CIVIL LAW

CIVIL LAW
I. GENERAL PRINCIPLES

A. HUMAN RELATIONS (ARTS. 19-22, CIVIL CODE)

ANTONIO LOCSIN, II v. MEKENI FOOD CORPORATION

G.R. NO. 192105, December 9, 2013, SECOND DIVISION, DEL CASTILLO, J.:

There is unjust enrichment ''when a person unjustly retains a benefit to the loss of another, or when a person
retains money or property of another against the fundamental principles of justice, equity and good conscience."
The principle of unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis
or justification, and (2) that such benefit is derived at the expense of another. The main objective of the principle
against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause
or consideration.

FACTS:

Locsin was an employee of Mekeni Food Corporation (Mekeni). He obtained a car plan with Mekeni under
which one-half of the cost of the vehicle is to be paid by the company and the other half to be deducted from
his salary evidenced by an Offer sheet. He was furnished by a Honda Civic car valued ₱280,000. He paid for
his 50% share through salary deductions of ₱5,000.00 each month amounting to ₱112,500. Thereafter, he
resigned from work. He made an offer to purchase his service vehicle by paying the outstanding balance
thereon. However, they could not agree on the terms of the proposed purchase. He returned the vehicle to
Mekeni. Mekeni contended that the company car plan benefit applied only to employees who have been with
the company for five years. It contended that if Locsin failed to completely cover one-half of the cost of the
vehicle, then all the deductions from his salary going to the cost of the vehicle will be treated as rentals for
his use thereof while working with Mekeni, and shall not be refunded. Locsin contended that he must be
entitled to the refund of the payment for the car if the same will not be sold to him otherwise Mekeni is guilty
of unjust enrichment.

ISSUE:

Whether or not Mekeni is guilty of unjust enrichment.

RULING:

YES.There is unjust enrichment ''when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice, equity and good
conscience." The principle of unjust enrichment requires two conditions: (1) that a person is benefited without
a valid basis or justification, and (2) that such benefit is derived at the expense of another. The main objective
of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another
without just cause or consideration.

From the evidence on record, it is seen that the Mekeni car plan offered to Locsin was subject to no other
term or condition than that Mekeni shall cover one-half of its value, and petitioner shall in turn pay the other
half through deductions from his monthly salary. Mekeni has not shown, by documentary evidence or
otherwise, that there are other terms and conditions governing its car plan agreement with petitioner. There
is no evidence to suggest that if petitioner failed to completely cover one-half of the cost of the vehicle, then
all the deductions from his salary going to the cost of the vehicle will be treated as rentals for his use thereof
while working with Mekeni, and shall not be refunded. Indeed, there is no such stipulation or arrangement
between them.

Indeed, the Court cannot allow that payments made on the car plan should be forfeited by Mekeni and treated
simply as rentals for petitioner’s use of the company service vehicle. Nor may they be retained by it as
purported loan payments, as it would have this Court believe. In the first place, there is precisely no stipulation
to such effect in their agreement. Secondly, it may not be said that the car plan arrangement between the
parties was a benefit that the petitioner enjoyed; on the contrary, it was an absolute necessity in Mekeni’s
business operations, which benefit edit to the fullest extent: without the service vehicle, petitioner would have

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been unable to rapidly cover the vast sales territory assigned to him, and sales or marketing of Mekeni’s
products could not have been booked or made fast enough to move Mekeni’s inventory.

In light of the foregoing, it is unfair to deny petitioner a refund of all his contributions to the car plan.Under
Article 22 of the Civil Code, "every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him." Article 2142 of the same Code likewise clarifies that there are certain lawful, voluntary
and unilateral acts which give rise to the juridical relation of quasi-contract, to the end that no one shall be
unjustly enriched or benefited at the expense of another. In the absence of specific terms and conditions
governing the car plan arrangement between the petitioner and Mekeni, a quasi-contractual relation was
created between them.

Consequently, Mekeni may not enrich itself by charging petitioner for the use of its vehicle which is otherwise
absolutely necessary to the full and effective promotion of its business. It may not, under the claim that
petitioner’s payments constitute rents for the use of the company vehicle, refuse to refund what petitioner
had paid, for the reasons that the car plan did not carry such a condition; the subject vehicle is an old car that
is substantially, if not fully, depreciated; the car plan arrangement benefited Mekeni for the most part; and
any personal benefit obtained by petitioner from using the vehicle was merely incidental.

II. PERSONS AND FAMILY RELATIONS

A. MARRIAGE (FAMILY CODE)

NICOLAS S. MATUDAN v. REPUBLIC OF THE PHILIPPINES and MARILYN B. MATUDAN

G.R. No. 203284, November 14, 2016, Second Division, DEL CASTILLO, J.

The existence or absence of the psychological incapacity is based strictly on the facts of each case and not on a
priori assumptions, predilections or generalizations. Indeed, the incapacity should be established by the totality
of evidence presented during trial, making it incumbent upon the petitioner to sufficiently prove the existence of
the psychological incapacity.

FACTS:

Nicolas Matudan and Marilyn Matudan (Marilyn) were married sometime in 1976. They had four children. In
1985, Marilyn left to work abroad. From then on, petitioner and the children lost contact with her; she had
not been seen nor heard from again.

Twenty-three years later, or on June 20, 2008, petitioner filed a Petition for Declaration of Nullity of Marriage
alleging that before, during, and after his marriage to Marilyn, the latter was psychologically incapable of
fulfilling her obligations as a wife and mother; that she consistently neglected and failed to provide petitioner
and her children with the necessary emotional and financial care, support, and sustenance, and even so after
leaving for work abroad; that based on expert evaluation conducted by Clinical Psychologist Nedy L. Tayag
(Dr. Tayag), Marilyn is suffering from Narcissistic Personality Disorder and her psychological incapacity is
grave, permanent, and incurable; that petitioner's consent to the marriage was obtained by Marilyn through
misrepresentation as she concealed her condition from him; and that Marilyn is "not ready for a lasting and
permanent commitment like marriage" as she "never (gave) him and their children financial and emotional
support and for being selfish through their six (6) years of cohabitation;" that Marilyn became "so despicably
irresponsible as she has not shown love and care upon her husband, and that she cannot properly and morally
take on the responsibility of a loving and caring wife. Apart from the testimonies of the petitioner, his
daughter Maricel B. Matudan (Maricel), and Dr. Tayag, the following documents were submitted in evidence.

ISSUE:

Whether or not the marriage of the petitioner and respondent should be nullified based on the latter’s
psychological incapacity.

RULING:

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NO. The landmark case of Santos v. Court of Appeals taught us that psychological incapacity under Article 36
of the Family Code must be characterized by (a) gravity, (b) juridical antecedence, and (c) incurability. Thus,
the incapacity "must be grave or serious such that the party would be incapable of carrying out the ordinary
duties required in marriage; it must be rooted in the history of the party antedating the marriage, although
the overt manifestations may emerge only after marriage; and it must be incurable or, even if it were
otherwise, the cure would be beyond the means of the party involved." In this connection, the burden of
proving psychological incapacity is on the petitioner, pursuant to Republic v. Court of Appeals or
the Molina case. The existence or absence of the psychological incapacity is based strictly on the facts of each
case and not on a priori assumptions, predilections or generalizations. Indeed, the incapacity should be
established by the totality of evidence presented during trial, making it incumbent upon the petitioner to
sufficiently prove the existence of the psychological incapacity.

Indeed, what is important is the presence of evidence that can adequately establish the party's psychological
condition. The complete facts should allege the physical manifestations, if any, as are indicative of
psychological incapacity at the time of the celebration of the marriage. Petitioner's judicial affidavit and
testimony during trial, however, fail to show gravity and juridical antecedence. While he complained that
Marilyn lacked a sense of guilt and was involved in "activities defying social and moral ethics," and that she
was, among others, irrational, irresponsible, immature, and self-centered, he nonetheless failed to sufficiently
and particularly elaborate on these allegations, particularly the degree of Marilyn's claimed irresponsibility,
immaturity, or selfishness.

If any, petitioner's accusations against Marilyn are untrue, at the very least. At most, they fail to sufficiently
establish the degree of Marilyn's claimed psychological incapacity. On the other hand, Maricel cannot be of
help either. She was only two years old when Marilyn left the family. Growing up, she may have seen the
effects of Marilyn's abandonment - such as the lack of emotional and financial support; but she could not
have any idea of her mother's claimed psychological incapacity, as well as the nature, history, and gravity
thereof. Just as well, Dr. Tayag's supposed expert findings regarding Marilyn's psychological condition were
not based on actual tests or interviews conducted upon Marilyn herself; they are based on the personal
accounts of petitioner.

B. THE FAMILY (FAMILY CODE)

1. THE FAMILY HOME

SPOUSES CHARLIE and OFELIA FORTALEZA v. SPOUSES RAUL and RONA LAPITAN
G.R. No. 178288, August 15, 2012, First Division, DEL CASTILLO, J.

As a rule, the family home is exempt from execution, forced sale or attachment.However, Article 155(3) of the
Family Code explicitly allows the forced sale of a family home "for debts secured by mortgages on the premises
before or after such constitution."

The purchaser, who has a right to possession after the expiration of the redemption period, becomes the absolute
owner of the property when no redemption is made. The purchaser can demand possession at any time following
the consolidation of ownership in his name and the issuance to him of a new TCT. After consolidation of title in
the purchaser’s name for failure of the mortgagor to redeem the property, the purchaser’s right to possession
ripens into the absolute right of a confirmed owner. At that point, the issuance of a writ of possession, upon
proper application and proof of title becomes merely a ministerial function. Effectively, the court cannot exercise
its discretion.

FACTS:

When Spouses Charlie and Ofelia Fortaleza (spouses Fortaleza) failed to pay the indebtedness including the
interests over the loan they obtained from spouses Rolando and Amparo Lapitan (creditors), the latter applied
for extrajudicial foreclosure of the Real Estate Mortgage over the former’s residential house and lot. As the
highest bidders in the auction sale, the creditors’ son Dr. Raul Lapitan and his wife Rona (spouses Lapitan)
were issued a Certificate of Sale

The one-year redemption period expired without the spouses Fortaleza redeeming the mortgage. Thus,
spouses Lapitan executed an affidavit of consolidation of ownership on November 20, 2003 and caused the
cancellation of TCT No. T-412512 and the registration of the subject property in their names under TCT No.

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T-535945on February 4, 2004. Despite the foregoing, the spouses Fortaleza refused spouses Lapitan’s formal
demand to vacate and surrender possession of the subject property.

Spouses Lapitan filed an ex parte petition for the issuance of writ of possession which the spouses Fortaleza
opposed by questioning the validity of the real estate mortgage and the foreclosure sale. The RTC ordered the
issuance of a writ of possession explaining that it is a ministerial duty of the court especially since the
redemption period had expired and a new title had already been issued in the name of the spouses Lapitan.
Citing Barican v. Intermediate Appellate Court and Cometa v. Intermediate Appellate Court, the spouses
Fortaleza insist that the issuance of writ of possession is not always ministerial. They also argued that the
subject property is a family home exempt from forced sale. Hence, in the spirit of equity the Court should
allow them to exercise the right of redemption even after the expiration of the one-year period.

ISSUES:

1. Whether or not the issuance of writ of possession in the case at bar is ministerial.

2. Whether or not spouses Fortaleza can exercise the right of redemption even after the expiration of the one-
year period considering that the subject property is a family home.

RULING:

1. YES. Unless a case falls under recognized exceptions provided by law and jurisprudence,we maintain the ex
parte, non-adversarial, summary and ministerial nature of the issuance of a writ of possession as outlined in
Section 7 of Act No. 3135, as amended by Act No. 4118.

In Barican, we held that the obligation of a court to issue a writ of possession ceases to be ministerial if there
is a third party holding the property adversely to the judgment debtor. Where such third party exists, the trial
court should conduct a hearing to determine the nature of his adverse possession. And in Cometa, there was
a pending action where the validity of the levy and sale of the properties in question were directly put in issue
which this Court found pre-emptive of resolution. For if the applicant for a writ of possession acquired no
interest in the property by virtue of the levy and sale, then, he is not entitled to its possession. Moreover, it is
undisputed that the properties subject of said case were sold at an unusually lower price than their true value.
Thus, equitable considerations motivated this Court to withhold the issuance of the writ of possession to
prevent injustice on the other party.

Here, there are no third parties holding the subject property adversely to the judgment debtor. It was spouses
Fortaleza themselves as debtors-mortgagors who are occupying the subject property. They are not even
strangers to the foreclosure proceedings in which the ex parte writ of possession was applied for. Significantly,
spouses Fortaleza did not file any direct action for annulment of the foreclosure sale of the subject property.
Also, the peculiar circumstance of gross inadequacy of the purchase price is absent.

It bears emphasizing that any question regarding the regularity and validity of the mortgage or its foreclosure
cannot be raised as a justification for opposing the petition for the issuance of the writ of possession. The said
issues may be raised and determined only after the issuance of the writ of possession. Indeed, "[t]he judge
with whom an application for writ of possession is filed need not look into the validity of the mortgage or the
manner of its foreclosure." The writ issues as a matter of course. "The rationale for the rule is to allow the
purchaser to have possession of the foreclosed property without delay, such possession being founded on the
right of ownership."

2. NO. Spouses Fortaleza’s argument that the subject property is exempt from forced sale because it is a family
home deserves scant consideration. As a rule, the family home is exempt from execution, forced sale or
attachment.However, Article 155(3) of the Family Code explicitly allows the forced sale of a family home "for
debts secured by mortgages on the premises before or after such constitution." In this case, there is no doubt
that spouses Fortaleza voluntarily executed on January 28, 1998 a deed of Real Estate Mortgage over the
subject property which was even notarized by their original counsel of record. And assuming that the property
is exempt from forced sale, spouses Fortaleza did not set up and prove to the Sheriff such exemption from
forced sale before it was sold at the public auction. Failure to do so would estop the party from later claiming
the exemption.

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Although the Rules of Court does not prescribe the period within which to claim the exemption, the rule is,
nevertheless, well-settled that the right of exemption is a personal privilege granted to the judgment debtor
and as such, it must be claimed not by the sheriff, but by the debtor himself at the time of the levy or within
a reasonable period thereafter.Certainly, reasonable time for purposes of the law on exemption does not mean
a time after the expiration of the one-year period for a judgment debtor to redeem the property.

III. PROPERTY

A. OWNERSHIP

MODESTO PALALIv.JULIET AWISAN, represented by her Attorney-in-Fact GREGORIO AWISAN

G.R. No. 158385, February 12, 2010, Second Division, DEL CASTILLO, J.

A person occupying a parcel of land, by himself and through his predecessors-in-interest, enjoys the presumption
of ownership. Anyone who desires to remove him from the property must overcome such presumption by relying
solely on the strength of his claims rather than on the weakness of the defense.

FACTS:

Awisan claimed to be the owner of a parcel of land allegedly consisting of 6.6698 hectaresand covered by a
tax declaration in her name. It was originally owned by her father, Cresencio Cadwising who had introduced
improvements thereon. The land was mortgaged to the Development Bank of the Philippines, which acquired
it in the foreclosure sale. DBP then sold the land to one Tico Tibong, who eventually donated the same to
Awisan. She then filed an action for quieting of title against Palali, alleging that the latter occupied and
encroached on the northern portion of her property and surreptitiously declared it in his name for tax
purposes. In his defense, Palali denied the encroachment and asserted ownership over the subject property.
He maintained that he and his ancestors or predecessors-in-interest have openly and continuously possessed
the subject land since time immemorial. He and his siblings were born on that land and, at that time, the area
around the house was already planted with bananas, alnos, and coffee. Sometime in 1974, petitioner declared
the said land in his name for taxation purposes. The said tax declaration indicates that the property consists
of 200 square meters of residential lot and 648 square meters of rootcrop land (or a total of 848 square meters).

ISSUE:

Whether or not the petitioner has the better right to the subject property.

RULING:

NO. As between the Palali and the Awisan, it is the former who has the better claim or title to the subject
property. While Awisan merely relied on her tax declaration, Palali was able to prove actual possession of the
subject property coupled with his tax declaration. We have ruled in several cases that possession, when
coupled with a tax declaration, is a weighty evidence of ownership. It certainly is more weighty and
preponderant than a tax declaration alone.

The preponderance of evidence is therefore clearly in favor of Palali, particularly considering that, as the
actual possessor under claim of ownership, he enjoys the presumption of ownership. Moreover, settled is the
principle that a party seeking to recover real property must rely on the strength of her case rather than on the
weakness of the defense. The burden of proof rests on the party who asserts the affirmative of an issue. For
he who relies upon the existence of a fact should be called upon to prove that fact. Having failed to discharge
her burden to prove her affirmative allegations, we find that the trial court rightfully dismissed respondent’s
complaint.

RAUL PALOMATA v. NESTOR COLMENARES and TERESA GURREA

G.R. No. 174261, December 15, 2010, First Division, DEL CASTILLO, J.

In sum, the CLT, tax declaration and investigation reports offered by the Palomatas as evidence of their right to
the subject property are, at best, inconclusive and insufficient to prove their claim that the subject property is

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included in Alipio’s farmlot. In fact, they even prove quite the opposite: that the subject property is actually not
included in the farmlot.

FACTS:

Letecia Colmenares claimed ownership over a parcel of land along the Camambugan Creek in Balasan, Iloilo
on which stand Raul's house and talyer. She filed a criminal complaint for squatting agad inst Raul. However,
for reasons undisclosed by the records, the case was eventually dismissed. In order to prevent further
ejectment from the subject property, Raul, together with his father Alipio, filed a complaint before the RTC
sitting as a Court of Agrarian Relations (CAR), for "maintenance and damages" against Letecia, her son Nestor
Colmenares, and Teresa Gurrea. The complaint alleged that Alipio was the bona fide agricultural lessee of
Letecia. After the issuance of PD No. 27, an approximate two-hectare portion of Colmenares’ landholding was
awarded to Alipio, who was issued a Certificate of Land Transfer (CLT). Raul contended that the subject
property occupied by his house and talyer was part of Alipio’s farmlot. Thus, Raul and Alipio prayed to be
maintained in the subject property and that the Colmenareses be ordered to refrain from ejecting the
Palomatas from the subject property. The Palomatas presented Alipio’s tax declaration covering the awarded
farmlot. The Colmenareses countered that the property claimed by Raul is within their subdivision, not within
the agricultural land tenanted by Alipio.

ISSUE:

Whether or not a tax declaration and a certificate of land transfer are sufficient proof of ownership.

RULING:

NO. In their complaint, the Palomatas recognized the Colmenareses as the owners of the subject property,
but the Palomatas claimed entitlement to the subject property by virtue of Alipio’s CLT which awarded a
farmlot to Alipio. But the said CLT did not indicate the metes and bounds of the awarded farmlot; it only
stated that the farmlot awarded to Alipio consisted of two hectares. Hence, it became necessary to prove,
beyond the CLT, that the subject property is actually included in Alipio’s farmlot. The Palomatas, however,
failed to discharge this burden. On the contrary, what appeared during the trial was that the subject property
was actually not included in Alipio’s farmlot.

The Palomatas presented Alipio’s tax declaration covering the awarded farmlot, which described the actual
boundaries thereof. Instead of helping the Palomatas’ cause, the trial court found the stated southern
boundary of the farmlot (the Camambugan Creek) as evidence that the subject property was not included
therein. The ocular inspection revealed that the subject property lies on the other side of the Camambugan
Creek, physically separate from Alipio’s farmlot. The trial court thus concluded that the subject property is
not part of the farmlot, which conclusion is not unwarranted.

In sum, the CLT, tax declaration and investigation reports offered by the Palomatas as evidence of their right
to the subject property are, at best, inconclusive and insufficient to prove their claim that the subject property
is included in Alipio’s farmlot. In fact, they even prove quite the opposite: that the subject property is actually
not included in the farmlot.

Raul then maintains that the Colmenareses did not prove their ownership over the subject lot; hence it should
be presumed that the lot is owned by its current possessor.

Raul’s argument ignores the fact that, by alleging their right to the subject property as tenant-farmers of the
Colmenareses, the Palomatas readily admitted that the land belonged to the Colmenareses. Thus, if Raul fails,
as he did fail, to prove that the subject property was awarded to his father through a CLT, then the
presumption is that it remains the property of the Colmenareses.

B. ACCESSION

COMMUNITIES CAGAYAN, INC. v. SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND
ANYBODY CLAIMING RIGHTS UNDER THEM
G.R. No. 17679, November 14, 2012, Second Division, DEL CASTILLO, J.

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The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the
principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the
option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to
exercise either option and compel instead the owner of the building to remove it from the land. The raison d’etre
for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict
of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without
causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-
ownership, the law has provided a just solution by giving the owner of the land the option to acquire the
improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and
the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized
to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the
ownership of the accessory thing.

FACTS:

Sometime in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell with
petitioner Communities Cagayan, Inc., (CCI) whereby the latter agreed to sell to respondent-spouses a house
and lot at Block 16, Camella Homes Subdivision, Cagayan de Oro City, for the price of P368,000.00. They
obtained a loan from Capitol Development Bank (CDB), using the property as collateral. To facilitate the loan,
a simulated sale over the property was executed by petitioner in favor of respondent-spouses. Accordingly,
titles were transferred in the names of respondent-spouses and submitted to CDB for loan processing. The
bank collapsed and closed before it could release the loan.

On November 30, 1997, respondent-spouses entered into another Contract to Sell with petitioner over the
same property for the same price. This time, they availed of petitioner’s in-house financing thus, undertaking
to pay the loan over four years, from 1997 to 2001.

Respondent Arsenio demolished the original house and constructed a three-story house allegedly valued at
P3.5 million, more or less. (Respondent Arsenio died, leaving his wife, herein respondent Angeles, to pay for
the monthly amortizations.)

On September 10, 2003, petitioner sent respondent-spouses a notarized Notice of Delinquency and
Cancellation of Contract to Sell due to the latter’s failure to pay the monthly amortizations. Petitioner filed
before the Municipal Trial Court in Cities, an action for unlawful detainer against respondent-spouses.

In her Answer, respondent Angeles averred that the Deed of Absolute Sale is valid.

ISSUES:

1. Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid.

2. Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the cost
of the original house.

RULING:

1. NO, since respondent-spouses paid at least two years of installment, they are entitled to receive the cash
surrender value of the payments they had made which, under Section 3(b) of the Maceda Law, is equivalent
to 50% of the total payments made.

In this connection, we deem it necessary to point out that, under the Maceda Law, the actual cancellation of
a contract to sell takes place after 30 days from receipt by the buyer of the notarized notice of cancellation,
and upon full payment of the cash surrender value to the buyer. In other words, before a contract to sell can
be validly and effectively cancelled, the seller has (1) to send a notarized notice of cancellation to the buyer
and (2) to refund the cash surrender value. Until and unless the seller complies with these twin mandatory

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requirements, the contract to sell between the parties remains valid and subsisting. Thus, the buyer has the
right to continue occupying the property subject of the contract to sell, and may still reinstate the contract by
updating the account during the grace period and before the actual cancellation of the contract.

In this case, petitioner complied only with the first condition by sending a notarized notice of cancellation to
the respondent-spouses. It failed, however, to refund the cash surrender value to the respondent-spouses.
Thus, the Contract to Sell remains valid and subsisting and supposedly, respondent-spouses have the right to
continue occupying the subject property. Unfortunately, we cannot reverse the Decision of the RTC directing
respondent-spouses to vacate and turnover possession of the subject property to petitioner because
respondent-spouses never appealed the order. Thus, based on the factual milieu of the instant case, the most
that we can do is to order the return of the cash surrender value.

2. YES. Respondent-spouses are entitled to reimbursement of the improvements made on the property. In
view of the special circumstances obtaining in this case, we are constrained to rely on the presumption of
good faith on the part of the respondent-spouses which the petitioner failed to rebut. Thus, respondent-
spouses being presumed builders in good faith. This Court has ruled that this provision covers only cases in
which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim
of title thereto. It does not apply when the interest is merely that of a holder, such as a mere tenant, agent or
usufructuary. From these pronouncements, good faith is identified by the belief that the land is owned; or
that – by some title – one has the right to build, plant, or sow thereon. However, in some special cases, this
Court has used Article 448 by recognizing good faith beyond this limited definition such as the case at bar.

While Article 448 on builders in good faith as a general rule does not apply where there is a contractual
relation between the parties such as in the instant case, it can still be applied if the parties failed to attach a
copy of the contract in the records of the case. As such, we are constrained to apply Article 448 of the Civil
Code in this case.

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with
the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as
the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse
to exercise either option and compel instead the owner of the building to remove it from the land. The raison
d’etre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good
faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the impracticability of creating
a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option
to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay
for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the
land who is authorized to exercise the option, because his right is older, and because, by the principle of
accession, he is entitled to the ownership of the accessory thing.

In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two options. It
may appropriate the new house by reimbursing respondent Angeles the current market value thereof minus
the cost of the old house. Under this option, respondent Angeles would have "a right of retention which
negates the obligation to pay rent." In the alternative, petitioner may sell the lots to respondent Angeles at a
price equivalent to the current fair value thereof. However, if the value of the lots is considerably more than
the value of the improvement, respondent Angeles cannot be compelled to purchase the lots. She can only be
obliged to pay petitioner reasonable rent.

C. QUIETING OF TITLE TO OR INTEREST IN AND REMOVAL OR PREVENTION OF CLOUD

OVER TITLE OR INTEREST IN REAL PROPERTY

JOAQUIN G. CHUNG, JR., PAZ ROYERAZ-SOLER, and MANSUETO MACEDA v. JACK DANIEL
MONDRAGON, (deceased), substituted by his sisters namely: TEOTIMA M. BOURBON, et. al.
G.R. No. 179754, November 21, 2012, Second Division, DEL CASTILLO, J.

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The issues in a case for quieting of title are fairly simple; the plaintiff need to prove only two things, namely: "(1)
the plaintiff or complainant has a legal or an equitable title to or interest in the real property subject of the
action; and (2) that the deed, claim, encumbrance or proceeding claimed to be casting a cloud on his title must
be shown to be in fact invalid or inoperative despite its prima facie appearance of validity or legal efficacy.

FACTS:

Petitioners Joaquin G. Chung, Jr., Paz Royeras-Soler, and Mansueto Maceda are descendants of Rafael
Mondragon (Rafael) by his first wife, Eleuteria Calunia (Eleuteria), while respondent Jack Daniel Mondragon
(Jack Daniel) is Rafael’s descendant by his second wife, Andrea Baldos (Andrea). Original Certificate of Title
(OCT) No. 224476 is registered in the name of “Heirs of Andrea Baldos represented by Teofila G. Maceda” and
covers a parcel of land in Macrohon, Southern Leyte. Petitioners claim that from 1921 up to 2000, Rafael
appeared as owner of the land in its tax declaration, and that a free patent was issued in 1987 in the name of
Andrea’s heirs upon application of Teofila G. Maceda (Teofila), who is petitioners’ sister.

On the other hand, respondents claim that Andrea is the exclusive owner of the land, having inherited the
same from her father Blas Baldos. They add that during Andrea’s lifetime, she conveyed a portion thereof to
one Crispina Gloria de Cano via a document written in the vernacular wherein she categorically stated that
she inherited the land from her father and she was the true and exclusive owner of the land; that after Andrea
died in 1955, her son Fortunato Mondragon took over, paying taxes thereon religiously; and when Fortunato
died, his son Jack Daniel (herein respondent) came into possession and enjoyment thereof. Sometime in 2000,
Jack Daniel sold a 1,500-square meter portion of the land to his co-respondent Clarinda Regis-Schmitz (Regis-
Schmitz).

On the claim that Jack Daniel had no right to sell a portion of the land and that the sale to Regis Schmitz
created a cloud upon their title, petitioners filed a civil case with a prayer that Jack Daniel be declared without
right to sell the land or a portion thereof; that their rights and those belonging to the legitimate heirs of Rafael
and Eleuteria be declared valid and binding against the whole world; and that the respondents be restrained
from creating a cloud upon OCT No. 22447.

ISSUE:

Whether or not the petitioners possess legal or equitable title to the land as to justify their filing of a case for
quieting of title.

RULING:

NO. The issues in a case for quieting of title are fairly simple; the plaintiff need to prove only two things,
namely: "(1) the plaintiff or complainant has a legal or an equitable title to or interest in the real property
subject of the action; and (2) that the deed, claim, encumbrance or proceeding claimed to be casting a cloud
on his title must be shown to be in fact invalid or inoperative despite its prima facie appearance of validity or
legal efficacy. Stated differently, the plaintiff must show that he has a legal or at least an equitable title over
the real property

It is evident from the title that the land belongs to no other than the heirs of Andrea Baldos, Rafael’s second
wife. The land could not have belonged to Rafael, because he is not even named in OCT No. 22447. With
greater reason may it be said that the land could not belong to petitioners, who are Rafael’s children by his
first wife Eleuteria. Unless Eleuteria and Andrea were related by blood – such fact is not borne out by the
record – they could not be heirs to each other. And if indeed Eleuteria and Andrea were blood relatives, then
petitioners would have so revealed at the very first opportunity. Moreover, the fact that Rafael died ahead of
Andrea, and that he is not even named in the title, give the impression that the land belonged solely to the
heirs of Andrea, to the exclusion of Rafael. If this were not true, then the title should have as registered owners
the "Heirs of Rafael and Andrea Mondragon", in which case the petitioners certainly would possess equitable
title, they being descendants-heirs of Rafael. Yet OCT No. 22447 is not so written.

Petitioners do not possess legal or equitable title to be land, such that the only recourse left for the trial court
was to dismiss the case.

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FELIZARDO T. GUNTALILIB v. AURELIO Y. DELA CRUZ and SALOME V. DELA CRUZ

G.R. No. 200042, July 7, 2016, Second Division, DEL CASTILLO, J.

The underlying objectives or reliefs sought in both the quieting-of-title and the annulment-of-title cases are
essentially the same - adjudication of the ownership of the disputed lot and nullification of one of the two
certificates of title.

FACTS:

Respondents Aurelio and Salome dela Cruz filed a Complaint for "Quieting of Titles; Annulment and
Cancellation of Unnumbered OCT /Damages," against· petitioner Felizardo Guntalilib and other heirs of
Bernardo (or Bernardino) Tumaliuan. The subject property Lot 421 was originally registered on August 29,
1916 as Original Certificate of Title No. 213. Respondent Aurelio's grandfather, Juan dela Cruz, later acquired
the property in 1919, and Transfer Certificate of Title (TCT) No. R-3 was issued in his name; when he passed
away, the property was inherited by Aurelio's father, Leonor, and, in lieu of TCT R-3, TCT 14202 was issued in
Leonor's favor. Later on, Leonor conveyed the property to Aurelio and his brother, Joseph, and TCT T- 46087
was then issued in their favor. In turn, Joseph waived ownership in favor of Aurelio by deed of quitclaim, in
which case a new title, TCT T-126545, was issued in Aurelio's name as sole owner.

Respondents alleged that petitioner filed in court a petition, docketed as LRC Case No. 6544 for reconstitution
or issuance of a new certificate of title in lieu of an allegedly lost unnumbered OCT which was issued on
August 29, 1916 in the name of petitioner's: predecessor, Bernardo Tumaliuan, and covering the very same
property, or Lot 421, which they owned; that said petition was eventually granted and the Register of Deeds
was ordered to issue another owner's duplicate copy of their predecessor's supposed unnumbered OCT; and
that said unnumbered OCT constituted a cloud upon their titles that must necessarily be removed.

Petitioner and his co-defendants filed a Motion to Dismisd arguing that the Complaint constituted a collateral
attack on their unnumbered OCT of Bernardo Tumaliuan and an unjustified interference with and assault on
the Decision of a co-equal court in LRC Case No. 6544.

ISSUE:

Whether or not the quieting of title case filed by respondents constitutes a prohibited collateral attack on the
unnumbered OCT.

RULING:

NO. The Court finds without merit petitioner's claim that respondents' quieting of title case constitutes a
prohibited attack on his predecessor Bernardo Tumaliuan's unnumbered OCT as well as the proceedings in
LRC Case No. 6544. It is true that "the validity of a certificate of title cannot be assailed in an action for
quieting of title; an action for annulment oftitle is the more appropriate, remedy to seek the cancellation of a
certificate of title." Indeed, it is settled that a certificate of title is not subject to collateral attack. However,
while respondents' action is denominated as one for quieting of title, it is in reality an action to annul and
cancel Bernardo Tumaliuan's unnumbered OCT. The allegations and prayer in their Amended Complaint
make out a case for annulment and cancellation of title, and not merely quieting of title: they claim that their
predecessor's OCT 213, which was issued on August 7, 1916, should prevail over Bernardo Tumaliuan's
unnumbered OCT which was issued only on August 29, 1916; that petitioner and his co-defendants have
knowledge of OCT 213 and their existing titles; that through fraud, false misrepresentations, and irregularities
in the proceedings for reconstitution (LRC Case No. 6544), petitioner was able to secure a copy of his
predecessor's supposed unnumbered OCT; and for these reasons, Bernardo Tumaliuan' s unnumbered OCT
should be cancelled. Besides, the case was denominated as one for "Quieting of Titles; Cancellation of
Unnumbered OCT/Damages."

It has been held that "the underlying objectives or reliefs sought in both the quieting-of-title and the
annulment-of-title cases are essentially the same - adjudication of the ownership of the disputed lot and
nullification of one of the two certificates of title." Nonetheless, petitioner should not have been so simplistic
as to think that Civil Case No. 6975 is merely a quieting of title case. It is more appropriate to suppose that
one of the effects of cancelling Bernardo Tumaliuan's unnumbered OCT would be to quiet title over Lot 421;
in this sense, quieting of title is subsumed in the annulment of title case.

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GIL MACALINO, JR., TERESITA MACALINO, et. al. v. ARTEMIO PIS-AN

G.R. No. 204056, June 1, 2016, Second Division, DEL CASTILLO, J.

In order that an action for quieting of title may prosper, it is essential that the plaintiff must have legal or
equitable title to, or interest in, the property which is the subject-matter of the action. Legal title denotes
registered ownership, while equitable title means beneficial ownership. In the absence of such legal or equitable
title, or interest, there is no cloud to be prevented or removed.

No one can give what one does not have. A seller can only sell what he or she owns, and a buyer can only acquire
what the seller can legally transfer.

FACTS:

Emeterio Jumento inherited Lot 3154 consisting of 469 square meters and located in Dumaguete City, Negros
Oriental. Subsequently, Emeterio also passed away. Meanwhile, the City of Dumaguete built in the 1950's a
barangay road which cut across said lot. As a result, Lot 3154 was divided into three portions, to wit: the
portion which was converted into a barangay road and the portions on both sides of said barangay road.
Sometime in the 1970's, Artemio, a grandson-in-law of Emeterio, commissioned a geodetic engineer to survey
Lot 3154 who came up with a sketch plan where the three portions of Lot 3154 were denominated as Lot 3154-
A (the portion on the left side of the road), Lot 3154-B (the portion which was converted into a barangay road),
and Lot 3154-C (the portion on the right side of the road). The sketch plan also revealed that the portion
occupied by Artemio, i.e., Lot 3154-A as enclosed by points 1, 2, 3, 4, 5, and 6,contained an area of 207 square
meters.

On May 3, 1995, Artemio and the other heirs of Emeterio executed an Extra Judicial Settlement of Estate and
Absolute Sale (Absolute Sale) adjudicating among themselves Lot 3154 and selling a 207-square meter portion
of the same to the spouses Wilfredo and Judith Sillero (spouses Sillero). The document, did not, however,
identify the portion being sold as Lot No. 3154-A but simply stated, “…a portion of the above-described parcel
of land [Lot 3154] which is TWO HUNDRED SEVEN (207) square meters…”

The spouses Sillero, immediately after the sale, fenced Lot No. 3154-A and built a house thereon. Not long
after, they sold Lot 3154-A to petitioner Gil Macalino, Jr. (Gil) by virtue of a Deed of Sale which states, “…the
TWO HUNDRED SEVEN (207) square meter (portion] of the above-described Lot 3154 which xx x portion is
now known as SUBLOT 3154-A…”

Intending to have Lot 3154-A registered in his name, Gil caused the survey of the same by a geodetic engineer
sometime in 1998. The engineer, however, discovered that the portion occupied by Gil consists of 140 square
meters only and not 207. Subsequently, the Land Management Bureau issued an approved Subdivision Plan
wherein Lot 3154 was subdivided into four sub-lots, to wit: (1) Lot 3154-A with an area of 140 square meters;
(2) Lot 3154-B or the existing barangay toad with an area of 215 square meters; (3) Lot 3154-C with an area of
67 square meters; and (4) Lot 3154-D with an area of 47 square meters. Notably, the Subdivision Plan which
was based on the survey conducted by Engr. Dorado refers not only to Lot 3154-A as Gil's property but also to
Lot 3154-C.

Petitioners claimed that the 207-square meter property sold by the spouses Sillero to Gil consists of Lot 3154-
A with an area of 140 square meters and Lot 3154-C with an area of 67 square meters. In February 2003,
however, Artemio built a pig pen on Lot 3154-C. When confronted by Gil, Artemio simply ignored him. Gil
thus brought the matter to the barangay but since conciliation proved futile, petitioners filed the said
Complaint in order to quiet their title over Lot 3154-C and seek for damages.

Petitioners, in order to further their case, rely on the failure of the Absolute Sale to state that the 207-square
meter portion conveyed by Artemio and his co-heirs to the spouses Sillero was Lot 3154-A. Artemio, on the
other hand, puts emphasis on the fact that the Deed of Sale between Gil and the spouses Sillero expressly
stated that the lot subject of the sale was Lot 3154-A only.

ISSUE:

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Whether or not petitioners has a legal title over Lot 3154-C to justify their right to file an action for quieting
of title.

RULING:

NO. Quieting of title is a common law remedy for the removal of any cloud upon or doubt or uncertainty with
respect to title to real property. In order that an action for quieting of title may prosper, it is essential that the
plaintiff must have legal or equitable title to, or interest in, the property which is the subject-matter of the
action. Legal title denotes registered ownership, while equitable title means beneficial ownership. In the
absence of such legal or equitable title, or interest, there is no cloud to be prevented or removed.

In this case, petitioners anchored their Complaint on their alleged legal title over Lot 3154-C which they do
not have. Since what the spouses Sillero bought from Artemio and his co-heirs was Lot 3154-A, it logically
follows that what they sold to Gil was the same and exact property. After all, ''no one can give what one does
not have. A seller can only sell what he or she owns, and a buyer can only acquire what the seller can legally
transfer."

Hence, the action for quieting of title is unavailable to petitioners.

DIONISIO MANANQUIL, LAUDENCIA MANANQUIL-VILLAMOR, ESTANISLAO MANANQUIL, and

DIANITA MANANQUIL-RABINO, represented by OTILLO RABINO v. ROBERTO MOICO
G.R. No. 180076, November 21, 2012, Second Division, DEL CASTILLO, J.

In order that an action for quieting of title may proper, it is essential that the plaintiff must have legal or
equitable title to, or interest in, the property which is the subject-matter of the action. Legal title denotes
registered ownership, while equitable title means beneficial ownership. In the absence of such legal or equitable
title, or interest, there is no cloud to be prevented or removed.

FACTS:

Lots 18 and 19 in Dagat-Dagatan, Navotas form part of the land previously expropriated by the National
Housing Authority (NHA) and placed under its Tondo Dagat-Dagatan Foreshore Development Project –
where occupants, applicants or beneficiaries may purchase lots on installment basis. Lot 18 was awarded to
spouses Iluminardo and Prescilla Mananquil under a Conditional Contract to Sell. Lot 19, on the other hand,
was sold to Prescilla in February 1980 by its occupant.

In 1991, Iluminardo and Prescilla died without issue, but it turned out that Prescilla had a child by a previous
marriage – namely Eulogio Francisco Maypa (Eulogio). After the spouses’ death, Iluminardo’s supposed heirs
(Mananquil heirs) – his brothers and sisters and herein petitioners Dionisio and Estanislao Mananquil
(Estanislao), Laudencia Mananquil-Villamor (Laudencia), and Dianita Mananquil-Rabino (Dianita) –
executed an Extrajudicial Settlement Among Heirs and adjudicated ownership over Lots 18 and 19 in favor of
Dianita. They took possession of Lots 18 and 19 and leased them out to third parties.

Sometime later, the Mananquil heirs discovered that in 1997, Eulogio and two others, Eulogio Baltazar Maypa
and Brenda Luminugue, on the claim that they are surviving heirs of Iluminardo and Prescilla, had executed
an Extrajudicial Settlement of Estate with Waiver of Rights and Sale, and a Deed of Absolute Sale in favor of
Roberto Moico (Moico).

In May 1997, Moico began evicting the Mananquils’ tenants and demolishing the structures they built on Lots
18 and 19. In June, the Mananquils a civil case for quieting of title and injunctive relief.

On quieting of title, petitioners Mananquil heirs advance the view that since they are the legal heirs of
Iluminardo Mananquil, then they possess the requisite legal or equitable title or interest in Lots 18 and 19,
which thus permits them to pursue Civil Case No. 2741-MN; whatever rights Iluminardo had over the lots
were transmitted to them from the moment of his death, per Article 777 of the Civil Code. And among these
rights are the rights to continue with the amortizations covering Lots 18 and 19, as well as to use and occupy
the same; their interest as successors-in-interest, though imperfect, is enough to warrant the filing of a case
for quieting of title to protect these rights.

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ISSUE:

Whether or not the case for quieting of title shall prosper.

RULING:

NO. For an action to quiet title to prosper, two indispensable requisites must concur, namely: (1) the plaintiff
or complainant has a legal or an equitable title to or interest in the real property subject of the action; and (2)
the deed, claim, encumbrance, or proceeding claimed to be casting cloud on his title must be shown to be in
fact invalid or inoperative despite its prima facie appearance of validity or legal efficacy.

The issue relating to the grant of rights, title or award by the NHA determines whether the case for quieting
of title may be maintained. If the petitioners are legitimate successors to or beneficiaries of Iluminardo upon
his death – under the certificate of title, award, or grant, or under the special law or specific terms of the NHA
program/project – then they possess the requisite interest to maintain suit; if not, then Civil Case No. 2741-
MN must necessarily be dismissed.

From the evidence adduced, it appears that the petitioners have failed to show their qualifications or right to
succeed Iluminardo in his rights under the NHA program/project. They failed to present any title, award,
grant, document or certification from the NHA or proper government agency which would show that
Iluminardo and Prescilla have become the registered owners/beneficiaries/ awardees of Lots 18 and 19, or that
petitioners are qualified successors or beneficiaries under the Dagat-Dagatan program/project, taking over
Iluminardo’s rights after his death. For this reason, their rights or interest in the property could not be
established.

Petitioners should have shown, to the satisfaction of the courts that under the NHA program project
governing the grant of Lots 18 and 19, they are entitled and qualified to succeed or substitute for Iluminardo
in his rights upon his death. As earlier stated, this takes the form of evidence apart from proof of heirship, of
course – of the specific law, regulation or terms covering the program/project which allows for a substitution
or succession of rights in case of death; the certificate of title, award or grant itself; or the testimony of
competent witnesses from the NHA.

Proof of heirship alone does not suffice; the Mananquils must prove to the satisfaction of the courts that they
have a right to succeed Iluminardo under the law or terms of the NHA project, and are not disqualified by
non-payment, prohibition, lack of qualifications, or otherwise.

D. CO-OWNERSHIP

ANTIPOLO INING (DECEASED), SURVIVED BY MANUEL VILLANUEVA, et. al. v. LEONARDO R.

VEGA, SUBSTITUTED BY LOURDES VEGA, et. al.
G.R. No. 174727, August 12, 2013, Second Division, DEL CASTILLO, J.

One who is merely related by affinity to the decedent does not inherit from the latter and cannot become a co-
owner of the decedent’s property. Consequently, he cannot effect a repudiation of the co-ownership of the estate
that was formed among the decedent’s heirs.

A co-owner cannot acquire by prescription the share of the other co-owners, absent any clear repudiation of the
co-ownership. In order that the title may prescribe in favor of a co-owner, the following requisites must concur:
(1) the co-owner has performed unequivocal acts of repudiation amounting to an ouster of the other co-owners;
(2) such positive acts of repudiation have been made known to the other co-owners; and (3) the evidence thereof
is clear and convincing.

FACTS:

Leon Roldan (Leon), married to Rafaela Menez (Rafaela), is the owner of a 3,120-square meter parcel of land
(subject property). Leon and Rafaela died without issue. Leon was survived by his siblings Romana Roldan
(Romana) and Gregoria Roldan Ining (Gregoria), who are now both deceased.

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Romana was survived by her daughter Anunciacion Vega and grandson, herein respondent Leonardo R. Vega
(Leonardo) (also both deceased). Leonardo in turn is survived by his wife Lourdes and children Restonilo I.
Vega, Crispulo M. Vega, Milbuena Vega-Restituto and Lenard Vega, the substituted respondents.

Gregoria, on the other hand, was survived by her six children: petitioners Natividad Ining-Ibea (Natividad),
Dolores Ining-Rimon (Dolores), Antipolo, and Pedro; Jose; and Amando. Natividad is survived by Edilberto
Ibea, Josefa Ibea, Martha Ibea, Carmen Ibea, Amparo Ibea-Fernandez, Henry Ruiz and Pastor Ruiz. Dolores is
survived by Jesus Rimon, Cesaria Rimon Gonzales and Remedios Rimon Cordero. Antipolo is survived by
Manuel Villanueva, daughter Teodora Villanueva-Francisco (Teodora), Camilo Francisco (Camilo), Adolfo
Francisco (Adolfo), Lucimo Francisco, Jr. (Lucimo Jr.), Milagros Francisco, Celedonio Francisco, and
Herminigildo Francisco (Herminigildo). Pedro is survived by his wife, Elisa Tan Ining and Pedro Ining, Jr.
Amando died without issue. As for Jose, it is not clear from the records if he was made party to the
proceedings, or if he is alive at all.

In short, herein petitioners, except for Ramon Tresvalles (Tresvalles) and Roberto Tajonera (Tajonera), are
Gregoria’s grandchildren or spouses thereof (Gregoria’s heirs).

On February 9, 1979, Lucimo Sr. executed an Affidavit of Ownership of Land claiming sole ownership of the
property.

In 1997, acting on the claim that one-half of subject property belonged to him as Romana’s surviving heir,
Leonardo filed with the Regional Trial Court (RTC) for partition, recovery of ownership and possession, with
damages, against Gregoria’s heirs.

In their Answer with counterclaim, Teodora, Camilo, Adolfo, Lucimo Jr. and Herminigildo claimed that
Leonardo had no cause of action against them; that they have become the sole owners of the subject property
through Lucimo Sr. who acquired the same in good faith by sale from Juan Enriquez (Enriquez), who in turn
acquired the same from Leon, and Leonardo was aware of this fact.

The trial court found the April 4, 1943 and November 25, 1943 deeds of sale to be spurious. It concluded that
Leon never sold the property to Enriquez, and in turn, Enriquez never sold the property to Lucimo Sr., hence,
the subject property remained part of Leon’s estate at the time of his death in 1962. Leon’s siblings, Romana
and Gregoria, thus inherited the subject property in equal shares. Leonardo and the respondents are entitled
to Romana’s share as the latter’s successors.

However, the trial court held that Leonardo had only 30 years from Leon’s death in 1962 – or up to 1992 –
within which to file the partition case. Since Leonardo instituted the partition suit only in 1997, the same was
already barred by prescription. It held that under Article 1141 of the Civil Code, an action for partition and
recovery of ownership and possession of a parcel of land is a real action over immovable property which
prescribes in 30 years. In addition, the trial court held that for his long inaction, Leonardo was guilty of laches
as well. Consequently, the property should go to Gregoria’s heirs exclusively.

ISSUE:

Whether the action for partition has already prescribed vis-à-vis whether or not the repudation was done by
a co-owner.

RULING:

NO. Since Leon died without issue, his heirs are his siblings, Romana and Gregoria, who thus inherited the
property in equal shares. In turn, Romana’s and Gregoria’s heirs – the parties herein – became entitled to the
property upon the sisters’ passing. Under Article 777 of the Civil Code, the rights to the succession are
transmitted from the moment of death.

Gregoria’s and Romana’s heirs are co-owners of the subject property.

Thus, having succeeded to the property as heirs of Gregoria and Romana, petitioners and respondents became
co-owners thereof. As co-owners, they may use the property owned in common, provided they do so in
accordance with the purpose for which it is intended and in such a way as not to injure the interest of the co-

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ownership or prevent the other co-owners from using it according to their rights. They have the full ownership
of their parts and of the fruits and benefits pertaining thereto, and may alienate, assign or mortgage them,
and even substitute another person in their enjoyment, except when personal rights are involved. Each co-
owner may demand at any time the partition of the thing owned in common, insofar as his share is
concerned. Finally, no prescription shall run in favor of one of the co-heirs against the others so long as he
expressly or impliedly recognizes the co-ownership.

For prescription to set in, the repudiation must be done by a co-owner.

Time and again, it has been held that "a co-owner cannot acquire by prescription the share of the other co-
owners, absent any clear repudiation of the co-ownership. In order that the title may prescribe in favor of a
co-owner, the following requisites must concur: (1) the co-owner has performed unequivocal acts of
repudiation amounting to an ouster of the other co-owners; (2) such positive acts of repudiation have been
made known to the other co-owners; and (3) the evidence thereof is clear and convincing."

From the foregoing pronouncements, it is clear that the trial court erred in reckoning the prescriptive period
within which Leonardo may seek partition from the death of Leon in 1962. Article 1141 and Article 494 (fifth
paragraph) provide that prescription shall begin to run in favor of a co-owner and against the other co-owners
only from the time he positively renounces the co-ownership and makes known his repudiation to the other
co-owners.

Lucimo Sr. challenged Leonardo’s co-ownership of the property only sometime in 1979 and 1980, when the
former executed the Affidavit of Ownership of Land, obtained a new tax declaration exclusively in his name,
and informed the latter – before the Lupon Tagapamayapa – of his 1943 purchase of the property. These
apparent acts of repudiation were followed later on by Lucimo Sr.’s act of withholding Leonardo’s share in the
fruits of the property, beginning in 1988, as Leonardo himself claims in his Amended Complaint. Considering
these facts, the CA held that prescription began to run against Leonardo only in 1979 – or even in 1980 – when
it has been made sufficiently clear to him that Lucimo Sr. has renounced the co-ownership and has claimed
sole ownership over the property. The CA thus concluded that the filing of Civil Case No. 5275 in 1997, or just
under 20 years counted from 1979, is clearly within the period prescribed under Article 1141.

What escaped the trial and appellate courts’ notice, however, is that while it may be argued that Lucimo Sr.
performed acts that may be characterized as a repudiation of the co-ownership, the fact is, he is not a co-
owner of the property. Indeed, he is not an heir of Gregoria; he is merely Antipolo’s son-in-law, being married
to Antipolo’s daughter Teodora. Under the Family Code, family relations, which is the primary basis for
succession, exclude relations by affinity. Under Article 150 of the Family Code, family relations include those
(1) Between husband and wife; (2) Between parents and children; (3) Among other ascendants and
descendants; and (4) Among brothers and sisters, whether of the full or half blood. In point of law, therefore,
Lucimo Sr. is not a co-owner of the property; Teodora is. Consequently, he cannot validly effect a repudiation
of the co-ownership, which he was never part of. For this reason, prescription did not run adversely against
Leonardo, and his right to seek a partition of the property has not been lost.

E. POSSESSION

Spouses FERNANDO and ANGELINA EDRALIN v. PHILIPPINE VETERANS BANK

G.R. No. 168523, March 9, 2011, First Division, DEL CASTILLO, J.

The right to possess a property follows the right of ownership; consequently, it would be illogical to hold that a
person having ownership of a parcel of land is barred from seeking possession thereof.

FACTS:

Respondent Philippine Veterans Bank (Veterans Bank) granted petitioner spouses Fernando and Angelina
Edralin (Edralins) a loan in the amount of Two Hundred Seventy Thousand Pesos (₱270,000.00). As security
thereof, petitioners executed a Real Estate Mortgage (REM) in favor of Veterans Bank over a real property
registered in the name of petitioner Fernando Edralin. Since the Edralins failed to pay their obligation to
Veterans Bank, the latter filed a Petition for Extrajudicial Foreclosure of the REM.

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In due course, the foreclosure sale was wherein the Veterans Bank emerged as the highest bidder and was
issued the corresponding Certificate of Sale which was registered with the Registry of Deeds. Upon the
Edralins’ failure to redeem the property during the one-year period provided under Act No. 3135, Veterans
Bank acquired absolute ownership of the subject property. Consequently, Veterans Bank caused the
consolidation of ownership of the subject property in its name.

Despite the foregoing, the Edralins failed to vacate and surrender possession of the subject property to
Veterans Bank. Thus, the Veterans Bank filed an Ex-Parte Petition for the Issuance of a Writ of Possession
before the Regional Trial Court (RTC).

Petitioners argue that Veterans Bank is not entitled to a writ of possession because it failed to properly
consolidate its title over the subject property. They maintain that the Deed of Sale executed by the Veterans
Bank in the bank’s own favor during the consolidation of title constitutes a pactum commissorium, which is
prohibited under Article 2088 of the Civil Code.Respondent contends that petitioners never questioned the
validity of the foreclosure proceedings or the auction sale. The failure to do so resulted in the ripening of the
consolidation of ownership.

Petitioners also assail the CA’s ruling that the issuance of a writ of possession does not prescribe. They
maintain that Articles 1139, 1149, and 1150 of the Civil Code regarding prescriptive periods cover all kinds of
action, which necessarily include the issuance of a writ of possession.

ISSUES:

1. Whether the consolidation of ownership of the extrajudicially foreclosed property through a Deed of Sale
is in accordance with law.

2. Whether the issuance of a writ of possession under Act [No.] 3135 is subject to the statute of limitations

RULING:

1. YES. There is no merit in petitioners’ argument. Pactum commissorium is "a stipulation empowering the
creditor to appropriate the thing given as guaranty for the fulfillment of the obligation in the event the obligor
fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a public
sale." "The elements of pactum commissorium, which enable the mortgagee to acquire ownership of the
mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a property
mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation
for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal
obligation within the stipulated period."

The second element is missing to characterize the Deed of Sale as a form of pactum commissorium. Veterans
Bank did not, upon the petitioners’ default, automatically acquire or appropriate the mortgaged property for
itself. On the contrary, the Veterans Bank resorted to extrajudicial foreclosure and was issued a Certificate of
Sale by the sheriff as proof of its purchase of the subject property during the foreclosure sale. That Veterans
Bank went through all the stages of extrajudicial foreclosure indicates that there was no pactum
commissorium.

2. NO. We have held before that the purchaser’s right "to request for the issuance of the writ of possession of
the land never prescribes." "The right to possess a property merely follows the right of ownership," and it
would be illogical to hold that a person having ownership of a parcel of land is barred from seeking possession
thereof.

Moreover, the provisions cited by petitioners refer to prescription of actions which does not apply to a petition
for the issuance of a writ for it is not an ordinary action filed in court, by which one party ‘sues another for
the enforcement or protection of a right, or prevention or redress of a wrong. It is instead in the nature of an
ex parte motion in which the court hears only one side. It is taken or granted at the instance and for the
benefit of one party, and without notice to or consent by any party adversely affected.

ROGELIO J. JAKOSALEM and GODOFREDO B. DULFO v. ROBERTO S. BARANGAN

G.R. No. 175025, February 15, 2012, Fist Division, DEL CASTILLO, J.

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In an action to recover, the property must be identified, and the plaintiff must rely on the strength of his title
and not on the weakness of the defendant’s claim." In other words, in order to recover possession, a person must
prove (1) the identity of the land claimed, and (2) his title.

FACTS:

On August 13, 1966, respondent Col. Roberto S. Barangan (respondent Barangan) entered into a Land Purchase
Agreement with Ireneo S. Labsilica of Citadel Realty Corporation whereby respondent Barangan agreed to
purchase a parcel of land, covered by Transfer Certificate of Title (TCT) No. 165456, located in Antipolo, Rizal.
Upon full payment of the purchase price, a Deed of Absolute Sale was executed on August 31, 1976 in his favor
Consequently, the old title, TCT No. 171453, which was a transfer from TCT No. 165456, was cancelled and a
new one, TCT No. N-10772, was issued in his name. Since then, he has been dutifully paying real property
taxes for the said property. He was not, however, able to physically occupy the subject property because as a
member of the Philippine Air Force, he was often assigned to various stations in the Philippines.

On December 23, 1993, when he was about to retire from the government service, respondent Barangan went
to visit his property, where he was planning to build a retirement home. It was only then that he discovered
that it was being occupied by petitioner Godofredo Dulfo (petitioner Dulfo) and his family.

ISSUE:

Whether Barangan is entitled to the subject property.

RULING:

YES.Article 434 of the Civil Code provides that "in an action to recover, the property must be identified, and
the plaintiff must rely on the strength of his title and not on the weakness of the defendant’s claim." In other
words, in order to recover possession, a person must prove (1) the identity of the land claimed, and (2) his
title.

In this case, respondent Barangan was able to prove the identity of the property and his title. To prove his
title to the property, he presented in evidence the following documents: (1) Land Purchase Agreement;(2)
Deed of Absolute Sale;(3) and a Torrens title registered under his name, TCT No. N-10772.To prove the identity
of the property, he offered the testimonies of Engr. Jonco, who conducted the relocation survey, and Estardo,
the caretaker of the subdivision, who showed respondent Barangan the exact location of the subject
property.He likewise submitted as evidence the Verification Survey Plan of Lot 11, Block 5, (LRC) Psd-60846,
which was plotted based on the technical description appearing on respondent Barangan’s title.

PHILIPPINE NATIONAL BANK v. CIRIACO JUMAMOY and HEIRS OF ANTONIO GO PACE,

represented by ROSALIA PACE
G.R. No. 169901, August 3, 2011, First Division, DEL CASTILLO, J.

A person claiming to be the owner of a property who is in actual possession thereof have the right to seek
reconveyance, which in effect seeks to quiet title to the property, which does not prescribe. The reason for this is
that one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his
possession is disturbed or his title is attacked before taking steps to vindicate his right.

FACTS:

The Regional Trial Court, Branch 19, of Digos City rendered a Decisionin a case for Reconveyance and
Damages, ordering the exclusion of 2.5002 hectares from Lot 13521 after it found that said 2.5002 hectares
which is part of Lot 13521, a 13,752-square meter parcel of land covered by Original Certificate of Title (OCT)
No. P-4952 registered in the name of Antonio Go Pace (Antonio) actually pertains to Sesinando Jumamoy
(Sesinando), Ciriaco’s predecessor-in-interest. The RTC found that said lot was erroneously included in
Antonio’s free patent application which became the basis for the issuance of his OCT. It then ordered the
heirs of Antonio (the Paces [represented by Rosalia Pace (Rosalia)]) to reconvey said portion to Ciriaco. In so
ruling, the RTC acknowledged Ciriaco’s actual and exclusive possession, cultivation, and claim of ownership

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over the subject lot which he acquired from his father Sesinando, who occupied and improved the lot way
back in the early 1950s.

The RTC Decision became final and executory but the Deed of Conveyance issued in favor of Ciriaco could
not be annotated on OCT No. P-4952 since said title was already cancelled. Apparently, Antonio and his wife
Rosalia mortgaged Lot 13521 to PNB as security for a series of loans. After Antonio and Rosalia failed to pay
their obligation, PNB foreclosed the mortgage and title to Lot 13521 was transferred to PNB under Transfer
Certificate of Title (TCT) No.T-23063.

Thus, Ciriaco filed the instant complaint against PNB and the Paces for Declaration of Nullity of Mortgage,
Foreclosure Sale, Reconveyance and Damages. In his complaint, Ciriaco averred that Antonio could not validly
mortgage the entire Lot 13521 to PNB as a portion thereof consisting of 2.5002 hectares belongs to him
(Ciriaco), as already held in a civil case theat has become final and executory. He claimed that PNB is not an
innocent mortgagee/purchaser for value because prior to the execution and registration of PNB’s deed of sale
with the Register of Deeds, the bank had prior notice that the disputed lot is subject of a litigation. In fact,
during the pendency of the said case, a notice of lis pendens was annotated at the back of OCT No. P-4952.
PNB, on the other hand, claims that an action for reconveyance prescribes in four years if based on fraud, or,
10 years if based on an implied trust, both to be counted from the issuance of OCT No. P-4952 in July 1971
which constitutes as a constructive notice to the whole world. Either way, Ciriaco’s action had already
prescribed since it took him 17 years to file the complaint for reconveyance.

ISSUES:

1. Whether or not PNB is an innocent purchaser/ mortgagee for value.

2. Whether or not PNB’s defense of prescription against Ciriaco shall lie.

RULING:

1. NO. An innocent purchaser for value, defined as "one who buys the property of another, without notice
that some other person has a right or interest in such property and pays the full price for the same, at the time
of such purchase or before he has notice of the claims or interest of some other person in the property. An
"innocent purchaser for value" includes an innocent lessee, mortgagee, or other encumbrancer for value.

It is undisputed that the 2.5002-hectare portion of the mortgaged property has been adjudged in favor of
Ciriaco’s predecessor-in-interest in Civil Case No. 2514. Hence, PNB has the burden of evidence that it acted
in good faith from the time the land was offered as collateral. However, PNB miserably failed to overcome
this burden. There was no showing at all that it conducted an investigation; that it observed due diligence
and prudence by checking for flaws in the title; that it verified the identity of the true owner and possessor of
the land; and, that it visited subject premises to determine its actual condition before accepting the same as
collateral. A banking institution is expected to exercise due diligence before entering into a mortgage contract.
The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard
and indispensable part of its operations.

2. NO. A person claiming to be the owner thereof is in actual possession of the property, as the defendants
are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does
not prescribe. The reason for this is that one who is in actual possession of a piece of land claiming to be the
owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate
his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek
the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its
effect on his own title, which right can be claimed only by one who is in possession. In Ciriaco’s case, as it has
been judicially established that he is in actual possession of the property he claims as his and that he has a
better right to the disputed portion, his suit for reconveyance is in effect an action for quieting of title. Hence,
petitioner’s defense of prescription against Ciriaco does not lie.

If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from whom the property comes. An action for
reconveyance based on implied trust prescribes in 10 years as it is an obligation created by law,to be counted

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from the date of issuance of the Torrens title over the property.This rule, however, applies only when the
plaintiff or the person enforcing the trust is not in possession of the property.

1. EFFECTS OF POSSESSION

SUBIC BAY LEGEND RESORTS AND CASINOS, INC. v. BERNARD C. FERNANDEZ

G.R. No. 193426, September 24, 2014, Second Division, DEL CASTILLO, J.:

Article 559 of the Civil Code provides for legal presumption of title of possessor of the personal property. IfSubic
Bay cannot prove its loss and that the confiscated chips, now in its possession, were stolen from it, then Article
559 cannot apply in its favor.

FACTS:

Subic Bay Legend Resorts and Casinos, Inc. (Subic Bay) operates the Legenda Hotel and Casino (Legenda)
located in the Subic Bay Freeport Zone in Zambales. On the other hand,Bernard C. Fernandez (Fernandez) is
the plaintiff in Civil Case No. 237-0-97 prosecuted against Subic Bay.

The brother of Fernandez, Ludwin, visited the Legenda Hotel and Casino. Legenda admitted that its
surveillance staff paid close attention to Ludwin simply because it was unusual for a Filipino to play using
dollar-denominated chips. Unknow to Ludwin, he was already closely watched when he went with another
brother, Deoven, to the casino. After playing only one round of baccarat, the siblings had their chips encashed
at two separate windows. Since the cashiers were apprised of a supposed irregularity, they "froze" the
transaction. Ludwin and Deoven were held for hours, ordered to return the cash and to confess that a certain
Cabrera gave them the chips. The brothers succumbed to Legenda's instruction to execute a joint statement
implicating Cabrera as the illegal source of the chips. This led to the filing of civil case for recovery of sum of
money with damages against Subic Bay alleging that the latter unduly and illegally confiscated his casino
chips equivalent to US$5,900.00 and that Subic Bay refused and continues to refuse to return the same to him
despite demand. His Complaintprayed for the return of the casino chips and an award of damages. For Subic
Bay’s defense, it claimed that Fernandez had no cause of action since the confiscated casino chips worth
US$5,900.00 were stolen from it, and thus it has the right to retain them. By way of counterclaim, it sought
an award of damages.

RTC granted the prayer to return the chips and pay damages. It held that there is no dispute that the subject
chips were in the possession of Fernandez as he claims to get hold of them as payment for car services he
rendered to a Chinese individual. There is no direct evidence to rebut the legal presumption provided in
Article 559 of the Civil Code that a person in possession of personal property is the lawful owner of the same.
On appeal, CA affirmed the decision ruling that Fernandez had the legal presumption of title to or ownership
of the casino chips. Since he is the owner, he could have given them to his brothers, who likewise held the
chips as possessors in good faith.

ISSUE:

Whether or not Fernandez is the lawful owner of the subject chips.

RULING:

YES. In the case, there appears to be no evidence on record, other than mere allegations and suppositions,
that certain Cabrera stole the casino chips in question and for Subic Bay to use the same as foundation to the
claim that Ludwin, Deoven and Fernandez are dealing in stolen chips is clearly irregular and unfair.If Subic
Bay cannot prove its loss and that the confiscated chips, now in its possession, were stolen from it, then Article
559 cannot apply in its favor. In resolving the ownership of the chips in possession of Fernandez, who allowed
it to be played by his brothers, the Court noted that though casino chips do not constitute legal tender, there
is no law which prohibits their use or trade outside of the casino which issues them. In any case, it is not
unusual nor is it unlikely that Fernandez could be paid by his Chinese client at the former's car shop with the
casino chips in question; said transaction, if not common, is nonetheless not unlawful. Given this premise,
that casino chips are considered to have been exchanged with their corresponding representative value, it is
with more reason that this Court should require Subic Bay to prove convincingly and persuasively that the
chips it confiscated from Ludwin and Deoven were indeed stolen from it.

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F. EASEMENTS

NAGA CENTRUM, INC., represented by AIDA KELLY YUBUCO v. SPOUSES RAMON J. ORZALES and
NENITA F. ORZALES
G.R. No. 203576, September 14, 2016, Second Division, DEL CASTILLO, J.

To be entitled to an easement of right of way, the following requisites should be met: (1) An immovable is
surrounded by other immovables belonging to other persons, and is without adequate outlet to a public highway;
(2) Payment of proper indemnity by the owner of the surrounded immovable; (3) The isolation of the immovable
is not due to its owner’s acts; and (4) The proposed easement of right of way is established at the point least
prejudicial to the servient estate, and insofar as consistent with this rule, where the distance of the dominant
estate to a public highway may be the shortest.

FACTS:

The respondent spouses Ramon Orzales and Nenita Orzales (spouses Orzales) own a house and lot situated
at No. 28-B Valentin Street, Sabang, Naga City which is surrounded on the North by the property of Aurora
dela Cruz; on the West, by the property of Bernardo Tawagon; and on the East and South, by the property of
the petitioner Naga Centrum Inc. represented by Aida Kelly Yubuco.The respondents alleged that when they
acquired their property in 1965, their access to the public highway (Valentin Street) was through Rizal Street,
which forms part of a property now owned by the petitioner. But when the squatters inhabiting said place
were evicted, the petitioner caused Rizal Street to be closed by enclosing its property with a concrete fence.
Although the respondents were allowed to pass through the steel gate of the petitioner, the same is subject
to the schedule set by the latter. This prompted respondents to ask for a permanent right of way through the
intervention of the court.

Petitioner argues that since respondents are at fault for failing to secure a right of way from the seller when
they bought the property knowing that it was surrounded by private properties and thus had no means of
ingress and egress, then petitioner should not be obliged to provide the easement; that on account of Article
649 of the Civil Code, which provides in part that “easement is not compulsory if the isolation of the
immovable is due to the proprietor’s own acts,” respondents cannot demand an easement since they are
responsible for isolating their property from the highway; that if an easement should be established, it ought
to be on Estela and Dela Cruz’s properties, which are nearest to the highway and were freely used in the past
by respondents owing to the fact that Estela and Dela Cruz are respondents’ aunts; and that since they
(petitioners) erected permanent structures on the appointed right of way while the case is pending, then the
parties should negotiate a different location therefor.

ISSUE:

Whether or not the respondents have the right to demand right of way.

RULING:

YES.To be entitled to an easement of right of way, the following requisites should be met: (1) An immovable
is surrounded by other immovables belonging to other persons, and is without adequate outlet to a public
highway; (2) Payment of proper indemnity by the owner of the surrounded immovable; (3) The isolation of
the immovable is not due to its owner’s acts; and (4) The proposed easement of right of way is established at
the point least prejudicial to the servient estate, and insofar as consistent with this rule, where the distance
of the dominant estate to a public highway may be the shortest.

In this case, respondents may not be blamed for the isolation they are now suffering. By its very location, their
property is isolated, and this is not their fault. Suffice it to say further that the Court agrees with the findings
of the lower courts that the closure of Rizal Street by the petitioner caused their property to be isolated. On
the claim that respondents should seek a right of way from Estela and Dela Cruz instead, the Court finds this
to be unnecessary. As they are, Dela Cruz’s 116-square meter lot and Estela’s 90-square meter lot are not
sizeable enough to accommodate a road right of way for respondents; besides, their homes almost entirely
cover their lots, such that there is none left for a road. On the other hand, petitioner’s land is large enough,

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at 19,000 square meters; a reduction thereof by 40 square meters – 2 meters wide by 20 meters long for
respondents’ road right of way, would hardly be felt by it.

Significantly, respondents have been using Rizal Street for so long; petitioner knew of this, and it even granted
access to respondents. At the very least, respondents have been using Rizal Street for 23 years (or from 1980
up to 2003). While petitioner may have allowed access by the informal settlers to Rizal Street through
tolerance, the same cannot be said of respondents; they are not informal settlers on petitioner’s land. Every
buyer of a registered land who takes a certificate of title for value and in good faith shall hold the same free
of all encumbrances except those noted on said certificate. It has been held, however, that ‘where the party
has knowledge of a prior existing interest that was unregistered at the time he acquired a right to the same
land, his knowledge of that prior unregistered interest has the effect of registration as to him.’

On a final note, while this was pending, petitioner deliberately blocked respondents’ access to Rizal Street by
constructing a building thereon, dumping filling materials and junk on the main gate of respondents’ home,
making it difficult and inconvenient, if not humiliating, for respondents to traverse the path to and from their
home. The Court cannot therefore accept petitioner's argument that since there are permanent structures
already erected on the appointed right of way, then the parties should negotiate a different location therefor.
To allow this would be tantamount to rewarding malice, cunning, and bad faith. Quite the contrary, petitioner
deserves a lesson in not trifling with the rights of others, the law, and the courts. A party cannot be allowed
to influence and manipulate the courts' decisions by performing acts upon the disputed property during the
pendency of the case, which would allow it to achieve the objectives it desires.

DEMETRIA DE GUZMAN, AS SUBSTITUTED BY HER HEIR OLGA C. BARBASO, et. al. v. FILINVEST
DEVELOPMENT CORPORATION
G.R. No.191710, January 14, 2015, Second Division, DEL CASTILLO, J.

It is the needs of the dominant estate which determines the width of the passage and this serves as basis in fixing
the value of the land as part of the proper indemnity.

FACTS:

Petitioners were co-owners in fee simple of a parcel of land measuring 15,063 square meters and situated in
Barrio Bulao, Cainta, Rizal, which was later subdivided among them and for which individual titles were
issued. The property is enclosed and surrounded by other real properties belonging to various owners. One
of its adjoining properties is Filinvest Home Subdivision Phase IV-A, a subdivision owned and developed by
respondent Filinvest Development Corporation which, coming from petitioners' property, has a potential
direct access to Marcos highway either by foot or vehicle. As such, petitioners filed a Complaint for Easement
of Right of Way against respondent before the Regional Trial Court of Antipolo.

Unwilling to grant petitioners a right of way within its subdivision, respondent alleged in its Answer that
petitioners have an access to Sumulong Highway through another property adjoining the latter's property.

Affirming the trial court’s grant of right of way, the appellate court interpreted the trial court’s Decision that
what was actually granted to petitioners as a right of way from their property all the way to Marcos Highway
had an approximate distance of 2,350 meters. Hence, the proper indemnity, per the case of Woodridge School,
Inc. v. ARB Construction Co., Inc. should consist of the value of the entire stretch of the right of way, which
measures2,350 meters in length and 10 meters in width or of a total area of 23,500 square meters at a price of
₱1,620.00 a square meter, plus damages caused to the servient estate.

ISSUE:

Assuming that the subject right of way pertains to the road network in respondent's subdivision, whether or
not the appellate court is correct in its assessment of indemnity.

RULING:

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NO. The Court deems it necessary to modify the width of the easement which would serve as basis in fixing
the value of the land as part of the proper indemnity.

Article 651 of the Civil Code provides, “The width of the easement of right of way shall be that which is
sufficient for the needs of the dominant estate and may accordingly be changed from time to time.” According
to Senator Arturo M. Tolentino, it is the needs of the dominant tenement which determine the width of the
passage. As mentioned, the right of way constituting the easement in this case consists of existing and
developed network of roads. This means that in their construction, the needs of the dominant estate were not
taken into consideration precisely because they were constructed prior to the grant of the right of way. During
the remand proceedings, it was established that the width of the affected roads is 10 meters. Multiplied by the
distance of 2,350 meters, the total area to be indemnified is 23,500 square meters and at a price of ₱1,620.00
per square meter, petitioners must pay respondent the whopping amount of ₱38,070,000.00 for the value of
the land. Under the circumstances, the Court finds it rather iniquitous to compute the proper indemnity
based on the 10-meter width of the existing roads. To stress, it is the needs of the dominant estate which
determines the width of the passage. And per their complaint, petitioners were simply asking for adequate
vehicular and other similar access to the highway. To the Court's mind, the 10-meter width of the affected
road lots is unnecessary and inordinate for the intended use of the easement. At most, a 3-meter wide right
of way can already sufficiently meet petitioners' need for vehicular access. It would thus be unfair to assess
indemnity based on the 10-meter road width when a three-meter width can already sufficiently answer the
needs of the dominant estate. Therefore, bearing in mind Article 651, the Court finds proper a road width of
3 meters in computing the proper indemnity. Thus, multiplying the road length of 2,350 meters by a road
width of 3 meters, the total area to be indemnified is 7,050 square meters. At a value of ₱1,620.00 per square
meter, the total value of the land to form part of the indemnity amounts to ₱11,421,000.00. It must be made
clear, however, that despite their payment of the value of the land on the basis of a three-meter road width
or basically for a one-way traffic road only, petitioners must be allowed to use the roads within respondent's
subdivision based on the existing traffic patterns so as not to disrupt the traffic flow therein.

In addition, the Court takes judicial notice that subdivision residents are paying monthly dues for purposes
of road maintenance, security, garbage collection, use and maintenance of other subdivision facilities, etc. In
view of the fact that the road lots affected would be used by the dominant estate in common with the
subdivision residents, the Court deems reasonable to require petitioners to pay the homeowner's association
in respondent's subdivision, by way of monthly dues, an amount equivalent to half of the rate of the monthly
dues that the subdivision residents are being assessed. This shall serve as petitioners' share in the maintenance
of the affected road lots.

G. DONATIONS

CHARLES BUMAGAT, JULIAN BACUDIO, ROSARIO PADRE, SPOUSES ROGELIO and ZOSIMA
PADRE, and FELIPE DOMINCIL v. REGALADO ARRIBAY
G.R. No. 194818, June 9, 2014, Second Division, DEL CASTILLO, J.

A case involving agricultural land does not immediately qualify it as an agrarian dispute. The mere fact that the
land is agricultural does not ipso facto make the possessor an agricultural lessee or tenant; there are conditions
or requisites before he can qualify as an agricultural lessee or tenant, and the subject matter being agricultural
land constitutes simply one condition. In order to qualify as an agrarian dispute, there must likewise exist a
tenancy relation between the parties.

Non-registration of a deed of donation does not bind other parties ignorant of a previous transaction. So it is of
no moment that the right of the tenant-farmers in this case was created by virtue of a decree or law. They are
still considered "third persons" contemplated in our laws on registration, for the fact remains that these tenant-
farmers had no actual knowledge of the deed of donation.

FACTS:

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Petitioners are the registered owners, successors-in-interest, or possessors of agricultural land, consisting of
about eight hectares, located in Isabela Province. The certificates of title were issued in 1986 pursuant to
emancipation patents.

Petitioners filed a Complaint for forcible entry against respondent before the Municipal Circuit Trial Court
(MCTC) of Cabagan-Delfin Albano, Isabela. In an Amended Complaint, petitioners alleged that respondent –
with the aid of armed goons, and through the use of intimidation and threats of physical harm – entered the
above-described parcels of land and ousted them from their lawful possession; that respondent then took
over the physical possession and cultivation of these parcels of land.

Respondent filed a Motion to Dismiss claiming that the subject properties are agricultural lands – which thus
renders the dispute an agrarian matter and subject to the exclusive jurisdiction of the Department of Agrarian
Reform Adjudication Board (DARAB). It appears that respondent obtained title through Romulo Sr.’s heirs,
whose claim to the property is by virtue of an unregistered deed of donation in their favor supposedly executed
prior to September 21, 1972. On this basis, the heirs filed in 1993 a petition with the Department of Agrarian
Reform, Region 2 to exempt the property from coverage under PD 27, which was granted in a December 29,
1994 Order. By then, or way back in 1986 petitioners had been issued certificates of title.

ISSUES:

1. Whether or not the case is an agrarian dispute which falls under the exclusive jurisdiction of DARAB.

2. Whether or not the property subject of the unregistered deed of donation (respondent’s source of right)
when P.D. No. 27 took effect should be excluded from Operation Land Transfer (petitioners’ source of right).

RULING:

1.NO. As between petitioners and the respondent, there is no tenurial arrangement, not even an implied one.
As correctly argued by petitioners, a case involving agricultural land does not immediately qualify it as an
agrarian dispute. The mere fact that the land is agricultural does not ipso facto make the possessor an
agricultural lessee or tenant. There are conditions or requisites before he can qualify as an agricultural lessee
or tenant, and the subject being agricultural land constitutes just one condition. For the DARAB to acquire
jurisdiction over the case, there must exist a tenancy relation between the parties. "[I]n order for a tenancy
agreement to take hold over a dispute, it is essential to establish all its indispensable elements, to wit: 1) that
the parties are the landowner and the tenant or agricultural lessee; 2) that the subject matter of the
relationship is an agricultural land; 3) that there is consent between the parties to the relationship; 4) that the
purpose of the relationship is to bring about agricultural production; 5) that there is personal cultivation on
the part of the tenant or agricultural lessee; and 6) that the harvest is shared between the landowner and the
tenant or agricultural lessee." In the present case, it is quite evident that not all of these conditions are present.
For one, there is no tenant, as both parties claim ownership over the property.

Besides, when petitioners obtained their emancipation patents and subsequently their certificates of title,
they acquired vested rights of absolute ownership over their respective landholdings. It presupposes that the
grantee or beneficiary has, following the issuance of a certificate of land transfer, already complied with all
the preconditions required under P.D. No. 27, and that the landowner has been fully compensated for his
property. And upon the issuance of title, the grantee becomes the owner of the landholding and he thereby
ceases to be a mere tenant or lessee. His right of ownership, once vested, becomes fixed and established and
is no longer open to doubt or controversy. Petitioners "became the owners of the subject property upon the
issuance of the emancipation patents and, as such, enjoy the right to possess the same—a right that is an
attribute of absolute ownership.

2.NO. Article 749 of the Civil Code provides inter alia that "in order that the donation of an immovable may
be valid, it must be made in a public document, specifying therein the property donated and the value of the
charges which the donee must satisfy." Corollarily, Article 709 of the same Code explicitly states that "the
titles of ownership, or other rights over immovable property, which are not duly inscribed or annotated in the
Registry of property shall not prejudice third persons." Although the non-registration of a deed of donation
shall not affect its validity, the necessity of registration comes into play when the rights of third persons are
affected, as in the case at bar. The act of registration shall be the operative act to convey or affect the land
insofar as third persons are concerned. Further, it is an entrenched doctrine in our jurisdiction that

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registration in a public registry creates constructive notice to the whole world. (Section 50 of Act No. 496
[Land Registration Act], as amended by Section 51 of P.D. No. 1529 (Property Registration Decree).

It is undisputed in this case that the donation executed, although in writing and duly notarized, has not been
registered in accordance with law. For this reason, it shall not be binding upon private respondents who did
not participate in said deed or had no actual knowledge thereof. Hence, while the deed of donation is valid
between the donor and the donees, such deed, however, did not bind the tenants-farmers who were not
parties to the donation. As previously enunciated by this Court, non-registration of a deed of donation does
not bind other parties ignorant of a previous transaction. So it is of no moment that the right of the [tenant]-
farmers in this case was created by virtue of a decree or law. They are still considered "third persons"
contemplated in our laws on registration, for the fact remains that these [tenant]-farmers had no actual
knowledge of the deed of donation.

When petitioners’ titles were issued in 1986, these became indefeasible and incontrovertible. Certificates of
title issued pursuant to emancipation patents acquire the same protection accorded to other titles, and
become indefeasible upon the expiration of one year from the date of the issuance of the order for the issuance
of the patent. Lands so titled may no longer be the subject matter of a cadastral proceeding; nor can they be
decreed to other individuals.

H. PRESCRIPTION
1. ACQUISITIVE AND EXTINCTIVE PRESCRIPTION

ARSENIO OLEGARIO and Heirs of ARISTOTELES F. OLEGARIO, represented by CARMELITA

GUZMAN-OLEGARIO v. PEDRO C. MARI, represented by LILIA C. MARI-CAMBA
G.R. No. 147951, December 14, 2009, Second Division, DEL CASTILLO, J.

Possession, to constitute the foundation of acquisitive prescription, must be possession under a claim of title or
must be adverse. Acts of a possessory character performed by one who holds the property by mere tolerance of
the owner are clearly not in the concept of an owner and such possessory acts, no matter how long continued,
do not start the running of the period of prescription.

FACTS:

As early as 1916,Juan Mari, the father of respondent, declared his ownership over a parcel of land in
Nancasalan, Mangatarem for tax purposes. He took possession of the same by delineating the limits with a
bamboo fence,planting various fruit bearing trees and bamboosand constructing a house thereon.After a
survey made in 1950, the subject realty was classified as a residential land with an area of 897 square meters.
In 1974, the subject realty was transferred to respondent, Pedro Mari, by virtue of a deed of sale.

Meanwhile, in 1947, Wenceslao Olegario, the husband of Magdalena Fernandez and father of petitioner
Arsenio Olegario, filed a new tax declarationfor a certain 50-square meter parcel of land. Then on 1961,
Wenceslao Olegario executed a "Deed of Quit-Claim of Unregistered Property" in favor of Arsenio Olegario
transferring to the latter inter alia the aforementioned 50-square meter property.

In 1989, Arsenio Olegario caused the amendment of his tax declaration for the 50-square meter property to
reflect an increased area of 341 square meters. A year after discovering the amended entries in Arsenio
Olegario's Tax Declaration, respondent filed a complaint with the RTC for Recovery of Possession and
Annulment of Tax Declaration. Respondent alleged, inter alia, that Juan Mari, and subsequently his successor,
was deprived by the Olegarios of the possession of portions of subject realty which respondent owned.

Petitioners contend that they have been in possession of the disputed lots since 1948 or thereabouts, or for
more than 30 years already. Hence, they acquired ownership thereover by virtue of prescription. Respondent,
on the other hand, contends that petitioners' occupancy has been illegal from the point of inception and thus,
such possession can never ripen into a legal status.

ISSUE:

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Whether or not petitioner’s possession over the subject property is legal from its inception as to warrant the
conclusion that they already acquired the property through prescription.

RULING:

NO. Petitioners' acts of a possessory character - acts that might have been merely tolerated by the owner -
did not constitute possession. No matter how long tolerated possession is continued, it does not start the
running of the prescriptive period.Mere material possession of land is not adverse possession as against the
owner and is insufficient to vest title, unless such possession is accompanied by the intent to possess as an
owner. There should be a hostile use of such a nature and exercised under such circumstance as to manifest
and give notice that the possession is under a claim of right.

Petitioners have failed to prove that their possession was adverse or under claim of title or right. Unlike
respondent, petitioners did not have either the courage or forthrightness to publicly declare the disputed lots
as owned by them for tax purposes. Tax declarations "prove that the holder has a claim of title over the
property. Aside from manifesting a sincere desire to obtain title thereto, they announce the holder's adverse
claim against the state and other interested parties". Petitioners' omission, when viewed in conjunction with
respondent's continued unequivocal declaration of ownership over, payment of taxes on and possession of
the subject realty, shows a lack of sufficient adverseness of the formers’ possession to qualify as being one in
the concept of owner.

The only instance petitioners assumed a legal position sufficiently adverse to respondent's ownership of the
disputed properties was when they declared Lot No. 17526 for tax purposes in their name in 1989. Since then
and until the filing of the complaint for recovery of possession in 1990, only one year had elapsed. Hence,
petitioners never acquired ownership through extraordinary prescription of the subject realty.

Respondent's predecessor, Juan Mari, had declared the disputed realty for tax purposes as early as 1916. The
tax declarations show that he had a two-storey house on the realty. He also planted fruit bearing trees and
bamboos thereon. The records also show that the 897-square meter property had a bamboo fence along its
perimeter. All these circumstances clearly show that Juan Mari was in possession of subject realty in the
concept of owner, publicly and peacefully since 1916 or long before petitioners entered the disputed realty
sometime in 1965. Based on Article 538 of the Civil Code, the respondent is the preferred possessor because,
benefiting from his father's tax declaration of the subject realty since 1916, he has been in possession thereof
for a longer period. On the other hand, petitioners acquired joint possession only sometime in 1965.

Despite 25 years of occupying the disputed lots, therefore, petitioners did not acquire ownership. Firstly, they
had no just title. Petitioners did not present any document to show how the titles over the subject property
was transferred to them, whether from respondent, his predecessor, or any other person. Petitioners,
therefore, could not acquire the disputed real property by ordinary prescription through possession for 10
years. Secondly, it is settled that ownership cannot be acquired by mere occupation. Unless coupled with the
element of hostility towards the true owner, occupation and use, however long, will not confer title by
prescription or adverse possession. In other words, possession, to constitute the foundation of a prescriptive
right, must be possession under claim of title, that is, it must be adverse.

LIWAYWAY ANDRES, RONNIE ANDRES, and PABLO B. FRANCISCO v. REALTY & DEVELOPMENT
INCORPORATED
G.R. No. 201405, August 24, 2015, Second Division, DEL CASTILLO, J.

Only lands of the public domain subsequently classified or declared as no longer intended for public use or for
the development of national wealth, or removed from the sphere of public dominion and are considered converted
into patrimonial lands or lands of private ownership, may be alienated or disposed through any of the modes of
acquiring ownership under the Civil Code. And if the mode of acquisition is prescription, whether ordinary or
extraordinary, it must first be shown that the land has already been converted to private ownership prior to the
requisite acquisitive prescriptive period.

FACTS:

Petitioners are the co-owners and possessors for more than 50 years of three parcels of unregistered
agricultural land in Pag-asa, Binangonan, Rizal (subject property).

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Respondent on the other hand is the owner of the lands surrounding the subject property. After respondent
acquired the surrounding properties, it developed the same into a residential subdivision known as the
Binangonan Metropolis East, and built a concrete perimeter fence around it. As a consequence, thereof,
petitioners were denied access from the subject property to the nearest public road and vice versa.

Subsequently, Petitioners Liwayway, Ronnie and Pablo filed a Complaint for Easement of Right-of-Way
against Respondent before the RTC. Petitioners prayed for a right-of-way within Binangonan Metropolis East
in order for them to have access to Col. Guido Street, a public road.

In its decision, the RTC ruled in favor of the petitioners and declared them to be entitled to an easement of
right of way. On appeal, the CA reversed the RTC’s decision for failure of petitioners to adduce sufficient
evidence establishing their asserted ownership and possession of the subject property.

Hence, the current petition.

Petitioners assert that they have already become owners of the subject property through extraordinary
acquisitive prescription since (1) they have been in open, continuous and peaceful possession thereof for more
than 50 years and (2) the subject property, as depicted in the Survey Plan they caused to be prepared is
alienable and disposable.

ISSUE:

Whether petitioners are entitled to demand an easement of right-of-way from respondent.

RULING:

NO. Under Article 649 of the Civil Code, an easement of right-of-way may be demanded by the owner of an
immovable or by any person who by virtue of a real right may cultivate or use the same.

Prescription is one of the modes of acquiring ownership under the Civil Code. There are two modes of
prescription through which immovables may be acquired - ordinary acquisitive prescription which requires
possession in good faith and just title for 10 years and, extraordinary prescription wherein ownership and
other real rights over immovable property are acquired through uninterrupted adverse possession for 30 years
without need of title or of good faith. However, it was clarified in the Heirs of Mario Malabanan v. Republic
of the Philippines, that only lands of the public domain subsequently classified or declared as no longer
intended for public use or for the development of national wealth, or removed from the sphere of public
dominion and are considered converted into patrimonial lands or lands of private ownership, may be
alienated or disposed through any of the modes of acquiring ownership under the Civil Code. And if the
mode of acquisition is prescription, whether ordinary or extraordinary, it must first be shown that the land
has already been converted to private ownership prior to the requisite acquisitive prescriptive period.
Otherwise, Article 1113 of the Civil Code, which provides that property of the State not patrimonial in character
shall not be the subject of prescription, applies.

Sifting through petitioners’ allegations, it appears that the subject property is an unregistered public
agricultural land. Thus, being a land of the public domain, petitioners, in order to validly claim acquisition
thereof through prescription, must first be able to show that the State has expressly declared through either
a law enacted by Congress or a proclamation issued by the President that the subject [property] is no longer
retained for public service or the development of the national wealth or that the property has been converted
into patrimonial. Consequently, without an express declaration by the State, the land remains to be a property
of public dominion and hence, not susceptible to acquisition by virtue of prescription.

In the absence of such proof of declaration in this case, petitioners' claim of ownership over the subject
property based on prescription necessarily crumbles. Conversely, they cannot demand an easement of right-
of-way from respondent for lack of personality.

IV. OBLIGATIONS AND CONTRACTS

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A. OBLIGATIONS
1. NATURE AND EFFECTS OF OBLIGATION

CONTINENTAL CEMENT CORPORATION v. ASEA BROWN BOVERI, INC., BBC BROWN BOVERI,
CORP., AND TORD B. ERICKSON
G.R. No. 171660, October 17, 2011, First Division, DEL CASTILLO J.,

Consequential damages, such as loss of profits on account of delay or failure of delivery, may be recovered only
if such damages were reasonably foreseen or have been brought within the contemplation of the parties as the
probable result of a breach at the time of or prior to contracting.

FACTS:

Continental Cement Corporation (CCC), a corporation engaged in the business of producing

cement, obtained the services of Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160
KW Kiln DC Drive Motor. Due to the repeated failure of ABB and BBC Brown to repair the Kiln Drive Motor,
CCC filed a Complaint for sum of money and damages against the corporations and Eriksson, Vice-President
of the Service Division of ABB alleging that despite being given multiple chances to repair, the latter failed to
comply with their obligation and as a consequence, Continental Cement suffered damages worth
10,982,017.42.

CCC argues that the General Conditions cannot exculpate the corporations and Erickson because CCC never
agreed to be bound by it nor did they receive a copy of it. CCC also imputes error on the part of the CA in
applying the concepts of warranty against hidden defects and implied warranty and contends that these
concepts are not applicable because the instant case does not involve a contract of sale. What applies are
Articles 1170 and 2201 of the Civil Code.

ABB, BBC Brown and Erickson, however, claimed that CCC is bound by General Conditions. That by issuing
Purchase Order Nos. 17136-27, CCC in effect accepted the General Conditions appended to hence, the liability
of ABB does not extend to consequential damages either direct or indirect. The former also argued that there
could be no implied warranty on the repair made by ABB as the warranty of the fitness of the equipment
should be enforced directly against the manufacturer of the Kiln Drive. They likewise denied liability for
damages claiming that they performed their obligations in good faith.

ISSUES:

1. Whether or not the terms of the “General Conditions” of Purchase Orders should be applied to exculpate
ABB, BBC Brown and Erickson from liability in this case. (NO)

2. Whether or not the concepts of “implied warranty” and “warranty against hidden defects” of the New Civil
Code should be applied in this case. (NO)

RULING:

NO. In the contract entered into by the parties, ABB not only incurred delay in performing its obligation but
likewise failed to repair the Kiln Drive Motor; thus, prompting CCC to sue for damages.

Clause 7 of the General Conditions is not binding on CCC because ABB failed to show that CCC was duly
furnished with a copy of said General Conditions. Having breached the contract it entered with CCC, ABB is
liable for damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it
may be decreed that what has been poorly done be undone.

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages.

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Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the
execution of the obligation plus damages. Though entitled, CCC in this case is not claiming reimbursement
for the repair allegedly done by Newton Contractor, but is instead asking for damages for the delay caused by
respondent ABB.

CCC is entitled to penalties under Purchase Order Nos. 17136-37

CCC is entitled to penalties in the amount of ₱987.25 per day from the time of delay, August 30, 1990, up to
the time the Kiln Drive Motor was finally returned to CCC. Although the testing of Kiln Drive Motor was done
on March 13, 1991, the said motor was actually delivered to CCC as early as January 7, 1991. The installation
and testing was done only on March 13, 1991 upon the request of CCC because the Kiln was under repair at
the time the motor was delivered; hence, the load testing had to be postponed.

Under Article 1226 of the Civil Code, the penalty clause takes the place of indemnity for damages and the
payment of interests in case of non-compliance with the obligation, unless there is a stipulation to the
contrary. In this case, since there is no stipulation to the contrary, the penalty in the amount of ₱987.25 per
day of delay covers all other damages (i.e. production loss, labor cost, and rental of the crane) claimed by
CCC.

CCC is not entitled to recover production loss, labor cost and the rental of crane

Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in the
instant case, damages and interests may still be recovered on top of the penalty. Damages claimed must be
the natural and probable consequences of the breach, which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted.

However, the production reports for the months of August 1990 to March 1991 were not presented. Without
these production reports, it cannot be determined with reasonable certainty whether CCC indeed incurred
production losses during the said period. It may not be amiss to say that competent proof and a reasonable
degree of certainty are needed to justify a grant of actual or compensatory damages; speculations, conjectures,
assertions or guesswork are not sufficient.

Besides, consequential damages, such as loss of profits on account of delay or failure of delivery, may be
recovered only if such damages were reasonably foreseen or have been brought within the contemplation of
the parties as the probable result of a breach at the time of or prior to contracting. Considering the nature of
the obligation in the instant case, ABB, at the time it agreed to repair CCC’s Kiln Drive Motor, could not have
reasonably foreseen that it would be made liable for production loss, labor cost and rental of the crane in case
it fails to repair the motor or incurs delay in delivering the same, especially since the motor under repair was
a spare motor.

2. KINDS OF OBLIGATIONS
i. PURE AND CONDITIONAL

SPOUSES NAMEAL and LOURDES BONROSTRO v. SPOUSES JUAN and CONSTANCIA LUNA
G.R. No. 172346, July 24, 2013, Second Division, DEL CASTILLO, J.

In a contract to sell, payment of the price is a positive suspensive condition, failure of which is not a breach of
contract warranting rescission under Article 1191 of the Civil Code but rather just an event that prevents the
supposed seller from being bound to convey title to the supposed buyer. Also, and as correctly ruled by the CA,
Article 1191 cannot be applied to sales of real property on installment since they are governed by the Maceda Law
(RA 6552).

Tender of payment, without more, produces no effect. To have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and
consignation. When the tender of payment is not accompanied by the means of payment, and the debtor did not
take any immediate step to make a consignation, then interest is not suspended from the time of such tender.
The mere intention to prevent the happening of the condition or the mere placing of ineffective obstacles to its
compliance, without actually preventing fulfillment is not sufficient for the application of Art. 1186, New Civil

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Code. Two requisites must concur for its application, to wit: (1) intent to prevent fulfillment of the condition;
and, (2) actual prevention of compliance.

FACTS:

Respondent Constancia Luna, as buyer, entered into a Contract to Sell with Bliss Development Corporation
(Bliss) involving a house and lot in Diliman, Quezon City. Barely a year after, Constantia, this time as the
seller, entered into another Contract to Sell with petitioner Lourdes Bonrostro concerning the same property.
Immediately after the execution of the said second contract, spouses Bonrostro took possession fo the
property. However, except for the Php. 200,000 downpayment, Lourdes failed to pay any of the stipulated
subsequent amortization payments.

Constancia and her husband, respondent Juan Luna (Spouses Luna), filed before the RTC a Complaint for
Rescission of Contract and Damages against the Spouses Bonrostro praying for the rescission of the contract.
In their answer, the spouses Bonrostro averred that they were willing to pay their total balance to the spouses
Luna after they sought from them a 60-day extension to pay the same. However, during the time that they
were ready to pay the said amount, Constantia and her lawyer Atty. Arlene Carbon (Atty. Carbon) did not
show up at their rendezvous. Subsequently, Lourdes sent Atty. Carbon a letter expressing her desire to pay
the balance, but received no response from the latter. Claiming that they are still waiting to settle their
obligation, the spouses Bonrostro prayed that the court fix the period within which they can pay the spouses
Luna. Later during trial, Lourdes testified that Constancia instructed Bliss not to accept amortization
payments from anyone as evidenced by her letter to Bliss.

RTC rendered its Decison focusing on the sole issue of whether the spouses Bonrostro’s delay in their payment
of the installments constitutes a substantial breach of their obligation under the contract warranting
rescission. The RTC ruled that the delay could not be considered a substantial breach considering that
Lourdes (1) requested for an extension within which to pay; (2) was willing and ready to pay as early as the
last week of October 1993 and even wrote Atty. Carbon about this on Novembe 24, 1993; (3) gave Constancia
a downpayment of Php. 200,000 and, (4) made payment to Bliss.

On appeal, the Court of Appeals (CA) concluded that since the contract entered into by and between the
parties is a Contract to Sell, rescission is not the proper remedy. Morever, the subject contract being
specifically a contract to sell a real property on installment basis, it is governed by RA 6552 or the Maceda
Law. The CA held that while the spouses Luna sent the spouses Bonrostro letters rescinding the contract for
non-payment of the sum of Php. 630,000, the same could not be considered as valid and effective cancellation
under the Maceda Law since they were made within the 60-day grace period and were not notarized. The Ca
concluded that there being no cancellation effected in accordance with the procedure prescribe dby law, the
contract therefore remains valid and subsisting. The CA also affirmed the RTC’s finding that Lourdes was
ready to pay her obligation. The spouses Bonrostro filed a Partial Motion for Reconsideration questioning the
abovementioned modifications. The Ca, however, denied it for lack of merit. Hence, this petition.

ISSUES:

1. Whether or not rescission is the proper remedy.

2. Whether or not there is already a delay on the part of the petitioner making them liable to pay interest.

3. Whether or not respondents prevented the petitioner from fulfilling their obligation warranting the
application of Article 1186 of the New Civil Code.

RULING:

1. NO. The Court is of the opinion that the delay in the payment of the balance of the purchase price of the
house and lot is not so substantial as to warrant the rescission of the contract to sell. The question of whether
a breach of contract is substantial depends upon the attendant circumstance. The CA, in its assailed Decision,
found the contract between the parties as a contract to sell, specifically of a real property on installment basis,
and as such categorically declared rescission to be not the proper remedy. This is considering that in a contract
to sell, payment of the price is a positive suspensive condition, failure of which is not a breach of contract
warranting rescission under Article 1191 of the Civil Code but rather just an event that prevents the supposed

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seller from being bound to convey title to the supposed buyer. Also, and as correctly ruled by the CA, Article
1191 cannot be applied to sales of real property on installment since they are governed by the Maceda Law (RA
6552).

2. YES. The spouses Bonrostro assert that Lourdes’ letter amounts to tender of payment of the remaining
balance amounting to ₱630,000.00. Accordingly, thenceforth, accrual of interest should be suspended. This
argument holds no water for tender of payment, without more, produces no effect. To have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires the companion acts of
tender of payment and consignation. Here, the subject letter merely states Lourdes’ willingness and readiness
to pay but it was not accompanied by payment.

Tender of payment is the manifestation by the debtor of a desire to comply with or pay an obligation. If
refused without just cause, the tender of payment will discharge the debtor of the obligation to pay but only
after a valid consignation of the sum due shall have been made with the proper court." "Consignation is the
deposit of the proper amount with a judicial authority in accordance with rules prescribed by law, after the
tender of payment has been refused or because of circumstances which render direct payment to the creditor
impossible or inadvisable.

As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino explained as follows,
When a tender of payment is made in such a form that the creditor could have immediately realized payment
if he had accepted the tender, followed by a prompt attempt of the debtor to deposit the means of payment
in court by way of consignation, the accrual of interest on the obligation will be suspended from the date of
such tender. But when the tender of payment is not accompanied by the means of payment, and the debtor
did not take any immediate step to make a consignation, then interest is not suspended from the time of such
tender.

3. NO. The spouses Bonrostro want to be relieved from paying interest on the amount of ₱214,492.62 which
the spouses Luna paid to Bliss as amortizations by asserting that they were prevented by the latter from
fulfilling such obligation. They invoke Art. 1186 of the Civil Code which provides that the condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfillment. However, the Court finds Art. 1186
inapplicable to this case. The said provision explicitly speaks of a situation where it is the obligor who
voluntarily prevents fulfillment of the condition. Here, Constancia is not the obligor but the obligee.
Moreover, even if this significant detail is to be ignored, the mere intention to prevent the happening of the
condition or the mere placing of ineffective obstacles to its compliance, without actually preventing
fulfillment is not sufficient for the application of Art. 1186. Two requisites must concur for its application, to
wit: (1) intent to prevent fulfillment of the condition; and, (2) actual prevention of compliance.

In this case, while it is undisputed that Constancia indeed instructed Bliss on March 4, 1994 not to accept
payment from anyone but her, there is nothing on record to show that Bliss heeded the instruction of
Constancia as to actually prevent the spouses Bonrostro from making payments to Bliss. There is no showing
that subsequent to the said letter, the spouses Bonrostro attempted to make payment to and was refused by
Bliss. Neither was there a witness presented to prove that Bliss indeed gave effect to the instruction contained
in Constancia’s letter. In view of these, the spouses Luna could not be said to have placed an effective obstacle
as to actually prevent the spouses Bonrostro from making amortization payments to Bliss.

ii. JOINT AND SOLIDARY OBLIGATIONS

MANLAR RICE MILL, INC. v. LOURDES L. DEYTO, doing business under the trade name "J.D.
Grains Center" and JENNELITA DEYTO ANG, a.k.a. "JANET ANG"
G.R. No. 191189, January 29, 2014, Second Division, DEL CASTILLO, J.

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary liability only
when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.

FACTS:

Respondent Jennelita Deyto Ang (Ang) entered into s rice supply contract with petitioner Manlar Rice Mill,
Inc. (Manlar) where the former purchased rice from the latter. The transaction was covered by nine postdated
checks issued by Ang from her personal bank/checking account. Upon presentment, the checks were

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dishonored. Manlar made oral and written demands upon both Deyto and Ang, which went unheeded. It
appears that during the time demand was being made upon Deyto, she informed Manlar, through its Sales
Manager Pablo Pua (Pua), that Ang could not be located.

Manlar filed a Complaint for sum of money against Deyto and Ang before the Regional Trial Court (RTC) of
Quezon City. The Complaint essentially sought to hold Deyto and Ang solidarily liable on the rice supply
contract.

Deyto filed her Answer with Compulsory Counterclaim claiming that she did not contract with Manlar or any
of its representatives regarding the purchase and delivery of rice. She further argued that Manlar’s act of
impleading her is a desperate strategy or attempt to recover from her since Ang absconded.

ISSUE:

Whether or not Deyto can be held solidarily liable with Ang.

RULING:

NO. The allegations that Deyto guaranteed Ang’s checks and that she consented to be held solidarily liable
with Ang under the latter’s rice supply contract with Manlar are hardly credible. Pua in fact admitted that this
was not in writing, just a verbal assurance. But this will not suffice. Well-entrenched is the rule that solidary
obligation cannot lightly be inferred. There is a solidary liability only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so requires.

What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and Ang so that the
former may recover its losses, since it could no longer recover them from Ang as a result of her absconding;
this conclusion is indeed consistent with what the totality of the evidence on record appears to show. This,
however, may not be allowed. As a general rule, a contract affects only the parties to it, and cannot be enforced
by or against a person who is not a party thereto. "It is a basic principle in law that contracts can bind only
the parties who had entered into it; it cannot favor or prejudice a third person." Under Article 1311 of the Civil
Code, contracts take effect only between the parties, their assigns and heirs. Thus, Manlar may sue Ang, but
not Deyto, who the Court finds to be not a party to the rice supply contract.

3. EXTINGUISHMENT OF OBLIGATIONS
i. PAYMENT OR PERFORMANCE

LUZON DEVELOPMENT BANK v. ANGELES CATHERINE ENRIQUEZ

G.R. No. 168646, January 12, 2011, First Division, DEL CASTILLO, J.

Dacion en pago extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the
parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as
equivalent to the obligation, in which case the obligation is totally extinguished.

FACTS:

Deltais a domestic corporation engaged in the business of developing and selling real estate properties, particularly
Delta Homes I in Lot 4 Cavite. It obtained a loan from Luzon Development Bank (LDP) amounting to P4 million. It
secured Real Estate Mortgage on their properties including Lot 4. It was annotated in the TCT. However, it did not
obtain prior clearance to the HLURB which is necessary for the REM to be valid. Later on, Delta entered into contract
to sell with Enriquez over Lot 4 for the purchase price of P614,950 and he made a downpayment of P114, 950. However,
Delta defaulted payment of the loan. Thus, instead of foreclosure of the REM it agreed to a dation in payment including
the Lot 4. Enriquez filed a complaint against DELTA and LDP alleging that DELTA violated the terms of its License to
Sell by: (a) selling the house and lots for a price exceeding that prescribed in Batas Pambansa (BP) Bilang 220; and (b)
failing to get a clearance for the mortgage from the HLURB. Enriquez prayed for the lot be exempted from dation en
pago since he owns the property. Delta and LDP contended that being a contract to sell, ownership is transfered only
upon payment of the full purchase price. And prior to payment, Delta may still subject the same as security for the loan
obtained and eventually to dacion en pago.

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ISSUES:

1. Whether or not the contract to sell transferred ownership to Enriquez.

2. Whether or not the dacion en pago extinguished the loan obligation.

RULING:

1. NO. Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did not
transfer ownership over Lot 4 to Enriquez. A contract to sell is one where the prospective seller reserves the transfer of
title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the
seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already
been delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective
seller without further remedies by the prospective buyer. It does not, by itself, transfer ownership to the buyer.

In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez that would
exempt it from the general definition of a contract to sell. The terms thereof provide for the reservation of DELTAs
ownership until full payment of the purchase price; such that DELTA even reserved the right to unilaterally void the
contract should Enriquez fail to pay three successive monthly amortizations.Since the Contract to Sell did not transfer
ownership of Lot 4 to Enriquez, said ownership remained with DELTA. DELTA could then validly transfer such
ownership (as it did) to another person (the BANK). However, the transferee BANK is bound by the Contract to Sell
and has to respect Enriquezs rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is
covered and protected by PD 957. One of the protections afforded by PD 957 to buyers such as Enriquez is the right to
have her contract to sell registered with the Register of Deeds in order to make it binding on third parties.

The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of
the sale or contract to sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or
contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to
the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal
with the said property will be held bound by such prior right.

While DELTA, in the instant case, failed to register Enriquezs Contract to Sell with the Register of Deeds, this failure
will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquezs Contract to Sell. Despite the
non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4
when it accepted the latter (together with other assigned properties) as payment for DELTAs obligation. The BANK
was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of
PD 957. It knew that the loaned amounts were to be used for the development of DELTAs subdivision project, for this
was indicated in the corresponding promissory notes. The technical description of Lot 4 indicates its location, which
can easily be determined as included within the subdivision development. Under these circumstances, the BANK knew
or should have known of the possibility and risk that the assigned properties were already covered by existing contracts
to sell in favor of subdivision lot buyers

Further, as an entity engaged in the banking business, the BANK is required to observe more care and prudence when
dealing with registered properties. The Court cannot accept that the BANK was unaware of the Contract to Sell existing
in favor of EnriquezBound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the
payments already made by Enriquez for the purchase price of Lot 4. Thus, the BANK can only collect the balance of the
purchase price from Enriquez and has the obligation, upon full payment, to deliver to Enriquez a clean title over the
subject property.

2. YES. Like in all contracts, the intention of the parties to the dation in payment is paramount and controlling. The
contractual intention determines whether the property subject of the dation will be considered as the full equivalent of
the debt and will therefore serve as full satisfaction for the debt. The dation in payment extinguishes the obligation to
the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties
by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished.

In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that
the assigned properties would serve as full payment for DELTAs entire obligationWithout any reservation or condition,

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the Dacion stated that the assigned properties served as full payment of DELTAs total obligation to the BANK. The
BANK accepted said properties as equivalent of the loaned amount and as full satisfaction of DELTAs debt. The BANK
cannot complain if, as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts
to sell. As noted earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It
was aware of the nature of DELTAs business, of the location of the assigned properties within DELTAs subdivision
development, and the possibility that some of the properties may be subjects of existing contracts to sell which enjoy
protection under PD 957. Banks dealing with subdivision properties are expected to conduct a thorough due diligence
review to discover the status of the properties they deal with. It may thus be said that the BANK, in accepting the
assigned properties as full payment of DELTAs total obligation, has assumed the risk that some of the assigned
properties (such as Lot 4) are covered by contracts to sell which it is bound to honor under PD 957.

A dacion en pago is governed by the law of sales. Contracts of sale come with warranties, either express (if explicitly
stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). In this case, however, the BANK does
not even point to any breach of warranty by DELTA in connection with the Dation in Payment. To be sure, the Dation
in Payment has no express warranties relating to existing contracts to sell over the assigned properties. As to the implied
warranty in case of eviction, it is waivable and cannot be invoked if the buyer knew of the risks or danger of eviction
and assumed its consequences. As we have noted earlier, the BANK, in accepting the assigned properties as full payment
of DELTAs total obligation, has assumed the risk that some of the assigned properties are covered by contracts to sell
which must be honored under PD 957.

PHILIPPINE NATIONAL BANK v. LILIBETH CHAN

G.R. No. 206037, March 13, 2017, First Division, DEL CASTILLO, J.

Consignation is necessarily judicial; it is not allowed in venues other than the courts.

FACTS:

Chan owns a three-story commercial building located along Paco, Manila. She leased said commercial
building to Philippine National Bank (PNB) for a period of five years with a monthly rental of
₱76,160.00. When the lease expired, PNB continued to occupy the property on a month-to-month basis with
a monthly rental of ₱116,788.44. PNB vacated the premises on March 23, 2006.

Meanwhile, on 2002, Chan obtained a ₱l,500,000.00 loan from PNB which was secured by a Real Estate
Mortgage constituted over the leased property. In addition, Chan executed a Deed of Assignment over the
rental payments in favor of PNB.The amount of the Chan's loan was subsequently increased to ₱7,500,000.00.

Chan filed a Complaint for Unlawful Detainer before the Metropolitan Trial Court (MeTC) against PNB,
alleging that the latter failed to pay its monthly rentals from October 2004 until August 2005. In its defense,
PNB claimed that it applied the rental proceeds from October 2004 to January 15, 2005 as payment for Chan's
outstanding loan which became due and demandable in October 2004. As for the monthly rentals from
January 16, 2005 to February 2006, PNB explained that it received a demand letter from a certain Chua who
claimed to be the new owner of the leased property and requested that the rentals be paid directly to him,
until PNB decides to vacate the premises or a new lease contract with Chua is executed. PNB thus deposited
the rentals in a separate non-drawing savings account for the benefit of the rightful party.

ISSUES:

Whether or not PNB properly consigned the disputed rental payments in the amount of ₱l,348,643.92 with
the Office of the Clerk of Court of the MeTC of Manila. (NO)

Whether or not PNB incurred delay in the payment of rentals to the respondent, making it liable to pay legal
interest to the latter. (YES)

RULING:

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment. It generally requires a prior tender of payment.

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Under Article 1256 of the Civil Code, consignation alone is sufficient even without a prior tender of payment
a) when the creditor is absent or unknown or does not appear at the place of payment; b) when he is
incapacitated to receive the payment at the time it is due; c) when, without just cause, he refuses to give a
receipt; d) when two or more persons claim the same right to collect; and e) when the title of the obligation
has been lost.

For consignation to be valid, the debtor must comply with the following requirements under the law:
1) There was a debt due;
2) Valid prior tender of payment, unless the consignation was made because of some legal cause provided
in Article 1256;
3) Previous notice of the consignation has been given to the persons interested in the performance of the
obligation;
4) The amount or thing due was placed at the disposal of the court; and,
5) After the consignation had been made, the persons interested were notified thereof:

Failure in any of the requirements is enough ground to render a consignation ineffective.

In the present case, the records show that: first, PNB had the obligation to pay respondent a monthly rental
of ₱l16,788.44, amounting to ₱l,348,643.92, from January 16, 2005 to March 23, 2006; second, PNB had the
option to pay the monthly rentals to respondent or to apply the same as payment for respondent's loan with
the bank, but PNB did neither; third, PNB instead opened a non-drawing savings account at its Paco Branch
under Account No. 202- 565327-3, where it deposited the subject monthly rentals, due to the claim of Chua of
the same right to collect the rent; and fourth, PNB consigned the amount of ₱l,348,643.92 with the Office of
the Clerk of Court of the MeTC of Manila on May 31, 2006.

Note that PNB's deposit of the subject monthly rentals in a non-drawing savings account is not the
consignation contemplated by law, precisely because it does not place the same at the disposal of the court.
Consignation is necessarily judicial; it is not allowed in venues other than the courts. Consequently, PNB's
obligation to pay rent for the period of January 16, 2005 up to March 23, 2006 remained subsisting, as the
deposit of the rentals cannot be considered to have the effect of payment.

It is important to point out that PNB's obligation to pay the subject monthly rentals had already fallen due
and demandable before PNB consigned the rental proceeds with the MeTC on May 31, 2006. Although it is
true that consignment has a retroactive effect, such payment is deemed to have been made only at the time
of the deposit of the thing in court or when it was placed at the disposal of the judicial authority. Based on
these premises, PNB's payment of the monthly rentals can only be considered to have been made not earlier
than May 31, 2006.

Given its belated consignment of the rental proceeds in court, PNB clearly defaulted in the payment of
monthly rentals to the respondent for the period January 16, 2005 up to March 23, 2006, when it finally vacated
the leased property, As such, it is liable to pay interest in accordance with Article 2209 of the Civil Code.

Article 2209 provides that if the debtor incurs delay in the performance of an obligation consisting of the
payment of a sum of money, he shall be liable to pay the interest agreed upon, and in the absence of
stipulation, the legal interest at 6% per annum.

ii. COMPENSATION

JESUS M. MONTEMAYOR v. VICENTE D. MILLORA

G.R. No. 168251, July 27, 2011, First Division, DEL CASTILLO, J.

When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is
rendered liquidating such claim, it can be compensated against the plaintiff’s claim from the moment it is
liquidated by judgment. Adebt is considered liquidated, not only when it is expressed already in definite figures
which do not require verification, but also when the determination of the exact amount depends only on a simple
arithmetical operation.

FACTS:

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Sometime in, 1990, respondent Atty. Vicente D. Millora (Vicente) obtained a loan from petitioner Dr. Jesus
M. Montemayor (Jesus) as evidenced by a promissory note executed by Vicente. Thereafter, the parties
executed a loan contract wherein it was provided that the loan has a stipulated monthly interest of 2%. Which
was increased to 3.5% a month. For failing to pay the outstanding obligation, Jesus filed before the Regional
Trial Court (RTC) a Complaint for Sum of Money against Vicente. Vicente filed his Answer interposing a
counterclaim for attorney’s fees. Vicente claimed that he handled several cases for Jesus but he was summarily
dismissed from handling them when the instant complaint for sum of money was filed.

In its Decision, the trial court elucidated on how Vicente had established his entitlement for attorney’s fees
based on his counterclaim by acknowledging the fact that he had represented Jesus in several court cases
which include the Laguna property case, the various cases such as the falsification and libel cases. Aside from
these cases, plaintiff had made defendant his consultant on almost everything that involved legal opinions.

Thus, the RTC ordered Vicente to pay Jesus his monetary obligation and also ordered Jesus to pay Vicente his
attorney’s fees which is equivalent to the amount of Vicente’s monetary liability, and which shall be set-off
with the amount Vicente is adjudged to pay Jesus, viz:

“WHEREFORE, premises above-considered, JUDGMENT is hereby rendered ordering

defendant Vicente D. Millora to pay plaintiff Jesus M. Montemayor the sum of ₱300,000.00
with interest at the rate of 12% per annum counted from the filing of the instant complaint on
August 17, 1993 until fully paid and whatever amount recoverable from defendant shall be set
off by an equivalent amount awarded by the court on the counterclaim representing attorney’s
fees of defendant on the basis of "quantum meruit" for legal services previously rendered to
plaintiff.”

Jesus contends that offsetting cannot be made because the judgment of the RTC failed to specify the amount
of attorney’s fees. He maintains that for offsetting to apply, the two debts must be liquidated or ascertainable.
However, the trial court merely awarded to Vicente attorney’s fees based on quantum meruit without
specifying the exact amount thereof.

ISSUE:

Whether or not the two debts in the case at bar are already liquidated as to effect legal compensation.

RULING:

YES. For legal compensation to take place, the requirements set forth in 1279 of the Civil Code, must be present
namely: (1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due;
(4) That they be liquidated and demandable; (5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the debtor.

A debt is liquidated when its existence and amount are determined. It is not necessary that it be admitted by
the debtor. Nor is it necessary that the credit appear in a final judgment in order that it can be considered as
liquidated; it is enough that its exact amount is known. And a debt is considered liquidated, not only when it
is expressed already in definite figures which do not require verification, but also when the determination of
the exact amount depends only on a simple arithmetical operation. When the defendant, who has an
unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating such claim, it
can be compensated against the plaintiff’s claim from the moment it is liquidated by judgment.

In the instant case, both obligations are liquidated. Vicente has the obligation to pay his debt due to Jesus in
the amount of ₱300,000.00 with interest at the rate of 12% per annum counted from the filing of the instant
complaint on August 17, 1993 until fully paid. Jesus, on the other hand, has the obligation to pay attorney’s
fees which the RTC had already determined to be equivalent to whatever amount recoverable from Vicente.
The said attorney’s fees were awarded by the RTC on the counterclaim of Vicente on the basis of "quantum
meruit" for the legal services he previously rendered to Jesus.

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B. CONTRACTS
1. ESSENTIAL REQUISITES

ROBERN DEVELOPMENT CORPORATION and RODOLFO M. BERNARDO, JR. v. PEOPLE'S

LANDLESS ASSOCIATION represented by FLORIDA RAMOS and NARDO LABORA
G.R. No. 173622, March 11, 2013, Second Division, DEL CASTILLO, J.

The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively
and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made
either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party
that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.

FACTS:

Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City. On December 12, 1992, Al-
Amanah Davao Branch, thru its officer-in-charge Febe O. Dalig (OIC Dalig), asked some of the members of
PELA to desist from building their houses on the lot and to vacate the same, unless they are interested to buy
it. The informal settlers thus expressed their interest to buy the lot at ₱100.00 per square meter, which Al-
Amanah turned down for being far below its asking price.

In a letter dated March 18, 1993, the informal settlers together with other members comprising PELA offered
to purchase the lot for ₱300,000.00, half of which shall be paid as down payment and the remaining half to
be paid within one year. By May 3, 1993, PELA had deposited ₱150,000.00 as evidenced by four bank receipts.
For the first three receipts, the bank labelled the payments as "Partial deposit on sale of TCT No. 138914",
while it noted the 4th receipt as "Partial/Full payment on deposit on sale of A/asset TCT No. 138914.

On November 29, 1993, Al-Amanah, thru Davao Branch Manager Abraham D. Ututalum-Al Haj, wrote then
PELA President Bonifacio Cuizon, Sr. informing him of the Head Office's disapproval of PELA's offer to buy
the said 2,000-square meter lot.

Meanwhile, acting on Robern's undated written offer, Al-Amanah issued a Recommendation Sheet dated
December 27, 1993 addressed to its Board Operations Committee, indicating therein that Robern is interested
to buy the lot for ₱400,000.00; that it has already deposited 20% of the offered purchase price; that it is buying
the lot on "as is" basis; and, that it is willing to shoulder the relocation of all informal settlers therein. On
December 29, 1993, the Head Office informed the Davao Branch Manager that the Board Operations
Committee had accepted Robern's offer.Eight days later, Robern was informed of the acceptance. Al-Amanah
stressed that it is Robern's responsibility to eject the occupants in the subject lot, if any, as well as the payment
of the remaining amount within 15 days; otherwise, the ₱80,000.00 deposit shall be forfeited.

As its members were already facing eviction and possible demolition of their houses, and in order to protect
their rights as vendees, PELA filed a suit for Annulment and Cancellation of Void Deed of Saleagainst Al-
Amanah, its Director Engr. Farouk Carpizo (Engr. Carpizo), OIC Dalig, Robern, and Robern's President and
General Manager, petitioner Rodolfo Bernardo (Bernardo) before the RTC of Davao City. It insisted that as
early as March 1993 it has a perfected contract of sale with Al-Amanah. However, in an apparent act of bad
faith and in cahoots with Robern, Al-Amanah proceeded with the sale of the lot despite the prior sale to PELA.
The Regional Trial Court dismissed PELA’s complaint, aggrieved, PELA filed a petition to the Court of Appeal,
which was granted. Robern and Bernardo filed a Motion for Reconsideration, which Al-Amanah adopted. The
CA, however, was firm in its disposition and thus deniedthe same. Aggrieved, Robern and Al-Amanah
separately filed Petitions for Review on Certiorari. However, Al-Amanah's Petition docketed as G.R. No.
173437, was denied on September 27, 2006 on procedural grounds. Al-Amanah's Motion for Reconsideration
of the said Resolution of dismissal was denied with finality on December 4, 2006.Hence, only the Petition of
Robern and Bernardo subsists.

ISSUE:

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Whether or not there was a perfected contract of sale between PELA and Al-Amanah, the resolution of which
will decide whether the sale of the lot to Robern should be sustained or not.

RULING:

NO. There is no perfected contract of sale between PELA and Al-Amanah for want of consent and agreement
price. A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. Thus, for a contract of sale to be valid, all of the following essential
elements must concur: a) consent or meeting of the minds; b) determinate subject matter; and c) price certain
in money or its equivalent. As for the price, fixing it can never be left to the decision of only one of the
contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a
perfected sale.

As regards consent, when there is merely an offer by one party without acceptance of the other, there is no
contract. The decision to accept a bidder’s proposal must be communicated to the bidder. However, a binding
contract may exist between the parties whose minds have met, although they did not affix their signatures to
any written document, as acceptance may be expressed or implied. It can be inferred from the
contemporaneous and subsequent acts of the contracting parties.

Thus, the Supreme Court has held: “The rule is that except where a formal acceptance is so required, although
the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct
communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by
acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to
accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party
recognizing the existence of the contract of sale.”

Contracts undergo three stages: (a) negotiation that begins from the time the prospective contracting parties
indicate interest in the contract and ends at the moment of their agreement; (b) perfection or birth that which
takes place when the parties agree upon all the essential elements of the contract; and (c) consummation that
occurs when the parties fulfill or perform the terms agreed upon, culminating in the extinguishment thereof.

NOLI ALFONSO and ERLINDA FUNDIALAN v. SPOUSES HENRY and LIWANAG ANDRES
G.R. No. 166236, July 29, 2010, First Division, DEL CASTILLO, J.

Although Jose was suffering from partial paralysis and could no longer sign his name, there is no showing that
his mental faculties were affected in such a way as to negate the existence of his valid consent to the sale, as
manifested by his thumbmark on the deed of sale. The records sufficiently show that he was capable of boarding
a tricycle to go on trips by himself. Sufficient testimonial evidence in fact shows that Jose asked respondents to
buy the subject property so that it could be taken out from the bank to which it was mortgaged. This fact evinces
that Jose’s mental faculties functioned intelligently.

FACTS:

Respondent spouses Henry and Liwanag Andres filed a complaint for accion publiciana with damages against
Noli Alfonso and spouses Reynaldo and Erlinda Fundialan before the RTC. After trial, the trial court ruled in
favor of respondents and ordered petitioners to vacate the disputed property.

Dissatisfied with the trial court’s decision, petitioners filed an appeal with the CA.

Petitioners' previous counsel was notified by the CA to file appellants' brief within 45 days from receipt of the
notice. The original 45-day period expired on December 21, 2003. But before then, petitioners' former counsel
filed a Motion to Withdraw Appearance. Petitioners consented to the withdrawal. On December 19, 2003,
petitioners themselves moved for an extension of 30 days or until January 21, 2004 within which to file their
appellants' brief. Then on March 3, 2004, petitioners themselves again moved for a fresh period of 45 days
from March 3, 2004 or until April 18, 2004 within which to file their appellants' brief.

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The CA issued a Resolution: a) noting the withdrawal of appearance of petitioners' former counsel; b)
requiring petitioners to cause the Entry of Appearance of their new counsel; and c) granting petitioners'
motions for extension of time to file their brief for a period totaling 75 days, commencing from December 21,
2003 or until March 5, 2004.

However, despite the extension given by the CA for petitioners to file their appellants brief, petitioners failed
to do so. As a consequence, thereof, the CA dismissed petitioners' appeal. Hence, the current petition.

Petitioners contend that their failure to file their appellants' brief within the required period was due to their
indigency and poverty. They contend that the late filing of the brief should be excused under the
circumstances so that the case may be decided on the merits and not merely on technicalities.

Petitioners likewise beg the Court to disregard technicalities because they claim that on the merits, their case
is strong. Petitioners theorize that publication of the deed of extrajudicial settlement of the estate of
Marcelino Alfonso is required before their father, Jose Alfonso (Jose) could validly transfer the subject
property.

ISSUES:

1. Whether or not the Court of Appeals erred in dismissing Petitioners' Appeal for failure to file their
Defendants-Appellants brief, despite the attendance of peculiar facts and circumstances surrounding such
failure.

2. Whether or not the dismissal of petitioners' appeal by the CA is highly unjustified, iniquitous and
unconscionable because it overlooked and/or disregarded the merits of petitioners’ case which involves a
deprivation of their property rights.

RULING:

1. NO. Rule 50 of the Rules of Court states, “Section 1. Grounds for dismissal of appeal. -An appeal may be
dismissed by the Court of Appeals, on its own motion or on that of the appellee, on the following grounds:…(e)
Failure of the appellant to serve and file the required number of copies of his brief or memorandum within
the time provided by these Rules.”

Poverty cannot be used as an excuse to justify petitioners' complacency in allowing months to pass by before
exerting the required effort to find a replacement lawyer. Poverty is not a justification for delaying a case.
Both parties have a right to a speedy resolution of their case. Not only petitioners, but also the respondents,
have a right to have the case finally settled without delay.

2. NO. In Alejandrino v. Court of Appeals, the Court upheld the effectivity of a deed of extrajudicial settlement
that was neither notarized nor published.

Significantly, the title of the property owned by a person who dies intestate passes at once to his heirs. Such
transmission is subject to the claims of administration and the property may be taken from the heirs for the
purpose of paying debts and expenses, but this does not prevent an immediate passage of the title, upon the
death of the intestate, from himself to his heirs. The deed of extrajudicial settlement executed by Filomena
Santos Vda. de Alfonso and Jose evidences their intention to partition the inherited property. It delineated
what portion of the inherited property would belong to whom.

The sale to respondents was made after the execution of the deed of extrajudicial settlement of the estate.
The extrajudicial settlement of estate, even though not published, being deemed a partition of the inherited
property, Jose could validly transfer ownership over the specific portion of the property that was assigned to
him.

The records show that Jose did in fact sell to respondents the subject property. The deed of sale executed by
Jose in favor of the respondents being a public document, is entitled to full faith and credit in the absence of
competent evidence that its execution was tainted with defects and irregularities that would warrant a
declaration of nullity. As found by the RTC, petitioners failed to prove any defect or irregularities in the
execution of the deed of sale. They failed to prove by strong evidence, the alleged lack of consent of Jose to

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the sale of the subject real property. As found by the RTC, although Jose was suffering from partial paralysis
and could no longer sign his name, there is no showing that his mental faculties were affected in such a way
as to negate the existence of his valid consent to the sale, as manifested by his thumbmark on the deed of
sale. The records sufficiently show that he was capable of boarding a tricycle to go on trips by himself.
Sufficient testimonial evidence in fact shows that Jose asked respondents to buy the subject property so that
it could be taken out from the bank to which it was mortgaged. This fact evinces that Joses mental faculties
functioned intelligently.

SPS. ISAGANI CASTRO and DIOSDADA CASTRO v. ANGELINA DE LEON TAN, SPS. CONCEPCION T.
CLEMENTE and ALEXANDER C. CLEMENTE, et. al.
G.R. No. 168940, November 24, 2009, Second Division, DEL CASTILLO, J.

While the parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the Central
Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is
also worth stressing that interest rates whenever unconscionable may still be declared illegal.

The freedom of contract is not absolute. The same is understood to be subject to reasonable legislative
regulation such as the provision found in Article 1306 of the Civil Code which allows the contracting parties to
“establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy.”

A judgment ordering a foreclosure sale is conditioned upon a finding on the correct amount of the unpaid
obligation and the failure of the debtor to pay the said amount.

FACTS:

Respondent Angelina de Leon Tan, and her husband Ruben Tan were the former registered owners of a 240-
square meter residential lot, situated at a barrio in Bulacan. On February 17, 1994, they entered into an
agreement with petitioners spouses Isagani and Diosdada Castro denominated as Kasulatan ng Sanglaan ng
Lupa at Bahay (Kasulatan) to secure a loan of ₱30,000.00 they obtained from the latter. Under the Kasulatan,
the spouses Tan undertook to pay the mortgage debt within six months or until August 17, 1994, with an
interest rate of 5% per month, compounded monthly.

When her husband died on September 2, 1994, respondent Tan was left to pay the loan. However, she failed
to pay the same upon maturity. Thereafter, she offered to pay petitioners the principal amount of ₱30,000.00
plus a portion of the interest but petitioners refused and instead demanded payment of the total accumulated
sum of ₱359,000.00.

On February 5, 1999, petitioners caused the extrajudicial foreclosure and emerged as the only bidder in the
auction sale that ensued. On September 26, 2000, respondent Tan, joined by respondents Sps., Clemente, Sps.
Carpio, Sps. Soliman, and Julius Amiel Tan filed a Complaint for Nullification of Mortgage and Foreclosure
and/or Partial Rescission of Documents and Damages before the RTC. They alleged, inter alia, that the
interest rate imposed is unconscionable.

The RTC declared the foreclosure null and void interest lowered to 12% a year from 5% a month. The CA
affirmed said decision. Sps Castro petitioned to the Supreme Court.

ISSUES:

1. Whether or not the judgement nullifying the interest rate voluntarily agreed upon by the petitioners and
respondents and expressly stipulated in the contract was proper.

2. Whether or not the foreclosure proceedings should be given effect.

RULING:

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1.YES. The 5% monthly interest, compounded monthly, is unconscionable and should be equitably reduced
to the legal rate of 12% per annum. While the parties to a loan agreement have wide latitude to stipulate on
any interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling
on interest effective January 1, 1983, it is also worth stressing that interest rates whenever unconscionable may
still be declared illegal. There is certainly nothing in said circular which grants lenders carte blanche authority
to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.

In this case, the 5% monthly interest rate, or 60% per annum, compounded monthly, stipulated in the
Kasulatan is even higher than the 3% monthly interest rate imposed in the Ruiz v. Court of Appealscase. Thus,
the 5% monthly interest is excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the
law. It is therefore void ab initio for being violative of Article 1306 of the Civil Code. It is worth stressing that
in in Abe v. Foster Wheeler Corporation, we held that the freedom of contract is not absolute. The same is
understood to be subject to reasonable legislative regulation aimed at the promotion of public health, morals,
safety and welfare. One such legislative regulation is found in Article 1306 of the Civil Code which allows the
contracting parties to establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order or public policy.

2. NO. The foreclosure proceedings cannot be given effect. A judgment ordering a foreclosure sale is
conditioned upon a finding on the correct amount of theunpaid obligation and the failure of the debtor to
pay the said amount. On this basis, we nullify the foreclosure proceedings since the amount demanded as the
outstanding loan was overstated. Consequently, it has not been shown that the respondents have failed to
pay the correct amount of their outstanding obligation. Accordingly, we declare the registration of the
foreclosure sale invalid and cannot vest title over the mortgaged property.

GOLDLOOP PROPERTIES INC. v. GOVERNMENT SERVICE INSURANCE SYSTEM

G.R. No. 171076, August 1, 2012, First Division, DEL CASTILLO, J.

Parties may validly stipulate the unilateral rescission of a contract. When a decree of rescission is handed down,
it is the duty of the court to require both parties to surrender that which they have respectively received and to
place each other as far as practicable in their original situation.

FACTS:

Respondent Government Service Insurance System (GSIS) and petitioner Goldloop Properties Inc (Goldloop)
executed a Memorandum of Agreement (MOA) whereby Goldloop, at its own expense and account, would
renovate the façade of the Philcomcen Building as well as construct a condominium building. Goldloop’s
obligation is to pay for the portion of the property on which the second tower shall stand and to construct
and develop thereon a condominium building. On the other hand, GSIS is obliged to deliver to Goldloop the
property free from all liens and encumbrances and to execute a deed of absolute sale in Goldloop’s favor. It is
further stipulated in the MOA that the parties conferred upon GSIS the right to unilaterally rescind the MOA.
Goldloop then performed the necessary preparatory works but unfortunately, construction could not proceed
because Mayor of Pasig City refused to act on the applications for building permits claiming that GSIS owed
Pasig City P54 million in unpaid real estate taxes. When Mr. Federico Pascual (Pascual) was subsequently
appointed as the new President and General Manager of GSIS, Goldloop’s President, Mr. Emmanuel R.
Zapanta (Zapanta), apprised him of the situation. Later, however, Goldloop received from GSIS a letter
informing it of a recommendation to rescind the MOA. Zapanta thus wrote GSIS and reiterated that the work
stoppage due to non-issuance of permit was not Goldloop’s fault. GSIS, however, still sent Goldloop a notice
of rescission dated February 23, 2000 stating that 30 days from the latter’s receipt thereof, the MOA shall be
deemed rescinded for Goldloop’s breach of its obligations and commitments thereunder.

Aggrieved by the rescission of the MOA, Goldloop filed a Complaint for Specific Performance with Damages
before the RTC of Pasay City against GSIS.

RTC found GSIS’s rescission without valid basis. It ruled that the failure to proceed with the construction was
not due to Goldloop’s fault but because of the continuing stand-off between it and the City of Pasig on the
issue of permits. On appeal, the CA declared that the delay in the implementation of the project has been

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detrimental to the interest of GSIS. To the appellate court, this amounts to unjust enrichment and, hence, the
MOA must be equitably rescinded under this ground. Goldloop faults the CA in rescinding the MOA and the
Addendum, in extinguishing the obligations of the parties relative thereto, in declaring that each party should
bear its own damage.

ISSUES:

1. Whether or not the parties may validly stipulate the unilateral rescission of a contract.

2. Whether or not the parties must bear its own damage in the case at bar.

RULING:

1. YES. Parties may validly stipulate the unilateral rescission of a contract. Such is the case here since the
parties conferred upon GSIS the right to unilaterally rescind the MOA. It is basic that a contract is the law
between the parties, and the stipulations therein – provided that they are not contrary to law, morals, good
customs, public order or public policy – shall be binding as between the parties.

In view of the rescission, mutual restitution is required. As correctly observed by the RTC, the rescissory
action taken by GSIS is pursuant to Article 1191 of the Civil Code. In cases involving rescission under the said
provision, mutual restitution is required. The parties should be brought back to their original position prior
to the inception of the contract. "Accordingly, when a decree of rescission is handed down, it is the duty of
the court to require both parties to surrender that which they have respectively received and to place each
other as far as practicable in [their] original situation.” Pursuant to this, Goldloop should return to GSIS the
possession and control of the property subject of their agreements while GSIS should reimburse Goldloop
whatever amount it had received from the latter by reason of the MOA and the Addendum.

2.YES. As discussed, both parties failed to comply with their respective obligations under their agreements.
Hence, relevant is the provision of Article 1192 of the Civil Code which reads, “In case both parties have
committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the
courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.” In this case, it cannot be determined with certainty which
between the parties is the first infractor. It could be GSIS because of the high probability that even before the
execution of the agreements, real property taxes were already imposed and unpaid such that when GSIS
applied for building permits, the tax liability was already in the substantial amount of P54 million. It was just
that GSIS could not have been mindful of the same because of its stand that it is tax exempt. But as this cannot
be conclusively presumed, there exists an uncertainty as to which between the failure to comply on the part
of each party came first; hence, the last portion of Article 1192 finds application. Pursuant thereto, the parties’
respective claims for damages are thus deemed extinguished and each of them shall bear its own damage.

HEIRS of MARIO PACRES, namely: VALENTINA Vda. DE PACRES, et. al. v. HEIRS of CECILIA
YGOÑA, namely BAUDILLO YGOÑA YAP, et. al.
G.R. No. 174719, May 5, 2010, Second Division, DEL CASTILLO, J.

The Parol Evidence Rule applies to "the parties and their successors in interest." Conversely, it has no application
to a stranger to a contract. For purposes of the Parol Evidence Rule, a person who claims to be the beneficiary
of an alleged stipulation pour autrui in a contract (such as petitioners) may be considered a party to that
contract. He therefore cannot claim to be a stranger to the contract and resist the application of the Parol
Evidence Rule.

FACTS:

A lot originally belonging to Pastor Pacres (Pastor) left it intestate to his heirs Margarita, Simplicia, Rodrigo,
Francisco, Mario (petitioners’ predecessor-in-interest) and Veñaranda (herein petitioner). Petitioners
admitted that at the time of Pastor’s death in 1962, his heirs were already occupying definite portions of Lot
No. 9. The front portion along the provincial highway was occupied by the co-owned Pacres ancestral home,
and beside it stood Rodrigo’s hut (also fronting the provincial highway). Mario’s house stood at the back of
the ancestral house. This is how the property stood in 1968, as confirmed by petitioner Valentina’s testimony.

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On the same year, the heirs leased "the ground floor of the ancestral home together with a lot area of 300
square meters including the area occupied by the house" to respondent Hilario Ramirez (Ramirez), who
immediately took possession thereof. Subsequently in 1974, four of the Pacres siblings (namely, Rodrigo,
Francisco, Simplicia and Margarita) sold their shares in the ancestral home and the lot on which it stood to
Ramirez. The deeds of sale described the subjects thereof as "part and portion of the 300 square meters
actually in possession and enjoyment by vendee and her spouse, Hilario Ramirez, by virtue of a contract of
lease in their favor."

With the sale, respondent Ramirez’s possession as lessee turned into a co-ownership with petitioners Mario
and Veñaranda, who did not sell their shares in the house and lot.

On various dates in 1971, Rodrigo, Francisco, and Simplicia sold their remaining shares in the lot to
respondent Cecilia Ygoña (Ygoña). In 1983, Margarita also sold her share to Ygoña.

Petitioners allege that when Ygoña bought portions of the lot from petitioners’ four siblings, aside from paying
the purchase price, she also bound herself to survey the lot including the shares of the petitioners (the non-
selling siblings); to deliver to petitioners, free of cost, the titles corresponding to their definite shares in the
lot; and to pay for all their past and present estate and realty taxes. According to petitioners, Ygoña agreed to
these undertakings as additional consideration for the sale, even though they were not written in the Deeds
of Sale.

ISSUE:

Whether the alleged additional obligations can be enforced against Ygoña.

RULING:

NO. In the first place, under Article 1311 of the Civil Code, contracts take effect only between the parties, their
assigns and heirs (subject to exceptions not applicable here). Thus, only a party to the contract can maintain
an action to enforce the obligations arising under said contract. Consequently, petitioners, not being parties
to the contracts of sale between Ygoña and the petitioners’ siblings, cannot sue for the enforcement of the
supposed obligations arising from said contracts.

It is true that third parties may seek enforcement of a contract under the second paragraph of Article 1311,
which provides that "if a contract should contain some stipulation in favor of a third person, he may demand
its fulfillment." This refers to stipulations pour autrui, or stipulations for the benefit of third parties. However,
the written contracts of sale in this case contain no such stipulation in favor of the petitioners. While
petitioners claim that there was an oral stipulation, it cannot be proven under the Parol Evidence Rule. Under
this Rule, when the terms of an agreement have been reduced to writing, it is considered as containing all the
terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement. While the Rule admits of exception, no such
exception was pleaded, much less proved, by petitioners.

The Parol Evidence Rule applies to "the parties and their successors in interest." Conversely, it has no
application to a stranger to a contract. For purposes of the Parol Evidence Rule, a person who claims to be the
beneficiary of an alleged stipulation pour autrui in a contract (such as petitioners) may be considered a party
to that contract. It has been held that a third party who avails himself of a stipulation pour autrui under a
contract becomes a party to that contract. This is why under Article 1311, a beneficiary of a stipulation pour
autrui is required to communicate his acceptance to the obligor before its revocation.

Moreover, to preclude the application of Parol Evidence Rule, it must be shown that at least one of the parties
to the suit is not party or a privy of a party to the written instrument in question and does not base a claim
on the instrument or assert a right originating in the instrument or the relation established thereby. A
beneficiary of a stipulation pour autrui obviously bases his claim on the contract. He therefore cannot claim
to be a stranger to the contract and resist the application of the Parol Evidence Rule.

Thus, even assuming that the alleged oral undertakings invoked by petitioners may be deemed stipulations
pour autrui, still petitioners’ claim cannot prosper, because they are barred from proving them by oral
evidence under the Parol Evidence Rule.

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FRANCISCO LIM v. EQUITABLE PCI BANK, now known as the BANCO DE ORO UNIBANK, INC.
G.R. No. 183918, January 15, 2014, Second Division, DEL CASTILLO, J.

Allegations of forgery, like all other allegations, must be proved by clear, positive, and convincing evidence by
the party alleging it.

FACTS:

On November 17, 1988, petitioner Francisco Lim (petitioner) executed an Irrevocable Special Power of
Attorney in favor of his brother, Franco Lim (Franco), authorizing the latter to mortgage his share in the
property covered by Transfer Certificate of Title (TCT) No. 57176, which they co-owned.

On February 9, 1989, Banco De Oro Savings and Mortgage Bank released a loan in the amount of ₱8.5 million
by virtue of the said Irrevocable Special Power of Attorney, which was entered in the Register of Deeds of San
Juan, Metro Manila.

On December 28, 1992, the loan was fully paid by Franco.

On June 14, 1996, petitioner, Franco, and their mother Victoria Yao Lim (Victoria) obtained from respondent
Equitable PCI Bank (respondent; formerly Equitable Banking Corporation) a loan in the amount of ₱30 million
in favor of Sun Paper Products, Inc. To secure the loan, petitioner and Franco executed in favor of respondent
a Real Estate Mortgage over the same property.

However, when the loan was not paid, respondent foreclosed the mortgaged property.

Petitioner alleged that he did not authorize Franco to mortgage the subject property to respondent and that
his signatures in the Real Estate Mortgage and the Surety Agreement were forged. He also insists that
respondent should have been alerted by the fact that the mortgage contract was executed without the consent
of his wife.

ISSUE:

Whether the petitioner’s claim of forgery is tenable.

RULING:

NO. Petitioner failed to prove that his signature was forged.Allegations of forgery, like all other allegations,
must be proved by clear, positive, and convincing evidence by the party alleging it. It should not be
presumed but must be established by comparing the alleged forged signature with the genuine
signatures. Although handwriting experts are often offered as witnesses, they are not indispensable because
judges must exercise independent judgment in determining the authenticity or genuineness of the signatures
in question.

In this case, the alleged forged signature was not compared with the genuine signatures of petitioner as no
sample signatures were submitted. What petitioner submitted was another mortgage contract executed in
favor of Planters Development Bank, which he claims was also forged by his brother. But except for this, no
other evidence was submitted by petitioner to prove his allegation of forgery. His allegation that he was in
the US at the time of the execution of the mortgage contract is also not sufficient proof that his signature was
forged.

MOLDEX REALTY, INC. v. FLORA A. SABERON

G.R. No.176289, April 8, 2013, Second Division, DEL CASTILLO, J.

The lack of a license to sell or the failure on the part of a subdivision developer to register the contract to sell or
deed of conveyance with the Register of Deeds does not result to the nullification or invalidation of the contract
to sell it entered into with a buyer. The contract to sell remains valid and subsisting.

FACTS:

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Interested in acquiring Lot 2, Block 1 of Metrogate Subdivision in Dasmariñas, Cavite, respondent Flora A.
Saberon (Flora) asked petitioner Moldex Realty, Inc. (Moldex), the developer, to reserve the lot for her as
shown by a Reservation Application.Flora opted to pay on installment and began making periodical payments
from 1992 to 1996. For failure to pay, Moldex sent Flora a Notarized Notice of Cancellation of Reservation
Application and/or Contract to Sell. Flora, on the other hand, filed before the Housing and Land Use
Regulatory Board (HLURB) Regional Field Office a Complaintfor the annulment of the contract to sell,
recovery of all her payments with interests, damages, and the cancellation of Moldex’s license to sell.

Aside from imputing bad faith on the part of Moldex in bloating her unpaid balance, Flora alleged that the
contract to sell between her and Moldex is void from its inception. According to Flora, Moldex violated
Section 5 of Presidential Decree (PD) No. 957when it sold the subject lot to her before it was issued a license
to sell. Flora likewise claimed that Moldex violated Section 17 of the same law because it failed to register the
contract to sell in the Registry of Deeds.

ISSUE:

Whether or not the contract to sell Moldex entered with Flora remains valid and binding.

RULING:

YES. The lack of a certificate of registration and a license to sell on the part of a subdivision developer does
not result to the nullification or invalidation of the contract to sell it entered into with a buyer. The contract
to sell remains valid and subsisting. In said case, the Court upheld the validity of the contract to sell
notwithstanding violations by the developer of the provisions of PD 957. We held that nothing in PD 957
provides for the nullity of a contract validly entered into in cases of violation of any of its provisions such as
the lack of a license to sell.

Thus, the contract to sell entered into between Flora and Moldex remains valid despite the lack of license to
sell on the part of the latter at the time the contract was entered into.

Moreover, Flora claims that the contract she entered into with Moldex is void because of the latter’s failure
to register the contract to sell/document of conveyance with the Register of Deeds, in violation of Section
17 of PD 957. However, just like in Section 5 which did not penalize the lack of a license to sell with the
nullification of the contract, Section 17 similarly did not mention that the developer’s or Moldex’s failure to
register the contract to sell or deed of conveyance with the Register of Deeds resulted to the nullification or
invalidity of the said contract or deed.

2. REFORMATION OF INSTRUMENTS

SALUN-AT MARQUEZ and NESTOR DELA CRUZ v. ELOISA ESPEJO, et. al.
G.R. No. 168387, August 25, 2010, First Division, DEL CASTILLO, J.

When the parties admit the contents of written documents but put in issue whether these documents adequately and
correctly express the true intention of the parties, the deciding body is authorized to look beyond these instruments and
into the contemporaneous and subsequent actions of the parties in order to determine such intent.

Well-settled is the rule that in case of doubt, it is the intention of the contracting parties that prevails, for the intention is
the soul of a contract, not its wording which is prone to mistakes, inadequacies, or ambiguities. To hold otherwise would
give life, validity, and precedence to mere typographical errors and defeat the very purpose of agreements.

FACTS:

Respondents Espejos were the original registered owners of two parcels of agricultural land - (the Lantap property) and
the (the Murong property). Nemi Fernandez (Nemi) (who is the husband of respondent Elenita Espejo (Elenita) were
the tenants of the Lantap property while petitioners Salun-at Marquez (Marquez) and Nestor Dela Cruz (Dela Cruz)
were the tenants of the Murong property. The respondents mortgaged both parcels of land to Rural Bank of
Bayombong, Inc. (RBBI) to secure certain loans. Upon their failure to pay the loans to, the mortgaged properties were

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foreclosed and sold to RBBI. RBBI eventually consolidated title to the properties and transfer certificates of title (TCTs)
were issued in the name of RBBI.

On February 26, 1985, respondents Espejos bought back one of their lots from RBBI. The Deed of Sale did not mention
the barangay where the property was located but mentioned the title of the property (TCT No. T-62096), which title
corresponds to the Murong property. There is no evidence, however, that respondents took possession of the Murong
property, or demanded lease rentals from the petitioners (who continued to be the tenants of the Murong property), or
otherwise exercised acts of ownership over the Murong property. On the other hand, respondent Nemi (husband of
respondent Elenita and brother-in-law of the other respondents), continued working on the other property -- the
Lantap property -- without any evidence that he ever paid rentals to RBBI or to any landowner.

Meanwhile, on June 20, 1990, RBBI, pursuant to Sections 20 and 21 of Republic Act (RA) No. 6657, executed separate
Deeds of Voluntary Land Transfer (VLTs) in favor of petitioners Marquez and Dela Cruz, the tenants of the Murong
property. Both VLTs described the subject thereof as an agricultural land located in Barangay Murong and covered by
TCT No. T-62836 (which, however, is the title corresponding to the Lantap property).

On February 10, 1997 (more than 10 years after the Deed of Sale in favor of the respondents and almost seven years after
the execution of VLTs in favor of the petitioners), respondents filed a Complaint before the Regional Agrarian Reform
Adjudicator (RARAD) of Bayombong, Nueva Vizcaya for the cancellation of petitioners CLOAs, the deposit of leasehold
rentals by petitioners in favor of respondents, and the execution of a deed of voluntary land transfer by RBBI in favor of
respondent Nemi. The complaint was based on respondents theory that the Murong property, occupied by the
petitioners, was owned by the respondents by virtue of the 1985 buy-back, as documented in the Deed of Sale. They
based their claim on the fact that their Deed of Sale refers to TCT No. 62096, which pertains to the Murong property.

Petitioners filed their Answer and insisted that they bought the Murong property as farmer-beneficiaries thereof. They
maintained that they have always displayed good faith, paid lease rentals to RBBI when it became the owner of the
Murong property, bought the same from RBBI upon the honest belief that they were buying the Murong property, and
occupied and exercised acts of ownership over the Murong property. Petitioners also argued that what respondents
Espejos repurchased from RBBI in 1985 was actually the Lantap property, as evidenced by their continued occupation
and possession of the Lantap property through respondent Nemi.

RBBI answered that it was the Lantap property which was the subject of the buy-back transaction with respondents
Espejos. It denied committing a grave mistake in the transaction and maintained its good faith in the disposition of its
acquired assets in conformity with the rural banking rules and regulations.

ISSUE:

Whether or not the true intention of the parties are expressed in the deed of sale and in the deed of voluntary land
transfer.

RULING:

NO. The subject of the Deed of Sale between RBBI and the respondents was the Lantap property, and not the Murong
property. After the execution in 1985 of the Deed of Sale, the respondents did not exercise acts of ownership that could
show that they indeed knew and believed that they repurchased the Murong property. They did not take possession of
the Murong property. As admitted by the parties, the Murong property was in the possession of the petitioners, who
occupied and tilled the same without any objection from the respondents.Moreover, petitioners paid leasehold rentals
for using the Murong property to RBBI, not to the respondents.Moreover, respondent Nemi (husband of respondent
Elenita) is the farmer actually tilling the Lantap property, without turning over the supposed landowners share to
RBBI. This strongly indicates that the respondents considered themselves (and not RBBI) as the owners of the Lantap
property.

On the other hand, the subject of the Deeds of Voluntary Land Transfer (VLTs) in favor of petitioners was the Murong
property, and not the Lantap property. When the VLTs were executed in 1990, petitioners were already the tenant-
farmers of the Murong property, and had been paying rentals to RBBI accordingly. It is therefore natural that the
Murong property and no other was the one that they had intended to acquire from RBBI with the execution of the
VLTs. Moreover, after the execution of the VLTs, petitioners remained in possession of the Murong property, enjoying
and tilling it without any opposition from anybody. Subsequently, after the petitioners completed their payment of the
total purchase price of P90,000.00 to RBBI, the Department of Agrarian Reform (DAR) officials conducted their

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investigation of the Murong property which, with the presumption of regularity in the performance of official duty, did
not reveal any anomaly. Petitioners were found to be in actual possession of the Murong property and were the qualified
beneficiaries thereof. Thus, the DAR officials issued CLOAs in petitioners favor; and these CLOAs explicitly refer to the
land in Barangay Murong. All this time, petitioners were in possession of the Murong property, undisturbed by anyone
for several long years, until respondents started the controversy in 1997.

All of these contemporaneous and subsequent actions of RBBI and petitioners support their position that the subject
of their contract (VLTs) is the Murong property, not the Lantap property. Conversely, there has been no contrary
evidence of the parties actuations to indicate that they intended the sale of the Lantap property. Thus, it appears that
the reference in their VLT to TCT No. T-62836 (Lantap property) was due to their honest but mistaken belief that the
said title covers the Murong property. Such a mistake is not farfetched considering that TCT No. T-62836 only refers to
the Municipality of Bayombong, Nueva Vizcaya, and does not indicate the particular barangay where the property is
located. Moreover, both properties are bounded by a road and public land. Hence, were it not for the detailed technical
description, the titles for the two properties are very similar.

The respondents attempt to discredit petitioners argument that their VLTs were intrinsically ambiguous and failed to
express their true intention by asking why petitioners never filed an action for the reformation of their contract. A cause
of action for the reformation of a contract only arises when one of the contracting parties manifests an intention, by
overt acts, not to abide by the true agreement of the parties. It seems fairly obvious that petitioners had no cause to
reform their VLTs because the parties thereto (RBBI and petitioners) never had any dispute as to the interpretation and
application thereof. They both understood the VLTs to cover the Murong property (and not the Lantap property). It
was only much later, when strangers to the contracts argued for a different interpretation, that the issue became relevant
for the first time.

3. UNENFORCEABLE CONTRACTS

ELENA JANE DUARTE v. MIGUEL SAMUEL A.E. DURAN

G.R. No. 173038, September 14, 2011, First Division, DEL CASTILLO, J.

A contract of sale is perfected the moment the parties agree upon the object of the sale, the price, and the terms
of payment. Once perfected, the parties are bound by it whether the contract is verbal or in writing because no
form is required…The Statute of Frauds applies only to executory, and not to completed, executed or partially
executed contracts. In this case, the contract of sale had been partially executed because the possession of the
laptop was already transferred to petitioner and the partial payments had been made by her.

FACTS:

According to respondent Miguel Samuel A.E. Duran, he offered to sell a laptop computer for the sum of
₱15,000.00 to petitioner Elena Jane Duarte thru the help of a common friend, Josephine Dy (Dy). Since
petitioner was undecided, respondent left the laptop with petitioner for two days. Thereafter, petitioner told
respondent that she was willing to buy the laptop on installment. Respondent agreed; thus, petitioner gave
₱5,000.00 as initial payment and promised to pay the balance on two separate dates. In February 18, 2002,
petitioner gave her second installment of ₱3,000.00 to Dy, who signed the handwritten receipt allegedly made
by petitioner as proof of payment. But when Dy returned to get the remaining balance the following month,
petitioner offered to pay only ₱2,000.00 claiming that the laptop was only worth ₱10,000.00. Due to the refusal
of petitioner to pay the remaining balance, respondent thru counsel sent petitioner a demand letter. Unpaid,
respondents filed a suit for collection of sum of money with the Municipal Trial Court in Cities (MTCC), Cebu.
Petitioner, however, denied writing the receipt dated February 18, 2002, and receiving the demand letter dated
July 29, 2002. Petitioner claimed that there was no contract of sale. Petitioner said that Dy offered to sell
respondent’s laptop but because petitioner was not interested in buying it, Dy asked if petitioner could instead
lend respondent the amount of ₱5,000.00. Petitioner agreed and in turn, Dy left the laptop with petitioner.

MTCC rendered a Decision in favor of respondent finding that the receipt dated February 18, 2002 and the
testimonies of respondent and his witness, Dy, sufficient to prove that there was a contract of sale between
the parties. The Regional Trial Court reversed this ruling finding that the alleged receipt issued by the witness
Josephine Dy in her own handwriting a mere product of machination, trickery and self-serving. The Court of
Appeals, however, reinstated the MTCC decision.

ISSUES:

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1. Whether or not there was a contract of sale between the parties.

2. Whether or not the award for attorney’s fees and litigation expenses was proper.

RULING:

1. YES.The absence of a written contract of sale does not mean otherwise. A contract of sale is perfected the
moment the parties agree upon the object of the sale, the price, and the terms of payment. Once perfected,
the parties are bound by it whether the contract is verbal or in writing because no form is required. Contrary
to the view of petitioner, the Statute of Frauds does not apply in the present case as this provision applies only
to executory, and not to completed, executed or partially executed contracts. In this case, the contract of sale
had been partially executed because the possession of the laptop was already transferred to petitioner and the
partial payments had been made by her. Thus, the absence of a written contract is not fatal to respondent’s
case. Respondent only needed to show by a preponderance of evidence that there was an oral contract of sale,
which he did by submitting in evidence his own affidavit, the affidavit of his witness Dy, the receipt dated
February 18, 2002 and the demand letter dated July 29, 2002.

2. YES. Article 2208 of the Civil Code enumerates the legal grounds which justify or warrant the grant of
attorney’s fees and expenses of litigation, among which is when the defendant’s act or omission has compelled
the plaintiff to incur expenses to protect his interest. The reason for the award of attorney’s fees and litigation
expenses, however, must be set forth in the decision of the court and not in the dispositive portion only. In
this case, the factual and legal bases for the award were set forth in the body of the MTCC Decision dated
June 2, 2003.

4. VOID AND INEXISTENT CONTRACTS

LUZ S. NICOLAS v. LEONORA C. MARIANO

August 1, 2016, G.R. No. 201070, Second Division, DEL CASTILLO, J.

When both parties are in pari delicto or in equal fault, none of them may expect positive relief from the courts
in the interpretation of their agreement; instead, they shall be left as they were at the time the case was filed

FACTS:

The subject of the instant controversy is a parcel of land known as Lot 13-A, Block 40 located at Caloocan City
and covered by Transfer Certificate of Title No. (TCT) No. C-44249. The parcel of land is part of the National
Housing Authority’s (NHA) Bagong Barrio Project and built thereon is plaintiff-appellee Leonora
Mariano’s five-unit apartment which she leases out to tenants. In 1972, Leonora Mariano filed with the
NHA an application for a land grant which was approved, thus, her institution as grantee of the foregoing
parcel of land. The grant, however, is subject to a mortgage inscribed on the dorsal side of TCT No. C-44249
and further subject to a proviso, proscribing any transfer or encumbrance of said parcel of land. Accordingly,
the NHA withheld conveyance of the original TCT No. C-44249 to Leonora Mariano, furnishing her instead a
photocopy thereof as the issuance of the original TCT in her name is conditioned upon her full payment of
the mortgage loan. Leonora Mariano’s obligation remained unpaid.

On January 28, 1998, Leonora Mariano obtained a loan from defendant-appellant Luz Nicolas. To secure the
loan, she executed in favor of Luz Nicolas a mortgage deed denominated as Sanglaan ng Lupa at Bahay,
mortgaging the subject property and the improvements thereon. For defaulting on the obligation, Mariano
executed a deed of Absolute Sale of Real Property even if she is not yet the owner of the subject property since
she has not fully paid the installments to the NHA, conveying to Luz Nicolas the ownership of the subject
property and the improvements.

Notwithstanding the purported sale, Mariano sued Nicolas before the Regional Trial Court for specific
performance with damages praying that she should be released from the second mortgage agreement and
stop Nicolas from further collecting upon her credit through the rentals from her apartments, claiming that
she has fully paid her debt.

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In her Answer, Nicolas contended that the subject property and the improvements thereon were later sold to
her via a deed of absolute sale executed by Mariano and that as a result of the sale, she obtained the right to
collect the rentals from the apartment tenants. Nicolas thus prayed that Mariano be ordered to surrender the
title to the subject property to her.

ISSUES:

1. Whether or not Mariano can legally sell the subject property.

2. Whether or not Mariano cannot recover damages on account of her claimed losses arising from her entering
into contract with Nicolas.

RULING:

1. NO. While title to TCT No. C-44249 is in the name of Mariano, she has not completed her installment
payments to NHA; this fact is not disputed, and as a matter of fact, Mariano admits it. Indeed, Mariano even
goes so far as to concede, in her Comments and Opposition to the Petition, that she is not the owner of the
subject property. Thus, if she never became the owner of the subject property, then she could not validly
mortgage and sell the same to Nicolas. The principle nemo dat quod non habet certainly applies.

In this case, Nicolas is charged with knowledge of the circumstances surrounding the subject property. The
original owner’s copy of TCT No. C-44249 is not in Mariano’s possession, and the latter could only present a
photocopy thereof to her. Before one could part with his money as mortgagee or buyer of real property, it is
only natural to demand to be presented with the original owner’s copy of the certificate of title covering the
same. Secondly, the mortgage inscribed on the dorsal side of TCT No. C-44249 constitutes sufficient warning
as to the subject property’s condition at the time. In other words, TCT No. C-44249 was not a clean title, and
if Nicolas exercised diligence, she would have discovered that Mariano was delinquent in her installment
payments to the NHA, which in turn would have generated the necessary conclusion that the property
belonged to the said government agency.

2. NO. For her part, Mariano cannot recover damages on account of her claimed losses arising from her
entering into contract with Nicolas. Realizing that she is not the owner of the subject property and knowing
that she has not fully paid the price therefor, she is as guilty as Nicolas for knowingly mortgaging and
thereafter selling what is not hers. As correctly held by the CA, both parties herein are not in good faith; they
are deemed in pari delicto or in equal fault, and for this, neither one may expect positive relief from courts of
justice in the interpretation of their contract. The courts will leave them as they were at the time the case was
filed.

SPOUSES ALBERTO AND SUSAN CASTRO v. AMPARO PALENZUELA, for herself and as authorized
representative of VIRGINIA ABELLO, et. al.
G.R. No. 184698, January 21, 2013, Second Division, DEL CASTILLO, J.

Bad faith means breach of a known duty through some motive or interest or ill will. By refusing to honor their
solemn obligations under the lease, and instead unduly profiting from these violations, petitioners are guilty of
bad faith. Moral damages may be awarded when the breach of contract is attended with bad faith. "Exemplary
damages may also be awarded when a wrongful act is accompanied by bad faith or when the defendant acted in
a wanton, fraudulent, reckless, oppressive, or malevolent manner. And since the award of exemplary damages is
proper in this case, attorney's fees and costs of the suit may also be recovered as stipulated in the lease
agreement.

FACTS:

Respondents Amparo Palenzuela, Virginia Abello, Gerardo Antonio Abello, Alberto Del Rosario, Ingeborg
Regina Del Rosario, Hans Del Rosario, Margaret Del Rosario Isleta, Enrique Palenzuela and Carlos Miguel
Palenzuela own several fishponds in Bulacan, Bulacan. In March 1994, respondents, through their duly
appointed attorney-in-fact and co-respondent Amparo Palenzuela, leased out these fishponds to petitioners,
spouses Alberto and Susan Castro. The lease was to be for five years, or from March 1, 1994 up to June 30,
1999.

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When the lease expired, petitioners did not vacate and continued to occupy and operate the fishponds until
August 11, 1999, or an additional 41 days beyond the contract expiration date. Previously, or on July 22, 1999,
respondents sent a letter to petitioners declaring the latter as trespassers and demanding the settlement of
the latter’s outstanding obligations. On June 8, 2000, respondents instituted civil case for collection of a sum
of money with damages in the Regional Trial Court (RTC) claiming that petitioners committed violations of
their lease agreement – non-payment of rents as stipulated, subletting the fishponds, failure to maintain the
warehouses, and refusal to vacate the premises on expiration of the lease – which caused respondents to incur
actual and liquidated damages and other expenses for unpaid rent and for unpaid additional rent for
petitioners’ one-month extended stay beyond the contract date. Respondents argued that when the lease
expired on June 30, 1999 and petitioners continued enjoying the premises without objection from the
respondents, an implied new lease was created pursuant to Article 1670 of the Civil Code. In addition,
respondents prayed to be awarded moral and exemplary damages, attorney’s fees, and costs of litigation.

The RTC ordered the defendants, jointly and severally, to pay actual or compensatory damages, moral
damages, attorney’s fees, and costs of suit which was later affirmed by the Court of Appeals.

ISSUES:

1. Whether or not an implied lease was created when the petitioners extended their stay beyond the term of
the lease contract.

2. Whether or not the award of moral and exemplary damages are proper.

RULING:

1. YES. Respondents are correct in saying that when the lease expired on June 30, 1999 and petitioners
continued enjoying the premises without objection from the respondents, an implied new lease was created
pursuant to Article 1670 of the Civil Code, which placed upon petitioners the obligation to pay additional rent.

2.YES. Petitioners have not been exactly above-board in dealing with respondents. They have been found
guilty of several violations of the agreement, and not just one. They incurred delay in their payments, and
their check payments bounced, for one; for another, they subleased the premises to Reyes, in blatant disregard
of the express prohibition in the lease agreement; thirdly, they refused to honor their obligation, as stipulated
under the lease agreement, to pay the fishpond license and other permit fees and; finally, they refused to
vacate the premises after the expiration of the lease. Even though respondents received payments directly
from the sublessee Reyes, this could not erase the fact that petitioners are guilty of subleasing the fishponds
to her.

Bad faith means breach of a known duty through some motive or interest or ill will. By refusing to honor their
solemn obligations under the lease, and instead unduly profiting from these violations, petitioners are guilty
of bad faith. Moral damages may be awarded when the breach of contract is attended with bad faith.
Exemplary damages may also be awarded when a wrongful act is accompanied by bad faith or when the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. And since the award of
exemplary damages is proper in this case, attorney's fees and costs of the suit may also be recovered as
stipulated in the lease agreement.

V. SALES

A. NATURE AND FORM OF CONTRACT

FIRST OPTIMA REALTY CORPORATION v. SECURITRON SECURITY SERVICES, INC.

G.R. No. 199648, January 28, 2015, Second Division, DEL CASTILLO, J.

In a potential sale transaction, the prior payment of earnest money even before the property owner can agree to
sell his property is irregular, and cannot be used to bind the owner to the obligations of a seller under an
otherwise perfected contract of sale; to cite a well-worn cliche, the carriage cannot be placed before the horse.
The property owner-prospective seller may not be legally obliged to enter into a sale with a prospective buyer

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through the latter's employment of questionable practices which prevent the owner from freely giving his consent
to the transaction; this constitutes a palpable transgression of the prospective seller's rights of ownership over
his property, an anomaly which the Court will certainly not condone.

FACTS:

Looking to expand its business and add to its existing offices, respondent Securitron Security Services, Inc. –
through its General Manager, Antonio Eleazar (Eleazar) – sent a December 9, 2004 Letter addressed to
petitioner First Optima Realty Corporation – through its Executive Vice-President, Carolina T. Young (Young)
– offering to purchase the subject property owned by the 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.

On February 4, 2005, respondent sent a Letter of even date to petitioner. It was accompanied by a check issued
for ₱100,000.00 and made payable to petitioner. Despite the delicate nature of the matter and large amount
involved, 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.

On April 18, 2006, 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. Petitioner argues
that it cannot be said that it gave its consent to any transaction with respondent or to the payment made by
the latter. Respondent’s letter and check constitute merely an offer which required petitioner’s acceptance in
order to give rise to a perfected sale. Respondent counters that petitioner’s failure to reply to respondent’s
February 4, 2005 letter indicates its consent to the sale; that its acceptance of the check as earnest money and
the issuance of the provisional receipt prove that there is a prior agreement between the parties; that the
deposit of the check in petitioner’s account and failure to timely return the money to respondent militates
against petitioner’s claim of lack of knowledge and consent.

ISSUE:

Whether or not the money delivered by the respondent to the petitioner is an earnest money thereby
providing a perfected contract of sale.

RULING:

NO. 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. Thus, as between them, there is no sale to speak
of. When there is merely an offer by one party without acceptance of the other, there is no contract. In the
present case, the parties never got past the negotiation stage.

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.
By acting the way it did, respondent placed itself under grave suspicion of putting into effect a premeditated
plan to unduly bind petitioner to its rejected offer, in a manner which it could not achieve through negotiation
and employing normal business practices. It impresses the Court that respondent attempted to secure the
consent needed for the sale by depositing part of the purchase price and under the false pretense that an
agreement was already arrived at, even though there was none.

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Thus, as between respondent’s irregular and improper actions and petitioner’s failure to timely return the
₱100,000.00 purported earnest money, this Court sides with petitioner. In a manner of speaking, respondent
cannot fault petitioner for not making a refund since it is equally to blame for making such payment under
false pretenses and irregular circumstance.

In a potential sale transaction, the prior payment of earnest money even before the property owner can agree
to sell his property is irregular, and cannot be used to bind the owner to the obligations of a seller under an
otherwise perfected contract of sale; to cite a well-worn cliché, the carriage cannot be placed before the horse.
The property owner-prospective seller may not be legally obliged to enter into a sale with a prospective buyer
through the latter’s employment of questionable practices which prevent the owner from freely giving his
consent to the transaction; this constitutes a palpable transgression of the prospective seller’s rights of
ownership over his property, an anomaly which the Court will certainly not condone. An agreement where
the prior free consent of one party thereto is withheld or suppressed will be struck down, and the Court shall
always endeavor to protect a property owner’s rights against devious practices that put his property in danger
of being lost or unduly disposed without his prior knowledge or consent.

Nor will respondent's supposed payment be 'treated as a deposit or guarantee; its actions will not be dignified
and must be called for what they are: they were done irregularly and with a view to acquiring the subject
property against petitioner's consent.

Petitioner First Optima Realty Corporation is ordered to REFUND the amount of ₱100,000.00 to respondent
Securitron Security Services, Inc. without interest.

NICOLAS P. DIEGO v. RODOLFO P. DIEGO and EDUARDO P. DIEGO

G.R. No. 179965, February 20, 2013, Second Division, DEL CASTILLO, J.

A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until
the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to
sell the subject property only when the entire amount of the purchase price has already been delivered to him. In
other words, the full payment of the purchase price partakes of a suspensive condition, the nonfulfillment of
which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller
without further remedies by the prospective buyer.

FACTS:

In 1993, petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, respondent herein, entered into an oral
contract to sell covering Nicolas’s share, fixed at ₱500,000.00, as co-owner of the family’s Diego Building
situated in Dagupan City. Rodolfo made a downpayment of ₱250,000.00. The records show that Nicolas signed
a mere receipt acknowledging partial payment of ₱250,000.00 from Rodolfo. It was agreed that the deed of
sale shall be executed upon payment of the remaining balance of ₱250,000.00. However, Rodolfo failed to pay
the remaining balance.

Meanwhile, the building was leased out to third parties, but Nicolas’s share in the rents were not remitted to
him by herein respondent Eduardo, another brother of Nicolas and designated administrator of the Diego
Building. Instead, Eduardo gave Nicolas’s monthly share in the rents to Rodolfo. Despite demands and
protestations by Nicolas, Rodolfo and Eduardo failed to render an accounting and remit his share in the rents
and fruits of the building, and Eduardo continued to hand them over to Rodolfo.

Thus, Nicolas filed a Complaint against Rodolfo and Eduardo before the RTC of Dagupan City praying that
Eduardo be ordered to render an accounting of all the transactions over the Diego Building; that Eduardo and
Rodolfo be ordered to deliver to Nicolas his share in the rents; and that Eduardo and Rodolfo be held solidarily
liable for attorney’s fees and litigation expenses.

Rodolfo and Eduardo filed their Answer with Counterclaim for damages and attorney’s fees. They argued that
Nicolas had no more claim in the rents in the Diego Building since he had already sold his share to Rodolfo.
Rodolfo admitted having remitted only ₱250,000.00 to Nicolas. He asserted that he would pay the balance of
the purchase price to Nicolas only after the latter shall have executed a deed of absolute sale.

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The trial court and appellate court held that when Nicolas received the ₱250,000.00 downpayment, a “contract
of sale” was perfected. Consequently, Nicolas is obligated to convey such share to Rodolfo, without right of
rescission. Finally, the trial court held that the ₱250,000.00 balance from Rodolfo will only be due and
demandable when Nicolas executes an absolute deed of sale.

ISSUES:

1. Whether or not there was a perfected contract of sale between petitioner Nicolas and respondent Rodolfo over
Nicolas’ share of the building.

2. Whether or not the remedy of rescission is applicable in the case at bar.

3. Whether or not Eduardo is solidarily liable with Rodolfo as regards the share of Nicolas in the rents.

RULING:

1.NO. The contract entered into by Nicolas and Rodolfo was a contract to sell. This stipulation, i.e., to execute
a deed of absolute sale upon full payment of the purchase price, is a unique and distinguishing characteristic
of a contract tosell. In Reyes v. Tuparan, this Court ruled that a stipulation in the contract, “where the vendor
promises to execute a deed of absolute sale upon thecompletion by the vendee of the payment of the price,”
indicates that the parties entered into a contract to sell. According to this Court, this particular provision is
tantamount to a reservation of ownership on the part of the vendor. The parties could have executed a
document of sale upon receipt of thepartial payment but they did not. This is thus an indication that Nicolas
did notintend to immediately transfer title over his share but only upon full payment of the purchase price.

A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until
the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do
is to sell the subject property only when the entire amount of the purchase price has already been delivered
to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the
nonfulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer.

2.NO. The remedy of rescission is not available in contracts to sell. When the petitioners in the instant case
repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full,
they were merely enforcing the contract and not rescinding it. When Rodolfo failed to fully pay the purchase
price, the contract to sell was deemed terminated or cancelled although Nicolas described the termination or
cancellation of his agreement with Rodolfo as one of rescission since the proper characterization of an action
should be based on what the law says it to be, not by what a party believed it to be.

Moreover, it was not Nicolas’s obligation to compel Rodolfo to pay the balance; it was Rodolfo’s duty to remit
it. Without respondent’s full payment, there can be no breach of contract to speak of because petitioner has
no obligation yet to turn over the title. Respondent’s failure to pay in fullthe purchase price in full is not the
breach of contract contemplated underArticle 1191 of the New Civil Code but rather just an event that prevents
thepetitioner from being bound to convey title to respondent.” Otherwise stated,Rodolfo has no right to
compel Nicolas to transfer ownership to him because hefailed to pay in full the purchase price. Correlatively,
Nicolas has no obligation totransfer his ownership over his share in the Diego Building to Rodolfo.

3.YES. For his complicity, bad faith and abuse of authority as the Diego Building administrator, Eduardo must
be held solidarily liable with Rodolfo for all that Nicolas should be entitled to from 1993 up to the present, or
in respect of actual damages suffered in relation to his interest in the Diego Building. Eduardo was the primary
cause of Nicolas’s loss, being directly responsible for making and causing the wrongful payments to Rodolfo,
who received them under obligation to return them to Nicolas, the true recipient. As such, Eduardo should
be principally responsible to Nicolas as well. Suffice it to state that every person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith; and every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.

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SPS. NONILON (MANOY) and IRENE MONTECALVO v. HEIRS (Substitutes) OF EUGENIA T.

PRIMERO, represented by their Attorney-in-Fact, ALFREDO T. PRIMERO, JR.
G.R. No. 165168, July 9, 2010, First Division, DEL CASTILLO, J.

In a contract of sale, the seller loses ownership over the property and cannot recover it until and unless the
contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the seller until full payment
of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not
a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.

FACTS:

Lot No. 263 has an area of 860 square meters covered by Original Certificate of Title (OCT) registered in the
name of Eugenia Primero (Eugenia), married to Alfredo Primero, Sr. (Alfredo). Eugenia entered into an
unnotarized Agreement dated January 13, 1985 with Irene Montecalvo (Irene), where the former offered to sell
the property. They agreed that Irene would deposit an initial amount which shall form part of the down
payment equivalent to 50% of the purchase price. They also stipulated that during the term of negotiation of
30 to 45 days from receipt of said deposit, Irene would pay the balance on the down payment. In case Irene
defaulted in the payment of the down payment, the deposit would be returned within 10 days from the lapse
of said negotiation period and the Agreement deemed terminated. However, if the negotiations pushed
through, the balance of the full value would be paid in 10 equal monthly installments from receipt of the down
payment, with interest at the prevailing rate.

Irene failed to pay the full down payment within the stipulated 30-45-day negotiation period. Nonetheless,
she continued to stay on the disputed property, and still made several payments. On the other hand, Eugenia
did not return deposit to Irene, and refused to accept further payments only years after.

Thereafter, Irene caused a survey of Lot No. 263 and the segregation of a portion equivalent to 293 square
meters in her favor. However, Eugenia opposed her claim and asked her to vacate the property. Eugenia and
the heirs of her deceased husband Alfredo filed a complaint for unlawful detainer against Irene and her
husband, herein petitioner Nonilon Montecalvo (Nonilon) before the Municipal Trial Court (MTC).

ISSUE:

Whether or not the subject Agreement is a contract of sale.

RULING:

NO. The Agreement dated January 13, 1985 is a contract to sell, the efficacy of which is dependent upon the
resolutory condition that Irene pay at least 50% of the purchase price as down payment within 30-45 days
from the day Eugenia received the initial downpayment. Hence, with petitioners' non-compliance with its
terms and conditions, the obligation of the respondents to deliver and execute the corresponding deed of sale
never arose. In Salazar v. Court of Appeals, we distinguished a contract of sale from a contract to sell in that
in a contract of sale the title to the property passes to the buyer upon the delivery of the thing sold; in
a contract to sell, ownership is, by agreement, reserved in the seller and is not to pass to the buyer until full
payment of the purchase price. Otherwise stated, in a contract of sale, the seller loses ownership over the
property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract
to sell, title is retained by the seller until full payment of the price. In the latter contract, payment of the price
is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation
of the vendor to convey title from becoming effective.

In the Agreement, Eugenia, as owner, did not convey her title to the disputed property to Irene since the
Agreement was made for the purpose of negotiating the sale of the 860-square meter property. On this basis,
we are more inclined to characterize the agreement as a contract to sell rather than a contract of sale. The
assumption of both parties that the purpose of the Agreement was for negotiating the sale of Lot No. 263, in
its entirety, for a definite price, with a specific period for payment of a specified down payment, and the
execution of a subsequent contract for the sale of the same on installment payments leads to no other
conclusion than that the predecessor-in-interest of the herein respondents and the herein petitioner Irene
entered into a contract to sell.

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B. CAPACITY TO BUY OR SELL

TAINA MANIGQUE-STONE v. CATLEYA LAND, INC., AND SPOUSES TROADIO B. TECSON, and
ASUNCION ORTALIZ-TECSON
G.R. No. 195975, September 5, 2016, Second Division, DEL CASTILLO, J.

The sale of Philippine land to an alien or foreigner, even if titled in the name of his Filipino spouse, violates the
Constitution and is thus, void.

FACTS:

Cattleya Land, Inc. (Cattleya) entered into a Contract of Conditional Sale with the spouses Col. Troadio B.
Tecson (Col. Tecson) and Asuncion Tecson (collectively, Tecson spouses) covering nine parcels of land,
including the subject property in this case. While following up the registration of the Deed of Absolute Sale
at the Office of the Register of Deeds, Cattleya, through its lawyer, discovered that the owner’s copy of the
TCT covering the subject property had in fact been presented by Taina Manigque-Stone (Taina) at the Office
of the Register of Deeds, along with the Deed of Sale that was· executed by the Tecson spouses, in favor of
Taina covering the subject property.

It appears that when Taina's then common-law husband, Michael (Mike) Stone, visited Bohol sometime in
December 1985, he fell in love with the place and decided to buy a portion of the beach lot in Doljo, Panglao,
Bohol. They met with Col. Tecson, and the latter agreed to sell them a portion of the beach lot for US$8,805.00.
In the meantime, in October 1986, Taina and Mike got married.

Subsequently, Taina caused a Memorandum of Encumbrance to be annotated on this certificate of title. The
result was that on February 10, 1995, a new certificate of title, TCT No. 21771, was issued in the name of Taina,
in lieu of TCT No. 17655, in the name of the Tecson spouses.

Cattleya thereafter instituted against Taina a civil action for quieting of title and/or recovery of ownership
and cancellation of title with damages.

Taina posits that while Mike's legal capacity (to own or acquire real property in the Philippines) was not
entirely unassailable, there was nevertheless no actual violation of the constitutional prohibition against the
acquisition or purchase by aliens or foreigners of lands in the Philippines, because in this case no real transfer
of ownership had been effected in favor of Mike, from Col. Tecson; that all payments made by Mike to Col.
Tecson must be presumed to have come from the community property he had with Taina, because Mike had
been her (Taina's) common-law-husband from 1982 up to the day they were married, in 1986; hence, in this
context, she (Taina) was not exactly Mike's dummy at all, but his active partner.

Cattleya counters that there could not have been a double sale in the instant case because the earlier sale
between Col. Tecson and Mike was absolutely null and void, as this was a flagrant violation of the
constitutional provision; hence, there was only one valid sale in this case, and that was the sale between Col.
Tecson and Cattleya.

ISSUES:

1. Whether or not the sale of land by the Tecson spouses to Michael Stone a.k,a. Mike, a foreigner or alien,
although ostensibly made in Taina's name, was valid, despite the constitutional prohibition against the sale
of lands in the Phllippines to foreigners or aliens.

2. Whether or not Article 1544 of the Civil Code, the article which governs double sales, controls this case.

RULING:

1. NO. Section 7, Article XII of the Constitution states that, “Save in cases of hereditary succession, no private
lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire
or hold lands of the public domain.Given the plain and explicit language of this constitutional mandate, it has
been held that "[a]liens, whether individuals or corporations, are disqualified from acquiring lands of the

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public domain. Hence, they are also disqualified from acquiring private lands. The primary purpose of the
constitutional provision is the conservation of the national patrimony.

In the case at bench, Taina herself admitted that it was really Mike who paid with his own funds the subject
lot; hence, Mike was its real purchaser or bqyer. More than that, it bears stressing that if the deed of sale at
all proclaimed that she (Taina) was the purchaser or buyer of the subject property and this subject property
was placed under her name, it was simply because she and Mike wanted to skirt or circumvent the
constitutional prohibition barring or outlawing foreigners or aliens from acquiring or purchasing lands in the
Philippines. In the transaction in question, she was a mere dummy, a spurious stand-in, for her erstwhile
common-law husband, who was not a Filipino then, and never attempted to become a naturalized Filipino
citizen thereafter. They cannot do indirectly what is prohibited directly by the law.

2. NO. Given the fact that the sale by the Tecson spouses to Taina as Mike's dummy was totally abhorrent and
repugnant to the Philippine Constitution, and is thus, void ab initio, it stands to reason that there can be no
double sale to speak of here. Thus, there is only one sale to reckon with, that is, the sale to Cattleya.

C. OBLIGATIONS OF THE VENDOR

SPOUSES RAMY and ZENAIDA PUDADERA v. IRENEO MAGALLANES and the late DAISY TERESA
CORTEL MAGALLANES substituted by her children, NELLY M. MARQUEZ, ELISEO MAGALLANES
and ANGEL MAGALLANES
G.R. No. 170073, October 18, 2010, First Division, DEL CASTILLO, J.

Under the rule on double sale of immovables, in order for the second buyer to displace the first buyer, the
following must be shown: (1) the second buyer must show that he acted in good faith (i.e., in ignorance of the
first sale and of the first buyer’s rights) from the time of acquisition until title is transferred to him by registration
or failing registration, by delivery of possession; and (2) the second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior
registration as provided by law.

FACTS:

Belen Consing Lazaro (Lazaro) was the absolute owner of a parcel of land with an area of 5,333 square meters
(sq. m.) located in the District of Arevalo, Iloilo City. On March 13, 1979, Lazaro sold a 400 sq. m. portion to
Daisy Teresa Cortel Magallanes (Magallanes) for the sum of ₱22,000.00 under a "Contract To Sale" payable in
two years. Thereafter, Magallanes had the lot fenced and had a nipa hut constructed thereon.The other
portions of Lot 11-E were, likewise, sold by Lazaro to several buyers, namely, Elizabeth Norada, Jose Macaluda,
Jose Melocoton, Nonilon Esteya, Angeles Palma, Medina Anduyan, Evangelina Anas and Mario Gonzales.On
July 14, 1980, Lazaro executed a "Partition Agreement"in favor of Magallanes and the aforesaid buyers
delineating the portions to be owned by each buyer. Under this agreement, Magallanes and Mario Gonzales
were assigned an 800 sq. m. portion of Lot 11-E, with each owning 400 sq. m. thereof, denominated as Lot No.
11-E-8 in a Subdivision Plan which was approved by the Director of Lands on August 25, 1980.

Sometime thereafter Magallanes caused the construction of two houses of strong materials on the subject
lot. On April 20, 1990, petitioners filed an action for forcible entry against Magallanes with the Municipal
Trial Court in Cities of Iloilo City, Branch 2. On July 17, 1991, the trial court dismissed the action. On the other
hand, the trial court found that when petitioner Ramy Pudadera bought the subject lot from Spouses
Natividad on July 3, 1986, the former had notice that someone else was already in possession of the subject
lot.Having failed to recover the possession of the subject lot through the aforesaid forcible entry case,
petitioners commenced the subject action for Recovery of Ownership, Quieting of Title and Damages against
Magallanes and her husband, Ireneo, in a Complaint. The petitoners alleged that they are the absolute owners
of Lot 11-E-8-A. Magallanes countered that she is the absolute lawful owner of Lot 11-E-8-A; that Lot 11-E-8-A
belongs to her while Lot 11-E-8-B belongs to Mario Gonzales; that petitioners had prior knowledge of the sale
between her and Lazaro; that she enclosed Lot 11-E-8-A with a fence, constructed a house and caused soil
fillings on said lot which petitioners were aware of; and that she has been in actual possession of the said.

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During the pendency of this case, Magallanes passed away and was substituted by her heirs, herein
respondents. The Regional Trial Court ruled in favor of the respondents, compelling the petitioners to file an
appeal to the Court of Appeals which, later on, was denied, thus it was carried before the Supreme Court.

ISSUES:

1. Whether or not respondents have the better right over Lot 11-E-8-A.

2. Whether or not the petitioner are buyers in good faith.

RULING:

1. YES. The Court stated that in case of a double sale of immovables, ownership shall belong to (1) the first
registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who in good faith
presents the oldest title. However, mere registration is not enough to confer ownership. The law requires
that the second buyer must have acquired and registered the immovable property in good faith. In order for
the second buyer to displace the first buyer, the following must be shown: (1) the second buyer must show
that he acted in good faith (i.e., in ignorance of the first sale and of the first buyer’s rights) from the time of
acquisition until title is transferred to him by registration or failing registration, by delivery of possession; and
(2) the second buyer must show continuing good faith and innocence or lack of knowledge of the first sale
until his contract ripens into full ownership through prior registration as provided by law. Thus, Magallanes
has a better right over the said lot.

One is considered a purchaser in good faith if he buys the property without notice that some other person
has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and
interest of another person in the same property. Well-settled is the 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. However, this rule
shall not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably
cautious man 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 man to inquire into the status of the title of the
property in litigation. His mere refusal to believe that such defect exists, or his willful closing of his eyes to
the possibility of the existence of a defect in his vendor’s title will not make him an innocent purchaser for
value if it later develops that the title was in fact defective, and it appears that he had such notice of the defect
had he acted with that measure of precaution which may reasonably be required of a prudent man in a like
situation.

2. NO. In the case at bar, both the trial court and CA found that petitioners were not buyers and registrants
in good faith owing to the fact that Magallanes constructed a fence and small hut on the subject lot and has
been in actual physical possession since 1979. Hence, petitioners were aware or should have been aware of
Magallanes’ prior physical possession and claim of ownership over the subject lot when they visited the lot on
several occasions prior to the sale thereof.

SPOUSES DESIDERIO and TERESA DOMINGO v. SPOUSES EMMANUEL and TITA MANZANO, et. al.
G.R. No. 201883, November 16, 2016, Second Division, DEL CASTILLO, J.

There could be no double sale which would justify the application of Article 1544 of the New Civil Code when one
of the contracts, even if it is the first contract entered into, is a mere contract to sell.

FACTS:

Respondents Emmanuel and Tita Manzano (the Manzanos) were the registered owners of a parcel of land
with improvements in Bagong Barrio, Caloocan City covered by TCT No.160752.

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On June 1, 2001, the Manzanos, through their duly appointed attorney-in-fact and herein co-respondent
Franklin Estabillo (Estabillo), executed a notarized agreement with petitioners Desiderio and Teresa Domingo
which provided that the title to the subject property shall be transferred upon full payment of the purchase
price which is Php. 900.000. However, petitioners paid only Php. 345, 000.

All this time, the Manzanos remained in possession of the subject property. In December 2001, petitioners
offered to pay the remaining ₱555,000.00 balance, but Estabillo refused to accept payment; instead, he advised
petitioners to await respondent Tita Manzano's (Tita) arrival from abroad. When Tita arrived, petitioners
tendered payment of the balance, but the former refused to accept it. Instead, she told them that the property
was no longer for sale and she was forfeiting their payments. For this reason, petitioners caused the annotation
of an affidavit of adverse claim upon the TCT.

Soon thereafter, petitioners discovered that respondent Cannelita Aquino (Aquino) bought the subject
property on May 7, 2002, and a new title -TCT No. C-359293 - had been issued in her name. Their adverse
claim was nevertheless carried over to Aquino's new title.

The foregoing prompted the petitioners to file a complaint against the respondents wherein their main
contention is that while their agreement with the Manzanos was admittedly a mere contract to sell where
title is retained by the latter until full payment of the price, they nonetheless have a superior right over the
subject property, as against Aquino, by virtue of the applicability of Article1544 of the New Civil Code (double
sale) and the fact that Aquino was a buyer in bad faith.

ISSUE:

Whether or not Article 1544 of the New Civil Code is applicable in the case at bar.

RULING:

NO. Since failure to pay the price in full in a contract to sell renders the same ineffective and without force
and effect, then there is no sale to speak of. Even petitioners' posture that their annotation of an adverse claim
on TCT No. 160752 is equivalent to registration or claim of ownership necessarily fails, on account of the fact
that there was never a sale in their favor - and without a sale in their favor, they could not register or claim
ownership of the subject property. Thus, as between the parties to the instant case, there could be no double
sale which would justify the application of Article 1544. Petitioners failed to pay the purchase price in full,
while Aquino did, and thereafter she was able to register her purchase and obtain a new certificate of title in
her name. As far as this Court is concerned, there is only one sale - and that is, the one in Aquino's favor.
Since there is only one valid sale, the rule on double sales under Article 1544 of the Civil Code does not apply.

With regard to the cases cited by petitioners, Abarquez v. Court of Appeals and Filinvest Development
Corporation v. Golden Haven Memorial Park, Inc., suffice it to state that they do not apply, In Abarquez, while
the agreement enteredinto was a contract to sell, the land subject of the sale was nonetheless delivered tothe
buyer, who took possession thereof and even constructed a house thereon. Inthe present case, the subject
property was never surrendered to petitioners and theywere never in possession thereof. There is a difference
in the factual milieu. Onthe other hand, the Filinvest case is not one involving Article 1544; and while theCourt
therein held that a notice of adverse claim is a "warning to third partiesdealing with the property that someone
claims an interest in it or asserts a betterright than the registered owner," this is not true as regards petitioners,
Asalready stated, petitioners' failure to pay the price in full rendered their contract tosell ineffective and
without force and effect, thus nullifying any claim or betterright they may have had.

VI. LEASE

A. GENERAL PROVISIONS

ROBERTO D. TUAZON v. LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON,

WILFREDO DE LEON, MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L.
SANDICO-SILVA
G.R. No. 168325, December 8, 2010, First Division, DEL CASTILLO, J.:

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In a situation where the lessor makes an offer to sell to the lessee a certain property at a fixed price within a
certain period, and the lessee fails to accept the offer or to purchase on time, then the lessee loses his right to
buy the property and the owner can validly offer it to another.

An option without consideration can be withdrawn notwithstanding the acceptance made of it.

FACTS:

Lourdes Suarez owns a parcel of land which was leased to Roberto Tuazon. During the effectivity of the lease,
Lourdes sent a letter to Roberto offering for sale the said parcel of land for ₱37,541,00o.00 and gave him two
(2) years to decide on said offer. Four months after the expiration of the two (2) year period without Roberto
purchasing the land, the same was sold to Lourdes’ daughter for ₱2,750,000.00. The new owners now seek the
possession of the land and filed an unlawful detainer case against Roberto. Roberto in turn filed an action for
Annulment of Sale between Lourdes and her daughter. Roberto claimed that Lourdes violated his right to buy
the subject property under the principle of “right of first refusal”, because he was not given notice and
opportunity to buy the property under the same terms and conditions as that of Lourdes’ daughter.

ISSUE:

Whether or not Roberto has the right of first refusal as lessee of the subject property and the same was violated
in view of the sale made in favor of person other than him.

RULING:

NO.The case involves an option contract and not a contract of a right of first refusal.

An ‘option contract’is one whereby the owner of property agrees with another person that he shall have the
right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then
agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the
other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he
does get something of value; that is, the right to call for and receive lands if he elects. The owner parts with
his right to sell his lands, except to the second party, for a limited period. The second party receives this right,
or rather, from his point of view, he receives the right to elect to buy.On the other hand, in a ‘right of first
refusal’, while the object might be made determinate, the exercise of the right, however, would be dependent
not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed up. From the foregoing, it is thus clear
that an option contract is entirely different and distinct from a right of first refusal in that in the former, the
option granted to the offeree is for a fixed period and at a determined price. Lacking these two essential
requisites, what is involved is only a right of first refusal.

A perusal of the letter involve in the case reveals that it is an option contract as it grants Roberto a fixed period
of only two years to buy the subject property at a price certain of ₱37,541,000.00. It being an option contract,
the rules applicable are found inArticle 1479 in relation to Article 1324. It provides that an option to sell," or
"a promise to buy or to sell," as used in said article, to be valid must be supported by a consideration distinct
from the price. In other words, an accepted unilateral promise can only have a binding effect if supported by
a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not
supported by any consideration. Hence, an option without consideration can be withdrawn notwithstanding
the acceptance made of it.

In this case, it is undisputed that Roberto did not accept the terms stated in the letter of Lourdes as he
negotiated for a much lower price. Roberto’s act of negotiating for a much lower price was a counter-offer and
is therefore not an acceptance of the offerunder Article 1319 of the Civil Code. The counter-offer of Roberto
for a much lower price was not accepted by Lourdes. There is therefore no contract that was perfected between
them with regard to the sale of subject property. Roberto, thus, does not have any right to demand that the
property be sold to him at the price for which it was sold to Lourdes’ daughter neither does he have the right
to demand that said sale be annulled.Moreover, even if the offer of Lourdes was accepted by Roberto, still the
former is not bound thereby because of the absence of a consideration distinct and separate from the price.

OWEN PROSPER MACKAYv.SPOUSES DANA CASWELL and CERELINA CASWELL

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G.R. No. 183872, November 17, 2014, Second Division, DEL CASTILLO, J.

Under Article 1715 of the Civil Code, if the work of a contractor has defects which destroy or lessen its value or
fitness for its ordinary or stipulated use, he may be required to remove the defect or execute another work. If he
fails to do so, he shall be liable for the expenses by the employer for the correction of the work. The demand
required of the employer under the subject provision need not be in a particular form.

FACTS:

In their search for someone who could provide electrical installation service in their newly built home in San
Narciso, Zambales, respondents spouses Dana Caswell and Cerelina Caswell (the Caswells) asked the sole
distributor of electricity in the area, Zambales II Electric Cooperative (Zameco II), thru its sub-office manager,
Engr. Victor Pulangco (Engr. Pulangco), how much its service for the installation would be. Engr. Pulangco
quoted an estimate of ₱456,000.00. However, the Caswells hired petitioner Owen Prosper A. Mackay's (Owen)
who offered to do the job for only ₱250,000.00. With the help of Cesar Badua (Badua) and Albert Galeng,
Owen claimed that the installation was completed and ready for power service connection as of August 1998.
By then, the Caswells had paid him ₱227,000.00.

At Cerelina Caswell’s (Cerelina) request, Zameco II inspected the installation work and tested the distribution
transformers. The inspection showed the defects such as lack of clamp loop deadend materials and no
locknuts on all bolts. Because of the deficiencies and other incomplete requirements, Zameco II refused to
provide energization to the Caswell home. The Caswells thus looked for Owen but he could not be found.
Hence, they were constrained to ask Zameco II to correct all the problems it found. After the single phase
distribution system was completed in accordance with the standard specifications of Zameco II in January
1999, only then did the Caswells finally have electricity.

On September 4, 1998, the Caswells executed a Joint Affidavit to charge Owen and his group of swindling
them of ₱227,000.00. Still unpaid for the remaining ₱23,000.00 for his installation work, Owen in turn filed a
Complaint for Collection of Sum of Money with Damages against the Caswells before the MTC.

The Caswells, on the other hand, maintained that Owen is not entitled to any money. They pointed out that
Owen failed to finish the job and walked out of the contract. Hence, they are the ones entitled to
reimbursement of expenses incurred to correct Owen’s defective work.

ISSUE:

Whether or not Caswells’ effort to communicate with Owen effectively served as a demand to rectify the
latter’s work in accordance with Article 1715 of the Civil Code.

RULING:

YES. Under Article 1715 of the Civil Code, if the work of a contractor has defects which destroy or lessen its
value or fitness for its ordinary or stipulated use, he may be required to remove the defect or execute another
work. If he fails to do so, he shall be liable for the expenses by the employer for the correction of the work.
The demand required of the employer under the subject provision need not be in a particular form. In the
case at bar, Owen was given the opportunity to rectify his work. Subsequent to Zameco II’s disapproval to
supply the Caswells electricity for several reasons, the Court gives credence to the latter’s claim that they
looked for Owen to demand a rectification of the work, but Owen and his group were nowhere to be found.
Had Owen really been readily available to the Caswells to correct any deficiency in the work, the latter would
not have entertained the thought that they were deceived and would not have been constrained to undergo
the rigors of filing a criminal complaint and testifying therein. Instead of complying with his end of the
bargain, Owen opted to file a case for collection of sum of money with damages. Thus, any effort to require
Owen either to rectify his flawed work or to remove the same would have been futile since Owen’s act of
demanding payment through the said complaint showed his belief that his work in the house was
done.Without doubt, the Caswells exercised due diligence when they demanded from Owen the proper
rectification of his work. Thus, the Caswells substantially complied with the requirement of Article 1715 of the
Civil Code.

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VIII. AGENCY

A. NATURE, FORM AND KINDS OFAGENCY

WILLIAM ANGIDAN SIY v. ALVIN TOMLIN

G.R. No. 205998, April 24, 2017, First Division, DEL CASTILLO, J.

The basis of agency is representation and the same may be constituted expressly or impliedly. In an implied
agency, the principal can be bound by the acts of the implied agent. The same is true with an oral agency.

FACTS:

Siy filed a Complaint for Recovery of Possession with Prayer for Replevin against Frankie Domanog Ong
(Ong), Chris Centeno (Centeno), John Co Chua (Chua), and Alvin Tomlin. In his Complaint, Siy alleged that
he is the owner of a 2007 model Range Rover. In 2010, he entrusted the said vehicle to Ong, a businessman
who owned a second-hand car sales showroom, after the latter claimed that he had a prospective buyer
therefor. However, Ong failed to remit the proceeds of the purported sale nor return the vehicle. Siy later
found out that the vehicle had been transferred to Chua. Hence, Siy filed a complaint before the Quezon City
Police District's Anti-Carnapping Section. Siy learned thereafter that the vehicle was transferred to Tomlin
and that the vehicle was later impounded and taken into custody by the PNP-Highway Patrol Group (HPG)
at Camp Crame, Quezon City after Tomlin attempted to process a PNP clearance of the vehicle with a view
to transferring ownership thereof. Siy thus prayed that a writ of replevin be issued for the return of the vehicle
to him.

ISSUE:

Whether or not Siy is entitled for the complaint for writ of replevin applied for.

RULING:

NO. This Court is not unaware of the practice by many vehicle buyers and second-hand car traders of not
transferring registration and ownership over vehicles purchased from their original owners, and rather
instructing the latter to execute and sign in blank deeds of sale covering these vehicles, so that these buyers
and dealers may freely and readily trade or re-sell the vehicles in the second-hand car market without
difficulty. This way, multiple transfers, sales, or trades of the vehicle using these undated deeds signed in
blank become possible, until the latest purchaser decides to actually transfer the certificate of registration in
his name.

In many cases as well, busy vehicle owners selling their vehicles actually leave them, together with all the
documents of title, spare keys, and deeds of sale signed in blank, with second-hand car traders they know and
trust, in order for the latter to display these vehicles for actual viewing and inspection by prospective buyers
at their lots, warehouses, garages, or showrooms, and to enable the traders to facilitate sales on-the-spot, as-
is-where-is, without having to inconvenience the owners with random viewings and inspections of their
vehicles. For this kind of arrangement, an agency relationship is created between the vehicle owners, as
principals, and the car traders, as agents. The situation is akin to an owner of jewelry who sells the same
through an agent, who receives the jewelry in trust and offers it for sale to his/her regular clients; if a sale is
made, the agent takes payment under the obligation to remit the same to the jewelry owner, minus the agreed
commission or other compensation.

From petitioner's own account, he constituted and appointed Ong as his agent to sell the vehicle, surrendering
to the latter the vehicle, all documents of title pertaining thereto, and a deed of sale signed in blank, with full
understanding that Ong would offer and sell the same to his clients or to the public. In return, Ong accepted
the agency by his receipt of the vehicle, the blank deed of sale, and documents of title, and when he gave bond
in the form of two guarantee checks worth ₱4.95 million. All these gave Ong the authority to act for and in
behalf of petitioner. Under the Civil Code on agency, Art. 1869. Agency may be express, or implied from
the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.

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Agency may be oral, unless the law requires a specific form.

Art. 1870. Acceptance by the agent may also be express or implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances.

The basis of agency is representation and the same may be constituted expressly or impliedly. In an implied
agency, the principal can be bound by the acts of the implied agent. The same is true with an oral agency.

Acting for and in petitioner's behalf by virtue of the implied or oral agency, Ong was thus able to sell the
vehicle to Chua, but he failed to remit the proceeds thereof to petitioner; his guarantee checks bounced as
well. This entitled petitioner to sue for estafa through abuse of confidence.

Since Ong was able to sell the subject vehicle to Chua, petitioner thus ceased to be the owner thereof. Nor is
he entitled to the possession of the vehicle; together with his ownership, petitioner lost his right of possession
over the vehicle. His argument that respondent is a buyer in bad faith, when the latter nonetheless proceeded
with the purchase and registration of the vehicle on March 7, 2011, despite having been apprised of petitioner's
earlier November, 2010 "Failed to Return Vehicle" report filed with the PNP-HPG, is unavailing. Petitioner
had no right to file said report, as he was no longer the owner of the vehicle at the time; indeed, his right of
action is only against Ong, for collection of the proceeds of the sale.

Considering that he was no longer the owner or rightful possessor of the subject vehicle at the time he filed
Civil Case No. Q-11-69644 in July, 2011, petitioner may not seek a return of the same through replevin. Quite
the contrary, respondent, who obtained the vehicle from Chua and registered the transfer with the Land
Transportation Office, is the rightful owner thereof, and as such, he is entitled to its possession.

B. OBLIGATIONS OF THE AGENT

NICANORA G. BUCTON (deceased), substituted by REQUILDA B. YRAY (Petitioner) v. RURAL

BANK OF EL SALVADOR, INC., MISAMIS ORIENTAL, and REYNALDO CUYONG (Respondents) v.
ERLINDA CONCEPCION AND HER HUSBAND AND AGNES BUCTON LUGOD (Third Party
Defendants)
G.R. No. 179625, February 24, 2014, Second Division, DEL CASTILLO, J.

A mortgage executed by an authorized agent who signed in his own name without indicating that he acted for
and on behalf of his principal binds only the agent and not the principal. The words "as attorney-in-fact of," "as
agent of," or "for and on behalf of," are vital in order for the principal to be bound by the acts of his agent. Without
these words, any mortgage, although signed by the agent, cannot bind the principal as it is considered to have
been signed by the agent in his personal capacity.

FACTS:

Petitioner Nicanora G. Bucton filed with the Regional Trial Court (RTC) of Cagayan de Oro a case for
Annulment of Mortgage, Foreclosure, and Special Power of Attorney (SPA) against Erlinda Concepcion
(Concepcion) and respondents Rural Bank of El Salvador, Misamis Oriental, and Sheriff Reynaldo Cuyong.
Petitioner alleged that she is the owner of a parcel of land, covered by Transfer Certificate of Title (TCT) No.
T-3838, located in Cagayan de Oro City; that Concepcion borrowed the title on the pretext that she was going
to show it to an interested buyer; that Concepcion obtained a loan in the amount of ₱30,000.00 from
respondent bank; that as security for the loan, Concepcion mortgaged petitioner’s house and lot to
respondent bank using a SPA allegedly executed by petitioner in favor of Concepcion; that Concepcion failed
to pay the loan; that petitioner’s house and lot were foreclosed by respondent sheriff without a Notice of
Extra-Judicial Foreclosure or Notice of Auction Sale; and that petitioner’s house and lot were sold in an
auction sale in favor of respondent bank.

The RTC issued a Decision sustaining the claim of petitioner that the SPA was forged as the signatures
appearing on the SPA are different from the genuine signatures presented by petitioner. The RTC opined that
the respondent bank should have conducted a thorough inquiry on the authenticity of the SPA considering
that petitioner’s residence certificate was not indicated in the acknowledgement of the SPA.

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The CA reversed the findings of the RTC finding that although the Promissory Note and the Real Estate
Mortgage did not indicate that Concepcion was signing for and on behalf of her principal, petitioner is
estopped from denying liability since it was her negligence in handing over her title to Concepcion that caused
the loss. The CA emphasized that under the Principle of Equitable Estoppel, where one or two innocent
persons must suffer a loss, he who by his conduct made the loss possible must bear it.

ISSUES:

1. Whether or not the CA was right in declaring the petitioner liable on the litigated loan/mortgage when she
did not execute either in person or by attorney-in-fact subject mortgage and it was executed by Concepcion
in her personal capacity as mortgagor.

2. Whether or not respondent bank is negligent for failing to indicate in the Real Estate Mortgage that
Concepcion is signing for and in behalf of the petitioner.

3. Whether or not Concepcion is liable to the respondent bank for all the unpaid obligations and damages the
latter suffered.

RULING:

1.NO. In order to bind the principal by a deed executed by an agent, the deed must upon its face purport to
be made, signed and sealed in the name of the principal. In other words, the mere fact that the agent was
authorized to mortgage the property is not sufficient to bind the principal, unless the deed was executed and
signed by the agent for and on behalf of his principal.

In Philippine Sugar Estates Development Co., the wife authorized her husband to obtain a loan and to secure
it with mortgage on her property. Unfortunately, although the real estate mortgage stated that it was executed
by the husband in his capacity as attorney-in-fact of his wife, the husband signed the contract in his own
name without indicating that he also signed it as the attorney-in-fact of his wife. In Far East Bank and Trust
Company, the mother executed an SPA authorizing her daughter to contract a loan from the bank and to
mortgage her properties. The mortgage, however, was signed by the daughter and her husband as mortgagors
in their individual capacities, without stating that the daughter was executing the mortgage for and on behalf
of her mother.

Similarly, in this case, the authorized agent failed to indicate in the mortgage that she was acting for and on
behalf of her principal. The Real Estate Mortgage, explicitly shows on its face, that it was signed by Concepcion
in her own name and in her own personal capacity. In fact, there is nothing in the document to show that she
was acting or signing as an agent of petitioner. Thus, consistent with the law on agency and established
jurisprudence, petitioner cannot be bound by the acts of Concepcion.

In light of the foregoing, there is no need to delve on the issues of forgery of the SPA and the nullity of the
foreclosure sale. For even if the SPA was valid, the Real Estate Mortgage would still not bind petitioner as it
was signed by Concepcion in her personal capacity and not as an agent of petitioner. Simply put, the Real
Estate Mortgage is void and unenforceable against petitioner.

2.YES. Respondent bank was negligent and has no one to blame but itself. Not only did it act with undue
haste when it granted and released the loan in less than three days, it also acted negligently in preparing the
Real Estate Mortgage as it failed to indicate that Concepcion was signing it for and on behalf of petitioner.
We need not belabor that the words "as attorney-in-fact of," "as agent of," or "for and on behalf of," are vital
in order for the principal to be bound by the acts of his agent. Without these words, any mortgage, although
signed by the agent, cannot bind the principal as it is considered to have been signed by the agent in his
personal capacity.

3. YES. Concepcion, on the other hand, is liable to pay respondent bank her unpaid obligation under the
Promissory Note with interest. As we have said, Concepcion signed the Promissory Note in her own personal
capacity; thus, she cannot escape liability. She is also liable to reimburse respondent bank for all damages,
attorneys' fees, and costs the latter is adjudged to pay petitioner in this case.

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X. CREDIT TRANSACTIONS

A. LOAN

JOCELYN M. TOLEDO v. MARILOU M. HYDEN

G.R. No. 172139, December 8, 2010, First Division, DEL CASTILLO, J.:

It is true that the imposition of an unconscionable rate of interest on a money debt is immoral and unjust and
the court may come to the aid of the aggrieved party to that contract. However, before doing so, courts have to
consider the settled principle that the law will not relieve a party from the effects of an unwise, foolish or
disastrous contract if such party had full awareness of what she was doing.

FACTS:

Jocelyn Toledo obtained several loans from Marilou Hyden, with a total amount of ₱290,000.00. Jocelyn was
able to pay ₱778,000.00, which was applied to the 6-7% monthly interest on the principal amount. For failure
to pay, Jocelyn executed an “Acknowledgement of Debt”. She likewise issued six (6) checks as payment.
However, Jocelyn ordered a stop payment for the three (3) remaining checks, hence Marilou filed an action
for collection of sum of money. Jocelyn claimed that she had already paid the principal amount considering
the huge amount of interest. She prayed that the Court declare the interest to be unconscionable, hence void.

ISSUE:

Whether or not the stipulated interest of 6-7% monthly interest is excessive, iniquitous, unconscionable and
exorbitant.

RULING:

NO.The 6% to 7% interest per month paid by Jocelyn is not excessive under the circumstances of this case.

In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law ceiling on interest effective
January 1, 1983, parties to a loan agreement have wide latitude to stipulate interest rates. Nevertheless, such
stipulated interest rates may be declared as illegal if the same is unconscionable. There is certainly nothing in
said circular which grants lenders carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets.

In this case, however, the disputed 6% to 7% monthly interest rate is not iniquitous or unconscionable. There
was no urgency of the need for money on the part of Jocelyn, the debtor, which compelled her to enter into
the loan transactions. She used the money from the loans to make advance payments for prospective clients
of educational plans offered by her employer. In this way, her sales production would increase, thereby
entitling her to 50% rebate on her sales. This is the reason why she did not mind the 6% to 7% monthly
interest. Notably too, a business transaction of this nature between Jocelyn and Marilou continued for more
than five years. Jocelyn religiously paid the agreed amount of interest until she ordered for stop payment on
some of the checks issued to Marilou. The checks were in fact sufficiently funded when she ordered the stop
payment and then filed a case questioning the imposition of a 6% to 7% interest rate for being allegedly
iniquitous or unconscionable and, hence, contrary to morals.It was clearly shown that before Jocelyn availed
of said loans, she knew fully well that the same carried with it an interest rate of 6% to 7% per month, yet she
did not complain. In fact, when she availed of said loans, an advance interest of 6% to 7% was already deducted
from the loan amount, yet she never uttered a word of protest.After years of benefiting from the proceeds of
the loans bearing an interest rate of 6% to 7% per month and paying for the same, Jocelyn cannot now go to
court to have the said interest rate annulled on the ground that it is excessive, iniquitous, unconscionable,
exorbitant, and absolutely revolting to the conscience of man. This is so because among the maxims of equity
are (1) he who seeks equity must do equity, and (2) he who comes into equity must come with clean hands.It
signifies that a litigant may be denied relief by a court of equity on the ground that his conduct has been
inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in issue.

SPOUSES WILFREDO PALADA and BRIGIDA PALADA v. SOLIDBANK CORPORATION and

SHERIFF MAYO DELA CRUZ

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G.R. No. 172227, June 29, 2011, First Division, DEL CASTILLO, J.

Under Article 1934 of the Civil Code, a loan contract is perfected only upon the delivery of the object of the
contract.

FACTS:

Spouses Wilfredo and Brigida Palada, applied for a ₱3 million loan from Solidbank Corporation (bank).
Subsequently, petitioners received from the bank the amount of ₱1 million as additional working capital
evidenced by a promissory noteand secured by a real estate mortgage in favor of the bank. Due to the failure
of petitioners to pay the obligation, the bank foreclosed the mortgage and sold the properties at public
auction.

Thereafter, petitioners filed a Complaintfor nullity of real estate mortgage and sheriff’s certificate of salewith
prayer for damages against the bank before the Regional Trial Court (RTC). Petitioners impute bad faith and
fraud on the part of the bank in including TCT Nos. T-225131 and T-225132 in the list of properties mortgaged.
They insist that they did not sign the dorsal portion of the real estate mortgage contract, which contains the
list of properties mortgaged, because at that time the dorsal portion was still blank.

The bank, in its Answer, averred that since petitioners were collaterally deficient, they offered TCT Nos. T-
237695, T-237696, T-225131 and T-225132 as additional collateral; that although the said properties were at that
time mortgaged to the Philippine National Bank (PNB), the bank accepted the offer and caused the annotation
of the mortgage in the original copies with the Register of Deeds with the knowledge and consent of
petitioners; and that when petitioners’ obligation to PNB was extinguished, they delivered the titles of the
four properties to the bank. The bank also denied petitioners’ allegations of fraud and bad faith and argues
that the real estate mortgage which was properly notarized enjoys the presumption of regularity.

ISSUE:

1. Whether or not the loan contract was perfected.

2. Whether or not petitioners’ claim of fraud and bad faith were substantiated.

RULING:

1. YES. Under Article 1934 of the Civil Code, a loan contract is perfected only upon the delivery of the object
of the contract. In this case, although petitioners applied for a ₱3 million loan, only the amount of ₱1 million
was approved by the bank because petitioners became collaterally deficient. Hence, on only the amount of ₱1
million was released by the bank to petitioners. Upon receipt of the approved loan, petitioners executed a
promissory note for the amount of ₱1 million.As security, petitioners on the same day executed in favor of the
bank a real estate mortgage over the properties covered by TCT Nos. T-237695, T-237696, T-237698, T-143683,
T-143729, T-225131 and T-225132. Clearly, the loan contract was perfected when petitioners received the ₱1
million loan, which was the object of both the promissory note and the real estate mortgage executed by
petitioners in favor of the bank.

2. NO. There is nothing on the face of the real estate mortgage contract to arouse any suspicion of insertion
or forgery. Below the list of properties mortgaged are the signatures of petitioners.Except for the bare denials
of petitioner, no other evidence was presented to show that the signatures appearing on the dorsal portion of
the real estate mortgage contract are forgeries. Likewise flawed is petitioners’ reasoning that TCT Nos. T-
225131 and T-225132 could not have been included in the list of properties mortgaged as these were still
mortgaged with the PNB at that time. Under our laws, a mortgagor is allowed to take a second or subsequent
mortgage on a property already mortgaged, subject to the prior rights of the previous mortgage.

METROPOLITAN BANK AND TRUST COMPANY v. ANA GRACE ROSALES AND YO YUK TO
G.R. No. 183204, January 13, 2014, Second Division, DEL CASTILLO, J.

Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon demand by the depositor.

FACTS:

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Respondent Rosales accompanied her client Liu Chiu Fang to petitioner’s branch in Escolta to open a savings
account. Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for
her. Respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar Account.

On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts. Subsequently, petitioner
filed a criminal case of Estafa through False Pretenses, Misrepresentation, Deceit, and Use of Falsified
Documents against respondent Rosales alleging that Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fang’s dollar
account with petitioner’s Escolta Branch. Petitioner alleged that on February 5, 2003, its branch in Escolta
received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu Fang; that in the afternoon
of the same day, respondent Rosales went to petitioner’s Escolta Branch to inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits in cash; that Gutierrez
told respondent Rosales to come back the following day because the bank did not have enough dollars; that
on February 6, 2003, respondent Rosales accompanied an unidentified impostor of Liu Chiu Fang to the
bank; that the impostor was able to withdraw Liu Chiu Fang’s dollar deposit in the amount of
US$75,000.00; that on March 3, 2003, respondents opened a dollar account with petitioner; and that the bank
later discovered that the serial numbers of the dollar notes deposited by respondents in the amount of
US$11,800.00 were the same as those withdrawn by the impostor.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a Complaint for
Breach of Obligation and Contract with Damages against petitioner. Respondents alleged that they attempted
several times to withdraw their deposits but were unable to because petitioner had placed their accounts
under "Hold Out" status. No explanation, however, was given by petitioner as to why it issued the "Hold Out"
order. Thus, they prayed that the "Hold Out" order be lifted and that they be allowed to withdraw their
deposits. They likewise prayed for actual, moral, and exemplary damages, as well as attorney’s fees. Petitioner
alleged that respondents have no cause of action because it has a valid reason for issuing the "Hold Out" order.

ISSUE:

Whether or not petitioner can rely on the “hold out” clause in the application and agreement for deposit
account.

RULING:

NO. Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon demand by the
depositor.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources
of obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and
quasi-delict. In this case, petitioner failed to show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to issue a "Hold Out" order as the case is still
pending and no final judgment of conviction has been rendered against respondent Rosales. In fact, it is
significant to note that at the time petitioner issued the "Hold Out" order, the criminal complaint had not yet
been filed. Thus, considering that respondent Rosales is not liable under any of the five sources of obligation,
there was no legal basis for petitioner to issue the "Hold Out" order.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably refused
to release respondents’ deposit despite demand. Having breached its contract with respondents, petitioner
is liable for damages.

IBM PHILIPPINES, INC. v.PRIME SYSTEMS PLUS, INC.

G.R. No. 203192, August 15, 2016, Second Division, DEL CASTILLO, J.

For interest to become due and demandable, two requisites must be present: (1) that there must be an express
stipulation for the payment of interest and (2) the agreement to pay interest is reduced in writing.

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FACTS:

Petitioner entered into an agreement with respondent whereby the former will deliver 45 automated teller
machines (ATMs) and several computer hardware to respondent's customers for the total price of
₱24,743,610.43. On September 9, 2002, petitioner instituted a Complaint for sum of money, attorney's fees,
costs of litigation with application for the issuance of a Writ of Preliminary Attachment against respondent.
In the said Complaint, petitioner sought to have respondent pay the former ₱45,997,266.22 representing
respondent's unpaid obligation with 3% monthly interest.

Citing Article 1956 of the Civil Code, the CA found that "there is no showing that the parties had actually
agreed on the imposition of the 3% monthly interest for invoices which remained unpaid 30 days from its
delivery." The CA explained that petitioner's reliance on its letter to respondent imposing the said interest
cannot be used to bind respondent as the same was a unilateral imposition of interest, rather than a mutual
agreement between the parties. The CA also brushed aside petitioner's claim that respondent assented to such
interest rate when it executed a Deed of Assignment of Receivables on August 31, 1998 without any objection
about the interest rate.

ISSUE:

Whether the imposition of 3% monthly interest constitutes a written stipulation under Article 1956 of the
Civil Code.

RULING:

NO.It has been a long-standing rule that for interest to become due and demandable, two requisites must be
present: (1) that there must be an express stipulation for the payment of interest and (2) the agreement to pay
interest is reduced in writing.

Petitioner has gone through great lengths to attribute respondent's alleged silence, coupled with respondent's
request for the reduction of monthly interest to the latter's express agreement to a 3% monthly interest.
Nothing could be further from the truth.

Using the enumeration above, this Court finds that the evidence points to respondent's lack of consent to a
3% monthly interest. Petitioner adamantly claims that respondent's act of requesting for a lower interest rate
shows the latter's agreement to a 3% monthly interest. Such an askewed reasoning escapes us - especially here
where respondent's authorized representative never assented to petitioner's letter. To accept petitioner's
misplaced argument that the parties mutually agreed to a 3% monthly interest when respondent subsequently
ordered ATMs despite receiving petitioner's letter imposing a 3% monthly interest will render the second
condition - that the agreement be reduced in writing - futile. Although respondent did agree to the imposition
of interest per se, the fact that there was never a clear rate of interest still leaves room to guess as to how
much interest respondent will pay. This is precisely the reason why Article 1956 was included in the Civil Code
- so that both parties clearly agree to and are fully aware of the price to be paid in a contract.

BANKARD, INC. v. LUZ P. ALARTE

G.R. No. 202573, April 19, 2017, First Division, DEL CASTILLO, J.

Every credit card transaction involves three contracts, namely: (a) the sales contract between the credit card
holder and the merchant or the business establishment which accepted the credit card; (b) the loan agreement
between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the credit
card issuer and the merchant or business establishment.

FACTS:

Bankard, Inc. (Bankard, now RCBC Bankard Services Corporation) is a duly constituted domestic corporation
doing business as a credit card provider, extending credit accommodations to its member-cardholders for the
purchase of goods and services obtained from Bankard-accredited business establishments, to be paid later
on by the member-cardholders following billing.

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In 2007, Bankard filed a collection case against Alarte before the Metropolitan Trial Court of Pasig City
(MeTC) wherein it alleged that Alarte applied for and was granted credit accommodations under Bankard
myDream JCB Card.No. 3562-8688-5155-1006; that Alarte, using the said Bankard myDream JCB credit card,
availed herself of credit accommodations by "purchasing various products"; that per Statement of Account,
Alarte's credit availments amounted to a total of ₱67,944.82, inclusive of unbilled monthly installments,
charges and penalties or at least the minimum amount due under the credit card; and that Alarte failed and
refuses to pay her obligations despite her receipt of a written demand.

Hence, Bankard filed a Motion to Render Judgment which was granted. MeTC dismissed the case wherein it
ruled that Bankard failed to prove his claim by competent evidence. What reflects the single statement of
account presented by Bankard were merely the amounts imposed as late charges and interest charges.
Nothing in the said document would indicate the alleged purchases made by Alartet. Considering that there
is sans of evidence showing that Alarte made use of Bankard's credit facilities, it could not be said then that
the amount of ₱67,944.82 alleged to be Alarte's outstanding balance was the result of the latter's availment of
credit card.

Bankard simply submits that it has presented sufficient evidence to support its pecuniary claim. It claims that
the July 9, 2006 Statement of Account properly reflected the Alarte's obligation; that the latter is estopped
from questioning the said statement of account as it contains a waiver, stating that if she does not question
the same within 20 days from receipt, "Bankard, Inc. will deem the Statement true and correct"; that Alarte’s
failure to file her Answer in the MeTC and Comment before the RTC and the CA likewise results in the
validation of the statement of account; that with her failure to answer, all the material allegations in the
Complaint are deemed admitted, especially the statement of account which should have been specifically
denied under oath.

ISSUE:

Whether or not Bankard has a cause of action against Alarte.

RULING:

YES. A perusal of the Statement of Account would indeed show that it does not contain the particulars of
purchase transactions entered into by the latter. However, the manner in which the statement of account is
worded indicates that it is a running balance, a continuing and mounting bill of charges consisting of a
combined principal amount with finance and penalty charges imposed, which Alarte appears to have failed
to pay in the past. This is shown by the fact that Alarte has failed to pay a past bill amounting to ₱64,615.64 -
the "previous statement balance" in the very first line of the above-quoted statement of account. This could
mean that there really were no immediate purchase transactions made by Alarte for the month that needed
to be specified in the July 9, 2006 Statement of Account; that instead, she simply repeatedly failed and
continues to fail to pay her credit card debt arising out of past credit card purchase transactions to Bankard,
which thus resulted in a mounting pile of charges imposed upon her outstanding account as reflected in a
statement or bill of charges or accounts regularly sent to her.

Bankard's fault appears to lie in the fact that its Complaint was not well-prepared, and its cause is not well-
argued; for this reason, the courts below misunderstood both.While it can be said that, from the point of view
of Bankard's business dealings with Alarte, the former is not obliged, each and eve1y time, to send a statement
of account to the latter containing a detailed list of all the credit card transactions she made in the past which
remain unsettled and outstanding as of the date of issuance of the latest statement of account, as she is
presumed to know these from past statements of account received. The matter, however, is not so simple
from the viewpoint of someone who is not privy to their transactions, such as the courts.

Thus, it would not hurt the cause of justice to remand the case to the MeTC where Bankard would be required
to amend its Complaint and adduce additional evidence to prove its case; that way, the lower court can better
understand the nature of the claim, and this time it may arrive at a just resolution of the case. This is to say
that while the Court believes that Bankard's claim may be well-founded, it is not enough as to allow judgment
in its favor on 1he basis of extant evidence. It must prove the validity of its claim; this it may do by amending
its Complaint and adducing additional evidence of Alarte's credit history and proving the loan transactions
between them. After all, credit card arrangements are simple loan arrangements between the card issuer and
the card holder.

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Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the
credit card holder and the merchant or the business establishment which accepted the credit card; (b) the
loan agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay
between the credit card issuer and the merchant or business establishment.

B. GUARANTY AND SURETYSHIP

MANILA INSURANCE COMPANY, INC. v. SPOUSES ROBERTO and AIDA AMURAO

G.R No. 179628, January 16, 2013, Second Division, DEL CASTILLO, J.

Although the contract of suretyship is secondary to the principal contract, the surety’s liability to the obligee is
nevertheless direct, primary, and absolute.

FACTS:

Spouses Roberto and Aida Amurao (Sps. Amurao) entered into a Construction Contract Agreement
(CCA) with Aegean Construction and Development Corporation (Aegean) for the construction of a six-storey
commercial building. To guarantee its full and faithful compliance with the terms and conditions of the CCA,
Aegean posted performance bonds secured by petitioner The Manila Insurance Company, Inc.(Manila
Insurance) and Intra Strata Assurance Corporation (Intra Strata).Due to the failure of Aegean to complete the
project, Sps. Amurao filed a Complaint against Manila Insurance and Intra Strata to collect on the
performance bonds they issued in the amounts of ₱2,760,000.00 and ₱4,440,000.00, respectively.

The RTC, in its ruling, disregarded the fact that CCA was not yet signed at the time Manila Insurance issued
performance bond. The CA found no grave abuse of discretion on the part of the RTC. It explained that the
performance bond was intended to be coterminous with the construction of the building.It pointed out that
"if the delivery of the original contract is contemporaneous with the delivery of the surety’s obligation, each
contract becomes completed at the same time, and the consideration which supports the principal contract
likewise supports the subsidiary one."The CA likewise said that, although the contract of surety is only an
accessory to the principal contract, the surety’s liability is direct, primary and absolute.

ISSUE:

Whether or not Manila Insurance should be treated as solidary debtor in view of posting performance bond.

RULING:

YES. A contract of suretyship is defined as "an agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a
third party, called the obligee. The Court have consistently held that a surety’s liability is joint and several,
limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in relation
to the principal contract between the obligor and the obligee. However, that although the contract of
suretyship is secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct,
primary, and absolute.

In this case, Sps. Amurao (obligee) have cause of action against the petitioner since the performance bond is
coterminous with the CCA. A careful reading of the Performance Bond reveals that the "bond is coterminous
with the final acceptance of the project." Thus, the fact that it was issued prior to the execution of the CCA
does not affect its validity or effectivity.

C. PLEDGE, MORTGAGE AND ANTICHRESIS, CHATTEL MORTGAGE (INCLUDE ACT NO.

1508 AND SECTION 47 OF R.A. NO. 8791 OR THE GENERAL BANKING ACT OF 2000)

UNION BANK OF THE PHILIPPINES v. ALAIN JUNIAT, WINWOOD APPAREL, INC., WINGYAN
APPAREL, INC., NONWOVEN FABRIC PHILIPPINES
G.R. No. 171569, August 1, 2011, First Division, DEL CASTILLO, J.:

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To have a binding effect on third parties, a contract of pledge must appear in a public instrument.

FACTS:

Alain Juniat, in behalf of Winwood Apparel and Wingyan Apparel obtained a loan from Union Bank. Said loan
is secured by a Chattel Mortgage over the motorized sewing machines of Winwood and Wingyan. For failure
to pay, Union Bank filed an action for sum of money with issuance of a writ of preliminary attachment and
replevin. At the time of issuance of the writ, Nonwoven Fabric is the possessor of the sewing machines.
Nonwoven claims that it has better title over the property claiming to be the assignee of
Juniat/Winwood/Wingyan and that the unnotarized Chattel Mortgage in favor of Union Bank has no binding
effect on it.

ISSUE:

Whether or not the subsequent assignment of the property to Nonwoven must prevail over the unnotarized
Chattel Mortgage in favor of Union Bank.

RULING:

NO.Indeed, the unnotarized Chattel Mortgage executed by Juniat in favor of Union Bank does not bind
Nonwoven.However, it must be pointed out that Union Bank’s primary cause of action is for a sum of money
with prayer for the issuance of ex-parte writs of attachment and replevin against Juniat, Winwood, Wingyan,
and the person in possession of the motorized sewing machines and equipment.Thus, the fact that the Chattel
Mortgage executed in favor of Union Bank was not notarized does not affect its cause of action. Union Bank
only needed to show that the loan of Juniat, Wingyan and Winwood remains unpaid and that it is entitled to
the issuance of the writs prayed for. Considering that writs of attachment and replevin were issued by the trial
court Nonwoven had to prove that it has a better right of possession or ownership over the attached
properties.This it failed to do. Records show that the sewing machines, snap machines and boilers were
pledged to Nonwoven by Juniat to guarantee his obligation. However, under Article 2096 of the Civil Code,
"a pledge shall not take effect against third persons if a description of the thing pledged and the date of the
pledge do not appear in a public instrument." Hence, just like the chattel mortgage executed in favor of Union
Bank, the pledge executed by Juniat in favor of Nonwoven cannot bind Union Bank.

Neither are the machineries ceded to Nonwoven by way of dacion en pago. No evidence was presented by
Nonwoven to show that the attached properties were subsequently sold to it by way of a dacion en pago. Also,
there is nothing in their Agreement to indicate that the motorized sewing machines, snap machines and
boilers were ceded to Nonwoven as payment for the Wingyan’s and Winwood’s obligation. It bears stressing
that there can be no transfer of ownership if the delivery of the property to the creditor is by way of security.
In fact, in case of doubt as to whether a transaction is one of pledge or dacion en pago, the presumption is
that it is a pledge as this involves a lesser transmission of rights and interests.

XI. SUCCESSION

A. GENERAL PROVISIONS

ANTONIO B. BALTAZAR, SEBASTIAN M. BALTAZAR, ANTONIO L. MANGALINDAN, ROSIE M.

MATEO, NENITA A. PACHECO, VIRGILIO REGALA, JR., and RAFAEL TITCO v. LORENZO LAXA
G.R. No. 174489, April 11, 2012, First Division, DEL CASTILLO, J.

The state of being forgetful does not necessarily make a person mentally unsound so as to render him unfit to
execute a Will. Forgetfulness is not equivalent to being of unsound mind.

FACTS:

Paciencia was a 78-year-old spinster when she made her last will and testament. The will was executed in the
house of retired Judge Limpin and was read to Paciencia twice. Thereafter, Paciencia affixed her signature at
the end of the said document on page 3 and then on the left margin of pages 1, 2 and 4 thereof. The witnesses
to the will were Dra. Limpin, daughter of Judge Limpin, Francisco Garcia and Faustino R. Mercado. The three

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attested to the will’s due execution by affixing their signatures below its attestation clause and on the left
margin of pages 1, 2 and 4 thereof, in the presence of Paciencia and of one another and of Judge Limpin who
acted as notary public.

Childless and without any brothers or sisters, Paciencia bequeathed all her properties to respondent Lorenzo
Laxa (Lorenzo) and his wife and their children. After the execution of the will, Paciencia left for the United
States of America where she resided with Lorenzo and his family until her death.

Several years after the death of Paciencia, Lorenzo filed a petition with the RTC for the probate of the will of
Paciencia and for the issuance of Letters of Administration in his favor.

During trial, petitioner Antonio Baltazar (Antonio) opposed Lorenzo’s petition and asked the RTC to deny
the probate of Paciencia’s will. Antonio argued that Paciencia was mentally incapable to make a will at the
time of its execution. In support of his opposition, Antonio presented Paciencia’s former maid Rosie.
According to her, Paciencia was “magulyan” or forgetful because she would sometimes leave her wallet in the
kitchen then start looking for it moments later.

The probate court denied Lorenzo’s petition and disallowed the probate of the will. On appeal, the CA
reversed the lower court’s decision and granted the probate of the will of Paciencia.

Hence, the current petition.

ISSUE:

Whether the authenticity and due execution of the notarial Will was sufficiently established to warrant its
allowance for probate.

RULING:

YES. The Court agrees with the position of the CA that the state of being forgetful does not necessarily make
a person mentally unsound so as to render him unfit to execute a Will. Forgetfulness is not equivalent to being
of unsound mind. Besides, Article 799 of the New Civil Code states:

Art. 799. To be of sound mind, it is not necessary that the testator be in full possession
of all his reasoning faculties, or that his mind be wholly unbroken, unimpaired, or
unshattered by disease, injury or other cause.

It shall be sufficient if the testator was able at the time of making the will to know the
nature of the estate to be disposed of, the proper objects of his bounty, and the
character of the testamentary act.

In this case, apart from the testimony of Rosie pertaining to Paciencias forgetfulness, there is no substantial
evidence, medical or otherwise, that would show that Paciencia was of unsound mind at the time of the
execution of the Will. On the other hand, we find more worthy of credence Dra. Limpins testimony as to the
soundness of mind of Paciencia when the latter went to Judge Limpins house and voluntarily executed the
Will. The testimony of subscribing witnesses to a Will concerning the testator’s mental condition is entitled
to great weight where they are truthful and intelligent. More importantly, a testator is presumed to be of
sound mind at the time of the execution of the Will and the burden to prove otherwise lies on the oppositor.
Article 800 of the New Civil Code states:

Art. 800. The law presumes that every person is of sound mind, in the absence of
proof to the contrary.

The burden of proof that the testator was not of sound mind at the time of making
his dispositions is on the person who opposes the probate of the will; but if the
testator, one month, or less, before making his will was publicly known to be insane,
the person who maintains the validity of the will must prove that the testator made
it during a lucid interval.

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Here, there was no showing that Paciencia was publicly known to be insane one month or less before the
making of the Will. Clearly, thus, the burden to prove that Paciencia was of unsound mind lies upon the
shoulders of petitioners. However and as earlier mentioned, no substantial evidence was presented by them
to prove the same, thereby warranting the CAs finding that petitioners failed to discharge such burden.

Furthermore, we are convinced that Paciencia was aware of the nature of her estate to be disposed of, the
proper objects of her bounty and the character of the testamentary act. As aptly pointed out by the CA, “A
scrutiny of the Will discloses that Paciencia was aware of the nature of the document she executed. She
specially requested that the customs of her faith be observed upon her death. She was well aware of how she
acquired the properties from her parents and the properties she is bequeathing to LORENZO, to his wife
CORAZON and to his two children. A third child was born after the execution of the will and was not included
therein as devisee.”

LAZARO PASCO and LAURO PASCO v. HEIRS OF FILOMENA DE GUZMAN, represented by

CRESENCIA DE GUZMAN-PRINCIPE
G.R. No. 165554, July 26, 2010, First Division, DEL CASTILLO, J.

The rights to the succession are transmitted from the moment of the death of the decedent.

FACTS:

Lazaro and Lauro Pasco obtained a loan in the amount of ₱140,000.00 from Filomena (now deceased) secured
by a chattel mortgage on Lauro's Isuzu Jeep in favor of Filomena. Upon her death, her heirs sought to collect
from the petitioners, to no avail. Thus, they filed a collection case against petitioners. Said heirs authorized
Cresencia to act as their attorney-in-fact through a Special Power of Attorney. The heirs through Cresencia
and petitioners then entered into a Compromise Agreement. Lazaro and Lauro later claimed that the SPA did
not validly authorize Cresencia to enter into the Compromise Agreement on behalf of her co-heirs. They also
questioned Cresencia's authority to represent her co-heirs because Filomena’s estate has a personality of its
own.

ISSUES:

1. Whether or not a co-heir designated as an attorney-in-fact in a Special Power of Attorney empowering her
to file cases for collection has the authority to enter into a Compromise Agreement even if not specifically
authorized to do so.

2. Whether or not the heirs of Filomena have the capacity to sue for collection of the proceeds of the loan
obtained by petitioners on behalf of the estate of the deceased.

RULING:

1. YES. Here, we fully concur with the findings of the CA that it is undisputed that Cresencia’s co-heirs
executed a Special Power of Attorney, dated 6 April 1999, designating the former as their attorney-in-fact and
empowering her to file cases for collection of all the accounts due to Filomena or her estate. Consequently,
Cresencia entered into the subject Compromise Agreement in order to collect the overdue loan obtained by
Pasco from Filomena. In so doing, Cresencia was merely performing her duty as attorney-in-fact of her co-
heirs pursuant to the Special Power of Attorney given to her.

Our ruling in Trinidad v. Court of Appeals is illuminating. In Trinidad, the heirs of Vicente Trinidad executed
a SPA in favor of Nenita Trinidad (Nenita) to be their representative in litigation involving the sale of real
property covered by the decedent’s estate. As here, there was no specific authority to enter into a Compromise
Agreement. When a compromise agreement was finally reached, the heirs later sought to invalidate it,
claiming that Nenita was not specifically authorized to enter into the compromise agreement. We held then,
as we do now, that the SPA necessarily included the power of the attorney-in-fact to compromise the case,
and that Nenita’s co-heirs could not belatedly disavow their original authorization. This ruling is even more
significant here, where the co-heirs have not taken any action to invalidate the Compromise Agreement or
assail their SPA.

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2. YES. Unpaid loans are considered assets of the estate of the creditor-decedent. While it is true that
Filomena’s estate has a different juridical personality that that of the heirs, the latter certainly have an interest
in the preservation of the estate and the recovery of its properties for at the moment of Filomena’s death, the
heirs start to own the property, subject to the decedent’s liabilities. In this connection, Article 777 of the Civil
Code states that the rights to the succession are transmitted from the moment of the death of the decedent.

Nonetheless, the Court ruled that the proceeds of the loan should be released to Filomena’s heirs only upon
settlement of her estate because to allow the release of the funds directly to the heirs would amount to
distribution of the estate, which distribution and delivery should be made only after, not before, the payment
of all debts, charges, expenses, and taxes of the estate have been paid.

XII. LAND TITLES AND DEEDS

A. TORRENS SYSTEM (GENERAL PRINCIPLES)

REPUBLIC OF THE PHILIPPINES v. HEIRS OF JULIO RAMOS

G.R. No. 169481, February 22, 2010, Second Division, DEL CASTILLO, J.:

In petitions for reconstitution of a lost or destroyed Torrens certificate of title, trial courts are duty bound to
examine the records of the case to determine whether the jurisdictional requirements have been strictly complied
with.

FACTS:

Heirs of Julio Ramos filed a Petition for Reconstitution of OCT No. 3613. They claimed that Julio Ramos, their
grandfather, was the original claimant of Lot No. 54 as evidenced by a Relocation Plan; that the Land
Registration Authority (LRA) issued a Certification that the said lot was issued a Decree on 1925; that the
Acting Registrar of Deeds likewise issued a Certification stating that the OCT No. 3613 was not among the
salvaged records of the said registry; and that OCT No. 3613 may be reconstituted on the basis of approval
plan and technical descriptions. One of the heirs alleged that during the Japanese Occupation, copy of the
title was buried and since then it could no longer be found.

The RTC granted the petition. On appeal, CA affirmed the decision finding that there was sufficient evidence
to grant the reconstitution. Hence, the present petition. Republic of the Philippines claimed that when
reconstitution is anchored on Section 2(f) of RA No. 26, Relocation Survey and Technical Description are mere
supporting evidence to other documents which the trial court may consider sufficient as basis for granting
reconstitution. Also, it claimed that failure to inform immediately the Registry of Deeds of such loss casts
doubt that there existed OCT No. 3613.

ISSUES:

1. Whether or not Heirs of Ramos complied with jurisdictional requirements.

2. Whether or not Relocation Survey and Technical Description can be used as basis for reconstitution of title.

RULING:

1. NO.In petitions for reconstitution of a lost or destroyed Torrens certificate of title, trial courts are duty
bound to examine the records of the case to determine whether the jurisdictional requirements have been
strictly complied with. Sections 12 and 13 of RA No. 26 laid down the specific procedure for the reconstitution
of lost or destroyed Torrens certificates of title. The procedure is required for the trial court to assume
jurisdiction. Section 12 provides for the facts that a petition must contain while Section 13 requires notice of
the petition to be published twice and to be posted on the main entrance of the provincial and municipal
building. Copy of the notice should also be sent, by registered mail, to every person named therein. The notice
shall state the number of the lost or destroyed certificate of title, name of registered owner, and names of
occupants.

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In the case, the heirs of Ramos’ petition would reveal that it did not contain allegations of the facts required
in Section 12 such as that no co-owners, mortgagees or lessees duplicate had been issued or, if any had been
issued, the same had been lost or destroyed, the names and addresses of the present occupants of Lot 54. Also,
the Notice of Hearing issued by the court did not also indicate the names of the occupants or persons in
possession of Lot 54 which is a gross violation of Section 13. Therefore, the trial court never acquired
jurisdiction over the petition for reconstitution.

2. NO.Section of the same law enumerated in order the sources from which reconstitution of lost or destroyed
original certificates of title may be based. Heirs of Ramos predicated their Petition for Reconstitution on
Section 2(f) of RA 26. They presented survey plan, technical description, Certification issued by the Land
Registration Authority,Lot Data Computation,and tax declarations. However, these pieces of documentary
evidence are not similar to those mentioned in subparagraphs (a) to (e) of Section 2 of RA 26, which all pertain
to documents issued or are on file with the Registry of Deeds. Under the principle of ejusdem generis, where
general words follow an enumeration of persons or things by words of a particular and specific meaning, such
general words are not to be construed in their widest extent, but are to be held as applying only to persons or
things of the same kind or class as those specifically mentioned.

Also, the survey plan and technical description are not competent and sufficient sources of reconstitution
when the petition is based on Section 2(f) of RA 26. They are mere additional documentary
requirements. From the Certification issued by the LRA, the Court cannot ascertain whether the decree
alluded to by the heirs granted or denied Julio Ramos claim. With regard to the other Certification issued by
the Registry of Deeds, it cannot be deduced therefrom that OCT No. 3613 was actually issued and kept on file
with said office. The Certification of said Registry of Deeds that said title is not among those salvaged records
of this Registry as a consequence of the last World War, did not necessarily mean that OCT No. 3613 once
formed part of its records. Anent the tax declaration, it is not a reliable source of reconstitution of a certificate
of title for it can only be prima facie evidence of claim of ownership, which, however, is not the issue in a
reconstitution proceeding. A reconstitution of title does not pass upon the ownership of land covered by the
lost or destroyed title but merely determines whether a re-issuance of such title is proper.

SPS.FEDERICO VALENZUELA and LUZ BUENA-VALENZUELA v. SPS. JOSE MANO JR. and ROSANNA
REYES-MANO
G.R. No. 172611, July 9, 2010, First Division, DEL CASTILLO, J.:

The rule that a Torrens Certificate of Title is conclusive evidence of ownership of the land described therein does
not apply when such land, or a portion thereof, was illegally or erroneously included in said title.

FACTS:

Federico Valenzuela inherited from his father a 938 sq. meter parcel of land in Dampol II, Pulilan. On the
other hand, Jose Mano purchased from one Feliciano Geronimo a 2,056 sq. meter parcel of land in Dampol
1stPulilan. Jose applied for free patent for the purchased land and was issued an original certificate of title
covering 2,739 sq meter parcel of land. Federico filed an action for reconveyance claiming that 447 sq. meter
portion of land was included in the title of Jose. Jose, for his defense, relied on his certificate of title and asserts
that the same is an absolute and indefeasible evidence of his ownership over the property which binds and
conclusive upon the whole world.

ISSUE:

Whether or not, by virtue of the certificate of title, rightful ownership of the subject parcel of land belongs to
Jose.

RULING:

NO. Settled is the rule that a person, whose certificate of title included by mistake or oversight the land owned
by another, does not become the owner of such land by virtue of the certificate alone. The Torrens System is
intended to guarantee the integrity and conclusiveness of the certificate of registration but is not intended to
perpetrate fraud against the real owner of the land. The certificate of title cannot be used to protect a usurper
from the true owner.

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The circumstances of the case negates Jose’s claim and reliance on his said title: the area applied for free
patent exceeds the area indicated in the sale transaction between Jose and Feliciano; the seller, Feliciano,
testified in court that he sold only “about 2000 sq. meters”; as per the court’s ocular inspection there exist an
old fence which bounds the true and actual area purchased by Jose; Jose was given a right of way after the sale
transaction, in indeed the disputed area was owned by, right of way is not necessary since the disputed area
is along the highway; Jose likewise committed fraud when in his application for registration he stated that the
property is not subject to any claim or occupied by another person. All toldthe preponderance of evidence
points to the fact that Federico is the owner of the disputed property.

LEONCIO C. OLIVEROS, represented by his heirs,* MOISES DE LA CRUZ,** and the HEIRS OF
LUCIO DELA CRUZ, represented by FELIX DELA CRUZ v. SAN MIGUEL CORPORATION, THE
REGISTER OF DEEDS OF CALOOCAN CITY, and THE REGISTER OF DEEDS OF VALENZUELA
G.R. No. 173531, February 1, 2012, First Division, DEL CASTILLO, J.

Well-settled is the rule that the indefeasibility of a title does not attach to titles secured by fraud and
misrepresentation. In view of these circumstances, it was as if no title was ever issued in this case to the
petitioner and therefore this is hardly the occasion to talk of collateral attack against a title.

FACTS:

This case involves a parcel of land known as Lot 1131 (subject property) of the Malinta Estate located in
Valenzuela, Metro Manila. Ramie Textile, Inc. (Ramitex) bought the subject property from co-owners Tomas
Soriano (Soriano) and Concepcion Lozada (Lozada) in 1957. On the basis of such sale, the Register of Deeds
cancelled the vendors’ Transfer Certificate of Title (TCT) No. 29334 and issued TCT No. T-18460 on March 6,
1957 in favor of Ramitex. In 1986, Ramitex consolidated and subdivided its 17 lots within the Malinta Estate to
become consolidated Lot No. 4 (consolidated Lot 4). The consolidated area of Lot 4 is 16,958 square meters.
By virtue of this consolidation, the Register of Deeds of cancelled Ramitex’ individual title to Lot 1131 (TCT
No. T-18460) and issued a new title, TCT No. T-137261, for the consolidated Lot 4.

Troubles began for Ramitex when Oliveros filed a petition in the Regional Trial Court for the reconstitution
of TCT No. T-17186, his alleged title over Lot 1131 of the Malinta Estate (reconstitution case). He claimed that
the original copy was destroyed in the fire that gutted the office of the Bulacan RD. Ramitex filed its opposition
to Oliveros’ petition asserting that TCT No. T-17186 never existed in the records of the Bulacan RD and cannot
therefore be reconstituted. The State, through the provincial prosecutor, also opposed on the basis that
Oliveros’ TCT No. T-17186 does not come from official sources.

In light of Ramitex’ opposition and ownership claims over Lot 1131, Oliveros filed a complaint for the
declaration of nullity of Ramitex’ title over Lot 1131 (nullity case). Oliveros claimed that he bought the subject
property sometime in November 1956 from the spouses Domingo De Leon and Modesta Molina, and pursuant
to such sale, the Bulacan RD issued TCT No. T-17186 in his favor. Petitioners insist that the mere existence of
Oliveros’ earlier title negates the conclusiveness of Ramitex’ title.Oliveros’ TCT No. T-17186, as the older title,
should enjoy presumptive conclusiveness of ownership and indefeasibility of title. Corollarily, Ramitex’s title
being a later title should have the presumption of invalidity. Thus, San Miguel Corporation (SMC), successor-
in-interest of Ramitex, has the burden of overcoming this presumption.Respondent SMC, on the other hand,
argues that the principle of indefeasibility of titles applies only to an existing valid title to the litigated
property. In the instant case, SMC showed that Oliveros’ title, while claiming priority, is actually spurious.
Petitioners also assail the CA Decision for allowing a collateral attack on Oliveros’ title. Since the complaint
filed below was for the declaration of nullity of Ramitex’s title, not Oliveros’ title, what occurred below when
the trial and appellate courts nullified Oliveros’ title was a collateral attack.

ISSUES:

1. Whether or not the doctrines of indefeasibility and conclusiveness of title are applicable in favor of
respondent SMC.

2. Whether or not the decisions of the CA and the trial court allowed a collateral attack on Oliveros’ certificate
of title.

RULING:

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1. YES. The principle that the earlier title prevails over a subsequent one applies when there are two apparently
valid titles over a single property. The existence of the earlier valid title renders the subsequent title void
because a single property cannot be registered twice. As stated in Metropolitan Waterworks and Sewerage
Systems v. Court of Appeals, "a certificate is not conclusive evidence of title if it is shown that the same land
had already been registered and an earlier certificate for the same is in existence." Clearly, a mere
allegation of an earlier title will not suffice. Since petitioners allege that they have a title which was issued
earlier than SMC’s title, it was their burden to prove the alleged existence and priority of their title. The trial
and appellate courts’ shared conclusion that petitioners’ TCT No. T-17186 does not exist in the official records
is a finding of fact that is binding on this Court.

In contrast to petitioners, SMC adequately proved its title to Lot 1131. SMC proved that its and its predecessors’
titles to Lot 1131 all exist in the official records, and petitioners failed to present any convincing evidence to
cast doubt on such titles. Thus, SMC’s title enjoys presumptive conclusiveness and indefeasibility under the
Torrens system.

2. NO. Petitioners’ argument that the ruling of the trial and appellate courts allowed a collateral attack on his
title is clearly unmeritorious and easily disposed of. In the first place, the prohibition against collateral attack
does not apply to spurious or non-existent titles, since such titles do not enjoy indefeasibility. Well-settled is
the rule that the indefeasibility of a title does not attach to titles secured by fraud and misrepresentation. In
view of these circumstances, it was as if no title was ever issued in this case to the petitioner and therefore
this is hardly the occasion to talk of collateral attack against a title.

Moreover, the attack on Oliveros’ title was not a collateral attack. An action or proceeding is deemed an attack
on a title when the object of the action is to nullify the title, and thus challenge the judgment pursuant to
which the title was decreed. The attack is direct when the object of the action is to annul or set aside such
judgment, or to enjoin its enforcement. On the other hand, it is indirect or collateral when, in an action or
proceeding to obtain a different relief, an attack on the judgment is nevertheless made as an incident thereof.
Here, SMC/Ramitex assailed the validity of Oliveros’ title as part of its counterclaim in an action to declare
SMC/Ramitex’s title a nullity. A counterclaim is essentially a complaint filed by the defendant against the
plaintiff and stands on the same footing as an independent action. Thus, Ramitex’s counterclaim can be
considered a direct attack on Oliveros’ title.

ROSARIO BANGUIS-TAMBUYAT v. WENIFREDA BALCOM-TAMBUYAT

G.R. No. 202805, March 23, 2015, Second Division, DEL CASTILLO, J.

Under Section 108 of PD 1529, the proceeding for the erasure, alteration, or amendment of a certificate of title
may be resorted to in seven instances: (1) when registered interests of any description, whether vested,
contingent, expectant, or inchoate, have terminated and ceased; (2) when new interests have arisen or been
created which do not appear upon the certificate; (3) when any error, omission or mistake was made in entering
a certificate or any memorandum thereon or on any duplicate certificate; (4) when the name of any person on
the certificate has been changed; (5) when the registered owner has been married, or, registered as married, the
marriage has been terminated and no right or interest of heirs or creditors will thereby be affected; (6) when a
corporation, which owned registered land and has been dissolved, has not conveyed the same within three years
after its dissolution; and (7) when there is reasonable ground for the amendment or alteration of title. The
present case falls under (3) and (7), where the Registrar of Deeds of Bulacan committed an error in issuing TCT
T-145321 in the name of "Adriano M. Tambuyat married to Rosario E. Banguis" when, in truth and in fact,
respondent Wenifreda – and not Banguis – is Adriano’s lawful spouse.

Registration is not the equivalent of title, but is only the best evidence thereof. Title as a concept of ownership
should not be confused with the certificate of title as evidence of such ownership although both are
interchangeably used.

FACTS:

Adriano M. Tambuyat (Adriano) and respondent Wenifreda Balcom- Tambuyat (Wenifreda) were married on
September 16, 1965. During their marriage, Adriano acquired several real properties, including a 700-square
meter parcel of land located at Bulacan. The deed of sale over the said property was signed by Adriano alone
as vendee; one of the signing witnesses to the deed of sale was petitioner Rosario Banguis-Tambuyat (Rosario),

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who signed therein as "Rosario Banguis." When Transfer Certificate of Title No. T-145321(M) (TCT T-145321)
covering the subject property was issued, however, it was made under the name of "ADRIANO M. TAMBUYAT
married to ROSARIO E. BANGUIS."

All this time, petitioner Rosario remained married to Eduardo Nolasco (Nolasco). They were married on
October 15, 1975, and at all times material to this case, Nolasco was alive, and his marriage to petitioner
subsisted and was never annulled.

On June 7, 1998, Adriano died intestate. Thereafte, Wenifreda filed a Petition for Cancellation of TCT T-145321,
which was docketed as LRC Case No. P-443-99 and assigned to Regional Trial Court of Malolos, Bulacan
(Malolos RTC). She alleged therein that she was the surviving spouse of Adriano; that TCT T-145321 was
erroneously registered and made in the name of "ADRIANO M. TAMBUYAT married to ROSARIO E.
BANGUIS;" that per annexed Marriage Contract, Banguis was still married to Nolasco. Thus, Wenifreda
prayed that TCT T-145321 be cancelled; that a new certificate of title be made out in Adriano’s name, with her
as the spouse indicated; that Banguis be ordered to surrender her copy of TCT T-145321.

In her Opposition to the petition for cancellation, Banguis denied specifically that the subject property was
acquired by Adriano and Wenifreda during their marriage. She claimed that on the other hand, she alone
bought the subject property using her personal funds; that she and Adriano were married on September 2,
1988 and thereafter lived together as a married couple; that their union produced a son, who was born on
April 1, 1990; that the trial court has no jurisdiction over the petition for cancellation, which is merely a
summary proceeding – considering that a thorough determination will have to be made as to whether the
property is conjugal or exclusive property, and since she and Adriano have a child whose rights will be
adversely affected by any judgment in the case.

ISSUE:

Whether or not the Court of Appeal grossly erred in sustaining the RTC which cancelled and corrected the
questioned entry in TCT NO. T-145321 (M) from “Rosario E. Banguis” to “Wenifreda Balcom Tambuyat” under
section 108 of Property Registration Decree despite the lack of jurisdiction to hear the same in view of the
serious objections of the petitioner.

RULING:

NO. The trial court in LRC Case No. P-443-99 was not precluded from resolving the objections raised by
Banguis in her opposition to the petition for cancellation; a separate action need not be filed in a different
court exercising general jurisdiction. Banguis should be considered to have acquiesced and freely submitted
the case to the trial court for complete determination on her opposition, when she went to trial and adduced
and submitted all her relevant evidence to the court. The active participation of the party against whom the
action was brought, coupled with his failure to object to the jurisdiction of the court or quasi-judicial body
where the action is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by
the resolution of the case and will bar said party from later on impugning the court or body’s jurisdiction.

Proceedings under Section 108 are "summary in nature, contemplating corrections or insertions of mistakes
which are only clerical but certainly not controversial issues." Banguis’s opposition to the petition for
cancellation ostensibly raised controversial issues involving her claimed ownership and the hereditary rights
of Adrian, which she claims to be her son by Adriano. However, apart from the fact that evidence of Banguis’s
ownership is irrelevant in Wenifreda’s petition, the evidence apparently indicates that Banguis could not be
the owner of the subject property, while a resolution of the issue of succession is irrelevant and unnecessary
to the complete determination of Wenifreda’s petition. The Court is thus led to the conclusion that the
Registrar of Deeds of Bulacan simply erred in including Banguis in TCT T-145321 as Adriano’s spouse.

The only issue that needed to be resolved in LRC Case No. P-443-99 is – who should be included in the title
to the subject property as Adriano’s spouse, Banguis or Wenifreda? Was there error in placing Banguis’s name
in the title as Adriano’s spouse? If Banguis is Adriano’s spouse, then there would be no need to amend or even
cancel the title. On the other hand, if Wenifreda is Adriano’s spouse, the inclusion of Banguis would then be
erroneous, and TCT T-145321 would have to be cancelled. All that is required in resolving this issue is to
determine who between them Adriano’s spouse is; it was unnecessary for Banguis to prove that she is the
actual owner of the property. Title to the property is different from the certificate of title to it.

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As correctly ruled by the appellate court, the preponderance of evidence points to the fact that Wenifreda is
the legitimate spouse of Adriano. Documentary evidence such as the parties’ respective marriage contracts,
which, together with marriage certificates, are considered the primary evidence of a marital union – indicates
that Adriano was married to Wenifred at the time of the acquisition of the subject property and issuance of
the certificate of title thereto.

REPUBLIC OF THE PHILIPPINES v. CESAR PASICOLAN and GREGORIO PASICOLAN

G.R. No. 198543, April 15, 2015, Second Division, DEL CASTILLO, J.:

It is imperative to remind trial courts that granting Petitions for Reconstitution is not a ministerial task. It
involves diligent and circumspect evaluation of the authenticity and relevance of all the evidence presented, lest
the chilling consequences of mistakenly issuing a reconstituted title when in fact the original is not truly lost or
destroyed.

FACTS:

Cesar Pasicolan and Gregorio Pasicolan filed Petition for Reconstitution of OCT No. 8450. They claimed to be
the legal and forced heir of the late Pedro Callueng, name of which is registered as owner.

RTC granted the Petition. On appeal, the Republic through the OSG claimed that trial court erred in not
finding that Pasicolans failed to present competent evidence to show that the alleged lost certificate was valid
and subsisting at time of alleged loss and that mere photocopy of Decree No. 339880 was not sufficient basis
to grant reconstitution. CA affirmed the lower court decision giving credence to the unauthenticated
documentary evidence presented by Pasicolans and the report of the LRA stating that the decree was issued,
but copy of the said decree was no longer available.

ISSUE:

Whether or not reconstitution is proper.

RULING:

NO. It is imperative to remind trial courts that granting petitions for Reconstitution is not a ministerial task.
It involves diligent and circumspect evaluation of the authenticity and relevance of all the evidence presented,
lest the chilling consequences of mistakenly issuing a reconstituted title when in fact the original is not truly
lost or destroyed.

In the case, the Pasicolans failed to present competent source of reconstitution. Section 2 of RA 26 enumerates
the sources from which reconstitution of lost or destroyed original certificates of title may be used. The SC
ruled that reading of the LRA’s report would reveal that LRA made an admission only as to existence of Decree
No. 33980. In stating that the copy of the decree is no longer available casts doubt on the basis of
reconstitution. The Court held that it is mind boggling for the LRA to recommend the granting of
reconstitution despite its admission of the decree’s absence in the record. Also, the other documents, such as
technical description and survey plan, presented by Pasicolan do not warrant reconstitution of their alleged
loss title. They are mere additional documentary requirements.

AUGUSTO ONG TRINIDAD II et.al v. SPS. BONIFACIO PALAD and FELICIDAD KAUSAPIN
G.R. No. 203397, December 9, 2015, Second Division, DEL CASTILLO, J.:

Transfer Certificate of Title constitutes as evidence of ownership over the subject property, which lies within the
area covered by said title; it serves as evidence of indefeasible and incontrovertible title to the property in favor
of whose names appear therein; and that as registered owners, they are entitled to possession of the subject
property.

FACTS:

Sps. Bonifacio Palad and Felicidad Kausapin bought from Renato Ramosan eight (8) hectare parcel of land
and was issued a Transfer Certificate Title over said property. When they caused the subject land to be

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surveyed, they discovered that a two (2) hectare portion thereof was occupied by Augusto Trinidad and was
converted into a fish pond. Hence, the Spouses filed an action for recovery of possession against Augusto. For
its part, Augusto claimed that the Spouses were not the owner of the subject property, and that the same was
acquired by his father as attorney’s fees from a client.

ISSUE:

Whether or not the Spouses are entitled to the two (2) hectare parcel of land.

RULING:

YES.The fact is undisputed that the subject two-hectare property lies within the lot which is registered in the
name of the Spouses as evidenced by a TCT. TCT constitutes as evidence of ownership over the subject
property, which lies within the area covered by said title; that TCT serves as evidence of indefeasible and
incontrovertible title to the property in favor of whose names appear therein; and that as registered owners,
they are entitled to possession of the subject property. As against possession claimed by another person,
registered owner’s certificate of title prevails. Mere possession cannot defeat the title of a holder of a registered
Torrens title.

GINA ENDAYA v. ERNESTO V. VILLAOS

G.R. No. 202426, January 27, 2016, Second Division, DEL CASTILLO, J.

A certificate of title has a superior probative value as against that of an unregistered deed of sale in ejectment
cases notwithstanding the fact that the latter has in its favor a juris tantum presumption of authenticity and
due execution.

FACTS:

Gina Endaya (hereinafter petitioner) and the other heirs of Atilano Villaos (hereinafter Atilano) filed before
the RTC a complaint for declaration of nullity of deeds of sale, recovery of titles, and accounting of income of
the Palawan Village Hotel (hereinafter PVH) against Ernesto V. Villaos (hereinafter respondent). The
complaint in the main said that the purported sale of the affected lots, from Atilano to respondent, was
spurious.

Subsequently, respondent filed an ejectment case with preliminary mandatory injunction against petitioner
Gina Endaya and Leny Rivera before the Municipal Trial Court in Cities (MTCC). According to respondent,
he bought from Atilano eight (8) parcels of land, including those where PVH and WSH stood. Respondent
then took possession of the lots and started to manage and operate the said hotels. Upon taking possession
of the said lots, he told petitioner and the others who live in residential houses in the lots in question, to
vacate the premises. However, instead of leaving, petitioner even participated in a violent and unlawful take-
over of portions of PVH and WSH, thus, the filing of the ejectment case.

Denying that Atilano, during his lifetime, had executed deeds of sale involving the subject lots in favor of
respondent, petitioner stated that during the alleged execution of said deeds, Atilano was no longer
ambulatory and could no longer talk and give assent to the deeds of sale. Petitioner also questioned the
propriety of the ejectment case since according to her, they already have filed Civil Case No. 4162 precisely to
nullify the deeds of sale.
The Court of Appeals promulgated its decision affirming the ruling of the MTCC and RTCholding that the
MTCC simply took cognizance of the existence of the deeds of sale in favor of respondent without passing
judgment as to whether these deeds were valid or not.

Petitioner essentially insists that the MTCC and RTC should have resolved the issues of ownership and validity
of the deeds of sale despite the pendency of Civil Case No. 4162 because these issues will settle the question
of who between the parties has the better right of possession over the subject properties; that it was error for
the MTCC and RTC to declare that respondent had the better right of possession based on the supposed deeds
of sale in disregard of the successional rights of the Atilano heirs.

ISSUE:

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Whether or not the certificate of title should be given more probative weight over an unregistered deed of
sale in resolving the issue of who has the better right to possess.

RULING:

YES. In resolving the issue of possession in an ejectment case, the registered owner of the property is preferred
over the transferee under an unregistered deed of sale. In the present case, there is no dispute that petitioner
is the holder of a Torrens title over the entire lot. Respondents have only their notarized but
unregistered Kasulatan sa Bilihan to support their claim of ownership. Thus, even if respondents’ proof of
ownership has in its favor a juris tantum presumption of authenticity and due execution, the same cannot
prevail over petitioner’s Torrens title. It remains true that the registered owner is preferred to possess the
property subject of the unlawful detainer case. The age-old rule is that the person who has a Torrens Title
over a land is entitled to possession thereof.

While respondent has in his favor deeds of sale over the eight parcels of land, these deeds were not registered;
thus, title remained in the name of the owner and seller Atilano. When he died, title passed to petitioner, who
is his illegitimate child. This relationship does not appear to be contested by respondent – in these
proceedings, at least. Under Article 777 of the Civil Code, “[t]he rights to the succession are transmitted from
the moment of the death of the decedent.” Thus, applying the principle enunciated in the above-cited cases,
petitioner and her co-heirs should have been favored on the question of possession, being heirs who
succeeded the registered owner of the properties in dispute. Clearly, the MTCC, RTC, and CA erred in ruling
in favor of respondent.

Besides, if there are strong reasons of equity, such as when the execution of the judgment in the unlawful
detainer case would result in the demolition of the premises such that the result of enforcement would be
permanent, unjust and probably irreparable, then the unlawful detainer case should at least be suspended, if
not abated or dismissed, in order to await final judgment in the more substantive case involving legal
possession or ownership. The facts indicate that petitioner and her co-heirs have established residence on the
subject premises; the fact that they were given a long period of six months within which to vacate the same
shows how deep they have established roots therein. If they vacate the premises, serious irreversible
consequences – such as demolition of their respective residences – might ensue. It is thus more prudent to
await the outcome of Civil Case No. 4162.

B. ORIGINAL REGISTRATION

JOSEPHINE WEE v. REPUBLIC OF THE PHILIPPINES

G.R. No. 177384, December 8, 2009, Second Division, DEL CASTILLO, J.:

The phrase "adverse, continuous, open, public, peaceful and in concept of owner," are mere conclusions of law
requiring evidentiary support and substantiation.

FACTS:

Josephine Wee filed an Application for Registration of Title over a parcel of land purchased from Julian
Gonzales. Wee claimed that she and her predecessor-in-interest, Julian, have been in open, continuous,
public, peaceful and adverse possession of the land since June 12, 1945, as required by the Property Registration
Decree. The Republic thru the Solicitor General opposed the application asserting that Wee and her
predecessor-in-interest cannot be in possession and occupation of the subject property under the bona
fideclaim of ownership since the subject land became part of alienable and disposable land only in 1982. They
further aver that Wee failed to prove that she undertook clear act of dominion and ownership over the land.

ISSUE:

Whether or not Wee is entitled to the registration of land in his name based on open, continuous, public,
peaceful and adverse possession of the land in the concept of an owner.

RULING:

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NO. The phrase "adverse, continuous, open, public, peaceful and in concept of owner," by which
characteristics Wee describes his possession, are mere conclusions of law requiring evidentiary support and
substantiation. The burden of proof is on her, as applicant, to prove by clear, positive and convincing evidence
that the alleged possession was of the nature and duration required by law. Bare allegations without more, do
not amount to preponderant evidence that would shift the burden of proof to the oppositor.

Unfortunately, Wee failed to prove that she and her predecessor-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of the subject property under a bona fide claim of
ownership since June 12, 1945. First, there is nothing in the records which would substantiate her claim that
Julian was in possession of the lot since 1945, other than their bare allegations. In fact, the earliest tax
declaration that was presented as declared by Julian was only in 1957 – long after June 1945. It bears stressing
too that Wee presented only five tax declarations for a claimed possession and occupation of more than 45
years (1945-1993). This type of intermittent and sporadic assertion of alleged ownership does not prove open,
continuous, exclusive and notorious possession and occupation. In any event, in the absence of other
competent evidence, tax declarations do not conclusively establish either possession or declarant’s right to
registration of title. Second, and more importantly, Wee was unable to demonstrate that the alleged
possession was in the concept of an owner, since she could not point to any acts of occupation, development,
cultivation or maintenance over the property. She claims that because the property is planted with coffee, a
fruit-bearing tree, it automatically follows that the lot is cultivated, showing actual possession and occupation.
However, Wee failed to explain who planted the coffee, whether these plants are maintained or harvested or
if any other acts were undertaken by her or her predecessor-in-interest to cultivate the property. And even if
the Court assumes that the coffee was planted by Wee’s predecessor-in-interest, "mere casual cultivation" of
the land does not amount to exclusive and notorious possession that would give rise to ownership.

REPUBLIC OF THE PHILIPPINES v. SPOUSES DANTE AND LOLITA BENIGNO

G.R. No. 205492, March 11, 2015, Second Division, DEL CASTILLO, J.

Applicants for registration of title under PD 152950 must prove: (1) that the subject land forms part of the
disposable and alienable lands of the public domain; and (2) that they have been in open, continuous, exclusive
and notorious possession and occupation of the land under a bona fide claim of ownership since 12 June 1945 or
earlier.

FACTS:

Spouses Dante and Lolita Benigno filed with the Regional Trial Court of Calamba, Laguna an Application for
Registration of title under the Property Registration Decree (PD 1529) to a lot in Barangay Batong Malake, Los
Baños, Laguna which was granted. Petitioner filed its notice of appeal. Thereafter, the trial court approved
and directed that the entire records of the case be forwarded to the CA. Petitioner argues that the RTC’s
decision granting respondents application for registration is null and void for lack of the required certification
from the Secretary of the Department of Environment and Natural Resources (DENR) that the land applied
for is alienable and disposable land of the public domain. It claims that the mere testimony of a special
investigator of the Community Environment and Natural Resources Office (CENRO) cannot form the basis
for the Calamba RTCs finding that the land applied for is alienable and disposable.

ISSUE:

Whether the application for registration of the respondents may be granted.

RULING:

NO. Section 14(1) of the law requires that the property sought to be registered is already alienable and
disposable at the time the application for registration is filed.And, in order to prove that the land subject of
the application is alienable and disposable public land, the general rule remains: all applications for original
registration under the Property Registration Decree must include both (1) a CENRO or PENRO certification
and (2) a certified true copy of the original classification made by the DENR Secretary. Respondents did not
present any documentary evidence in LRC Case No. 105-95-C to prove that the land applied for is alienable

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and disposable public land. The well-entrenched rule is that all lands not appearing to be clearly of private
dominion presumably belong to the State. The onus to overturn, by incontrovertible evidence, the
presumption that the land subject of an application for registration is alienable and disposable rests with the
applicant. Unless public land is shown to have been reclassified or alienated to a private person by the State,
it remains part of the inalienable public domain. Indeed, occupation thereof in the concept of owner, no
matter how long, cannot ripen into ownership and be registered as a title.

C. SUBSEQUENT REGISTRATIONS
1. VOLUNTARY DEALINGS

SPS. BERNADETTE and RODULFO VILBAR v. ANGELITO L. OPINION

G.R. No. 176043, January 15, 2014, Second Division, DEL CASTILLO, J.

It is an established rule that registration is the operative act which gives validity to the transfer or creates a lien
upon the land. Any buyer or mortgagee of realty covered by a Torrens certificate of title is charged with notice
only of such burdens and claims as are annotated on the title.

FACTS:

The issue arose from an accion reinvindicatoria over Lot 20 and 21, filed by Angelito Opinion against the
Spouses Bernadette and Rodulfo Vilbar. Said lots were previously owned by Dulos Realty.

Spouses Vilbar trace and claim their ownership over the property by virtue of Deed of Absolute Sale over Lot
20 and a Contract to Sell over L0t 21. They likewise claim that they are in actual and peaceful possession of
the subject lots. Opinion, on the other hand, trace ownership on his predecessor-in-interest Gorospe Sr.
According to him, Gorospe is a former employee of Dulos Realty and by virtue of a final judgment rendered
by the Supreme Court, the employee’s claim of Gorospe was upheld, hence a writ of execution was issued.
Thereafter, Lots 20 and 21 were levied to satisfy the execution and the lots were awarded to Gorospe as the
highest bidder. Gorospe then sold the property to Opinion which was issued a transfer certificate of title in
its favor. It is to be noted that at the time Opinion acquired the property, no annotation whatsoever appears
in the certificate of title covering the subject lots.

ISSUE:

Who between the parties has a better right over Lots 20 and 21?

RULING:

Angelito Opinion.

The Court notes that Spouses Vilbar have been in actual and peaceful possession of the subject lots, despite
not having paid the purchase price, at the time Gorospe filed a case against Dulos Realty. However, the Court
also notes that the sale of Lot 20 was not annotated on the original title in the name of Dulos Realty, while
only a Contract to Sell was executed between the spouses Vilbar and Dulos Realty as regards Lot 21 which
makes the issuance of the title questionable. The aforementioned Deed of Absolute Sale and Contract to Sell
were not registered and annotated on the original titles in the name of Dulos Realty. Under land registration
laws, the said properties were not encumbered then, and third parties need only to rely on the face of the duly
issued titles. Consequently, the Court finds no bad faith on Gorospe’s part when he bought the properties at
public auction free from liens and encumbrances. Furthermore, the Court recognizes the settled rule that levy
on attachment, duly registered, takes preference over a prior unregistered sale. This result is a necessary
consequence of the fact that the properties involved were duly covered by the Torrens system which works
under the fundamental principle that registration is the operative act which gives validity to the transfer or
creates a lien upon the land.

Also worth noting is the fact that Opinion is a buyer in good faith. Opinion was never remiss in his duty of
ensuring that the Gorospe had clean title over the property. Opinion had even conducted an investigation.
He had, in this regard, no reason not to believe in the assurance of the Gorospe, more so that the claimed
right of Spouses Vilbar was never annotated on the certificate of title covering Lot 20, because it is settled that

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a party dealing with a registered land does not have to inquire beyond the Certificate of Title in determining
the true owner thereof, and in guarding or protecting his interest, for all that he has to look into and rely on
are the entries in the Certificate of Title. Spouses Vilbar’s failure to cause the transfer of the certificate title in
their name, or at the very least, annotate or register such sale in the original title in the name of Dulos Realty
proved fatal to their cause. Time and time again, the Court has ruled that 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.
Having no certificate of title issued in their names, Spouses Vilbar have no indefeasible and incontrovertible
title over the Lots to support their claim. Further, it is an established rule that registration is the operative act
which gives validity to the transfer or creates a lien upon the land. Any buyer or mortgagee of realty covered
by a Torrens certificate of title is charged with notice only of such burdens and claims as are annotated on the
title. Failing to annotate the deed for the eventual transfer of title over Lot 20 in their names, the spouses
Vilbar cannot claim a greater right over Opinion, who acquired the property with clean title in good faith and
registered the same in his name by going through the legally required procedure.

EVELYN B. RUIZ v. BERNARDO F. DIMAILIG

G.R. No. 204280, November9 2016, Second Division, DEL CASTILLO, J.

Where the mortgagor is an impostor who only pretended to be the registered owner, and acting on such pretense,
mortgaged the property to another, the mortgagor evidently did not succeed in having the property titled in his
or her name, and the mortgagee cannot rely on such pretense as what appears on the title is not the impostor's
name but that of the registered owner.

FACTS:

Bernardo Dimailig (Dimailig) was the registered owner of a parcel of land. He entrusted the owner's copy of
the said TCT to his brother, Jovannie, who in turn gave the title to Editha Sanggalang (Sanggalang), a broker,
for its intended sale. However, the property was later on mortgaged to Evelyn V. Ruiz (Ruiz) without
Dimailig’s knowledge and consent. Hence, Bernardo instituted this suit for annulment of the Deed of REM
alleging that his signature in the Deed was forged. For Ruiz’s defense, she contended that she met Jovannie
when she inspected the subject property and assured her that Dimailig owned the property and his title
thereto was genuine. She further claimed that Jovannie mortgaged the property to her and that as a mortgagee
in good faith and for value, the REM cannot be annulled and that she had the right to keep the owner's copy
of TCT No. T-361747 until the loan was fully paid to her. Also, she claimed that she merely relied on
representation that the person who mortgaged the lot to her was Dimailig.

RTC dismissed the complaint. It held that while Dimailig was the registered owner of the subject property,
Ruiz was a mortgagee in good faith because she was unaware that the person who represented himself as
Dimailig was an impostor. RTC declared that there was no showing of any circumstance that would cause
Evelyn to doubt the validity of the title or the property covered by it. On appeal, CA reversed the trial court’s
decision. The CA held that the "innocent purchaser (mortgagor in this case) for value protected by law is one
who purchases a titled land by virtue of a deed executed by the registered owner himself, not by a forged
deed." Since the Deed of REM was forged, and the title to the subject property is still in the name of the
rightful owner, and the mortgagor is a different person who only pretended to be the owner, then Ruiz cannot
seek protection from the cloak of the principle of mortgagee in good faith. The CA further decreed that the
claim of good faith cannot stand as she failed to verify the real identity of the person introduced by Sanggalang
as Dimailig.

ISSUE:

Whether or not defense of mortgagee in good faith can be invoked by Ruiz.

RULING:

NO. As a rule, no valid mortgage will arise unless the mortgagor has a valid title or ownership over the
mortgaged property. By way of exception, a mortgagee can invoke that he or she derived title even if the
mortgagor's title on the property is defective, if he or she acted in good faith. In such instance, the mortgagee
must prove that no circumstance that should have aroused her suspicion on the veracity of the mortgagor's
title on the property was disregarded.Where the mortgagor is an impostor who only pretended to be the
registered owner, and acting on such pretense, mortgaged the property to another, the mortgagor evidently

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did not succeed in having the property titled in his or her name, and the mortgagee cannot rely on such
pretense as what appears on the title is not the impostor's name but that of the registered owner.

In the case, it must be emphasized that the title remained to be registered in the name of Dimailig, the rightful
and real owner, and not in the name of the impostor. Ruiz insisted that she is a mortgagee in good faith and
for value. Unfortunately, she failed to discharge her burden.First, the Deed of REM was established to be a
forged instrument for Dimailig did not and could not have affixed his signature on the said deed since he was
out of the country that time. Simply put, for being a forged instrument, the Deed of REM is a nullity and
conveys no title. Second, Ruiz cannot invoke the protection given to a mortgagee in good faith. The title was
not transferred to the impostor's name when Ruiz transacted with the latter. Hence, the principle of
mortgagee in good faith finds no application and Ruiz cannot not seek refuge therefrom.Third, even assuming
that the impostor has caused the property to be titled in his name as if he had rightful ownership thereof,
Ruiz would still not be deemed a mortgagee in good faith because she did not take the necessary steps to
determine any defect in the title of the alleged owner of the mortgaged property. Indeed, where the mortgagee
acted with haste in granting the loan, without first determining the ownership of the property being
mortgaged, the mortgagee cannot be considered as an innocent mortgagee in good faith.Thus, considering
that the mortgage contract was forged as it was entered into by Ruiz with an impostor, the registered owner
of the property, Dimailig, correspondingly did not lose his title thereon, and Ruiz did not acquire any right or
title on the property and cannot invoke that she is a mortgagee in good faith and for value.

D. NON-REGISTRABLE PROPERTIES

REPUBLIC OF THE PHILIPPINES v. AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM

G.R. No. 180463, January 16, 2013, Second Division, DEL CASTILLO, J.

Certificates of title issued covering inalienable and non-disposable public land, even in the hands of an alleged
innocent purchaser for value, should be cancelled.

FACTS:

Lot X located in Barrio Dadiangas, General Santos Municipality (now General Santos City) was reserved for
recreation and health purposes by virtue of Proclamation No. 168. Thereafter, Republic of the Philippines
instituted a Complaint for reversion, cancellation and annulment of the AFP-RSBS titles on lot X, on the basis
that they were issued over a public park which is classified as inalienable and non-disposable public land.
Respondents-intervenors intervened in Civil Case, and, together with the defendant AFP-RSBS, argued that
their predecessor-in-interest Kusop had acquired vested interests over Lot X even before Proc. 168 was issued,
having occupied the same for more than 30 years. They claimed that these vested rights, taken together with
the favorable recommendations and actions of the DENR and other government agencies to the effect that
Lot X was alienable and disposable land of the public domain, as well as the subsequent issuance of sales
patents and OCTs in their names, cannot be defeated by Proc. 168.

ISSUES:

1. Whether the respondents-intervenors acquired vested rights over Lot X.

2. Whether AFP-RSBS is a buyer in good faith.

RULING:

1. NO. The sales patents over Lot X are null and void, for at the time the sales patents were applied for and
granted, the land had lost its alienable and disposable character. It was being utilized for a public purpose,
that is, as a recreational park. Respondents-intervenors no longer had any right to Lot X – not by acquisitive
prescription, and certainly not by sales patent. In fact, their act of applying for the issuance of miscellaneous
sales patents operates as an express acknowledgment that the State, and not respondents-intervenors, is the
owner of Lot X.

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2. As regards AFP-RSBS’ rights, the Court sustains the petitioner’s view that "any title issued covering non-
disposable lots even in the hands of an alleged innocent purchaser for value shall be cancelled.” The basic
principle is that a spring cannot rise higher than its source; as successor-in-interest, AFP-RSBS cannot acquire
a better title than its predecessor, the herein respondents-intervenors. Having acquired no title to the
property in question, there is no other recourse but for AFP-RSBS to surrender to the rightful ownership of
the State.

REPUBLIC OF THE PHILIPPINES v. ANGELINE L. DAYAOEN, AGUSTINA TAUEL,and LAWANA T.

BATCAGAN
G.R. No. 200773, July 8, 2015, Second Division, DEL CASTILLO, J.

Public islands remain part of the alienable land of the public domain unless the State is shown to have reclassified
or alienated them to private persons. Occupation thereof in the concept of the owner, no matter how long,
cannot ripen into ownership and be registered as title.

FACTS:

Appellees Angeline Dayaoen (Angeline), Agustina Taule (Agustina) and Lawana Batcagan (Lawana) filed
an Application for Registration of three parcels of land located in Barangay Tabangaoen, La Trinidad, Benguet.
The subject parcels of land were originally owned and possessed since pre-war time by Antonio Pablo
(Antonio), the grandfather of Dado Pablo (Dado), husband of appellee Angeline. In 1963, Antonio gave the
parcels of land in question to appellee Angeline and Dado as a wedding gift. From that time on, they
continuously occupied and possessed the properties. In 1976 and 1977, appellee Angeline sold Lots 6 and 7 to
co-appellees Agustina and Lawana, pursuant to an Affidavit of Quitclaim and a Deed of Absolute Sale of a
Portion of Unregistered Land, respectively. Since 12 June 1945, appellees and their predecessor-in-interest have
been in public, open, exclusive, uninterrupted and continuous possession thereof in the concept of an owner.
Appellees declared the questioned properties for taxation purposes. There was no mortgage or encumbrance
of any kind whatsoever affecting the said parcels of land.

On the scheduled initial hearing, appellees adduced pieces of documentary evidence to comply with the
jurisdictional requirements of notices, posting and publication. Appellee Angeline testified on the continuous,
open, public and exclusive possession of the lands in dispute.In a decision dated 6 November 2007, the court a
quo granted appellees' application for registration. Unflinching, the Office of the Solicitor General (OSG)
moved for reconsideration but failed to attain favorable relief as its motion was denied by the court a quo in
its Order. Petitioner filed an appeal with the CA which was later on denied, thus bringing a petition before
the Supreme Court.

ISSUE:

Whether or not the alienable and disposable character of the said lot was proven.

RULING:

NO. Under the Regalian doctrine, all lands of the public domain belong to the State. The classification and
reclassification of such lands are the prerogative of the Executive Department. The President may at any time
transfer these public lands from one class to another.

While in 1955 the President - through Presidential Proclamation No. 209 declared particular lands in Baguio
City as alienable and disposable, they may have been re-classified by the President thereafter. This is precisely
the reason why an applicant for registration of title based on an executive proclamation is required to present
evidence on the alienable and disposable character of the land applied for. such as a certificate of land
classification status from the Department of Environment and Natural Resources (DENR), which only the
Community Environment and Natural Resources Officer (CENRO) and the Provincial Environment and
Natural Resources Officer(PENRO) are authorized to issue under DENR Administrative Order No. 38,series
of 1990 (DAO 38).

In Republic v. Cortez, the Court stressed that incontrovertible evidence must be presented to establish that
the land subject of the application is alienable or disposable. In the present case, the only evidence to prove

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the character of the subject lands as required by law is the notation appearing in the Advance Plan stating in
effect that the said properties are alienable and disposable. However, this is hardly the kind of proof required
by law. To prove that the land subject of an application for registration is alienable, an applicant must establish
the existence of a positive act of the government such as a presidential proclamation or an executive order,
an administrative action, investigation reports of Bureau of Lands investigators, and a legislative act or statute.
The applicant must also secure a certification from the Government that the lands applied for are alienable
and disposable. In the case at bar, while the Advance Plan bearing the notation was certified by the Lands
Management Services of the DENR, the certification refers only to the technical correctness of the
survey plotted in the said plan and has nothing to do whatsoever with the nature and character of
the property surveyed. Respondents failed to submit a certification from the proper government agency to
prove that the lands subject for registration are indeed alienable and disposable.

The court then stated that respondents have complied with most of the requirements in connection with their
application for registration, they have not sufficiently shown that the property applied for is alienable and
disposable at the time their application for registration was filed. The Court is left with no alternative but to
deny their application for registration. To be sure, the nation's interests will be best served by a strict
adherence to the provisions of the land registration laws.

The well-entrenched rule is that all lands not appearing to be clearly of private dominion presumably belong
to the State. The onus to overturn, by incontrovertible evidence, the presumption that the land subject of an
application for registration is alienable and disposable rests with the applicant.

XIII. TORTS AND DAMAGES

A. TORTS/QUASI-DELICTS (ARTICLES 2176-2194, CIVIL CODE)

1. CLASSIFICATION OF TORTS
i. NEGLIGENT TORTS

EQUITABLE BANKING CORPORATION v. SPECIAL STEEL PRODUCTS, INC. and AUGUSTOPARDO

G.R. No. 175350, June 13, 2012, First Division, DEL CASTILLO, J.

A crossed check with the notation account payee only can only be deposited in the named payees account. It is gross
negligence for a bank to ignore this rule solely on the basis of a third party’s oral representations of having a good title
thereto. This negligence can be the basis of a cause of action based on quasi-delict.

FACTS:

Respondent Special Steel Products, Inc. (SSPI) sold welding electrodes to one of its regular customerInternational Copra
Export Corporation (Interco) as evidenced by three sales invoices which provided that Interco would pay interest at the
rate of 36% per annum in case of delay.

In payment for the above welding electrodes, Interco issued three crossed checks payable to the order of SSPI with the
notation account payee only and was drawn against Petitioner Equitable Banking Corporation (Equitable or bank). The
records do not identify the signatory for these three checks, or explain how Jose Isidoro Uy, alias Jolly Uy (Uy), an
Interco employee in charge of the purchasing department, and the son-in-law of its majority stockholder, came into
possession of these checks. He demanded the deposit of the checks in his personal accounts in Equitable

Equitable acceded to Uy’s demands on the assumption that Uy, as the son-in-law of Intercos majority stockholder, was
acting pursuant to Interco’s orders. Thus, Equitable accepted the checks for deposit in Uy’s personal accounts and
stamped ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT GUARANTEED on their dorsal portion.
Uy promptly withdrew the proceeds of the checks.

Sometime in 1991, SSPI reminded Interco of the unpaid welding electrodes. Interco replied that it had already issued
three checks payable to SSPI and drawn against Equitable. SSPI denied receipt of these checks.Interco’s and SSPI’s
eventual discovery that Uy, not SSPI, received the proceeds of the three checks that were payable to SSPI made Interco
pay the value of the three checks to SSPI, plus a portion of the accrued interests. However, Interco refused to pay the
entire accrued interest on the ground that it was not responsible for the delay.

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SSPI and its president, co-respondent Augusto L. Pardo (Pardo), filed a complaint for damages with application for a
writ of preliminary attachment against Uy and Equitable Bank. The complaint alleged that the three crossed checks, all
payable to the order of SSPI and with the notation account payee only, could be deposited and encashed by SSPI
only. However, due to Uy’s fraudulent representations, and Equitable’s indispensable connivance or gross negligence,
the restrictive nature of the checks was ignored and the checks were deposited in Uy’s account. Had the defendants not
diverted the three checks in July 1991, the plaintiffs could have used them in their business and earned money from
them. Thus, the plaintiffs prayed for an award of actual damages consisting of the unrealized interest income from the
proceeds of the checks for the two-year period that the defendants withheld the proceeds from them (from July 1991 up
to June 1993). In his personal capacity, Pardo claimed an award of P3 million as moral damages from the defendants. He
allegedly suffered hypertension, anxiety, and sleepless nights for fear that the government would charge him for tax
evasion or money laundering.

ISSUES:

1. Whether or not SSPI has a cause of action against Equitable for quasi-delict.

2. Whether or not SSPI can recover, as actual damages, the stipulated 36% per annum interest from Equitable.

3. Whether or not speculative fears and imagined scenarios, which cause sleepless nights, may be the basis for the award
of moral damages.

RULING:

1. YES. SSPIs cause of action is not based on the three checks. SSPI does not ask Equitable or Uy to deliver to it the
proceeds of the checks as the rightful payee. SSPI does not assert a right based on the undelivered checks or for breach
of contract. Instead, it asserts a cause of action based on quasi-delict. A quasi-delict is an act or omission, there being
fault or negligence, which causes damage to another. Quasi-delicts exist even without a contractual relation between
the parties.

The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPIs order, and contained the notation
account payee only. This creates a reasonable expectation that the payee alone would receive the proceeds of the checks
and that diversion of the checks would be averted. This expectation arises from the accepted banking practice that
crossed checks are intended for deposit in the named payees account only and no other. At the very least, the nature of
crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory
inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different
account.

Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual
circumstances. The fact that a person, other than the named payee of the crossed check, was presenting it for deposit
should have put the bank on guard. It should have verified if the payee (SSPI) authorized the holder (Uy) to present the
same in its behalf, or indorsed it to him. Such misplaced reliance on empty words is tantamount to gross negligence,
which is the absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a
thoughtless disregard of consequences without exerting any effort to avoid them. Had it only exercised due diligence,
Equitable could have saved both Interco and the named payee, SSPI, from the trouble that the banks mislaid trust
wrought for them.

For its role in the conversion of the checks, which deprived SSPI of the use thereof, Equitable is solidarily liable with Uy
to compensate SSPI for the damages it suffered.

2. NO. SSPI did not recover interest payments at the stipulated rate from Interco because it agreed that the delay was
not Intercos fault, but that of the defendants. If that is the case, then Interco is not in delay (at least not after issuance
of the checks) and the stipulated interest payments in their contract did not become operational. If Interco is not liable
to pay for the 36% per annum interest rate, then SSPI did not lose that income. SSPI cannot lose something that it was
not entitled to in the first place. Thus, SSPIs claim that it was entitled to interest income at the rate stipulated in its
contract with Interco, as a measure of its actual damage, is fallacious.

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More importantly, the provisions of a contract generally take effect only among the parties, their assigns and heirs. SSPI
cannot invoke the contractual stipulation on interest payments against Equitable because it is neither a party to the
contract, nor an assignee or an heir to the contracting parties.

Nevertheless, it is clear that defendant’s actions deprived SSPI of the present use of its money for a period of two
years. SSPI is therefore entitled to obtain from the tortfeasors the profits that it failed to obtain from July 1991 to June
1993. SSPI should recover interest at the legal rate of 6% per annum, this being an award for damages based on quasi-
delict and not for a loan or forbearance of money.

3. YES. Moral damages are recoverable only when they are the proximate result of the defendant’s wrongful act or
omission. Both the trial and appellate courts found that Pardo indeed suffered as a result of the diversion of the three
checks. It does not matter that the things he was worried and anxious about did not eventually materialize. It is rare for
a person, who is beset with mounting problems, to sift through his emotions and distinguish which fears or anxieties
he should or should not bother with. So long as the injured party’s moral sufferings are the result of the defendant’s
actions, he may recover moral damages.

The Court, however, finds the award of P3 million excessive. Moral damages are given not to punish the defendant but
only to give the plaintiff the means to assuage his sufferings with diversions and recreation. We find that the award
of P50,000.00 as moral damages is reasonable under the circumstances.

GREENSTAR EXPRESS, INC. and FRUTO L. SAYSON, JR. v. UNIVERSAL ROBINA CORPORATION
and NISSIN UNIVERSAL ROBINA CORPORATION
G.R. No. 205090, October 17, 2016, Second Division, DEL CASTILLO, J.

The appropriate approach in cases where both the registered-owner rule and Article 2180 apply, is that the
plaintiff must first establish that the employer is the registered owner of the vehicle in question. Once the plaintiff
successfully proves ownership, there arises a disputable presumption that the requirements of Article 2180 have
been proven. As a consequence, the burden of proof shifts to the defendant to show that no liability under Article
2180 has arisen. This may be done by proof of any of the following: (1) That there is no employee-employer
relationship; or (2) That the employee-driver acted outside the scope of his assigned tasks; or (3) That employer
exercised the diligence of a good father of a family in the selection and supervision of his employee.

FACTS:

At about 6:50 a.m on February 25, 2003, which was then a declared national holiday, petitioner Greenstar’s
bus, which was then being driven toward the direction of Manila by petitioner Fruto L. Sayson, Jr. (Sayson),
one of Greenstar’s bus drivers, collided head-on with respondents Universal Robina Corporation’s (URC) van
which was then being driven Quezon province-bound by Nissin Universal Robina Corporation’s or NURC (a
subsidiary of URC) 'Operations Manager, Renante Bicomong (Bicomong). Bicomong died on the spot while
the colliding vehicles sustained considerable damage. URC is the registered ovvner of the aforesaid URC van.

Petitioners filed Complaint against respondents to recover damages sustained during the collision, premised
on negligence. They insist that respondents should be held liable for Bicomong's negligence under Articles
2176, 2180, and 2185 of the Civil Code; that Bicomong's negligence was the direct and proximate cause of the
accident, in that he unduly occupied the opposite lane which the bus was lawfully traversing, thus resulting
in the collision with Greenstar’s bus; that Bicomong's driving on the opposite lane constituted a traffic
violation, therefore giving rise to the presumption of negligence on his part; that in view of this presumption,
it became incumbent upon respondents to rebut the same by proving that they exercised care and diligence
in the selection and supervision of their employees; that respondents failed to prove that Bicomong was not
in the official performance of his duties or that the URC van was not officially issued to him at the time of the
accident - and for this reason, the presumption of negligence was not overturned; and that URC should be
held liable as the registered owner of the van.

Respondents argue that the collision occurred on a holiday and while Bicomong was using the URC van for a
purely personal purpose, it should be sufficient to absolve respondents of liability as evidently, Bicomong was
not performing his official duties on that day; that the totality of the evidence indicates that it was Sayson
who was negligent in the operation of Greenstar's bus when the collision occurred; that B.icomong was not
negligent in driving the URC van.

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The ponente in this case discussed the solution of the seemingly conflict between the application of Article
2180 of the New Civil Code and the registered-owner rule.

ISSUE:

Whether or not Bicomong's negligence was the proximate cause of the collision vis-à-vis whether or not the
respondents are liable for damages as the registered owner of the van and failing to exercise due diligence in
the selection and supervision of its employee.
RULING:

NO. The appropriate approach in cases where both the registered-owner rule and Article 2180 apply, is that
the plaintiff must first establish that the employer is the registered owner of the vehicle in question. Once the
plaintiff successfully proves ownership, there arises a disputable presumption that the requirements of Article
2180 have been proven. As a consequence, the burden of proof shifts to the defendant to show that no liability
under Article 2180 has arisen. This may be done by proof of any of the following: (1) That they had no
employment relationship with Bicomong; or (2) That Bicomong aeted outside the scope of his assigned tasks;
or (3) That they exercised the diligence of a good father of a family in the selection and supervision of
Bicomong.

In the present case, it has been established that on the day of the collision, URC was the registered owner of
the URC van, although it appears that it was designated for use by NURC, as it was officially assigned to the
latter's Logisitics Manager Florante Soro-Soro (Soro-Soro); that Bicomong was the Operations Manager of
NURC and assigned to the First Cavite Industrial Estate; that there was no work as the day was declared a
national holiday; that Bicomong was on his way home to his family in Quezon province; that the URC van
was not assigned to Bicomong as well, but solely for Soro-Soro's official use; that the company service vehicle
officially assigned to Bicomong was a Toyota Corolla, which he left at the Cavite plant and instead, he used
the URC van; and that other than the Cavite plant, there is no other NURC plant in the provinces of Quezon,
Laguna or Bicol.

Applying the above pronouncement, it must be said that when by evidence the ownership of the van and
Bicomong's employment were proved, the presumption of negligence on respondents' part attached, as the
registered owner of the van and as Bicomong's employer. Respondents, however, succeeded in overcoming
the presumption of negligence, having shown that when the collision took place, Bicomong was not in the
performance of his work; that he was in possession of a service vehicle that did not belong to his employer
NURC, but to URC, and which vehicle was not officially assigned to him, but to another employee; that his
use of the URC van was unauthorized - even if he had used the same vehicle in furtherance of a personal
undertaking in the past, this does not amount to implied permission; that the accident occurred on a holiday
and while Bicomong was on his way home to his family in Quezon province; and that Bicomong had no official
business whatsoever in his hometown in Quezon, or in Laguna where the collision occurred, his area of
operations being limited to the Cavite area.

At any rate, the evidence places the point of impact very near the middle of the road or just within Sayson's
lane. In other words, the collision took place with Bicomong barely encroaching on Sayson's lane. This means
that prior to and at the time of collision, Sayson did not take any defensive maneuver to prevent the accident
and minimize the impending damage to life and property, which resulted in the collision in the middle of the
highway, where a vehicle would normally be traversing. If Sayson took defensive measures, the point of impact
should have occurred further inside his lane or not at the front of the bus - but at its side, which should have
shown that Sayson either slowed down or swerved to the rig.ht to avoid a collision. An experienced driver
who is presented with the same facts would have adopted an attitude consistent with a desire to preserve life
and property; for common carriers, the diligence demanded is of the highest degree.

The doctrine of last clear chance provides that where both parties are negligent but the negligent act of one
is appreciably later in point of time than that of the other, or where it is impossible to determine whose fault
or negligence brought about the occurrence of the incident, the one who had the last clear opportunity to
avoid the impending harm but failed to do so, is chargeable with the consequences arising therefrom. Stated
differently, the rule is that the antecedent negligence of a person does not preclude recovery of damages
caused by the supervening negligence of the latter, who had the last fair chance to prevent the impending
harm by the exercise of due diligence.

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2. THE CONCEPTS AND DOCTRINES OF RES IPSA LOQUITUR, LAST CLEAR CHANCE,
PROXIMATE CAUSE, DAMNUM ABSQUE INJURIA, PRESUMPTION OF NEGLIGENCE,
VICARIOUS LIABILITY

OSCAR DEL CARMEN, JR., v. GERONIMO BACOY, Guardian and representing the children,
namelyMARY MARJORIE B. MONSALUD, et. al.
G.R. No. 173870, April 25, 2012, First Division, DEL CASTILLO, J.

The requisites of the doctrine of res ipsa loquitur as established by jurisprudence are as follows: (1) the accident is of a kind
which does not ordinarily occur unless someone is negligent; (2) the cause of the injury was under the exclusive control of
the person in charge and (3) the injury suffered must not have been due to any voluntary action or contribution on the part
of the person injured. The above requisites are all present in this case.

FACTS:

At dawn on New Year’s Day of 1993, Emilia Bacoy Monsalud (Emilia), along with her spouse Leonardo Monsalud, Sr.
and their daughter Glenda Monsalud, were on their way home from a Christmas party when they were suddenly ran
over by a Fuso passenger jeep bearing plate number UV-PEK-600 that was being driven by Allan Maglasang (Allan). The
jeep was registered in the name of petitioner Oscar del Carmen, Jr. (Oscar Jr.) and used as a public utility.

A criminal case for Reckless Imprudence Resulting in Multiple Homicide was filed against Allan declaring him guilty
beyond reasonable doubt of the crime charged.

During the pendency of said criminal case, Emilia’s father, Geronimo Bacoy (Geronimo), in behalf of the six minor
children of the Monsaluds, filed Civil Case No. 96-20219, an independent civil action for damages based on culpa
aquiliana. Aside from Allan, also impleaded therein were his alleged employers, namely, the spouses Oscar del Carmen,
Sr. (Oscar Sr.) and Norma del Carmen (Spouses del Carmen) and the registered owner of the jeep, their son Oscar
Jr. Geronimo prayed for the reimbursement of funeral and burial expenses, as well as the award of attorneys fees, moral
and exemplary damages resulting from the death of the three victims, and loss of net income earnings of Emilia who
was employed as a public school teacher at the time of her death.

Defendants refused to assume civil liability for the victims deaths. Oscar Sr. averred that the Monsaluds have no cause
of action against them because he and his wife do not own the jeep and that they were never the employers of Allan For
his part, Oscar Jr. claimed to be a victim himself. He alleged that Allan and his friends] stole his jeep while it was parked
beside his drivers rented house to take it for a joyride. Oscar Jr. clarified that Allan was his jeep conductor and that it
was the latter’s brother, Rodrigo Maglasang (Rodrigo), who was employed as the driver. In any event, Allan’s
employment as conductor was already severed before the mishap occurred. Oscar Jr. even filed before the same trial
court a carnapping case against Allan and his companion which was dismissed for insufficiency of evidence. Oscar Jr.
also contends that Allan drove the jeep in his private capacity and thus, an employer’s vicarious liability for the
employees fault under Article 2180 of the Civil Code cannot apply to him.

ISSUES:

1. Whether or not the docrine of res ipsa loquitur is applicable in the case at bar.

2. Whether or not the operator on record of a vehicle is primarily responsible to third persons for the deaths
or injuries consequent to its operation, regardless of whether the employee drove the registered owners
vehicle in connection with his employment.

RULING:

1. YES. The requisites of the doctrine of res ipsa loquitur as established by jurisprudence are as follows: (1) the accident
is of a kind which does not ordinarily occur unless someone is negligent;
(2) the cause of the injury was under the exclusive control of the person in charge and (3) the injury suffered must not
have been due to any voluntary action or contribution on the part of the person injured. The above requisites are all
present in this case. First, no person just walking along the road would suddenly be sideswiped and run over by an on-
rushing vehicle unless the one in charge of the said vehicle had been negligent. Second, the jeep which caused the injury

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was under the exclusive control of Oscar Jr. as its owner. When Oscar Jr. entrusted the ignition key to Rodrigo, he had
the power to instruct him with regard to the specific restrictions of the jeeps use, including who or who may not drive
it. As he is aware that the jeep may run without the ignition key, he also has the responsibility to park it safely and
securely and to instruct his driver Rodrigo to observe the same precaution. Lastly, there was no showing that the death
of the victims was due to any voluntary action or contribution on their part. The aforementioned requisites having been
met, there now arises a presumption of negligence against Oscar Jr. which he could have overcome by evidence that he
exercised due care and diligence in preventing strangers from using his jeep. Unfortunately, he failed to do so.

2. YES. In Aguilar Sr. v. Commercial Savings Bank, the car of therein respondent bank caused the death of Conrado
Aguilar, Jr. while being driven by its assistant vice president. Despite Article 2180, we still held the bank liable for
damages for the accident as said provision should defer to the settled doctrine concerning accidents involving registered
motor vehicles, i.e., that the registered owner of any vehicle, even if not used for public service, would primarily be
responsible to the public or to third persons for injuries caused the latter while the vehicle was being driven on the
highways or streets. The main aim of motor vehicle registration is to identify the owner so that if any accident happens,
or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a
definite individual, the registered owner.

Absent the circumstance of unauthorized use or that the subject vehicle was stolen which are valid defenses available
to a registered owner, Oscar Jr. cannot escape liability for quasi-delict resulting from his jeeps use.

ORIX METRO LEASING AND FINANCE CORPORATION (Formerly CONSOLIDATED ORIX LEASING
AND FINANCE CORPORATION) v. MINORS DENNIS, MYLENE, MELANIE and MARIKRIS, all
surnamed MANGALINAO y DIZON, MANUEL M. ONG, et. al.
G.R. No. 174089, January 25, 2012, G.R. No. 174266, DEL CASTILLO, J.

The Emergency Rule states that one who suddenly finds himself in a place of danger, and is required to act
without time to consider the best means that may be adopted to avoid the impending danger, is not guilty of
negligence, if he fails to adopt what subsequently and upon reflection may appear to have been a better method,
unless the emergency in which he finds himself is brought about by his own negligence.

FACTS:

On the rainy night of June 27, 1990, three vehicles were traversing the two-lane northbound NLEX in the
vicinity of Pulilan, Bulacan. Anacleto Edurese, Jr. (Edurese) was driving a Pathfinder. His Isabela-bound
passengers were the owners of said vehicle, spouses Roberto and Josephine Mangalinao (Mangalinao spouses),
their daughter Marriane, housemaid Rufina Andres and helper Armando Jebueza (Jebueza). Before them on
the outer lane was a Pampanga-bound Fuso 10-wheeler truck (Fuso), driven by Loreto Lucilo (Loreto), who
was with truck helper Charlie Palomar (Charlie). The Fuso was then already moving in an erratic and swerving
motion. Following behind the Pathfinder was another 10-wheeler truck, an Isuzu Cargo (Isuzu) driven by
Antonio, who was then with helper Rodolfo Navia (Rodolfo).

Just when the Pathfinder was already cruising along the NLEX’s fast lane and about to overtake the Fuso, the
latter suddenly swerved to the left and cut into the Pathfinder’s lane thereby blocking its way. As a result, the
Pathfinder hit the Fuso’s left door and left body. The impact caused both vehicles to stop in the middle of the
expressway. Almost instantly, the inevitable pileup happened. Although Antonio stepped on the brakes, the
Isuzu’s front crashed into the rear of the Pathfinder leaving it a total wreck.

As a result, the Mangalinao spouses, the driver Edurese, and the helper Jebueza were declared dead on the
spot while 6-month old Marriane and the housemaid were declared dead on arrival at a nearby hospital. The
occupants of the trucks escaped serious injuries and death.

As their letters to the registered owners of the trucks demanding compensation for the accident were ignored,
the minor children of the Mangalinao spouses, Dennis, Mylene, Melanie and Marikris, through their legal
guardian, consequently filed a Complaint for damages based on quasi-delict before the Regional Trial Court
(RTC) impleading the drivers Loreto and Antonio, as well as the registered owners of the Fuso and the Isuzu
trucks, namely Orix Metro Leasing and Finance Corporation (Orix) and by Sonny Li (Sonny), respectively.
The children imputed recklessness, negligence, and imprudence on the truck drivers for the deaths of their
sister and parents; while they hold Sonny and Orix equally liable for failing to exercise the diligence of a good
father of a family in the selection and supervision of their respective drivers.

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Orix in its Motion to Dismiss interposed that it is not the actual owner of the Fuso truck. As the trial court
denied the motion, it then filed Third Party Complaint against MMO Trucking owned by Manuel Ong
(Manuel) a.k.a. Manuel Tan.

In their Answer with Compulsory Counterclaim and Cross-Claim, Sonny and Antonio attributed fault for the
accident solely on Loreto’s reckless driving of his truck which suddenly stopped and slid across the highway.
The parties for the Isuzu, on the other hand, contend that the truck was moving at a fast speed and was
tailgating. They assert that they be absolved because the fault lay entirely on the Fuso, which had been
zigzagging along the highway. They aver that when the Fuso and the Pathfinder collided in the middle of the
highway with the Fuso blocking both lanes of the northbound stretch, there was no room left for driver
Antonio to maneuver to avoid them, and that the Pathfinder was hit as a natural consequence.

RTC issued a Decision finding Sonny, Antonio, Loreto and Orix liable for damages. It likewise ruled in favor
of Orix anent its third-party complaint, the latter having sufficiently proven that Manuel of MMO Trucking
is the real owner of the Fuso. The Court of Appeals affirmed the said decision except that it found Orix, as the
registered owner of the Fuso, as considered in the eyes of the law and of third persons responsible for the
deaths of the passengers of the Pathfinder, regardless of the lack of an employer-employee relationship
between it and the driver Loreto.

ISSUES:

1. Whether or not the finding of negligence of the trial court and appellate court is correct.

2. Whether or not Orix, as the registered owner of the Fuso, is responsible for the deaths of the passengers
of the Pathfinder.

RULING:

1. YES. Based on the helper’s statement, the Fuso had lost control, skidded to the left and blocked the way of
the Pathfinder, which was about to overtake. The Pathfinder had absolutely no chance to avoid the truck.
Instead of slowing down and moving towards the shoulder in the highway if it really needed to stop, it was
very negligent of Loreto to abruptly hit the brake in a major highway wherein vehicles are highly likely to be
at his rear. He opened himself up to a major danger and naturally, a collision was imminent.

The court is also not convinced that the Isuzu is without fault. The smashed front of the Isuzu strongly
indicates the strong impact of the ramming of the rear of the Pathfinder that pinned its passengers.
Furthermore, Antonio admitted that despite stepping on the brakes, the Isuzu still suddenly smashed into
the rear of the Pathfinder causing extensive damage to it, as well as hitting the right side of the Fuso. These
militate against Antonio’s claim that he was driving at a safe speed, that he had slowed down, and that he was
three cars away. Clearly, the Isuzu was not within the safe stopping distance to avoid the Pathfinder in case
of emergency.

Thus, the ‘Emergency Rule’ invoked by petitioners will not apply. Such principle states, “One who suddenly
finds himself in a place of danger, and is required to act without time to consider the best means that may be
adopted to avoid the impending danger, is not guilty of negligence, if he fails to adopt what subsequently and
upon reflection may appear to have been a better method, unless the emergency in which he finds himself is
brought about by his own negligence.”

Considering the wet and slippery condition of the road that night, Antonio should have been prudent to
reduce his speed and increase his distance from the Pathfinder. Had he done so, it would be improbable for
him to have hit the vehicle in front of him or if he really could not avoid hitting it, prevent such extensive
wreck to the vehicle in front. With the glaring evidence, he obviously failed to exercise proper care in his
driving.

2. YES.Orix cannot point fingers at the alleged real owner to exculpate itself from vicarious liability under
Article 2180 of the Civil Code. Regardless of whoever Orix claims to be the actual owner of the Fuso by reason
of a contract of sale, it is nevertheless primarily liable for the damages or injury the truck registered under it
have caused.

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Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is,
it would be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the
same to an indefinite person, or to one who possesses no property with which to respond financially for the
damage or injury done. A victim of recklessness on the public highways is usually without means to discover
or identify the person actually causing the injury or damage. He has no means other than by a recourse to the
registration in the Motor Vehicles Office to determine who the owner is. The protection that the law aims to
extend to him would become illusory were the registered owner given the opportunity to escape liability by
disproving his ownership

Besides, the registered owners have a right to be indemnified by the real or actual owner of the amount that
they may be required to pay as damage for the injury caused to the plaintiff, which Orix rightfully
acknowledged by filing a third-party complaint against the owner of the Fuso, Manuel.

B. DAMAGES (ARTICLES 2195-2235, CIVIL CODE)

1. ACTUAL AND COMPENSATORY DAMAGES

SWIFT FOODS, INC. v. SPOUSES JOSE MATEO, JR. and IRENE MATEO
G.R. No. 170486, September 12, 2011, First Division, DEL CASTILLO, J.

Actual damages are only awarded to the extent that pecuniary loss had been proved. In cases where there are
breach of contract but actual damages have not been established, nominal damages may be awarded to vindicate
the injured party’s right.

FACTS:

Swift Foods, Inc. (Swift) is a corporation engaged in the manufacture, sale, and distribution of animal
feeds.Spouses Jose and Irene Mateo (Sps. Mateo) are businessmen engaged in a dealership in poultry and
feeds supply and a trucking business. The parties entered into a Trucking Agreement whereby Sps. Mateo
trucks hauled Swifts feeds from its central office to its various warehouses in Luzon. Under this agreement,
Sps. Mateo deposited cash bonds of P100,000.00 per truck. They requested the return of the excess cash bond
but the same was inexplicably denied by Swift. Later on, Jose Mateo (Jose) spoke with Swifts Feeds Sales
Supervisor, Efren Buhain (Buhain), regarding the possible lease of Joses warehouse for the storage of Swifts
feeds products. The two agreed and Jose signed the Warehousing Agreement, which was to remain in force
for a two-year period. While the warehousing agreement required Jose to post a bond to secure his faithful
compliance with his obligations, both parties nonetheless proceeded with the enforcement of the contract
even without compliance with such requirement.Swifts booking salesman, Rosalino Enfestan (Enfestan),
worked closely with respondents in the warehouse operations. To properly document the movement of the
stocks, Swift, through Enfestan gave respondents two kinds of warehouse documents: the Daily Warehouse
Stock Report (DWSR), which is the inventory of incoming stocks, and the Warehouse Issue Slip (WIS), which
is a receipt for released stocks.According to Swift, the WIS should contain the signature of the sales personnel
as proof that the latter received the released stocks, in accordance with Paragraph V of the agreement. Seven
months into the contract, the Sps. Mateo in apparent compliance with the bond requirement, delivered three
land titles to Swift. The acknowledgment receipt issued by Swift for the surrendered titles stated that these
were collateral for feeds warehousing.

When the Swifts personnels were going over warehousing documents, they noticed that there was one missing
bag. Subsequently, Swift informed Sps. Mateo that it was terminating their contract because of latter’s
violations of their agreement. Swift explained that, under Paragraph V of the Warehousing Agreement, the
warehouse operator should only release stocks to Swifts sales personnel after the latter presents a clearance
to withdraw stocks. The violations were evident from the WIS which did not contain the signatures of Swifts
sales personnel leading to cash shortage of P2 million. Swift then retained Sps. Mateo’s three land titles until
the latter shall have fully complied with their obligation. For their defense, Sps. Mateo explained their actions
as mere obeisance to Buhain and Enfestans instructions to release the stocks directly to customers. Expecting
their explanation to be satisfactory, they demanded that Swift return their three land titles.When Swift did
not accede to their demand, Sps. Mateo filed a complaint against Swift for the surrender of their certificates
oftitle with damages. RTC ordered the return of the land titles finding that there was no breach of

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agreement. The CA affirmed the trial court’s decision and also found sufficient basis for the trial courts award
of moral damages to Sps. Mateo in the amount of ₱200,000.00.

ISSUES:

1. Whether actual damages due to alleged chas shortage should be awarded to Swift.

2. Whether or not moral damages should be awarded to Sps. Mateo.

RULING:

1. NO. The rule is that a contract is the law between the parties and those who are guilty of negligence in the
performance of their obligations are liable for damages. While, it is true that there was breach of contract
committed by Sps. Mateo when they released stocks to Swifts sales personnel without the necessary clearance,
Swift cannot be awarded actual damages, which is proper to be awarded only to the extent that pecuniary loss
had been proven.

In the case at bar, Sps. Mateo released stocks without the necessary clearance. They admitted in court that
they never required a clearance prior to the release of stocks. Thus, they breach of Paragraph V of the
Warehousing Agreement is clear. Jose should not have deviated from the procedure provided in the contract
in the absence of any amendment therein. At the very least, ordinary diligence required him to inquire with
the head office whether the changes being introduced by Buhain or Enfestan were proper or authorized. Thus,
it is proper to award damages but not actual damages because Swift failed to prove the alleged cash shortages
and did not even attempt to show evidence on prevailing price of feeds. In these situations where there has
been a breach of contract but actual damages have not been established, nominal damages may be awarded
to vindicate the injured partys rights. It is only just that they be ordered to return ₱150,000.00 as nominal
damages which is an approximation of whatever benefit they received from such agreement.

2. YES. As for the land titles surrendered by Sps. Mateo, the Court determines that Swift has no basis for
retaining the same as collateral for feeds warehousing.In the absence of such bond agreement or security
instrument, it cannot be said that a bond has actually been posted or constituted. Besides, even assuming that
the real properties served as collateral, Swift cannot just appropriate them in view of the prohibition
against pactum commissorium.Considering the wrongful retention of titles, moral damages should be
awarded to Sps. Mateo. They were able to prove that Swift acted in bad faith in keeping the titles despite its
knowledge that there was no bond or real estate mortgage to justify its retention thereof.

HERMOJINA ESTORES v. SPOUSES ARTURO and LAURA SUPANGAN

G.R. No. 175139, April 18, 2012, First Division, DEL CASTILLO, J.

Even if the transaction involved a Conditional Deed of Sale, the stipulation governing the return of the money
may be considered as a forbearance of money which requires payment of interest at the rate of 12%. After all,
interest may be imposed even in the absence of stipulation in the contract.

FACTS:

Sometime in 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered
into a Conditional Deed of Sale whereby petitioner offered to sell, and respondent-spouses offered to buy, a
parcel of land located at Naic, Cavite for the sum of ₱4.7 million.

After almost seven years from the time of the execution of the contract and notwithstanding payment of ₱3.5
million on the part of respondent-spouses, petitioner still failed to comply with her obligation as stipulated
in the contract. Hence, in a letter, respondent-spouses demanded the return of the amount of ₱3.5 million
within 15 days from receipt of the letter. In reply, petitioner acknowledged receipt of the ₱3.5 million and
promised to return the same within 120 days. Respondent-spouses were amenable to the proposal provided
an interest of 12% compounded annually shall be imposed on the ₱3.5 million.When petitioner still failed to
return the amount despite demand, respondent-spouses were constrained to file a Complaint for sum of
money before the Regional Trial Court (RTC) against herein petitioner.

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In their Answer with Counterclaim, petitioner averred that they are willing to return the principal amount of
₱3.5 million but without any interest as the same was not agreed upon in the contract.

ISSUE:

Whether or not it is proper to impose interest for an obligation that does not involve a loan or forbearance of
money in the absence of stipulation of the parties

RULING:

YES. Interest may be imposed even in the absence of stipulation in the contract. Article 2210 of the Civil Code
expressly provides that "interest may, in the discretion of the court, be allowed upon damages awarded for
breach of contract." In this case, there is no question that petitioner is legally obligated to return the ₱3.5
million because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite demand.
She has in fact admitted that the conditions were not fulfilled and that she was willing to return the full
amount of ₱3.5 million but has not actually done so. Petitioner enjoyed the use of the money from the time it
was given to her until now. Thus, she is already in default of her obligation from the date of demand, i.e., on
September 27, 2000.

Anent the interest rate, the general rule is that the applicable rate of interest shall be computed in accordance
with the stipulation of the parties. Absent any stipulation, the applicable rate of interest shall be 12% per
annum when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it
shall be six percent (6%). In this case, the parties did not stipulate as to the applicable rate of interest. The
only question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12%
under Central Bank Circular No. 416, is due.
Even if the transaction involved a Conditional Deed of Sale, the stipulation governing the return of the money
may be considered as a forbearance of money which requires payment of interest at the rate of 12%. In
Crismina Garments, Inc. v. Court of Appeals, "forbearance" was defined as a "contractual obligation of lender
or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or
debt then due and payable." In such case, "forbearance of money, goods or credits" will have no distinct
definition from a loan. We believe however, that the phrase "forbearance of money, goods or credits" is meant
to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a
loan is already sufficiently defined in the Civil Code. Forbearance of money, goods or credits should therefore
refer to arrangements other than loan agreements, where a person acquiesces to the temporary use of his
money, goods or credits pending happening of certain events or fulfillment of certain conditions.

In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They
have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment
of the conditions. They were deprived of the use of their money for the period pending fulfillment of the
conditions and when those conditions were breached, they are entitled not only to the return of the principal
amount paid, but also to compensation for the use of their money. And the compensation for the use of their
money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or
deprivation of funds is similar to a loan.

Petitioner’s unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts
to forbearance of money which can be considered as an involuntary loan. Thus, the applicable rate of interest
is 12% per annum.

ENGR. APOLINARIO DUEÑAS v. ALICE GUCE-AFRICA

G.R. No. 165679, October 5, 2009, Second Division, DEL CASTILLO, J.

To be recoverable, actual damages must not only be capable of proof, but must actually be proved with
reasonable degree of certainty. We cannot simply rely on speculation, conjecture or guesswork in determining
the amount of damages.

FACTS:

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For respondent and her family, April 18, 1998 was supposed to be a special occassion for it was the wedding
date of her sister Sally Guce, and respondent’s other siblings from the United States of America, as well as her
mother, were expected to return to the country. The wedding ceremony was set to be held at the family’s
ancestral house at San Vicente, Banay-banay, Lipa City. Respondent found the occasion an opportune time to
renovate their ancestral house. Thus, she entered into a Construction Contract with petitioner for the
demolition of the ancestral house and the construction of a new four-bedroom residential house for
₱500,000.00. Petitioner likewise undertook to finish all interior portions of the house on or before March 31,
1998, or more than two weeks before Sally’s wedding.

On April 18, 1998, however, the house remained unfinished. The wedding ceremony was thus held at the Club
Victorina and respondent’s relatives were forced to stay in a hotel.

Aggrieved, respondent filed a Complaint for breach of contract and damages against petitioner before the
Regional Trial Court alleging that despite knowledge that the construction of the house was intended for the
forthcoming marriage of respondent’s sister, petitioner unjustly and fraudulently abandoned the project
leaving it substantially unfinished.

The trial court and appellate court rendered a Decision in favor of the respondent. The fallo of which directs
the petitioner to pay ₱100,000.00 for the necessary repair of the structure; ₱200,000.00 for the completion of
the construction; ₱50,000.00 as and for attorney’s fees; and costs of suit.

Petitioner questioned the award of actual damages for want of evidentiary foundation. He maintains that
actual damages must be proved with reasonable degree of certainty. He argued that the trial and the appellate
courts awarded the amounts of ₱100,000.00 and ₱200,000.00 as actual damages based merely on the
testimonies of respondent and her witness.

ISSUES:

1. Whether or not respondent is entitled to actual damages.

2. Whether or not respondent entitled to temperate damages in lieu of actual damages.

RULING:

1. NO. Article 2199 of the Civil Code provides that "one is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved." In Ong v. Court of Appeals, we held that "actual
damages are such compensation or damages for an injury that will put the injured party in the position in
which he had been before he was injured. They pertain to such injuries or losses that are actually sustained
and susceptible of measurement." To be recoverable, actual damages must not only be capable of proof, but
must actually be proved with reasonable degree of certainty. We cannot simply rely on speculation, conjecture
or guesswork in determining the amount of damages. Thus, it was held that before actual damages can be
awarded, there must be competent proof of the actual amount of loss, and credence can be given only to
claims which are duly supported by receipts.Here, respondent did not present documentary proof to support
the claimed necessary expenses for the repair and completion of the house.

2. YES. In the absence of competent proof on the amount of actual damages suffered, a party is entitled to
temperate damages. Articles 2216, 2224 and 2225 of the New Civil Code. Temperate or moderate damages may
be recovered when some pecuniary loss has been suffered but its amount cannot, from the nature of the case,
be proved with certainty. The amount thereof is usually left to the discretion of the courts but the same should
be reasonable, bearing in mind that temperate damages should be more than nominal but less than
compensatory.

There is no doubt that respondent sustained damages due to the breach committed by the petitioner. The
transfer of the venue of the wedding, the repair of the substandard work, and the completion of the house
necessarily entailed expenses. However, as earlier discussed, respondent failed to present competent proof of
the exact amount of such pecuniary loss. To our mind, and in view of the circumstances obtaining in this case,
an award of temperate damages equivalent to 20% of the original contract price of ₱500,000.00, or ₱100,000.00
(which, incidentally, is equivalent to 1/3 of the total amount claimed as actual damages), is just and reasonable.

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2. MORAL DAMAGES

SPOUSES ALBERTO AND SUSAN CASTRO v. AMPARO PALENZUELA, for herself and as authorized
representative of VIRGINIA ABELLO, et. al.
G.R. No. 184698, January 21, 2013, Second Division, DEL CASTILLO, J.

Bad faith means breach of a known duty through some motive or interest or ill will. By refusing to honor their
solemn obligations under the lease, and instead unduly profiting from these violations, petitioners are guilty of
bad faith. Moral damages may be awarded when the breach of contract is attended with bad faith. "Exemplary
damages may [also] be awarded when a wrongful act is accompanied by bad faith or when the defendant acted
in a wanton, fraudulent, reckless, oppressive, or malevolent manner. And since the award of exemplary damages
is proper in this case, attorney's fees and costs of the suit may also be recovered as stipulated in the lease
agreement.

FACTS:

Respondents Amparo Palenzuela, Virginia Abello, Gerardo Antonio Abello, Alberto Del Rosario, Ingeborg
Regina Del Rosario, Hans Del Rosario, Margaret Del Rosario Isleta, Enrique Palenzuela and Carlos Miguel
Palenzuela own several fishponds in Bulacan, Bulacan. In March 1994, respondents, through their duly
appointed attorney-in-fact and co-respondent Amparo Palenzuela, leased out these fishponds to petitioners,
spouses Alberto and Susan Castro. The lease was to be for five years, or from March 1, 1994 up to June 30,
1999.

When the lease expired, petitioners did not vacate and continued to occupy and operate the fishponds until
August 11, 1999, or an additional 41 days beyond the contract expiration date. Previously, or on July 22, 1999,
respondents sent a letter to petitioners declaring the latter as trespassers and demanding the settlement of
the latter’s outstanding obligations. On June 8, 2000, respondents instituted civil case for collection of a sum
of money with damages in the Regional Trial Court (RTC) claiming that petitioners committed violations of
their lease agreement – non-payment of rents as stipulated, subletting the fishponds, failure to maintain the
warehouses, and refusal to vacate the premises on expiration of the lease – which caused respondents to incur
actual and liquidated damages and other expenses for unpaid rent and for unpaid additional rent for
petitioners’ one-month extended stay beyond the contract date. Respondents argued that when the lease
expired on June 30, 1999 and petitioners continued enjoying the premises without objection from the
respondents, an implied new lease was created pursuant to Article 1670 of the Civil Code. In addition,
respondents prayed to be awarded moral and exemplary damages, attorney’s fees, and costs of litigation.

The RTC ordered the defendants, jointly and severally, to pay actual or compensatory damages, moral
damages, attorney’s fees, and costs of suit which was later affirmed by the Court of Appeals.

ISSUES:

1. Whether or not an implied lease was created when the petitioners extended their stay beyond the term of
the lease contract.

2. Whether or not the award of moral and exemplary damages are proper.

RULING:

1. YES. Respondents are correct in saying that when the lease expired on June 30, 1999 and petitioners
continued enjoying the premises without objection from the respondents, an implied new lease was created
pursuant to Article 1670 of the Civil Code, which placed upon petitioners the obligation to pay additional rent.

2.YES. Petitioners have not been exactly above-board in dealing with respondents. They have been found
guilty of several violations of the agreement, and not just one. They incurred delay in their payments, and
their check payments bounced, for one; for another, they subleased the premises to Reyes, in blatant disregard
of the express prohibition in the lease agreement; thirdly, they refused to honor their obligation, as stipulated
under the lease agreement, to pay the fishpond license and other permit fees and; finally, they refused to
vacate the premises after the expiration of the lease. Even though respondents received payments directly

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from the sublessee Reyes, this could not erase the fact that petitioners are guilty of subleasing the fishponds
to her.

Bad faith means breach of a known duty through some motive or interest or ill will. By refusing to honor their
solemn obligations under the lease, and instead unduly profiting from these violations, petitioners are guilty
of bad faith. Moral damages may be awarded when the breach of contract is attended with bad faith.
Exemplary damages may also be awarded when a wrongful act is accompanied by bad faith or when the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. And since the award of
exemplary damages is proper in this case, attorney's fees and costs of the suit may also be recovered as
stipulated in the lease agreement.

MARSMAN &COMPANY and QUIRINO R. ILEDAN v. ARTEMIO M. LIGO

G.R. No. 198643, August 19, 2015, Second Division, DEL CASTILLO, J.

An employee who was wrongly accused of criminal acts, illegally arrested and detained, presented to the media
at a humiliating press conference against his will, and prosecuted in an unfounded criminal suit is entitled to
damages for malicious prosecution.

FACTS:

Sometime in February 1993, Petitioner Quirino R. Iledan (Iledan), a warehouse manager, supposedly received
a telephone call from Isabelito Miguel (Miguel), informing him that some of Marsman &Company, Inc.’s
(Marsman) bad order and expired drugs that were intended for destruction were not actually destroyed but
were sold at the back of the Sto. Niño Church in Parañaque. Iledan relayed this information to Marsman
President and Chief Executive Officer Dr. Eligio Santos (Santos), who called a meeting with Iledan and
Marsman Assistant Vice-President for Human Resources Manolette Pilapil (Pilapil). During the meeting,
Santos instructed Pilapil to seek the assistance of the National Bureau of Investigation (NBI) in the
investigation of the matter. The NBI arrested several individuals who were supposedly caught in the act of
distributing these medicines that should have been destroyed. However, respondent was not one of them.

The following day, or on May 8, 1993, Iledan asked respondent Artemio M. Ligo who was then Marsman’s
Warehouse Supervisor and was primarily responsible for the destruction of bad order and expired drugs to
accompany him to the NBI office on the pretext of visiting one of the suspects arrested, Francisco Mercado,
one of respondent’s colleagues at work. They proceeded to the NBI headquarters in Manila, where respondent
was arrested and placed in a detention cell. Thereafter, respondent and other individuals were presented to
the media during a live conference as the suspects in the distribution and sale of bad order and expired
medicines. Their photographs were taken, and later published, by news reporters.

He was criminally charged but acquitted with violation of RA 3720 which prohibits the sale, dispensing or
delivery of expired or rejected pharmaceutical products. Respondent was likewise terminated from
employment on the ground of “negligence and breach of trust and confidence” as well as failure to perform
the “sensitive task of supervising the burning and destroying of expired, obsolete, bad order drugs and
medicines”.

Believing that he was maliciously prosecuted, respondent filed a Complaint for damages against petitioners
Marsman and Iledan.

ISSUE:

Whether or not respondent was maliciously prosecuted.

RULING:

YES. This Court has drawn the four elements that must be shown to concur to recover damages for malicious
prosecution. Therefore, for a malicious prosecution suit to prosper, the plaintiff must prove the following: (1)
the prosecution did occur, and the defendant was himself the prosecutor or that heinstigated its
commencement; (2) the criminal action finally ended with an acquittal; (3) in bringing the action, the
prosecutor acted without probable cause; and (4) the prosecution was impelled by legal malice -- an improper
or a sinister motive. The gravamen of malicious prosecution is not the filing of a complaint based on the

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wrong provision of law, but the deliberate initiation of an action with the knowledge that the charges were
false and groundless. The statutory basis for a civil action for damages for malicious prosecution are found
in the provisions of the New Civil Code on Human Relations and on damages particularly Articles 19, 20, 21,
26, 29, 32, 33, 35, 2217 and 2219 (8).

In this case, all the elements of malicious prosecution exist in this case. First of all, there is no question that
the investigation of respondent for alleged participation in a purported syndicate that sells Marsman’s bad
medicines was prompted by a supposed telephone call tip from Miguel, which resulted in Pilapil’s request to
then NBI Director Velasco for an investigation of the matter.

Secondly, respondent was acquitted in the resulting criminal case for lack of evidence and lack of jurisdiction.
There is no doubt that Marsman instigated the investigation and prosecution of respondent and his
colleagues. Petitioners cannot claim that they merely sought to investigate – and not prosecute – respondent;
certainly, prosecution follows as a necessary consequence if the NBI believes that a crime has been committed,
and petitioners cannot prevent the filing of charges, even if they wanted to.

On the question of probable cause, it must be said that against the respondent, no probable cause existed to
warrant his prosecution for violation of the provisions of RA 3720. There is no legal ground to suppose that
respondent was involved in a syndicate which sold Marsman’s bad medicines in Parañaque; the supposed
tipster Miguel was not presented in court to identify the alleged perpetrators of the illegal act – hence, the
basis for the accusation is lacking. In short, while Marsman officials confined themselves to their secure and
relaxed offices, they simply relied on Iledan’s claim that he received a tip from a so-called informant and did
not even lift a finger to verify the truth of allegations that their bad medicines were being peddled in
Parañaque.

The fact that the plaintiff in a malicious prosecution case is acquitted of the criminal charge precisely places
the prior finding of probable cause in issue, which must be determined in the malicious prosecution case. If
the plaintiff was acquitted for reasons other than lack of probable cause, then certainly the malicious
prosecution case cannot prosper. Thus, petitioners are correct in arguing that acquittal does not disprove the
existence of probable cause. However, they are mistaken in concluding that respondent’s acquittal was based
on failure to prove guilt beyond reasonable doubt and not lack of probable cause. As a matter of fact,
respondent’s acquittal was due to lack of evidence, which presupposes lack of probable cause.

On the issue of legal malice, the Court notes respondent’s complaint which specifically alleged that when
Iledan assumed his position as warehouse manager, he was arrogant and hostile toward the employees and
even manifested his desire to replace respondent and other employees of the respondent’s warehouse. Iledan
was prompted by hatred, malice and bad faith in deliberately initiating a baseless action against respondent,
Mercado and their colleagues, with the solitary purpose of humiliating and harassing them and ultimately
causing their removal from Marsman. It must be recalled that Iledan was the recipient of the supposed
telephone tip from Miguel, whose identity and existence is exceedingly questionable since he was not
presented in court. They allowed respondent and his colleagues to be humiliated and shamed before a press
conference, where their photographs were taken and published indiscriminately in several newspapers as
members of a supposed syndicate which sold Marsman’s bad medicines – even before their guilt or innocence
could be preliminarily or finally determined.

3. TEMPERATE OR MODERATE DAMAGES

ADRIAN WILSON INTERNATIONAL ASSOCIATES, INC. v. TMX PHILIPPINES, INC.

G.R. No. 162608, July 26, 2010, First Division, DEL CASTILLO, J.

A claimant is entitled to be compensated reasonably and commensurately for what he or she has lost as a result
of another’s act or omission, and the amount of damages to be awarded shall be equivalent to what have been
pleaded and adequately proven. Should the claimant fail to prove with exactitude the extent of injury he or she
sustained, the court will still allow redress if it finds that the claimant has suffered due to another’s fault.

FACTS:

TMX Philippines, Inc. (TMX) engaged the services of Adrian Wilson International Associates, Inc. (AWIA) for
the construction of its watch assembly plant. One of AWIA’s duties was construction administration, i.e., to

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guard TMX from defects and deficiencies during the construction phase by determining the progress and
quality of the work of the general contractor. Five years after construction was completed, TMX noticed
numerous cracks and beam deflections along the roof girders and beams so it informed AWIA of the situation.
AWIA, relying on a construction report prepared by its site representative, attributed the existing cracks to
the marginal strength of the concrete that was poured during a heavy rainfall. To install steel lally columns,
major construction work was done during which TMX was forced to stop its employees, putting its employees
on forced leave with pay. TMX then sought reimbursement of everything it had spent, including the salaries
paid to the employees of TMX, for the corrective work by suing AWIA for damages.

ISSUE:

Whether or not there is a valid basis for the reimbursement of the salaries paid to the employees of TMX.

RULING:

YES. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable
shall be those that are the natural and probable consequences of the breach of the obligation. AWIA breached
its responsibility to inform TMX of the contractor’s mistake; thus, TMX may demand for damages duly proven
as a natural consequence of the roof failures it has suffered. If the amount it claims cannot be proven with
certainty, temperate damages may be awarded instead.

Had the effects on the marginal strength of the concrete been promptly disclosed to TMX, the cracks and
deflections could have been rectified by the contractor before it was issued its final certification of payment
and the owner could have been spared from further expenses. There is a causal connection between AWIA’s
negligence and the expenses incurred by TMX. The latter was compelled to shutdown the plant during
workdays to repair the roof. In the process, it incurred expenses for the repairs, including the salaries of its
workers who were put on forced leave, for which it can ask for reimbursement as actual damages.

Actual damages puts the claimant in the position in which he had been before he was injured. The award
thereof must be based on the evidence presented, not on the personal knowledge of the court; and certainly
not on flimsy, remote, speculative and nonsubstantial proof. Under the Civil Code, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he has duly proved.

TMX’s pieces of evidence do not substantiate its plea for the full reimbursement of the salaries. The
documents it submitted were composed only of a master list of daily and monthly paid employees,
summarized and itemized lists and computations of payroll costs during the covered period of shoring
installation, salary structures, and vouchers prepared by the accounting department. These pieces of evidence,
as well as the bare assertion of the TMX President, do not show a reasonable degree of certainty of actual
payment to and actual receipt by its workers but only reflect the list of disbursements. While TMX failed to
prove the exact amount of the salaries it had paid, it is however acknowledged that TMX had to pay its
employees during the shutdown and had suffered pecuniary loss for the structural problem. As a matter of
equity, therefore, a relief to TMX in the form of temperate damages is warranted. The amount of ₱500,000.00
is reasonable and sufficient under the circumstances.

4. EXEMPLARY OR CORRECTIVE DAMAGES

ALBERT M. CHING and ROMEO J. BAUTISTA v. FELIX M. BANTOLO, et. al.

G.R. No. 17708, December 5, 2012, Second Division, DEL CASTILLO, J.

Exemplary damages are not recoverable as a matter of right. They are awarded only if the guilty party acted in
a wanton, fraudulent, reckless, oppressive or malevolent manner. In this case, although the revocation of the
SPA is done in bad faith, it was not done in a fraudulent and oppressive manner.

FACTS:

Respondents Felix M. Bantolo (Bantolo), Antonio O. Adriano and Eulogio Sta. Cruz, Jr. executed in favor of
petitioners Albert Ching (Ching) and Romeo J. Bautista a Special Power of Attorney (SPA) authorizing
petitioners to obtain a loan using respondents' properties as collateral. Without notice to petitioners,

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respondents executed a Revocation of Power of Attorney effective at the end of business hours of July 17, 2000.
On July 18, 2000, the Philippine Veterans Bank (PVB) approved the loan application of petitioner Ching in the
amount of P25 million. On July 31, 2000, petitioner Ching thru a letter informed respondents of the approval
of the loan. Sometime in the first week of August 2000, petitioners learned about the revocation of the SPA.

This prompted the petitioners to file before the Regional Trial Court (RTC) a Complaint for Annulment of
Revocation of SPA, Enforcement of SPA and/or interest in the properties covered by said SPA and Damages
against respondents.Petitioners alleged that the SPA is irrevocable because it is a contract of agency coupled
with interest. According to them, they agreed to defray the costs or expenses involved in processing the loan
because respondents promised that they would have an equal share in the proceeds of the loan or the subject
properties.

In their Answer, respondents alleged that they executed the SPA in favor of petitioners because of their
assurance that they would be able to get a loan in the amount of ₱50 million and that ₱30 million would be
given to respondents within a month’s time. When the one-month period expired, respondents complained
to petitioner Ching and asked him to advance the amount of ₱500,000.00. Petitioner Ching acceded to their
request on the condition that they hand over to him the original titles for safekeeping. Later, they were
informed that the loan was approved in the lower amount of ₱25 million and that their share would be P6
million. Since it was not the amount agreed upon, respondents revoked the SPA and demanded the return of
the titles.

The appellate court ruled, among others, that the revocation of the Power of Attorney executed by the
respondents is null and void and the award of exemplary damages by the Regional Trial Court should be
deleted because respondents did not act in a wanton, fraudulent, reckless, oppressive or malevolent manner.

ISSUES:

1. Whether or not the SPA can be revoked at the sole will of the principal.

2. Whether or not petitioners are entitled to exemplary damages considering that the respondents revoked
the SPA in bad faith.

RULING:

1.NO. There is no question that the SPA executed by respondents in favor of petitioners is a contract of agency
coupled with interest. This is because their bilateral contract depends upon the agency. Hence, it cannot be
revoked at the sole will of the principal.

2. NO. Article 2229 of the Civil Code provides that exemplary damages may be imposed "by way of example
or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages."
They are, however, not recoverable as a matter of right. They are awarded only if the guilty party acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner. In this case, although the revocation was done
in bad faith, respondents did not act in a wanton, fraudulent, reckless, oppressive or malevolent manner. They
revoked the SPA because they were not satisfied with the amount of the loan approved. Thus, petitioners are
not entitled to exemplary damages.

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