January 2012 rulings of the Supreme Court of the Philippines on Civil Law: 1. Sps.

Fernando and Lourdes Viloria vs. Continental Airlines, Inc., G.R. No. 188288. January 16, 2012.

TOPIC: Agency; principal-agent relationship. The relationship of agency is one where one party called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority.Qui facit per alium facit se. He who acts through another acts himself. As provided under Article 1869 of the Civil Code, agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. The guidelines that would aid in differentiating sale and an agency has been formulated by the Court since 1970. The primordial differentiating consideration between the two (2) contracts is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains ownership and control over the property and the agent merely acts on the principals behalf and under his instructions in furtherance of the objectives for which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of title, control and ownership in such a way that the recipient may do with the property as he pleases. Contracts; fraud. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to each other the things subject matter of the contract, including their fruits and interest. Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo

causante), not merely the incidental (dolo incidente), inducement to the making of the contract. Causal fraud has been defined as a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other. Fraud must be serious and its existence must be established by clear and convincing evidence, mere preponderance of evidence is not adequate. Quoting Tolentino, the Court ruled that the misrepresentation constituting the fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the personal conditions of the victim. Contracts; ratification. Article 1392 of the Civil Code states that ratification extinguishes the action to annul a voidable contract. Ratification of a voidable contract, under Article 1393, may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Contracts; rescission. Annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two inconsistent remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation stage of the contract when the parties are in the process of performing their respective obligations; in annulment, the defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191, there was implied admission of the validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions. The right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement. Whether a breach is substantial is largely determined by the attendant circumstances. Under Article 1192, in case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined

which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. Quasi-Delict; liability of principal for acts of agent. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agents employees if it has been established by preponderance of evidence that the principal was also at fault or negligent or that the principal exercise control and supervision over them. A prior determination of the nature of the passengers cause of action is necessary. If the passengers cause of action against the airline company is premised on culpa aquiliana or quasidelict for a tort committed by the employee of the airline companys agent, there must be an independent showing that the airline company was at fault or negligent or has contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the employee of the airline companys agent has committed a tort is not sufficient to hold the airline company liable. There is no vinculum juris between the airline company and its agents employees and the contractual relationship between the airline company and its agent does not operate to create a juridical tie between the airline company and its agents employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the tort committed by its agents employees and the principal-agency relationship per se does not make the principal a party to such tort; hence, the need to prove the principals own fault or negligence. On the other hand, if the passengers cause of action for damages against the airline company is based on contractual breach or culpa contractual, it is not necessary that there be evidence of the airline companys fault or negligence. In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its nonperformance by the carrier. A persons vicarious liability is anchored on his possession of control, whether absolute or limited, on the tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the one who committed the tort. The Court cited the case of Cangco v. Manila Railroad Co. stated that with respect to extracontractual obligation arising from negligence, whether of act or omission the legislature has limited such liability to cases in which the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that liability without regard to the lack of moral culpability, so as to include responsibility for the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability with certain well-defined exceptions to cases in which

moral culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in ones own acts, or in having failed to exercise due care in the selection and control of ones agent or servants, or in the control of persons who, by reasons of their status, occupy a position of dependency with respect to the person made liable for their conduct.

2. United Pulp and Paper Co., Inc. vs. Acropolis Central Guaranty Corporation; G.R. No. 171750. January 25, 2012. TOPIC: Compromise agreement; contracts; novation. In order for novation to extinguish an obligation, it must be shown that there is incompatibility between the compromise agreement and the terms of the counter-bond, as required by Article 1292 of the Civil Code. Nothing in the compromise agreement indicates, or even hints at, releasing Acropolis from its obligation as a surety to pay United Pulp and Paper Co. Inc. after the latter has obtained a favorable judgment. Clearly, there is no incompatibility between the compromise agreement and the counter-bond. Neither can novation be presumed. Novation by presumption has never been favored. To be sustained, it need be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar import.

3. Crisanta Alcaraz Miguel vs. Jerry D. Montanez, G.R. No. 191336. January 25, 2012. TOPIC: Compromise agreement; rescission. An amicable settlement reached at the barangay conciliation proceedings is binding between the contracting parties and, upon its perfection, is immediately executory insofar as it is not contrary to law, good morals, good customs, public order and public policy. Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has the force and effect of res judicata even if not judicially approved. It is akin to a judgment subject to execution in accordance with the Rules. However, the enforcement by execution of the amicable settlement by the Barangay Lupon within six months from the date of settlement, or by filing an action to enforce such settlement in the appropriate city or municipal court, if beyond the six-month period, is only applicable if the contracting parties have not repudiated such settlement within ten days from the date thereof in accordance with Section 416 of the Local Government Code. If the amicable settlement is repudiated by one party, either expressly or impliedly, the other party has two options: (1) to enforce the compromise in accordance with the Local Government Code or Rules of Court as the case may be, or (2) to consider it rescinded and insist upon his original demand. This is in accord with Article 2041 of the Civil Code, which qualifies the broad application of Article 2037. Article 2041 does not require an action for rescission, and the aggrieved party, by the breach of the compromise agreement, may just consider it already rescinded. A partys noncompliance with the amicable settlement pave the way for the application of Article 2041 under which the other party may either enforce the compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or consider it as rescinded and insist upon his original demand. The respondents non-compliance with the terms and conditions of the Kasunduang Pag-aayos, may be construed as repudiation because it denotes that the respondent did not intend to be bound by the terms thereof, thereby negating the very purpose for which it was executed. Thus, the petitioner has the option either to enforce the Kasunduang Pag-aayos, or to regard it as rescinded and insist upon his original demand, in accordance with Article 2041 of the Civil Code. Having instituted an action for collection of sum of money, the petitioner obviously chose to rescind the Kasunduang Pagaayos. It was error on the part of the Court of Appeals to rule that the enforcement by execution of said agreement is the appropriate remedy under the circumstances.

4. Fontana Resort and Country Club, Inc. and RN Development Corporation vs. Spouses Roy S. Tan and Susan C. Tan; G.R. No. 154670. January 30, 2012. TOPIC: Contracts; annulment. There is fraud when one party is induced by the other to enter into a contract, through and solely because of the latters insidious words or machinations. But not all forms of fraud can vitiate consent. Under Article 1330 of the Civil Code, this fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous with the execution of a contract, one party secures the consent of the other by using deception, without which such consent would not have been given. The fraud must be the determining cause of the contract, or must have caused the consent to be given. One who alleges fraud or mistake in a transaction must substantiate his allegation since the presumption is that a person takes ordinary care for his concerns and private dealings have been entered into fairly and regularly. Thus, one who alleges defect or lack of valid consent to a contract by reason of fraud or undue influence must establish by full, clear and convincing evidence such specific acts that vitiated a partys consent; otherwise the presumed consent to the contract prevails. In this case, the Tan spouses failed to prove how fraud was employed to induce them to buy the FRCCI shares. There was no showing that insidious words or machinations were used by the petitioners, without which, the spouses would not have bought the shares. The right to rescind a contract arises once the other party defaults in the performance of his obligation. However, rescission will not be permitted for a slight or casual breach, but only for substantial and fundamental breach as would defeat the very object of the parties in making the agreement. Like fraud, the burden of establishing the default lies upon the party who alleges that default was committed. There was no evidence presented that petitioners defaulted on any of their obligations. Therefore, although the Complaint in this case sufficiently alleged a cause of action for the annulment or rescission of the contract of sale of FRCCI shares, however, there was failure on the part of the Tan spouses to establish by preponderance of evidence that they are entitled to the said annulment or rescission.

5. Stolt-Nielsen Transportation Group, Inc., et al. vs. Sulpecio Modequillo G.R. No. 177498. January 18, 2012. TOPIC: Contracts;novation. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order for novation to take place, the concurrence of the following requisites is indispensable: 1. There must be a previous valid obligation, 2. There must be an agreement of the parties concerned to a new contract, 3. There must be the extinguishment of the old contract, and 4. There must be the validity of the new contract. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Distinction must be made between the perfection of the employment contract and the commencement of the employer-employee relationship. The perfection of the contract, which in this case coincided with the date of execution thereof, occurred when petitioner and respondent agreed on the object and the cause, as well as the rest of the terms and conditions therein. The commencement of the employer-employee relationship, would have taken place had petitioner been actually deployed from the point of hire. Thus, even before the start of any employer-employee relationship, contemporaneous with the perfection of the employment contract was the birth of certain rights and obligations, the breach of which may give rise to a cause of action against the erring party. Thus, if the reverse had happened, that is the seafarer failed or refused to be deployed as agreed upon, he would be liable for damages.

6. Cresencio C. Milla vs. People of the Philippines et al.; G.R. No. 188726. January 25, 2012. TOPIC: Contracts; novation; extinguishment of criminal liability. The principle of novation cannot apply as to extinguish criminal liability in this case. The mere payment of an obligation before the institution of a criminal complaint does not, on its own, constitute novation that may prevent criminal liability. The Court citing the case of People v. Nery ruled that novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished and that the role of novation may only be either to prevent the rise of criminal liability or to cast doubt on the true nature of the original petition, whether or not it was such that its breach would not give rise to penal responsibility as when money loaned is made to appear as a deposit, or other similar disguise is resorted to. It further ratiocinated, citing the case of Quinto v. People, that the gravamen of the offense of estafa is the appropriation or conversion of money or property received to the prejudice of the owner and neither the theory of delay in the fulfilment of commission nor that of novation can avoid the incipient criminal liability. The criminal liability for estafa already committed is then not affected by the subsequent novation of contract, for it is a public offense which must be prosecuted and punished by the State in its own conation. In this case, the acceptance by MPI of the Equitable PCI checks tendered by Milla could not have novated the original transaction, as the checks were only intended to secure the return of the P2 Million the former had already given to him these checks even bounced and were thus unable to satisfy his liability. The estafa involved here was not for simple misappropriation or conversion, but committed through Falsification of public documents, the liability for which cannot be extinguished by mere novation.

7. Starbright Sales Eterprises, Inc. vs. Philippine Realty Corporation, Msgr. Domingo A. Cirilos, et al., G.R. No. 177936. January 18, 2012. TOPIC: Contracts; perfection For a contract to be perfected, three elements are needed to create a perfected contract: 1) the consent of the contracting parties; (2) an object certain which is the subject matter of the contract; and (3) the cause of the obligation which is established. Under the law on sales, a contract of sale is perfected when the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to the buyer, over which the latter agree. From that moment, the parties may demand reciprocal performance.

8. Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al., G.R. No. 151038. January 18, 2012. TOPIC: Dealership contract; liability. The petitioner as importer and the dealer executed an exclusive dealership agreement for mutual benefit and gain. On one hand, petitioner benefits from the sale of its products, as well as the advertisement it gains when it broadens its geographical coverage in contracting with independent dealers in different areas. The products sold and the services rendered by the dealer also contribute to its goodwill. Thus, despite the transfer of ownership upon the sale and delivery of its products, petitioner still imposes the obligation on the dealer to exclusively carry its products. The dealer, on the other hand, also benefits from the dealership agreement, not only from the resale of the products of petitioner, but also from the latters goodwill. However, with the use of its trade name and trademark, petitioner and the dealer inform and guarantee to the public that the products and services are of a particular standard or quality. The public, which is not privy to the dealership contract, assumes that the gasoline station is owned or operated by petitioner. Thus, respondents, who suffered damages from the act or omission that occurred in the gasoline station and that caused the fire, may file an action against petitioner based on the representations it made to the public. As far as the public is concerned, it is enough that the establishment carries exclusively the name and products of petitioner to assume that the latter is liable for acts done within the premises. The expiration or nonexistence of a dealership contract did not ipso facto transform the relationship of the dealer and petitioner into one of agency. As far as the parties to the dealership contract were concerned, the rights and obligations as to them still subsisted, since they continued to mutually benefit from the agreement. Thus, neither party can claim that it is no longer bound by the terms of the contract and the expiration thereof. Interest; lawful interest. Citing Eastern Shipping Lines v. Court of Appeals, enunciated in PCI Leasing & Finance Inc. v. Trojan Metal Industries, Inc., the Court laid down the rules for the imposition of legal interest as follows: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. II.With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Obligations; Solidary obligation. According to Article 1217 of the Civil Code, payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. The debtor who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due however, no interest for the intervening period may be demanded. Article 1208 provides for the share of solidary debtors which states thatif from the law, or the nature of the wording of the obligations to which the preceding article refers the contrary does not appear, the credit of debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.