1sod Civil PDF

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Case San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS
Digests
CIVIL LAW
SUMMARY OF DOCTRINES
PERSONS AND FAMILY RELATIONS

Accion in rem verso cannot be availed of if the action is proscribed by the constitution or by
application of the pari delicto doctrine
Article 22 of the Civil Code provides: Every person who through an act of performance by
another, or any other means, acquires or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to him.
An action for recovery of what has been paid without just cause has been designated as an
accion in rem verso. This provision does not apply if, as in this case, the action is proscribed by the
Constitution or by the application of the pari delicto doctrine. It may be unfair and unjust to bar
the petitioner from filing an accion in rem verso over the subject properties, or from recovering the
money he paid for the said properties, but, as Lord Mansfield stated in the early case of Holman vs.
Johnson: "The objection that a contract is immoral or illegal as between the plaintiff and the
defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake,
however, that the objection is ever allowed; but it is founded in general principles of policy, which
the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff."
[FRENZEL vs. CATITO, G.R. No. 143958. July 11, 2003.]
Effect of the spouses signing as surety

Article 160 of the New Civil Code provides that all the properties acquired during the
marriage are presumed to belong to the conjugal partnership, unless it be proved that it pertains
exclusively to the husband, or to the wife. In Tan v. Court of Appeals, we held that it is not even
necessary to prove that the properties were acquired with funds of the partnership. As long as the
properties were acquired by the parties during the marriage, they are presumed to be conjugal in
nature. In fact, even when the manner in which the properties were acquired does not appear, the
presumption will still apply, and the properties will still be considered conjugal. [CHING vs. COURT
OF APPEALS, G.R. No. 124642, February 23, 2004]
To hold the conjugal partnership liable, some advantages must accrue to the spouses
For the conjugal partnership to be liable for a liability that should appertain to the husband
alone, there must be a showing that some advantages accrued to the spouses. Certainly, to make a
conjugal partnership responsible for a liability that should appertain alone to one of the spouses is
to frustrate the objective of the New Civil Code to show the utmost concern for the solidarity and
well being of the family as a unit. The husband, therefore, is denied the power to assume
unnecessary and unwarranted risks to the financial stability of the conjugal partnership. [CHING vs.
COURT OF APPEALS, G.R. No. 124642, February 23, 2004]
Any alienation of the conjugal property made by one spouse without the consent of the other
renders the contract voidable
Pursuant to the foregoing provisions (Articles 166 and 173 of the Civil Code), the husband
could not alienate or encumber any conjugal real property without the consent, express or implied,
of the wife otherwise, the contract is voidable. Indeed, in several cases the Court had ruled that
such alienation or encumbrance by the husband is void. The better view, however, is to consider
the transaction as merely voidable and not void. This is consistent with Article 173 of the Civil
Code pursuant to which the wife could, during the marriage and within 10 years from the
questioned transaction, seek its annulment.
Under Article 166 of the Civil Code, the husband cannot generally alienate or encumber any
real property of the conjugal partnership without the wife's consent. The alienation or
encumbrance if so made however is not null and void. It is merely voidable. The offended wife may
bring an action to annul the said alienation or encumbrance. [HEIRS OF REYES vs. SPOUSES
MIJARES, G.R. No. 143826, August 28, 2003]
CIVIL LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Romuald Padilla  ASST. CHAIRPERSON: Vida Bocar, Joyce Vidad EDP’S: Alnaiza Hassiman, Dots Gayon SUBJECT HEADS: Butch Marasigan
(Persons and Family Relations), Donnie Casabar (Property), Aira Ferrer (Wills and Succession), Ian Pua (Obligations and Contracts), Lai Dumama (Sales and
Lease),
Stephen Quiambao (PAT), Chris Cabigao (Credit Transactions), Ligaya Alipao (Torts and Damages), Anthony Purganan (LTD), Rica Tugadi (Conflicts of Law)
DIGEST POOL: Michael Acejo, Johnsen Alejandro, Madelyn Almazora, Rowena Antonio, Anissa Apolinario, Katrina Atienza, Jen Balboa, Ishmalyn Balbontin,
Ian Bartolome, Regina Batac, Janet Calderon, Hashreen Caudang, Bambi Delos Reyes, Jeenice de Sagun, Wren Dones, Edsel Duque, Rojane Elopre,
Ulysses Gonzales, Randy Guina, Mae Ann Gutierrez, Ghia Hurtado, Anelyn Javillonar, Jessette Labriaga, Maureen Lontoc, Diana Marie Miano, Sophie
Nepomuceno, Genevieve Nueve, Louell Pamela Neri, Iggy Sapalo, Ayn Sarsaba, Rachelle Saya, Pam Solis, Tom Timbol, Paulette Tongcua, Jocelyn Tsang,
Joanne Villareal, Rhyne Ypulong.
2
San Beda College of Law Case
2005 CENTRALIZED BAR OPERATIONS Digests
CIVIL LAW
Justification in annulling the contract in its entirety and not merely as to the share of the wife
The necessity to strike down the contract of July 5, 1963 as a whole, not merely as to the share of
the wife, is not without its basis in the common-sense rule. To be underscored here is that upon
the provisions of Articles 161, 162 and 163 of the Civil Code, the conjugal partnership is liable for
many obligations while the conjugal partnership exists. Not only that. The conjugal property is even
subject to the payment of debts contracted by either spouse before the marriage, as those for the
payment of fines and indemnities imposed upon them after the responsibilities in Article 161 have
been covered (Article 163, par. 3), if it turns out that the spouse who is bound thereby, "should
have no exclusive property or if it should be insufficient." These are considerations that go beyond
the mere equitable share of the wife in the property. These are reasons enough for the husband to
be stopped from disposing of the conjugal property without the consent of the wife. Even more
fundamental is the fact that the nullity is decreed by the Code not on the basis of prejudice but
lack of consent of an indispensable party to the contract under Article 166. [HEIRS OF REYES vs.
SPOUSES MIJARES, G.R. No. 143826, August 28, 2003]
What constitutes psychological incapacity PACITY

Respondent's sexual infidelity or perversion and abandonment do not by themselves
constitute psychological incapacity within the contemplation of the Family Code. Neither could her
emotional immaturity and irresponsibility be equated with psychological incapacity. It must be
shown that these acts are manifestations of a disordered personality which make respondent
completely unable to discharge the essential obligations of the marital state, not merely due to her
youth, immaturity or sexual promiscuity. [DEDEL vs. COURT OF APPEALS, G.R. No. 151867,
January 29, 2004]
Effects of judicial declaration of the nullity of a marriage on the ground of psychological

incapacity
Although the judicial declaration of the nullity of a marriage on the ground of psychological
incapacity retroacts to the date of the celebration of the marriage insofar as the vinculum between
the spouses is concerned, it is significant to note that said marriage is not without legal effects.
Among these effects is that children conceived or born before the judgment of absolute nullity of
the marriage shall be considered legitimate. There is therefore a recognition written into the law
itself that such a marriage, although void ab initio, may still produce legal consequences. Among
these legal consequences is incurring criminal liability for bigamy. To hold otherwise would render
the State's penal laws on bigamy completely nugatory, and allow individuals to deliberately ensure
that each marital contract be flawed in some manner, and to thus escape the consequences of
contracting multiple marriages, while beguiling throngs of hapless women with the promise of
futurity and commitment. [TENEBRO vs COURT OF APPEALS, GR No. 150758, FEBRUARY 18,
2004]
Guidelines on the interpretation and application of Article 36 of the Family Code

In Molina, we came up with the following guidelines in the interpretation and application of
Article 36 for the guidance of the bench and the bar:
(1) The burden of proof to show the nullity of the marriage belongs to the plaintiff. Any doubt
should be resolved in favor of the existence and continuation of the marriage and against its
dissolution and nullity. This is rooted in the fact that both our Constitution and our laws cherish the
validity of marriage and unity of the family. . . .
(2) The root cause of the psychological incapacity must be: (a) medically or clinically
identified, (b) alleged in the complaint, (c) sufficiently proven by experts and (d) clearly explained
in the decision. Article 36 of the Family Code requires that the incapacity must be psychological —
not physical, although its manifestations and/or symptoms may be physical. The evidence must
convince the court that the parties, or one of them, was mentally or psychically ill to such an
extent that the person could not have known the obligations he was assuming, or knowing them,
could not have given valid assumption thereof. Although no example of such incapacity need be
given here so as not to limit the application of the provision under the principle of ejusdem generis
(Salita vs. Magtolis, 233 SCRA 100, June 13, 1994), nevertheless such root cause must be identified
as a psychological illness and its incapacitating nature fully explained. Expert evidence may be
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat),
Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis
Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy
(Remedial Law), Jackie Lou Bautista (Legal Ethics)
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Digests
CIVIL LAW
given by qualified psychiatrists and clinical psychologists.
(3) The incapacity must be proven to be existing at "the time of the celebration" of the
marriage. The evidence must show that the illness was existing when the parties exchanged their "I
do's." The manifestation of the illness need not be perceivable at such time, but the illness itself
must have attached at such moment, or prior thereto.
(4) Such incapacity must also be shown to be medically or clinically permanent or incurable.
Such incurability may be absolute or even relative only in regard to the other spouse, not
necessarily absolutely against everyone of the same sex. Furthermore, such incapacity must be
relevant to the assumption of marriage obligations, not necessarily to those not related to
marriage, like the exercise of a profession or employment in a job. Hence, a pediatrician may be
effective in diagnosing illnesses of children and prescribing medicine to cure them but may not be
psychologically capacitated to procreate, bear and raise his/her own children as an essential
obligation of marriage.
(5) Such illness must be grave enough to bring about the disability of the party to assume the
essential obligations of marriage. Thus, “mild characteriological peculiarities, mood changes,
occasional emotional outbursts” cannot be accepted as root causes. The illness must be shown as
downright incapacity or inability, not a refusal, neglect or difficulty, much less ill will. In other
words, there is a natal or supervening disabling factor in the person, an adverse integral element in
the personality structure that effectively incapacitates the person from really accepting and
thereby complying with the obligations essential to marriage.
(6) The essential marital obligations must be those embraced by Articles 68 up to 71 of the
Family Code as regards the husband and wife as well as Articles 220, 221 and 225 of the same Code
in regard to parents and their children. Such non-complied marital obligation(s) must also be stated
in the petition, proven by evidence and included in the text of the decision.
(7) Interpretations given by the National Appellate Matrimonial Tribunal of the Catholic Church
in the Philippines, while not controlling or decisive, should be given great respect by our courts. . .
(8) The trial court must order the prosecuting attorney or fiscal and the Solicitor General to
appear as counsel for the state. No decision shall be handed down unless the Solicitor General
issues a certification, which will be quoted in the decision, briefly stating therein his reasons for his
agreement or opposition, as the case may be, to the petition. The Solicitor-General, along with the
prosecuting attorney, shall submit to the court such certification within fifteen (15) days from the
date the case is deemed submitted for resolution of the court. The Solicitor-General shall discharge
the equivalent function of the defensor vinculi contemplated under Canon 1095.
The guidelines incorporate the three basic requirements earlier mandated by the Court in
Santos: "psychological incapacity must be characterized by (a) gravity (b) juridical antecedence and
(c) incurability." The foregoing guidelines do not require that a physician examine the person to be
declared psychologically incapacitated. In fact, the root cause may be “medically or clinically
identified.” What is important is the presence of evidence that can adequately establish the party’s
psychological condition. For indeed, if the totality of evidence presented is enough to sustain a
finding of psychological incapacity, then actual medical examination of the person concerned need
not be resorted to. [REPUBLIC vs HAMANO, GR No. 149498, MAY 20, 2004]
Rules on co-ownership applies to unions of parties who are legally capacitated and not barred
by any impediment to marry
Article 147 applies to unions of parties who are legally capacitated and not barred by any
impediment to contract marriage, but whose marriage is nonetheless void, as in the case at bar.
This provision creates a co-ownership with respect to the properties they acquire during their
cohabitation.
Thus, for Article 147 to operate, the man and the woman: (1) must be capacitated to marry
each other; (2) live exclusively with each other as husband and wife; and (3) their union is without
the benefit of marriage or their marriage is void. All these elements are present in the case at bar.
It has not been shown that petitioner and respondent suffered any impediment to marry each
other. They lived exclusively with each other as husband and wife when petitioner moved in with
respondent in his residence and were later united in marriage. Their marriage, however, was found

Lease),
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to be void under Article 36 of the Family Code because of respondent's psychological incapacity to
comply with essential marital obligations. [FEHR vs. FEHR, G.R. No. 152716, October 23, 2003]
DOMESTIC ADOPTION ACT OF 1998 (RA No. 8552)
The adopter has no right to rescind the decree of adoption

It was months after the effectivity of R.A. No. 8552 that herein petitioner filed an action to
revoke the decree of adoption granted in 1975. By then, the new law, had already abrogated and
repealed the right of an adopter under the Civil Code and the Family Code to rescind a decree of
adoption. Consistently with its earlier pronouncements, the Court should now hold that the action
for rescission of the adoption decree, having been initiated by petitioner after R.A. No. 8552 had
come into force, no longer could be pursued.
It is still noteworthy, however, that an adopter, while barred from severing the legal ties of
adoption, can always for valid reasons cause the forfeiture of certain benefits otherwise accruing to
an undeserving child. For instance, upon the grounds recognized by law, an adopter may deny to an
adopted child his legitime and, by a will and testament, may freely exclude him from having a
share in the disposable portion of his estate. [LAHOM vs. SIBULO, G.R. No. 143989, July 14,
2003]
PROPERTY
Principal issue in ejectment cases
In a forcible entry case, the principal issue for resolution is mere physical or material
possession (possession de facto) and not juridical possession (possession de jure) nor ownership of
the property involved. [DELA ROSA vs. CARLOS, G.R. No. 147549, October 23, 2003]
The principle of pari delicto does not apply in ejectment cases

The rule of pari delicto is expressed in the maxims 'ex dolo malo non eritur actio' and 'in
pari delicto potior est conditio defedentis.' The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them.
The application of the pari delicto principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of the pari delicto rule would violate
well-established public policy.
Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters is fraught with danger. To shut out relief to squatters on the ground of pari delicto would
openly invite mayhem and lawlessness. A squatter would oust another squatter from possession of
the lot that the latter had illegally occupied, emboldened by the knowledge that the courts would
leave them where they are. Nothing would then stand in the way of the ousted squatter from re-
claiming his prior possession at all cost. [PAJUYO vs. COURT OF APPEALS G.R. No. 146364, June
3, 2004]
Ejectment as remedy in possession by tolerance

Where the plaintiff allows the defendant to use his property by tolerance without any
contract, the defendant is necessarily bound by an implied promise that he will vacate on demand,
failing which, an action for unlawful detainer will lie. The defendant's refusal to comply with the
demand makes his continued possession of the property unlawful. The status of the defendant in
such a case is similar to that of a lessee or tenant whose term of lease has expired but whose
occupancy continues by tolerance of the owner. [PAJUYO vs. COURT OF APPEALS G.R. No.
146364, June 3, 2004]
Possession of a property by virtue of an easement is not possession in the concept of an owner

While it is true that, together with a person's actual and adverse possession of the land, tax
declarations constitute strong evidence of ownership of the land occupied by him, this legal
precept does not apply in cases where the property is declared to be a mere easement of right of
way. Having held the property by virtue of an easement, petitioner cannot now assert that its
occupancy since 1929 was in the concept of an owner. Neither can it declare that the 30-year
period of extraordinary acquisitive prescription started from that year. [BOGO-MEDELLIN MILLING
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CO., INC. vs. COURT OF APPEALS, G.R. No. 124699, July 31, 2003]
Possessor in Good faith

Good faith, here understood, is an intangible and abstract quality with no technical
meaning or statutory definition, and it encompasses, among other things, an honest belief, the
absence of malice and the absence of design to defraud or to seek an unconscionable advantage. An
individual's personal good faith is a concept of his own mind and, therefore, may not conclusively
be determined by his protestations alone. It implies honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith
lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of
intention to overreach another. Applied to possession, one is considered in good faith if he is not
aware that there exists in his title or mode of acquisition any flaw which invalidates it. [PNB vs. DE
JESUS, G.R. No. 149295, September 23, 2003]
If the owner himself is the builder, the issue of good faith is irrelevant
Article 448, of the Civil Code refers to a piece of land whose ownership is claimed by two or
more parties, one of whom has built some works (or sown or planted something) and not to a case
where the owner of the land is the builder, sower, or planter who then later loses ownership of the
land by sale or otherwise for, elsewise stated, "where the true owner himself is the builder of
works on his own land, the issue of good faith or bad faith is entirely irrelevant." [PNB vs. DE
JESUS, G.R. No. 149295, September 23, 2003]
Discontinuous easements are acquired only by title

And under Article 622 of the Civil Code, discontinuous easements, whether apparent or not,
may be acquired only by title. Unfortunately, petitioner Bomedco never acquired any title over the
use of the railroad right of way whether by law, donation, testamentary succession or contract. Its
use of the right of way, however long, never resulted in its acquisition of the easement because;
under Article 622, the discontinuous easement of a railroad right of way can only be acquired by
title and not by prescription. [BOGO-MEDELLIN MILLING CO., INC. vs. COURT OF APPEALS, G.R.
No. 124699, July 31, 2003]
CO-OWNERSHIP
An action by a co-owner is only for purposes of obtaining recognition of the co-ownership

Any co-owner may file an action under Article 487 not only against a third person, but also
against another co-owner who takes exclusive possession and asserts exclusive ownership of the
property. In the latter case, however, the only purpose of the action is to obtain recognition of the
co-ownership. The plaintiff cannot seek exclusion of the defendant from the property because as
co-owner he has a right of possession. The plaintiff cannot recover any material or determinate
part of the property. [DE GUIA vs. COURT OF APPEALS, G.R. No. 120864, October 8, 2003]
Rights of co-owners before actual partition

It is a basic principle in civil law that before a property owned in common is actually
partitioned, all that the co-owner has is an ideal or abstract quota or proportionate share in the
entire property. A co-owner has no right to demand a concrete, specific or determinate part of the
thing owned in common because until division is effected his right over the thing is represented
only by an ideal portion. [DE GUIA vs. COURT OF APPEALS, G.R. No. 120864, October 8, 2003]
Effect of mortgage by a co-owner

The Civil Code provides that an essential requisite of a contract of mortgage is that the
mortgagor be the absolute owner of the thing mortgaged. Co-ownership cannot be presumed even
if only a portion of the property was mortgaged to Apolonia, because a co-owner may dispose only
of one’s interest in the ideal or abstract part of the undivided thing co-owned with others. The
affect of a mortgage by a co-owner shall be limited to the portion that may be allotted to that
Lease),
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CIVIL LAW
person upon the termination of the co-ownership. [OCAMPO vs OCAMPO, GR No. 150707, APRIL
14, 2004]
PRESCRIPTION
An action for reconveyance based on implied or constructive trust prescribes in ten years from
the alleged fraudulent registration or date of issuance of the certificate of title over the
property
Generally, an action for reconveyance of real property based on fraud prescribes in four
years from the discovery of fraud; such discovery is deemed to have taken place upon the issuance
of the certificate of title over the property. Registration of real property is a constructive notice to
all persons and, thus, the four-year period shall be counted therefrom. On the other hand, Article
1456 of the Civil Code provides: “If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the
person from whom the property comes.“ An action for reconveyance based on implied or
constructive trust prescribes in ten years from the alleged fraudulent registration or date of
issuance of the certificate of title over the property. The general rule that the discovery of fraud is
deemed to have taken place upon the registration of real property because it is considered a
constructive notice to all persons does not apply in this case. It is true that registration under the
Torrens system is constructive notice of title, but Torrens title does not furnish a shield for fraud.
[GSIS vs. SANTIAGO, G.R. No. 155206, October 28, 2003]
Action or defense for the declaration of the inexistence of a contract does not prescribe, nor is
it barred by laches
In actions for reconveyance of property predicated on the fact that the conveyance
complained of was null and void ab initio, a claim of prescription of action would be unavailing.
The action or defense for the declaration of the inexistence of a contract does not prescribe.
Neither could laches be invoked in the case at bar. Laches is a doctrine in equity and our courts are
basically courts of law and not courts of equity. Equity, which has been aptly described as "justice
outside legality," should be applied only in the absence of, and never against, statutory law.
Aequetas nunguam contravenit legis. The positive mandate of Art. 1410 of the New Civil Code
conferring imprescriptibility to actions for declaration of the inexistence of a contract should pre-
empt and prevail over all abstract arguments based only on equity. Certainly, laches cannot be set
up to resist the enforcement of an imprescriptible legal right, and petitioners can validly vindicate
their inheritance despite the lapse of time. [AZNAR BROTHERS REALTY COMPANY vs. HEIRS OF
CALIPAN, G.R. No. 140417, May 28, 2004]
Actions based on written contract prescribes in 10 years from the time the right of action
accrues
Private respondents' action is based on a written contract. Article 1144(1) of the Civil Code
provides that the prescriptive period for an action on a written contract is 10 years from the time
the right of action accrues. [CHINA AIRLINES, LTD. vs. COURT OF APPEALS, G.R. No. 129988,
July 14, 2003]
Period of prescription inapplicable where person seeking annulment of title or reconveyance is

possessor himself; in adverse claims, period of prescription commences only when the one in
possession is made aware of the claim
Prescription does not apply when the person seeking annulment of title or reconveyance is
in possession of the lot because the action partakes of a suit to quiet title which is imprescriptible.
There is settled jurisprudence that one who is in actual possession of a piece of land
claiming to be owner thereof may wait until his possession is disturbed or his title attacked before
taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession
gives him a continuing right to seek the aid of a court of equity to ascertain and determine the
nature of the adverse claim and its effect on his own title, which right can be claimed only by one
who is in possession. . . . The right to quiet title to the property, seek its reconveyance and annul
any certificate of title covering it accrued only from the time the one in possession was made

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aware of a claim adverse to his own, and it is only then that the statutory period of prescription
commences to run against such possessor. [SPS. OCCEÑA vs. ESPONILLA, G.R. No. 156973, June
4, 2004]
Application of the rules on contracts in onerous donations

Considering that the assailed donation is clearly onerous, the rules on contracts will apply.
A transfer of real property by a local government unit to an instrumentality of government without
first securing an appraised valuation from the local committee on awards does not appear to be one
of the void contracts enumerated in Article 1409 of the Civil Code. Neither does Section 381 of the
Local Government Code expressly prohibit or declare void such transfers if an appraised valuation
from the local committee on awards is not first obtained. A duly executed contract carries with it
the presumption of validity. The absence of a prior appraised valuation by the local committee on
awards did not sufficiently overcome the presumption of validity of the contract, considering that
there is no express provision in the law which requires that the said valuation is a condition sine
qua non for the validity of a donation. [GSIS vs. PROVINCE OF TARLAC, G.R. No. 157860,
December 1, 2003]
Donation as a mode of acquiring ownership; requisites for its validity; effect on third persons
As being itself a mode of acquiring ownership, donation results in an effective transfer of
title over the property from the donor to the donee. In donations of immovable property, the law
requires for its validity that it should be contained in a public document, specifying therein the
property donated and the value of the charges which the donee must satisfy. The Civil Code
provides, however, that "titles of ownership, or other rights over immovable property, which are
not duly inscribed or annotated in the Registry of Property (now Registry of Land Titles and Deeds)
shall not prejudice third persons." It is enough, between the parties to a donation of an immovable
property, that the donation be made in a public document but, in order to bind third persons, the
donation must be registered in the Registry of Property [SHOPPER’S PARADISE REALTY AND
DEVELOPMENT CORP. vs ROQUE, GR No. 148775, JANUARY 13, 2004]
OBLIGATIONS AND CONTRACTS
Delay in Reciprocal Obligations

Those obliged to deliver or to do something, incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins. [SALVADOR vs COURT OF APPEALS, GR
No. 124899, MARCH 30, 2004]
Concept of Fraud; obligation of other party to fully explain terms of contract where a party is
unable to read or when the contract is in a language not understood by a party and mistake or
fraud is alleged
As defined, fraud refers to all kinds of deception, whether through insidious machination,
manipulation, concealment or misrepresentation to lead another party into error. The deceit
employed must be serious. It must be sufficient to impress or lead an ordinarily prudent person into
error, taking into account the circumstances of each case.
Where a party is unable to read or when the contract is in a language not understood by a
party and mistake or fraud is alleged, the obligation to show that the terms of the contract had
been fully explained to said party who is unable to read or understand the language of the contract
devolves on the party seeking to enforce it. The burden rests upon the party who seeks to enforce
the contract to show that the other party fully understood the contents of the document. If he fails
to discharge this burden, the presumption of mistake, if not, fraud, stands unrebutted and
controlling. [MAYOR vs. BELEN, G.R. No. 151035, June 3, 2004]
Lease),
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Fortuitous Event; Meaning; Requisites

A fortuitous event is one that cannot be foreseen or, though foreseen, is inevitable. It has
the following characteristics:
". . . (a) [The cause of the unforeseen and unexpected occurrence, or the failure of the debtor to
comply with his obligations, must be independent of human will; (b) it must be impossible to
foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in
the aggravation of the injury resulting to the creditor."
Tire act-of-God doctrine requires all human agencies to be excluded from creating the
cause of the mischief. Such doctrine cannot be invoked to protect a person who has failed to take
steps to forestall the possible adverse consequences of loss or injury. Since the delay in payment in
the present case was partly a result of human participation — whether from active intervention or
neglect — the whole occurrence was humanized and was therefore outside the ambit of a caso
fortuito. [MANILA INTERNATIONAL AIRPORT AUTHORITY (MIAA) vs ALA INDUSTRIES CORP., GR.
No. 147349, FEBRUARY 13, 2004]
Purely Potestative, Suspensive and Conditional Obligations dependent on the whims of the
debtor are prohibited
The Code prohibits purely potestative, suspensive, conditional obligations that depend on
the whims of the debtor, because such obligations are usually not meant to be fulfilled. Indeed, to
allow the fulfillment of conditions to depend exclusively on the debtor's will would be to sanction
illusory obligations. [Vda. DE MISTICA vs SPOUSES NAGUIAT, GR No. 137909, DECEMBER 11,
2003]
Concept of Novation; OBLIGATIONS: REQUISITES

Novation is a mode of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to
the rights of the creditor. For novation to take place, the following requisites must concur:
1. There must be a previous valid obligation.
2. The parties concerned must agree to a new contract.
3. The old contract must be extinguished.
4. There must be a valid new contract.
Novation may be express or implied. It is express when the new obligation declares in
unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is
incompatible with the old one on every point. The test of incompatibility is whether the two
obligations can stand together, each one with its own independent existence. [GARCIA vs.
LLAMAS, G.R. No. 154127, December 8, 2003]
Requisites for a valid Dation in Payment

It may well be that the assignment of credit, which is in the nature of a sale of personal
property, produced the effects of a dation in payment which may extinguish the obligation.
However, as in any other contract of sale, the vendor or assignor is bound by certain warranties.
More specifically, the first paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit at
the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the
debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and
of common knowledge.
In order that there be a valid dation in payment, the following are the requisites: (1) There
must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in
the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must
be some difference between the prestation due and that which is given in substitution (aliud pro
alio); (3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that due.
The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the debtor's

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debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the
credit at the time of the sale but not for the solvency of the debtor, in specified circumstances.
[LO vs COURT OF APPEALS, GR. No. 149420, OCTOBER 8, 2003]
CONTRACTS
Mere exchange of offers and counter-offers does not result in a perfected contract
A contract is perfected by mere consent. From the moment of a meeting of the offer and
the acceptance upon the object and the cause that would constitute the contract, consent arises.
However, the offer must be certain and the acceptance seasonable and absolute; if qualified, the
acceptance would merely constitute a counteroffer. While there was an initial offer made, there
was no acceptance; because when there allegedly came an acceptance that could have had a
binding effect, the offer was already lacking.
The Civil Code provides that no contract shall arise unless its acceptance is communicated
to the offeror. That is, the mere determination to accept the proposal of a bidder does not
constitute a contract; that decision must be communicated to the bidder.
Where the parties merely exchange offers and counteroffers, no agreement or contract is
perfected. A party may withdraw its offer or counteroffer prior to its receipt of the other party's
acceptance thereof. To produce an agreement, the offer must be certain and the acceptance
timely and absolute. [THE INSULAR LIFE ASSURANCE COMPANY, LTD. vs. ASSET BUILDERS
CORPORATION, G.R. No. 147410, February 5, 2004]
Article 1416 of the Civil Code does not apply to contracts void ab initio
Under Article 1416 of the Civil Code: When the agreement is not illegal per se but is merely
prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered.
The provision applies only to those contracts which are merely prohibited, in order to
benefit private interests. It does not apply to contracts void ab initio. The sale of three parcels of
land in favor of the petitioner who is a foreigner is illegal per se. The transactions are void ab initio
because they were entered into in violation of the Constitution. Thus, to allow the petitioner to
recover the properties or the money used in the purchase of the parcels of land would be
subversive of public policy. [FRENZEL vs. CATITO, G.R. No. 143958, July 11, 2003]
Reformation is the proper remedy if parties failed to include in the written document a
sufficient description of the subject property
Although both parties agreed to transfer one-hectare real property, they failed to include
in the written document a sufficient description of the property to convey. This error is not one for
nullification of the instrument but only for reformation.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of
the parties, the proper remedy is not reformation of the instrument but annulment of the contract.
Reformation is a remedy in equity whereby a written instrument is made or construed so as
to express or conform to the real intention of the parties where some error or mistake has been
committed. In granting reformation, the remedy in equity is not making a new contract for the
parties, but establishing and perpetuating the real contract between the parties which, under the
technical rules of law, could not be enforced but for such reformation.
In order that an action for reformation of instrument as provided in Article 1359 of the Civil
Code may prosper, the following requisites must concur: (1) there must have been a meeting of the
minds of the parties to the contract; (2) the instrument does not express the true intention of the
parties; and (3) the failure of the instrument to express the true intention of the parties is due to
mistake, fraud, inequitable conduct or accident. [QUIROS vs ARJONA, GR No. 158901, MARCH 9,
2004]

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Contract of Adhesion
Indeed, the contract herein involved is a contract of adhesion. But such an agreement is
not per se inefficacious. The rule instead is that, should there be ambiguities in a contract of
adhesion, such ambiguities are to be construed against the party that prepared it. If, however, the
stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the
literal meaning of its stipulations must be held controlling.
A contract of adhesion is just as binding as ordinary contracts. It is true that this court has,
on occasion, struck down such contract as being assailable when the weaker party is left with no
choice by the dominant bargaining party and is thus completely deprived of the opportunity to
bargain effectively. Nevertheless, contract of adhesion are not prohibited even as the courts
remain careful in scrutinizing the factual circumstances underlying each case to determine the
respective claims of contending parties on their efficacy. [PILIPINO TELEPHONE CORP. vs DELFINO
TECSON. GR No. 156966. MAY 7, 2004]
Compromise Agreement
A compromise agreement is an agreement between two or more persons who, for
preventing or putting an end to a lawsuit, adjust their respective positions by mutual consent in the
way they feel they can live with. A compromise is binding and has the force of law between the
parties, unless the consent of a party is vitiated—such as by mistake, fraud, violence, intimidation
or undue influence—or when there is forgery or if the terms of the settlement are so palpably
unconscionable.
Even more than a contract which may be enforced by ordinary action for specific
performance, the compromise agreement is part and parcel of the judgment, and may therefore be
enforced as such by a writ of execution. [GENOVA vs. DE CASTRO, G.R. No. 132076, July 22,
2003]
Requisites and Effects of a Valid Compromise Agreement

A compromise once approved by final orders of the court has the force of res judicata
between the parties and should not be disturbed except for vices of consent or forgery.' Hence, 'a
decision on a compromise agreement is final and executory . . .."' Such agreement has the force of
law and is conclusive between the parties. It transcends its identity as a mere contract binding
only upon the parties thereto, as it becomes a judgment that is subject to execution in accordance
with the Rules. Judges therefore have the ministerial and mandatory duty to implement and
enforce it.
To be valid, a compromise agreement is merely required by law, first, to be based on real
claims; second, to be actually agreed upon in good faith. [MANILA INTERNATIONAL AIRPORT
AUTHORITY (MIAA) vs ALA INDUSTRIES CORP., GR. No. 147349, FEBRUARY 13, 2004]
Sources of obligations in cases where contracts are held inexistent

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be complied
with in good faith. However, it must be understood that contracts are not the only source of law
that govern the rights and obligations between the parties. More specifically, no contractual
stipulation may contradict law, morals, good customs, public order or public policy. Verily, the
mere inexistence of a contract, which would ordinarily serve as the law between the parties, does
not automatically authorize disposing of a controversy based on equitable principles alone.
Notwithstanding the absence of a perfected contract between the parties, their relationship may
be governed by other existing laws which provide for their reciprocal rights and obligations.
[NATIONAL HOUSING AUTHORITY vs GRACE BAPTIST CHURCH, GR No. 156437, MARCH 1, 2004]
Rule on Interpretation of Contracts

In resolving an issue based upon contract, the Court must first examine the contract itself,
especially the provisions thereof which are relevant to the controversy. The general rule is that
when the terms of an agreement are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations shall prevail. It is further required that the
stipulations of a contract be interpreted as a whole, attributing to the questionable stipulations the
sense which may result from all of them taken jointly. [MILWAUKEE INDUSTRIES CORPORATION

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vs. PAMPANGA III ELECTRIC COOPERATIVE, I, G.R. No. 152569, May 31, 2004]
Binding Effect of Contracts

And, it is a familiar doctrine in obligations and contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have agreed to, which is the law between them,
the only limitation being that these stipulations, clauses, terms and conditions are not contrary to
law, morals, public order or public policy. Not being repugnant to any legal proscription, the
agreement entered into by the parties must be respected and each is bound to fulfill what has been
expressly stipulated therein. [SPS. BARREDO vs. SPS. LEAÑO, G.R. No. 156627, June 4, 2004]
Stipulations of the contract constitute as law between the parties
The stipulations of the contract constitute the law between the parties; thus, courts have
no alternative but to enforce them as agreed upon and written. [Vda. DE MISTICA vs SPOUSES
NAGUIAT, GR No. 137909, DECEMBER 11, 2003]
Incapacity of one of the parties to give his consent renders the contract merely voidable under
the Old Civil Code
The relevant laws governing the minors' redemption in 1973 are the general Civil Code
provisions on legal capacity to enter into contractual relations. Article 1327 of the Civil Code
provides that minors are incapable of giving consent to a contract. Article 1390 provides that a
contract where one of the parties is incapable of giving consent is voidable or annullable. Thus, the
redemption made by the minors in 1973 was merely voidable or annullable, and was not void ab
initio, as petitioners argue. [SAMAHAN NG MAGSASAKA SA SAN JOSEP vs. VALISNO, G.R. No.
158314, June 3, 2004]
Nature of an Airline's Contract of Carriage

The nature of an airline's contract of carriage partakes of two types, namely: (1) a contract
to deliver a cargo or merchandise to its destination, and (2) a contract to transport passengers to
their destination. In this case, when CAL confirmed the reservations, it bound itself to transport
private respondents on its flight on 13 June 1990.
The airline business is intended to serve the traveling public primarily and is thus imbued
with public interest. The law governing common carriers consequently imposes an exacting
standard. Thus, in an action based on a breach of contract of carriage, the aggrieved party does not
have to prove that the common carrier was at fault or was negligent. All that he has to prove is the
existence of the contract and the fact of its non-performance by the carrier. [CHINA AIRLINES,
LTD. vs. COURT OF APPEALS, G.R. No. 129988, July 14, 2003]
Statute of frauds is not applicable where no contract is perfected

There was no perfected contract of sale. There is therefore no basis for the application of
the Statute of Frauds. The application of the Statute of Frauds presupposes the existence of a
perfected contract. [SPOUSES FIRME vs. BUKAL ENTERPRISES AND DEVELOPMENT CORP., G.R.
No. 146608, October 23, 2003]
ESTOPPEL AND LACHES
Estoppel in Pais
The essential elements of estoppel in pais, in relation to the party sought to be estopped,
are: 1) a clear conduct amounting to false representation or concealment of material facts or, at
least, calculated to convey the impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; 2) an intent or, at least, an expectation,
that this conduct shall influence, or be acted upon by, the other party; and 3) the knowledge,
actual or constructive, by him of the real facts. With respect to the party claiming the estoppel,
the conditions he must satisfy are: 1) lack of knowledge or of the means of knowledge of the truth
as to the facts in question; 2) reliance, in good faith, upon the conduct or statements of the party
to be estopped; and 3) action or inaction based thereon of such character as to change his position
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or status calculated to cause him injury or prejudice. [SHOPPER’S PARADISE REALTY AND
DEVELOPMENT CORP. vs ROQUE, GR No. 148775, JANUARY 13, 2004]
Concept of Laches; Essential Elements

The essence of laches is the failure or neglect, for an unreasonable and unexplained length
of time, to do that which, through due diligence, could or should have been done earlier, thus
giving rise to a presumption that the party entitled to assert it had either abandoned or declined to
assert it.
Its essential elements are: (a) conduct on the part of the defendant, or of one under whom
he claims, giving rise to the situation complained of; (b) delay in asserting complainant's rights
after he had knowledge of defendant's acts and after he has had the opportunity to sue; (c) lack of
knowledge or notice by defendant that the complainant will assert the right on which he bases his
suit; and (d) injury or prejudice to the defendant in the event the relief is accorded to the
complainant. [BOGO-MEDELLIN MILLING CO., INC. vs. COURT OF APPEALS, G.R. No. 124699, July
31, 2003]
SALES AND LEASE
Purchaser in Good faith

A purchaser in good faith is one who buys the property of another without notice that some
other person has a right to or interest in such property and pays a full and fair price at the time of
purchase or before he has notice of the claim or interest of some other person in the property. As
good faith primarily refers to a state of mind and is always a question of intention, evidence as to
conduct and outward acts are usually resorted to in order to arrive at a reasonable determination
of the inward motive or intention. [HEIRS OF CELESTIAL vs HEIRS CELESTIAL, GR No. 142691,
August 5, 2003]
He buys the property with the belief that the person from whom he receives the thing was
the owner and could convey title to the property. A purchaser cannot close his eyes to facts which
should put a reasonable man on his guard and still claim he acted in good faith. [HEIRS OF REYES
vs. SPOUSES MIJARES, G.R. No. 143826., August 28, 2003]
Ownership is transferred by tradition/ delivery of the thing sold

A contract of sale, the buyer acquires the thing sold only upon its delivery "in any of the
ways specified in Articles 1497 to 1501, or any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee." With respect to incorporeal property,
Article 1498 lays down the general rule: the execution of a public instrument shall be equivalent to
the delivery of the thing that is the object of the contract if, from the deed, the contrary does not
appear or cannot be clearly inferred.
However, ownership is transferred not by contract but by tradition or delivery. Nowhere in
the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumption of
delivery of possession of a piece of real estate.
This Court has held that the execution of a public instrument gives rises only to a prima
facie presumption of delivery. Such presumption is destroyed when the delivery is not effected
because of a legal impediment. [TEN FORTY REALTY AND DEVELOPMENT CORP. vs. CRUZ, G.R.
No. 151212, September 10, 2003]
Requisites for the presumption of an equitable mortgage to arise

It is well-settled that the presence of even one of the foregoing circumstances is sufficient
to declare a contract as an equitable mortgage, in consonance with the rule that the law favors the
least transmission of property rights. For the presumption of an equitable mortgage to arise under
Article 1602, two requisites must concur: (1) that the parties entered into a contract denominated
as a sale; and (2) that their intention was to secure an existing debt by way of a mortgage. [SAN
PEDRO vs. LEE, G.R. No. 156522, May 28, 2004]
Vendors covered by Art. 1602 usually find themselves in an unequal position when
bargaining with the vendees, and will readily sign onerous contracts to get the money they need.
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This is precisely the evil that Art. 1602 seeks to guard against. The evident intent of the provision is
to give the supposed vendor maximum safeguards for the protection of his legal rights under the
true agreement of the parties. Article 1602, par. (1), accords significance to the gross inadequacy
of the price of a purported sale to such an extent as to create the presumption that the transaction
is an equitable mortgage.
The rule is well-settled that a contract appearing on its face to be a definite sale, like the
contract in question, may be interpreted as an equitable mortgage if any of the circumstances in
Art. 1602 of the New Civil Code, such as the gross inadequacy of the price, is present. [CRUZ vs.
COURT OF APPEALS, G.R. No. 143388, October 6, 2003]
Equitable mortgage: when presumption will not arise

An equitable mortgage is one that — although lacking in some formality, form or words, or
other requisites demanded by a statute — nevertheless reveals the intention of the parties to
charge a real property as security for a debt and contains nothing impossible or contrary to law.
Delay in transferring title is not one of the instances enumerated by law — instances in which an
equitable mortgage can be presumed. (CEBALLOS vs. Intestate Estate MERCADO, G.R. No.
155856, May 28, 2004)
Remedies of unpaid seller: rescission allowed only in cases where breach is substantial
Under settled doctrine, nonpayment is a resolutory condition that extinguishes the
transaction existing for a time and discharges the obligations created thereunder. The remedy of
the unpaid seller is to sue for collection or, in case of a substantial breach, to rescind the contract.
These alternative remedies of specific performance and rescission are provided under Article 1191.
(SOLIVA vs INTESTATE ESTATE VILLABA, GR No. 154017, DECEMBER 8, 2003)
In a contract of sale, the remedy of an unpaid seller is either specific performance or

rescission. Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on
the violation of the reciprocity between parties, brought about by a breach of faith by one of them.
Rescission, however, is allowed only where the breach is substantial and fundamental to the
fulfillment of the obligation. (Vda. DE MISTICA vs SPOUSES NAGUIAT, GR No. 137909, DECEMBER
11, 2003)
NONPAYMENT OF A PURCHASE PRICE IS A GROUND FOR RESCISSION
Non-payment of the purchase price of property constitutes a very good reason to rescind a
sale for it violates the very essence of the contract of sale. Non-payment of the purchase price of
property is a resolutory condition for which the remedy is either rescission or specific performance
under Article 1191 of the New Civil Code. This is true for reciprocal obligations where the
obligation is a resolutory condition of the other. The vendee is entitled to retain the purchase price
or a part of the purchase price of realty if the vendor fails to perform any essential obligation of
the contract. Such right is premised on the general principles of reciprocal obligations. (GIL vs.
COURT OF APPEALS, G.R. No. 127206, September 12, 2003.)
Assignment of credit; Concept

An assignment of credit is an agreement by virtue of which the owner of a credit, known as
the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against
the debtor. (LO vs COURT OF APPEALS, GR. No. 149420, OCTOBER 8, 3003)
Rules In Case Of Double Sales

Otherwise stated, the law provides that a double sale of immovables transfers ownership to
(1) the first registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the
buyer who in good faith presents the oldest title. There is no ambiguity in the application of this
law with respect to lands registered under the Torrens system.
This principle is in full accord with Section 51 of PD 1529 which provides that no deed,
mortgage, lease or other voluntary instrument — except a will — purporting to convey or affect
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registered land shall take effect as a conveyance or bind the land until its registration.Thus, if the
sale is not registered, it is binding only between the seller and the buyer but it does not affect
innocent third persons. (SPS. ABRIGO vs. DE VERA, G.R. No. 154409, June 21, 2004)
Article 1544 of the New Civil Code provides that in case an immovable property is sold to
different vendees, the ownership shall belong: (1) to the person acquiring it who in good faith first
recorded it in the Registry of Property; (2) should there be no inscription, the ownership shall
pertain to the person who in good faith was first in possession; and, (3) in the absence thereof, to
the person who presents the oldest title, provided there is good faith.
In all cases, good faith is essential. It is the basic premise of the preferential rights granted
to the one claiming ownership over an immovable. What is material is whether the second buyer
first registers the second sale in good faith, i.e., without knowledge of any defect in the title of the
property sold. The defense of indefeasibility of a Torrens title does not extend to a transferee who
takes the certificate of title in bad faith, with notice of a flaw. [SPS. OCCEÑA vs. ESPONILLA, G.R.
No. 156973, June 4, 2004]
Right of Redemption
Whenever a piece of rural land not exceeding one hectare is alienated, the law grants to
the adjoining owners a right of redemption except when the grantee or buyer does not own any
other rural land. In order that the right may arise, the land sought to be redeemed and the
adjacent property belonging to the person exercising the right of redemption must both be rural
lands. If one or both are urban lands, the right cannot be invoked. [PRIMARY STRUCTURES CORP.
vs. SPS. VALENCIA, G.R. No. 150060, August 19, 2003]
Article 1623 of the Civil Code provides that the right of legal pre-emption or redemption
shall not be exercised except within thirty days from notice in writing by the prospective vendor, or
by the vendor, as the case may be. In stressing the mandatory character of the requirement, the
law states that the deed of sale shall not be recorded in the Registry of Property unless the same is
accompanied by an affidavit of the vendor that he has given notice thereof to all possible
redemptioners. [PRIMARY STRUCTURES CORP. vs. SPS. VALENCIA, G.R. No. 150060, August 19,
2003]
LEASE
Duty of the lessor to maintain lessee in peaceful and adequate enjoyment of the lease
As lessor, Agricom had the duty to maintain Chua Tee Dee in the peaceful and adequate
enjoyment of the leased premises. Such duty was made as part of the contract of lease entered
into by the parties. Even if it had not been so, the lessor is still duty-bound under Art.1654 of the
Civil Code. The duty "to maintain the lessee in the peaceful and adequate enjoyment of the lease
for the duration of the contract" mentioned in No. 3 of the article is merely a warranty that the
lessee shall not be disturbed in his legal, and not physical, possession. [CHUA TEE DEE vs. COURT
OF APPEALS, G.R. No. 135721, May 27, 2004]
Requisites for a contractor to validly claim additional costs

Art. 1724. The contractor who undertakes to build a structure or any other work for a
stipulated price, in conformity with plans and specifications agreed upon with the landowner, can
neither withdraw from the contract nor demand an increase in the price on account of the higher
cost of labor or materials, save when there has been a change in the plans and specifications,
provided:
1. Such change has been authorized by the proprietor in writing; and
2. The additional price to be paid to the contractor has been determined in writing by
both parties.
Compliance with both of these requirements is a condition precedent to the recovery of
additional costs. Even the absence of one of the elements required by Article 1724 bars recovery.
[SALVADOR vs COURT OF APPEALS, GR No. 124899, MARCH 30, 2004]

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PARTNERSHIP, AGENCY AND TRUST
PARTNERSHIP
Partnership has separate juridical personality; obligation of the partnership; extent of its
liability
“The partnership has a juridical personality separate and distinct from that of each of the
partners.” Since the capital was contributed to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring partners.
Since it is the partnership, as a separate and distinct entity, that must refund the shares of
the partners, the amount to be refunded is necessarily limited to its total resources. In other
words, it can only pay out what it has in its coffers, which consists of all its assets. However, before
the partners can be paid their shares, the creditors of the partnership must first be compensated.
After all the creditors have been paid, whatever is left of the partnership assets becomes available
for the payment of the partners’ shares. [VILLAREAL vs. RAMIREZ, G.R. No. 144214, July 14,
2003]
AGENCY
Concept Of Agency; Acts Of Dominion Requires SPA

In a contract of agency, the agent acts in representation or in behalf of another with the consent of
the latter. Article 1878 of the Civil Code expresses that a special power of attorney is necessary to
lease any real property to another person for more than one year. The lease of real property for
more than one year is considered not merely an act of administration but an act of strict dominion
or of ownership. A special power of attorney is thus necessary for its execution through an agent.
[SHOPPER’S PARADISE REALTY AND DEVELOPMENT CORP. vs ROQUE, GR No. 148775, JANUARY
13, 2004]
TRUSTS
Requisites for the Creation of a Trust

Under Article 1452 of the New Civil Code: If two or more persons agree to purchase
property and by common consent the legal title is taken in the name of one of them for the benefit
of all, a trust is created by force of law in favor of the others in proportion to the interest of each.
Article 1452 presupposes the concurrence of two requisites before a trust can be created,
namely: that two or more persons agree to purchase a property, and that they consent that one
should take the title in his name for everyone's benefit. [HEIRS OF FRANCO vs. COURT OF
APPEALS, G.R. No. 123924, December 11, 2003]
Prescriptive period in Implied Trusts

It is now well-settled that the prescriptive period to recover property obtained by fraud or
mistake, giving rise to an implied trust under Article 1456 of the Civil Code, is ten years pursuant
to Article 1144. This ten-year prescriptive period begins to run from the date the adverse party
repudiates the implied trust, which repudiation takes place when the adverse party registers the
land. [SPOUSES PASCUAL vs. COURT OF APPEALS, G.R. No. 115925. August 15, 2003]
Constructive Trusts
The predicament of petitioners involves a constructive trust, one that is akin to the implied
trust referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of property is made in
order to secure the performance of an obligation of the grantor toward the grantee, a trust by
virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property to him."
In constructive trusts, the arrangement is temporary and passive in which the trustee's sole
duty is to transfer the title and possession over the property to the plaintiff-beneficiary. Of course,
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the "wronged party seeking the aid of a court of equity in establishing a constructive trust must
himself do equity."
The rights and obligations between the constructive trustee and the beneficiary, in this
case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the
Civil Code, "When the conditions have for their purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions, shall return to each other what they have
received . . . In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall be applied to the party who
is bound to return." [MORENO vs. MACTAN — CEBU INTERNATIONAL AIRPORT AUTHORITY, G.R.
No. 156273, October 15, 2003]
CREDIT TRANSACTIONS
LOAN
Contract between the bank and its depositor is governed by the provisions on simple loan
despite the fiduciary nature of bank-deposit relationship
However, the fiduciary nature of a bank-depositor relationship does not convert the
contract between the bank and its depositors from a simple loan to a trust agreement, whether
express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not
a breach of trust. The law simply imposes on the bank a higher standard of integrity and
performance in complying with its obligations under the contract of simple loan, beyond those
required of non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement
because banks do not accept deposits to enrich depositors but to earn money for themselves. The
law allows banks to offer the lowest possible interest rate to depositors while charging the highest
possible interest rate on their own borrowers. The interest spread or differential belongs to the
bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui que
trust of banks, then the interest spread or income belongs to the depositors, a situation that
Congress certainly did not intend in enacting Section 2 of RA 8791. [THE CONSOLIDATED BANK and
TRUST CORPORATION vs. COURT OF APPEALS, G.R. No. 138569, September 11, 2003]
Concept of Commodatum; Essential Features

In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of
the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return of
the thing loaned until after expiration of the period stipulated, or after accomplishment of the use
for which the commodatum is constituted. If the bailor should have urgent need of the thing, he
may demand its return for temporary use. If the use of the thing is merely tolerated by the bailor,
he can demand the return of the thing at will, in which case the contractual relation is called a
precarium. Under the Civil Code, precarium is a kind of commodatum. [PAJUYO vs. COURT OF
APPEALS, G.R. No. 146364 , June 3, 2004]
Effect of Suspension of Usury Law

In Ruiz v. Court of Appeals, we declared that the Usury Law was suspended by Central Bank
Circular No. 905, s. 1982, effective on January 1, 1983, and that parties to a loan agreement have
been given wide latitude to agree on any interest rate. However, nothing in the said Circular grants
lenders carte blanche authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets. The stipulated interest rates are illegal if they
are unconscionable. [CUATON vs SALUD, GR No. 158382, JANUARY 27, 2004]
Iniquitous or unconscionable interest are void ab initio

Stipulations authorizing iniquitous or unconscionable interests are contrary to morals
('contra bonos mores'), if not against the law. Under Article 1409 of the Civil Code, these contracts
are inexistent and void from the beginning. They cannot be ratified nor the right to set up their
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illegality as a defense be waived. [CUATON vs SALUD, GR No. 158382, JANUARY 27, 2004]
Guidelines on Award and Payment of Interests
With regard the payment of interest, the ruling of this Court in Eastern Shipping Lines, Inc.
vs. Court of Appeals should be worthwhile reiterating for guidance. Thus —
"I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on 'Damages' of the Civil Code govern in determining the measure of recoverable
damages.
"II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
"1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
"2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
"3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit." [SPS. BIESTERBOS vs. COURT OF APPEALS, G.R.
No. 152529, September 22, 2003]
GUARANTY
Continuing Guaranty; Nature; How Construed

A guaranty may be given to secure even future debts, the amount of which may not be
known at the time the guaranty is executed. This is the basis for contracts denominated as
continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single
transaction, but which contemplates a future course of dealing, covering; a series of transactions,
generally for an indefinite time or until revoked. It is prospective in its operation and is generally
intended to provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable.
Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising
in the future, which are within the description or contemplation of the contract of guaranty, until
the expiration or termination thereof. A guaranty shall be construed as continuing when by the
terms thereof it is evident that the object is to give a standing credit to the principal debtor to be
used from time to time either indefinitely or until a certain period; especially if the right to recall
the guaranty is expressly reserved. Hence, where the contract states that the guaranty is to secure
advances to be made "from time to time," it will be construed to be a continuing one. [PHILIPPINE
BLOOMING MILLS, INC. vs COURT OF APPEALS, GR No. 142381, OCTOBER 15, 2003]
Effect of extending the period for enforcing the indebtedness on the liability of sureties
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Stated otherwise, an extension of the period for enforcing the indebtedness does not by
itself bring about the discharge of the sureties unless the extra time is not permitted within the
terms of the waiver, i.e., where there is no payment or there is deficient settlement of the
marginal deposit and the twenty-five percent (25%) consideration, in which case the illicit
extension releases the sureties. Under Art. 2055 of the Civil Code, the liability of a surety is
measured by the terms of his contract, and while he is liable to the full extent thereof, his
accountability is strictly limited to that assumed by its terms.
The foregoing extensions of the letters of credit made by respondent Bank without
observing the rigid restrictions for exercising the privilege are not covered by the waiver stipulated
in the Continuing Guaranty. Evidently, they constitute illicit extensions prohibited under Art. 2079
of the Civil Code, "[a]n extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty." This act of the Bank is not mere failure or delay on its part to
demand payment after the debt has become due, as was the case in unpaid five (5) letters of credit
which the Bank did not extend, defer or put off, but comprises conscious, separate and binding
agreements to extend the due date, as was admitted by the Bank itself.
The consequence of these omissions is to discharge the surety, petitioners herein, under
Art. 2080 of the Civil Code, or at the very least, mitigate the liability of the surety up to the value
of the property or lien released [SPOUSES LUIS TOH vs SOLID BANK CORPORATION, GR No.
154183, AUGUST 7, 2003]
Surety need not have consideration apart from that of the principal in the contract;
consideration of principal binds the surety and makes the contract effective
A surety is one who is solidarily liable with the principal. Petitioners cannot claim that they
did not personally receive any consideration for the contract for well-entrenched is the rule that
the consideration necessary to support a surety obligation need not pass directly to the surety, a
consideration moving to the principal alone being sufficient. A surety is bound by the same
consideration that makes the contract effective between the principal parties thereto. Having
executed the suretyship agreement, there can be no dispute on the personal liability of petitioners.
[SPOUSES EVANGELISTA vs. MERCATOR FINANCE CORP., G.R. No. 148864, August 21, 2003]
MORTGAGE
Nature of Mortgage
Article 2126 of the Civil Code describes the real nature of a mortgage: it is a real right
following the property, such that in subsequent transfers by the mortgagor, the transferee must
respect the mortgage. A registered mortgage lien is considered inseparable from the property
inasmuch as it is a right in rem. The mortgage creates a real right or a lien which, after being
recorded, follows the chattel wherever it goes. Under Article 2129 of the same Code, the mortgage
on the property may still be foreclosed despite the transfer.
Indeed, even if the mortgaged property is in the possession of the debtor, the creditor is
still protected. To protect the latter from the former's possible disposal of the property, the
chattel mortgage is made effective against third persons by the process of registration.
"The consideration of the accessory contract of real estate mortgage is the same as that of
the principal contract. For the debtor, the consideration of his obligation to pay is the existence of
a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt. [PNB vs. RBL
ENTERPRISES, INC., G.R. No. 149569. May 28, 2004]
Pactum Commissorium
It is a well-established doctrine that the mortgagor's default does not operate to vest the
mortgagee the ownership of the encumbered property, and the act of the mortgagee in registering
the mortgaged property in his own name upon the mortgagor's failure to redeem the property
amounts to pactum commissorium, a forfeiture clause declared by this Court as contrary to good
morals and public policy and, therefore, void. Before perfect title over a mortgaged property may
thus be secured by the mortgagee, he must, in case of non-payment of the debt, foreclose the
mortgage first and thereafter purchase the mortgaged property at the foreclosure sale. [RAMIREZ
vs COURT OF APPEALS, GR No. 133841, AUGUST 15, 2003]
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Issuance of a writ of possession a ministerial function of the court

A writ of possession is generally understood to be an order whereby the sheriff is
commanded to place a person in possession of a real or personal property, such as when a property
is extrajudicially foreclosed.
It has been consistently held that the issuance of a writ of possession is a ministerial
function. The order for a writ of possession issues as a matter of course upon the filing of the
proper motion and the approval of the corresponding bond. The court neither exercises its official
discretion nor judgment. If only to stress the writ's ministerial character, we have, in previous
cases, disallowed injunction to prohibit its issuance, just as we have held that issuance of the same
may not be stayed by a pending action for annulment of mortgage or the foreclosure itself.
A writ of possession may also be issued after consolidation of ownership of the property in
the name of the purchaser. It is settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of one year after the
registration of sale. As such, he is entitled to the possession of the property and can demand it at
any time following the consolidation of ownership in his name and the issuance to him of a new
transfer certificate of title. In such a case, the bond required in Section 7 of Act No. 3135 is no
longer necessary. Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. Upon proper application and proof of title, the issuance of the writ of possession
becomes a ministerial duty of the court. [CHAILEASE FINANCE CORP. VS MA, GR No. 151941,
AUGUST 15, 2003]
TORTS AND DAMAGES
Definition of a Right
A right is a power, privilege, or immunity guaranteed under a constitution, statute or
decisional law, or recognized as a result of long usage, constitutive of a legally enforceable claim of
one person against the other.
When a right is exercised in a manner, which discards these norms resulting in damage to
another, a legal wrong is committed for which actor can be held accountable. [MWSS vs ACT
THEATER, INC., GR No., JUNE 17, 2004]
Degree of diligence to be exercised by Banks

This fiduciary relationship means that the bank's obligation to observe "high standards of
integrity and performance" is deemed written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family. Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or contract, and absent such stipulation
then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory
diligence required from banks — that banks must observe "high standards of integrity and
performance" in servicing their depositors. [THE CONSOLIDATED BANK and TRUST CORPORATION
vs. COURT OF APPEALS, G.R. No. 138569, September 11, 2003]
Presumption of Negligence
Article 2185 of the Civil Code lays down the presumption that a person driving a motor
vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation.
Under Article 2180, when an injury is caused by the negligence of a servant or an
employee, the master or employer is presumed to be negligent either in the selection or in the
supervision of that employee. This presumption may be overcome only by satisfactorily showing
that the employer exercised the care and the diligence of a good father of a family in the selection
and the supervision of its employee.
In fine, when the employee causes damage due to his own negligence while performing his
own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable
only by proof of observance of the diligence of a good father of a family. Thus, in the selection of
prospective employees, employers are required to examine them as to their qualifications,
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experience and service records. With respect to the supervision of employees, employers must
formulate standard operating procedures, monitor their implementation and impose disciplinary
measures for breaches thereof. These facts must be shown by concrete proof, including
documentary evidence. [PLEYTO vs. LOMBOY, G.R. No. 148737, June 16, 2004]
Proximate Cause
Proximate cause is that cause which, in the natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury and without which the result would not have
occurred. Proximate cause is determined by the facts of each case upon mixed considerations of
logic, common sense, policy and precedent. [THE CONSOLIDATED BANK AND TRUST
CORPORATION vs COURT OF APPEALS, GR No. 138569, SEPTEMBER 11, 2003]
Diligence required of Common Carriers

A contract of carriage is a peculiar one. Imbued with public interest, common carriers are
required by law to carry passengers safely as far as human care and foresight can provide, using the
utmost diligence of a very cautious person, with due regard for all circumstances. A contract to
transport passengers is quite different in kind and degree from any other contractual relation. And
this is because its business is mainly with the traveling public. It invites people to avail of the
comforts and advantages it offers. The contract of carriage, therefore, generates a relation
attended with public duty. Failure of the carrier to observe his high degree of care and
extraordinary diligence renders it liable for any damage that may be sustained by its passengers.
[PHILIPPINE AIRLINES vs COURT OF APPEALS. GR No. 127473. DECEMBER 8, 2003]
Doctrine Of Last Clear Chance; Concept; When Not Applicable

The doctrine of last clear chance states that where both parties are negligent but the
negligent act of one is appreciably later than that of the other, or where it is impossible to
determine whose fault or negligence caused the loss, the one who had the last clear opportunity to
avoid the loss but failed to do so, is chargeable with the loss. Stated differently, the antecedent
negligence of the plaintiff does not preclude him from recovering damages caused by the
supervening negligence of the defendant, who had the last fair chance to prevent the impending
harm by the exercise of due diligence.
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable
for breach of contract due to negligence in the performance of its contractual obligation to L.C.
Diaz. This is a case of culpa contractual, where neither the contributory negligence of the plaintiff
nor his last clear chance to avoid the loss, would exonerate the defendant from liability. Such
contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery
of damages by the plaintiff but does not exculpate the defendant from his breach of contract.
[THE CONSOLIDATED BANK and TRUST CORPORATION vs. COURT OF APPEALS, G.R. No.
138569, September 11, 2003]
DAMAGES
Actual Damages
To justify an award for actual damages, there must be competent proof of the actual
amount of loss. Credence can be given only to claims, which are duly supported by receipts. The
burden of proof is on the party who will be defeated if no evidence is presented on either side. He
must establish his case by a preponderance of evidence which means that the evidence, as a whole,
adduced by one side is superior to that of the other. In other words, damages cannot be presumed
and courts, in making an award, must point out specific facts that can afford a basis for measuring
whatever compensatory or actual damages are borne. [PREMIERE DEVELOPMENT BANK vs. COURT
OF APPEALS, G.R. No. 159352, April 14, 2004]
When Award Of Temperate Damages Proper

When actual damages proven by receipts during the trial amount to less than P25,000, as in
this case, the award of temperate damages for P25,000 is justified in lieu of actual damages of a
lesser amount. Conversely, if the amount of actual damages proven exceeds P25,000, then
temperate damages may no longer be awarded; actual damages based on the receipts presented
during trial should instead be granted. [PEOPLE vs BELONIO, GR No. 148695, MAY 27, 2004]

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Even if not recoverable as compensatory damages, Panacor may still be awarded damages
in the concept of temperate or moderate damages. When the court finds that some pecuniary loss
has been suffered but the amount cannot, from the nature of the case, be proved with certainty,
temperate damages may be recovered. Temperate damages may be allowed in cases where from
the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is
convinced that the aggrieved party suffered some pecuniary loss.
Article 2216 of the Civil Code: No proof of pecuniary loss is necessary in order that moral,
nominal, temperate, liquidated or exemplary damages may be adjudicated. The assessment of such
damages, except liquidated ones, is left to the discretion of the Court, according to the
circumstances of each case. [PREMIERE DEVELOPMENT BANK vs. COURT OF APPEALS, G.R. No.
159352, April 14, 2004]
Recovery of damages for loss of earning capacity; computation of loss of earning capacity
Article 2205 of the New Civil Code allows the recovery of damages for "loss or impairment
of earning capacity in cases of temporary or permanent personal injury." Such damages covers the
loss sustained by the dependents or heirs of the deceased, consisting of the support they would
have received from him had he not died because of the negligent act of another. The loss is not
equivalent to the entire earnings of the deceased, but only that portion that he would have used to
support his dependents or heirs. Hence, we deduct from his gross earnings the necessary expenses
supposed to be used by the deceased for his own needs. The Court explained in Villa Rey Transit,
Inc. vs. Court of Appeals that: “the award of damages for loss of earning capacity is concerned with
the determination of the losses or damages sustained by the private respondents, as dependents
and intestate heirs of the deceased, and that said damages consist, not of the full amount of his
earnings, but of the support they received or would have received from him had he not died in
consequence of the negligence of petitioner's agent. In fixing the amount of that support, we must
reckon with the 'necessary expenses of his own living', which should be deducted from his earnings.
Thus, it has been consistently held that earning capacity, as an element of damages to one's estate
for his death by wrongful act is necessarily his net earning capacity or his capacity to acquire
money, 'less the necessary expense for his own living.' Stated otherwise, the amount recoverable is
not loss of the entire earning, but rather the loss of that portion of the earnings which the
beneficiary would have received. In other words, only net earnings, not gross earning are to be
considered that is, the total of the earnings less expenses necessary in the creation of such earnings
or income and less living and other incidental expenses.
Aside from the loss sustained by the heirs of the deceased, another factor considered in
determining the award of loss of earning capacity is the life expectancy of the deceased which
takes into account his work, lifestyle, age and state of health prior to the accident. [MAGBANUA
vs. TABUSARES, G.R. No. 152134, June 4, 2004]
It is well-settled in jurisprudence that the factors that should be taken into account in
determining the compensable amount of lost earnings are: (1) the number of years for which the
victim would otherwise have lived; and (2) the rate of loss sustained by the heirs of the deceased.
Jurisprudence provides that the first factor, i.e., life expectancy, is computed by applying the
formula (2/3 x [80 – age at death]) adopted in the American Expectancy Table of Mortality or the
Actuarial Combined Experience Table of Mortality. As to the second factor, it is computed by
multiplying the life expectancy by the net earnings of the deceased, i.e., the total earnings less
expenses necessary in the creation of such earnings or income and less living and other incidental
expenses. The net earning is ordinarily computed at fifty percent (50%) of the gross earnings. 24
Thus, the formula used by this Court in computing loss of earning capacity is: Net Earning Capacity
= [2/3 x (80 – age at time of death) x (gross annual income – reasonable and necessary living
expenses)].
It was established that Ricardo Lomboy was 44 years old at the time of his death and is
earning a monthly income of P8,000 or a gross annual income (GAI) of P96,000. Using the cited
formula, the Court of Appeals correctly computed the Loss of Net Earning Capacity as P1,152,000,
net of and after considering a reasonable and necessary living expenses of 50% of the gross annual
income or P48,000. A detailed computation is as follows:
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NET =LIFE EXPECTANCY x ROSS — LIVING

EARNING [2/3 (80-age at the time ANNUAL EXPENSES
CAPACITY (X) of death) INCOME (GAI) (50% of GAI)
X = [2/3 (80-44)] x [P96,000 – (50% x P96,000)
X = [2/3 (36)] x [P96,000 – 48,000]
X = 24 x 48,000
X = P1,152,000.00
========== (PLEYTO vs. LOMBOY, G.R. No. 148737, June 16, 2004)
MORAL DAMAGES; NATURE; PURPOSE
Under Article 2206 of the Civil Code, the spouse, legitimate children and illegitimate
descendants and ascendants of the deceased may demand moral damages for mental anguish by
reason of the death of the deceased. However, we must stress that moral damages, though
incapable of pecuniary estimation, are in the category of an award designed to compensate the
claimant for actual injury and are not meant to enrich complainant at the expense of defendant.
Moral damages are awarded to enable the injured party to obtain means, diversions or amusements
that will serve to alleviate the moral suffering he/she has undergone, by reason of the defendant’s
culpable action. Its award is aimed at restoration, as much as possible, of the spiritual status quo
ante; thus it must be proportionate to the suffering inflicted. [PLEYTO vs. LOMBOY, G.R. No.
148737, June 16, 2004]
We affirm the award of moral damages, there being proof that the victim's mother and her
family suffered wounded feeling, mental anguish and similar injury. However, we reduce the award
to P50,000.00. Verily, moral damages are not intended to enrich the victim's heirs; rather they are
awarded to allow them to obtain means for diversion that could serve to alleviate their moral and
psychological suffering. [PEOPLE vs. SIMON, G.R. No. 130531, May 27, 2004.]
We also award the victim's heirs P25,000.00 as exemplary damages. This is pursuant to our
ruling in People vs. Catubig that if a crime is committed with an aggravating circumstance, either
qualifying or generic, an award of P25,000.00 as exemplary damages is justified. [PEOPLE vs.
SIMON, G.R. No. 130531, May 27, 2004]
Award of Damages for Breach of Contract

The law distinguishes a contractual breach effected in good faith from one attended by bad
faith. Absent fraud or bad faith on defendant's part in breaching his contract, his liability for
damages is limited to the natural and probable consequences of the breach of the obligation, which
the parties had foreseen or could have reasonably foreseen. In such a case, the liability would not
include moral damages. For this reason, not every case of mental anguish, fright or serious anxiety
calls for the award of moral damages.
As for exemplary damages, Article 2232 of the Civil Code provides that in a contractual or
quasi-contractual relationship, exemplary damages may be awarded only if the defendant had
acted in "a wanton, fraudulent, reckless, oppressive or malevolent manner." [CHINA AIRLINES,
LTD. vs. COURT OF APPEALS, G.R. No. 129988, July 14, 2003]
LAND TITLES AND DEEDS
Foreshore Land
Foreshore land is that strip of land that lies between the high and low water marks and is
alternatively wet and dry according to the flow of tide. It is that part of the land adjacent to the
sea, which is alternately covered and left dry by the ordinary flow of tides. It is part of the
alienable land of the public domain and may be disposed of only by lease and not otherwise.
Foreshore land remains part of the public domain and is outside the commerce of man. It is not

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capable of private appropriation. [REPUBLIC vs COURT OF APPEALS, GR. No. 126316, JUNE 25,
2004]
Effect of Registration
Of no moment in the instant case is the issuance of a Torrens certificate pertaining to the
disputed property. It "does not create or vest title," but is merely an "evidence of an indefeasible
and incontrovertible title to the property in favor of the person whose name appears therein."
Land registration under the Torrens system was never intended to be a means of acquiring
ownership. [LARENA vs MAPILI, GR No. 146341, AUGUST 7, 2003]
When Title to the property becomes indefeasible; Effects

Under the Land Registration Act, title to the property covered by a Torrens title becomes
indefeasible after the expiration of one year from the entry of the decree of registration. The
decree is incontrovertible and becomes binding on all persons whether or not they were notified of,
or participated in, the in rem registration process. [HEIRS OF FRANCO vs. COURT OF APPEALS,
G.R. No. 123924, December 11, 2003]
Tax declarations are not conclusive proof OF TITLE

Petitioners' argument that they have declared the disputed lot in their name and have paid
the realty taxes thereof is unavailing, because tax declarations are not conclusive proof of title. At
best they are merely indicia of a claim of ownership. Thus, it has been held in one case that a
party's declaration of real property, his payment of realty taxes and his designation as owner of the
subject property in the cadastral survey and in the records of the Ministry of Agrarian Reform Office
cannot defeat a certificate of title, which is an absolute and indefeasible evidence of ownership of
the property in favor of the person whose name appears therein. [SPOUSES CAMARA vs. SPOUSES
MALABAO, G.R. No. 154650, July 31, 2003]
Reconstitution of Title; Effect

Respondent relies solely on its reconstituted title which, by itself, does not determine or
resolve the ownership of the land covered by the lost or destroyed title. The reconstitution of a
title is simply the re-issuance of a lost duplicate certificate of title in its original form and
condition. It does not determine or resolve the ownership of the land covered by the lost or
destroyed title. A reconstituted title, like the original certificate of title, by itself does not vest
ownership of the land or estate covered thereby. [ALONSO vs. CEBU COUNTRY CLUB, INC., G.R.
No. 130876, December 5, 2003]
Certificate of Title
“The certificate referred to is that document issued by the Register of Deeds known as the
Transfer Certificate of Title (TCT). By title, the law refers to ownership which is represented by
that document. Petitioner apparently confuses certificate with title. Placing a parcel of land under
the mantle of the Torrens system does not mean that ownership thereof can no longer be disputed.
Ownership is different from a certificate of title. The TCT is only the best proof of ownership of a
piece of land. Besides, their certificate cannot always be considered as conclusive evidence of
ownership. Mere issuance of the certificate of title in the name of any person does not foreclose
the possibility that the real property may be under co-ownership with persons not named in the
certificate or that the registrant may only be a trustee or that other parties may have acquired
interest subsequent to the issuance of the certificate of title. To repeat, registration is not the
equivalent of title, but is only the best evidence thereof. Title as a concept of ownership should
not be confused with the certificate of title as evidence of such ownership although both are
interchangeable”. [PINEDA vs. COURT OF APPEALS, G.R. No. 114172, August 25, 2003]
Persons dealing with a registered property is not required to go beyond the certificate;
Exception
As a general rule, every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in no way oblige him to go
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beyond the certificate to determine the condition of the property. However, this principle admits
of an unchallenged exception: “a person dealing with registered land has a 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 or when the purchaser has knowledge of a defect or the lack of title in his
vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the
title of the property in litigation. The presence of anything which excites or arouses suspicion
should then prompt the vendee to look beyond the certificate and investigate the title of the
vendor appearing on the face of said certificate. One who falls within the exception can neither be
denominated an innocent purchaser for value nor a purchaser in good faith; and hence does not
merit the protection of the law.” [CAYANA vs. COURT OF APPEALS, G.R. No. 125607, March 18,
2004]
Although it is a recognized principle that a person dealing on a registered land need not go
beyond its certificate of title, it is also a firmly settled rule that where there are circumstances
which would put a party on guard and prompt him to investigate or inspect the property being sold
to him, such as the presence of occupants/tenants thereon, it is of course, expected from the
purchaser of a valued piece of land to inquire first into the status or nature of possession of the
occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in concept of
owner. As is the common practice in the real estate industry, an ocular inspection of the premises
involved is a safeguard a cautious and prudent purchaser usually takes. Should he find out that the
land he intends to buy is occupied by anybody else other than the seller . . ., it would then be
incumbent upon the purchaser to verify the extent of the occupant's possessory rights. The failure
of a prospective buyer to take such precautionary steps would mean negligence on his part and
would thereby preclude him from claiming or invoking the rights of a 'purchaser in good faith'.
(HEIRS OF CELESTIAL vs HEIRS CELESTIAL, GR No. 142691, August 5, 2003)
The general rule is that one who deals with property registered under the Torrens system
need not go beyond the same, but only has to rely on the title. He is charged with notice only of
such burdens and claims as are annotated on the title. However, this principle does not apply when
the party has actual knowledge of facts and circumstances that would impel a reasonably cautious
man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in
his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the
title of the property in litigation. One who falls within the exception can neither be denominated
an innocent purchaser for value nor a purchaser in good faith. [SPS. OCCEÑA vs. ESPONILLA, G.R.
No. 156973, June 4, 2004]
Effect of registration where vendor was no longer the owner at the time of the registration
“Under Act No. 3344, registration of instruments affecting unregistered lands is ‘without
prejudice to a third party with a better right.’ The aforequoted phrase has been held by this Court
to mean that the mere registration of a sale in one’s favor does not give him any right over the land
if the vendor was not anymore the owner of the land having previously sold the same to somebody
else even if the earlier sale was unrecorded. [SPS. ABRIGO vs. DE VERA, G.R. No. 154409, June
21, 2004]
Effect of the deficiencies of the administrative officials in following procedures

Moreover, the deficiencies of the administrative officials of the government in following
procedures or rules implementing circulars relative to land registration cases, if any is not a ground
for voiding the title already issued since the defect, if any, is not jurisdictional but merely
procedural in nature. Besides, the fault or omission, if any, is that of the Land Registration
Commission and the Director of Lands and not that of the defendants. [REPUBLIC vs NERI. GR No.
139588. MARCH 4 2004]
The requirement that the survey plan must be appended to the application and duly approved
by the bureau of lands is mandatory
The application for land registration shall be filed with the Court of First Instance (now
RTC) of the province or city where the land is situated. The applicant shall file together with the

25
Digests
CIVIL LAW
application all original muniments of titles or copies thereof and a survey plan approved by the
Bureau of Lands.
The submission of the plan approved by the Director of the Bureau of Lands is a statutory
requirement, which is mandatory in nature. The plan approved by the Land Registration
Commission is of no value.
No plan or survey may be admitted in land registration proceedings until approved by the
Director of Lands. The submission of the plan is a statutory requirement of mandatory character.
Unless a plan and its technical description are duly approved by the Director of Lands, the same are
of no value. [REPUBLIC vs NERI. GR No. 139588. MARCH 4 2004]

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1

Case San Beda College of Law

PERSONS AND FAMILY RELATIONS

Effect of the spouses signing as surety

What constitutes psychological incapacity PACITY

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Degree of diligence to be exercised by Banks

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Doctrine Of Last Clear Chance; Concept; When Not Applicable

When Award Of Temperate Damages Proper

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS