Civil Law Cases on Lease Agreements

Civil Law Review (Cases for the Final Exam)
1. Dula v. Maravilla, G.R. No. 134267, May 9, 2005

Facts:
Sometime in November, 1993, herein respondents – the spouses Restituto Maravilla and Teresita Maravilla –
purchased a 5-door apartment building at No. 1849 Eureka Street, Makati City, Unit A of which is occupied by
herein petitioner, David G. Dula, since 1968 at a monthly rental of P2,112.00 under an oral month-to-month
contract of lease with the former owner.
On January 10, 1994, respondents addressed a notice to petitioner formally informing the latter of the
termination of his lease and giving him three (3) months from January 31, 1994 within which to vacate the unit
occupied by him and to surrender the possession thereof. Petitioner refused. Hence, on September 29, 1994 in
the Metropolitan Trial Court (MeTC) of Makati City, a complaint for ejectment was filed against him by the
respondents.
On May 24, 1995, the MeTC of Makati City rendered a decision in favor of herein respondents Sps.
Maravilla which was affirmed by the RTC of Makati City and, subsequently, by the Court of Appeals. Hence,
petitioner Dula filed this petition for review on certiorari under Rule 45. Petitioner contended that the complaint
failed to state a cause of action and that the expiration of petitioner’s month-to-month contract of lease cannot
be a basis for ejectment because Section 6 of B.P. Blg. 877 suspended the application of Article 1687 of the
Civil Code.
Issue:
Whether or not the period of lease has expired and can be a basis for ejectment.
Ruling: YES.
It is acknowledged that there was neither any written nor verbal agreement as to a fixed period of lease
between the respondents and the petitioner. There was, however, a verbal agreement for the payment of rental
at P2,112.00 on a monthly basis. By express provision of Article 1687 of the Civil Code, the term of the lease in
the case at bar is from month-to-month.
The issue in this case is whether the oral contract of lease was on a month-to-month basis which is
terminated at the end of every month. We hold that it is. We have already ruled in a number of cases that a
lease on a month-to-month basis is, under Art. 1687, a lease with a definite period, upon the expiration of
which upon demand made by the lessor on the lessee to vacate, the ejectment of the lessee may be ordered.
When the respondent spouses gave petitioner notice on January 10, 1994 of their personal need to use
the property, demanding that petitioner vacate the same, the contract of lease is deemed to have expired as of
the end of that month or on January 31, 1994 as indicated in the said notice to vacate.
Recapitulating, the Court stresses that Article 1687 of the Civil Code has not been suspended by
Section 6 of Blg. 877, such that the period of the lease contract may be made deemed to expire in accordance
with Article 1687.18 Accordingly, a lease agreement though not having a fixed period, but rentals are paid
monthly, is deemed to be from month to month, thereby considered to be for a definite period, nonetheless.
Such a lease contract expires after the last day of any given 30-day period repeating the same cycle of the 30-
day period until either party expresses his intention to terminate the month-to-month lease agreement.
2. Sime Darby Pilipinas, Inc. v. Goodyear Philippines, Inc., G.R. No. 182148, June 8, 2011
Facts:
Magallanes billboard was leased by Macgraphics to Sime Darby in April 1994 at a monthly rental of
₱120,000.00. The lease had a term of four years and was set to expire on March 30, 1998. Upon signing of the
contract, Sime Darby paid Macgraphics a total of ₱1.2 million representing the ten-month deposit which the
latter would apply to the last ten months of the lease.
On April 22, 1996, Sime Darby executed a Memorandum of Agreement (MOA) with Goodyear, whereby
it agreed to sell its tire manufacturing plants and other assets to the latter for a total of ₱1.5 billion. Sime Darby
and Goodyear executed a Deed of Assignment, through which Sime Darby assigned, among others, its
leasehold rights and deposits made to Macgraphics pursuant to its lease contract over the Magallanes
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billboard. Sime Darby then notified Macgraphics of the assignment of the Magallanes billboard in favor of
Goodyear through a letter-notice dated May 3, 1996.
After submitting a new design for the Magallanes billboard to feature its name and logo, Goodyear
requested that Macgraphics submit its proposed quotation for the production costs of the new design.
Macgraphics informed Goodyear that the monthly rental of the Magallanes billboard is ₱250,000.00 and
explained that the increase in rental was in consideration of the provisions and technical aspects of the
submitted design.
Goodyear replied on July 8, 1996 stating that due to budget constraints, it could not accept
Macgraphics’ offer to integrate the cost of changing the design to the monthly rental. Goodyear stated that it
intended to honor the ₱120,000.00 monthly rental rate given by Macgraphics to Sime Darby
Macgraphics then sent a letter to Sime Darby informing the latter that it could not give its consent to the
assignment of lease to Goodyear.
On September 23, 1996, due to Macgraphics’ refusal to honor the Deed of Assignment, Goodyear sent
Sime Darby a letter demanding partial rescission of the Deed of Assignment and the refund of ₱1,239,000.00,
the pro-rata value of Sime Darby’s leasehold rights over the Magallanes billboard.
As Sime Darby refused to accede to Goodyear’s demand for partial rescission, the latter commenced
Civil Case No. 97-561 with the RTC, impleading Macgraphics as an alternative defendant.
After trial and the submission of the parties of their respective memoranda, the RTC rendered its
decision ordering the partial rescission of the contract.
The trial court was of the considered view that Sime Darby should have secured the consent of
Macgraphics to the assignment of the lease before it could be effective against the latter. The trial court noted
that the contract of lease between Sime Darby and Macgraphics made no mention of any clause that would
grant Sime Darby the right to unilaterally assign the lease. Thus, following Article 1649 of the New Civil Code,
the trial court ruled that absent any stipulation to the contrary, the assignment of the lease without the consent
of Macgraphics was not valid. The RTC also stated that as far as Macgraphics was concerned, its relationship
with Goodyear was that of a new client.
With Sime Darby’s failure to secure the consent of Macgraphics, the trial court considered that it failed
to deliver the object of the Deed of Assignment. The RTC, thus, ruled that following Article 1191 of the New
Civil Code, Goodyear was entitled to demand rescission of the assignment of the lease over the billboard.
The CA affirmed the decision of the RTC. Hence, this appeal.
Issue:
Whether partial rescission of the Deed of Assignment is proper.
Ruling:
YES.
Art. 1649 of the New Civil Code provides that “The lessee cannot assign the lease without the consent
of the lessor, unless there is a stipulation to the contrary.”
In an assignment of a lease, there is a novation by the substitution of the person of one of the parties –
the lessee. The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new
juridical relation arises between the two persons who remain – the lessor and the assignee who is converted
into the new lessee. The objective of the law in prohibiting the assignment of the lease without the lessor’s
consent is to protect the owner or lessor of the leased property.
Broadly, a novation may either be extinctive or modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when
the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive
novation results either by changing the object or principal conditions (objective or real), or by substituting the
person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under
this mode, novation would have dual functions—one to extinguish an existing obligation, the other to substitute
a new one in its place. This requires a conflux of four essential requisites: (1) a previous valid obligation; (2) an
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agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the
birth of a valid new obligation.
While there is no dispute that the first requisite is present, the Court, after careful consideration of the
facts and the evidence on record, finds that the other requirements of a valid novation are lacking. A review of
the lease contract between Sime Darby and Macgraphics discloses no stipulation that Sime Darby could
assign the lease without the consent of Macgraphics.
Moreover, contrary to the assertions of Sime Darby, the records are bereft of any evidence that clearly
shows that Macgraphics consented to the assignment of the lease. As aptly found by the RTC and the CA,
Macgraphics was never part of the negotiations between Sime Darby and Goodyear. Neither did it give its
conformity to the assignment after the execution of the Deed of Assignment.
The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It
need not be given simultaneously with that of the lessee and of the assignee. Neither is it required to be in any
specific or particular form. It must, however, be clearly given. In this case, it cannot be said that Macgraphics
gave its implied consent to the assignment of lease.
xxx
Indeed, Macgraphics and Goodyear never came to terms as to the conditions that would govern their
relationship. While it is true, that Macgraphics and Goodyear exchanged proposals, there was never a meeting
of minds between them. Contrary to the assertions of Sime Darby, the negotiations between Macgraphics and
Goodyear did not translate to its (Macgraphics’) consent to the assignment. Negotiation is just a part or a
preliminary phase to the birth of an obligation.
In sum, it is clear that by its failure to secure the consent of Macgraphics to the assignment of lease,
Sime Darby failed to perform what was incumbent upon it under the Deed of Assignment. The rescission of the
Deed of Assignment pursuant to Article 1191 of the New Civil Code is, thus, justified.
3. Sunga-Chan v. Chua, G.R. No. 143340, August 15, 2001

Facts:
Respondent Chua alleged that in 1977, he verbally entered into a partnership with Jacinto Chan in the
distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and
Jacinto allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE
CENTER (hereafter Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly
delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00
as his counterpart contribution, with the intention that the profits would be equally divided between them.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his
daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management of Shellite
without respondents consent.
Despite respondents repeated demands upon petitioners for accounting, inventory, appraisal, winding
up and restitution of his net shares in the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly
continued the operations of Shellite, converting to her own use and advantage its properties. Petitioners
allegedly failed to comply with their duty to account, and continued to benefit from the assets and income of
Shellite to the damage and prejudice of respondent.
Respondent Chua filed a complaint for Winding Up of Partnership Affairs, Accounting, Appraisal and
Recovery of Shares and Damages with Writ of Preliminary Attachment with the Regional Trial Court, Branch
11, Sindangan, Zamboanga del Norte.
Petitioners filed a Motion to Dismiss on the ground that the SEC in Manila, not the RTC in Zambaonga
del Norte had jurisdiction over the action. The trial court finding the complaint sufficient in form and substance
denied the motion to dismiss. Thereafter, the trial court rendered its Decision ruling for respondent Chua.
Herein petitioners appealed the decision to the CA. The Court of Appeals dismissed the appeal and affirmed
the decision of the RTC.
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Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a
partnership existed between respondent and Jacinto from 1977 until Jacintos death. In the absence of any
written document to show such partnership between respondent and Jacinto, petitioners argue that these
courts were proscribed from hearing the testimonies of respondent and his witness, Josephine, to prove the
alleged partnership three years after Jacintos death. To support this argument, petitioners invoke the Dead
Mans Statute or Survivorship Rule under Section 23, Rule 130 of the Rules of Court.
Issue:
Whether or not a contract of partnership between respondent and Jacinto exists.
Ruling:
YES.
A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary. Hence, based on the intention of the
parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract of
partnership may arise.
The essential points that must be proven to show that a partnership was agreed upon are (1) mutual
contribution to a common stock, and (2) a joint interest in the profits. Understandably so, in view of the
absence of a written contract of partnership between respondent and Jacinto, respondent resorted to the
introduction of documentary and testimonial evidence to prove said partnership.
Petitioners reliance alone on the Dead Man’s Statute to defeat respondents claim cannot prevail over
the factual findings of the trial court and the Court of Appeals that a partnership was established between
respondent and Jacinto. Based not only on the testimonial evidence, but the documentary evidence as well,
the trial court and the Court of Appeals considered the evidence for respondent as sufficient to prove the
formation of a partnership, albeit an informal one.
In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto,
petitioners maintain that said partnership that had an initial capital of P200,000.00 should have been registered
with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil Code.
True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00 or more must
register with the SEC, however, this registration requirement is not mandatory. Article 1768 of the Civil Code
25 explicitly provides that the partnership retains its juridical personality even if it fails to register. The failure to
register the contract of partnership does not invalidate the same as among the partners, so long as the
contract has the essential requisites, because the main purpose of registration is to give notice to third parties,
and it can be assumed that the members themselves knew of the contents of their contract.
In the case at bar, non-compliance with this directory provision of the law will not invalidate the
partnership considering that the totality of the evidence proves that respondent and Jacinto indeed forged the
partnership in question.
4. Villareal v. Ramirez, G.R. No. 144214, July 14, 2003

Facts:
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a
capital of P750,000 for the operation of a restaurant and catering business under the name “Aquarius Food
House and Catering Services.” Respondent Donaldo Efren C. Ramirez joined as a partner in the business on
September 5, 1984. His capital contribution of P250,000 was paid by his parents, Respondents Cesar and
Carmelita Ramirez.
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000
was refunded to him in cash by agreement of the partners. In the same month, without prior knowledge of
respondents, petitioners closed down the restaurant, allegedly because of increased rental.
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in
continuing their partnership or in reopening the restaurant, and that they were accepting the latter’s offer to
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return their capital contribution. Carmelita Ramirez wrote another letter informing petitioners of the deterioration
of the restaurant furniture and equipment stored in their house. She also reiterated the request for the return of
their one-third share in the equity of the partnership. The repeated oral and written requests were, however, left
unheeded.
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the
partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that respondents
had been paid, upon the turnover to them of furniture and equipment worth over P400,000; and that the latter
had no right to demand a return of their equity because their share, together with the rest of the capital of the
partnership, had been spent as a result of irreversible business losses.
In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant.
According to them, if such allegation were true, then the loans incurred by petitioners should be regarded as
purely personal and, as such, not chargeable to the partnership. The former further averred that they had not
received any regular report or accounting from the latter, who had solely managed the business. Respondents
also alleged that they expected the equipment and the furniture stored in their house to be removed by
petitioners as soon as the latter found a better location for the restaurant.
After trial, the RTC ruled in favor of the respondents. This decision was affirmed by the CA.
Issues:
1. Whether petitioners are liable to respondents for the latter’s share in the partnership.
2. Whether the CA’s computation of P253,114 as respondents’ share is correct.
Ruling:
First Issue: Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents informed petitioners
of the intention to discontinue it because of the former’s dissatisfaction with, and loss of trust in, the latter’s
management of the partnership affairs. These findings were amply supported by the evidence on record.
Respondents consequently demanded from petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their equity share.
Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The
partnership has a juridical personality separate and distinct from that of each of the partners." Since the capital
was contributed to the partnership, not to petitioners, it is the partnership that must refund the equity of the
retiring partners.
Second Issue: What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners,
the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it
has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated. After all the creditors have been paid, whatever is left of
the partnership assets becomes available for the payment of the partners’ shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents’ one-third share in
the partnership cannot be determined until all the partnership assets will have been liquidated — in other
words, sold and converted to cash — and all partnership creditors, if any, paid. The CA’s computation of the
amount to be refunded to respondents as their share was thus erroneous.
A share in a partnership can be returned only after the completion of the latter’s dissolution, liquidation
and winding up of the business.
5. Spouses Salvador v. Spouses Rabaja, G.R. No. 199990, February 4, 2015

Facts:
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Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador were looking for a buyer of the
subject property. Petitioner Herminia Salvador (Herminia) personally introduced Gonzales to them as the
administrator of the said property. Spouses Salvador even handed to Gonzales the owner’s duplicate
certificate of title over the subject property. On July, 3, 1998, Spouses Rabaja made an initial payment of
P48,000.00 to Gonzales in the presence of Herminia. Gonzales then presented the Special Power of Attorney
(SPA), executed by Rolando Salvador (Rolando) and dated July 24, 1998. On the same day, the parties
executed the Contract to Sell4 which stipulated that for a consideration of P5,000,000.00, Spouses Salvador
sold, transferred and conveyed in favor of Spouses Rabaja the subject property.
Spouses Rabaja made several payments totalling P950,000.00, which were received by Gonzales
pursuant to the SPA provided earlier as evidenced by the check vouchers signed by Gonzales and the
improvised receipts signed by Herminia. Sometime in June 1999, however, Spouses Salvador complained to
Spouses Rabaja that they did not receive any payment from Gonzales. This prompted Spouses Rabaja to
suspend further payment of the purchase price; and as a consequence, they received a notice to vacate the
subject property from Spouses Salvador for non-payment of rentals. Thereafter, Spouses Salvador instituted
an action for ejectment against Spouses Rabaja. In turn, Spouses Rabaja filed an action for rescission of
contract against Spouses Salvador and Gonzales, the subject matter of the present petition.
In the action for ejectment the MeTC ruled in favor of Spouses Salvador finding that valid grounds
existed for the eviction of Spouses Rabaja from the subject property and ordering them to pay back rentals.
The RTC reversed the MeTC ruling. Thereafter, Spouses Salvador filed an appeal with the CA. The CA ruled
in favor of Spouses Salvador and reinstated the MeTC ruling ejecting Spouses Rabaja. Not having been
appealed, the CA decision in CA-G.R. SP No. 89259 became final and executory on May 12, 2006.
Meanwhile, Spouses Rabaja demanded the rescission of the contract to sell praying that the amount of
P950,000.00 they previously paid to Spouses Salvador be returned to them. They likewise prayed that
damages be awarded due to the contractual breach committed by Spouses Salvador.
Spouses Salvador filed their answer with counterclaim and cross-claim contending that there was no
meeting of the minds between the parties and that the SPA in favor of Gonzales was falsified. They further
averred that they did not receive any payment from Spouses Rabaja through Gonzales. In her defense,
Gonzales filed her answer stating that the SPA was not falsified and that the payments of Spouses Rabaja
amounting to P950,000.00 were all handed over to Spouses Salvador.
The RTC-Br. 214 then ruled against the Spouses Salvador, ordering the rescission of the contract to
sell. On March 29, 2007, the CA affirmed the decision of the RTC-Br. 114 with modifications. It ruled that the
“contract to sell” was indeed a contract of sale and that Gonzales was armed with an SPA and was, in fact,
introduced to Spouses Rabaja by Spouses Salvador as the administrator of the property. Spouses Rabaja
could not be blamed if they had transacted with Gonzales.
The CA, however, ruled that Gonzales was not solidarily liable with Spouses Salvador. The agent must
expressly bind himself or exceed the limit of his authority in order to be solidarily liable. It was not shown that
Gonzales as agent of Spouses Salvador exceeded her authority or expressly bound herself to be solidarily
liable.
Issue:
Whether or not Gonzales, the agent, acted beyond the scope of his authority, thus, should be held
solidarily liable with Spouses Salvador.
Ruling:
NO.
Gonzales, as agent of Spouses Salvador, could validly receive the payments of Spouses Rabaja. The
Court agrees with the courts below in finding that the contract entered into by the parties was essentially a
contract of sale which could be validly rescinded. Spouses Salvador insist that they did not receive the
payments made by Spouses Rabaja from Gonzales which totalled P950,000.00 and that Gonzales was not
their duly authorized agent. These contentions, however, must fail in light of the applicable provisions of the
New Civil Code which state:
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Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of
the agent's authority, if such act is within the terms of the power of attorney, as written, even if the agent has in
fact exceeded the limits of his authority according to an understanding between the principal and the agent.
xxxx
Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the
presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and
instructions of the principal do not prejudice third persons who have relied upon the power of attorney or
instructions shown them.
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Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the
scope of his authority.
Persons dealing with an agent must ascertain not only the fact of agency, but also the nature and
extent of the agent’s authority. A third person with whom the agent wishes to contract on behalf of the principal
may require the presentation of the power of attorney, or the instructions as regards the agency. The basis for
agency is representation and a person dealing with an agent is put upon inquiry and must discover on his own
peril the authority of the agent.
According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an act is
deemed to have been performed within the scope of the agent's authority, if such act is within the terms of the
power of attorney, as written. In this case, Spouses Rabaja did not recklessly enter into a contract to sell with
Gonzales. They required her presentation of the power of attorney before they transacted with her principal.
And when Gonzales presented the SPA to Spouses Rabaja, the latter had no reason not to rely on it. The law
mandates an agent to act within the scope of his authority which what appears in the written terms of the
power of attorney granted upon him.
The Court holds that, indeed, Gonzales acted within the scope of her authority. The SPA precisely
stated that she could administer the property, negotiate the sale and collect any document and all payments
related to the subject property. As the agent acted within the scope of his authority, the principal must comply
with all the obligations. As correctly held by the CA, considering that it was not shown that Gonzales exceeded
her authority or that she expressly bound herself to be liable, then she could not be considered personally and
solidarily liable with the principal, Spouses Salvador.
Perhaps the most significant point which defeats the petition would be the fact that it was Herminia
herself who personally introduced Gonzalez to Spouses Rabaja as the administrator of the subject property. By
their own ostensible acts, Spouses Salvador made third persons believe that Gonzales was duly authorized to
administer, negotiate and sell the subject property. This fact was even affirmed by Spouses Salvador
themselves in their petition where they stated that they had authorized Gonzales to look for a buyer of their
property. It is already too late in the day for Spouses Salvador to retract the representation to unjustifiably
escape their principal obligation.
As correctly held by the CA and the RTC, considering that there was a valid SPA, then Spouses Rabaja
properly made payments to Gonzales, as agent of Spouses Salvador; and it was as if they paid to Spouses
Salvador. It is of no moment, insofar as Spouses Rabaja are concerned, whether or not the payments were
actually remitted to Spouses Salvador. Any internal matter, arrangement, grievance or strife between the
principal and the agent is theirs alone and should not affect third persons. If Spouses Salvador did not receive
the payments or they wish to specifically revoke the SPA, then their recourse is to institute a separate action
against Gonzales. Such action, however, is not any more covered by the present proceeding.
6. Yun Kwan Byung v. PAGCOR, G.R. No. 163553, December 11, 2009
Facts:
PAGCOR, a GOCC, is vested with the power to enter into contracts of every kind and for any lawful
purpose that pertains to its business. Pursuant to this authority, PAGCOR launched its Foreign Highroller
Marketing Program (Program).
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The Korean-based ABS Corporation was one of the international groups that availed of the Program. In
the Junket Agreement, ABS Corporation agreed to bring in foreign players to play at the five designated
gaming tables of the Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino Filipino).
Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the
Philippines four times to play for high stakes at the Casino Filipino. Petitioner claims that in the course of the
games, he was able to accumulate gambling chips worth US$2.1 million. Petitioner contends that when he
presented the gambling chips for encashment with PAGCOR's employees or agents, PAGCOR refused to
redeem them. .
PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a junket
player who played in the dollar pit exclusively leased by ABS Corporation for its junket players. Only ABS
Corporation would make an accounting of these chips to PAGCOR's casino treasury.
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCOR's gaming rules,
gambling chips cannot be brought outside the casino.
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and
refused to encash the gambling chips, petitioner filed a complaint for a sum of money before the trial court.
Petitioner takes the position that an implied agency existed between PAGCOR and ABS Corporation.
PAGCOR filed a counterclaim against petitioner.
On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed the trial
court's decision to the CA. The CA affirmed the appealed decision and denied the subsequent motion for
reconsideration.
Aggrieved by the CA's decision and resolution, petitioner elevated the case before this Court.
Issues:
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of
implied agency, or agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency,
when such is not relevant since the instant case involves liability of the presumed principal in implied agency to
a third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the
agent, ABS Corporation.
Ruling:
For the first assigned error, petitioner claims that he is a third party proceeding against the liability of a
presumed principal and claims relief, alternatively, on the basis of implied agency or agency by estoppel.
Article 1869 of the Civil Code states that implied agency is derived 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. Implied agency, being an actual agency, is a fact to be proved by deductions or
inferences from other facts.
On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the
principal may knowingly permit the agent to hold himself out as having such authority, and the principal
becomes estopped to claim that the agent does not have such authority. Second, the principal may clothe the
agent with the indicia of authority as to lead a reasonably prudent person to believe that the agent actually has
such authority. In an agency by estoppel, there is no agency at all, but the one assuming to act as agent has
apparent or ostensible, although not real, authority to represent another.
The law makes no presumption of agency and proving its existence, nature and extent is incumbent
upon the person alleging it. Whether or not an agency has been created is a question to be determined by the
fact that one represents and is acting for another.
Petitioner's argument is clearly misplaced. The basis for agency is representation, that is, the agent
acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same
legal effect as if they were personally executed by the principal. On the part of the principal, there must be an
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actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the
agent, there must be an intention to accept the appointment and act on it. Absent such mutual intent, there is
generally no agency.
There is no implied agency in this case because PAGCOR did not hold out to the public as the principal
of ABS Corporation. PAGCOR's actions did not mislead the public into believing that an agency can be implied
from the arrangement with the junket operators, nor did it hold out ABS Corporation with any apparent authority
to represent it in any capacity. The Junket Agreement was merely a contract of lease of facilities and services.
For the second assigned error, petitioner claims that the intention of the parties cannot apply to him as he is
not a party to the contract.
We disagree. The Court of Appeals correctly used the intent of the contracting parties in determining
whether an agency by estoppel existed in this case. An agency by estoppel, which is similar to the doctrine of
apparent authority requires proof of reliance upon the representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.
There can be no apparent authority of an agent without acts or conduct on the part of the principal and
such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as claimant, and such must have produced a change of
position to its detriment. Such proof is lacking in this case.
For the third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS Corporation.
The trial court has declared, and we affirm, that the Junket Agreement is void. A void or inexistent
contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been
entered into and cannot be validated either by the passage of time or by ratification. Article 1409 of the Civil
Code provides that contracts expressly prohibited or declared void by law, such as gambling contracts, "cannot
be ratified.”
7. Nogales v. Capitol Medical Center, G.R. No. 142625, December 19, 2006
Facts:
Pregnant with her fourth child, Corazon Nogales ("Corazon"), who was then 37 years old, was under
the exclusive prenatal care of Dr. Oscar Estrada ("Dr. Estrada") beginning on her fourth month of pregnancy or
as early as December 1975. While Corazon was on her last trimester of pregnancy, Dr. Estrada noted an
increase in her blood pressure and development of leg edema indicating preeclampsia, which is a dangerous
complication of pregnancy. Around midnight of 25 May 1976, Corazon started to experience mild labor pains
prompting Corazon and Rogelio Nogales ("Spouses Nogales") to see Dr. Estrada at his home. After examining
Corazon, Dr. Estrada advised her immediate admission to the Capitol Medical Center ("CMC").
On 26 May 1976, Corazon was admitted at 2:30 a.m. at the CMC after the staff nurse noted the written
admission request of Dr. Estrada. Upon Corazon's admission at the CMC, Rogelio Nogales ("Rogelio")
executed and signed the "Consent on Admission and Agreement"9 and "Admission Agreement." Corazon was
then brought to the labor room of the CMC.
At 6:00 a.m., Corazon was transferred to the delivery room. At 6:22 a.m., Dr. Estrada, assisted by Dr.
Villaflor, applied low forceps to extract Corazon's baby. In the process, a 1.0 x 2.5 cm. piece of cervical tissue
was allegedly torn. The baby came out in an apnic, cyanotic, weak and injured condition. Consequently, the
baby had to be intubated and resuscitated by Dr. Enriquez and Dr. Payumo.
Corazon died at 9:15 a.m. The cause of death was "hemorrhage, post partum."
On 14 May 1980, petitioners filed a complaint for damages with the RTC of Manila against CMC, Dr.
Estrada, Dr. Villaflor, Dr. Uy, Dr. Enriquez, Dr. Lacson, Dr. Espinola, and a certain Nurse J. Dumlao for the
death of Corazon. Petitioners mainly contended that defendant physicians and CMC personnel were negligent
in the treatment and management of Corazon's condition.
9
After more than 11 years of trial, the trial court rendered judgment finding Dr. Estrada solely liable for
damages.
Petitioners appealed the trial court's decision. Petitioners claimed that aside from Dr. Estrada, the
remaining respondents should be held equally liable for negligence. On 6 February 1998, the Court of Appeals
affirmed the decision of the trial court
Issue:
Whether or not Capitol Medical Center is vicariously liable for the negligence of Dr. Estrada
Ruling: YES
After a thorough examination, it was declared that Dr. Estrada is not an employee of CMC, but an
independent contractor. The question now is whether CMC is automatically exempt from liability considering
that Dr. Estrada is an independent contractor-physician.
In general, a hospital is not liable for the negligence of an independent contractor-physician. There is,
however, an exception to this principle. The hospital may be liable if the physician is the "ostensible" agent of
the hospital. This exception is also known as the "doctrine of apparent authority."
In Gilbert v. Sycamore Municipal Hospital, the Illinois Supreme Court explained the doctrine of apparent
authority in this wise:
[U]nder the doctrine of apparent authority a hospital can be held vicariously liable for the
negligent acts of a physician providing care at the hospital, regardless of whether the physician is an
independent contractor, unless the patient knows, or should have known, that the physician is an
independent contractor. The elements of the action have been set out as follows:
"For a hospital to be liable under the doctrine of apparent authority, a plaintiff must show that:
(1) the hospital, or its agent, acted in a manner that would lead a reasonable person to conclude that
the individual who was alleged to be negligent was an employee or agent of the hospital; (2) where the
acts of the agent create the appearance of authority, the plaintiff must also prove that the hospital had
knowledge of and acquiesced in them; and (3) the plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care and prudence."
The element of "holding out" on the part of the hospital does not require an express
representation by the hospital that the person alleged to be negligent is an employee. Rather, the
element is satisfied if the hospital holds itself out as a provider of emergency room care without
informing the patient that the care is provided by independent contractors.
The element of justifiable reliance on the part of the plaintiff is satisfied if the plaintiff relies upon
the hospital to provide complete emergency room care, rather than upon a specific physician.
The doctrine of apparent authority essentially involves two factors to determine the liability of an
independent-contractor physician. The first factor focuses on the hospital's manifestations and is sometimes
described as an inquiry whether the hospital acted in a manner which would lead a reasonable person to
conclude that the individual who was alleged to be negligent was an employee or agent of the hospital. In this
regard, the hospital need not make express representations to the patient that the treating physician is an
employee of the hospital; rather a representation may be general and implied.
The doctrine of apparent authority is a species of the doctrine of estoppel. Article 1431 of the Civil Code
provides that "[t]hrough estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon."
Estoppel rests on this rule: "Whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it."
In the instant case, CMC impliedly held out Dr. Estrada as a member of its medical staff. Through
CMC's acts, CMC clothed Dr. Estrada with apparent authority thereby leading the Spouses Nogales to believe
that Dr. Estrada was an employee or agent of CMC. CMC cannot now repudiate such authority.
10
First, CMC granted staff privileges to Dr. Estrada. CMC extended its medical staff and facilities to Dr.
Estrada. Second, CMC made Rogelio sign consent forms printed on CMC letterhead. Without any indication in
these consent forms that Dr. Estrada was an independent contractor-physician, the Spouses Nogales could
not have known that Dr. Estrada was an independent contractor.
The documents do not expressly release CMC from liability for injury to Corazon due to negligence during her
treatment or operation. Neither do the consent forms expressly exempt CMC from liability for Corazon's death
due to negligence during such treatment or operation. Such release forms, being in the nature of contracts of
adhesion, are construed strictly against hospitals. Besides, a blanket release in favor of hospitals "from any
and all claims," which includes claims due to bad faith or gross negligence, would be contrary to public policy
and thus void.
WHEREFORE, the Court PARTLY GRANTS the petition. The Court finds respondent Capitol Medical
Center vicariously liable for the negligence of Dr. Oscar Estrada.
8. Ringor v. Ringor, G.R. No. 147863, August 13, 2004

Facts:
The controversy involves lands in San Fabian, Pangasinan, owned by the late Jacobo Ringor. By his
first wife, Gavina Laranang, he had two children, Juan and Catalina. He did not have offsprings by his second
and third wives. Catalina predeceased her father Jacobo who died sometime in 1935, leaving Juan his lone
heir.
Juan married Gavina Marcella. They had seven (7) children, namely: Jose (the father and predecessor-
in-interest of herein petitioners), Genoveva, Felipa, Concordia, Agapito, Emeteria and Espirita.
Jacobo applied for the registration of his lands under the Torrens system. He filed three land
registration cases alone, with his son Juan, or his grandson Jose, applying jointly with him.
When Jacobo died on June 7, 1935, the lands under the three land registration applications remained
undivided. Jose, as the eldest grandchild, assumed and continued the administration of the lands.
Herein respondents claim they repeatedly asked Jose for partitioning of the land; however, every time
they did, Jose always answered that it was not going to be easy because there would be "big and small
shares.
Jose died on April 30, 1971. Respondents demanded from Jose's children, herein petitioners, the
partition and delivery of their share in the estate left by Jacobo and under Jose's administration. respondents
filed a Complaint for partition and reconveyance with damages.
In their Answer, herein petitioners insisted that they rightfully own and possess the disputed lands.
They alleged that their father acquired legitimate title to and remained in continuous, uninterrupted and
exclusive possession and enjoyment of the said parcels of land in the concept of an owner. They claimed that
Jacobo sold the parcels of land to Jose for valuable consideration evidenced by notarial deeds of sale duly
registered in the Registry of Deeds of Pangasinan.
On February 10, 1995, the RTC decided in favor of respondents. The trial court concluded that Jacobo
created an express trust over his entire property in favor of his grandchildren. The trial court reasoned that
despite the absence of a document proving the express trust, the same was proven by parol evidence. The
trial court explained that the prohibition in Article 1443 of the New Civil Code – that no express trust concerning
an immovable or any interest therein may be proved by parol evidence – is a prohibition for purposes of
presenting proof on the matter, but it could be waived by a party. It went on to say that the failure to object to
parol evidence during trial and the cross-examination of the witnesses is a waiver of the prohibition.
The Court of Appeals affirmed the lower court's decision. The Motion for Reconsideration of petitioners
was also denied. Hence, the instant petition.
Issue:
11
Whether or not an express trust was established by the late Jacobo Ringor over the parcels of land in question
in favor of the respondents as the beneficiaries, with Jose Ringor as the trustee thereof (and co-beneficiary at
the same time).
Ruling:
Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and
positive acts of the settlor or the trustor – by some writing, deed, or will, or oral declaration. It is created not
necessarily by some written words, but by the direct and positive acts of the parties. No particular words are
required, it being sufficient that a trust was clearly intended.
Unless required by a statutory provision, such as the Statute of Frauds, a writing is not a requisite for
the creation of a trust. Such a statute providing that no instruments concerning lands shall be "created" or
declared unless by written instruments signed by the party creating the trust, or by his attorney, is not to be
construed as precluding a creation of a trust by oral agreement, but merely as rendering such a trust
unenforceable.
Contrary to the claim of petitioners, oral testimony is allowed to prove that a trust exists. It is not error
for the court to rely on parol evidence, - - i.e., the oral testimonies of witnesses Emeteria Ringor, Julio Monsis
and Teofilo Abalos - - which the appellate court also relied on to arrive at the conclusion that an express trust
exists. What is crucial is the intention to create a trust. While oftentimes the intention is manifested by the
trustor in express or explicit language, such intention may be manifested by inference from what the trustor has
said or done, from the nature of the transaction, or from the circumstances surrounding the creation of the
purported trust.
However, an inference of the intention to create a trust, made from language, conduct or
circumstances, must be made with reasonable certainty. It cannot rest on vague, uncertain or indefinite
declarations. An inference of intention to create a trust, predicated only on circumstances, can be made only
where they admit of no other interpretation.
In the present case, credible witnesses testified that (1) the lands subject of Expedientes 241 and 4449
were made and transferred in the name of Jose merely for convenience since Juan predeceased Jacobo; (2)
despite the Compraventas, transferring all the lands in Jose's name, Jacobo continued to perform all the acts
of ownership including possession, use and administration of the lands; (3) Jacobo did not want to partition the
lands because he was still using them; (4) when Jacobo died, Jose took over the administration of the lands
and conscientiously and unfailingly gave his siblings their share in the produce of the lands, in recognition of
their share as co-owners; and (5) Jose did not repudiate the claim of his siblings and only explained upon their
expression of the desire for partitioning, that it was not going to be an easy task.
From all these premises and the fact that Jose did not repudiate the claim of his co-heirs, it can be
concluded that as far as the lands covered by Expediente Nos. 241 and 4449 are concerned, when Jacobo
transferred these lands to Jose, in what the lower court said were simulated or falsified sales, Jacobo's
intention impressed upon the titles of Jose a trust in favor of the true party-beneficiaries, including herein
respondents.
Finally, on the lands covered in Expediente 244, we note that as a "donacion de su abuelo," the
donation impaired the hereditary rights of succession of Jose's co-heirs. Nevertheless, these were transferred
to Jose by final judgment of the land registration court. Despite the registration in Jose's name, Jose did not
take possession over them from the date of registration to the time of Jacobo's death. Instead, while alive,
Jacobo retained possession, and continued the administration of the lands.
Considering then these circumstances, Article 1449 of the New Civil Code on implied trusts is the
pertinent law. It provides that, "[t]here is also an implied trust when a donation is made to a person but it
appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no
beneficial interest or only a part thereof." Article 1449 creates a resulting trust where the donee becomes
the trustee of the real beneficiary.
Generally, resulting trusts do not prescribe except when the trustee repudiates the trust. Further, the
action to reconvey does not prescribe so long as the property stands in the name of the trustee. To allow
prescription would be tantamount to allowing a trustee to acquire title against his principal and true owner.
12
Here, Jose did not repudiate the trust, and the titles of the disputed lands are still registered in Jose's name or
in the name of the Heirs of Jose M. Ringor, Inc.
As found by the trial court and sustained by the appellate court, the donation was merely for
convenience that Jacobo registered the lands in the name of Jose. He did not intend to relinquish his rights to
the lands. His intention was clearly to keep the lands for himself until his death, and it was to be understood
that Jose was merely a trustee.
9. Estate of Cabacungan v. Laigo, G.R No. 175073, August 15, 2011

Facts:
Margarita Cabacungan (Margarita) owned three parcels of unregistered land in Paringao and in
Baccuit, Bauang, La Union. The properties were individually covered by tax declaration all in her name.
Sometime in 1968, Margarita's son, Roberto Laigo, Jr. (Roberto), applied for a non-immigrant visa to the
United States, and to support his application, he allegedly asked Margarita to transfer the tax declarations of
the properties in his name. For said purpose, Margarita, unknown to her other children, executed an Affidavit of
Transfer of Real Property whereby the subject properties were transferred by donation to Roberto. Not long
after, Roberto's visa was issued and he was able to travel to the U.S. as a tourist and returned in due time. In
1979, he adopted respondents Pedro Laigo (Pedro) and Marilou Laigo (Marilou), and then he married
respondent Estella Balagot.
In July 1990, Roberto sold the 4,512 sq m property in Baccuit to the spouses Mario and Julia Campos.
Then in August 1992, he sold the 1,986 sq m and 3,454 sq m lots in Paringao, respectively, to Marilou and
Pedro. Allegedly, these sales were not known to Margarita and her other children.
It was only in August 1995, at Roberto's wake, that Margarita came to know of the sales. In February
1996, Margarita, represented by her daughter, Luz, instituted the instant complaint for the annulment of said
sales and for the recovery of ownership and possession of the subject properties as well as for the cancellation
of Ricardo's tax declarations. Margarita admitted having accommodated Roberto's request for the transfer of
the properties to his name, but pointed out that the arrangement was only for the specific purpose of
supporting his U.S. visa application. She emphasized that she never intended to divest herself of ownership
over the subject lands and, hence, Roberto had no right to sell them to respondents and the Spouses Campos.
The trial court rendered judgment dismissing the complaint. It ruled that there was no express trust
between Margarita and Roberto. Instead, it concluded that an "implied or constructive trust" was created
between the parties. Finding Margarita guilty of laches by such inaction, the trial court barred recovery from
respondents who were found to have acquired the properties supposedly in good faith and for value.
Aggrieved, petitioner appealed to the Court of Appeals which affirmed the trial court's disposition.
Issues:
1. Whether or not an implied trust was created between Margarita and her son Roberto; (Yes)
2. Whether or not the respondents may be compelled to reconvey the subject properties to petitioners.
(Yes)
Ruling:
A trust is the legal relationship between one person having an equitable ownership of property and
another person owning the legal title to such property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the latter.
Trusts are either express or implied. Express or direct trusts are created by the direct and positive
acts of the parties, by some writing or deed, or will, or by oral declaration in words evincing an intention to
create a trust.
Implied trusts - also called "trusts by operation of law," "indirect trusts" and "involuntary trusts" - arise
by legal implication based on the presumed intention of the parties or on equitable principles independent of
the particular intention of the parties. They are those which, without being expressed, are deducible from the
13
nature of the transaction as matters of intent or, independently of the particular intention of the parties, as
being inferred from the transaction by operation of law basically by reason of equity.
Implied trusts are further classified into constructive trusts and resulting trusts. Constructive trusts, on
the one hand, come about in the main by operation of law and not by agreement or intention. They arise not by
any word or phrase, either expressly or impliedly, evincing a direct intention to create a trust, but one which
arises in order to satisfy the demands of justice. Also known as trusts ex maleficio, trusts ex delicto and trusts
de son tort, they are construed against one who by actual or constructive fraud, duress, abuse of confidence,
commission of a wrong or any form of unconscionable conduct, artifice, concealment of questionable means,
or who in any way against equity and good conscience has obtained or holds the legal right to property which
he ought not, in equity and good conscience, hold and enjoy. They are aptly characterized as "fraud-rectifying
trust," imposed by equity to satisfy the demands of justice and to defeat or prevent the wrongful act of one of
the parties. Constructive trusts are illustrated in Articles 1450, 1454, 1455 and 1456.
On the other hand, resulting trusts arise from the nature or circumstances of the consideration
involved in a transaction whereby one person becomes invested with legal title but is obligated in equity to hold
his title for the benefit of another. This is based on the equitable doctrine that valuable consideration and not
legal title is determinative of equitable title or interest and is always presumed to have been contemplated by
the parties. Such intent is presumed as it is not expressed in the instrument or deed of conveyance and is to
be found in the nature of their transaction. Implied trusts of this nature are hence describable as "intention-
enforcing trusts." Specific examples of resulting trusts may be found in the Civil Code, particularly Articles
1448, 1449, 1451, 1452 and 1453.
Articles 1448 to 1456 of the Civil Code enumerate cases of implied trust, but the list according to Article
1447 is not exclusive of others which may be established by the general law on trusts so long as the limitations
laid down in Article 1442 are observed, that is, that they be not in conflict with the New Civil Code, the Code of
Commerce, the Rules of Court and special laws.
While resulting trusts generally arise on failure of an express trust or of the purpose thereof, or on a
conveyance to one person upon a consideration from another (sometimes referred to as a "purchase-money
resulting trust"), they may also be imposed in other circumstances such that the court, shaping judgment in its
most efficient form and preventing a failure of justice, must decree the existence of such a trust. A resulting
trust, for instance, arises where, there being no fraud or violation of the trust, the circumstances indicate intent
of the parties that legal title in one be held for the benefit of another.
It also arises in some instances where the underlying transaction is without consideration, such as that
contemplated in Article 1449 of the Civil Code. Where property, for example, is gratuitously conveyed for a
particular purpose and that purpose is either fulfilled or frustrated, the court may affirm the resulting trust in
favor of the grantor or transferor, where the beneficial interest in property was not intended to vest in the
grantee.
Intention - although only presumed, implied or supposed by law from the nature of the transaction or
from the facts and circumstances accompanying the transaction, particularly the source of the consideration -
is always an element of a resulting trust and may be inferred from the acts or conduct of the parties rather than
from direct expression of conduct. Certainly, intent as an indispensable element, is a matter that necessarily
lies in the evidence, that is, by evidence, even circumstantial, of statements made by the parties at or before
the time title passes.
Because an implied trust is neither dependent upon an express agreement nor required to be
evidenced by writing, Article 1457 of our Civil Code authorizes the admission of parole evidence to prove their
existence. Parole evidence that is required to establish the existence of an implied trust necessarily has to be
trustworthy and it cannot rest on loose, equivocal or indefinite declarations.
Thus, contrary to the Court of Appeals' finding that there was no evidence on record showing that an
implied trust relation arose between Margarita and Roberto, we find that petitioner before the trial court, had
actually adduced evidence to prove the intention of Margarita to transfer to Roberto only the legal title to the
properties in question, with attendant expectation that Roberto would return the same to her on
accomplishment of that specific purpose for which the transaction was entered into. The evidence of course is
not documentary, but rather testimonial.
14
The inscription of Roberto's name in the Affidavit of Transfer as Margarita's transferee is not for the
purpose of transferring ownership to him but only to enable him to hold the property in trust for Margarita.
As a trustee of a resulting trust, therefore, Roberto, like the trustee of an express passive trust, is
merely a depositary of legal title having no duties as to the management, control or disposition of the property
except to make a conveyance when called upon by the cestui que trust. Hence, the sales he entered into with
respondents are a wrongful conversion of the trust property and a breach of the trust.
The question is: May respondents now be compelled to reconvey the subject properties to petitioner? We rule
in the affirmative.
The invocation of the rules on limitation of actions relative to a resulting trust is not on point because
the resulting trust relation between Margarita and Roberto had been extinguished by the latter's death. A trust,
it is said, terminates upon the death of the trustee, particularly where the trust is personal to him.
Besides, prescription and laches, in respect of this resulting trust relation, hardly can impair petitioner's
cause of action. On the one hand, in accordance with Article 1144 of the Civil Code, an action for
reconveyance to enforce an implied trust in one's favor prescribes in ten (10) years from the time the right of
action accrues, as it is based upon an obligation created by law. It sets in from the time the trustee performs
unequivocal acts of repudiation amounting to an ouster of the cestui que trust which are made known to the
latter.
In this case, it was the 1992 sale of the properties to respondents that comprised the act of repudiation
which, however, was made known to Margarita only in 1995 but nevertheless impelled her to institute the
action in 1996 - still well within the prescriptive period. Hardly can be considered as act of repudiation
Roberto's open court declaration which he made in the 1979 adoption proceedings involving respondents to
the effect that he owned the subject properties, nor even the fact that he in 1977 had entered into a lease
contract on one of the disputed properties which contract had been subject of a 1996 decision of the Court of
Appeals. These do not suffice to constitute unequivocal acts in repudiation of the trust.
Moreover, there is a fundamental principle in agency that where certain property entrusted to an agent
and impressed by law with a trust in favor of the principal is wrongfully diverted, such trust follows the property
in the hands of a third person and the principal is ordinarily entitled to pursue and recover it so long as the
property can be traced and identified, and no superior equities have intervened. This principle is actually one of
trusts, since the wrongful conversion gives rise to a constructive trust which pursues the property, its product or
proceeds, and permits the beneficiary to recover the property or obtain damages for the wrongful conversion of
the property. Aptly called the "trust pursuit rule," it applies when a constructive or resulting trust has once
affixed itself to property in a certain state or form.
When property is registered in another's name, an implied or constructive trust is created by law in
favor of the true owner. The action for reconveyance of the title to the rightful owner prescribes in 10 years
from the issuance of the title. An action for reconveyance based on implied or constructive trust prescribes in
ten years from the alleged fraudulent registration or date of issuance of the certificate of title over the property.
It is now well settled that the prescriptive period to recover property obtained by fraud or mistake, giving rise to
an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to Art. 1144. This ten-year prescriptive
period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place
when the adverse party registers the land.
In the present case, however, the lands involved are concededly unregistered lands; hence, there is no
way by which Margarita, during her lifetime, could be notified of the furtive and fraudulent sales made in 1992
by Roberto in favor of respondents, except by actual notice from Pedro himself in August 1995. Hence, it is
from that date that prescription began to toll. The filing of the complaint in February 1996 is well within the
prescriptive period. Finally, such delay of only six (6) months in instituting the present action hardly suffices to
justify a finding of inexcusable delay or to create an inference that Margarita has allowed her claim to stale by
laches.
10. Spouses Abella v. Spouses Abella, G.R. No. 195166, July 8, 2015
Facts:
15
On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money
and damages with prayer for preliminary attachment against respondents Spouses Romeo and Annie Abella
before the RTC, Branch 8, Kalibo, Aklan. In their Complaint, petitioners alleged that respondents obtained a
loan from them in the amount of P500,000.00. The loan was evidenced by an acknowledgment receipt dated
March 22, 1999 and was payable within one (1) year. Petitioners added that respondents were able to pay a
total of P200,000.00— P100,000.00 paid on two separate occasions—leaving an unpaid balance of
P300,000.00.
In their Answer (with counterclaim and motion to dismiss), respondents alleged that the amount
involved did not pertain to a loan they obtained from petitioners but was part of the capital for a joint venture
involving the lending of money.
The RTC ruled in favor of petitioners. It noted that the terms of the acknowledgment receipt executed
by respondents clearly showed that: (a) respondents were indebted to the extent of P500,000.00; (b) this
indebtedness was to be paid within one (1) year; and (c) the indebtedness was subject to interest. Thus, the
trial court concluded that respondents obtained a simple loan.
On respondents’ appeal, the Court of Appeals ruled that while respondents had indeed entered into a
simple loan with petitioners, the same shall not earn interest. Since petitioners’ charging of interest was invalid,
the Court of Appeals reasoned that all payments respondents made by way of interest should be deemed
payments for the principal amount of P500,000.00. Respondents were no longer liable to pay the outstanding
amount of P300,000.00.
Issue:
Whether interest accrued on respondents’ loan from petitioners. If so, at what rate?
Ruling: YES
As noted by the Court of Appeals and the Regional Trial Court, respondents entered into a simple loan
or mutuum, rather than a joint venture, with petitioners.
Article 1956 of the Civil Code spells out the basic rule that "[n]o interest shall be due unless it has been
expressly stipulated in writing." On the matter of interest, the text of the acknowledgment receipt is simple,
plain, and unequivocal. It attests to the contracting parties’ intent to subject to interest the loan extended by
petitioners to respondents. The controversy, however, stems from the acknowledgment receipt’s failure to state
the exact rate of interest.
Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a rate. In
Spouses Toring v. Spouses Olan, this court clarified the effect of Article 1956 of the Civil Code and noted that
the legal rate of interest (then at 12%) is to apply: "In a loan or forbearance of money, according to the Civil
Code, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12%
per annum."
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No.
796 dated May 16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, which provides that: "The rate of
interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest, shall be six percent (6%) per annum."
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the
rate allowed in judgments shall no longer be twelve percent (12%) per annum — but will now be six percent
(6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall
apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.
Petitioners, however, insist on conventional interest at the rate of 2.5% per month or 30% per annum.
They argue that the acknowledgment receipt fails to show the complete and accurate intention of the
contracting parties. Even if it can be shown that the parties have agreed to monthly interest at the rate of 2.5%,
this is unconscionable. The imposition of an unconscionable rate of interest on a money debt, even if
16
knowingly and voluntarily assumed, is immoral and unjust. The imposition of an unconscionable interest rate is
void ab initio for being "contrary to morals, and the law."
Apart from respondents’ liability for conventional interest at the rate of 12% per annum, outstanding
conventional interest—if any is due from respondents—shall itself earn legal interest from the time judicial
demand was made by petitioners, i.e., on July 31, 2002, when they filed their Complaint. This is consistent with
Article 2212 of the Civil Code, which provides:
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point.
So, too, Nacar states that "the interest due shall itself earn legal interest from the time it is judicially
demanded." Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua, the interest due on
conventional interest shall be at the rate of 12% per annum from July 31, 2002 to June 30, 2013. Thereafter, or
starting July 1, 2013, this shall be at the rate of 6% per annum.
Nonetheless, it was found out that by June 21, 2002, respondents had not only fully paid the principal
and all the conventional interest that had accrued on their loan. By this date, they also overpaid P3,379.17.
Moreover, while hypothetically, interest on conventional interest would not have run from July 31, 2002, no
such interest accrued since there was no longer any conventional interest due from respondents by then.
11. Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085, January 21, 2010
Facts:
Petitioner Tambunting Pawnshop protested the assesssment made by the CIR. As the protest merited
no response, it filed a Petition for Review3 with the Court of Tax Appeals (CTA) pursuant to Section 228 of the
National Internal Revenue Code contending that pawnshops are not subject to VAT because a pawnshop is
not enumerated as one of those engaged in "sale or exchange of services" in Section 108 of the National
Internal Revenue Code. Petitioner also raised the argument that their pawn tickets are not subject to
documentary stamp tax pursuant to existing laws and jurisprudence. The First Division of the CTA ruled that
petitioner is liable for VAT and documentary stamp tax but not for withholding tax on compensation and
expanded withholding tax.
Issue:
Whether or not petitioner’s pawn tickets are subject to documentary stamp tax.
Ruling: Yes
In dodging liability for documentary stamp tax on its pawn tickets, petitioner argues that such tickets are
neither securities nor printed evidence of indebtedness.
The argument fails.
Section 195 of the National Internal Revenue Code provides:
Section 195. On every mortgage or pledge of lands, estate or property, real or personal, heritable or
movable, whatsoever, where the same shall be made as a security for the payment of any definite and
certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable,
and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise
converted into money which shall be and intended only as security, either by express stipulation or
otherwise, there shall be collected a documentary stamp tax x x x. (underscoring supplied)
Construing this provision vis a vis pawn tickets, the Court held in Michel J. Lhuillier Pawnshop, Inc. v.
Commissioner of Internal Revenue: x x x A D[ocumentary] S[tamp] T[ax] is an excise tax on the exercise of a
right or privilege to transfer obligations, rights or properties incident thereto. x x x
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an
accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or
to a third person movable property as security for the performance of the principal obligation, upon the
fulfillment of which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or
to the third person.
17
This is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree
No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal
property delivered as security for loans.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
"Pawn ticket" is the pawnbrokers' receipt for a pawn. It is neither a security nor a printed evidence of
indebtedness."
True, the law does not consider said ticket as an evidence of security or indebtedness. However, for
purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a
contract of pledge. There is therefore no basis in petitioner's assertion that a DST is literally a tax on a
document and that no tax may be imposed on a pawn ticket.
12. Mobil Oil Philippines, Inc. v. Diocares, G.R. No. L-26371, September 30, 1969
Facts:
In its complaint plaintiff alleged that on Feb. 9, 1965 defendants Ruth R. Diocares and Lope T. Diocares
entered into a contract of loan and real estate mortgage wherein the plaintiff extended to the said defendants a
loan of P45,000.00; that said defendants also agreed to buy from the plaintiff on cash basis their petroleum
requirements in an amount of not less than 50,000 liters per month; that the said defendants will pay to the
plaintiff 9-1/2% per annum on the diminishing balance of the amount of their loan; that the defendants will
repay the said loan in monthly installments of P950.88 for a period of five (5) years from February 9, 1965; that
to secure the performance of the foregoing obligation they executed a first mortgage on two parcels of land
covered by TCT Nos. T-27136 and T-27946.
The agreement further provided that in case of failure of the defendants to pay any of the installments
due and purchase their petroleum requirements in the minimum amount of 50,000 liters per month from the
plaintiff, the latter has the right to foreclose the mortgage or recover the payment of the entire obligation or its
remaining unpaid balance; that in case of foreclosure the plaintiff shall be entitled to 12% of the indebtedness
as damages and attorney's fees.
The complaint further alleges that the defendant paid only the amount of P1,901.76 to the plaintiff, thus
leaving a balance of P43,098.24, excluding interest, on their indebtedness. The plaintiff, therefore, prayed that
the defendants be ordered to pay the amount of P43,098.24, with interest at 9-1/2% per annum from the date it
fell due, and in default of such payment that the mortgaged properties be sold and the proceeds applied to the
payment of defendants' obligation."
Defendants, Ruth R. Diocares and Lope T. Diocares, now appellees, admitted their indebtedness as
set forth above, denying merely the alleged refusal to pay, the truth, according to them, being that they sought
for an extension of time to do so, inasmuch as they were not in a position to comply with their obligation. They
further set forth that they did request plaintiff to furnish them with the statement of accounts with the view of
paying the same on installment basis, which request was, however, turned down by the plaintiff.
Then came a motion from the plaintiff for a judgment on the pleadings, which motion was favorably
acted on by the lower court. However, the foreclosure sought by plaintiff was denied. According to the trial
court, no real estate mortgage was established since it was not registered. The dispositive portion is thus
limited to ordering defendants "to pay the plaintiff the account of P43,098.24, with interest at the rate of 9-1/2%
per annum from the date of the filing of the complaint until fully paid, plus the amount of P2,000.00 as
attorneys' fees, and the costs of the suit."
Issue:
Whether or not a real estate mortgage was established and foreclosure is proper.
Ruling: YES
The lower court should not have held that no real estate mortgage was established and should have
ordered its foreclosure.
18
The lower court predicated its inability to order the foreclosure in view of the categorical nature of the
opening sentence of the governing article that it is indispensable, "in order that a mortgage may be validly
constituted, that the document in which it appears be recorded in the Registry of Property." Note that it ignored
the succeeding sentence: "If the instrument is not recorded, the mortgage is nevertheless binding between the
parties." Its conclusion, however, is that what was thus created was merely "a personal obligation but did not
establish a real estate mortgage."
Such a conclusion does not commend itself for approval. The codal provision is clear and explicit. Even
if the instrument were not recorded, "the mortgage is nevertheless binding between the parties." The law
cannot be any clearer. Effect must be given to it as written. The mortgage subsists; the parties are bound. As
between them, the mere fact that there is as yet no compliance with the requirement that it be recorded cannot
be a bar to foreclosure.
WHEREFORE, the lower court order of February 25, 1966 is affirmed with the modification that in
default of the payment of the above amount of P43,028.94 with interests at the rate of 9-1/2% per annum from
the date of the filing of the complaint, that the mortgage be foreclosed with the properties subject thereof being
sold and the proceeds of the sale applied to the payment of the amounts due the plaintiff in accordance with
law.
13. Suico Rattan & Buri Interiors, Inc. v. CA & Metropolitan Bank and Trust Co., Inc., G.R. No. 138145,
June 15, 2006
Facts:
Suico Rattan & Buri Interiors, Inc. (SRBII) is engaged in the business of export of rattan and buri
products. Spouses Esmeraldo and Elizabeth Suico (Suico spouses) are officers of SRBII. On the other hand,
Metropolitan Bank and Trust Co., Inc. (Metrobank) is a commercial banking corporation duly organized and
existing under the laws of the Philippines.
In the course of its business, SRBII applied for a credit line with Metrobank. On September 5, 1991,
SRBII and Metrobank, Mandaue branch, entered into a Credit Line Agreement (Agreement) wherein the latter
granted the former a discounting line amounting to P7,000,000.00 and an export bills purchase or draft against
payment line (EBP/DP line) P10,000,000.00 for a maximum aggregate principal amount of P17,000,000.00. As
provided for under the Agreement, drawings on the credit line are secured by a Continuing Surety Agreement
for the sum of P17,500,000.00 executed by the Suico spouses, a Real Estate Mortgage executed on
September 5, 1991 by SRBII and the Suico spouses over properties located at Brgy. Tabok, Mandaue City,
Cebu and covered by Transfer Certificate of Title (TCT) Nos. 21663 and 21665, and Fire Insurance policies
over the properties duly endorsed in favor of Metrobank.
Previous to the execution of the Agreement, the Suico spouses had already incurred loan obligations
from Metrobank which are secured by separate Real Estate Mortgages over the same properties which are the
subject of the Real Estate Mortgage executed on September 5, 1991.
Subsequently, SRBII and the Suico spouses were unable to pay their obligations prompting Metrobank
to extrajudicially foreclose the four mortgages constituted over the subject properties. Metrobank, being the
lone and highest bidder, acquired the said properties during the auction sale. A Certificate of Sale dated
November 18, 1992 was then issued in its favor.
On November 5, 1992, Metrobank filed an action for the recovery of a sum of money arising from the
obligations of SRBII and the Suico spouses on their export bills purchases incurred between June and July,
1991.
SRBII and the Suico spouses filed their Answer contending that their indebtedness are secured by a
real estate mortgage and that the value of the mortgaged properties is more than enough to answer for all their
obligations to Metrobank.
After trial, the RTC dismissed the complaint and ruled that all obligations of defendants to plaintiffs are
already fully paid by the mortgage property. On appeal, the CA reversed and set aside the ruling of the trial
court. Hence, this petition.
Issues:
19
1. Whether the mortgage contract executed on September 5, 1991 serves as security for all the
obligations of petitioners to respondent bank;
2. Whether the foreclosure of the mortgaged properties precludes respondent bank from claiming the
sum of P16,585,286.27 representing the amount covered by the export bills purchased by herein petitioners
between June and July 1991.
Ruling:
1. As to the first question, the Court agrees with petitioners that all their obligations, including their
indebtedness arising from their purchase of export bills, are secured by the Real Estate Mortgage contract
executed on September 5, 1991. We are not persuaded by respondent bank’s contention that the export bills
purchases of petitioners from June 13, 1991 to July 11, 1991 were not secured by any real estate mortgage
because of the stipulation in the Agreement that the export bill purchase/draft against payment (EBP/DP) line
is clean, which means that it is unsecured.
The Court finds no conflict between the provisions of the Agreement and the Real Estate Mortgage
contract both dated September 5, 1991, insofar as the export bills purchases from June 13, 1991 to July 11,
1991 are concerned. The stipulations in the September 5, 1991 Agreement refer only to future export bill
purchases, thus excluding those purchases made in June and July, 1991; even as the provisions of the subject
Real Estate Mortgage pertain to all obligations of petitioners including those which were constituted even
before the execution of the said mortgage. Thus, although the Agreement does not refer to export bill
purchases incurred prior to the execution of said Agreement, the Real Estate Mortgage encompasses all
obligations incurred by petitioners, including the June and July 1991 export bill purchases but not the
purchases made after September 5, 1991 under the Agreement.
From the language of the contract, it is clear that the mortgaged properties were intended to secure all
loans, credit accommodations and all other obligations of herein petitioners to Metrobank, whether such
obligations have been contracted before, during or after the constitution of the mortgage.
2. The rule is settled that a mortgage creditor may, in the recovery of a debt secured by a real estate
mortgage, institute against the mortgage debtor either a personal action for debt or a real action to foreclose
the mortgage. These remedies available to the mortgage creditor are deemed alternative and not cumulative.
An election of one remedy operates as a waiver of the other.
A remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the complaint in
an action for foreclosure of mortgage, pursuant to the provisions of Rule 68 of the Rules of Court. As to
extrajudicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of the petition not
with any court of justice but with the office of the sheriff of the province where the sale is to be made, in
accordance with the provisions of Act No. 3135, as amended by Act No. 4118.
Records show that the complaint for a sum of money was filed with the RTC on November 5, 1992. On
the other hand, there is no direct evidence to show when respondent bank filed a petition with the provincial
sheriff of Cebu for the extrajudicial foreclosure of the mortgaged properties. The Certificate of Sale executed by
the Ex-Officio Provincial Sheriff indicates that the extrajudicial foreclosure sale was conducted on November
17, 1992. In the absence of evidence to the contrary, the Court presumes that the sheriff regularly performed
his duties and that the ordinary course of business had been followed in the conduct of the auction sale.
Hence, it is reasonable to assume that the requirements regarding notice and publication prior to the
conduct of the sale have been complied with. Going back 20 days from November 17, 1992, which was the
date the auction sale was conducted, the petition for extrajudicial foreclosure could have been filed by
respondent bank not later than October 27, 1992. Considering that the complaint for a sum of money was only
filed on November 5, 1992, the only conclusion that can be arrived at is that respondent bank first elected to
avail of the remedy of extrajudicial foreclosure. Thus, by availing of such remedy it is deemed to have waived
its right to file an ordinary case for collection.
14. Tambunting, Jr. v. Sumabat, G.R. No. 144101, September 16, 2005
Facts:
20
This case involves a dispute over a parcel of land situated in Caloocan City. It was previously
registered in the names of respondents, spouses Emilio Sumabat and Esperanza Baello. On May 3, 1973,
respondents mortgaged it to petitioner Antonio Tambunting, Jr. to secure the payment of a P7,727.95 loan. In
August 1976, respondents were informed that their indebtedness had ballooned to P15,000 for their failure to
pay the monthly amortizations.
In May 1977, because respondents defaulted in their obligation, petitioner Commercial House of
Finance, Inc. (CHFI), as assignee of the mortgage, initiated foreclosure proceedings on the mortgaged
property but the same did not push through. It was restrained by the then CFI of Caloocan City, Branch 33
(now RTC Branch 123) in a complaint for injunction (Civil Case No. C-6329) filed by respondents against
petitioners. However, the case was subsequently dismissed for failure of the parties to appear at the hearing
on November 9, 1977.
On March 16, 1979, respondents filed an action for declaratory relief with the CFI of Caloocan City,
Branch 33, seeking a declaration of the extent of their actual indebtedness. On January 8, 1981, the CFI
rendered its decision fixing respondents' liability at P15,743.83 and authorized them to consign the amount to
the court for proper disposition. In compliance with the decision, respondents consigned the required amount
on January 9, 1981.
In March 1995, respondents received a notice of sheriff's sale indicating that the mortgage had been
foreclosed by CHFI on February 8, 1995 and that an extrajudicial sale of the property would be held on March
27, 1995.
On March 27, 1995, respondents filed a petition for preliminary injunction, damages and cancellation of
annotation of encumbrance with prayer for the issuance of a temporary restraining order. However, the public
auction scheduled on that same day proceeded and the property was sold to CHFI as the highest bidder.
Respondents failed to redeem the property during the redemption period. Hence, title to the property was
consolidated in favor of CHFI and a new certificate of title was issued in its name. In view of these
developments, respondents amended their complaint to an action for nullification of foreclosure, sheriff's sale
and consolidation of title, reconveyance and damages.
On February 11, 2000, the RTC issued the assailed decision. It ruled that the 1981 CFI decision (Civil
Case No. C-7496) fixing respondents' liability at P15,743.83 and authorizing consignation had long attained
finality. The mortgage was extinguished when respondents paid their indebtedness by consigning the amount
in court. Moreover, the ten-year period within which petitioners should have foreclosed the property was
already barred by prescription. Petitioners moved for a reconsideration of the trial court's decision but it was
denied. Hence, this petition.
Issue:
Whether or not the mortgage action has already prescribed.
Ruling: YES
True, the trial court erred when it ruled that the 1981 CFI decision in Civil Case No. C-7496 was already
final and executory. An action for declaratory relief should be filed by a person interested under a deed, will,
contract or other written instrument, and whose rights are affected by a statute, executive order, regulation or
ordinance before breach or violation thereof.
Here, an infraction of the mortgage terms had already taken place before the filing of Civil Case No. C-
7496. Thus, the CFI lacked jurisdiction when it took cognizance of the case in 1979. And in the absence of
jurisdiction, its decision was void and without legal effect.
However, Article 1142 of the Civil Code is clear. A mortgage action prescribes after ten years.
An action to enforce a right arising from a mortgage should be enforced within ten years from the time
the right of action accrues. Otherwise, it will be barred by prescription and the mortgage creditor will lose his
rights under the mortgage.
Here, petitioners' right of action accrued in May 1977 when respondents defaulted in their obligation to
pay their loan amortizations. It was from that time that the ten-year period to enforce the right under the
mortgage started to run. The period was interrupted when respondents filed Civil Case No. C-6329 sometime
21
after May 1977 and the CFI restrained the intended foreclosure of the property. However, the period
commenced to run again on November 9, 1977 when the case was dismissed.
The respondents' institution of Civil Case No. C-7496 in the CFI on March 16, 1979 did not interrupt the
running of the ten-year prescriptive period because, as discussed above, the court lacked jurisdiction over the
action for declaratory relief. All proceedings therein were without legal effect. Thus, petitioners could have
enforced their right under the mortgage, including its foreclosure, only until November 7, 1987, the tenth year
from the dismissal of Civil Case No. C-6329. Thereafter, their right to do so was already barred by prescription.
The foreclosure held on February 8, 1995 was therefore some seven years too late. The same thing
can be said about the public auction held on March 27, 1995, the consolidation of title in CHFI's favor and the
issuance of TCT No. 310191 in its name. They were all void and did not exist in the eyes of the law.
15. Philippine National Bank v. Maraya, G.R. No. 164104, September 11, 2009
Facts:
The spouses Maraya are the owners of a parcel of land located at Combado, Maasin, Southern Leyte
registered in the name of Atty. Gregorio B. Maraya, Jr. On or about June 22, 1977, the spouses Maraya
secured a loan for ₱6,000.00 from PNB and constituted a real estate mortgage of their aforesaid property.
For one reason or another, the spouses Maraya defaulted in the payment of their loan obligation. Upon
their failure to pay their obligation, PNB initiated an extrajudicial foreclosure of the mortgaged property without
having the intended foreclosure sale published in the newspaper of general circulation. PNB emerged as the
highest bidder and was awarded the Sheriff’s certificate of sale on November 27, 1990.
For failure of the spouses Maraya to redeem the property and their failure to buy back the same despite
several periods granted by PNB after one year allowed by law, PNB decided to sell the property. On May 11,
1993, a public bidding was conducted for the said purpose with defendant appellant Jesus Cerro as the
successful bidder.
On or about July 15, 1993, PNB executed a Deed of Absolute Sale over the aforementioned land in
favor of Jesus Cerro. The spouses Maraya were notified by PNB of the sale in favor of Jesus Cerro and were
advised to vacate the premises. As they refused to vacate, Jesus Cerro was constrained to file a complaint for
unlawful detainer against them before the MTC of Maasin, Southern Leyte which rendered a decision in favor
of Jesus Cerro. The spouses Maraya appealed the said decision and it was during the pendency of the appeal
that they filed the complaint for Annulment of Sale and Quieting of Title against PNB and the spouses Cerro
before the RTC of Maasin, Southern Leyte.
The trial court ruled in favor of the spouses Maraya. On appeal, the CA affirmed the RTC decision in
toto.
Issue:
Whether or not the extrajudicial foreclosure sale is valid.
Ruling: NO
Section 3 of Act No. 3135 reads:
Section 3. Notice shall be given by posting notices of the sale for not less than twenty (20) days
in at least three public places of the municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall also be published once a week for at
least three consecutive weeks in a newspaper of general circulation in the municipality or city.
There is no dispute that the PNB bought the spouses Maraya’s property under Act No. 3135. Thus, the
sale of the property should be in accordance with the requirements laid out in Act No. 3135.
This Court cannot bring itself to agree with PNB’s position that its failure to comply with the requirement
of publication is excusable because the spouses Maraya had knowledge of the extrajudicial foreclosure
proceedings.
22
In Tambunting v. Court of Appeals, we ruled that statutory provisions governing publication of notice of
mortgage foreclosure sales must be strictly complied with, and that even slight deviations therefrom will
invalidate the notice and render the sale at least voidable.
Indeed, one of the most important requirements of Act No. 3135 is that the notice of the time and place
of sale shall be given. If the sheriff acts without notice, or at a time and place other than that designated in the
notice, the sheriff acts without warrant of law. Publication is required to give the extrajudicial foreclosure sale a
reasonably wide publicity such that those interested might attend the public sale. To allow the parties to waive
this jurisdictional requirement would result in converting into a private sale what ought to be a public auction.
We thus find no reversible error in the ruling of the appellate court. We affirm the nullity of the
extrajudicial foreclosure sale for non-compliance with the mandatory requirement of publication of the notice of
sale.
16. Spouses Paray v. Rodriquez, G.R. No. 132287, January 24, 2006
Facts:
Respondents were the owners, in their respective personal capacities, of shares of stock in a
corporation known as the Quirino-Leonor-Rodriguez Realty Inc. Sometime during the years 1979 to 1980,
respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina
Paray ("Parays") the payment of certain loan obligations.
When the Parays attempted to foreclose the pledges on account of respondents’ failure to pay their
loans, respondents filed complaints with the RTC of Cebu City seeking the declaration of nullity of the pledge
agreements, among others. However the RTC dismissed the complaint and gave "due course to the
foreclosure and sale at public auction of the various pledges subject of these two cases."
Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at
public auction on 4 November 1991. However, before the scheduled date of auction, all of respondents caused
the consignation with the RTC Clerk of Court of various amounts.
Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal
Espeleta as the highest bidder.
Respondents a complaint seeking the declaration of nullity of the concluded public auction. The Cebu
City RTC dismissed the complaint, expressing agreement with the position of the Parays.
The Court of Appeals Eighth Division, however, reversed the RTC on appeal, ruling that the
consignations extinguished the loan obligations and the subject pledge contracts; and the auction sale as null
and void.
Issue:
Whether the consignations extinguished the loan obligations. (NO)
Whether the pledged shares of stocks are subject to redemption. (NO)
Ruling:
The fundamental premise from which the appellate court proceeded was that the consignations made
by respondents should be construed in light of the rules of redemption, as if respondents were exercising such
right. In that perspective, the Court of Appeals made three crucial conclusions favorable to respondents: that
their act of consigning the payments with the RTC should be deemed done in the exercise of their right of
redemption; that the buyer at public auction does not ipso facto become the owner of the pledged shares
pending the lapse of the one-year redemptive period; and that the collective sale of the shares of stock
belonging to several individual owners without specification of the apportionment in the applications of payment
deprives the individual owners of the opportunity to know of the price they would have to pay for the purpose of
exercising the right of redemption.
Preliminarily, it must be clarified that the subject sale of pledged shares was an extrajudicial sale,
specifically a notarial sale, as distinguished from a judicial sale as typified by an execution sale. Under the Civil
Code, the foreclosure of a pledge occurs extrajudicially, without intervention by the courts. All the creditor
23
needs to do, if the credit has not been satisfied in due time, is to proceed before a Notary Public to the sale of
the thing pledged.
The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales,
more precisely execution sales of real property.
The Court of Appeals expressly asserted the notion that pledged property, necessarily personal in
character, may be redeemed by the creditor after being sold at public auction. Yet, as a fundamental matter,
does the right of redemption exist over personal property? No law or jurisprudence establishes or affirms such
right. Indeed, no such right exists.
The right to redeem property sold as security for the satisfaction of an unpaid obligation does not exist
preternaturally. Neither is it predicated on proprietary right, which, after the sale of property on execution,
leaves the judgment debtor and vests in the purchaser. Instead, it is a bare statutory privilege to be exercised
only by the persons named in the statute.
The right of redemption over mortgaged real property sold extrajudicially is established by Act No.
3135, as amended. The said law does not extend the same benefit to personal property. In fact, there is no law
in our statute books which vests the right of redemption over personal property. Act No. 1508, or the Chattel
Mortgage Law, ostensibly could have served as the vehicle for any legislative intent to bestow a right of
redemption over personal property, since that law governs the extrajudicial sale of mortgaged personal
property, but the statute is definitely silent on the point. And Section 39 of the 1997 Rules of Civil Procedure,
extensively relied upon by the Court of Appeals, starkly utters that the right of redemption applies to real
properties, not personal properties, sold on execution.
Since the pledged shares in this case are not subject to redemption, the Court of Appeals had no
business invoking and applying the inexistent right of redemption. We cannot thus agree that the consigned
payments should be treated with liberality, or somehow construed as having been made in the exercise of the
right of redemption.
We also must reject the appellate court’s declaration that the buyer of at the public auction is not "ipso
facto" rendered the owner of the auctioned shares, since the debtor enjoys the one-year redemptive period to
redeem the property.
Obviously, since there is no right to redeem personal property, the rights of ownership vested unto the
purchaser at the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive
period.
17. Prudential Bank v. Panis, G.R. No. L-50008, August 31, 1987
Facts:
On November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut Magcale
secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To secure payment of this loan,
plaintiffs executed in favor of defendant on the aforesaid date a deed of Real Estate Mortgage over the
following described properties: (1) A 2-storey, semi-concrete, residential building with warehouse spaces; and
(2) possessory right (right of occupancy) on the lot where the above property is erected.
On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over the
parcel of land, possessory rights over which were mortgaged to defendant Prudential Bank, in favor of
plaintiffs. On the basis of the aforesaid Patent, and upon its transcription in the Registration Book of the
Province of Zambales, Original Certificate of Title No. P-2554 was issued in the name of Plaintiff Fernando
Magcale.
For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon
application of said defendant, the deeds of Real Estate Mortgage were extrajudicially foreclosed. Consequent
to the foreclosure was the sale of the properties therein mortgaged to defendant as the highest bidder in a
public auction sale. The auction sale aforesaid was held despite written request from plaintiffs through counsel
dated March 29, 1978, for the defendant City Sheriff to desist from going with the scheduled public auction
sale.
24
The CFI of Zambales and Olongapo City, in a Decision dated November 3, 1978 declared the deeds of
Real Estate Mortgage as null and void.
On December 14, 1978, petitioner filed a Motion for Reconsideration, opposed by private respondents,
and in an Order dated January 10, 1979, the Motion for Reconsideration was denied for lack of merit. Hence,
the instant petition.
Issue:
Whether or not a valid real estate mortgage can be constituted on the building erected on the land
belonging to another.
Ruling: YES
In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled
that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said provision of law
can only mean that a building is by itself an immovable property."
Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on which it has
been built. Such a mortgage would be still a real estate mortgage for the building would still be considered
immovable property even if dealt with separately and apart from the land.
Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on
the 2-storey semi-concrete residential building with warehouse and on the right of occupancy on the lot where
the building was erected, was executed on November 19, 1971 and registered under the provisions of Act
3344 with the Register of Deeds of Zambales on November 23, 1971.
Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which
OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is
therefore without question that the original mortgage was executed before the issuance of the final patent and
before the government was divested of its title to the land, an event which takes effect only on the issuance of
the sales patent and its subsequent registration in the Office of the Register of Deeds.
Under the foregoing considerations, it is evident that the mortgage executed by private respondent on
his own building which was erected on the land belonging to the government is to all intents and purposes a
valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that
Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under the Public Land Act, or
any improvement thereon and therefore have no application to the assailed mortgage in the case at bar which
was executed before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a restriction
appearing on the face of private respondent's title has likewise no application in the instant case, despite its
reference to encumbrance or alienation before the patent is issued because it refers specifically to
encumbrance or alienation on the land itself and does not mention anything regarding the improvements
existing thereon.
But it is a different matter, as regards the second mortgage executed over the same properties on May
2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds of Olongapo City
on the same date. Relative thereto, it is evident that such mortgage executed after the issuance of the sales
patent and of the Original Certificate of Title, falls squarely under the prohibitions stated in Sections 121, 122
and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore null and void.
18. Hemedes v. CA, G.R. No. 107132, October 8, 1999

Facts:
The instant controversy involves a question of ownership over an unregistered parcel of land situated in
Sala, Cabuyao, Laguna. It was originally owned by the late Jose Hemedes, father of Maxima Hemedes and
Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a document entitled "Donation Inter Vivos
With Resolutory Conditions" whereby he conveyed ownership over the subject land, together with all its
improvements, in favor of his third wife, Justa Kauapin, subject to the following resolutory conditions: (a) Upon
25
the death or remarriage of the DONEE, the title to the property donated shall revert to any of the children, or
their heirs, of the DONOR expressly designated by the DONEE in a public document conveying the property to
the latter; or (b) In absence of such an express designation made by the DONEE before her death or
remarriage contained in a public instrument as above provided, the title to the property shall automatically
revert to the legal heirs of the DONOR in common.
Pursuant to the first condition above mentioned, Justa Kausapin executed on September 27, 1960 a
"Deed of Conveyance of Unregistered Real Property by Reversion" conveying to Maxima Hemedes the subject
property.
Maxima Hemedes filed an application for registration and confirmation of title over the subject
unregistered land. Subsequently, OCT No. (0-941) 0-198 5 was issued in the name of Maxima Hemedes
married to Raul Rodriguez by the Registry of Deeds of Laguna on June 8, 1962, with the annotation that "Justa
Kausapin shall have the usufructuary rights over the parcel of land herein described during her lifetime or
widowhood."
It is claimed by R & B Insurance that on June 2, 1964, Maxima Hemedes constituted a real estate
mortgage over the subject property in its favor to serve as security for a loan which they obtained in the
amount of P6,000.00. On February 22, 1968, R & B Insurance extrajudicially foreclosed the mortgage since
Maxima Hemedes failed to pay the loan. The land was sold at a public auction on May 3, 1968 with R & B
Insurance as the highest bidder and a certificate of sale was issued by the sheriff in its favor. Since Maxima
Hemedes failed to redeem the property within the redemption period, the Register of Deeds of Laguna
cancelled OCT No. (0-941) 0-198 and issued TCT No. 41985 in the name of R & B Insurance. The annotation
of usufruct in favor of Justa Kausapin was maintained in the new title.
Despite the earlier conveyance of the subject land in favor of Maxima Hemedes, Justa Kausapin
executed a "Kasunduan" on May 27, 1971 whereby she transferred the same land to her stepson Enrique D.
Hemedes, pursuant to the resolutory condition in the deed of donation executed in her favor by her late
husband Jose Hemedes.
On February 28, 1979, Enriques D. Hemedes sold the property to Dominium Realty and Construction
Corporation (Dominium). On April 10, 1981, Justa Kausapin executed an affidavit affirming the conveyance of
the subject property in favor of Enrique D. Hemedes as embodied in the "Kasunduan" dated May 27, 1971,
and at the same time denying the conveyance made to Maxima Hemedes.
On August 27, 1981, Dominium and Enrique D. Hemedes filed a complaint with the CFI of Binan,
Laguna for the annulment of TCT No. 41985 issued in favor of R & B Insurance and/or the reconveyance to
Dominium of the subject property.
After considering the merits of the case, the trial court rendered judgment on February 22, 1989 in favor
of plaintiffs Dominium and Enrique D. Hemedes.
Both R & B Insurance and Maxima Hemedes appealed from the trial court's decision. The CA affirmed
the assailed decision in toto and denied R & B Insurance's motion for reconsideration. Thus, Maxima Hemedes
and R & B Insurance filed their respective petitions for review with this Court.
Issue:
Whether or not R & B Insurance is considered as a mortgagee in good faith, and subsequently, an
innocent purchaser of the land in question.
Ruling: YES
We sustain petitioner R & B Insurance's claim that it is entitled to the protection of a mortgagee in good
faith.
It is a well-established principle that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued and the law will in no way oblige him to go behind the certificate to
determine the condition of the property.
An innocent purchaser for value is one who buys the property of another without notice that some other
person has a right to or interest in such property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim of another person.
26
The annotation of usufructuary rights in favor of Justa Kausapin upon Maxima Hemedes' OCT does not
impose upon R & B Insurance the obligation to investigate the validity of its mortgagor's title. Usufruct gives a
right to enjoy the property of another with the obligation of preserving its form and substance. The usufructuary
is entitled to all the natural, industrial and civil fruits of the property and may personally enjoy the thing in
usufruct, lease it to another, or alienate his right of usufruct, even by a gratuitous title, but all the contracts he
may enter into as such usufructuary shall terminate upon the expiration of the usufruct.
There is no doubt that the owner may validly mortgage the property in favor of a third person and the
law provides that, in such a case, the usufructuary shall not be obliged to pay the debt of the mortgagor, and
should the immovable be attached or sold judicially for the payment of the debt, the owner shall be liable to the
usufructuary for whatever the latter may lose by reason thereof.
Based on the foregoing, the annotation of usufructuary rights in favor of Justa Kausapin is not sufficient
cause to require R & B Insurance to investigate Maxima Hemedes' title, contrary to public respondent's ruling,
for the reason that Maxima Hemedes' ownership over the property remained unimpaired despite such
encumbrance. R & B Insurance had a right to rely on the certificate of title and was not in bad faith in accepting
the property as a security for the loan it extended to Maxima Hemedes.
Even assuming in gratia argumenti that R & B Insurance was obligated to look beyond the certificate of
title and investigate the title of its mortgagor, still, it would not have discovered any better rights in favor of
private respondents. Enrique D. Hemedes and Dominium base their claims to the property upon the
"Kasunduan" allegedly executed by Justa Kausapin in favor of Enrique Hemedes. As we have already stated
earlier, such contract is a nullity as its subject matter was inexistent. Also, the land was mortgaged to R & B
Insurance as early as 1964, while the "Kasunduan" was executed only in 1971 and the affidavit of Justa
Kausapin affirming the conveyance in favor of Enrique D. Hemedes was executed in 1981. Thus, even if R & B
Insurance investigated the title of Maxima Hemedes, it would not have discovered any adverse claim to the
land in derogation of its mortgagor's title. We reiterate that at no point in time could private respondents
establish any rights or maintain any claim over the land.
It is a well-settled principle that where innocent third persons rely upon the correctness of a certificate
of title and acquire rights over the property, the court cannot just disregard such rights. Otherwise, public
confidence in the certificate of title, and ultimately, the Torrens system, would be impaired for everyone dealing
with registered property would still have to inquire at every instance whether the title has been regularly or
irregularly issued. Being an innocent mortgagee for value, R & B Insurance validly acquired ownership over the
property, subject only to the usufructuary rights of Justa Kausapin thereto, as this encumbrance was properly
annotated upon its certificate of title.
19. Buenaventura v. Metropolitan Bank and Trust Co., G.R. No. 167082, August 3, 2016
Facts:
On January 20, 1997 and April 17, 1997, Teresita Buenaventura (or "appellant") executed Promissory
Note (or "PN") Nos. 232663 and 232711, respectively, each in the amount of PI,500,000.00 and payable to
Metropolitan Bank and Trust Company (or "appellee").
Despite demands, there remained unpaid on PN Nos. 232663 and 232711 the amounts of
P2,061,208.08 and PI,492,236.37, respectively, as of July 15, 1998, inclusive of interest and penalty.
Consequently, appellee filed an action against appellant for recovery of said amounts, interest, penalty and
attorney's fees before the RTC of Makati City.
In answer, appellant averred that she is a mere guarantor and cannot be compelled to pay unless and
until appellee shall have exhausted all the properties of her nephew, Rene Imperial, for the payment of the
rediscounted checks. Moreover, she claims that the promissory notes she executed were contracts of
adhesion because her only participation in their execution was affixing her signature, and that the terms of the
promissory notes should consequently be strictly construed against the respondent as the party responsible for
their preparation.
Thereafter, the RTC rendered its judgment against Buenaventura. The CA affirmed the trial court's
decision and denied the subsequent motion for reconsideration.
Issues:
27
1. Whether or not the promissory notes were contracts of adhesion.
2. Whether or not the promissory notes executed by petitioner are null and void for being simulated and
fictitious.
3. Whether or not petitioner is a mere guarantor to secure Rene Imperial's payment of the rediscounted
checks.
Ruling:
1. A contract of adhesion is so-called because its terms are prepared by only one party while the other
party merely affixes his signature signifying his adhesion thereto. Such contract is just as binding as ordinary
contracts.
It is true that we have, on occasion, struck down such contracts as void when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or
leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of
adhesion are not invalid per se and they are not entirely prohibited. The one who adheres to the contract is in
reality free to reject it entirely, if he adheres, he gives his consent.
Accordingly, a contract duly executed is the law between the parties, and they are obliged to comply
fully and not selectively with its terms. A contract of adhesion is no exception.
As a rule, indeed, the contract of adhesion is no different from any other contract. Its interpretation still
aligns with the literal meaning of its terms and conditions absent any ambiguity, or with the intention of the
parties. The terms and conditions of the promissory notes involved herein, being clear and beyond doubt,
should then be enforced accordingly.
2. The petitioner submits that the promissory notes were null and void for being simulated and fictitious;
hence, the CA erred in enforcing them against her.
The submission contradicts the records and the law pertinent to simulated contracts. Based on Article
1345 of the Civil Code, simulation of contracts is of two kinds, namely: (1) absolute; and (2) relative. Simulation
is absolute when there is color of contract but without any substance, the parties not intending to be bound
thereby. It is relative when the parties come to an agreement that they hide or conceal in the guise of another
contract.23chanrobleslaw The effects of simulated contracts are dealt with in Article 1346 of the Civil Code, to
wit:
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement.
The burden of showing that a contract is simulated rests on the party impugning the contract. This is
because of the presumed validity of the contract that has been duly executed. The proof required to overcome
the presumption of validity must be convincing and preponderant. Without such proof, therefore, the
petitioner's allegation that she had been made to believe that the promissory notes would be guaranties for the
rediscounted checks, not evidence of her primary and direct liability under loan agreements, could not stand.
Moreover, the issue of simulation of contract was not brought up in the RTC. It was raised for the first
time only in the CA. Such belatedness forbids the consideration of simulation of contracts as an issue.
3. Next, the petitioner insists that the promissory notes, even if valid, were meant as guaranties to
secure payment of the checks by the issuer, Rene Imperial; hence, her liability was that of a guarantor, and
would take effect only upon exhaustion of all properties and after resort to all legal remedies against Imperial.
A guaranty is not presumed; it must be expressed (Art. 2055, New Civil Code). The PNs provide, in
clear language, that appellant is primarily liable thereunder. On the other hand, said PNs do not state that
Imperial, who is not even privy thereto, is the one primarily liable and that appellant is merely a guarantor.
Parenthetically, the disclosure statement executed by appellant states that PN No. 232711 is "secured by
28
postdated checks". In other words, it does not appear that the PNs were executed as guaranty for the payment
of the subject checks.
Stated differently, appellant is primarily liable under the subject checks. She is a principal debtor and
not a guarantor. Consequently, the benefit of excussion may not be interposed as a defense in an action to
enforce appellant's warranty as indorser of the subject checks.
Moreover, it is absurd that appellant (as maker of the PNs) may act as guarantor of her own obligations
(as indorser of the subject checks). Thus, Art. 2047 of the New Civil Code provides that "(b)y guaranty, a
person called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case
the latter should fail to do so.
A guaranty cannot be presumed, but must be express and in writing to be enforceable, especially as it
is considered a special promise to answer for the debt, default or miscarriage of another. It being clear that the
promissory notes were entirely silent about the supposed guaranty in favor of Imperial, we must read the
promissory notes literally due to the absence of any ambiguities about their language and meaning. In other
words, the petitioner could not validly insist on the guaranty. In addition, the disclosure statements and the
statements of loan release undeniably identified her, and no other, as the borrower in the transactions. Under
such established circumstances, she was directly and personally liable for the obligations under the promissory
notes.
20. Kasilag v. Rodriguez, G.R. No. 46623, December 7, 1939

Facts:
The respondents, children and heirs of the deceased Emiliana Ambrosio, commenced the aforesaid
civil case to the end that they recover from the petitioner the possession of the land and its improvements
granted by way of homestead to Emiliana Ambrosio; that the petitioner pay to them the sum of P650 being the
approximate value of the fruits which he received from the land; that the petitioner sign all the necessary
documents to transfer the land and its possession to the respondents; that he petitioner be restrained, during
the pendency of the case, from conveying or encumbering the land and its improvements; that the registrar of
deeds of Bataan cancel certificate of title No. 325 and issue in lieu thereof another in favor of the respondents,
and that the petitioner pay the costs of suit.
Kasilag (petitioner) denied in his answer all the material allegations of the complaint and by way of
special defense alleged that he was in possession of the land and that he was receiving the fruits thereof by
virtue of a mortgage contract, entered into between him and the deceased Emiliana Ambrosio on May 16,
1932, which was duly ratified by a notary public.
One year after the execution of the aforequoted deed, that is, in 1933, it came to pass that Emiliana
Ambrosio was unable to pay the stipulated interests as well as the tax on the land and its improvements. For
this reason, she and the petitioner entered into another verbal contract whereby she conveyed to the latter the
possession of the land on condition that the latter would not collect the interest on the loan, would attend to the
payment of the land tax, would benefit by the fruits of the land, and would introduce improvements thereon.
The lower court concluded and held that the contract entered into by and between the parties, set out in the
said public deed, was one of absolute purchase and sale of the land and its improvements, thus, null and void
and without legal effect as well as the subsequent verbal contract entered into between the parties.
Issues:
1. Whether or not the contract was one of absolute sale.
2. Whether or not the contract of antichresis was valid.
Ruling:
1. No. The cardinal rule in the interpretation of contracts is to the effect that the intention of the
contracting parties should always prevail because their will has the force of law between them. Article 1281 of
the Civil Code consecrates this rule and provides, that if the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal sense of its stipulations shall be followed; and if the
words appear to be contrary to the evident intention of the contracting parties, the intention shall prevail.
29
The contract should be interpreted in accordance with these rules. As the terms thereof are clear and
leave no room for doubt, it should be interpreted according to the literal meaning of its clauses.
The words used by the contracting parties in Exhibit 1 clearly show that they intended to enter into the
principal contract of loan in the amount of P1,000, with interest at 12 per cent per annum, and into the
accessory contract of mortgage of the improvements on the land acquired as homestead, the parties having
moreover, agreed upon the pacts and conditions stated in the deed. In other words, the parties entered into a
contract of mortgage of the improvements on the land acquired as homestead, to secure the payment of the
indebtedness for P1,000 and the stipulated interest thereon.
We, thus, rule that the principal contract is that of loan and the accessory that of mortgage of the
improvements upon the land acquired as a homestead. There is no question that the first of these contract is
valid as it is not against the law. The second, or the mortgage of the improvements, is expressly authorized by
section 116 of Act No. 2874, as amended by section 23 of Act No. 3517.
2. No. We have seen that subsequent to the execution of the contract, the parties entered into another
verbal contract whereby the petitioner was authorized to take possession of the land, to receive the fruits
thereof and to introduce improvements thereon, provided that he would renounce the payment of stipulated
interest and he would assume payment of the land tax.
The possession by the petitioner and his receipt of the fruits of the land, considered as integral
elements of the contract of antichresis, are illegal and void agreements because, as already stated, the
contract of antichresis is a lien and such is expressly prohibited by section 116 of Act No. 2874, as amended.
For all the foregoing considerations, the appealed decision is reversed, and we hereby adjudge: (1) that
the contract of mortgage of the improvements, set out in Exhibit 1, is valid and binding; (2) that the contract of
antichresis agreed upon verbally by the parties is a real incumbrance which burdens the land and, as such, is a
null and without effect.
30

Civil Law Cases on Lease Agreements

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Civil Law Cases on Lease Agreements

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Civil Law Review (Cases for the Final Exam)

1. Dula v. Maravilla, G.R. No. 134267, May 9, 2005

3. Sunga-Chan v. Chua, G.R. No. 143340, August 15, 2001

4. Villareal v. Ramirez, G.R. No. 144214, July 14, 2003

5. Spouses Salvador v. Spouses Rabaja, G.R. No. 199990, February 4, 2015

8. Ringor v. Ringor, G.R. No. 147863, August 13, 2004

9. Estate of Cabacungan v. Laigo, G.R No. 175073, August 15, 2011

18. Hemedes v. CA, G.R. No. 107132, October 8, 1999

20. Kasilag v. Rodriguez, G.R. No. 46623, December 7, 1939

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