Civil Law

Review II

2015 Digests

Fahima B. Tajar
2014-0582
Name: Fahima B. Tajar
Student Number: 2014-0582

SPOUSES ROLANDO and HERMINIA SALVADOR vs SPOUSES ROGELIO AND

ELIZABETH RABAJA and ROSARIO GONZALES
G.R. No. 199990 February 4, 2015

MENDOZA, J.

FACTS: Petitioner spouses Rolando and Herminia Salvador, are the sellers over the
parcel of land. The buyers, are respondent Spouses Rogelio and Elizabeth Rabaja, with
Rosario Gonzales as the seller’s agent. Sometime in July 1998, Spouses Rabaja
learned that Spouses Salvador were looking for a buyer of the subject property.
Petitioner Herminia Salvador personally introduced Gonzales to them as the
administrator of the said property. Spouses Salvador even handed to Gonzales the
owner’s duplicate certificate of title over the subject property. On July, 3, 1998, Spouses
Rabaja made an initial payment of P48,000.00 to Gonzales in the presence of Herminia.
Gonzales then presented the Special Power of Attorney, executed by Rolando Salvador
and dated July 24, 1998. On the same day, the parties executed the Contract to Sell
which stipulated that for a consideration of P5,000,000.00, Spouses Salvador sold,
transferred and conveyed in favor of Spouses Rabaja the subject property. Spouses
Rabaja made several payments totalling P950,000.00, which were received by
Gonzales pursuant to the SPA provided earlier as evidenced by the check vouchers
signed by Gonzales and the improvised receipts signed by Herminia.

Sometime in June 1999, however, Spouses Salvador complained to Spouses Rabaja

that they did not receive any payment from Gonzales. This prompted Spouses Rabaja
to suspend further payment of the purchase price; and as a consequence, they received
a notice to vacate the subject property from Spouses Salvador for non-payment of
rentals. Thereafter, Spouses Salvador instituted an action for ejectment against
Spouses Rabaja. In turn, Spouses Rabaja filed an action for rescission of contract
against Spouses Salvador and Gonzales, the subject matter of the present petition.
Spouses Rabaja demanded the rescission of the contract to sell praying that the
amount of P950,000.00 they previously paid to Spouses Salvador be returned to them.
They likewise prayed that damages be awarded due to the contractual breach
committed by Spouses Salvador.

Spouses Salvador filed their answer with counterclaim and cross-claim contending that
there was no meeting of the minds between the parties and that the SPA in favor of
Gonzales was falsified. In fact, they filed a case for falsification against Gonzales, but it
was dismissed because the original of the alleged falsified SPA could not be produced.
They further averred that they did not receive any payment from Spouses Rabaja
through Gonzales. In her defense, Gonzales filed her answer stating that the SPA was
not falsified and that the payments of Spouses Rabaja amounting to P950,000.00 were
all handed over to Spouses Salvador.

RTC ruled in favor of Spouses Rabaja, holding that the contract although denominated
as contract to sell, was actually a contract of sale because Spouses Salvador, as
vendors, did not reserve their title to the property until the vendees had fully paid the
purchase price. This was subsequently affirmed by CA.

ISSUE: Whether or not contract entered into by the parties is a contract of sale and not
a contract to sell?

HELD: The contract entered into by the parties was essentially a contract of sale which
could be validly rescinded.

The New Civil Code on Agency states that:

Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms
of the power of attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between the principal and
the agent.

Persons dealing with an agent must ascertain not only the fact of agency, but also the
nature and extent of the agent’s authority. A third person with whom the agent wishes to
contract on behalf of the principal may require the presentation of the power of attorney,
or the instructions as regards the agency. The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover on his own peril the
authority of the agent. In this case, Spouses Rabaja did not recklessly enter into a
contract to sell with Gonzales. They required her presentation of the power of attorney
before they transacted with her principal. And when Gonzales presented the SPA to
Spouses Rabaja, the latter had no reason not to rely on it. By introducing Gonzales
personally to Spouses Rabaja as the administrator of the subject property, it is by their
own ostensible acts, Spouses Salvador made third persons believe that Gonzales was
duly authorized to administer, negotiate and sell the subject property. This fact was even
affirmed by Spouses Salvador themselves in their petition where they stated that they
had authorized Gonzales to look for a buyer of their property.

Considering that there was a valid SPA, then Spouses Rabaja properly made payments
to Gonzales, as agent of Spouses Salvador and it was as if they paid to Spouses
Salvador. It is of no moment, insofar as Spouses Rabaja are concerned, whether or not
the payments were actually remitted to Spouses Salvador. Any internal matter,
arrangement, grievance or strife between the principal and the agent is theirs alone and
should not affect third persons. If Spouses Salvador did not receive the payments or
they wish to specifically revoke the SPA, then their recourse is to institute a separate
action against Gonzales.

SPOUSES SALVADOR ABELLA v. SPOUSES ROMEO ABELLA

G.R. No. 195166, July 08, 2015

LEONEN, J.

FACTS: Petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of
money and damages against respondents Spouses Romeo and Annie Abella wherein it
was alleged that respondents obtained a loan from them in the amount of P500K. The
loan was evidenced by an acknowledgment receipt dated March 22, 1999 and was
payable within one (1) year. Petitioners added that respondents were able to pay a total
of P200K—P100K paid on two separate occasions—leaving an unpaid balance of
P300K.

In their Answer, respondents alleged that the amount involved did not pertain to a loan
but was part of the capital for a joint venture involving the lending of money when
respondents that they were approached by petitioners, who proposed that if
respondents were to "undertake the management of whatever money [petitioners] would
give them, [petitioners] would get 2.5% a month with a 2.5% service fee to
[respondents]." Moreover, they claimed that the entire amount of P500,000.00 was
disposed of in accordance with their agreed terms and conditions and that petitioners
terminated the joint venture, prompting them to collect from the joint venture's
borrowers. They were, however, able to collect only to the extent of P200,000.00;
hence, the P300,000.00 balance remained unpaid.
The RTC ruled in favor of petitioners. On respondents' appeal, the Court of Appeals
ruled that while respondents had indeed entered into a simple loan with petitioners,
respondents were no longer liable to pay the outstanding amount of P300,000.00.

ISSUE1: What contract was entered into by the parties?

HELD1: Respondents entered into a simple loan or mutuum, rather than a joint venture,
with petitioners.

Respondents' claims, as articulated in their testimonies before the trial court, cannot
prevail over the clear terms of the document attesting to the relation of the parties. "If
the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.”
ISSUE2: Whether interest accrued on respondents' loan from petitioner and if in the
affirmative, at what rate?

HELD2: First issue - Guided by the decision in Nacar v. Gallery Frames: In the absence
of an express stipulation as to the rate of interest that would govern the parties, the rate
of legal interest for loans or forbearance of any money, goods or credits and the rate
allowed in judgments shall no longer be twelve percent (12%) per annum — as reflected
in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB
Circular No. 799 — but will now be six percent (6%) per annum effective July 1, 2013.

It should be noted, nonetheless, that the new rate could only be applied prospectively
and not retroactively. Consequently, the twelve percent (12%) per annum legal interest
shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%)
per annum shall be the prevailing rate of interest when applicable.

CARLOS SANCHEZ v MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA

and CARLOS EJERCITO,
G.R. No. 141525 September 2, 2005

SANDOVAL-GUTIERREZ, J.

FACTS: Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent,

appointed petitioner as its special corporate agent. As such agent, Medicard gave him a
commission based on the cash brought in. Through petitioner’s efforts, Medicard was
able to enter into a one-year Health Care Program Contract with Unilab. As a result,
Medicard paid petitioner his commission. Again, through his efforts, the contract was
renewed and once more, he received his commission. Before the expiration of the
renewed contract, Medicard, through petitioner, proposed an increase in premium, but
Unilab rejected this proposal. Medicard then requested petitioner to reduce his
commission should the contract be renewed on its third year, but he was obstinate.
Meantime, on October 3, 1990, Unilab informed Medicard it was no longer renewing the
Health Care Program contract.

In order not to prejudice its personnel, Unilab, through respondent Ejercito, negotiated
with respondent Dr. Montoya of Medicard, in order to find mutually beneficial ways of
continuing the Health Care Program. The negotiations resulted in a new contract
wherein Unilab shall pay Medicard the hospitalization expenses actually incurred by
each employees, plus a service fee. Under the cost plus system which replaced the
premium scheme, petitioner was not given a commission.

Thus, petitioner filed with the Regional Trial Court (RTC), Branch 66, Makati City, a
complaint for sum of money against Medicard, Dr. Nicanor Montoya and Carlos Ejercito,
herein respondents.

After hearing, the RTC rendered its Decision dismissing petitioners complaint and
respondents counterclaim. On appeal, the Court of Appeals affirmed the trial courts
assailed Decision. Petitioner filed a motion for reconsideration, but this was denied by
the Court of Appeals on January 12, 2000. Hence, the instant petition for review on
certiorari.

ISSUE: Whether or not the contract of agency has been revoked by Medicard, hence,
petitioner is not entitled to a commission

HELD: YES. It is dictum that in order for an agent to be entitled to a commission, he

must be the procuring cause of the sale, which simply means that the measures
employed by him and the efforts he exerted must result in a sale. In other words, an
agent receives his commission only upon the successful conclusion of a sale.
Conversely, it follows that where his efforts are unsuccessful, or there was no effort on
his part, he is not entitled to a commission.

In Prats vs. Court of Appeals, this Court held that for the purpose of equity, an agent
who is not the efficient procuring cause is nonetheless entitled to his commission, where
said agent, notwithstanding the expiration of his authority, nonetheless, took diligent
steps to bring back together the parties, such that a sale was finalized and
consummated between them. In Manotok Borthers vs. Court of Appeals, where the
Deed of Sale was only executed after the agents extended authority had expired, this
Court, applying its ruling in Prats, held that the agent (in Manotok) is entitled to a
commission since he was the efficient procuring cause of the sale, notwithstanding that
the sale took place after his authority had lapsed. The proximate, close, and causal
connection between the agents efforts and the principals sale of his property cannot be
ignored.

It is clear that since petitioner refused to reduce his commission, Medicard directly
negotiated with Unilab, thus revoking its agency contract with petitioner. We hold that
such revocation is authorized by Article 1924 of the Civil Code which provides:

Art. 1924. The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons.
 BANK OF THE PHILIPPINE ISLANDS vs AMADOR DOMINGO
G.R. No. 169407, March 25, 2015

LEONARDO-DE CASTRO, J.

FACTS: Respondent Amador Domingo and his wife, the late Mercy Maryden Domingo
executed a Promissory Note in favor of Makati Auto Center, Inc. payable in 48
successive monthly installments. They simultaneously executed a Deed of Chattel
Mortgage over a 1993 Mazda 323 to secure the payment of their Promissory Note.
Makati Auto Center, Inc. then assigned all its rights and interests over the said
Promissory Note and chattel mortgage to Far East Bank and Trust Company (FEBTC).

On April 7, 2000 FEBTC and BPI merged with BPI as the surviving corporation, FEBTC
the absorbed corporation. By virtue of said merger, all the assets and liabilities of
FEBTC were transferred to and absorbed by BPI.

The spouses Domingo failed to pay 21 monthly installments from January 15, 1996 to
September 15, 1997. BPI, being the surviving corporation after the merger, demanded
that the spouses Domingo pay the balance of the Promissory Note including accrued
late payment charges/interests or to return the possession of the subject vehicle for the
purpose of foreclosure in accordance with the undertaking stated in the chattel
mortgage. When the spouses Domingo still failed to comply with its demands, BPI filed
on November 14, 2000 a Complaint for Replevin and Damages. BPI included a John
Doe as defendant because at the time of filing of the Complaint, BPI was already aware
that the subject vehicle was in the possession of a third person but did not yet know the
identity of said person.

MeTC rendered a Decision in favor of BPI as the bank was able to establish by
preponderance of evidence a valid cause of action against the spouses Domingo.
According to the MeTC, novation is never presumed and must be clearly shown by
express agreement or by acts of equal import. To effect a subjective novation by a
change in the person of the debtor, it is necessary that the old debtor be released
expressly from the obligation and the third person or new debtor assumes his place.
Without such release, there is no novation and the third person who assumes the
debtor's obligation merely becomes a co-debtor or surety.
On appeal the RTC held that in novation, consent of the creditor to the substitution of
the debtor need not be by express agreement, it can be merely implied.
ISSUE: Whether or not, there is novation on the loan obligation of the spouses Domingo
to BPI that would release the obligation and for Carmelita to be substituted as a debtor?

HELD: NO. Article 1293 of the New Civil Code provides:

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.

Under this provision, there are two forms of novation by substituting the person of the
debtor, and they are: (1) expromision and (2) delegacion. In the former, the initiative for
the change does not come from the debtor and may even be made without his
knowledge, since it consists in a third person assuming the obligation. As such, it
logically requires the consent of the third person and the creditor. In the latter, the debtor
offers and the creditor accepts a third person who consents to the substitution and
assumes the obligation, so that the intervention and the consent of these three persons
are necessary. In these two modes of substitution, the consent of the creditor is an
indispensable requirement. Both the RTC and the Court of Appeals found that there was
novation by delegacion in the case at bar. The Deed of Sale with Assumption of
Mortgage was executed between Mercy and Carmelita, thus, their consent to the
substitution as debtors and third person, respectively, are deemed undisputed.

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

COMGLASCO CORPORATION/AGUILA GLASS v. SANTOS CAR CHECK CENTER

CORPORATION
GR No. 202989 March 25, 2015
REYES, J.

FACTS: On August 16, 2000, respondent Santos Car Check Center Corporation
(Santos), owner of a showroom located at 75 Delgado Street, in Iloilo City, leased out
the said space to petitioner Comglasco Corporation (Comglasco).

On October 4, 2001, Comglasco advised Santos through a letter2 that it was pre-
terminating their lease contract effective December 1, 2001. Santos refused to accede
to the pre-termination, reminding Comglasco that their contract was for five years. On
January 15, 2002, Comglasco vacated the leased premises and stopped paying any
further rentals. Santos sent several demand letters, which Comglasco completely
ignored. On September 15, 2003, Santos sent its final demand letter, which Comglasco
again ignored. On October 20, 2003, Santos filed suit for breach of contract.

On August 18, 2004, the trial court rendered its judgment in favor of Santos. On
February 14, 2005, Santos moved for execution pending Comglasco’s appeal, which
the trial court granted on May 12, 2005. In its Decision9 dated August 10, 2011, the
Court of Appeals (CA) affirmed the judgment of the RTC.

ISSUE: Whether or not a lessee may pre-terminate lease agreement under Art. 1267 of
the Civil Code.

HELD: NO. In Philippine National Construction Corporation v. CA (PNCC), which also

involves the termination of a lease of property by the lessee “due to financial, as well as
technical, difficulties,” the Court ruled:

The obligation to pay rentals or deliver the thing in a contract of lease falls within
the prestation “to give”; hence, it is not covered within the scope of Article 1266.
At any rate, the unforeseen event and causes mentioned by petitioner are not the
legal or physical impossibilities contemplated in said article. Besides, petitioner
failed to state specifically the circumstances brought about by “the abrupt change
in the political climate in the country” except the alleged prevailing uncertainties
in government policies on infrastructure projects.

The principle of rebus sic stantibus neither fits in with the facts of the case.
Under this theory, the parties stipulate in the light of certain prevailing conditions,
and once these conditions cease to exist, the contract also ceases to exist. This
theory is said to be the basis of Article 1267 of the Civil Code, which provides:

Art. 1267. When the service has become so difficult as to be manifestly

beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
 This article, which enunciates the doctrine of unforeseen events, is not, however,
an absolute application of the principle of rebus sic stantibus, which would
endanger the security of contractual relations. The parties to the contract must
be presumed to have assumed the risks of unfavorable developments. It is
therefore only in absolutely exceptional changes of circumstances that equity
demands assistance for the debtor.

In this case, petitioner wants this Court to believe that the abrupt change in the
political climate of the country after the EDSA Revolution and its poor financial
condition “rendered the performance of the lease contract impractical and
inimical to the corporate survival of the petitioner.”

This Court cannot subscribe to this argument. As pointed out by private

respondents:

xxxx

Anent petitioner’s alleged poor financial condition, the same will neither release
petitioner from the binding effect of the contract of lease. As held in Central Bank
v. Court of Appeals, cited by private respondents, mere pecuniary inability to fulfill
an engagement does not discharge a contractual obligation, nor does it
constitute a defense to an action for specific performance.

Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate its
lease with Santos, Comglasco invokes the 1997 Asian currency crisis as causing it
much difficulty in meeting its obligations. But in PNCC, the Court held that the payment
of lease rentals does not involve a prestation “to do” envisaged in Articles 1266 and
1267 which has been rendered legally or physically impossible without the fault of
the obligor-lessor. Article 1267 speaks of a prestation involving service which has been
rendered so difficult by unforeseen subsequent events as to be manifestly beyond the
contemplation of the parties. To be sure, the Asian currency crisis befell the region from
July 1997 and for sometime thereafter, but Comglasco cannot be permitted to blame its
difficulties on the said regional economic phenomenon because it entered into the
subject lease only on August 16, 2000, more than three years after it began, and by
then Comglasco had known what business risks it assumed when it opened a new shop
in Iloilo City.

STRONGHOLD INSURANCE COMPANY, INC. vs SPOUSES RUNE and LEA

STROEM
G.R. No. 204689 January 21, 2015

LEONEN, J.
FACTS: Spouses Rune and Lea Stroem, entered into an Owners-Contractor
Agreement with Asis-Leif & Company, Inc. for the construction of a two-storey house on
the lot owned by Spouses Stroem. Pursuant to the agreement, Asis-Leif secured
Performance Bond in the amount of P4,500,000.00 from Stronghold Insurance
Company, Inc. Stronghold and Asis-Leif, through Ms. Ma. Cynthia Asis-Leif, bound
themselves jointly and severally to pay the Spouses Stroem the agreed amount in the
event that the construction project is not completed. Despite the repeated demands of
the Spouses Stroem, Asis-Leif failed to finish the projection time. Spouses Stroem,
subsequently rescinded the agreement and hired an independent appraiser to evaluate
the progress of the construction project.

On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting that the company settle
its obligations with the Spouses Stroem, but Asis-Leif failed to respond. Spouses
Stroem filed a Complaint (with Prayer for Preliminary Attachment) for breach of contract
and for sum of money with a claim for damages against Asis-Leif, Ms. Cynthia Asis-Leif,
and Stronghold. But only Stronghold was served summons. Ms. Cynthia Asis-Leif
allegedly absconded and moved out of the country.

The Regional Trial Court rendered a judgment in favor of the Spouses Stroem. The trial
court ordered Stronghold to pay the Spouses Stroem P4,500,000.00 with 6% legal
interest from the time of first demand, plus attorney’s fees and litigation expenses
amounting to P35,000. Both Stronghold and the Spouses Stroem appealed to the Court
of Appeals. The Court of Appeals affirmed with modification the trial court’s Decision,
increasing the attorney’s fees to P50,000.

Strongholds argue that it’s liability under the performance bond is limited only to
additional costs for the completion of the project.

ISSUE1: Whether or not, the dispute involves a construction contract, thus, the regular
court has no jurisdiction to rule on the case?

HELD1: YES. The dispute arises from a construction contract, the CIAC has exclusive
and original jurisdiction. Construction has been defined as referring to all on-site works
on buildings or altering structures, from land clearance through completion including
excavation, erection and assembly and installation of components and equipment.
Performance bond which guarantees the completion of the project, is substantially
connected to the construction contract and therefore, falls under the jurisdiction of the
CIAC.

ISSUE2: Whether or not, petitioner Stronghold Insurance Company, Inc. is liable under
Performance Bond?
HELD2: YES. The surety’s solidary obligation for the performance of the principal
debtor’s obligation is indirect and secondary. Article 7.2 of the Owners-Contractor
Agreement, provides that the performance bond will guarantee the satisfactory and
faithful performance by the CONTRACTOR of all provisions stated within the contract.

ADELFA DIO TOLENTINO vs. SPOUSES MARIA JERERA AND EBON LATAGAN
G.R. No. 179874, June 22, 2015

PERALTA, J.

FACTS: On June 27, 1933, Servillano, Dionisia, Teofilo, and Cipriano, all surnamed
Jerera, ceded and conveyed by way of sale the subject property with right to repurchase
to Amado Dio.

For failure of the vendees to exercise their right to repurchase, Amado consolidated his
absolute ownership over the property, gave his children and legal heirs the right to
inherit it, and himself the right to administer and to dispose of it.

On January 14, 1970, the Spouses Amado Dio and Modesta Domer allegedly executed
a Deed of Absolute Sale of the subject property in favor of Servillano for P585.00.

On May 25, 1971, Servillano executed with marital consent a Deed of Absolute Sale of
the subject property for P585.00 in favor private respondent Maria Jerera who declared
the property in her name for taxation purposes.

Petitioners filed before the RTC an action for quieting of title, recovery of property and
damages claim that since the sale was simulated and/or fictitious for being a forgery, all
transactions emanating from it are null and void. The RTC found the sale on January 14
1970 simulated and fictitious.

ISSUE1: Whether or not a forged deed of sale can be a source of a valid title

HELD1: YES. In Rufloe v. Burgos, the Court held that a forged deed of sale is null and
void and conveys no title, for it is a well-settled principle that no one can give what one
does not have; nemo dat quod non habet. Due to the forged Deed of Absolute Sale
dated January 14, 1970, Servillano acquired no right over the subject property which he
could convey to his daughter, Maria. All the transactions subsequent to the falsified sale
between the Servillano and his daughter are likewise void, namely, the Deeds of
Absolute Sale of the subject property that Servillano executed on May 25, 1971 and
November 24, 1977 in favor his daughter, as well as the Self-Adjudication of Real
Property.

However, it has also been consistently ruled that that a forged or fraudulent document
may become the root of a valid title, if the property has already been transferred from
the name of the owner to that of the forger, and then to that of an innocent purchaser for
value. This doctrine emphasizes that a person who deals with registered property in
good faith will acquire good title from a forger and be absolutely protected by a Torrens
title. This is because a prospective buyer of a property registered under the Torrens
system need not go beyond the title, especially when she has no notice of any badge of
fraud or defect that would place her on guard.

ISSUE2: Whether or not Maria was an innocent purchaser for value

HELD2: YES. It is a well-settled rule that every person dealing with registered land may
safely rely on the correctness of the certificate of title issued therefor and the law will in
no way oblige him to go beyond the certificate to determine the condition of the
property. Where there is nothing in the certificate of title to indicate any cloud or vice in
the ownership of the property, or any encumbrance thereon, the purchaser is not
required to explore further than what the Torrens Title upon its face indicates in quest for
any hidden defects or inchoate right that may subsequently defeat his right thereto.
However, this rule shall not apply when the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious person to make such inquiry or
when the purchaser has knowledge of a defect or the lack of title in his vendor or of
sufficient facts to induce a reasonably prudent person to inquire into the status of the
title of the property in litigation.

RUBY RUTH S. SERRANO MAHILUM vs. SPOUSES EDILBERTO ILANO and

LOURDES ILANO
 G.R. No. 197923, June 22, 2015

DEL CASTILLO, J.

FACTS: Petitioner Ruby Ruth S. Serrano Mahilum is the registered owner of a parcel of
land covered by a transfer certificate of title.

She entrusted the original owner's duplicate copy of TCT to Teresa Perez (Perez) - a
purported real estate broker - who claimed that she can assist petitioner in obtaining a
loan with the TCT as collateral. After several months, petitioner demanded the return of
the title, but Perez failed to produce the same; after much prodding, Perez admitted that
the title was lost. In June 2004, petitioner executed an Affidavit of Loss and caused the
same to be annotated upon the original registry copy of the transfer certificate of title.

Petitioner was informed however that her TCT was not lost, but that it was presented to
the registry by respondents, spouses Edilberto and Lourdes Ilano, who claimed that the
property covered by the title was sold to them. The respondents however did not
register the alleged sale.

Petitioner confronted respondents, who showed her a notarized Agreement with right of
repurchase and an unnotarized and undated Deed of Absolute Sale on which
documents petitioner's purported signatures were affixed. Petitioner denied having
executed said document and claimed that her purported signatures therein were in fact
falsified and forged. She demanded the return of her TCT which respondents refused.

Thereafter the petitioner filed an action for "annulment of agreement and deed of
absolute sale.

On appeal the CA dismissed the petitioner’s case for failure to state a cause of action –
for failure of the complaint to allege that respondents were purchasers in bad faith.

Hence this petition.

ISSUE: Whether or not respondents can interpose the defense of being innocent
purchasers for value

HELD: NO. Since a new title was never issued in respondents' favor and, instead, title
remained in petitioner's name, the former never came within the coverage and
protection of the Torrens system, where the issue of good or bad faith becomes
relevant. Since respondents never acquired a new certificate of title in their name, the
issue of their good or bad faith which is central in an annulment of title case is of no
consequence; petitioner's case is for annulment of the Agreement and Deed of Absolute
Sale, and not one to annul title since the certificate of title is still in her name. The
jurisprudential bases for the CA's pronouncement that there is a failure to state a cause
of action if there is no allegation in the complaint that respondents were purchasers in
bad faith - Castillo v. Heirs of Vicente Madrigal36 and Heirs of Julian Tiro v. Philippine
Estates Corporation - involved complaints for annulment of new titles issued to the
buyers; they cannot apply to petitioner's case where title remains in her name.

Petitioner's case is to annul the agreement and deed of sale based on the allegation
that they are forgeries, and that respondents were parties to the fraud; since no new title
was issued in respondents' favor, there is no new title to annul. Indeed, if the agreement
and deed of sale are forgeries, then they are a nullity and convey no title.38 The
underlying principle is that no one can give what one does not have. Nemo dat quod
non habet.

In this case, it is petitioner who must be protected under the Torrens system - as the
registered owner of the subject property. "A certificate of title serves as evidence of an
indefeasible and incontrovertible title to the property in favor of the person whose name
appears therein. The real puipose of the Torrens system of land registration is to quiet
title to land and put a stop forever to any question as to the legality of the title."

REYNALDO P. BASCARA vs. SHERIFF ROLANDO G. JAVIER

G.R. No. 188069, June 17, 2015

PERALTA, J.

FACTS: Respondent Evangeline C. Pangilinan (Pangilinan) filed an ex parte petition for

the issuance of a writ of possession. Essentially, the petition alleged that one Rosalina
P. Pardo (Pardo) executed in favor of Pangilinan a real estate mortgage (REM) over the
subject parcel of land as a security for the payment of a loan owed to her; that for failure
of Pardo to pay the loan, the mortgaged property was foreclosed and sold at public
auction to Pangilinan as the highest bidder; that the one-year redemption period already
elapsed without Pardo exercising the right to redeem the subject property; that the title
over the lot was consolidated and transferred in the name of Pangilinan as evidenced
by TCT No. 147777; and, that Pardo, her agents, and persons claiming rights under her
failed and refused to vacate the subject premises despite several demands.

The RTC granted the petition.

The petitioner claiming to be the lawful owner and possessor of the property petitioner
moved for the recall of the writ of possession.

Pangilinan in her comment asserts that the trial court has the ministerial duty to issue a
writ of possession, which cannot be stayed by an injunction or a pending action for
annulment of the real estate mortgage or the extra-judicial foreclosure proceedings.
ISSUE: Whether or not a buyer in a foreclosure sale has the absolute right to
possession of the property after the redemption period has expired without redemption
having been made

HELD: YES. The Supreme Court in China Banking Corporation v. Lozada, held thus:

“It is thus settled that the buyer in a foreclosure sale becomes the absolute owner
of the property purchased if it is not redeemed during the period of one year after
the registration of the sale. As such, he is entitled to the possession of the said
property and can demand it at any time following the consolidation of ownership
in his name and the issuance to him of a new transfer certificate of title. The
buyer can in fact demand possession of the land even during the redemption
period except that he has to post a bond in accordance with Section 7 of Act No.
3135, as amended. No such bond is required after the redemption period if the
property is not redeemed”. x x x

Upon the expiration of the period to redeem and no redemption was made, the
purchaser, as confirmed owner, has the absolute right to possess the land and the
issuance of the writ of possession becomes a ministerial duty of the court upon proper
application and proof of title.

HONORLITA ASCANO-CUPINO AND FLAVIANA ASCANO-COLOCADO, v. PACIFIC

REHOUSE CORPORATION
G.R. No. 205113, August 26, 2015

CARPIO, J.

FACTS: The petitioners, and their sister, Noeminia Ascano, (collectively, the Ascanos)
entered into a Deed of Conditional Sale with Pacific Rehouse Corporation (Pacific).

Following the terms of the Deed of Conditional Sale, Pacific paid a down payment of
P1,792,590 the balance to be paid upon the fulfillment of the ff conditions: (1) the
completion of all documents necessary for the transfer of the certificate of title of the
land; (2) removal of the tenants, squatters and other occupants on the land, with the
disturbance compensation to said tenants to be paid by vendors; and (3) submission by
vendors to Pacific of the Affidavit of Non-Tenancy and the land operation transfer
documents. Two subsequent payments were made by Pacific upon request of
petitioners.

Subsequently, the petitioners failed to submit the necessary documents despite several
demands from Pacific. Instead, they informed Pacific that they wanted to rescind the
contract and refused to accept Pacific's tender of additional payments.
Pacific, opened a savings account in the names of petitioners, depositing in said
account the amount of P1,005,180.11 and informing petitioners of the deposit and that
"they were authorized to withdraw the same at [their] convenience."

Pacific’s several demands on petitioners to fulfill their obligations under the Deed of
Conditional Sale went unheeded so it filed a complaint for cancellation of contract.
However, before pre-trial, Pacific discovered that petitioners had withdrawn the
PI,005,180 it had deposited hence it filed an Amended Complaint changing its cause of
action from cancellation to specific performance.

ISSUE: Whether or not Pacific was entitled to ask for specific performance

HELD: Article 1191 of the Civil Code states:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.

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

The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
Law.

As previously discussed, the Deed of Conditional Sale clearly spells out the obligations
of each party. Based on the allegations of the parties and the findings of the lower
courts, Pacific has already partially fulfilled its obligation while petitioners have not.

The obligation of petitioners under the Deed of Conditional Sale is to "guarantee

removal of tenants" and not merely to pay disturbance compensation. It is an
undertaking specifically given to petitioners under the Deed of Conditional Sale,
considering that Pacific is not yet the owner of the property and will have no personality
to evict the property's present occupants. Petitioners failed to fulfill this obligation, as
well as the obligation to deliver the necessary documents to complete the sale.

As previously held by the Court, "the injured party is the party who has faithfully fulfilled
his obligation or is ready and willing to perform his obligation."64 From the foregoing, it
is clear that Pacific is the injured party, entitled to elect between rescinding of the
contract and exacting fulfillment of the obligation. It has opted for the remedy of specific
performance, as embodied in its Amended Complaint.
Moreover, rescission must not be allowed in favor of petitioners, since they themselves
failed to perform their obligations under the Deed of Conditional Sale.

PHILIPPINE NATIONAL BANK v. SPOUSES HIPPOCRATES AND MELANIE

PIMENTEL
G.R. No. 187882, August 24, 2015

PERALTA, J.

FACTS: Respondents obtained a loan from petitioner Philippine National Bank (PNB)
secured by a real estate mortgage. For respondents’ failure to pay despite repeated
demands, PNB instituted extrajudicial foreclosure proceedings.

At the public auction, PNB was the highest bidder and, eventually, it was able to
consolidate title in its name after the one-year redemption period expired. A new
certificate of title was issued in PNB’s name. PNB then demanded that respondents
vacate the subject property, but the latter refused. This prompted PNB to file an Ex-
Parte Petition for the Issuance of Writ of Possession.

Meanwhile, respondents had also filed a complaint for Annulment of Foreclosure of

Mortgage. The parties however amicably settled said case and entered into a
Compromise Agreement. Pursuant to said agreement, the respondents withdrew the
case against PNB and the parties executed a Deed of Conditional Sale, whereby
respondents repurchased subject property from PNB for the consideration of Seven
Million Five Hundred Thousand Pesos (PhP7,500,000.00).

After a little more than a year, respondents again failed to pay amortizations as
stipulated in the Deed of Conditional Sale. PNB then cancelled the Deed of Conditional
Sale through a Notarial Notice of Rescission and subsequently filed a petition for the
issuance of writ of possession.

On appeal, the CA ruled that "the execution of a Deed of Conditional Sale between
appellant and appellees had defeated the appellant's right to the issuance of a Writ of
Possession."

ISSUE1: Whether or not there was novation when the parties subsequently entered into
a Contract of Conditional Sale

HELD1: NO. This case does not involve the concept of novation, which presupposes
that the original contract is still valid and subsisting when another contract supplanted
the previous one. That is not the situation in this case. Once the mortgaged property
was sold at public auction and title to the property has passed and had been
consolidated in the name of the winning bidder, the duties and obligations of the parties
under the loan and mortgage contract had been fulfilled and the contract extinguished.
The original loan and mortgage contract had been extinguished through payment or
performance.

This is especially clear, if we consider the scenario where the winning bidder was some
entity other than the creditor itself/himself. If some other entity emerged as the winning
bidder at the public auction and became the new absolute owner after the debtor failed
to redeem the property, it would be obvious that the mortgage contract would no longer
hold sway. Evidently, the mortgagor-mortgagee regime, or the first contract, was
extinguished and terminated once the winning bidder at the public auction became the
absolute owner of the subject property. Thus, by the time PNB and respondents entered
into the subsequent contract of conditional sale, the mortgage contract was no longer
existing.

ISSUE2: Since there was an alleged breach of the subsequent contract of conditional
sale, may PNB still regain possession of the subject property by applying for a writ of
possession under Act No. 3135?

HELD2: NO. Section 7 of Act No. 3135 only provides for the procedure by which
possession may be expeditiously turned over to the new owner, that is, the winning
bidder at the public auction. It distinctly states that said rule of procedure for the
issuance of a writ of possession applies only to "any sale made under the provisions of
this Act x x x." The rule is meant to benefit only the winning bidder at the public auction
conducted in accordance with the provisions of Act No. 3135.

Plainly, when PNB executed the deed of conditional sale in favor of herein respondents,
the transaction is no longer a sale under the provisions of Act No. 3135. On this ground
alone, it is evident that PNB could no longer obtain a writ of possession under the
provisions of Act No. 3135.

Moreover, when herein parties executed the Deed of Conditional Sale, where it was
stipulated that PNB was constructively placing respondents in possession of subject
property, the parties, in effect, admitted that PNB already had legal possession at that
time. Upon execution of the contract, however, PNB voluntarily transferred possession
to respondents. Pursuant to the terms of the Deed of Conditional Sale, respondents
gained valid possession of the property, but ownership remained with PNB. Thus, when
the Deed of Conditional Sale was rescinded, respondents' right to possess subject
property became questionable. An action for unlawful detainer should have been the
proper remedy.

ANGEL V. TALAMPAS, JR. vs. MOLDEX REALTY, INC.

G.R. No. 170134 - June 17, 2015

BRION, J.

FACTS: The petitioner entered into a contract with the respondent to develop a
residential subdivision known as the Metrogate Silang Estates for the contract price of
P10,500,000.00.

The petitioner undertook the construction of the roadworks, earthworks and site-
grading, procurement of materials, placing labor, equipment, tools as specified in the
contract. The construction is projected to be completed by the petitioner within three
hundred (300) calendar days from the starting date of the contract. Later however,
respondent Moldex Realty through its project manager asked the petitioner to suspend
its construction work on the site for one week due to a change in the project’s
subdivision plan. The suspension, lasted for more than one week leaving the petitioner’s
personnel and equipment idle at the site for three weeks until on June 16, 1993,
petitioner received a letter from respondent its decision to terminate the contract.
The petitioner demanded from the respondent the payment for the mobilization of its
equipment during the period of suspension and 20% of the P10,500,000.00 contract
price as cost of opportunity lost due to the respondent’s early termination of their
contract. Moldex refused contending averred that petitioner consented to the
termination by its subsequent acts and communications it sent to respondent, thus, they
cannot be held liable.

ISSUE: Whether Moldex Realty is liable for its unilateral termination of its contract with
petitioner Talampas

HELD: YES. Contracts have the force of law between the parties and must be complied
with in good faith. A contracting party’s failure, without legal reason, to comply with
contract stipulations breaches their contract and can be the basis for the award of
damages to the other contracting party.

Respondent Moldex failed to comply with its contractual stipulations on the unilateral
termination when it terminated their contract due to the redesign of the subdivision plan.
The respondent contended that the petitioner ratified the termination of their contract by
accepting payments for progress billings, costs of equipment
mobilization/demobilization, refund of insurance bond payments, and the release of
retention fees. However, we do not see the petitioner’s receipt of these payments to be
acts of ratification or consent to the contract’s termination. Consent is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain, and the acceptance, whether express
or implied, must be absolute.

An acceptance is considered absolute and unqualified when it is identical in all respects

with that of the offer so as to produce consent or a meeting of the minds. We find no
such meeting of the minds between the parties on the matter of termination because the
petitioner’s acceptance of the respondent’s offer to terminate was not absolute. To
terminate their contract, the respondent offered to pay the petitioner billings for
accomplished works, unrecouped costs of equipment mobilization and demobilization,
unrecouped payment of insurance bond, and the release of all retention fees ―
payments that the petitioner accepted or received. But despite receipt of payments, no
absolute acceptance of the respondent’s offer took place because the petitioner still
demanded the payment of equipment rentals, cost of opportunity lost, among others. In
fact, the payments received were for finished or delivered works and for expenses
incurred for the respondent’s account. By making the additional demands, the petitioner
effectively made a qualified acceptance or a counteroffer, which the respondent did not
accept. Under these circumstances, we see no full consent.

BLISS DEVELOPMENT CORP. /HOME GUARANTY CORPORATION vs. MONTANO

DIAZ, DOMINGO TAPAY, AND EDGAR H. ARREZA
G.R. No. 213233, August 05, 2015

VELASCO JR., J.

FACTS: Petitioner Bliss Development Corporation (BDC) (subsequently reorganized as

Home Guaranty Corporation) is the registered owner of Lot No. 27, Block 30, New
Capitol Estates I, Brgy. Matandang Balara, Diliman, Quezon City, and covered by
Transfer Certificate of Title (TCT) No. 331582. On October 19, 1984, it entered into and
executed a Deed of Sale over the said property in favor of Spouses Emiliano and
Leonila Melgazo (Sps. Melgazo), both of whom are now deceased.

On May 7, 1991, a certain Rodolfo Nacua (Nacua) sent a letter to BDC, saying that Sps.
Melgazo transferred to him their rights over the property. He further expressed
willingness to pay the outstanding obligations of Sps. Melgazo to BDC. Before the
property was fully paid, however, Nacua sold his rights to Olivia Garcia (Garcia),
through a Deed of Transfer of Rights. Later, Garcia transferred her rights to Elizabeth
Reyes (Reyes). Reyes then transferred her rights to Domingo Tapay (Tapay), who then
later sold his rights to herein respondent Montano Diaz (Diaz) for Six Hundred
Thousand Pesos (P600,000.00). Diaz then paid BDC the amortizations due on the
property, amounting to P406,915.15, and BDC issued a permit to occupy the property in
favor of Diaz. Diaz then introduced improvements on the property, amounting to
P700,000.00. On April 14, 1992, BDC executed a Contract to Sell in favor of Diaz.3 On
April 15, 1994, however, BDC informed Diaz that respondent Edgar Arreza (Arreza) was
claiming that the heirs of Sps. Melgazo sold to him the rights over the property. BDC
then placed Diaz’s account in “inactive status.” To resolve the conflicting claims of
Arreza and Diaz, BDC filed a complaint for Interpleader against them, before the RTC,
Makati City, Branch 146. On March 27, 1996, the Makati City RTC Branch 146 ruled that
the signatures of Sps. Melgazo transferring their rights to Nacua were mere forgeries.
Thus, it ruled that Arreza had a better right over the property. This decision became final
and executory.

On August 27, 1996, Diaz filed the present complaint for sum of money against BDC
before the RTC. Both BDC and Tapay argued that their respective acts were lawful and
done in good faith.

ISSUE: Whether or not respondent Diaz is a purchaser for value and in good faith.

HELD: NO. For one to be considered a purchaser in good faith, the following requisites
must concur: (1) that the purchaser buys the property of another without notice that
some other person has a right to or interest in such property; and (2) that the purchaser
pays a full and fair price for the property at the time of such purchase or before he or
she has notice of the claim of another. We find that in the case at bar, the first element
is lacking.

The CA, in disposing the issue of Diaz’s good faith, merely said that “considering that
the property involved is registered land, Diaz need not go beyond the title to be
considered a buyer in good faith.” We find this to be a serious and reversible error on
the part of the CA. In the first place, while it is true that the subject lot is registered lot,
the doctrine of not going beyond the face of the title does not apply in the case here,
because what was subjected to a series of sales was not the lot itself but the right to
purchase the lot from BDC. A careful review of the records of this case reveals that
Diaz, in fact, failed to diligently inquire into the title of his predecessor before entering
into the contract of sale. As such, he cannot be considered a buyer in good faith.
Notwithstanding the fact that Diaz is not an innocent purchaser in good faith and for
value, BDC is nevertheless liable to return to him the amortizations which he already
paid on the property, applying the rule on unjust enrichment.

SPS. FERNANDO VERGARA and HERMINIA VERGARA vs. ERLINDA

TORRECAMPO SONKIN
G.R. No. 193659, June 15, 2015

PERLAS-BERNABE, J.
FACTS: The petitioners-spouses Vergara (Sps. Vergara) and Spouses Sonkin (Sps.
Sonkin) are adjoining landowners. The property owned by the Sps. Sonkin (Sonkin
Property) is slightly lower in elevation than that owned by Sps. Vergara (Vergara
Property).

The Sps Sonkin constructed a house on their property using a portion of the partition
wall as part of the wall of the master's bedroom and bathroom.

Thereafter, the Sps. Vergara levelled the uneven portion of their property making it even
higher than that of the Sonkin Property. Eventually, Sps. Sonkin began to complain that
water coming from the Vergara Property was leaking into their bedroom through the
partition wall, causing cracks, as well as damage, to the paint and the wooden parquet
floor. Sps. Sonkin repeatedly demanded that Sps. Vergara build a retaining wall on their
property in order to contain the landfill that they had dumped thereon, but the same
went unheeded.

Sps. Sonkin filed the instant complaint for damages and injunction with prayer for
preliminary mandatory injunction and issuance of a temporary restraining order.

The CA on appeal ruled that while the act of the Sps Vergara in elevating their property
was the proximate cause of the water seepage, the Sps. Sonkin were guilty of
contributory negligence in building their house directly abutting the perimeter wall. Thus,
it deleted the actual damages ordered by the RTC. It nevertheless awarded the Sonkins
moral damages and attorney’s fees.

Hence this appeal by the Sps Vergara.

ISSUE: Whether or not the Sps Sonkin are entitled to moral damages

HELD: NO. Article 2179 of the Civil Code reads:

Art. 2179. When the plaintiffs own negligence was the immediate and proximate
cause of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the
defendant's lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.

Verily, 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.

The CA correctly held that while the proximate cause of the damage sustained by the
house of Sps. Sonkin was the act of Sps. Vergara in dumping gravel and soil onto their
property, thus, pushing the perimeter wall back and causing cracks thereon, as well as
water seepage, the former is nevertheless guilty of contributory negligence for not only
failing to observe the two (2)-meter setback rule under the National Building Code, but
also for disregarding the legal easement (to receive water from higher estates)
constituted over their property. As such, Sps. Sonkin must necessarily and equally bear
their own loss.

In view of Sps. Sonkin's contributory negligence, the Court deems it appropriate to

delete the award of moral damages in their favor. While moral damages may be
awarded whenever the defendant's wrongful act or omission is the proximate cause of
the plaintiffs physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injury in the
cases specified or analogous to those provided in Article 2219 of the Civil Code, they
are only given to ease the defendant's grief and suffering and should, therefore,
reasonably approximate the extent of hurt caused and the gravity of the wrong done.

PAULINO M. EJERCITO, JESSIE M. EJERCITO v. ORIENTAL ASSURANCE CORP.

G.R. No. 192099, July 08, 2015

SERENO, C.J.

FACTS: On 10 May 1999, respondent Oriental Assurance Corporation issued a Surety

Bond in favor of FFV Travel & Tours, Inc. (Company) to guarantee the Company's
payment of airline tickets purchased on credit from participating members of
International Air Transport Association (IATA) to the extent of P3 million.

On the same day, petitioners and Merissa C. Somes (Somes) executed a Deed of
Indemnity in favor of respondent.
The Surety Bond was renewed for another year, from 10 May 2000 to 10 May 2001, as
shown in Bond Endorsement No. OAC-2000/0145 dated 17 April 2000. The
corresponding renewal premium amounting to P15,024.54 was paid by the insured
corporation.

Consequently, FFV Travel & Tours, Inc. has been declared in default for failure to pay its
obligations amounting to P5,484,086.97. Hence, IATA demanded payment of the bond
to which respondent heeded as evidenced by China Bank Check No. 104949.
Respondent sent demand letters to petitioners and Somes for reimbursement of the P3
million pursuant to the indemnity agreement. For their failure to reimburse respondent,
the latter filed a collection suit.

The RTC dismissed the complaint and ruling that there was no written agreement to
show the intention of petitioners to renew the Deed of Indemnity. The CA reversed the
finding of the RTC and ruled that petitioners could not escape liability, as they had
authorized respondent to grant any renewals or extensions pursuant to the indemnity
agreement.

The Deed of Indemnity contained a stipulation that the signatories (petitioners) were
authorizing the Company (respondent) to grant or consent to the grant of any extension,
continuation, increase, modification, change or alteration, and/or renewal of the original
bond.

ISSUES: Whether or the petitioners are liable to indemnify the respondent under the
deed of indemnity considering that petitioners did not give their consent to be bound
thereby beyond the one (1) year effectivity period of the original surety bond

HELD: The contract of indemnity is the law between the parties. It is a cardinal rule in
the interpretation of a contract that if its terms are clear and leave no doubt on the
intention of the contracting parties, the literal meaning of its stipulation shall control. The
CA aptly found provisions in the contract that could not exonerate petitioners from their
liability, to wit:

RENEWALS, ALTERATIONS AND SUBSTITUTIONS: - The undersigned hereby

empower and authorize the Company to grant or consent to the granting of, any
extension, continuation, increase, modifications, change, alteration and/or
renewal of the original bond herein referred to, and to execute or consent to the
execution of any substitution for said bond with the same or different conditions
and parties, and the undersigned hereby hold themselves jointly and severally
liable to the Company for the original bond hereinabove mentioned or for any
extension, continuation, increase, modification, change, alteration, renewal or
substitution thereof until the full amount including principal interests, premiums,
costs and other expenses due to the Company thereunder is fully paid up.

Clearly, as far as respondent is concerned, petitioners have expressly bound

themselves to the contract, which provides for the terms granting authority to the
Company to renew the original bond. The terms of the contract are clear, explicit and
unequivocal. Therefore, the subsequent acts of the Company, through Somes, that led
to the renewal of the surety bond are binding on petitioners as well.

The pretension that petitioners did not consent to the renewal of the bond is belied by
the fact that the terms of the contract which they voluntarily entered into contained a
clause granting authority to the Company to grant or consent to the renewal of the bond.
Having entered into the contract with full knowledge of its terms and conditions,
petitioners are estopped from asserting that they did so under the ignorance of the legal
effect of the contract or the undertaking.
It is true that on some occasions, the Court has struck down such contract as void when
the weaker party is imposed upon in dealing with the dominant party and is reduced to
the alternative of accepting the contract or leaving it, completely deprived of the
opportunity to bargain on equal footing. This reasoning cannot be used in the instant
case. One of the petitioners, Paulino M. Ejercito, is a lawyer who cannot feign ignorance
of the legal effect of his undertaking. Petitioners could have easily inserted a remark in
the clause granting authority to the Company to renew the original bond, if the renewal
thereof was not their intention.

The rule that ignorance of the contents of an instrument does not ordinarily affect the
liability of the one who signs it may also be applied to this Indemnity Agreement. And
the mistake of petitioners as to the legal effect of their obligation is ordinarily no reason
for relieving them of liability.

SPOUSES MAGDALINO AND CLEOFE BADILLA vs. FE BRAGAT,

G.R. No. 187013- April 22, 2015

PERALTA, J.

FACTS: Spouses Pastrano were the original owners of Lot No. 19986 (subject property)
with OCT, consisting of 1,015 sq. m. The OCT was in the name of Azur Pastrano.
Before the issuance of the OCT, however, the Spouses Pastrano, on November 18,
1968, sold the lot to Eustaquio P. Ledesma, Jr. The petitioners, the Spouses Badilla
claimed that in 1970, Ledesma sold to them, "on installment" basis, a portion amounting
to 200 sq. m. of Lot No. 19986 (subject property). The sale was not reduced in writing,
however, possession of the portion sold was transferred to the Badillas, which portion
the Badillas claim was designated as Lot No. 19986-B.

On April 18, 1978, the Spouses Bragat bought 991 sq. m. of the property from Ledesma
and his wife, via a Deed of Absolute Sale of a Residential Lot. On May 5, 1984, the
Spouses Pastrano executed another Deed of Absolute Sale of Registered Land in favor
of herein petitioner Fe Bragat (Bragat), covered by OCT No. P-2035 and with an area of
1,015 sq. m. On the same date, Azur Pastrano executed an Affidavit of Loss reporting
the loss of the owner's duplicate copy of OCT No. P-2035. Bragat filed her Complaint for
Recovery of Posession and Damages against the Spouses Badilla alleging that she is
the absolute owner of the subject property. She claimed to have purchased the property,
first, from Eustaquio Ledesma, Jr., but later, when she found out that Ledesma was
"unauthorized" to sell, she again allegedly made another purchase of the same property
from Azur Pastrano, on May 5, 1984.

RTC found for Bragat and the CA affirmed the lower court’s decision.

ISSUE: Whether or not Bragat is the owner of the subject property

HELD: NO. It is not disputed that the spouses Azur and Profitiza Pastrano had
previously sold on November 18, 1968, via a Deed of Definite Sale of Unregistered
Coconut and Residential Land, the property to Eustaquio Ledesma.Therefore, as early
as such date, it is established that the Pastranos no longer had ownership over the
property. Then, as Ledesma subsequently sold, in 1970, a portion of the property to the
petitioner Spouses Badilla, who immediately took delivery and possession, ownership of
this portion had also been transferred to the said spouses. Although that sale appears to
be merely verbal, and payment therefor was to be made on installment, it is a partially
consummated sale, with the Badillas paying the initial purchase price and Ledesma
surrendering possession.

The Civil Code states that ownership of the thing sold is transferred to the vendee upon
the actual or constructive delivery of the same. And the thing is understood as delivered
when it is placed in the control and possession of the vendee. Payment of the purchase
price is not essential to the transfer of ownership as long as the property sold has been
delivered; and such delivery (traditio) operated to divest the vendor of title to the
property which may not be regained or recovered until and unless the contract is
resolved or rescinded in accordance with law.

The same is true even if the sale is a verbal one, because it is held that when a verbal
contract has been completed, executed or partially consummated, its enforceability will
not be barred by the Statute of Frauds, which applies only to an executory agreement.
Thus, where a party has performed his obligation, oral evidence will be admitted to
prove the agreement.

Pastrano could no longer sell any part of the property to Bragat on such later dates
since he had already sold the same as early as November 18, 1968 to Ledesma. Well-
settled is the rule that no one can give what one does not have - nemodat quod non
habet - and, accordingly, one can sell only what one owns or is authorized to sell, and
the buyer acquires no better title than the seller. Thus, the sales made on the dates May
5, 1984 and October 2, 1987 are void for being simulated and for lack of a subject
matter. On these sales, Bragat cannot clajim good faith as she herself knew of
Pastrano's lack of ownership.
Pastrano sold it again to Bragat in 1984 and 1987. But Ledesma, too, sold part of the
property to the Spouses Badilla in 1970 and then the entire lot to the Spouses; Bragat in
1978. In such a situation of multiple sales, Article 1544 of the Civil Code relates that
ownership shall belong to the person acquiring the property who, in good faith, first
recorded such acquisition. Presently, however, it cannot be said that Bragat's recording
of her 1987 purchase was in good faith because that sale was simulated and Bragat
was aware of other persons who have an interest on the property.

NUNELON R. MARQUEZ, Petitioner, v. ELISAN CREDIT CORPORATION,

Respondents.
G.R. No. 194642, April 06, 2015

BRION, J.

FACTS: On December 16, 1991, Nunelon R. Marquez (petitioner) obtained a (first loan)
from Elisan Credit Corporation (respondent) for fifty-three thousand pesos (Php
53,000.00) payable in one-hundred eighty (180) days. To further secure payment of the
loan, the petitioner executed a chattel mortgage over a motor vehicle. Subsequently, the
petitioner obtained another loan (second loan) from the respondent. Due to liquidity
problems, the petitioner asked the respondent if he could pay in daily installments (daily
payments) until the second loan is paid. The respondent granted the petitioner's
request.

Despite the receipt of more than the amount of the principal, the respondent filed a
complaint for judicial foreclosure of the chattel mortgage because the petitioner
allegedly failed to settle the balance of the second loan despite demand. The MTC
found for the petitioner. It held that when an obligee accepts the performance or
payment of an obligation, knowing its incompleteness or irregularity and without
expressing any protest or objection, the obligation is deemed fully complied with. On
appeal, the RTC then held iting Article 1253 of the Civil Code that "if the debt produces
interest, payment of the principal shall not be deemed to have been made until the
interests have been covered." The CA affirmed the RTC's ruling. The CA observed that
the disparity in the amount loaned and the amount paid by the petitioner supports the
respondent's view that the daily payments were properly applied first for the payment of
interests and not for the principal.

ISSUE: Whether or not the respondent acted pursuant to law and jurisprudence when it
credited the daily payments against the interest instead of the principal

HELD: YES. In the present case, it was not proven that the respondent accepted the
payment of the principal. The silence of the receipts on whether the daily payments
were credited against the unpaid balance of the principal or the accrued interest does
not mean that the respondent waived the payment of interest. There is no presumption
of waiver of interest without any evidence showing that the respondent accepted the
daily installments as payments for the principal.

Ideally, the respondent could have been more specific by indicating on the receipts that
the daily payments were being credited against the interest. Its failure to do so,
however, should not be taken against it. The respondent had the right to credit the daily
payments against the interest applying Article 1253.

It bears stressing that the petitioner was already in default. Under the promissory note,
the petitioner waived demand in case of non-payment upon due date. The stipulated
interest and interest for default have both accrued. The only logical result, following
Article 1253 of the Civil Code, is that the daily payments were first applied against either
or both the stipulated interest and interest for default.

Moreover, Article 1253 is viewed as having an obligatory character and not merely
suppletory. It cannot be dispensed with except by mutual agreement. The creditor may
oppose an application of payment made by the debtor contrary to this rule.
In any case, the promissory note provided that "interest not paid when due shall be
added to, and become part of the principal and shall likewise bear interest at the same
rate, compounded monthly."

FAJ CONSTRUCTION & DEVELOPMENT CORPORATION, Petitioner, v. SUSAN M.

SAULOG, Respondent.
G.R. No. 200759, March 25, 2015

DEL CASTILLO, J.

FACTS: On June 15, 1999, petitioner FAJ Construction and Development Corporation
and respondent Susan M. Saulog entered into an Agreement6 (construction agreement)
for the construction of a residential building in San Lorenzo Village, Makati City for a
contract price of P12,500,000.00. Payment to petitioner contractor shall be on a
progress billing basis, after inspection of the work by respondent.

Construction of the building commenced, and respondent made a corresponding total

payment to petitioner in the amount of P10, 592,194.80. However, for the October 31
and November 6, 2000 progress billing statements sent by petitioner in the total amount
of P851, 601.58, respondent refused to pay. After performing additional work, petitioner
made another request for payment, but respondent again refused to pay, prompting
petitioner to terminate the construction contract pursuant to Article 27(b) of the Uniform
General Conditions of Contract for Private Construction (or Document 102) of the
Construction Industry Authority of the Philippines, Department of Trade and Industry.

Petitioner thus filed with the RTC of Quezon City a civil case for collection of a sum of
money with damages against respondent. The petitioner and counsel repeatedly failed
to appear for the continuation of trial. The trial court, noting respondent’s manifestation,
issued an Order dismissing the case for failure to prosecute. Petitioner filed a motion for
reconsideration which the trial court denied. Petitioner filed a petition for certiorari with
the CA, who then dismissed the petition for certiorari and affirming the trial court’s
action.

ISSUE: Whether or not the principle of damnum absque injuria applies to this case

HELD: NO. On the issue of liability, we find – relying on the identical findings of the trial
and appellate courts – that petitioner is guilty of violating the construction agreement, for
its defective and incomplete work, delay, and for unjustified abandonment of the project.
Indeed, we find no reason to disturb the identical pronouncements of the trial court and
the CA. The same holds true with respect to the issue of damages raised by petitioner;
it requires an inquiry into the facts, which is no longer this Court’s realm.

All in all, these pieces of evidence collectively proved the facts in issue. Besides,
Calinawan need not be qualified as an expert witness in order to testify on facts which
are readily apparent to the eye, and even to the layman: it does not require an expert to
conclude that flooring is sloppily done, or that the electrical outlet and switch are not
aligned, or that the flooring is stained with paint, or that incorrect colored cement was
used to fill the gap between tiles, or that a door jamb needs repair, or that grouting of
tiles is sloppily done, or that there are unwanted bubbles in the varnishing works, or that
the parquet flooring is unaligned or uneven, or that the window sills are dirty, or that
windows lacked the necessary screws and rubber, or that the roof panels are damaged,
or that the installation of asphalt shingles on the roof was improper.

Since respondent suffered damages as a result of petitioner’s defective and delayed

work and unjustified abandonment of the project, the principle of damnum absque
injuria cannot apply. The principle cannot apply when there is an abuse of a person’s
right.
 CEBU STATE COLLEGE OF SCIENCE AND TECHNOLOGY vs. LUIS S. MISTERIO
G.R. No. 179025, June 17, 2015

PERALTA, J.

FACTS: In 1956, the late Asuncion Sadaya, mother of herein respondents, executed a
Deed of Sale covering Lot 1064 in favor of Sudlon Agricultural High School (SAHS). The
sale was subject to the right of the vendor to repurchase the property after SAHS shall
have ceased to exist, or shall have transferred its school site elsewhere.
When Batas Pambansa (BP) Blg. 412 [enacted on June 10, 1983], entitled "An Act
Converting the Cebu School of Arts and Trades in Cebu City into a Chartered College to
be Known as the Cebu State College of Science and Technology, it incorporated and
consolidated several schools in Cebu, including the SAHS. The law also transferred all
personnel, properties, including buildings, sites, and improvements, records,
obligations, monies and appropriations of SAHS to Cebu State College.
Herein respondents as heirs of the seller Asuncion Sadaya, informed the Governor of
Cebu of their intention to repurchase the subject property as stipulated in the Deed of
Sale on the ground that SAHS had ceased to exist. When the claim to repurchase was
refused, respondents filed a Complaint for Nullity of Sale and/or Redemption against
Cebu State College. The RTC declared that the Deed of Sale entered into by and
between Asuncion Sadaya and SAHS as null and void for the latter's lack of juridical
personality. The CA reversed the latter decision and ratiocinated that while it agrees with
the trial court's finding that the SAHS had ceased to exist when BP Blg. 412 took effect,
respondents are barred by prescription from exercising their right to repurchase the
subject property, which expired in June 1987, or four years from the effectivity of BP Blg.
412 on June 10, 1983.

ISSUE: Whether the vendor a retro repurchase the property even beyond the four year
period prescribed by law?

HELD: NO. In cases of conventional redemption when the vendor a retro reserves the
right to repurchase the property sold, the parties to the sale must observe the
parameters set forth by Article 1606 of the New Civil Code, which states:
Art. 1606. The right referred to in Article 1601, in the absence of an express
agreement, shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from the
time final judgment was rendered in a civil action on the basis that the contract was a
true sale with right to repurchase.
Thus, depending on whether the parties have agreed upon a specific period within
which the vendor a retro may exercise his right to repurchase, the property subject of
the sale may be redeemed only within the limits prescribed by the aforequoted
provision.
Petitioner and respondents in this case did not agree on any period for the exercise of
the right to repurchase the property herein, respondents may use said right within four
(4) years from the happening of the allocated conditions contained in their Deed of Sale:
(a) the cessation of the existence of the SAHS, or (b) the transfer of the school to other
site. However, due to respondents' failure to exercise their right to redeem the property
within the required four (4) years from the time when SAHS had ceased to exist, or from
June 10, 1983, the date of effectivity of BP Blg. 412, this Court held that respondents
are barred by prescription.
Despite this, respondents nevertheless insist on the redemption of the subject property
pursuant to the second suspensive condition, namely, petitioner's transfer of its school
site. Applicable law and jurisprudence, however, runs contrary to respondents' stance.
Article 1606 expressly provides that in the absence of an agreement as to the period
within which the vendor a retro may exercise his right to repurchase, the same must be
done within four (4) years from the execution of the contract. In the event the contract
specifies a period, the same cannot exceed ten (10) years. Thus, whether it be for a
period of four (4) or ten (10) years, this Court consistently implements the law and limits
the period within which the right to repurchase may be exercised, adamantly striking
down as illicit stipulations providing for an unlimited right to repurchase.

MOVERTRADE CORPORATION, Petitioner, v. THE COMMISSION ON AUDIT AND

THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, Respondents.
G.R. No. 204835, September 22, 2015

DEL CASTILLO, J.

FACTS: On February 7, 1996, petitioner and respondent Department of Public Works

and Highways (DPWH) entered into a Contract Agreement5 for dredging and other
related works in Pampanga Bay and the primary Pasac-Guagua-San Fernando
Waterways in Pampanga, which were affected by the Mt. Pinatubo eruptions and
mudflows, in the total amount of P188,698,000.00.

On August 13, 1997, due to the alleged absence of spoil sites, petitioner requested
permission from Director Soriquez to allow it to undertake side dumping (dumping within
the river) chargeable against the dredging works. On August 18, 1997, Director
Soriquez issued a letter9 denying the request. However, despite the denial and the
prohibition issued by Director Soriquez and Engr. Bustos, petitioner continued to side
dump.

When the project was in its final phase of completion, petitioner, through its President,
Mr. Wenceslao Zingapan, wrote a letter16 dated October 15, 1997 to then DPWH
Secretary Gregorio Vigilar (Secretary Vigilar) asking for payment for the dredging work it
rendered.

On October 24, 1997, Director Soriquez issued a letter informing petitioner of the denial
of its request for payment. Accordingly, on February 19,2010, petitioner filed with
respondent COA a money claim against respondent DPWH for payment of dredging
works with side dumping of spoils in Pampanga Bay and the primary Pasac-Guagua-
San Fernando Waterways in Pampanga amounting to P7,354,897.10.

On December 29, 2011, respondent COA rendered Decision No. 2011-106 denying the
money claim34 of petitioner for lack of merit.35 Respondent COA ruled that petitioner is
not entitled to payment for the dredging works for breach of contract.36 Paragraph 11 of
the Contract Agreement prohibits side dumping as it specifically requires that dredge
spoils should be dumped at pre-designated areas to prevent them from spilling back
into the channel.

Aggrieved, petitioner moved for reconsideration39 insisting that there was no breach of
contract and that even if there was a breach, it is still entitled to payment under the
principle of quantum meruit. As to the principle of quantum meruit, respondent COA
explained that the principle applies only when there is no written contract between the
parties.42 In this case, since there is a written contract entered into by the parties, the
principle of quantum meruit cannot be applied.43 Thus, petitioner should bear the loss
for breaching the contract.

ISSUE: WON petitioner is entitled to the payment of P7,354,897.10 for dredging works.

HELD: No. It is a basic principle in law that contracts have the force of law between the
parties and should be complied with in good faith. In this case, the contract specifically
provides the manner of disposing dredge spoils. Thus, petitioner cannot unilaterally
change the manner of disposal without first amending the contract or obtaining the
express consent or approval of respondent DPWH. Otherwise, petitioner would be guilty
of breaching the contract. "[A] breach occurs where the contractor inexcusably fails to
perform substantially in accordance with the terms of the contract." Without a doubt,
petitioner's failure to dump the dredge spoils at the designated spoil sites constitutes a
breach.
Considering that the dredge spoils were dumped back into the river, we cannot be
certain, as pointed out by the OSG, that the government benefited from petitioner's
165,576.27 cubic meters dredging work. And it would be unfair to allow petitioner to
benefit from its breach. Besides, petitioner cannot claim that it was not duly
compensated for the services it rendered as the amount of P7,354,897.10 is only a part
of the P188,698,000.00 contract. In fact, petitioner admits that it was already paid the
amount of P180,029,910.15. Thus, we agree with respondent COA that petitioner is not
entitled to its money claim for the 165,576.27 cubic meters dredging work as it was
done in contravention of paragraph 11 of the Contract Agreement.

METROPOLITAN BANK AND TRUST COMPANY vs S.F Naguiat Enterprises Inc

G.R. No. 178407, March 18, 2015

LEONEN, J.

FACTS: S.F. Naguiat obtained a loan from Metrobank in the amount of P1,575,000.00.
The loan was likewise secured by the 1997 real estate mortgage by virtue of the
Agreement on Existing Mortgage executed between the parties on March 15, 2004. On
July 7, 2005, S.F. Naguiat filed a Petition for Voluntary Insolvency with Application for
the Appointment of a Receiver pursuant to Act No. 1956, as amended, before the
Regional Trial Court of Angeles City and which was raffled to Branch 56. Among the
assets declared in the Petition was the property covered by TCT No. 58676 (one of the
properties mortgaged to Metrobank). Presiding Judge Irin Zenaida S. Buan issued the
Order15 dated July 12, 2005, declaring S.F. Naguiat insolvent; directing the Deputy
Sheriff to take possession of all the properties of S.F. Naguiat until the appointment of a
receiver/assignee; and forbidding payment of any debts due, delivery of properties, and
transfer of any of its properties.

Pending the appointment of a receiver, Judge Buan directed the creditors, including
Metrobank, to file their respective Comments on the Petition. In lieu of a Comment,
Metrobank filed a Manifestation and Motion informing the court of Metrobank's decision
to withdraw from the insolvency proceedings because it intended to extrajudicially
foreclose the mortgaged property to satisfy its claim against S.F. Naguiat. On November
8, 2005, Metrobank instituted an extrajudicial foreclosure proceeding against the
mortgaged property and sold the property at a public auction held on December 9, 2005
to Phoenix Global Energy, Inc., the highest bidder. Afterwards, Sheriff Claude B.
Balasbas prepared the Certificate of Sale and submitted it for approval to Clerk of Court
Vicente S. Fernandez, Jr. and Executive Judge Bernardita Gabitan-Erum. However,
Executive Judge Gabitan-Erum issued the Order denying her approval of the Certificate
of Sale in view of the July 12, 2005 Order issued by the insolvency court. Metrobank's
subsequent Motion for Reconsideration was also denied. Metrobank filed a Petition for
certiorari and mandamus before the Court of Appeals on June 22, 2006. S.F. Naguiat
filed its Manifestation stating that it was not interposing any objection to the Petition and
requested that the issues raised in the Petition be resolved without objection and
argument on its part.

The Court of Appeals rendered its Decision dismissing the Petition on the basis of
Metrobank's failure to obtain the permission of the insolvency court to extrajudicially
foreclose the mortgaged property. The Court of Appeals declared that a suspension of
the foreclosure proceedings is in order, until an assignee is elected or appointed by the
insolvency court so as to afford the insolvent debtor proper representation in the
foreclosure proceedings. Metrobank filed a Motion for Reconsideration and Clarification,
which was denied by the Court of Appeals. The Court of Appeals held that leave of court
must be obtained from the insolvency court whether the foreclosure suit was instituted
judicially or extrajudicially so as to afford the insolvent estate's proper representation in
such action and to avoid the dissipation of the insolvent debtor's assets in possession of
the insolvency court without the latter's knowledge.

ISSUE: Whether or not, prior leave of the insolvency court is necessary before a
secured creditor, like petitioner Metropolitan Bank and Trust Company, can
extrajudicially foreclose the mortgaged property?

HELD: YES. The foreclosure and sale of the mortgaged property of the debtor, without
leave of court, contravene the provisions of Act No. 1956 and violate the Order dated
July 12, 2005 of the insolvency court which declared S.F. Naguiat insolvent and
forbidden from making any transfer of any of its properties to any person.

It is the policy of Act No. 1956 to place all the assets and liabilities of the insolvent
debtor completely within the jurisdiction and control of the insolvency court without the
intervention of any other court in the insolvent debtor's concerns or in the administration
of the estate. It was considered to be of prime importance that the insolvency
proceedings follow their course as speedily as possible in order that a discharge, if the
insolvent debtor is entitled to it, should be decreed without unreasonable delay.
Proceedings of this nature cannot proceed properly or with due dispatch unless they are
controlled absolutely by the court having charge thereof. Act No. 1956 impliedly requires
a secured creditor to ask the permission of the insolvent court before said creditor can
foreclose the mortgaged property.
With the declaration of insolvency of the debtor, insolvency courts obtain full and
complete jurisdiction over all property of the insolvent and of all claims by and against it.
It follows that the insolvency court has exclusive jurisdiction to deal with the property of
the insolvent. Consequently, after the mortgagor-debtor has been declared insolvent
and the insolvency court has acquired control of his estate, a mortgagee may not,
without the permission of the insolvency court, institute proceedings to enforce its lien.
In so doing, it would interfere with the insolvency court's possession and orderly
administration of the insolvent's properties.

The extrajudicial foreclosure and sale of the mortgaged property of the debtor would
clearly constitute an interference with the insolvency court's possession of the property.

TAGAYTAY REALTY CO., INC. v. ARTURO G. GACUTAN

G.R. No. 160033, July 01, 2015

BERSAMIN, J.

FACTS: On September 6, 1976, the respondent entered into a contract to sell with the
petitioner for the purchase on installment of a residential lot with an area of 308 square
meters situated in the Tagaytay then being developed by the petitioner. Earlier, on June
30, 1976, the petitioner executed an express undertaking the development of the roads,
gutters, drainage system, water and electrical systems, as well as amenities such as,
swimming pool, pelota court, tennis and/or basketball court, bath house, children's
playground and a clubhouse within a period of two years from 15 July 1976. Further, it
was stipiulated that failure on their part to develop within the stipulated period, the
VENDEE will have the option to suspend payment of its monthly amortization without
incurring penalty interest, save in cases of any act of God, any act or event constituting
force majeure or fortuitous event.

Respondent notified the petitioner that he was suspending his amortizations because
the amenities had not been constructed in accordance with the undertaking after the
lapse of the period stipulated. But instead of making true of the undertaking, the
petitioner sent to respondent a statement of account demanding the balance of the
price, plus interest and penalty.

The respondent sued the petitioner for specific performance in the HLURB. The
petitioner sought to be excused from performing its obligations under the contract,
invoking Article 1267 of the Civil Code as its basis. It contended that the depreciation of
the Philippine Peso since the time of the execution of the contract is a valid justification
for its release from the obligation.
The HLURB Arbiter ruled in favor of the respondent. The petitioner appealed to the
Office of the President (OP) which office upheld the decision of the HLURB Board of
Commissioners. When the case was elevated to the CA and the appellate court
sustained the findings of both the HLURB and the OP.

ISSUE: Whether the petitioner released from its obligation to construct the amenities in
the Foggy Heights Subdivision alleging inflation using Article 1267 of the Civil Code as
basis?

HELD: No. Petitioner was not relieved from its statutory and contractual obligations to
complete the amenities.

There is no question that the petitioner did not comply with its legal obligation to
complete the construction of the subdivision project. Instead, it unilaterally opted to
suspend the construction of the amenities to avoid incurring maintenance expenses. In
so opting, it was not driven by any extremely difficult situation that would place it at any
disadvantage, but by its desire to benefit from cost savings.

Considering that the petitioner's unilateral suspension of the construction of the

amenities was intended to save itself from costs, its plea for relief from its contractual
obligations was properly rejected because it would thereby gain a position of advantage
at the expense of the lot owners like the respondent. Its invocation of Article 1267 of the
Civil Code, which provides that "(w)hen the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may also be released
therefrom in whole or in part," was factually unfounded. For Article 1267 to apply, the
following conditions should concur, namely: (a) the event or change in circumstances
could not have been foreseen at the time of the execution of the contract; (b) it makes
the performance of the contract extremely difficult but not impossible; (c) it must not be
due to the act of any of the parties; and (d) the contract is for a future prestation. The
requisites did not concur herein because the difficulty of performance under Article 1267
of the Civil Code should be such that one party would be placed at a disadvantage by
the unforeseen event. Mere inconvenience, or unexepected impediments, or increased
expenses did not suffice to relieve the debtor from a bad bargain.

ESTANISLAO AND AFRICA SINAMBAN v. CHINA BANKING CORPORATION

G.R. No. 193890, March 11, 2015
REYES, J.

FACTS: On Februaiy 19, 1990, the spouses Danilo and Magdalena Manalastas
(spouses Manalastas) executed a Real Estate Mortgage (REM) in favor of respondent
China Banking Corporation (Chinabank) over two real estate properties as security for a
loan from Chinabank. During the next few years, they executed several amendments to
the mortgage contract progressively increasing their credit line secured by the aforesaid
mortgage. The spouses Manalastas executed several promissory notes (PNs) in favor
of Chinabank. In two of the PNs, petitioners Estanislao and Africa Sinamban (spouses
Sinamban) signed as co-makers.

Chinabank instituted extrajudicial foreclosure proceedings against the mortgage

security. The foreclosure sale was held on May 18, 1998, with Chinabank offering the
highest bid of P4,600,000.00, but by then the defendants' total obligations on the three
promissory notes had risen to P5,401,975.00, before attorney's fees of 10% and auction
expenses, leaving a loan deficiency of P1,758,427.87.

On November 18, 1998, Chinabank filed a Complaint for sum of money against the
spouses Manalastas and the spouses Sinamban alleging that the spouses Manalastas
reneged on their loan obligations under the PNs which they executed in favor of
Chinabank on different dates. In the complaint before the RTC, Chinabank prayed to
direct the defendants to jointly and severally settle the said deficiency.

ISSUE: Whether the liability of the Sps Manalastas and Sps Sinamban is solidary or
joint

HELD: SOLIDARY. A co-maker of a PN who binds himself with the maker "jointly and
severally" renders himself directly and primarily liable with the maker on the debt,
without reference to his solvency.

"A promissory note is a solemn acknowledgment of a debt and a formal commitment to

repay it on the date and under the conditions agreed upon by the borrower and the
lender. A person who signs such an instrument is bound to honor it as a legitimate
obligation duly assumed by him through the signature he affixes thereto as a token of
his good faith. If he reneges on his promise without cause, he forfeits the sympathy and
assistance of this Court and deserves instead its sharp repudiation."

Employing words of common commercial usage and well-accepted legal significance,

the three subject PNs uniformly describe the solidary nature and extent of the obligation
assumed by each of the defendants in Civil Case No. 11708, to wit:
 "FOR VALUE RECEIVED, I/We jointly and severally promise to pay to the
CHINA BANKING CORPORATION or its order the sum of PESOS x x x[.]"
(Emphasis ours)

According to Article 2047 of the Civil Code,38 if a person binds himself solidarily with
the principal debtor, the provisions of Articles 1207 to 1222 of the Civil Code (Section 4,
Chapter 3, Title I, Book IV) on joint and solidary obligations shall be observed. Thus,
where there is a concurrence of two or more creditors or of two or more debtors in one
and the same obligation, Article 1207 provides that among them, "[t]here is a solidary
liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity." It is settled that when the obligor or obligors undertake
to be "jointly and severally" liable, it means that the obligation is solidary. In this case,
the spouses Sinamban expressly bound themselves to be jointly and severally, or
solidarily, liable with the principal makers of the PNs, the spouses Manalastas.

SPOUSES GIRONELLA vs. PHILIPPINE NATIONAL BANK

G.R. No. 194515, September 16, 2015

PEREZ, J.

FACTS: Spouses Gironella obtained two (2) loans from PNB in the amounts of Php
7,500,000.00 and Php 2,000,000.00 for the construction of the Dagupan Village Hotel
and Sports Complex. The loans were co-terminus, both payable on installments and
secured by the same real estate mortgage over a parcel of land in favor of the creditor,
PNB. In May 1992, seeking to expand their hotel operations, the Spouses Gironella
again applied for another loan with PNB in the amount of Php 5,800,000.00 for the
construction of a restaurant bar and the purchase of a generator set. The Spouses
Gironella began to default in paying their prior two (2) loans. According to the
petitioners, their default in payment is attributable to PNB whose representatives and
officers made them believe that their Php 5,800,000.00 loan application would be
approved and directed them to proceed with their expansion plans. To that end and with
the full knowledge of the PNB's officers and representatives, the Spouses Gironella
used the income generated by the hotel for the construction of the restaurant bar and
purchase of the generator set while the Php 5,800,000.00 loan was pending and still
being processed. While the parties were negotiating and discussing the restructuring of
the Spouses Gironella's loans, PNB made a couple of attempts to foreclose the
mortgaged property. It filed a Petition for the Extra-Judicial Foreclosure thereof and
subsequently, a Notice of Extra-Judicial Foreclosure Sale. However, the final
foreclosure of the mortgaged property was stalled because of the continuing
negotiations between the parties for the restructuring of the loans. Several exchanges of
correspondence between the Spouses and PNB occurred and the former gave a
qualified acceptance on the proposed restructuring but was eventually rejected by the
bank which resulted to a refiling for the Extra-Judicial Foreclosure of the mortgaged
property. Hence, this complaint.

ISSUE: Whether or not there was final agreement between the spouses and the bank
on the restructuring of the loan.

HELD: No. A qualified acceptance equated to a counter-offer and, at that point, there
was no absolute and unqualified acceptance which is identical in all respects with that of
the offer so as to produce consent or meeting of the minds.
There are three (3) distinct stages of a contract: (1) •preparation or negotiation, (2)
perfection, and finally, (3) consummation. At the point where the Spouses Gironella
were applying for the additional loan of Php 5,800,000.00, that involved the negotiation
stage for a contract separate from the first two credit agreements which were
consolidated into one, secured by the same real estate mortgage over TCT No. 56059,
both payable on installment and with the same term. Necessarily, the Spouses Gironella
as debtors applying for an. additional loan, ought to participate in the negotiations
thereof and await PNB' s assessment and processing of their additional loan
application. A contract is perfected by mere consent. Consent is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance seasonable and
absolute. If qualified, the acceptance would merely constitute a counter-offer as what
occurred in this case. To reach that moment of perfection, the parties must agree on the
same thing in the same sense, so that their minds meet as to all the terms. They must
have a distinct intention common to both and without doubt or difference; until all
understand alike, there can be no assent, and therefore no contract. The minds of
parties must meet at every point; nothing can be left open for further arrangement. So
long as there is any uncertainty or indefiniteness, or future negotiations or
considerations to be had between the parties, there is not a completed contract, and in
fact, there is no contract at all. The Spouses Gironella's payments under its original loan
account cannot be considered as partial execution of the proposed restructuring loan
agreement. They were clearly made during the pendency of the negotiations on the
restructuring. Such pendency proves, absence, not presence of an agreement ready for
execution. At the time of payments only petitioners' obligation under the original credit
agreements were in existence. Further on this, negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and ends at the
moment of agreement of the parties. Once there is concurrence of the offer and
acceptance of the object and cause, the stage of negotiation is finished. This situation
does not obtain in the case at bar.

TOLEDO vs. COURT OF APPEALS

G.R. No. 167838, August 05, 2015

JARDELEZA, J.

FACTS: Del Rosario Realty (represented by Pedro Del Rosario) entered into a Contract
to Sell land (property) with spouses Leonardo Faustino and Angelina Lim (“Faustino
spouses”) with an initial payment of P4, 200.00 and the balance to be paid in
consecutive quarterly installments. On January 20, 1959, the Faustino spouses sold
their rights over the property to spouses Vicente Padiernos and Concordia Garcia, and
the latter agreed to assume the former's obligations under the May 5, 1958 contract to
sell. This transfer was registered and annotated on the property's TCT as an adverse
claim as early as October 20, 1960. Meanwhile, on May 7, 1959, Pedro Del Rosario
executed a deed assigning all of his rights and interests in the May 5, 1958 contract to
sell to Socorro A. Ramos. In the same deed, Socorro Ramos acknowledged and
“approved the transfer or assignment of rights made by spouses Leonardo Faustino and
Angelina Lim in favor of Vicente Padiernos” over the property including “all the
incidental rights, interests and obligations inherent thereto.”

On January 9, 1962, Vicente Padiernos sold one-half of the property to petitioner Jose
Toledo and his wife Elisa Padierno (hereafter, “spouses Toledo”). The deed embodying
the Partial Assignment of Rights noted that the spouses Toledo had already
commenced payment of the installments since August 5, 1961. It further provided that
the spouses Toledo shall “continue payments until fully paid,” with said payments to be
made in the name of Vicente Padiernos as the purchaser on record. After completion of
payment, the Toledo spouses shall own one-half of the property. Vicente Padiernos sold
the remaining half of the property to spouses Virgilio and Leticia Padiernos. Later on, or
on January 17, 1986, Virgilio and Leticia Padiernos assigned their rights over the
property to their children, petitioners Glenn and Danilo Padiernos. Consequently,
spouses Toledo and spouses Virgilio and Leticia Padiernos paid quarterly installments
on the property until full payment sometime in 1971. When petitioners requested for the
release of the owner's duplicate certificate of title, respondent Antonio A. Ramos,
representing the heirs of Socorro Ramos, issued a Certification stating that while the
property “has been paid in full by Mr. Vicente Padiernos...Title #44436 could not be
released pending final decision of the Supreme Court.” During the pendency of the
case, the execution proceedings were taken against the estate of Socorro Ramos. As a
consequence, eighteen (18) parcels of land belonging to the estate, including the
property, were sold in auction to Guillermo N. Pablo and Primitiva C. Cruz, who
thereafter sold said properties to ARC Marketing.

The heirs of Socorro A. Ramos, filed a Complaint for Nullity of Execution Sale (docketed
as Civil Case No. Q-22850) against auction sale winners Guillermo N. Pablo and
Primitiva C. Cruz, and their transferee ARC Marketing. The case was settled and the
parties entered into a Final Compromise Agreement (“Compromise Agreement”). Under
the Compromise Agreement, then sole plaintiff Lourdes A. Ramos agreed to settle the
case for the total compromise amount of Two Million Pesos (P2,000,000.00) to be paid
by ARC Marketing to the former in installments. Petitioners Jose Toledo, Glenn
Padiernos and Danilo Padiernos filed a complaint for reconveyance and damages.

ISSUE1: Whether or not the action filed by petitioners before the RTC is one for
reconveyance.

HELD1: An action for reconveyance is a legal and equitable remedy granted to the
rightful owner of land which has been wrongfully or erroneously registered in the name
of another for the purpose of compelling the latter to transfer or reconvey the land to
him. It is axiomatic that what determines the nature of the action and which court has
jurisdiction over it are the allegations in the complaint and the character of the relief
sought. What petitioners sought was the cancellation of the title issued in ARC
Marketing's name and the issuance of a new one in their favor. This is characteristic of
an action for reconveyance which respects the decree of registration as incontrovertible
but seeks the transfer of property, which has been wrongfully or erroneously registered
in other persons' names, to its rightful and legal owners, or to those who claim to have a
better right. It is enough that the aggrieved party has a legal claim on the property
superior to that of the registered owner and that the property has not yet passed to the
hands of an innocent purchaser for value. We agree with the CA's suggestion that the
petitioner's proper recourse was either an action for quieting of title or an action for
reconveyance of the property. Petitioners’ action being one for reconveyance filed with
the proper court, the trial court therefore erred in dismissing the action on grounds of
lack of jurisdiction.

ISSUE2: Whether or not a judgment rendered on the basis of a compromise agreement

binds non-parties
HELD2: NO. It is basic in law that a compromise agreement, as a contract, is binding
only upon the parties to the compromise, and not upon non-parties. This is the doctrine
of relativity of contracts. Consistent with this principle, a judgment based entirely on a
compromise agreement is binding only on the parties to the compromise the court
approved, and not upon the parties who did not take part in the compromise agreement
and in the proceedings leading to its submission and approval by the court. Otherwise
stated, a court judgment made solely on the basis of a compromise agreement binds
only the parties to the compromise, and cannot bind a party litigant who did not take
part in the compromise agreement. Petitioners were never parties to Civil Case No. Q-
22850. Petitioners also acquired their title over the property prior to the institution of said
case involving respondents. Thus, petitioners cannot be prejudiced by the compromise
judgment in said case. While the contract to sell indeed provided for the ipso facto
cancellation of the contract “without need of notification or judicial action,” jurisprudence
requires, for cancellation to be effective, that written notice be sent to the defaulter
informing him of said cancellation/rescission. Well-settled is the rule, as held in previous
jurisprudence, that judicial action for rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of any of its terms
and conditions. In this case, it does not appear that ARC Marketing (nor its
predecessors-in-interest) took any steps to cancel the contract and/or eject petitioners
from the premises (much less notify petitioners about said cancellation) prior to the
latter’s institution of the action for reconveyance.

ROBERTO STA. ANA DY VS. BONIFACIO YU

G.R. No. 202632, 8 July 2015

PERLAS-BERNABE, J.

FACTS: Roberto filed a complaint for recovery of possession with damages against
Susana and her husband, Sixto Tan (Sixto), before the RTC.
He alleged, among others, that he is the registered owner of Lot 1519 under OCT. No.
511, which he acquired by virtue of the Extrajudicial Settlement with Sale executed
between him and his siblings after the death of their parents.
Susana averred that the Extrajudicial Settlement with Sale executed by Roberto and his
siblings was a nullity since they were not the compulsory heirs of the late Dy Chiao and
further claimed that Roberto's application for registration, i.e., OCT No. 511, which
included Lot 1519-A, was secured through fraud and misrepresentation.
Meanwhile Rosario in her Answer-in-Intervention contended that the said portion was
donated to her by Dy Chiao in 1938, and that she has since been in continuous
possession of the same for over 50 years.
In its decision, the RTC dismissed Roberto's complaint for lack of merit and thereby
declared Rosario as the lawful owner of Lot 1519-A. The RTC added that since the
nature of Rosario's Answer-in-Intervention in the case amounted to an action for
reconveyance and the subject portion was found to have been fraudulently included and
registered by Roberto, the latter was ordered to reconvey said portion to Rosario being
its rightful owner and to further pay attorney's fees, as well as costs of suit.

ISSUE: Whether the attorney's fees were properly awarded by the RTC?

HELD: NO. The Court finds it apt to delete the attorney's fees awarded in favor of
respondents given that the trial court failed to explain its findings of facts and law to
justify the award.

It bears to stress that power of the court to award attorney's fees demands factual,
legal, and equitable justification, without which the award is a conclusion without a
premise, its basis being improperly left to speculation and conjecture. In fact, such
failure or oversight of the trial court cannot even be supplanted by the CA. As elucidated
in the case of S.C. Megaworld Construction and Development Corporation v. Parada:
Article 2208 of the New Civil Code enumerates the instances where such may be
awarded and, in all cases, it must be reasonable, just and equitable if the same were to
be granted. Attorney's fees as part of damages are not meant to enrich the winning
party at the expense of the losing litigant. They are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed on the right to
litigate. The award of attorney's fees is the exception. rather than the general rule. As
such, it is necessary for the trial court to make findings of facts and law that would bring
the case within the exception and justify the grant of such award. The matter of
attorney's fees cannot be mentioned only in the dispositive portion of the decision. They
must be clearly explained and justified by the trial court in the body of its decision. On
appeal, the CA is precluded from supplementing the bases for awarding attorney's fees
when the trial court failed to discuss in its Decision the reasons for awarding the same.
Consequently, the award of attorney's fees should be deleted.
 SWIRE REALTY DEVELOPMENT CORPORATION vs JAYNE YU
G.R. No. 207133, March 09, 2015

PERALTA, J.

FACTS: Respondent Jayne Yu and petitioner Swire Realty Development Corporation

entered into a Contract to Sell on July 25, 1995 covering one residential condominium
unit, of the Palace of Makati, located at P. Burgos corner Caceres Sts., Makati City, for
the total contract price of P7,519,371.80, payable in equal monthly installments until
September 24, 1997. Respondent likewise purchased a parking slot in the same
condominium building for P600,000.00. Despite full payment, of the full purchase price
for the unit while making a down payment of P20,000.00 for the parking lot, petitioner
failed to complete and deliver the subject unit on time. This prompted respondent to file
a Complaint for Rescission of Contract with Damages before the Housing and Land Use
Regulatory Board (HLURB) Expanded National Capital Region Field Office (ENCRFO).
HLURB ruled that rescission is not permitted for slight or casual breach of the contract
but only for such breaches as are substantial and fundamental as to defeat the object of
the parties in making the agreement.

Respondent then elevated the matter to the HLURB Board of Commissioners. HLURB
Board of Commissioners reversed and set aside the ruling of the HLURB ENCRFO and
ordered the rescission of the Contract to Sell. Ocular inspection revealed that the delay
in the completion of the project as well as of the delay in the delivery of the unit are
breaches of statutory and contractual obligations which entitles respondent to rescind
the contract, demand a refund and payment of damages.

Upon denial of the motion for reconsideration, petitioner appealed to the office of the
President which was dismissed due for failure to promptly file an appeal. This was
reversed by a motion for reconsideration through then Executive Secretary Eduardo
Ermita which granted the petitioner’s motion. Respondent sought reconsideration for
said motion, but denied. Hence an appeal to the CA was sought which was granted.
Petitioner moved for reconsideration on the decision of the CA. Hence, this petition.

ISSUE: Whether or not the rescission on the said contract is proper in the instant case

HELD: Basic is the rule that the right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of faith by the other party who
violates the reciprocity between them. The breach contemplated in the said provision is
the obligor’s failure to comply with an existing obligation. When the obligor cannot
comply with what is incumbent upon it, the obligee may seek rescission and, in the
absence of any just cause for the court to determine the period of compliance, the court
shall decree the rescission.

Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event
that specific performance becomes impossible.

It is evident that the report on the ocular inspection conducted on the subject
condominium project and subject unit shows that the amenities under the approved plan
have not yet been provided as of May 3, 2002, and that the subject unit has not been
delivered to respondent as of August 28, 2002, which is beyond the period of
development of December 1999 under the license to sell. Incontrovertibly, petitioner had
incurred delay in the performance of its obligation amounting to breach of contract as it
failed to finish and deliver the unit to respondent within the stipulated period. The delay
in the completion of the project as well as of the delay in the delivery of the unit are
breaches of statutory and contractual obligations which entitle respondent to rescind the
contract, demand a refund and payment of damages.

FIRST OPTIMA REALTY CORPORATION vs SECURITRON SECURITY SERVICES,

INC
G.R. No. 199648 January 28, 2015

DEL CASTILLO, J.

FACTS: Respondent through its General Manager, Antonio Eleazar sent a December 9,
2004 Letter addressed to petitioner, through its Executive Vice-President, Carolina T.
Young, offering to purchase the subject property at P6,000.00 per square meter. A
series of telephone calls ensued, but only between Eleazar and Young’s secretary;
Eleazar personally negotiated with a certain Maria Remoso, who was an employee of
petitioner. Sometime thereafter, Eleazar personally went to petitioner’s office offering to
pay for the subject property in cash, which he already brought with him. However,
Young declined to accept payment, saying that she still needed to secure her sister’s
advice on the matter. She likewise informed Eleazar that prior approval of petitioner’s
Board of Directors was required for the transaction, to which remark Eleazar replied that
respondent shall instead await such approval.

On February 4, 2005, respondent sent a Letter of even date to petitioner. It was

accompanied by Philippine National Bank Check issued for P100,000.00 and made
payable to petitioner. Respondent did not deliver the letter and check directly to Young
or her office; instead, they were coursed through an ordinary receiving clerk/receptionist
of the petitioner, who thus received the same and therefor issued and signed
Provisional Receipt. The check was eventually deposited with and credited to
petitioner’s bank account. Thereafter, respondent through counsel demanded in writing
that petitioner proceed with the sale of the property.

For failure to execute said deed of sale, respondent filed with the Pasay RTC a civil
case against petitioner for specific performance with damages to compel the latter to
consummate the supposed sale of the subject property. The Complaint is predicated on
the claim that since a perfected contract of sale arose between the parties after
negotiations were conducted and respondent paid the P100,000.00 supposed earnest
money – which petitioner accepted, the latter should be compelled to sell the subject
property to the former.

ISSUE: Whether or not, the money that respondent delivered to petitioner was earnest
money, and serve as proof of perfected contract of sale?

HELD: NO. There is no perfected sale between the parties.

The stages of a contract of sale are: (1) negotiation, starting from the time the
prospective contracting parties indicate interest in the contract to the time the contract is
perfected; (2) perfection, which takes place upon the concurrence of the essential
elements of the sale; and (3) consummation, which commences when the parties
perform their respective undertakings under the contract of sale, culminating in the
extinguishment of the contract.

Nothing shows that the parties had agreed on any final arrangement containing the
essential elements of a contract of sale, namely, (1) consent or the meeting of the minds
of the parties; (2) object or subject matter of the contract; and (3) price or consideration
of the sale.

Respondent’s subsequent sending of the February 4, 2005 letter and check to petitioner
– without awaiting the approval of petitioner’s board of directors and Young’s decision,
or without making a new offer – constitutes a mere reiteration of its original offer which
was already rejected previously; thus, petitioner was under no obligation to reply to the
February 4, 2005 letter. It would be absurd to require a party to reject the very same
offer each and every time it is made; otherwise, a perfected contract of sale could
simply arise from the failure to reject the same offer made for the hundredth time. Thus,
said letter cannot be considered as evidence of a perfected sale, which does not exist in
the first place; no binding obligation on the part of the petitioner to sell its property arose
as a consequence. The letter made no new offer replacing the first which was rejected.
Since there is no perfected sale between the parties, respondent had no obligation to
make payment through the check; nor did it possess the right to deliver earnest money
to petitioner in order to bind the latter to a sale. As contemplated under Art. 1482 of the
Civil Code, there must first be a perfected contract of sale before we can speak of
earnest money. Where the parties merely exchanged offers and counter-offers, no
contract is perfected since they did not yet give their consent to such offers. Earnest
money applies to a perfected sale.

LUIS UY vs. SPOUSES JOSE LACSAMANA

G.R. No. 206220- August 19, 2015

CARPIO, J.

FACTS: Petitioner Luis Uy (Uy) filed a Complaint for Declaration of Nullity of Documents
with Damages against respondents Petra Rosca (Rosca), and spouses Jose
Lacsamana and Rosaura Mendoza (Spouses Lacsamana). In the Complaint, Uy alleged
that he was the lawful husband of Rosca. Uy alleged that on 29 January 1964, he and
his wife acquired a 484 square meter residential land for a consideration of P1,936
evidenced by a Deed of Sale from the Spouses Manuel. Uy further alleged that Rosca,
in gross and evident bad faith, executed and signed a false and simulated Deed of Sale
dated 18 April 1979 on the land, together with the house erected thereon, for a
consideration of P80,000 in favor of Spouses Lacsamana. Uy also insists that he did not
give his consent to the sale which prejudiced his rights and interest. Uy argues that
Rosca did not give physical possession of the house and lot to the alleged buyers.
Further, Uy adds, without admitting that the sale is valid, that the consideration paid was
unreasonably low and unconscionable such that it constitutes an equitable mortgage.
Uy insists that Spouses Lacsamana and Buena cannot be considered buyers in good
faith. In her Answer with Counterclaim dated 22 May 1979, Rosca denied the
allegations of Uy and claimed that she lawfully acquired the subject real properties
using her paraphernal funds. Rosca added that she was never married to Uy and
prayed for the dismissal of the complaint for lack of merit.

ISSUE: Whether the Deed of Sale executed by Rosca alone, without Uy's consent, in
favor of Spouses Lacsamana, is valid

HELD: Based on the evidence she presented, Rosca was able to sufficiently overcome
the presumption that any property acquired while living together shall be owned by the
couple in equal shares. The house and lot were clearly Rosca's paraphernal properties
and she had every right to sell the same even without Uy's consent.

Here, the main issue in determining the validity of the sale of the property by Rosca
alone is anchored on whether Uy and Rosca had a valid marriage. There is a
presumption established in our Rules "that a man and woman deporting themselves as
husband and wife have entered into a lawful contract of marriage." Semper praesumitur
pro matrimonio — Always presume marriage. However, this presumption may be
contradicted by a party and overcome by other evidence. Marriage may be proven by
any competent and relevant evidence. In Pugeda v. Trias, we held that testimony by one
of the parties to the marriage, or by one of the witnesses to the marriage, as well as the
person who officiated at the solemnization of the marriage, has been held to be
admissible to prove the fact of marriage. Documentary evidence may also be shown. In
Villanueva v. Court of Appeals, we held that the best documentary evidence of a
marriage is the marriage contract itself. Under Act No. 3613 or the Marriage Law of
1929, as amended by Commonwealth Act No. 114, which is applicable to the present
case being the marriage law in effect at the time Uy and Rosca cohabited, the marriage
certificate, where the contracting parties state that they take each other as husband and
wife, must be furnished by the person solemnizing the marriage to (1) either of the
contracting parties, and (2) the clerk of the Municipal Court of Manila or the municipal
secretary of the municipality where the marriage was solemnized. The third copy of the
marriage contract, the marriage license and the affidavit of the interested party
regarding the solemnization of the marriage other than those mentioned in Section 5 of
the same Act shall be kept by the official, priest, or minister who solemnized the
marriage.

Here, Uy was not able to present any copy of the marriage certificate which he could
have sourced from his own personal records, the solemnizing officer, or the municipal
office where the marriage allegedly took place. Even the findings of the RTC revealed
that Uy did not show a single relevant evidence that he was actually married to Rosca.
Petition denied.

MANUEL JUSAYAN, ALFREDO JUSAYAN, AND MICHAEL JUSAYAN vs JORGE

SOMBILLA
G.R. No. 163928 January 21, 2015

BERSAMIN, J.

FACTS: Wilson entered into an agreement with respondent Jorge Sombilla, wherein
Wilson designated Jorge as his agent to supervise the tilling and farming of his rice land
in crop year 1970-1971. On August 20, 1971, before the expiration of the agreement,
Wilson sold the four parcels of land to Timoteo Jusayan. Jorge and Timoteo verbally
agreed that Jorge would retain possession of the parcels of land and would deliver 110
cavans of palay annually to Timoteo without need for accounting of the cultivation
expenses provided that Jorge would pay the irrigation fees. From 1971 to 1983,
Timoteo and Jorge followed the arrangement. In 1975, the parcels of land were
transferred in the names of Timoteo’s sons, namely; Manuel, Alfredo and Michael. In
1984, Timoteo sent several letters to Jorge terminating his administration and
demanding the return of the possession of the parcels of land. Due to the failure of
Jorge to render accounting and to return the possession of the parcels of land despite
demands, Timoteo filed a complaint for recovery of possession and accounting against
Jorge in the RTC. Following Timoteo’s death on October 4, 1991, the petitioners
substituted him as the plaintiffs.

Jorge asserted that he enjoyed security of tenure as the agricultural lessee of Timoteo,
and that he could not be dispossessed of his landholding without valid cause. The RTC
upheld the contractual relationship of agency between Timoteo and Jorge; and ordered
Jorge to deliver the possession of the parcels of land to the petitioners.

On appeal, the CA reversed the RTC’s ruling and dismissed the case, declaring that the
contractual relationship between the parties was one of agricultural tenancy; and that
the demand of Timoteo for the delivery of his share in the harvest and the payment of
irrigation fees constituted an agrarian dispute that was outside the jurisdiction of the
RTC, and well within the exclusive jurisdiction of the Department of Agriculture (DAR)
pursuant to Section 3(d) of Republic Act No. 6657 (Comprehensive Agrarian Reform
Law of 1988).

ISSUE: Whether or not the relationship between the petitioners and respondent is that
of agency or agricultural leasehold

HELD: AGRICULTURAL TENANCY. Jorge presented handwritten receipts indicating

that the sacks of palay delivered to and received by one Corazon Jusayan represented
payment of rental. In this regard, rental was the legal term for the consideration of the
lease. Consequently, the receipts substantially proved that the contractual relationship
between Jorge and Timoteo was a lease. While in possession of the land, therefore,
Jorge was acting for himself instead of for Timoteo. Unlike Jorge, Timoteo did not
benefit whenever the production increased, and did not suffer whenever the production
decreased. Timoteo’s interest was limited to the delivery of the 110 cavans of palay
annually without any concern about how the cultivation could be improved in order to
yield more produce. In the agricultural lease, also termed as a leasehold tenancy, the
physical possession of the land devoted to agriculture is given by its owner or legal
possessor (landholder) to another (tenant) for the purpose of production through labor
of the latter and of the members of his immediate farm household, in consideration of
which the latter agrees to share the harvest with the landholder, or to pay a price certain
or ascertainable, either in produce or in money, or in both. Specifically, in Gabriel v.
Pangilinan, the Court differentiated between a leasehold tenancy and a civil law lease in
the following manner, namely: (1) the subject matter of a leasehold tenancy is limited to
agricultural land, but that of a civil law lease may be rural or urban property; (2) as to
attention and cultivation, the law requires the leasehold tenant to personally attend to
and cultivate the agricultural land; the civil law lessee need not personally cultivate or
work the thing leased; (3) as to purpose, the landholding in leasehold tenancy is
devoted to agriculture; in civil law lease, the purpose may be for any other lawful
pursuits; and (4) as to the law that governs, the civil law lease is governed by the Civil
Code, but the leasehold tenancy is governed by special laws.

In agency, the agent binds himself to render some service or to do something in

representation or on behalf of the principal, with the consent or authority of the latter.
The basis of the civil law relationship of agency is representation, the elements of which
are, namely: (a) the relationship is established by the parties’ consent, express or
implied; (b) the object is the execution of a juridical act in relation to a third person; (c)
the agent acts as representative and not for himself; and (d) the agent acts within the
scope of his authority. Whether or not an agency has been created is determined by the
fact that one is representing and acting for another.

FILADELFA T. LAUSA, LORETA T. TORRES, PRIMITIVO TUGOT AND ANACLETO T.

CADUHAY, v. MAURICIA QUILATON, RODRIGO Q. TUGOT, PURIFICACION T.
CODILLA, TEOFRA T. SADAYA, ESTRELLITA T. GALEOS AND ROSITA T. LOPEZ
G.R. No. 170671, August 19, 2015

BRION, J.

FACTS: The present case involves the title to Lot No. 557 in Cebu City wherte the
petitioners and the respondents are relatives residing in the said lot.

Lot No. 557 formed part of the Banilad Friar Estate Lands, which had been bought by
the government through Act No. 1120 for distribution to its occupants. Antonio had
initially been Lot No. 557's beneficiary, but subsequently assigned his rights over Lot
No. 557 to Alejandro.

Since then, Alejandro possessed Lot No. 557 until his death; thereafter, his children and
grandchildren continued to reside in the lot.

On January 1993, one of the grandchildren of Alejandro, Mauricia, filed before the RTC
- Cebu a petition for the issuance of a new owner's duplicate of TCT No. 571, which
purportedly covers Lot No. 557 claiming she lost her owner's duplicate during a strong
typhoon sometime in 1946.
The RTC found TCT No. 571 to be a forgery, and declared it and all titles originating
from it to be null and void ab initio. RTC noted that Mauricia's previous acts show that
she acknowledged Alejandro's ownership over Lot No. 557. Prior to instituting a petition
for issuance of a new owner's duplicate in 1993, Mauricia had been paying Alejandro
(and subsequently Aurea) contributions for the real estate taxes due on Lot No. 557
All along, Mauricia's children has performed several acts of ownership over Lot 571 i.e.
Filing of ejectment case to the occupants and Rodrigo mortgaged TCT No. 130517 to
Lopez as security for a loan he obtained from the latter. Rodrigo subsequently defaulted
on his loan, prompting the foreclosure of TCT No. 130517. The land covered by TCT
No. 130517 was thereafter sold by public auction to Lopez, for which she was issued a
new TCT.

When the case reached the appellate court, the CA held that Lopez is an innocent
purchaser in good faith, as she knew that the portion of Lot No. 557 being mortgaged to
her was in the possession of another relative, and not Rodrigo. She knew of this
possession before she executed the real estate mortgage contract over the property
with Rodrigo.

ISSUE: Whether or not Lopez is an innocent purchaser in good faith

HELD: NO. Jurisprudence has established exceptions to the protection granted to an

innocent purchaser for value, such as when the purchaser has actual knowledge of
facts and circumstances that would compel a reasonably cautious man to inquire into
the status of the lot; or of a defect or the lack of title in his vendor; or of sufficient facts to
induce a reasonably prudent man to inquire into the status of the title of the property in
litigation.

The presence of anything that excites or arouses suspicion should then prompt the
vendee to look beyond the certificate and investigate the title of the vendor appearing
on the face of the certificate. One who falls within the exception can neither be
denominated as innocent purchaser for value nor a purchaser in good faith, and hence
does not merit the protection of the law.

In particular, the Court has consistently held that that a buyer of a piece of land that is in
the actual possession of persons other than the seller must be wary and should
investigate the rights of those in possession. Without such inquiry, the buyer can hardly
be regarded as a buyer in good faith.

We find that Lopez knew of circumstances that should have prodded her to further
investigate the Lot No. 557-A's status before she executed a mortgage contract over it
with Rodrigo.
Records of the case show that Filadelfa resided in Lot No. 557-A at the time Lopez
executed the real estate mortgage with Rodrigo. In August 1995, Rodrigo and his
siblings filed an ejectment case against the petitioners. Notably, this ejectment case was
filed five months after Lopez had entered into the real estate mortgage contract. Thus,
at the time Lopez inspected Lot No. 557, she would have found Filadelfa residing in it,
and not Rodrigo.

That Filadelfa - and not Rodrigo - resided in Lot No. 557-A should have prompted Lopez
to make further inquiries over its status. Further, the status of an innocent-purchaser for
value or innocent mortgagor for value is established by the person claiming it, an onus
probandi that Lopez failed to meet. To reiterate, Lopez has the burden of proving her
status as an innocent purchaser for value in order to invoke its application. Failing in
this, she cannot avail of the protection the law grants to innocent purchasers for value.

GAMES AND GARMENTS DEVELOPERS, INC. VS. ALLIED BANKING

CORPORATION
G.R. No. 181426, 13 July 2015

LEONARDO-DE CASTRO, J.

FACTS: Bienvenida, married to Benedicto Pantaleon, agreed to purchase a parcel of

land located at Bayanan, Muntinlupa owned by petitioner Games and Garments
Developers, Inc. (GGDI),

On August 22, 1996, Mercado, Branch Manager of Allied Bank-Pasong Tamo, issued a
letter GGDI and with Bienvenida’s conforme, which reads:

“This is with reference to the real property located at National Road,

Bayanan, Muntinlupa City.

Please be advised that Bienvenida Pantaleon who is purchasing the

above-mentioned property has an approved real estate loan with us
in the amount of PESOS: ELEVEN MILLION ONLY(P11,000,000.00),
the portion of the proceeds of which shall be used to partially
liquidate the account with you. Succeeding releases which is secured
by the subject property will be made payable to GGDI. After said TCT
covering said property is already transferred in our client’s name, our
mortgage duly annotated thereon, we guarantee to pay directly to
you the amount of P8,360,000.00. It is understood that this guaranty
is irrevocable.”

Atty. Lao requested for the immediate payment of the balance of the purchase price
amounting to P8,360,000.00 considering that the guaranty letter aforecited in favor of
GGDI was irrevocable and that the TCT for the subject property was already finished
and had in fact been transferred in Bienvenida’s name.

Without any favorable action from Allied Bank, GGDI, sent a demand letter asking the
said bank to immediately pay GGDI, otherwise, they would be filing the necessary
action.

On April 15, 1998, GGDI filed before the RTC a Complaint for Breach of Contract
(Rescission) and Damages.

ISSUE: Whether there is contract of guarantee entered into by Allied bank through by
the letter of its branch manager Mercado to GGDI.

HELD: NONE. It is undisputed that Mercado wrote “letters of guaranty”. Consequently,

we rely on the general definitions of contracts of guaranty and suretyship under Article
2047 of the Civil Code:

ART. 2047. By guaranty a person, called the guarantor, binds himself to

the creditor to fulfill the obligation of the principal debtor in case the latter
should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such case
the contract is called a suretyship.

While a surety undertakes to pay if the principal does not pay, the guarantor only binds
himself to pay if the principal cannot pay. The former is the insurer of the debt, the latter
an insurer of the solvency of the debtor.

We further expounded on the nature of a contract of guaranty (vis-à-vis a contract of

surety) in E. Zobel, Inc. v. Court of Appeals, thus:

A contract of surety is an accessory promise by which a person binds

himself for another already bound, and agrees with the creditor to
satisfy the obligation if the debtor does not. A contract of guaranty, on
the other hand, is a collateral undertaking to pay the debt of another in
case the latter does not pay the debt.

Strictly speaking, guaranty and surety are nearly related, and many of
the principles are common to both. However, under our civil law, they
may be distinguished thus: A surety is usually bound with his principal
by the same instrument, executed at the same time, and on the same
consideration. He is an original promissor and debtor from the
beginning, and is held, ordinarily, to know every default of his principal.
Usually, he will not be discharged, either by the mere indulgence of the
 creditor to the principal, or by want of notice of the default of the
principal, no matter how much he may be injured thereby. On the other
hand, the contract of guaranty is the guarantor’s own separate
undertaking, in which the principal does not join. It is usually entered
into before or after that of the principal, and is often supported on a
separate consideration from that supporting the contract of the principal.
The original contract of his principal is not his contract, and he is not
bound to take notice of its nonperformance. He is often discharged by
the mere indulgence of the creditor to the principal, and is usually not
liable unless notified of the default of the principal.

There was no express undertaking in Mercado’s letters to pay Bienvenida’s debt to

GGDI in case Bienvenida failed to do so. In said letters, Mercado merely acknowledged
that Bienvenida and/or her company had an approved real estate loan with Allied Bank
and guaranteed that subsequent releases from the loan would be made directly to
GGDI provided that the certificate of title over the subject property would be transferred
to Bienvenida’s name and the real estate mortgage constituted on the subject property
in favor of Allied Bank would be annotated on the said certificate.

Mercado, by the plain language of his letters, merely committed to the manner by which
the proceeds of Bienvenida’s approved loan from Allied Bank would be released, but did
not obligate Allied Bank to be answerable with its own money to GGDI should
Bienvenida default on the payment of the purchase price for the subject property.

For this reason, Mercado’s letters may not be deemed as contracts of guaranty,
although they may be binding as innominate contracts. The rule is settled that a contract
constitutes the law between the parties who are bound by its stipulations which, when
couched in clear and plain language, should be applied according to their literal tenor.
We cannot supply material stipulations, read into the contract words it does not contain
or, for that matter, read into it any other intention that would contradict its plain import.

RICARDO C. HONRADO GMA NETWORK FILMS, INC

G.R. No. 204702 January 14, 2015

CARPIO, J.

FACTS: Respondent GMA Network Films, Inc. (GMA Films) entered into a TV Rights
Agreement with petitioner under which petitioner, as licensor of 36 films, granted to
GMA Films, for a fee of P60.75 million, the exclusive right to telecast the 36 films for a
period of three years. The parties agreed that all betacam copies of the films should
pass through broadcast quality test conducted by GMA-7, the TV station operated by
GMA Network, Inc., an affiliate of GMA Films. The parties also agreed to submit the
films for review by the Movie and Television Review and Classification Board (MTRCB)
and stipulated on the remedies in the event that MTRCB bans the telecasting of any of
the films. Two of the films covered by the Agreement were Evangeline Katorse and
Bubot for which GMA Films paid P1.5 million each.

GMA Films sued petitioner in the Regional Trial Court of Quezon City to collect P1.6
million representing the fee it paid for Evangeline Katorse and a portion of the fee it
paid for Bubot. GMA Films alleged that it rejected Evangeline Katorse because its
running time was too short for telecast. Petitioner denied liability, counter-alleging that
after GMA Films rejected Evangeline Katorse, as he replaced it with another film,
Winasak na Pangarap, which GMA Films accepted. The trial court dismissed GMA
Films’ complaint.

GMA Films appealed to the CA. The CA granted GMA Films’ appeal, set aside the trial
court’s ruling, and ordered respondent to pay GMA Films P2 million as principal
obligation with 12% annual interest, exemplary damages (P100,000), attorney’s fees
(P200,000), litigation expenses (P100,000) and the costs. Brushing aside the trial
court’s appreciation of the evidence, the CA found that (1) GMA Films was authorized
under Paragraph 4 of the Agreement to reject Evangeline Katorse, and (2) GMA Films
never accepted Winasak na Pangarap as replacement because it was a "bold" film.

ISSUE: Whether or not petitioner liable for breach of the Agreement and breach of trust

HELD: NO. Petitioner Committed No Breach of Contract or Trust.

Paragraph 4 of the Agreement states that, The PROGRAMME TITLES listed in the
Agreement shall be subject to approval by the Movie and Television Review and
Classification Board (MTRCB) and, in the event of disapproval, petitioner will either
replace the censored PROGRAMME TITLES with another title which is mutually
acceptable to both parties or, failure to do such, a proportionate reduction from the total
price shall either be deducted or refunded whichever is the case by the LICENSOR OR
LICENSEE. Petitioner maintains that the Film Certification issued by GMA Network
attesting to the good broadcast quality of Winasak na Pangarap amounted to GMA
Films’ acceptance of such film. Regardless of the import of the Film Certification, GMA
Films’ rejection of Winasak na Pangarap finds no basis in the Agreement. GMA Network
went beyond its assigned role under the Agreement of screening films to test their
broadcast quality and assumed the function of MTRCB to evaluate the films for the
propriety of their content. This runs counter to the clear terms of Paragraphs 3 and 4 of
the Agreement

PRISCILO B. PAZ vs. NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY,

INC.
G.R. No. 203993 April 20, 2015

PERLAS-BERNABE, J.

FACTS: Petitioner, as the officer-in-charge of the Aircraft Hangar at the Davao

International Airport, entered into a Memorandum of Agreement (MOA) with Captain
Allan J. Clarke (Capt. Clarke), President of International Environmental University,
whereby for a period of four (4) years, unless pre-terminated by both parties with six (6)
months advance notice, the former shall allow the latter to use the aircraft hangar space
at the said Airport "exclusively for company aircraft/helicopter." Petitioner complained in
a letter addressed to "MR. ALLAN J. CLARKE, International Environmental Universality,
Inc. x x x" that the hangar space was being used "for trucks and equipment, vehicles
maintenance and fabrication," instead of for "company helicopter/aircraft" only, and
thereby threatened to cancel the MOA if the "welding, grinding, and fabrication jobs"
were not stopped immediately.
Petitioner sent a final letter addressed to "MR. ALLAN J. CLARKE, Chairman, CEO,
New International Environmental University, Inc. x x x," strongly demanding the latter to
immediately vacate the hangar space. On September (1)2002, respondent New
International Environmental Universality, Inc. (respondent) filed a complaint against
petitioner for breach of contract before the RTC claiming that: (a) petitioner had
disconnected its electric and telephone lines; (b) upon petitioner’s instruction, security
guards prevented its employees from entering the leased premises by blocking the
hangar space with barbed wire; and (c) petitioner violated the terms of the MOA when
he took over the hangar space without giving respondent the requisite six (6)-month
advance notice of termination.

In his defense, petitioner alleged, among others, that: (a) respondent had no cause of
action against him as the MOA was executed between him and Capt. Clarke in the
latter’s personal capacity; (b) there was no need to wait for the expiration of the MOA
because Capt. Clarke performed highly risky works in the leased premises that
endangered other aircrafts within the vicinity; and (c) the six (6)-month advance notice
of termination was already given in the letters he sent to Capt. Clarke.

ISSUE1: Whether or not there was breach of contract

HELD1: YES. The lower courts were correct in finding petitioner liable for breach of
contract for effectively evicting respondent from the leased premises even
before the expiration of the term of the lease. The Court reiterates with approval the
ratiocination of the RTC that, if it were true that respondent was violating the terms and
conditions of the lease, "[petitioner] should have gone to court to make the [former]
refrain from its 'illegal' activities or seek rescission of the [MOA], rather than taking the
law into his own hands."

ISSUE2: Whether or not Capt. Clarke is merely an agent of the respondent.

HELD2: YES. While Capt. Clarke’s name and signature appeared on the MOA, his
participation was, nonetheless, limited to being a representative of respondent. As a
mere representative, Capt. Clarke acquired no rights whatsoever, nor did he incur any
liabilities, arising from the contract between petitioner and respondent. Therefore, he
was not an indispensable party to the case at bar.

VALENTINA CLEMENTE VS THE COURT OF APPEALS

GR No. 175483 14 October 2015

JARDELEZA, J.

FACTS: Adela owned three (3) adjoining parcels of land in Quezon City, subdivided as
Lots 32, 34 and 35-B.

Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot 34 to her
two grandsons (Carlos Jr and Dennis Shotwell).

On April 18, 1989, prior to Adela and petitioner’s departure for the United States, Adela
requested Carlos Jr. and Dennis to execute a deed of reconveyance over Lots 32 and
34 which were in fact executed and registered with the Register of Deeds.

On April 25, 1989, Adela executed a deed of absolute sale11 over Lots 32 and 34, and
their improvements, in favor of petitioner, bearing on its face the price of ¬250,000.00.
On the same day, Adela also executed a special power of attorney (SPA) in favor of
petitioner. Petitioner’s authority under the SPA included the power to administer, take
charge and manage, for Adela’s benefit, the Properties and all her other real and
personal properties in the Philippines.

When petitioner returned to the Philippines, she registered the sale over Lots 32 and 34.
Soon thereafter, petitioner sought to eject Annie and Carlos Sr who thereafter filed a
complaint for reconveyance of the property. They alleged that Adela only wanted to help
petitioner travel to the United States, by making it appear that petitioner has ownership
of the Properties. They further alleged that similar to the previous simulated transfers to
Carlos Jr. and Dennis, petitioner also undertook and warranted to execute a deed of
reconveyance in favor of the deceased over the Properties, if and when Adela should
demand the same.

ISSUE: Whether or not the contracts of sale to petitioner were simulated

HELD: YES. The Deeds of Absolute Sale between petitioner and the late Adela Shotwell
are null and void for lack of consent and consideration. While the Deeds of Absolute
Sale appear to be valid on their face, the courts are not completely precluded to
consider evidence aliunde in determining the real intent of the parties.

The Civil Code defines a contract as a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some
service. Article 1318 provides that there is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract; and
(3) Cause of the obligation which is established.

Here, there was no valid contract of sale between petitioner and Adela because their
consent was absent. The contract of sale was a mere simulation. Simulation takes place
when the parties do not really want the contract they have executed to produce the legal
effects expressed by its wordings.

In determining the true nature of a contract, the primary test is the intention of the
parties. If the words of a contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and subsequent acts of
the parties. This is especially true in a claim of absolute simulation where a colorable
contract is executed. In ruling that the Deeds of Absolute Sale were absolutely
simulated, the lower courts considered the totality of the prior, contemporaneous and
subsequent acts of the parties such as 1) the execution of the SPA the same day the
Dee the Deeds of Absolute Sale appointing petitioner as administratrix of Adela’s
properties, and) the history of simulations in favor of Carlos Jr and Dennis.

KAREN GO v. LAMBERTO ECHAVEZ

G.R. No. 174542, August 03, 2015

BRION, J.

FACTS: Nick Carandang (Carandang) is Kargo's Manager at its General Santos City
Branch.

On December 20, 1996, Kargo (owned by petitioner) and Carandang entered into a
Contract of Lease with Option to Purchase (lease contract) over a Fuso Dropside Truck
(truck). The lease contract stipulated that Kargo would execute a Deed of Absolute Sale
over the truck upon Carandang's full payment of five equal monthly installments of
P78,710.75. If he failed to pay any of the installments, Carandang should return the
truck and forfeit his payments as rentals. The lease contract also prohibited Carandang
from assigning his rights, as lessee-buyer, to third persons.

Carandang sold the truck to respondent Lamberto Echavez (Echavez) without Go's
knowledge. Later, Go learned about the sale but did not know to whom the truck was
sold. Hence Go filed before the RTC a Complaint for Replevin against Carandang and
John Doe. The sheriff seized the truck from Echavez who filed his Answer with Cross-
Claim and Counterclaim. Echavez denied knowledge of the lease contract, and claimed
that he bought the truck in good faith and for value from Kargo through Carandangand
that Go could not deny Carandang's authority to sell Kargo's trucks because she
represented to the public that Carandang was Kargo's manager.

After trial on the merits, the RTC held Go and Carandang solidarity liable to Echavez for
damages.

ISSUE: Whether or not the lease contract between Go and Carandang bound Echavez

HELD: The lease contract bound only Go and Carandang because Echavez was found
to be a buyer in good faith and for value.

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. VALENTIN L.

FONG
G.R. No. 209370, March 25, 2015

PERLAS-BERNABE, J.

FACTS: On June 5, 2000, FBDC, entered into a Trade Contract with MS Maxco
Company, Inc. (MS Maxco) for the execution of the structural and partial architectural
works of one of its condominium projects in Taguig City.

Under the Trade Contract, FBDC had the option to hire other contractors to rectify any
errors committed by MS Maxco by reason of its negligence, act, omission, or default, as
well as to deduct or set-off any amount from the contract price in such cases. Hence,
when MS Maxco incurred delays and failed to comply with the terms of the Trade
Contract, FBDC took over and hired other contractors to complete the unfinished
construction. Unfortunately, corrective work had to likewise be done on the numerous
defects and irregularities caused by MS Maxco, which cost P11,567,779.12.11 Pursuant
to the Trade Contract, FBDC deducted the said amount from MS Maxco’s retention
money.
The Trade Contract likewise provided that MS Maxco is prohibited from assigning or
transferring any of its rights, obligations, or liabilities under the said Contract without the
written consent of FBDC.

Sometime in April 2005, FBDC received Fong informing it that MS Maxco had already
assigned its receivables from FBDC to him (Fong) by virtue of a notarized Deed of
Assignment under which MS Maxco assigned the amount of P1,577,115.90 to Fong as
payment of the former’s obligation to the latter, which amount was to be taken from the
retention money with FBDC.

For failure of FBDC to pay Fong the assigned receivables, he filed the instant civil case.
CA held that FBDC was bound by the Deed of Assignment between MS Maxco and
Fong.

ISSUE: Whether or not the assignee (Fong) was bound by the Trade Contract between
FBDC and MS Maxco notwithstanding that it was not a party to it
HELD: YES. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

The same principle on obligatory force applies by extension to the contracting party’s
assignees, in turn, by virtue of the principle of relativity of contracts which is fleshed out
in Article 1311 of the Civil Code, viz.:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the decedent.

x x x x (Emphasis supplied)

The reason that a contracting party’s assignees, although seemingly a third party to the
transaction, remain bound by the original party’s transaction under the relativity principle
further lies in the concept of subrogation, which inheres in assignment.

Case law states that when a person assigns his credit to another person, the latter is
deemed subrogated to the rights as well as to the obligations of the former. By virtue of
the Deed of Assignment, the assignee is deemed subrogated to the rights and
obligations of the assignor and is bound by exactly the same conditions as those which
bound the assignor. Accordingly, an assignee cannot acquire greater rights than those
pertaining to the assignor. The general rule is that an assignee of a non-negotiable
chose in action acquires no greater right than what was possessed by his assignor and
simply stands into the shoes of the latter.
Applying the foregoing, the Court finds that MS Maxco, as the Trade Contractor, cannot
assign or transfer any of its rights, obligations, or liabilities under the Trade Contract
without the written consent of FBDC. Fong, as mere assignee of MS Maxco’s rights
under the Trade Contract it had previously entered with FBDC, i.e., the right to recover
any credit owing to any unutilized retention money, is equally bound by the Trade
Contract and hence, cannot validly enforce the same without FBDC’s consent.

METRO MANILA TRANSIT CORPORATION vs. REYNALDO CUEVAS

G.R. No. 167797, June 15, 2015

BERSAMIN, J.

FACTS: Metro Manila Transit Corporation (MMTC) and Mina's Transit Corporation
(Mina's Transit) entered into an agreement to sell dated August 31, 1990, whereby the
latter bought several bus units from the former at a stipulated price. They agreed that
MMTC would retain the ownership of the buses until certain conditions were met, but in
the meantime Mina's Transit could operate the buses within Metro Manila.

On October 14, 1994, one of the buses subject of the agreement to sell hit and
damaged a Honda Motorcycle owned by Reynaldo and driven by Junnel. Reynaldo and
Junnel sued MMTC and Mina's Transit for damages in the Regional Trial Court (RTC).

MMTC denied liability claiming that although it retained the ownership of the bus, the
actual operator and employer of the bus driver was Mina's Transit; and that, in support
of its cross-claim against Mina's Transit, a provision in the agreement to sell mandated
Mina's Transport to hold it free from liability arising from the use and operation of the
bus units.

ISSUE1: Whether or not MMTC is liable considering that it was not the actual operator
and employer of the bus driver

HELD1: YES. In view of MMTC's admission in its pleadings that it had remained the
registered owner of the bus at the time of the incident, it could not escape liability for the
personal injuries and property damage suffered by the Cuevases. This is because of the
registered-owner rule, whereby the registered owner of the motor vehicle involved in a
vehicular accident could be held liable for the consequences.

The Court has reiterated the registered-owner rule in other rulings, like in Filcar
Transport Services v. Espinas, to wit:

x x x It is well settled that in case of motor vehicle mishaps, the registered owner of the
motor vehicle is considered as the employer of the tortfeasor-driver, and is made
primarily liable for the tort committed by the latter under Article 2176, in relation with
Article 2180, of the Civil Code.
In Equitable Leasing Corporation v. Suyom, we ruled that in so far as third persons are
concerned, the registered owner of the motor vehicle is the employer of the negligent
driver, and the actual employer is considered merely as an agent of such owner.

MMTC could not evade liability by passing the buck to Mina's Transit. The stipulation in
the agreement to sell did not bind third parties like the Cuevases, who were expected to
simply rely on the data contained in the registration certificate of the erring bus.

ISSUE2: May MMTC recover from Mina’s Transit (the actual employer of the negligent
driver)?

HELD2: YES. Although the registered-owner rule might seem to be unjust towards
MMTC, the law did not leave it without any remedy or recourse. According to Filcar
Transport Services v. Espinas, MMTC could recover from Mina's Transit, the actual
employer of the negligent driver, under the principle of unjust enrichment, by means of a
cross-claim seeking reimbursement of all the amounts that it could be required to pay as
damages arising from the driver's negligence. A cross-claim is a claim by one party
against a co-party arising out of the transaction or occurrence that is the subject matter
either of the original action or of a counterclaim therein, and may include a claim that
the party against whom it is asserted is or may be liable to the cross-claimant for all or
part of a claim asserted in the action against the cross-claimant.

ALLIED BANKING CORPORATION vs. JESUS S. YUJUICO (DECEASED)

G.R. No. 163116, June 29, 2015

BERSAMIN, J.

FACTS: General Bank & Trust Company (Genbank) extended a credit line to YLTC on
the condition that the principals of YLTC would personally bind themselves in a
Continuing Guarantee to secure payment of obligations drawn on said credit extended
by Genbank.

In order to secure punctual payment at maturity of YLTC's obligations, defendants-

appellees and Jesus Yujuico as sureties executed a Continuing Guarantee binding
themselves in their personal capacities as required by Genbank.

The continuing guarantee contained principal provisions to the effect that: (a) he (Jesus)
had guaranteed the "punctual payment at maturity" of the loans secured by the
continuing guaranty; (b) Genbank, as the creditor bank of YLTC, could "make or cause"
payments under the terms and conditions of their loan agreement; (c) under paragraph
II, Jesus had offered as security for the loans of YLTC his own properties in the
possession of Genbank or for which Genbank had attached a lien, which, upon default
by YLTC in paying the loan, Genbank, "without demand or notice" upon respondent,
would have the full power and authority to sell; (d) should YLTC incur in default in the
payment of the loans, Genbank could "proceed directly" against Jesus "without
exhausting the property" of YLTC; and (e) paragraph XII expressly stated that the
liability of the signatory or signatories to the continuing guaranty would be "joint and
several."

ISSUE: Whether Jesus was a surety or a guarantor?

HELD: SURETY. In guaranty, the guarantor "binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so." The liability of
the guarantor is secondary to that of the principal debtor because he "cannot be
compelled to pay the creditor unless the latter has exhausted all the property of the
debtor, and has resorted to all the legal remedies against the debtor." In contrast, the
surety is solidarily bound to the obligation of the principal debtor.

Although the first part of the continuing guaranties showed that Jesus as the signatory
had agreed to be bound "either as guarantor or otherwise," the usage of term guaranty
or guarantee in the caption of the documents, or of the word guarantor in the contents of
the documents did not conclusively characterize the nature of the obligations assumed
therein. What properly characterized and defined the undertakings were the contents of
the documents and the intention of the parties. In holding that the continuing guaranty
executed in E. Zobel, Inc. v. Court of Appeals was a surety instead of a guaranty, the
Court accented the distinctions between them, viz.:

A contract of surety is an accessory promise by which a person binds himself for

another already bound, and agrees with the creditor to satisfy the obligation if the
debtor does not. A contract of guaranty, on the other hand, is a collateral
undertaking to pay the debt of another in case the latter does not pay the debt.

Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of
the solvency of the debtor and thus binds himself to pay if the principal is unable to pay
while a surety is the insurer of the debt, and he obligates himself to pay if the principal
does not pay.

With the stipulations in the continuing guaranties indicating that he was the surety of the
credit line extended to YLTC, Jesus was solidarity liable to Genbank for the
indebtedness of YLTC. In other words, he thereby rendered himself "directly and
primarily responsible" with YLTC, "without reference to the solvency of the principal."

G.R. No. 195661, March 11, 2015 - UNKNOWN OWNER OF THE VESSEL M/V
CHINA JOY, SAMSUN SHIPPING LTD., AND INTER-ASIA MARINE TRANSPORT,
INC., Petitioners, v. ASIAN TERMINALS, INC., Respondent.

REYES, J.

FACTS: On 25 January 1997, the cargo ship M/V “China Joy” (the Vessel) arrived at the
Mariveles Grain Terminal Wharf, operated by plaintiff [ATI]. According to the Berth Term
Grain Bills of Lading, the Vessel carried soybean meal that had been shipped by
ContiQuincyBunge L.L.C[.] (ContiQuincyBunge)

On 3 February 1997[,] ATI used its Siwertell Unloader No. 2 to unload the soybean meal
from the Vessel’s Hold No. 2. The unloading operations were suddenly halted when the
head of Unloader No. 2 hit a flat low-carbon or “mild” steel bar that was in the middle of
the mass of soybean meal. The flat steel bar lodged itself between the vertical screws of
Unloader No. 2, causing portions of screw numbers 2 and 3 to crack and be sheared off
under the torsional load. According to the quotation of BMH Marine AB Sweden, the
sole manufacturer of Siwertell unloaders, the replacement cost of each screw is
US$12,395.00 or US$24,790.00 for the 2 screws plus freight. The labor cost to remove
and re-assemble the screws is estimated at US$2,000.00.

ATI filed the instant Complaint for Damages against Samsun, Inter-Asia and the
“Unknown Owner of the Vessel M/V ‘China Joy’” on 9 March 1999. The RTC rendered a
Decision8 dismissing ATI’s complaint for insufficiency of evidence. ATI thereafter filed an
appeal, which the CA granted. The CA explained its ruling, viz:

As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of
negligence which recognizes that prima facie negligence may be established
without direct proof and furnishes a substitute for specific proof of negligence.

xxxx

We find the application of the doctrine of res ipsa loquitur to be appropriate in the
case at bar.

First. Since the cargo to be unloaded was free-flowing soybean meal in bulk, ATI
correctly used a pneumatic vacubator unloader to extract the soybean meal from
the holds. Under normal unloading procedures of bulk grain, it is not expected
that a metal foreign object would be among the grain to be unloaded. x x x.
 Such an accident does not occur in the ordinary course of things, unless the
loading of the soybean meal at loadport was mismanaged in some way that
allowed a metal foreign object to be co-mingled with the soybean meal cargo.

Second. The damage to the vertical screws of ATI’s unloader was caused by the
presence of the metal bar among the soybean meal in Hold No. 2 of the ship: an
instrumentality within the exclusive control of the shipowner.

ISSUE1: Whether or not there is a contract of carriage between the petitioners and ATI

HELD1: No. There is no contract of carriage between ATI, on one hand, and the
shipowner, Samsun, ContiQuincyBunge L.L.C., and Inter-Asia, on the other. It likewise
bears stressing that the subject of the complaint, from which the instant petition arose,
is not the damage caused to the cargo, but to the equipment of an arrastre operator.
Further, ATI’s contractual relation is not with the petitioners, but with the consignee and
with the Philippine Ports Authority (PPA).

“The legal relationship between an arrastre operator and a consignee is akin to that
between a warehouseman and a depositor. As to both the nature of the functions and
the place of their performance, an arrastre operator’s services are clearly not maritime
in character.”

ISSUE2: Whether or not Article 2176 of the New Civil Code and the doctrine of res ipsa
loquitur apply

HELD2: Yes. Notwithstanding the above, the petitioners cannot evade liability for the
damage caused to ATI’s unloader in view of Article 2176 of the New Civil Code, which
pertinently provides as follows:chanRoblesvirtualLawlibrary
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.cralawred
In Taylor v. Manila Electric Railroad and Light Co.,31 the Court explained that to
establish a plaintiff’s right to recovery for quasi-delicts, three elements must exist, to wit:
(a) damages to the plaintiff; (b) negligence by act or omission of which defendant
personally, or some person for whose acts it must respond, was guilty; and (c) the
connection of cause and effect between the negligence and the
damage.32chanroblesvirtuallawlibrary
Negligence, on the other hand, is defined as the failure to observe that degree of care,
precaution and vigilance that the circumstances justly demand, whereby another suffers
injury.

In the case under consideration, the parties do not dispute the facts of damage upon
ATI’s unloader, and of such damage being the consequence of someone’s negligence.
However, the petitioners deny liability claiming that it was not established with
reasonable certainty whose negligence had caused the co-mingling of the metal bars
with the soybean meal cargo. The Court, on this matter, agrees with the CA’s
disquisition that the petitioners should be held jointly and severally liable to ATI. ATI
cannot be faulted for its lack of direct access to evidence determinative as to who
among the shipowner, Samsun, ContiQuincyBunge and Inter-Asia should assume
liability. The CA had exhaustively discussed why the doctrine of res ipsa loquitur applies.
The metal bars which caused damage to ATI’s unloader was found co-mingled with the
cargo inside Hold No. 2 of the ship, which was then within the exclusive control of the
petitioners. Thus, the presumption that it was the petitioners’ collective negligence,
which caused the damage, stands. This is, however, without prejudice to the petitioners’
rights to seek reimbursements among themselves from the party whose negligence
primarily caused the damage.

GEORGE C. FONG, v. JOSE V. DUEÑAS

G.R. No. 185592, June 15, 2015

BRION, J.

FACTS: Dueñas and Fong entered into a verbal joint venture contract where they
agreed to engage in the food business and to incorporate a holding company under the
name Alliance Holdings, Inc with a capitalization of P65 Million, to which they would
contribute in equal parts.

The parties agreed that Fong would contribute P32.5 Million in cash while Dueñas
would contribute all his shares in Danton and Bakcom corporations he valued at P32.5
Million.Fong required Dueñas to submit the financial documents supporting the
valuation of these shares.

On November 25, 1996, Fong started remitting in tranches his share in the proposed
corporation’s capital.

Subsequently, Fong informed Dueñas of his decision to limit his total contribution from
P32.5 Million to P5 Million. The latter observed that despite his P5 Million contribution,
Dueñas still failed to give him the financial documents on the valuation of the Danton
and Bakcom shares. Thus, except for Dueñas’ representations, Fong had nothing to rely
on to ensure that these shares were really valued at P32.5 Million. Moreover, Dueñas
failed to incorporate and register Alliance with the Securities and Exchange Commission
(SEC).

These circumstances convinced Fong that Dueñas would no longer honor his
obligations in their joint venture agreement. Thus, he wrote Dueñas informing him of his
decision to cancel the joint venture agreement. He also asked for the refund of the P5
Million that he advanced. In response, Dueñas admitted that he could not immediately
return the money since he used it to defray the business expenses of Danton and
Bakcom.
After several demands, Fong wrote a final letter of demand informing Dueñas that he
would file an action against him should he still fail to pay. Since Dueñas did not pay,
Fong filed a complaint against him for collection of a sum of money and damages.

ISSUE: Whether the proper action is for rescission of contract or for collection of sum of
money?

HELD: RESCISSION. An examination of Fong’s complaint shows that although it was

labeled as an action for a sum of money and damages, it was actually a complaint for
rescission.

As a contractual remedy, rescission is available when one of the parties substantially

fails to do what he has obligated himself to perform. It aims to address the breach of
faith and the violation of reciprocity between two parties in a contract. Under Article
1191 of the Civil Code, the right of rescission is inherent in reciprocal obligations: The
power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

Dueñas submits that Fong’s prayer for the return of his cash contribution supports his
claim that Fong’s complaint is an action for collection of a sum of money. However,
Dueñas failed to appreciate that the ultimate effect of rescission is to restore the parties
to their original status before they entered in a contract.

Rescission has the effect of “unmaking a contract, or its undoing from the beginning,
and not merely its termination.” Hence, rescission creates the obligation to return the
object of the contract. It can be carried out only when the one who demands rescission
can return whatever he may be obliged to restore. To rescind is to declare a contract
void at its inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative positions as if no
contract has been made.

Accordingly, when a decree for 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 his original situation.
When the proposed company intended by the parties remained unincorporated after
lapse of considerable period of time, Fong cancelled the joint venture agreement and
demanded the return of his P5 Million contribution.
On this basis, Dueñas’ breach justified Fong’s rescission of the joint venture agreement
under Article 1191. As the Court ruled in Velarde v. Court of Appeals: The right of
rescission of a party to an obligation under Article 1191 of the Civil Code is predicated
on a breach of faith by the other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s failure to comply with an
existing obligation. When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and in the absence of any just cause for the court to
determine the period of compliance, the court shall decree the rescission.

SPS. SALVADOR CHUA AND VIOLETA S. CHUA, Petitioners, v. RODRIGO RIVERA,

Respondent.
G.R. NO. 184472 January 21 2005

PEREZ, J.

FACTS: On 24 February 1995, Rivera obtained a loan from the Spouses Chua:

“It is agreed and understood that failure on my part to pay the amount of (P120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the
sum equivalent to FIVE PERCENT (5%) interest monthly from the date of default until
the entire obligation is fully paid for.”

As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00
covering the principal of P120,000.00 plus five percent (5%) interest per month from 1
January 1996 to 31 May 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera
to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. The case was raffled before the MeTC. After
trial, the MeTC ruled in favor of the Spouses Chua. Undaunted, Rivera appealed to the
Court of Appeals which affirmed Rivera’s liability under the Promissory Note, reduced
the imposition of interest on the loan from 60% to 12% per annum. Hence, this petition
for review on certiorari.

ISSUE: Whether or not the reduction of the interest rate from 60% per annum to 12%
per annum is proper notwithstanding that Rivera never raised in his answer the defense
that the said stipulated rate of interest is exorbitant, unconscionable, unreasonable,
inequitable, illegal, immoral or void

HELD: YES. As observed by Rivera, the stipulated interest of 5% per month or 60% per
annum in addition to legal interests and attorney’s fees is, indeed, highly iniquitous and
unreasonable. Stipulated interest rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when necessary. Since the interest rate agreed
upon is void, the parties are considered to have no stipulation regarding the interest
rate, thus, the rate of interest should be 12% per annum computed from the date of
judicial or extrajudicial demand.

The appellate court found the 5% a month or 60% per annum interest rate, on top of the
legal interest and attorney’s fees, steep, tantamount to it being illegal, iniquitous and
unconscionable.

RODRIGO RIVERA, v. SPOUSES SALVADOR CHUA AND S. VIOLETA CHUA,

G.R. No. 184458, January 14, 2015

PEREZ, J.

FACTS: The parties were friends of long standing having known each other since 1973:
Rivera and Salvador are kumpadres, the former is the godfather of the Spouses Chua’s
son. On 24 February 1995, Rivera obtained a loan from the Spouses Chua. In October
1998, almost three years from the date of payment stipulated in the promissory note,
Rivera, as partial payment for the loan, issued and delivered to the Spouses Chua, as
payee, a check dated 30 December 1998, in the amount of P25,000.00.On 21
December 1998, the Spouses Chua received another check.
Upon presentment for payment, the two checks were dishonored for the reason
“account closed.”

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera
to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. The case was raffled before the MeTC. After
trial, the MeTC ruled in favor of the Spouses Chua. Undaunted, Rivera appealed to the
Court of Appeals affirmed Rivera’s liability under the Promissory Note. Hence, this
petition for review on certiorari.

ISSUE1: WON the Promisory Note is a Negotiable instrument, thus demand is

necessary to charge a person liable on the Promisory Note.

HELD1: No. Section 184 of the NIL defines what negotiable promissory note is:

SECTION 184. Promissory Note, Defined. – A negotiable promissory note within

the meaning of this Act is an unconditional promise in writing made by one
person to another, signed by the maker, engaging to pay on demand, or at a
fixed or determinable future time, a sum certain in money to order or to bearer.
Where a note is drawn to the maker’s own order, it is not complete until indorsed
by him.
The Promissory Note in this case is made out to specific persons, herein respondents,
the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua
as payees.

ISSUE2: Whether or not demand is necessary to charge a person liable on the

Promisory Note.

HELD2: NO. Even if Rivera’s Promissory Note is not a negotiable instrument and
therefore outside the coverage of Section 70 of the NIL which provides that presentment
for payment is not necessary to charge the person liable on the instrument, Rivera is
still liable under the terms of the Promissory Note that he issued. The Promissory Note
is unequivocal about the date when the obligation falls due and becomes demandable—
31 December 1995. As of 1 January 1996, Rivera had already incurred in delay when
he failed to pay the amount of P120,000.00 due to the Spouses Chua on 31 December
1995 under the Promissory Note.

Article 1169 of the Civil Code explicitly provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.

However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to
be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other
begins. (Emphasis supplied)

There are four instances when demand is not necessary to constitute the debtor in
default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement for
the creation of the obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date for performance; it
must further state expressly that after the period lapses, default will commence.

We refer to the clause in the Promissory Note containing the stipulation of interest:
 It is agreed and understood that failure on my part to pay the amount of
(P120,000.00) One Hundred Twenty Thousand Pesos on December 31, 1995.
(sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest monthly
from the date of default until the entire obligation is fully paid for.
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the “date
of default” until the entire obligation is fully paid for. The parties evidently agreed that the
maturity of the obligation at a date certain, 31 December 1995, will give rise to the
obligation to pay interest. The Promissory Note expressly provided that after 31
December 1995, default commences and the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation. On that date, Rivera became liable for
the stipulated interest which the Promissory Note says is equivalent to 5% a month. In
sum, until 31 December 1995, demand was not necessary before Rivera could be held
liable for the principal amount of P120,000.00. Thereafter, on 1 January 1996, upon
default, Rivera became liable to pay the Spouses Chua damages, in the form of
stipulated interest.

The liability for damages of those who default, including those who are guilty of delay, in
the performance of their obligations is laid down on Article 1170 of the Civil Code.

NORLINDA S. MARILAG v. MARCELINO B. MARTINEZ

G.R. No. 201892, July 22, 2015

PERLAS-BERNABE, J.

FACTS: Rafael Martinez (Rafael), respondent's father, obtained from petitioner a loan in
the amount of P160,000.00. The loan was secured by a real estate mortgage over a
parcel of land.

Rafael failed to settle his obligation upon maturity and despite repeated demands,
prompting petitioner to file a Complaint for Judicial Foreclosure of Real Estate Mortgage
before the RTC – Imus. When Rafael failed to file his answer, he was declared in
default, thus the RTC-Imus decided against Rafael’s favor.

Meanwhile, prior to Rafael's notice of the above decision, respondent (son of Rafael)
agreed to pay his father's obligation to petitioner. After making a total payment of
P400,000.00, he then executed a promissory note binding himself to pay the amount of
P289,000.00, "representing the balance of the agreed financial obligation of [his] father
to [petitioner].

After learning RTC Imus decision, respondent refused to pay the amount covered by the
subject PN, prompting petitioner to file a complaint for sum of money (collection case).
Respondent contended that petitioner has no cause of action and added that the
doctrine of res judicata finds application in the instant case, considering that both the
judicial foreclosure and collection cases were filed as a consequence of the non-
payment of Rafael's loan, which was the principal obligation secured by the real estate
mortgage and the primary consideration for the execution of the subject PN.

ISSUE: Whether or not the availment of an action for judicial foreclosure bars recourse
to the subsequent filing of a personal action for collection over the same debt

HELD: YES. While the ensuing collection case was anchored on the promissory note
executed by respondent who was not the original debtor, the same does not constitute a
separate and distinct contract of loan which would have given rise to a separate cause
of action upon breach.

In Bachrach Motor Co., Inc. v. Icarangal: For non-payment of a note secured by

mortgage, the creditor has a single cause of action against the debtor. This single
cause of action consists in the recovery of the credit with execution of the security. In
other words, the creditor in his action may make two demands, the payment of the debt
and the foreclosure of his mortgage. But both demands arise from the same cause, the
non-payment of the debt, and, for that reason, they constitute a single cause of action.
Though the debt and the mortgage constitute separate agreements, the latter is
subsidiary to the former, and both refer to one and the same obligation. Consequently,
there exists only one cause of action for a single breach of that obligation. Plaintiff, then,
by applying the rule above stated, cannot split up his single cause of action by filing a
complaint for payment of the debt, and thereafter another complaint for foreclosure of
the mortgage. If he does so, the filing of the first complaint will bar the subsequent
complaint. By allowing the creditor to file two separate complaints simultaneously or
successively, one to recover his credit and another to foreclose his mortgage, we will, in
effect, be authorizing him plural redress for a single breach of contract at so much cost
to the courts and with so much vexation and oppression to the debtor.

Further on the point, the fact that no foreclosure sale appears to have been conducted
is of no moment because the remedy of foreclosure of mortgage is deemed chosen
upon the filing of the complaint therefor. In Suico Rattan & Buri Interiors, Inc. v. CA, it
was explained:
“x x x x In sustaining the rule that prohibits mortgage creditors from pursuing
both the remedies of a personal action for debt or a real action to foreclose
the mortgage, the Court held in the case of Bachrach Motor Co., Inc. v.
Esteban Icarangal, et al. that a rule which would authorize the plaintiff to
bring a personal action against the debtor and simultaneously or
successively another action against the mortgaged property, would result not
 only in multiplicity of suits so offensive to justice and obnoxious to law and
equity, but also in subjecting the defendant to the vexation of being sued in
the place of his residence or of the residence of the plaintiff, and then again
in the place where the property lies. Hence, a remedy is deemed chosen
upon the filing of the suit for collection or upon the filing of the complaint in
an action for foreclosure of mortgage, pursuant to the provisions of Rule 68
of the Rules of Court. As to extrajudicial foreclosure, such remedy is deemed
elected by the mortgage creditor upon filing of the petition not with any court
of justice but with the office of the sheriff of the province where the sale is to
be made, in accordance with the provisions of Act No. 3135, as amended by
Act No. 4118”

As petitioner had already instituted judicial foreclosure proceedings over the mortgaged
property, she is now barred from availing herself of an ordinary action for collection,
regardless of whether or not the decision in the foreclosure case had attained finality. In
fine, the dismissal of the collection case is in order.

R TRANSPORT CORPORATION vs LUISITO G. YU

G.R. No. 174161 February 18, 2015

PERALTA, J.

FACTS: Loreta Yu, was hit and run over by a bus driven by Antonio P. Gimena, who
was then employed by petitioner R Transport Corporation. Loreta was immediately
rushed to Medical City Hospital where she was pronounced dead on arrival. The
husband of the deceased, respondent Luisito G. Yu, filed a Complaint for damages
before the Regional Trial Court (RTC) of Makati City against petitioner R Transport,
Antonio Gimena, and Metro Manila Transport Corporation (MMTC) for the death of his
wife. MMTC denied its liability reasoning that it is merely the registered owner of the bus
involved in the incident, the actual owner, being petitioner R Transport. It explained that
under the Bus Installment Purchase Program of the government, MMTC merely
purchased the subject bus, among several others, for resale to petitioner R Transport,
which will in turn operate the same within Metro Manila. Since it was not actually
operating the bus which killed respondent’s wife, nor was it the employer of the driver
thereof, MMTC alleged that the complaint against it should be dismissed. On the other
hand, petitioner R Transport alleged that respondent had no cause of action against it
for it had exercised due diligence in the selection and supervision of its employees and
drivers and that its buses are in good condition. Meanwhile, the driver Antonio Gimena
was declared in default for his failure to file an answer to the complaint.
Petitioner insists that the CA and the RTC were incorrect in ruling that its driver was
negligent for aside from the mere speculations and uncorroborated testimonies of the
police officers on duty at the time of the accident, no other evidence had been adduced
to prove that its driver was driving in a reckless and imprudent manner. It asserts that
contrary to the findings of the courts, the bus from which the victim alighted is actually
the proximate cause of the victim’s death for having unloaded its passengers on the
lane where the subject bus was traversing. Moreover, petitioner reiterates its argument
that since it is not the registered owner of the bus which bumped the victim, it cannot be
held liable for the damage caused by the same.

ISSUE: Whether or not, Petitioner cannot be held liable for the damage caused, since it
is not the registered owner of the bus?

HELD: NO. The liability for which petitioner is being made responsible actually arises
not from a pre-existing contractual relation between petitioner and the deceased, but
from a damage caused by the negligence of its employee. Both the owner of record
and the actual operator must be jointly and severally liable with the driver, as has been
consistently viewed by the court for the better protection of the public for both the owner
of record and the actual operator. The principle of holding the registered owner liable
for damages notwithstanding that ownership of the offending vehicle has already been
transferred to another is designed to protect the public and not as a shield on the part of
unscrupulous transferees of the vehicle to take refuge in, in order to free itself from
liability arising from its own negligent act. However, the rule followed in the cases of
Erezo vs. Jepte, Tamayo vs. Aquino, and De Peralta vs. Mangusang, among others,
must be adhered, that the registered owner or operator has the right to be indemnified
by the real or actual owner of the amount that he may be required to pay as damage for
the injury caused. The right to be indemnified being recognized, recovery by the
registered owner or operator may be made in any form-either by a cross-claim, third-
party complaint, or an independent action.