wharf, Captain Yape
ordered the vessel to move backward, i.e., go "slow astern," and subsequently "full astern."
Despite his orders, the engine failed to timely respond. Thus, Captain Yape ordered the dropping
of the anchor. Despite this, the MV Lorcon Luzon rammed into Power Barge 104.

Following this incident, Nelson Homena, Plant Manager of Power Barge 104, filed a Marine Protest
before the Board of Marine Inquiry. Captain Villarias also filed his own Marine Protest. For his
part, Captain Yape filed a Marine Accident Report. The Board of Marine Inquiry conducted joint
hearings on the Marine Protests and Captain Yape's report.

To forestall the prescription of its cause of action for damages, National Power Corporation filed
before the Quezon City Regional Trial Court a Complaint for Damages against Lorenzo
Shipping. In this Complaint, National Power Corporation recalled the damage resulting from the
ramming.

Lorenzo Shipping filed a Motion to Dismiss grounded on the Regional Trial Court's alleged lack of
jurisdiction over the subject matter and National Power Corporation's failure to exhaust
administrative remedies. The Regional Trial Court denied Lorenzo Shipping's Motion to Dismiss.

Lorenzo Shipping filed its Answer. It emphasized that at the time of the incident, the MV Lorcon
Luzon was commandeered by an official Harbor Pilot to whom it was "mandatory . . . to yield
operational control"; thus, any liability should be attributed to the Harbor Pilot and not to the
company. Further, Lorenzo Shipping pointed out that National Power Corporation's action
was barred by laches as four (4) years had lapsed before it filed its Complaint.

Issue:

Whether or not Lorenzo Shipping Corporation is liable for the damage sustained by Power Barge
104 when the MV Lorcon Luzon rammed into it, considering that at the time of the ramming, the
MV Lorcon Luzon was under mandatory pilotage by Captain Yape.

Ruling:

A Master's designation as the commander of a vessel is long-settled. This court's citation in Yu

Con v. Ipil of General Review of Legislation and Jurisprudence explains that "Master" and
"Captain" are synonymous terms:

"The name of captain or master is given, according to the kind of vessel, to the person in
charge of it.
 "The first denomination is applied to those who govern vessels that navigate the high seas
or ships of large dimensions and importance, although they be engaged in the coastwise
trade.
"Masters are those who command smaller ships engaged exclusively in the coastwise
trade.
"For the purposes of maritime commerce, the words 'captain' and Q 'master' have the
same meaning; both being the chiefs or commanders of ships.

Likewise, in Inter-Orient Maritime Enterprises, Inc. v. National Labor Relations Commission:

A master or captain, for purposes of maritime commerce, is one who has command of a
vessel. A captain commonly performs three (3) distinct roles: (1) he is a general agent of
the shipowner; (2) he is also commander and technical director of the vessel; and (3) he
is a representative of the country under whose flag he navigates. Of these roles, by far
the most important is the role performed by the captain as commander of the vessel; for
such role (which, to our mind, is analogous to that of "Chief Executive Officer" [CEO] of a
present-day corporate enterprise) has to do with the operation and preservation of the
vessel during its voyage and the protection of the passengers (if any) and crew and cargo.
In his role as general agent of the shipowner, the captain has authority to sign bills of
lading, carry goods aboard and deal with the freight earned, agree upon rates and decide
whether to take cargo. The ship captain, as agent of the shipowner, has legal authority
to enter into contracts with respect to the vessel and the trading of the vessel, subject to
applicable limitations established by statute, contract or instructions and regulations of
the shipowner. To the captain is committed the governance, care and management of the
vessel. Clearly, the captain is vested with both management and fiduciary
functions. (Emphasis supplied, citations omitted)

This notwithstanding, there are recognized instances when control of a vessel is

yielded to a pilot. Section 8 of Philippine Ports Authority (PPA) Administrative Order No.
03-85, otherwise known as the Rules and Regulations Governing Pilotage Services, the
Conduct of Pilots and Pilotage Fees in Philippine Ports, enumerates instances when vessels
are subjected to compulsory pilotage. The second paragraph of Section 8 identifies an
instance when control of a vessel need not be yielded to a pilot. Section 9 further
enumerates exceptions to compulsory pilotage.

Section 32(f) of PPA Administrative Order No. 03-85 specifies the foremost
responsibility of a Harbor Pilot, that is, the direction of the vessel being piloted. In addition,
Section 32 (f) spells out the duration within which the Harbor Pilot is to fulfill this
responsibility. It likewise provides that the Master's failure to carry out the Harbor Pilot's
orders is a ground for absolving the Harbor Pilot of liability

Consistent with the yielding of control to a pilot, Section 11 of PPA Administrative

Order No. 03-85 makes the Harbor Pilot liable for damage caused by his or her negligence
or fault. The same provision, however, emphasizes that "overall command" of the vessel
remains in the Master of the vessel.

Accordingly, it is settled that Harbor Pilots are liable only to the extent that they
can perform their function through the officers and crew of the piloted vessel. Where
there is failure by the officers and crew to adhere to their orders, Harbor Pilots cannot be
held liable. In Far Eastern Shipping Co. V. Court of Appeals, this court explained the
intertwined responsibilities of pilots and masters:

Thus, contrary to Lorenzo Shipping's assertion, the MV Lorcon Luzon's having been
piloted by Captain Yape at the time of the ramming does not automatically absolve
Lorenzo Shipping of liability. Clearing it of liability requires a demonstration of how
the Master, Captain Villarias, conducted himself in those moments when it became
apparent that the MV Lorcon Luzon's engine had stopped and Captain Yape's
orders to go "slow astern" and "full astern" were not being heeded.
 As noted by the Court of Appeals, Captain Villarias was remiss in his duties.

In the first place, six (6) minutes cannot be characterized as so quick and fleeting
that it deprived Captain Villarias and his crew of "the time they needed to arrest the
momentum of the vessel." By way of reference, an entire song of average length (or
longer) could have played in Captain Villarias' head within those six (6) minutes. The
vessel had been performing the tedious task of berthing and had been moving so fast that
it was about to collide with the docks in the wharf. Given these circumstances, it was only
reasonable for Captain Villarias, precisely because he was the vessel's Master, to remain
vigilant, to support and supplement Captain Yape's orders, and to take evasive and
counter measures should Captain Yape's attempts to safely berth prove to be ineffectual.
The Court of Appeals' observation is well-taken: "Even just a minute without any response
from the concerned department could have alarmed him."
To reiterate, six (6) minutes were more than enough time for Captain Villarias to
have done something to remedy the situation. It is not for us to hypothesize on whether
the measures he took would have been effectual. It remains that for six minutes, he did
nothing. As Master of the MV Lorcon Luzon, he should have been on his toes, keen and
ready to make decisions in a split second, especially in an evidently precarious situation.
His failure to timely act is too glaring to ignore.
Moreover, both Captain Villarias and Captain Yape must be presumed to have been
disciplined officers who knew fully well how to conduct themselves in such a situation.
There is no basis for contemplating a scenario where the Pilot and the Master are battling
for control of the MV Lorcon Luzon.
So, too, the crew must be presumed to have been trained to follow the Master's
commands. It is ridiculous to think that merely hearing Captain Villarias' voice in lieu of
Captain Yape's would throw the crew into paralyzed confusion. Besides, from Captain
Villarias' quoted testimony, the crew was already listening to both his and Captain Yape's
voices. He admitted that he repeated Captain Yape's orders. The crew was, thus, properly
disposed to heed instructions coming from him. If at all, his failure to timely act despite
the crew's presumptive readiness to heed his command only highlights his negligence.

Torts and Damages; Damages

MICHAEL C. GUY v. RAFFY TULFO, ALLEN MACASAET, NICOLAS V. QUIJANO, JR.,

JANET BAY, JESUS P. GALANG, RANDY HAGOS, JEANY LACORTE, AND VENUS TANDOC,
G.R. No. 213023, April 10, 2019

FACTS:

An article entitled "Malinis ba talaga o naglilinis-linisan lang (Sino si Finance Sec. Juanita
Amatong?)" was published in Abante Tonite, a newspaper of general circulation in the Philippines,
written by Tulfo. The article reported that a certain Guy, who was then being investigated by the
Department of Finance for tax fraud, went to former the Revenue Integrity Protection Service
(RIPS) of the Department of Finance Secretary Juanita Amatong’s house to ask for help. Secretary
Amatong then purportedly called the head of the RIPS and directed that all the documents that
it had obtained on Guy's case be surrendered to her.

Claiming that the article had tainted his reputation, Guy filed a Complaint-Affidavit against Tulfo
and the representatives of Abante Tonite's Monica Publishing Corporation: Macaseat et.al. The
Regional Trial Court (RTC) convicted Tulfo and Macasaet, et al. of the crime of libel. The trial
court ordered Tulfo and Macasaet, et al. to pay Guy: P5M as actual damages; P5M as moral
damages; and P211k as attorney's fees.

Issues:

(1) Whether or not Petitioner can be awarded actual damages, notwithstanding that the CA
found no basis for the same? – (NO)
(2) Whether or not Petitioner can be awarded Temperate damages notwithstanding that there
is no basis for the award of actual damages? – (NO)
 (3) Whether or not the reduction of the award of moral damages is proper? – (YES)
(4) Whether or not Petitioner is entitled to Exemplary damages? – (YES)

Ruling:

(1) Actual damages are "compensation for an injury that will put the injured party in the
position where it was before the injury. They pertain to such injuries or losses that are actually
sustained and susceptible of measurement." Actual damages constitute compensation for
sustained pecuniary loss. Nevertheless, a party may only be awarded actual damages when the
pecuniary loss he or she had suffered was duly proven.
Except as provided by law or by stipulation, a party is entitled to adequate compensation only for
such pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only
must the amount of loss be capable of proof; it must also be actually proven with a reasonable
degree of certainty, premised upon competent proof or the best evidence obtainable.
The SC emphasized that actual damages cannot be presumed and courts, in making an award,
must point out specific facts which could afford a basis for measuring whatever compensatory or
actual damages are borne. An award of actual damages is "dependent upon competent proof of
the damages suffered and the actual amount thereof. The award must be based on the evidence
presented, not on the personal knowledge of the court; and certainly not on flimsy, remote,
speculative and unsubstantial proof."
As the Court of Appeals correctly found, petitioner failed to substantiate the loss he had allegedly
sustained. Save for his testimony in court, he presented no evidence to support his claim. His
allegation of possibly earning P50,000,000.00 in 10 years is a mere assumption without any
foundation. This bare allegation is insufficient to prove that he has indeed lost P5,000,000.00 as
earnings. As the SC has previously held, "the award of unrealized profits cannot be based on the
sole testimony of the party claiming it."
(2) A party may be awarded temperate damages should the court find that he or she has
suffered some pecuniary loss even if its amount cannot be determined with exact certainty.
Notwithstanding the absence of any evidence on the amount of actual damages suffered.
Petitioner failed to prove that he has suffered any pecuniary loss. While he testified that he lost
clients as a result of the libelous article, records reveal that he lost only one client, Jayson Mallari.
On cross-examination, Mallari even testified "that he was not immediately convinced by the article
and called petitioner before terminating his business with him." Moreover, as the records show,
Mallari started transacting with petitioner again sometime in 2005.
(3) Moral damages are "compensatory damages awarded for mental pain and suffering or
mental anguish resulting from a wrong." They are awarded to the injured party to enable him to
obtain means that will ease the suffering he sustained from respondent's reprehensible act.
"Moral damages are not punitive in nature," but instead a type of "award designed to compensate
the claimant for actual injury suffered as held in Equitable Leasing Corporation v. Suyom.
Unlike actual and temperate damages, moral damages may be awarded even if the injured party
failed to prove that he has suffered pecuniary loss. As long as it was established that
complainant's injury was the result of the offending party's action, the complainant may recover
moral damages.
Article 2219 of the Civil Code specifically states that moral damages may be recovered in cases
of libel, slander, or defamation. The amount of moral damages that courts may award depends
upon the set of circumstances for each case. There is no fixed standard to determine the amount
of moral damages to be given. Courts are given the discretion to fix the amount to be awarded
in favor of the injured party, so long as there is sufficient basis for awarding such amount.
Here, petitioner insists that he is entitled to moral damages in the amount of P5,000,000.00. He
argues that he suffered social humiliation and anxiety from the libelous article. His 77-year-old
mother castigated him for disgracing their family. His children questioned him after they had been
interrogated in school for the article about their father. Finally, petitioner claims that the article
tainted his reputation, prompting his clients and business associates to refuse to transact with
him.
While the Court recognizes the embarrassment and unease suffered by petitioner, it must be
emphasized that moral damages may only be awarded when the claimant has sufficiently proved:
(1) the factual foundation of the award; and (2) the causal connection of petitioner's suffering to
respondents' act.
Here, other than his bare allegations of besmirched reputation and loss of clientele, petitioner
failed to present evidence supporting his assertions. He submitted no evidence substantiating his
claimed loss. He also failed to adduce proof to support his claim that his reputation was tainted
due to the libelous article. Moreover, he did not present in court any testimony from the business
associates who had allegedly lost faith in him. Records reveal that he lost only one (1) client,
Jayson Mallari (Mallari). On cross- examination, Mallari even testified "that he was not
immediately convinced by the article and called petitioner before terminating his business with
him." Moreover, as the records show, Mallari started transacting with petitioner again.
Nonetheless, moral damages should still be awarded. As he had testified during trial, members
of his family were displeased with him for being accused of committing illegal and corrupt acts.
He was berated by his mother Tor having humiliated their family. His children were questioned
at school. As such, an award of P500,000.00 as moral damages is an adequate recompense to
the mental anguish and wounded feelings that petitioner had endured.
(4) Under Article 2230 of the Civil Code, exemplary damages may be awarded only when the
crime was committed with one (1) or more aggravating circumstances.
"Exemplary or corrective damages are imposed by way of example or correction for the public
good." It is imposed as a punishment for highly reprehensible conduct" and serves as a notice to
prevent the public from "the repetition of socially deleterious actions." "Such damages are
required by public policy, for wanton acts must be suppressed. They are an antidote so that the
poison of wickedness may not run through the body politic."
Kierulf laid down the requirements that must be satisfied before exemplary damages may be
awarded:
(1) They may be imposed by way of example or correction only in addition, among others,
to compensatory damages, and cannot be recovered as a matter of right, their
determination depending upon the amount of compensatory damages that may be
awarded to the claimant;
(2) the claimant must first establish his right to moral, temperate, liquidated or
compensatory damages; and
(3) the wrongful act must be accompanied by bad faith, and the award would be allowed
only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.
Here, respondents published the libelous article without verifying the truth of the allegations
against petitioner. As the Court of Appeals found, the Revenue Integrity Protection Service only
investigates officials of the Department of Finance and its attached agencies who are accused of
corruption. Petitioner, on the other hand, is no government official and, therefore, beyond the
Revenue Integrity Protection Service's jurisdiction. It only goes to show that respondents did not
verify the information on which the article was based. Thus, to ensure that such conduct will no
longer be repeated, and considering their profession, respondents are directed to pay petitioner
exemplary damages in the amount of P1,000,000.00.
Journalists should observe high standards expected from their profession. They must take
responsibility for the accuracy of their work, careful never to deliberately distort facts or context
by verifying information before releasing it for public consumption. This case comes at a time
when the credibility of journalists is needed more than ever; when their tried-and-tested practice
of adhering to their own code of ethics becomes more necessary, so that their truth may provide
a stronger bulwark against the recklessness in social media. Respondents, then, should have been
more circumspect in what they published. They are not media practitioners with a lack of social
following; their words reverberate.
Sales; Validity of contract
LOLITA BAS CAPABLANCA vs HEIRS OF PEDRO BAS, represented by JOSEFINA BAS
ESPINOSA and REGISTER OF DEEDS OF THE PROVINCE OF CEBU, G.R. No. 224144,
June 28, 2017

Facts:

The subject matter of this case is Lot 2535 of the Talisay-Minglanilla Friar Land's Estate located
in "Biasong, Dumlog, Talisay, Cebu" with an area of 6,120 square meters.

Andres Bas (Andres) and Pedro Bas (Pedro) acquired Lot 2535, "and Patent No. 1724 was issued
in their names on May 12, 1937." On November 28, 1939, Pedro sold to Faustina Manreal
(Faustina), married to Juan Balorio, his portion of Lot 2535, evidenced by a notarized Deed of
Sale dated November 28, 1939.

After the death of Faustina and her husband, their heirs executed a notarized Extra-Judicial
Declaration of Heirs and Deed of Absolute Sale dated March 13, 1963. Lot 2535 was conveyed to
one (1) of their heirs, Alejandra Balorio (Alejandra). The latter sold the land through a Deed of
Absolute Sale dated June 13, 1967 to Edith N. Deen, who in turn sold it to Atty. Eddy A. Deen
(Atty. Deen) on March 21, 1968.

Upon Atty. Deen's death on December 18, 1978, an extra-judicial settlement of estate, which did
not include Lot 2535, was executed by his heirs. Later, or on March 30, 1988, they executed an
Additional Extra-Judicial Settlement with Absolute Deed of Sale, which sold the land
for ₱10,000.00 to Norberto B. Bas (Norberto), who took possession of and built a house on it.

On December 15, 1995, Norberto died without a will and was succeeded by his niece and only
heir, Lolita Bas Capablanca (Lolita). Subsequently, Lolita learned that a Transfer Certificate of
Title (TCT) No. T-96676 dated June 6, 1996 was issued in the names of Andres and Pedro on the
basis of a reconstituted Deed of Conveyance No. 96-00004.

In October 1996, Josefina Bas Espinosa (Josefina) represented the Heirs of Pedro Bas to file a
complaint for Clarification of Ownership of Lot 2535 against Lolita before the Lupong
Tagapamayapa of Barangay Biasong, Talisay, Cebu, resulted to the issuance of a Certification to
file Action.

On December 16, 1996, a notarized Partition Agreement of Real Property, Quitclaim and Waiver
of Rights was executed between the heirs of Andres and Lolita, representing Norberto, whereby
they partitioned Lot 2535 among themselves. Lolita sought to register her portion in Lot 2535 but
was denied by the Register of Deeds of Cebu, citing the need for a court order.

On December 16, 1997, Lolita filed a complaint before the Regional Trial Court of Cebu City for
the cancellation of the titles. In their Answer, the Heirs of Pedro Bas claimed that "the sale
between Pedro Bas and Faustina Manreal [was] fake, spurious and invalid because [Pedro] who
[was] an illiterate never learned how to write his name so that the signature appearing thereon
could not have been made by Pedro Bas."

Issue: Whether or not the sale of the property in 1939 from Pedro to Faustina is valid.

Ruling:

The dispute in this case is not about the heirship of petitioner to Norberto but the validity of the
sale of the property in 1939 from Pedro to Faustina, from which followed a series of transfer
transactions that culminated in the sale of the property to Norberto. For with Pedro's sale of the
property in 1939, it follows that there would be no more ownership or right to property that would
have been transmitted to his heirs.

Petitioner's claim is anchored on a sale of the property to her predecessor-in-interest and not on
any filiation with the original owner. What petitioner is pursuing is Norberto's right of ownership
over the property which was passed to her upon the latter's death.
This Court has stated that no judicial declaration of heirship is necessary in order that an heir
may assert his or her right to the property of the deceased. In Marabilles v. Quito:

The right to assert a cause of action as an heir, although he has not been judicially
declared to be so, if duly proven, is well settled in this jurisdiction. This is upon the theory
that the property of a deceased person, both real and personal, becomes the property of
the heir by the mere fact of death of his predecessor in interest, and as such he can deal
with it in precisely the same way in which the deceased could have dealt, subject only to
the limitations which by law or by contract may be imposed upon the deceased
himself. Thus, it has been held that "[t]here is no legal precept or established rule which
imposes the necessity of a previous legal declaration regarding their status as heirs to an
intestate on those who, being of age and with legal capacity, consider themselves the
legal heirs of a person, in order that they may maintain an action arising out of a right
which belonged to their ancestor" ... A recent case wherein this principle was maintained
is Cabuyao vs. [C]aagbay. (Emphasis supplied)

The Court of Appeals' reliance on the ruling in Heirs of Yaptinchay v.Del Rosario was misplaced.
In that case, the motion to dismiss was filedimmediately after the second Amended Complaint
was filed. The trial court granted the motion to dismiss, holding that the Heirs of Y aptinchay
"have not shown any proof or even a semblance of it-except the allegations that they are the
legal heirs of the above-named Yaptinchays-that they have been declared the legal heirs of the
deceased couple."

Here, respondents never raised their objection to petitioner's capacity to sue either as an
affirmative defense or in a motion to dismiss. Rule 9, Section 1 of the Rules of Court states, "[
d]efenses and objections not pleaded either in a motion to dismiss or in the answer are deemed
waived." Thus, it was erroneous for the Court of Appeals to dismiss the complaint on the ground
that there was no prior judicial declaration of petitioner's heirship to Norberto.

Moreover, the pronouncement in the Heirs of Yaptinchay that a declaration of heirship must be
made only in a special proceeding and not in an ordinary civil action for reconveyance of property
was based on Litam, etc., et. al. v. Rivera and Solivio v. Court of Appeals, which involved different
factual milieus.

The facts of the case in Litam, etc., et. al. v. Rivera show that during the pendency of the special
proceedings for the settlement of the intestate estate of the deceased Rafael Litam, the plaintiffs-
appellants filed a civil action. They claimed that as the children of the deceased by a previous
marriage to a Chinese woman, they were entitled to inherit his one-half (1/2) share of the
conjugal properties acquired during his marriage to Marcosa Rivera (Marcosa). The trial court in
the civil case declared, among others, that the plaintiffs-appellants were not children of the
deceased and that Marcosa was his only heir. On appeal, this Court ruled that such declaration-
that Marcosa was the only heir of the decedent-was improper because the determination of the
issue was within the exclusive competence of the court in the special proceedings.

In Solivio v. Court of Appeals, the deceased Esteban Javellana, Jr. was survived by Celedonia
Solivio (Celedonia), his maternal aunt, and Concordia Javellana-Villanueva (Concordia), his
paternal aunt. Celedonia filed the intestate proceedings and had herself declared as sole heir and
administratrix of the estate of the decedent to facilitate the implementation of the latter's wish to
place his estate in a foundation named after his mother. While the probate proceeding was
pending, Concordia filed a separate civil action where she sought to be declared as co-heir and
for partition of the estate. This Court held that the "separate action was improperly filed for it is
the probate court that has exclusive jurisdiction to make a just and legal distribution of the
estate." This Court further held that "in the interest of orderly procedure and to avoid confusing
and conflicting dispositions of a decedent's estate, a court should not interfere with probate
proceedings pending in a co-equal court."

In Litam and Solivio, the adverse parties were putative heirs to a decedent's estate or parties to
the special proceedings for an estate's settlement. Hence, this Court ruled that questions on the
status and right of the contending parties must be properly ventilated in the appropriate special
proceeding, not in an ordinary civil action.

Here, as stated, the main issue is the annulment of title to property, which ultimately
hinges on the validity of the sale from Pedro to Faustina. Petitioner does not claim
any filiation with Pedro or seek to establish her right as his heir as against the
respondents. Rather, petitioner seeks to enforce her right over the property which
has been allegedly violated by the fraudulent acts of respondents.

This case has gone a long way since the complaint was filed in 1997. A full-blown trial had taken
place and judgment was rendered by the Regional Trial Court where it thoroughly discussed,
evaluated, and weighed all the pieces of documentary evidence and testimonies of the witnesses
of both parties. At this point, to dismiss the case and require petitioner to institute a special
proceeding to determine her status as heir of the late Norberto would hamper, instead of serve,
justice.

Credit Transactions; Interest

VICTOR S. LIMLINGAN AND EMMANUEL A. LEYCO vs. ASIAN INSTITUTE OF

MANAGEMENT, INC., G.R. No. 220481, February 17, 2016

FACTS:

A Complaint for "illegal suspension, non-payment of salaries, deprivation of medical benefits, life
insurance and other benefits, damages and attorney's fees" was filed by Limlingan and Leyco
against AIM. LA Menese declared that Limlingan and Leyco's suspension was illegal and ordered
AIM to pay the salaries and benefits withheld during the suspension, as well as 10% of the
amount for attorney's fees.

NLRC modified the LA’s decision and held that complainant’s suspension is valid for six (6) months
only. Consequently, respondent-appellant ASIAN INSTITUTE OF MANAGEMENT is hereby directed
to pay the complainants-appellees their salaries half (1/2) year salary and the amount of
P50,000.00 each as indemnity in form of nominal damages for their failure to observe
complainants-appellees' right to due process. Limlingan and Leyco and AIM filed their respective
MRs, which were denied by NLRC. Both parties appealed the Commission's Resolution to the CA
through certiorari.

On May 4, 2010, the CA promulgated the Decision modifying the findings of the NLRC by deleting
the penalty of suspension and instead, imposing the penalty of formal reprimand on petitioners.
The parties filed their respective MR before this court. This court denied with finality the separate
MRs of both parties. The CA's May 4, 2010 Decision in CA-G.R. SP No. 106714 then became final
and executory on July 25, 2011.

In G.R. No. 220481, Limlingan and Leyco raise the lone issue of whether they are entitled to
interest at the rate of 12% per annum computed from the finality of the CA' May 4, 2010 Decision
(or on July 25, 2011) up to June 30, 2013, and 6% per annum from July 1, 2013 until full
satisfaction of the award. Limlingan and Leyco argue that the CA erred when it ruled that they
were only entitled to interest at the rate of 6% per annum from the finality of the May 4, 2010
Decision of the CA until full satisfaction of the award.

In G.R. No. 220503, AIM claims that the award of attorney's fees was removed from the LA's
Decision when the NLRC promulgated its Decision dated July 4, 2008 modifying the award of the
LA. There was also no award of attorney's fees in the CA's May 4, 2010 Decision. Nowhere in the
said Decisions can be found any award of attorney's fees. Indeed, 'an award of attorney's fees
without justification is a conclusion without a premise, its basis being improperly left to
speculation and conjecture' [.]" In assailing the CA Decision, AIM argues that "to allow the
inclusion of [such] . . . award would be to disregard the rule on strict adherence to and the
immutability of judgment."
ISSUES:

Whether or not the Court of Appeals erred in awarding legal interest at the rate of 6% per annum
from the date the CA’s May 4, 2010 Decision in CA-G.R. No. 106714 became final until its full
satisfaction?

RULING:

YES. The legal interest imposed is but a consequence of AIM's participation in prolonging the
proceedings between the parties. That the amount respondents shall now pay has greatly
increased is a consequence that it cannot avoid as it is the risk that it ran when it continued to
seek recourses against the LA's decision.

With regard to the proper rate of legal interest, Nacar laid down the guidelines for the imposition
of legal interest:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines are accordingly modified to embody BSPMB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 6% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when
or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph
1 or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to
a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July
1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of
interest fixed therein. (Emphasis in the original, citation omitted).

On July 25, 2011, the CA's May 4, 2010 Decision became final and executory and was recorded
in the Book of Entries of Judgments. Prior to Nacar and BSP Monetary Board Resolution No. 796
dated May 16, 2013, the rate of legal interest was pegged at 12% per annum from finality of
judgment until its satisfaction, "this interim period being deemed to be by then an equivalent to
a forbearance of credit."

Similar to this case, Nacar was already in the execution stage and the resolution awarding
backwages and separation pay had attained finality prior to the issuance of BSP Resolution.
Applying the guidelines discussed above, this court in Nacar imposed the legal interest of 12%
per annum of the total monetary awards, computed from finality of this court's 2002 resolution
to June 30, 2013 and 6% per annum from July 1, 2013 until their full satisfaction.

Based on Nacar and the above discussion, we grant Limlingan and Leyco's Petition as to the
modification of the legal rate of interest. Limlingan and Leyco are entitled to legal interest at the
following rates: 12% per annum computed from July 25, 2011, the date of the finality of the CA's
May 4, 2010 Decision, up to June 30, 2013, and 6% per annum from July 1, 2013 until full
satisfaction of the award.