SURVEY OF 2012 SC DECISIONS IN

CIVIL LAW
By: Dean ED VINCENT S. ALBANO
ARTICLE 8, NCC
Decisions of the SC, not NLRC form part of the legal system.
In International Management Services/Manilyn Pascual v. Logarta, G.R. No. 163657, April 18, 2012, Peralta, J,
the SC had the occasion to say that although Art. 8, NCC recognizes judicial decisions, applying or interpreting statutes
as part of the legal system of the country, such level of recognition is not afforded to administrative decisions. (Phil.
Bank of Communications v. CIR, G.R. No. 112024, January 28, 1999, 302 SCRA 241. It does not apply to a decision of the
NLRC.
MARRIAGE
Judgment declaring a spouse presumptively dead is immediately final and executory; remedy is Rule 65,
not Rule 45.
Q Yolanda Granada and Cyrus Granada got married in 1991. In 1994, Cyrus went to Taiwan to seek
employment but since then, he never communicated with Yolanda. After nine (9) years of waiting, she
filed a Petition to have Cyrus declared presumptively dead which the RTC granted. The Republic of the
Philippines appealed from the decision contending that Yolanda failed to prove earnest efforts to locate
Cyrus and thus, failed to prove well-founded belief that he was already dead. Yolanda moved to dismiss
the appeal contending that the Petition for Declaration of Presumptive Death based under Art. 41, Family
Code was a summary judicial proceedings in which the judgment is immediately final and executory and,
thus, not appealable. The CA granted the motion, hence, the Republic filed a petition under Rule 45,
where the basic issue is whether the CA erred in dismissing the appeal on the ground that the RTC
decision is immediately final and executory hence, not subject of ordinary appeal. Decide.
Answer: The CA is correct. The RTC decision is immediately final and executory and not subject to ordinary appeal.
A marriage contracted by any person during the subsistence of a previous marriage shall be null and void, unless
before the celebration of the subsequent marriage, the prior spouse had been absent for four consecutive years and the
spouse present has a well-founded belief that the absent spouse was already dead. In case of disappearance where
there is danger of death under the circumstances set forth in the provisions of Article 391 of the Civil Code, an absence

of only two years shall be sufficient.

For the purpose of contracting the subsequent marriage under the preceding paragraph the spouse present must
institute a summary proceeding as provided in this Code for the declaration of presumptive death of the absentee,
without prejudice to the effect of reappearance of the absent spouse.
Clearly, a petition for declaration of presumptive death of an absent spouse for the purpose of contracting a subsequent
marriage under Article 41 of the Family Code is a summary proceeding as provided for under the Family Code.
Further, Title XI of the Family Code is entitled Summary Judicial Proceedings in the Family Law. Subsumed thereunder
are Articles 238 and 247, which provide:
Art. 238. Until modified by the Supreme Court, the procedural rules in this Title shall apply in all cases provided for in
this Code requiring summary court proceedings. Such cases shall be decided in an expeditious manner without regard
to technical rules.
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xxx

xxx

Art. 247. The judgment of the court shall be immediately final and executory.
Further, Article 253 of the Family Code reads:
ART. 253. The foregoing rules in Chapters 2 and 3 hereof shall likewise govern summary proceedings filed under
Articles 41, 51, 69, 73, 96, 124 and 217, insofar as they are applicable.
Taken together, Articles 41, 238, 247 and 253 of the Family Code provide that since a petition for declaration of
presumptive death is a summary proceeding, the judgment of the court therein shall be immediately final and
executory.
In Republic v. Bermudez-Lorino, 489 Phil. 761 (2005) the Republic likewise appealed the CAs affirmation of the RTCs
grant of respondents Petition for Declaration of Presumptive Death of her absent spouse. The Court therein held that it
was an error for the Republic to file a Notice of Appeal when the latter elevated the matter to the CA, to wit:
In Summary Judicial Proceedings under the Family Code, there is no reglementary period within which to perfect an
appeal, precisely because judgments rendered thereunder, by express provision of Section 247, Family Code, supra, are
immediately final and executory.
1. xxx

xxx

xxx

But, if only to set the records straight and for the future guidance of the bench and the bar, let it be stated that the
RTCs decision dated November 7, 2001, was immediately final and executory upon notice to the parties. It was

erroneous for the OSG to file a notice of appeal, and for the RTC to give due course thereto. The Court of Appeals
acquired no jurisdiction over the case, and should have dismissed the appeal outright on that ground.
In Republic v. Bermudez-Lorino, It was opined that what the OSG should have filed was a petition for certiorari under
Rule 65, not a petition for review under Rule 45.
Petition for declaration of presumptive death is not a special proceeding; but a summary one.
In the present case, the Republic argued that Bermudez-Lorino has been superseded by the subsequent Decision of the
Court in Republic v. Jomoc, 497 Phil. 528 (2005).
In Jomoc, the RTC granted respondents Petition for Declaration of Presumptive Death of her absent husband for the
purpose of remarriage. Petitioner Republic appealed the RTC Decision by filing a Notice of Appeal. The trial court
disapproved the Notice of Appeal on the ground that, under
the Rules of Court, a record on appeal is required to be filed when appealing special proceedings cases. The CA affirmed
the RTC ruling. In reversing the CA, it was clarified that while an action for declaration of presumptive death or absence
under Rule 72, Section 1(m), expressly falls under the category of special proceedings, a petition for declaration of
presumptive death under Article 41 of the Family Code is a summary proceeding, as provided for by Article 238 of the
same Code. Since its purpose was to enable her to contract a subsequent valid marriage, petitioners action was a
summary proceeding based on Article 41 of the Family Code, rather than a special proceeding under Rule 72 of the
Rules of Court. Considering that this action was not a special proceeding, petitioner was not required to file a record on
appeal when it appealed the RTC Decision to the CA.
Republic v. Jomoc did not supersede our ruling in Republic v. Bermudez-Lorino. Jomoc did not expound on the
characteristics of a summary proceeding under the Family Code. In contrast, the Court in Bermudez-Lorino expressly
stated that its ruling on the impropriety of an ordinary appeal as a vehicle for questioning the trial courts Decision in a
summary proceeding for declaration of presumptive death under Article 41 of the Family Code was intended to set the
records straight and for the future guidance of the bench and the bar.
At any rate, four years after Jomoc, this Court settled the rule regarding appeal of judgments rendered in summary
proceedings under the Family Code when it ruled in Republic v. Tango, G.R. No. 161062, July 31, 2009, 594 SCRA 560:
This case presents an opportunity for us to settle the rule on appeal of judgments rendered in summary proceedings
under the Family Code and accordingly, refine our previous decisions thereon.
Article 238 of the Family Code, under Title XI: SUMMARY JUDICIAL PROCEEDINGS IN THE FAMILY LAW, establishes the
rules that govern summary court proceedings in the Family Code:
ART. 238. Until modified by the Supreme Court, the procedural rules in this Title shall apply in all cases provided for in

this Code requiring summary court proceedings. Such cases shall be decided in an expeditious manner without regard
to technical rules.
In turn, Article 253 of the Family Code specifies the cases covered by the rules in chapters two and three of the same
title. It states:
ART. 253. The foregoing rules in Chapters 2 and 3 hereof shall likewise govern summary proceedings filed under Articles
41, 51, 69, 73, 96, 124 and 217, insofar as they are applicable. (Emphasis supplied.)
In plain text, Article 247 in Chapter 2 of the same title reads:
ART 247. The judgment of the court shall be immediately final and executory.
By express provision of law, the judgment of the court in a summary proceeding shall be immediately final and
executory. As a matter of course, it follows that no appeal can be had of the trial court's judgment in a summary
proceeding for the declaration of presumptive death of an absent spouse under Article 41 of the Family Code. It goes
without saying, however, that an aggrieved party may file a petition for certiorari to question abuse of discretion
amounting to lack of jurisdiction. Such petition should be filed in the Court of Appeals in accordance with the Doctrine of
Hierarchy of Courts. To be sure, even if the Court's original jurisdiction to issue a writ of certiorari is concurrent with the
RTCs and the Court of Appeals in certain cases, such concurrence does not sanction an unrestricted freedom of choice
of court forum. From the decision of the Court of Appeals, the losing party may then file a petition for review on
certiorari under Rule 45 of the Rules of Court with the Supreme Court. This is because the errors which the court may
commit in the exercise of jurisdiction are merely errors of judgment which are the proper subject of an appeal.
In sum, under Article 41 of the Family Code, the losing party in a summary proceeding for the declaration of
presumptive death may file a petition for certiorari with the CA on the ground that, in rendering judgment thereon, the
trial court committed grave abuse of discretion amounting to lack of jurisdiction. From the decision of the CA, the
aggrieved party may elevate the matter to this Court via a petition for review on certiorari under Rule 45 of the Rules of
Court.
Evidently then, the CA did not commit any error in dismissing the Republics Notice of Appeal on the ground that the
RTC judgment on the Petition for Declaration of Presumptive Death of respondents spouse was immediately final and
executory and, hence, not subject to ordinary appeal. (Rep. v. Yolanda C. Granada, G.R. No. 187512, July 13, 2012,
Sereno, J).
On whether the CA seriously erred in affirming the RTCs grant of the Petition for Declaration of
Presumptive Death under Article 41 of the Family Code based on the evidence that respondent had
presented

The Republic assailed the RTCs grant of the Petition for Declaration of Presumptive Death of the absent spouse of
respondent on the ground that she had not adduced the evidence required to establish a well-founded belief that her
absent spouse was already dead, as expressly required by Article 41 of the Family Code. Petitioner cites Republic v.
Nolasco, G.R. No. 94053, March 17, 1993, 220 SCRA 20; United States v. Biasbas, 25 Phil. 71 (1913) and Republic v.
Court of Appeals and Alegro, 513 Phil. 391 (2005) as authorities on the subject.
In Nolasco, petitioner Republic sought the reversal of the CAs affirmation of the RTCs grant of a Petition for Declaration
of Presumptive Death of his absent spouse, a British subject who left their home in the Philippines soon after giving
birth to their son while respondent was on board a vessel working as a seafarer. The Republic sought the reversal of the
ruling on the ground that respondent was not able to establish his well-founded belief that the absentee is already
dead, as required by Article 41 of the Family Code. In ruling thereon, the Court recognized that this provision imposes
more stringent requirements than Article 83 of the Civil Code. The Civil Code provision merely requires either that there
be no news that the absentee is still alive; or that the absentee is generally considered to be dead and is believed to be
so by the spouse present, or is presumed dead under Articles 390 and 391 of the Civil Code. In comparison, the Family
Code provision prescribes a well-founded belief that the absentee is already dead before a petition for declaration of
presumptive death can be granted. The four requisites for the declaration of presumptive death under the Family Code
are as follows:
1. That the absent spouse has been missing for four consecutive years, or two consecutive years if the
disappearance occurred where there is danger of death under the circumstances laid down in Article 391, Civil
Code;
2. That the present spouse wishes to remarry;
3. That the present spouse has a well-founded belief that the absentee is dead; and
4. That the present spouse files a summary proceeding for the declaration of presumptive death of the absentee.
In evaluating whether the present spouse has been able to prove the existence of a well-founded belief that the
absent spouse is already dead, the Court in Nolasco cited United States v. Biasbas, which it found to be instructive as to
the diligence required in searching for a missing spouse.
In Biasbas, the Court held that defendant Biasbas failed to exercise due diligence in ascertaining the whereabouts of his
first wife, considering his admission that that he only had a suspicion that she was dead, and that the only basis of that
suspicion was the fact of her absence.
Similarly, in Republic v. Court of Appeals and Alegro, petitioner Republic sought the reversal of the CA ruling affirming
the RTCs grant of the Petition for Declaration of Presumptive Death of the absent spouse on the ground that the
respondent therein had not been able to prove a well-founded belief that his spouse was already dead. The Court

reversed the CA, granted the Petition, and provided the following criteria for determining the existence of a wellfounded belief under Article 41 of the Family Code:
For the purpose of contracting the subsequent marriage under the preceding paragraph, the spouse present must
institute a summary proceeding as provided in this Code for the declaration of presumptive death of the absentee,
without prejudice to the effect of reappearance of the absent spouse.
The spouse present is, thus, burdened to prove that his spouse has been absent and that he has a well-founded belief
that the absent spouse is already dead before the present spouse may contract a subsequent marriage. The law does
not define what is meant by a well-grounded belief. Cuello Callon writes that es menester que su creencia sea firme se
funde en motivos racionales.
Belief is a state of the mind or condition prompting the doing of an overt act. It may be proved by direct evidence or
circumstantial evidence which may tend, even in a slight degree, to elucidate the inquiry or assist to a determination
probably founded in truth. Any fact or circumstance relating to the character, habits, conditions, attachments,
prosperity and objects of life which usually control the conduct of men, and are the motives of their actions, was, so far
as it tends to explain or characterize their disappearance or throw light on their intentions, competence [sic] evidence
on the ultimate question of his death.
The belief of the present spouse must be the result of proper and honest to goodness inquiries and efforts to ascertain
the whereabouts of the absent spouse and whether the absent spouse is still alive or is already dead. Whether or not
the spouse present acted on a well-founded belief of death of the absent spouse depends upon the inquiries to be
drawn from a great many circumstances occurring before and after the disappearance of the absent spouse and the
nature and extent of the inquiries made by present spouse.
Applying the foregoing standards to the present case, the Republic pointed out that respondent Yolanda did not initiate
a diligent search to locate her absent husband. While her brother testified to having inquired about the whereabouts of
Cyrus from the latters relatives, these relatives were not presented to corroborate Diosdados testimony. In short,
respondent was not diligent in her search for her husband. Petitioner argues that if she were, she would have sought
information from the Taiwanese Consular Office or assistance from other government agencies in Taiwan or the
Philippines. She could have also utilized mass media for this end, but she did not. Worse, she failed to explain these
omissions.
The SC held that the Republics arguments are well-taken, but denied the Petition against the RTC ruling on the issue of
whether respondent was able to prove her well-founded belief that her absent spouse was already dead prior to her
filing of the Petition to declare him presumptively dead is already final and can no longer be modified or reversed.
Indeed, [n]othing is more settled in law than that when a judgment becomes final and executory, it becomes
immutable and unalterable. The same may no longer be modified in any respect, even if the modification is meant to

correct what is perceived to be an erroneous conclusion of fact or law. (Rep. v. Yolanda Granada, G.R. No. 187512, June
13, 2012, Sereno, J).
ARTICLE 36
Annabelle Mendoza v. Rep., et al., G.R. No. 157649, November 12, 2012, Bersamin, J, reiterates the basic rule in
declaration of nullity of marriage on the ground of psychological incapacity that psychological incapacity must
characterized by its being grave, incurable and existing prior to the time of the marriage. The totality of evidence rule
to prove psychological incapacity is sufficient. It refers to no less than mental, not physical incapacity that causes a
party to be incognitive of the basic marital covenants that must concomitantly be assumed and discharged by the
parties to the marriage expressed in Article 68, F.C.
In the same vein, the SC in Rep. v. CA & Eduardo Quintos, Jr., G.R. No. 159594, November 12, 2012, gossiping
with neighbors, leaving the house without the consent of the spouse, refusal to do household chores, gambling are not
pieces of evidence of psychological incapacity. Proving that a spouse failed to meet his or her responsibilities and duties
as a married person is not enough, it is essential that he or she must be shown to be incapable of doing so due to same
psychological illness. It should refer to mental incapacity that causes a party to be truly incognitive of the basic marital
covenants under Art. 68, F.C.
PROPERTY RELATIONSHIP
To be presumed conjugal properties, there must be proof of acquisition during the marriage.
Q Antonio, a widow obtained a loan from A.G. Aguila & Sons, Co. (Aguila) secured by a Deed of Real
Estate Mortgage over a property. She likewise executed a Deed of Absolute Sale over the same property
in favor of Gemma who registered the same and obtained a title. Later on, Gemma obtained a loan from
FEBTC-BPI but failed to pay the loan, hence, the bank foreclosed the mortgage over the said property. The
bank was the highest bidder and consolidated its ownership. In the meantime, Antonia and her son filed a
complaint for annulment of the Deed of Sale in favor of Gemma contending that the same is void as the
property formed part of her conjugal partnership with her husband who was already dead when the deed
of sale was executed. It was also alleged that the sale was simulated and derogatory to her sons
hereditary right. The complaint was amended to implead the bank which alleged that it was a mortgagee
in good faith. The RTC declared the sale to Gemma void holding that it was a conjugal property of the
husband and wife, hence, the sale is void, but on appeal, the CA reversed the decision, holding that the
property was an exclusive property of Antonia for failure to prove that the same was acquired during
their marriage. It further ruled that the bank was a mortgagee in good faith and for value. Is the CAs
ruling correct? Why?
Answer: Yes. Pursuant to Article 160 of the Civil Code of the Philippines, all property of the marriage is presumed to

belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the
wife. Although it is not necessary to prove that the property was acquired with funds of the partnership, (Tan v. CA, G.R.
No. 120594, June 10, 1997, 273 SCRA 229) proof of acquisition during the marriage is an essential condition for the
operation of the presumption in favor of the conjugal partnership. (Manongsong v. Estimo, 452 Phil. 862 (2003). In the
case of Francisco vs. Court of Appeals, 359 Phil. 519 (1998), it was ruled that:
Article 160 of the New Civil Code provides that "all property of the marriage is presumed to belong to the conjugal
partnership, unless it be proved that it pertains exclusively to the husband or to the wife." However, the party who
invokes this presumption must first prove that the property in controversy was acquired during the marriage. Proof of
acquisition during the coverture is a condition sine qua non for the operation of the presumption in favor of the conjugal
partnership. The party who asserts this presumption must first prove said time element. Needless to say, the
presumption refers only to the property acquired during the marriage and does not operate when there is no showing as
to when property alleged to be conjugal was acquired. Moreover, this presumption in favor of conjugality is rebuttable,
but only with strong, clear and convincing evidence; there must be a strict proof of exclusive ownership of one of the
spouses.
As the parties invoking the presumption of conjugality under Article 160 of the Civil Code, the Dela Peas did not even
come close to proving that the subject property was acquired during the marriage but it was only the bare and
uncorroborated assertion that the property was purchased when she was already married. The record is bereft of any
evidence from which the actual date of acquisition of the realty can be ascertained. Considering that the presumption of
conjugality does not operate if there is no showing of when the property alleged to be conjugal was acquired, (Go v.
Yamane, G.R. No. 160762, May 3, 2006, 489 SCRA 107), the CA cannot be faulted for ruling that the realty in litigation
was Antonias exclusive property.
Phrase married to is merely descriptive of the status of the owner.
Not having established the time of acquisition of the property, the Dela Peas insist that the registration thereof
in the name of Antonia R. Dela Pea, of legal age, Filipino, married to Antegono A. Dela Pea should have already
sufficiently established its conjugal nature. Confronted with the same issue in the case Ruiz vs. Court of Appeals, 449
Phil. 419 (2003) it was ruled however, that the phrase married to is merely descriptive of the civil status of the wife
and cannot be interpreted to mean that the husband is also a registered owner. Because it is likewise possible that the
property was acquired by the wife while she was still single and registered only after her marriage, neither would
registration thereof in said manner constitute proof that the same was acquired during the marriage and, for said
reason, to be presumed conjugal in nature. Since there is no showing as to when the property in question was
acquired, the fact that the title is in the name of the wife alone is determinative of its nature as
paraphernal, i.e., belonging exclusively to said spouse. (Antonia dela Pea, et al. v. Gemma Reneilyn Avila, et al., G.R.
No. 187490, February 8, 2012, Perez, J).

FAMILY HOME
Family home is exempt from attachment, levy or forced sale.
Q In 1984, while Araceli and Ernesto de Mesa were not yet married, they jointly acquired a parcel of land
where a house was constructed which they occupied as a family home when they got married. In 1988,
Araceli obtained a loan from Clandino and mortgaged the property to secure the payment of the
obligation. She issued a check to pay the loan but it was dishonored, hence, a BP22 case was filed against
her where she was acquitted but held her civilly liable. A writ of execution was issued and the property
was levied upon and sold to satisfy the obligation. Claudio was the highest bidder and a title was issued
in his name but leased the property to Araceli and Ernesto but for failure to pay the rents, a complaint for
ejectment was filed. In their answer, they contended that Claudion is not the owner because the property
being a family home cannot be levied upon as it is exempt from execution. In the meantime, they filed a
complaint to declare the title of Claudio void alleging that the property was their family home which is
exempt from execution, which was dismissed by the RTC which the CA affirmed holding that the
exemption of a family home from execution attachment or forced sale is not automatic and should be
raised and prove prior to the execution, forced sale or attachment. The spouses did not however, raise the
same. Is the ruling of the lower courts correct? Why?
Answer: Yes. In the earlier case of Ramos v. Pangilinan, G.R. No. 185920, July 20, 2010, 625 SCRA 181, the rules
relative to exemption of family homes from execution were laid down, thus:
For the family home to be exempt from execution, distinction must be made as to what law applies based on when it
was constituted and what requirements must be complied with by the judgment debtor or his successors claiming such
privilege. Hence, two sets of rules are applicable.
If the family home was constructed before the effectivity of the Family Code or before August 3, 1988, then it must have
been constituted either judicially or extra-judicially as provided under Articles 225, 229-231 and 233 of the Civil Code.
Judicial constitution of the family home requires the filing of a verified petition before the courts and the registration of
the courts order with the Registry of Deeds of the area where the property is located. Meanwhile, extrajudicial
constitution is governed by Articles 240 to 242 of the Civil Code and involves the execution of a public instrument which
must also be registered with the Registry of Property. Failure to comply with either one of these two modes of
constitution will bar a judgment debtor from availing of the privilege.
On the other hand, for family homes constructed after the effectivity of the Family Code on August 3, 1988, there is no
need to constitute extrajudicially or judicially, and the exemption is effective from the time it was constituted and lasts
as long as any of its beneficiaries under Art. 154 actually resides therein. Moreover, the family home should belong to
the absolute community or conjugal partnership, or if exclusively by one spouse, its constitution must have been with

consent of the other, and its value must not exceed certain amounts depending upon the area where it is located.
Further, the debts incurred for which the exemption does not apply as provided under Art. 155 for which the family
home is made answerable must have been incurred after August 3, 1988.
In the earlier case of Kelley, Jr. v. Planters Products, Inc., G.R. No. 172263, July 9, 2005, 557 SCRA 499, the SC
stressed that:
Under the Family Code, there is no need to constitute the family home judicially or extrajudicially. All family homes
constructed after the effectivity of the Family Code (August 3, 1988) are constituted as such by operation of law. All
existing family residences as of August 3, 1988 are considered family homes and are prospectively entitled to the
benefits accorded to a family home under the Family Code.
The foregoing rules on constitution of family homes, for purposes of exemption from execution, could be
summarized as follows:
First, family residences constructed before the effectivity of the Family Code or before August 3, 1988 must be
constituted as a family home either judicially or extrajudicially in accordance with the provisions of the Civil Code in
order to be exempt from execution;
Second, family residences constructed after the effectivity of the Family Code on August 3, 1988, are
automatically deemed to be family homes and thus exempt from execution from the time it was constituted and lasts as
long as any of its beneficiaries actually resides therein;
Third, family residences which were not judicially or extrajudicially constituted as a family home prior to the
effectivity of the Family Code, but were existing thereafter, are considered as family homes by operation of law and are
prospectively entitled to the benefits accorded to a family home under the Family Code.
Here, the subject property became a family residence sometime in January 1987. There was no showing,
however, that the same was judicially or extrajudicially constituted as a family home in accordance with the provisions
of the Civil Code. Still, when the Family Code took effect on August 3, 1988, the subject property became a family home
by operation of law and was thus prospectively exempt from execution. The petitioners were thus correct in asserting
that the subject property was a family home. (Sps. Araceli & Ernesto de Mesa v. Sps. Claudio & Rufina Acero, et al., G.R.
No. 185064, January 16, 2012, Reyes, J).
The family homes exemption from execution must be set up and proved to the Sheriff before the sale of
the property at public auction.
Q The spouses did not assert and prove that their house and lot was a family home prior to the public
auction conducted by the sheriff. State the effect of such failure. Explain.

Answer: Their failure to invoke and prove that the house and lot was a family home is a waiver of such defense or
right. In Honrado v. CA,512 Phil. 657 (2005), it was said that at no other time can the status of a residential house as a
family home can be set up and proved and its exemption from execution be claimed but before the sale thereof at
public auction:
While it is true that the family home is constituted on a house and lot from the time it is occupied as a family
residence and is exempt from execution or forced sale under Article 153 of the Family Code, such claim for exemption
should be set up and proved to the Sheriff before the sale of the property at public auction. Failure to do so would estop
the party from later claiming the exemption. As the Court ruled in Gomez v. Gealone:
Although the Rules of Court does not prescribe the period within which to claim the exemption, the rule is,
nevertheless, well-settled that the right of exemption is a personal privilege granted to the judgment debtor and as
such, it must be claimed not by the sheriff, but by the debtor himself at the time of the levy or within a reasonable
period thereafter;
In the absence of express provision it has variously held that claim (for exemption) must be made at the time
of the levy if the debtor is present, that it must be made within a reasonable time, or promptly, or before the creditor
has taken any step involving further costs, or before advertisement of sale, or at any time before sale, or within a
reasonable time before the sale, or before the sale has commenced, but as to the last there is contrary authority.
In the light of the facts above summarized, it is self-evident that appellants did not assert their claim of exemption
within a reasonable time. Certainly, reasonable time, for purposes of the law on exemption, does not mean a time after
the expiration of the one-year period provided for in Section 30 of Rule 39 of the Rules of Court for judgment debtors to
redeem the property sold on execution, otherwise it would render nugatory final bills of sale on execution and defeat
the very purpose of execution to put an end to litigation. We said before, and We repeat it now, that litigation must
end and terminate sometime and somewhere, and it is essential to an effective administration of justice that, one a
judgment has become final, the winning party be not, through a mere subterfuge, deprived of the fruits of the verdict.
We now rule that claims for exemption from execution of properties under Section 12 of Rule 39 of the Rules of Court
must be presented before its sale on execution by the Sheriff.
In Sps. Versola v. Court of Appeals, 529 Phil. 377 (2006) it was likewise said:
Under the cited provision, a family home is deemed constituted on a house and lot from the time it is occupied
as a family residence; there is no need to constituted the same judicially or extrajudicially.
The settled rule is that the right to exemption or forced sale under Article 153 of the Family Code is a personal
privilege granted to the judgment debtor and as such, it must be claimed not by the sheriff, but by the debtor himself
before the sale of the property at public auction. It is not sufficient that the person claiming exemption merely alleges

that such property is a family home. This claim for exemption must be set up and proved to the Sheriff.
Having failed to set up and prove to the sheriff the supposed exemption of the subject property before the sale
thereof at public action, they now are barred from raising the same. Failure to do so estop them from later claiming the
said exemption. (De Mesa v. Acero, et al., G.R. No. 185064, January 16, 2012, Reyes, J).
Family home as the symbol of love.
Indeed, the family home is a sacred symbol of family love and is the repository of cherished memories that last
during ones lifetime. (Cabang v. Basay, G.R. No. 180587, March 20, 2009, 582 SCRA 172). It is likewise without dispute
that the family home, from the time of its constitution and so long as any of its beneficiaries resides therein, is generally
exempt from execution, forced sale or attachment. (Art. 153, F.C.).
The family home is a real right, which is gratuitous, inalienable and free from attachment. It cannot be seized by
creditors except in certain special cases. (Josef v. Santos, G.R. No. 165060, November 27, 2008, 572 SCRA 57).
However, this right can be waived or be barred by laches by the failure to set up and prove the status of the property as
a family home at the time of the levy or a reasonable time thereafter.
In this case, it is undisputed that the petitioners allowed a considerable time to lapse before claiming that the
subject property is a family home and its exemption from execution and forced sale under the Family Code. The
petitioners allowed the subject property to be levied upon and the public sale to proceed. One (1) year lapsed from the
time the subject property was sold until a Final Deed of Sale was issued to Claudio, and, later, Aracelis Torrens title was
cancelled and a new one issued under Claudios name, still, the petitioner remained silent. In fact, it was only after the
respondents filed a complaint for unlawful detainer, or approximately four (4) years from the time of the auction sale,
that the petitioner claimed that the subject property is a family home, thus, exempt from execution.
For all intents and purposes, the petitioners negligence or omission to assert their right within a reasonable
time gives rise to the presumption that they have abandoned, waived or declined to assert it. Since the exemption
under Article 153 of the Family Code is a personal right, it is incumbent upon the petitioners to invoke and prove the
same within the prescribed period and it is not the sheriffs duty to presume or raise the status of the subject property
as a family home.
The petitioners negligence or omission renders their present assertion doubtful; it appears that it is a mere
afterthought and artifice that cannot be countenanced without doing the respondents injustice and depriving the fruits
of the judgment award in their favor. Simple justice and fairness and equitable considerations demand that Claudios
title to the property be respected. Equity dictates that the petitioners are made to suffer the consequences of their
unexplained negligence.

PROOF OF FILIATION
Baptismal certificate standing alone cannot be a proof of filiation.
Q May a baptismal certificate be a proof of filiation? Explain.
Answer: As a rule, no, because being hearsay, it is not conclusive proof of filiation.
Recently, there are two (2) cases expounding on the probative value of a baptismal certificate. One is the case
of the Heirs of Pedro Cabais v. CA, G.R. No. 106314-15, October 8, 1999, 316 SCRA 338 where the SC ruled that:
A birth certificate, being a public document, offers prima facie evidence of filiation and a high degree of proof is needed
to overthrow the presumption of truth contained in such public document. This is pursuant to the rule that entries in
official records made in the performance of his duty by a public officer are prima facie evidence of the facts therein
stated. The evidentiary nature of such document must, therefore, be sustained in the absence of strong, complete and
conclusive proof of its falsity or nullity.
On the contrary, a baptismal certificate is a private document, which, being hearsay, is not a conclusive proof of
filiation. It does not have the same probative value as a record of birth, an official or public document. In US v.
Evangelista, this Court held that church registers of births, marriages, and deaths made subsequent to the
promulgation of General Orders No. 68 and the passage of Act No. 190 are no longer public writings, nor are they kept
by duly authorized public officials. Thus, in this jurisdiction, a certificate of baptism such as the one herein controversy
is no longer regarded with the same evidentiary value as official records of birth. Moreover, on this score, jurisprudence
is consistent and uniform in ruling that the canonical certificate of baptism is not sufficient to prove recognition.
A baptismal certificate has a limited evidentiary value as proof of filiation inferior to that of a birth certificate. It
does not attest to the veracity of the statements regarding the kinsfolk of the one baptized. This is especially true if the
birth certificate is not presented.
Another case is the Heirs of Ignacio Conti v. CA, G.R. No. 118464, December 21, 1998, 300 SCRA 345, where the
SC said that the respondents were able to prove by preponderance of evidence their being collateral relatives of the
decedent using the baptismal certificate as proof of filiation. This is so because, aside from the baptismal certificate,
there were testimonies of witnesses pointing to the heir as the only sibling left by the decedent, hence, the baptismal
certificate acquired evidentiary weight to prove filiation. There were in fact four (4) baptismal certificates pointing to the
heir and other sisters as having the same set of parents.
In Conti, the Court affirmed the rulings of the trial court and the CA to the effect that the Conti respondents were able to
prove by preponderance of evidence their being the collateral heirs of deceased Lourdes Sampayo. The Conti
petitioners disagreed, arguing that baptismal certificates did not prove the filiation of collateral relatives of the

deceased. Agreeing with the CA, the Court said:

Under Art. 172 of the Family Code, the filiation of legitimate children shall be proved by any other means allowed by the
Rules of Court and special laws, in the absence of a record of birth or a parents admission of such legitimate filiation in
a public or private document duly signed by the parent. Such other proof of ones filiation may be a baptismal
certificate, a judicial admission, a family Bible in which his name has been entered, common reputation respecting his
pedigree, admission by silence, the testimonies of witnesses and other kinds of proof admissible under Rule 130 of the
Rules of Court. By analogy, this method of proving filiation may also be utilized in the instant case.
Public documents are the written official acts, or records of the official act of the sovereign authority, official bodies and
tribunals, and public officers, whether of the Philippines, or a foreign country. The baptismal certificates presented in
evidence by private respondents are public documents. Parish priests continue to be the legal custodians of the parish
records and are authorized to issue true copies, in the form of certificates, of the entries contained therein.
The admissibility of baptismal certificates offered by Lydia S. Reyes, absent the testimony of the officiating priest or the
official recorder, was settled in People v. Ritter, citing U.S. v. de Vera (28 Phil. 105 [1914], thus:
. The entries made in the Registry Book may be considered as entries made in the course of business under Section
43 of Rule 130, which is an exception to the hearsay rule. The baptisms administered by the church are one of its
transactions in the exercise of ecclesiastical duties and recorded in the book of the church during this course of its
business.
Obviously, Conti did not treat a baptismal certificate, standing alone, as sufficient to prove filiation; on the contrary,
Conti expressly held that a baptismal certificate had evidentiary value to prove filiation if considered alongside other
evidence of filiation. As such, a baptismal certificate alone is not sufficient to resolve a disputed filiation. (Makati
Shangri-La Hotel & Resort Inc. v. Harper, et al., G.R. No. 189998, August 26, 2012, Bersamin, J).
Proof of filiation; support.
Q In a complaint for support alleging that a child is an illegitimate child of the alleged father, the bases
were the record of birth although unsigned by the alleged father and the baptismal certificate identifying
the alleged father, as the father of the child without the signature of the alleged father. The RTC granted
the support based on those documents. Is the decision correct? Why?
Answer: No, because the two (2) documents are not proofs of filiation. Before a child may be entitled to support, he
must be recognized by the alleged father. Time and again, this Court has ruled that a high standard of proof is required
to establish paternity and filiation. An order for x x x support may create an unwholesome situation or may be an
irritant to the family or the lives of the parties so that it must be issued only if paternity or filiation is established by

clear and convincing evidence.

The Rules for establishing filiation are found in Articles 172 and 175 of the Family Code. One such proof is the
record of birth appearing in the civil register, Article 172(1) and any other means allowed by the Rules of Court and
special laws, (Art. 172(2)(2), Family Code.
It is settled that [a] certificate of live birth purportedly identifying the putative father is not competent
evidence of paternity when there is no showing that the putative father had a hand in the preparation of said
certificate. We also cannot lend credence to Mirasols claim that Antonio supplied certain information through Erlinda.
Aside from Antonios denial in having any participation in the preparation of the document as well as the absence of his
signature thereon, respondents did not present Erlinda to confirm that Antonio indeed supplied certain entries in
Randys birth certificate. Besides, the several unexplained discrepancies in Antonios personal circumstances as
reflected in the subject birth certificate are manifestations of Antonios non-participation in its preparation. Most
important, it was Mirasol who signed as informant thereon which she confirmed on the witness stand.
Neither does the testimony of Randy establish his illegitimate filiation. That during their first encounter in 1994
Randy called Antonio Papa and kissed his hand while Antonio hugged him and promised to support him; or that his
Aunt Lelita treated him as a relative and was good to him during his one-week stay in her place, cannot be considered
as indications of Randys open and continuous possession of the status of an illegitimate child under the second
paragraph of Article 172(1). [T]o prove open and continuous possession of the status of an illegitimate child, there
must be evidence of the manifestation of the permanent intention of the supposed father to consider the child as his,
by continuous and clear manifestations of parental affection and care, which cannot be attributed to pure charity. Such
acts must be of such a nature that they reveal not only the conviction of paternity, but also the apparent desire to have
and treat the child as such in all relations in society and in life, not accidentally, but continuously. Here, the single
instance that Antonio allegedly hugged Randy and promised to support him cannot be considered as proof of
continuous possession of the status of a child. To emphasize, [t]he fathers conduct towards his son must be
spontaneous and uninterrupted for this ground to exist. Here, except for that singular occasion in which they met,
there are no other acts of Antonio treating Randy as his son. Neither can Antonios paternity be deduced from how his
sister Lelita treated Randy. To this Court, Lelitas actuations could have been done due to charity or some other
reasons.
Randys baptismal certificate is not a good proof of Antonios paternity of Randy. Just like in a birth certificate, the lack
of participation of the supposed father in the preparation of a baptismal certificate renders this document incompetent
to prove paternity. And while a baptismal certificate may be considered a public document, it can only serve as
evidence of the administration of the sacrament on the date specified but not the veracity of the entries with respect to
the childs paternity. Thus, x x x baptismal certificates are per se inadmissible in evidence as proof of filiation and they
cannot be admitted indirectly as circumstantial evidence to prove the same. (Antonio Perla v. Mirasol Baring, et al.,

G.R. No. 172471, November 12, 2012, Brion, J; See: Gotardo v. Buling, G.R. No. 165166, August 15, 2010, Brion, J).
PROPERTY/LAND REGISTRATION
Possession and occupation distinguished.
Commonwealth Act No. 141, otherwise known as the Public Land Act, governs the classification and disposition of lands
of the public domain. It is clear under Section 48(b) thereof, which applies exclusively to agricultural lands of the public
domain, that possession is not enough. In order to emphasize the necessity for actual possession and exclude fictional
or constructive possession, Section 48(b) speaks of possession and occupation. As explained by this Court in Republic
of the Philippines v. Alconaba:
The law speaks of possession and occupation. Since these words are separated by the conjunction and, the clear
intention of the law is not to make one synonymous with the other. Possession is broader than occupation because it
includes constructive possession. When, therefore, the law adds the word occupation, it seeks to delimit the all
encompassing effect of constructive possession. Taken together with the words open, continuous, exclusive and
notorious, the word occupation serves to highlight the fact that for an applicant to qualify, his possession must not be a
mere fiction. (471 Phil. 607 (2004)).
It does not matter whether the applicant for registration has been in possession and occupation only after June
12, 1945 for the requirements for confirmation of title is deemed complied with as his predecessors-in-interests
possession and occupation that date back to June 12, 1945 or earlier are tacked to his. Thus, it is of great importance
that there exists well-nigh incontrovertible evidence that the applicants predecessors-in-interest had been in
possession and occupation of the property sought to be registered since June 12, 1945. (Rep. v. Heirs of Doroteo
Montoja, G.R. No. 195137, June 23, 2012, Reyes, J).
PROPERTY
Quieting of title requires legal title or equitable title.
Q When may an action for quieting of title prosper? Explain.
Answer: In order that an action for quieting of title may prosper, it is essential that the plaintiff must have legal title or
equitable title to, or interest in, the property which is the subject matter of the action. Legal title denotes registered
ownership, while equitable title means beneficial ownership. In the absence of such legal or equitable title, or interest,
there is no cloud to be prevented or removed. (Mananquil, et al. v. Moico, G.R. No. 180076, November 21, 2012).
Accretion, to whom it belongs; dried up rivers belongs to the State.
By law, accretion is the gradual and imperceptible deposit made thru the effects of the current of the water

belongs to the owner of the land adjacent to the banks of rivers where it forms. The drying up of the river is not
accretion. Hence, the dried up river bed belongs to the State as property of public dominion, not to the riparian owner,
unless the law vests the ownership to some other person. (Rep. v. Santos III, et al., G.R. No. 160453, November 12,
20012).
Oral partition is invalid.
The validity of an oral partition is already well-settled. It is not required that the partition agreement be
registered or annotated in the title to be valid. After exercising acts of ownership over their respective portions of the
contested estate, they are estopped from denying the existence of an oral partition.
In this case, none of the original co-owners disputed the partition as it is only the present owners and
successors-in-interest who are insisting that no partition had taken place, as the title was merely partially cancelled and
many of the owners have yet to secure their own separate titles. Estoppels has set in to bar the present owners from
denying an oral partition in view of the acquiescence of their predecessors-in-interest as well as their own acts of
ownership over those portions they are occupying.
Regardless of whether a parol partition or agreement to partition is valid or enforceable at law, equity will in
proper cases, where the parol partition has actually been consummated by the taking of possession in severalty and the
exercise of ownership by the parties of their respective portions set off to each other, recognize and enforce such parol
partition and the rights of the parties thereunder. (Hernandez v. Andal, 78 Phil. 196 (1947); Tan v. Lim, G.R. No. 128004,
September 25, 1998, 296 SCRA 445; Notarte, et al. v. Notarte, G.R. No. 180614, August 29, 2012).
SUCCESSION
Forgetfulness is not equivalent to being unsound mind.
Q After the will was admitted to probate, petitioners appealed and contended that the testator was
magulyan or forgetful, so much so that it effectively stripped her of her testamentary capacity. She was
likewise suffering from paranoia. Petitioners, however, did not present medical evidence to show that she
was of unsound mind. There was no showing that she was one month or less, before making the will, she
was publicly known to be insane. Is the admission of the will to probate correct? Explain.
Answer: Yes. The state of being forgetful does not necessarily make a person mentally unsound so as to tender him
unfit to execute a will. (Torres & Lopez de Bueno v. Lopez, 48 Phil. 772 (1926); Sancho v. Abella, 728 Phil. 728 (1933)).
Forgetfulness is not equivalent to being of unsound mind. Besides, Article 799 of the New Civil Code states:
Art. 799. To be of sound mind, it is not necessary that the testator be in full possession of all his reasoning faculties, or
that his mind be wholly unbroken, unimpaired, or unshattered by disease, injury or other cause.

It shall be sufficient if the testator was able at the time of making the will to know the nature of the estate to be
disposed of, the proper objects of his bounty, and the character of the testamentary act.
The testimony of subscribing witnesses to a will concerning the testators mental condition is entitled to great
weight where they are truthful and intelligent. More importantly, a testator is presumed to be of sound mind at the time
of the execution of the will and the burden to prove otherwise lies on the oppositor. Article 800 of the New Civil Code
states:
Art. 800. The law presumes that every person is of sound mind, in the absence of proof to the contrary.
The burden of proof that the testator was not of sound mind at the time of making his disposition is on the person who
opposes the probate of the will; but if the testator, one month, or less, before making his will was publicly known to be
insane, the person who maintains the validity of the will must prove that the testator made it during a lucid interval.
The burden of proof to show that the testator was of unsound mind at the time of the execution of the will lies in
the oppositors. In this case, they failed to discharge such burden, hence, the admission of the will to probate is correct.
(Baltazar, et al. v. Laxa, G.R. No. 174489, April 11, 2012, Del Castillo, J).
OBLIGATIONS & CONTRACTS
RESCISSION
Rescission is the remedy for reparation of the damage done.
Q After the death of their predecessor-in-interest, the heirs became the co-owners of several parcels of
land. Some of them took possession of the properties hence, there was a complaint for partition filed by
one of the heirs as the other refused to partition the properties. While the action was pending, one of
them donated a property belonging to the co-ownership to one of her nephews, without approval of the
court, hence, after learning that there was a Donation Inter Vivos, they filed a Supplemental Pleading
praying that the donation be rescinded in accordance with Article 1381(4) of the Civil Code. The donee
opposed the Supplemental Pleading contending that rescission under Article 1384(1), NCC applies only
when there is already a prior judicial decree on who between the contending parties actually owned the
properties under litigation. The RTC ordered the rescission of the deed of donation as it was done without
the knowledge and approval of the other parties or plaintiffs or the Court. On appeal, the CA reversed the
judgment on the ground that before an action for rescission may be filed there must first be a judicial
determination that the same actually belonged to the estate of the donor. Hence, the petition raising such
issue. Decide.
Answer: Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the

reparation of damages caused to them by a contract, even if it should be valid, by means of the restoration of things to
their condition at the moment prior to the celebration of said contract. It is a remedy to make ineffective a contract,
validly entered into and therefore obligatory under normal conditions, by reason of external causes resulting in a
pecuniary prejudice to one of the contracting parties or their creditors. Contracts which are rescissible are valid
contracts having all the essential requisites of a contract, but by reason of injury or damage caused to either of the
parties therein or to third persons are considered defective and, thus, may be rescinded.
The kinds of rescissible contracts, according to the reason for their susceptibility to rescission, are the following: first,
those which are rescissible because of lesion or prejudice; (Art. 1381(1) & (2), NCC) second, those which are rescissible
on account of fraud or bad faith; (Arts. 1381 (3) & (4) & 1382, NCC) and third, those which, by special provisions of law,
(Civil Code of the Philippines, Articles 1189, 1191, 1526, 1534, 1538, 1539, 1542, 1556, 1560, 1567 and 1659) are
susceptible to rescission.
Contracts which refer to things subject of litigation is rescissible pursuant to Article 1381(4) of the Civil
Code.
Contracts which are rescissible due to fraud or bad faith include those which involve things under litigation, if they have
been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial
authority. Thus, Article 1381(4) of the Civil Code provides:
Art. 1381. The following contracts are rescissible: x x x x (4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial
authority. The rescission of a contract under Article 1381(4) of the Civil Code only requires the concurrence of the
following: first, the defendant, during the pendency of the case, enters into a contract which refers to the thing subject
of litigation; and second, the said contract was entered into without the knowledge and approval of the litigants or of a
competent judicial authority. As long as the foregoing requisites concur, it becomes the duty of the court to order the
rescission of the said contract.
The reason for this is simple. Article 1381(4) seeks to remedy the presence of bad faith among the parties to a case
and/or any fraudulent act which they may commit with respect to the thing subject of litigation.
When a thing is the subject of a judicial controversy, it should ultimately be bound by whatever disposition the court
shall render. The parties to the case are therefore expected, in deference to the courts exercise of jurisdiction over the
case, to refrain from doing acts which would dissipate or debase the thing subject of the litigation or otherwise render
the impending decision therein ineffectual.
There is, then, a restriction on the disposition by the parties of the thing that is the subject of the litigation. Article
1381(4) of the Civil Code requires that any contract entered into by a defendant in a case which refers to things under

litigation should be with the knowledge and approval of the litigants or of a competent judicial authority.
Further, any disposition of the thing subject of litigation or any act which tends to render inutile the courts impending
disposition in such case, sans the knowledge and approval of the litigants or of the court, is unmistakably and
irrefutably indicative of bad faith. Such acts undermine the authority of the court to lay down the respective rights of
the parties in a case relative to the thing subject of litigation and bind them to such determination.
The defendant in such a case is not absolutely proscribed from entering into a contract which refer to things under
litigation. If, for instance, a defendant enters into a contract which conveys the thing under litigation during the
pendency of the case, the conveyance would be valid, there being no definite disposition yet coming from the court
with respect to the thing subject of litigation. After all, notwithstanding that the subject thereof is a thing under
litigation, such conveyance is but merely an exercise of ownership.
This is true even if the defendant effected the conveyance without the knowledge and approval of the litigants or of a
competent judicial authority. The absence of such knowledge or approval would not precipitate the invalidity of an
otherwise valid contract. Nevertheless, such contract, though considered valid, may be rescinded at the instance of the
other litigants pursuant to Article 1381(4) of the Civil Code.
Although the gratuitous conveyance of the said parcels of land was valid, the donation inter vivos of the same being
merely an exercise of ownership, the sellers failure to inform and seek the approval of the petitioners or the RTC
regarding the conveyance gave the petitioners the right to have the said donation rescinded pursuant to Article 1381(4)
of the Civil Code.
Rescission under Article 1381(4) of the Civil Code is not preconditioned upon the judicial determination as
to the ownership of the thing subject of litigation.
The assertion that rescission may only be had after the RTC had finally determined that the parcels of land belonged to
the estate of Spouses Baylon does not intrinsically amiss. The petitioners right to institute the action for rescission
pursuant to Article 1381(4) of the Civil Code is not preconditioned upon the RTCs determination as to the ownership of
the said parcels of land.
The right to ask for the rescission of a contract under Article 1381(4) of the Civil Code is not contingent upon the final
determination of the ownership of the thing subject of litigation. The primordial purpose of Article 1381(4) of the Civil
Code is to secure the possible effectivity of the impending judgment by a court with respect to the thing subject of
litigation. It seeks to protect the binding effect of a courts impending adjudication vis--vis the thing subject of
litigation regardless of which among the contending claims therein would subsequently be upheld. Accordingly, a
definitive judicial determination with respect to the thing subject of litigation is not a condition sine qua non before the
rescissory action contemplated under Article 1381(4) of the Civil Code may be instituted.

Moreover, conceding that the right to bring the rescissory action pursuant to Article 1381(4) of the Civil Code is
preconditioned upon a judicial determination with regard to the thing subject litigation, this would only bring about the
very predicament that the said provision of law seeks to obviate. Assuming arguendo that a rescissory action under
Article 1381(4) of the Civil Code could only be instituted after the dispute with respect to the thing subject of litigation
is judicially determined, there is the possibility that the same may had already been conveyed to third persons acting in
good faith, rendering any judicial determination with regard to the thing subject of litigation illusory. Surely, this
paradoxical eventuality is not what the law had envisioned. (Lilia Ada, et al. v. Florante Baylon, G.R. No. 182435, August
13, 2012, Reyes, J).
Effect of rescission
In cases involving rescission under the said provision, mutual restitution is required. (Uniland Resources Dev. Corp. v.
Dragon, G.R. No. 149338, July 28, 2008, 560 SCRA 63). The parties should be brought back to their original position
prior to the inception of the contract. (Uniland Resources Dev. Corp. v. Dragon, G.R. No. 149338, July 28, 2008, 560
SCRA 63). Accordingly, when a decree of rescission is handed down, it is the duty of the court to require both parties to
surrender that which they have respectively received and to place each other as far as practicable in [their] original
situation. Pursuant to this, Goldloop should return to GSIS the possession and control of the property subject of their
agreements while GSIS should reimburse Goldloop whatever amount it had received from the latter by reason of the
MOA and the Addendum.
As discussed, both parties failed to comply with their respective obligations under their agreements. Hence, relevant is
the provision of Article 1192 of the Civil Code which reads:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract,
the same shall be deemed extinguished, and each shall bear his own damages. (Goldloop Properties, Inc. v.
GSIS, G.R. No. 171076, August 1, 2012, Del Castillo, J).
OBLIGATIONS AND CONTRACTS
Novation; there must be express declaration of extinguishment or the two (2) contracts must be
incompatible.
Q In a suit for sum of money, with prayer for attachment, a counter-bond was issued in consideration of
the discharge of the attachment. A compromise was entered into by the parties without including the
bonding company, but when the defendants failed to comply there was a motion to order the bonding
company to pay according to the counter-bond. The company contended that when the parties submitted
a compromise agreement without including it, there was novation of the contract, hence, it is no longer,

liable. Is the contention correct? Why?

Answer: No, because the counter-bond provides that it shall pay any judgment that may be secured by the plaintiff
against the defendants. In order for novation to extinguish an obligation, there must be a showing that there is
incompatibility between the terms of the compromise agreement and the terms of the counter-bond. Under Article
1292, NCC, in order that an obligation may be extinguished by another which substitutes the same, it is imperative that
it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each
other.
Nothing in the compromise agreement indicates, or even hints at, releasing the bonding company from its obligation to
pay the plaintiff after the latter has obtained a favorable judgment. Clearly, there is no incompatibility between the
compromise agreement and the counter-bond. Neither can novation be presumed. In Dugo v. Lopena, 116 Phil 1305
(1962), it was said that novation by presumption has never been favored. To be sustained, it need be established that
the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the
parties or in acts of similar import.
All things considered, the bonding company, as surety under the terms of the counter-bond it issued, should be
held liable for the payment of the unpaid balance due to the judgment creditor. (United Pulp & Paper Co., Inc. v.
Acropolis Central Guaranty Corp., G.R. No. 171750, January 25, 2012, Mendoza, J).
A surety on a counter-bond given to secure the payment of a judgment becomes liable for the payment of the amount
due upon: (1) demand made upon the surety; and (2) notice and summary hearing on the same action. (Sec. 17, Rule
57, Rules of Court).
It has been consistently held that the filing of a complaint constitutes a judicial demand. Accordingly, the filing by UPPC
of the Motion to Order Surety to Pay Amount of Counter-Bond was already a demand upon Acropolis, as surety, for the
payment of the amount due, pursuant to the terms of the bond. In said bond, Acropolis bound itself in the sum of
42,844,353.14 to secure the payment of any judgment that UPPC might recover against Unibox and Ortega.
The motion was filed and was set for hearing and the bonding company was duly notified of the hearing hence, it was
given the opportunity to be heard. (United Pulp & Paper Co., Inc. v. Acropolis Central Guaranty Corp., G.R. No. 171750,
January 25, 2012, Mendoza, J).
FORMS OF CONTRACTS
Requirement under Art. 1358, NCC on form of contracts is only for purposes of convenience.
Article 1358, NCC provides that acts and contracts which have for their object the transmission of real rights
over immovable property or the sale of real property must appear in a public document. If the law requires a document

or other special form, the contracting parties may compel each other to observe that form once the contract has been
perfected.
In Fule v. CA, G.R. No. 112212, March 2, 1998, it was held that the requirement under Art. 1358, NCC is only for
convenience and registration of the instrument only adversely affects third persons. Formal requirements are therefore,
for the benefit of third parties. (Art. 1357, NCC). Non-compliance therewith does not adversely affect the validity of the
contract nor the contractual rights and obligations of the parties. (Zamora v. Miranda, G.R. No. 162930, December 5,
2012, Peralta, J).
Rule: Receipt of payment partakes of the nature of evidence of perfection of a contract. But if it is a forged document,
hence, void, there is no contract to speak of.
NOVATION
The principle of novation cannot be applied in a criminal case.
Q There was a sale of a real property for P2M but it was found out that instead of registering the same
under the name of the vendee, it was registered under anothers name. The vendee demanded for the
return of the P2M where the seller issued two (2) checks which were dishonored when presented for
payment. Two (2) Estafa thru Falsification of Public Documents cases were filed but before they could be
filed in court, the respondent issued another two (2) checks where she contended that there was novation
of her obligation when she issued those checks. Is the contention correct? Why?
Answer: No. The principles of novation cannot apply to extinguish criminal liability. Milla cites People v. Nery to support
his contention that his issuance of the checks prior to the filing of the criminal complaint averted his incipient criminal
liability. However, it must be clarified that mere payment of an obligation before the institution of a criminal complaint
does not, on its own, constitute novation that may prevent criminal liability. The Courts ruling in Nery in fact warned:
It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby criminal
liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal liability or to
cast doubt on the true nature of the original petition, whether or not it was such that its breach would not give rise to
penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to
(Abeto vs. People, 90 Phil. 581; Villareal, 27 Phil. 481).
Even in Civil Law the acceptance of partial payments, without further change in the original relation
between the complainant and the accused, cannot produce novation. For the latter to exist, there must be
proof of intent to extinguish the original relationship, and such intent cannot be inferred from the mere
acceptance of payments on account of what is totally due. Much less can it be said that the acceptance of partial
satisfaction can effect the nullification of a criminal liability that is fully matured, and already in the process of

enforcement. Thus, this Court has ruled that the offended partys acceptance of a promissory note for all or
part of the amount misapplied does not obliterate the criminal offense (Camus vs. Court of Appeals, 48 Off.
Gaz. 3898).
Further, in Quinto v. People, the Court exhaustively explained the concept of novation in relation to incipient
criminal liability, viz:
Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.
The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected
either expressly or impliedly. The term expressly means that the contracting parties incontrovertibly disclose that
their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required
for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. While
there is really no hard and fast rule to determine what might constitute to be a sufficient change that can
bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility
between the old and the new obligations.
There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated
and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every
point. The test of incompatibility is whether or not the two obligations can stand together, each one having
its independent existence. If they cannot, they are incompatible and the latter obligation novates the
first. Corollarily, changes that breed incompatibility must be essential in nature and not merely
accidental. The incompatibility must take place in any of the essential elements of the obligation, such as
its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in
nature and insufficient to extinguish the original obligation.
The changes alluded to by petitioner consists only in the manner of payment. There was really no substitution
of debtors since private complainant merely acquiesced to the payment but did not give her consent to enter into a
new contract. The appellate court observed:
1. xxx

xxx

xxx

The acceptance by complainant of partial payment tendered by the buyer, Leonor Camacho, does not
evince the intention of the complainant to have their agreement novated. It was simply necessitated by
the fact that, at that time, Camacho had substantial accounts payable to complainant, and because of the
fact that appellant made herself scarce to complainant. (TSN, April 15, 1981, 31-32) Thus, to obviate the
situation where complainant would end up with nothing, she was forced to receive the tender of

Camacho. Moreover, it is to be noted that the aforesaid payment was for the purchase, not of the jewelry subject of
this case, but of some other jewelry subject of a previous transaction. (Ibid. June 8, 1981, 10-11)
1. xxx

xxx

xxx

Art. 315 of the Revised Penal Code defines estafa and penalizes any person who shall defraud another by
misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by
the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make
delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by
denying having received such money, goods, or other property. It is axiomatic that the gravamen of the offense is the
appropriation or conversion of money or property received to the prejudice of the owner. The terms convert and
misappropriate have been held to connote an act of using or disposing of anothers property as if it were ones own
or devoting it to a purpose or use different from that agreed upon. The phrase, to misappropriate to ones own use
has been said to include not only conversion to ones personal advantage, but also every attempt to dispose of the
property of another without right. Verily, the sale of the pieces of jewelry on installments (sic) in contravention of the
explicit terms of the authority granted to her in Exhibit A (supra) is deemed to be one of conversion. Thus, neither the
theory of delay in the fulfillment of commission nor that of novation posed by petitioner, can avoid the incipient
criminal liability. In People vs. Nery, this Court held:
1. xxx

xxx

xxx

The criminal liability for estafa already committed is then not affected by the subsequent novation of
contract, for it is a public offense which must be prosecuted and punished by the State in its own
conation.
In the case at bar, the acceptance by MPI of the Equitable PCI checks tendered by Milla could not have novated
the original transaction, as the checks were only intended to secure the return of the P2 million the former had already
given him. Even then, these checks bounced and were thus unable to satisfy his liability. Moreover, the estafa involved
here was not for simple misappropriation or conversion, but was committed through Millas falsification of public
documents, the liability for which cannot be extinguished by mere novation. (Milla v. People, et al., G.R. No. 188726,
January 25, 2012, Sereno, J).
Respondents obligation consists of payment of a sum of money. In order to extinguish said obligation, payment should
be made to the proper person as set forth in Article 1240 of the Civil Code, to wit:
Article 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it.
The Court explained in Cambroon v. City of Butuan, cited in Republic v. De Guzman, to whom payment should be made

in order to extinguish an obligation:

Payment made by the debtor to the person of the creditor or to one authorized by him or by the law to receive it
extinguishes the obligation. When payment is made to the wrong party, however, the obligation is not extinguished as
to the creditor who is without fault or negligence even if the debtor acted in utmost good faith and by mistake as to the
person of the creditor or through error induced by fraud of a third person.
In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus,
payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the
particular payment. Payment made to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to
act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by law to
accept it will, therefore, satisfy the debt.
Admittedly, payment of the remaining balance of P200,000.00 was not made to the creditors themselves. Rather, it was
allegedly made to a certain Losloso. Respondent claims that Losloso was the authorized agent of petitioners, but the
latter dispute it.
Loslosos authority to receive payment was embodied in petitioners letter39 addressed to respondent, dated August 7,
1997, where they informed respondent of the amounts they advanced for the payment of the 1997 real estate taxes. In
said letter, petitioners reminded respondent of her remaining balance, together with the amount of taxes paid. Taking
into consideration the busy schedule of respondent, petitioners advised the latter to leave the payment to a certain
Dori who admittedly is Losloso, or to her trusted helper. This is an express authority given to Losloso to receive
payment. Moreover, as correctly held by the CA:
Furthermore, that Adoracion Losloso was indeed an agent of the appellant spouses is borne out by the following
admissions of plaintiff-appellant Atty. Miniano dela Cruz, to wit:
Q: You would agree with me that you have authorized this Doiry Losloso to receive payment of whatever balance is due
you coming from Ana Marie Concepcion, that is correct?
A: In one or two times but not total authority, sir.
Q: Yes, but you have authorized her to receive payment?
A: One or two times, yes x x x. (TSN, June 28, 1999, pp.16-17)40
Thus, as shown in the receipt signed by petitioners agent and pursuant to the authority granted by petitioners to
Losloso, payment made to the latter is deemed payment to petitioners. We find no reason to depart from the RTC
38 Cembrano v. City of Butuan, supra note 36, at 511-512; at 790-791. And the CA conclusion that payment had

already been made and that it extinguished respondent's obligations. (Sps. Dela Cruz v. Ana Marie Concepcion, G.R. No.
172825, October 11, 2012, Peralta, J).
For novation to extinguish another it must be so declared in an unequivocal temrs; or there must be
incompatability in every point.
Q In a case there was a contract for the construction of a building. There was a surety undertaking
executed by a third person to ensure the compliance with the terms of the contract. The parties however
entered into a MOA revising the work schedule originally agreed upon because of the various
subcontracting agreement made by the contractor. The MOA provided that all other terms and conditions
of the original building contract not inconsistent with the MOA shall remain in full force and effect. The
surety contended that it was relieved of its undertaking due to the new MOA. Is the contention correct?
Why?
Answer: No, because there was no new contract that extinguished the old one. There is nothing in the MOA that
expressly extinguished the old obligation of the surety. In fact, it provides that all the terms and conditions of the old
contract shall be in full force and effect.
Furthermore, in order that the obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and new obligation be in every point
incompatible with each other. (Art. 1293, NCC). Novation of a contract is never presumed. In the absence of an express
agreement, novation takes place only when the old and the new obligations are incompatible on every point. (Security
Bank & Trust Co., Inc. v. Cuenca, 396 Phil. 108 (2000)).
Undoubtedly, a surety is released from its obligation when there is a material alteration of the principal contract
in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or
which takes away some obligation already imposed, or one which changes the legal effect of the original contract and
not merely its form. (Stronghold Ins. Co., Inc. v. Tokyu Construction Co., Ltd., G.R. No. 158820-21, June 5, 1990, 588
SCRA 410; Phil. Charter Ins. Corp. v. Petroleum Distributors & Services Corp., G.R. No. 180898, April 18, 2012, Mendoza,
J).
CONTRACTS
Perfection; elements of contracts; affixing of signature on a letter is considered as express conformity.
Q What is the effect if a party to a contract of sale affixes his signature on a letter proposing the same?
Explain.
Answer: There is express conformity to the terms and conditions of the contract by the act of affixing his signature on

the letter. There was a meeting of the minds as to the object and consideration of the contract.
Three elements are needed to create a perfected contract: (1) the consent of the contracting parties; (2) an
object certain which is the subject matter of the contract; and (3) the cause of the obligation which is established.
Under the law on sales, a contract of sale is perfected when the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to the buyer, over which the latter agrees. From that moment, the parties
may demand reciprocal performance. (Starbright Sales Ent. Inc. v. Phil. Realty Corporation, G.R. No. 177936, January 16,
2012, Abad, J).
Provision in contract of lease granting the lessee exclusive right to renew; valid; principle of mutuality of
contracts.
Q The parties entered into a lease contract over a parcel of land granting unto the lessee the exclusive
option to renew the contract subject to the condition that it should comply with a 60-day notice of the
intention to exercise the option to renew the contract which the lessee did. The lessor refused to renew
the contract, hence, a complaint to compel the lessor to renew it was filed. The lessor argued that the
renewal of the contract cannot be made to depend upon the sole will of the lessee, otherwise, the same
would be void for being a potestative condition. Will the action prosper? Why?
Answer: Yes, because of the principle of mutuality of contracts.
In Allied Banking Corporation v. Court of Appeals, 348 Phil. 382 (1998), it was ruled that Article 1308 of the Civil Code
expresses what is known in law as the principle of mutuality of contracts. It provides that "the contract must bind both
the contracting parties; its validity or compliance cannot be left to the will of one of them." This binding effect of a
contract on both parties is based on the principle that the obligations arising from contracts have the force of law
between the contracting parties, and there must be mutuality between them based essentially on their equality under
which it is repugnant to have one party bound by the contract while leaving the other free therefrom. The ultimate
purpose is to render void a contract containing a condition which makes its fulfillment dependent solely upon the
uncontrolled will of one of the contracting parties.
An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory
restrictions, valid and binding on the parties. This option, which is provided in the same lease agreement, is
fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying
an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory
contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the right is
made to depend. The right of renewal constitutes a part of the lessee's interest in the land and forms a substantial and
integral part of the agreement.
The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void

for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has
a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor
accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually
fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor
may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently
decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the
lessee since they remain with the same faculties in respect to fulfillment. (MIAA v. Ding Velayo Sports Center, Inc., G.R.
No. 161718, December 14, 2011).
Q It was contended that the terms of the lease contract merely provided for a procedural basis for a
negotiation for renewal of the lease and the terms thereof. It contended that there must be renegotiation
of the terms thereof. Is the contention correct? Why?
Answer: No, otherwise, it would violate the principle of mutuality of contracts. As said in Allied Banking v. CA, that if we
were to adopt the contrary theory that the terms and conditions to be embodied in the renewed contract were still
subject to mutual agreement by and between the parties, then the option - which is an integral part of the
consideration for the contract - would be rendered worthless. For then, the lessor could easily defeat the lessee's right
of renewal by simply imposing unreasonable and onerous conditions to prevent the parties from reaching an
agreement, as in the case at bar. As in a statute, no word, clause, sentence, provision or part of a contract shall be
considered surplusage or superfluous, meaningless, void, insignificant or nugatory, if that can be reasonably avoided. To
this end, a construction which will render every word operative is to be preferred over that which would make some
words idle and nugatory. (MIAA v. Ding Velayo Sports Center, Inc., G.R. No. 161718, December 14, 2011).
Q State the effect if the lessee exercises the option to renew the contract but there are no new terms
and conditions of the new lease contract. Explain.
Answer: In case the lessee chooses to renew the lease but there are no specified terms and conditions for the new
contract of lease, the same terms and conditions as the original contract of lease shall continue to govern, as the
following survey of cases in Allied Banking would show:
In Ledesma v. Javellana this Court was confronted with a similar problem. In that case the lessee was given the sole
option to renew the lease, but the contract failed to specify the terms and conditions that would govern the new
contract. When the lease expired, the lessee demanded an extension under the same terms and conditions. The lessor
expressed conformity to the renewal of the contract but refused to accede to the claim of the lessee that the renewal
should be under the same terms and conditions as the original contract. In sustaining the lessee, this Court made the
following pronouncement:
x x x [i]n the case of Hicks v. Manila Hotel Company, a similar issue was resolved by this Court. It was held that 'such a

clause relates to the very contract in which it is placed, and does not permit the defendant upon the
renewal of the contract in which the clause is found, to insist upon different terms than those embraced in
the contract to be renewed'; and that 'a stipulation to renew always relates to the contract in which it is
found and the rights granted thereunder, unless it expressly provides for variations in the terms of the
contract to be renewed.'
The same principle is upheld in American Law regarding the renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at
p. 45, where it was said: 'The rule is well-established that a general covenant to renew or extend a lease
which makes no provision as to the terms of a renewal or extension implies a renewal or extension
upon the same terms as provided in the original lease.'
In the lease contract under consideration, there is no provision to indicate that the renewal will be subject to new terms
and conditions that the parties may yet agree upon. It is to renewal provisions of lease contracts of the kind presently
considered that the principles stated above squarely apply. We do not agree with the contention of the appellants that
if it was intended by the parties to renew the contract under the same terms and conditions stipulated in the contract
of lease, such should have expressly so stated in the contract itself. The same argument could easily be interposed
by the appellee who could likewise contend that if the intention was to renew the contract of lease under such new
terms and conditions that the parties may agree upon, the contract should have so specified. Between the two
assertions, there is more logic in the latter.
The settled rule is that in case of uncertainty as to the meaning of a provision granting extension to a contract of lease,
the tenant is the one favored and not the landlord. 'As a general rule, in construing provisions relating to renewals or
extensions, where there is any uncertainty, the tenant is favored, and not the landlord, because the latter, having the
power of stipulating in his own favor, has neglected to do so; and also upon the principle that every man's
grant is to be taken most strongly against himself (50 Am Jur. 2d, Sec. 1162, p. 48; see also 51 C.J.S. 599).'
In sum, the renewed contract of lease of the subject property between petitioner and respondent shall be
based on the same terms and conditions as the original contract of lease. (MIAA v. Ding Velayo Sports Center, Inc.,
supra.).
SALES
Q What is the effect if the price in a foreclosure sale is inadequate? Explain.
Answer: The sale is valid. Unlike in an ordinary sale, inadequacy of the price at a forced sale is immaterial and does
not nullify a sale since, in a forced sale, a low price is more beneficial to the mortgage debtor for it makes redemption of
the property easier. (New Sampaguita Builders Construction, Inc. v. PNB, 479 Phil. 453 (2004)).
In the case of The National Loan and Investment Board v. Meneses, 67 Phil. 498 (1939), the SC had the occasion to say

that:
As to the inadequacy of the price of the sale, this court has repeatedly held that the fact that a property is sold at
public auction for a price lower than its alleged value, is not of itself sufficient to annul said sale, where there
has been strict compliance with all the requisites marked out by law to obtain the highest possible price,
and where there is no showing that a better price is obtainable. (Government of the Philippines vs. De Asis, G.
R. No. 45483, April 12, 1939; Guerrero vs. Guerrero, 57 Phil., 442; La Urbana vs. Belando, 54 Phil., 930; Bank of the
Philippine Islands v . Green, 52 Phil., 491; Hulst v. PR Builders, Inc., G.R. No. 156364, September 3, 2007, 532 SCRA 747;
Bank of PI v. Reyes, G.R. No. 182769, February 1, 2012).
Note:
In Cometa v. Court of Appeals, and in Rosales v. Court of Appeals, 405 Phil. 638 (2001), the SC declared that a sale price
which is equivalent to more or less twelve percent (12%) of the value of the property is shockingly low, unconscionable
and grossly inadequate, thus, warranting a nullification of the foreclosure sale. In both cases, it was declared that where
the inadequacy of the price is purely shocking to the conscience, such that the mind revolts at it and such that a
reasonable man would neither directly nor indirectly be likely to consent to it, the sale shall be declared null and
void. On the other hand, in Cortes v. Intermediate Appellate Court, 256 Phil. 979 (1998) and in Ponce De Leon v.
Rehabilitation Finance Corporation, 146 Phil. 862 (1970), the SC upheld the validity of foreclosure sales in which the
property subject thereof were sold at 11% and 17%, respectively, of their value. (BPI v. Reyes, G.R. No. 182769,
February 1, 2012).
CONTRACT TO SELL
Maceda Law; actual cancellation of contract is after lapse of 30 days from receipt of notarized notice of
cancellation and refund of the cash surrender value.
Q There was a contract to sell over a subdivision property. Later on, the buyer demolished the house and
constructed another one. There was failure of the buyer to pay the amortizations, hence, the seller sent a
notarized notice of delinquency and cancellation of the contract. Then, it filed a complaint for ejectment,
but it was dismissed due to the finding that the title was already transferred to the buyer. Later on, it
filed a complaint for Cancellation of Title & Reconveyance with Damages. The trial court declared the tile
cancelled but ordered the refund of the total monthly installments and the value of the house less the
cost of the original house. Is the ruling ordering the refund of the total amount of installments correct?
Why?
Answer: No. It should be only to the extent of 50%. Under the Maceda Law, the actual cancellation of a contract to sell
takes place after 30 days from receipt by the buyer of the notarized notice of cancellation, and upon full payment of the
cash surrender value to the buyer. In other words, before a contract to sell can be validly and effectively cancelled, the

seller has (1) to send a notarized notice of cancellation to the buyer and (2) to refund the cash surrender value. Until
and unless the seller complies with these twin mandatory requirements, the contract to sell between the parties
remains valid and subsisting. Thus, the buyer has the right to continue occupying the property subject of the contract to
sell, and may still reinstate the contract by updating the account during the grace period and before the actual
cancellation of the contract.
In this case, the seller complied only with the first condition by sending a notarized notice of cancellation to the buyers.
It failed, however, to refund the cash surrender value to them. Thus, the Contract to Sell remains valid and subsisting
and supposedly, the buyers have the right to continue occupying the subject property.
Since the buyers paid at least two years of installment, they are entitled to receive the cash surrender value of the
payments they had made which, under Section 3(b) of the Maceda Law, is equivalent to 50% of the total payments
made. (Communities Cagayan, Inc. v. Sps. Nanol, et al., G.R. No. 176791, November 14, 2012).
Respondent-spouses are entitled to reimbursement of the improvements made on the property.
Q Petitioner posited that Article 448 of the Civil Code does not apply and that the buyers are not entitled
to reimbursement of the value of the improvements made on the property because they were builders in
bad faith. The contention is based on the fact that there was only a contract to sell, hence, the seller
retained the ownership, hence, the buyer is a builder in bad faith, hence, the judgment ordering the seller
to reimburse the value of the house is not correct. It contended that Art. 448, NCC is not applicable. Is the
contention correct? Why?
Answer: No. As a general rule, Article 448 on builders in good faith does not apply where there is a contractual relation
between the parties, such as a contract to sell. But for failure to prove bad faith there is a presumption of good faith,
thus Article 448, NCC applies.
Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that by some title he
has the right to build thereon, (Rosales v. Castelfort, 509 Phil. 137 (2005)), or that, at least, he has a claim of title
thereto. Concededly, this is not present in the instant case. The subject property is covered by a Contract to Sell hence
ownership still remains with the seller. Nevertheless, there were already instances where the Court applied Article 448
even if the builders do not have a claim of title over the property. Thus:
This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe themselves
to be owners of the land or, at least, to have a claim of title thereto. It does not apply when the interest is merely that of
a holder, such as a mere tenant, agent or usufructuary. From these pronouncements, good faith is identified by the
belief that the land is owned; or that by some title one has the right to build, plant, or sow thereon.
However, in some special cases, the Court has used Article 448 by recognizing good faith beyond this limited definition.

Thus, in Del Campo v. Abesia, this provision was applied to one whose house despite having been built at the time he
was still co-owner overlapped with the land of another. This article was also applied to cases wherein a builder had
constructed improvements with the consent of the owner. The Court ruled that the law deemed the builder to be in
good faith. In Sarmiento v. Agana, the builders were found to be in good faith despite their reliance on the consent of
another, whom they had mistakenly believed to be the owner of the land. (Sps. Macasaet v. Sps. Macasaet, 482 Phil.
853 (2004)).
The Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet notwithstanding the fact that the
builders therein knew they were not the owners of the land. In said case, the parents who owned the land allowed their
son and his wife to build their residence and business thereon. As found by the Court, their occupation was not by mere
tolerance but upon the invitation of and with the complete approval of (their parents), who desired that their children
would occupy the premises. It arose from familial love and a desire for family solidarity x x x. Soon after, conflict
between the parties arose. The parents demanded their son and his wife to vacate the premises. The Court thus ruled
that as owners of the property, the parents have the right to possession over it. However, they must reimburse their
son and his wife for the improvements they had introduced on the property because they were considered builders in
good faith even if they knew for a fact that they did not own the property, thus:
Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established facts of this
case show that respondents fully consented to the improvements introduced by petitioners. In fact, because the
children occupied the lots upon their invitation, the parents certainly knew and approved of the construction of the
improvements introduced thereon. Thus, petitioners may be deemed to have been in good faith when they built the
structures on those lots.
The instant case is factually similar to Javier v. Javier. In that case, this Court deemed the son to be in good faith for
building the improvement (the house) with the knowledge and consent of his father, to whom belonged the land upon
which it was built. Thus, Article 448 was applied.
In fine, the Court applied Article 448 by construing good faith beyond its limited definition. Macasaet ruling applies in
this case. First, good faith is presumed on the part of the respondent-spouses. Second, petitioner failed to rebut this
presumption. Third, no evidence was presented to show that petitioner opposed or objected to the improvements
introduced by the respondent-spouses. Consequently, we can validly presume that petitioner consented to the
improvements being constructed. This presumption is bolstered by the fact that as the subdivision developer, petitioner
must have given the respondent-spouses permits to commence and undertake the construction. Under Article 453 of
the Civil Code, it is understood that there is bad faith on the part of the landowner whenever the act was done with his
knowledge and without opposition on his part. (Communities Cagayan, Inc. v. Sps. Nanol, et al., G.R. No. 176791,
November 14, 2012).

Petitioner has two options under Article 448 and pursuant to the ruling in Tuatis v. Escol.
The seller (the owner of the land) has two options under Article 448: (1) he may appropriate the improvements for
himself after reimbursing the buyer (the builder in good faith) the necessary and useful expenses under Articles 54667
and 54868 of the Civil Code; or (2) he may sell the land to the buyer, unless its value is considerably more than that of
the improvements, in which case, the buyer shall pay reasonable rent. (Communities Cagayan, Inc. v. Sps. Nanol, et al.,
G.R. No. 176791, November 14, 2012).
In the absence of vitiation of consent, sale is valid.
Q The Roman Catholic Church sold a 32-square meter lot located in Naga City to Regino Pante, and sold a
bigger lot to Spouses Nestor and Fidela Rubi which included the smaller lot. When the Rubi spouses
asserted ownership over the lot, and constructed a fence over the lot blocking the Pantes access from
their family home, a complaint was filed to annul the sale between the Church and the Spouses Rubi
insofar as the 32 square meter lot is concerned. The Church filed an answer with a counterclaim seeking
annulment of the sale to Pante on the ground that its consent was obtained by fraud and in bad faith
since he misrepresented that he had been an actual occupant of the lot sold to him when in fact, he was
not. It contended that it is the policy of the Church to sell only to actual occupants, hence, the contract is
voidable. The Rubi spouses were not likewise residents of the lot sold to them. Rule on the contention.
Explain.
Answer. The contention is not correct. The actual occupancy or residency of a buyer over the land does not appear to be
a necessary qualification that the Church requires before it could sell its land. Had this been indeed its policy, then
neither of the parties would qualify as buyers of the 32-square meter lot, as none of them actually occupied or resided
on the lot.
Before the sale, there was a series of conferences with the occupants of the lots. The buyer was not an occupant
of the lot, yet he was allowed to purchase and it was approved, hence, there could have been no deliberate, willful or
fraudulent act committed.
In the absence of any vitiation of consent, the contract between the Church and Pante stands valid and existing. Any
delay by Pante in paying the full price could not nullify the contract, since (as correctly observed by the CA) it was
a contract of sale. By its terms, the contract did not provide a stipulation that the Church retained ownership until full
payment of the price. The right to repurchase given to the Church in case Pante fails to pay within the grace period
provided would have been unnecessary had ownership not already passed to Pante. (Roman Catholic Church v. Pante,
G.R. No. 174118, April 11, 2012, Brion, J).
Execution of public instrument of sale is equivalent to delivery; exception.

Q In a case, the lower court ordered the rescission of a contract of sale for failure to deliver the title. It
was argued on appeal that the obligation to deliver the thing sold was complied with by the seller when
she executed the public instrument of sale in favor of the buyer invoking Articles 1495 & 1498 & 1496,
NCC. Citing Chua v. CA, 449 Phil. 25 (2003), she claimed that there is a distinction between transferring a
certificate of title in the buyers name, on one hand, and transferring ownership over the property sold,
on the other. The latter can be accomplished by the sellers execution of an instrument of sale in a public
document. The recording of the sale with the Registry of Deeds and the transfer of the certificate of title
in the buyers name are necessary only to bind third parties to the transfer of ownership. Furthermore,
the property was in the possession of another person. Is the contention correct? Why?
Answer: No, because of the continued possession of a third person. When the sale of real property is made in a public
instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred.
In other words, there is symbolic delivery of the property subject of the sale by the execution of the public
instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention
of the parties. Such would be the case, for instance, x x x where the vendor has no control over the thing sold at the
moment of the sale, and, therefore, its material delivery could not have been made. (Phil. Suburban Dev. Corp. v. The
Auditor General, 159 Phil. 998 (1975)).
Stated differently, as a general rule, the execution of a public instrument amounts to a constructive delivery of
the thing subject of a contract of sale. However, exceptions exist, among which is when mere presumptive and not
conclusive delivery is created in cases where the buyer fails to take material possession of the subject of sale. A person
who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and
delivery of a public instrument. (Villamar v. Mangaoil, G.R. No. 188661, April 11, 2012, Reyes, J).
Partial payment to seller to settle the mortgage implies ejectment of mortgagee.
Q In a contract of sale, one of the terms and conditions was that, the partial payment shall be used to
pay the mortgagees. The contract did not expressly state that the seller shall eject the mortgagor. But
despite payment, the mortgagees were still in possession. There was an action for rescission for failure to
deliver the title and possession of the property. The seller contended that there was delivery when she
executed the public instrument of sale hence, rescission is not proper. She cited Chua v. CA, 449 Phil. 25
(2003) as there was no express provision to eject the occupants/mortgagee, citing also Power Commercial
& Industrial Corp. CA, 340 Phil. 705 (1997)). Is the contention correct? Why?
Answer: No, because while the failure to eject the squatters from the property cannot be made a ground for rescission
if the ejectment is not stipulated, the undertaking is necessarily implied from the provision that the partial payment

shall be used to pay the mortgagee. Cessation of the subject property is logically expected from the seller/mortgagor
upon the payment of the amount due.
The law obliges the seller to transfer the ownership of and to deliver a determinate thing to the buyer, who shall in turn
pay therefor a price certain in money or its equivalent. (Art. 1458, NCC). In addition thereto, Article 1495 of the NCC
binds the seller to warrant the thing which is the object of the sale. On the other hand, Article 1498 of the same code
provides that when the sale is made through a public instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the deed, the contrary does not appear or cannot clearly
be inferred.
In Chua v. Court of Appeals, it was ruled that when the deed of absolute sale is signed by the parties and
notarized, then delivery of the real property is deemed made by the seller to the buyer. The transfer of the certificate
of title in the name of the buyer is not necessary to confer ownership upon him. (Villamar v. Mangaoil, G.R. No. 188661,
April 11, 2012).
Written notice to prospective redemption is mandatory.
Q The owner of a real property offered the sale to the adjoining owners and one of them agreed to the
sale to take place after the harvest season. But he later sold the same to another. The heirs of one of the
adjoining owners learned about the sale a day after it was sold and conveyed their intention to redeem
the property but the seller answered, saying that there was already a contract of sale executed with the
buyer and that they never tendered the redemption amount. A complaint for legal redemption was filed
but it was opposed on the ground that he complied with the requirement of notice under Article 1623,
NCC but they failed to exercise the right of redemption. There was likewise no need to comply with the
written notice requirement since they already knew of the sale. Is the contention correct? Why?
Answer: No, because of the lack of written notice to the prospective redemption. (Art. 1623, NCC). Such written notice
is mandatory.
Without a written notice, the period of thirty days within which the right of legal pre-emption may be exercised, does
not start.
The indispensability of a written notice had long been discussed in the early case of Conejero v. Court of Appeals, 123
Phil. 695 (1966) where the SC said that such notice is indispensable, and that, in view of the terms in which Article of
the Philippine Civil Code is couched, mere knowledge of the sale, acquired in some other manner by the redemptioner,
does not satisfy the statute. The written notice was obviously exacted by the Code to remove all uncertainty as to the
sale, its terms and its validity, and to quiet any doubts that the alienation is not definitive. The statute not having
provided for any alternative, the method of notification prescribed remains exclusive.

This is the same ruling in Verdad v. Court of Appeals, 326 Phil. 601 (1996), where the SC said that the written notice of
sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the
latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its
terms and conditions, as well as its efficacy and status. (Barcellano v. Banas, et al., G.R. No. 165287, September 14,
2011, Perez, J).
Lately, in Gosiengfiao Guillen v. the Court of Appeals, G.R. No. 159755, June 18, 2009, 589 SCRA 399, the Court again
emphasized the mandatory character of a written notice in legal redemption and said:
Petitioner-heirs have not lost their right to redeem, for in the absence of a written notification of the sale by the
vendors, the 30-day period has not even begun to run. These premises and conclusion leave no doubt about the
thrust of Mariano: The right of the petitioner-heirs to exercise their right of legal redemption exists, and the running of
the period for its exercise has not even been triggered because they have not been notified in writing of the fact of sale.
The petitioner argues that the only purpose behind Art. 1623 of the New Civil Code is to ensure that the owner of the
adjoining land is actually notified of the intention of the owner to sell his property. To advance their argument, they
cited Destrito v. Court of Appeals as cited in Alonzo v. Intermediate Appellate Court, 234 Phil. 267 (1987) where it was
pronounced that written notice is no longer necessary in case of actual notice of the sale of property.
The Alonzo case does not apply to this case. There, it was pronounced that the disregard of the mandatory written rule
was an exception due to the peculiar circumstance of the case. In this case, there was a complaint for redemption,
hence, the co-heirs were informed of such sale. Thus, the 30-day period started to run and eventually expired.
The co-heirs in this case were undeniably informed of the sales although no notice in writing was given them. And there
is no doubt either that the 30-day period began and ended during the 14 years between the sales in question and the
filing of the complaint for redemption in 1977, without the co-heirs exercising their right of redemption. These are the
justifications for this exception.
The Court clarified that it did not abandon Conejero and Buttle.
Without the peculiar circumstances in the present case, Alonzo cannot find application. The impossibility
in Alonzo of the parties not knowing about the sale of a portion of the property they were actually occupying is not
present in this case. The strict letter of the law must apply. That a departure from the strict letter should only be for
extraordinary reasons is clear from the second sentence of Art. 1623 that The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all
possible redemptioners.
ASSIGNMENT OF CREDIT

Q There was a complaint for sum of money filed by the Serfinos against the spouses Cortez. To settle the
case, they executed a compromise agreement and the latter bound themselves to pay in full the
judgment debt out of her retirement benefits. But the retirement benefits were deposited with the
account of their daughter at FEBTC and subsequently withdrawn. There was a complaint for damages
impleading the bank for allowing the withdrawal of the amount deposited.
The spouses Serfinos claim for damages against FEBTC is premised on their claim of ownership of the
deposit with FEBTC. The deposit consisted of Magdalenas retirement benefits, which the spouses Serfino
claimed to have been assigned to them under the compromise judgment. That the retirement benefits
were deposited in Graces savings account with FEBTC supposedly did not divest them of ownership of the
amount, as the money already belonged to the spouses Serfino having been absolutely assigned to them
and constructively delivered by virtue of the public instrument. By virtue of the assignment of credit, the
spouses Serfino claim ownership of the deposit, and they posited that FEBTC was duty bound to protect
their right by preventing the withdrawal of the deposit since the bank had been notified of the
assignment and of their claim. Is the contention correct? Why?
Answer: No, because there was no assignment of credit. An assignment of credit is an agreement by virtue of which
the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation,
and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who
acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. It may be in the
form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release
from his debt, assigns to his creditor a credit he has against a third person. As a dation in payment, the assignment of
credit operates as a mode of extinguishing the obligation; the delivery and transmission of ownership of a thing (in this
case, the credit due from a third person) by the debtor to the creditor is accepted as the equivalent of the performance
of the obligation. (Aquintey v. Tibong, G.R. No. 166704, December 20, 2006, 511 SCRA 414).
The terms of the compromise judgment, however, did not convey an intent to equate the assignment of Magdalenas
retirement benefits (the credit) as the equivalent of the payment of the debt due the spouses Serfino (the obligation).
There was actually no assignment of credit; if at all, the compromise judgment merely identified the fund from
which payment for the judgment debt would be sourced.
Only when Magdalena has received and turned over to the spouses Serfino the portion of her retirement benefits
corresponding to the debt due would the debt be deemed paid. (Serfino v. FEBTC, et al., G.R. No. 171845, October 10,
2012, Brion, J).
Note:
In Aquitey v. Tibong, the issue raised was whether the obligation to pay the loan was extinguished by the execution of

the deeds of assignment. The Court ruled in the affirmative, given that, in the deeds involved, the debtor assigned to
the creditor her credits to make good the balance of her obligation; the parties agreed to relieve the debtor of her
obligation to pay the balance of her account, and for the creditor to collect the same from the debtors. The Court
concluded that the debtors obligation to pay the balance of her accounts with the creditor was extinguished, pro tanto,
by the deeds of assignment of credit executed by the respondent in favor of the petitioner. In the present case, the
judgment debt was not extinguished by the mere designation in the compromise judgment of Magdalenas retirement
benefits as the fund from which payment shall be sourced. That the compromise agreement authorizes recourse in case
of default on other executable properties of the spouses Cortez, to satisfy the judgment debt, supports the conclusion
that there was no assignment of Magdalenas credit with the GSIS that would have extinguished the obligation.
The compromise judgment in this case also did not give the supposed assignees, the spouses Serfino, the power to
enforce Magdalenas credit against the GSIS. In fact, the spouses Serfino are prohibited from enforcing their claim until
after the lapse of one (1) week from Magdalenas receipt of
her retirement benefits.
An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power to enforce it as
against the debtor of the assignor. Since no valid assignment of credit took place, the spouses Serfino cannot validly
claim ownership of the retirement benefits that were deposited with FEBTC. Without ownership rights over the
amount, they suffered no pecuniary loss that has to be compensated by actual damages. The grant of actual
damages presupposes that the claimant suffered a duly proven pecuniary loss. (Art. 2199, NCC; supra.).
LEASE
Prohibition against subleasing of land does not include the building constructed by the lessee.
Q In a lease contract over a parcel of land, the agreement was that the lessee shall establish a sports
center and parking area to ease the parking congestion at the Domestic Airport. There was an exclusive
option to renew the contract of lease granted to the lessee, but the lessor refused to renew on the ground
that it violated the prohibition against subleasing of the premises. Is the contention correct? Why?
Answer: No, because the prohibition against subleasing the premises refers only to the subject property, the land.
Being the builder of the improvements on the subject property, said improvements are owned by it until the turn over
to the lessor at the end of the contract. The lessee was not leasing the improvements from the lessor, thus; then it is
not subleasing the same to third persons. (MIAA v. Ding Velayo Sports Center, Inc., supra.)
When there is implied renewal of a contract of lease.
Q The contract of lease between the parties commenced on January 1, 1997 and expired on December

31, 1997. The lessor did not give a notice to vacate the premises upon the expiration of the lease and the
lessee continued to possess the same for more than 15 days without objection from the lessor. The notice
to vacate was given only on August 5, 1998. What is the effect of the inaction of the lessor? Explain.
Answer: By the inaction of the lessor, there can be no inference that it intended to discontinue the lease contract
(Bowe v. CA, G.R. No. 95771, March 19, 1993, 220 SCRA 158). There was an impliedly renewed contract. An implied new
lease or tacita reconcluccion will set in when the following requisites are found to exist: (a) the term of the original
contract of lease has expired; (b) the lessor has not given the lessee a notice to vacate; (c) the lessee continued
enjoying the thing leased for fifteen days with the acquiescence of the lessor. (Paterno v. CA, 339 Phil. 154 (1997);
Samelo v. Manotok Services, Inc., G.R. No. 170509, June 27, 2012, Brion, J).
Q In case of an impliedly renewed contract, what is the period of the contract? Explain.
Answer: Since the rent is paid on a monthly basis, the period of lease is considered to be from month to month, in
accordance with Article 1687 of the Civil Code. A lease from month to month is considered to be one with a definite
period which expires at the end of each month upon a demand to vacate by the lessor. (Arquelda v. Phil. Veterans
Bank, 385 Phil. 1200 (2000)). When the lessor sent a notice to vacate to the lessee on August 5, 1998, the tacita
reconduccion was aborted, and the contract is deemed to have expired at the end of that month. A notice to vacate
constitutes an express act on the part of the lessor that it no longer consents to the continued occupation by the lessee
of its property. (Tagbilaran Integrated Sellers Assn. v. CA, 486 Phil. 386 (2004)). After such notice, the lessees right to
continue in possession ceases and her possession becomes one of detainer. (Lim v. CA, G.R. Nos. 84154-55, July 20,
2010; Samelo v. Manotok Services, Inc., G.R. No. 170509, June 27, 2012, Brion, J).
Q May the lessee question the title of the lessor? Why?
Answer: No. The Rules of Court protects the lessor, from being questioned by the lessee, regarding its title or better
right of possession over the subject premises. Section 2(b), Rule 131 of the Rules of Court states that the tenant is not
permitted to deny the title of his landlord at the time of the commencement of the relation of landlord and tenant
between them. Article 1436 of the Civil Code likewise states that a lessee or a bailee is estopped from asserting title to
the thing leased or received, as against the lessor or bailor.
These provisions bar the lessee from contesting the lessors title over the subject premises. The juridical relationship
between a lessor and a lessee carries with it a recognition of the lessor's title. As lessee, he is estopped from denying
the landlord's title, or to assert a better title not only in herself, but also in some third person while she remains in
possession of the subject premises and until she surrenders possession to the landlord. This estoppel applies even
though the lessor had no title at the time the relation of the lessor and the lessee was created, and may be asserted not
only by the original lessor, but also by those who succeed to his title. (Century Savings Bank v. Samonte, G.R. No.
176212, October 20, 2010, 634 SCRA 261). Once a contact of lease is shown to exist between the parties, the lessee

cannot by any proof, however strong, overturn the conclusive presumption that the lessor has a valid title to or a better
right of possession to the subject premises than the lessee. (Samelo v. Manotok Services, Inc., G.R. No. 170509, June
27, 2012, Brion, J).
Note:
The Court thus explained in Tamio v. Ticson:
Indeed, the relation of lessor and lessee does not depend on the formers title but on the agreement between the
parties, followed by the possession of the premises by the lessee under such agreement. As long as the latter remains
in undisturbed possession, it is immaterial whether the lessor has a valid title or any title at all at the time the
relationship was entered into.
LEASE/RESCISSION
In a complaint for ejectment, the lessor may simultaneously eject the lessee and demand for rescission of
the contracts.
Q General Milling Corporation is the owner of a property which was leased to Cebu Autometic Motors,
Inc. It was stipulated that it shall be used as garage and repair shop for vehicles, but allegedly, it was
subleased without the consent of the lessor. The lessor contended that the lessee violated the contract by
subleasing and for failure to deliver the required advance rental and deposit. This was denied by the
lessee. The lessor sent a letter to the lessee terminating the contract and demanding the vacation of the
premises and settlement of unpaid accounts. Later, it filed a complaint for unlawful detainer alleging that
it terminated the contract for violation of the terms of the same and continued to do so despite repeated
demands and reminders for compliance that the lessee refused to vacate the premises. The MTC rendered
a judgment ordering the lessee to vacate, but the RTC reversed the judgment holding that the lessor
failed to comply with the requisite demand under Rule 70, Sec. 2. The CA ruled that the claim of failure to
comply with Sec. 2, Rule 70 is belated, hence, it cannot be entertained anymore. Before the SC, it was
contended that there was no proper demand since the letter merely stated that the lessor expected the
lessee to vacate the premises and pay the unsettled accounts. The letter did not demand compliance with
the terms of the contract, hence, the lessee cannot be considered in default and the lessor had no cause
to terminate the lease. It contended that since the lessor never sent a proper demand letter, it cannot be
considered in delay invoking Article 1169, NCC. Rule on the contention of the lessee. Explain.
Answer: The lessee is correct. The lessor did not send the proper demand letter.
The lessee, in invoking Article 1169, apparently overlooked that what is involved is not a mere mora or delay in the
performance of a generic obligation to give or to do that would eventually lead to the remedy of rescission or specific

performance. What is involved in the case is a contract of lease and the twin remedies of rescission and judicial
ejectment after either the failure to pay rent or to comply with the conditions of the lease. This situation calls for the
application, not of Article 1169 of the Civil Code but, of Article 1673 in relation to Section 2, Rule 70 of the Rules of
Court. Article 1673 states that the lessor may judicially eject the lessee for any violation of any of the conditions
agreed upon in the contract.
Based on this provision, a lessor may judicially eject (and thereby likewise rescind the contract of lease) the lessee if
the latter violates any of the conditions agreed upon in the lease contract. Implemented in accordance with Section 2,
Rule 70, the lessor is not required to first bring an action for rescission, but may ask the court to do so and
simultaneously seek the ejecment of the lessee in a single action for unlawful detainer. (Abaya Investments Corp. v.
Merit Phils., Inc., G.R. No. 176324, April 14, 2008, 551 SCRA 646). Section 2, Rule 70 of the Rules of Court provides that
unless otherwise stipulated, such action by the lessor shall be commenced only after demand to pay or comply with the
conditions of the lease and to vacate is made upon the lessee, or by serving written notice of such demand upon the
person found on the premises, or by posting such notice on the premises if no person be found thereon, and the lessee
fails to comply therewith after fifteen (15) days in the case of land or five (5) days in the case of buildings. (Cebu
Autometic Motors, Inc., et al. v. General Milling Corp., G.R. No. 151168, August 25, 2012, Brion, J).
Nature of demand
The demand letter states We expect you to vacate the premises, settle all your unpaid accounts on or
before the end of June, 1999.
This is not the demand required by Sec. 2, Rule 70.
Section 2, Rule 70, on its face, involves two demands that may be made in the same demand letter, namely, (1) the
demand for payment of the amounts due the lessor, or the compliance with the conditions of the lease, and (2) the
demand to vacate the premises. These demands, of course, are not intended to be complied with at the same time;
otherwise, the provision becomes contradictory as it is pointless to demand payment or compliance if the demand to
vacate is already absolute and must be heeded at the same time as the demand to pay or to comply. It is only after the
demands for payment or compliance are made on the lessee and subsequently rejected or ignored that the basis for
the unlawful detainer action arises.
The twin aspects of the demand letter can best be understood when Section 2, Rule 70 is read and understood as the
specific implementing procedural rule to carry out the results that Article 1673 mandates the rescission of the
contract of lease and the judicial ejectment of the lessee. The judicial rescission of a contract of lease is essentially
governed by Article 1659 of the Civil Code, grounded on the breach of the parties statutory obligations: in the case of
the lessee, for its failure to pay the rent or to use the property under lease for the purpose it was intended. Article
1673, read with Section 2, Rule 70 of the Rules, does away with the need for an independent judicial action to rescind

prior to ejectment by combining these remedies in an unlawful detainer action.

The law of contracts (essentially, Articles 1191 of the Civil Code for judicial rescission and Article 1659 for the judicial
rescission of lease agreements) firmly establishes that the failure to pay or to comply with the contractual term does
not, by itself, give rise to a cause of action for rescission; the cause of action only accrues after the lessee has been in
default for its failure to heed the demand to pay or to comply. With the contract judicially rescinded, the demand to
vacate finds full legal basis.
Article 1673, implemented pursuant to Section 2, Rule 70, does away with a separate judicial action for rescission, and
allows under a single complaint the judicial ejectment of the lessee after extrajudicial rescission has taken place. These
combined remedies account for the separate aspects of the demand letter: the demand to pay rentals or to comply with
the terms of the lease, and to vacate. The tenant's refusal to heed the demand to vacate, coming after the demand to
pay or to comply similarly went unheeded, renders unlawful the continued possession of the leased premises; hence,
the unlawful detainer action. (Zobel v. Abreu, 52 O.G. 3592; Dio v. Concepcion).
In Dio v. Concepcion, it was ruled that:
Under Article 1673 of the Civil Code, the lessor may judicially eject the lessee for, among other causes: (1) lack of
payment of the price stipulated; or (2) violation of any of the conditions agreed upon in the contract. Previous to the
institution of such action, the lessor must make a demand upon the lessee to pay or comply with the conditions of the
lease and to vacate the premises. It is the owners demand for the tenant to vacate the premises and the tenants
refusal to do so which makes unlawful the withholding of possession. (Casilan v. Tomasi, 10 SCRA 261 (1964)). Such
refusal violates the owners right of possession giving rise to an action for unlawful detainer.
An extrajudicial rescission gave rise to the demand to vacate that, upon being refused, rendered the possession illegal
and laid the lessee open to ejectment. The rescission, an extrajudicial one, was triggered by the lessees refusal to pay
the rent or to comply with the terms of the lease. The Court put it in plainer terms in Arquelada v. Philippine Veterans
Bank, G.R. No. 139137, March 31, 2000, where it said:
As contemplated in Section 2, the demand required is the demand to pay or comply with the conditions of the lease and
not merely a demand to vacate. Consequently, both demands - either to pay rent or adhere to the terms of the
lease and vacate are necessary to make the lessee a deforciant in order that an ejectment suit may be
filed. It is the lessor's demand for the lessee to vacate the premises and the tenant's refusal to do so which makes
unlawful the withholding of the possession. Such refusal violates the lessor's right of possession giving rise to an action
for unlawful detainer. However, prior to the institution of such action, a demand from the lessor to pay or
comply with the conditions of the lease and to vacate the premises is required under the aforequoted
rule. Thus, mere failure to pay the rents due or violation of the terms of the lease does not automatically
render a person's possession unlawful. Furthermore, the giving of such demands must be alleged in the complaint,

otherwise the MTC cannot acquire jurisdiction over the case. [Emphasis supplied.]
The letter merely informed recipient lessee that lessor had terminated the lease based on the cited violations of the
terms of the lease, and on the basis of this termination, required lessee to vacate the premises by the end of the
month.
The lessor did not fully comply with the requirements of Section 2, Rule 70. Technically, no extrajudicial rescission
effectively took place as a result of the cited violations until the demand to pay or comply was duly served and was
rejected or disregarded by the lessee. This aspect of the demand letter missing in the demand letter and whose
rejection would have triggered the demand to vacate gave the lessor no effective cause of action to judicially demand
the lessees ejectment. (Cebu Autometic Motors, Inc., et al. v. General Milling Corp., G.R. No. 151168, August 25, 2012,
Brion, J).
AGENCY
Agent acted beyond scope of authority; principal not bound.
Q Unimarine Shipping Lines, Inc. & Keppel Cebu Shipyard entered into a dry docking and ship repair
contract on the formers vessel M/V Pacific Fortune for P3.8M. A surety bond was issued by Country
Bankers Insurance Corp. through its agent with an extension of the same upon its expiration. When the
check for the first installment of its payment was dishonored, there were demands for payment, but
Unimarine did not pay together with the sureties; hence, the complaint for sum of money with damages.
CBIC contended that the surety bond issued by its agent was done in excess of its authority as such bond
is stamped at the upper right portion of the face of the bond that it could only be issued in favor of the
DPWH and the endorsement was not reported to it. The RTC held CBIC liable solidarily with Unimarine. It
did not take into consideration that the bond was issued in excess of the agents authority, rather, it ruled
that the agent acted within the apparent scope of his authority. The CA affirmed the RTC decision on
appeal. CBIC contended that Cebu Shipyard should have investigated the extent of the agents authority.
Is the decision of the lower courts correct? Why?
Answer: No, because the SPA clearly stated the limits of the agents authority which provides that in case of surety
bonds, it can only be issued in favor of the DPWH, NPC and other government agencies. Unimarine is not a government
agency.
Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his authority, may bind the principal if
he ratifies them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent, can
ratify the unauthorized acts, which the principal must have knowledge of. (Manila Memoral Park Cemetery, Inc. v.
Linsangan, G.R. No. 151319, November 22, 2004, 443 SCRA 377). Expounding on the concept and doctrine of

ratification in agency, the Court said:

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another
without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts
were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack
thereof in concealing such facts and regardless of the parties between whom the question of ratification
may arise. Nevertheless, this principle does not apply if the principals ignorance of the material facts and
circumstances was willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of
circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the
principal who is ignorant of the facts.
In this case, there was no ratification. Article 1911, on the other hand, is based on the principle of estoppel, which is
necessary for the protection of third persons. It states that the principal is solidarily liable with the agent even when
the latter has exceeded his authority, if the principal allowed him to act as though he had full powers. However, for an
agency by estoppel to exist, the following must be established:
1. The principal manifested a representation of the agents authority or knowingly allowed the agent to assume
such authority;
2. The third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has changed his position to his detriment. (Litonjua, Jr. v.
Eternit Corp., G.R. No. 144805, June 8, 2006, 490 SCRA 264).
In Litonjua, Jr. v. Eternit Corp., it was said that an agency by estoppel, which is similar to the doctrine of apparent
authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations
predated the action taken in reliance.
Negligence of CBIC.
CBIC was not negligent as it not only clearly stated the limits of its agents powers in their contracts, it even stamped
its surety bonds with the restrictions, in order to alert the concerned parties. Moreover, its company procedures, such
as reporting requirements, show that it has designed a system to monitor the insurance contracts issued by its
agents. CBIC cannot be faulted for Quinains deliberate failure to notify it of his transactions with Unimarine.
It is apparent that Unimarine had been negligent or less than prudent in its dealings with the agent. In Manila Memorial
Park Cemetery, Inc. v. Linsangan, the Court held:

It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it. The basis for agency is representation and a person dealing with an agent
is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such an inquiry, he
is chargeable with knowledge of the agents authority and his ignorance of that authority will not be any excuse.
In the same case, this Court added:
The ignorance of a person dealing with an agent as to the scope of the latters authority is no excuse to such person
and the fault cannot be thrown upon the principal. A person dealing with an agent assumes the risk of lack of authority
in the agent. He cannot charge the principal by relying upon the agents assumption of authority that proves to be
unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will
not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.
Unimarine undoubtedly failed to establish that it even bothered to inquire if the agent was authorized to agree to terms
beyond the limits indicated in his special power of attorney. As the Court held in Litonjua, Jr. v. Eternit Corp.:
A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents
statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and
prudence to ascertain whether the agent acts within the scope of his authority. The settled rule is that, persons dealing
with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact
of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon
them to prove it. In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to
damages from respondent EC.
In view of the foregoing CBIC cannot be made liable. (Country Bankers Insurance Corp. v. Keppel Cebu Shipyard,
et al., G.R. No. 166044, June 18, 2012, De Castro, J).
Agency coupled with interest cannot be revoked.
Q The owners of a parcel of land executed a SPA authorizing another person to obtain a loan with the
titles as security with an agreement that they would have an equal share in the proceeds of the loan. The
loan was granted but the owners of the properties revoked the SPA. Is the act valid? Why?
Answer: No, because the agency is one that is couple with interest. SPA executed was one of agency coupled with
interest. This is because their bilateral contract depends upon the agency. (Rep. v. Judge Evangelista, 504 Phil. 115
(2005). Hence, it cannot be revoked at the sole will of the principal. (same case; Ching v. Bantolo, et al., G.R. No.
177086, December 5, 2012).

SURETY
When there is surety.
Q When does surety arise and state its effect? Explain.
Answer: Suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for the
purpose of fulfilling an obligation. A surety is considered in law as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable.
(Secuity Pacific Assurance Corp. v. Hon. Tria-Infante, 505 Phil. 609 (2005)). Therefore, as surety, it becomes liable for
the debt o duty of the debtor although it possesses no direct or personal interest over the obligations of the latter, nor
does it receive any benefit therefrom.
So even if the principal enters into a MOA with the other party without informing the surety, it would not
extinguish the obligation of the surety especially if the terms and conditions of the originally contract are still in full
force. (Phil. Charter Ins. Corp. v. Petroleum Distributors Service Corp., G.R. No. 180898, April 18, 2012, Mendoza, J).
Q What are the two (2) types of relationship in a surety agreement? Explain.
Answer: A surety agreement has two types of relationship: (1) the principal relationship between the oblige and the
obligor; and (2) the accessory the surety relationship between the principal and the surety. The oblige accepts the
suretys solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not change in any
material way the obligees relationship with the principal obligor. Neither does it make the surety an active party in the
principal obligor-obligee relationship. It follows, therefore, that the acceptance does not give the surety the right to
intervene in the principal contract. The suretys ole arises only upon the obligors default, at which time, it can be
directly held liable by the obligee for payment as a solidary obligor. (Phil. Charter Ins. Corp. v. Petroleum Distributors &
Service Corp., G.R. No. 180898, April 18, 2012).
MORTGAGE
Stipulation prohibiting mortgagor from selling property without mortgagees consent is void.
Q Lourdes Galas, the registered owner of a real property obtained a loan from Yolanda Villar secured by
a mortgage over the said property. There was a second mortgage in favor of Pablo Garcia. Thereafter
Galas sold the said property to Villar who obtained a title over the same. Garcia filed a petition for
foreclosure of the mortgage against Villar, claiming that when the property was sold to her Galas was
relieved of her contractual obligation and the characters of creditor and debtor were merged in Villar.
Villar contended that the sale was void as it was done without her consent. Is the contention correct?
Explain.

Answer: No. The sale is valid. While it is true that the annotation of the first mortgage to Villar on the title contained a
restriction on further encumbrances, without the consent of the first mortgagee, this restriction was nowhere to be
found in the Deed of Real Estate Mortgage. As the Deed became the basis for the annotation on the title, its terms and
conditions take precedence over the standard, stamped annotation placed in the title. If it were the intention of the
parties to impose such restriction, they would have and should have stipulated in the Deed of Mortgage. Neither did the
Deed proscribe the sale or alienation of the subject property during the life of the mortgage. If there was such a
stipulation, it would be void since Article 2130, NCC provides that a stipulation forbidding the owner from alienating the
immovable mortgage shall be void. (Pablo Garcia v. Yolanda VIllar, G.R. No. 158891, June 27, 2012, De Castro, J).
Pactum commissorium
Q It was contended by Garcia that the stipulation appointing Villar as the mortgagors attorney-in-fact,
to sell the property in case of default in the payment of the loan was a violation of the prohibition on
pactum commissorium under Art. 2088, NCC which provides that the creditor cannot appropriate the
things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and
void. Is the contention correct? Why?
Answer: No, as there was no automatic appropriation of the thing mortgaged. Instead, it was sold to her.
The following are the elements of pactum commissorium:
1. (1) There should be a property mortgaged by way of security for the payment of the principal obligation; and
2. (2) There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of
non-payment of the principal obligation within the stipulated period. (DBP v. CA, 348 Phil. 15 (1998)).
Villars purchased of the subject property did not violate the prohibition on pactum commissorium. The power of
attorney provision did not provide that the ownership over the subject property would automatically pass to Villar upon
Galass failure to pay the loan on time. What it granted was the mere appointment of Villar as attorney-in-fact, with
authority to sell or otherwise dispose of the subject property, and to apply the proceeds to the payment of the loan.
This provision is customary in mortgage contracts, and is in conformity with Article 2087 of the Civil Code, which reads:
Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things in
which the pledge or mortgage consists may be alienated for the payment to the creditor.
Galas decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well within
the scope of her rights as the owner of the subject property. The subject property was transferred to Villar by virtue of
another and separate contract, which is the Deed of Sale. Garcia never alleged that the transfer of the subject property
to Villar was automatic upon Galass failure to discharge her debt, or that the sale was simulated to cover up such

automatic transfer. (Garcia v. Villar, G.R. No. 158891, June 27, 2012, Del Castillo, J).
Q In filing the complaint for foreclosure of the mortgage, Garcia contended that when Villar purchased
the property, she undertook to pay the second mortgage. Is the contention correct? Explain.
Answer: No. Under the law, the mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was foreclosed. (Art. 2126,
NCC).
Simply put, a mortgage is a real right, which follows the property, even after subsequent transfers by the
mortgagor. A registered mortgage lien is considered unseparable from the property inasmuch as it is a right in rem.
(PNB v. RBL ENt., Inc., G.R. No. 149569, May 28, 2004, 430 SCRA 299).
The sale or transfer of the mortgaged property cannot affect or release the mortgage; thus the purchaser or
transferee is necessarily bound to acknowledge and respect the encumbrance. (Ganzon v. Inserto, 208 Phil. 630
(1983)). In fact, under Article 2129 of the Civil Code, the mortgage on the property may still be foreclosed despite the
transfer,viz:
Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the payment of the part
of the credit secured by the property which said third person possesses, in terms and with the formalities which the law
establishes.
While the court agree with Garcia that since the second mortgage, of which he is the mortgagee, has not yet
been discharged, it was found that said mortgage subsists and is still enforceable. However, Villar, in buying the subject
property with notice that it was mortgaged, only undertook to pay such mortgage or allow the subject property to be
sold upon failure of the mortgage creditor to obtain payment from the principal debtor once the debt matures. Villar did
not obligate herself to replace the debtor in the principal obligation, and could not do so in law without the creditors
consent. Article 1293 of the Civil Code provides:
Article 2193. Novation which consists in substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in Articles 1236 and 1237.
Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas and Pingol.
(Rodriguez v. Reyes, supra.). The case of E.C. McCullough & Co. v. Veloso and Serna, 46 Phil. 1 (1924), is square on this
point:
The effects of a transfer of a mortgaged property to a third person are well determined by the Civil Code. According to
Article 1879 (now Art. 2129) of this Code, the creditor may demand of the third person in possession of the property

mortgaged payment of such part of the debt, as is secured by the property in his possession, in the manner and form
established by the law. The Mortgage Law in force at the promulgation of the Civil Code and referred to in the latter,
provided, among other things, that the debtor should not pay the debt upon its maturity after judicial or notarial
demand, for payment has been made by the creditor upon him. (Art. 135 of the Mortgage Law of the Philippines of
1889). According to this, the obligation of the new possessor to pay the debt originated only from the right of the
creditor to demand payment of him, it being necessary that a demand for payment should have previously been made
upon the debtor and the latter should have failed to pay. And even if these requirements were complied with, still the
third possessor might abandon the property mortgaged, and in that case it is considered to be in the possession of the
debtor. (Art. 136 of the same law). This clearly shows that the spirit of the Civil Code is to let the obligation of the
debtor to pay the debt stand although property mortgaged to secure the payment of said debt may have been
transferred to a third person. While the Mortgage Law of 1893 eliminated these provisions, it contained nothing
indicating any change in the spirit of the law in this respect. Article 129 of this law, which provides the substitution of
the debtor by the third person in possession of the property, for the purposes of the giving of notice, does not show this
change and has reference to a case where the action is directed only against the property burdened with the mortgage.
This pronouncement was reiterated in Rodriguez v. Reyes, wherein the Court, even before quoting the same
above portion in E.C. McCullough & Co. v. Veloso and Serna, held:
We find the stand of petitioners-appellants to be unmeritorious and untenable. The maxim caveat emptor applies
only to execution sales, and this was not one such. The mere fact that the purchaser of an immovable has notice that
the acquired realty is encumbered with a mortgage does not render him liable for the payment of the debt guaranteed
by the mortgage, in the absence of stipulation or condition that he is to assume payment of the mortgage debt. The
reason is plain: the mortgage is merely an encumbrance on the property, entitling the mortgagee to have the property
foreclosed, i.e., sold, in case the principal obligor does not pay the mortgage debt, and apply the proceeds of the sale to
the satisfaction of his credit. Mortgage is merely an accessory undertaking for the convenience and security of the
mortgage creditor, and exists independently of the obligation to pay the debt secured by it. The mortgagee, if he is so
minded, can waive the mortgage security and proceed to collect the principal debt by personal action against the
original mortgagor.
Hence, Garcia has no cause of action against Villar in the absence of evidence to show that the second mortgage
executed in favor of Garcia has been violated by his debtors, Galas and Pingol, i.e., specifically that Garcia has made a
demand on said debtors for the payment of the obligation secured by the second mortgage and they have failed to pay.
(Garcia v. Villar, G.R. No. 158891, June 27, 2012).
INTEREST
6% interest to be paid if not a forebearance of money.

Q There was a contract for professional services as campaign manager. There was an offer to pay
P200,000.00 plus legal interest which was not specified. What interest should be paid? Explain.
Answer: It shall earn interest of 6% per annum to be computed from the time of extrajudicial demand for payment
until the finality of the decision. As ruled in Eastern Shipping, after a judgment has become final and executory, the rate
of legal interest, whether the obligation was in the form of a loan or forbearance of money or otherwise, shall be 12%
per annum from such finality until its satisfaction. Thus, from the date the liability for the principal obligation has
become final and executory, an annul interest of 12% shall be imposed until its final satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit. (Tan v. Benolirao, G.R. No. 153820, October 16,
2009, 604 SCRA 36; Manzano v. Lazaro, G.R. No. 173320, April 11, 2012, Peralta, J).
LRC
Action for reversion distinguished from declaration of nullity of patent.
Heirs of Ambrocio Kionisala v. Heirs of Honorio Dacut distinguishes an action for reversion from an action for declaration
of nullity of free patents and certificates of title as follows:
An ordinary civil action for declaration of nullity of free patents and certificates of title is not the same as an action for
reversion. The difference between them lies in
the allegations as to the character of ownership of the realty whose title is sought to be nullified. In an
action for reversion, the pertinent allegations in the complaint would admit State ownership of the disputed land. Hence
in Gabila v. Barriga where the plaintiff in his complaint admits that he has no right to demand the cancellation or
amendment of the defendants title because even if the title were cancelled or amended the ownership of the land
embraced therein or of the portion affected by the
amendment would revert to the public domain, we ruled that the action was for reversion and that the only person or
entity entitled to relief would be the Director of Lands.
On the other hand, a cause of action for declaration of nullity of free patent and certificate of title would
require allegations of the plaintiffs ownership of the contested lot prior to the issuance of such free patent and
certificate of title as well as the defendants fraud or mistake, as the case may be, in successfully obtaining these
documents of title over the parcel of land claimed by plaintiff. In such a case, the nullity arises strictly not from the
fraud or deceit but from the fact that the land is beyond the jurisdiction of the Bureau of Lands to bestow and whatever
patent or certificate of title obtained therefor is consequently void ab initio. The real party in interest is not the State
but the plaintiff who alleges a pre-existing right of ownership over the parcel of land in question even before the grant
of title to the defendant. x x x[.] (G.R. No. 165815, April 27, 2007, 552 SCRA 644; Soquitlo v. Tortola, G.R. No. 192450,

July 23, 2012, Reyes, J).

MORTGAGE/SALE
Creditor/Mortgagee can recover deficiency in extrajudicial foreclosure.
Q May the mortgagee recover the deficiency or unpaid balance on the principal obligation in case of
deficiency? Explain.
Answer: Yes. It is a well-entrenched rule that a creditor is not precluded from recovery any unpaid balance on the
principal obligation if the extrajudicial foreclosure sale of the property subject of the real estate mortgage results in a
deficiency, to wit:
It is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of
mortgage, the mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as amended, does not
discuss the mortgagees right to recover the deficiency, neither does it contain any provision expressly or impliedly
prohibiting recovery. If the legislature had intended to deny the creditor the right to sue for any deficiency resulting
from the foreclosure of a security given to guarantee an obligation, the law would expressly so provide. Absent such
from taking action to recover any unpaid balance on the principal obligation simply because he chose to extrajudicially
foreclose the real estate mortgage. (BPI Family Savings Bank v. Avenido, G.R. No. 17586, December 7, 2012; BPI v.
Reyes, G.R. No. 182769, February 1, 2012).
QUASI-DELICTS
Employers vicarious liability for negligent act of employee.
Q There was a vehicular accident resulting in the death of a motorcycle rider. Based on the evidence
presented at the trial, at the time of impact the van was overtaking another vehicle without due regard
for the safety of others, bumped a Toyota car and the motorcycle traveling in the right lane going to
Polomolok, South Cotabato. The lower court noted that the damage to the van was located at the
bumper, evincing a frontal collision, while the damage to the sedan was on the left side door and window,
evincing that the van sideswiped the sedan. Likewise, the court found that the van encroached on the
sedan and motorcycles lane, in the process hitting the motorcycle, causing the injuries and subsequent
death of the motorcycle rider.
The owner of the van denied that the van was overtaking a jeepney at the time of the accident.
She claimed that the left tire of a car burst, causing it to sideswipe the van, hence, the left tire of the van
burst and the driver lost control of the same. Then, it swerved to the left towards the motorcycle, there
was an impact resulting in the death of the rider. The lower court held the owner of the van liable for

damages. On appeal, the CA affirmed the decision. Is the van owner liable? Why?
Answer: Yes. The van ended up on the other side of the road opposite the lane it was originally traversing. The vans
forward momentum was going towards the opposite side. If indeed the van stayed on its proper lane when the sedans
tire blew out and lost control, the sedan would have bumped into the van on the latters lane and the van would have
ended up on the side of the road with the sedan. Likewise, if the van had stayed on its lane, and the impact of the
sedan propelled it forward, the van would have hit the jeepney in front of it, not Mumars motorcycle, which was on the
opposite lane to the right of the sedan. The only plausible explanation is it was the van, while trying to overtake
the jeepney in front of it at a fast speed, that bumped into the sedan and subsequently, Mumars motorcycle.
Under Article 2180 of the Civil Code, employers are liable for the damages caused by their employees acting within the
scope of their assigned tasks. Whenever an employees negligence causes damage or injury to another, there instantly
arises a presumption that the employer failed to exercise the due diligence of a good father of the family in the
selection or supervision of its employees. (Phil-Hawk Corp. v. Lee, G.R. No. 166869, February 16, 2010, 612 SCRA 576;
Macalinao v. Ong, 514 Phil. 127 (2005)). The liability of the employer is direct or immediate. It is not conditioned upon
prior recourse against the negligent employee and a prior showing of insolvency of such employee. (LG Foods Corp. v.
Judge Pagapong-Agravador, G.R. No. 158995, September 26, 2006, 503 SCRA 170).
Moreover, under Article 2184 of the Civil Code, if the causative factor was the drivers negligence, the owner of the
vehicle who was present is likewise held liable if he could have prevented the mishap by the exercise of due diligence.
Petitioner failed to show that she exercised the level of diligence required in supervising her driver in order to prevent
the accident. She admitted that de Castro had only been her driver for one year and she had no knowledge of his
driving experience or record of previous accidents. She also admitted that it was de Castro who maintained the vehicle
and would even remind her to pay the installment of the car. (Serra v. Mumar, G.R. No. 193861, March 14, 2012)
Employer is liable vicariously for the negligent act of employee.
Q A complaint for damages was filed against the registered owner of a passenger jeep due to an
accident resulting in the death of a mother and daughter when they were ran over by said vehicle driven
by a certain Allan. The registered owner of the vehicle contended that he is not liable since the jeep was
stolen and in fact, he filed a complaint for carnapping against the driver of the vehicle who happened to
be the brother of the official driver. The alleged co-accused testified that when he asked them to ride in
the jeep, he was already driving the same. The criminal case was dismissed for insufficiency of evidence.
He was held liable, but he contended on appeal that he cannot considering that the one driving the
vehicle was not doing so within the scope of his assigned tasks as he was merely a conductor. He insisted
that the jeep was stolen and that the liability of the registered owner as to third persons as well as the
doctrine of res ipsa loquitor should not apply since the vehicle was illicitly taken from a well secured area.

Rule on the contention. Explain.

Answer: The contention is not correct. The evidence on the stealing of the vehicle was not proven. It brought more
questions than clear cut answers. The brother of Allan was the official driver. Since the key was not returned to the
owner after its use, it is presumed that the driver had been entrusted to him, hence, given absolute discretion as to its
use including the discretion to allow his brother to use it. The doctrine of res ipsa loquitor then applies.
Under the doctrine of res ipsa loquitur, [w]here the thing that caused the injury complained of is shown to be under the
management of the defendant or his servants; and the accident, in the ordinary course of things, would not happen if
those who had management or control used proper care, it affords reasonable evidence in the absence of a sufficient,
reasonable and logical explanation by defendant that the accident arose from or was caused by the defendants want
of care. (Tan v. Jam Transit, Inc., G.R. No. 183198, November 25, 2009, 605 SCRA 659). Res ipsa loquitur is merely
evidentiary, a mode of proof, or a mere procedural convenience, since it furnishes a substitute for, and relieves a
plaintiff of, the burden of producing a specific proof of negligence. It recognizes that parties may establish prima
facie negligence without direct proof, thus, it allows the principle to substitute for specific proof of negligence. It
permits the plaintiff to present along with proof of the accident, enough of the attending circumstances to invoke the
doctrine, create an inference or presumption of negligence and thereby place on the defendant the burden of proving
that there was no negligence on his part. (Macalinao v. Ong, 514 Phil. 127 (2005)). The doctrine is based partly on
the theory that the defendant in charge of the instrumentality which causes the injury either knows the cause of the
accident or has the best opportunity of ascertaining it while the plaintiff has no such knowledge, and is therefore
compelled to allege negligence in general terms. (Macalinao v. Ong, supra.).
The requisites of the doctrine of res ipsa loquitur as established by jurisprudence are as follows:
1. 1)

the accident is of a kind which does not ordinarily occur unless someone is negligent;

2. 2)

the cause of the injury was under the exclusive control of the person in charge and

3. 3) the injury suffered must not have been due to any voluntary action or contribution on the part of the person
injured.
The above requisites are all present in this case. First, no person just
walking along the road would suddenly be sideswiped and run over by an on-rushing vehicle unless the one in
charge of the said vehicle had been negligent. Second, the jeep which caused the injury was under the exclusive
control as its owner. When the owner entrusted the ignition key to Rodrigo, he had the power to instruct him with
regard to the specific restrictions of the jeeps use, including who or who may not drive it. As he is aware that the jeep
may run without the ignition key, he also has the responsibility to park it safely and securely and to instruct his driver to
observe the same precaution. Lastly, there was no showing that the death of the victims was due to any voluntary

action or contribution on their part.

The aforementioned requisites having been met, there now arises a presumption of negligence against owner which he
could have overcome by evidence that he exercised due care and diligence in preventing strangers from using his
jeep. Unfortunately, he failed to do so. (Oscar del Carmen, Jr. V. Geronimo Bacoy, et al., G.R. No. 173870, April 25,
2010, Del Castillo, J).
The operator on record of a vehicle is primarily responsible to third persons for the deaths or injuries
consequent to its operation, regardless of whether the employee drove the registered owners vehicle in
connection with his employment.
Q The owner of the vehicle contended that Allan drove the jeep in his private capacity and thus, an
employers vicarious liability for the employees fault under Article 2180 of the Civil Code cannot apply to
him. Is the contention correct? Why?
Answer: No. The contention is no longer novel. In Aguilar Sr. v. Commercial Savings Bank, 412 Phil. 834 (2001), where
the car of the bank caused the death of a victim while being driven by its assistant vice president. The bank was made
liable for damages for the accident as said provision should defer to the settled doctrine concerning accidents involving
registered motor vehicles, i.e., that the registered owner of any vehicle, even if not used for public service, would
primarily be responsible to the public or to third persons for injuries caused the latter while the vehicle was being driven
on the highways or streets. (St. Marys Academy v. Carpetanos, 426 Phil. 878 (2002); Aguilar v. Commercial Savings
Bank, 412 Phil. 834 (2001); Erezo v. Jepte, 102 Phil. 103 (1957)). The court had already ratiocinated that:
The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage
or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual,
the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries
to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries
caused on public highways. (Erezo v. Jepte, 102 Phil. 103 (1957)).
Absent the circumstance of unauthorized use (Doquillo v. Bayot, 67 Phil. 121 (1939)) or that the subject vehicle was
stolen (Duavit v. CA, 255 Phil. 470 (1989)) which are valid defenses available to a registered owner, the vehicle owner
cannot escape liability for quasi-delict resulting from his jeeps use. (Oscar Del Carmen, Jr. V. Geronimo Bacoy, et al.,
G.R. No. 173870, April 25, 2012).
Liability of hotel for the death of a guest.
Q A hotel guest of Makati Shangri-La Hotel & Resort, Inc. was murdered inside his room. When sued for

damages, it contended that it was the guests fault for having allowed other people to enter his room,
hence, his own negligence was the proximate cause of his own death as the hotel is not an insurer of the
safety of its guests. The evidence shows that the management practice before the murder had been to
deploy one security or roving guard every three or four floors of the building which its witness admitted
to be inadequate considering the L-shape configuration of the hotel that rendered the hallways not visible
from one or the other end and that despite his recommendation, the management did not approve it
because the hotel was not doing well at that time as it was only half-booked. Is the contention of the
defendant-hotel correct? Why?
Answer: No. The hotel business is imbued with public interest. Catering to the public, hotelkeepers are bound to
provide not only lodging for their guests but also security to the persons and belongings of their guests. The twin duty
constitutes the essence of the business. (YHT Realty Corp. v. CA, G.R. No. 126780, February 17, 2005, 451 SCRA 638).
Applying by analogy Article 2000, Article 2001, and Article 2002 of the Civil Code (all of which concerned the
hotelkeepers degree of care and responsibility as to the personal effects of their guests), it was held that there is much
greater reason to apply the same if not greater degree of care and responsibility when the lives and personal safety of
their guests are involved. Otherwise, the hotelkeepers would simply stand idly by as strangers have unrestricted access
to all the hotel rooms on the pretense of being visitors of the guests, without being held liable should anything
untoward befall the unwary guests. That would be absurd, something that no good law would ever envision. (Makati
Shang-ri La Hotel & Resort, Inc. v. Harper, et al., G.R. No. 189998, August 29, 2012, Bersamin, J).
Q In its defense, it averred that it is equipped with adequate security system like keycards or wingcards
for opening the guest room; two CCTV monitoring cameras on each floor of the hotel; roving guards with
handled radios the number of which depended upon the occupancy rate of the hotel. It contended that
the proximate cause of the death of the guest was his own negligence in inviting to his room the two (2)
still unidentified suspects. The plaintiffs contended on the other hand that it was in a better situation to
protect the guest than the injured person and to foresee and prevent the happening of the injurious
occurrence. Whose contention is correct? Explain.
Answer: The contention of the plaintiffs is correct. Negligence is defined as the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or
the doing of something which a prudent and reasonable man would not do. The Supreme Court likewise ruled that
negligence is want of care required by the circumstances. It is a relative or comparative, not an absolute, term and its
application depends upon the situation of the parties and the degree of care and vigilance which the circumstances
reasonably require. In determining whether or not there is negligence on the part of the parties in a given situation,
jurisprudence has laid down the following test: Did defendant, in doing the alleged negligent act, use that reasonable
care and caution which an ordinarily prudent person would have used in the same situation? If not, the person is guilty
of negligence. The law, in effect, adopts the standard supposed to be supplied by the imaginary conduct of the

discreet pater familias of the Roman law.

The test of negligence is objective. We measure the act or omission of the tortfeasor with a perspective as that of an
ordinary reasonable person who is similarly situated. The test is whether or not defendant-appellant, under the
attendant circumstances, used that reasonable care and caution which an ordinary reasonable person would have used
in the same situation.
The negligence of the defendant is evidenced by the failure to provide adequate security considering the
configuration of the hotel which is L-shape. This prevents a guard posted on a floor from seeing from one end to
another. This was even admitted by its witness, the Chief of the Security Department who recommended more
adequate security in each of the hotel floors, but there was failure of the management to act upon. This
recommendation gave rise to the presumption that the crime was foreseeable. Such inaction constitutes negligence or
want of reasonable care demanded of it in that particular situation.
The failure to observe for the protection of the interests of another person that degree of care, precaution and vigilance,
which the circumstances justly demand, whereby such person suffers injury.
Application of the premises liability rule.
Negligence is want of care required by the circumstances. It is a relative or comparative, not an absolute term, and its
application depends upon the situation of the parties, and the degree of care and vigilance which the circumstances
reasonably impose. Where the danger is great, a high degree of care is necessary.
Moreover, in applying the premises liability rule in the instant case as it is applied in some jurisdictions in the United
States, it is enough that guests are injured while inside the hotel premises to make the hotelkeeper liable. With great
caution should the liability of the hotelkeeper be enforced when a guest died inside the hotel premises.
Makati Shangri-La Hotel, to stress, is a five-star hotel. The reasonable care that it must exercise for the safety and
comfort of its guests should be commensurate with the grade and quality of the accommodation it offers. If there is
such a thing as five-star hotel security, the guests at Makati Shangri-La surely deserve just that!
When one registers as a guest of a hotel, he makes the establishment the guardian of his life and his personal
belongings during his stay. It is a standard procedure of the management of the hotel to screen visitors who call on
their guests at their rooms. The murder of Harper could have been avoided had the security guards of the Shangri-La
Hotel in Makati dutifully observed this standard procedure. (Shangri-La Hotel & Resort, Inc. v. Harper, et al., G.R. No.
189998, August 29, 2012, Bersamin, J).
Negligence of bank in releasing proceeds of check before the 15-day period of clearing; liable.
Q A check in the amount of US$300,000.00 was deposited with an account at the PNB to accommodate a

friend. Before it was deposited, they were informed that it normally takes 15 days before it is cleared.
Five (5) days later, the foreign bank sent an advice to PNB that the proceeds had been temporarily
credited to PNBs account, hence, the amount was released immediately. But later on the foreign bank
sent a message to PNB that the check was dishonored due to insufficient funds. The account holder asked
that the funds be refunded to her but there was failure of the owner of the check to do so. PNB demanded
for the refund of the amount but since there was failure to do so, a complaint for sum of money was filed.
It was contended that if not refunded, there would be solutio indebiti. Can PNB recover? Why?
Answer: No, because the proximate cause was its own negligence in the release of the funds before the lapse of the
15-day clearing contrary to established banking rules and practice.
The payment of the amounts of checks without previously clearing them with the drawee bank especially so where the
drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary banking practice.
(Banco Atlantico v. Audito General, 171 Phil. 298 (1978)). Also, in Associated Bank v. Tan, 487 Phil. 512 (2004), wherein
the bank allowed the withdrawal of the value of a check prior to its clearing, it was said that before the check shall
have been cleared for deposit, the collecting bank can only assume at its own risk x x x that the check would be
cleared and paid out. The delay in the receipt by PNB of the message notifying it of the dishonor of the subject check
is of no moment, because had PNB waited for the expiration of the clearing period and had never released during that
time the proceeds of the check, it would have already been duly notified of its dishonor. Clearly, PNBs disregard of its
preventive and protective measure against the possibility of being victimized by bad checks had brought upon itself the
injury of losing a significant amount of money.
It bears stressing that the diligence required of banks is more than that of a Roman pater familias or a good father of a
family. The highest degree of diligence is expected. (PNB v. Chowking Food Cop., G.R. No. 177526, July 4, 2008, 557
SCRA 318). PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business
prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as negligence
characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not
inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may
be affected. With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting
bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and
regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this
field, and the law thus holds it to a high standard of conduct. (Metropolitan Bank v. Phil. Bank of Communications, G.R.
Nos. 141088 & 141429, October 18, 2007). A bank is expected to be an expert in banking procedures and it has the
necessary means to ascertain whether a check, local or foreign, is sufficiently funded.
Incidentally, PNB obliged the spouses Cheah to return the withdrawn money under the principle of solutio
indebiti, which is laid down in Article 2154 of the Civil Code:

Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake,
the obligation to return it arises.
The indispensable requisites of the juridical relation known as solutio indebiti, are, (a) that he who paid was not under
obligation to do so; and (b) that the payment was made by reason of an essential mistake of fact.
PNB cannot recover the proceeds of the check under the principle it invokes. In the first place, the gross negligence of
PNB, can never be equated with a mere mistake of fact, which must be something excusable and which requires the
exercise of prudence. No recovery is due if the mistake done is one of gross negligence. (PNB v. Chong, et al., G.R. No.
170865; Sps. Chong, et al. v. PNB, G.R. No. 170892, April 25, 2012).
The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the bank
Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm
he has suffered, which falls below the standard to which he is required to conform for his own protection. (Valenzuela v.
CA, 323 Phil. 374 (1996)).
Account holder is credulousness blameworthy. She failed to observe caution in giving her full trust in accommodating a
complete stranger and this led her and her husband to be swindled. Considering that the owner of the check was not
personally known to her and the amount of the foreign check to be encashed was $300,000.00, a higher degree of care
is expected of her which she, however, failed to exercise under the circumstances. Another circumstance which should
have goaded her to be more circumspect in her dealings was when a bank officer called her up to inform that the Bank
of America check has already been cleared way earlier than the 15-day clearing period. The fact that the check was
cleared after only eight banking days from the time it was deposited or contrary to what was told her that clearing takes
15 days should have already put Ofelia on guard. She should have first verified the regularity of such hasty clearance
considering that if something goes wrong with the transaction, it is she and her husband who would be put at risk and
not the accommodated party. However, she chose to ignore the same and instead actively participated in immediately
withdrawing the proceeds of the check. (PNB case).
DAMAGES
In the absence of a positive duty there could be no breach; no liability for damages.
Q The spouses Serfino invoke American common law that imposes a duty upon a bank receiving a notice
of adverse claim to the fund in a depositors account to freeze the account for a reasonable length of
time, sufficient to allow the adverse claimant to institute legal proceedings to enforce his right to the
fund. In other words, the bank has a duty not to release the deposits unreasonably early after a third
party makes known his adverse claim to the bank deposit. Acknowledging that no such duty is imposed by
law in this jurisdiction, the spouses Serfino asked the Court to adopt this foreign rule. Is the contention

correct? Why?
Answer: No. To adopt the foreign rule, however, goes beyond the power of the Court to promulgate rules governing
pleading, practice and procedure in all courts. (Art. VIII, Sec. 5(5), Constitution)). The rule reflects a matter of policy
that is better addressed by the other branches of government, particularly, the Bangko Sentral ng Pilipinas,
which is the agency that supervises the operations and activities of banks, and which has the power to issue rules of
conduct or the establishment of standards of operation for uniform application to all institutions or functions covered.
(Sec. 4.1, A 8791, The General Banking Act of 2000). To adopt this rule will have significant implications on the banking
industry and practices, as the American experience has shown. Recognizing that the rule imposing duty on banks to
freeze the deposit upon notice of adverse claim adopts a policy adverse to the bank and its functions, and opens it to
liability to both the depositor and the adverse claimant, many American states have since adopted adverse claim
statutes that shifted or, at least, equalized the burden. Essentially, these statutes do not impose a duty on banks to
freeze the deposit upon a mere notice of adverse claim; they first require either a court order or an indemnity bond.
In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing policy that recognizes
the fiduciary nature of banking. It likewise rejects the adoption of a judicially-imposed rule giving third parties with
unverified claims against the deposit of another a better right over the deposit. As current laws provide, the banks
contractual relations are with its depositor, not with the third party; (Gendler v. Sibley State Bank, 62 F. Supp. 805
(1945) a bank is under obligation to treat the accounts of its depositors with meticulous care and always to have in
mind the fiduciary nature of its relationship with them. (Prudential Bank v. Lim, G.R. No. 136371, November 11, 2005,
511 SCRA 100). In the absence of any positive duty of the bank to an adverse claimant, there could be no breach that
entitles the latter to moral damages. (Serfino v. FEBTC, et al., G.R. No. 171845, October 10, 2012, Brion, J).