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BERSAMIN CASES IN CIVIL LAW

(A Discussion By Prof. Elmer T. Rabuya
For 2017 Bar Examinations)

Q1: Classify lands based on ownership and cite legal basis.

According to the Civil Code, Land, which is an immovable property, may be classified as either of
public dominion or of private ownership. Land is considered of public dominion if it either: (a) is
intended for public use; or (b) belongs to the State, without being for public use, and is intended for
some public service or for the development of the national wealth. Land belonging to the State that
is not of such character, or although of such character but no longer intended for public use or for
public service forms part of the patrimonial property of the State. Land that is other than part of the
patrimonial property of the State, provinces, cities and municipalities is of private ownership if it
belongs to a private individual. [Heirs of Mario Malabanan vs. Republic of the Philippines, 704 SCRA
561, September 03, 2013]

Q2: Classify lands based on alienability and cite legal basis.

Whether or not land of the public domain is alienable and disposable primarily rests on the
classification of public lands made under the Constitution. Under the 1935 Constitution, lands of the
public domain were classified into three, namely, agricultural, timber and mineral. The 1987
Constitution adopted the classification under the 1935 Constitution into agricultural, forest or
timber, and mineral, but added national parks. Based on the foregoing, the Constitution places a
limit on the type of public land that may be alienated. Under Section 2, Article XII of the 1987
Constitution, only agricultural lands of the public domain may be alienated; all other natural
resources may not be. [Heirs of Mario Malabanan vs. Republic of the Philippines, 704 SCRA 561,
September 03, 2013]

Q3: Distinguish registration under Sec. 14(1) of the Property Registration Decree from registration
under Sec. 14(2) of the same law?

Section 14(1) mandates registration on the basis of possession, while Section 14(2) entitles
registration on the basis of prescription. Registration under Section 14(1) is extended under the
aegis of the Property Registration Decree and the Public Land Act while registration under Section
14(2) is made available both by the Property Registration Decree and the Civil Code.

In other words, registration under Section 14(1) of P.D. No. 1529 is based on possession and
occupation of the alienable and disposable land of the public domain since June 12, 1945 or earlier,
without regard to whether the land was susceptible to private ownership at that time. The applicant
needs only to show that the land had already been declared alienable and disposable at any time
prior to the filing of the application for registration.

On the other hand, an application under Section 14(2) of P.D. No. 1529 is based on
acquisitive prescription and must comply with the law on prescription as provided by the Civil Code.
In that regard, only the patrimonial property of the State may be acquired by prescription pursuant
to the Civil Code. For acquisitive prescription to set in, therefore, the land being possessed and
occupied must already be classified or declared as patrimonial property of the State. Otherwise, no
length of possession would vest any right in the possessor if the property has remained land of the
public dominion. Malabanan stresses that even if the land is later converted to patrimonial property
of the State, possession of it prior to such conversion will not be counted to meet the requisites of
acquisitive prescription. Thus, registration under Section 14(2) of P.D. No. 1529 requires that the
land had already been converted to patrimonial property of the State at the onset of the period of
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possession required by the law on prescription. [Republic vs. Zurbaran Realty and Development
Corporation, 719 SCRA 601, March 24, 2014]

Q4: What are the requisites for registration under Sec. 14(1) of the Property Registration Decree?

An application for registration under Section14(1) of P.D. No. 1529 must establish the following
requisites, namely: (a) the land is alienable and disposable property of the public domain; (b) the
applicant and its predecessors in interest have been in open, continuous, exclusive and notorious
possession and occupation of the land under a bona fide claim of ownership; and (c) the applicant
and its predecessors-in-interest have possessed and occupied the land since June 12, 1945, or earlier.
[Republic vs. Zurbaran Realty and Development Corporation, 719 SCRA 601, March 24, 2014]

Q5: Is it necessary under Sec. 14(1) of the Property Registration Decree that the land must have
already been declared alienable and disposable as of June 12, 1945?

NO. The Court has clarified in Malabanan that under Section14(1), it is not necessary that the land
must have been declared alienable and disposable as of June 12, 1945, or earlier, because the law
simply requires the property sought to be registered to be alienable and disposable at the time the
application for registration of title is filed. The Court has explained that a contrary interpretation
would absurdly limit the application of the provision "to the point of virtual inutility." [Republic vs.
Zurbaran Realty and Development Corporation, 719 SCRA 601, March 24, 2014; Heirs of Mario
Malabanan v. Republic, 704 SCRA 561, September 3, 2013; Heirs of Mario Malabanan v. Republic,
587 SCRA 172, April 29, 2009]

If the mode is judicial confirmation of imperfect title under Section 48(b) of the Public Land Act, the
agricultural land subject of the application needs only to be classified as alienable and disposable as
of the time of the application, provided the applicant’s possession and occupation of the land dated
back to June 12, 1945, or earlier. Thereby, a conclusive presumption that the applicant has
performed all the conditions essential to a government grant arises, and the applicant becomes the
owner of the land by virtue of an imperfect or incomplete title. By legal fiction, the land has already
ceased to be part of the public domain and has become private property. [Heirs of Mario Malabanan
v. Republic, 704 SCRA 561, September 3, 2013]

Q6: What are the requisites for registration under Sec. 14(2) of the Property Registration Decree?

ANSWER: An application for registration based on Section 14(2) of P.D. No. 1529 must, therefore,
establish the following requisites, to wit: (a) the land is an alienable and disposable, and patrimonial
property of the public domain; (b) the applicant and its predecessors-in-interest have been in
possession of the land for at least 10 years, in good faith and with just title, or for at least 30 years,
regardless of good faith or just title; and (c) the land had already been converted to or declared as
patrimonial property of the State at the beginning of the said 10-year or 30-year period of
possession. In other words, an application for original registration of land of the public domain under
Section 14(2) of Presidential Decree (PD) No. 1529 must show not only that the land has previously
been declared alienable and disposable, but also that the land has been declared patrimonial
property of the State at the onset of the 30-year or 10-year period of possession and occupation
required under the law on acquisitive prescription. [Republic vs. Zurbaran Realty and Development
Corporation, 719 SCRA 601, March 24, 2014]

Q7: Are patrimonial properties of the State susceptible to acquisitive prescription under the Civil
Code?
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YES.

Although in the 2003 en banc case of Alonzo vs. Cebu Country Club (417 SCRA 2003), the
Court ruled that “possession of patrimonial property of the Government, whether spanning decades
or centuries, cannot ipso facto ripen into ownership,” citing great principle of public policy as basis
that statutes of limitation should not run against the State, the Court , in the 2009 en banc case of
Heirs of Mario Malabanan v. Republic (587 SCRA 172) ruled that patrimonial property of the state
may be acquired by prescription, citing Article 1113 of the Civil Code. [reiterated in dozen other
cases, including Heirs of Mario Malabanan v. republic, 704 SCRA 561 (2013)]

Q8: If agricultural lands have been classified as alienable and disposable, may they be acquired thru
prescription under the Civil Code and be registered under Sec. 14(2) of the Property Registration
Decree?

NO. The classification of the subject property as alienable and disposable land of the public domain
does not change its status as property of the public dominion under Article 420(2) of the Civil
Code. Thus, it is insusceptible to acquisition by prescription.

There must be an express declaration by the State that the public dominion property is no longer
intended for public service or the development of the national wealth or that the property has been
converted into patrimonial. Without such express declaration, the property, even if classified as
alienable or disposable, remains property of the public dominion, pursuant to Article 420(2), and
thus incapable of acquisition by prescription. It is only when such alienable and disposable lands are
expressly declared by the State to be no longer intended for public service or for the development of
the national wealth that the period of acquisitive prescription can begin to run. Such declaration
shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where
the President is duly authorized by law. [Heirs of Mario Malabanan vs. Republic, G.R. No. 179987,
April 29, 2009, 587 SCRA 172; Heirs of Mario Malabanan vs. Republic of the Philippines, 704 SCRA
561, September 03, 2013]

Q9: Should public domain lands become patrimonial because they are declared as such in a duly
enacted law or duly promulgated proclamation that they are no longer intended for public service or
for the development of the national wealth, would the period of possession prior to the conversion
of such public dominion into patrimonial be reckoned in counting the prescriptive period in favor of
the possessors?

The limitation imposed by Article 1113 prevents the period of possession before the public domain
land becomes patrimonial from being counted for the purpose of completing the prescriptive period.
Possession of public dominion property before it becomes patrimonial cannot be the object of
prescription according to the Civil Code. As the application for registration under Section 14(2) falls
wholly within the framework of prescription under the Civil Code, there is no way that possession
during the time that the land was still classified as public dominion property can be counted to meet
the requisites of acquisitive prescription and justify registration. In other words, the period of
possession prior to the reclassification of the land, no matter how long, was irrelevant because
prescription did not operate against the State before then. [Heirs of Mario Malabanan vs. Republic,
G.R. No. 179987, April 29, 2009, 587 SCRA 172; Heirs of Mario Malabanan vs. Republic of the
Philippines, 704 SCRA 561, September 03, 2013]

In other words, it is necessary that the land had already been converted to or declared as patrimonial
at the beginning of the 10-year or 30-year period of possession, as required under the law on
acquisitive prescription [Republic v. Zurbaran Realty and Development Corporation, 719 SCRA 601,
March 24, 2014]
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Q10: Discuss the case of Heirs of Mario Malabanan vs. Republic, G.R. No. 179987, April 29, 2009, 587
SCRA 172.

FACTS: In 1988, Malabanan applied for registration of a property in Silang, Cavite which he acquired
from Velazco. In his application, he alleged that he and his predecessor-in-interest had been in
possession of the property for more than 30 years. During trial, he presented a certification from
DENR CENRO that the property had been classified as alienable and disposable on March 15, 1982.
Malabanan failed to prove, however, that the possession dated back to June 12, 1945 or earlier. Is he
entitled to registration?

RULING: He is not entitled to registration under Sec. 14(1) of the Property Registration Decree
because while the property is classified as alienable or disposable at the time of the application, he
failed to prove that his possession or that of his predecessor-in-interest dated back to June 12, 1945
or earlier. He is also not entitled to registration under Sec. 14(2) of the PRD because there is no proof
that the property had already been converted into patrimonial.

Q11: Discuss the case of Heirs of Mario Malabanan vs. Republic of the Philippines, 704 SCRA 561,
September 03, 2013.

FACTS: In their motion for reconsideration, the petitioners submit that the mere classification of the
land as alienable or disposable should be deemed sufficient to convert it into patrimonial property of
the State. The Republic also seeks the partial reconsideration. The Republic contends that the
decision has enlarged, by implication, the interpretation of Section 14(1) of the Property
Registration Decree through judicial legislation. It reiterates its view that an applicant is entitled to
registration only when the land subject of the application had been declared alienable and
disposable since June 12, 1945 or earlier.

RULING: On the contention of the Republic, the Court reiterated its ruling that Sec. 14(1) of the
Property Registration Decree does not require the property to be classified as alienable and
disposable as of June 12, 1945. It is sufficient that the property is classified as so at the the time of
the filing of the application.

On the contention of the petitioners, the Court reiterated its ruling that the classification of the
subject property as alienable and disposable land of the public domain does not change its status as
property of the public dominion under Article 420(2) of the Civil Code. Thus, it is insusceptible to
acquisition by prescription.

Q12: In order to prove that lands of the public domain had already been classified as alienable and
disposable, will the certification issued by the CENRO or PENRO to that effect be sufficient?

NO. The applicant for land registration must prove that the DENR Secretary had approved the land
classification and released the land of the public domain as alienable and disposable, and that the
land subject of the application for registration falls within the approved area per verification through
survey by the PENRO or CENRO. In addition, the applicant for land registration must present a copy
of the original classification approved by the DENR Secretary and certified as a true copy by the legal
custodian of the official records. These facts must be established to prove that the land is alienable
and disposable. This doctrine unavoidably means that the mere certification issued by the CENRO or
PENRO did not suffice to support the application for registration, because the applicant must also
submit a copy of the original classification of the land as alienable and disposable as approved by the
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DENR Secretary and certified as a true copy by the legal custodian of the official records. Thus, the
present rule is that an application for original registration must be accompanied by (1) a CENRO or
PENRO Certification; and (2) a copy of the original classification approved by the DENR Secretary
and certified as a true copy by the legal custodian of the official records. [Republic vs. De Guzman
Vda. de Joson, 718 SCRA 228, March 10, 2014]

Q13: If the original tracing cloth plan approved by the Bureau of Lands (now Lands Management
Services) of the DENR is not presented but only the approved plan and technical description
approved by the LMS, may the application for registration be denied?

Yes. Although the best means to identify a piece of land for registration purposes is the original
tracing cloth plan approved by the Bureau of Lands (now the Lands Management Services of the
Department of Environment and Natural Resources), other evidence could provide sufficient
identification. There stands to be no reason why a registration application must be denied for failure
to present the original tracing cloth plan, especially where it is accompanied by pieces of evidence—
such as a duly executed blueprint of the survey plan and a duly executed technical description of the
property—which may likewise substantially and with as much certainty prove the limits and extent
of the property sought to be registered. [Republic vs. Alba, 767 SCRA 385, August 19, 2015]

Q14: Explain the “curtain principle” under the Torrens system of land registration.

One of the guiding tenets underlying the Torrens system is the curtain principle, in that one
does not need to go behind the certificate of title because it contains all the information about the
title of its holder. This principle dispenses with the need of proving ownership by long complicated
documents kept by the registered owner, which may be necessary under a private conveyancing
system, and assures that all the necessary information regarding ownership is on the certificate of
title. Consequently, the avowed objective of the Torrens system is to obviate possible conflicts of
title by giving the public the right to rely upon the face of the Torrens certificate and, as a rule, to
dispense with the necessity of inquiring further; on the part of the registered owner, the system
gives him complete peace of mind that he would be secured in his ownership as long as he has not
voluntarily disposed of any right over the covered land.

The Philippines adopted the Torrens system through Act No. 496,27 also known as the Land
Registration Act, which was approved on November 6, 1902 and took effect on February 1, 1903. In
this jurisdiction, therefore, “a person dealing in registered land has the right to rely on the Torrens
certificate of title and to dispense with the need of inquiring further, except when the party has
actual knowledge of facts and circumstances that would impel a reasonably cautious man to make
such inquiry.” [Cusi vs. Domingo, 692 SCRA 277, February 27, 2013]

Q15: If the duplicate owner’s copy was reissued by virtue of the loss of the original duplicate owner’s
copy, may the buyer simply rely on the title to invoke the principle of buyer in good faith?

NO. The nature of a reconstituted Transfer Certificate of Title of registered land is similar to
that of a second Owner's Duplicate Transfer Certificate of Title. Both are issued, after the proper
proceedings, on the representation of the registered owner that the original of the said TCT or the
original of the Owner's Duplicate TCT, respectively, was lost and could not be located or found
despite diligent efforts exerted for that purpose. Both, therefore, are subsequent copies of the
originals thereof. A cursory examination of these subsequent copies would show that they are not
the originals. Anyone dealing with such copies are put on notice of such fact and thus warned to be
extra-careful. Hence, it is not safe for the buyers to simply rely on the face of the title in view of the
fact that they are aware that the title is derived from a duplicate owner’s copy reissued by virtue of
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the loss of the original duplicate owner’s copy. That circumstance should have already alerted them
to the need to inquire beyond the face of the title. [Cusi vs. Domingo, 692 SCRA 277, February 27,
2013]

Q16: What is the doctrine of constructive fulfillment of suspensive condition? State the requisites for
its application?

Article 1186 of the Civil Code refers to the constructive fulfillment of a suspensive condition, whose
application calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment of
the condition, and (b) the actual prevention of the fulfillment. [International Hotel Corporation vs.
Joaquin, Jr., 695 SCRA 382, April 10, 2013]

*** Note that the doctrine is applicable only to a mixed condition where a part of the condition is
made to depend upon the debtor’s will. If the fulfillment of the condition is wholly dependent upon
the debtor’s will, the obligation is void if it is at the same time suspensive pursuant to Article 1182 of
the Civil Code.

Q17: What is the the rule on constructive fulfillment of a mixed conditional obligation? Distinguish it
from the doctrine of constructive fulfillment of suspensive condition under Article 1186 of the Civil
Code?

When the fulfillment of a condition is dependent partly on the will of one of the contracting
parties, or of the obligor, and partly on chance, hazard or the will of a third person, the obligation is
mixed. The existing rule in a mixed conditional obligation is that when the condition was not fulfilled
but the obligor did all in his power to comply with the obligation, the condition should be deemed
satisfied. This is the rule on constructive fulfillment of a mixed conditional obligation. [International
Hotel Corporation vs. Joaquin, Jr., 695 SCRA 382, April 10, 2013]

The rule is different from the doctrine of constructive fulfillment of suspensive condition in
Article 1186 of the Civil Code. Under the rule on constructive fulfillment of a mixed conditional
obligation, the obligor did all in his power to comply with the obligation and the condition is not
fully complied because of chance or will of a third person. Under the doctrine of constructive
fulfillment of a suspensive condition, it is the debtor himself who intentionally prevents the
fulfillment of the condition.

[International Hotel Corporation vs. Joaquin, Jr., 695 SCRA 382, April 10, 2013]

FACTS: Joaquin and Suarez submitted a proposal to IHC to ender technical assistance, fo a
consideration, in securing a foreign loan for the construction of IHC’s hotel. IHC agreed. Joaquin
submitted to IHC’s board results of his negotiations with potential foreign financiers. Joaquin
recommended Weston, but IHC chose to negotiate with Barnes International. Negotiations between
IHC and Barnes then ensued. In the meantime, DBP issued a foreign loan guaranty. While the
negotiations with Barnes were ongoing, Joaquin and IHC met with another financier, Weston, to
explore possible financing. When Barnes failed to deliver the needed loan, IHC informed DBP that it
would submit Weston for consideration. As a result, DBP cancelled its previous guaranty. IHC then
entered into an agreement with Weston and communicated said development to DBP. DBP,
however, denied the application for guaranty.

Due to failure of Joaquin to secure the needed loan, IHC cancelled the shares of stock it
earlier paid to Joanquin and Suarez. Joaquin and Suarez sued IHC for specific performance. The RTC
found IHC liable pursuant to Article 1234 of the Civil Code. The RTC found that Joaquin and Suarez
had failed to meet their obligations when IHC had chosen to negotiate with Barnes rather than with
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Weston, the financier that Joaquin had recommended. On appeal, the CA uphold IHC’s liability
under Article 1186 of the Civil Code. It ruled that in the context of Article 1234 of the Civil Code,
Joaquin had substantially performed his obligations and had become entitled to be paid for his
services.

Q18: May IHC be held liable to Joaquin and Suarez pursuant to Article 1186 of the Civil Code?

NO. Article 1186 of the Civil Code refers to the constructive fulfillment of a suspensive
condition, whose application calls for two requisites, namely: (a) the intent of the obligor to prevent
the fulfillment of the condition, and (b) the actual prevention of the fulfillment. Mere intention of
the debtor to prevent the happening of the condition, or to place ineffective obstacles to its
compliance, without actually preventing the fulfillment, is insufficient. IHC only relied on the opinion
of its consultant in deciding to transact with with Barnes. In negotiating with Barnes, IHC had no
intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such
absence of any intention negated the basis for the CA’s reliance on Article 1186 of the Civil Code.
[International Hotel Corporation vs. Joaquin, Jr., 695 SCRA 382, April 10, 2013]

Q19: May IHC be held liable to Joaquin and Suarez pursuant to Article 1234 of the Civil Code?

NO. Article 1234 applies only when an obligor admits breaching the contract after honestly
and faithfully performing all the material elements thereof except for some technical aspects that
cause no serious harm to the obligee. The provision refers to an omission or deviation that is slight,
or technical and unimportant, and does not affect the real purpose of the contract.

Conversely, the principle of substantial performance is inappropriate when the incomplete

performance constitutes a material breach of the contract. A contractual breach is material if it will
adversely affect the nature of the obligation that the obligor promised to deliver, the benefits that
the obligee expects to receive after full compliance, and the extent that the nonperformance
defeated the purposes of the contract.

In the case at bar, the primary objective of the parties in entering into the services
agreement was to obtain a foreign loan to finance the construction of IHC’s hotel project, which
objective was not satisfied. The failure to completely satisfy such obligation could not be
characterized as slight and unimportant as to have resulted in Joaquin and Suarez’s substantial
performance that consequentially benefitted IHC. [International Hotel Corporation vs. Joaquin, Jr.,
695 SCRA 382, April 10, 2013]

Q20: Is IHC completely absolved from liability to Joaquin and Suarez?

NO. IHC is nonethelss liable to pay to Joaquin and Suarez under the rule on constructive
fullfilment of a mixed conditional obligation.

Joaquin and Suarez’s obligation was subject to the suspensive condition of successfully
securing a foreign loan guaranteed by DBP. However, the securing of a DBP-guaranteed foreign
loan did not solely depend on the diligence or the sole will of Joaquin and Suarez because it required
the action and discretion of third persons – an able and willing foreign financial institution to provide
the needed funds, and the DBP Board of Governors to guarantee the loan. Such third persons could
not be legally compelled to act in a manner favorable to IHC. There is no question that when the
fulfillment of a condition is dependent partly on the will of one of the contracting parties, or of the
obligor, and partly on chance, hazard or the will of a third person, the obligation is mixed. The
existing rule in a mixed conditional obligation is that when the condition was not fulfilled but the
obligor did all in his power to comply with the obligation, the condition should be deemed satisfied.
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Considering that the Joaquin and Suarez were able to secure an agreement with Weston, and
subsequently tried to reverse the prior cancellation of the guaranty by DBP, they thereby
constructively fulfilled their obligation. IHC. [International Hotel Corporation vs. Joaquin, Jr., 695
SCRA 382, April 10, 2013]

Q21: Are Joaquin and Suarez entitled to full compensation for their services?

NO, because there are still services yet to be rendered. Considering the absence of an
agreement, and in view of Joaquin’s and Suarez’s constructive fulfillment of their obligation, the
Court has to apply the principle of quantum meruit in determining how much was still due and owing
to them.

Under the principle of quantum meruit, a contractor is allowed to recover the reasonable
value of the services rendered despite the lack of a written contract. The measure of recovery under
the principle should relate to the reasonable value of the services performed. The principle prevents
undue enrichment based on the equitable postulate that it is unjust for a person to retain any benefit
without paying for it. [International Hotel Corporation vs. Joaquin, Jr., 695 SCRA 382, April 10, 2013]

Q22: Explain the principle of recoupment in case of breach of warranty in contract of sale?

Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon which
one is sued by means of a legal or equitable right resulting from a counterclaim arising out of the
same transaction. It is the setting up of a demand arising from the same transaction as the plaintiff’s
claim, to abate or reduce that claim.

The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of the Civil
Code, viz: “Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his
election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of
recoupment in diminution or extinction of the price;xxx” [First United Construction Corporation vs.
Bayanihan Automotive Corporation, 713 SCRA 354, January 15, 2014]

Q23: FUCC purchased 6 units of dump trucks from Bayanihan from May 27, 1992 to July 8, 1992. In
September 19, 1992, FUCC purchased two additional trucks, paid partly in cash and partly in PDCs.
When Bayanihan tried to enchash the checks, it learned that FUCC had ordered the payment
stopped. FUCC refused to pay the balance on the ground that it incurred expenses for the repair of a
truck purchased on May 27, 1992 because said truck brokedown. FUCC justified the stop payment of
the checks in the exercise of their right of recoupment because of Bayanihan’s refusal to settle their
claim for breach of warranty of the truck purchased on May 27, 1992. Is FUCC correct?

NO. It was improper for FUCC to set up its claim for repair expenses and other spare parts of
the dump truck purchased on May 27, 1992 against their remaining balance on the price of trucks
purchased on September 19, 1992. Recoupment must arise out of the contract or transaction upon
which the plaintiff’s claim is founded. To be entitled to recoupment, therefore, the claim must arise
from the same transaction, i.e., the purchase of the trucks on September 19, 1992 and not to a
previous contract involving the purchase of the dump truck. That there was a series of purchases
made by FUCC could not be considered as a single transaction, for the earlier purchase of the six
dump trucks was a separate and distinct transaction from the subsequent purchase of the two other
trucks. Consequently, the breakdown of one of the dump trucks did not grant FUCC the right to stop
and withhold payment of their remaining balance on the last two purchases. [First United
Construction Corporation vs. Bayanihan Automotive Corporation, 713 SCRA 354, January 15, 2014]

Q24: What are the requisites of legal compensation?

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Legal compensation takes place when the requirements set forth in Article 1278 and Article 1279 of
the Civil Code are present, to wit:
(1) The two persons are creditors and debtors of each other, in their own right (Art. 1278,
NCC);
(2) That each of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(3) That both debts consists in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(4) That the two debts be due; liquidated and demandable; and
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor (Art. 1279, NCC). [First United
Construction Corporation vs. Bayanihan Automotive Corporation, 713 SCRA 354,
January 15, 2014]

Q25: In the same case, both the RTC and the CA determined that the amount of the expenses
incurred by FUCC in repairing the truck purchased on May 27, 1992 is P71,350. Said finding is
supported by the evidence on record. May said amount be deemed legally compensated with the
balance of the purchase price in the amount of P735,000, thus leaving a balance of only P663,650?
Or is legal compensation prevented on the ground that FUCC’s claim is unliquidated?

YES, legal compensation is proper. The factual findings of the trial court, when affirmed by
the CA, are conclusive on the Supreme Court when supported by the evidence on record. A debt is
liquidated when its existence and amount are determined. Accordingly, an unliquidated claim set up
as a counterclaim by a defendant can be set off against the plaintiff’s claim from the moment it is
liquidated by judgment.

Article 1290 of the Civil Code provides that when all the requisites mentioned in Article 1279
of the Civil Code are present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount. With FUCC’s expenses for the repair of the dump truck being
already established and determined with certainty by the lower courts, it follows that legal
compensation could take place because all the requirements were present. Hence, the amount of
₱71,350.00 should be set off against FUCC’s unpaid obligation of ₱735,000.00, leaving a balance of
₱663,650.00, the amount FUCC still owed to Bayanihan. [First United Construction Corporation vs.
Bayanihan Automotive Corporation, 713 SCRA 354, January 15, 2014]

[Arado vs. Alcoran, 762 SCRA 37, July 08, 2015]

FACTS: Raymundo Alcoran (Raymundo) was married to Joaquina Arado (Joaquina), and their
marriage produced a son named Nicolas Alcoran (Nicolas). In turn, Nicolas married Florencia
Limpahan (Florencia) but their union had no offspring. During their marriage, however, Nicolas had
an extramarital affair with Francisca Sarita (Francisca), who gave birth to respondent Anacleto
Alcoran (Anacleto) on July 13, 1951 during the subsistence of Nicolas' marriage to Florencia. While
the birth certiicate of Anacleto indicating Nicolas as his father was not signed by the latter,
nevertheless it was Nicolas who caused the registration of Anacleto's birth in the civil registry. The
name of Nicolas appeared under the column "Remarks" in the register of births, which was the space
provided for the name of the informant.

Raymundo died in 1939. When Raymundo died in 1939, his properties were inherited by his son
Nicolas alone because under the old Civil Code the spouse could not inherit but only acquire a right
of usufruct. Nicolas died in 1954. Florencia died in 1960. Joaquina died in 1981. Florencia was
survived by her three siblings. Joaquina was survived by her four siblings.
 10

Q26: Can Anacleto inherit from his father Nicolas? Did Nicolas acknowledge Anacleto as his
illegitimate child?

YES. Nicolas had duly acknowledged Anacleto as his illegitimate son. The birth certificate of
Anacleto appearing in the civil registry showed that Nicolas had himself caused the registration of
the birth of Anacleto. The showing was by means of the name of Nicolas appearing in the column
"Remarks" in the the Register of Births. The column in the Register of Births entitled "Remarks"
(Observaciones) was the space provided for the name of the informant of the live birth to be
registered. Considering that Nicolas, the putative father, had a direct hand in the preparation of the
birth certificate, reliance on the birth certificate of Anacleto as evidence of his paternity was fully
warranted. Thus, Anacleto had an established right to inherit from Nicolas. [Arado vs. Alcoran, 762
SCRA 37, July 08, 2015]

Q27: Upon the death of Nicolas in 1954 without a will, who shall inherit from him?

When Nicolas died in 1954, the Civil Code of the Philippines was already in effect. Under
Article 1000 thereof, the heirs entitled to inherit from Nicolas's estate were Joaquina (his mother),
Florencia (his surviving spouse), and Anacleto (his acknowledged illegitimate son). Said heirs
became co-owners of the properties comprising the entire estate of Nicolas prior to the estate's
partition in accordance with Article 1078 of the Civil Code. [Arado vs. Alcoran, 762 SCRA 37, July 08,
2015]

*** NOTE: Legitimate Ascendant, ½ of the estate; surviving spouse, ¼ of the estate; and
illegitimate child, ¼ of the estate]

Q28: Upon the death of Joaquina in 1981, who shall inherit from her? Can Anacleto represent his
father with respect to the estate of her grandmother who died without a will [because the Court
declared Joaquina’s will as not approved]?

In as much as Joaquina died without any surviving legitimate descendant, ascendant,

illegitimate child or spouse, Article 1003 of the Civil Code mandated that her collateral relatives
should inherit her entire estate. In this case, the nearest collateral blood relatives were the
decedent’s four siblings.

Anacleto, however, was barred by law from inheriting from the estate of Joaquina. He could
not inherit from Joaquina by right of representation of Nicolas, the legitimate son of
Joaquina. Under Article 992 of the Civil Code, an illegitimate child has no right to inherit ab
intestato from the legitimate children and relatives of his father or mother; in the same manner,
such children or relatives shall not inherit from the illegitimate child. As certified in Diaz v.
Intermediate Appellate Court, the right of representation is not available to illegitimate descendants
oflegitimate children in the inheritance of a legitimate grandparent. [Arado vs. Alcoran, 762 SCRA
37, July 08, 2015]

[Heirs of Protacio Go, Sr. and Marta Barola vs. Servacio, 657 SCRA 10, September 07, 2011]

FACTS: Patricio Go, Sr. and Marta Go got married during the effectivity of the Civil Code without a
marriage settlement. In 1976, Patricio Go, Sr. purchased two parcels of land in Southern Leyte. In
1987, Marta Go died. In 1999, Protacio, Sr. and his son Rito B. Go sold a portion of the said property
to Servacio. In 2001, some of the children of Protacio Sr. demanded for the return of the property on
the ground that the sale of the property to Servacio without the prior liquidation of the community
property between Protacio, Sr. and Marta was null and void, invoking Article 130 of the Family Code.
 11

Q29: Is the rule in Article 130 of the Family Code declaring void any disposition or encumbrance of
conjugal property without prior liquidation upon the death of one of the spouses applicable to
conjugal partnership established during the effectivity of the Civil Code?

YES. Pursuant to Article 105 of the Family Code, it is clear that conjugal partnership of gains
established before and after the effectivity of the Family Code are governed by the rules found in
Chapter 4 (Conjugal Partnership of Gains) of Title IV (Property Relations Between Husband And
Wife) of the Family Code. Hence, any disposition of the conjugal property after the dissolution of the
conjugal partnership must be made only after the liquidation; otherwise, the disposition is void.
Before applying such rules, however, the conjugal partnership of gains must be subsisting at the
time of the effectivity of the Family Code. [Heirs of Protacio Go, Sr. and Marta Barola vs. Servacio,
657 SCRA 10, September 07, 2011]

*** Note: Meaning, in order for Article 130 to apply to conjugal partnership established
under the Civil Code, the same must still subsist during the effectivity of the Family Code. Thus, if
the conjugal partnership was already terminated (by reason of death of one of the spouses, for
example) prior to the effectivity of the Family Code, Article 130 will not apply.

Q30: In the case at bar, is the sale void?

The disposition by sale of a portion of the conjugal property by the surviving spouse without
the prior liquidation mandated by Article 130 of the Family Code is not necessarily void if said
portion has not yet been allocated by judicial or extrajudicial partition to another heir of the
deceased spouse.

There being no dispute that Protacio, Sr. and Marta were married prior to the effectivity of
the Family Code on August 3, 1988, their property relation was properly characterized as one of
conjugal partnership governed by the Civil Code. Upon Marta’s death in 1987, the conjugal
partnership was dissolved, pursuant to Article 175 (1) of the Civil Code, and an implied ordinary co-
ownership ensued among Protacio, Sr. and the other heirs of Marta with respect to her share in the
assets of the conjugal partnership pending a liquidation following its liquidation.

The ensuing implied ordinary co-ownership was governed by Article 493 of the Civil Code.
Protacio, Sr., although becoming a co-owner with his children in respect of Marta’s share in the
conjugal partnership, could not yet assert or claim title to any specific portion of Marta’s share
without an actual partition of the property being first done either by agreement or by judicial decree.
Until then, all that he had was an ideal or abstract quota in Marta’s share. Nonetheless, a co-owner
could sell his undivided share; hence, Protacio, Sr. had the right to freely sell and dispose of his
undivided interest, but not the interest of his co-owners. Consequently, the sale by Protacio, Sr. and
Rito as co-owners without the consent of the other co-owners was not necessarily void, for the
rights of the selling co-owners were thereby effectively transferred, making the buyer (Servacio) a
co-owner of Marta’s share. This result conforms to the well-established principle that the binding
force of a contract must be recognized as far as it is legally possible to do so (quando res non valet ut
ago, valeat quantum valere potest).

In addition, Article 105 of the Family Code expressly provides that the applicability of the
rules on dissolution of the conjugal partnership is without prejudice to vested rights already acquired
in accordance with the Civil Code or other laws. This provision gives another reason not to declare
the sale as entirely void. Indeed, such a declaration prejudices the rights of Servacio who had already
acquired the shares of Protacio, Sr. and Rito in the property subject of the sale. [Heirs of Protacio
Go, Sr. and Marta Barola vs. Servacio, 657 SCRA 10, September 07, 2011]
 12

Q31: Distinguish a common carrier from a private carrier.

A private carrier is one who, without making the activity a vocation, or without holding
himself or itself out to the public as ready to act for all who may desire his or its services, undertakes,
by special agreement in a particular instance only, to transport goods or persons from one place to
another either gratuitously or for hire. In contrast, a common carrier is a person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering such services to the public.

The provisions on ordinary contracts of the Civil Code govern the contract of private carriage
while contracts of common carriage are governed by the provisions on common carriers of the Civil
Code, the Public Service Act, and other special laws relating to transportation.

The diligence required of a private carrier is only ordinary, that is, the diligence of a good
father of the family. In contrast, a common carrier is required to observe extraordinary diligence,
and is presumed to be at fault or to have acted negligently in case of the loss of the effects of
passengers, or the death or injuries to passengers. [Pereña vs. Zarate, 679 SCRA 208, August 29,
2012]

Q32: What is the test in determining whether a carrier is a common carrier or a private carrier?

The true test for a common carrier is not the quantity or extent of the business actually
transacted, or the number and character of the conveyances used in the activity, but whether the
undertaking is a part of the activity engaged in by the carrier that he has held out to the general
public as his business or occupation.

If the undertaking is a single transaction, not a part of the general business or occupation
engaged in, as advertised and held out to the general public, the individual or the entity rendering
such service is a private, not a common, carrier.

The question must be determined by the character of the business actually carried on by the
carrier, not by any secret intention or mental reservation it may entertain or assert when charged
with the duties and obligations that the law imposes. [Pereña vs. Zarate, 679 SCRA 208, August 29,
2012]

Q33: Are operators of school buses liable as common carriers?

YES. Although in this jurisdiction the operator of a school bus service has been usually
regarded as a private carrier, primarily because he only caters to some specific or privileged
individuals, and his operation is neither open to the indefinite public nor for public use, the exact
nature of the operation of a school bus service has not been finally settled. In Pereña vs. Zarate (679
SCRA 208 [2012]), however, the Court laid the matter to rest and categorically ruled that operators
of school buses are common carriers because of the following reasons: (1) they are engaged in
transporting passengers generally as a business, not just as a casual occupation; (2) they are
undertaking to carry passengers over established roads by the method by which the business was
conducted; and (3) they are transporting students for a fee.

Despite catering to a limited clientèle, they operates as common carriers because they held
themselves out as a ready transportation indiscriminately to the students of a particular school living
within or near where they operated the service and for a fee. [Pereña vs. Zarate, 679 SCRA 208,
August 29, 2012]
 13

Q34: Because of the recklessness of its driver, a private school bus was hit by the train of the PNR,
resulting in the death of one of the student-passenger of the school bus. The parents of the victim
sued for recovery of damages against both the operators of the school bus and the PNR, basing their
claim against the operators on breach of contract of carriage and against the PNR on quasi-delict.
Are the operators of the school bus liable for the death of the student? May they escape from
liability by proving that they exercised due diligence in the selection and supervision of their
employee (the driver)?

YES. Acting as a common carrier, the operators were already presumed to be negligent at
the time of the accident because death had occurred to their passenger. To successfully fend off
liability in an action upon the death or injury to a passenger, the common carrier must prove his or
its observance of that extraordinary diligence; otherwise, the legal presumption that he or it was at
fault or acted negligently would stand. Their defense of having observed the diligence of a good
father of a family in the selection and supervision of their driver was not legally sufficient. According
to Article 1759 of the Civil Code, their liability as a common carrier did not cease upon proof that
they exercised all the diligence of a good father of a family in the selection and supervision of their
employee. [Pereña vs. Zarate, 679 SCRA 208, August 29, 2012]

Q35: In the above case, PNR failed to place crossbars, signal lights, warning signs, and other
permanent safety barriers, is also liable for damages for the death of the student?

YES, because the PNR did not ensure the safety of others through the placing of crossbars,
signal lights, warning signs, and other permanent safety barriers to prevent vehicles or pedestrians
from crossing there. The fact that a crossing guard had been assigned to man that point from 7 a.m.
to 5 p.m. was a good indicium that the PNR was aware of the risks to others as well as the need to
control the vehicular and other traffic there. [Pereña vs. Zarate, 679 SCRA 208, August 29, 2012]

Q36: May the operators of the school and PNR be held solidarily liable for the death of the student?

YES. Although the basis of the right to relief of the parents of the victim (i.e., breach of
contract of carriage) against the school bus operators was distinct from the basis of the
complainant’s right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they
nonetheless could be held jointly and severally liable by virtue of their respective negligence
combining to cause the death of the student. Verily, the school bus operators and the PNR were
joint tortfeasors. [Pereña vs. Zarate, 679 SCRA 208, August 29, 2012]

[Metro Manila Transit Corporation vs. Cuevas, 757 SCRA 311, June 15, 2015]

FACTS: Metro Manila Transit Corp. (MMTC) sold several buses to Mina Transit Corp. (Mina). In their
agreement, they agreed that MMTC would retain the ownership of the buses until certain conditions
were met, but in the meantime Mina could operate the buses within Metro Manila. One of said buses
figured in a vehicular accident while it was beingdriven by an employee of Mina. The driver of the
buss recklessly and carelessly attempted to overtake a motorcycle on the right side of the lane, in
the course of which the bus side swiped the motorcycle. As a result, the motorcycle rider and his
companion were thrown to the road and the rider’s right leg was severely fractured and motorcycle
was extensively damaged. The victims sued MMTC and Mina for damages. MMTC is denying liability
on the ground of absence of employer-employee relationship with the erring driver and that
although it retained ownership of the bus at the time of the vehicular accident, the actual operation
was transferred to Mina's Transit. MMTC also filed a cross-claim against Mina.

Q37: Is MMTC liable to the victims even if there is no employer-employee relationship between
MMTC and the erring driver?
 14

YES. Under the registered-owner rule, the registered owner of the motor vehicle involved in
a vehicular accident could be held liable for the consequences. The registered-owner rule has
remained good law in this jurisdiction considering its impeccable and timeless rationale.

In 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, 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 is understood in labor relations law, is not required. It is
sufficient to establish that it 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.

MMTC could not evade liability by passing the buck to Mina's Transit. The stipulation in their
agreement did not bind third parties like the victims, who were expected to simply rely on the data
contained in the registration certificate of the erring bus. [Metro Manila Transit Corporation vs.
Cuevas, 757 SCRA 311, June 15, 2015]

Q38: May MMTC be allowed to recover from Mina?

YES. Although the registered-owner rule might seem to be unjust towards MMTC, the law
did not leave it without any remedy or recourse. 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. [Metro Manila
Transit Corporation vs. Cuevas, 757 SCRA 311, June 15, 2015]

Makati Shangri-La Hotel and Resort, Inc. vs. Harper, 679 SCRA 444, August 29, 2012

FACTS: While Christian Harper, a Norweigan national, was staying in Shangri-La Makati, he was
murdered inside his hotel room by still unidentified malefactors. Ellen Johanne Harper and Jonathan
Christopher Harper, the widow and son of Christian Harper, sued Makati Shangri-La Hotel and
Resort, Inc., the hotel’s operator, for damages for the murder of Christian Harper. Makati Shangri-La
argues that the complainants failed to prove its negligence; that Harper’s own negligence in
allowing the killers into his hotel room was the proximate cause of his own death; and that hotels
were not insurers of the safety of their guests.
Q39: Is Makati Shangri-La liable?

YES. The hotel business is imbued with public interest. Catering to the public, hotelkeepers
are bound to provide not only lodging for their guests but also security to the persons and
belongings of their guests. The twin duty constitutes the essence of the business. Applying by
analogy Article 2000, Article 2001 and Article 2002 of the Civil Code (all of which concerned the
hotelkeepers’ degree of care and responsibility as to the personal effects of their guests), the Court
hold that there is much greater reason to apply the same if not greater degree of care and
responsibility when the lives and personal safety of their guests are involved. Otherwise, the
hotelkeepers would simply stand idly by as strangers have unrestricted access to all the hotel rooms
on the pretense of being visitors of the guests, without being held liable should anything untoward
befall the unwary guests. That would be absurd, something that no good law would ever envision.
 15

Here, Makati Shangri-La is liable because it failed to provide the basic and adequate security
measures expected of a five-star hotel and such omission was the proximate cause of Harper’s
death. [Makati Shangri-La Hotel and Resort, Inc. vs. Harper, 679 SCRA 444, August 29, 2012]

Q40: May filiation be established through baptismal certificate?

A baptismal certificate, standing alone, is not sufficient to prove filiation. But a baptismal
certificate had evidentiary value to prove filiation if considered alongside other evidence of filiation.
As such, a baptismal certificate alone is not sufficient to resolve a disputed filiation. [Makati Shangri-
La Hotel and Resort, Inc. vs. Harper, 679 SCRA 444, August 29, 2012]

Aggabao vs. Parulan, Jr., 629 SCRA 562, September 01, 2010

FACTS: The Sps. Dionisio and Elena Parulan got married during the effectivity of the Civil Code
without a marriage settlement but they became estranged from each other. In 1991, Elena sold a
conjugal property to Sps. Aggabao making it appear that she was also authorized by the husband to
sell said property under a forged SPA. The buyers knew that Elena was separated from her husband.
After the sale, the true attorney in fact of Dioniso questioned the validity of the sale but he also
offered to sell same property to the Sps. Aggabao. Although initially, the buyers negotiated with
Atty. Parulan but they later on claimed that they purchased the property from Elena in good faith.

Q41: Is the sale governed by Article 124 of the Family Code?

YES. The sale was made in 1991, or after the effectivity of the Family Code. The proper law
to apply is, therefore, Article 124 of the Family Code, for it is settled that any alienation or
encumbrance of conjugal property made during the effectivity of the Family Code is governed by
Article 124 of the Family Code. According to Article 256 of the Family Code, the provisions of the
Family Code may apply retroactively provided no vested rights are impaired. In Tumlos v.
Fernandez, the Court rejected the petitioners argument that the Family Code did not apply because
the acquisition of the contested property had occurred prior to the effectivity of the Family Code,
and pointed out that Article 256 provided that the Family Code could apply retroactively if the
application would not prejudice vested or acquired rights existing before the effectivity of the Family
Code. Herein, however, the buyers did not show any vested right in the property acquired prior to
August 3, 1988 that exempted their situation from the retroactive application of the Family Code.

Since the sale of the conjugal property was made by the wife without the husband’s
consent, the sale is void pursuant to Article 124 of the Family Code. [Aggabao vs. Parulan, Jr., 629
SCRA 562, September 01, 2010]

Q42: What is the effect of the offer of the attorney-in-fact (Atty. Parulan) to sell same property to
the buyer? Did it cure the defect?

NO. The buyer’s insistence that Atty. Parulan’s making of a counter-offer ratified the sale
merits no consideration. Under Article 124 of the Family Code, the transaction executed sans the
written consent of Dionisio or the proper court order was void; hence, ratification did not occur, for a
void contract could not be ratified.

On the other hand, the void sale was a continuing offer from the buyers and Elena and that
Dionisio had the option of accepting or rejecting before the offer was withdrawn by either or both
Elena and the buyers. The last sentence of the second paragraph of Article 124 of the Family Code
makes this clear, stating that in the absence of the other spouses consent, the transaction should be
 16

construed as a continuing offer on the part of the consenting spouse and the third person, and may
be perfected as a binding contract upon the acceptance by the other spouse or upon authorization
by the court before the offer is withdrawn by either or both offerors. But in this case, the buyers did
not accept the counter-offer made by Atty. Parulan. [Aggabao vs. Parulan, Jr., 629 SCRA 562,
September 01, 2010]

Q43: Are the Sps. Aggabao buyers in good faith?

NO. In Bautista v. Silva, the Court erected a standard to determine the good faith of the
buyers dealing with a seller who had title to and possession of the land but whose capacity to sell
was restricted, in that the consent of the other spouse was required before the conveyance,
declaring that in order to prove good faith in such a situation, the buyers must show that they
inquired not only into the title of the seller but also into the sellers capacity to sell. Thus, the buyers
of conjugal property must observe two kinds of requisite diligence, namely: (a) the diligence in
verifying the validity of the title covering the property; and (b) the diligence in inquiring into the
authority of the transacting spouse to sell conjugal property in behalf of the other spouse.

Here, the buyers knew fully well that the law demanded the written consent of Dionisio to
the sale, but yet they did not present evidence to show that they had made inquiries into the
circumstances behind the execution of the SPA purportedly executed by Dionisio in favor of Elena.
Had they made the appropriate inquiries, and not simply accepted the SPA for what it represented
on its face, they would have uncovered soon enough that the spouses had been estranged from each
other and were under de facto separation, and that they probably held conflicting interests that
would negate the existence of an agency between them. To lift this doubt, they must, of necessity,
further inquire into the SPA of Elena. The omission to inquire indicated their not being buyers in
good faith. [Aggabao vs. Parulan, Jr., 629 SCRA 562, September 01, 2010]

Philtranco Service Enterprises, Inc. vs. Paras, 671 SCRA 24, April 25, 2012

FACTS: Paras boarded a bus in Bicol bound for Manila. The bus was owned and operated by Inland
Trailways, Inc. and driven by its driver Calvin Coner. While the said bus was travelling along
Maharlika Highway, Tiaong, Quezon, it was bumped at the rear by another bus, owned and
operated by Philtranco Service Enterprises. As a result of the strong and violent impact, the said
accident caused physical injuries to the passengers and crew of the two buses, including the death of
Coner and injuries to Paras. Paras filed a complaint for damages based on breach of contract of
carriage against Inland. Inland filed a third-party complaint against Philtranco and Apolinar Miralles,
the driver of the Philtranco bus.

Q44: Can Paras recover moral damages from Pantranco even if his suit against Inland was based on
breach of contract?

YES. The cause of action of Paras against Inland (breach of contract of carriage) did not need
to be the same as the cause of action of Inland against Philtranco and its driver (tort or quasi-delict)
in the impleader. It is settled that a defendant in a contract action may join as third-party
defendants those who may be liable to him in tort for the plaintiffs claim against him, or even
directly to the plaintiff. In an action for breach of contract of carriage commenced by a passenger
against his common carrier, the plaintiff can recover damages from a third-party defendant brought
into the suit by the common carrier upon a claim based on tort or quasi-delict. The liability of the
third-party defendant is independent from the liability of the common carrier to the passenger.

Allowing the recovery of damages by Paras based on quasi-delict, despite his complaint
being upon contractual breach, served the judicial policy of avoiding multiplicity of suits and circuity
 17

of actions by disposing of the entire subject matter in a single litigation. [Philtranco Service
Enterprises, Inc. vs. Paras, 671 SCRA 24, April 25, 2012]

Lavadia vs. Heirs of Juan Luces Luna, 730 SCRA 376, July 23, 2014

FACTS: Atty. Juan Luna was married to Eugenia Zaballero in 1947. In 1976, Atty. Juan obtained a
divorce decree of his marriage with Eugenia in the Dominican Republic. In the same proceedings, the
court approved the agreement of Atty. Luna and Eugenia for the dissolution and liquidation of their
conjugal partnership. After the divorce, Atty. Luna married Soledad Lavadia. Thereafter, Atty. Luna
and Soledad returned to the Philippines and lived together as husband and wife until 1987. Atty.
Luna died in 1997. After the death of Atty. Luna, his share in a condominium unit including the
lawbooks, office furniture and equipment found therein were taken over by his son in the first
marriage. Soledad filed a complaint to recover her alleged ¾ pro indiviso share in the estate of Atty.
Luna. She claimed that the subject properties were acquired during the existence of her marriage to
Atty. Luna.

Q45: Was the marriage between Atty. Luna and Eugenia validly terminated?

NO. The marriage between Atty. Luna and Eugenia, both Filipinos, was solemnized in the
Philippines on September 10, 1947. The law in force at the time of the solemnization was the
Spanish Civil Code, which adopted the nationality rule. The Civil Code continued to follow the
nationality rule, to the effect that Philippine laws relating to family rights and duties, or to the
status, condition and legal capacity of persons were binding upon citizens of the Philippines,
although living abroad. It is true that on January 12, 1976, the Court of First Instance (CFI) of Sto.
Domingo in the Dominican Republic issued the Divorce Decree dissolving the first marriage of Atty.
Luna and Eugenia. Conformably with the nationality rule, however, the divorce, even if voluntarily
obtained abroad, did not dissolve the marriage between Atty. Luna and Eugenia, which subsisted up
to the time of his death on July 12, 1997. [Lavadia vs. Heirs of Juan Luces Luna, 730 SCRA 376, July
23, 2014]

Q46: Was the conjugal partnership of Atty. Luna and Eugenia validly terminated?

NO. The approval by the court of the Dominican Republic of the agreement between Atty. Luna and
Eugenia for the dissolution and liquidation of their conjugal partnership did not terminate the
couple’s property regime. There is no question that the approval took place only as an incident of
the action for divorce instituted by Atty. Luna and Eugenia, for, indeed, the justifications for their
execution of the Agreement were identical to the grounds raised in the action for divorce. With the
divorce not being itself valid and enforceable under Philippine law for being contrary to Philippine
public policy and public law, the approval of the Agreement was not also legally valid and
enforceable under Philippine law. Any settlement of property between the parties of the first
marriage involving Filipinos submitted as an incident of a divorce obtained in a foreign country lacks
competent judicial approval, and cannot be enforceable against the assets of the husband who
contracts a subsequent marriage. Consequently, the conjugal partnership of gains of Atty. Luna and
Eugenia subsisted in the lifetime of their marriage. [Lavadia vs. Heirs of Juan Luces Luna, 730 SCRA
376, July 23, 2014]

Q47: Is Soledad a co-owner of the subject property?

NO. Atty. Luna’s subsequent marriage to Soledad on January 12, 1976 was void for being
bigamous, on the ground that the marriage between Atty. Luna and Eugenia had not been dissolved
by the Divorce Decree rendered by the CFI of Sto. Domingo in the Dominican Republic but had
subsisted until the death of Atty. Luna on July 12, 1997.
 18

Due to the second marriage between Atty. Luna and the petitioner being void ab initioby
virtue of its being bigamous, the properties acquired during the bigamous marriage were governed
by the rules on co-ownership, conformably with Article 144 of the Civil Code. In such a situation,
whoever alleges co-ownership carried the burden of proof to confirm such fact. To establish co-
ownership, therefore, it became imperative for Soledad to offer proof of her actual contributions in
the acquisition of property. In this case, however, Soledad, as the party claiming the co-ownership,
did not discharge her burden of proof. Her mere allegations on her contributions, not being
evidence, did not serve the purpose. [Lavadia vs. Heirs of Juan Luces Luna, 730 SCRA 376, July 23,
2014]

Limson vs. Gonzalez, 720 SCRA 246, March 31, 2014

FACTS: Limson filed a criminal charge against Gonzalez for falsification. The charge is based on
Limson’s assertion that in the records of the Professional Regulatory Commission (PRC), a certain
“EUGENIO GONZALEZ” is registered as an architect and that Gonzalez, who uses, among others,
the name “EUGENIO JUAN GONZALEZ,” and who pretends to be said architect. Gonzales explained
in detail that his full name is EUGENIO (first given name) JUAN (second given name) GONZALEZ
(father’s family name) y REGALADO (mother’s family name). He alleged that in his youth, while he
was still in grade school and high school, he used the name EUGENIO GONZALEZ y REGALADO
and/or EUGENIO GONZALEZ. But when he transferred to the University of Santo Tomas and therein
took up architecture and that upon commencement of his professional practice in 1943, he made use
of his second name, JUAN. Consequently, in his professional practice, he has identified himself as
much as possible as Arch. Eugenio Juan Gonzales. When the charge of falsification did not prosper,
Limson charged Gonzales with violation of Republic Act No. 6085 (the Anti–Alias Law).

Q48: What is an alias?

An alias is a name or names used by a person or intended to be used by him publicly and
habitually, usually in business transactions, in addition to the real name by which he was registered
at birth or baptized the first time, or to the substitute name authorized by a competent authority; a
man’s name is simply the sound or sounds by which he is commonly designated by his fellows and by
which they distinguish him, but sometimes a man is known by several different names and these are
known as aliases. An alias is thus a name that is different from the individual’s true name, and does
not refer to a name that is not different from his true name. [Limson vs. Gonzalez, 720 SCRA 246,
March 31, 2014]

Q49: Is Gonzales liable for violation of the Anti-Alias Law?

NO. On the issue of the alleged use of illegal aliases, the Court observes that respondent’s aliases
involved the names “Eugenio Gonzalez”, “Eugenio Gonzales”, “Eugenio Juan Gonzalez”, “Eugenio
Juan Gonzalez y Regalado”, “Eugenio C.R. Gonzalez”, “Eugenio J. Gonzalez”, and – per Limson –
“Eugenio Juan Robles Gonzalez.” But these names contained his true names, albeit at times joined
with an erroneous middle or second name, or a misspelled family name in one instance. The records
disclose that the erroneous middle or second names, or the misspelling of the family name resulted
from error or inadvertence left unchecked and unrectified over time. What is significant, however, is
that such names were not fictitious names within the purview of the Anti–Alias Law; and that such
names were not different from each other. Considering that he was not also shown to have used the
names for unscrupulous purposes, or to deceive or confuse the public, the dismissal of the charge
against him was justified in fact and in law. [Limson vs. Gonzalez, 720 SCRA 246, March 31, 2014]

Heirs of Jose Reyes, Jr. vs. Reyes, 626 SCRA 758, August 04, 2010
 19

FACTS: Sps. Antonio and Leoncia owned a parcel of land. They had 4 children: Jose Sr., Jose Jr.,
Teofilo and Potenciana. Antonio died intestate and was survived by Leoncia and the 3 sons.
Potenciana predeceased him. In 1955, Leoncia and her 3 sons executed a pacto de retro sale with
Sps. Francia. The heirs of Potenciana did not assent to the deed. Notwithstanding the execution of
the deed, Leoncia, Teofilo, Jose Jr. and their families remained in possession of the property and
continued paying real taxes for the property. However, Leoncia and her children were not able to
repay the purchase price until the Sps. Francia both died in 1963 and 1964. In 1970, Alejandro (a son
of Jose Sr.) paid the purchase price. After which, a new tax declaration was issued in the name of
Alejandro. In the same year, Alejandro acknowledged the right of Leoncia, Jose, Jr., and Jose, Sr. to
repurchase the property at any time for the same amount of P500.00. Upon the death of Leoncia and
all her children, the surviving wife of Alejandro asked the heirs of Teofilo and Jose Jr. to vacate the
property saying that she and her children with Alejandro were the new owners of the property.

Q50: Was the transaction pacto de retro sale or equitable mortgage?

It is equitable mortgage, not a pacto de retro sale. There was no dispute that the purported vendors
had continued in the possession of the property even after the execution of the agreement; and that
the property had remained declared for taxation purposes under Leoncia’s name, with the realty
taxes due being paid by Leoncia, despite the execution of the agreement. Such established
circumstances are among the badges of an equitable mortgage enumerated in Article 1602,
paragraphs 2 and 5 of the Civil Code. [Heirs of Jose Reyes, Jr. vs. Reyes, 626 SCRA 758, August 04,
2010]

Q51: Are the petitioners now barred from claiming that the transaction under the Kasulatan ng
Biling Mabibiling Muli was an equitable mortgage by their failure to redeem the property for a long
period of time?

Since no definite period had been stated for the redemption, the period to redeem should
be ten years from the execution of the contract, pursuant to Articles 1142 and 1144 of the Civil Code.
Thus, the full redemption price should have been paid by July 9, 1955; and upon the expiration of
said 10-year period, mortgagees Spouses Francia or their heirs should have foreclosed the mortgage,
but they did not do so. The acceptance of the payments even beyond the 10-year period of
redemption estopped the mortgagees’ heirs from insisting that the period to redeem the property
had already expired. Their actions impliedly recognized the continued existence of the equitable
mortgage. The conduct of the original parties as well as of their successors-in-interest manifested
that the parties to the Kasulatan ng Biling Mabibiling Muli really intended their transaction to be an
equitable mortgage, not a pacto de retro sale.
Q52: Did Alejandro become the sole owner of the property when he redeemed it in 1970?

When Alejandro redeemed the property on August 11, 1970, he did not thereby become a
co-owner thereof, because his father Jose, Sr. was then still alive. Alejandro merely became the
assignee of the mortgage, and the property continued to be co-owned by Leoncia and her sons Jose,
Sr., Jose Jr., and Teofilo. As an assignee of the mortgage and the mortgage credit, Alejandro
acquired only the rights of his assignors, nothing more. He himself confirmed so when he
acknowledged the co-owners right to redeem the property from him at any time for the same
redemption price of P500.00.

It is true that Alejandro became a co-owner of the property by right of representation upon
the death of his father, Jose Sr. As a co-owner, however, his possession was like that of a trustee and
was not regarded as adverse to his co-owners but in fact beneficial to all of them. Alejandro did not
have adverse and exclusive possession of the property, as, in fact, the other co-owners had
continued to possess it, with Alejandro and his heirs occupying only a portion of it. Neither did the
 20

cancellation of the previous tax declarations in the name of Leoncia, the previous co-owner, and the
issuance of a new one in Alejandro’s name, and Alejandro’s payment of the realty taxes constitute
repudiation of the co-ownership.

The heirs of Alejandro can only demand from the other co-owners the partition of the co-
owned property and the reimbursement of the amount advanced by Alejandro to repay the
obligation. They may also seek from their co-owners the proportional reimbursement of the realty
taxes paid for the property, pursuant to Article 488 of the Civil Code. In the alternative, they may
opt to foreclose the equitable mortgage, considering that the period to redeem the mortgaged
property, which was ten years from the execution on October 17, 1970 of the Magkakasanib na
Salaysay, had already long lapsed. [Heirs of Jose Reyes, Jr. vs. Reyes, 626 SCRA 758, August 04,
2010]

Q53: Are the surviving brothers and sisters of a passenger of a vessel that sinks during a voyage
entitled to recover moral damages from the vessel owner as common carrier?

NO. To be entitled to moral damages, the respondents must have a right based upon law. It is true
that under Article 1003 of the Civil Code the brothers and sisters succeed to the entire estate of the
deceased in the absence of the latters descendants, ascendants, illegitimate children, and surviving
spouse. However, they were not included among the persons entitled to recover moral damages, as
enumerated in Article 2219 of the Civil Code. In fine, moral damages may be recovered in an action
upon breach of contract of carriage only when: (a) where death of a passenger results, or (b) it is
proved that the carrier was guilty of fraud and bad faith, even if death does not result. Article 2206 of
the Civil Code entitles the descendants, ascendants, illegitimate children, and surviving spouse of
the deceased passenger to demand moral damages for mental anguish by reason of the death of the
deceased. [Sulpicio Lines, Inc. vs. Curso, 615 SCRA 575, March 17, 2010]

Ablaza vs. Republic, 628 SCRA 27, August 11, 2010

FACTS: The marriage between Cresenciano Ablaza and Leonila Honato had been celebrated on
December 26, 1949 but the marriage license was issued only on January 9, 1950. After the death of
Cresenciano, Isidro Ablaza, Cresenciano’s brother, filed a Petition to Declare Cresenciano’s marriage
to Leonila void on the ground of absence of marriage license. Isidro did not, however, implead,
Leonila Honato Ablaza. He also failed to implead Leila Ablaza, an alleged child of Cresenciano with
Leonila.

Q54: Is the rule that only the Husband or the Wife can file a Petition for Declaration of Absolute
Nullity of a Void Marriage applicable in this case?

NO. A.M. No. 02-11-10-SC extends only to marriages covered by the Family Code, which took effect
on August 3, 1988, but, being a procedural rule that is prospective in application, is confined only to
proceedings commenced after March 15, 2003. Considering that the marriage between Cresenciano
and Leonila was contracted on December 26, 1949, the applicable law was the old Civil Code, the law
in effect at the time of the celebration of the marriage. Hence, the rule on the exclusivity of the
parties to the marriage as having the right to initiate the action for declaration of nullity of the
marriage under A.M. No. 02-11-10-SC had absolutely no application in this case. [Ablaza vs.
Republic, 628 SCRA 27, August 11, 2010]

Q55: Who has the personality to file such petition for marriages celebrated during the effectivity of
the old and new Civil Code?
 21

The absence of a provision in the old and new Civil Codes cannot be construed as giving a license to
just any person to bring an action to declare the absolute nullity of a marriage. The plaintiff must still
be the party who stands to be benefited by the suit for it is basic in procedural law that every action
must be prosecuted and defended in the name of the real party in interest. Thus, only the party who
can demonstrate a proper interest can file the action. [Ablaza vs. Republic, 628 SCRA 27, August 11,
2010]

Q56: Is Isidro Ablaza a proper party to file the petition to declare the marriage of his brother void on
the ground of absence of a marriage license?

It depends.

If Leila is indeed a child of the deceased Cresenciano, then Isidro, being a collateral relative
of the deceased, is excluded by Cresenciano’s child in intestate succession, whether said child is
legitimate or illegitimate. If such is the case, then Isidro is not a legal heir of the deceased and he
does not have any material interest in the estate of the deceased. He has no personality, therefore,
to file the present petition.

If Leila is not a child of the deceased Cresenciano, then the deceased died without any
descendants, ascendants or illegitimate children. In their absence, a brother of the deceased
becomes the latter’s legal heir together with the decendent’s surviving spouse. In such a situation,
Isidro acquires the right to file the present petition. [Ablaza vs. Republic, 628 SCRA 27, August 11,
2010]

Q57: Distinguish accretion in river banks from drying up of a river.

Accretion is the process whereby the soil is deposited along the banks of rivers. The deposit
of soil, to be considered accretion, must be: (a) gradual and imperceptible; (b) made through the
effects of the current of the water; and (c) taking place on land adjacent to the banks of rivers. The
process of drying up of a river to form dry land involved the recession of the water level from the
river banks, and the dried-up land did not equate to accretion, which was the gradual and
imperceptible deposition of soil on the river banks through the effects of the current. In accretion,
the water level did not recede and was more or less maintained.

By law, accretion - the gradual and imperceptible deposit made through the effects of the
current of the water- belongs to the owner of the land adjacent to the banks of rivers where it forms.
The drying up of the river is not accretion. Hence, the dried-up river bed belongs to the State as
property of public dominion, not to the riparian owner, unless a law vests the ownership in some
other person. [Republic vs. Santos III, 685 SCRA 51, November 12, 2012]

Heirs of Servando Franco vs. Gonzales, 675 SCRA 96, June 27, 2012

FACTS: The Spouses Servando Franco and Leticia Medel obtained several loans from Veronica
Gonzales. On July 23, 1986, the Spouses Franco executed a promissory note consolidating all their
previous indebtedness to Gonzales and borrowed an additional P60,000, bring their total
indebtedness to P500,000, with interest at the rate of 5.5% per month. For failure to pay the loan,
Gonzales sued the Spouses Franco. In said action, the Spouses Franco were ordered to pay the loan
but the rate of interest was reduced to 12% p.a. In the meantime, Servando made an initial payment
of P400,000.00 and promised to pay the balance of P375,000.00 on February 29, 1992, which
payment was embodied in a receipt dated February 5, 1992. When the judgment in the case became
 22

final, Gonzales moved for execution. The Spouses Franco, interposed the defense that the previous
obligation was novated by the new agreement embodied in the receipt dated February 5, 1992.

Q58: Was the obligation impliedly novated?

NO. There is incompatibility when the two obligations cannot stand together, each one
having its independent existence. If the two obligations cannot stand together, the latter obligation
novates the first. Changes that breed incompatibility must be essential in nature and not merely
accidental. The incompatibility must affect any of the essential elements of the obligation, such as
its object, cause or principal conditions thereof; otherwise, the change is merely modificatory in
nature and insufficient to extinguish the original obligation.

In light of the foregoing, the issuance of the receipt created no new obligation. Instead, the
respondents only thereby recognized the original obligation by stating in the receipt that
the P400,000.00 was partial payment of loan and by referring to the promissory note subject of the
case in imposing the interest. The loan mentioned in the receipt was still the same loan involving
the P500,000.00 extended to Servando. Advertence to the interest stipulated in the promissory note
indicated that the contract still subsisted, not replaced and extinguished, as the Spouses Franco
claimed. [Heirs of Servando Franco vs. Gonzales, 675 SCRA 96, June 27, 2012]

Comsaving Banks (now GSIS Family Bank) vs. Capistrano, 704 SCRA 72, August 28, 2013

FACTS: Desirous of building a house on their lot, the Spouses Capistrano availed themselves of the
Unified Home Lending Program (UHLP) implemented by the National Home Mortgage Finance
Corporation (NHMFC). Thereafter, they executed a construction contract with GCB Builders, for the
total contract price of ₱265,000.00 with the latter undertaking to complete the construction within
75 days. To finance the construction, GCB Builders facilitated their loan application with Comsavings
Bank, an NHFMC-accredited originator. Prior to the release of the loan, Comsavings Bank informed
Estrella Capistrano that she would have to sign various documents as part of the requirements for
the release of the loan. Among the documents was a certificate of house completion and
acceptance. While the entire loan proceeds had been released to GCB, the latter failed to complete
the construction of the house. In the meantime, NHMFC already advised the spouses to start paying
their monthly amortizations on the loan. This prompted the spouses to sue GCB and Comsavings
Bank for breach of contract and damages.

Q59: May Comsavings Bank be held solidarily liable with GCB for breach of contract?

YES, but Comsaving Bank’s liability is not based on contract but on Articles 20 and 1170 of
the Civil Code. Based on the provisions, a banking institution like Comsavings Bank is obliged to
exercise the highest degree of diligence as well as high standards of integrity and performance in all
its transactions because its business is imbued with public interest. Comsavings Bank was grossly
negligent in its dealings with respondents (the Spouses Capistrano) because it did not comply with
its legal obligation to exercise the required diligence and integrity.

As a banking institution serving as an originator under the UHLP and being the maker of the
certificate of acceptance/completion, it was fully aware that the purpose of the signed certificate
was to affirm that the house had been completely constructed according to the approved plans and
specifications, and that respondents had thereby accepted the delivery of the complete house.
Given the purpose of the certificate, it should have desisted from presenting the certificate to
respondents for their signature without such conditions having been fulfilled. Yet, it made
respondents sign the certificate despite the construction of the house not yet even starting. Its act
was irregular per se because it contravened the purpose of the certificate. On the other hand,
 23

respondents were prejudiced, considering that the construction of the house was then still
incomplete and was ultimately defective.

Compounding their plight was that NHMFC demanded payment of their monthly
amortizations despite the non-completion of the house. Had Comsavings Bank been fair towards
them as its clients, it should not have made them pre-sign the certificate until it had confirmed that
the construction of the house had been completed. [Comsaving Banks (now GSIS Family Bank) vs.
Capistrano, 704 SCRA 72, August 28, 2013]

Degaños vs. People, 707 SCRA 438, October 14, 2013

FACTS: The agreement between the parties reads, as follows: “Akong nakalagda sa ibaba nito ay
nagpapatunay na tinanggap ko kay Ginang LYDIA BORDADOR ng Calvario, Meycauayan, Bulacan
ang mga hiyas (jewelries) [sic] na natatala sa ibaba nito upang ipagbili ko sa kapakanan ng nasabing
Ginang. Ang pagbibilhan ko sa nasabing mga hiyas ay aking ibibigay sa nasabing Ginang, sa loob ng
__________ araw at ang hindi mabili ay aking isasauli sa kanya sa loob din ng nasabing taning na
panahon sa mabuting kalagayan katulad ng aking tanggapin. Ang bilang kabayaran o pabuya sa
akin ay ano mang halaga na aking mapalabis na mga halagang nakatala sa ibaba nito. Ako ay
walang karapatang magpautang o kaya ay magpalako sa ibang tao ng nasabing mga hiyas.”

Q60: Is the transaction an agency or sale on credit?

Based on the express terms and tenor of the Kasunduan at Katibayan, Degaños received
and accepted the items under the obligation to sell them in behalf of the complainants (“ang mga
hiyas (jewelries) na natatala sa ibaba nito upang ipagbili ko sa kapakanan ng nasabing Ginang”), and
he would be compensated with the overprice as his commission (“Ang bilang kabayaran o pabuya sa
akin ay ano mang halaga na aking mapalabis na mga halagang nakatala sa ibaba nito.”). Plainly, the
transaction was a consignment under the obligation to account for the proceeds of sale, or to return
the unsold items. As such, he was the agent of the complainants in the sale to others of the items
listed in the Kasunduan at Katibayan.

In contrast, according the first paragraph of Article 1458 of the Civil Code, one of the
contracting parties in a contract of sale obligates himself to transfer the ownership of and to deliver
a determinate thing, while the other party obligates himself to pay therefor a price certain in money
or its equivalent. Contrary to the contention of Degaños, there was no sale on credit to him because
the ownership of the items did not pass to him. [Degaños vs. People, 707 SCRA 438, October 14,
2013]

Q61: May partial payments of the jewelries amount to novation of the obligation?

Degaños claims that his partial payments to the complainants novated his contract with
them from agency to loan, thereby converting his liability from criminal to civil. He insists that his
failure to complete his payments prior to the filing of the complaint-affidavit by the complainants
notwithstanding, the fact that the complainants later required him to make a formal proposal before
the barangay authorities on the payment of the balance of his outstanding obligations confirmed
that novation had occurred. Degaños’ claim was factually unwarranted and legally devoid of basis,
because the partial payments he made and his purported agreement to pay the remaining
obligations did not equate to a novation of the original contractual relationship of agency to one of
sale. In order that an obligation may be extinguished by another that substitutes the former, it is
imperative that the extinguishment be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. Obviously, in case of only slight
modifications, the old obligation stillprevails, as when the change involve only the manner of
payment. [Degaños vs. People, 707 SCRA 438, October 14, 2013]
 24

Q62: May novation extinguish criminal liability?

Novation is not a ground under the law to extinguish criminal liability. Article 89 (on total
extinguishment) and Article 94 (on partial extinguishrnent) of the Revised Penal Code list down the
various grounds for the extinguishment of criminal liability. Not being included in the list, is limited
in its effect only to the civil aspect of the liability, and, for that reason, is not an efficient defense in
estafa. This is because only the State may validly waive the criminal action against an accused.The
role of novation may only be either to prevent the rise of criminal liability, or to cast doubt on the
true nature of the basic transaction, whether or not it was such that the breach of the obligation
would not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or
other similar disguise is resorted to.

The novation theory may perhaps apply prior to the filing of the criminal information in court
by the state prosecutors because up to that time the original trust relation may be converted by the
parties into an ordinary creditor-debtor situation, thereby placing the complainant in estoppel to
insist on the original trust. But after the justice authorities have taken cognizance of the crime and
instituted action in court, the offended party may no longer divest the prosecution of its power to
exact the criminal liability, as distinguished from the civil. The crime being an offense against the
state, only the latter can renounce it. [Degaños vs. People, 707 SCRA 438, October 14, 2013]

Q63: Is the likelihood of the aggregate interest charged exceeding the principal
indebtedness inequitable or unconscionable?

Not necessarily. The realization of such likelihood was not necessarily inequitable or unconscionable
due to its resulting directly from the application of law and jurisprudence. The interest, however
enormous it may be, cannot be inequitable and unconscionable because it resulted directly from the
application of law and jurisprudence – standards that have taken into account fairness and equity in
setting the interest rates due for the use or forbearance of money. [Dela Cruz vs. Planters Products,
Inc., 691 SCRA 28, February 18, 2013]

Uy vs. Fule, 727 SCRA 456, June 30, 2014

FACTS: Conrado Garcia was the owner of a tract of land covered by TCT No. 1128 registered in his
name. Upon his death in 1972, his heirs extrajudicially settled the property which resulted in the
issuance of TCT No. T-8922 (16498) in 1973. In 1985, the property was erroneously included in the
Operation Land Transfer Program of the DAR and awarded to farmer beneficiaries. One of the
farmer beneficiaries was Mariano Ronda. In the meantime, Mariano Ronda sold the land awarded to
him to Chisan Uy. Subsequently, OCT Nos. 9852 and 9853 were issued in the name of Mariano
Ronda. At the time of the execution of the sale in favor of Uy, the existing titles (OCT Nos. 9852 and
9853) contained an annotation “it shall not be transferred except by hereditary succession or to the
Government in accordance with the provisions of Presidential Decree, No. 27, Code of Agrarian
Reforms of the Philippines and other existing laws and regulations....” When the heirs of Conrado
Garcia questioned the erroneous inlcusion of their property in DAR’s OLT program, Uy claimed that
he was a buyer in good faith.

Q64: Is Uy a buyer in good faith?

NO.
 25

To prove good faith, a buyer of registered and titled land need only show that he relied on
the face of the title to the property. He need not prove that he made further inquiry for he is not
obliged to explore beyond the four corners of the title. Such degree of proof of good faith, however,
is sufficient only when the following conditions concur: first, the seller is the registered owner of the
land; second, the latter is in possession thereof; and third, at the time of the sale, the buyer was not
aware of any claim or interest of some other person in the property, or of any defect or restriction in
the title of the seller or in his capacity to convey title to the property. Absent one or two of the
foregoing conditions, then the law itself puts the buyer on notice and obliges the latter to exercise a
higher degree of diligence by scrutinizing the certificate of title and examining all factual
circumstances in order to determine the seller’s title and capacity to transfer any interest in the
property. Under such circumstance, it was no longer sufficient for said buyer to merely show that he
had relied on the face of the title; he must now also show that he had exercised reasonable
precaution by inquiring beyond the title. Failure to exercise such degree of precaution makes him a
buyer in bad faith.

In this case, it is notable that said OCTs categorically stated that they were entered
pursuant to an emancipation patent of the Ministry of Agrarian Reform pursuant to the Operation
Land Transfer (OLT) Program of the government. Furthermore, said OCTs plainly recited the
following prohibition: "…it shall not be transferred except by hereditary succession or to the
Government in accordance with the provisions of Presidential Decree No. 27, Code of Agrarian
Reforms of the Philippines and other existing laws and regulations…." The foregoing circumstances
negated the third element of good faith. Consequently, it is not sufficient for him to insist that he
relied on the face of the certificates of title, for he must further show that he exercised reasonable
precaution by inquiring beyond the certificates of title. Failure to exercise such degree of precaution
rendered him a buyer in bad faith. [Uy vs. Fule, 727 SCRA 456, June 30, 2014]

Gonzalo vs. Tarnate, Jr., 713 SCRA 224, January 15, 2014

FACTS: The DPWH awarded a contract to Gonzalo for the construction of a road. Gonzalo, in turn,
subcontracted to Tarnate the supply of materials and labor. In furtherance of their agreement,
Gonzalo assigned to Tarnate 10% of total collection from DPWH for the project, in violation of Sec.
6, PD 1594 which prohibits such assignment. Subsequently, however, Gonzalo rescinded the
assignment. When Tarnate demanded for the payment of what was due to him, Gonzalo refused to
pay. When Tarnate sued for collection in court, Gonzalo put up the defense of in pari delicto,
claiming that Tarnate was aware of the illegality of their arrangement.

Q65: May Tarnate recover from Gonzalo? Or will the principle of in pari delicto prevent such
recovery?

YES. The subcontract and the deed of assignment are illegal because they were in in
violation of the statutory prohibition. Under Article 1409 (1) of the Civil Code, a contract whose
cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract
cannot produce a valid one. According to Article 1412 (1) of the Civil Code, the guilty parties to an
illegal contract cannot recover from one another and are not entitled to an affirmative relief because
they are in pari delicto or in equal fault.

Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An
accepted exception arises when its application contravenes well-established public policy. The
doctrine of in pari delicto which stipulates that the guilty parties to an illegal contract are not
entitled to any relief, cannot prevent a recovery if doing so violates the public policy against unjust
enrichment. The prevention of unjust enrichment is a recognized public policy of the State, for
Article 22 of the Civil Code explicitly provides that "[e]very person who through an act of
 26

performance by another, or any other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to him." [Gonzalo vs.
Tarnate, Jr., 713 SCRA 224, January 15, 2014]

ASB Realty Corporation vs. Ortigas & Company Limited Partnership, 777 SCRA 284, December 09,
2015

FACTS: Ortigas & Company Limited Partnership (Ortigas) entered into a Deed of Sale with Amethyst
Pearl Corporation (Amethyst) involving the parcel of land with an area of 1,012 square meters
situated in Barrio Oranbo, Pasig City. The conditions in the deed of sale was annotated on the title
issued to Amethyst. Amethyst assigned the subject property to its sole stockholder, ASB Realty
Corporation, under a so-called Deed of Assignment in consideration of 10,000 shares of ASB’s
outstanding capital stock. In 2000, Ortigas filed its complaint for specific performance against ASB
Realty. The RTC dismissed the complaint. The CA ruled in favor of Ortigas.

Q66: Did Ortigas validly rescind theDeed of Sale due to the failure of Amethyst and its assignee,
ASB Realty, to fulfil the covenants under the Deed of Sale?

NO. Ortigas' complaint was predicated on Article 1191 of the Civil Code. Rescission under
Article 1191 of the Civil Code is proper if one of the parties to the contract commits a substantial
breach of its provisions. It abrogates the contract from its inception and requires the mutual
restitution of the benefits received; hence, it can be carried out only when the party who demands
rescission can return whatever he may be obliged to restore. Considering the foregoing, Ortigas did
not have a cause of action against the petitioner (ASB Realty) for the rescission of the Deed of Sale.

ASB Realty was not privy to the Deed of Sale because it was not the party obliged thereon.
Not having come under the duty not to violate any covenant in the Deed of Sale when it purchased
the subject property despite the annotation on the title, its failure to comply with the covenants in
the Deed of Sale did not constitute a breach of contract that gave rise to Ortigas' right of rescission.
It was rather Amethyst that defaulted on the covenants under the Deed of Sale; hence, the action to
enforce the provisions of the contract or to rescind the contract should be against Amethyst. In
other words, rescission could not anymore take place against the petitioner once the subject
property legally came into the juridical possession of the petitioner, who was a third party to
the Deed of Sale. [ASB Realty Corporation vs. Ortigas & Company Limited Partnership, 777
SCRA 284, December 09, 2015]

Tagaytay Realty Co., Inc. vs. Gacutan, 761 SCRA 87, July 01, 2015

FACTS: Gacutan purchased a subdivision lot from Tagaytay Realty, Inc. The developer executed an
express undertaking to complete the development of the subdivision project within a period of two
years from July 15, 1976. In a letter dated November 12, 1979, Gacutan notified the developer that
he was suspending his amortizations because the amenities had not been constructed in accordance
with the undertaking. The developer did not reply. In 1985, the developer sent to Gacutan a
statement of account demanding the balance of the price, plus interest and penalty. In 1990,
Gacutan sued the developer for specific performance in the HLURB, praying that the developer be
ordered to accept his payment of the balance of the contract without interest and penalty, and to
deliver to him the title of the property. In its answer, the developer sought to be excused from
performing its obligations under the contract, invoking Article 1267 of the Civil Code as its basis. It
contended that the depreciation of the Philippine Peso since the time of the execution of the
contract, the increase in the cost of labor and construction materials, and the increase in the value of
 27

the lot in question were valid justifications for its release from the obligation to construct the
amenities.

Q67: May Tagaytay Realty be excused from its obligation to complete the development of the
subdivision project pursuant to Article 1267 of the Civil Code?

NO. For Article 1267 to apply, the following conditions should concur, namely: (a) the event
or change in circumstances could not have been foreseen at the time of the execution of the
contract; (b) it makes the performance of the contract extremely difficult but not impossible; (c) it
must not be due to the act of any of the parties; and (d) the contract is for a future prestation.

The foregoing 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. Here, Tgayatay Realty 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. [Tagaytay Realty Co., Inc. vs. Gacutan, 761 SCRA 87, July 01, 2015]

Pen vs. Julian, 778 SCRA 56, January 11, 2016

FACTS: The Spouses Julian obtained several loans from Adelaida Pen. As security, they executed a
real estate mortgage over their property. At the time the mortgage was executed, they were
likewise required by the appellant Adelaida to sign a one (1) page document purportedly an
"Absolute Deed of Sale". Said document did not contain any consideration, and was "undated,
unfilled and unnotarized". When the Spouses Julian failed to pay the loan, Adelaida Pen transferred
the property into her name using the blank deed of sale.

Q68: What is pactum commissorium? And what are its elements?

Article 2088 of the Civil Code prohibits the creditor from appropriating the things given by
way of pledge or mortgage, or from disposing of them; any stipulation to the contrary, called
pactum commissorium, is null and void. The elements for pactum commissorium to exist are as
follows, to wit: (a) that there should be a pledge or mortgage wherein property is pledged or
mortgaged by way of security for the payment of the principal obligation; and (b) that there should
be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in
the event of non-payment of the principal obligation within the stipulated period. [Pen vs. Julian,
778 SCRA 56, January 11, 2016]

Q69: Is the foregoing arrangement a case of pactum commisorrium? Or a case of dacion en pago?

It is pactum commissorium, not dacion en pago. The first element of pacturm

commissorium was present considering that the property of the respondents was mortgaged by
Linda in favor of Adelaida as security for the former's indebtedness. As to the second, the
authorization for Adelaida to appropriate the property subject of the mortgage upon Linda's default
was implied from Linda's having signed the blank deed of sale simultaneously with her signing of the
real estate mortgage. The haste with which the transfer of property was made upon the default by
Linda on her obligation, and the eventual transfer of the property in a manner not in the form of a
valid dacion en pago ultimately confirmed the nature of the transaction as a pactum commissorium.
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The theory that the arrangement was dacion en pago cannot stand scrutiny. Dacion en
pago is in the nature of a sale because property is alienated in favor of the creditor in satisfaction of a
debt in money. For a valid dacion en pago to transpire, however, the attendance of the following
elements must be established, namely: (a) the existence of a money obligation; (b) the alienation to
the creditor of a property by the debtor with the consent of the former; and (c) the satisfaction of
the money obligation of the debtor. To have a valid dacion en pago, therefore, the alienation of the
property must fully extinguish the debt. Yet in this case, the debt of Linda subsisted despite the
transfer of the property in favor of Adelaida. [Pen vs. Julian, 778 SCRA 56, January 11, 2016]

PNB vs. Heirs of Alonday, G.R. No. 171865, October 12, 2016

FACTS: In 1974, the Spouses Alonday obtained an agricultural loan from PNB. It was secured by
constituting a real estate mortgage on their parcel of land situated in Sta. Cruz, Davao del Sur. In
1980, the Spouses obtained from PNB a commercial loan secured by a real estate mortgage over
their residential lot situated in Ulas, Davao City. Both mortgages contained a dragnet clause. The
commercial loan was paid in full. The Spouses failed to pay the agricultural loan. When the mortgage
securing the agricultural loan was foreclosed, there was deficiency. To satisfy the deficiency balance,
PNB also foreclosed the mortgage securing the commercial loan.

Q70: What is a dragnet clause or blanket mortgage clause?

A blanket mortgage clause, also known as a dragnet clause in American jurisprudence, is one which
is specifically phrased to subsume all debts of past or future origins. Mortgages of this character
enable the parties to provide continuous dealings, the nature or extent of which may not be known
or anticipated at the time, and they avoid the expense and inconvenience of executing a new
security on each new transaction. [Prudential Bank v. Alviar, 464 SCRA 353 (2005)]

Q71: In the above problem, may the all-embracing or dragnet clause contained in the first mortgage
contract executed between the parties for the security of the first loan could authorize the
foreclosure of the property under the mortgage to secure a second loan despite the full payment of
the second loan?

NO. PNB had the opportunity to include some form of acknowledgement of the previously
subsisting agricultural loan in the terms of the second mortgage contract The mere fact that the
mortgage constituted on the property covered by TCT No. T-66139 made no mention of the pre-
existing loan could only strongly indicate that each of the loans of the Spouses Alonday had been
treated separately by the parties themselves, and this sufficiently explained why the loans had been
secured by different mortgages.

Another indication that the second mortgage did not extend to the agricultural loan was the
fact that the second mortgage was entered into in connection only with the commercial loan. The
execution of the subsequent mortgage by the parties herein to secure the subsequenlloan was an
indication that they had intended to treat each loan as distinct from the other, and that they had
intended to secure each of the loans individually and separately. To reiterate, in order for the all-
embracing or dragnet clauses to secure future and other loans, the loans thereby secured must be
sufficiently described in the mortgage contract. [PNB vs. Heirs of Alonday, G.R. No. 171865, October
12, 2016]
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