FIRST DIVISION

FIRST UNITED CONSTRUCTORS CORPORATION

CONSTRUCTION
CORPORATION,
PETITIONERS,
AUTOMOTIVE CORPORATION, RESPONDENT.
G.R. No. 164985, January 15, 2014

AND
VS.

BLUE STAR
BAYANIHAN

BERSAMIN, J.:
FACTS: Petitioner First United Constructors Corporation (FUCC) and petitioner Blue
Star Construction Corporation (Blue Star) ordered six unit of dump trucks from
respondent Bayanihan Automotive Corp where in the parties established a good business
relationship. Later on petitioners once again ordered from the respondent one unit of
Hino Prime Mover and unit of Isuzu Transit Mixer. For the two purchases, FUCC
partially paid in cash, and the balance through post-dated checks, when presented by
respondent for payment they discovered that petitioners made a stop payment order on
the ground that one of the dump trucks they previously ordered break down. An action for
collection was instituted by herein respondents which was countered by herein petitioners
claiming that they have a right to withhold the balance due to respondents breach of
warranty in one of the dump trucks. The RTC held that the petitioners could not avail
themselves of legal compensation because the claims they had set up in the counterclaim
were not liquidated and demandable. The CA affirmed the RTC and further held that
recoupment cannot be done by petitioners.
ISSUES: One, whether or not the petitioners validly exercised the right of recoupment
through the withholding of payment of the unpaid balance of the purchase price of the
Hino Prime Mover and the Isuzu Transit Mixer; and, two, whether or not the costs of the
repairs and spare parts for the second dump truck delivered to FUCC could be offset for
the petitioners obligations to the respondent?
HELD: Recoupment (reconvencion) is the act of rebating or recouping a part of a claim
upon which one is sued by means of a legal or equitable right resulting from a
counterclaim arising out of the same transaction. It is the setting up of a demand arising
from the same transaction as the plaintiffs claim, to abate or reduce that claim.
The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of the
Civil Code x x x.
When the buyer has claimed and been granted a remedy in anyone of these ways, no
other remedy can thereafter be granted, without prejudice to the provisions of the second
paragraph of article 1191.
xxxx
In its decision, the CA applied the first paragraph of Article 1599 of the Civil Code to this
case, explaining thusly:
Paragraph (1) of Article 1599 of the Civil Code which provides for the remedy of
recoupment in diminution or extinction of price in case of breach of warranty by the
seller should therefore be interpreted as referring to the reduction or extinction of the
price of the same item or unit sold and not to a different transaction or contract of sale.
xxxx
The CA was correct. It was improper for petitioners to set up their claim for repair
expenses and other spare parts of the dump truck against their remaining balance on the
price of the prime mover and the transit mixer they owed to respondent. Recoupment
must arise out of the contract or transaction upon which the plaintiffs claim is founded.
To be entitled to recoupment, therefore, the claim must arise from the same transaction,
i.e., the purchase of the prime mover and the transit mixer and not to a previous contract
involving the purchase of the dump truck. That there was a series of purchases made by
petitioners could not be considered as a single transaction, for the records show that the
earlier purchase of the six dump trucks was a separate and distinct transaction from the
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subsequent purchase of the Hino Prime Mover and the Isuzu Transit Mixer.
Consequently, the breakdown of one of the dump trucks did not grant to petitioners the
right to stop and withhold payment of their remaining balance on the last two purchases.
xxxx
Legal compensation takes place when the requirements set forth in Article 1278 and
Article 1279 of the Civil Code are present xxxx.
As to whether petitioners could avail themselves of compensation, both the RTC and CA
ruled that they could not because the claims of petitioners against respondent were not
liquidated and demandable.
The Court cannot uphold the CA and the RTC.
xxxx
A debt is liquidated when its existence and amount are determined. Accordingly, an
unliquidated claim set up as a counterclaim by a defendant can be set off against the
plaintiffs claim from the moment it is liquidated by judgment. Article 1290 of the Civil
Code provides that when all the requisites mentioned in Article 1279 of the Civil Code
are present, compensation takes effect by operation of law, and extinguishes both debts to
the concurrent amount. With petitioners expenses for the repair of the dump truck being
already established and determined with certainty by the lower courts, it follows that
legal compensation could take place because all the requirements were present. Hence,
the amount of P71,350.00 should be set off against petitioners unpaid obligation of
P735,000.00, leaving a balance of P663,650.00, the amount petitioners still owed to
respondent.

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SECOND DIVISION
UNION BANK OF THE PHILIPPINES, PETITIONER, VS. DEVELOPMENT BANK
OF THE PHILIPPINES, RESPONDENT.
G.R. No. 191555, January 20, 2014
PERLAS-BERNABE, J.:
FACTS: Foodmasters, Inc. (FI) is the assignor of its leasehold rights to Foodmasters
Worldwide. FI had outstanding loan obligations to both Union Banks predecessor-ininterest, Bancom Development Corporation and to DBP. FI and DBP, entered into a Deed
of Cession of Property in Payment of Debt whereby the former ceded in favor of the
latter. DBP as the new owner of the processing plant, leased the said property to FI which
was, in turn, obliged to pay monthly rentals to be shared by DBP and Bancom. DBP also
entered into a separate agreement with Bancom (Assumption Agreement). Bancom
conveyed all its receivables, including, among others, DBPs assumed obligations, to
Union Bank. Union Bank filed a collection case against DBP for non payment of the
subject rentals, DBP countered, among others, that the obligations it assumed were
payable only out of the rental payments made by FI. Thus, since FI had yet to pay the
same, DBPs obligation to Union Bank had not arisen. In addition, DBP sought to
implead FW as third party-defendant. The RTC ruled in favor of Union bank on appeal
the CA on May 27, 1994 set aside the RTCs ruling, and consequently ordered FW to pay
DBP the total rental debt incurred under the Lease Agreement and DBP, after having been
paid by FW its unpaid rentals, to remit 30% thereof to Union Bank. At odds with the
CAs ruling, Union Bank and DBP filed separate petitions for review on certiorari before
the Court, respectively docketed as G.R. Nos. 115963 and 119112, which were thereafter
consolidated. The Court denied both petitions which became final and executory.
Union Bank filed a motion for execution before the RTC, praying that DBP be directed to
pay the amount of the subject rentals, as a result, a writ of execution and, thereafter, a
notice of garnishment against DBP were issued. DBP filed a motion for reconsideration
which was denied resulting in the garnishment of DBP's deposits. DBP filed a petition for
certiorari before the CA which it dismissed. DBP appealed the CAs ruling before the
Court, which was docketed as G.R. No. 155838. In its Decision, the Court granted DBPs
appeal, and thereby reversed and set aside the CAs ruling in CA-G.R. SP No. 68300. It
found significant points of variance between the CAs May 27, 1994 Decision in CA-G.R.
CV No. 35866, and the RTCs Order of Execution/October 15, 2001 Writ of Execution. It
ruled that both the body and the dispositive portion of the same decision acknowledged
that DBPs obligation to Union Bank for remittance of the lease payments is contingent
on FWs prior payment to DBP, and that any deficiency DBP had to pay by December 29,
1998 as per the Assumption Agreement cannot be determined until after the satisfaction
of FWs own rental obligations to DBP. Accordingly, the Court: (a) nullified the October
15, 2001 Writ of Execution and all related issuances thereto; and (b) ordered Union Bank
to return to DBP the amounts it received pursuant to the said writ. Dissatisfied, Union
Bank moved for reconsideration which was, however, denied with finality. DBP moved
for the execution of the said decision before the RTC. After numerous efforts on the part
of Union Bank proved futile, the RTC issued a writ of execution ordering Union Bank to
return to DBP all funds it received pursuant to the Writ of Execution.
Union Bank filed a Manifestation and Motion to Affirm Legal Compensation, praying
that the RTC apply legal compensation between itself and DBP in order to offset the
return of the funds it previously received from DBP. Union Bank anchored its motion on
two grounds which were allegedly not in existence prior to or during trial, namely: (a) on
3|Page

December 29, 1998, DBPs assumed obligations became due and demandable; and (b)
considering that FWI became non-operational and non-existent, DBP became primarily
liable to the balance of its assumed obligation. The RTC denied the above-mentioned
motion for lack of merit, Union bank elevated claim to the CA. Pending resolution,
Union Bank issued Managers Check in favor of DBP, in satisfaction of the Writ of
Execution which DBP however claims to be insufficient. The CA dismissed Union
Banks petition, Union Bank moved for reconsideration which was denied, hence the
instant petition.
ISSUE: Whether or not Union bank can claim legal compensation against the claim of
DBP for the return of its garnished deposits?
HELD: Compensation is defined as a mode of extinguishing obligations whereby two
persons in their capacity as principals are mutual debtors and creditors of each other with
respect to equally liquidated and demandable obligations to which no retention or
controversy has been timely commenced and communicated by third parties. The
requisites therefor are provided under Article 1279 of the Civil Code which reads as
follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (Emphases and underscoring
supplied)
The rule on legal compensation is stated in Article 1290 of the Civil Code which provides
that [w]hen all the requisites mentioned in Article 1279 are present, compensation takes
effect by operation of law, and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the compensation.
In this case, Union Bank filed a motion to seek affirmation that legal compensation had
taken place in order to effectively offset (a) its own obligation to return the funds it
previously received from DBP as directed under the September 6, 2005 Writ of Execution
with (b) DBPs assumed obligations under the Assumption Agreement. However, legal
compensation could not have taken place between these debts for the apparent reason that
requisites 3 and 4 under Article 1279 of the Civil Code are not present. Since DBPs
assumed obligations to Union Bank for remittance of the lease payments are in the
Courts words in its Decision dated January 13, 2004 in G.R. No. 155838 contingent
on the prior payment thereof by [FW] to DBP, it cannot be said that both debts are due
(requisite 3 of Article 1279 of the Civil Code). Also, in the same ruling, the Court
observed that any deficiency that DBP had to make up (by December 29, 1998 as per the
Assumption Agreement) for the full satisfaction of the assumed obligations cannot be
determined until after the satisfaction of Foodmasters obligation to DBP. In this regard,
it cannot be concluded that the same debt had already been liquidated, and thereby
became demandable (requisite 4 of Article 1279 of the Civil Code).

4|Page

SECOND DIVISION
LAND BANK OF THE PHILIPPINES, PETITIONER, VS. EMMANUEL OATE,
RESPONDENT.
G.R. No. 192371, January 15, 2014
DEL CASTILLO, J.:
FACTS: Oate opened and maintained seven trust accounts with Land Bank each trust
account was covered by an Investment Management Account (IMA) with Full Discretion
and has a corresponding passbook where deposits and withdrawals were recorded.
Landbank claiming that fraud was employed by repondent resulting to a miscrediting
upon his account it deducted said amount upon the accounts of respondent which was not
fully settled thus a case in the RTC for sum of money plus interest at the legal rate of
12% per annum was filed by LBP. In his answer with counterclaim respondent asserted
that the set off was improper and pointed out his remaining account with the bank, the
RTC rendered a Decision dismissing Land Banks Complaint and ordered the return of
the amount debited, the counterclaim of respondent was also dismissed,both parties
appeal to the CA but it was only respondents appeal that was granted. The CA ruled in
favor of respondent and ruled that he is entitled to the unaccounted withdrawals. Land
Bank filed a Motion for Reconsideration which the CA denied. Hence, Land Bank filed
the instant Petition for Review on Certiorari. Land Bank questions the ruling of the CA
imposing 12% per annum rate of interest. It contends that trust accounts are in the nature
of Express Trust and not in the nature of a regular deposit account where a debtorcreditor relationship exists between the bank and its depositor. It was not indebted to
Oate but merely held and managed his funds. There being no loan or forbearance of
money involved, in the absence of stipulation, the applicable rate of interest is only 6%
per annum. Land Bank claims that the CA further erred when it compounded the 12%
interest even in the absence of any such stipulation.

ISSUE: Whether or not the award of interest to respondent at the rate of twelve percent
(12%) per annum, compounded yearly from June 21, 1991 to until fully paid, is violative
of Article 1959 of the Civil Code?
HELD: Land Banks argument that the lower courts erred in imposing 12% per annum
rate of interest is likewise devoid of merit. The unilateral offsetting of funds without
legal justification and the undocumented withdrawals are tantamount to forbearance of
money. In the analogous case of Estores v. Supangan, we held that [the] unwarranted
withholding of the money which rightfully pertains to [another] amounts to forbearance
of money which can be considered as an involuntary loan. Following Eastern Shipping
Lines, Inc. v. Court of Appeals, therefore, the applicable rate of interest in this case is
12% per annum. Besides, Land Bank is estopped from assailing the award of 12% per
annum rate of interest. In its Complaint, Land Bank arrived at P8,222,687.89 as the
outstanding indebtedness of Oate by using the same 12% per annum rate of interest. It
was only after the lower courts rendered unfavorable decisions that Land Bank started to
insist that the applicable rate of interest is 6% per annum.
Of equal importance is the determination of when the said 12% per annum rate of interest
should commence. Recall that both the RTC and the CA reckoned the running of the
5|Page

12% per annum rate of interest from June 21, 1991, or the day Land Bank unilaterally
applied the outstanding balance in all of Oates trust accounts, until fully paid. The
compounding of interest, on the other hand, was based on the provision of the IMAs
granting Land Bank to hold, invest and reinvest the Fund and keep the same invested, in
your sole discretion, without distinction between principal and income.
While we find sufficient basis for the compounding of interest, we find it necessary
however to modify the commencement date. In Eastern Shipping, it was observed that
the commencement of when the legal interest should start to run varies depending on the
factual circumstances obtaining in each case. As a rule of thumb, it was suggested that
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).
In the case at bench, while Oate protested the setting off, no proof was presented that he
formally demanded for the return of the amount so debited prior to the filing of the
Complaint. Quite understandably so because at that time he could not determine with
some degree of certainty the outstanding balances of his accounts as Land Bank
neglected on its duty to keep him updated on the status of his accounts. Land Bank even
undertook to furnish him with the exact computation of what remains in his accounts
after the set off. But this never happened until Land Bank initiated the Complaint on
September 7, 1992. Oate, on the other hand, filed his Answer (With Compulsory
Counterclaim) on May 26, 1993. In other words, we cannot reckon the running of the
interest prior to the filing of the Complaint or Oates Counterclaim as no demand prior
thereto was made. Neither could the interest commence to run at the time of filing of any
of aforesaid pleadings (as to constitute judicial demand) since the undocumented
withdrawals in the sums of P60,663,488.11 and US$3,210,222.85, as well as the amount
actually debited from all of Oates accounts, were determined only after the Board
submitted its consolidated report on August 16, 2004 or more than 10 years after Land
Bank and Oate filed their Complaint and Answer, respectively. Note too that while
Oate sought to recover the amount of undocumented withdrawals before the RTC, the
same was denied in the latters May 31, 2006 Decision. The RTC granted Oate only the
total amount of funds debited from his trust accounts. It was only when the CA rendered
its December 18, 2009 Decision that Oate was awarded the undocumented withdrawals.
Hence, we find it just and proper to reckon the running of the interest of 12% per annum,
compounded yearly, for the debited amount and undocumented withdrawals on different
dates. The debited amount of P1,471,416.52, shall earn interest beginning May 31,
2006 or the day the RTC rendered its Decision granting said amount to Oate. As to the
undocumented withdrawals of P60,663,488.11 and US$3,210,222.85, the legal rate of
interest should start to run the day the CA promulgated its Decision on December 18,
2009.
During the pendency of this case, however, the Monetary Board issued Resolution No.
796 dated May 16, 2013, stating that in the absence of express stipulation between the
parties, the rate of interest in loan or forbearance of any money, goods or credits and the
rate allowed in judgments shall be 6% per annum. Said Resolution is embodied in
Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013, which took effect on July
1, 2013. Hence, the 12% annual interest mentioned above shall apply only up to June 30,
2013. Thereafter, or starting July 1, 2013, the applicable rate of interest for both the
debited amount and undocumented withdrawals shall be 6% per annum, compounded
annually, until fully paid.

6|Page

SECOND DIVISION
THE METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, VS.
ANA GRACE ROSALES AND YO YUK TO, RESPONDENTS.
G.R. No. 183204, January 13, 2014
DEL CASTILLO, J.:
FACTS: Respondent Ana Grace Rosales (Rosales) is the owner of China Golden Bridge
Travel Services, a travel agency while respondent Yo Yuk To is the mother of the former.
Respondents own a joint peso account with petitioner which was issued a Hold Out
order by the bank due to its allegation that respondent took part in the fraudulent and
unauthorized withdrawal from the dollar account of Liu Chiu Fang a client of respondent
Rosales which she accompanied when it opened an account with Petitioner Bank. A case
for Estafa through False Pretences, Misrepresentation, Deceit, and Use of Falsified
Documents was filed by Petitioner.
Due to the Hold out Order issued by the Bank respondents filed before the Regional Trial
Court (RTC) of Manila a Complaint for Breach of Obligation and Contract with
Damages, The RTC of Manila ruled in favor of the respondents which was affirmed by
the CA, hence this petition.
ISSUE: Whether or not the Bank was justified in issuing a Hold Out order against
respondents joint peso deposit anchored on the Application and Agreement for Deposit
Account?
HELD: Bank deposits, which are in the nature of a simple loan or mutuum, must be paid
upon demand by the depositor.
xxxxx
The Hold Out clause applies only if there is a valid and existing obligation arising from
any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show
that respondents have an obligation to it under any law, contract, quasi-contract, delict, or
quasi-delict. And although a criminal case was filed by petitioner against respondent
Rosales, this is not enough reason for petitioner to issue a Hold Out order as the case is
still pending and no final judgment of conviction has been rendered against respondent
Rosales. In fact, it is significant to note that at the time petitioner issued the Hold Out
order, the criminal complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal basis
for petitioner to issue the Hold Out order. Accordingly, we agree with the findings of
the RTC and the CA that the Hold Out clause does not apply in the instant case.
In view of the foregoing, we find that petitioner is guilty of breach of contract when it
unjustifiably refused to release respondentsdeposit despite demand. Having breached its
contract with respondents, petitioner is liable for damages.

7|Page

FIRST DIVISION

PHILIPPPINE NATIONAL BANK, PETITIONER, VS. SPOUSES ENRIQUE

MANALO & ROSALINDA JACINTO, ARNOLD J. MANALO, ARNEL J.
MANALO, AND ARMA J. MANALO, RESPONDENTS.
G.R. No. 174433, February 24, 2014
BERSAMIN, J.:
FACTS: Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo)
applied for an All-Purpose Credit Facility with Philippine National Bank (PNB) to
finance the construction of their house. After PNB granted their application, they
executed a Real Estate Mortgage in favor of PNB over their property covered by Transfer
Certificate of Title No. S- 23191 as security for the loan an added security for the loan
was later on entered into by the parties. Due to the spouses failure to settle their
obligation PNB foreclosed the property and obtained it for being the highest bidder.
After more than a year after the Certificate of Sale had been issued to PNB, the Spouses
Manalo instituted this action for the nullification of the foreclosure proceedings and
damages. The RTC in its decision also considered the allegation of respondents that the
interest rates and penalty charges were iniquitous, unconscionable and therefore likewise
void. The RTC rendered a decision in favor of PNB which the CA modified with regards
to the interest rate.
ISSUE: Whether or not PNB in unilaterally increasing the interest rates violated the
principle of mutuality of consent in the imposition of interest rates thus the CA was
correct in imposing a new rate of interest?
HELD: Although banks are free to determine the rate of interest they could impose on
their borrowers, they can do so only reasonably, not arbitrarily. They may not take
advantage of the ordinary borrowers lack of familiarity with banking procedures and
jargon. Hence, any stipulation on interest unilaterally imposed and increased by them
shall be struck down as violative of the principle of mutuality of contracts.
xxxx
The credit agreement executed succinctly stipulated that the loan would be subjected to
interest at a rate determined by the Bank to be its prime rate plus applicable spread,
prevailing at the current month.This stipulation was carried over to or adopted by the
subsequent renewals of the credit agreement. PNB thereby arrogated unto itself the sole
prerogative to determine and increase the interest rates imposed on the Spouses Manalo.
Such a unilateral determination of the interest rates contravened the principle of mutuality
of contracts embodied in Article 1308 of the Civil Code.
The Court has declared that a contract where there is no mutuality between the parties
partakes of the nature of a contract of adhesion, and any obscurity will be construed
against the party who prepared the contract, the latter being presumed the stronger party
to the agreement, and who caused the obscurity. PNB should then suffer the
consequences of its failure to specifically indicate the rates of interest in the credit
8|Page

agreement. We spoke clearly on this in Philippine Savings Bank v. Castillo, to wit:

The unilateral determination and imposition of the increased rates is violative of the
principle of mutuality of contracts under Article 1308 of the Civil Code, which provides
that [t]he contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them. PNB could not also justify the increases it had effected
on the interest rates by citing the fact that the Spouses Manalo had paid the interests
without protest, and had renewed the loan several times. We rule that the CA, citing
Philippine National Bank v. Court of Appeals, rightly concluded that a borrower is not
estopped from assailing the unilateral increase in the interest made by the lender since no
one who receives a proposal to change a contract, to which he is a party, is obliged to
answer the same and said partys silence cannot be construed as an acceptance thereof.
Lastly, the CA observed, and properly so, that the credit agreements had explicitly
provided that prior notice would be necessary before PNB could increase the interest
rates. In failing to notify the Spouses Manalo before imposing the increased rates of
interest, therefore, PNB violated the stipulations of the very contract that it had prepared.
Hence, the varying interest rates imposed by PNB have to be vacated and declared null
and void, and in their place an interest rate of 12% per annum computed from their
default is fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

FIRST DIVISION
BJDC CONSTRUCTION, REPRESENTED BY ITS MANAGER/PROPRIETOR
JANET S. DELA CRUZ, PETITIONER, VS. NENA E. LANUZO, CLAUDETTE E.
LANUZO, JANET E. LANUZO, JOAN BERNABE E. LANUZO, AND RYAN JOSE E.
LANUZO, RESPONDENTS.
G.R. No. 161151, March 24, 2014
BERSAMIN, J.:
FACTS: Respondents are the heirs of a motorcycle driver who died in a nighttime
accident due to the supposed negligence of the construction company then undertaking
re-blocking work on a national highway, respondents are claiming damages on the
ground that the accident happened because the construction company did not provide
adequate lighting on the site. The construction company countered that the fatal accident
was caused by the negligence of the motorcycle rider himself. The trial court decided in
favor of the construction company, but the Court of Appeals (CA) reversed the decision
and applied the doctrine of res ipsa loquitor. Hence, this appeal.
ISSUE: Whether or not the CA was correct in applying the doctrine of res ipso loquitor in
concluding that the construction company liable to herein respondents?
HELD: The doctrine of res ipsa loquitur had no application here.
xxxx
For the doctrine to apply, the following requirements must be shown to exist, namely: (a)
the accident is of a kind that ordinarily does not occur in the absence of someones
negligence; (b) it is caused by an instrumentality within the exclusive control of the
defendant or defendants; and (c) the possibility of contributing conduct that would make
the plaintiff responsible is eliminated.
The Court has warned in Reyes v. Sisters of Mercy Hospital, however, that res ipsa
loquitur is not a rigid or ordinary doctrine to be perfunctorily used but a rule to be
cautiously applied, depending upon the circumstances of each case.

9|Page

Based on the evidence adduced by the Lanuzo heirs, negligence cannot be fairly ascribed
to the company considering that it has shown its installation of the necessary warning
signs and lights in the project site. In that context, the fatal accident was not caused by
any instrumentality within the exclusive control of the company. In contrast, Balbino had
the exclusive control of how he operated and managed his motorcycle. The records
disclose that he himself did not take the necessary precautions. As Zamora declared,
Balbino overtook another motorcycle rider at a fast speed, and in the process could not
avoid hitting a barricade at the site, causing him to be thrown off his motorcycle onto the
newly cemented road. SPO1 Corporals investigation report corroborated Zamoras
declaration. This causation of the fatal injury went uncontroverted by the Lanuzo heirs.
Moreover, by the time of the accident, the project, which had commenced in September
1997, had been going on for more than a month and was already in the completion stage.
Balbino, who had passed there on a daily basis in going to and from his residence and the
school where he then worked as the principal, was thus very familiar with the risks at the
project site. Nor could the Lanuzo heirs justly posit that the illumination was not
adequate, for it cannot be denied that Balbinos motorcycle was equipped with headlights
that would have enabled him at dusk or night time to see the condition of the road ahead.
That the accident still occurred surely indicated that he himself did not exercise the
degree of care expected of him as a prudent motorist.
According to Dr. Abilay, the cause of death of Balbino was the fatal depressed fracture at
the back of his head, an injury that Dr. Abilay opined to be attributable to his head
landing on the cemented road after being thrown off his motorcycle. Considering that it
was shown that Balbino was not wearing any protective head gear or helmet at the time
of the accident, he was guilty of negligence in that respect. Had he worn the protective
head gear or helmet, his untimely death would not have occurred.
The RTC was correct on its conclusions and findings that the company was not negligent
in ensuring safety at the project site. All the established circumstances showed that the
proximate and immediate cause of the death of Balbino was his own negligence. Hence,
the Lanuzo heirs could not recover damages.

10 | P a g e

SECOND DIVISION
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., PETITIONER, VS.
CELESTE M. CHUA, RESPONDENT.
G.R. No. 195031, March 26, 2014
PEREZ, J.:
FACTS: Respondent sued petitioners in the RTC to claim for damages it sustained when
its twenty (20)-feet container van loaded with the personal effects stored in petitioners
depot while awaiting to be check by customs authorities was burned along with others
stored when a fire razed petitioners depot, respondent is contending that the proximate
cause of the fire that engulfed [petitioners] depot was the combustible chemicals stored
threreat; and, that [petitioner], in storing the said flammable chemicals failed to exercise
due diligence in the selection and supervision of its employees and/or of their work. The
trial court rendered a decision ordering herein petitioner to pay respondent actual
damages,moral damages, and attorneys fees on appeal the CA affirmed the RTC.
ISSUE: Whether or not petitioners negligence is the proximate cause of the fire that
destroyed petitioners cargo and if so what type of damages should be awarded?
HELD: With respect to the issue of negligence, there is no doubt that, under the
circumstances of this case, petitioner is liable to respondent for damages on account of
the loss of the contents of her container van. Petitioner itself admitted during the pre-trial
of this case that respondents container van caught fire while stored within its premises.
Absent any justifiable explanation on the part of petitioner on the cause of the fire as
would absolve it from liability, the presumption that there was negligence on its part
comes into play. The situation in this case, therefore, calls for the application of the
doctrine of res ipsa loquitur.
The doctrine of res ipsa loquitur is based on the theory that the defendant either knows
the cause of the accident or has the best opportunity of ascertaining it and the plaintiff,
having no knowledge thereof, is compelled to allege negligence in general terms. In such
instance, the plaintiff relies on proof of the happening of the accident alone to establish
negligence. The principle, furthermore, provides a means by which a plaintiff can hold
liable a defendant who, if innocent, should be able to prove that he exercised due care to
prevent the accident complained of from happening. It is, consequently, the defendants
responsibility to show that there was no negligence on his part. The doctrine, however,
can be invoked when and only when, under the circumstances involved, direct evidence
is absent and not readily available. Here, there was no evidence as to how or why the
fire in the container yard of petitioner started; hence, it was up to petitioner to
satisfactorily prove that it exercised the diligence required to prevent the fire from
happening. This it failed to do. Thus, the trial court and the Court of Appeals acted
appropriately in applying the principle of res ipsa loquitur to the case at bar.
xxxx
Article 2199 of the Civil Code states that [e]xcept as provided by law or by stipulation,
one is entitled to an adequate compensation only for such pecuniary loss suffered by him
as he has duly proved. Such compensation is referred to as actual or compensatory
damages.Actual damages are compensation for an injury that will put the injured party
11 | P a g e

in the position where it was before the injury. They pertain to such injuries or losses that
are actually sustained and susceptible of measurement. Except as provided by law or by
stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is
duly proven. Basic is the rule that to recover actual damages, not only must the amount of
loss be capable of proof; it must also be actually proven with a reasonable degree of
certainty, premised upon competent proof or the best evidence obtainable.
In the case before us, respondent failed to adduce evidence adequate enough to
satisfactorily prove the amount of actual damages claimed.xxxxxxxxxx
In the absence of competent proof on the amount of actual damages suffered, a party is
entitled to receive temperate damages. Article 2224 of the New Civil Code provides that:
Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot, from the nature of the case, be proved with
certainty. The amount thereof is usually left to the sound discretion of the courts but the
same should be reasonable, bearing in mind that temperate damages should be more
than nominal but less than compensatory.
Finally, we delete the award of moral damages and attorneys fees, there being no basis
therefor.
x x x an award of moral damages must be anchored on a clear showing that the party
claiming the same actually experienced mental anguish, besmirched reputation, sleepless
nights, wounded feelings, or similar injury. In the case herein under consideration, the
records are bereft of any proof that respondent in fact suffered moral damages as
contemplated in the afore-quoted provision of the Civil Code.
xxxx
An award of attorneys fees has always been the exception rather than the rule and there
must be some compelling legal reason to bring the case within the exception and justify
the award. In this case, none of the exceptions applies.x x x Contrary to the findings of
the trial court and the Court of Appeals, petitioner did not outrightly deny and unjustly
refuse the claim of respondent for reimbursement of the value of her cargo that was lost
in the fire.
xxxx
Petitioner clearly did not act in bad faith, especially since it explained to respondent the
reasons for the denial of her claim. The lower courts, therefore, erred in finding that
petitioner acted in bad faith, thereby further negating the wisdom of awarding moral
damages and attorneys fees to respondent.

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SECOND DIVISION
SPOUSES JOSE C. ROQUE AND BEATRIZ DELA CRUZ ROQUE, WITH
DECEASED JOSE C. ROQUE REPRESENTED BY HIS SUBSTITUTE HEIR
JOVETTE ROQUE-LIBREA, PETITIONERS, VS. MA. PAMELA P. AGUADO,
FRUCTUOSO C. SABUG, JR., NATIONAL COUNCIL OF CHURCHES IN THE
PHILIPPINES (NCCP), REPRESENTED BY ITS SECRETARY GENERAL
SHARON ROSE JOY RUIZ-DUREMDES, LAND BANK OF THE PHILIPPINES
(LBP), REPRESENTED BY BRANCH MANAGER EVELYN M. MONTERO,
ATTY. MARIO S.P. DIAZ, IN HIS OFFICIAL CAPACITY AS REGISTER OF
DEEDS FOR RIZAL, MORONG BRANCH, AND CECILIO U. PULAN, IN HIS
OFFICIAL CAPACITY AS SHERIFF, OFFICE OF THE CLERK OF COURT,
REGIONAL TRIAL COURT, BINANGONAN, RIZAL, RESPONDENTS.
G.R. No. 193787, April 07, 2014

PERLAS-BERNABE, J.:
FACTS: Petitioners-spouses and the original owners of the then unregistered Lot 18089
executed a Deed of Conditional Sale of Real Property. Fructuoso Sabug, Jr. (Sabug, Jr.),
former Treasurer of the National Council of Churches in the Philippines (NCCP), applied
for a free patent over the entire Lot 18089 and was eventually issued Original Certificate
in his name. Sabug, Jr. and Rivero, in her personal capacity and in representation of
Rivero, et al., executed a Joint Affidavit, acknowledging that the subject portion belongs
to Sps. Roque and expressed their willingness to segregate the same from the entire area
of Lot 18089, however, Sabug, Jr., through a Deed of Absolute Sale sold Lot 18089 to
one Ma. Pamela P. Aguado (Aguado) who obtained a loan from Land Bank of the
Philippines secured by a mortgage over Lot 18089 which was later on foreclosed by the
bank due to Aguados failure to pay. Sps. Roque filed a complaint for reconveyance,
annulment of sale, deed of real estate mortgage, foreclosure, and certificate of sale, and
damages before the RTC against Aguado, Sabug, Jr., NCCP, Land Bank, the Register of
Deeds of Morong, Rizal, and Sheriff Cecilio U. Pulan, seeking to be declared as the true
owners of the subject portion which had been erroneously included in the sale between
Aguado and Sabug, Jr., and, subsequently, the mortgage to Land Bank, both covering Lot
18089 in its entirety.The RTC dismissed the complaint which was affirmed on appeal to
the CA.
ISSUE: Whether or not petitioners are entitled to reconveyance of the disputed land for
having possessed the same since the execution of the 1977 Deed of Conditional Sale,
sufficient for acquisitive prescription to set in in their favor?
HELD: The petition lacks merit
The essence of an action for reconveyance is to seek the transfer of the property which
was wrongfully or erroneously registered in another persons name to its rightful owner
or to one with a better right. Thus, it is incumbent upon the aggrieved party to show that
he has a legal claim on the property superior to that of the registered owner and that the
property has not yet passed to the hands of an innocent purchaser for value.
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X x x the 1977 Deed of Conditional Sale is actually in the nature of a contract to sell and
not one of sale contrary to Sps. Roques belief. In this relation, it has been consistently
ruled that where the seller promises to execute a deed of absolute sale upon the
completion by the buyer of the payment of the purchase price, the contract is only a
contract to sell even if their agreement is denominated as a Deed of Conditional Sale, as
in this case. This treatment stems from the legal characterization of a contract to sell, that
is, a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the subject property exclusively to the prospective buyer upon fulfillment
of the condition agreed upon, such as, the full payment of the purchase price. Elsewise
stated, in a contract to sell, ownership is retained by the vendor and is not to pass to the
vendee until full payment of the purchase price. Explaining the subject matter further, the
Court, in Ursal v. CA, held that:
[I]n contracts to sell the obligation of the seller to sell becomes demandable only upon
the happening of the suspensive condition, that is, the full payment of the purchase price
by the buyer. It is only upon the existence of the contract of sale that the seller becomes
obligated to transfer the ownership of the thing sold to the buyer. Prior to the existence of
the contract of sale, the seller is not obligated to transfer the ownership to the buyer, even
if there is a contract to sell between them.
Here, it is undisputed that Sps. Roque have not paid the final installment of the purchase
price. As such, the condition which would have triggered the parties obligation to enter
into and thereby perfect a contract of sale in order to effectively transfer the ownership of
the subject portion from the sellers (i.e., Rivero et al.) to the buyers (Sps. Roque) cannot
be deemed to have been fulfilled. Consequently, the latter cannot validly claim ownership
over the subject portion even if they had made an initial payment and even took
possession of the same.

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THIRD DIVISION
IGLESIA FILIPINA INDEPENDIENTE, PETITIONER, VS. HEIRS OF
BERNARDINO TAEZA, RESPONDENTS.
G.R. No. 179597, February 03, 2014
PERALTA, J.:
FACTS: The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly
registered religious corporation, was the owner of a parcel of land which was sold by its
former Supreme Bishop to the defendant Bernardino Taeza, a complaint for the
annulment of the Deed of Sale with Mortgage was filed by the Parish Council of
Tuguegarao, Cagayan, which was dismissed on the ground that the plaintiffs therein
lacked the personality to file the case. After the expiration of office of the former Bishop
a complaint for annulment of sale was again filed by the plaintiff-appellee IFI, through its
new Supreme Bishop, against the defendant-appellant, with the Regional Trial Court of
Tuguegarao City, the court a quo rendered judgment in favor of the plaintiff-appellee. It
held that the deed of sale executed is null and void. On appeal the CA reversed the RTC
decision ruling that petitioner, being a corporation sole, validly transferred ownership
over the land in question through its Supreme Bishop, who was at the time the
administrator of all properties and the official representative of the church. It further held
that [t]he authority of the then Supreme Bishop to enter into a contract and represent the
plaintiff-appellee cannot be assailed, as there are no provisions in its constitution and
canons giving the said authority to any other person or entity.
ISSUE: Whether or not the then Supreme Bishop Rev. Ga is authorized to enter into a
contract of sale in behalf of petitioner thus validly transferring ownership to the
defendant?
HELD: The Court finds it erroneous for the CA to ignore the fact that the laymen's
committee objected to the sale of the lot in question. The Canons require that ALL the
church entities listed in Article IV (a) thereof should give its approval to the transaction.
Thus, when the Supreme Bishop executed the contract of sale of petitioner's lot despite
the opposition made by the layme's committee, he acted beyond his powers.
This case clearly falls under the category of unenforceable contracts mentioned in Article
1403, paragraph (1) of the Civil Code, which provides, thus: Art. 1403. The following
contracts are unenforceable, unless they are ratified:(1) Those entered into in the name of
another person by one who has been given no authority or legal representation, or who
has acted beyond his powers.
In the present case, however, respondents' predecessor-in-interest, had already obtained a
transfer certificate of title in his name over the property in question. Since the person
supposedly transferring ownership was not authorized to do so, the property had
evidently been acquired by mistake. In Vda. de Esconde v. Court of Appeals, the Court
affirmed the trial court's ruling that the applicable provision of law in such cases is
Article 1456 of the Civil Code which states that [i]f property is acquired through
mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an
15 | P a g e

implied trust for the benefit of the person from whom the property comes.x x x x A
constructive trust having been constituted by law between respondents as trustees and
petitioner as beneficiary of the subject property, may respondents acquire ownership over
the said property? The Court held in the same case of Aznar, that unlike in express trusts
and resulting implied trusts where a trustee cannot acquire by prescription any property
entrusted to him unless he repudiates the trust, in constructive implied trusts, the trustee
may acquire the property through prescription even if he does not repudiate the
relationship. It is then incumbent upon the beneficiary to bring an action for
reconveyance before prescription bars the same.xxxx An action for reconveyance based
on an implied or constructive trust must perforce prescribe in ten years and not otherwise.

DIVISION
DR. FERNANDO P. SOLIDUM, PETITIONER, VS. PEOPLE OF THE PHILIPPINES,
G.R. No. 192123, March 10, 2014
BERSAMIN, J.:
FACTS: Gerald Albert Gercayo was born on with an imperforate anus when he was
three years old he was admitted at the Ospital ng Maynila for a pull-through operation.
Petitioner an anesthesiologists was one of the Physician who administered the opretion,
during the operation, Gerald experienced bradycardia, and went into a coma. His coma
lasted for two weeks, but he regained consciousness only after a month. He could no
longer see, hear or move. The victims mother filed a complaint for reckless imprudence
resulting in serious physical injuries with the City Prosecutors Office of Manila against
the attending physicians. Upon a finding of probable cause, the City Prosecutors Office
filed an information solely against Dr. Solidum. The RTC rendered its judgment finding
Dr. Solidum guilty beyond reasonable doubt of reckless imprudence resulting to serious
physical injuries on appeal to the CA the CA affirmed the conviction of Dr. Solidum,
pertinently stating and ruling that the case appears to be a textbook example of res ipsa
loquitur.
ISSUE: Whether or not the doctrine of res ipsa loquitur was applicable hence making Dr.
Solidum liable for criminal negligence?
HELD: The appeal is meritorious.
Applicability of the
Doctrine of Res Ipsa Loquitur
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Res ipsa loquitur is literally translated as the thing or the transaction speaks for itself.
xxxx
In order to allow resort to the doctrine, therefore, the following essential requisites must
first be satisfied, to wit: (1) the accident was of a kind that does not ordinarily occur
unless someone is negligent; (2) the instrumentality or agency that caused the injury was
under the exclusive control of the person charged; and (3) the injury suffered must not
have been due to any voluntary action or contribution of the person injured.
The Court considers the application here of the doctrine of res ipsa loquitur inappropriate.
Although it should be conceded without difficulty that the second and third elements
were present, considering that the anesthetic agent and the instruments were exclusively
within the control of Dr. Solidum, and that the patient, being then unconscious during the
operation, could not have been guilty of contributory negligence, the first element was
undeniably wanting. Luz delivered Gerald to the care, custody and control of his
physicians for a pull-through operation. Except for the imperforate anus, Gerald was
then of sound body and mind at the time of his submission to the physicians. Yet, he
experienced bradycardia during the operation, causing loss of his senses and rendering
him immobile. Hypoxia, or the insufficiency of oxygen supply to the brain that caused
the slowing of the heart rate, scientifically termed as bradycardia, would not ordinarily
occur in the process of a pull-through operation, or during the administration of
anesthesia to the patient, but such fact alone did not prove that the negligence of any of
his attending physicians, including the anesthesiologists, had caused the injury. In fact,
the anesthesiologists attending to him had sensed in the course of the operation that the
lack of oxygen could have been triggered by the vago-vagal reflex, prompting them to
administer atropine to the patient.
xxxxx
The existence of the probability about other factors causing the hypoxia has engendered
in the mind of the Court a reasonable doubt as to Dr. Solidums guilt, and moves us to
acquit him of the crime of reckless imprudence resulting to serious physical injuries.

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SECOND DIVISION

PEBLIA ALFARO AND THE HEIRS OF PROSPEROUS ALFARO, NAMELY:

MARY ANN PEARL ALFARO & ROUSLIA ALFARO, PETITIONERS, VS.
SPOUSES EDITHO AND HERA DUMALAGAN, SPOUSES CRISPIN AND
EDITHA DALOGDOG, ET. AL., RESPONDENTS.
G.R. No. 186622, January 22, 2014
PEREZ, J.:
FACTS: Petitioners bought a parcel ol land from its registered owner Bagano on June 14
1995 which they immediately caused the title to be transferred in their name on June 20,
1995.Respondents who are occupants of a portion of said property brought this case in
the RTC of Cebu contending to be lawful owners of said portion based on a notarized
Deed of Absolute Sale dated 6 December 1993.Meanwhile a case was filed by Bagano to
nullify the sale they entered into with petitioners which reached the SC, the SC upheld
the validity of the sale. The RTC in its decision ruled against respondents and dismissed
the case, on appeal the appellate court declared the title of petitioners as Null and Void
insofar as it included the portion claimed by respondents. The CA rejected the claim of
petitioners that they are registrants in good faith by reason of the expired adverse claim
annotated?
ISSUE: Whether or not the expired adverse claim on the title constituted as a constructive
notice to petitioners thus making them buyers bad faith?
HELD: Section 70 of P.D. 1529 provides x x x xx
The above provision would seem to restrict the effectivity of adverse claims to 30 days.
However, the same should not be read separately, but should be read in relation to the
subsequent sentence, which reads:
After the lapse of said period, the annotation of adverse claim may be cancelled upon
filing of a verified petition therefore by the party in interest.
The law, taken together, simply means that the cancellation of the adverse claim is still
necessary to render it ineffective, otherwise, the inscription will remain annotated and
shall continue as a lien upon the property; for if the adverse claim already ceased to be
effective upon the lapse of the said period, its cancellation is no longer necessary and the
process of cancellation would be a useless ceremony.
Therefore, petitioners cannot claim good faith on the basis of the supposed ineffectivity
of the annotated adverse claims as the same have not been cancelled at the time of
purchase. Assuming arguendo that the annotated adverse claims expired on 23 March
1995, petitioners still cannot claim good faith as they were fully aware that there were
occupants in the subject property other than the seller. Worse, they were also fully aware
that an occupant in the subject property bought the same; that aside from the nipa hut,
18 | P a g e

there were also other structures in the subject property, one of which was built by
Epifanio Pesarillo.
Xxxx
Article 1544 of the Civil Code provides x x x x
The aforesaid provision clearly states that the rule on double or multiple sales applies
only when all the purchasers are in good faith. In detail, Art. 1544 requires that before the
second buyer can obtain priority over the first, he must show that he acted in good faith
throughout, i.e., in ignorance of the first sale and of the first buyers rights, from the time
of acquisition until the title is transferred to him by registration or failing registration, by
delivery of possession.
A purchaser in good faith is one who buys the property of another without notice that
some other person has a right to, or an 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 some other
persons claim or interest in the property. The petitioners are not such purchaser.
Petitioners had prior knowledge of the previous sales by installment of portions of the
property to several purchasers. Moreover, petitioners had prior knowledge of
respondents possession over the subject property. Hence, the rule on double sale is
inapplicable in the case at bar. As correctly held by the appellate court, petitioners prior
registration of the subject property, with prior knowledge of respondents claim of
ownership and possession, cannot confer ownership or better right over the subject
property.

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SECOND DIVISION
[ G.R. No. 176439, January 15, 2014 ]
THE PRESIDENT OF THE CHURCH OF JESUS CHRIST OF LATTER DAY
SAINTS, PETITIONER, VS. BTL CONSTRUCTION CORPORATION,
RESPONDENT.
[G.R. No. 176718]
BTL CONSTRUCTION CORPORATION, PETITIONER, VS. THE PRESIDENT
OF THE MANILA MISSION OF THE CHURCH OF JESUS CHRIST OF
LATTER DAY SAINTS AND BPI-MS ) INSURANCE CORPORATION,
RESPONDENTS.
PERLAS-BERNABE, J.:
FACTS: The case is a consolidation of two cases which respondent and petitioner
elevated to the CA. Church of Jesus Christ of latter day Saints (COJCOLDS) and BTL
entered into a Construction Contract for the latters construction of the formers
meetinghouse facility for a contract price set at P12,680,000.00 (contract price), and the
construction period from January 15 to September 15, 2000 which BTL did not complete.
BTL filed a complaint against COJCOLDS before the CIAC, claiming a total amount of
P28,716,775.40 part of which was the construction of additional works for the concrete
retaining wall, the CIAC decision was both appealed by the parties to the CA which
courts decision with regards to the claim of BTL on the alleged additional works it
performed?
ISSUE: Whether or not the construction of the concrete retaining wall was an additional
work which did not perform part of the original contract, thus entitling BTL for an
additional compensation?
HELD:BTLs claim is untenable.
Article 1724 of the Civil Code governs the recovery of additional costs in contracts for a
stipulated price (such as fixed lump-sum contracts), as well as the increase in price for
any additional work due to a subsequent change in the original plans and specifications.
Based on the same provision, such added costs can only be allowed upon the: (a) written
authority from the developer or project owner ordering or allowing the written changes in
work; and (b) written agreement of parties with regard to the increase in price or cost due
to the change in work or design modification. Case law instructs that compliance with
these two requisites is a condition precedent for recovery. The absence of one or the other
20 | P a g e

condition thus bars the claim of additional costs. Notably, neither the authority for the
changes made nor the additional price to be paid therefor may be proved by any evidence
other than the written authority and agreement as above-mentioned.
In these cases, records reveal that there is neither a written authorization nor agreement
covering the additional price to be paid for the concrete retaining wall. This confirms the
CAs finding that the construction of the perimeter wall of the Medina Project, which is
included in the original plans and specifications for the same, already subsumes the
construction of the concrete retaining wall.Accordingly, COJCOLDS should not pay the
amount of P804,460.89 claimed by BTL as additional cost for the same.

FIRST DIVISION
METROPOLITAN FABRICS, INC. AND ENRIQUE ANG, PETITIONERS, VS.
PROSPERITY CREDIT RESOURCES INC., DOMINGO ANG AND CALEB ANG,
RESPONDENTS.
G.R. No. 154390, March 17, 2014

BERSAMIN, J.:
FACTS: Metropolitan Fabrics, Inc. (MFI) obtained a loan from Prosperity Credit
Resources Inc. (PCRI), in order to secure the payment MFI executed a deed of Real
Estate Mortgage over its property which was later on foreclosed by respondents for
failure of petitioners to settle their account. Vicky Ang the daughter of petitioner who is
already deceased brought this action to declare the real estate mortgage and the
foreclosure by respondents null and void; and ordering the reconveyance of the
foreclosed properties on the ground that fraud was employed by respondents in the
execution of the Real Estate Mortgage and that exorbitant interest rates was impose by
herein respondents. The RTC rendered a decision in favor of petitioners. On appeal, the
CA reversed the decision on the ground of prescription.
ISSUE: Whether or not a Deed of Real Estate Mortgage duly acknowledge before a
notary public may be annulled on the sole testimony of a witness alleging that it was
executed by means of Fraud?
HELD: Petitioners insist that respondents committed fraud when the officers of
Metropolitan were made to sign the deed of real estate mortgage in blank.
According to Article 1338 of the Civil Code, there is fraud when one of the contracting
parties, through insidious words or machinations, induces the other to enter into the
contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate
consent, must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is
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 cannot be presumed but must be proved by clear and convincing evidence.
Whoever alleges fraud affecting a transaction must substantiate his allegation, because a
person is always presumed to take ordinary care of his concerns, and private transactions
21 | P a g e

are similarly presumed to have been fair and regular. To be remembered is that mere
allegation is definitely not evidence; hence, it must be proved by sufficient evidence.
Did petitioners clearly and convincingly establish their allegation of fraud in the
execution of the deed of real estate mortgage?
The contested deed of real estate mortgage was a public document by virtue of its being
acknowledged before notary public Atty. Noemi Ferrer. As a notarized document, the
deed carried the evidentiary weight conferred upon it with respect to its due execution,
and had in its favor the presumption of regularity. Hence, it was admissible in evidence
without further proof of its authenticity, and was entitled to full faith and credit upon its
face. To rebut its authenticity and genuineness, the contrary evidence must be clear,
convincing and more than merely preponderant; otherwise, the deed should be upheld.
Petitioners undeniably failed to adduce clear and convincing evidence against the
genuineness and authenticity of the deed. Instead, their actuations even demonstrated that
their transaction with respondents had been regular and at arms-length, thereby belying
the intervention of fraud.
xxxxx
To resolve the issue of prescription, it is decisive to determine if the mortgage was void
or merely voidable.
As the records show, petitioners really agreed to mortgage their properties as security for
their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the
TCTs of the properties subject of the mortgage to respondents.Consequently, petitioners
contention of absence of consent had no firm moorings. It remained unproved. Xxxx
Where the consent was given through fraud, the contract was voidable, not void ab initio.
This is because a voidable or annullable contract is existent, valid and binding, although
it can be annulled due to want of capacity or because of the vitiated consent of one of the
parties.
With the contract being voidable, petitioners action to annul the real estate mortgage
already prescribed.

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SECOND DIVISION
NICANORA G. BUCTON (DECEASED), SUBSTITUTED BY REQUILDA B.
YRAY, PETITIONER, VS. RURAL BANK OF EL SALVADOR, INC., MISAMIS
ORIENTAL, AND REYNALDO CUYONG, RESPONDENTS, VS. ERLINDA
CONCEPCION AND HER HUSBAND AND AGNES BUCTON LUGOD, THIRD
PARTY DEFENDANTS.
G.R. No. 179625, February 24, 2014
DEL CASTILLO, J.:
FACTS: Petitioner Nicanora G. Bucton filed with the Regional Trial Court (RTC) of
Cagayan de Oro a case for Annulment of Mortgage, Foreclosure, and Special Power of
Attorney (SPA) against Erlinda Concepcion (Concepcion) and respondents Rural Bank of
El Salvador, Misamis Oriental, and Sheriff Reynaldo Cuyong. Petitioner alleged that she
is the owner of a parcel of land which was mortgage by respondent Concepcion using a
forged SPA to co-respondent Rural Bank of El Salvador which was foreclosed by the
Sherriff without observing the requirements of the law. The RTC rendered a decision in
favor of petitioner declaring that the SPA is forged. On appeal the CA reversed the RTCs
ruling it declared that although the Promissory Note and the Real Estate Mortgage did not
indicate that Concepcion was signing for and on behalf of her principal, petitioner is
estopped from denying liability since it was her negligence in handing over her title to
Concepcion that caused the loss.[58] The CA emphasized that under the Principle of
Equitable Estoppel, where one or two innocent persons must suffer a loss, he who by his
conduct made the loss possible must bear it.
ISSUE: Whether or not The Real Estate Mortgage constituted by virtue of an alleged
forged SPA by the agent be binding upon his principal when the agent entered it in her
personal capacity?
HELD: The Real Estate Mortgage was entered into by Concepcion in her own personal
capacity.
As early as the case of Philippine Sugar Estates Development Co. v. Poizat, we already
ruled that in order to bind the principal by a deed executed by an agent, the deed must
upon its face purport to be made, signed and sealed in the name of the principal. In other
words, the mere fact that the agent was authorized to mortgage the property is not
sufficient to bind the principal, unless the deed was executed and signed by the agent for
and on behalf of his principal. This ruling was adhered to and reiterated with consistency
23 | P a g e

in the cases of Rural Bank of Bombon (Camarines Sur), Inc. v. Court of Appeals, Gozun
v. Mercado, and Far East Bank and Trust Company (Now Bank of the Philippine Island)
v. Cayetano.
xxxxx
Similarly, in this case, the authorized agent failed to indicate in the mortgage that she was
acting for and on behalf of her principal. The Real Estate Mortgage, explicitly shows on
its face, that it was signed by Concepcion in her own name and in her own personal
capacity. In fact, there is nothing in the document to show that she was acting or signing
as an agent of petitioner. Thus, consistent with the law on agency and established
jurisprudence, petitioner cannot be bound by the acts of Concepcion.
In light of the foregoing, there is no need to delve on the issues of forgery of the SPA and
the nullity of the foreclosure sale. For even if the SPA was valid, the Real Estate
Mortgage would still not bind petitioner as it was signed by Concepcion in her personal
capacity and not as an agent of petitioner. Simply put, the Real Estate Mortgage is void
and unenforceable against petitioner.

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FIRST DIVISION
PHILIPPINE NATIONAL BANK, PETITIONER, VS. TERESITA TAN DEE,
ANTIPOLO PROPERTIES, INC., (NOW PRIME EAST PROPERTIES, INC.)
AND AFP-RSBS, INC., RESPONDENTS.
G.R. No. 182128, February 19, 2014
REYES, J.:
FACTS: Respondent Dee bought from respondent Prime East Properties Inc (PEPI) on an
installment basis a residential lot which PEPI subsequently assigned its rights to
respondent Armed Forces of the Philippines-Retirement and Separation Benefits System,
Inc. (AFP-RSBS), which included the property purchased by Dee. Thereafter, PEPI
obtained a loan from petitioner Philippine National Bank (petitioner), secured by a
mortgage over several properties, including Dees property. After Dees full payment of
the purchase price, a deed of sale was executed by respondents PEPI and AFP-RSBS in
Dees favor. Consequently, Dee sought from the petitioner the delivery of the owners
duplicate title over the property, to no avail. Thus, she filed with the HLURB a complaint
for specific performance to compel delivery of the title, the HLURB ruled in favor of Dee
which was respectively affirmed by the OP and CA.
ISSUE: Whether or not a petitioner not being a privy to the contract of sale entered into
with the buyer may be compelled to release the title which is a part of the property
mortgage by the Subdivision developer?
HELD: The petitioner is correct in arguing that it is not obliged to perform any of the
undertaking of respondent PEPI and AFP-RSBS in its transactions with Dee because it is
not a privy thereto. X x x
The petitioner, however, is not being tasked to undertake the obligations of PEPI and
AFP-RSBS. In this case, there are two phases involved in the transactions between
respondents PEPI and Dee the first phase is the contract to sell, which eventually
became the second phase, the absolute sale, after Dees full payment of the purchase
price. In a contract of sale, the parties obligations are plain and simple. The law obliges
the vendor to transfer the ownership of and to deliver the thing that is the object of sale.
On the other hand, the principal obligation of a vendee is to pay the full purchase price at
the agreed time. Based on the final contract of sale between them, the obligation of
PEPI, as owners and vendors of xxxx is to transfer the ownership of and to deliver to
Dee, who, in turn, shall pay, and has in fact paid, the full purchase price of the property.
There is nothing in the decision of the HLURB, as affirmed by the OP and the CA, which
25 | P a g e

shows that the petitioner is being ordered to assume the obligation of any of the
respondents. There is also nothing in the HLURB decision, which validates the
petitioners claim that the mortgage has been nullified. The order of cancellation/release
of the mortgage is simply a consequence of Dees full payment of the purchase price, as
mandated by Section 25 of P.D. No. 957 x x x
It must be stressed that the mortgage contract between PEPI and the petitioner is merely
an accessory contract to the principal three-year loan takeout from the petitioner by PEPI
for its expansion project. It need not be belaboured that [a] mortgage is an accessory
undertaking to secure the fulfillment of a principal obligation, and it does not affect the
ownership of the property as it is nothing more than a lien thereon serving as security for
a debt.
Note that at the time PEPI mortgaged the property to the petitioner, the prevailing
contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet
to fully pay the purchase price of the property. On this point, PEPI was acting fully well
within its right when it mortgaged the property to the petitioner, for in a contract to sell,
ownership is retained by the seller and is not to pass until full payment of the purchase
price. In other words, at the time of the mortgage, PEPI was still the owner of the
property.
Xxx
Nevertheless, despite the apparent validity of the mortgage between the petitioner and
PEPI, the former is still bound to respect the transactions between respondents PEPI and
Dee. The petitioner was well aware that the properties mortgaged by PEPI were also the
subject of existing contracts to sell with other buyers. While it may be that the petitioner
is protected by Act No. 3135, as amended, it cannot claim any superior right as against
the installment buyers. This is because the contract between the respondents is protected
by P.D. No. 957, a social justice measure enacted primarily to protect innocent lot buyers.
[The Bank] should have considered that it was dealing with a property subject of a real
estate development project. A reasonable person, particularly a financial institution x x x,
should have been aware that, to finance the project, funds other than those obtained from
the loan could have been used to serve the purpose, albeit partially. Hence, there was a
need to verify whether any part of the property was already intended to be the subject of
any other contract involving buyers or potential buyers. In granting the loan, [the Bank]
should not have been content merely with a clean title, considering the presence of
circumstances indicating the need for a thorough investigation of the existence of buyers
x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent
mortgagee. x x x
More so in this case where the contract to sell has already ripened into a contract of
absolute sale.

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SECOND DIVISION
PEBLIA ALFARO AND THE HEIRS OF PROSPEROUS ALFARO, NAMELY:
MARY ANN PEARL ALFARO & ROUSLIA ALFARO, PETITIONERS, VS.
SPOUSES EDITHO AND HERA DUMALAGAN, SPOUSES CRISPIN AND
EDITHA DALOGDOG, ET. AL., RESPONDENTS.
[ G.R. No. 186622, January 22, 2014 ]

PEREZ, J.:
For review on certiorari is the Decision[1] of the Court of Appeals dated 20 May 2008,
which reversed and set aside the Regional Trial Court Decision[2] dated 7 August 2006
in Civil Case No. CEB-27400 for Annulment of Title, Preliminary Injunction with
Temporary Restraining Order and Damages.
The facts as culled from the records are as follows
FACTS: Petitioners bought a parcel ol land from its registered owner Bagano on June 14
1995 which they immediately caused the title to be transferred in their name on June 20,
1995.Respondents who are occupants of a portion of said property brought this case in
the RTC of Cebu contending to be lawful owners of said portion based on a notarized
Deed of Absolute Sale dated 6 December 1993.Meanwhile a case was filed by Bagano to
nullify the sale they entered into with petitioners which reached the SC, the SC upheld
the validity of the sale. The RTC in its decision ruled against respondents and dismissed
the case, on appeal the appellate court declared the title of petitioners as Null and Void
insofar as it included the portion claimed by respondents. The CA rejected the claim of
petitioners that they are registrants in good faith by reason of the expired adverse claim
annotated?
ISSUE: Whether or not the expired adverse claim on the title constituted as a contructive
notice to petitioners thus making them buyers id bad faith?
HELD:Section 70 of P.D. 1529 provides x x x xx
The above provision would seem to restrict the effectivity of adverse claims to 30 days.
However, the same should not be read separately, but should be read in relation to the
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subsequent sentence, which reads:

After the lapse of said period, the annotation of adverse claim may be cancelled upon
filing of a verified petition therefore by the party in interest.
The law, taken together, simply means that the cancellation of the adverse claim is still
necessary to render it ineffective, otherwise, the inscription will remain annotated and
shall continue as a lien upon the property; for if the adverse claim already ceased to be
effective upon the lapse of the said period, its cancellation is no longer necessary and the
process of cancellation would be a useless ceremony.
Therefore, petitioners cannot claim good faith on the basis of the supposed ineffectivity
of the annotated adverse claims as the same have not been cancelled at the time of
purchase. Assuming arguendo that the annotated adverse claims expired on 23 March
1995, petitioners still cannot claim good faith as they were fully aware that there were
occupants in the subject property other than the seller. Worse, they were also fully aware
that an occupant in the subject property bought the same; that aside from the nipa hut,
there were also other structures in the subject property, one of which was built by
Epifanio Pesarillo.
Xxxx
Article 1544 of the Civil Code provides x x x x
The aforesaid provision clearly states that the rule on double or multiple sales applies
only when all the purchasers are in good faith. In detail, Art. 1544 requires that before the
second buyer can obtain priority over the first, he must show that he acted in good faith
throughout, i.e., in ignorance of the first sale and of the first buyers rights, from the time
of acquisition until the title is transferred to him by registration or failing registration, by
delivery of possession.
A purchaser in good faith is one who buys the property of another without notice that
some other person has a right to, or an 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 some other
persons claim or interest in the property.[32] The petitioners are not such purchaser.
Petitioners had prior knowledge of the previous sales by installment of portions of the
property to several purchasers. Moreover, petitioners had prior knowledge of
respondents possession over the subject property. Hence, the rule on double sale is
inapplicable in the case at bar. As correctly held by the appellate court, petitioners prior
registration of the subject property, with prior knowledge of respondents claim of
ownership and possession, cannot confer ownership or better right over the subject
property.

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SECOND DIVISION
[ G.R. No. 171590, February 12, 2014 ]
BIGNAY EX-IM PHILIPPINES, INC., PETITIONER, VS. UNION BANK OF THE
PHILIPPINES, RESPONDENT.
[G.R. No. 171598]
UNION BANK OF THE PHILIPPINES, PETITIONER, VS. BIGNAY EX-IM
PHILIPPINES, INC., RESPONDENT.
DEL CASTILLO, J.:
FACTS: Bignay bought a property from Unionbank with the help of the banks VP,
contradicting allegations are raised by both parties with regards to the letter offer wherein
it shows Bignay's knowledge with regards to the pending suit concerning such property
and her waiver of the warranties of a seller, she however denies preapring such letter and
alleges that it was the banks VP who solely made it. This suit was instituted by the buyer
when she was evicted to the property she bought for 4M where she constructed a building
worth 20 M.
ISSUE:Whether or not Unionbank is liable for the warranties of a seller in the lot it sold
to Bignay?
HELD:Indeed, this Court is convinced from an examination of the evidence and by the
concurring opinions of the courts below that Bignay purchased the property without
knowledge of the pending Civil Case No. Q-52702. Union Bank is therefore answerable
for its express undertaking under the December 20, 1989 deed of sale to defend its title
to the Parcel/s of Land with improvement thereon against the claims of any person
whatsoever. By this warranty, Union Bank represented to Bignay that it had title to the
property, and by assuming the obligation to defend such title, it promised to do so at least
in good faith and with sufficient prudence, if not to the best of its abilities.
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The record reveals, however, that Union Bank was grossly negligent in the handling and
prosecution of Civil Case No. Q-52702. Its appeal of the December 12, 1991 Decision in
said case was dismissed by the CA for failure to file the required appellants brief. Next,
the ensuing Petition for Review on Certiorari filed with this Court was likewise denied
due to late filing and payment of legal fees. Finally, the bank sought the annulment of the
December 12, 1991 judgment, yet again, the CA dismissed the petition for its failure to
comply with Supreme Court Circular No. 28-91. As a result, the December 12, 1991
Decision became final and executory, and Bignay was evicted from the property. Such
negligence in the handling of the case is far from coincidental; it is decidedly glaring, and
amounts to bad faith. [N]egligence may be occasionally so gross as to amount to malice
[or bad faith].[38] Indeed, in culpa contractual or breach of contract, gross negligence of
a party amounting to bad faith is a ground for the recovery of damages by the injured
party.[39]
Eviction shall take place whenever by a final judgment based on a right prior to the sale
or an act imputable to the vendor, the vendee is deprived of the whole or of a part of the
thing purchased.[40] In case eviction occurs, the vendee shall have the right to demand of
the vendor, among others, the return of the value which the thing sold had at the time of
the eviction, be it greater or less than the price of the sale; the expenses of the contract, if
the vendee has paid them; and the damages and interests, and ornamental expenses, if the
sale was made in bad faith.
SECOND DIVISION
[ G.R. No. 189477, February 26, 2014 ]
HOMEOWNERS SAVINGS AND LOAN BANK, PETITIONER-APPELLANT, VS.
ASUNCION P. FELONIA AND LYDIA C. DE GUZMAN, REPRESENTED BY
MARIBEL FRIAS, RESPONDENTS-APPELLEES.
MARIE MICHELLE P. DELGADO, REGISTER OF DEEDS OF LAS PIAS
CITY AND RHANDOLFO B. AMANSEC, IN HIS CAPACITY AS CLERK OF
COURT EX-OFFICIO SHERIFF, OFFICE OF THE CLERK OF COURT, LAS
PIAS CITY, RESPONDENTS-DEFENDANTS.
PEREZ, J.:
FACTS: Felonia and De Guzman were owners of parcel of land which they mortgage to
Delgado to secure the payment of a loan but a Deed of Absolute Sale with an Option to
Repurchase was executed. An action for reformation of instrument was filed but during
its pendency Delgado filed in the RTC of Las Pias and was able to obtain a new
certificate of title which he mortgaged to HLSB and was duly recorded, HLSB foreclosed
the subject property and later consolidated ownership in its favor. An notice of Lis
Pendens was caused to be annotated which the CA on appeal rendered a decision
annulling the Las Pias RTC decision holding Felonia and De Guzman as the absolute
owners of the property. Felonia and De Guzman instituted an action for Nullity of
Mortgage and Foreclosure Sale, Annulment of Titles of Delgado and HSLB, and finally,
Reconveyance of Possession and Ownership of the subject property which was granted
by the RTC and affirmed by the CA. Recognizing the validity of the restoration of the
title HLSB pray that the decision of the CA be modified to the effect that the mortgage
lien in favor of petitioner HSLB annotated and be [ordered] carried over.
ISSUE: Whether or not HSLB is a purchaser in good faith who has right over the
disputed property?

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HELD: A purchaser in good faith is defined as one who buys a property without notice
that some other person has a right to, or interest in, the property and pays full and fair
price at the time of purchase or before he has notice of the claim or interest of other
persons in the property.
When a prospective buyer is faced with facts and circumstances as to arouse his
suspicion, he must take precautionary steps to qualify as a purchaser in good faith. In
Spouses Mathay v. CA, we determined the duty of a prospective buyer:
Although it is a recognized principle that a person dealing on a registered land need not
go beyond its certificate of title, it is also a firmly settled rule that where there are
circumstances which would put a party on guard and prompt him to investigate or inspect
the property being sold to him, such as the presence of occupants/tenants thereon, it is of
course, expected from the purchaser of a valued piece of land to inquire first into the
status or nature of possession of the occupants, i.e., whether or not the occupants possess
the land en concepto de dueo, in the concept of the owner. As is the common practice in
the real estate industry, an ocular inspection of the premises involved is a safeguard a
cautious and prudent purchaser usually takes. Should he find out that the land he intends
to buy is occupied by anybody else other than the seller who, as in this case, is not in
actual possession, it would then be incumbent upon the purchaser to verify the extent of
the occupants possessory rights. The failure of a prospective buyer to take such
precautionary steps would mean negligence on his part and would thereby preclude him
from claiming or invoking the rights of a purchaser in good faith.
In the case at bar, HSLB utterly failed to take the necessary precautions. At the time the
subject property was mortgaged, there was yet no annotated Notice of Lis Pendens.
However, at the time HSLB purchased the subject property, the Notice of Lis Pendens
was already annotated on the title.

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FIRST DIVISION
HECTOR L. UY, PETITIONER, VS. VIRGINIA G. FULE; HEIRS OF THE LATE
AMADO A. GARCIA, NAMELY: AIDA C. GARCIA, LOURDES G. SANTAYANA,
AMANDO C. GARCIA, JR., MANUEL C. GARCIA, CARLOS C. GARCIA, AND
CRISTINA G. MARALIT; HEIRS OF THE LATE GLORIA GARCIA
ENCARNACION, NAMELY: MARVIC G. ENCARNACION, IBARRA G.
ENCARNACION, MORETO G. ENCARNACION, JR., AND CARINA G.
ENCARNACION; HEIRS OF THE LATE PABLO GARCIA, NAMELY:
BERMEDIO GARCIA, CRISTETA GARCIA, NONORATO GARCIA, VICENTE
GARCIA, PABLO GARCIA, JR., AND TERESITA GARCIA; HEIRS OF THE
LATE ELISA G. HEMEDES, NAMELY: ROEL G. HEMEDES, ELISA G.
HEMEDES, ROGELIO G. HEMEDES, ANDORA G. HEMEDES, AND FLORA G.
HEMEDES, RESPONDENTS.
G.R. No. 164961, June 30, 2014
BERSAMIN, J.:
FACTS: Respondents are the heirs of Conrado Garcia who owns a vast tract of land
registered in his name upon his death his property was subdivided. Upon an inspextion
conducted by the DAR said property was erroneously considered as an untitled land and
was soon granted to farm beneficiaries. Petitioner bought the property he claims from one
of the beneficiaries granted by the Government.The respondents filed a complaint for
cancellation of titles, quieting of title, recovery of possession, and damages against the
action by the Government officers including the title issued. The RTC resolved in favor
of the respondents which on appeal was affirmed by the CA.
ISSUE: Whether or not a vendee of a parcel of land from a farmer beneficiary already
titled and erroneously granted by the Government be considered an innocent purchaser
for value who has a better right?
HELD: We affirm the decision of the CA.
We stated at the start that in determining whether or not a buyer of property is a purchaser
32 | P a g e

in good faith, he must show that he has bought the property without notice that some
other person had a right to, or interest in, such property, and he should pay a full and fair
price for the same at the time of his purchase, or before he had notice of the claim or
interest of some other persons in the property. He must believe that the person from
whom he receives the property was the owner and could convey title to the property, for
he cannot close his eyes to facts that should put a reasonable man on his guard and still
claim he acted in good faith.
xxxx
To prove good faith, a buyer of registered and titled land need only show that he relied on
the face of the title to the property. He need not prove that he made further inquiry for he
is not obliged to explore beyond the four corners of the title. Such degree of proof of
good faith, however, is sufficient only when the following conditions concur: first, the
seller is the registered owner of the land; second, the latter is in possession thereof; and
third, at the time of the sale, the buyer was not aware of any claim or interest of some
other person in the property, or of any defect or restriction in the title of the seller or in
his capacity to convey title to the property.
Absent one or two of the foregoing conditions, then the law itself puts the buyer on notice
and obliges the latter to exercise a higher degree of diligence by scrutinizing the
certificate of title and examining all factual circumstances in order to determine the
sellers title and capacity to transfer any interest in the property. Under such
circumstance, it was no longer sufficient for said buyer to merely show that he had
relied on the face of the title; he must now also show that he had exercised
reasonable precaution by inquiring beyond the title. Failure to exercise such degree of
precaution makes him a buyer in bad faith.
An examination of the deed of sale executed between Isabel Ronda, et al. and the
petitioner respecting the portions covered by TCT No. 31120 and TCT No. 31121
indicates that the TCTs were issued only on August 17, 1998 but the deed of sale was
executed on July 31, 1998. While it is true, as the petitioner argues, that succession
occurs from the moment of death of the decedent pursuant to Article 777 of the Civil
Code, his argument did not extend to whether or not he was a buyer in good faith, but
only to whether or not, if at all, Isabel Ronda, et al., as the heirs of Mariano Ronda, held
the right to transfer ownership over their predecessors property. The argument did not
also address whether or not the transfer to the petitioner was valid.
Evidently, the petitioner entered into the deed of sale without having been able to inspect
TCT No. 31120 and TCT No. 31121 by virtue of such TCTs being not yet in existence at
that time. If at all, it was OCT No. 9852 and OCT No. 9853 that were available at the
time of the execution of the deed of sale, and such OCTs were presumably inspected by
petitioner before he signed the deed of sale. It is notable that said OCTs categorically
stated that they were entered pursuant to an emancipation patent of the Ministry of
Agrarian Reform pursuant to the Operation Land Transfer (OLT) Program of the
government. Furthermore, said OCTs plainly recited the following prohibition: it shall
not be transferred except by hereditary succession or to the Government in accordance
with the provisions of Presidential Decree No. 27, Code of Agrarian Reforms of the
Philippines and other existing laws and regulations.
The foregoing circumstances negated the third element of good faith cited in Bautista v.
Silva, i.e., that at the time of sale, the buyer was not aware of any claim or interest of
some other person in the property, or of any defect or restriction in the title of the seller
or in his capacity to convey title to the property. As we have ruled in Bautista v.
Silva, the absence of the third condition put the petitioner on notice and obliged him to
exercise a higher degree of diligence by scrutinizing the certificates of title and
examining all factual circumstances in order to determine the sellers title and capacity to
33 | P a g e

transfer any interest in the lots. Consequently, it is not sufficient for him to insist that he
relied on the face of the certificates of title, for he must further show that he exercised
reasonable precaution by inquiring beyond the certificates of title. Failure to exercise
such degree of precaution rendered him a buyer in bad faith. It is a well-settled rule that
a purchaser cannot close his eyes to facts which should put a reasonable man upon his
guard, and then claim that he acted in good faith under the belief that there was no defect
in the title of the vendor.
The petitioner was not an innocent purchaser for value; hence, he cannot be awarded the
disputed land.

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THIRD DIVISION
ARCO PULP AND PAPER CO., INC. AND CANDIDA A. SANTOS,
PETITIONERS, VS. DAN T. LIM, DOING BUSINESS UNDER THE
NAME AND STYLE OF QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, RESPONDENT.
G.R. No. 206806, June 25, 2014
LEONEN, J.:
FACTS: Respondent delivered scrap papers to Arco Pulp and Paper Company, Inc. (Arco Pulp
and Paper) through its Chief Executive Officer and President, Candida A. Santos wherein
the parties agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of the
raw materials or deliver to him their finished products of equivalent value, upon delivery Arco
Pulp issued a posdated check which was dishonored when presented for payment. On the same day

when respondent delivered the scrap papers, Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement where Arco Pulp and Paper bound themselves to
deliver their finished products to Megapack Container Corporation, owned by Eric Sy, for
his account. According to the memorandum, the raw materials would be supplied by Dan
T. Lim, through his company, Quality Paper and Plastic Products. A complaint for sum of
money was instituted by respondent which was dismissed by the RTC holding that when
Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement, novation
took place, which extinguished Arco Pulp and Papers obligation to Dan T. Lim. The CA
reversed the decision and ruled the existence of an alternative obligation.
ISSUE: (1) Whether or not the CA was correct on ruling that an alternative obligation
existed between the parties?
(2) Whether or not the memorandum entered into by Arco Pulp and Paper and Eric Sy
which respondent did not participate novated the contract between respondent and
petitioner?

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HELD: The petition is denied.

(1) The rule on alternative obligations is governed by Article 1199 of the Civil Code x x x
In an alternative obligation, there is more than one object, and the fulfillment of one is
sufficient, determined by the choice of the debtor who generally has the right of
election.[32] The right of election is extinguished when the party who may exercise that
option categorically and unequivocally makes his or her choice known.The choice of the
debtor must also be communicated to the creditor who must receive notice of it since:
The object of this notice is to give the creditor . . . opportunity to express his consent, or
to impugn the election made by the debtor, and only after said notice shall the election
take legal effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court. x x x x x x x
The appellate court, therefore, correctly identified the obligation between the parties as an
alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw
materials from respondent, would either pay him the price of the raw materials or, in the
alternative, deliver to him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment
for the scrap papers, they exercised their option to pay the price. Respondents receipt of
the check and his subsequent act of depositing it constituted his notice of petitioner Arco
Pulp and Papers option to pay.
This choice was also shown by the terms of the memorandum of agreement, which was
executed on the same day. The memorandum declared in clear terms that the delivery of
petitioner Arco Pulp and Papers finished products would be to a third person, thereby
extinguishing the option to deliver the finished products of equivalent value to
respondent.
(2) The trial court erroneously ruled that the execution of the memorandum of agreement
constituted a novation of the contract between the parties. When petitioner Arco Pulp and
Paper opted instead to deliver the finished products to a third person, it did not novate the
original obligation between the parties. x x x
Because novation requires that it be clear and unequivocal, it is never presumed, thus:
In the civil law setting, novatio is literally construed as to make new. So it is deeply
rooted in the Roman Law jurisprudence, the principle novatio non praesumitur
that novation is never presumed. At bottom, for novation to be a jural reality,
its animus must be ever present, debitum pro debito basically extinguishing the old
obligation for the new one.
There is nothing in the memorandum of agreement that states that with its execution, the
obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. It also
does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as
respondents debtor. It merely shows that petitioner Arco Pulp and Paper opted to deliver
the finished products to a third person instead.
The consent of the creditor must also be secured for the novation to be valid: Novation
must be expressly consented to. Moreover, the conflicting intention and acts of the
parties underscore the absence of any express disclosure or circumstances with which to
deduce a clear and unequivocal intent by the parties to novate the old agreement. In this
case, respondent was not privy to the memorandum of agreement, thus, his conformity to
the contract need not be secured. This is clear from the first line of the memorandum,
which states:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs.
Candida A. Santos and Mr. Eric Sy. . . .[41]

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If the memorandum of agreement was intended to novate the original agreement between
the parties, respondent must have first agreed to the substitution of Eric Sy as his new
debtor. The memorandum of agreement must also state in clear and unequivocal terms
that it has replaced the original obligation of petitioner Arco Pulp and Paper to
respondent. Neither of these circumstances is present in this case.
Petitioner Arco Pulp and Papers act of tendering partial payment to respondent also
conflicts with their alleged intent to pass on their obligation to Eric Sy. When respondent
sent his letter of demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it showed
that the former neither acknowledged nor consented to the latter as his new debtor. These
acts, when taken together, clearly show that novation did not take place.
Since there was no novation, petitioner Arco Pulp and Papers obligation to respondent
remains valid and existing. Petitioner Arco Pulp and Paper, therefore, must still pay
respondent the full amount of P7,220,968.31.

SECOND DIVISION
MARIANO C. MENDOZA AND ELVIRA LIM, PETITIONERS, VS. SPOUSES
LEONORA J. GOMEZ AND GABRIEL V. GOMEZ RESPONDENTS.
G.R. No. 160110, June 18, 2014
PEREZ, J.:
FACTS: Petitioner Mendoza was the driver of a bus registered under the name of
petitioner Lim when it hit a Isuzu elf truck being driven by respondent Perez and owned
by co respondent Leonora. Investigation report revealed that the bus was the one in fault
that why an information for reckless imprudence resulting in damage to property and
multiple physical injuries was filed against bus driver and the registered owner,
petitioners in their defense raised the issue that the actual owner of the bus was SPO1
Cirilo Enriquez (Enriquez), who had the bus attached with Mayamy Transportation
Company (Mayamy Transport) under the so-called kabit system. Respondents then
impleaded both Lim and Enriquez. The RTC found Mendoza liable for direct personal
negligence under Article 2176 of the Civil Code, and it also found Lim vicariously liable
under Article 2180 of the same Code which was affirmed by the CA.
ISSUE: Whether or not the registered owner of a motor vehicle may be held vicariously
liable instead of the real owner who attached it under the Kabit system?
HELD: Having settled the fact of Mendozas negligence, then, the next question that
confronts us is who may be held liable. According to Manresa, liability for personal acts
and omissions is founded on that indisputable principle of justice recognized by all
legislations that when a person by his act or omission causes damage or prejudice to
another, a juridical relation is created by virtue of which the injured person acquires a

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right to be indemnified and the person causing the damage is charged with the
corresponding duty of repairing the damage. The reason for this is found in the obvious
truth that man should subordinate his acts to the precepts of prudence and if he fails to
observe them and causes damage to another, he must repair the damage. His negligence
having caused the damage, Mendoza is certainly liable to repair said damage.
Additionally, Mendozas employer may also be held liable under the doctrine of vicarious
liability or imputed negligence. Under such doctrine, a person who has not committed the
act or omission which caused damage or injury to another may nevertheless be held
civilly liable to the latter either directly or subsidiarily under certain circumstances. In our
jurisdiction, vicarious liability or imputed negligence is embodied in Article 2180 of the
Civil Code and the basis for damages in the action under said article is the direct and
primary negligence of the employer in the selection or supervision, or both, of his
employee.
In the case at bar, who is deemed as Mendozas employer? Is it Enriquez, the actual
owner of the bus or Lim, the registered owner of the bus?
In Filcar Transport Services v. Espinas, we held that the registered owner is deemed the
employer of the negligent driver, and is thus vicariously liable under Article 2176, in
relation to Article 2180, of the Civil Code. Citing Equitable Leasing Corporation v.
Suyom, the Court ruled that in so far as third persons are concerned, the registered owner
of the motor vehicle is the employer of the negligent driver, and the actual employer is
considered merely as an agent of such owner. Thus, whether there is an employeremployee relationship between the registered owner and the driver is irrelevant in
determining the liability of the registered owner who the law holds primarily and directly
responsible for any accident, injury or death caused by the operation of the vehicle in the
streets and highways.
xxxx
Generally, when an injury is caused by the negligence of a servant or employee, there
instantly arises a presumption of law that there was negligence on the part of the master
or employer either in the selection of the servant or employee (culpa in eligiendo) or in
the supervision over him after the selection (culpa vigilando), or both. The presumption
is juris tantum and not juris et de jure; consequently, it may be rebutted. Accordingly, the
general rule is that if the employer shows to the satisfaction of the court that in the
selection and supervision of his employee he has exercised the care and diligence of a
good father of a family, the presumption is overcome and he is relieved of liability.
However, with the enactment of the motor vehicle registration law, the defenses available
under Article 2180 of the Civil Code - that the employee acts beyond the scope of his
assigned task or that it exercised the due diligence of a good father of a family to prevent
damage are no longer available to the registered owner of the motor vehicle, because
the motor vehicle registration law, to a certain extent, modified Article 2180.
As such, there can be no other conclusion but to hold Lim vicariously liable with
Mendoza.
This does not mean, however, that Lim is left without any recourse against Enriquez and
Mendoza. Under the civil law principle of unjust enrichment, the registered owner of the
motor vehicle has a right to be indemnified by the actual employer of the driver; and
under Article 2181 of the Civil Code, whoever pays for the damage caused by his
dependents or employees may recover from the latter what he has paid or delivered in
satisfaction of the claim.

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