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METROBANK vs. RURAL BANK OF GERONA, INC.

G.R. No. 159097, July 05, 2010

FACTS:

RBG is a rural banking corporation organized under Philippine laws and

located in Gerona, Tarlac. In the 1970s, the Central Bank and the RBG entered into
an agreement providing that RBG shall facilitate the loan applications of
farmers-borrowers under the Central Bank-International Bank for Reconstruction
and Development’s (IBRD’s) 4thRural Credit Project. The agreement required RBG
to open a separate bank account where the IBRD loan proceeds shall be
deposited. The RBG accordingly opened a special savings account with
Metrobank’s Tarlac Branch. As the depository bank of RBG, Metrobank was
designated to receive the credit advice released by the Central Bank
representing the proceeds of the IBRD loan of the farmers-borrowers. Metrobank, in
turn, credited the proceeds to RBG’s special savings account for the latter’s release to
the farmers-borrowers.

On September 27, 1978, the Central Bank released a credit advice in

Metrobank’s favor and accordingly credited Metrobank’s demand deposit account
in the amount of P178,652.00, for the account of RBG. The amount, which was
credited to RBG’s special savings account represented the approved loan application
of farmer-borrower Dominador de Jesus. RBG withdrew the P178,652.00 from its
account.

On the same date, the Central Bank approved the loan application of another
farmer-borrower, Basilio Panopio, for P189,052.00, and credited the amount to
Metrobank’s demand deposit account. Metrobank, in turn, credited RBG’s special
savings account. Metrobank claims that the RBG also withdrew the entire credited
amount from its account.

On October 3, 1978, the Central Bank approved Ponciano Lagman’sloan

application for P220,000.00. As with the two other IBRD loans, the amount was
credited to Metrobank’s demand deposit account, which amount Metrobank later
credited in favor of RBG’s special savings account. Of the P220,000.00, RBG only
withdrew P75,375.00.

In its July 7, 1994 decision, the RTC ruled for Metrobank, finding that legal
subrogation had ensued: Metrobank had allowed releases of the amounts in the
credit advices it credited in favor of RBG’s special savings account which credit
advices and deposits were under its supervision.

On appeal, the CA noted that this was not a case of legal subrogation under
Article 1302 of the Civil Code. Thus, the CA set aside the RTC decision, and
remanded the case to the trial court for further proceedings after the Central
Bank is impleaded as a necessary party. After the CA denied its motion for
reconsideration, Metrobank filed the present petition for review on certiorari.

ISSUE:

Who are the liable parties on the IBRD loans that the Central Bank extended?

HELD:
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The Terms and Conditions of the IBRD 4thRural Credit Project (Project Terms
and Conditions) executed by the Central Bank and the RBG shows that the farmers-
borrowers to whom credits have been extended are primarily liable for the payment
of the borrowed amounts. The loans were extended through the RBG which also
took care of the collection and of the remittance of the collection
to the Central Bank. RBG, however, was not a mere conduit and collector.
While the farmers-borrowers were the principal debtors, RBG assumed liability
under the Project Terms and Conditions by solidarily binding itself with the
principal debtors to fulfill the obligation.

Thus, we agree with the CA’s conclusion that the agreement governed only
the parties involved – the Central Bank and the RBG. Metrobank
was simply an outsider to the agreement. Our disagreement with the appellate
court is in its conclusion that no legal subrogation took place; the present
case, in fact, exemplifies the circumstance contemplated under paragraph 2, of
Article 1302 of the Civil Code which provides:

Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the
debtor’s knowledge;

(2) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor;

(3) (3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter’s share.

As discussed, Metrobank was a third party to the Central Bank-RBG

agreement, had no interest except as a conduit, and was not legally answerable for
the IBRD loans. Despite this, it was Metrobank’s demand deposit account, instead
of RBG’s, which the Central Bank proceeded against, on the assumption perhaps
that this was the most convenient means of recovering the cancelled loans. That
Metrobank’s payment was involuntarily made does not change the reality that it
was Metrobank which effectively answered for RBG’s obligations.

Article 1303 of the Civil Code states that subrogation transfers to the person
subrogated the credit with all the rights thereto appertaining, either against the
debtor or against third persons. As the entity against which the collection was
enforced, Metrobank was subrogated to the rights of Central Bank and has a cause
of action to recover from RBG the amounts it paid to the Central Bank, plus 14% per
annum interest.
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SOLAR HARVEST, INC. vs. DAVAO CORRUGATED CARTON CORP.

G.R. No. 176868, July 26, 2010

FACTS:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an
agreement with respondent, Davao Corrugated Carton Corporation, for the
purchase of corrugated carton boxes, specifically designed for petitioner’s business
of exporting fresh bananas, at US$1.10 each. The agreement was not reduced into
writing. To get the production underway, petitioner deposited, on 31 March 1998,
US$40,150.00 in respondent’s US Dollar Savings Account with Westmont Bank, as
full payment for the ordered boxes.

Despite such payment, petitioner did not receive any boxes from respondent.
On 03 January 2001, petitioner wrote a demand letter for reimbursement of the
amount paid. On 19 February 2001, respondent replied that the boxes had been
completed as early as 03 April 1998 and that petitioner failed to pick them up from
the former’s warehouse 30 days from completion, as agreed upon. Respondent
mentioned that petitioner even placed an additional order of 24,000 boxes, out of
which, 14,000 had been manufactured without any advanced payment from
petitioner. Respondent then demanded petitioner to remove the boxes from the
factory and to pay the balance of US$15,400.00 for the additional boxes and
P132,000.00 as storage fee.

On 17 August 2001, petitioner filed a Complaint for sum of money and

damages against respondent. The Regional Trial Court (RTC) ruled that respondent
did not commit any breach of faith that would justify rescission of the contract and
the consequent reimbursement of the amount paid by petitioner.
Petitioner filed a notice of appeal with the CA. On 21 September 2006, the CA
denied the appeal for lack of merit. Petitioner moved for reconsideration, but the
motion was denied by the CA.

ISSUE:

Whether or not respondent did not completely manufacture the boxes and
that it was respondent which was obliged to deliver the boxes to TADECO.

HELD:

We find no reversible error in the assailed Decision that would justify the
grant of this petition.

Petitioner’s claim for reimbursement is actually one for rescission (or

resolution) of contract under Article 1191 of the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied in reciprocal

ones, in case one of the obligors should not comply with what is incumbent upon
him.

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

The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period. This is understood to be without prejudice
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to the rights of third persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law. The right to rescind a contract arises
once the other party defaults in the
performance of his obligation. In determining when default occurs, Art. 1191
should be taken in conjunction with Art. 1169 of the same law, which provides:

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

In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his obligation, delay by the
other begins. In reciprocal obligations, as in a contract of sale, the general rule is that
the fulfillment of the parties’ respective obligations should be simultaneous.
Hence, no demand is generally necessary because, once a party fulfills his
obligation and the other party does not fulfill his, the latter automatically
incurs in delay. But when different dates for performance of the obligations
are fixed, the default for each obligation must be determined by the rules given
in the first paragraph of the present article, that is, the other party would
incur in delay only from the moment the other party demands fulfillment of the
former’s obligation. Thus, even in reciprocal obligations, if the period for the
fulfillment of the obligation is fixed, demand upon the obligee is still necessary
before the obligor can be considered in default and before a cause of
action for rescission will accrue.

Evident from the records and even from the allegations in the complaint was
the lack of demand by petitioner upon respondent to fulfill its obligation to
manufacture and deliver the boxes. The Complaint only alleged that petitioner
made a “follow-up” upon respondent, which, however, would not qualify as a
demand for the fulfillment of the obligation. Petitioner’s witness also
testified that they made a follow-up of the boxes, but not a demand. Note is
taken of the fact that, with respect to their claim for reimbursement, the
Complaint alleged and the witness testified that a demand letter was sent to
respondent. Without a previous demand for the fulfillment of the obligation,
petitioner would not have a cause of action for rescission against respondent as
the latter would not yet be considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before filing the present
case, petitioner’s claim for reimbursement would still fail, as the circumstances
would show that respondent was not guilty of breach of contract.

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its

Liquidator, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION vs.
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EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in

his capacity as the Deputy Sheriff of Regional Trial Court, Branch 3, Iligan City;
and the REGISTER OF DEEDS of Cagayan de Oro City

G.R. No. 178618, October 11, 2010

FACTS:

The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao
Savings and Loan Association, Inc. (DSLAI) are entities duly registered with the
Securities and Exchange Commission (SEC) primarily engaged in the business of
granting loans and receiving deposits from the general public, and treated as
banks. Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI as
the surviving corporation. The articles of merger were not registered with the SEC
due to incomplete documentation. On August 12, 1985, DSLAI changed its corporate
name to MSLAI.

Meanwhile, on May 26, 1986, the Board of Directors of FISLAI passed and
approved Board Resolution No. 86-002, assigning its assets in favor of DSLAI which
in turn assumed the former’s liabilities. The business of MSLAI, however, failed.
Hence, the Monetary Board of the Central Bank of the Philippines ordered its
closure and placed it under receivership. The Monetary Board ordered the
liquidation of MSLAI, with PDIC as its liquidator.

It appears that prior to the closure of MSLAI, Uy filed with the RTC, Branch 3
of Iligan City, an action for collection of sum of money against FISLAI, docketed as
Civil Case No. 111-697. On October 19, 1989, the RTC issued a summary decision in
favor of Uy, directing defendants therein (which included FISLAI) to pay the former
the sum of P136,801.70, plus interest until full payment, 25% as attorney’s fees, and
the costs of suit.

ISSUE:

Whether or not there novation of the obligation by substituting the person of

the debtor.

Held:

Petitioner cannot also anchor its right to annul the execution sale on the
principle of novation. While it is true that DSLAI (now MSLAI) assumed all the
liabilities of FISLAI, such assumption did not result in novation as would release the
latter from liability, thereby exempting its properties from execution. Novation is the
extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first, either by changing the
object or principal conditions, by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor. It is a rule that novation by
substitution of debtor must always be made with the consent of the creditor.

Article 1293 of the Civil Code is explicit, thus:

Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in Articles 1236 and1237.
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In this case, there was no showing that Uy, the creditor, gave her consent to
the agreement that DSLAI (now MSLAI) would assume the liabilities of FISLAI.
Such agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to
DSLAI remained subject to execution to satisfy the judgment claim of Uy against
FISLAI. The subsequent sale of the properties by Uy to Willkom, and of one of the
properties by Willkom to Go, cannot, therefore, be questioned by MSLAI.

The consent of the creditor to a novation by change of debtor is as

indispensable as the creditor’s consent in conventional subrogation in order that a
novation shall legally take place. Since novation implies a waiver of the right which
the creditor had before the novation, such waiver must be express.

ANAMER SALAZAR vs. J.Y. BROTHERS MARKETING CORPORATION

G.R. No. 171998, October 20, 2010

FACTS:
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J.Y. Brothers Marketing is a corporation engaged in the business of selling

sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance
sales agent, accompanied Isagani Calleja and Jess Kallos to J.Y. Bros. Salazar with
Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As
payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No.
067481 dated October 15, 1996 in the amount of P214,000.00 with the assurance that
the check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice
to Salazar. However, upon presentment, the check was dishonored due to “closed
account.” Informed of the dishonor of the check, Calleja, Kallos and Salazar
delivered to J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated
October 29, 1996 in the amount of P214,000.00 which also bounced due to
insufficient funds. When despite the demand letter dated February 27, 1997, Salazar
failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with
the crime of estafa before the Regional Trial Court of Legaspi City.

The RTC ruled that after the Prudential Bank check was dishonored, it was
replaced by a Solid Bank check which, however, was also subsequently dishonored;
that since the Solid Bank check was a crossed check, which meant that such check
was only for deposit in payee’s account, a condition that rendered such check non-
negotiable, the substitution of a non-negotiable Solid Bank check for a negotiable
Prudential Bank check was an essential change which had the effect of discharging
from the obligation whoever may be the endorser of the negotiable check. The RTC
concluded that the absence of negotiability rendered nugatory the obligation arising
from the technical act of indorsing a check and, thus, had the effect of novation; and
that the ultimate effect of such substitution was to extinguish the obligation arising
from the issuance of the Prudential Bank check.

ISSUE:

Whether or not a check is a contract which is susceptible to a novation.

HELD:

Novation is done by the substitution or change of the obligation by a

subsequent one which extinguishes the first, either by changing the object or
principal conditions, or by substituting the person of the debtor, or by subrogating a
third person in the rights of the creditor. Novation may either be extinctive or
modificatory, much being dependent on the nature of the change and the intention
of the parties. Extinctive novation is never presumed; there must be an express
intention to novate; in cases where it is implied, the acts of the parties must clearly
demonstrate their intent to dissolve the old obligation as the moving consideration
for the emergence of the new one. Implied novation necessitates that the
incompatibility between the old and new obligation be total on every point such that
the old obligation is completely superseded by the new one. The test of
incompatibility is whether they can stand together, each one having an independent
existence; if they cannot and are irreconcilable, the subsequent obligation would also
extinguish the first.

The obligation to pay a sum of money is not novated by an instrument that

expressly recognizes the old, changes only the terms of payment, adds other
obligations not incompatible with the old ones or the new contract merely
supplements the old one.

In this case, respondent’s acceptance of the Solid Bank check, which replaced
the dishonored Prudential Bank check, did not result to novation as there was no
 Page |8

express agreement to establish that petitioner was already discharged from his
liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of
rice. As we said, novation is never presumed, there must be an express intention to
novate. In fact, when the Solid Bank check was delivered to respondent, the same
was also indorsed by petitioner which shows petitioner’s recognition of the existing
obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank
check.

Moreover, respondent’s acceptance of the Solid Bank check did not result to
any incompatibility, since the two checks − Prudential and Solid Bank checks − were
precisely for the purpose of paying the amount of P214,000.00, i.e., the credit
obtained from the purchase of the 300 bags of rice from respondent. Indeed, there
was no substantial change in the object or principal condition of the obligation of
petitioner as the indorser of the check to pay the amount of P214,000.00. It would
appear that respondent accepted the Solid Bank check to give petitioner the chance
to pay her obligation.

LAND BANK OF THE PHILIPPINES vs. ALFREDO ONG

G.R. No. 190755, November 24, 2010

FACTS:

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from
Land Bank Legazpi City in the amount of PhP 16 million. The loan was secured by
three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan
 Page |9

agreement, PhP 6 million of the loan would be short-term and would mature on
February 28, 1997, while the balance of PhP 10 million would be payable in seven (7)
years. The Notice of Loan Approval dated February 22, 1996 contained an
acceleration clause wherein any default in payment of amortizations or other
charges would accelerate the maturity of the loan. Subsequently, however, the
Spouses Sy found they could no longer pay their loan. On December 9, 1996, they
sold three (3) of their mortgaged parcels of land for PhP 150,000 to Ong under a
deed of sale with assumption of mortgage. It was later found out that the
assumption of mortgage was not approved by the land bank. Land bank foreclosed
the property. Alfredo said that the said debts were paid by Ong. Landbank opposes
and said the bank processes an assumption of mortgage as a new loan, since the new
borrower is considered a new client. They used character, capacity, capital,
collateral, and conditions in determining who can qualify to assume a loan. Auction
sale was held. An action for recovery of property was filed.

ISSUE:

Whether the Court of Appeals erred in holding that Art. 1236 of the Civil
Code does not apply and in finding that there is no novation.

HELD:

Novation must be expressly consented to. Moreover, the conflicting intention

and acts of the parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal intent by the parties to
novate the old agreement. Land Bank contends that Art. 1236 of the Civil Code
backs their claim that Alfredo should have sought recourse against the Spouses Sy
instead of Land Bank. Art. 1236 provides the creditor is not bound to accept
payment or performance by a third person who has no interest in the fulfillment of
the obligation, unless there is a stipulation to the contrary. Whoever pays for another
may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.

VALENTIN MOVIDO, substituted by MARGINITO MOVIDO vs. LUIS REYES

PASTOR

GR No. 172279, February 11, 2010

FACTS:
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Respondent Luis Reyes Pastor filed a complaint for specific performance in

the Regional Trial Court (RTC) of Imus, Cavite, praying that petitioner Valentin
Movido be compelled to cause the survey of a parcel of land subject of their contract
to sell. In his complaint, respondent alleged that he and petitioner executed a
kasunduan sa bilihan ng lupa where the latter agreed to sell a parcel of land located
in Paliparan, Dasmariñas, Cavite with an area of some 21,000 sq. m. out of the 22,731
sq. m. covered by Transfer Certificate of Title (TCT) No. 362995 at P400/sq. m.
Respondent further alleged that another kasunduan was later executed
supplementing the kasunduan sa bilihan ng lupa. It provided that, if a Napocor
power line traversed the subject lot, the purchase price would be lowered to
P200/sq. m. beyond the distance of 15 meters on both sides from the center of the
power line while the portion within a distance of 15 meters on both sides from the
center of the power line would not be paid. Lastly, respondent alleged that he
already paid petitioner P5 million out of the original purchase price of P8.4 million
stated in the kasunduan sa bilihan ng lupa. He was willing and ready to pay the
balance of the purchase price but due to petitioner’s refusal to have the property
surveyed despite incessant demands, his unpaid balance could not be determined
with certainty.

In his answer, petitioner alleged that the original negotiation for the sale of
his property involved the entire area of 22,731 sq. m. However, as respondent
was not sure whether a Napocor power line traversed the property, they then
executed the kasunduan. After respondent personally inspected the property, a
final agreement- the kasunduan sa bilihan ng lupa- was executed where the area to
be sold was 21,000 sq. m. for P400/sq. m. for a total sum of P8.4 million. The final
agreement also listed a schedule of payments of the purchase price and included a
penalty clause in case of default.

After hearing, the RTC ruled in favor of petitioner and held that the
kasunduan preceded the kasunduan sa bilihan ng lupa. Thus, the RTC dismissed the
complaint of respondent for lack of merit and/or cause of action.
On appeal, the Court of Appeals (CA) reversed the RTC and held that the
kasunduan sa bilihan ng lupa was the first document executed by the parties, not
the kasunduan. Marginito Movido’s motion for reconsideration did not have its
desired result. Hence, this petition for review on certiorari.

ISSUE:

Whether or not the failure of respondent to pay the 7,000 and 8,000
installments of the purchase price gave petitioner the right to rescind the contract.

HELD:

Indeed, a reading of the kasunduan sa bilihan ng lupa and the kasunduan

would readily reveal that payment of the purchase price does not depend on the
survey of the property. In other words, the purchase price should be paid whether
or not the property is surveyed. The survey of the property is important only
insofar as the right of respondent to the reduction of the purchase price is
concerned.
 P a g e | 11

Prudence dictates that the second option is better as it will prevent further
conflict between the parties. Thus, we adopt the second option. Impropriety of
Rescission is only allowed when the breach is as substantial and fundamental as to
defeat the object of the parties in entering into the contract. We find no such
substantial or material breach.

It is true that respondent failed to pay the 7thand 8thinstallments of the

purchase price. However, considering the circumstances of the instant case,
particularly the provisions of the kasunduan, respondent cannot be deemed to have
committed a serious breach. In the first place, respondent was not in default as
petitioner never made a demand for payment.

Moreover, the kasunduan sa bilihan ng lupa and the kasunduan should both
be given effect rather than be declared conflicting, if there is a way of reconciling
them. Petitioner and respondent would not have entered into either of the
agreements if they did not intend to be bound or governed by them. Indeed, taken
together, the two agreements actually constitute a single contract pertaining to the
sale of a land to respondent by petitioner. Their stipulations must therefore be
interpreted together, attributing to the doubtful ones that sense
that may result from all of them taken jointly. In this connection, the kasunduan sa
bilihan ng lupa contains the general terms and conditions of the agreement of the
parties. As the kasunduan pertains to a special area of the agreement, it constitutes
an exception to the general provisions of the kasunduan sa bilihan ng lupa,
particularly on the purchase price for that portion. Specialibus derogat generalibus.

Under both the kasunduan sa bilihan ng lupa and the kasunduan, petitioner
undertook to cause the survey of the property in order to determine the portion
excluded from the sale, as well as the portion traversed by the Napocor power line.
Despite repeated demands by respondent, however, petitioner failed to perform his
obligation. Thus, considering that there was a breach on the part of petitioner (and
no material breach on the part of respondent), he cannot properly invoke his right to
rescind the contract. Hence, the petition was denied and the Court affirmed with the
CA decision with modification that Movido is ordered to cause the survey of the
subject lot within a period of three months in order to determine the excluded
portion of the sale and the portion traversed by the Napocor power line. If he fails to
do so, Luis Reyes Pastor is hereby authorized to have it done with the cost of the
survey charged to Marginito Movido.

PAN PACIFIC SERVICE CONTRACTORS, INC. vs. EQUITABLE PCI BANK

(FORMERLY THE PHILIPPINE COMMERCIAL INTERNATIONAL BANK)

G.R. No. 169975, March 18, 2010

FACTS:

Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting

mechanical works on air conditioning system. On 24 November 1989, Pan Pacific,
 P a g e | 12

through its President, Ricardo F. Del Rosario (Del Rosario), entered into a contract of
mechanical works (Contract) with respondent for P20,688,800. Pan Pacific and
respondent also agreed on nine change orders for P2,622,610.30. Thus, the total
consideration for the whole project was P23,311,410.30. The Contract stipulated,
among others, that Pan Pacific shall be entitled to a price adjustment in case of
increase in labor costs and prices of materials under paragraphs 70.1 and 70.2 of the
“General Conditions for the Construction of PCIB Tower II Extension” (the
escalation clause). Pursuant to the contract, Pan Pacific commenced the mechanical
works in the
project site, the PCIB Tower II extension building in Makati City. The project
was completed in June 1992. Respondent accepted the project on 9 July 1992.
In 1990, labor costs and prices of materials escalated. On 5 April 1991, in
accordance with the escalation clause, Pan Pacific claimed a price adjustment of
P5,165,945.52. Respondent’s appointed project engineer, TCGI Engineers, asked for a
reduction in the price adjustment. To show goodwill, Pan Pacific reduced the price
adjustment to P4,858,548.67.

Pan Pacific refused to pay the loan. Pan Pacific insisted that it would not have
incurred the loan if respondent released the price adjustment on time. Pan
Pacific alleged that the promissory note did not express the true agreement of
the parties. Pan Pacific maintained that the P1.8 million was to be considered
as an advance payment on the price adjustment. Therefore, there was really no
consideration for the promissory note; hence, it is null and void from the
beginning.

Respondent stood firm that it would not release any amount of the price
adjustment to Pan Pacific but it would offset the price adjustment with Pan
Pacific’s outstanding balance of P3,226,186.01, representing the loan,
interests, penalties and collection charges. Pan Pacific refused the offsetting but
agreed to receive the reduced amount of P3,730,957.07 as recommended by the TCGI
Engineers for the purpose of extrajudicial settlement, less P1.8 million and P414,942
as advance payments.

On 6 May 1994, petitioners filed a complaint for declaration of

nullity/annulment of the promissory note, sum of money, and damages against the
respondent with the RTC of Makati City, Branch 59. On 12 April 1999, the RTC
rendered its decision in favor of plaintiffs. CA modified the RTC decision, with
respect to the principal amount due to petitioners. Petitioners filed a Motion
for Partial Reconsideration seeking a reconsideration of the CA’s Decision
imposing the legal rate of 12%. Respondent likewise filed a
Motion for Reconsideration of the CA’s decision. In a Resolution dated 5 October
2005, the CA denied both motions.

ISSUE:

Whether the CA, in awarding the unpaid balance of the price adjustment
erred in fixing the interest rate at 12% instead of the 18% bank lending rate.

HELD:
 P a g e | 13

It is settled that the agreement or the contract between the parties is the
formal expression of the parties’ rights, duties, and obligations. It is the best
evidence of the intention of the parties. Thus, 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.

The escalation clause must be read in conjunction with Section 2.5 of the
Agreement and Section 60.10 of the General Conditions which pertain to the time of
payment. Under Section 60.10 of the General Conditions, the respondent shall pay
such liability to the petitioner within 28 days from issuance of the interim certificate.
Upon respondent’s failure to pay within the time provided (28 days), then it shall be
liable to pay the stipulated interest.

We agree with petitioners’ interpretation that in case of default, the consent of

the respondent is not needed in order to impose interest at the current bank lending
rate.

Under Article 2209 of the Civil Code, the appropriate measure for damages in
case of delay in discharging an obligation consisting of the payment of a sum of
money is the payment of penalty interest at the rate agreed upon in the contract of
the parties. In the absence of a stipulation of a particular rate of penalty interest,
payment of additional interest at a rate equal to the regular monetary interest
becomes due and payable. Finally, if no regular interest had been agreed upon by
the contracting parties, then the damages payable will consist of payment of legal
interest which is 6%, or in the case of loans or forbearances of money, 12% per
annum. It is only when the parties to a contract have failed to fix the rate of interest
or when such amount is unwarranted that the Court will apply the 12% interest per
annum on a loan or forbearance of money.
The written agreement entered into between petitioners and respondent provides
for an interest at the current bank lending rate in case of delay in payment and
the promissory note charged an interest of 18%.

To prove petitioners’ entitlement to the 18% bank lending rate of interest,

petitioners presented the promissory note prepared by respondent bank itself.
This promissory note, although declared void by the lower courts because it did
not express the real intention of the parties, is substantial proof that the
bank lending rate at the time of default was 18% per annum. Absent any evidence of
fraud, undue influence or any vice of consent exercised by petitioners against the
respondent, the interest rate agreed upon is binding on them.

ATTY. PEDRO FERRER vs. SPS. ALFREDO AND IMELDA DIAZ, REINA
COMANDANTE AND SPS. BIENVENIDO PANGAN AND ELIZABETH

G.R. No. 165300, April 23, 2010

FACTS:

Atty. Pedro Ferrer claimed in his original Complaint that on 07 May 1999, the
Diazes, as represented by their daughter Comandante obtained from him a loan
which was secured by a Real Estate Mortgage Contract. Comandante issued to
 P a g e | 14

petitioner postdated checks to secure payment of said loan. Petitioner claimed that
prior to this, Comandante, for a valuable consideration of P600,000.00, which
amount formed part of the abovementioned secured loan, executed in his favor an
instrument entitled Waiver of Hereditary Rights and Interests Over a Real Property.
The Diazes, however, reneged on their obligation as the checks issued by
Comandante were dishonored upon presentment. Despite repeated demands, they
still failed and refused to settle the loan. Thus, petitioner filed a Complaint for
Collection of Sum of Money Secured by Real Estate Mortgage Contract against the
Diazes and Comandante in the RTC of Quezon City. The RTC ruled in favor of
petitioner. Respondents appealed to the CA. However, the CA merely modified the
assailed judgment of the trial court by excluding the Pangans among those solidarily
liable to petitioner, in effect affirming in all other respects the assailed judgment.

ISSUE:

Whether or not the waiver of hereditary rights and interest over a real
property (still undivided) executed by Comandante is null and void for being
violative of Article 1347 of the Civil Code.

HELD:

Article 1347 of the Civil Code states that no contract may be entered into
upon a future inheritance except in cases expressly authorized by law. For the
inheritance to be considered “future”, the succession must not have been opened at
the time of the contract. From the foregoing, it is clear that Comandante and
petitioner entered into a contract involving the former’s future inheritance as
embodied in the Waiver of Hereditary Rights and Interest Over a Real Property (Still
Undivided) executed by her in petitioner’s favor. Thus, the court as guided by the
discussions in the case of Tañedo vs. Court of Appeals, similarly declared in this
case that the Waiver of Hereditary Rights and Interest Over a Real Property (Still
Undivided) executed by Comandante in favor of petitioner as not valid and that
same cannot be the source of any right or create any obligation between them for
being violative of the second paragraph of Article 1347 of the Civil Code.

EUGENIO REYES vs. LIBRANDA MAURICIO (deceased) and LEONIDA F.

MAURICIO

G.R. No. 175080, November 24, 2010

FACTS:

Eugenio was a registered owner of parcel of land at Turo, Bocaue, Bulacan

covered by TCT No. T- 62290 registered in the name of Eufracia and Susana Reyes,
sibling of petitioner. The property was adjudicated to Eugenio by virtue of an
extrajudicial settlement among the heirs following the death of their parents.

Libranda Mauricio and daughter Leonida Mauricio filed a complaint before

the DARAB of Malolos, Bulacan for annulment of contract denominated as
Kasunduan between Libranda and Eugenio as parties.
 P a g e | 15

Respondents alleged that they are the legal heirs of Godofredo Mauricio who
was the lawful and registered tenant of Eugenio; that Godofredo had been working
on the land and introduced improvements thereon.; that through fraud, deceit,
strategy, and other unlawful means Eugenio caused the preparation of the
document Kasunduan to eject respondents from the subject property; that Libranda
was illiterate and that the contents of the Kasunduan were not read nor explained to
her; that Eugenio took undue advantage of the weakness, age, illiteracy, ignorance,
indigence and other handicaps of Libranda in the execution of the Kasunduan
rendering it void for lack of consent

Petitioner averred that no tenancy relationship existed between him and

respondents. That Godofredo’s occupancy was based on the former’s mere tolerance
and accommodation.

The Provincial Adjudicator concluded that Eugenio was a tenant of Eugenio,

being the surviving spouse, should be maintained in peaceful possession of the
subject land. DARAB held that Mauricio’s are former tenants of Spouses Reyes,
when spouses died; the children inherited the subject property. Under the law, they
are subrogated to rights and obligations of their late parents. The Kasunduan was
declared void. The CA affirmed the decision and resolution of the DARAB. Hence,
this present petition.

ISSUE:

Whether or not the Kasunduan between Eugenio and Libranda is void.

HELD:

The court denied the petition for failure to show that the CA committed
reversible error in its challenged decision and resolution. Question of fact is beyond
the province of this court. Absent any of the obtaining exceptions to this rule, the
findings of fact of the Provincial Adjudicator, as affirmed by the DARAB and
especially by the Court of Appeals, are binding on this court.

The second Kasunduan is the subject of the instant complaint. The DARAB
nullified the second Kasunduan, to wit:

Insofar as this “Kasunduan” is concerned, and after reading the transcript of

the testimony of the old woman Librada Mauricio, this Board is convinced
that indeed the purpose of the document was to eject her from the farm
holding but that Librada Mauricio wanted to return the money she received
because the contents of the document was never explained to her being
illiterate who cannot even read or write. This Board is even further convinced
after reading the transcript of the testimonies that while the document was
allegedly signed by the parties in Turo, Bocaue, Bulacan, the same document
was notarized in Pasig, Metro Manila, thus, the Notary Public was not in a
position to explain much less ascertain the veracity of the contents of the
alleged “Kasunduan” as to whether or not Plaintiff-Appellee Librada
Mauricio had really understood the contents thereof. This Board further
adheres to the principle that it cannot substitute its own evaluation of the
testimony of the witnesses with that of the personal evaluation of the
 P a g e | 16

Adjudicator a quo who, in the case at bar, had the best opportunity to observe
the demeanor of the witness Librada Mauricio while testifying on the
circumstances relevant to the execution of the alleged “Kasunduan.”
Furthermore, this Board adheres to the principle that in all contractual,
property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, mental weakness or other
handicap, the courts (and in the case at bar, this Board) must be vigilant for
his protection (Art. 24, New Civil Code). In the case at bar, Plaintiff-Appellee
is already eighty-one (81) years old who can neither read nor write, thus, she
just simply signs her name with her thumbmark.

DOMINGO vs. CA

G.R. No. 169122, February 02, 2010

FACTS:

Before he died, Julio Domingo (Julio) allegedly executed a Deed of Absolute

Sale over a 4.1358-hectare parcel of land in favor of Marcelino’s wife, Carmelita
Mananghaya (Mananghaya). Agapita and Ana Domingo, and the heirs of
Gaudencio, Julian, Edilberta, Modesta, Felipe, and Geronimo Domingo (the
Domingos) filed before RTC of Nueva Ecija, a complaint against Marcelino and
Mananghaya for the annulment of the Deed of Absolute Sale. The Domingos alleged
that Julio’s signature in the deed was forged. In its 3 November 1993 Decision, the
RTC held that Julio’s signature in the Deed of Absolute Sale was forged; thus, the
deed was void. The RTC ordered Marcelino and Mananghaya to deliver possession
of the property to the Domingos. Marcelino and Mananghaya appealed the Decision
to the Court of Appeals. The Court of Appeals dismissed the appeal. The 14 July
2000 Decision became final and executory. Thus, on 4 August 2003, the RTC issued a
 P a g e | 17

writ of execution. On 25 August 2003, the Domingos gained possession of the

property.

Marcelino filed with the Department of Agrarian Reform (DAR) a petition

dated 25 August 2003 praying that he be declared the tenant-beneficiary of the
property. Around April 2004, Marcelino reentered and retook possession of the
property. The DAR granted Marcelino’s petition, placed 10.0108 hectares of land
including the property under the coverage of Republic Act (RA) No. 6657 and
named Marcelino as one of the tenant-beneficiaries.

ISSUE:

Whether or not the Order of the DARAB grant the defendant title over the
property as against the decision of the court which is final and executory.

HELD:

Actually even if defendant Marcelino had been awarded ownership of the

subject land by the DARAB, still he could not have taken the law in his own hands
by simply taking over thereof without any judicial order and thereby ousting
therefrom the plaintiffs, this Court, had given legal possession thereof
pursuant to a decision of the Court of Appeals which had already long become final
and executory. But the fact is the Order of the DARAB relied upon by the defendant
Marcelino did not grant him any specific portion of the land declared to be within
the coverage of PD27/RA 6657 because the same was yet, by its terms to be
distributed to the qualified beneficiaries thereof and defendant Marcelino being only
one of such beneficiaries.

DE LEON vs. ONG

G.R. No. 170405, February 02, 2010

FACTS:

On 10 March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of

land with improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As
these properties were mortgaged to Real Savings and Loan Association,
Incorporated (RSLAI), petitioner and respondent executed a notarized deed of
absolute sale with assumption of mortgage, and with a condition that upon full
payment, the petitioner shall execute and sign a deed of assumption of mortgage in
favor of respondent without any further cost. Thereafter, respondent undertook
repairs and made improvements on the properties. Subsequently, respondent
learned that petitioner again sold the same properties to one Leona Viloria after 10
March 1993 and changed the locks, rendering the keys he gave her useless.
Respondent thus proceeded to RSLAI to inquire about the credit investigation.
However, she was informed that petitioner had already paid the amount due and
had taken back the certificates of title.
 P a g e | 18

On 18 June 1993, respondent filed a complaint for specific performance,

declaration of nullity of the second sale and damages against petitioner and
Viloria. She claimed that since petitioner had previously sold the properties to
her on 10 March 1993, he no longer had the right to sell the same to Viloria.
Thus, petitioner fraudulently deprived her of the properties.
Petitioner, on the other hand, insisted that respondent did not have a cause of
action against him and consequently prayed for the dismissal of the complaint.
He claimed that since the transaction was subject to a condition (i.e., that
RSLAI approve the assumption of mortgage), they only entered into a contract to
sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did
not arise. Consequently, the sale was not perfected and he could freely dispose
of the properties. Furthermore, he made a counter-claim for damages as
respondent filed the complaint allegedly with gross and evident bad faith.

ISSUE:

Whether the contract entered into by the parties is a contract of sale or

contract to sell.

HELD:

Settled is the rule that the seller is obliged to transfer title over the
properties and deliver the same to the buyer. In this regard, Article 1498 of
the Civil Code provides that, as a rule, the execution of a notarized deed of
sale is equivalent to the delivery of a thing sold. In this instance, petitioner executed
a notarized deed of absolute sale in favor of respondent. Moreover, not only did
petitioner turn over the keys to the properties to respondent, he also authorized
RSLAI to receive payment from respondent and release his certificates of title to her.
The totality of petitioner’s acts clearly indicates that he had unqualifiedly delivered
and transferred ownership of the properties to respondent. Clearly, it was a contract
of sale the parties entered into.
 P a g e | 19

METROBANK vs. EDGARDO D. VIRAY

G.R. No. 162218, February 25, 2010

FACTS:

On 7 July 1979, Rico Shipping, Inc., represented by its President, Erlinda

Viray-Jarque, together with respondent Edgardo D. Viray (Viray), in their own
personal capacity and as solidary obligors (the three parties collectively known
as the debtors), obtained two separate loans from petitioner Metropolitan Bank
and Trust Company (MBTC) in the total amount of P250,000. The debtors executed
a promissory note promising to pay in four semi-annual installments of P62,500
starting on 23 January 1980, with 15% interest and 2% credit evaluation and
supervision fee per annum. The two loans were subsequently renewed and secured
by one promissory note. Under the note, the debtors made a total payment of
P134,054 leaving a balance of P115,946 which remained unpaid despite demands by
MBTC.

On 5 June 1981, the debtors executed another promissory note and obtained a
loan from MBTC in the amount of P50,000, payable on 2 November 1981 with 16%
interest and 2% credit evaluation and supervision fee per annum. On the due date,
the debtors again failed to pay the loan despite demands to pay by MBTC.
 P a g e | 20

On 3 September 1981, the debtors obtained a third loan from MBTC in the
amount of P50,000 payable on 14 November 1981, with 16% interest and 2% credit
evaluation and supervision fee per annum. Again, the debtors failed and refused to
pay on due date.

MBTC filed a complaint for sum of money against the debtors with the RTC
of Manila, Branch 4. On 28 April 1983, the RTC of Manila rendered a judgment in
favor of MBTC. On 21 September 1993, the RTC of Cagayan de Oro City rendered its
decision in favor of MBTC. Viray filed an appeal with the CA alleging that the RTC
of Cagayan de Oro City committed reversible error in ruling solely on the issue of
redemption instead of the issue of validity of the auction sale being the lis mota of
the action. MBTC filed a Motion for Reconsideration which was denied in a
Resolution dated 13 February 2004. Hence, the instant petition. MBTC filed a
Motion for Reconsideration which was denied in a Resolution dated 13 February
2004. Hence, the instant petition.

ISSUE:

Whether or not the five-year prohibition period against the alienation or sale
of the property provided in Section 118 of CA 141 does not apply to an
obligation contracted before the grant or issuance of the free patent or
homestead.

HELD:

The law clearly provides that lands which have been acquired under free
patent or homestead shall not be encumbered or alienated within five years from the
date of issuance of the patent or be liable for the satisfaction of any debt contracted
prior to the expiration of the period.

In the present case, the three loans were obtained on separate dates – 7 July
1979, 5 June 1981 and 3 September 1981, or several years before the free patents on
the lots were issued by the government to respondent on 29 December 1982. The
RTC of Manila, in a Decision dated 28 April 1983, ruled in favor of petitioner
ordering the debtors, including respondent, to pay jointly and severally certain
amounts of money. The public auction conducted by the sheriff on the lots owned
by respondent occurred on 12 October 1984.

For a period of five years or from 29 December 1982 up to 28 December 1987,

Section 118 of CA 141 provides that the lots comprising the free patents shall not be
made liable for the payment of any debt until the period of five years
expires. In this case, the execution sale of the lots occurred less than two
years after the date of the issuance of the patents. This clearly falls within the five-
year prohibition period provided in the law, regardless of the dates when the loans
were incurred.

In Artates v. Urbi, we held that a civil obligation cannot be enforced against

or satisfied out of, the sale of the homestead lot acquired by the patentee less than
five years before the obligation accrued even if the sale is involuntary. For purposes
of complying with the law, it is immaterial that the satisfaction
of the debt by the encumbrance or alienation of the land grant was made
 P a g e | 21

voluntarily, as in the case of an ordinary sale, or involuntarily, such as that

effected through levy on the property and consequent sale at public auction. In
both instances, the law would have been violated.

Section 118 of CA 141, therefore, is predicated on public policy. Its violation

gives rise to the cancellation of the grant and the reversion of the land and its
improvements to the government at the instance of the latter. The provision that
“nor shall they become liable to the satisfaction of any debt contracted prior to the
expiration of the five-year period” is mandatory and any sale made in violation of
such provision is void and produces no effect whatsoever just like what transpired
in this case. Clearly, it is not within the competence of any citizen to barter away
what public policy by law seeks to preserve.

The Court denied the petition.

CARMEN DEL PRADO vs. SPOUSES ANTONIO L. CABALLERO

and LEONARDA CABALLERO

G.R. No. 148225, March 03, 2010

FACTS:

In a judgment rendered on February 1, 1985 in Cadastral Case No. N-6 (LRC

Rec. No. N-611), Judge Juan Y. Reyes of the Regional Trial Court (RTC) of Cebu City,
Branch 14, adjudicated in favor of Spouses Antonio L. Caballero and Leonarda B.
Caballero several parcels of land situated in Guba, Cebu City, one of which was
Cadastral Lot No. 11909, the subject of this controversy.

On May 21, 1987, Antonio Caballero moved for the issuance of the final
decree of registration for their lots. Consequently, on May 25, 1987, the same court,
through then Presiding Judge Renato C. Dacudao, ordered the National Land Titles
and Deeds Registration Administration to issue the decree of registration and the
corresponding titles of the lots in favor of the Caballeros.

On March 20, 1991, petitioner filed in the same cadastral proceedings a

“Petition for Registration of Document under Presidential Decree (P.D.) 1529” in
order that a certificate of title be issued in her name, covering the whole Lot
No. 11909. In the petition, petitioner alleged that the tenor of the instrument
of sale indicated that the sale was for a lump sum or cuerpo cierto, in which
case, the vendor was bound to deliver all that was included within said
 P a g e | 22

boundaries even when it exceeded the area specified in the contract. Respondents
opposed, on the main ground that only 4,000 sq m of Lot No. 11909 was sold to
petitioner. They claimed that the sale was not for a cuerpo cierto. They moved for
the outright dismissal of the petition on grounds of prescription and lack of
jurisdiction. After trial on the merits, the court found that petitioner had established
a clear and positive right to Lot No. 11909. The intended sale between the parties
was for a lump sum, since there was no evidence presented that the property was
sold for a price per unit. It was apparent that the subject matter of the sale was the
parcel of land, known as Cadastral Lot No. 11909, and not only a portion thereof.
An appeal was duly filed. On September 26, 2000, the CA promulgated the assailed
decision, reversing and setting aside the decision of the RTC. Hence this petition.

ISSUE:

Whether or not the sale of the lot is for a lump sum or cuerpo cierto.

HELD:

In the instant case, the deed of sale is not one of a unit price contract. The
parties agreed on the purchase price of P40,000.00 for a predetermined area of 4,000
sq m, more or less, bounded on the North by Lot No. 11903, on the East by Lot No.
11908, on the South by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In
a contract of sale of land in a mass, the specific boundaries stated in the contract
must control over any other statement, with respect to the area contained within its
boundaries. Black’s Law Dictionary defines the phrase “more or less” to mean:
About; substantially; or approximately; implying that both parties assume the risk of
any ordinary discrepancy. The words are intended to cover slight or unimportant in
accuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d 408; and are
ordinarily to be interpreted as taking care of unsubstantial differences or differences
of small importance compared to the whole number of items transferred. Clearly,
the discrepancy of 10,475 sq m cannot be considered a slight difference in quantity.
The difference in the area is obviously sizeable and too substantial to be overlooked.
It is not a reasonable excess or deficiency that should be deemed included in the
deed of sale. We take exception to the avowed rule that this Court is not a trier of
facts. After an assiduous scrutiny of the records, we lend credence to respondents’
claim that they intended to sell only 4,000 sq m of the whole Lot No. 11909, contrary
to the findings of the lower court. The records reveal that when the parties made an
ocular inspection, petitioner specifically pointed to that portion of the lot, which she
preferred to purchase, since there were mango trees planted and a deep well
thereon. After the sale, respondents delivered and segregated the area of 4,000 sq m
in favor of petitioner by fencing off the area of 10,475 sq m belonging to them.
Contracts are the law between the contracting parties. Sale, by its very nature is a
consensual contract, because it is perfected by mere consent. The essential elements
of a contract of sale are the following: (a) consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price; (b) determinate subject
matter; and (c) price certain in money or its equivalent. All these elements are
present in the instant case.
 P a g e | 23

More importantly, we find no reversible error in the decision of the CA.

Petitioner’s recourse, by filing the petition for registration in the same
cadastral case, was improper. It is a fundamental principle in land registration
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. Such indefeasibility commences after one year from the date of entry of
the decree of registration. Inasmuch as the petition for registration of
document did not interrupt the running of the period to file the appropriate
petition for review and considering that the prescribed one-year period had long
since expired, the decree of registration, as well as the certificate of title
issued in favor of respondents, had become incontrovertible.

Hence, the petition is denied.

SEGUNDO G. DIMARANAN vs. HEIRS OF SPOUSES ARAYATA

G.R. No. 184193, March 29, 2010

FACTS:

Respondents Hermogenes Jr., Belen and Cecille Arayata are the legal heirs of
Spouses Hermogenes and Flaviana Arayata (Spouses Arayata). They claimed that
on 5 September 1955, Spouses Arayata purchased a 28,496 square meter lot in Tanza
(now known as Trece Martires City), Cavite and covered by TCT No. (T-8718) RT-
7973 from petitioner, by virtue of a deed of sale denominated as “Bilihan ng Lupa.”
Evidence of respondents shows that as a result of the sale, TCT No. T-8672 in the
name of petitioner was cancelled in favor of Spouses Arayata. Thus, TCT No. T-8718
was issued. In 1959, all records of the Register of Deeds of Cavite were burned, thus
TCT No. T-8718 was reconstituted, and as such, became TCT No. (T-8718) RT-7973.

In 1980, respondents learned that petitioner was able to secure TCT No. T-
115904 under his name from the Register of Deeds of Cavite covering the same
property. Respondents thereafter filed a case before the then Court of First Instance
of Cavite against petitioner. On 29 December 1981, the trial court ordered the
cancellation of TCT No. T-115904 under the name of petitioner. A writ of execution
was issued accordingly. However, records are bereft of proof that the writ was duly
enforced.

Upon investigation, respondents discovered that a petition for

reconstitution was filed by petitioner in RTC, Branch 23 of Trece Martires City
on 18 March 1996. Two weeks later or on 1 April 1996, the trial court ordered
 P a g e | 24

the reconstitution of TCT No. T-115904. The claim of petitioner based on his
reconstituted title prompted respondents to file a complaint for Quieting of
Title and Damages with Prayer for TRO and Writ of Preliminary Injunction before
the RTC of Trece Martires City, docketed as Civil Case No. TM-718.

Petitioner countered that he purchased the subject property from the

government and paid in three (3) installments, the last of which was in 15 September
1954. He asserted that TCT No. T-115904 was issued on 2 December 1980. Petitioner
admitted that when he found out that his original title in custody of the Register of
Deeds of Cavite was missing, he sought the help of a certain Abling Lungkay to
reconstitute his title, and as reconstituted, became TCT No. (T-115904) RT-004.
Petitioner maintained that the “Bilihan ng Lupa” is a spurious document and that
TCT No. (T-8718) RT-7973 is a fake title having no origin whatsoever. He pointed
out that he could not have sold the property in 1955 because he only legally acquired
the property on 2 December 1980, as reflected in TCT No. T-115904. To bolster his
claim, he averred that TCT No. T 8672, from which (T-8718) RT-7973 supposedly
emanated from, was registered in the names of Maxima Timbang, et. al., and not
that of petitioner’s. In sum, petitioner argued that he is the registered owner of the
subject land and is in actual possession thereof until 7 February 1997 when
respondents, aided by armed men, invaded the property. Petitioner also assailed the
29 December 1981 Decision of the trial court nullifying TCT No. T-115904 on the
ground that said decision was rendered without proper service of summons and
therefore, null and void.

On 21 February 2005, the trial court rendered judgment in favor of

respondents. Aggrieved, petitioner appealed to the Court of Appeals. The appellate
court affirmed with modification the trial court’s decision by deleting the award of
moral damages and attorney’s fees. The Court of Appeals sustained the trial court’s
finding that the sale between Spouses Arayata and petitioner is valid.

ISSUE:

Whether or not the sale of the disputed property between petitioner and
Spouses Arayata was valid.

HELD:

As a general rule, factual findings of the trial court, especially those

affirmed by the Court of Appeals, are conclusive on this Court when supported by
the evidence on record. There are recognized exceptions to this rule, among
which are: (1) the conclusion is grounded on speculations, surmises or
conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3)
there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of facts are conflicting; (6) there
is no citation of specific evidence on which the factual findings are based; (7)
the finding of absence of facts is contradicted by the presence of evidence on
record; (8) the findings of the Court of Appeals are contrary to the findings of
the trial court; (9) the Court of Appeals manifestly overlooked certain relevant
and undisputed facts that, if properly considered, would justify a different
conclusion; (10) the findings of the Court of Appeals are beyond the issues of
 P a g e | 25

the case; and (11) such findings are contrary to the admissions of both parties.
However, in the instant case, petitioner failed to demonstrate that their
petition falls under any one of the above exceptions. We find no cogent reason
to disturb the findings of the RTC, which the Court of Appeals had affirmed.

Based on the foregoing, it now becomes unnecessary to dwell on the issues

raised by petitioner, which are a mere rehash of their arguments before the appellate
court. Such arguments had in fact already been passed upon by the Court of
Appeals.

We likewise uphold the deletion of the award for moral damages and
attorney’s fees for failure of respondents to substantiate their claims. Hence, the
petition is denied.

LYDIA L. ROA vs. HEIRS OF SANTIAGO EBORA, et al.

G.R. No. 161137, March 15, 2010

FACTS:

On June 3, 1977, during the pendency of G.R. Nos.L-46418-19, the heirs of

Ebora sold the entire Lot 18026-A to their co-heir Josefa Ebora Pacardo (Josefa) and
her husband Rosalio Pacardo for P300,000. On the same day, the spouses Pacardo
assigned the property to Digno Roa, married to petitioner Lydia Roa. The
corresponding deeds of absolute sale and assignment were inscribed on original
certificate of title (OCT) No. P47 on July 5, 1977 under Entry Nos. 55548 and 55549
respectively. On August 11, 1977, transfer certificate of title (TCT) No. T-24488 was
issued in the name of Digno Roa. The issuance of TCT No.T-24488 was annotated in
OCT P-47 on the same day under Entry No. 56244. Subsequently, the heirs of Ebora,
including Josefa, executed an extrajudicial settlement of the estate with confirmation
of sale, assignment and waiver of rights, recognizing the conveyance of Lot 18026-A
to Josefa and eventually to Digno Roa.

On September 29, 1983, G.R. NosL-46418-19 was resolved against Chacon

Enterprises and in favor of the heirs of Ebora. By reason of this decision, TCT No.T-
48097 was issued in the name of the heirs of Ebora.
Thereafter, or on October 8, 1987, the heirs of Ebora again adjudicated Lot
18026-A among themselves, pro indiviso. The adjudication was inscribed in TCT
No. T-48097 on December 29, 1987 under Entry No. 126545.That same day, a deed of
confirmation of a prior conveyance by Josefa to respondent Samuel Sonnie Lim of a
4,500 sq. m. portion was likewise inscribed on TCT No. T 48097. The issuance of new
TCTs in the name of Alejandro Eborawas likewise inscribed in TCT No. T-48097 on
December 29, 1987. The lots were thereafter sold to various respondents which
resulted in the issuance of the following new TCTs in the names of the respective
 P a g e | 26

vendees. All these transactions occurred without petitioner’s knowledge and

consent. In view of the death of her husband, Digno Roa, petitioner filed a petition
for annulment and cancellation of TCT No. 48097 and its derivative titles in the RTC
of Misamis Oriental, Cagayan de Oro City, Branch 23, against respondents. The case
was docketed as Civil Case No. 93492.

On June 27, 2003, the Regional Trial Court (RTC) declared respondents as
innocent purchasers for value whose titles to their respective lots should be
respected, and ordered the cancellation of petitioner’s title, TCT No. T-24488. Hence,
this petition for review on certiorari. Petitioner imputes error to the RTC which
declared TCT No. T-48097 as void but upheld the validity of its derivative titles.

ISSUE:

Whether or not respondents are not innocent purchasers for value.

HELD:

The Court granted the petition. Petitioner’s title was validly issued and had
been undisturbed for 10 years before the title of respondents’ predecessor (the
Ebora heirs) was issued. Petitioner never relinquished her title to respondents
or to anybody else. She therefore possessed a superior right over those of
respondents, notwithstanding the fact that respondents were innocent purchasers
for value. Moreover, the heirs of Ebora sold and conveyed their rights to and
interests in Lot 18026-A to the spouses Pacardo who assigned the property to the
husband of petitioner as early as June 3, 1977. From then on, the heirs of Ebora lost
all their rights and interest over the property. Indeed, the heirs of Ebora even
confirmed the sale to Josefa and the assignment and waiver of rights in favor of
petitioner’s husband in an instrument dated January 31, 1983. Thus, the heirs of
Ebora had nothing to adjudicate among themselves on October 8, 1987. Neither did
they have anything to transfer to the vendees or successors-in-interest. As such, the
transferees of the heirs of Ebora acquired no better right than that of the transferors.
The spring cannot rise higher than its source.

In this case, as in Sanchez, petitioner’s title was validly issued and had been
undisturbed for 10 years before the title of respondents’ predecessor (the
Ebora heirs) was issued. Petitioner never relinquished her title to respondents
or to anybody else. She therefore possessed a superior right over those of
respondents, notwithstanding the fact that respondents were innocent purchasers
for value. Moreover, the heirs of Ebora sold and conveyed their rights to and
interests in Lot 18026-A to the spouses Pacardo who assigned the property to the
husband of petitioner as early as June 3, 1977. From then on, the heirs of Ebora lost
all their rights and interest over the property. Indeed, the heirs of Ebora even
confirmed the sale to Josefa and the assignment and waiver of rights in favor of
petitioner’s husband in an instrument dated January 31, 1983. Thus, the heirs of
Ebora had nothing to adjudicate among themselves on October 8, 1987. Neither did
they have anything to transfer to the vendees or successors-in-interest. As such, the
transferees of the heirs of Ebora acquired no better right than that of the transferors.
The spring cannot rise higher than its source.
 P a g e | 27

MANUEL O. FUENTES and LETICIA L. FUENTES, CONRADO G. ROCA,

ANNABELLE R. vs. JOSON, ROSE MARIE R. CRISTOBAL and PILAR
MALCAMPO

G.R. No. 178902, April 21, 2010

FACTS:

On 11 October 1982, Sabina Tarroza sold her lot located in Zamboanga City to
her son, Tarciano Roca, under a deed of absolute sale. In 1988, Tarciano offered to
sell the lot to petitioner. They signed an agreement to sell, but the parties left their
signed agreement with Atty. Plagata who allegedly went to see Rosario, Tarciano’s
estranged wife, in one of his trips to Manila and had her sign an affidavit of consent.
On 11 January 1989 Tarciano executed a deed of absolute sale in favor of the Fuentes
spouses. Tarciano and Rosario passed away.

In 1997, their children, herein respondents filed an action for annulment of

sale and reconveyance of the land against the Fuentes spouses before the RTC of
Zamboanga City. The RTC, however, dismissed the case. It ruled that the action had
already prescribed since the ground cited by the Rocas for annulling the sale,
forgery or fraud, already prescribed under Article 1391 of the Civil Code
four years after its discovery. On appeal, the Court of Appeals reversed the RTC
decision. Hence, this petition.

ISSUE:

Whether or not the Rocas’ action for the declaration of nullity of that sale to
the spouses already prescribed.

HELD:
 P a g e | 28

The Fuentes spouses of course argue that the RTC nullified the sale to them
based on fraud and that, therefore, the applicable prescriptive period should be that
which applies to fraudulent transactions, namely, four years from its discovery.
Since notice of the sale may be deemed given to the Rocas when it was registered
with the Registry of Deeds in 1989, their right of action already prescribed in 1993.
But, if there had been a victim of fraud in this case, it would be the Fuentes spouses
in that they appeared to have agreed to buy the property upon an honest belief that
Rosario’s written consent to the sale was genuine. They had four years then from the
time they learned that her signature had been forged within which to file an action
to annul the sale and get back their money plus damages. They never exercised the
right. Rosario was not a victim of fraud or misrepresentation. Her consent was
simply not obtained at all. She lost nothing since the sale without her written
consent was void. Ultimately, the Rocas ground for annulment is not forgery but
the lack of written consent of their mother to the sale. The forgery is merely
evidence of lack of consent.

SPS. FAUSTINO AND JOSEFINA GARCIA, et al. vs. CA

G.R. No. 172036, April 23, 2010

FACTS:

In 1993, plaintiffs spouses Faustino and Josefina Garcia and spouses Meliton
and Helen Galvez and defendant Emerlita dela Cruz entered into a Contract to Sell
wherein the latter agreed to sell to the former five (5) parcels of land situated at
Tanza, Cavite. At the time of the execution of the said contract,
three of the subject lots, namely, Lot Nos. 2776, 2767, and 2769 were registered
in the name of one Angel Abelida from whom defendant allegedly acquired said
properties by virtue of a Deed of Absolute Sale dated 31 March 1989. As agreed
upon, plaintiffs shall make a down payment upon signing of the contract. The
balance shall be paid in three installments. On its due date, plaintiffs failed
to pay the last installment. Sometime in July 1995, plaintiffs offered to pay
the unpaid balance, which had already been delayed by one and a half year, which
defendant refused to accept. In 1995, defendant sold the same parcels of land to
intervenor Diogenes G. Bartolome. In order to compel defendant to accept plaintiffs’
payment in full satisfaction of the purchase price and, thereafter,
execute the necessary document of transfer in their favor, plaintiffs filed
before the RTC a complaint for specific performance. The trial court ruled that
Dela Cruz’s rescission of the contract was not valid. The trial court applied
Republic Act No. 6552 (Maceda Law) and stated that Dela Cruz is not allowed to
unilaterally cancel the Contract to Sell. Dela Cruz and Bartolome appealed from
the judgment of the trial court. The appellate court reversed the trial court’s
decision. Hence, this petition.

ISSUE:

Whether or not trial court erred in applying Republic Act 6552, otherwise
known as the Maceda Law.
 P a g e | 29

HELD:

The trial court erred in applying R.A. 6552, or the Maceda Law, to the present
case. The Maceda Law applies to contracts of sale of real estate on installment
payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants. The subject lands, comprising five
(5) parcels and aggregating 69,028 square meters, do not comprise residential real
estate within the contemplation of the Maceda Law. Moreover, even if we apply the
Maceda Law to the present case, petitioners’ offer of payment to Dela Cruz was
made a year and a half after the stipulated date. This is beyond the sixty-day grace
period under Section 4 of the Maceda Law. Petitioners still cannot use the second
sentence of Section 4 of the Maceda Law against Dela Cruz for Dela Cruz’s alleged
failure to give an effective notice of cancellation or demand for rescission because
Dela Cruz merely sent the notice to the address supplied by petitioners in the
Contract to Sell.

SPOUSES ADOLFO FERNANDEZ, SR. vs. SPOUSES MARTINES CO

G.R. No. 167390, July 26, 2010

FACTS:

The property involved in this case is Lot 978, Cad. 439-D, with an area of
1,209 square meters, located in Nalsian, Calasiao, Pangasinan. Respondents’
predecessor-in-interest, Emilio Torres, married to Pilar Torres, applied for and was
granted a free patent over the subject property, described as Lot 978, Cad. 439-D,
Calasiao Cadastre. The said free patent, issued on June 10, 1996 by President Fidel V.
Ramos, was registered with the Register of Deeds
for the Province of Pangasinan, and Katibayan ng Orihinal na Titulo Blg.P-35620
covering the subject property was issued in the name of Emilio Torres.
Petitioner Adolfo Fernandez filed an Affidavit of Adverse Claim with the
Register of Deeds of Pangasinan and had the same annotated on Emilio Torres'
title on July 16, 1996.

The adverse claim was eventually cancelled when Emilio Torres filed an
Affidavit of Cancellation of Adverse Claim with the Register of Deeds of
Pangasinan, alleging, among others, that adverse claimant Adolfo Fernandez failed
to pursue his claim in court, and that he executed an Affidavit dated March 20, 1996,
wherein he admitted that Emilio Torres is the actual owner in possession of the
subject property. Thereafter, Emilio Torres executed an Affidavit of Request for
Issuance of New Transfer Certificate of Title dated September 20, 1996 and filed the
same before the Register of Deeds of Pangasinan.

On June 6, 1997, the spouses Emilio and Pilar Torres sold the subject property
to respondents spouses Martines and Erlinda Co, as evidenced by a Deed of
Absolute Sale. TCT No. T-216709 in the name of Emilio Torres was cancelled and
TCT No. T-236032 was issued in the name of respondents spouses Martines and
Erlinda Co. Respondents took actual physical possession of the property and erected
concrete posts and barbed wire fence enclosing the property.
 P a g e | 30

On August 14, 1997, respondents obtained a loan from Solid Bank in the
amount of P8,000,000.00, and mortgaged the subject property to secure the loan.
Subsequently, a portion of the property, denominated as Lot 978-B, was segregated
and made part of the Judge Jose De Venecia, Sr. Highway covered by TCT No. T-
236033 (Road Lot). The remaining portion, denominated as Lot 978-A, covered by
TCT No. T-236032, now subject matter of the controversy, pertained to respondents.

In order to protect their interest, respondents filed a Complaint for quieting

of title and injunction with damages before the RTC of Dagupan City, but the
complaint was dismissed for lack of jurisdiction.

On January 22, 2002, respondents filed a Complaint for forcible

entry/ejectment before the MTC in Calasiao, Pangasinan (trial court). The trial court
rendered a Decision in favor of respondents. Respondents appealed the RTC’s
Decision to the Court of Appeals via a petition for review.

ISSUE:

Who between the parties is entitled to the possession of Lot 978, Cad. 439-D
located in Nalsian, Calasiao, Pangasinan.

HELD:

The Court upheld the Decision of the Court of Appeals, reinstating the
decision of the trial court that respondents are entitled to the possession of Lot 978,
Cad. 439-D. Upon the sale of the subject property by the spouses Emilio and Pilar
Torres to respondents, respondents took possession of the property, and a new
transfer certificate of title was issued in the name of respondents. Hence,
respondents had actual, physical possession of the subject property. Moreover, the
Court agrees with the finding of the trial court that petitioners’
claim of being in prior possession of Lot 978 is based on the false assumption
that Lot 978 is part of Lot No. 661. Petitioners claimed in their Answer that
they have long been in actual possession of Lot 978 when the said lot, including
Lot No. 661-A and Lot No. 661-B originally formed part of an unirrigated
rice land recorded as Cadastral Lot No. 661 under Tax Declaration No. 16357
issued in the names of petitioners.
 P a g e | 31

EVANGELINE D. IMANI vs. METROPOLITAN BANK & TRUST COMPANY

G.R. No. 187023, November 17, 2010

FACTS:

On August 24, 1981, Evangeline D. Imani signed a Continuing Suretyship

Agreement in favor of respondent Metropolitan Bank & Trust Company
(Metrobank), with Cesar P. Dazo Nieves Dazo, Benedicto Dazo, Cynthia Dazo,
Doroteo Fundales Jr., and Nicolas Ponce as her co- sureties. As sureties, they bound
themselves to pay Metrobank whatever indebtedness C.P. Dazo Tannery Inc.
(CPDTI) incurs, but not exceeding six million pesos.

Later, CPDTI obtained loans of P100, 000 and P63, 825.45. The loans were
evidenced by promissory notes signed by Cesar & Nieves Dazo. CPDTI defaulted in
the payment of its loans. Metrobank made several demands but to no avail. This
prompted Metrobank to file a collection suit against CPDTI and its sureties
including petitioner.

RTC rendered decision in favour of Metrobank. CPDTI appealed to the Court

of Appeals but it was dismissed. Metrobank then filed Motion for Execution; it was
issued against CPDTI and its co- defendants. The Sheriff levied on a property
covered by TCT No. T- 27957 and registered in the name of the petitioner. Public
auction was conducted and the property was awarded to Metrobank as the highest
bidder.

Metrobank undertook to consolidate the title, that spouses Sin and

Evangeline Imani be directed to surrender the owner’s copy for cancellation.
Petitioner opposed the motion arguing that it belongs to the conjugal partnership
and it cannot be held answerable to the liabilities of CPDTI. Thus, petitioner prayed
for the nullification of the levy on execution and the auction sale as well as the
Certificate of Sale.

RTC declared the property levied upon as conjugal which cannot be held
answerable for petitioner’s personal liability. The Court of Appeals rendered now
the challenged decision declaring sale by public auction valid and legal. Hence, this
recourse by the petitioner,

ISSUE:
 P a g e | 32

Whether the auction sale is valid.

HELD:

We sustain the ruling of the Court of Appeals.

Indeed, all property of marriage is presumed to be conjugal. However, for

this presumption to apply, the party who invokes it must first prove that the
property was acquired during the marriage. Proof of acquisition during the
coverture is a condition sine qua non to the operation of the presumption in favour
of conjugal partnership. Thus, the time when the property was acquired is material.

The Certificate of Title could not support petitioner’s assertion. The fact that
the land was registered in the name of Evangeline Dazo- Imani married to Sina
Imani is no proof that the property was acquired during the spouses’ coverture.
Acquisition of title and registration are two different acts. It is well settled that
registration does not confer title but merely confirms one already existing.

Petitioner failed to substantiate her claim that the property belongs to

conjugal partnership. It cannot rightfully say that the Court of Appeals reversed the
RTC ruling without valid basis.

Petition is denied. The decision of the Court of Appeals in sustaining the validity of
Writ of Execution, the Auction Sale and the Certificate of Sale are Affirmed.
 P a g e | 33

HYATT ELEVATORS and ESCALATORS CORPORATION vs. CATHEDRAL

HEIGHTS BUILDING COMPLEX ASSOCIATION, INC.

G.R. No. 173881, December 1, 2010

FACTS:

Petitioner Hyatt Elevators and Escalators Corporation entered into an

"Agreement to Service Elevators" (Service Agreement) with respondent Cathedral
Heights Building Complex Association, Inc., where petitioner was contracted to
maintain four passenger elevators installed in respondent's building. Under the
Service Agreement, the duties and obligations of petitioner included monthly
inspection, adjustment and lubrication of machinery, motors, control parts and
accessory equipments, including switches and electrical wirings. Section D (2) of the
Service Agreement provides that respondent shall pay for the additional charges
incurred in connection with the repair and supply of parts.

Petitioner claims that during the period of April 1997 to July 1998 it had
incurred expenses in the maintenance and repair of the elevators and demanded
from respondent the payment of the amount, however, the latter refused to pay.

Petitioner filed a suit for collection of sum of money before the RTC.
Respondent raised the defense that the elevator parts were never delivered and that
the repairs were questionable. RTC then ruled that based on the sales invoices
presented by the petitioner, a contract of sale of goods was entered into between the
parties and since petitioner was able to fulfill its part, its incumbent for the
respondent to perform its end of the obligation and that respondent’s contention
was a mere afterthought.

On appeal, CA reversed RTC and ruled that respondent did not give its
consent to the purchase of the spare parts allegedly installed in the defective
elevators. Aside from the absence of consent, the CA also held that there was no
perfected contract of sale because there was no meeting of minds upon the price. On
this note, the CA ruled that the Service Agreement did not give petitioner the
unbridled license to purchase and install any spare parts and demand, after the
lapse of a considerable length of time, payment of these prices from respondent
according to its own dictated price

ISSUE:
 P a g e | 34

Whether or not there is a perfected contract of sale between the parties with
regards to the spare parts delivered and installed on the four elevators under the
parties’ agreement to service elevators as to render the respondent liable for their
prices.

HELD:

No. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and deliver a determinate thing, and the other to pay
therefore a price certain in money or its equivalent. The absence of any of the
essential elements will negate the existence of a perfected contract of sale. In the case
at bar, the CA ruled that there was no perfected contract of sale between petitioner
and respondent, to wit: Aside from the absence of consent, there was no perfected
contract of sale because there was no meeting of minds upon the price. As the law
provides, the fixing of the price can never be left to the discretion of one of the
contracting parties. In this case, the absence of agreement as to the price is evidenced
by the lack of purchase orders issued by CHBCAI where the quantity, quality and
price of the spare parts needed for the repair of the elevators are stated. In these
purchase orders, it would show that the quotation of the cost of the spare parts
earlier informed by Hyatt is acceptable to CHBCAI. However, as revealed by the
records, it was only Hyatt who determined the price, without the acceptance or
conformity of CHBCAI. From the moment the determination of the price is left to
the judgment of one of the contracting parties, it cannot be said that there has been
an arrangement on the price since it is not possible for the other contracting party to
agree on something of which he does not know beforehand.

Based on the evidence presented in the RTC, it is clear to this Court that
petitioner had failed to secure the necessary purchase orders from respondent's
Board of Directors, or Finance Manager, to signify their assent to the price of the
parts to be used in the repair of the elevators. In Boston Bank of the Philippines v.
Manalo, this Court explained that the fixing of the price can never be left to the
decision of one of the contracting parties, to wit:

A definite agreement as to the price is an essential element of a binding

agreement to sell personal or real property because it seriously affects the rights and
obligations of the parties. Price is an essential element in the formation of a binding
and enforceable contract of sale. The fixing of the price can never be left to the
decision of 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.

There would have been a perfected contract of sale had respondent accepted
the price dictated by petitioner even if such assent was given after the services were
rendered. There is, however, no proof of such acceptance on the part of respondent.
 P a g e | 35

CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA vs. DEVELOPMENT
BANK OF THE PHILIPPINES, et al.

G.R. No. 154366, November 17, 2010

FACTS:

On June 2, 1981, the spouses Rudy R. Robles, Jr. and Elizabeth R. Robles
entered into a mortgage contract with DBP in order to secure a loan from the said
bank in the amount of P500,000.00. The properties mortgaged were a parcel of land
situated in Tabunoc, Talisay, Cebu, which was then covered by Transfer Certificate
of Title (TCT) No. T- 47783 of the Register of Deeds of Cebu, together with all the
existing improvements, and the commercial building to be constructed thereon.
On October 28, 1981, Rudy Robles executed a contract of lease in favor of
petitioner Cebu Bionic Builders Supply, Inc. with no period as to its expiration. The
above contract was not registered by the parties thereto with the Registry of Deeds
of Cebu. Subsequently, the spouses Robles failed to settle their loan obligation with
DBP. The latter was, thus, prompted to effect extrajudicial foreclosure on the subject
properties. DBP lone bidder in the auction sale and acquired the same and a
certificate of sale was then issued. Petitioner notified Cebu Bionic the acquisition of
DBP and they requested the latter to execute another contract of lease with DBP. The
rentals paid by the latter were remitted to DBP even without the new contract of
lease. Few months later, DBP announce its interest to sale the said properties and
also notify the lease to its invitation to purchase the property in question. However,
petitioners did not submit any offer to purchase the said properties. Respondents
Chip Yap bought the property and informs the lessee as to the transfer of ownership
and ordering the latter to vacate the premises until the end of 30 days. Despite the
notice, Cebu Bionic continued to pay rentals to DBP. A final notice of demand to
vacate was sent to the petitioners and then filed a case for specific performance,
cancellation of deed of sale with damages with prayer for TRO. RTC rule in favor of
petitioner. CA reverse, hence, this petition.

ISSUE:

Whether or not specific performance may prosper.

HELD:

The well-entrenched principle is that a lease from month-to-month is with a

definite period and expires at the end of each month upon the demand to vacate by
the lessor. As held by the Court of Appeals in the assailed Amended Decision, the
above-mentioned lease contract was duly terminated by DBP by virtue of its letter
dated June 18, 1987. We reiterate that the letter explicitly directed the petitioners to
come to the office of the DBP if they wished to enter into a new lease agreement with
the said bank. Otherwise, if no contract of lease was executed within 30 days from
the date of the letter, petitioners were to be considered uninterested in entering into
 P a g e | 36

a new contract and were thereby ordered to vacate the property. As no new contract
was in fact executed between petitioners and DBP within the 30-day period, the
directive to vacate, thus, took effect. DBP’s letter dated June 18, 1987, therefore,
constituted the written notice that was required to terminate the lease agreement
between petitioners and Rudy Robles. From then on, the petitioners’ continued
possession of the subject property could be deemed to be without the consent of
DBP.

Thusly, petitioners’ assertion that Article 1670 of the Civil Code is not
applicable to the instant case is correct. The reason, however, is not that the existing
contract was continued by DBP, but because the lease was terminated by DBP,
which termination was accompanied by a demand to petitioners to vacate the
premises of the subject property.

Article 1670 states that “If at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor, and
unless a notice to the contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the period of the original
contract, but for the time established in Articles 1682 and 1687. The other terms of
the original contract shall be revived.”
In view of the order to vacate embodied in the letter of DBP dated June 18,
1987 in the event that no new lease contract is entered into, the petitioners’
continued possession of the subject properties was without the acquiescence of DBP,
thereby negating the constitution of an implied lease.
 P a g e | 37

SPOUSES MARCOS R. ESMAQUEL and VICTORIA SORDEVILLA vs. MARIA

COPRADA

G.R. No. 152423, December 15, 2010

FACTS:

On February 24, 1997, petitioners, spouses Marcos Esmaquel and Victoria

Sordevilla (Victoria) filed an ejectment case against respondent Maria V. Coprada
claiming that they are the registered owners of a parcel of land situated in M.H. Del
Pilar St., Barangay San Miguel, Majayjay, Laguna, containing an area of Two
Hundred Fifty-Three (253) square meters and covered by Transfer Certificate of Title
(TCT) No. T-93542. In 1945, respondent was able to persuade the petitioners to allow
her and her family to use and occupy the land for their residence, under the
condition that they will vacate the premises should petitioners need to use the same.
Since then, the petitioners never made an attempt to drive them away out of pity,
knowing that respondent and her eight children have no other place to live in. Thus,
petitioners were forced to send a demand letter dated August 22, 1996, giving
respondent until November 30, 1996 to vacate the subject premises. However,
respondent still ignored said demand, which prompted petitioners to bring a
complaint before the barangay authorities. No settlement was reached, hence, a
certification to file action in Court was issued. Petitioners were, therefore,
constrained to lodge an ejectment case against the respondent before the MCTC. The
MCTC rendered judgment dismissing the complaint. On appeal, the Regional Trial
Court (RTC) reversed the MCTC’s judgment. Respondent filed a Motion for
Reconsideration, which was denied by the RTC. Dissatisfied by the Decision,
respondent filed with the CA a petition for review with prayer for temporary
restraining order and preliminary injunction where the CA granted respondent's
petition, reversed the Decision of the RTC and affirmed in toto the Decision of the
MCTC. Petitioners filed a Motion for Reconsideration, which was denied by the CA
in a Resolution.

ISSUE:

Whether or not the right to eject the respondent by the petitioners over their
property is the proper remedy and such is barred by laches.

HELD:

As decided in the case of In Bishop vs. Court of Appeals, as registered owners

of the lots in question, the private respondents have a right to eject any person
illegally occupying their property. This right is imprescriptible. Even if it be
supposed that they were aware of the petitioners' occupation of the property, and
regardless of the length of that possession, the lawful owners have a right to
demand the return of their property at any time as long as the possession was
unauthorized or merely tolerated, if at all. This right is never barred by laches. Since
respondent's occupation of the subject lot is by mere tolerance or permission of the
petitioners, without any contract between them, respondent is bound by an implied
promise that she will vacate the same upon demand, failing which a summary
action for ejectment is the proper remedy against her. It must be stressed, however,
that the court's adjudication of ownership in an ejectment case is merely provisional,
 P a g e | 38

and affirmance of the RTC's decision would not bar or prejudice an action between
the same parties involving title to the property, if and when such action is brought
seasonably before the proper forum.
 P a g e | 39

EUGENE L. LIM vs. BPI AGRICULTURAL DEVELOPMENT BANK

G.R. No.179230, March 09, 2010

FACTS:

The BPI Agricultural Development Bank (respondent) granted Eugene L. Lim

(petitioner) and his wife Constancia a revolving credit line in the amount of
P7,000,000 on account of which they executed two promissory notes: Promissory
Note No. 1000045-08 dated January 9, 1998 for P2,000,000 which matured on July 8,
1998, and Promissory Note No. 1000045-09 dated April 8, 1998 for P5,000,000 which
matured on October 5, 1998.

Respondent also granted petitioner medium term loans on account of which

he and his wife executed Promissory Note No. 6000201-00 dated September 4, 1997
for P3,294,117.63 which matured on August 19, 1999 and Promissory Note No.
6000191-00 for P2,000,000 dated February 19, 1997 which matured on February 19,
2002.

To secure the payment of their loans, petitioner and his wife executed real
estate mortgages covering properties in Ozamis City. Petitioner defaulted on the
first Promissory Note. And he had an overdraft of P16,000,000 with respondent,
drawing respondent to send a final demand letter dated July 27, 1998 declaring
petitioner’s availments under the revolving credit line and medium term loans
immediately due and payable and demanding settlement thereof in five days.

Petitioner and his wife failed to settle their obligations, hence, respondent
filed an application for extrajudicial foreclosure of the mortgages in September 1999
before the Office of the Sheriff of the Regional Trial Court (RTC) of Ozamis City.

By Order of October 23, 1998, Branch 15 of the Ozamis City RTC directed the
issuance of a Temporary Restraining Order. After it conducted a hearing on herein
petitioner’s application for a writ of preliminary injunction, the trial court, by Order
of March 13, 2000, directed the issuance of a writ of preliminary injunction, it finding
that “there are legal matters to be looked into with respect to the application of the
acceleration clause or default provisions in the promissory note and great and
irreparable damage will be suffered by the plaintiff if the mortgage will be
foreclosed and the properties are sold on public auction.” Its Motion for
Reconsideration having been denied, respondent filed a petition for certiorari before
the Court of Appeals.

The Court of Appeals, by Decision of June 30, 2006, finding that petitioner has
no clear right to an injunctive relief, lifted the preliminary injunction issued by the
RTC, hence, the present petition for review on certiorari

ISSUE:
 P a g e | 40

Whether or not petitioner’s availments under the revolving credit line and
medium term loans were immediately due and payable was by virtue of the cross-
default provision of Promissory Note No. 1000045-08 .

HELD:

The Court denied the petition.

Respondent’s declaration that petitioner’s availments under the revolving

credit line and medium term loans were immediately due and payable was by virtue
of the cross-default provision of Promissory Note No. 1000045-08. Respondent’s
move to foreclose the mortgages after petitioner defaulted in his obligation under
the promissory note was thus in accordance with said provision which petitioner
did not challenge. The trial court thus erred in ordering the issuance of the writ of
preliminary injunction on the basis of its finding that “there are legal matters to be
looked into with respect to the application of the acceleration clause or default
provisions in the promissory note.”
 P a g e | 41

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs.

MENCHAVEZ

G.R. No. 160545, March 09, 2010

FACTS:

On December 8, 1993, Pantaleon, the President and Chairman of the Board of

PRISMA, obtained a P1,000,000.00 loan from the respondent, with a monthly interest
of P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid
within six (6) months. To secure the payment of the loan, Pantaleon issued a
promissory note. . Pantaleon signed the promissory note in his personal capacity,
and as duly authorized by the Board of Directors of PRISMA. The petitioners failed
to completely pay the loan within the stipulated six (6)-month period.

As of January 4, 1997, the petitioners had already paid a total of

P1,108,772.00. However, the respondent found that the petitioners still had an
outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4%
monthly interest. Thus, on August 28, 1997, the respondent filed a complaint for
sum of money with the RTC to enforce the unpaid balance, plus 4% monthly
interest, P30,000.00 in attorney’s fees, P1,000.00 per court appearance and costs of
suit.

In their Answer dated October 6, 1998, the petitioners admitted the loan of
P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that
the interest was not provided in the promissory note. Pantaleon also denied that he
made himself personally liable and that he made representations that the loan would
be repaid within six (6) months.

The RTC rendered a Decision on October 27, 2000 finding that the respondent
issued a check for P1,000,000.00 in favor of the petitioners for a loan that would earn
an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month
period.The petitioners elevated the case to the CA via an ordinary appeal under Rule
41 of the Rules of Court, insisting that there was no express stipulation on the 4%
monthly interest.
The CA affirmed the RTC’s finding that PRISMA was a mere instrumentality
of Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA
modified the RTC Decision by imposing a 12% per annum interest, computed from
the filing of the complaint until finality of judgment, and thereafter, 12% from
finality until fully paid.

ISSUE:

Whether or not the parties agreed to the 4% monthly interest on the loan. If
so, does the rate of interest apply to the 6-month payment period only or until full
payment of the loan?

HELD:

Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. When the terms of a
 P a g e | 42

contract are clear and leave no doubt as to the intention of the contracting parties,
the literal meaning of its stipulations governs. In such cases, courts have no
authority to alter the contract by construction or to make a new contract for the
parties; a court's duty is confined to the interpretation of the contract the parties
made for themselves without regard to its wisdom or folly, as the court cannot
supply material stipulations or read into the contract words the contract does not
contain. It is only when the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to determine the parties’ intent.

In the present case, the respondent issued a check for P1,000,000.00. In turn,
Pantaleon, in his personal capacity and as authorized by the Board, executed the
promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable
within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period,
the loan shall earn an interest of P40,000.00 per month, for a total obligation of
P1,240,000.00 for the six-month period. We note that this agreed sum can be
computed at 4% interest per month, but no such rate of interest was stipulated in the
promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that “no interest shall be
due unless it has been expressly stipulated in writing.” Under this provision, the
payment of interest in loans or forbearance of money is allowed only if: (1) there was
an express stipulation for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of the two conditions is
required for the payment of interest at a stipulated rate. Thus, we held in Tan v.
Valdehueza and Ching v. Nicdao that collection of interest without any stipulation
in writing is prohibited by law.

Applying this provision, we find that the interest of P40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to
June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the
interest on the loan should be at the legal interest rate of 12% per annum, consistent
with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:

When the obligation is breached, and it consists in the payment of a

sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO) vs. CA

G.R. No. 126890, March 09, 2010
FACTS:
 P a g e | 43

Petitioner, engaged in the business of milling sugar, obtained “takeoff loans”

from respondent PNB to finance the construction of a sugar milling plant which
were covered by a Credit Agreement dated November 5, 1974. The said loans were
thrice restructured through Restructuring Agreements dated June 24, 1982,
December 10, 1982, and May 9, 1984. The takeoff loans were secured by a real estate
mortgage over two parcels of land where the milling plant stood and chattel
mortgages over certain machineries and equipment. Also included in the condition
for the takeoff loans, petitioner agreed to “open and/or maintain a deposit account
with [respondent PNB] and the bank is authorized at its option to apply to the
payment of any unpaid obligations of the client any/and all monies, securities
which may be in its hands on deposit.”

From 1984 to 1987, petitioner contracted another set of loans from respondent
PNB, denominated as “operational loans,” for the purpose of financing its
operations, which also contained setoff clauses relative to the application of
payments from petitioner’s bank accounts. They were likewise secured by pledge
contracts whereby petitioner assigned to respondent PNB all its sugar produce for
the latter to sell and apply the proceeds to satisfy the indebtedness arising from the
operational loans.

Later, respondent APT and petitioner agreed to an “uncontested” or

“friendly foreclosure” of the mortgaged assets, in exchange for petitioner’s waiver of
its right of redemption. On July 28, 1987, respondent PNB (as mortgagee) and
respondent APT (as assignee and transferee of PNB’s rights, titles and interests) filed
a Petition for Extrajudicial Foreclosure Sale with the Ex-Officio Regional Sheriff of
Dumaguete City, seeking to foreclose on the real estate and chattel mortgages which
were executed to secure the takeoff loans. The foreclosure sale was conducted on
August 27, 1987 whereby respondent APT purchased the auctioned properties for
P450,000,000.00.

Seven (7) days after the foreclosure sale, or on September 3, 1987, petitioner
executed a Deed of Assignment assigned to respondent APT its right to redeem the
foreclosed properties, in exchange for or in consideration of respondent APT
“condoning any deficiency amount it may be entitled to recover from the Petitioner
under the Credit Agreement dated November 5, 1974, and the Restructuring
Agreements[s] dated June 24 and December 10, 1982, and May 9, 1984, respectively,
executed between [UPSUMCO] and PNB…” On the same day, the Board of
Directors of petitioner approved the Board Resolution authorizing Joaquin
Montenegro, its President, to enter into said Deed of Assignment.

Despite the Deed of Assignment, petitioner filed a complaint on March 10,

1989 for sum of money and damages against respondents PNB and APT before the
Regional Trial Court (RTC) of Bais City alleging therein that respondents had
illegally appropriated funds belonging to petitioner, through the following means:
(1) withdrawals made from the bank accounts opened by petitioner beginning
August 27, 1987 until February 12, 1990; (2) the application of the proceeds from the
sale of the sugar of petitioner beginning August 27, 1987 until December 4, 1987; (3)
the payment from the funds of petitioner with respondent PNB for the operating
 P a g e | 44

expenses of the sugar mill after September 3, 1987, allegedly upon the instruction of
respondent APT and with the consent of respondent PNB.

The RTC rendered judgment in favor of the petitioner. On appeal, the CA

reversed and set aside the RTC Decision and ruled that only the “takeoff” loans and
not the operational loans were condoned by the Deed of Assignment. In a Decision
dated November 28, 2006 and Resolution dated July 11, 2007, the Court (Third
Division) reversed and set aside the CA Decision. The case was thereafter referred
to the Court en banc which reversed the ruling of the Third Division.

ISSUE:
Whether or not only the “takeoff” loans and not the operational loans were
condoned by the Deed of Assignment.

HELD:
After a careful review of the arguments in the petitioner’s motion for
reconsideration, the Court finds the same to be mere rehash of the main points
already set forth in the Court’s En Banc Resolution of April 2, 2009 and, hence,
denies the same for lack of merit.

In sum, the Resolution of the Court En Banc reinstating the Decision of the
CA categorically ruled that only its takeoff loans, not the operational loans, were
condoned by the Deed of Assignment dated September 3, 1987. The Deed of
Assignment expressly stipulated the particular loan agreements which were covered
therein. As such, respondent APT was entitled to have the funds from petitioner’s
savings accounts with respondent PNB transferred to its own account, to the extent
of petitioner’s remaining obligations under the operational loans, less the amount
condoned in the Deed of Assignment and the P450,000,000.00 proceeds of the
foreclosure. As the En Banc Resolution explained, respondent APT had a right to go
after the bank deposits of petitioner, in its capacity as the creditor of the latter.
Likewise, respondent PNB had the right to apply the proceeds of the sale of
petitioner’s sugar and molasses, in satisfaction of petitioner’s obligations.
Respondent PNB never waived these rights and the same were transferred to
respondent APT (now PMO) by virtue of the Deed of Transfer executed between
them. Moreover, there was no conventional subrogation since such requires the
consent of the original parties and of the third persons and there was no evidence
that the consent of petitioner (as debtor) was secured when respondent PNB
assigned its rights to respondent APT, and that the assignment by respondent PNB
to respondent APT arose by mandate of law and not by the volition of the parties.
Accordingly, the remand of the case to the RTC for computation of the parties’
remaining outstanding balances was proper.

The doctrine of stare decisis et no quieta movere or principle of adherence to

precedents does not apply to the present case so as to bar the Court en banc from
taking cognizance over the case which rectified the disposition of the case and
reversed and set aside the Decision rendered by a Division thereof.
 P a g e | 45

ASIAN CATHAY FINANCE AND LEASING CORPORATION vs. SPOUSES DE

VERA

G.R. No. 186550, July 05, 2010

FACTS:
 P a g e | 46

On 22 October 1999, petitioner Asian Cathay Finance and Leasing

Corporation (ACFLC) extended a loan of Eight Hundred Thousand Pesos
(P800,000.00) to respondent Cesario Gravador, with respondents Norma de Vera
and Emma Concepcion Dumigpi as co-makers. The loan was payable in sixty (60)
monthly installments of P24,400.00 each. To secure the loan, respondent Cesario
executed a real estate mortgage over his property in Sta. Maria, Bulacan, covered by
Transfer Certificate of Title No. T-29234.

Respondents paid the initial installment due in November 1999. However,

they were unable to pay the subsequent ones. Consequently, on February 1, 2000,
respondents received a letter demanding payment of P1,871,480.00 within five (5)
days from receipt thereof. Respondents requested for an additional period to settle
their account, but ACFLC denied the request. Petitioner filed a petition for
extrajudicial foreclosure of mortgage with the Office of the Deputy Sheriff of
Malolos, Bulacan.

On 07 April 2000, respondents filed a suit for annulment of real estate

mortgage and promissory note with damages and prayer for issuance of a
temporary restraining order (TRO) and writ of preliminary injunction. Respondents
claimed that the real estate mortgage is null and void. They pointed out that the
mortgage does not make reference to the promissory note dated October 22, 1999.
The promissory note does not specify the maturity date of the loan, the interest rate,
and the mode of payment; and it illegally imposed liquidated damages. The real
estate mortgage, on the other hand, contains a provision on the waiver of the
mortgagor’s right of redemption, a provision that is contrary to law and public
policy. Respondents added that ACFLC violated Republic Act No. 3765, or the
Truth in Lending Act, in the disclosure statement that should be issued to the
borrower. Respondents, thus, claimed that ACFLC’s petition for foreclosure lacked
factual and legal basis, and prayed that the promissory note, real estate mortgage,
and any certificate of sale that might be issued in connection with ACFLC’s petition
for extrajudicial foreclosure be declared null and void. In the alternative,
respondents prayed that the court fix their obligation at P800,000.00 if the mortgage
could not be annulled, and declare as null and void the provisions on the waiver of
mortgagor’s right of redemption and imposition of the liquidated damages.
Respondents further prayed for moral and exemplary damages, as well as attorney’s
fees, and for the issuance of a TRO to enjoin ACFLC from foreclosing their property.

On 12 April 2000, the RTC issued an Order, denying respondents’ application

for TRO, as the acts sought to be enjoined were already fait accompli.

On 12 May 2000, ACFLC filed its Answer, denying the material allegations in
the complaint and averring failure to state a cause of action and lack of cause of
action, as defenses. ACFLC claimed that it was merely exercising its right as
mortgagor; hence, it prayed for the dismissal of the complaint.

After trial, the RTC rendered a decision, dismissing the complaint for lack of
cause of action. Aggrieved, respondents appealed to the CA. On 10 June 2008, the
CA rendered the assailed Decision, reversing the RTC. It held that the amount of
 P a g e | 47

P1,871,480.00 demanded by ACFLC from respondents is unconscionable and

excessive. ACFLC filed a motion for reconsideration, but the CA denied it.

ISSUE:

Whether or not the amount claimed by ACFLC is unconscionable.

HELD:

It is true that parties to a loan agreement have wide latitude to stipulate on

any interest rate in view of Central Bank Circular No. 905, series of 1982, which
suspended the Usury Law ceiling on interest rate effective January 1, 1983. However,
interest rates, whenever unconscionable, may be equitably reduced or even
invalidated. In several cases, this Court had declared as null and void stipulations
on interest and charges that were found excessive, iniquitous and unconscionable.

Records show that the amount of loan obtained by respondents on October

22, 1999 was P800,000.00. Respondents paid the installment for November 1999, but
failed to pay the subsequent ones. On February 1, 2000, ACFLC demanded payment
of P1,871,480.00. In a span of three months, respondents’ obligation ballooned by
more than P1,000,000.00. ACFLC failed to show any computation on how much
interest was imposed and on the penalties charged. Thus, we fully agree with the
CA that the amount claimed by ACFLC is unconscionable.

RIZAL COMMERCIAL BANKING CORPORATION vs. PEDRO P.

BUENAVENTURA
G.R. No. 176479, October 6, 2010

FACTS:
Respondent Pedro P. Buenaventura and his first wife (now deceased) owned
a townhouse unit in Casa Nueva Manila Townhouse, Quezon City. On December
 P a g e | 48

27, 1994, they obtained a loan from petitioner. As security for the loan, they
mortgaged the townhouse to petitioner. Under the loan agreement, respondent was
to pay RCBC a fixed monthly payment with adjustable interest for five years. On
April 19, 1999, respondent received a Notice of Public Auction of the mortgaged
townhouse unit. He wrote Atty. Saturnino Basconcillo, the notary public conducting
the auction sale, demanding the cancellation of the auction sale. However, the
notary public proceeded with the public sale on May 25, 1999, where RCBC emerged
as the highest bidder. The Notary Public’s Certificate of Sale was registered with the
Register of Deeds on September 28, 2000.
On September 18, 2001, respondent filed with the Regional Trial Court (RTC)
of Quezon City a complaint for Annulment of Sale and Damages against RCBC,
notary public Saturnino Basconcillo, and the Registrar of Deeds of Quezon City.
RCBC failed to timely file an Answer and was declared in default.

ISSUE:

Whether or not the respondents defaulted in the payment of their loan

obligations.

HELD:

The RTC and the CA both found that respondent was not in default on the
monthly payments of his loan obligation. These findings are supported by the
evidence on record. Foreclosure is valid only when the debtor is in default in the
payment of his obligation. It is a necessary consequence of non-payment of
mortgage indebtedness. As a rule, the mortgage can be foreclosed only when the
debt remains unpaid at the time it is due. In a real estate mortgage, when the
principal obligation is not paid when due, the mortgagee has the right to foreclose
on the mortgage, to have the property seized and sold, and to apply the proceeds to
the obligation. RCBC’s own Amortization Schedule readily shows the applicability
of Article 1176 of the Civil Code, which states:

Art. 1176. The receipt of the principal by the creditor, without reservation with
respect to the interest, shall give rise to the presumption that the said interest has
been paid.

Respondent’s passbooks indicate that RCBC continued to receive his

payments even after it made demands for him to pay his past due accounts, and
even after the auction sale. RCBC cannot deny receipt of the payments, even when it
claims that the deposits were “not withdrawn.” It is not respondent’s fault that
RCBC did not withdraw the money he deposited. His obligation under the mortgage
agreement was to deposit his payment in the savings account he had opened for that
purpose, in order that RCBC may debit the amount of his monthly liabilities
therefrom. He complied with his part of the agreement.

This bolsters the conclusion of the CA that respondent had no unpaid

installments and was not in default as would warrant the application of the
acceleration clause and the subsequent foreclosure and auction sale of the property.
 P a g e | 49

HONGKONG and SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT

PLAN vs. SPS. BIENVENIDO and EDITHA BROQUEZA

G.R. No. 178610, November 17, 2010

FACTS:

Petitioners are employees of HSBC and also one of the members under the
retirement plan of the latter. Loans were granted through automatic salary
deductions. a labor dispute arose between HSBC and its employees. Majority of
 P a g e | 50

HSBC’s employees were terminated, among whom are petitioners Editha Broqueza
and Fe Gerong. The employees then filed an illegal dismissal case before the
National Labor Relations Commission (NLRC) against HSBC. Because of their
dismissal, petitioners were not able to pay the monthly amortizations of their
respective loans. Thus, respondent HSBCL-SRP considered the accounts of
petitioners delinquent. Demands to pay the respective obligations were made upon
petitioners, but they failed to pay. Civil actions against the petitioners were filed.
MTC ruled in favor of HSBC which the latter appealed. RTC affimed MeTc decision
in toto. The RTC ruled that Gerong and Editha Broqueza’s termination from
employment disqualified them from availing of benefits under their retirement
plans. As a consequence, there is no longer any security for the loans. CA reversed
ruled that the HSBCL-SRP’s complaints for recovery of sum of money against
Gerong and the spouses Broqueza are premature as the loan obligations have not yet
matured. Thus, no cause of action accrued in favor of HSBCL-SRP.

ISSUE:

The Court of Appeals has decided a question of substance in a way not in

accord with law and applicable decisions of this Honorable Court

HELD:

There is no date of payment in the promissory notes. Accordingly, the

creditor has the right to demand immediate payment. Article 1178 of the Civil Code
applies. The fact that the creditor was content with the prior monthly check-off from
the debtor’s salary is of no moment. Once the debot defaulted, the creditor could
make a demand to enforce a pure obligation. Thus, HSBCL-SRP has a legal right to
demand immediate settlement of the unpaid balance because of Gerong and Editha
Broqueza’s continued default in payment and their failure to provide new security
for their loans.

PCI LEASING and FINANCE, INC. vs. TROJAN METAL INDUSTRIES

INCORPORATED, WALFRIDO DIZON, ELEZABETH DIZON, and JOHN DOE

G.R. No. 176381, December 15, 2010

FACTS:

Sometime in 1997, respondent Trojan Metal Industries, Inc. (TMI) came to

petitioner PCI Leasing and Finance, Inc. (PCILF) to seek a loan. PCILF and TMI
immediately executed deeds of sale evidencing TMI’s sale to PCILF of the various
 P a g e | 51

equipment in consideration of the total amount of P 2,865,070.00. PCILF and TMI

then entered into a lease agreement where TMI issued postdated checks
representing 24 monthly installments. The lease agreement required TMI to give
PCILF a guaranty deposit of P1,030,350.00, which would serve as security for the
timely performance of TMI’s obligations under the lease agreement, to be
automatically forfeited should TMI return the leased equipment before the
expiration of the lease agreement. PCILF filed in the Regional Trial Court (Branch
79) of Quezon City a complaint against TMI, spouses Dizon, and John Doe
(collectively referred to as "respondents" hereon) for recovery of sum of money and
personal property with prayer for the issuance of a writ of replevin. The RTC issued
the writ of replevin. However, the Court of Appeals ruled that the sale with lease
agreement was in fact a loan secured by chattel mortgage. The Court of Appeals set
aside the Decision of the RTC.

ISSUE

Whether or not the sale with lease agreement the parties entered into was a
financial lease or a loan secured by chattel mortgage.

HELD:

The petition lacks merit. Had the true transaction between the parties been
expressed in a proper instrument, it would have been a simple loan secured by a
chattel mortgage, instead of a simulated financial leasing. Thus, upon TMI’s default,
PCILF was entitled to seize the mortgaged equipment, not as owner but as creditor-
mortgagee for the purpose of foreclosing the chattel mortgage. PCILF’s sale to a
third party of the mortgaged equipment and collection of the proceeds of the sale
can be deemed in the exercise of its right to foreclose the chattel mortgage as
creditor-mortgagee. The Court of Appeals correctly ruled that the transaction
between the parties was simply a loan secured by a chattel mortgage. However, in
reckoning the amount of the principal obligation, the Court of Appeals should have
taken into account the proceeds of the sale to PCILF less the guaranty deposit paid
by TMI. After deducting payments made by TMI to PCILF, the balance plus
applicable interest should then be applied against the aggregate cash already in
PCILF’s hands.

MAXWELL HEAVY EQUIPMENT CORPORATION vs. ERIC UYCHIAOCO YU

G.R. No. 179395, December 15, 2010

FACTS:

Maxwell obtained loans from BPI, G. Araneta Avenue Branch, in the total
sum of P8,800,000.00 covered by two Promissory Notes and secured by a real estate
mortgage over two lots registered in Yu’s name. Maxwell defaulted in the payment
of the loans, forcing Yu to pay BPI P8,888,932.33 representing the principal loan
amounts with interest, through funds borrowed from his mother, Mina Yu, to
 P a g e | 52

prevent the foreclosure of his real properties. Thereafter, Yu demanded

reimbursement from Maxwell of the entire amount paid to BPI. However, Maxwell
failed to reimburse Yu. Consequently, Yu filed with the trial court a complaint for
sum of money and damages. The trial court ruled in favor of Yu. On appeal, the
Court of Appeals affirmed with modification the ruling of the trial court, by deleting
the award of attorney’s fees and specifying the rate of interest on the allegedly
reimbursable amount from Maxwell. Hence, this petition.

ISSUE:

Whether or not the transactions with BPI were accommodation loans solely
for Yu’s benefit.

HELD:

The petition lacks merit. The appellate court concurred with the trial court
that Maxwell is the principal borrower since it was Maxwell which paid interest on
the loans. Additionally, various documents designated Maxwell as borrower and
communications demanding payment of the loans sent by BPI were addressed to
Maxwell as the borrower, with Yu indicated only as the owner of the real properties
as loan collateral. Furthermore, we affirm the finding that Maxwell gravely failed to
substantiate its claim that the loans were purely for Yu’s benefit. Maxwell’s evidence
consisting of the testimony of Caroline Yu, Yu’s spouse and then president of
Maxwell, was uncorroborated. While Maxwell is the real debtor, it was Yu who paid
BPI the entire amount of Maxwell’s loans. Hence, contrary to Maxwell’s view,
Article 1236 of the Civil Code applies. This provision reads:

The creditor is not bound to accept payment or performance by a third person

who has no interest in the fulfillment of the obligation, unless there is a stipulation
to the contrary. Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.

The above provision grants the plaintiff (Yu) the right to recovery and creates
an obligation on the part of the defendant (Maxwell) to reimburse the plaintiff. In
this case, Yu paid BPI P8,888,932.33, representing the amount of the principal loans
with interest, thereby extinguishing Maxwell’s loan obligation with BPI. Pursuant to
Article 1236 of the Civil Code, Maxwell, which was indisputably benefited by Yu’s
payment, must reimburse Yu the same amount of P8,888,932.33

ASSET BUILDERS CORPORATION vs. STRONGHOLD INSURANCE

COMPANY, INCORPORATED

G.R. No. 187116, October 18, 2010

FACTS:

On April 28, 2006, Asset Builders Corporation (ABC) entered into an

agreement with Lucky Star Drilling & Construction Corporation (Lucky Star) as part
of the completion of its project to construct the ACG Commercial Complex on
“NHA Avenue corner Olalia Street, Barangay Dela Paz, Antipolo City.” Lucky Star
was to supply labor, materials, tools, and equipment including technical supervision
to drill one (1) exploratory production well on the project site. The total contract
price for the said project was P1,150,000.00.
 P a g e | 53

To guarantee faithful compliance with their agreement, Lucky Star engaged

respondent Stronghold which issued two (2) bonds in favor of petitioner.

On May 20, 2006, ABC paid Lucky Star P575,000.00 (with 2% withholding tax)
as advance payment, representing 50% of the contract price. Lucky Star, thereafter,
commenced the drilling work. By July 18, 2006, just a few days before the agreed
completion date, Lucky Star managed to accomplish only ten (10) % of the drilling
work. On the same date, petitioner sent a demand letter to Lucky Star for the
immediate completion of the drilling work with a threat to cancel the agreement and
forfeit the bonds should it still fail to complete said project within the agreed period.
On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for
Damages to Lucky Star.

ISSUE:

Whether or not respondent insurance company, as surety, can be held liable

under its bonds.

HELD:

The court held in the affirmative. Respondent, along with its principal, Lucky
Star, bound itself to the petitioner when it executed in its favor surety and
performance bonds. The contents of the said contracts clearly establish that the
parties entered into a surety agreement as defined under Article 2047 of the New
Civil Code. Thus:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the latter should fail to
do so.

As provided in Article 2047, the surety undertakes to be bound solidarily

with the principal obligor. That undertaking makes a surety agreement an ancillary
contract as it presupposes the existence of a principal contract. Although the
contract of a surety is in essence secondary only to a valid principal obligation, the
surety becomes liable for the debt or duty of another although it possesses no direct
or personal interest over the obligations nor does it receive any benefit therefrom.
Let it be stressed that notwithstanding the fact that the surety contract is secondary
to the principal obligation, the surety assumes liability as a regular party to the
undertaking.

In the case at bench, when Lucky Star failed to finish the drilling work within
the agreed time frame despite petitioner’s demand for completion, it was already in
delay. Due to this default, Lucky Star’s liability attached and, as a necessary
consequence, respondent’s liability under the surety agreement arose.
 P a g e | 54

PNB vs. CORPUZ

G.R. No. 180945, February 12, 2010

FACTS:

Sometime in October 1974 respondent Mercedes Corpuz delivered her

owner’s duplicate copy of TCT to Dagupan City Rural Bank as security against any
liability she might incur as its cashier. She later left her job and went to the United
States. On October 24, 1994 the rural bank where she worked cancelled its lien on
Corpuz’s title, she having incurred no liability to her employer. Without Corpuz’s
knowledge and consent, however, Natividad Alano, the rural bank’s manager,
turned over Corpuz’s title to Julita Camacho and Amparo Callejo.

Conniving with someone from the assessor’s office, Alano, Camacho, and
Callejo prepared a falsified deed of sale, making it appear that Corpuz sold her land
to one "Mary Bondoc."They caused the registration of the deed of sale. About a
month later the trio executed another fictitious deed of sale with "Mary Bondoc"
 P a g e | 55

selling the property to the spouses Rufo and Teresa Palaganas. Nine days later the
Palaganases executed a deed of sale in favor of spouses Virgilio and Elena Songcuan
resulting in the issuance of a new TCT. Finally, four months later or on 1995 the
Songcuans took out a loan of P1.1 million from petitioner Philippine National Bank
(PNB) and, to secure payment, they executed a real estate mortgage on their title.
Before granting the loan, the PNB had the title verified and the property inspected.

ISSUE:

Whether or not petitioner PNB is a mortgagee in good faith, entitling it to its

lien on the title to the property in dispute.

HELD:

As a rule, the Court would not expect a mortgagee to conduct an exhaustive

investigation of the history of the mortgagor’s title before he extends a loan. But
petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be
more cautious than ordinary individuals in dealing with lands, even registered ones,
since the business of banks is imbued with public interest. It is of judicial notice that
the standard practice for banks before approving a loan is to send a staff to the
property offered as collateral and verify the genuineness of the title to determine the
real owner or owners.

One of the CA’s findings in this case is that in the course of its verification,
petitioner PNB was informed of the previous TCTs covering the subject property.
And the PNB has not categorically contested this finding. It is evident from the faces
of those titles that the ownership of the land changed from Corpuz to Bondoc, from
Bondoc to the Palaganases, and from the Palaganases to the Songcuans in less than
three months and mortgaged to PNB within four months of the last transfer.

SPOUSES BASILIO and NORMA HILAGA vs. RURAL BANK OF ISULAN

(COTABATO, INC., AS REPRESENTED BY ITS MANAGER)

G.R. No. 179781, April 07, 2010

FACTS:

Petitioners Basilio and Norma B. Hilaga were the owners of a parcel of land,
identified as Lot No. 172-A, Pls-212-D-7, located at Barrio Lopez Jaena, Municipality
of Norala, Province of South Cotabato and containing an area of 46,868 square
meters, more or less.

On March 16, 1970, petitioners obtained a loan from respondent Rural Bank
of Isulan (Cotabato) Inc., in the amount of P2,500.00. To secure the loan, they
executed a Real Estate Mortgage over the above-mentioned property which was
then covered only by Tax Declaration No. 5537. When petitioners failed to pay their
 P a g e | 56

obligation when it became due on March 19, 1971, the respondent bank initiated
foreclosure proceedings. The subject property was sold at a public auction by the
Provincial Sheriff on April 20, 1977 and a Certificate of Extrajudicial Sale was issued
in favor of the Rural Bank of Isulan (Cotabato) Inc. as the highest bidder. The
respondent bank then took possession of the foreclosed property. Meanwhile,
unknown to respondent bank, a Free Patent title (Original Certificate of Title No. P-
19766) had been issued in favor of petitioners on August 4, 1976 or before the
foreclosure sale.

On September 21, 1994, or more than seventeen (17) years after the
foreclosure sale, petitioner Basilio Hilaga sent a letter to the respondent bank’s
lawyer, the late Atty. Ismail Arceno, conveying his desire to redeem the subject
property. When the letter remained unanswered, petitioners, through their counsel,
again sent a letter dated May 4, 1999, seeking to redeem the foreclosed property. The
second letter, however, also remained unheeded.

Thus, on June 3, 1999, petitioners filed a complaint for Redemption of

Foreclosed Mortgaged Property Under Act No. 3135 before the Regional Trial Court
of Surallah, South Cotabato, Branch 26, seeking to redeem the subject property from
the respondent bank under the provisions of Act No. 3135.

The trial court rendered judgment in favor of petitioners. On appeal, the CA

reversed the trial court. According to the CA, the right of petitioners to redeem their
foreclosed property can only be exercised within two (2) years from the date of
foreclosure, as provided under Republic Act No. 720 or the Rural Banks’ Act, as
amended by Republic Act No. 2670. The CA also ruled that petitioners are guilty of
laches.

On August 6, 2007, the CA denied petitioners’ motion for reconsideration.

Hence, this appeal.

ISSUE:

Whether or not the court of appeals committed a reversible error of law and
grave abuse of discretion in holding that petitioners has only two years to redeem
their property from the issuance of certificate of sale after the same was foreclosed.

HELD:

The petition has no merit.

In the present case, petitioners admit that when the property was mortgaged,
only the tax declaration was presented. Although a free patent title was
subsequently issued in their favor on August 4, 1976, petitioners failed to inform the
creditor rural bank of such issuance. As a result, the certificate of sale was not
registered or annotated on the free patent title. Petitioners are estopped from
redeeming the property based on the free patent title which was not presented
 P a g e | 57

during the foreclosure sale nor delivered to the Register of Deeds for annotation of
the certificate of sale as required under Section 5 of Republic Act No. 720, as
amended. Estoppel in pais arises when one, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or
through culpable negligence, induces another to believe certain facts to exist and
such other rightfully relies and acts on such belief, so that he will be prejudiced if the
former is permitted to deny the existence of such facts.

Petitioners cannot fault respondent for the non-registration of the certificate

of sale because petitioners did not inform the respondent bank that a Torrens title
had already been acquired by them on August 4, 1976. By their silence and inaction,
petitioners misled the respondent bank to believe that their only proof of ownership
was the tax declaration. Thus, the two (2)-year redemption period shall be
reckoned from the date of the foreclosure.

For the same reason, petitioners’ assertion that they will have five (5) years from
the date of registration of the sale to redeem the foreclosed property under Section 119
of the Public Land Act has no merit, the reckoning period for the redemption period
being properly from the date of sale.

But even assuming arguendo that petitioners can avail of the five (5)-year
redemption period provided under Section 119 of the Public Land Act, they still
failed to exercise their right of redemption within the reglementary period provided
by law. As mentioned earlier, Section 119 of said Act expressly provides that where
the land involved is acquired as a homestead or under a free patent, if the mortgagor
fails to exercise the right of redemption, he or his heirs may still repurchase the
property within five (5) years from the expiration of the two (2)-year redemption
period. The auction sale having been conducted on April 20, 1977, petitioners had
until April 20, 1984 within which to redeem the mortgaged property. Since
petitioner only filed the instant suit in 1999, their right to redeem had already
lapsed. It took petitioners twenty-two (22) years before instituting an action for
redemption. The considerable delay in asserting one’s right before a court of justice
is strongly persuasive of the lack of merit in petitioners’ claim, since it is human
nature for a person to enforce his right when the same is threatened or invaded.
 P a g e | 58

NATIONAL HOUSING AUTHORITY vs. AUGUSTO BASA, JR., LUZ BASA and
EDUARDO S. BASA

G.R. No. 149121, April 20, 2010

FACTS:

In 1983, spouses Augusto and Luz Basa obtained a loan from NHA secured
by a real estate mortgage since Spouses Basa did not pay the loan despite repeated
demands, NHA filed a verified petition for extrajudicial foreclosure of mortgage.
The properties were sold at public auction where NHA emerged as the highest
bidder. On 16 April 1992, the redemption period expired, without respondents
having redeemed the properties. In 1992, NHA filed a petition for the issuance of a
Writ of Possession ordering spouses Augusto and Luz Basa to vacate the subject
lots. However, it was remained unserved. Respondents’ spouses Basa and Eduardo
Basa filed a petition for intervention anchored on Section 8 of Act No. 3135, as
amended, which gives the debtor/mortgagor the remedy to petition that the sale be
set aside and the writ of possession be cancelled. The RTC rendered its decision in
favor of the respondents. A motion for reconsideration was filed, however, it was
denied. Thus, certiorari and prohibition was filed before the Court of Appeals. The
 P a g e | 59

Court of Appeals, in its Amended Decision declared that the period of redemption
had not expired as the certificate of sale had not been registered or annotated in the
original copies of the titles supposedly kept with the Register of Deeds since said
titles were earlier razed by fire. Hence, this petition.

ISSUE:

Whether or not the respondent’s right of redemption has already been

expired.

HELD:

Since entry of the certificate of sale was validly registered, the redemption
period accruing to respondents commenced therefrom, since the one-year period of
redemption is reckoned from the date of registration of the certificate of sale. It must
be noted that on 16 April 1991, the sheriff’s certificate of sale was registered and
annotated only on the owner’s duplicate copies of the titles and on 16 April 1992, the
redemption period expired, without respondents having redeemed the properties.
In fact, on 24 April 1992, NHA executed an Affidavit of Consolidation of
Ownership. Clearly, respondents have lost their opportunity to redeem the
properties in question.

PLANTERS DEVELOPMENT BANK vs. JAMES NG and ANTHONY NG

G.R. No. 187556, May 05, 2010

FACTS:

On various occasions in 1997, James Ng and his brother Anthony

(respondents) obtained loans from petitioner amounting to Twenty Five Million
Pesos (P25,000,000.00) to secure which they mortgaged two parcels of land situated
in San Francisco del Monte, Quezon City and covered by Transfer Certificate of Title
(TCT) Nos. 79865 and 79866 of the Registry of Deeds of Quezon City.

Respondents failed to settle their loan obligation, hence, petitioner instituted

extrajudicial foreclosure of the mortgage before Notary Public Stephen Z. Taala. The
Notice of Auction Sale scheduled the sale of the properties covered by the mortgage
on April 7, 1999 at the Main Entrance of the Hall of Justice Building in Quezon City.
The Notice was published in Metro Profile, a newspaper of general circulation, in its
March 9, 16 and 23, 1999 issues.
 P a g e | 60

The highest bidder at the auction sale was petitioner to which was issued a
Certificate of Sale that was registered with the Register of Deeds of Quezon City on
May 19, 1999.

As respondents failed to redeem the mortgage within one year, petitioner

filed on June 26, 2001, an ex-parte petition for the issuance of a writ of possession,
docketed as LRC Case No. Q-14305 (01) and lodged before RTC-QC, Branch 77.

In the meantime, respondents instituted an action for Annulment of

Certificate of Sale, Promissory Note and Deed of Mortgage, raffled to RTC-QC,
Branch 221 which, by Order of June 14, 2000, issued a writ of preliminary injunction
restraining petitioner from consolidating its title to the properties and committing
any act of dispossession that would defeat respondents’ right of ownership.

After numerous incidents arising from petitioner’s petition for issuance of a

writ of possession and respondents’ complaint for annulment which incidents
reached this Court, petitioner was finally allowed by Branch 77 of the RTC-QC, by
Order of August 22, 2008, to present evidence ex parte on its petition for the issuance
of a writ of possession. By Decision of January 19, 2009, RTC-QC, Branch 77 denied
the issuance of a writ of possession in this wise. Petitioner’s motion for
reconsideration of the decision having been denied by Order of April 20, 2009, it
filed, before this Court, the present petition for review on certiorari on pure questions
of law, in accordance with Rule 45 of the Rules of Court.

ISSUE:

Whether or not the validity of a mortgage or its foreclosure as well as the sale
of the property covered by the mortgage cannot be raised as ground to deny the
issuance of a writ of possession.

HELD:

The petition is meritorious.

It is settled that questions regarding the validity of a mortgage or its

foreclosure as well as the sale of the property covered by the mortgage cannot be
raised as ground to deny the issuance of a writ of possession. Any such questions
must be determined in a subsequent proceeding as in fact, herein respondents
commenced an action for Annulment of Certificate of Sale, Promissory Note and
Deed of Mortgage.

Since respondents failed to redeem the mortgage within the reglementary

period, entitlement to the writ of possession becomes a matter of right and the
issuance thereof is merely a ministerial function.
 P a g e | 61

PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION,

MIZPAH HOLDINGS, INC., FORUM HOLDINGS CORPORATION and EAST
ASIA OIL COMPANY,INC. vs. EIB SECURITIES, INC.

G.R. No. 184036, October 13, 2010

FACTS:

On various dates during the period June 2003 to March 2004, plaintiffs
bought 60,790,000 Kuok Properties, Inc. (“KPP”) shares of stock through the
Philippine Stock Exchange (“PSE”). The KPP shares were acquired by plaintiffs
through their broker, defendant EIB. The KPP shares of stock were bought by
plaintiffs at an average price of P0.22 per share. Also on various dates in July and
August 2003, plaintiffs bought/acquired 32,180,000 DMCI shares of stock through
the PSE. Of these shares, 16,180,000 were likewise acquired by the plaintiffs through
their broker, defendant EIB, while the remaining 16,000,000 DMCI shares were
transferred from Westlink Global Equities, Inc. The DMCI shares of stock were
bought by plaintiffs at an average price of P0.38 per share. On 01 April 2004,
plaintiffs and defendant EIB agreed to sell the 60,790,000 KPP shares of plaintiffs to
 P a g e | 62

any party for the price of P0.14 per share. As agreed by plaintiffs and defendant, the
sale of the KPP shares of plaintiffs was made with an option on the part of the
plaintiffs to buy back or reacquire the said KPP shares within a period of thirty (30)
days from the transaction date, at the buy-back price of P0.18 per share.

The notices of sale issued by EIB covering the sale of the KKP shares of
petitioners clearly show that the very same KKP shares sold to third parties albeit
under a buy-back arrangement and the “Property” of petitioners were made the
collaterals to secure the payment of the reacquisition. Since the possession of the
KKP shares and the “Property” were placed in EIB, a third party by common
agreement, then the accessory contract in the case at bar is a contract of pledge.

ISSUE:

Whether or not the pledge on “KKP Shares/Property” is valid.

HELD:

No. Art. 2085 is applicable. Third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own
property.

It is indispensable that the pledgor is the absolute owner of the thing pledged
(second element). In the case at bar, the KKP shares were sold to third parties by EIB
at PhP 0.14 and as a result, petitioners lost their right of ownership over the KKP
shares. Hence, from the time of the sale, petitioners were no longer the absolute
owners of said shares, making the pledge constituted over said KKP shares null and
void.

Also, it is necessary under Art. 2085 that the person constituting the pledge
has the free disposal of his or her property, and in the absence of that free disposal,
that he or she be legally authorized for the purpose (third element). This element is
absent in the case at bar. Petitioners no longer have the free disposal of the KKP
shares when EIB sold said shares at the stock exchange as they are no longer the
owners of the shares. Thus, there was no valid pledge constituted on the KKP
shares. The notice of sale, assuming it incorporates the accessory contract of pledge,
merely stated “Property” as collateral in addition to KKP shares. This is a blatant
violation of Art. 2096, which provides that “a pledge shall not take effect against
third persons if description of the thing pledged and the date of the pledge do not
appear in a public instrument.” The thing pledged must be amply and clearly
described and specifically identified.
 P a g e | 63

RAMON B. BRITO, SR. vs. SEVERINO D. DIANALA, VIOLETA DIANALA

SALES, JOVITA DIANALA DEQUINTO, ROSITA DIANALA, CONCHITA
DIANALA and JOEL DEQUINTO

G.R. No. 171717, December 15, 2010

FACTS:

On September 27, 1976, Margarita Dichimo, assisted by her husband, Ramon

Brito, Sr., together with Bienvenido Dichimo, Francisco Dichimo, Edito Dichimo,
Maria Dichimo, Herminia Dichimo, assisted by her husband, Angelino Mission,
Leonora Dechimo, assisted by her husband, Igmedio Mission, Felicito, and Merlinda
Dechimo, assisted by her husband, Fausto Dolleno, filed a Complaint for Recovery
of Possession and Damages with the then Court of First Instance (now Regional Trial
Court) of Negros Occidental, against a certain Jose Maria Golez. Petitioner's wife,
Margarita, together with Bienvenido and Francisco, alleged that they are the heirs of
a certain Vicente Dichimo, while Edito, Maria, Herminia, Leonora, Felicito and
Merlinda claimed to be the heirs of one Eusebio Dichimo; that Vicente and Eusebio
are the only heirs of Esteban and Eufemia; that Esteban and Eufemia died intestate
and upon their death Vicente and Eusebio, as compulsory heirs, inherited Lot No.
1536-B; that, in turn, Vicente and Eusebio, and their respective spouses, also died
intestate leaving their pro indiviso shares of Lot No. 1536-B as part of the inheritance
of the complainants. On July 29, 1983, herein respondents filed an Answer-in-
Intervention claiming that prior to his marriage to Eufemia, Esteban was married to
 P a g e | 64

a certain Francisca Dumalagan; that Esteban and Francisca bore five children, all of
whom are already deceased; that herein respondents are the heirs of Esteban and
Francisca's children; that they are in open, actual, public and uninterrupted
possession of a portion of Lot No. 1536-B for more than 30 years; that their legal
interests over the subject lot prevails over those of petitioner and his co-heirs; that,
in fact, petitioner and his co-heirs have already disposed of their shares in the said
property a long time ago. The trial court issued an Order dismissing without
prejudice respondents' Answer-in-Intervention for their failure to secure the services
of a counsel despite ample opportunity given them. Thus, the Regional Trial Court
(RTC) of Bacolod City rendered a decision approving the said Compromise
Agreement. However, the parties filed their respective Motions to Dismiss.
Thereafter, the cases were consolidated. On January 18, 1999, herein petitioner and
his co-heirs filed another Complaint for Recovery of Possession and Damages, this
time against herein respondents. Herein respondents, on the other hand, filed with
the same court, on August 18, 1999, a Complaint for Reconveyance and Damages
against petitioner and his co-heirs. On January 12, 2005, the CA rendered judgment
granting the appeal and set aside the joint orders.

ISSUE:Whether or not an action for reconveyance filed by the respondents already

prescribed.

HELD:

An action for reconveyance based on an implied or constructive trust must

perforce prescribe in ten years and not otherwise. A long line of decisions of this
Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now
well settled that an action for reconveyance based on an implied or constructive
trust prescribes in ten years from the issuance of the Torrens title over the property.
The only discordant note, it seems, is Balbin vs. Medalla, which states that the
prescriptive period for a reconveyance action is four years. However, this variance
can be explained by the erroneous reliance on Gerona vs. de Guzman. But in
Gerona, the fraud was discovered on June 25, 1948, hence Section 43(3) of Act No.
190, was applied, the new Civil Code not coming into effect until August 30, 1950 as
mentioned earlier. It must be stressed, at this juncture, that article 1144 and article
1456, are new provisions.

In the instant case, TCT No. T-12561 was obtained by petitioner and his co-
heirs on September 28, 1990, while respondents filed their complaint for
reconveyance on August 18, 1999. Hence, it is clear that the ten-year prescriptive
period has not yet expired. There is no dispute that respondents are in possession of
the subject property as evidenced by the fact that petitioner and his co-heirs filed a
separate action against respondents for recovery of possession thereof. Thus, owing
to respondents' possession of the disputed property, it follows that their complaint
for reconveyance is in fact imprescriptible. As such, with more reason should
respondents not be held guilty of laches as the said doctrine which is one in equity
cannot be set up to resist the enforcement of an imprescriptible legal right.
 P a g e | 65

CONSTANCIA G. TAMAYO vs. ROSALIA ABAD SENORA

G.R. No. 176946, November 15, 2010

FACTS:

On September 28, 1995 at about 11:00 am, Antonieto Senora, 43 years old and
a police chief inspector of PNP was riding a motorcycle and crossing the intersection
of Sucat Road towards Filipinas Avenue, when allegedly a tricycle driven by
Leovino Amparo bumped his motorcycle from behind. The motorcycle was pushed
into the path of Isuzu elf van driven by Elmer Pollosco, which was cruising along
Sucat road, the van was registered in the name of Cirilio Tamayo. The delivery van
tan over Senora, while his motorcycle was thrown few meters away. He was
recovered underneath the delivery van, rushed to the Medical Center of Paranaque,
where he was pronounced dead on arrival.

The Trial Court found Leovino Amparo, Elmer Pollosco and Cirilio Tamayo
jointly and severally liable to plaintiffs and ordered to pay Php105, 100.00 for actual
damages, Php 50,000.00 for loss of life, Php 1,152,360.00 for loss of earnings and Php
30,000.00 for attorney’s fees. The Court of Appeals affirmed the RTC decision but
modified the amount of loss of earnings to Php1,887,847.00. Hence this present
petition.
 P a g e | 66

ISSUE: Whether or not the Court of Appeals erred in declaring the joint negligence
of defendants Leovino Amparo and Elmer Pollosco to be the proximate cause of the
death of Antonieto Senora.

HELD:

The issues raised by the petitioners are questions of fact necessarily calling for
re-examination and re- evaluation of the evidence presented at the trial. The Court
has consistently ruled that findings of fact of trial courts are entitled to great weight
and should not be disturbed, except for strong and valid reasons, because the trial
court is in the better position to examine the demeanour of the witnesses while
testifying.

If, as Pascual testified, the truck stopped when the tricycle bumped the
motorcycle from behind then there would have been no accident. Even if the
motorcycle was nudged into the path of the truck, as she claimed, there would have
been no impact if the truck itself was not moving, and certainly not an impact that
would pin the motorcycle’s driver under the truck and throw the motorcycle a few
meters away.

The Court likewise finds that the CA did not err in upholding Cirilo’s
solidary liability for Señora’s death. The RTC correctly disregarded the testimonies
of Cirilo’s wife and his employee, leaving no other evidence to support the claim
that he had exercised the degree of diligence required in hiring and supervising his
employees.

The award of damages for loss of earning capacity is concerned with the
determination of losses or damages sustained by respondents, as dependents and
intestate heirs of the deceased. This consists not of the full amount of his earnings,
but of the support which they received or would have received from him had he not
died as a consequence of the negligent act. Thus, the amount recoverable is not the
loss of the victim’s entire earnings, but rather the loss of that portion of the earnings
which the beneficiary would have received.
 P a g e | 67

SEALOADER SHIPPING CORPORATION vs. GRAND CEMENT

MANUFACTURING CORPORATION, JOYCE LAUNCH & TUG CO., INC.,
ROMULO DIANTAN & JOHNNY PONCE

G.R. No. 167363, December 15, 2010

x ---------------------------------------x

TAIHEIYO CEMENT PHILIPPINES, INC. (Formerly Grand Cement

Manufacturing Corporation) vs. EALOADER SHIPPING CORPORATION,
JOYCE LAUNCH & TUG CO., INC., ROMULO DIANTAN & JOHNNY PONCE

G.R. No. 177466

FACTS:

Sealoader executed a Time Charter Party Agreement with Joyce Launch

which owned and operated the motor tugboat M/T Viper. By virtue of the
agreement, Sealoader chartered the M/T Viper in order to tow the former’s
unpropelled barges for a minimum period of fifteen days from the date of
acceptance, renewable on a fifteen-day basis upon mutual agreement of the parties.

Subsequently, Sealoader entered into a contract with Grand Cement for the
loading of cement clinkers and the delivery thereof to Manila. On March 31, 1994,
Sealoader’s barge, the D/B Toploader, arrived at the wharf owned by Grand
Cement in Cebu tugged by the M/T Viper. The D/B Toploader, however, was not
immediately loaded with its intended cargo as the employees of Grand Cement
were still loading another vessel.
 P a g e | 68

A case for damages was filed by Grand Cement against Sealoader, Diantan,
and the captain of M/T Viper and Ponce the barge patron of D/B Toploader.
Thereafter, an amended complaint was filed by Grand Cement and included Joyce
Launch as defendant and prayed that all the defendants be held solidarily liable for
the damages sustained on the wharf.

Grand Cement claimed that when D/B Toploader arrived in its wharf, it was
not safely secured and early that day, news about the typhoon had already been
circulated. When requested to move away their vessels from the wharf, Dianton and
Ponce refused to do so and at the most crucial time of the day, both of them
abandoned the vessel. Sealoader on the other hand denied liability by stating that it
was Joyce Launch who has responsibility to secure M/T Viper and D/B Toploader
in order to avert any damage to the properties of third parties. Moreover, Sealoader
alleged that it did not initiate the loading of the vessel and the same had docked in
the wharf long before the arrival of typhoon Bising and typhoon being a force
majeure, the event was beyond its control.

Joyce Launch maintained its argument that the resultant damage to the wharf
of Grand Cement was brought about by a fortuitous event, of which it was belatedly
warned. Joyce Launch insisted that, if only the loading of D/B Toploader proceeded
as scheduled, M/T Viper could have tugged the barge away from the wharf before
the typhoon struck.

The RTC ruled that the defendants are liable and that their negligence caused
the damage to the wharf. On appeal, the CA affirmed the decision of the RTC.

ISSUE:

Whether or not Grand Cement is guilty of contributory negligence it having

the last clear chance to avert the damages cast off the mooring lines attached to D/B
Toploader early on.

HELD:

The Supreme Court had occasion to reiterate the well-established doctrine of

last clear chance in Philippine National Railways v. Brunty as follows:

The doctrine of last clear chance states that where both parties are negligent
but the negligent act of one is appreciably later than that of the other, or where it is
impossible to determine whose fault or negligence caused the loss, the one who had
the last clear opportunity to avoid the loss but failed to do so, is chargeable with the
loss. Stated differently, the antecedent negligence of plaintiff does not preclude him
from recovering damages caused by the supervening negligence of defendant, who
had the last fair chance to prevent the impending harm by the exercise of due
diligence

After a thorough review of the records of this case, the Court finds that
Sealoader was indeed guilty of negligence in the conduct of its affairs during the
incident in question.
 P a g e | 69

One of the bases cited by the RTC for its finding that Sealoader was negligent
was the lack of a radio or any navigational communication facility aboard the D/B
Toploader. The Court, therefore, agrees with the conclusion of Grand Cement that
there was either no radio on board the D/B Toploader, the radio was not fully
functional, or the head office of Sealoader was negligent in failing to attempt to
contact the D/B Toploader through radio. Either way, this negligence cannot be
ascribed to anyone else but Sealoader.

The Court agrees with the ruling of the Court of Appeals in the Decision
dated November 12, 2004 that the people at the wharf could not just cast off the
mooring lines without any instructions from the crew of the D/B Toploader and the
M/T Viper. Thus, Sealoader should have taken the initiative to cast off the mooring
lines early on or, at the very least, requested the crew at the wharf to undertake the
same. In failing to do so, Sealoader was manifestly negligent.

Article 2179 of the Civil Code defines the concept of contributory negligence
as follows:

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

Contributory negligence is conduct on the part of the injured party,

contributing as a legal cause to the harm he has suffered, which falls below the
standard to which he is required to conform for his own protection.
 P a g e | 70

NATIVIDAD vs. CA

G.R. No. 126467, February 02, 2010

FACTS:

Professional Service Inc. (PSI), together with Dr. Miguel Ampil (Dr. Ampil)
and Dr. Juan Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and
Natividad Agana (later substituted by her heirs), in a complaint for damages filed in
the Regional Trial Court (RTC) of Quezon City, Branch 96, for the injuries suffered
by Natividad when Dr. Ampil and Dr. Fuentes neglected to remove from her body
two gauzes which were used in the surgery they performed on her on April 11, 1984
at the Medical City General Hospital. PSI was impleaded as owner, operator and
manager of the hospital.

ISSUE: Whether or not PSI can be held liable for the negligence of its
employees.

HELD:

The Court held that PSI is liable to the Aganas not under the principle of
respondeat superior for lack of evidence of an employment relationship with Dr.
Ampil but under the principle of ostensible agency for the negligence of Dr.
Ampil and, pro hac vice, under the principle of corporate negligence for its
failure to perform its duties as a hospital.

While in theory a hospital as a juridical entity cannot practice medicine, in

reality it utilizes doctors, surgeons and medical practitioners in the conduct
of its business of facilitating medical and surgical treatment. Within that
reality, three legal relationships crisscross: (1) between the hospital and the
doctor practicing within its premises; (2) between the hospital and the patient
being treated or examined within its premises and (3) between the patient and
 P a g e | 71

the doctor. The exact nature of each relationship determines the basis and
extent of the liability of the hospital for the negligence of the doctor.

Where an employment relationship exists, the hospital may be held

vicariously liable under Article 2176 in relation to Article 2180 of the Civil Code or
the principle of respondeat superior. Even when no employment relationship exists
but it is shown that the hospital holds out to the patient that the doctor is its
agent, the hospital may still be vicariously liable under Article 2176 in
relation to Article 1431 and Article 1869 of the Civil Code or the principle of
apparent authority. Moreover, regardless of its relationship with the doctor,
the hospital may be held directly liable to the patient for its own negligence
or failure to follow established standard of conduct to which it should conform
as a corporation.

NORTHWEST AIRLINES, INC. vs. SPOUSES EDWARD and NELIA HESHAN,

et al.

G.R. No. 179117, February 03, 2010

FACTS:

In July 1998, Edward Heshan (Edward) purchased three (3) roundtrip tickets
from Northwest Airlines, Inc. (petitioner) for him, his wife Nelia Heshan (Nelia) and
daughter Dara Ganessa Heshan (Dara) for their trip from Manila to St. Louis,
Missouri, USA and back to attend an ice skating competition where then seven year
old Dara was to participate. When Dara’s participation in the ice skating event
ended on August 7, 1998, the Heshans proceeded to the airport to take the
connecting flight from St. Louis to Memphis on their way to Los Angeles. At the
airport, the Heshans first checked-in their luggage at the airport’s “curbside check-
in” near the entrance. Since they arrived three hours early for their 6:05 p.m. flight
(Flight No. 972M), the Heshans whiled away the time at a nearby coffee shop. At
5:15 p.m. when the check-in counter opened, Edward took to the line where he was
second in the queue. When his turn came and presented the tickets to petitioner’s
customer service agent Ken Carns (Carns) to get the boarding passes, he was asked
to step aside and wait to be called again.

On September 24, 1998, respondents sent a letter to petitioner to demand

indemnification for the breach of contract of carriage. Via letter of December
4, 1998, petitioner replied that respondents were prohibited to board Flight No.
972M for “verbally abusing the flight crew.”

Branch 96 of the RTC, by Decision of August 20, 2002, rendered judgment in

favor of respondents. On appeal, the Court of Appeals, by Decision of June 22, 2007,
sustained the trial court’s findings but reduced the award of moral and exemplary
damages to P2 million and P300,000, respectively. Thus, we hold that it can be
logically inferred that the reason why no boarding passes were immediately issued
to the respondents is because Flight 972 from St. Louis to Memphis is full and the
 P a g e | 72

respondents were “bumped off” from their flight. Reconsideration having been
denied by the appellate court, petitioner filed the present petition for review.

ISSUES: Whether or not the respondents were entitled to moral, exemplary

damages and award of attorney’s fees.

Whether or not the court erred in awarding excessive damages to

respondents.

HELD:

The Court ruled that the petition is in part meritorious. There is a need to
substantially reduce the moral damages awarded by the appellate court. While
courts are given discretion to determine the amount of damages to be awarded, it
is limited by the principle that the amount awarded should not be palpably and
scandalously excessive.

Moral damages are neither intended to impose a penalty to the wrongdoer, nor to
enrich the claimant. Taking into consideration the facts and circumstances attendant
to the case, an award to respondents of P500,000, instead of P2,000,000, as moral
damages is to the Court reasonable.
 P a g e | 73

PHILIPPINE HAWK vs. LEE

G.R. No. 166869, February 16, 2010

FACTS:

On 17 March 1991, plaintiff Vivian Lee Tan and her husband Silvino Tan,
while on board a motorcycle driven by the latter, and a Metro Bus with driven by
Margarito Avila who was an employee of Philippine Hawk, were involved in an
accident and as a result of the accident, Silvino Tan died on the spot while
plaintiff Vivian Lee Tan suffered physical injuries which necessitated medical
attention and hospitalization.

ISSUE:

Whether or not Philippine Hawk can be held liable under quasi-delict.

HELD:

The Court upholds the finding of the trial court and the Court of Appeals that
petitioner is liable to respondent, since it failed to exercise the diligence of
a good father of the family in the selection and supervision of its bus driver,
Margarito Avila, for having failed to sufficiently inculcate in him discipline
and correct behavior on the road. Indeed, petitioner’s tests were concentrated
on the ability to drive and physical fitness to do so. It also did not know that
Avila had been previously involved in sideswiping incidents. Whenever an
employee’s negligence causes damage or injury to another, there instantly arises
a presumption that the employer failed to exercise the due diligence of a good
father of the family in the selection or supervision of its employees. To avoid
liability for a quasi-delict committed by his employee, an employer must
overcome the presumption by presenting convincing proof that he exercised the
care and diligence of a good father of a family in the selection and supervision
of his employee.
 P a g e | 74

ALFREDO AND CLEOPATRE PACIS vs. JEROME JOVANNE MORALES

G.R. No. 169467, February 25, 2010

FACTS:

On 17 January 1995, petitioners Alfredo P. Pacis and Cleopatra D. Pacis

(petitioners) filed with the trial court a civil case for damages against
respondent Jerome Jovanne Morales (respondent). Petitioners are the parents of
Alfred Dennis Pacis, Jr. (Alfred), a 17-year old student who died in a shooting
incident inside the Top Gun Firearms and Ammunitions Store (gun store) in Baguio
City. Respondent is the owner of the gun store.

On January 19, 1991, Alfred Dennis Pacis, then 17 years old and a first year
student at the Baguio Colleges Foundation taking up BS Computer Science, died due
to a gunshot wound in the head which he sustained while he was at the Top Gun
Firearms and Ammunitions Store located at Upper Mabini Street, Baguio City. The
gun store was owned and operated by defendant Jerome Jovanne Morales. With
Alfred Pacis at the time of the shooting were Aristedes Matibag and Jason
Herbolario. They were sales agents of the defendant, and at that particular time, the
caretakers of the gun store. The bullet which killed Alfred Dennis Pacis was fired
from a gun brought in by a customer of the gun store for repair. The gun, an AMT
Automag II Cal. 22 Rimfire Magnum with Serial No. SN-H34194 (Exhibit “Q”), was
left by defendant Morales in a drawer of a table located inside the gun store.
Defendant Morales was in Manila at the time. His employee Armando Jarnague,
who was the regular caretaker of the gun store was also not around. He left earlier
and requested sales agents Matibag and Herbolario to look after the gun store while
he and defendant Morales were away. Jarnague entrusted to Matibag and
Herbolario a bunch of keys used in the gun store which included the key to the
drawer where the fatal gun was kept.

It appears that Matibag and Herbolario later brought out the gun from the
drawer and placed it on top of the table. Attracted by the sight of the gun, the
young Alfred Dennis Pacis got hold of the same. Matibag asked Alfred Dennis
 P a g e | 75

Pacis to return the gun. The latter followed and handed the gun to Matibag. It
went off, the bullet hitting the young Alfred in the head.

A criminal case for homicide was filed against Matibag before branch VII of
this Court. Matibag, however, was acquitted of the charge against him because of
the exempting circumstance of “accident” under Art. 12, par. 4 of the Revised Penal
Code.

By agreement of the parties, the evidence adduced in the criminal case for
homicide against Matibag was reproduced and adopted by them as part of their
evidence in the instant case. On 8 April 1998, the trial court rendered its
decision in favor of petitioners.

Respondent appealed to the Court of Appeals. In its Decision dated 11 May

2005, the Court of Appeals reversed the trial court’s Decision and absolved
respondent from civil liability under Article 2180 of the Civil Code. Petitioners filed
a motion for reconsideration, which the Court of Appeals denied in its Resolution
dated 19 August 2005. Hence, this petition.

ISSUE:

Whether or not respondent is civilly liable for the death of Alfred.

HELD:

The Court granted the instant petition. This case for damages arose out of the
accidental shooting of petitioners’ son. Under Article 1161 of the Civil Code,
petitioners may enforce their claim for damages based on the civil liability
arising from the crime under Article 100 of the Revised Penal Code or they may
opt to file an independent civil action for damages under the Civil Code. In
this case, instead of enforcing their claim for damages in the homicide case
filed against Matibag, petitioners opted to file an independent civil action for
damages against respondent whom they alleged was Matibag’s employer.
Petitioners based their claim for damages under Articles 2176 and 2180 of the Civil
Code.

Unlike the subsidiary liability of the employer under Article 103 of the
Revised Penal Code, the liability of the employer or any person for that matter,
under Article 2176 of the Civil Code is primary and direct, based on a person’s own
negligence. Article 2176 states:

Art. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the
parties, is called quasi-delict and is governed by the provisions of this
Chapter.

Clearly, respondent did not exercise the degree of care and diligence required
of a good father of a family, much less the degree of care required of someone
dealing with dangerous weapons, as would exempt him from liability in this case.
 P a g e | 76

HUTAMA-RSEA/SUPERMAX PHILS., J.V. vs. KCD BUILDERS

CORPORATION, represented by its President CELSO C. DIOKNO
G.R. No. 173181, March 03, 2010
FACTS:
On 10 December 2001, appellee KCD Builders Corporation filed a complaint
for sum of money against appellants [Hutama-RSEA/Super Max, Philippines
and/or Charles H.C. Yang] before the Regional Trial Court of Makati. Its cause of
action arose from a written contract which was the Notice to Proceed dated 10
November 2000 executed by the parties whereby appellant as principal contractor
of Package 2-Site Works in Philips Semiconductors Phils. Inc.- Integrated Circuits
Plant Phase II Project located at the Light Industry and Science Park of the
Philippines-2 (LISPP-2) Calamba, Laguna contracted with appellee [KCD] as sub-
contractor for the said project. The final billing dated 20 September 2001 was
submitted to appellant Charles H.C. Yang, and despite a joint evaluation by the
parties through their respective representatives who agreed on the amount of
P2,967,164.71 as HUTAMA’s total obligation to appellee [KCD] and a letter of
demand, appellant corporation [Hutama] failed and refused to pay. Summons was
served on appellants [Hutama and Yang] on 8 February 2002 which was received by
their secretary, Ms. Evelyn Estrabela in behalf of the two defendants [Hutama and
Yang]. On 21 February 2002, their counsel filed an Entry of Appearance and Motion
for Extension of time to File Responsive Pleading. They were given a 20-day
extension period to file the responsive pleading, or until 16 March 2002.

On 11 April 2002, appellee [KCD] filed a Motion to Declare Defendant/s

[Hutama and Yang] in Default for failure to file the responsive pleading within the
extended period, and set the same for hearing on 26 April 2002.
On 23 April 2002, appellant Charles H.C. Yang filed a Motion to Dismiss for
failure of the complaint to state a case of action against him, as he merely
signed the sub-contract between the parties not for his personal benefit but
only in behalf of appellant HUTAMA. On the same date, appellant HUTAMA filed
an Urgent Motion to Admit Attached Answer with Compulsory Counterclaim,
together with the said answer. During the hearing on appellee’s [KCD’s] motion to
declare defendant/s [Hutama and Yang] in default, the trial court noted the filing of
appellants’ [Hutama and Yang’s] respective motion to dismiss and answer with
counterclaim but noted that the filing thereof on 27 March 2002 was too late
considering that they were only given an extended period up [to] 16 March 2002 to
do the same. Thus, the trial court granted the motion to declare defendants
[Hutama and Yang] in default and directed, upon appellee’s [KCD’s] motion, the
 P a g e | 77

presentation of evidence ex-parte before the branch clerk of court who was
appointed as commissioner to received evidence. Appellants [Hutama and Yang]
filed an Urgent Motion to Set Aside Order of Default. During the hearing, the trial
court ordered appellee [KCD] to file an opposition or comment. After the
Manifestation filed by appellee [KCD] on 24 June 2002, the trial court set anew the
hearing on the motion to set aside order of default on 22 August 2002, but appellants
[Hutama and Yang] failed to appear. The trial court then denied the said motion in
the Order dated 19 September 2002.

The Regional Trial Court (RTC) rendered a decision in favor of KCD Builders
Corporation (KCD). Aggrieved, Hutama Semiconductor Phils., Inc. (Hutama) and
Charles H.C. Yang (Yang) filed an appeal before the CA. CA modified its
decision by dismissing the complaint against appellant Charles H.C. Yang for
lack of cause of action. The decision is AFFIRMED in all other respects.
Unsatisfied, Hutama and Yang filed a motion for reconsideration; however, the
same was denied in a Resolution dated June 19, 2006. Hence, this petition.

ISSUE:

Whether or not the CA erred in affirming the decision of the RTC as to the
liability of Hutama to KCD.

HELD:

Based on the findings of fact of the RTC, which were affirmed by the CA, it
was proven that Hutama contracted the services of KCD as a sub-contractor of
Package 2 Site Works at Phillips Semiconductors Philippines, Inc. – Integrated
Circuits Plant Phase II Project, located in Calamba, Laguna. After the completion of
the project, KCD billed Hutama Three Million Nine Hundred Nine Thousand Nine
Hundred Sixty-Four Pesos and 05/100 (P3,909,964.05). The amount was reduced to
Two Million Nine Hundred Sixty-Seven Thousand One Hundred Sixty Four Pesos
and 71/100 (P2,967,164.71) by agreement of the parties. Thus, on October 11, 2001,
KCD sent Hutama the final bill. However, Hutama refused to settle the obligation
and its refusal compelled KCD to file the collection suit before the RTC.

Second, Hutama avers that the CA committed a reversible error when it

upheld the decision of the RTC, which was based on the ex-parte evidence presented
by KCD. Allegedly, its constitutional right to due process was violated when the
RTC issued an order of default which resulted in its failure to present
evidence.

However, we find that the RTC acted within the confines of its discretion
when it issued the order of default upon the motion of KCD when Hutama failed to
file an answer within the extended period. The RTC did not hastily issue the order
of default. It gave Hutama the opportunity to explain its side. On August 22, 2002,
the motion to set aside the order of default was set for hearing, but neither Hutama’s
counsel, nor any other representative of petitioner corporation, appeared. According
to the counsel of Hutama, in his Memorandum, he failed to
file an answer on time because he went to the province for the Lenten season. He
 P a g e | 78

assigned the case to his associate, but the latter also went to the province.
This flimsy excuse deserves scant consideration.

Thus, the Court denied the petition.

SULPICIO LINES, INC. vs. DOMINGO E. CURSO, et al.

G.R. No. 157009, March 17, 2010

FACTS:

On 23 October 1988, Dr. Curso boarded at the port of Manila the MVDoña
Marilyn, an inter-island vessel owned and operated by petitioner Sulpicio Lines,
Inc., bound for Tacloban City. Unfortunately, the MV Doña Marilyn sank in the
afternoon of October 24, 1988 while at sea due to the inclement sea and weather
conditions brought about by Typhoon Unsang. The body of Dr. Curso was not
recovered, along with hundreds of other passengers of the ill-fated vessel. At the
time of his death, Dr. Curso was 48 years old, and employed as a resident physician
at the Naval District Hospital in Naval, Biliran. He had a basic monthly salary of
P3,940.00, and would have retired from government service by December 20, 2004 at
the age of 65.

On 21 January 1993, the respondents, allegedly the surviving brothers and

sisters of Dr. Curso, sued the petitioner in the RTC in Naval, Biliran to claim
damages based on breach of contract of carriage by sea, averring that the
petitioner had acted negligently in transporting Dr. Curso and the other
passengers. They stated, among others, that their parents had predeceased Dr.
Curso, who died single and without issue; and that, as such, they were Dr.
Curso’s surviving heirs and successors in interest entitled to recover moral and
other damages. They prayed for judgment, as follows: (a) compensatory damages of
P1,924,809.00; (b) moral damages of P100,000.00; (c) exemplary or corrective
damages in the amount deemed proper and just; (d) expenses of litigation of at least
P50,000.00; (e) attorney’s fees of P50,000.00; and (f) costs of suit.

The petitioner denied liability, insisting that the sinking of the vessel was
due to force majeure (i.e., Typhoon Unsang), which exempted a common carrier
from liability. It averred that the MV Doña Marilyn was seaworthy in all respects,
and was in fact cleared by the Philippine Coast Guard for the voyage; and that
after the accident it conducted intensive search and rescue operations and
extended assistance and aid to the victims and their families.
RTC dismissed the complaint upon its finding that the sinking of the vessel was
due to force majeure. Respondents appealed to the CA having found defendant
Sulpicio Lines negligent. Hence, this petition.

ISSUE:
 P a g e | 79

Whether or not brothers and sisters of a deceased passenger in a case of

breach of contract of carriage are entitled to an award of moral damages against the
carrier.

HELD:

The petition is meritorious. As a general rule, moral damages are not

recoverable in actions for damages predicated on a breach of contract, unless there is
fraud or bad faith. As an exception, moral damages may be awarded in case of
breach of contract of carriage that results in the death of a passenger, in accordance
with Article 1764, in relation to Article 2206 (3), of the Civil Code., which provide:

Article 1764. Damages in cases comprised in this Section shall be awarded in

accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall
also apply to the death of a passenger caused by the breach of contract by a
common carrier.

Article 2206. The amount of damages for death caused by a crime or quasi-delict
shall be at least three thousand pesos, even though there may have been
mitigating circumstances. In addition:

(1) The defendant shall be liable for the loss of the earning capacity of the
deceased, and the indemnity shall be paid to the heirs of the latter; such
indemnity shall in every case be assessed and awarded by the court, unless the
deceased on account of permanent physical disability not caused by the
defendant, had no earning capacity at the time of his death;

(2) If the deceased was obliged to give support according to the provisions of
article 291, the recipient who is not an heir called to the decedent's
inheritance by the law of testate or intestate succession, may demand support
from the person causing the death, for a period not exceeding five years, the
exact duration to be fixed by the court;

(3) The spouse, legitimate and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the death of
the deceased.

The foregoing legal provisions set forth the persons entitled to moral
damages. The omission from Article 2206 (3) of the brothers and sisters of the
deceased passenger reveals the legislative intent to exclude them from the recovery
of moral damages for mental anguish by reason of the death of the deceased.
Inclusio unius est exclusio alterius. The solemn power and duty of the courts to
interpret and apply the law do not include the power to correct the law by reading
into it what is not written therein. Thus, the CA erred in awarding moral damages to
the respondents.

To be entitled to moral damages, the respondents must have a right based

upon law. It is true that under Article 1003 of the Civil Code they succeeded to the
entire estate of the late Dr. Curso in the absence of the latter’s descendants,
ascendants, illegitimate children, and surviving spouse. However, they were not
 P a g e | 80

included among the persons entitled to recover moral damages, as enumerated in

Article 2219 of the Civil Code.

NISSAN NORTH EDSA vs. UNITED PHILIPPINE SCOUT VETERANS

DETECTIVE AND PROTECTIVE AGENCY

G.R. No. 179470, April 20, 2010

FACTS:

In 1993, respondent United Philippine Scout entered into a contract for

security services with petitioner Nissan, and beginning 23 April 1993, it was
able to post 18 security guards within Nissan’s compound located in EDSA
Balintawak, Quezon City. On 31 January 1996, Nissan informed United that its
services were being terminated on that day. Galope personally pleaded with the
personnel manager of Nissan to reconsider its decision. As this was ignored,
United wrote a Letter demanding payment of the amount equivalent to thirty (30)
days of service in view of Nissan’s act of terminating United’s services without
observing the required 30-day prior written notice as stipulated under paragraph
17 of their service contract. As a result of Nissan’s continued failure to
comply, a case for Sum of Money was filed. The lower court ruled in favor of
herein respondent. Nissan appealed to the Regional Trial Court. The Regional
Trial Court, however, denied the appeal and affirmed the decision of the
Metropolitan Trial Court. Nissan filed a motion for reconsideration but the same
was denied. On appeal to the Court of Appeals affirmed the Decision of the
Regional Trial Court, with the modification that the award for exemplary damages
was deleted. The Court of Appeals held that the breach of contract was not done
by Nissan in a wanton, fraudulent, reckless, oppressive or malevolent manner.
Nissan sought reconsideration of the decision affirming the judgment of the
lower court but the Court of Appeals denied the same in a Resolution promulgated
on 24 August 2007. Hence, this petition.

ISSUE:

Whether or not Nissan committed a breach of contract, thereby entitling

United to damages in the amount equivalent to 30 days’ service.

HELD:

At the heart of the controversy is paragraph 17 of the service contract, which

reads:
 P a g e | 81

“However, violations committed by either party on the provisions of this

Contract shall be sufficient ground for the termination of this contract,
without the necessity of prior notice, otherwise a thirty (30) days prior
written notice shall be observed.”

Nissan argues that the failure of United’s security guards to report for duty
on two occasions, without justifiable cause, constitutes a violation of the
provisions of the service contract, sufficient to entitle Nissan to terminate
the same without the necessity of a 30-day prior notice. As the Metropolitan
Trial Court of Las Piñas City stated in its decision, Nissan did not adduce any
evidence to substantiate its claim that the terms of the contract were violated
by United. What Nissan failed to do is to point out or indicate the specific provisions
of the service contract which were violated by United as a result of
the latter’s lapses in security. In so failing, Nissan’s act of unilaterally
terminating the contract constitutes a breach thereof, entitling United to
collect actual damages.
 P a g e | 82

OMC CARRIERS, INC. vs. SPOUSES ROBERTO C. NABUA and ROSARIO T.

NABUA

G.R. No. 148974, July 02, 2010

FACTS:

On 04 August 1995, at about 3:00 p.m., an Isuzu private tanker with plate no.
PCH 612, owned by and registered in the name of petitioner OMC Carriers, Inc. and
then being driven by its employee Jerry P. Añalucas (Añalucas), was cruising along
Quirino Highway towards the general direction of Lagro, Quezon City. At
BarangayPasong Putik, Novaliches, Quezon City, the aforesaid private tanker hit a
private vehicle, an Isuzu Gemini with plate no. NDF 372, which was making a left
turn towards a nearby Caltex gasoline station. The impact heavily damaged the
right side portion of the latter motor and mortally injured its 18-year-old driver,
Reggie T. Nabua, who was later pronounced dead on arrival at the Fairview
Polymedic Hospital.

Respondent spouses Berlino and Rosario Nabua, the parents of the victim,
filed a Complaint for damages against petitioners and the General Manager of OMC
Carriers, Chito Calauag, before the RTC of Quezon City, Branch 224. The complaint
was docketed as Civil Case No. Q-95-24838 and entitled, Spouses Berlino C. Nabua
and Rosario T. Nabua, Plaintiffs, vs. OMC Carriers, Inc., its General Manager, Chito
Calauag, and Jerry Añalucas y Pitalino, Defendants.

On 19 January 1998, the RTC rendered a Decision in favor of the plaintiffs as

against defendants and ordering the latter to pay the plaintiffs, jointly and
solidarily. Aggrieved, petitioners appealed the RTC Decision to the CA. On
December 28, 1999, the CA rendered a Decision, partially granting the petition.

ISSUE:

Whether or not the proximate and immediate cause of the accident was the
negligence of the victim, Reggie Nabua.

HELD:

This Court is not persuaded as the same is a question of fact.

All told, this Court is convinced, and thus affirms the findings of fact of the
RTC and the CA that the proximate cause of the accident was the negligence of
petitioner Añalucas.
 P a g e | 83

Having resolved the same, this Court shall now address the defense of
petitioner company that they exercised due diligence in the selection and
supervision of their employees. On this note, the CA ruled that petitioners had failed
to overturn the presumption of negligence on the part of the employer.
In their defense, the appellants’ witnesses have admittedly testified at length
regarding the hiring and supervisory policies of the appellant company. While
they were able to amply demonstrate the implantation of the company’s hiring
procedure insofar as appellant Jerry Añalucas was concerned, the same witnesses
failed to similarly individualize the company’s purported supervisory policies.

The introduction of evidence showing the employer exercised the required

amount of care in selecting its employees are only half of the employer’s burden is
(sic) overcome. The question of diligent supervision depends on the
circumstances of employment, which, in the instant case was not sufficiently
proved by the appellants. In discounting merit from the appellants’ second
assignment of error, this Court is, consequently, guided by the principle that
the existence of hiring procedure and supervisory policies cannot be casually
invoked to overturn the presumption of negligence on the part of the employer.
Article 2180 of the Civil Code provides:

xxxx

Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged in any business or industry.

xxxx

The responsibility treated in this article shall cease when the persons herein
mentioned prove they observed all the diligence of a good father of a family to
prevent damage. It is thus clear that the employer of a negligent employee is liable
for the damages caused by the latter. When an injury is caused by the negligence of
an employee, there instantly arises a presumption of the law that there was
negligence on the part of the employer, either in the selection of his employee or in
the supervision over him after such selection. However, the presumption may be
overcome by a clear showing on the part of the employer that he has exercised the
care and diligence of a good father of a family in the selection and supervision of his
employee. In other words, the burden of proof is on the employer. Thus, petitioners
must prove two things: first, that they had exercised due diligence in the selection of
petitioner Añalucas, and second that after hiring Añalucas, petitioners had exercised
due diligence in supervising him.
 P a g e | 84

WALLEM PHILIPPINES SHIPPING, INC. vs. S.R. FARMS, INC.

G.R. No. 161849, July 09, 2010

FACTS:

On March 25, 1992, Continental Enterprises, Ltd. loaded on board the vessel
M/V “Hui Yang,” at Bedi Bunder, India, a shipment of Indian Soya Bean Meal, for
transportation and delivery to Manila, with plaintiff herein respondent as
consignee/notify party. The said shipment is said to weigh 1,100 metric tons and
covered by Bill of Lading No. BEDI 4 dated March 25, 1992 (Exhibit A; also
Exhibit I). The vessel is owned and operated by defendant Conti-Feed, with
defendant herein petitioner Wallem as its ship agent.

The subject cargo is part of the entire shipment of Indian Soya Bean
Meal/India Rapeseed Meal loaded in bulk on board the said vessel for delivery to
several consignees. Among the consignees were San Miguel Corporation and
Vitarich Corporation, including the herein plaintiff (Exhibit A; Exhibits 1 to 6; TSN,
p. 13, June 28, 1996).

On April 11, 1992, the said vessel, M/V “Hui Yang” arrived at the port of
Manila, Pier 7 South Harbor. Thereafter, the shipment was discharged and
transferred into the custody of the receiving barges, the NorthFront-333 and
NorthFront-444. The offloading of the shipment went on until April 15, 1992 and
was handled by [Ocean Terminal Services, Inc.] OTSI using its own manpower and
equipment and without the participation of the crew members of the vessel. All
throughout the entire period of unloading operation, good and fair weather
condition prevailed.

At the instance of the plaintiff, a cargo check of the subject shipment was
made by one Lorenzo Bituin of Erne Maritime and Allied Services, Co. Inc., who
noted a shortage in the shipment which was placed at 80.467 metric tons based on
draft survey made on the NorthFront-33 and NorthFront-444 showing that the
quantity of cargo unloaded from the vessel was only 1019.53 metric tons. Thus, per
the bill of lading, there was an estimated shortage of 80.467.

Meanwhile, defendant OTSI filed its Answer with Counterclaim and Cross
claim denying the material allegations of the Complaint and alleging that it
exercised due care and diligence in the handling of the shipment from the carrying
vessel unto the lighters; no damage or loss whatsoever was sustained by the cargo in
question while being discharged by OTSI; petitioner’s claim had been waived,
abandoned or barred by laches or estoppels; liability, if any, is attributable to its co-
defendants. For its part, petitioner denied the allegations of respondent claiming,
among others, that it is not accountable nor responsible for any alleged shortage
 P a g e | 85

sustained by the shipment while in the possession of its co-defendants; the alleged
shortage was due to negligent or faulty loading or unloading of the cargo by the
stevedores/shipper/consignee; the shortage, if any, was due to pre-shipment
damage, inherent nature, vice or defect of the cargo for which herein petitioner is
not liable; respondent’s claim is already barred by laches and/or prescription.

On October 8, 1999, the RTC rendered its Decision dismissing respondent’s

complaint, as well as the opposing parties’ counterclaims and cross claims.
Aggrieved by the RTC Decision, respondent filed an appeal with the CA. On June 2,
2003, the CA rendered Decision which REVERSED and SET ASIDE and another one
entered ordering defendants-appellees Conti-Feed and Maritime Pvt. Ltd. and
Wallem Philippines Shipping, Inc., to pay the sum representing the value of the
80.467 metric tons of Indian Soya Beans short delivered, with legal interest from the
time the judgment becomes final until full payment, plus attorney’s fees and
expenses of litigation of P10,000.00, as well as the cost of suit. Petitioner filed a
Motion for Reconsideration.

ISSUE:

Whether or not the court of appeals erred in applying the presumption of

negligence under article 1735 of the Civil Code.

HELD:

In the instant case, the Court is not persuaded by respondent’s claim that the
complaint against petitioner was timely filed. Respondent argues that the suit
for damages was filed on March 11, 1993, which is within one year from the time
the vessel carrying the subject cargo arrived at the Port of Manila on April 11,
1993, or from the time the shipment was completely discharged from the vessel on
April 15, 1992. There is no dispute that the vessel carrying the shipment arrived at
the Port of Manila on April 11, 1992 and that the cargo was completely discharged
therefrom on April 15, 1992. However, respondent erred in arguing that the
complaint for damages, insofar as the petitioner is concerned, was filed on March 11,
1993.

The settled rule is that the filing of an amended pleading does not retroact to
the date of the filing of the original; hence, the statute of limitation runs
until the submission of the amendment. It is true that, as an exception, this
Court has held that an amendment which merely supplements and amplifies facts
originally alleged in the complaint relates back to the date of the commencement of
the action and is not barred by the statute of limitations which expired after the
service of the original complaint. The exception, however, would not apply to the
party impleaded for the first time in the amended complaint.
The rule on the non-applicability of the curative and retroactive effect of an
amended complaint, insofar as newly impleaded defendants are concerned, has
been established as early as in the case of Aetna Insurance Co. v. Luzon Stevedoring
Corporation. In the said case, the defendant Barber Lines Far East Service was
impleaded for the first time in the amended complaint which was filed after the one-
year period of prescription. The order of the lower court dismissing the amended
 P a g e | 86

complaint against the said defendant on ground of prescription was affirmed by this
Court.

Hence, reckoned from April 15, 1992, the one-year prescriptive period
had already lapsed. Having ruled that the action against petitioner had already
prescribed, the Court no longer finds it necessary to address the other issues raised
in the present petition. Hence, the petition is partly granted.
 P a g e | 87

ROLITO CALANG vs. PEOPLE OF THE PHILIPPINES

G.R. No. 190696, August 3, 2010

FACTS:

At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco
Bus No. 7001, owned by Philtranco along Daang Maharlika Highway in Barangay
Lambao, Sta. Margarita, Samar when its rear left side hit the front left portion of a
Sarao jeep coming from the opposite direction. As a result of the collision,
Cresencio Pinohermoso, the jeep’s driver, lost control of the vehicle, and
bumped and killed Jose Mabansag, a bystander who was standing along the
highway’s shoulder. The jeep turned turtle three (3) times before finally
stopping at about 25 meters from the point of impact. Two of the jeep’s
passengers, Armando Nablo and an unidentified woman, were instantly killed,
while the other passengers sustained serious physical injuries.
The prosecution charged Calang with multiple homicide, multiple serious
physical injuries and damage to property thru reckless imprudence before the
Regional Trial Court (RTC), Branch 31, Calbayog City. The RTC, in its decision
dated May 21, 2001, found Calang guilty beyond reasonable doubt of reckless
imprudence resulting to multiple homicide, multiple physical injuries and damage
to property, and sentenced him to suffer an indeterminate penalty of thirty days
of arresto menor, as minimum, to four years and two months of prision
correccional, as maximum. The RTC ordered Calang and Philtranco, jointly and
severally, to pay P50,000.00 as death indemnity to the heirs of Armando;
P50,000.00 as death indemnity to the heirs of Mabansag; and P90,083.93 as actual
damages to the private complainants. The petitioners appealed the RTC decision to
the Court of Appeals (CA), docketed as CA-G.R. CR No. 25522. The CA, in its
decision dated November 20, 2009 affirmed the RTC decision in toto. The CA ruled
that petitioner Calang failed to exercise due care and precaution in driving the
Philtranco bus. The CA further ruled that Calang demonstrated a reckless attitude
when he drove the bus, despite knowing that it was suffering from loose
compression, hence, not roadworthy. The CA added that the RTC correctly held
Philtranco jointly and severally liable with petitioner Calang, for failing to prove
that it had exercised the diligence of a good father of the family to prevent the
accident. The petitioners filed with the Court a petition for review on certiorari and
it was denied.

ISSUE:

Whether or not there was no basis to hold Philtranco jointly and severally
liable with Calang because the former was not a party in the criminal case (for
multiple homicide with multiple serious physical injuries and damage to property
thru reckless imprudence) before the RTC.

HELD:

The Court partly granted the motion. Liability of Philtranco. We, however,
hold that the RTC and the CA both erred in holding Philtranco jointly and severally
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liable with Calang. We emphasize that Calang was charged criminally before the
RTC. Undisputedly, Philtranco was not a direct party in this case. Since the cause of
action against Calang was based on delict, both the RTC and the CA erred in
holding Philtranco jointly and severally liable with Calang, based on quasi-delict
under Articles 2176 and 2180 of the Civil Code. Articles 2176 and 2180 of the Civil
Code pertain to the vicarious liability of an employer for quasi delicts that an
employee has committed. Such provision of law does not apply to civil liability
arising from delict.

The foregoing subsidiary liability applies to employers, according to

Article 103 of the Revised Penal Code, which reads:

The subsidiary liability established in the next preceding article shall also
apply to employers, teachers, persons, and corporations engaged in any kind of
industry for felonies committed by their servants, pupils, workmen, apprentices, or
employees in the discharge of their duties. The provisions of the Revised Penal Code
on subsidiary liability- Articles 102 and 103 are deemed written into the judgments
in cases to which they are applicable. Thus, in the dispositive portion of its decision,
the trial court need not expressly pronounce the subsidiary liability of the employer.
Nonetheless, before the employers’ subsidiary liability is enforced, adequate
evidence must exist establishing that (1) they are indeed the employers of the
convicted employees; (2) they are engaged in some kind of industry; (3) the crime
was committed by the employees in the discharge of their duties; and (4) the
execution against the latter has not been satisfied due to insolvency. The
determination of these conditions may be done in the same criminal action in which
the employee’s liability, criminal and civil, has been pronounced, in a hearing set for
that precise purpose, with due notice to the employer, as part of the proceedings for
the execution of the judgment.
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ARRA REALTY CORPORATION, CARLOS D. ARGUELLES and REMEDIOS

DE LA RAMA-ARGUELLES vs. PACES INDUSTRIAL CORPORATION

G.R. No. 169761, December 1, 2010

FACTS:

Teresa C. Aguilar entered into an Owner-General Contractor Agreement

(First Contract) with Transcept Construction for the construction of a two-storey
split level vacation house. Under the First Contract, the project would cost
P3,486,878.64 and was to be completed on 7 June 2005. Aguilar paid a downpayment
of P1 million on 27 August 2004.

Transcept submitted its First Billing to Aguilar for work accomplishments

from start to 15 November 2004 and Aguilar paid P566,356. Then Aguilar received
the Second Billing amounting to P334,488 for the period of 16 November 2004 to 15
December 2004. Transcept informed Aguilar that non-payment would force them to
stop all works. Aguilar questioned the Second Billing as unusual for being 45 days
ahead of actual accomplishment. Aguilar did not pay and Transcept stopped
working on the Project.

Thereafter, Aguilar hired ASTEC, a duly accredited testing laboratory, to test

Transcept’s quality of work and the test showed substandard works done by
Transcept. In a letter, Transcept outlined its program to reinforce or redo the
substandard works discovered by ASTEC. Thereafter, ASTEC sent Aguilar an
Evaluation of Contractor’s Performance which showed that aside from the
substandard workmanship and use of substandard materials, Transcept was
unreasonably and fraudulently billing Aguilar. Of the downpayment amounting to
P1,632,436.29, ASCTEC’s reasonable assessment of Transcept’s accomplishment
amounted only to P527,875.94. Astec recommended the partial demolition of
Transcept’s work.

Thereafter, Transcept and Aguilar entered into a Construction Contract

(Second Contract) to extend the date of completion from 7 June 2005 to 29 July 2005
and to use up the P1.6 million downpayment paid by Aguilar. Transcept failed to
finish the project on time alleging that the delay was due to additional works
ordered by Aguilar. Transcept also asked for payment of the additional amount of
P290,824.96. Aguilar countered that the Second Contract did not provide for
additional works.

Later on, Aguilar sent a demand letter to Transcept asking for payment of
P581,844.54 for refund and damages. Transcept ignored the demand letter so
Aguilar filed a complaint against Transcept before CIAC.

CIAC, after assessing the work accomplished with the corresponding costs, as
against the downpayment of P1,632,436.29 which was the contract price in the
Second Contract, ruled that ruled that the accomplishment of P1,602,359.97 was
98.16% of P1,632,436.29, which was way above 95% and should therefore be
considered as substantial completion of the Project. As such, the CIAC ruled that
 P a g e | 90

liquidated damages could not be awarded to Aguilar. The CIAC also found that
Aguilar demanded extra works which entailed additional working days. The CIAC
computed that the additional works performed over and above the Second Contract
amounted to P189,909.91.

Aguilar appealed CIAC’s ruling to the CA which held that Transcept only
accomplished 87.81% of the contract price thus entitling Aguilar to liquidated
damages equivalent to 10% of P1,632,436.29 or P163,243.63.

The Court of Appeals further ruled that Transcept was not entitled to
payment for additional works because they were in fact only rectifications of the
works poorly done by Transcept.

ISSUE:

Whether the Court of Appeals erred in awarding Aguilar liquidated

damages.

HELD:

Section 20.11(A) (a) of the Construction Industry Authority of the Philippines

(CIAP) Document No. 102 provides that "[t]here is substantial completion when the
Contractor completes 95% of the Work, provided that the remaining work and the
performance of the work necessary to complete the Work shall not prevent the
normal use of the completed portion."

According to CIAC’s computation, Transcept’s accomplishment amounted to

98.16% of the contract price. It is beyond the 95% required under CIAP Document
No. 102 and is considered a substantial completion of the Project. We thus agree
with CIAC’s application of Article 1234 of the Civil Code, which provides that "if the
obligation had been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by
the obligee."

There being a substantial completion of the Project, Aguilar is not entitled to

liquidated damages but only to actual damages of P30,076.72, representing the
unaccomplished works in the Second Contract as found by the CIAC, which is the
difference between the contract price of P1,632,436.29 and the accomplishment of
P1,602,359.97.