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Benjamin E. Ravago, Petitioner, vs.

Metropolitan Bank & Trust Company, substituted by


Bright Ventures Realty, Inc., Respondents. (Gr. No. 188739, August 5, 2015)

PERALTA, J.:

Facts:

Sometime in October and December 1997, petitioner and his wife obtained loan from
respondent bank the total of which amounted to P25,000,000,000.00. The loans were secured
by a real estate mortgage over a 1,506 square meter lot with improvements owned by
petitioner and which is located in San Juan, Metro Manila. Subsequently, petitioner and his wife
failed to pay their loan obligation thereby prompting respondent to institute an extrajudicial
foreclosure proceeding over the mortgaged property through a notary public. After a successful
conduct of the foreclosure sale, respondent emerged as the highest bidder and title was
subsequently transferred to it. A Complaint for Annulment of Notarial Foreclosure Proceedings
Including Auction Sale, Certificate of Sale and Consolidated Title with Damages and Injunction
was filed by petitioner before the RTC arguing among others that the extrajudicial foreclosure
by means of notary public did not comply with the procedure provided for under the provisions
of Administrative Order No. 3 issued by the Supreme Court in October 1984, in relation to
extrajudicial foreclosure proceedings under Act No. 3135. The RTC as well as the CA ruled
against the complaint.

Issue: Whether the extrajudicial foreclosure of the subject lot conducted by the notary public is
null and void on the ground that respondent did not pay the docket fee.

Ruling: The extrajudicial foreclosure proceeding is valid.

It can be gleamed from the amendatory provisions of A.M. No. 99-10-05-0 that, upon
the effectivityof the said amendments on January 15, 2000, applications for extrajudicial
foreclosures under the direction of a notary public are already among those which are required
to be filed with the Executive Judge.

Hence, it is clear that prior to the effectivity of A.M. No. 99-10-05-0, applications for
notarial foreclosure which are conducted by a notary public were not required to be filed with
the court. This is precisely the reason why the Court in the China Banking case held that
extrajudicial foreclosures conducted by a notary public do not come within the coverage of the
provisions of Administrative Order No. 3, which, among others, require the sheriff to receive
and docket the application for extrajudicial foreclosure and collect the prescribed filing fees.

In the present case, respondent filed its Petition For Extrajudicial Foreclosure of Real
Estate Mortgage in February 1999 while the foreclosure sale was conducted on June 3, 1999,
both of which happened before the effectivity of A.M. No. 99-10-05-0.

In connection with the foregoing discussions, this Court, in the case of RPRP Ventures
Management & Development Corporation v. Judge Guadiz, Jr., et. al., had the occasion to rule
that the legal fees prescribed under the then existing Section 7(c), Rule 141 of the Rules of
Court, with respect to requests for extrajudicial foreclosure of real estate or chattel mortgages,
do not apply to applications for extrajudicial foreclosure of real estate mortgages filed with a
notary public. xxx

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
AQA Global Construction, Inc., Petitioner, vs. Planters Development Bank, Respondent. (Gr.
No. 211649, August 12, 2015)

Je-An Supreme Builders and Sales Corporation, Petitioner, vs. Planters Development Bank,
Respondent. (Gr. No. 211742, August 12, 2015)

PERLAS-BERNABE, J.:

Facts:

Kwong-on Trading Corporation (KTC) obtained a loan from Plantersbank in the amount
of P14,000,000.00 secured by a mortgage over nineteen parcels of land situated in San Juan,
Metro Manila on February 28, 2003. KTC failed to pay the loan thereby prompting Plantersbank
to extrajudicially foreclose the mortgaged properties in which it emerged as the highest bidder
in the public auction sale held on May 5, 2010. KTC likewise failed to redeem the properties
resulting to the cancellation of the Transfer Certificate of Titles in its name and issuance of
another in the name of Plantersbank. Plantersbank applied for a writ of possession which was
eventually granted by the RTC in a decision dated January 6, 2012. The writ was issued on
February 2, 2012 and served, together with the Notice to Vacate to petitioner AQA Global
Construction Inc. (AQA), which occupied the subject properties at the time.

AQA filed a manifestation and motion to intervene averring that its possession of the
subject properties is adverse to that of KTC and that, it stemmed from a ten year contract of
lease with petitioner Je-An Supreme Builders and Sales Corporation(Je-An) which on the other
hand bought the property from Little Giant Realty Corporation (Little Giant), the registered
owner of the properties. Je-An on its part filed a Third Party Claim to stay implementation of
the writ on the ground that its right to possess the properties was derived from a Contract to
Sell dated January 15, 2003 executed by Little Giant. Plantersbank, in the main, argued that the
lease between Je-An and AQA cannot bind it since the same was not registered and annotated
on the titles over the subject properties.

Issue: 1. Whetherthe possession of AQA, being the lessee of Je-An in an unregistered contract
of lease, of the subject properties is adverse to that of KTC entitling the former to stay the
implementation of the writ.

2. Whether AQA’s claim that its status as tenant renders its possession adverse to that
of Plantersbank.

3. Whether the unregistered lease between AQA and Je-An is binding with Plantersbank.

Ruling:

1. The possession of AQA of the subject properties is not adverse to that of KTC.

The general rule is that, after the lapse of the redemption period, the purchaser in a
foreclosure sale becomes the absolute owner of the property purchased who is entitled to the
possession of the said property. Upon ex parte petition, it is ministerial upon the trial court to
issue the writ of possession in his favor. The exception, however, is provided under Section 33,
Rule 39 of the Rules, which applies suppletorily to extrajudicial foreclosure of real estate
mortgages. Under the said provision of law, the possession of the mortgaged property may be
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
awarded to a purchaser in the extrajudicial forclosure unless a third party is actually holding the
property adversely to the judgment debtor.

xxx

xxx For the exception to apply, however, the property need not only be possessed by a
third party, but also held by him adversely to the judgment obligor—such as that of a co-owner,
agricultural tenant or usufructuary, who possess the property in their own right and notmerely
the successor or transferee of the right of possession of, or priviy to, the judgment obligor.

In this case, petitioners’ claim of right of possession over the subject properties is not
analogous to any of the foregoing as to render such possession adverse to the judgment obligor,
KTC, under legal contemplation.

2. Negative.

The Court simply cannot subscribe to AQA’s claim that its status as tenant renders its
possession adverse to that of Plantersbank xxx. xxx the tenant contemplated clearly refers to an
“agricultural tenant” who; (a) possesses the property in his own right; and (b) is protected by
Presidential Decree (PD) No. 1038 wherein a tenant-tiller of private agricultural lands devoted
to crops other that rice and/or corn shall not be removed, ejected, ousted or excluded from his
farmholding unless directed a final decision decision or order of the court for causes provided
by law, which does not include sale of the land—and not to a “civil law tenant”.

3. The unregistered contract of lease between AQA and Je-An is not binding with Planterbank.

It bears to emphasize that a civil law lease is a mere personal right. It partakes of the
nature of a real right when it is recorded on the title of the lessor only in the sense that it is
binding even as against third persons without actual notice of the transaction. Under Section 51
of PD no. 1529, otherwise known as the Land Registration Decree, “no deed, mortgage, lease or
other voluntary instrument, except a will purporting to convey or affect registered land shall
take effect as a conveyance or bind the land” until its registration. In the present case, AQA’s
unregistered lease with Je-An is, thus, not binding on Plantersbank.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Maybank Philippines, Inc. (Formerly PNB-Republic Bank), Petitioner vs. Spouses Oscar and
NenitaTarrosa, Respondents. (Gr. No. 213014, October 14, 2015)

PERLAS-BERNABE, J.:

Facts:

On December 15, 1980, respondent Spouses Tarrosa obtained a loan from PNB-Republic
Bank, now Maybank Philippines, in the amount of P91,000.00 secured by a real estate
mortgage over a 500-square meter parcel of land situated in San Carlos, Negros Occidental.
After payment of said loan, the respondents again obtained another loan from Maybank in the
amount of P60,000.00 payable on March 11, 1984. Respondents failed to pay upon maturity.
Sometime in April 1998, a Final Demand Letter was sent by petitioner bank to respondents
requiring the latter to settle their loan obligation which already amounted to P564,679.91
inclusive of principal, interest, and penalty charges. The spouses offered to settle it in a lesser
amount to which the bank refused. On June 25, 1998, Maybank instituted an extrajudicial
foreclosure proceeding and the subject property was eventually sold in a public auction to
Philmay Property Inc. (PPI). The spouses then filed a complaint for declaration of nullity and
invalidity of the foreclosure sale averring among others that the second loan is an unsecured
loan and that, Maybank’s right to foreclose had already prescribed.

Issue:

1. When are the respondent spouses considered in default under the law?

Ruling:

In order that the debtor may be in default, it is necessary that: (a) the obligation be
demandable and already liquidated; (b) the debtor delays performance; and (c) the creditor
requires the performance judicially or extrajudicially, unless demand is not necessary.– i.e.,
when there is an express stipulation to that effect; where the law so provides; when the period
is the controlling motive or the principal inducement for the creation of the obligation; and
where demand would be useless.Moreover, it is not sufficient that the law or obligation fixes a
date for performance; it must further state expressly that after the period lapses, default will
commence. Thus, it is only when demand to pay is unnecessary in case of the aforementioned
circumstances, or when required, such demand is made and subsequently refused that the
mortgagor can be considered in default and the mortgagee obtains the right to file an action
to collect the debt or foreclose the mortgage.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Maybank Philippines, Inc. (Formerly PNB-Republic Bank), Petitioner vs. Spouses Oscar and
NenitaTarrosa, Respondents. (Gr. No. 213014, October 14, 2015)

PERLAS-BERNABE, J.:

Facts:

On December 15, 1980, respondent Spouses Tarrosa obtained a loan from PNB-Republic
Bank, now Maybank Philippines, in the amount of P91,000.00 secured by a real estate
mortgage over a 500-square meter parcel of land situated in San Carlos, Negros Occidental.
After payment of said loan, the respondents again obtained another loan from Maybank in the
amount of P60,000.00 payable on March 11, 1984. Respondents failed to pay upon maturity.
Sometime in April 1998, a Final Demand Letter was sent by petitioner bank to respondents
requiring the latter to settle their loan obligation which already amounted to P564,679.91
inclusive of principal, interest, and penalty charges. The spouses offered to settle it in a lesser
amount to which the bank refused. On June 25, 1998, Maybank instituted an extrajudicial
foreclosure proceeding and the subject property was eventually sold in a public auction to
Philmay Property Inc. (PPI). The spouses then filed a complaint for declaration of nullity and
invalidity of the foreclosure sale averring among others that the second loan is an unsecured
loan and that, Maybank’s right to foreclose had already prescribed. The RTC as well as the CA
ruled that the prescriptive period should be reckoned from March 11, 1984 when the second
loan became due since the demand was not a condition precedent for the accrual of the bank’s
right to foreclose under the mortgage agreement.

Issue:

Whether petitioner bank’s right to foreclose is already barred by laches thereby


rendering the foreclosure sale invalid.

When should the right to foreclose by the petitioner bank be reckoned?

Ruling:

In the present case, both the CA and the RTC reckoned the accrual of Maybank’s cause
of action to foreclose the real estate mortgage over the subject property from the maturity of
the second loan on May 11, 1984. The CA further held that demand was unnecessary for the
accrual of the cause of action in light of paragraph 5 of the real estate mortgage, which
pertinently provides:

5. In the event that the Mortgagor herein should fail or refuse to pay any of the
sums of money secured by this mortgage, or any part thereof, in accordance
with the terms and conditions stipulated herein, then and in any such case, the
Mortgagee shall have the right, at its election to foreclose this mortgage. [xxx].

However, this provision merely articulated Maybank’s right to elect foreclosure upon
Sps. Tarrosa’s failure or refusal to comply with the obligation secured, which is one of the rights
duly accorded to mortgagees in a similar situation. In no way it affect the general parameters of
default, particularly the need of prior demand under Article 1169 of the Civil Code, considering
that it did not expressly declare: (a) that demand shall not be necessary in order that the
mortgagor may be in default; or (b) that default shall commence upon mere failure to pay on
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
maturity date of the loan. Hence, the CA erred in construing the above provision as one through
which the parties had dispensed with demand as a condition sine qua non for the accrual of
Maybank’s right to foreclose the real estate mortgage over the subject property, and thereby,
mistakenly reckoned such right from the maturity date of the loan on March 11, 1984. In the
absence of showing that demand is unnecessary for the loan obligation to become due and
demandable, Maybank’s right to foreclose the real estate mortgage accrued only after the lapse
of the period indicated in its final demand letter for Sps. Tarrosa to pay, i.e., after the lapse of
five (5) days from receipt of the final demand letter dated March 4, 1998,

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Philippine National Bank, Petitioner, vs. Spouses Hippocrates and Melanie Pimentel,
Respondents. (Gr. No. 187882, August 24, 2015)

PERALTA, J,:

Facts:

Respondent Spouses obtained a loan from Petitioner bank in the amount of


P7,440,000.00 secured by a real estate mortgage over their property. Respondents defaulted
thus the institution of the extrajudicial foreclosure proceedings wherein petitioner PNB was the
highest bidder. The one year redemption period expired on November 5, 1998 thus
consolidating title in the name of PNB. Respondent spouses refused to vacate the property
prompting PNB to file an ex-parte Petition for the Issuance of Writ of Possession in November
2001. Meanwhile, on March 9, 2001, respondents also filed a complaint for the Annulment of
Foreclosure of Mortgage with the RTC. The parties however amicably settled the case and
entered into a Compromise Agreement dated October 10, 2002 wherein it was agreed that
respondents are withdrawing their case against PNB and the parties executed a Deed of
Conditional Sale whereby the spouses repurchased the subject property for the consideration
of P7,500,000.00. After failure of the spouses to pay the amortizations stipulated in the
agreement, PNB cancelled the Deed of Conditional sale and subsequently applied for a writ of
possession with the RTC. Both RTC and CA denied the issuance of the writ.

Issue:

Whether the execution of the Deed of Conditional Sale after the Foreclosure Sale has
been consummated amounts to novation.

Ruling:

xxx it must be pointed out that this case does not involve the concept of novation,
which presupposes that the original contract is still valid and subsisting when another contract
supplanted the previous one. That is not the situation in this case. Once the mortgaged
property was sold at public auction and title to the property has passed and had been
consolidated in the name of the winning bidder, the duties and obligations of the parties under
the loan and mortgage contract had been fulfilled and the contact is extinguished. The original
loan and mortgage contract had been extinguished through payment or performance.

xxx the mortgagor-mortgagee regime, or the first contract, was extinguished and
terminated once the winning bidder at the public auction became the absolute owner of the
subject property. Thus, by the time PNB and respondents entered into the subsequent contract
of conditional sale, the mortgage contract was no longer existing.

xxx

Thus, at this point, where PNB is already the absolute owner of subject property and
entitled to its possession, it had all the right to dispose of subject property by entering into a
NEW contact of sale. This new contract is now an entirely distinct and separate one, considering
that, as discussed above, the mortgagor-mortgagee relationship between herein parties had
already been terminated and extinguished by the fulfillment of all the duties and obligations of

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
the parties under said mortgage contract. In fact, as such absolute owner, PNB could have
rightfully transacted the contract of sale with any party other than herein respondents.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Philippine National Bank, Petitioner, vs. Spouses Hippocrates and Melanie Pimentel,
Respondents. (Gr. No. 187882, August 24, 2015)

PERALTA, J,:

Facts:

Respondent Spouses obtained a loan from Petitioner bank in the amount of


P7,440,000.00 secured by a real estate mortgage over their property. Respondents defaulted
thus the institution of the extrajudicial foreclosure proceedings wherein petitioner PNB was the
highest bidder. The one year redemption period expired on November 5, 1998 thus
consolidating title in the name of PNB. Respondent spouses refused to vacate the property
prompting PNB to file an ex-parte Petition for the Issuance of Writ of Possession in November
2001. Meanwhile, on March 9, 2001, respondents also filed a complaint for the Annulment of
Foreclosure of Mortgage with the RTC. The parties however amicably settled the case and
entered into a Compromise Agreement dated October 10, 2002 wherein it was agreed that
respondents are withdrawing their case against PNB and the parties executed a Deed of
Conditional Sale whereby the spouses repurchased the subject property for the consideration
of P7,500,000.00. After failure of the spouses to pay the amortizations stipulated in the
agreement, PNB cancelled the Deed of Conditional sale and subsequently applied for a writ of
possession with the RTC. Both RTC and CA denied the issuance of the writ.

Issue:

May PNB still regain possession of the subject property by applying for a writ of
possession under Act no. 3135?

Ruling:

The Court answers in the negative.

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

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

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Metro Manila Transit Corporation, Petitioner, vs. Reynaldo Cuevas and Junnel Cuevas,
represented by Reynaldo Cuevas, Respondents. (Gr. No. 167797, June 15, 2015)

BERSAMIN, J.:

Facts:

In 1990, Metro Manila Transit Corporation (MMTC) and Mina’s Transit Corporation
(Mina’s Transit) entered into an agreement to sell whereby the latter bought several bus units
from the former at a stipulated price. They agreed that MMTC would retain the ownership of
the buses until certain conditions were met, but in the meantime, Mina’s Tansit could operate
the buses within Metro Manila. In 1994, one of the buses subject of the agreement to sell hit
and damaged a motorcycle owned by Reynaldo and driven by Junnel. Respondents herein sued
MMTC and Mina’s Transit for damages in the RTC of Cavite. RTC as well as the CA on appeal
ruled in favor of respondents holding MMTC and Mina’s Transit solidarily liable to the former.

Issue: Whether MMTC is liable for the injuries sustained by the respondents despite the
provision in the agreement to sell that shielded it from liability.

Ruling:

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

x xx It is well settled that in case of motor vehicle mishaps, the registered owner
of the motor vehicle is considered as the employer of the tortfeasor-driver, and is
made primarily liable for the tort committed by the latter under Article 2176, in relation
with Article 2180, of the Civil Code.

In Equitable Leasing Corporation v. Suyom, we ruled that in so far as third persons are
concerned, the registered owner of the motor vehicle is the employer of the negligent
driver, and the actual employer is considered merely as an agent of such owner.

xxx

In upholding the liability of Equitable, as registered owner of the tractor, this Court said
that "regardless of sales made of a motor vehicle, the registered owner is the lawful
operator insofar as the public and third persons are concerned; consequently, it is
directly and primarily responsible for the consequences of its operation." The Court
further stated that "[i]n contemplation of law, the owner/operator of record is the
employer of the driver, the actual operator and employer being considered as merely
its agent." Thus, Equitable, as the registered owner of the tractor, was considered
under the law on quasi delict to be the employer of the driver, Raul Tutor; Ecatine,
Tutor's actual employer, was deemed merely as an agent of Equitable.

Thus, it is clear that for the purpose of holding the registered owner of the motor
vehicle primarily and directly liable for damages under Article 2176, in relation with
Article 2180, of the Civil Code, the existence of an employer-employee relationship, as it

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
is understood in labor relations law, is not required. It is sufficient to establish that Filcar
is the registered owner of the motor vehicle causing damage in order that it may be held
vicariously liable under Article 2180 of the Civil Code. (Citations Omitted)

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

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Metro Manila Transit Corporation, Petitioner, vs. Reynaldo Cuevas and Junnel Cuevas,
represented by Reynaldo Cuevas, Respondents. (Gr. No. 167797, June 15, 2015)

BERSAMIN, J.:

Facts:

In 1990, Metro Manila Transit Corporation (MMTC) and Mina’s Transit Corporation
(Mina’s Transit) entered into an agreement to sell whereby the latter bought several bus units
from the former at a stipulated price. They agreed that MMTC would retain the ownership of
the buses until certain conditions were met, but in the meantime, Mina’s Tansit could operate
the buses within Metro Manila. In 1994, one of the buses subject of the agreement to sell hit
and damaged a motorcycle owned by Reynaldo and driven by Junnel. Respondents herein sued
MMTC and Mina’s Transit for damages in the RTC of Cavite. RTC as well as the CA on appeal
ruled in favor of respondents holding MMTC and Mina’s Transit solidarily liable to the former.
The RTC and the CA did not however rule on the crossclaim filed by MMTC against its co-
defendant Mina’s Transit.

Issue: Whether the MMTC is entitled to its crossclaim against Mina’s Transit despite the fact
that the RTC and CA did not act on the same.

Ruling: Yes, MMTC’s crossclaim should be granted.

According to Filcar Transport Services v. Espinas, MMTC could recover from Mina's
Transit, the actual employer of the negligent driver, under the principle of unjust enrichment,
by means of a cross-claim seeking reimbursement of all the amounts that it could be required
to pay as damages arising from the driver's negligence. A cross-claim is a claim by one party
against a co-party arising out of the transaction or occurrence that is the subject matter either
of the original action or of a counterclaim therein, and may include a claim that the party
against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim
asserted in the action against the cross-claimant.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
AnastacioTingalan, substituted by his heirs, namely: Romeo L. Tingalan, Elpedio L. Tingalan,
Johnny L. Tingalan and Laureta T. DelaCerna, Petitioners, vs. Spouses Ronaldo and Winona
Melliza, Respondents. (Gr. No. 195247, June 29, 2015)

VILLARAMA, JR., J.:

Facts:

A free patent was issued under the name of petitioner Anastacio on October 4, 1976. On
March 28, 1977, by virtue of a Deed of Absolute Sale, Anastacio sold the land to respondent
spouses Melliza in violation of the prohibition in Section 118 of the Public Land Act. Thereafter,
the spouses exercised acts of ownership towards the land. It was only 23 years later when one
Elena Tunanan filed an adverse claim over the subject property. Petitioner Anastacio countered
and demanded that respondent-spouses vacate the property but the latter refused. In 2001,
Anastacio filed an Action to Quiet Title and Recovery of Possession against Spouses Melliza and
Tunanan. The trial court as well as the Court of Appeals dismissed the case holding that it was
barred by laches due to the 24 year delay of petitioner Anastacio in filing the petition.

Issue:

Whether the Deed of Sale executed between petitioner Anastacio and respondent
spouses Melliza is valid.

Whether the institution of the action to annul the Deed of Sale has already been barred
by laches.

Ruling:

The contract of sale entered into between petitioner Anastacio and respondent-spouses
on March 28, 1977 is null and void from inception for being contrary to law and public policy. As
a void contract – it is imprescriptible and not susceptible of ratification.

The law is clear under Section 118 of the Public Land Act, as amended, that unless made
in favor of the government or any of its branches, units or institutions, lands acquired under
free patent or homestead provisions shall not be subject to any form of encumbrance for a
term of five years from and after the date of issuance of the patent or grant xxx

xxx

The foregoing provision of law unambiguously classifies the subject contract of sale
executed on March 28, 1977 as unlawful and null and void ab initio for being in violation of
Section 118, i.e., entered into within the five-year prohibitory period. This provision of law is
clear and explicit and a contract which purports to alienate, transfer, convey or encumber any
homestead within the prohibitory period is void from its execution. The Court has held in a
number of cases that such provision of law is mandatory with the purpose of promoting a
specific public policy to preserve and keep in the family of the patentee that portion of the
public land which the State has gratuitously given to them.

xxx

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
A void contract produces no legal effect whatsoever in accordance with the principle
“quod nullumestnullumproduciteffectum.” It could not transfer title to the subject property
and there could be no basis for the issuance of a title from petitioner Anastacio’s name to the
names of respondent-spouses. It is not susceptible of ratification and the action for the
declaration of its absolute nullity is imprescriptible. It was therefore error for both courts a
quo to rule that “[p]etitioner’s failure to act on such considerable time has already barred him
by estoppel and laches.”

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Allied Banking Corporation, Petitioner, vs. Jesus S. Yujuico (Deceased), represented by
Brendon V. Yujuico, Respondent. (Gr. No. 163116, June 29, 2015)

BERSAMIN, J.:

Facts:

In 1966, the board of directors of General Bank and Trust Company (Genbank) approved
a resolution granting Yujuico Logging & Trading Corporation (YLTC) an Omnibus Credit Line in
the amount of P800,000.00 to be made available by overdrafts, loans, and advances upon
condition that the principals of YLTC would personally bind themselves in a Continuing
Guarantee to secure payment of obligations drawn on said credit. In 1968, to secure punctual
payment at maturity of YLTC’s obligations, GregoriaParedes, Clarencio S. Yujuico, and herein
respondent Jesus S. Yujuico, principal stockholders of YLTC as sureties, executed a Continuing
Guarantee for the amount of P800,000.00 binding themselves in their personal capacities as
required by GenBank. Following the expiration of the said credit line, Genbank again passed a
board resolution granting YLTC a credit line of P1.5M which included the preceding P800,000.00
and again, said principals executed a Continuing Guarantee. YLTC’s credit line was renewed
successively for the following years. It was only in 1974 when Clarence S. Yujuico bound himself
to be the lone surety of the Continuing Guarantee to secure payment of another credit line in
the amount of P5M or up to statutory limits allowed by law, whichever is higher. As successor-
in-interst of Genbank, Allied Banking Corporation sought to collect the amount covered by the
promissory notes. YLTC failed to pay thus a collection suit was filed in court. The trial court as
well as the CA dismissed the complaint against Jesus on the ground that a revocation letter
purportedly made and authorized to be written under instruction of Jesus had released him
from his obligation as surety.

Issue:

1. What is the undertaking taken by Jesus as principal stockholder of YLTC to cover the
credit lines granted by Genbank?
2. In reference to the first question, what then would be the liability of Jesus to Genbak?

Ruling:

1. The undertaking of Jesus was that of a surety, not a guarantor

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

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


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

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
undertaking to pay the debt of another in case the latter does not pay the debt.

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

Simply put, a surety is distinguished from a guaranty in that a guarantor is the


insurer of the solvency of the debtor and thus binds himself to pay if the principal
is unable to pay while a surety is the insurer of the debt, and he obligates himself to
pay if the principal does not pay.

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

2. Jesus was no longer liable as a surety due to the non-renewal of the continuing
guaranties

Be that as it may, the continuing guaranties could not answer for the promissory notes
amounting to P6,020,184.90 that the petitioner sought to judicially recover from Jesus as surety.

The courts below found and declared that the continuing guaranties of February 8, 1966 and
February 22, 1967 were not renewed after the expiration of the credit line.The petitioner did
not establish that another suretyship by Jesus ensured the payment of the credit line issued on
April 4, 1968 upon the expiration of the credit line for 1967. What was shown instead is that on
February 6, 1974, or about seven years afterthe expiration of the continuing guaranty of
February 22, 1967, it was Clarencio who executed a continuing guaranty for P5,000,000.00.
Since Genbank accepted the promissory note of P5,200,000.00 on April 30, 1975,26 the
continuing guaranty that Clarencio executed about two months earlier covered that amount.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Swire Realty Development Corporation, Petitioner, vs. Jayne Yu, Respondent. (Gr. No. 207133,
March 9, 2015)

PERALTA, J,:

Facts:

A contract to sell covering one residential condominium unit of the Palace of Makati,
was entered into by petitioner and respondent on July 25, 1995 for a contact price of
P7,519,371.80 which has been fully paid by the latter on September 24, 1997. Notwithstanding
full payment of the contract price, petitioner failed to complete and deliver the subject unit on
time thereby prompting respondent to file a Complaint for Rescission of Contract with Damages
before the HLURB Expanded National Capital Region Field Office (ENCRFO) which dismissed the
complaint. Upon elevation, the HLURB Board of Commissioners reversed and set aside the
HLURB ENCRFO decision and ordered the rescission of the Contract to Sell. Aggrieved, the case
was elevated to the Office of the President until it reached the CA and SC.

Issue: Whether the rescission of the Contract to Sell is proper.

Ruling: Yes, the rescission is proper.

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

In the instant case, the CA aptly found that the completion date of the condominium unit was
November 1998 pursuant to License No. 97-12-3202 dated November 2, 1997 but was
extended to December 1999 as per License to Sell No. 99-05-3401 dated May 8, 1999. However,
at the time of the ocular inspection conducted by the HLURB ENCRFO, the unit was not yet
completely finished as the kitchen cabinets and fixtures were not yet installed and the agreed
amenities were not yet available.

xxx

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

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Spouses Chin Kong Wong Choi and Ana O. Chua, Petitioners, vs. United Coconut Planters Bank,
Respondents. (Gr. No. 207747, March 11, 2015)

CARPIO, J.:

Facts:

A Contract to Sell involving a condominium unit in Kiener Hills Cebu and in the amount
of P1,151,718.75, was entered into by petitioner spouses and Primetown Property Group, Inc.
(Primetown). A down payment of P100,000.00 was given by petitioners while the remaining
balance became payable in 40 equal monthly installments of P26,292.97 from January 16, 1997
to April 16, 2000. In the meantime, on April 23, 1998, a Memorandum of Agreement and Sale of
Receivables and Assignment of Rights and Interests were executed by and between respondent
UCPB and Primetown. The agreement, among others, stipulate that in consideration of
P748,000,000.00, Primetown assigns, transfers, conveys, and sets over unto UCPB all accounts
Receivables accruing from Primetown’sKiener together with the assignment of all its rights,
titles, interests and participation over the units covered by or arising from the Contracts to Sell
from which the receivables have arisen. In 2006, a complaint for refund with interest and
damages against Primetown and UCPB was instituted by petitioners for failure of Primetown to
finish the construction and to deliver the subject condominium unit despite full payment of
contract price.

Issue: Whether, under the Memorandum of Agreement between Primetown and UCPB, UCPB
assumed the liabilities and obligations of Primetown under its contract to sell with Spouses Choi.

Ruling: The Court held in the negative.

The Agreement conveys the straightforward intention of Primetown to “sell, assign,


transfer, convey and set over” to UCPB the receivables, rights, titles, interests and
participation over the units covered by the contracts to sell. It explicitly excluded any and all
liabilities and obligations, which Primetown assumed under the contracts to sell. The intention
to exclude Primetown’s liabilities and obligations is further shown by Primetown’s subsequent
letters to the buyers, which stated that “this payment arrangement shall in no way cause any
amendment of the other terms and conditions, nor the cancellation of the Contract to Sell you
have executed with [Primetown].” It is a basic rule that if the terms of a contract are clear and
leave no doubt upon the intention of the parties, the literal meaning shall control. The words
should be construed according to their ordinary meaning, unless something in the assignment
indicates that they are being used in a special sense. Furthermore, in order to judge the
intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered.

The intention to merely assign the receivables and rights of Primetown to UCPB is even
bolstered by the CA decisions in the cases of UCPB v. O’Halloran and UCPB v. Ho.

xxx

Considering that UCPB is a mere assignee of the rights and receivables under the Agreement,
UCPB did not assume the obligations and liabilities of Primetown under its contract to sell with
Spouses Choi.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Spouses Chin Kong Wong Choi and Ana O. Chua, Petitioners, vs. United Coconut Planters Bank,
Respondents. (Gr. No. 207747, March 11, 2015)

CARPIO, J.:

Facts:

A Contract to Sell involving a condominium unit in Kiener Hills Cebu and in the amount
of P1,151,718.75, was entered into by petitioner spouses and Primetown Property Group, Inc.
(Primetown). A down payment of P100,000.00 was given by petitioners while the remaining
balance became payable in 40 equal monthly instalments of P26,292.97 from January 16, 1997
to April 16, 2000. In the meantime, on April 23, 1998, a Memorandum of Agreement and Sale of
Receivables and Assignment of Rights and Interests were executed by and between respondent
UCPB and Primetown. The agreement, among others, stipulate that in consideration of
P748,000,000.00, Primetown assigns, transfers, conveys, and sets over unto UCPB all Accounts
Receivables accruing from Primetown’sKiener together with the assignment of all its rights,
titles, interests and participation over the units covered by or arising from the Contracts to Sell
from which the receivables have arisen. In 2006, a complaint for refund with interest and
damages against Primetown and UCPB was instituted by petitioners for failure of Primetown to
finish the construction and to deliver the subject condominium unit despite full payment of
contract price. The HLURB RFO VI held that both UCPB and Primetown were liable to Spouses
Choi. Upon appeal to the HLURB Board of Commissioners, the same held that UCPB was the
legal successor-in-interest of Primetown against whom the Spouses’ action for refund could be
enforced. The Office of the President likewise ruled that UCPB was jointly and severally liable
with Primetown. The CA reversed the OP’s decision and reinstated HLURB RFO reinstated in
another aspect.

Issue:Whether respondent UCPB is solidarily liable with Primetown.

Ruling: The Court held in the negative.

As for UCPB’s alleged solidary liability, we do not find any merit in the claim of Spouses
Choi that Luzon Development Bank v. Enriquez and Philippine Bank of Communications v.
Pridisons Realty Corporationapply to the present case. Both cases involved the failure to
comply with Sections 17, 18 and 25 of Presidential Decree No. 957, which made the banks in
those cases solidarily liable. A solidary obligation cannot be inferred lightly, but exists only
when expressly stated, or the law or nature of the obligation requires it.

Since there is no other ground to hold UCPB solidarily liable with Primetown and there is no
reason to depart from the ratio decidendi in UCPB v. Ho, UCPB is only liable to refund Spouses
Choi the amount it indisputably received, which is P26,292.97 based on the evidence presented
by Spouses Choi.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Comglasco Corporation/Aguila Glass, Petitioner, vs. Santos Car Check Center Corporation,
Respondents. (Gr. No. 202989, March 25, 2015)

REYES, J.:

Facts:

A Contract of Lease was entered into by petitioner Comglasco (lessee) and respondent
Santos Car Check Center (lessor) on August 16, 2000. It was stipulated on the contract that for a
period of five years, petitioner will be occupying a showroom owned by respondent located at
75 Delgado Street, Iloilo City. However, the following year, petitioner pre-terminated the
contract on the basis of the 1997 Asian financial crisis. Santos refused to accede to such pre-
termination and sent several demand letters which Comglasco ignored. This prompted
respondent to file a suit for breach of contract. The RTC decided in favour of Santos which the
CA affirmed on appeal.

Issue: Whether petitioner Comglasco is justified in pre-terminating the lease contract on the
basis of the cause cited in his pleadings.

Ruling: No, petitioner is not justified in pre-terminating the lease contract.

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

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Comglasco Corporation/Aguila Glass, Petitioner, vs. Santos Car Check Center Corporation,
Respondents. (Gr. No. 202989, March 25, 2015)

REYES, J.:

Facts:

A Contract of Lease was entered into by petitioner Comglasco (lessee) and respondent
Santos Car Check Center (lessor) on August 16, 2000. It was stipulated on the contract that for a
period of five years, petitioner will be occupying a showroom owned by respondent located at
75 Delgado Street, Iloilo City. However, the following year, petitioner pre-terminated the
contract on the basis of the 1997 Asian financial crisis. Santos refused to accede to such pre-
termination and sent several demand letters which Comglasco ignored. This prompted
respondent to file a suit for breach of contract. The RTC decided in favour of Santos in which
one of the damages awarded is attorney’s fees in the amount of P200,000.00. On appeal, the
CA affirmed the trial court’s ruling but reduced the award of attorney’s fees to P100,000.00.

Issue: Whether the award of attorney’s fee may be granted.

Ruling: Yes, the award of attorney’s fee may be granted.

Finally, as to whether attorney’s fees may be recovered by Santos, Article 2208(2) of the
Civil Code justifies the award thereof, in the absence of stipulation, where the defendant’s act
or omission has compelled the plaintiff to incur expenses to protect his interest. The pre-
termination of the lease by Comglasco was not due to any fault of Santos, and Comglasco
completely ignored all four demands of Santos to pay the rentals due from January 16, 2002 to
August 15, 2003, thereby compelling Santos to sue to obtain relief. It is true that the policy of
the Court is that no premium should be placed on the right to litigate, but it is also true that
attorney’s fees are in the nature of actual damages, the reason being that litigation costs
money. But the Court agrees with the CA that the lesser amount of P100,000.00 it awarded to
Santos instead of P200,000.00 adjudged by the RTC, is more reasonable.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
New World Developers and Management, Inc. Petitioner, vs. Ama Computer Learning Center,
Inc., Respondent. (Gr. Nos. 187930/188250, February 23, 2015)

SERENO, J.:

Facts:

Petitioner New World (lessor) and respondent AMA (lessee) entered into a Contract of
Lease in 1998 for a period of eight years. It was stipulated that AMA may pre-terminate the
contract by sending notice in writing to New World at least six months before the intended
date. In such case, AMA shall be liable for liquidated damages in an amount equivalent to six
months of the prevailing rent. AMA paid New World the amount of P450,000.00 as advance
rental and another P450,000.00 as security deposit. On three separate occasions starting 2002,
AMA had requested for the deferment and adjustment of the annual increase in the monthly
rent on the ground of financial constraints due to decrease of enrolment to which, New World
acceded. However, on the evening of July 6, 2004, AMA removed all its office equipment and
furniture from the leased premises. On the following day, New World received a letter from
AMA informing the former that the latter is pre-terminating the lease effective immediately.
New World replied with a letter to which a Statement of Account was attached. Despite the
meetings conducted, the parties failed to arrive at a settlement thus prompting New World to
file a suit for a sum of money and damages against AMA.

Issue: Whether the stipulation on the Contract of Lease stating that “in case of pre-termination,
AMA shall notify New World in writing at least six months before the intended date,” makes
AMA liable for liquidated damages and if so, what is the basis thereof?

Ruling: AMA is liable for six months’ worth of rent as liquidated damages.

Item No. 14 of the Contract of Lease states:

That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at
least six (6) months before the intended date of pretermination, provided, however, that in
such case, [AMA] shall be liable to [New World] for an amount equivalent to six (6) months
current rental as liquidated damages;

Quite notable is the fact that AMA never denied its liability for the payment of liquidated
damages in view of its pretermination of the lease contract with New World. What it claims,
however, is that it is entitled to the reduction of the amount due to the serious business losses
it suffered as a result of a drastic decrease in its enrollment.

This Court is, first and foremost, one of law. While we are also a court of equity, we do not
employ equitable principles when well-established doctrines and positive provisions of the law
clearly apply.

The law does not relieve a party from the consequences of a contract it entered into with all
the required formalities. Courts have no power to ease the burden of obligations voluntarily
assumed by parties, just because things did not turn out as expected at the inception of the
contract. It must also be emphasized that AMA is an entity that has had significant business
experience, and is not a mere babe in the woods.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Articles 1159 and 1306 of the Civil Code state:

Art. 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.

x xxx

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.

The fundamental rule is that a contract is the law between the parties. Unless it has been
shown that its provisions are wholly or in part contrary to law, morals, good customs, public
order, or public policy, the contract will be strictly enforced by the courts.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
New World Developers and Management, Inc. Petitioner, vs. Ama Computer Learning Center,
Inc., Respondent. (Gr. Nos. 187930/188250, February 23, 2015)

SERENO, J.:

Facts:

Petitioner New World (lessor) and respondent AMA (lessee) entered into a Contract of
Lease in 1998 for a period of eight years. It was stipulated that AMA may pre-terminate the
contract by sending notice in writing to New World at least six months before the intended
date. In such case, AMA shall be liable for liquidated damages in an amount equivalent to six
months of the prevailing rent. AMA paid New World the amount of P450,000.00 as advance
rental and another P450,000.00 as security deposit. On three separate occasions starting 2002,
AMA had requested for the deferment and adjustment of the annual increase in the monthly
rent on the ground of financial constraints due to decrease of enrolment to which, New World
acceded. However, on the evening of July 6, 2004, AMA removed all its office equipment and
furniture from the leased premises. On the following day, New World received a letter from
AMA informing the former that the latter is pre-terminating the lease effective immediately.
New World replied with a letter to which a Statement of Account was attached. Despite the
meetings conducted, the parties failed to arrive at a settlement thus prompting New World to
file a suit for a sum of money and damages against AMA.

Issue:

1. Whether AMA may invoke the provisions of Article 2227 of the Civil Code in view of the
fact that it had pre-terminated the contract due to serious business losses and the Court
should take this fact in consideration in deciding the case.
2. Whether the award of exemplary damages is warranted.

Ruling: The Court is not persuaded.

1. In Ligutan v. CA, we held that the resolution of the question of whether a penalty is
reasonable, or iniquitous or unconscionable would depend on factors including but not limited
to the type, extent and purpose of the penalty; the nature of the obligation; the mode of the
breach and its consequences; the supervening realities; and the standing and relationship of
the parties. The appreciation of these factors is essentially addressed to the sound discretion of
the court.

It is quite easy to understand the reason why a lessor would impose liquidated damages in the
event of the pretermination of a lease contract. Pretermination is effectively the breach of a
contract, that was originally intended to cover an agreed upon period of time. A definite period
assures the lessor a steady income for the duration. A pretermination would suddenly cut short
what would otherwise have been a longer profitable relationship. Along the way, the lessor is
bound to incur losses until it is able to find a new lessee, and it is this loss of income that is
sought to be compensated by the payment of liquidated damages.

xxx

We cannot understand the inability of AMA to be forthright with New World, considering that
the former had been transparent about its business losses in its previous requests for the
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
reduction of the monthly rental. The drastic decrease in AMA’s enrollment had been unfolding
since 2002. Thus, it cannot be said that the business losses had taken it by surprise. It is also
highly unlikely that the decision to preterminate the lease contract was made at the last minute.
The cancellation of classes, the transfer of students, and administrative preparations for the
closure of the computer learning center and the removal of office equipment therefrom should
take at least weeks, if not months, of logistic planning. Had AMA come clean about the
impending pretermination, measures beneficial to both parties could have been arrived at, and
the instant cases would not have reached this Court. Instead, AMA forced New World to share
in the former’s losses, causing the latter to scramble for new lessees while the premises
remained untenanted and unproductive.

We cannot abide by the prayer for the further reduction of the liquidated damages. We find
that, in view of the surrounding circumstances, the CA even erred in reducing the liquidated
damages to four month’s worth of rent. Under the terms of the contract, and in light of the
failure of AMA to show that it is deserving of this Court’s indulgence, the payment of liquidated
damages in an amount equivalent to six months’ rent is proper.

2. In this case, it is quite clear that New World sustained losses as a result of the unwarranted
acts of AMA. Further, were it not for the stipulation in the contract regarding the payment of
liquidated damages, we would be awarding compensatory damages to New World.

"Exemplary damages are designed by our civil law to permit the courts to reshape behaviour
that is socially deleterious in its consequence by creating negative incentives or deterrents
against such behaviour."As such, they may be awarded even when not pleaded or prayed for. In
order to prevent the commission of a similar act in the future, AMA shall pay New World
exemplary damages in the amount of P100,000.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
New World Developers and Management, Inc. Petitioner, vs. Ama Computer Learning Center,
Inc., Respondent. (Gr. Nos. 187930/188250, February 23, 2015)

SERENO, J.:

Facts:

Petitioner New World (lessor) and respondent AMA (lessee) entered into a Contract of
Lease in 1998 for a period of eight years. It was stipulated that AMA may pre-terminate the
contract by sending notice in writing to New World at least six months before the intended
date. In such case, AMA shall be liable for liquidated damages in an amount equivalent to six
months of the prevailing rent. AMA paid New World the amount of P450,000.00 as advance
rental and another P450,000.00 as security deposit. On three separate occasions starting 2002,
AMA had requested for the deferment and adjustment of the annual increase in the monthly
rent on the ground of financial constraints due to decrease of enrolment to which, New World
acceded. However, on the evening of July 6, 2004, AMA removed all its office equipment and
furniture from the leased premises. On the following day, New World received a letter from
AMA informing the former that the latter is pre-terminating the lease effective immediately.
New World replied with a letter to which a Statement of Account was attached. Despite the
meetings conducted, the parties failed to arrive at a settlement thus prompting New World to
file a suit for a sum of money and damages against AMA.

When the case reached the CA, AMA assailed its decision on the imposition of legal
interest on the rent in arrears. AMA argues that the advance rental has extinguished its
obligation as to the arrears. Thus, there is no more basis for the imposition of interest at the
rate of 6% per annum from the date of extrajudicial demand on July 12, 2004 until finality of
the decision, plus interest at the rate of 12% per annum from finality until full payment.

Issue: Whether AMA remained liable for the rental arrears.

Ruling: AMA’s liability for rental arrears has already been extinguished.

At this juncture, it is necessary to look into the contract to determine the purpose of the
advance rental and security deposit.

xxx

Based on Item No. 4, the security deposit was paid precisely to answer for unpaid rentals that
may be incurred by AMA while the contract was in force. The security deposit was held in trust
by New World, and whatever may have been left of it after the termination of the lease shall be
refunded to AMA.

Based on Item No. 3 in relation to Item No. 2, the parties divided the advance rental
of P450,000 by 12 months. They came up with P37,500, which they intended to deduct from
the monthly rental to be paid by AMA for the last year of the lease term. Thus, unlike the
security deposit, no part of the advance rental was ever meant to be refunded to AMA. Instead,
the parties intended to apply the advance rental, on a staggered basis, to a portion of the
monthly rental in the last year of the lease term.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Considering the pretermination of the lease contract in the present case, this intent of the
parties as regards the advance rental failed to take effect. The advance rental, however, retains
its purpose of answering for the outstanding amounts that AMA may owe New World.

At the time of the pretermination of the contract of lease, the monthly rent stood at P233,310,
inclusive of taxes; hence, the two-month rental arrears in the amount of P466,620.

Applying the security deposit of P450,000 to the arrears will leave a balance of P16,620 in New
World’s favor.1âwphi1Given that we have found AMA liable for liquidated damages equivalent
to six months’ rent in the amount ofP1,399,860 (monthly rent of P233,310 multiplied by 6
months), its total liability to New World is P1,416,480.

We then apply the advance rental of P450,000 to this amount to arrive at a total
extinguishment of the liability for the unpaid rentals and a partial extinguishment of the liability
for liquidated damages. This shall leave AMA still liable to New World in the amount
of P966,480 (P1,416,480 total liability less P450,000 advance rental).

Not constituting a forbearance of money, this amount shall earn interest pursuant to Item
II(2) of our pronouncement in Eastern Shipping Lines v. CA. This item remained unchanged by
the modification made in Nacar v. Gallery Frames. Interest at the rate of 6% per annum is
hereby imposed on the amount of 966,480 from the time of extrajudicial demand on 12 July
2004 until the finality of this Decision.

Thereafter – this time pursuant to the modification in Nacar– the amount due shall earn
interest at the rate of 6% per annum until satisfaction, this interim period being deemed to be
by then equivalent to a forbearance of credit.

Considering the foregoing, there was no occasion for the unpaid two months’ rental to earn
interest. Besides, we cannot sanction the imposition of 3% monthly penalty interest thereon.
xxx

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Bliss Development Corp./Home Guaranty Corporation, Petitioner, vs. Montano Diaz,
Domingo Tapay, and Edgar H. Arreza, Respondents. (Gr. No. 213233, August 5, 2015)

VELASCO, JR., J.:

Facts:

Petitioner Bliss Development Corp. (later reorganized as Home Guaranty Corporation) is


the registered owner of a lot in Bgy. MatandangBalara, Diliman, Quezon City. On October 19,
1984, it entered into and executed a Deed of Sale over said property in favour of Spouses
Melgazo. On May 1991, a certain Rodolfo Nacua sent a letter to BDC informing the latter that
Spouses Melgazo transferred to him the rights over the property and that he is willing to pay
the outstanding obligations of the spouses to BDC. Before having fully paid however, Nacua
sold his rights to Olivia Garcia. Garcia then transferred her rights to Elizabeth Reyes. Reyes
transferred her rights to Domingo Tapay, who then later sold his rights to respondent Montano
Diaz. Diaz paid BDC the amortization and the latter issued a permit for him to occupy the
property. In 1992, BDC executed a Contract to Sell in favour of Diaz. In 1994 however, BDC
informed Diaz that respondent Edgar Arreza was claiming that the heirs of spouses Melgazo
sold to him the rights over the property.

BDC filed before the RTC a complaint for interpleader in which it was ruled that Arreza
has a better right over the property because the signatures of spouses Melgazo transferring
rights to Diaz had been forged. The decision became final and executory.In 1996, Diaz filed a
complaint for sum of money against BDC which was later amended to include Arreza and Tapay
as defendants. The complaint was dismissed on the ground that Diaz failed to prove that he is
an assignee in good faith. On appeal, the CA reversed the trial court and ruled that Diaz is a
buyer and builder in good faith thus entitled to reimbursement and damages.

Issue: Whether respondent Diaz is a purchaser for value and in good faith.

Ruling: Respondent Diaz is not a purchaser for value and in good faith.

In a long line of cases, this Court had ruled that a purchaser in good faith and for value is
one who buys property of another without notice that some other person has a right to, or
interest in, such property and pays full and fair price for the same at the time of such purchase
or before he or she has notice of the claim or interest of some other person in the property.For
one to be considered a purchaser in good faith, the following requisites must concur: (1) that
the purchaser buys the property of another without notice that some other person has a right
to or interest in such property; and (2) that the purchaser pays a full and fair price for the
property at the time of such purchase or before he or she has notice of the claim of another.We
find that in the case at bar, the first element is lacking.

The CA, in disposing the issue of Diaz’s good faith, merely said that “considering that the
property involved is registered land, Diaz need not go beyond the title to be considered a buyer
in good faith.”We find this to be a serious and reversible error on the part of the CA. In the first
place, while it is true that the subject lot is registered lot, the doctrine of not going beyond the
face of the title does not apply in the case here, because what was subjected to a series of sales
was not the lot itself but the right to purchase the lot from BDC. The CA itself observed: “while
[BDC] executed a Deed of Sale with Mortgage in favor of the spouses Emiliano and
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
LeonilaMelgazo, title over the property was in [BDC’s] name. The title remained in [BDC’s]
name when Tapay offered to transfer his rights over the property to Diaz.”Notably, the several
transfers themselves did not purport to be Deeds of Absolute Sale, but merely deeds of
assignment of rights. The subject of those deeds of assignment was never the real right over
the subject property, but merely the personal right to purchase it. Therefore, the mirror
doctrine finds no application in the case at bar.

A careful review of the records of this case reveals that Diaz, in fact, failed to diligently inquire
into the title of his predecessor before entering into the contract of sale. As such, he cannot be
considered a buyer in good faith. xxx

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Bliss Development Corp./Home Guaranty Corporation, Petitioner, vs. Montano Diaz,
Domingo Tapay, and Edgar H. Arreza, Respondents. (Gr. No. 213233, August 5, 2015)

VELASCO, JR., J.:

Facts:

Petitioner Bliss Development Corp. (later reorganized as Home Guaranty Corporation) is


the registered owner of a lot in Bgy. Matandang Balata, Diliman, Quezon City. On October 19,
1984, it entered into and executed a Deed of Sale over said property in favour of Spouses
Melgazo. On May 1991, a certain Rodolfo Nacua sent a letter to BDC informing the latter that
Spouses Melgazo transferred to him the rights over the property and that he is willing to pay
the outstanding obligations of the spouses to BDC. Before having fully paid however, Nacua
sold his rights to Olivia Garcia. Garcia then transferred her rights to Elizabeth Reyes. Reyes
transferred her rights to Domingo Tapay, who then later sold his rights to respondent Montano
Diaz. Diaz paid BDC the amortization and the latter issued a permit for him to occupy the
property. In 1992, DBC executed a Contract to Sell in favour of Diaz. In 1994 however, BDC
informed Diaz that respondent Edgar Arreza was claiming that the heirs of spouses Melgazo
sold to him the rights over the property.

BDC filed before the RTC a complaint for interpleader in which it was ruled that Arreza
has a better right over the property because the signatures of spouses Melgazo transferring
rights to Diaz had been forged. The decision became final and executory. In 1996, Diaz filed a
complaint for sum of money against BDC which was later amended to include Arreza and Tapay
as defendants. The complaint was dismissed on the ground that Diaz failed to prove that he is
an assignee in good faith. On appeal, the CA reversed the trial court and ruled that Diaz is a
buyer and builder in good faith thus entitled to reimbursement and damages. The CA also
awarded moral damages, exemplary damages, and attorney’s fees to Diaz.

Upon elevation of the case to the Supreme Court, it was found out that both BDC and
Diaz acted in bad faith in entering the Contract to Sell.

Issue: Whether the award of moral damages, exemplary damages, and attorney’s fees are
justified.

Ruling:

Nevertheless, because the law treats both parties as if they acted in good faith, the
CA committed reversible error in awarding moral and exemplary damages, there being no basis
therefor. We find it proper to delete the award of P100,000.00 as moral damages, P50,000.00
as exemplary damages, and P25,000.00 as attorney’s fees.

In sum, the CA correctly reversed the ruling of the RTC, and ordered BDC to pay Diaz
the amount he paid as amortizations, as well as the value of the improvements that he
introduced on the subject property. However, because both parties acted in bad faith, there is
no basis for the award of moral and exemplary damages, as well as attorney’s fees.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Cebu State College of Science and Technology (CSCST), represented by its incumbent
President, Petitioner, vs. Luis S. Misterio, Gabriel S. Misterio, Francis S. Misterio, Thelma S.
Misterio, and Estela S. Misterio-Tagimacruz, Respondents. (Gr. No. 179025, June 17, 2015)

PERALTA, J.:

Facts:

In 1956, the late Asuncion Sadaya, mother of herein respondents, executed a Deed of
Sale covering a parcel of land denominated as Lot 1064 located at Lahug, Cebu City, in favour of
Sudlon Agricultural High School (SAHS). The sale was subject to the right of the vendor to
repurchase the property after SAHS shall have ceased to exist, or shall have transferred its
school site elsewhere. In 1957, a new transfer certificate of title was issued in the name of SAHS.
In 1983, Batas PambansaBlg. 412 took effect which basically incorporates and consolidates
several schools in the Province of Cebu including that of SAHS. Before such, a donation of
parcels of land was made by the Province of Cebu in favour of SAHS but which was later on
revoked after the passage of said law since it was found out that SAHS has no more personality
to accept the donation rendering it void.In 1990, respondents herein informed petitioner of
their intention to repurchase the property on the ground that SAHS had ceased to exist which
was rebutted by petitioner. In 1993, respondents filed a complaint for Nullity of Sale and/or
Redemption against CSCST before the RTC which the latter granted. Petitioner appealed but
during the pendency thereof, respondents filed a Manifestation and Motion for Injunction
amending their complaint and cause of action to include petitioner’s intent to abandon the
subject property. In 1997, petitioner ceded the subject property to the Province of Cebu. In
2000, the CA reversed the decision of the RTC holding that while it agrees with the trial court
that SAHS ceased to exist when BP 412 took effect, respondents are nevertheless barred by
prescription from exercising their right to repurchase.

Issue: Whether respondent heirs’ right to repurchase as vendors a retro can still be exercised.

Ruling: No, the respondent can no longer repurchase the subject property as they are now
barred by prescription.

xxxArticle 1606 expressly provides that in the absence of an agreement as to the period
within which the vendor a retro may exercise his right to repurchase, the same must be done
within four (4) years from the execution of the contract. In the event the contract specifies a
period, the same cannot exceed ten (10) years. Thus, whether it be for a period of four (4) or
ten (10) years, this Court consistently implements the law and limits the period within which
the right to repurchase may be exercised, adamantly striking down as illicit stipulations
providing for an unlimited right to repurchase. Indubitably, it would be rather absurd to permit
respondents to repurchase the subject property upon the occurrence of the second suspensive
condition, particularly, the relocation of SAHS on October 3, 1997, the time when petitioner
ceded the property to the Province of Cebu, which is nearly forty-one (41) years after the
execution of the Deed of Sale on December 31, 1956. This Court must, therefore, place it upon
itself to suppress these kinds of attempts in keeping with the fundamentally accepted principles
of law.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
George C. Fong, Petitioner, vs. Jose V. Duenas, Respondent. (Gr. No. 185592, June 15, 2015)

BRION, J.:

Facts:

Sometime in November 1996, petitioner and respondent entered into a verbal joint
venture agreement where they agreed to engage in food business and to incorporate a holding
company under the name Alliance Holding, Inc. Its capitalization would be P65 Million to which
they would contribute in equal parts. The parties agreed that Fong would contribute P32.5
Million in cash while Duenas would contribute all his share in Danton and Bakcom (his food
manufacturing and retailing company) which he valued at P32.5 Million. Fong required Duenas
to submit the financial documents supporting the valuation of these shares. In 1997, Fong sent
Duenas a letter informing him that he is limiting his total contribution to P5 Million because of
certain personal factors. After sometime, Duenas still failed to show the financial documents on
the valuation of Danton and Bakcom. He also failed to incorporate and register Alliance with
the SEC thus prompting Fong to cancel the joint venture and to request for the refund of the P5
Million. Demands to have the P5 Million refunded proved futile which led to the institution of
complaint for collection of sum of money by Fong. The RTC decided in favour of Fong which was
reversed on appeal by the CA because according to the latter, the 1997 letter of Fong
evidenced his intention to convert his cash contributions from advances to mere investments. It
is therefore, according to the CA, right for Duenas to apply the P5 Million on Bakcom and
Danton which would eventually form part of the Alliance.

Issue:

1. Whether the case is an action for rescission or a collection for sum of money.
2. Whether rescission under Article 1191 is applicable in the present case.

Ruling:

1. The case is an action for rescission.

An examination of Fong’s complaint shows that although it was labeled as an action for a sum
of money and damages, it was actually a complaint for rescission. The following allegations in
the complaint support this finding:

9. Notwithstanding the aforesaid remittances, defendant failed for an unreasonable length of


time to submit a valuation of the equipment of D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff, defendant failed to accomplish the
organization and incorporation of the proposed holding company, contrary to his
representation to promptly do so.
x xxx
17. Considering that the incorporation of the proposed holding company failed to materialize,
despite the lapse of one year and four months from the time of subscription, plaintiff has
the right to revoke his pre-incorporation subscription. Such revocation entitles plaintiff to
a refund of the amount of P5,000,000.00 he remitted to defendant, representing advances
made in favor of defendant to be considered as payment on plaintiff’s subscription to the

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
proposed holding company upon its incorporation, plus interest from receipt by defendant of
said amount until fully paid. [Emphasis supplied.]

Fong’s allegations primarily pertained to his cancellation of their verbal agreement


because Dueñas failed to perform his obligations to provide verifiable documents on the
valuation of the Danton’s and Bakcom’s shares, and to incorporate the proposed
corporation. These allegations clearly show that what Fong sought was the joint venture
agreement’s rescission.

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


fails to do what he has obligated himself to perform. It aims to address the breach of faith and
the violation of reciprocity between two parties in a contract. Under Article 1191 of the Civil
Code, the right of rescission is inherent in reciprocal obligations, viz:

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. [Emphasis supplied.]

xxxDueñas failed to appreciate that the ultimate effect of rescission is to restore the parties to
their original status before they entered in a contract. As the Court ruled in Unlad Resources v.
Dragon:

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

2. Rescission under Article 1191 is applicable in the present case.

Reciprocal obligations are those which arise from the same cause, in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent on the
obligation of the other.

Fong and Dueñas’ execution of a joint venture agreement created between them reciprocal
obligations that must be performed in order to fully consummate the contract and achieve the
purpose for which it was entered into.

xxx Aside from unilaterally applying Fong’s contributions to his two companies, Dueñas also
failed to deliver the valuation documents of the Danton and Bakcom shares to prove that the
combined values of their capital contributions actually amounted to P32.5 Million.

xxx

However, the Court notes that Fong also breached his obligation in the joint venture agreement.

Fong’s diminution of his capital share to P5 Million also amounted to a substantial breach of the
joint venture agreement, which breach occurred before Fong decided to rescind his agreement

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
with Dueñas. Thus, Fong also contributed to the non-incorporation of Alliance that needed P65
Million as capital to operate.

Fong cannot entirely blame Dueñas since the substantial reduction of his capital contribution
also greatly impeded the implementation of their agreement to engage in the food business
and to incorporate a holding company for it.

As both parties failed to comply with their respective reciprocal obligations, we apply Article
1192 of the Civil Code, which provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the
first infractor shall be equitably tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed extinguished, and each shall bear
his own damages. [Emphasis supplied.]

xxx

As the Court cannot precisely determine who between the parties first violated the agreement,
we apply the second part of Article 1192 which states: “if it cannot be determined which of the
parties first violated the contract, the same shall be deemed extinguished, and each shall bear
his own damages.”

In these lights, the Court holds that the joint venture agreement between Fong and Dueñas
is deemed extinguished through rescission under Article 1192 in relation with Article 1191 of
the Civil Code. Dueñas must therefore return the P5 Million that Fong initially contributed since
rescission requires mutual restitution.After rescission, the parties must go back to their original
status before they entered into the agreement. Dueñas cannot keep Fong’s contribution as this
would constitute unjust enrichment.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Spouses Crispin Aquino and Teresa V.Aquino, herein represented by their Attorney-in-Fact,
Amador D. Ledesma, Petitioners, vs. Spouses Eusebio Aguilar and Josefina V. Aguilar,
Respondents. (gr. No. 182754, June 29, 2015)

SERENO, CJ:

Facts: By mere tolerance of petitioner spouses Aquino, respondent spouses Aguilar were able
to occupy a property in Rosal Street, Guadalupe since 1981. However, despite a clear mandate
in a 1983 letter that respondents are prohibited from introducing improvements on the
property because it was meant to be sold, respondents still went on their way of improving it.
By the time that petitioners asked respondents to vacate the premises, the latter refused to do
so. A complaint was then filed by the petitioners before the MeTC to order respondents to
vacate the portion of the building they were occupying and to pay petitioner a reasonable
amount for the use and enjoyment of the premises from the time the formal demand to vacate
was made. The respondents made a counterclaim claiming that they had contributed to the
improvement of the property. The MeTCruled in favour of petitioners finding respondents as
builders in bad faith, which was affirmed by the RTC and CA. However, the CA held that
pursuant to the ruling in Calubayan which would equate respondents’ situation analogous to
that of a lessee or tenant whose term of lease has expired but whose occupancy continued by
tolerance of the owner, the case was remanded to the court of origin in order to determine the
facts essential to the application of Articles 1678 and 546.

Issue: Whether the Court of Appeals is correct in remanding the case to the court of origin for
the determination of the necessary and useful expenses incurred by respondent spouses on the
basis of Articles 1678 and 548 of the Civil Code and citing the ruling enunciated in Calubayan vs.
Pascual.

Ruling: Article 1678 is not applicable to this case.

xxx By its express provision, Article 1678 of the Civil Code applies only to lessees who build
useful improvements on the leased property. It does not apply to those who possess property
by mere tolerance of the owners, without a contractual right.

A careful reading of the statement made by this Court in Calubayan would show that it did not,
as it could not, modify the express provision in Article 1678, but only noted an “analogous”
situation. According to the Court, the analogy between a tenant whose term of lease has
expired and a person who occupies the land of another at the latter’s tolerance lies in their
implied obligation to vacate the premises upon demand of the owner. xxx

xxx

xxxclear xxx that Calubayan is not sufficient basis to confer the status and rights of a lessee on
those who occupy property by mere tolerance of the owner.

In this case, there is absolutely no evidence of any lease contract between the parties. In fact,
respondents themselves never alleged that they were lessees of the lot or the building in
question. Quite the opposite, they insisted that they were co-owners of the building and
builders in good faith under Article 448 of the Civil Code. For that reason, respondents argue

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
that it was erroneous for the CA to consider them as lessees and to determine their rights in
accordance with Article 1678.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Spouses Crispin Aquino and Teresa V.Aquino, herein represented by their Attorney-in-Fact,
Amador D. Ledesma, Petitioners, vs. Spouses Eusebio Aguilar and Josefina V. Aguilar,
Respondents. (gr. No. 182754, June 29, 2015)

SERENO, CJ:

Facts: By mere tolerance of petitioner spouses Aquino, respondent spouses Aguilar were able
to occupy a property in Rosal Street, Guadalupe since 1981. However, despite a clear mandate
in a 1983 letter that respondents are prohibited from introducing improvements on the
property because it was meant to be sold, respondents still went on their way of improving it.
By the time that petitioners asked respondents to vacate the premises, the latter refused to do
so. A complaint was then filed by the petitioners before the MeTC to order respondents to
vacate the portion of the building they were occupying and to pay petitioner a reasonable
amount for the use and enjoyment of the premises from the time the formal demand to vacate
was made. The respondents made a counterclaim claiming that they had contributed to the
improvement of the property. The MeTC ruled in favour of petitioners finding respondents as
builders in bad faith, which was affirmed by the RTC and CA. The CA awarded actual damages to
petitioners and ordered respondents to pay the former the amount of P7,000.00 as monthly
rental commencing from October 23, 2003 until such time that petitioners finally vacate the
premises.

Issue: Whether the award of actual damages is proper.

Ruling: Yes, the award of actual damages is proper.

With respect to the award of actual damages to petitioners, we find no reason to


reverse or modify the ruling of the CA. This Court has consistently held that those who occupy
the land of another at the latter's tolerance or permission, even without any contract between
them, are necessarily bound by an implied promise that the occupants would vacate the
property upon demand. Failure to comply with this demand renders the possession unlawful
and actual damages may be awarded to the owner from the date of the demand to
vacate71 until the actual surrender of the property.

Accordingly, we affirm the CA’s award of actual damages to petitioners in the amount of
P7,000 per month from the date of demand (22 October 2003) until the subject properties are
vacated. This amount represents a reasonable compensation for the use and occupation of
respondents’ propertyas determined by the RTC and the MeTC.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
MAMERTA LOPEZ CLAUDIO, EDUARDO L. CLAUDIO, ASUNCION CLAUDIO-CONTEGINO, ANA
CLAUDIO-ISULAT, DOLORES CLAUDIO-MABINI, AND FERMIN L. CLAUDIO, Petitioners, v.
SPOUSES FEDERICO AND NORMA SARAZA, Respondent. (Gr. No. 213286, August 15, 2015)

MENDOZA, J.:

Facts:

Porfirio Claudio and his wife, Mamerta, are owners of ten parcels of land in Pasay City
including the property subject of the present case. On June 18, 2004, Florentino, son of said
spouses, made it appear that the latter sold to him the subject property for P500,000.00 thru a
deed of absolute sale sometime in October 2003. Florentino then sought registration of the said
property in his name. On June 22, 2004, Florentino executed a deed of real estate mortgage
over the subject lot with special power to sell the mortgaged property without judicial
proceedings, in favour of Spouses Saraza to secure payment of a loan in the amount of P1
Million. This is notwithstanding the fact that first, a new transfer certificate of title was only
issued in the name of Florentinodays after the execution of the real estate mortgage and
second, that the signatures of the spouses on the deed of sale in favour of Florentino were
forged since it was impossible to attach said signatures because the husband is already dead at
the time while the wife is residing in the US.

Issue: Whether respondent spouses Saraza are mortgagees in good faith based on the rule that
all persons dealing with property covered by a Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond the face of the title.

Ruling: The Court ruled that the above-mentioned doctrine is inapplicable in the present case
because of the circumstances that transpired before, during, and after the execution of the
deed of real estate mortgage.

Verily, a mortgagee has a right to rely in good faith on the certificate of title of the
mortgagor and, in the absence of any sign that might arouse suspicion, has no obligation to
undertake further investigation. Accordingly, even if the mortgagor is not the rightful owner of,
or does not have a valid title to, the mortgaged property, the mortgagee in good faith is
entitled to protection. This doctrine presupposes, however, that the mortgagor, who is not the
rightful owner of the property, has already succeeded in obtaining a Torrens title over the
property in his name and that, after obtaining the said title, he succeeds in mortgaging the
property to another who relies on what appears on the said title.

xxx

Evidence shows that the real estate mortgage, constituted on the subject property, was
executed on June 22, 2004, while TCT No. 145979, in the name of Florentino, was issued by the
Register of Deeds only six (6) days later or on June 28, 2004. Evidently, the property, offered as
collateral to the loan of P1 Million, was not in Florentino's name yet when he entered into a
mortgage agreement with Spouses Saraza.

xxx

The doctrine of mortgagee in good faith only applies when the mortgagor has already obtained
a certificate of title in his or her name at the time of the mortgage. Accordingly, an innocent
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
mortgagee for value is one who entered into a mortgage contract with a mortgagor bearing a
certificate of title in his name over the mortgaged property. Such was not the situation of
Spouses Saraza. They cannot claim the protection accorded by law to innocent mortgagees for
value considering that there was no certificate of title yet in the name of Florentino to rely on
when the mortgaged contract was executed.

Good faith connotes an honest intention to abstain from taking unconscientious advantage of
another. Spouses Saraza could not be deemed to have acted in good faith because they knew
that they were not dealing with the registered owner of the property when it was mortgaged
and that the subject land had yet to be titled in the name of mortgagor Florentino. To repeat,
the protection accorded to a mortgagee in good faith cannot be extended to a mortgagee who
knowingly entered into a mortgage agreement wherein the title to the mortgaged property
presented was still in the name of the rightful owner and the mortgagor has no legal authority
yet to mortgage the same.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
HonorlitaAscano-Cupino and FlavianaAscano-Colocado, Petitioners, vs. Pacific Rehouse
Corporation, Respondent. (Gr. No. 205113, August 26, 2015)

CARPIO, J.:

Facts:

On October 1, 1994 the respondent Ascanos (sisters) entered into a Deed of Conditional
Sale with Pacific Rehouse Corporation wherein the latter obliged itself to purchase from the
former a parcel of land located in General Trias, Cavite for P5,975,300.00. As stipulated on the
deed, Pacific paid a down payment of P1,792,590 to Ascanos leaving a balance of P4,182,710.00,
to be paid upon fulfilment of certain conditions, to wit: 1) the completion of all documents
necessary for the transfer of the certificate of title of the land; 2) the vendors (Ascano) shall
guarantee removal of the tenants, squatters and other occupants on the land, with the
disturbance compensation to said tenants to be paid by vendors; and 3) submission by vendors
to Pacific of the Affidavit of Non-Tenancy and the land operation transfer documents. In certain
different occasions, the Ascanos asked for additional sum to be deducted from the purchase
price in order to fulfil some obligations which wereacceded to by Pacific. However, despite
several demands from Pacific for the Ascanos to submit the necessary documents, the latter
failed to do so. The Ascanos also informed Pacific that they wanted to rescind the contract and
even refused to accept Pacific’s tender of additional payments. Thereafter, Pacific learned that
the Ascanos were negotiating the sale of the subject property with other buyers which
prompted them to file a Complaint for Cancellation of Contract, Sum of Money and Damages
before the RTC. However, before pre-trial, Pacific learned that the Ascanos already withdrew
the money which was earlier refused by them when Pacific tendered payment.Pacific amended
its complaint from Cancellation of Contract to Specific Performance.

Issue: Whether Pacific is entitled to ask for Specific Performance.

Ruling: Yes, Pacific is entitled to ask for Specific Performance.

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

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

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

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

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

The obligation of petitioners under the Deed of Conditional Sale is to "guarantee removal of
tenants" and not merely to pay disturbance compensation. It is an undertaking specifically
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
given to petitioners under the Deed of Conditional Sale, considering that Pacific is not yet the
owner of the property and will have no personality to evict the property's present occupants.
Petitioners failed to fulfill this obligation, as well as the obligation to deliver the necessary
documents to complete the sale.

As previously held by the Court, "the injured party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform his obligation."From the foregoing, it is clear that
Pacific is the injured party, entitled to elect between rescinding of the contract and exacting
fulfillment of the obligation. It has opted for the remedy of specific performance, as embodied
in its Amended Complaint.

Moreover, rescission must not be allowed in favor of petitioners, since they themselves failed
to perform their obligations under the Deed of Conditional Sale.

As to the purchase price, both the RTC and the CA held that, given no other evidence to
conclude otherwise, the true purchase price agreed upon by the parties is P5,975,300, the
amount stipulated in the Deed of Conditional Sale.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
AnicetoUy, Petitioner, vs. Court of Appeals, Mindanao Station, Cagayan de Oro city,
Carmencita Naval-Sai, Rep. by her Attorney-in-Fact Rodolfo Florentino, Respondents. (Gr. No.
173186, September 16, 2015)

JARDELEZA, J.:

Facts:

Private respondent Carmencita Naval-Sai is the owner of a parcel of land in North


Cotabato which was later on subdivided and registered with the Register of Deeds.Naval-Sai
sold one lot to a certain Bobby Adil on instalment on the condition that the absolute deed of
sale will be executed upon full payment. However, Adil failed to pay the amortization forcing
him to sell his unfinished building to spouses Francisco and LouellaOmandac. Meanwhile,
Naval-Sai borrowed money from a certain Grace Ng which was secured by two lots (Lot No. 54-
B-8 and Lot No. 54-B-9). Ng on the other hand borrowed money from petitioner AnicetoUy and
delivered to the latter the two titles to guarantee payment of the loan. After sometime, Naval-
Sai learned that Uy filed an action for recovery of possession against Omandac which was ruled
on favourably by the trial court. Naval-Sai filed a Motion for New Trial contending that her
signature on a purported deed of sale was forged. The decision however became final and
executory. In 1999, Naval-Sai filed a complaint for Annulment of Deed with Damages on the
ground earlier cited. The complaint was later on amended since the TCTs of the subject lots had
already been replaced and issued in the name of Uy. It further prayed that the newly issued
TCTs in the name of Uy be cancelled. The RTC dismissed the complaint in which one of the
grounds is prescription. The CA reversed the trial court and held that the action is in reality one
for reconveyance therefore imprescriptible.

Issue: Whether the nature of Naval-Sai’s action is an action for reconveyance based on a void
contract which is imprescriptible or based on fraud which prescribes in ten years in accordance
to Article 1144 of the Civil Code.

Ruling:The Court was precluded in determining the nature of the action because it both the
RTC and CA failed to make a thorough discussion on the issue of forgery in the deed of sale
purportedly executed by and between Uy and Naval-Sai.

Resolution of the issue of prescription hinges on whether the deed of sale was indeed
forged and, thus, void. Unfortunately, both the RTC and the Court of Appeals did not make
actual findings on the alleged forgery. No full-blown trial occurred in the RTC to prove that the
deed of sale was indeed simulated and that the signatures were forgeries. The case was
dismissed based on the pleadings of the parties. The Court of Appeals also resolved to decide
the case on available records and pleadings, in order to avoid further delay, due to several
resettings and motions for postponement filed by the parties one after another. The lack of
factual findings on the alleged forgery from the lower courts prevents us from ruling on the
issue of prescription.

xxx

In order to arrive at a conclusion on whether the action has prescribed, we have to determine
the nature of the action.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
xxx

An action for reconveyance is based on Section 53, paragraph 3 of Presidential Decree (PD) No.
1529, which provides:

In all cases of registration procured by fraud, the owner may pursue all his legal and equitable
remedies against the parties to such fraud without prejudice, however, to the rights of any
innocent holder for value of a certificate of title. x xx

In Caro v. Court of Appeals, we said that this provision should be read in conjunction with
Article 1456 of the Civil Code, which provides:

Article 1456. If property is acquired through mistake or fraud, the person obtaining it is, by
force of law, considered a trustee of an implied trust for the benefit of the person from whom
the property comes.

The law creates the obligation of the trustee to reconvey the property and its title in favor of
the true owner. Correlating Section 53, paragraph 3 of PD No. 1529 and Article 1456 of the Civil
Code with Article 1144 (2) of the Civil Code, the prescriptive period for the reconveyance of
fraudulently registered real property is ten (10) years reckoned from the date of the issuance of
the certificate of title. This ten-year prescriptive period begins to run from the date the adverse
party repudiates the implied trust, which repudiation takes place when the adverse party
registers the land. An exception to this rule is when the party seeking reconveyance based on
implied or constructive trust is in actual, continuous and peaceful possession of the property
involved. Prescription does not commence to run against him because the action would be in
the nature of a suit for quieting of title, an action that is imprescriptible.

The foregoing cases on the prescriptibility of actions for reconveyance apply when the action is
based on fraud, or when the contract used as basis for the action is voidable. Under Article
1390 of the Civil Code, a contract is voidable when the consent of one of the contracting parties
is vitiated by mistake, violence, intimidation, undue influence or fraud. When the consent is
totally absent and not merely vitiated, the contract is void. An action for reconveyance may
also be based on a void contract. When the action for reconveyance is based on a void contract,
as when there was no consent on the part of the alleged vendor, the action is
imprescriptible. The property may be reconveyed to the true owner, notwithstanding the TCTs
already issued in another's name. The issuance of a certificate of title in the latter's favor could
not vest upon him or her ownership of the property; neither could it validate the purchase
thereof which is null and void. Registration does not vest title; it is merely the evidence of such
title. Our land registration laws do not give the holder any better title than what he actually has.
Being null and void, the sale produces no legal effects whatsoever.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Spouses Rolando and Herminia Salvador, Petitioners, vs. Spouses Rogelio and Elizabeth
Rabaja and Rosario Gonzalez, Respondents. (Gr. No. 199990, February 4, 2015)

MENDOZA, J.:

Facts:

Petitioner Spouses Salvador, through their agent respondent Gonzales, executed a


Contract to Sell a parcel of land in Mandaluyong City in favour of respondent Spouses Rabaja,
who were already lessees of said property from 1994 to 2002. It was even petitioner wife who
personally introduced Gonzales to SpousesRabaja as their administrator and a Special Power of
Attorney was presented to this effect. Initial payment was made before the actual execution of
the deed in the amount of P48,000.00. Later on, it was stipulated that for a consideration of P5
Million, Spouses Salvador sold, transferred and conveyed in favour of Spouses Rabaja the
subject property. Spouses Rabaja made several payments totalling P950,000 which were
received by Gonzales. It was later on found out that Spouses Salvador hasn’tbeen receiving said
payments which prompted Spouses Rabaja to stop further payment. As a result, they were
requested to vacate the property due to non-payment of rentals. An action for ejectment was
filed by Spouses Salvador against Spouses Rabajawhile the latter filed an action for rescission of
contract.Both the trial court and the CA found that indeed, the contract is actually a contract of
sale and that Spouses Salvador cannot now interpose the defense that Gonzales is not their
agent.

Issue: Whether Spouses Salvador is bound by the acts of Gonzales, who was consistently held
by the trial court and CA to be the agent of the former.

Ruling: Yes, Spouses Salvador is bound by Gonzales’s acts as their agent.

The Court agrees with the courts below in finding that the contract entered into by the
parties was essentially a contract of sale which could be validly rescinded. Spouses Salvador
insist that they did not receive the payments made by Spouses Rabaja from Gonzales which
totalled P950,000.00 and that Gonzales was not their duly authorized agent. These contentions,
however, must fail in light of the applicable provisions of the New Civil Code which state:

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

x xxx

Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal
may require the presentation of the power of attorney, or the instructions as regards the
agency. Private or secret orders and instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or instructions shown them.

x xxx

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.cralawred
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
xxx
According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an act
is deemed to have been performed within the scope of the agent's authority, if such act is
within the terms of the power of attorney, as written. In this case, Spouses Rabaja did not
recklessly enter into a contract to sell with Gonzales. They required her presentation of the
power of attorney before they transacted with her principal. And when Gonzales presented the
SPA to Spouses Rabaja, the latter had no reason not to rely on it.

The law mandates an agent to act within the scope of his authority which what appears in the
written terms of the power of attorney granted upon him. The Court holds that, indeed,
Gonzales acted within the scope of her authority. The SPA precisely stated that she could
administer the property, negotiate the sale and collect any document and all payments related
to the subject property. As the agent acted within the scope of his authority, the principal must
comply with all the obligations.As correctly held by the CA, considering that it was not shown
that Gonzales exceeded her authority or that she expressly bound herself to be liable, then she
could not be considered personally and solidarily liable with the principal, Spouses Salvador.

Perhaps the most significant point which defeats the petition would be the fact that it was
Herminia herself who personally introduced Gonzalez to Spouses Rabaja as the administrator of
the subject property. By their own ostensible acts, Spouses Salvador made third persons believe
that Gonzales was duly authorized to administer, negotiate and sell the subject property. This
fact was even affirmed by Spouses Salvador themselves in their petition where they stated that
they had authorized Gonzales to look for a buyer of their property. It is already too late in the
day for Spouses Salvador to retract the representation to unjustifiably escape their principal
obligation.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Spouses Rolando and Herminia Salvador, Petitioners, vs. Spouses Rogelio and Elizabeth
Rabaja and Rosario Gonzalez, Respondents. (Gr. No. 199990, February 4, 2015)

MENDOZA, J.:

Facts:

Petitioner Spouses Salvador, through their agent respondent Gonzales, executed a


Contract to Sell a parcel of land in Mandaluyong City in favour of respondent Spouses Rabaja,
who were already lessees of said property from 1994 to 2002. It was even petitioner wife who
personally introduced Gonzales to Spouses Rabaja as their administrator and a Special Power of
Attorney was presented to this effect. Initial payment was made before the actual execution of
the deed in the amount of P48,000.00. Later on, it was stipulated that for a consideration of P5
Million, Spouses Salvador sold, transferred and conveyed in favour of Spouses Rabaja the
subject property. Spouses Rabaja made several payments totalling P950,000 which were
received by Gonzales. It was later on found out that Spouses Salvador hasn’t been receiving
said payments which prompted Spouses Rabaja to stop further payment. As a result, they were
requested to vacate the property due to non-payment of rentals. An action for ejectment was
filed by Spouses Salvador against Spouses Rabaja while the latter filed an action for rescission
of contract. The trial court ordered petitioner Spouses Salvador and respondent Gonzales to
pay Spouses Rabaja P20,000.00 as moral damages, P20,000.00 as exemplary damages, and
P100,000.00 attorney’s fees to herein respondents

Issue: Whether the award of moral damages, exemplary damages, and attorney’s fees is proper
in the present case.

Ruling: No, the awards are not proper.

The award of damages to Spouses Rabaja cannot be sustained by this Court. The filing
alone of a civil action should not be a ground for an award of moral damages in the same way
that a clearly unfounded civil action is not among the grounds for moral damages. Article 2220
of the New Civil Code provides that to award moral damages in a breach of contract, the
defendant must act fraudulently or in bad faith. In this case, Spouses Rabaja failed to
sufficiently show that Spouses Salvador acted in a fraudulent manner or with bad faith when it
breached the contract of sale. Thus, the award of moral damages cannot be warranted.

As to the award of exemplary damages, Article 2229 of the New Civil Code provides that
exemplary damages may be imposed by way of example or correction for the public good, in
addition to the moral, temperate, liquidated or compensatory damages. The claimant must first
establish his right to moral, temperate, liquidated or compensatory damages. In this case,
considering that Spouses Rabaja failed to prove moral or compensatory damages, then there
could be no award of exemplary damages.

With regard to attorney’s fees, neither Spouses Rabaja nor Gonzales is entitled to the award.
The settled rule is that no premium should be placed on the right to litigate and that not every
winning party is entitled to an automatic grant of attorney’s fees. The RTC reasoned that
Gonzales was forced to litigate due to the acts of Spouses Salvador. The Court does not agree.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Gonzales, as agent of Spouses Salvador, should have expected that she would be called to
litigation in connection with her fiduciary duties to the principal.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Luis Uy, substituted by Lydia Uy Velasquez and Shirley UyMacaraig, Petitioners, vs. Spouses
Jose Lacsamana and Rosaura Mendoza, substituted by Corazon Buena, Respondents. (Gr. No.
206220, August 19, 2015)

CARPIO, J.:

Facts:

Luis Uy and Petra Rosca had lived together as husband and wife for 29 years with no
benefit of marriage. During their cohabitation in 1969, they acquired a 484 square meter
residential land for a consideration of P1,936 evidenced by a Deed of Sale from Spouses Manuel.
The title of Spouses Manuel was cancelled and a new title was issued in the name of “Petra
Rosca, married to Luis G. Uy.” Another acquisition of residential land was made adjacent to the
previous one this time from Spouses Contreras. Thereafter, a split level house with a floor area
of 208.50 square meters was constructed on the 484 square meter land. In April 18, 1979,
Rosca executed an allegedly simulated and fictitious Deed of Sale in favour of Spouses
Lacsamana for a consideration of P80,000.00. Uy questioned the registrability of the Deed
before the Register of Deeds of Batangas City who elevated the matter, on consulta, with the
Land Registration Commission. The LRC decided in favour of the registration. This inquiry
coincided with the filing of a complaint for Declaration of Nullity of the Deed of Sale by Uy with
the RTC. In 1982, Spouses Lacsamana sold the subject property to Corazon Buena. All original
parties had been represented by herein substitutes because the former are now all dead.

Issue: Whether the Deed of Sale dated April 18, 1979, executed by Rosca alone, without Uy’s
consent, in favour of Spouses Lacsamana, is valid.

Ruling:The Deed of Sale, executed by Rosca on her paraphernal property in favour of Spouses
Lacsamana, is valid.

Here, the main issue in determining the validity of the sale of the property by Rosca
alone is anchored on whether Uy and Rosca had a valid marriage. There is a presumption
established in our Rules "that a man and woman deporting themselves as husband and wife
have entered into a lawful contract of marriage."Semperpraesumitur pro matrimonio — Always
presume marriage.However, this presumption may be contradicted by a party and overcome by
other evidence.

xxx

Here, Uy was not able to present any copy of the marriage certificate which he could have
sourced from his own personal records, the solemnizing officer, or the municipal office where
the marriage allegedly took place. Even the findings of the RTC revealed that Uy did not show a
single relevant evidence that he was actually married to Rosca. On the contrary, the documents
Uy submitted showed that he and Rosca were not legally married to each other. xxx

xxx

Since Uy failed to discharge the burden that he was legally married to Rosca, their property
relations would be governed by Article 147 of the Family Code which applies when a couple
living together were not incapacitated from getting married.xxx

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
The provision states that properties acquired during cohabitation are presumed co-owned
unless there is proof to the contrary. We agree with both the trial and appellate courts that
Rosca was able to prove that the subject property is not co-owned but is paraphernal. xxx

xxx

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

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
First Optima Realty Corporation, Petitioner, vs. Securitron Security Services, Inc., Respondent.
(Gr. No. 199648, January 28, 2015)

DEL CASTILLO, J.:

Facts:

Petitioner First Optima Realty Corporation is engaged in the real estate business and a
registered owner of a 256 square meter parcel of land with improvements located in Pasay City.
Respondent Securitron Security Services on the other hand, is a domestic corporation with
offices located beside the cited property of petitioner. Since respondent is looking to expand
its business, it offered to purchase the subject property through a letter addressed to
petitioner’s Executive Vice-President Carolina Young. A series of phone calls ensued but only
between the General Manager of respondent (Antonio Eleazar) and the secretary of Young.
When Eleazarpersonally met Young, the latter declined the offer to purchase the subject
property and likewise informed Eleazar that prior approval of petitioner’s Board of Directors
was required for the transaction. However, a letter dated February 4, 2005 to which a
P100,000.00 check was attached, was sent by respondent to petitioner purporting to be
earnest money for the contract of sale. It is only after a year when petitioner offered to return
the money. Respondent filed a complaint for Specific Performance before the RTC which was
thereby granted by the same, holding that a perfected contract of sale had taken place. The
decision was affirmed by the CA on appeal.

Issue: Whether the earnest money of P100,000.00is enough to perfect a sale between
petitioner and respondent.

Ruling: There is no perfected contract of sale and the purported earnest money is not the
earnest money contemplated under the law.

xxx To borrow a pronouncement in a previously decided case,

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

In the present case, the parties never got past the negotiation stage. Nothing shows that the
parties had agreed on any final arrangement containing the essential elements of a contract of
sale, namely, (1) consent or the meeting of the minds of the parties; (2) object or subject
matter of the contract; and (3) price or consideration of the sale.

Respondent’s subsequent sending of the February 4, 2005 letter and check to petitioner –
without awaiting the approval of petitioner’s board of directors and Young’s decision, or
without making a new offer – constitutes a mere reiteration of its original offer which was
already rejected previously; thus, petitioner was under no obligation to reply to the February 4,
2005 letter. It would be absurd to require a party to reject the very same offer each and every
time it is made; otherwise, a perfected contract of sale could simply arise from the failure to
reject the same offer made for the hundredth time.Thus, said letter cannot be considered as

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
evidence of a perfected sale, which does not exist in the first place; no binding obligation on the
part of the petitioner to sell its property arose as a consequence. The letter made no new offer
replacing the first which was rejected.

Since there is no perfected sale between the parties, respondent had no obligation to make
payment through the check; nor did it possess the right to deliver earnest money to petitioner
in order to bind the latter to a sale. As contemplated under Art. 1482 of the Civil Code, "there
must first be a perfected contract of sale before we can speak of earnest money." "Where the
parties merely exchanged offers and counter-offers, no contract is perfected since they did not
yet give their consent to such offers. Earnest money applies to a perfected sale."

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Nunelon R. Marquez, Petitioner, vs. Elisan Credit Corporation, Respondents. (Gr. No. 194642.
April 16, 2015)

BRION, J.:

Facts:

In 1991, Petitioner Nunelon Marquez obtained a loan from respondent Elisan Credit
Corporation for P53,000.00 payable in 180 days. A promissory note was signed by petitioner
which provided that the loan is payable in weekly instalments and subject to 26% annual
interest. In case of non-payment, the petitioner agreed to pay 10% monthly penalty based on
the total amount unpaid and another 25% of such amount for attorney’s fees exclusive of costs,
and judicial and extrajudicial expenses. This particular loan was secured by a chattel mortgage
over a motor vehicle in which it was stipulated that the motor vehicle shall stand as security for
the first loan and “all other obligations of every kind already incurred or which may hereafter
be incurred.” After complete payment of said loan, petitioner again borrowed money from
respondent in the amount of P55,000.00 evidenced by a promissory note and cash voucher.
The terms of this promissory note contain the exact same terms and conditions as the first
promissory note. When the second loan matured, petitioner had a remaining unpaid balance
of P25,040.00. Due to liquidity problems, petitioner asked respondent if he could make daily
payments until the second loan is paid to which request the latter acceded. Twenty one months
after the second loan’s maturity, petitioner already paid P56,440.00 which amount is greater
than the principal. Despite such payment, respondent still filed a judicial foreclosure of the
chattel mortgage. Respondent further alleged that since petitioner defaulted in payment, the
necessary penalty interest and attorney’s fees stipulated in the promissory note had accrued. It
was alleged during trial that respondent applied the daily payments made by petitioner against
the interest.

Issue: Whether the respondent acted lawfully when it credited the daily payments against the
interest instead of the principal.

Ruling: The respondent acted pursuant to law and jurisprudence when it credited the daily
payments against the interest instead of the principal.

The presumption under Article 1176 does not resolve the question of whether the
amount received by the creditor is a payment for the principal or interest. Under this article the
amount received by the creditor is the payment for the principal, but a doubt arises on whether
or not the interest is waived because the creditor accepts the payment for the principal without
reservation with respect to the interest. Article 1176 resolves this doubt by presuming that the
creditor waives the payment of interest because he accepts payment for the principal without
any reservation.

On the other hand, the presumption under Article 1253 resolves doubts involving payment of
interest-bearing debts. It is a given under this Article that the debt produces interest. The doubt
pertains to the application of payment; the uncertainty is on whether the amount received by
the creditor is payment for the principal or the interest. Article 1253 resolves this doubt by
providing a hierarchy: payments shall first be applied to the interest; payment shall then be
applied to the principal only after the interest has been fully-paid.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Correlating the two provisions, the rule under Article 1253 that payments shall first be applied
to the interest and not to the principal shall govern if two facts exist: (1) the debt produces
interest (e.g., the payment of interest is expressly stipulated) and (2) the principal remains
unpaid.

The exception is a situation covered under Article 1176, i.e., when the creditor waives payment
of the interest despite the presence of (1) and (2) above. In such case, the payments shall
obviously be credited to the principal.

Since the doubt in the present case pertains to the application of the daily payments, Article
1253 shall apply. Only when there is a waiver of interest shall Article 1176 become relevant.

Under this analysis, we rule that the respondent properly credited the daily payments to the
interest and not to the principal because: (1) the debt produces interest, i.e., the promissory
note securing the second loan provided for payment of interest; (2) a portion of the second
loan remained unpaid upon maturity; and (3) the respondent did not waive the payment of
interest.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Nunelon R. Marquez, Petitioner, vs. Elisan Credit Corporation, Respondents. (Gr. No. 194642.
April 16, 2015)

BRION, J.:

Facts:

In 1991, Petitioner Nunelon Marquez obtained a loan from respondent Elisan Credit
Corporation for P53,000.00 payable in 180 days. A promissory note was signed by petitioner
which provided that the loan is payable in weekly instalments and subject to 26% annual
interest. In case of non-payment, the petitioner agreed to pay 10% monthly penalty based on
the total amount unpaid and another 25% of such amount for attorney’s fees exclusive of costs,
and judicial and extrajudicial expenses. This particular loan was secured by a chattel mortgage
over a motor vehicle in which it was stipulated that the motor vehicle shall stand as security for
the first loan and “all other obligations of every kind already incurred or which may hereafter
be incurred.” After complete payment of said loan, petitioner again borrowed money from
respondent in the amount of P55,000.00 evidenced by a promissory note and cash voucher.
The terms of this promissory note contain the exact same terms and conditions as the first
promissory note. When the second loan matured, petitioner had a remaining unpaid balance
of P25,040.00. Due to liquidity problems, petitioner asked respondent if he could make daily
payments until the second loan is paid to which request the latter acceded. Twenty one months
after the second loan’s maturity, petitioner already paid P56,440.00 which amount is greater
than the principal. Despite such payment, respondent still filed a judicial foreclosure of the
chattel mortgage. Respondent further alleged that since petitioner defaulted in payment, the
necessary penalty interest and attorney’s fees stipulated in the promissory note had accrued.
Based on the stipulated interest, penalty interest, and attorney’s fees on the promissory note,
the MTC, RTC, and CA decided the total amount due to respondents.

Issue: Whether the stipulated interest, penalty interest, and attorney’s fees stipulated on the
promissory note are reasonable.

Ruling: The interest, penalty interest, and attorney’s fees are unconscionable.

xxx we find the stipulated rates of interest, penalty and attorney's fees to be exorbitant,
iniquitous, unconscionable and excessive. The courts can and should reduce such astronomical
rates as reason and equity demand.

Article 1229 of the Civil Code provides:

"The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable."

Article 2227 of the Civil Code ordains:

"Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably


reduced if they are iniquitous or unconscionable.

More importantly, Article 1306 of the Civil Code is emphatic:

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
"The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy."

Thus, stipulations imposing excessive rates of interest and penalty are void for being contrary to
morals, if not against the law.

Further, we have repeatedly held that while Central Bank Circular No. 905-82, which took effect
on January 1, 1983, effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as
granting carte blanche authority to lenders to raise interest rates to levels that would be unduly
burdensome, to the point of oppression on their borrowers.

In exercising this power to determine what is iniquitous and unconscionable, courts must
consider the circumstances of each case since what may be iniquitous and unconscionable in
one may be totally just and equitable in another.

xxx

Applying the foregoing principles, we hereby reduce the stipulated rates as follows: the interest
of twenty-six percent (26%) per annum is reduced to two percent (2%) per annum; the penalty
charge of ten percent (10%) per month, or one-hundred twenty percent (120%) per annum is
reduced to two percent (2%) per annum; and the amount of attorney's fees from twenty-five
percent (25%) of the total amount due to two percent (2%) of the total amount due.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Nunelon R. Marquez, Petitioner, vs. Elisan Credit Corporation, Respondents. (Gr. No. 194642.
April 16, 2015)

BRION, J.:

Facts:

In 1991, Petitioner Nunelon Marquez obtained a loan from respondent Elisan Credit
Corporation for P53,000.00 payable in 180 days. A promissory note was signed by petitioner
which provided that the loan is payable in weekly instalments and subject to 26% annual
interest. In case of non-payment, the petitioner agreed to pay 10% monthly penalty based on
the total amount unpaid and another 25% of such amount for attorney’s fees exclusive of costs,
and judicial and extrajudicial expenses. This particular loan was secured by a chattel mortgage
over a motor vehicle in which it was stipulated that the motor vehicle shall stand as security for
the first loan and “all other obligations of every kind already incurred or which may hereafter
be incurred.” After complete payment of said loan, petitioner again borrowed money from
respondent in the amount of P55,000.00 evidenced by a promissory note and cash voucher.
The terms of this promissory note contain the exact same terms and conditions as the first
promissory note. The second loan was also secured by the motor vehicle due to the provision
enunciated on the previous chattel mortgage. When the second loan matured, petitioner had a
remaining unpaid balance of P25,040.00. Due to liquidity problems, petitioner asked
respondent if he could make daily payments until the second loan is paid to which request the
latter acceded. Twenty one months after the second loan’s maturity, petitioner already paid
P56,440.00 which amount is greater than the principal. Despite such payment, respondent still
filed a judicial foreclosure of the chattel mortgage. A writ of replevin was applied by
respondents in order to obtain possession of the motor vehicle subject of the chattel mortgage
which was granted by the MTC.

Issue: Whether the Chattel Mortgage could cover the second loan.

Ruling: The chattel mortgage could not cover the second loan. The order of foreclosure has no
legal and factual basis.

The only obligation specified in the chattel mortgage contract was the first loan which
the petitioner later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment
of the obligation automatically rendered the chattel mortgage terminated; the chattel
mortgage had ceased to exist upon full payment of the first loan. Being merely an accessory in
nature, it cannot exist independently of the principal obligation.

The parties did not execute a fresh chattel mortgage nor did they amend the chattel mortgage
to comply with the Chattel Mortgage Law which requires that the obligation must
be specified in the affidavit of good faith. Simply put, there no longer was any chattel mortgage
that could cover the second loan upon full payment of the first loan. The order to foreclose the
motor vehicle therefore had no legal basis.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Tagaytay Realty Co., Inc., Petitioner, vs. Arturo G. Gacutan, Respondent. (Gr. No. 160033, July
1, 2015)

BERSAMIN, J.:

Facts:

In 1976, respondent Gacutan entered into a Contract to Sell with petitioner Tagaytay
Realty Co., Inc., for the purchase on instalment of a residential lot with an area of 308 square
meters situated in the Foggy Heights Subdivision then being developed by the latter. In said
contract, petitioner undertook to complete the development of the roads, curbs, gutters, etc.,
as well as amenities within a period of two years from July 15, 1976 on the understanding that
failure on their part to do so within the stipulated period shall give respondent (or vendee) the
option to suspend payment of the monthly amortization until completion without incurring
penalty interest. The exception to such stipulation is whenever an act of God or force majeure
occurs. In 1979, respondent notified petitioner that he is suspending payment of the monthly
amortization because the amenities had not been constructed in accordance with the
undertaking. Despite several communications to inquire about the status of the undertaking,
petitioner failed to response and instead sent the respondent a statement of account
demanding the balance of the price, plus penalty and interest. Later, a complaint for Specific
Performance with prayer to order petitioner to accept payment of the balance of the contract
without interest and penalty was filed by respondent. Petitioner contends that it is already
released from its obligation to construct amenities due to the fact of unstable economy during
the time of development.The HLURB, HLURB Commissioner, the Office of the President, and the
CA all ruled in favour of respondent.

Issue: Whether petitioner is released from its obligation to construct the amenities in the Foggy
Heights Subdivision.

Ruling: Petitioner was not relieved from its statutory and contractual obligations to complete
the amenities.

There is no question that the petitioner did not comply with its legal obligation to
complete the construction of the subdivision project, including the amenities, within one year
from the issuance of the license. Instead, it unilaterally opted to suspend the construction of
the amenities to avoid incurring maintenance expenses. In so opting, it was not driven by any
extremely difficult situation that would place it at any disadvantage, but by its desire to benefit
from cost savings. Such cost-saving strategy dissuaded the lot buyers from constructing their
houses in the subdivision, and from residing therein.

Considering that the petitioner's unilateral suspension of the construction of the amenities was
intended to save itself from costs, its plea for relief from its contractual obligations was
properly rejected because it would thereby gain a position of advantage at the expense of the
lot owners like the respondent. Its invocation of Article 1267 of the Civil Code, which provides
that "(w)hen the service has become so difficult as to be manifestly beyond the contemplation
of the parties, the obligor may also be released therefrom in whole or in part," was factually
unfounded. For Article 1267 to apply, the following conditions should concur, namely: (a) the
event or change in circumstances could not have been foreseen at the time of the execution of

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
the contract; (b) it makes the performance of the contract extremely difficult but not
impossible; (c) it must not be due to the act of any of the parties; and (d) the contract is for a
future prestation. The requisites did not concur herein because the difficulty of performance
under Article 1267 of the Civil Code should be such that one party would be placed at a
disadvantage by the unforeseen event. Mere inconvenience, or unexepected impediments, or
increased expenses did not suffice to relieve the debtor from a bad bargain.

And, secondly, the unilateral suspension of the construction had preceded the worsening of
economic conditions in 1983; hence, the latter could not reasonably justify the petitioner's plea
for release from its statutory and contractual obligations to its lot buyers, particularly the
respondent. Besides, the petitioner had the legal obligation to complete the amenities within
one year from the issuance of the license (under Section 20 of Presidential Decree No. 957), or
within two years from July 15, 1976 (under the express undertaking of the petitioner). Hence, it
should have complied with its obligation by July 15, 1978 at the latest, long before the
worsening of the economy in 1983.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Angel V. Talampas, Jr., Petitioner, vs. Moldex Realty, Inc., Respondent. (Gr. No. 170134, June
17, 2015)

BRION, J.:

Facts:

Petitioner is the owner and general manager of Angel V. Talampas, Jr. Construction
(AVTJ Construction), a business engaged in general engineering and building. On December 16,
1992, the petitioner entered into a contract with the respondent to develop a residential
subdivision on a land owned by the latter to be known as the MetrogateSilang Estates. The
contract price for the project is P10,500,000.00 to be paid by respondent through progress
billings. On May 14, 1993, Metrogate’s Project Manager Engr. HonorioAlmedia asked the
petitioner to suspend construction work on the site for one week due to a change in the project
subdivision plan. However, instead of the one week request, the suspension lasted for almost
three weeks prompting petitioner to write a letter inquiring about the project’s status since the
latter’s equipment and construction materials remained idle at the site. In an antedated letter
signed by respondent’s Vice President, Engr. Jose Po, petitioners wereinformed that the former
are deciding to terminate the parties’ contract. In a letter, petitioner demanded payment of
equipment rentals and cost of opportunity lost which was refused by the respondent.
Thereafter, petitioner filed a complaint for breach of contract and damages against
respondents.

Issue: Whether respondent is liable for breach of contract for unilaterally terminating the
MetrogateSilang Estates project with petitioner.

Ruling: Yes, respondent is liable for breach of contract.

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

In the present case, we find that the respondent failed to comply with its contractual
stipulations on the unilateral termination when it terminated their contract due to the redesign
of the MetrogateSilang Estates’ subdivision plan.

Paragraph 8 of the parties’ contract limits the instances when the respondent (referred to
as owner in the contract) or the petitioner (referred to as contractor in the contract) may
unilaterally terminate their agreement. On the part of the owner, paragraph 8.1 of the contract
specifically provides:

8 . 1 . The OWNER may terminate this CONTRACT upon ten (10) days written notice to the CONTRACTOR in the event of any default by the CONTRACTOR. It shall be considered a default by the CONTRACTOR whenever he shall:

a ) declare bankruptcy, become insolvent, dissolve the corporation, or assign its assets for the benefit of his creditors;

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
b ) disregard, violate or not comply with important provisions of the Plans and Specifications or the OWNER’s instructions, or in cur a delay of more than fifteen percent (15%) in the prosecution of the work as evaluated against the work schedule to be submit ed by the CONTRACTOR; or

c ) fail to provide a qualified superintendent, competent workmen, or materials or equipment meeting the requirements of the Plans and Specifications.

x xxx

The respondent could not have validly and unilaterally terminated its contract with the
petitioner, as the latter has not committed any of the stipulated acts of default. In fact, the
petitioner at that time was willing and able to perform his obligations under their contract; xxx

Angel V. Talampas, Jr., Petitioner, vs. Moldex Realty, Inc., Respondent. (Gr. No. 170134, June
17, 2015)

BRION, J.:

Facts:

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Petitioner is the owner and general manager of Angel V. Talampas, Jr. Construction
(AVTJ Construction), a business engaged in general engineering and building. On December 16,
1992, the petitioner entered into a contract with the respondent to develop a residential
subdivision on a land owned by the latter to be known as the MetrogateSilang Estates. The
contract price for the project is P10,500,000.00 to be paid by respondent through progress
billings. On May 14, 1993, Metrogate’s Project Manager Engr. HonorioAlmedia asked the
petitioner to suspend construction work on the site for one week due to a change in the project
subdivision plan. However, instead of the one week request, the suspension lasted for almost
three weeks prompting petitioner to write a letter inquiring about the project’s status since the
latter’s equipment and construction materials remained idle at the site. In an antedated letter
signed by respondent’s Vice President, Engr. Jose Po, petitioners were informed that the former
are deciding to terminate the parties’ contract. In a letter, petitioner demanded payment of
equipment rentals and cost of opportunity lost which was refused by the respondent.
Thereafter, petitioner filed a complaint for breach of contract and damages against
respondents. Respondent contends that there had been mutual termination of the parties’
contract during a meeting held between Engr. Po of Moldex Reality and Engr. Talampas of AVTJ
Construction on May 21, 1993.

Issue:Whether respondent successfully proved petitioner’s consent, express or implied, to the


termination of the subject contract.

Ruling: No, respondent failed to prove petitioner’s consent, express or implied to the
termination of the contract.

xxx respondent failed to fully establish that a meeting took place as alleged. Except for the self-
serving testimony of Engr. Po that the May 21, 1993 meeting took place, the respondent
presented no other evidence to prove that Engr. Po and Engr. Talampas met on that date to
discuss the fate of their contract. No document or record the minutes of their May 21, 1993
meeting appeared to have been made despite the importance of their alleged discussion. The
questions that this evidentiary gap raised cannot but be resolved against the respondent.

Even assuming that the May 21, 1993 meeting between Engr. Po and Engr. Talampas did indeed
take place, we cannot discern from the developments the petitioner’s claimed agreement or
consent to the termination of the construction contract.

xxx The request for an official letter of termination does not necessarily mean consent to the
termination; xxx does not really signify an agreement; it was nothing more than a request for a
final decision from the respondent.

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain, and the acceptance,
whether express or implied, must be absolute. An acceptance is considered absolute and
unqualified when it is identical in all respects with that of the offer so as to produce consent or
a meeting of the minds.

We find no such meeting of the minds between the parties on the matter of termination
because the petitioner’s acceptance of the respondent’s offer to terminate was not absolute.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Angel V. Talampas, Jr., Petitioner, vs. Moldex Realty, Inc., Respondent. (Gr. No. 170134, June
17, 2015)

BRION, J.:

Facts:

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Petitioner is the owner and general manager of Angel V. Talampas, Jr. Construction
(AVTJ Construction), a business engaged in general engineering and building. On December 16,
1992, the petitioner entered into a contract with the respondent to develop a residential
subdivision on a land owned by the latter to be known as the MetrogateSilang Estates. The
contract price for the project is P10,500,000.00 to be paid by respondent through progress
billings. On May 14, 1993, Metrogate’s Project Manager Engr. HonorioAlmedia asked the
petitioner to suspend construction work on the site for one week due to a change in the project
subdivision plan. However, instead of the one week request, the suspension lasted for almost
three weeks prompting petitioner to write a letter inquiring about the project’s status since the
latter’s equipment and construction materials remained idle at the site. In an antedated letter
signed by respondent’s Vice President, Engr. Jose Po, petitioners were informed that the former
are deciding to terminate the parties’ contract. In a letter, petitioner demanded payment of
equipment rentals and cost of opportunity lost which was refused by the respondent.
Thereafter, petitioner filed a complaint for breach of contract and damages against
respondents. The RTC held in favour of petitioner and ordered respondent to pay among others,
unrealized profits, moral damages, exemplary damages, and attorney’s fees which was
however reversed and set aside by the CA.

Issue:Whether the payment of opportunity costs, moral damages, exemplary damages, and
attorney’s fees are proper under the circumstances.

Ruling:

Article 2200 of the Civil Code provides that indemnification for damages shall include, not only
the value of the loss suffered, but also the profits that the obligee failed to obtain. On this basis,
we find the petitioner entitled to the payment for the opportunity lost because of the
respondent’s unilateral termination of the parties’ contract.

Significantly, the respondent itself impliedly accepted this legal consequence by contending
that the cost of opportunity lost should not be based on the total contract price of
P10,500,000.00 as the petitioner had already been compensated for a part of the construction
work done.

We find merit in the respondent’s contention that the basis of the cost of opportunity lost
should not be the total contract price, as the ‘cost of opportunity lost’ must represent only the
profits that the petitioner failed to obtain due to the contract’s early termination. Thus, from
the total contract price, the amounts paid to the petitioner for work accomplished must be
subtracted, including the P500,000.00 down payment that the respondent gave at the start of
the contract; the difference would be the basis for determining the cost of opportunity lost.

xxx

However, nothing in the evidence showed that the respondent was under any legal or
contractual obligation to disclose the project’s conversion clearance status to the petitioner, or
that the presence of a conversion clearance was a consideration for the petitioner’s entry into
the contract with the respondent.

Article 1339 of the Civil Code provides that “failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential relations, constitutes fraud.”
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Otherwise stated, the innocent non-disclosure of facts, when no duty to reveal them exists,
does not amount to fraud.

We cannot award moral and exemplary damages to the petitioner in the absence of fraud on
the respondent’s part. To recover moral damages in an action for breach of contract, the
breach must be palpably wanton, reckless, malicious, in bad faith, oppressive or abusive. In the
same manner, to warrant the award of exemplary damages, the wrongful act must be
accompanied by bad faith, such as when the guilty party acted in a wanton, fraudulent, reckless
or malevolent manner.

We cannot also award attorney’s fees to the petitioner. Attorney’s fees are not awarded every
time a party wins a suit.Attorney’s fees cannot be awarded even if a claimant is compelled to
litigate or toincur expenses to protect his rights due to the defendant’s act or omission, where
no sufficient showing of bad faith exists; a party’s persistence based solely on its erroneous
conviction of the righteousness of his cause, does not necessarily amount to bad faith. In the
present case, the respondent was not shown to have acted in bad faith in appealing and
zealously pursuing its case. Under the circumstances, it was merely protecting its interests.

Florentina Bautista-Spille represented by her Attorney-in-Fact, Manuel B. Flores, Jr.,


Petitioner, vs. NICORP Management and Development Corporation, Benjamin G. Bautista,
and International Exchange Bank, Respondents. (Gr. No. 214057, October 19, 2015.

MENDOZA, J,:

Facts:

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
PetitionerFlorentina Bautista-Spille is the owner of a registered parcel of land in Imus
City, Cavite covered by TCT No.T-197. On June 2, 1996, petitioner and her spouse executed a
document denominated as General Power of Attorney in favour of her brother, respondent
Benjamin Bautista, authorizing the latter to administer all her business and properties in the
Philippines which document was notarized before the Consulate General of the Philippines,
New York, USA. On August 13, 2004, Benjamin and NICORP entered into a Contract to Sell
pertaining to TCT No.T-197. Pursuant to said contract, an Escrow Agreement was executed
designating IE Bank as the Escrow Agent, obliging the latter to hold and take custody of TCT No.
T-197, and to release said title to NICORP upon full payment of the subject property.However,
when petitioner found out about the sale, she opposed and contended that Benjamin was not
clothe with authority to enter into a contract to sell and thereafter demanded the return of the
subject title. A complaint was filed by petitioner against Banjamin, NICORP, and IE Bank for
declaration of nullity of the contract to sell, injunction, recovery of possession and damages
with prayer for issuance of TRO and/or preliminary injunction because NICORP has already
started development of the property. The RTC ruled in favour of petitioner which was reversed
by the CA on appeal.

Issue: Whether Benjamin is authorized to sell the subject property of petitioner by virtue of the
General Power of Attorney.

Ruling: No, Benjamin is not authorized to sell the subject property.

The well-established rule is when a sale of a parcel of land or anyinterest therein is


through an agent, the authority of the latter shall be inwriting, otherwise the sale shall be void.
Articles 1874 and 1878 of the CivilCode explicitly provide:

Art. 1874. When a sale of a piece of land or any interesttherein is through an agent, the
authority of the latter shall be inwriting; otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in thefollowing cases:

(1) x xx

(5) To enter into any contract by which the ownership of animmovable is transmitted or
acquired either gratuitously or for avaluable consideration;

x xx . [Emphasis Supplied]

From the foregoing, it is clear that an SPA in the conveyance of realrights over immovable
property is necessary.xxx

xxx such authority must be conferred in writing and must express the powers of the agent in
clear and unmistakable language in order for the principal to confer the right upon an agent to
sell the real property.

It is a general rule that a power of attorney must be strictly construed, and courts will not infer
or presume broad powers from deeds which do not sufficiently include property or subject
under which the agent is to deal. Thus, when the authority is couched in general terms, without
mentioning any specific power to sell or mortgage or to do other specific acts of strict dominion,
then only acts of administration are deemed conferred.

Doubtless, there was no perfected contract to sell between petitioner and NICORP. Nowhere in
the General Power of Attorney was Benjamin granted, expressly or impliedly, any power to sell

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
the subject property or a portion thereof. The authority expressed in the General Power of
Attorney was couched in very broad terms covering petitioner's businesses and properties.
Time and again, this Court has stressed that the power of administration does not include acts
of disposition, which are acts of strict ownership. As such, an authority to dispose cannot
proceed from an authority to administer, and vice versa, for the two powers may only be
exercised by an agent by following the provisions on agency of the Civil Code.

Valentina S. Clemente, Petitioner, vs. The Court of Appeals, Annie ShotwellJalandoon, et.al.,
Respondents. (Gr. No. 175483, October 14, 2015)

JARDELEZA, J.:

Facts:

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Adela owned 3 adjoining parcels of lands in Scout Ojeda St., Diliman Quezon City,
subdivided as Lots 32, 34, and 35-B. During her lifetime, Adela allowed her children, namely,
Annie ShotwellJalandoon, Carlos G. Shotwell Sr., Anselmo G. Shotwell, and Corazon S. Basset,
and grandchildren the use and possession of the properties. Among her grandchildren is
Petitioner Valentina Clemente. Sometime in 1985 and 1987, she simulated the transfer of Lots
32 and 34 to her 2 grandsons. In 1989, prior to her and petitioner’s departure for the US, she
requested her grandsons to execute a deed of reconveyance over subject lots which was
executed and registered with the Registry of Deeds on the same day. On the same year, she
again executed a deed of absolute sale over the same lots in favour of petitioner bearing on its
face the price of P250,000.00. Along with such deed is an SPA which vests petitioner the power
to administer the property and other real and personal property as well of Adela in the
Philippines.

When Adela and petitioner returned to the Philippines, petitioner registered the sale
over lots 32 and 34 with the Registry of Deeds. Later on, it was found out that even Lot 35 was
sold by the same. Soon thereafter, petitioner sought to eject Annie and Carlos Sr., who were
staying on the properties. With this particular adverse action, Annie and Carlos Sr. filed a
complaint for reconveyance of property against petitioner. It was contended that the execution
of the deed in favour of petitioner by Adela was only a means to accommodate the former’s
application and entry to the US. The deeds therefore are only simulated and fictitious.

Issue: Whether the Deeds of Absolute Sale between petitioner and her late grandmother Adela
over the subject properties are simulated and without consideration, and hence, void and
inexistent.

Ruling: The Deeds of Absolute Sale between petitioner and the late Adela Shotwell are null
and void for lack of consent and consideration.

While the Deeds of Absolute Sale appear to be valid on their face, thecourts are not completely
precluded to consider evidence aliunde indetermining the real intent of the parties. This is
especially true when thevalidity of the contracts was put in issue by one of the parties in
hispleadings.Here, private respondents assail the validity of the Deeds ofAbsolute Sale by
alleging that they were simulated and lacked consideration.The Civil Code defines a contract as
a meeting of minds between twopersons whereby one binds himself, with respect to the other,
to givesomething or to render some service. Article 1318 provides that there is nocontract
unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract; and
(3) Cause of the obligation which is established.

All these elements must be present to constitute a valid contract; theabsence of one renders
the contract void. As one of the essential elements,consent when wanting makes the contract
non-existent. Consent ismanifested by the meeting of the offer and the acceptance of the thing
andthe cause, which are to constitute the contract. A contract of sale isperfected at the
moment there is a meeting of the minds upon the thing thatis the object of the contract, and
upon the price.

Here, there was no valid contract of sale between petitioner and Adelabecause their consent
was absent. The contract of sale was a meresimulation.Simulation takes place when the parties
do not really want thecontract they have executed to produce the legal effects expressed by
itswordings. Article 1345 of the Civil Code provides that the simulation of acontract may either
be absolute or relative. The former takes place when theparties do not intend to be bound at all;
the latter, when the parties concealtheir true agreement. xxx
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
In determining the true nature of a contract, the primary test is theintention of the parties. If
the words of a contract appear to contravene theevident intention of the parties, the latter
shall prevail. Such intention isdetermined not only from the express terms of their agreement,
but also fromthe contemporaneous and subsequent acts of the parties. This is especiallytrue in
a claim of absolute simulation where a colorable contract is executed.

In ruling that the Deeds of Absolute Sale were absolutely simulated,the lower courts considered
the totality of the prior, contemporaneous andsubsequent acts of the parties. The following
circumstances led the RTC andthe CA to conclude that the Deeds of Absolute Sale are simulated,
and thatthe transfers were never intended to affect the juridical relation of the parties xxx

xxx

We also find no compelling reason to depart from the court aquo's finding that Adela never
received the consideration stipulated in thesimulated Deeds of Absolute Sale.Although on their
face, the Deeds of Absolute Sale appear to besupported by valuable consideration, the RTC and
the CA found that there
was no money involved in the sale. The consideration in the Deeds ofAbsolute Sale was
superimposed on the spaces therein, bearing a font typedifferent from that used in the rest of
the document. The lower courts alsofound that the duplicate originals of the Deeds of Absolute
Sale bear adifferent entry with regard to the price.

Article 1471 of the Civil Code provides that “if the price is simulated,the sale is void.” Where a
deed of sale states that the purchase price has beenpaid but in fact has never been paid, the
deed of sale is null and void for lackof consideration. Thus, although the contracts state that the
purchase price of P250,000.00 and P60,000.00 were paid by petitioner to Adela for
theProperties, the evidence shows that the contrary is true, because no moneychanged hands.
Apart from her testimony, petitioner did not present proofthat she paid for the Properties.

Marina Port Services, Inc., Petitioner, vs. American Home Assurance Corporation, Respondent.
(Gr. No. 201822, August 12, 2015)

DEL CASTILLO, J.:

Facts:

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Countercorp Trading PTE., Ltd. Shipped from Singapore to the Philippines 10 container
vans of soft wheat flour with seals intact on board the vessel M/V Uni Fortune. The shipment
was insured against all risks by AHAC and consigned to MSC Distributor. Upon arrival at the
Manila South Harbor, the shipment was discharged in good and complete order condition and
with safety seals to the custody of the arrastre operator, MPSI. After unloading but prior to
hauling, agents of the Bureau of Customs officially broke the seals, opened the container vans,
and examined the shipment for tax evaluation in the presence of MSC’s broker and checker.
Thereafter, the container vans were closed and refastened with wire seals and padlocked. Days
after, MSC’s representative, AD’s Customs Services (ACS), took out 5 container vans for delivery
to MSC whereby at the compound’s exit, MPSI issued to ACS the corresponding gate passes for
the vans indicating its turn-over of the subject shipment to MSC. However, upon receipt at its
warehouse, MSC discovered substantial shortages in the number of bags of flour delivered. This
particular incident happened again when the remaining 5 container vans were turned-over to
MSC. In both instances, MSC filed a claim with MPSI wherein the latter refused adherence. As a
result, MSC sought insurance indemnity for the lost cargoes from AHAC which the latter paid.
AHAC therefore became subrogee of MSC’s rights. A complaint was filed by AHAC against MPSI
which was denied by the trial court. On appeal, the CA reversed the trial court’s ruling and held
among others that a presumption of fault or negligence for the loss of the goods arises against
the arrastre operator pursuant to Articles 1265 and 1981 of the Civil Code.

Issue: Whether MPSI may be held liable for the loss of the bags of flour pursuant to Article 1981
of the Civil Code.

Ruling: Even in the light of Article 1981, no presumption of fault on the part of MPSI arises
since it was not sufficiently shown that the container vans were re-opened or that their locks
and seals were broken for the second time.

Indeed, Article 1981 of the Civil Code also mandates a presumption of fault on the part
of the arrastre operator as follows:

Article 1981. When the thing deposited is delivered closed and sealed, the depositary
must return it in the same condition, and he shall be liable for damages should the seal
or lock be broken through his fault.

Fault on the part of the depositary is presumed, unless there is proof to the contrary.

As regards the value of the thing deposited, the statement of the depositor shall be
accepted, when the forcible opening is imputable to the depositary, should there be no
proof to the contrary. However, the courts may pass upon the credibility of the
depositor with respect to the value claimed by him.

When the seal or lock is broken, with or without the depositary's fault, he shall keep the
secret of the deposit.

However, no such presumption arises in this case considering that it was not sufficiently shown
that the container vans were re-opened or that their locks and seals were broken for the
second time. As may be recalled, the container vans were opened by a customs official for
examination of the subject shipment and were thereafter resealed with safety wires. While this
fact is not disputed by both parties, AHAC alleges that the container vans were re-opened and
this gave way to the alleged pilferage. The Court notes, however, that AHAC based such
allegation solely on the survey report of the Manila Adjuster & Surveyors Company (MASCO).
xxxthe person who prepared the said report was not presented in court to testify on the same.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Thus, the said survey report has no probative value for being hearsay. "It is a basic rule that
evidence, whether oral or documentary, is hearsay, if its probative value is not based on the
personal knowledge of the witness but on the knowledge of another person who is not on the
witness stand."xxx

There being no other competent evidence that the container vans were reopened or that their
locks and seals were broken for the second time, MPSI cannot be held liable for damages due to
the alleged loss of the bags of flour pursuant to Article 1981 of the Civil Code.

JOSE V. TOLEDO, GLENN PADIERNOS AND DANILO PADIERNOS, Petitioner, v. COURT OF


APPEALS, LOURDES RAMOS, ENRIQUE RAMOS, ANTONIO RAMOS, MILAGROS RAMOS AND
ANGELITA RAMOS AS HEIRS OF SOCORRO RAMOS, GUILLERMO PABLO, PRIMITIVA CRUZ AND
A.R.C. MARKETING CORPORATION, REPRESENTED BY ITS PRESIDENT, ALBERTO C. DY,
Respondents. (Gr. No. 167838, August 5, 2015)

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
JARDELEZA, J.:

Facts:

Del Rosario Realty, represented by Pedro Del Rosario, is the owner of a lot in Sunrise
Hills Subdivision, Quezon City. In 1958, said Realty entered into a Contract to Sell with Spouses
Faustino. Later on, Spouses Faustino sold their rights to Spouses Vicente Padiernos and
Concordia Garcia. In 1962, Vicente Padiernos sold one half of the property to Spouses Toledo
and in 1967, the remaining half was sold to Spouses Virgilio and Leticia Padiernos. Later on,
Spouses Virgilio and Leticia Padiernos assigned their rights over the acquired property to their
children, Glenn and DaniloPadiernos. On the other hand, Pedro Del Rosario executed a Deed of
Assignment and Interest in the Contract to Sell with Socorro Ramos. It then appears that
execution proceedings were taken against the estate of Socorro Ramos. As a consequence, 18
parcels of land belonging to the estate, including those already being occupied by Spouses
Toledo, Glenn Padiernos, and DaniloPadiernos, were sold in auction to Guillermo N. Pablo and
Primitiva Cruz, who thereafter sold the same to ARC Marketing. The heirs of Socorro Ramos
filed a Complaint for Nullity of Execution Sale (Civil Case No. Q-22850) against the auction sale
winners and their transferee, ARC Marketing. In 1993, CC No. Q-22850 was settled and the
parties entered into a Final Compromise Agreement which was approved by the trial court.
Affected thereby, petitioners herein filed a complaint for reconveyance and damages.

Issue: Whether the approved compromise agreement entered into by and between the
successor-in-interest of Socorro Ramos and ARC Marketing in CC No. Q-22850 which favoured
the latter in acquiring 18 parcels of land including those of the petitioners can validly bind said
petitioners and therefore prevent them from availing the remedy of reconveyance.

Ruling: No, the compromise agreement cannot bind petitioners so as to prevent them from
availing the remedy of reconveyance.

While a judicially-approved compromise agreement indeed has the effect and authority
of res judicata, the same is conclusive and binding only upon the parties and those who are
their successors-in-interest by title after the commencement of the action in court:

It is basic in law that a compromise agreement, as a contract, is binding only


upon the parties to the compromise, and not upon non-parties. This is the
doctrine of relativity of contracts. Consistent with this principle, a judgment
based entirely on a compromise agreement is binding only on the parties to
the compromise the court approved, and not upon the parties who did not
take part in the compromise agreement and in the proceedings leading to its
submission and approval by the court. Otherwise stated, a court judgment
made solely on the basis of a compromise agreement binds only the parties to
the compromise, and cannot bind a party litigant who did not take part in the
compromise agreement.

Petitioners were never parties to Civil Case No. Q-22850. Petitioners also acquired their title
over the property prior to the institution of said case involving respondents. Thus, petitioners
cannot be prejudiced by the compromise judgment in said case.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Nemencio C. Pulumbarit, Sr., Petitioner, vs. The Court of Appeals (17 th Division composed of
Justice Bienvenido L. Reyes, Ponente; Justice Roberto A. Barrios, Chairman; and Justice
Edgardo F. Sundiam, Acting Third Member), Lourdes S. Pascual, Leonila F. Acasio, and San
Juan Macias Memorial Park, Inc., Respondents. (Gr. Nos. 153745-46, October 14, 2015)

JARDELEZA, J.:

Facts:

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
Sometime in 1982, San Juan Macias Memorial Park, Inc. (SJMMPI), through its President
Lourdes Pascual, authorized Atty. Soledad de Jesus to look for a buyer for the San Juan
Memorial Park for P1.5 Million. Thereafter, Pascual, LeonilaAcasio, and the other officers of
SJMMPI were introduced to NemencioPulumbarit. The parties eventually came to an
agreement, with Pulumbarit issuing 18 checks in the name of SJMMPI’s Secretary-Treasurer
Acasio. Pulumbarit and/or his lawyer took charge of reducing the agreement into writing and
securing the signatures of all concerned parties. On June 13, 1983, Pascualet. al sent a letter to
Palumbarit requesting for a copy of their written agreement and to reissue new checks to
replace the ones he previously issued due to termination of Acasio’s services with SJMMPI.
Failing to get a favourable response, Pascualet. al filed a Complaint for Rescission of Contract,
Damages, and Accounting with Prayer for Preliminary Injunction or Receivership against
Pulumbarit. Trial ensued and procedural matters were discussed leading to the consolidation of
two cases because when a decision was rendered by the trial court favouring Pascualet. al, the
latter moved for discretionary execution pending appeal of Pulumbarit. There is however one
issue that is controlling in this case in order to resolve who between Pascualet. al and
Pulumbarit should prevail. It was the contention of Pascualet. al that the agreement they
entered into with Pulumbarit is only a Management Contract with Option to Buy. Pascualet. al
even presented an expert witness from the NBI in order to testify that the purported
Memorandum of Agreement containing a stipulation supposedly showing the intention of the
parties to sell the memorial park does not actually reflect the terms and conditions actually
agreed upon by the parties.

Issue: Whether the agreement between the parties was a contract to sell the shares of SJMMPI
or a contract of sale or a management contract with option to buy.

Ruling: Agreement between the parties was a contract to sell the shares of SJMMPI and not a
contract of sale or a management contract with option to buy.

xxx

We affirm the findings of the CA insofar as it ruled that the parties did not contemplate
a management contract with option to buy. We nevertheless rule that the agreement entered
into by the parties was not a contract of sale, but rather, a contract to sell the shares of
SJMMPI.

The text of the MOA between the parties shows that their agreement was a contract to
sell SJMMPI shares. The pertinent portion of page three of the MOA reads:

xxx

4.The shares of stocks stated above and subject matter of this Agreement will only be
transferred in the name of the PARTY OF THE SECOND PART, its heirs, successors and
assigns upon full payment and/or full satisfaction thereon of the consideration of this
agreement.

While Pascualet. al are technically correct in arguing that they did not enter into a
contract of sale with Pulumbarit, they cannot deny the existence of the stipulation in page
three of the MOA evidencing a contract to sell and negating their claim of a management
contract with option to buy. Notably, page three bears the signatures of Pulumbarit, Pascual,
#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law
and the other SJMMPI stockholders. We further note that Pascual did not dispute the
authenticity of her signature appearing on page there of the MOA. Neither did she allege during
the course of the proceedings that she signed another document or entered into another
written transaction with Pulumbarit aside from the MOA.

Even though the NBI Questioned Document Report No. 102-384 (Report) stated that
page two of the document was typed from a typewriter different from that used in typing pages
one, three, and four, the same report was inconclusive as to the possibility of falsification. The
Report does not contain any categorical statement from the NBI Examiner that the pages were
substituted or that the MOA was spurious or falsified.

#12 Personally Digested by:


Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law