CASE DIGEST COMPENDIUM

MONDAY, JANUARY 22, 2007

2006 Civil Law Case Digests

PERSONS

PRESUMPTIVE DEATH

Republic of the Philippines VS. Bermudez – Lorino

G.R. No. 160258. January 19, 2005

Facts: Gloria Bermudez and Francisco Lorino were married in June 1987. The wife was unaware that her
husband was a habitual drinker with violent attitude and character and had the propensity to go out
with his friends to the point of being unable to work. In 1991 she left him and returned to her parents
together with her three children. She went abroad to work for her support her children. From the time
she left him, she had no communication with him or his relatives.

In 2000, nine years after leaving her husband, Gloria filed a verified petition with the RTC under the rules
on Summary Judicial Proceedings in the Family Law. The lower court issued an order for the publication
of the petition in a newspaper of general circulation.

In November 7, 2001, the RTC granted the summary petition. Although the judgment was final and
executors under the provisions of Act. 247 of the Family Code, the OSG for the Republic of the
Philippines filed a notice of appeal.

Issue: Whether or not the factual and legal bases for a judicial declaration of presumptive death under
Art 41 of the Family Code were duly established.

Held: Art. 238 of the Family Code under Title XI Summary Judicial Proceeding in the Family Law, sets the
tenor for cases scoured by these rules, to wit:

Art238. Until modified by the Supreme Court, the procedural rules in this Title shall apply in all cases
provided for in this Code requiring summary court proceeding. Such cases shall be decided in an
expedition’s manner with out regards technical rules.
The judge of the RTC fully complied with the above-cited provision by expeditiously rending judgment
within ninety (90) days after the formal offer of evidence by the petitioner.

CO- OWNERSHIP

Buenaventura VS. CA

G.R. Nos. 127358 and G.R. Nos. 127449

March 31, 2005

Facts: Noel Buenaventura filed a position for the declaration of nullity of marriage on the ground that
both he and his wife were psychologically incapacitated.

The RTC in its decision, declared the marriage entered into between petitioner and respondent null and
violation ordered the liquidation of the assets of the conjugal partnership property; ordered petitioner a
regular support in favor of his son in the amount of 15,000 monthly, subject to modification as the
necessity arises, and awarded the care and custody of the minor to his mother.

Petitioner appealed before the CA. While the appeal was pending, the CA, upon respondent’s motion
issued a resolution increasing the support pendants like to P20, 000.

The CA dismissal petitioner appeal for lack of merit and affirmed in to the RTC decision. Petitioner
motion for reconsideration was denied, hence this petition.

Issue: Whether or not co-ownership is applicable to valid marriage.

Held: Since the present case does not involve the annulment of a bigamous marriage, the provisions of
article 50 in relation to articles 41, 42 and 43 of the Family Code, providing for the dissolution of the
absolute community or conjugal partnership of gains, as the case maybe, do not apply. Rather the
general rule applies, which is in case a marriage is declared void ab initio, the property regime applicable
to be liquidated, partitioned and distributed is that of equal co-ownership.

Since the properties ordered to be distributed by the court a quo were found, both by the RTC and the
CA, to have been acquired during the union of the parties, the same would be covered by the co-
ownership. No fruits of a separate property of one of the parties appear to have been included or
involved in said distribution.

ADOPTION; ILLEGITIMATE CHILD

IN THE MATTER OF THE ADOPTION OF STEPHANIE NATHY ASTORGA GARCIA

G.R. No. 148311. March 31, 2005

Facts: Honorato B. Catindig filed a petition to adopt his minor illegitimate child Stephanie Astorga
Garcia. He averred that Stephanie was born on June 26, 1994; that Stephanie had been using her
mother’s middle name and surname; and that he is now a widower and qualified to be her adopting
parent. He prayed that Stephanie’s middle name be changedto Garcia, her mother’s surname, and that
her surname “Garcia” be changed to “Catindig” his surname.

The RTC granted the petition for adoption, and ordered that pursuant to article 189 of the Family Code,
the minor shall be known as Stephanie Nathy Catindig.

Honorato filed a motion for classification and/or reconsideration praying that Stephanie be allowed to
use the surname of her natural mother (Garcia) as her middle name. The lower court denied petitioner’s
motion for reconsideration holding that there is no law or jurisprudence allowing an adopted child to
use the surname of his biological mother as his middle name.

Issue: Whether or not an illegitimate child may use the surname of her mother as her middle name
when she is subsequently adopted by her natural father.

Held: One of the effects of adoption is that the adopted is deemed to be a legitimate child of the
adapter for all intents and purposes pursuant to Article 189 of the Family Code and Section 17 of Article
V of RA 8557.

Being a legitimate by virtue of her adoption, it follows that Stephanie is entitled to all the rights provided
by law to a legitimate child without discrimination of any kind, including the right to bear the surname of
her father and her mother. This is consistent with the intention of the members of the Civil Code and
Family Law Committees. In fact, it is a Filipino custom that the initial or surname of the mother should
immediately precede the surname of the father.

JUDICIAL DECLARATION OF NULLITY

Cojuangco vs Palma

A.C. No. 2474 June 30, 2005

Facts: On June 22, 1982, respondent Atty. Leo J. Palma, despite his subsisting marriage, wed Maria Luisa
Cojuangco, the daughter of complainant Eduardo M. Cojuangco, Jr. Thus, the latter filed on November
1982, a complaint disbarment against respondent. Palma moved to dismiss the complaint.

On March 2, 1983, the court referred the case to OSG for investigation and recommendation. The
Assistant Solicitor General heard the testimonies of the complainant and his witness in the presence of
respondent’s counsel.

On March 19, 1984 respondent filed with the OSG an urgent motion to suspend proceedings on the
ground that the final actions of his civil case for the declaration of nullity of marriage between him and
his wife Lisa, poses a prejudicial question to the disbarment proceeding, but it was denied.

The OSG transferred the disbarment case to the IBP, the latter found respondent guilty of gross immoral
conduct and violation of his oath as a lawyer, hence, was suspended from the practice of law for a
period of three years.

In his motion for reconsideration, respondent alleged that he acted under a “firm factual and legal
conviction in declaring before the Hong Kong Marriage Registry that he is a bachelor because his first
marriage is void even if there is judicial declaration of nullity.

Issue: Whether or not a subsequent void marriage still needs a judicial declaration of nullity for the
purpose of remarriage.

Held: Respondents arguments that he was of the “firm factual and legal conviction when he declared
before the HIC authorities that he was a bachelor since his first marriage is void and does not need
judicial declaration of nullity” cannot exonerate him. In Terre vs Terre, the same defense was raised by
respondent lawyer whose disbarment was also sought. We held:

“xxx respondent Jordan Terre, being a lawyer, knew or should have known that such an argument ran
counter to the prevailing case law of this court which holds that purposes of determining whether a
person is legally free to contract a second marriage, a judicial declaration that the first marriage was null
and void an initio is essential. Even if we were to assume, arguendo merely, that Jordan Terre held that
mistaken belief in good faith, the same result will follow. For if we are to hold Jordan Terre to his own
argument, his frist marriage to complainant Dorothy Terre must be deemed valid, with the result that
his second marriage must be regarded as bigamous and criminal.

MARITAL CONSENT

Pelayo vs. Perez

G.R. No. 141323

Facts: David Pelayo through a Deed of Absolute Sale executed a deed of sale and transferred to Melki
Perez two parcel of agricultural lands. Loreza Pelayo and another one whose signature is eligible
witnesses such execution of deed.

Loreza signed only on the third page in the space provided for witnesses, as such, Perez application was
denied.

Perez asked Loreza to sign on the first and should pages of the deed of sale but she refused. He then
filed a complaint for specific performance against the Pelayo spouses.

The spouses moved to dismiss the complaint on the ground for lack of marital consent as provided by
art166 of the Civil Code.

Issue: Whether or not the deed of sale was null and viol for lack of marital consent.

Held: Under Art 173, in relation to Art166, both of the NCC, W/C was still in effect on January 11, 1988
when the deed in question was executed, the lack of marital consent to the disposition of conjugal
property does not make the contract viol of initio but Merely violable. Said provisions of law provide:

Art 166. Unless the wife has been declared a non compass mentis or a spedthriff, or is under civil
interdiction or is confined in a lepresarium, the husband connot alienate or encumber any real property
not the Longugal property w/o the wife’s consent. It she refuses nreasonable to give her consent, the
court may compel her to grant the same.

Art 173. The wife may during the marriage and w/in 10 years the transaction questioned, ask the court
for the annulment of any contract of the husband w/c tends to defraud her or impair interest in the
conjugal partnership property. Should the wife fail to exercise this right she her heir, after the
dissolution of the marriage may demand the value of property fraudulently alienated by the husband.

MARITAL CONSENT

BRAVO ET AL. VS. COURT OF APPEALS

Facts: Spouses Mauricio and Simons owned two parcel of land. It contain a large residential dwelling or
smaller house and other improvements.

They had three children – Roland, Cesar and Lily, Cesar died. Lily married David and had a son, David Jr,,
Senia, Benjamin and their half-sister, Ofelia.
Simona executed a General Power of Attorney (GPA) on June 17, 1966, appointing her husband as her
attorney-in-fact. He subsequently mortgaged the land to the PNB and DBP.

On October 25, 1970, Mauricio executed a Deed of Sale with assumption of Real Estate Mortgage
transferring the properties to Roland, Ofelia and Elizabeth. It was conditioned on the payment of P1,000
and on the assumption of the vendees of the PNB and DBP mortgages over the properties.

The deed of sale was notarized but was not annotated on TCT, neither was it presented to DBP and PNB.
The mortgage loans and receipts for loan payment issued by the two banks continued to be in
Mauricio’s name even after his death November 1973. Simona passed away in 1977.

Issue: Whether or not the deed of sale was void for lack of marital consent.

Held: Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil
interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property
of the conjugal partnership without the wife's consent. If she refuses unreasonably to give her consent,
the court may compel her to grant the same.

This article shall not apply to property acquired by the conjugal partnerships before the effective date of
this Code.

Article 166 expressly applies only to properties acquired by the conjugal partnership after the effectivity
of the Civil Code of the Philippines ("Civil Code"). The Civil Code came into force on 30 August 1950.1161
Although there is no dispute that the Properties were conjugal properties of Mauricio and Simona, the
records do not show, and the parties did not stipulate, when the Properties were acquired.1171 Under
Article 1413 of the old Spanish Civil Code, the husband could alienate conjugal partnership property for
valuable consideration without the wife's consent.1181

Even under the present Civil Code, however, the Deed of Sale is not void. It is well-settled that contracts
alienating conjugal real property without the wife's consent are merely voidable under the Civil Code -
that is, binding on the parties unless annulled by a competent court - and not void ab initial

Article 166 must be read in conjunction with Article 173 of the Civil Code ("Article 173"). The latter
prescribes certain conditions before a sale of conjugal property can be annulled for lack of the wife's
consent, as follows:

Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask
the courts for the annulment of any contract of the husband entered into without her consent, when
such consent is required, or any act or contract of the husband which tends to defraud her or impair her
interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs
after the dissolution of the marriage, may demand the value of property fraudulently alienated by the
husband. (Emphasis supplied)
Under the Civil Code, only the wife can ask to annul a contract that disposes of conjugal real property
without her consent. The wife must file the action for annulment during the marriage and within ten
years from the questioned transaction. Article 173 is explicit on the remedies available if the wife fails to
exercise this right within the specified period. In such case, the wife or her heir; can only demand the
value of the property provided they prove that the husband fraudulently alienated the property. Fraud
is never presumed, but must be established by clear and convincing evidence.

ILLEGITIMATE CHILD’S SURNAME

ALBA vs. COURT OF APPEALS

G.R. No. 164041, July 29, 2005

Facts: Private respondent Rosendo C. Herrera filed a petition for cancellation of the following entries in
the birth certificate of Rosendo Alba Herrera, Jr, “ to wit: (1) the surname “Herrera” as appended to the
name of the said child; (2) the reference to private respondent as the father of Rosendo Alba Herrera Jr.;
and (3) the alleged marriage of private respondent to all child’s mother, Armi A. Alba He averred that
such challenged entries are false.

Private respondent contended that he married only once, as evidenced by certification from NSO and
Civil Registrar of Mandaluyong.

The RTC, finding the petition to be sufficient in form and substance the hearing was set. On the
scheduled hearing the counsel from the OSG appeared but filed no opposition, Armi was not present.

The court a quo rendered a decision ordering the correction of the entries in the Certification of Live
Birth of Rosendo Alba Herrera, Jr.

Armi filed a petition for the annulment of the judgment, contending that she came to know of the
decision of the RTC where the school where her son was enrolled, was furnished by private respondent
with a copy of a court order directing the change of petitioner’s surname from Herrera to Alba. Armi
contended that she and private respondent cohabited and after their separation, he continued to give
support to their son.

Private respondent denied paternity of petitioner minor and his purported cohabitation with Armi.

Issue: Whether or not an illegitimate child shall use the surname of their mother.

Held: Under Art. 176 of the Family Code as amended by RA No. 9255, w/c took effect on March 19,
2004, illegitimate children shall use the surname of their mother , unless their father recognizes their
filiation, in w/c case they may bear the father’s surname. In Wang vs. Cebu Civil Registrar it was held
that an illegitimate child whose filiations is not recognized by the father bears only a given name and his
mother’s surname. The name of the unrecognized illegitimate child identifies him as such. It is only
when said child is recognized that he may use his father’s surname, reflecting his status us an
acknowledged illegitimate held.

CHILD CUSTODY

PABLO-GUALBERTO VS. COURT OF APPEALS

G.R. Nos. 154994 and 156254 June 28, 2005

Facts: Crisanto Rafaelito G. Gualberto V filed before the RTC a petition for declaration of nullity of his
marriage to Joycelyn w/ an ancillary prayer for custody pendente lite of their almost 4 year old son,
Rafaello, whom her wife took away w/ her from their conjugal home and his school when she left him.

The RTC granted the ancillary prayer for custody pendente lite, since the wife failed to appear despite
notice. A house helper of the spouses testified that the mother does not care for the child as she very
often goes out of the house and even saw her slapping the child. Another witness testified that after
surveillance he found out that the wife is having lesbian relations.

The judge issued the assailed order reversing her previous order, and this time awarded the custody of
the child to the mother. Finding that the reason stated by Crisanto not to be a compelling reason as
provided in Art 213 of the Family Code.

Issue: Whether or not the custody of the minor child should be awarded to the mother.

Held: Article 213 of the Family Code provided: “Art 213. In case of separation of parents parental
authority shall be exercised by the parent des granted by the court. The court shall take into account all
relevant consideration, especially the choice of the child over seven years of age, unless the parent
chosen is unfit.”

No child under seven yrs of age shall be separated from the mother unless the court finds compelling
reasons to order otherwise,”

This Court has held that when the parents separated, legally or otherwise, the foregoing provision
governs the custody of their child. Article 213 takes its bearing from Article 363 of the Civil Code, w/c
reads:
“Art 363. In all question on the care, custody, education and property pf children, the latter welfare shall
be paramount. No mother shall be separated from her child under seven years of age, unless the court
finds compelling reason for such measure.”

ANNULMENT OF MARRIAGE; PSYCHOLOGICAL INCAPACITY

DEBEL VS. COURT OF APPEALS, ET AL.

G.R. No. 151867. January 29, 2004

Facts: David Debel met Sharon Corpuz while he was working in the advertising business of his father.
The acquaintance led to courtship and romantic relations, culminating into marriage before the City
Court of Pasay on September 28, 1966. On May 20, 1967, the civil marriage was ratified in a church
wedding. The union produced four children. The petitioner avers that during the marriage Sharon
turned out to be an irresponsible and immature wife and mother. She had an illicit affair with several
men and then later to a Jordanian national named Ibrahim. Sharon was once confined for psychiatric
treatment but she didn’t stop her illicit relationship with the Jordanian national whom she married and
whom she had two children. Ibrahim left Sharon so she returned back to the petitioner who had
accepted her back. However on December 9, 1995, Sharon abandoned the petitioner and joined Ibrahim
in Jordan with their two children. After giving up all hope for reconciliation, petitioner filed on April 1,
1997 a petition seeking the declaration of nullity of his marriage on the ground of psychological
incapacity. The RTC granted the nullity of the marriage. It was appealed in the CA which set aside the
decision of RTC and ordered dismissal of the case. Hence, the instant petition was filed to the Supreme
Court.

Issue: Whether or not private respondent’s sexual infidelity or perversion and abandonment fall within
the term of psychological incapacity.

Held: In this case private respondent’s sexual infidelity or perversion and abandonment can hardly
qualify as mental or psychological illness to such extent that she could not have known the obligation
she was assuming. It appears that private respondent’s promiscuity did not exist prior to or at the
inception of the marriage; in fact, the record disclosed that there was a blissful marital union. It must be
shown that the acts are a manifestation of a disordered personality which makes respondent completely
unable to discharge the essential obligations of marital state, not merely due to her youth, immaturity
or sexual promiscuity.
ACTION FOR RECOGNITION OF ILLEGITIMATE CHILDREN WHO ARE MINORS AT THE TIME OF THE
EFFECTIVITY OF THE FAMILY CODE MAY BE BROUGHT FOR A PERIOD OF 4 YEARS FROM ATTAINING
MAJORITY AGE; SPURIOUS CHILDREN

BERNABE VS. ALEJO

G.R. No. 140500. January 21, 2002

Facts: The late Fiscal Ernesto Bernabe allegedly fathered a son with his secretary Carolina Alejo and was
named Adrian Bernabe who was born on September 18, 1981. After Ernesto Bernabe and Rosalina, his
legal wife died, the only heir left is Erestina. Carolina, in behalf of Adrian, filed a complaint praying that
Adrian be declared an acknowledged illegitimate son of Fiscal Bernabe and be given a share of his
father’s estate.

Issue: Whether or not Adrian Bernabe may be declared an acknowledged illegitimate son.

Held: Under the new law, an action for the recognition of an illegitimate child must be brought within
the lifetime of the alleged parent. The Family Code makes no distinction on whether the former was still
a minor when the latter died. Thus, the putative parent is given by the new code a chance to dispute the
claim, considering that “illegitimate children” are usually begotten and raised in secrecy and without the
legitimate family being aware of their existence.

OBLIGATIONS AND CONTRACTS

SAN MIGUEL CORPORATION vs. TROY FRANCIS L. MONASTERIO

G.R. No. 151037. June 23, 2005

Facts: SMC entered into an Exclusive Warehouse Agreement with SMB Warehousing Services,
represented by its manager, Troy Francis L. Monasterio. SMB undertook to provide land, physical
structures, equipment and personnel for storage, warehousing and related services such as, but not
limited to, segregation of empty bottles, stock handling, and receiving SMC products for its route
operations. From September 1993 to September 1997 and May 1995 to November 1997, aside from
rendering service as warehouseman, Monasterio was given the additional task of cashiering in SMC’s
Sorsogon and Camarines Norte sales offices for which he was promised a separate fee. But it was only
on December 1, 1997, that petitioner SMC started paying respondent P11,400 per month for his
cashiering services. Monasterio demanded P82,959.32 for warehousing fees, P11,400 for cashiering fees
for the month of September, 1998, as well as exemplary damages, and attorney’s fees in the amount of
P500,000 and P300,000, respectively. SMC filed a Motion to Dismiss on the ground of improper venue
The RTC denied the motion.

Issue: Did the RTC of Naga City err in denying the motion to dismiss filed by SMC alleging improper
venue?

Held: Exclusive venue stipulation embodied in a contract restricts or confines parties thereto when the
suit relates to breach of the said contract. But where the exclusivity clause does not make it necessarily
all encompassing, such that even those not related to the enforcement of the contract should be subject
to the exclusive venue, the stipulation designating exclusive venues should be strictly confined to the
specific undertaking or agreement. Otherwise, the basic principles of freedom to contract might work to
the great disadvantage of a weak party-suitor who ought to be allowed free access to courts of justice.

GF EQUITY, INC. vs. ARTURO VALENZONA

G.R. No. 156841. June 30, 2005

Facts: GF Equity hired Valenzona as Head Coach of the Alaska basketball team in the Philippine
Basketball Association under a Contract of Employment where GF Equity would pay Valenzona the sum
of P35,000.00 monthly. While the employment period agreed upon was for two years commencing, the
last sentence of paragraph 3 of the contract carried the following condition: 3. x x x If at any time during
the contract, the COACH, in the sole opinion of the CORPORATION, fails to exhibit sufficient skill or
competitive ability to coach the team, the CORPORATION may terminate this contract. The caveat
notwithstanding, Valenzona still acceded to the terms of the contract. Thereafter, Valenzona was
terminated as coach of the Alaska team. Valenzona demanded from GF Equity payment of
compensation arising from the arbitrary and unilateral termination of his employment. GF Equity,
however, refused the claim. Valenzona thus filed before the RTC Manila a complaint against GF Equity
for breach of contract with damages. The trial court, upholding the validity of the assailed provision of
the contract, dismissed the complaint.

Issue: Whether the questioned last sentence of paragraph 3 is violative of the principle of mutuality of
contracts.

Held: Mutuality is one of the characteristics of a contract, its validity or performance or compliance of
which cannot be left to the will of only one of the parties. The ultimate purpose of the mutuality
principle is thus to nullify a contract containing a condition which makes its fulfillment or pre-
termination dependent exclusively upon the uncontrolled will of one of the contracting parties. In the
case at bar, the contract incorporates in paragraph 3 the right of GF Equity to pre-terminate the
contract. The assailed condition clearly transgresses the principle of mutuality of contracts. GF Equity
was given an unbridled prerogative to pre-terminate the contract irrespective of the soundness, fairness
or reasonableness, or even lack of basis of its opinion. The assailed stipulation being violative of the
mutuality principle underlying Article 1308 of the Civil Code, it is null and void.

NORKIS FREE & INDEPENDENT WORKERS UNION vs. NORKIS TRADING COMPANY, INC.

G.R. No. 157098 June 30, 2005

Facts: On January 27, 1998, a Memorandum of Agreement was forged between the parties wherein
petitioner shall grant a salary increase to all regular and permanent employees Ten pesos per day
increase effective August 1, 1997; Ten pesos per day increase effective August 1, 1998. On March 10,
1998, the RTWPB of Region VII issued Wage Order ROVII-06 which established the minimum wage of
P165.00, by mandating a wage increase of five (P5.00) pesos per day beginning April 1, 1998, thereby
raising the daily minimum wage to P160.00 and another increase of five (P5.00) pesos per day beginning
October 1, 1998, thereby raising the daily minimum wage to P165.00 per day. In accordance with the
Wage Order and Section 2, Article XII of the CBA, petitioner demanded an across-the-board increase.
Respondent, however, refused to implement the Wage Order, insisting that since it has been paying its
workers the new minimum wage of P165.00 even before the issuance of the Wage Order, it cannot be
made to comply with said Wage Order.

Issue: Whether respondent violated the CBA in its refusal to grant its employees an across-the-board
increase as a result of the passage of Wage Order No. ROVII-06.

Held: The employees are not entitled to the claimed salary increase, simply because they are not within
the coverage of the Wage Order, as they were already receiving salaries greater than the minimum
wage fixed by the Order. Concededly, there is an increase necessarily resulting from raising the
minimum wage level, but not across-the-board. Indeed, a “double burden” cannot be imposed upon an
employer except by clear provision of law. It would be unjust, therefore, to interpret Wage Order No.
ROVII-06 to mean that respondent should grant an across-the-board increase. Such interpretation of the
Order is not sustained by its text.

CONCEPCION R. AINZA, substituted by her legal heirs, DR. NATIVIDAD A. TULIAO, CORAZON A. JALECO
and LILIA A. OLAYON vs. SPOUSES ANTONIO PADUA and EUGENIA PADUA

G.R. No. 165420. June 30, 2005

Facts: Spouses Eugenia and Antonio Padua owned a 216.40 sq. m. lot with an unfinished residential
house Thereafter, Concepcion Ainza bought one-half of an undivided portion of the property from her
daughter, Eugenia and the latter’s husband, Antonio, for P100,000.00. No Deed of Absolute Sale was
executed to evidence the transaction, but cash payment was received by the respondents, and
ownership was transferred to Concepcion through physical delivery to Natividad Tuliao. However,
respondents caused the subdivision of the property into three portions and registered it in their names
in violation of the restrictions annotated at the back of the title. Antonio claimed that his wife, Eugenia,
admitted that Concepcion offered to buy 1/3 of the property who gave her small amounts over several
years which totaled P100,000.00 by 1987 and for which she signed a receipt.

Issue: Whether there was a valid contract of sale between Eugenia and Concepcion.

Held: There was a perfected contract of sale between Eugenia and Concepcion. The records show that
Eugenia offered to sell a portion of the property to Concepcion, who accepted the offer and agreed to
pay P100,000.00 as consideration. The contract of sale was consummated when both parties fully
complied with their respective obligations. Eugenia delivered the property to Concepcion, who in turn,
paid Eugenia the price of P100,000.00, as evidenced by the receipt. The verbal contract of sale between
Eugenia and Concepcion did not violate the provisions of the Statute of Frauds. When a verbal contract
has been completed, executed or partially consummated, as in this case, its enforceability will not be
barred by the Statute of Frauds, which applies only to an executory agreement. However, the sale of the
conjugal property by Eugenia without the consent of her husband is voidable. It is undisputed that the
subject property was conjugal and sold by Eugenia in April 1987 or prior to the effectivity of the Family
Code on August 3, 1988. Thus, the contract of sale between Eugenia and Concepcion being an oral
contract, the action to annul the same must be commenced within six years from the time the right of
action accrued. It is binding unless annulled. Antonio failed to exercise his right to ask for the annulment
within the prescribed period, hence, he is now barred from questioning the validity of the sale between
his wife and Concepcion.

OLIVERIO LAPERAL& FILIPINAS GOLF & COUNTRY CLUB INC. vs. SOLID HOMES, INC.

G.R. No. 130913. June 21, 2005

Facts: Filipinas Golf Sales and Development Corporation, predecessor-in-interest of Filipinas Golf and
Country Club, Inc., represented by its then President, Oliverio Laperal, entered into a Development and
Management Agreement with respondent Solid Homes, Inc., a registered subdivision developer,
involving several parcels of land owned by Laperal and FGSDC. Under the terms and conditions of the
aforementioned Agreement and the Supplement, respondent undertook to convert at its own expense
the land subject of the agreement into a first-class residential subdivision, in consideration of which
respondent will get 45% of the lot titles of the saleable area in the entire project. The aforementioned
Agreement was cancelled by the parties, and, in lieu thereof, two contracts identically denominated
Revised Development and Management Agreement were entered into by respondent with the two
successors-in-interest of FGSDC. Unlike the original agreement, both Revised Agreements omitted the
obligation of petitioners Laperal and FGCCI to make available to respondent Solid Homes, Inc. the
owner’s duplicate copies of the titles covering the subject parcels of land. It appears, however, that even
as the Revised Agreements already provided for the non-surrender of the owner’s duplicate copies of
the titles, respondent persisted in its request for the delivery thereof .Then, petitioners served on
respondent notices of rescission of the Revised Agreements with a demand to vacate the subject
properties and yield possession thereof to them.

Issue: Whether the termination of the Revised Agreement and Addendum, because of the contractual
breach committed by respondent solid homes, carried with it the effect provided under Article 1385 of
the New Civil Code.

Held: Mutual restitution is required in cases involving rescission under Article 1191. Since Article 1385 of
the Civil Code expressly and clearly states that “rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the price with its interest,” the
Court finds no justification to sustain petitioners’ position that said Article 1385 does not apply to
rescission under Article 1191.As a consequence of the resolution by petitioners, rights to the lot should
be restored to private respondent or the same should be replaced by another acceptable lot. Applying
the clear language of the law and the consistent jurisprudence on the matter, therefore, the Court rules
that rescission under Article 1191 in the present case, carries with it the corresponding obligation of
restitution.

MONDRAGON LEISURE AND RESORTS CORPORATION vs. COURT OF APPEALS, ASIAN BANK
CORPORATION, FAR EAST BANK AND TRUST COMPANY, and UNITED COCONUT PLANTERS BANK

G.R. No. 154188 June 15, 2005

Facts: Mondragon International Philippines, Inc., Mondragon Securities Corporation and herein
petitioner entered into a lease agreement with the Clark Development Corporation for the development
of what is now known as the Mimosa Leisure Estate.To help finance the project, petitioner, entered into
an Omnibus Loan and Security Agreement with respondent banks for a syndicated term loan in the
aggregate principal amount of US$20M. Under the agreement, the proceeds of the loan were to be
released through advances evidenced by promissory notes to be executed by petitioner in favor of each
lender-bank, and to be paid within a six-year period from the date of initial advance inclusive of a one
year and two quarters grace period. Petitioner, which had regularly paid the monthly interests due on
the promissory notes until October 1998, thereafter failed to make payments. Consequently, written
notices of default, acceleration of payment and demand letters were sent by the lenders to the
petitioner. Then, respondents filed a complaint for the foreclosure of leasehold rights against petitioner.
Petitioner moved for the dismissal of the complaint but was denied.

Issue: Whether or not respondents have a cause of action against the petitioner?
Held: Under the foregoing provisions of the Agreement, petitioner may be validly declared in default for
failure to pay the interest. As a consequence of default, the unpaid amount shall earn default interest,
and the respondent-banks have four alternative remedies without prejudice to the application of the
provisions on collaterals and any other steps or action which may be adopted by the majority lender.
The four remedies are alternative, with the right of choice given to the lenders, in this case the
respondents. Under Article 1201 of the Civil Code, the choice shall produce no effect except from the
time it has been communicated. In the present case, we find that written notices were sent to the
petitioner by the respondents. The notices clearly indicate respondents’ choice of remedy: to accelerate
all payments payable under the loan agreement It should be noted that the agreement also provides
that the choice of remedy is without prejudice to the action on the collaterals. Thus, respondents could
properly file an action for foreclosure of the leasehold rights to obtain payment for the amount
demanded.

SPS. FELIPE AND LETICIA CANNU vs. SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME
MORTGAGE FINANCE CORPORATION,

G.R. No. 139523. May 26, 2005

Facts: Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association for P173,
800.00 to purchase a house and lot located at Pulang Lupa, Las Piñas, To secure payment, a real estate
mortgage was constituted on the said house and lot in favor of Fortune Savings & Loan Association. In
early 1990, NHMFC purchased the mortgage loan of respondents-spouses from Fortune Savings & Loan
Association for P173, 800.00. Petitioner Leticia Cannu agreed to buy the property for P120, 000.00 and
to assume the balance of the mortgage obligations with the NHMFC and with CERF Realty. Of the P120,
000. 00, several payments were made leaving a balance of P45, 000.00. A Deed of Sale with Assumption
of Mortgage Obligation was made and entered into by and between spouses Fernandina and Gil Galang
and spouses Leticia and Felipe Cannu over the house and lot. Petitioners immediately took possession
and occupied the house and lot. Despite requests from Adelina R. Timbang and Fernandina Galang to
pay the balance of P45,000.00 or in the alternative to vacate the property in question, petitioners
refused to do so. Issues: 1) Whether or not the breach of the obligation is substantial.

2) Whether or not there was substantial compliance with the obligation to pay the monthly amortization
with NHMFC.

3) Whether or not respondents-spouses Galang demanded from petitioners a strict and/or faithful
compliance of the Deed of Sale with Assumption of Mortgage. 4. Whether or not the action for
rescission is subsidiary.
Held: 1) Rescission may be had only for such breaches that are substantial and fundamental as to defeat
the object of the parties in making the agreement. The question of whether a breach of contract is
substantial depends upon the attending circumstances and not merely on the percentage of the amount
not paid. In the case at bar, we find petitioners’ failure to pay the remaining balance of P45,000.00 to be
substantial. Taken together with the fact that the last payment made was on 28 November 1991,
eighteen months before the respondent Fernandina Galang paid the outstanding balance of the
mortgage loan with NHMFC, the intention of petitioners to renege on their obligation is utterly clear.

2) The petitioners were not religious in paying the amortization with the NHMFC. As admitted by them,
in the span of three years from 1990 to 1993, their payments covered only thirty months. This, indeed,
constitutes another breach or violation of the Deed of Sale with Assumption of Mortgage. On top of this,
there was no formal assumption of the mortgage obligation with NHMFC because of the lack of approval
by the NHMFC on account of petitioners’ non-submission of requirements in order to be considered as
assignees/successors-in-interest over the property covered by the mortgage obligation.

3) There is sufficient evidence showing that demands were made from petitioners to comply with their
obligation. Adelina R. Timbang, attorney-in-fact of respondents-spouses, per instruction of respondent
Fernandina Galang, made constant follow-ups after the last payment made on 28 November 1991, but
petitioners did not pay. Sometime in March 1993, due to the fact that full payment has not been paid
and that the monthly amortizations with the NHMFC have not been fully updated, she made her
intentions clear with petitioner Leticia Cannu that she will rescind or annul the Deed of Sale with
Assumption of Mortgage. 4. The subsidiary character of the action for rescission applies to contracts
enumerated in Articles 1381 of the Civil Code. The contract involved in the case before us is not one of
those mentioned therein. The provision that applies in the case at bar is Article 1191.As a consequence
of the rescission or, more accurately, resolution of the Deed of Sale with Assumption of Mortgage, it is
the duty of the court to require the parties to surrender whatever they may have received from the
other. The parties should be restored to their original situation.

ROMAGO ELECTRIC CO., INC. vs. HONORABLE COURT OF APPEALS, SOLEDAD C. CAC, JOEPHIL BIEN,
RENATO CUNANAN and DELFIN INCIONG

G.R. No. 130721. May 26, 2005

Facts: The National Power Corporation entered into an agreement with ROMAGO ELECTRIC CO., INC. for
the erection and installation of NPC’s 69 KV 3-Phase Transmission Lines for P2,657,856.40.
Subsequently, ROMAGO subcontracted the project to BICC Construction, an unregistered loose
partnership composed of Soledad Cac, Delfin Inciong, Joephil Bien and Renato Cunanan, for
P1,614,387.99. When the project was completed, there was an outstanding balance due to BICC
Construction from ROMAGO, part of which was the former’s share in the CPA amounting to 70% of the
NPC-ROMAGO contract or P175,545.05. Mrs. Soledad Cac, wrote NPC to hold its payment to ROMAGO
of the aforementioned CPA amounting to P250,778.65. Payment was nonetheless released to ROMAGO
by virtue of a sworn affidavit executed that “there does not exist any lien or encumbrances against” the
said NPC-ROMAGO contract. It appears that Mariano Cac, authorized representative and husband of
Soledad Cac, was paid the amount of P38,712.70 “in full payment of accounts including retention of
various works at NPC-Isabela” under defendant’s Cash Disbursement Voucher No. 23162 dated 03
October 1983.When BICC’s demands for payment were ignored by ROMAGO, the partners, thru Mrs.
Soledad Cac as lone plaintiff, filed a complaint for collection of sum of money with damages.

Issues: 1) Whether or not the private respondents are entitled to the CPA accorded to the petitioner by
NPC.

2) Whether or not the particulars of petitioner’s cash disbursement voucher no. 23162 signed by private
respondent’s authorized representative / agent acknowledging receipt of said amount did not
extinguish, relieve, release any and all claims including contract price adjustment which private
respondents may have against petitioner on the subcontract.

Held: 1. Contrary to the petitioner’s asseverations that the CPA was not intended to be made applicable
to the Romago-BICC subcontract, it must be remembered that the petitioner and the private
respondents expressly agreed what documents were going to be incorporated in the principal
subcontract. We agree with the appellate court that the qualifying phrase “obligations and
responsibilities” contained in the Romago-BICC subcontract was applicable only to the NPC-Romago
contract. What is more, the CPA is not found in the NPC-Romago contract, but in the NPC's “Plans and
Specifications” which was expressly included as part of the “Contract Documents”.

2. Said pleading expressly states that “…the CPA is not included in the computation.” This is precisely
because the petitioner believes that the private respondents are not entitled to the CPA, hence, “there
is no basis for including it.” Said CPA not being part of the subcontract price of P1,614,387.99, the
release mentioned in the cash voucher cannot, therefore, be construed as a release of the CPA.

FELIPE O. MAGBANUA, CARLOS DE LA CRUZ, REMY ARNAIZ, BILLY ARNAIZ, ROLLY ARNAIZ, DOMINGO
SALARDA, JULIO CAHILIG and NICANOR LABUEN, vs. RIZALINO UY

G.R. No. 161003. May 6, 2005

Facts: As a final consequence of the final and executory decision of the Supreme Court which affirmed
with modification the decision of the NLRC, hearings were conducted to determine the amount of wage
differentials due the eight petitioners. The petitioners filed a Motion for Issuance of Writ of Execution.
Rizalino Uy filed a Manifestation requesting that the cases be terminated and closed, stating that the
judgment award as computed had been complied with to the satisfaction of petitioners. Said
Manifestation was also signed by the eight petitioners. Together with the manifestation is a Joint
Affidavit dated May 5, 1997 of petitioners, attesting to the receipt of payment from respondent and
waiving all other benefits due them in connection with their complaint. On October 20, 1997, six of the
eight petitioners filed a Manifestation requesting that the cases be considered closed and terminated as
they are already satisfied of what they have received from respondent. Together with said
Manifestation is a Joint Affidavit in the local dialect, of the six petitioners attesting that they have no
more collectible amount from respondent and if there is any, they are abandoning and waiving the
same.

Issues: 1. Whether or not the final and executory judgment of the Supreme Court could be subject to
compromise settlement;

2. Whether or not the petitioners’ affidavit waiving their awards in the labor case executed without the
assistance of their counsel and labor arbiter is valid.

Held: 1. There is no justification to disallow a compromise agreement, solely because it was entered into
after final judgment. The validity of the agreement is determined by compliance with the requisites and
principles of contracts, not by when it was entered into. Petitioners voluntarily entered into the
compromise agreement. Circumstances also reveal that respondent has already complied with its
obligation pursuant to the compromise agreement. Having already benefited from the agreement,
estoppel bars petitioners from challenging it.

2. The presence or the absence of counsel when a waiver is executed does not determine its validity.
There is no law requiring the presence of a counsel to validate a waiver. The test is whether it was
executed voluntarily, freely and intelligently; and whether the consideration for it was credible and
reasonable. Where there is clear proof that a waiver was wangled from an unsuspecting or a gullible
person, the law must step in to annul such transaction. In the present case, petitioners failed to present
any evidence to show that their consent had been vitiated.

SPOUSES DANILO and CRISTINA DECENA, vs. SPOUSES PEDRO and VALERIA PIQUERO

G.R. No. 155736. March 31, 2005

Facts: Spouses Danilo and Cristina Decena were the owners of a house and lot in Parañaque City. The
petitioners and the respondents, the Spouses Pedro and Valeria Piquero, executed a Memorandum of
Agreement in which the former sold the property to the latter for P940,250.00 payable in six (6)
installments via postdated checks. The vendees forthwith took possession of the property. It appears in
the MOA that the petitioners obliged themselves to transfer the property to the respondents upon the
execution of the MOA with the condition that if two of the postdated checks would be dishonored by
the drawee bank, the latter would be obliged to reconvey the property to the petitioners. On May 17,
1999, the petitioners, then residents of Malolos, Bulacan, filed a Complaint against the respondents with
the RTC Malolos, Bulacan, for the annulment of the sale/MOA, recovery of possession and damages. The
petitioners alleged therein that, they did not transfer the property to and in the names of the
respondents as vendees because the first two checks drawn and issued by them in payment for the
purchase price of the property were dishonored by the drawee bank, and were not replaced with cash
despite demands therefor.
Issue: Whether or not venue was properly laid by the petitioners in the RTC of Malolos, Bulacan.

Held: After due consideration of the foregoing, we find and so rule that Section 5(c), Rule 2 of the Rules
of Court does not apply. This is so because the petitioners, as plaintiffs in the court a quo, had only one
cause of action against the respondents, namely, the breach of the MOA upon the latter’s refusal to pay
the first two installments in payment of the property as agreed upon, and turn over to the petitioners
the possession of the real property, as well as the house constructed thereon occupied by the
respondents. The claim for damages for reasonable compensation for the respondents’ use and
occupation of the property, in the interim, as well as moral and exemplary damages suffered by the
petitioners on account of the aforestated breach of contract of the respondents are merely incidental to
the main cause of action, and are not independent or separate causes of action. The action of the
petitioners for the rescission of the MOA on account of the respondents’ breach thereof and the latter’s
failure to return the premises subject of the complaint to the petitioners, and the respondents’ eviction
therefrom is a real action. As such, the action should have been filed in the proper court where the
property is located, namely, in Parañaque City, conformably with Section 1, Rule 4 of the Rules of Court.
Since the petitioners, who were residents of Malolos, Bulacan, filed their complaint in the said RTC,
venue was improperly laid; hence, the trial court acted conformably with Section 1(c), Rule 16 of the
Rules of Court when it ordered the dismissal of the complaint.

LIABILITY FOR PRICE ESCALATION FOR LABOR AND MATERIAL COST

H.L. CARLOS CONSTRUCTION, INC. VS. MARINA PROPERTIES CORPORATION, ET AL.

G.R No. 147614, January 29, 2004

Facts: Marina Properties Corporation entered into a contract with H.L. Carlos Construction, Inc. to
construct a condominium complex for a total consideration of P35.58 million within a period of 365 days
from receipt of notice to proceed. The original completion date of the project was May 16, 1989, but it
was extended to October 31, 1989 with a grace period until November 30, 1989. On December 15, 1989,
HLC instituted a case for sum of money, among others, for costs of labor escalation, change orders and
material price escalation. The Construction Contract contains the provision that no cost escalation shall
be allowed except on the labor component of the work. HLC argues that it is entitled to price escalation
for both labor and material because MPC was delayed for paying its obligations. MPC, on the other
hand, avers that HLC was delayed in finishing its project; hence, it is not entitled to price increases.

Issue: Whether or not MPC is liable for price escalation.

Held: MPC is liable for price escalation, but only for the labor component. The Construction Contract
contains the provision that no cost escalation shall be allowed except on the labor component of the
work. Since the contract allows escalation only of the labor component, the implication is that material
cost escalations are barred. There appears to be no provision, either in the original or in the amended
contract that would justify billing of increased cost of material. HLC attempts to pass off material cost
escalation as a form of damages suffered by it as a natural consequence of the delay in the payment of
billings. However, the contentious billing itself contains no claim for material cost escalation.

STAGES OF CONTRACT; WITHDRAWAL OF OFFER BEFORE ACCEPTANCE

INSURANCE LIFE ASSURANCE COMPANY, LTD. VS. ASSET BUILDERS CORPORATION

G.R. No. 147410, February 5, 2004

Facts: Insular Life Insurance Company, Limited invited companies to participate in the bidding of the
proposed Insular Life building. The Instruction to Bidders prepared by Insular Life expressly required a
formal acceptance and a period within which such acceptance was to be made known to the winner.
Asset Builders Corporation submitted a bid proposal secured by bid bonds valid for 60 days. Under its
proposal form, Asset Builders bound and obliged itself to enter into a contract with Insular Life within 10
days from the notice of the award, with good and sufficient securities. The project was awarded to the
Asset Builders and a notice to proceed with the construction was sent by Insular Life to the former.
However, Asset Builders project. Neither did it execute any construction agreement. It informed Insular
Life that it will not proceed with the project.

Issue: Whether or not there is a perfected contract between Insular Life and Asset Builders.

Held: There was indeed no acceptance of the offer by Asset Builders. Such failure to comply with the
condition imposed for the perfection of the contract resulted in the failure of the contract. There are
three distinct stages of a contract- preparation or negotiation, perfection or consummation. Negotiation
begins when the prospective contracting parties manifest their interest in the contract and ends at the
moment of their agreement. Perfection occurs when they agree upon the essential elements thereof.
The last stage is the consummation where they fulfill the terms agreed upon culminating in the
extinguishment of the contract.

CONTACTS ARE PERFECTED BY MERE CONSENT; EFFECTS OF PERFECTION OF CONTRACTS

METROPOLITAN MANILA DEVELOPMENT AUTHORITY VS. JANCOM ENVIRONMENTAL CORPORATION

GR No. 147465, January 30, 2002

Facts: A build-Operate-Transfer Contract for the waste-to energy project was signed between JANCOM
and the Philippine Government. The BOT Contract was submitted to President Ramos for approval but
was then too close to the end of his term that his term expired without him signing the contract. He,
however, endorsed the same to incoming President Estrada. With the change in administration came
changes in policy and economic environment, thus the BOT contract was not pursued and implemented.
JANCOM appealed to the President for reconsideration and despite the pendency of the appeal, MMDA
caused the publication of an invitation to pre-qualify and submit proposals for solid waste management.

Issue: Whether or not there is a valid and binding contract between the Republic of the Philippines and
JANCOM.

Held: There is a valid and binding contract between JANCOM and the Republic of the Philippines. Under
Articles 1305 of the Civil Code, “A contract is a meeting of the minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service.” Art. 1315 of the
Civil Code provides that a contract is perfected by mere consent. Consent, on the other hand, is
manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract (Art. 1319, Civil Code). In the case at bar, the signing and execution of the
contract by the parties clearly show that, as between the parties, there was a concurrence of offer and
acceptance with respect to the material details of the contract, thereby giving rise to the perfection of
the absence of President’s signature is untenable. Significantly, the contract itself provides that the
signature of the President is necessary only for its effectivity, not its perfection.

There being a perfected contract, MMDA cannot revoke or renounce the same without the consent of
the other. From the moment of perfection, the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. (Art. 1315) It is a general principle of law that no one may be
permitted to change hid mind or disavow and go back upon his own acts, or to proceed contrary
thereto, to the prejudice of the other party.

PENALTY CLAUSE

LIGUTAN VS. COURT OF APPEALS

G.R. No. 147465, February 12, 2002

Facts: Ligutan and dela Llana obtained a loan from Security Bank and Trust Co. They executed a
promissory note binding themselves jointly and severally to pay the sum borrowed with an interest of
15.89% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal
and interest in case of default. In addition, they agreed to pay 10% of the total amount due by way of
attorney’s fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to
enforce payment. Ligutan and dela Llana failed to settle the debt. A complaint for recovery of the
amount due was filed with the RTC. The court held, among others, the borrowers were liable for a 3%
per month penalty (instead of 5%) and 10% of the total amount of the indebtedness for attorney’s fee,
in addition to the principal loan.

Issue: Whether the court is correct in holding the borrowers liable for the penalty.

Held: A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater
liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the
coercive force of the obligation and to provide for what could be the stipulated indemnity without the
necessity of proof on the existence and on the measure of damages caused by the breach. Although the
court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they
see fit, a stipulated penalty, nevertheless may be equitably reduced by the courts if iniquitous or
unconscionable or if the principal obligation has been partly or irregularly complied with. The reduction
is justified by the facts that the borrowers were able to partly comply with their obligations.

SIMULATED CONTRACTS

CRUZ VS. BANCOM FINANCE CORPORATION

G.R. No. 147788 March 19, 2002

Facts: Norma Sulit was introduced by Candelaria Sanchez to Edilberto and Simplicio Cruz and offered to
purchase the parcel of land owned by the Cruz brothers. The asking-price for the land was P700, 000,
but Sulit had only P25,000 which Edilberto accepted as earnest money with the agreement that title
would pass to Sulit on the payment of the balance. Sulit failed to pay the balance. Capitalizing on the
close relationship of Sanchez with the brothers, Sulit succeeded in having the brothers execute a
document of sale in favor of Sanchez who would then obtain a bank loan in her name using the said land
as collateral. On the same day, Sanchez executed another Deed of Absolute Sale in favor of Sulit. Sulit
assumed all the obligations of Sanchez to the original owners of the land in a Special Agreement.
Unknown to the brothers, Sulit managed to obtain a loan from Bancom secured by a mortgage over the
land. Because Sulit failed to pay the purchase price stipulated in the Special Agreement, the brothers
filed a complaint for reconveyance. Sulit also defaulted in her payment to the Bank and her mortgage
was foreclosed. At the auction sale, Bancom was declared the highest bidder.
Issue: Whether or not the Deeds of Sale were valid and binding.

Held: Simulation takes place when the parties do not really want the contract they have executed to
produce the legal effects expressed by its wordings. Art. 1345 states that “simulation of a contract may
be absolute or relative.” The former takes place when the parties conceal their true agreement” while
Art. 1346 states that “an absolutely simulated contract is void. A relative stimulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs,
public order or pubic policy binds the parties to their agreement.” The Deeds of Sale were executed
merely to facilitate the use of the property as collateral to secure a loan from a bank. Although the Deed
of Sale between the brothers and Sanchez stipulated a consideration, there was actually no exchange of
money. Moreover, the failure of Sulit to take possession of the property sold to her was a clear badge of
simulation that rendered the whole transaction void and without force and effect.

NOVATION

PILIPINAS BANK VS. ONG

387 SCRA 97, August 8, 2002

Facts: On April 1991, Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo
T. Ong, applied for a domestic commercial letter credit with petitioner Pilipinas Bank (the bank) to
finance the purchase of “Air Dried, Dark Lauan” sawn lumber.

The bank approved the application and issued a Letter of Credit. To secure payment of the amount,
BMC, through respondent Ong, executed two (2) trust receipts providing that it shall turn over the
proceeds of the goods to the bank, if sold, or return the goods, if unsold, upon maturity on July 28, 1991
and August 4, 1981.

On due dates, BMC failed to comply with the trust receipt agreement. On November 22, 1991, it filed
with the Securities and Exchange Commission (SEC) a Petition for Rehabilitation and for a Declaration in
a State of Suspension of Payments. On January 8, 1992, the SEC issued an order creating a Management
Committee wherein the bank is represented.

On October 13, 1992, BMC and a consortium of 14 of its creditor banks entered into a Memorandum of
Agreement (MOA) rescheduling the payment of BMC’s existing debts.

On November 27, 1992, the SEC rendered a Decision approving the Rehabilitation Plan of BMC as
contained in the MOA and declaring it in a state of suspension of payments.

However, BMC and respondent Ong defaulted in the payment of the obligations under the rescheduled
payment scheme provided in the MOA. On April 1994, the bank filed a complaint charging respondents
Ong and Leoncia Lim (as president and treasurer of BMC) with violation of the Trust Receipts Law (PD
115). The bank alleged that both respondents failed to pay their obligation under the trust receipt
despite demand.

The Court of Appeals renders its decision holding that the execution of the MOA constitutes novation
which places petitioner bank in estoppel to insist on the original trust relation and constitutes a bar to
the filing of any criminal information for violation of the trust receipts law. The Motion for
Reconsideration was denied.

Hence this Petition.

Issue: Whether or not the MOA was a novation of the trust agreement between the parties.

Held: Petition is DENIED, MOA novates the trust agreement.

Mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes violation of PD 115.
However, what is being punished by the law is the dishonesty and abuse of confidence in the handling of
money or goods to the prejudice of another regardless of whether the latter is the owner. It bears
emphasis that when the petitioner bank made a demand upon a BMC on February 11, 1994 to comply
with its obligations under the trust receipts, the latter was already under the control of the
Management Committee created by SEC. The Management Committee took custody of all BMC’s assets
and liabilities, including the red lauan lumber subject of trust receipts, and authorized their use in the
ordinary course of business operations. Clearly, it was the Management Committee which could settle
BMC’s obligations.

In Quinto vs. People, this Court held that there are two ways which could indicate the presence of
novation, thereby producing the effect of extinguishing an obligation by another which substitutes the
same. The first is when novation has been stated and declared in unequivocal terms. The second is when
the old and the new obligations are incompatible on every point. The test of incompatibility is whether
or not the two obligations can stand together. If they cannot, they are incompatible and the latter
obligation novates the first. The incompatibility must take place in any of the essential elements of the
obligation, such as its object, cause or principal conditions.

Contrary to petitioner’s contention, the MOA did not only reschedule BMC’s debts, but more
importantly, it provided principal conditions, which are incompatible with the trust agreement. The
execution of the MOA extinguished respondent’s obligation under the trust receipts. Respondent’s
liability, if any, would only be civil in nature since the trust receipts were transformed into mere loan
documents after the execution of the MOA.

CONDITIONAL OBLIGATION; WHERE THE VENDEE DOES NOT COMPLY WITH HIS OBLIGATION TO PAY
THE BALANCE OF THE PURCHASE PRICE, THE VENDOR’S OBLIGATION TO EXECUTE A DEED OF ABSOLUTE
SALE WILL NOT ARISE.
CORINTHIAN REALTY, INC. VS. COURT OF APPEALS

349 SCRA 260, December 26, 2002

Facts: Private respondents and petitioner entered into a Deed of Conditional Sale (the deed) of a parcel
of land. Under the deed, the remaining balance will be paid by the vendee to the vendors within the
period of ninety (90) days from the execution of the deed; and if for no justifiable reason, the vendee
fails and/ or refuses to comply with this obligation, the vendors, without prior notice to the vendee,
shall forfeit the earnest money, but as soon as the vendee complies with his obligations under the
contract, then the vendors shall immediately execute the absolute deed of sale.

CONTRACTS

TANONGON VS. SAMSON

382 SCRA 130, May 9, 2002

Facts:

Cayco Marine Service (CAYCO) is engaged in the business of hauling oil. It is operated by Illuminada
Cayco Olizon (Olizon). Resondents Felicidad Samson, Casiano Osin, Alberto Belbes and Luisito Venus
were among the employees of CAYCO and/or Olizon.

On MARCH 9, 1994, respondents filed a complaint against CAYCO and Olixzon for illegal dismissal,
underpayment of wages, non-payment of holiday pay, rest day pay and leave pay. The labor arbiter
dismissed the complaint for lack of merit. On appeal, it was reversed by the NLRC.

On June 25, 1997, the NLRC Research and Investigation Unit submitted to the labor arbiter the judgment
award for each respondent.

On June 24, 1997, a writ of execution was issued directing the NLRC sheriff to collect from CAYCO and
Olizon the responding award due for each respondent

On August 8, 1997, after the notice of levy/sale on execution of personal property was issued, CAYCO
nad Olizon’s motor tanker was seized, to be sold at public auction on August 19, 1997.

On August 15, 1997, petitioner Doretea Tanongon, filed a third party claim before the labor arbiter,
alleging that she was the owner of the subject motor tanker, having acquired the same from Olizon on
July 29, 1997, and in consideration.

On October 15, 1997, the labor arbiter issued an order dismissing the third party claim for lack of merit.
On appeal, the NLRC reversed that of the labor arbiter thereby lifting the levy and restrained execution.

The Court of Appeals debunked the claim that the petitioner was a buyer in good faith on the ground
that purchasers could not close their eyes to facts that should put reasonable persons on guard. The
records show that the sale was hastily concluded; the tanker and the necessary documents were
immediately delivered to the new owner to the new owner. These facts confirmed respondent’s
suspicion that Olizon had intended to overcome the enforcement of the Writ of Execution.

Hence this Petition.

Issue: Whether or not petitioner Dorotea Tanongon is a buyer in good faith and for value.

Held: Petition is DENIED; Petitioner Dorotea Tanongon is not a purchaser in good faith and for value.

There is sufficient basis to affirm the CA finding that petitioner was a buyer in abs faith. The writ of
Execution was issued by the labor arbiter on July 24, 1997. And the sale of the levied tanker was made
only on July 29, 1997. The CA correctly ruled that the act of Olizon was a “cavalier attempt to evade
payment of the judgment debt.” She obviously got word of the issuance of these antecedents, petitioner
bought the tanker barely ten days before it was levied upon on August 8, 1997.

Purchaser in good faith or an innocent purchaser for value is one who buys properly and pays a full and
fair price for it at the time of the purchase or before any notice of some other person’s claim on or
interest in it.

Petitioner should have inquired whether Olizon had other unsettled obligations and encumbrances that
could burden the subject property. Any person engaged in business would be wary of buying from a
company that is closing shop, because it may be dissipating its assets to defraud its creditors.

PROPERTY

ISSUANCE OF WRIT OF POSSESSION; REAL ESTATE MORTGAGE

TERESITA V. IDOLOR VS. HON. COURT OF APPEALS, SPOUSES GUMERSINDO DE GUZMAN and
ILUMINADA DE GUZMAN and HON. JOSE G. PINEDA, Presiding Judge of Regional Trial Court, National
Capital Judicial Region, Branch 220, Quezon City

G.R. No. 161028. January 31, 2005

Facts: Petitioner Teresita V. Idolor obtained a loan from respondent-spouses Gumersindo and Iluminada
De Guzman secured by a real estate mortgage over a property covered by TCT No. 25659. Upon default
by petitioner in the payment of her obligation, respondent instituted extra-judicial foreclosure
proceedings against the real estate mortgage.During the auction sale, respondents emerged as the
highest bidder and were issued a Certificate of Sale.
On June 25, 1998, petitioner filed a complaint for annulment of the Certificate of Sale with prayer for
the issuance of a TRO and a writ of preliminary injunction. The RTC issued a writ of preliminary
injunction, however, the Court of Appeals annulled the same on the ground of grave abuse of discretion.
The ownership over the subject property having been consolidated in their name, respondent-spouses
De Guzman moved for the issuance of a writ of possession with the Regional Trial Court where the case
for the annulment of the Certificate of Sale was pending.[5] On May 27, 2002, the trial court denied the
motion, ruling that the “the lifting of the writ of preliminary injunction does not ipso facto entitle
defendant De Guzman to the issuance of a writ of possession over the property in question. It only
allows the defendant Sheriff to issue a final deed of sale and confirmation sale and the defendant De
Guzman to consolidate the ownership/title over the subject property in his name.”

In a petition for certiorari before the Court of Appeals, the appellate court found that the trial court
gravely abused its discretion in denying the motion for the issuance of the “writ of possession to the
mortgagee or the winning bidder is a ministerial function of the court and that the pendency of an
action questioning the validity of a mortgage cannot bar the issuance of the writ of possession after title
to the property has been consolidated in the mortgagee.”[7] Hence, it reversed and set aside the May
27, 2002 order of the trial court.

Issue: Whether or not the mortgage, by mere motion, not by petition, may apply for a Writ of
Possession in the same case for annulment of the Certificate of Sale of which he is a defendant.

Held: A writ of possession is an order whereby the sheriff is commanded to place a person in possession
of a real or personal property. It may be issued under the following instances: (1) land registration
proceedings under Sec. 17 of Act 496; (2) judicial foreclosure, provided the debtor is in possession of the
mortgaged realty and no third person, not a party to the foreclosure suit, had intervened; and (3)
extrajudicial foreclosure of a real estate mortgage under Sec. 7 of Act 3135 as amended by Act 4118, to
which the present case falls.

Under the provision cited above, the purchaser in a foreclosure sale may apply for a writ of possession
during the redemption period by filing for that purpose an ex parte motion under oath, in the
corresponding registration or cadastral proceeding in the case of a property with torrens title. Upon the
filing of such motion and the approval of the corresponding bond, the court is expressly directed to issue
the writ.

Upon the expiration of the redemption period, the right of the purchaser to the possession of the
foreclosed property becomes absolute. The basis of this right to possession is the purchaser’s ownership
of the property. Mere filing of an ex parte motion for the issuance of the writ of possession would
suffice, and the bond required is no longer necessary, since possession becomes an absolute right of the
purchaser as the confirmed owner.

In this case, respondent-spouses acquired an absolute right over the property upon the failure of
petitioner to exercise her right of redemption and upon the consolidation of the title in their name.
An ex-parte petition for issuance of possessory writ under Section 7 of Act No. 3135 is not, strictly
speaking, a “judicial process”. Even if the same may be considered a judicial proceeding for the
enforcement of one’s right of possession as purchaser in a foreclosure sale, it is not an ordinary suit filed
in court, by which one party “sues another for the enforcement or protection of a right, or the
prevention or redress of a wrong.”[18] It is a non-litigious proceeding and summary in nature as well. As
such, the rigid and technical application of the rules on legal fees may be relaxed in order to avoid
manifest injustice to the respondent This rule is applicable in the present case. Although respondent-
spouses have been declared as the highest bidder and despite having consolidated the title in their
name, they still failed to take possession of the property through numerous legal maneuverings of the
petitioner. A simple ex parte application for the issuance of a writ of possession has become a litigious
and protracted proceeding.

SPOUSES JUAN NUGUID AND ERLINDA T. NUGUID VS. HON. COURT OF APPEALS AND PEDRO P. PECSON

G.R. No. 151815. February 23, 2005

Facts: Pedro P. Pecson owned a commercial lot on which he built a 4-door 2-storey apartment building.
For failure to pay realty taxes, the lot was sold at public auction to Mamerto Nepomuceno, who in turn
sold it to the spouses Juan and Erlinda Nuguid. Pecson challenged the validity of the auction sale before
the RTC of Quezon City, which upheld the spouses’ title but declared that the apartment building was
not included in the auction sale. This was affirmed in toto by the Court of Appeals and thereafter by this
Court. On June 23, 1993, by virtue of the Entry of Judgment, the Nuguids became the uncontested
owners of the 256-square meter commercial lot. As a result, the Nuguid spouses moved for delivery of
possession of the lot and the apartment building.

The trial court, relying upon Article 546[1][7] of the Civil Code, ruled that the Spouses Nuguid were to
reimburse Pecson for his construction cost, the spouses Nuguid were entitled to immediate issuance of
a writ of possession over the lot and improvements. The RTC also directed Pecson to pay the same
amount of monthly rentals to the Nuguids as paid by the tenants occupying the apartment units. Pecson
duly moved for reconsideration, the RTC issued a Writ of Possession,directing the deputy sheriff to put
the spouses Nuguid in possession of the subject property with all the improvements thereon and to
eject all the occupants therein.Pecson then filed a special civil action for certiorari and prohibition with
the Court of Appeals, which affirmed the order of payment of construction costs but rendered the issue
of possession moot on appeal.

Frustrated by this turn of events, Pecson filed a petition for review before this Court. On May 26, 1995,
the Court handed down the decision remanding to the trial court for it to determine the current market
value of the apartment building on the lot. The value so determined shall be forthwith paid by Spouses
Juan and Erlinda Nuguid] to Pedro Pecson otherwise the petitioner shall be restored to the possession of
the apartment building until payment of the required indemnity.
On the basis of this Court’s decision, Pecson filed a Motion to Restore Possession and a Motion to
Render Accounting, praying respectively for restoration of his possession over the subject 256-square
meter commercial lot and for the spouses Nuguid to be directed to render an accounting under oath, of
the income derived from the subject four-door apartment from November 22, 1993 until possession of
the same was restored to him.

Issue: Whether or not the petitioners are liable to pay rent over and above the current market value of
the improvement and that such increased award of rentals by the RTC was reasonable and equitable.

Held: It is not disputed that the construction of the 4-door 2-storey apartment, subject of this dispute,
was undertaken at the time when Pecson was still the owner of the lot. When the Nuguids became the
uncontested owner of the lot, by virtue of entry of judgment of the Court’s decision, the apartment
building was already in existence and occupied by tenants.

Under Article 448, the landowner is given the option, either to appropriate the improvement as his own
upon payment of the proper amount of indemnity or to sell the land to the possessor in good faith.
Relatedly, Article 546 provides that a builder in good faith is entitled to full reimbursement for all the
necessary and useful expenses incurred; it also gives him right of retention until full reimbursement is
made. As we earlier held, since petitioners opted to appropriate the improvement for themselves as
early as June 1993, when they applied for a writ of execution despite knowledge that the auction sale
did not include the apartment building, they could not benefit from the lot’s improvement, until they
reimbursed the improver in full, based on the current market value of the property.

Despite the Court’s recognition of Pecson’s right of ownership over the apartment building, the
petitioners still insisted on dispossessing Pecson by filing for a Writ of Possession to cover both the lot
and the building. Clearly, this resulted in a violation of respondent’s right of retention. Worse,
petitioners took advantage of the situation to benefit from the highly valued, income-yielding, four-unit
apartment building by collecting rentals thereon, before they paid for the cost of the apartment
building. It was only 4 years later that they finally paid its full value to the respondent.

Given the circumstances of the instant case where the builder in good faith has been clearly denied his
right of retention for almost half a decade, we find that the increased award of rentals by the RTC was
reasonable and equitable. The petitioners had reaped all the benefits from the improvement introduced
by the respondent during said period, without paying any amount to the latter as reimbursement for his
construction costs and expenses. They should account and pay for such benefits.

We need not belabor now the appellate court’s recognition of herein respondent’s entitlement to
rentals from the date of the determination of the current market value until its full payment.
Respondent is clearly entitled to payment by virtue of his right of retention over the said improvement.
HEIRS OF JUAN PANGANIBAN & INES PANGANIBAN, namely: ERLINDA B. PACURSA, ERNESTO P.
BACONGA, EVELYN BACONGA, AMY B. BIHAG, SIEGFREDO BACONGA, IMELDA B. PACALDO, BACONGA,
IMELDA B. PACALDO, REBECCA B. LI, OFELIA B. OALIVAR, GEMMA BACONGA, MARIE INES BACONGA,
MELANIE BACONGA, and ANITA FUENTES VS. ANGELINA N. DAYRIT.

G.R. No. 151235, July 28, 2005

Facts: The property subject of controversy is a 2,025-square meter portion of a lot denominated as Lot
1436, situated at Kauswagan, Cagayan de Oro City. It constitutes 3/4 of Lot 1436, one of the 3 lots
covered by OCT No. 7864, the other two being Lots 1441 and 1485. Said OCT was registered in the
names of Juan and Ines Panganiban, father and daughter respectively.

Herein petitioners alleged that they are the possessors and owners of Lot 1436 which they inherited
from the late Juan and Ines. They acknowledge that Lot 1436 was the only remaining lot covered by OCT
No. 7864, Lots 1485 and 1441 having been sold in 1949 to Galo Sabanal and Pablo Dagbay respectively.

The owner’s duplicate copy of OCT No. 7864 covering Lot 1436 had been lost but upon petition with the
trial court in 1977 by Erlinda B. Pacursa, one of the heirs of Ines and a petitioner herein, the trial court
granted the petition. Accordingly, the Register of Deeds of Misamis Oriental issued an owner’s duplicate
certificate of the OCT Erlinda.

Petitioners further alleged that unknown to them, a certain Cristobal Salcedo asserted ownership over
Lot 1436 and believing that it was unregistered, sold a portion of it to respondent. The latter
subsequently discovered that what she had bought was registered land. Unable to annotate the deed of
sale at the back of OCT No. 7864, respondent fraudulently filed a petition for issuance of the owner’s
copy of said title, alleging that the copy issued to Erlinda was lost in the fire that razed Lapasan, Cagayan
de Oro City in 1981.

The petition was granted and the Register of Deeds of Misamis Oriental issued the second owner’s
duplicate certificate of OCT to respondent which contained an annotation of a Notice of Adverse Claim
filed by Erlinda. The Notice of Adverse Claim alleged in part that Erlinda is one of the lawful heirs of Juan
and Ines, the registered owners of the property, and as such, she has a legitimate claim thereto.

Petitioners further alleged that the newly issued owner’s duplicate certificate of OCT to respondent was
prejudicial to their previously issued title which is still in existence. Thus, they prayed among others that
they be declared as the rightful owners of the property in question and that the duplicate certificate of
OCT in their possession be deemed valid and subsisting.

In her answer to the amended complaint, respondent denied all the material allegations but alleged that
Lot 1436 was actually sold sometime in 1947 by the petitioners themselves and their father, Mauricio
Baconga. The sale was purportedly covered by a Deed of Definite Sale. Salcedo then came into
ownership, possession and enjoyment of the property in question and sold a portion of Lot 1436 with an
area of 2,025 square meters, more or less, to respondent. From then on, the property in question has
been in her actual and physical enjoyment. Respondent further alleged that the complaint was barred
by the principles of estoppel and laches by virtue of the sales executed by petitioners themselves and
their father.
After due trial and consideration of the documentary and testimonial evidence adduced by both parties,
the trial court rendered a decision against petitioners and in favor of respondent which declared
defendant as the true and real owner of the lot in question; and thatthe owner’s duplicate copy of
Original Certificate of Title No. 7864 null and void same being obtained by plaintiffs when they were not
owners anymore of Lot 1436; the owner’s duplicate copy of OCT obtained by defendant as the one valid.

The Regional Trial Court Decision was modified by the CA on appeal by petitioners. The appellate court
held that contrary to the ruling of the trial court, the valid and subsisting duplicate certificate of OCT No.
7864 was the one issued to Erlinda, not to respondent, considering that respondent had failed to comply
with the mandatory jurisdictional requirements of law for the reconstitution of title under Sec. 13 of
Republic Act No. 26.

The CA invoked the doctrine that a trial court does not acquire jurisdiction over a petition for the
issuance of a new owner’s duplicate certificate of title if the original is in fact not lost. Nonetheless, the
CA affirmed in all other respects the ruling of the trial court, including the critical holding that
respondent was the owner of the subject property. The decision of the trial court is modified so as to
order the cancellation of the owner’s duplicate copy of OCT No. 7864 issued to defendant Angelina
Dayrit and declaring the owner’s duplicate copy of OCT No. 7864 to be still valid for all intents and
purposes.

Issues: 1. Who between petitioners and respondent is the rightful owner of the property in dispute.

2. Whether petitioners’ right to recover the property is barred by laches assuming they are the rightful
owners thereof as they claim.

3. Which owner’s duplicate certificate of title is valid and subsisting, the one in petitioners’ possession or
the one issued to respondent.

Held: The resolution of the foregoing issues hinges on the question of What appears on the face of the
title is controlling in questions of ownership since the certificate of title is an absolute and indefeasible
evidence of ownership of the property in favor of the person whose name appears therein.

The CA correctly ruled that the duplicate certificate of title in petitioners’ possession is valid and
subsisting. This Court had already ruled in Serra Serra v. Court of Appeals that if a certificate of title has
not been lost but is in fact in the possession of another person, the reconstituted title is void and the
court rendering the decision has not acquired jurisdiction over the petition for issuance of a new title.
Since the owner’s duplicate copy of OCT No. 7864 earlier issued to Erlinda is still in existence, the lower
court did not acquire jurisdiction over respondent’s petition for reconstitution of title. The duplicate
certificate of title subsequently issued to respondent is therefore void and of no effect.

The registered owners of OCT No. 7864 on the face of the valid and subsisting duplicate certificate of
title are still Juan and Ines, petitioners’ predecessors in interest. Per Section 46 of the Land Registration
Act, no title to registered land in derogation to that of the registered owner shall be acquired by
prescription or adverse possession. This rule taken in conjunction with the indefeasibility of a Torrens
title leads to the conclusion that the rightful owners of the property in dispute are petitioners.
These premises considered, it was error on the part of the trial court to rule that respondent was the
owner of the subject property and for the CA to have affirmed such holding. We rule instead that the
successors-in-interest of Juan and Ines are the legal owners of the subject property, namely petitioners
herein.

Petitioners’ ownership of the property having been established, the question now is whether they are
entitled to its possession. On this point, the Court rules in the negative. Petitioners are no longer
entitled to recover possession of the property by virtue of the equitable defense of laches. Thus,
petitioners’ argument that laches is not applicable to them has no merit. By laches is meant: …the failure
or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier, it is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it. The defense of laches is an equitable one and does not concern itself with the
character of the defendant’s title but only with whether or not by reason of plaintiff’s long inaction or
inexcusable neglect, he should be barred from asserting his claim at all, because to allow him to do so
would be inequitable and unjust to defendant.

In our jurisdiction, it is an enshrined rule that even a registered owner of property may be barred from
recovering possession of property by virtue of laches. In this case, both the lower court and the
appellate court found that contrary to respondent’s claim of possession, it was Salcedo, respondent’s
predecessor-in-interest who had been in actual possession of the property. Salcedo was the owner and
the one in possession of the land until 1978 when respondent became the possessor thereof based from
the ocular inspection by the lower court.

It was only 45 years from the time Salcedo took possession of the property that petitioners made an
attempt to claim it as their own. Petitioners declared the property for tax purposes, registered their
adverse claim to respondent’s title, and filed the instant case all in 1992. These actuations of petitioners
point to the fact that for forty-five (45) years, they did nothing to assert their right of ownership and
possession over the subject property. Given the circumstances in the case at bar, the application of the
equitable defense of laches is more than justified.

All the four (4) elements of laches prescribed by this Court in the case of Go Chi Gun, et al. v. Co Cho, et
al.[42] and reiterated in the cases of Mejia de Lucas v. Gamponia, Miguel v. Catalino and Claverias v.
Quingco are present in the case at bar, to wit:

(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of
which complaint is made for which the complaint seeks a remedy;

(2) delay in asserting the complainant’s rights, the complainant having had knowledge or notice, of the
defendant’s conduct and having been afforded an opportunity to institute a suit;

(3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right
on which he bases his suit; and

(4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is
not held to be barred.
RUBEN S. SIA VS. HEIRS OF JOSE P. MARIANO (Helen S. Mariano, Jose M.S. Mariano, Danilo D.S. Mariano,
Ma. Sofia C.S. Mariano, Ma. Leonor S. Mariano), TESTATE ESTATE OF IRENE P. MARIANO, and ERLINDA
MARIANO-VILLANUEVA

G.R. No. 143606. June 29, 2005

Facts: Spouses Macario and Irene P. Mariano during their lifetime owned the following six parcels of
land covered by five titles: Lot 15-A (TCT No. 1962), Lot 15-B (TCT No. 1963), Lot 15-C (TCT No. 1964),
Lots 545 and 2348 (TCT No. 259)[2] and Lot 612 (TCT No. 219). On December 1, 1972, Macario died and
the surviving heirs, spouse Irene and children, Jose and Erlinda, were issued new titles in their names.
On December 9, 1974, Irene married Rolando S. Relucio Four months later, Irene executed a Deed of
Absolute Sale covering the six parcels of land in favor of Raul Santos, Rolando’s first cousin, for a total
consideration of P150,000.00.

On June 7, 1979, Irene sold Lot 612 to Greta Tinga de los Reyes. On March 10, 1982, Irene executed
another Deed of Absolute Sale in favor of Raul covering Lots 545 and 2348. On October 2, 1987, the
three remaining lots were transferred in the name of Raul. Previously, on November 24, 1986, Lot 15-C
was levied upon in favor of Francisco Bautista in Civil Case No. R-570 before Branch 22 of the Regional
Trial Court of Camarines Sur. On December 9, 1988, it was sold at public auction to Ruben Sia.

On June 26, 1988, Irene died. Three weeks later, Jose and Erlinda filed a complaint against Rolando, Raul
and the Register of Deeds of Naga City before the RTC of Naga City for annulment of sale with damages,
docketed as Civil Case No. 88-1506. They sought the annulment of the Deed of Absolute Sale on grounds
of forgery and simulated sale, the reconveyance of the properties, and damages.

When Jose died on December 2, 1989 he was substituted by his surviving heirs, likewise, when Rolando
died, he was substituted by his surviving heirs. Meanwhile, on August 9, 1990, Lot 15-A was transferred
to Amado Sanao under a Deed of Sale with Real Estate Mortgage. Heirs of Jose and the Testate Estate of
Irene filed a complaint for annulment of title and deed with damages. Such Civil Case was consolidated
for joint trial with former Civil Case and a Joint Judgment was rendered by the trial court dismissing the
complaints and counterclaims and upholding the validity of the Deeds of Absolute Sale executed by
Irene in favor of Raul.

On appeal, the CA held that: only four lots are subject of the case; despite the execution of the two
Deeds of Absolute Sale in favor of Raul, Irene continued to possess, exercise management and control
over the subject properties. Irene constructed a building on Lots 545 and 2348; such acts of dominion
demonstrate that the two Deeds of Absolute Sale executed by Irene in favor of Raul are simulated or
fictitious contracts. Accordingly, TCT issued in the name of Raul Santos and Amado Sanao are ordered
cancelled. A Motion for Reconsideration was filed by Raul. The Heirs of Jose and Erlinda M. Mariano filed
a Motion for Partial Reconsideration/Clarification. Thus, the assailed Resolution, and Motion for
Reconsideration filed separately by Raul Santos and as well as the Motion for
Reconsideration/Clarification filed by Heirs of Jose P. Mariano and Erlinda were denied, while the
Supplemental Motion to Restore Possession and Administration to Plaintiffs-Appellants was granted.
Finally, plaintiffs-appellants are declared to have the right to redeem Lot 15-C from Ruben Sia.
Issue: Whether or not the Court of Appeals erred in having declared in its resolution that plaintiffs-
appellants have the right to redeem Lot 15-C from herein petitioner.

Held: Three undisputed facts are prominent in the present petition which have great bearing in the
disposition thereof: (1) petitioner is neither a party before the trial court nor in the CA; (2) Lot 15-C is
not a subject matter of the case; and (3) our decision in G.R. Nos. 94617 and 95281, wherein herein
respondent Erlinda Villanueva and petitioner Sia are parties, had expressly declared that respondents
have the right to redeem the lot covered by TCT No. 17745 which refers to Lot 15-C.

There is no question that Lot 15-C is not one of the parcels of land involved in the appeal before the CA.
In its decision, it specifically mentioned only Lot 15-A, Lot 15-B, Lot 545 and Lot 2348 as the lots subject
of the case. Thus, this fact and the fact that petitioner is not a party to the case, militate against the
propriety of declaring in the assailed Resolution that respondents have the right to redeem Lot 15-C.

Finally, there is no longer any actual case or controversy between the parties insofar as the issue of
redemption of Lot 15-C is concerned. This is settled by the decision of this Court which orders the
Provincial Sheriff of Camarines Sur to accept payment of redemption money for the property levied in
Civil Case No. R-570 from petitioner Erlinda Mariano, to execute and deliver to Erlinda Mariano a duly
accomplished certificate of redemption of said property. The Definite Deed of Sale and writ of execution
issued in favor of Ruben Sia are nullified.

MODE OF ACQUIRING OWNERSIP; PRESCRIPTION; A POSSESSOR IN THE CONCEPT OF OWNER

SOLEDAD CALICDAN, ETC. VS. SILVERIO CENDANA, ETC.

G.R. No.155080, February 5, 2004

Facts: On August 25, 1947, Fermina, widow of Sixto Calicdan, who died intestate, executed a deed of
donation intervivos whereby she conveyed a 750-square meter of unregistered land located in
Mangaldan, Pangasinan formerly owned by Sixto to respondent Silverio Cendana who immediately
entered into possession of the land. Sometime in 1949, Cendana constructed a two-storey residential
house thereon where he resided until his death in 1998.

On June 19, 1992, petitioner Soledad, daughter of Fermina, through her legal guardian, Guadalupe
Castillo, filed a Complaint for Recovery of Ownership, Possession and Damages against the respondent
alleging that; 1) the donation was void; 2) the respondent took advantage of her incompetence in
acquiring the land; and 3) she merely tolerated respondent’s possession of the land as well as the
construction of his house thereon.

In his answer with Motion to dismiss, respondent contended that; 1)the land was donated to him by
Fermina in 1947; 2) he had been publicly, peacefully, continuously and adversely in possession of the
land for a period of 45 years; and 3) the complaint was barred by prior judgment in the special
proceedings.

In its decision dated November 12, 1996, the trial court ordered Silverio Cendana to vacate the land and
surrender ownersip and possession of the same to petitioner. On appeal, the Court of Appeals reversed
the trial court’s decision and declared that the donation was valid and that the petitioner lost her
ownership of the property by prescription.

Issue: Whether or not the deed of donation inter vivos executed on August 25, 1947 was void.

Held: Prescription is another mode of acquiring ownersip and other real right over immovable property.
It is concerned with lapse of time in the manner and uner conditions laid down by law, namely, that the
possession should be in the concept of an owner, public, peaceful, uninterrupted and adverse. The good
failth of the possessor consists in the reasonable belief that the person from whom he received the
thing was the owner thereof, and could transmit his ownership. For purposes of prescription, there is
just title when the adverse claimant came into possession of the property through one of the modes
recognized by law for the acquisition of ownership or other real rights, but the grantor was not the
owner or could not transmit any right.

In this case at bar, as it demands that the possession be in good faith and with just title and there is no
evidence on record to prove respondent’s good faith, nevertheless, his adverse possession of the land
for more than 45 years aptly shows he has met the requirements for extraordinary acquisitive
prescription to set in.

DONATION MORTIS CAUSA OR INTER VIVOS

MA. ESTELA MAGLASANG VS. THE HEIRS OF CORAZON CABATINGAN

G.R. No.131953, June 5, 2002

Facts: Conchita Cabatingan executed in favor of her brother, Nicolas Cabatingan, a “Deed of Conditional
Donation Inter Vivos for House and Lot”. Four other deeds of donation were subsequently executed by
Conchita Cabatingan bestowing parcels of land upon Estela Maglasang, Nicolas Cabatingan and Merly
Cabatingan. These deeds of donation contain similar provisions, which state that the donation, will
become effective upon the death of the donor; provided, however, that in the event that the donee
should die before the donor, the present donation shall be deemed automatically rescinded and of no
further force and effect.

Later, Conchita Cabatingan died.

Issue: Whether or not the donations were inter vivos or mortis causa.

Held: In a donation mortis causa, the right of disposition is not transferred to the donee while the donor
is still alive. In determining whether a donation is one of mortis causa, the following characteristics must
be taken into account:

1.) It conveys no title or ownership to the transferee before the death of the transferor; or what
amounts to the same thing, that the transferor should retain the ownership and control of the property
while alive;

2.) That before his death, the transfer should be revocable by the transferor at will, ad nutum; but the
revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the
properties conveyed; and

3.) That the transfer should be void if the transferor should survive the transferee.

The disputed donations are donations mortis causa. In the present case, the nature of the donations as
mortis causa is confirmed by the fact that the donations do not contain any clear provision that intends
to pass propriety rights to donee prior to Cabatingan’s dearh. Cabatingan did not intend to transfer the
ownership of the properties to the donee during her lifetime.

SALES

SALE BY A CO-OWNER; CO-OWNERSHIP

AGUIRRE ET, AL. VS. COURT OF APPEALS, ET AL.

G.R. No. 122249. January 29, 2004

Facts: Leocadio Medrano and his first wife Emilia owned a piece of land. After the death of Emilia,
Leocadio married his second wife Miguela. When Leocadio died, all his heirs agreed that Sixto Medrano,
a child of the first marriage, should manage and administer the said property. After Sixto died, his heirs
learned that he had executed an Affidavit of Transfer of Real Property in which he falsely stated that he
was only heirs of Leocadio. Sixto, then living, was able to sell the property to Maria Bacong a portion of
the property, and another portion to Tiburcio Balitaan. Maria Bacong later sold the said portion to
Rosendo Bacong.

Petitioners, all heirs of Leocadio who were affected by the sale demanded reconveyance of the portions
sold by Sixto but the 3 vendees refused. So, petitioners sued them seeking the nullity of the documents
and partition. The vendees contended that they acquired the property under the valid deed of sale and
petitioners ‘cause of action was bared by laches and prescription. Tiburcio also contended that he is an
innocent purchaser for value.

Issue: Whether there was a valid sale made by a co-owner ( Sixto) without the consent of the other co-
owners.

Held: A sale by a co-owner of the whole property as his will affect only his own share but not those of
the other co-owners who did not consent to the sale ( Art. 493, NCC). It clearly provides that the sale or
other disposition affects only the seller’s share pro indiviso, and the transferee gets only what
corresponds to his grantor’s share in the partition of the property owned in common. Since a co-owner
is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent
of the other co-owner is NOT NULL AND VOID; only the rights of the co-owner-seller are transferred,
thereby making the buyer a co-owner of the property. The proper action in cases like this is not for the
nullification of the sale or for the recovery of possession of the things owned in common from the third
person who substituted the co-owner or co-owners who alienated their shares, but the DIVISION of the
common property as if it continued to remain in the possession of the co-owners who possessed and
administered it. ( Mainit v. Bandoy). It is clear therefore that the deed of sale executed by Sixto in favor
of Tiburcio Balitaan is valid conveyance only insofar as the share of Sixto in the co-ownership is
concerned.

As we have enunciated in Salvador v. CA (1995), to wit: this Court has held that the possession of a co-
owner is like that of a trustee and shall not be regarded as adverse to the other co-owners but in fact
beneficial to all of them. Acts which may be considered adverse to strangers may not be considered
adverse in so far as co-owners are concerned. A mere silent possession by a co-owner, his receipts of
rentals, fruits or profits from the property, the erection of buildings and fences and planting of trees
thereon, and the payment of land taxes, cannot serve as proof of exclusive ownership, if it is not borne
out by clear and convincing evidence that he exercised such acts of possession which unequivocally
constituted an ouster or deprivation of the rights of the other co-owners.

Thus, in order that a co-owner’s possession may be deemed adverse to the cetui que trust or the other
co-owners, the following elements must concur: (1) that he has performed unequivocal acts of
repudiation amounting to an ouster of the cetui que trust or the other co-owners; (2) that such positive
acts of repudiation have been known to the cestui que trust or the other co-owners; and (3) that the
evidence thereon must be clear and convincing. Tested against these guidelines, the respondents failed
to present competent evidence that the acts of Sixto adversely and clearly repudiate the existing co-
ownership among the heirs of Leocadio Medrano.

Respondent’s reliance on the tax declaration in the name of Sixto Medrano is unworthy of credit since
we have held on several occasions that tax declarations by themselves do not conclusively prove title to
land. Further, respondents failed to show that the Affidavit executed by Sixto to the effect that he is the
sole owner of the subject property was known or made known to the other co-heirs of Leocadio
Medrano.
RESCISION OF “CONTRACT TO BUY”

ANAMA VS. COURT OF APPEALS, ET AL.

GR. No. 128609. January 29, 2004

Facts: The property was previously owned by Douglas Anama’s parents, who mortgaged it to Philippine
Savings Bank and later was foreclosed. Douglas and the PSBank entered into an agreement
denominated as a Contract to Buy whereby the bank agreed to sell to Douglas the said land with all the
improvements thereon. The Contract to Buy provides that Anama shall purchase the property of a
certain amount and shall pay to the PSBank; it also provides that (1) Anama shall apply with the bank for
a loan, the proceeds of which answer for the balance of the purchase price; (2) should the petitioner fail
to comply with any of the terms of contract, all amounts paid are forfeited in favor of PSBank, the latter
having the option either to demand full payment of total price or to rescind the contract.

Anama was able to pay the first and second installments; however, he failed to pay the third installment
when it became due. There were several transactions between them to settle the amount due. But
later, the bank executed an Affidavit of Cancellation rescinding the contract, and forfeited the payments
made by Anama which were applied as rentals of the use of the property. Anama was then advised to
vacate the property despite his opposition to the rescission of the Contract to Buy. The bank sold the
property to spouses Co, in whose favor TCT was issued. Anama then filed a case for Declaration of
Nullity of Deed of Sale, Cancellation of TCT, and Specific Performance with Damages.

Issue: Whether the rescission of the Contract to Buy was valid.

Held: Since Anama failed to pay the third installment, PSBank was entitled to rescind the Contract to
Buy. The contract provides the Bank two options in the event that petitioner fails to pay any of the
installments. This was either (1) to rescind the contract outright and forfeit all amounts paid by the
petitioner, or (2) to demand the satisfaction of the contract and insist on the full payment of the total
price. After petitioner repeatedly failed to pay the third installment, the Bank chose to exercise the first
option.

The Contract to Buy is actually a contract to sell whereby the vendor reserves ownership of the property
and is not to pass until full payment. Such payment is a positive suspensive condition, the failure of
which is not a breach but simply an event that prevents the obligation of the vendor to convey title from
acquiring binding force. Since ownership of the subject property was not pass to petitioner until fill
payment of the purchase price, his failure to pay on the date stipulated, or in the extension granted,
prevented the obligation for the Bank to pass title of the property to Anama. The bank could validly sell
the property to the spouses Co, the right of the bank to sell the property being unequivocal.
IMPOSTION OF 12% ANNUAL INTEREST RATE

ALMEDA VS. CARIÑO ET AL.

GR. No. 152143. January 13, 2003

Facts: Ponciano L. Almeda (vendee) and Avelino Cariño (vendor), predecessors-in-interest of petitioners
and respondents, entered into two agreements to sell, one covering eight titled properties, and the
other, three untitled properties. The agreed price of the eight titled properties was P 1,743,800.00,
twenty percent (20%) of which was to be paid upon the signing and execution of the agreement and the
balance to be paid in four equal semi-annual installments, beginning six (6) months from the signing
thereof, with the balance earning twelve percent (12%) interest per annum. On the other hand, the
purchase price of the three untitled properties was P1,208,580.00, fifteen percent (15%) of which was to
be paid upon the signing and execution of the agreement, and the balance, bearing a twelve percent
(12%) annual interest from the signing thereof, to be paid as follows: fifteen percent (15%) of the
purchase price plus interest to be paid upon the issuance of titles to the lots, and the balance plus
interests to be paid in semi-annual installments starting form the date of issuance of the respective
certificates of title to the lots involved, which must not be later than March 30, 1982.

Later, Cariño and Almeda executed an amendment to their agreements to sell (a) extending the
deadline for the production of the titles to the untitled properties, (b) providing for a partial payment of
P300,000.00 for the titled properties, (c) requiring Cariño to render an accounting of the proceeds of the
sugar cane crop on the properties subject of the sale up to the 1982 harvest season, and (d) obliging
Cariño to pay Almeda the sum of P10,000.00 a month in case of the failure of the former to produce the
certificates of title to the untitled properties by June 30, 1982.

Almeda asked Cariño for the execution of a Deed of Absolute Sale over the eight titled properties
although they had not been fully paid. Cariño granted the request and executed the Deed of Sale over
the eight titled lots in favor of Almeda. The latter executed an undertaking to pay Cariño the balance of
the purchase price. Deeds of Sale for two of the three untitled lots were also executed.

Cariño made demands for the full and final payment of the balance due him in the amount of
P477,589.47 and the interest thereon. Despite demand letters sent to Almeda, the balance was not
paid. Hence, Cariño filed before the RTC a complaint against Almeda. Cariño prayed that Almeda be
ordered to pay him the balance, the legal interests thereon from demand to full payment, fifteen
percent (15%) of all the amounts due, including interests as attorney’s fees, litigation expenses, moral,
exemplary, and nominal damages and the costs of the suit.

The RTC found the claim of Cariño to be well founded and gave judgment in his favor. The CA
subsequently affirmed the lower court’s decision.
The Almedas claim that the imposition of a 12% annual interest is erroneous because it is contrary to
law and jurisprudence. According to them, the applicable rate is 6% since the case does not involve a
loan or forbearance of money, as provided for under Central Bank Circular No. 416.

Issue: Whether or not the contention of Almeda is meritorious.

Held: This contention is without merit. Art. 2209, NCC provides: If the obligation consists in the payment
of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.

The contracts to sell of the parties stipulated that the balance of the purchase price shall earn an
interest rate of 12% per annum upon signing of the contract. Such stipulations have the force of law
between the contracting parties and should be complied with in good faith. The interest in this case
should be allowed to run from March 9, 1993, respondents’ extrajudicial demand for payment of the
remaining balance plus interest having begun on said date.

In addition, in accordance with our decision in Eastern Shipping Lines, Inc. vs. Court of Appeals, when
the judgment of the court awarding the sum of money becomes final and executory, a 12% interest per
annum shall also be imposed from such finality until satisfaction thereof, this interim period by deemed
to be by then an equivalent to a forbearance of credit.

EQUITABLE MORTGAGE

HILADO VS. HEIRS OF RAFAEL MEDALLA

377 SCRA 257. February 15, 2002

Facts: Gorgonio Macainan was the owner of the several properties. After his death, his estate was
divided among his heirs, including his children by his first wife, a contract ( Anita, Rosita & Berbonio) As
Berbonio had predeceased Gorgonio, her children ( Rafael, Lourdes&Teresita surnamed Medalla)
succeeded to her inheritance. Respondents herein are the heirs of Rafael Medalla.

Rafael Medalla executed a Deed of Absolute Sale purporting to sell his share in the inheritance to
Gorgonio Hilado. Later, he executed another”Deed of Absolute Sale in favor of Hilado over his share in
another inherited property. Over the next 2 years, Hilado and Medalla executed 3 more contracts
concerning the sold properties;”(1) “ Memorandum of Agreement,”(2) “Deed of Resale,” whereby
Hilado resold to Medalla two of the 5 hectares a lot, and (3)”Agreement.”

Anita Macainan (his aunt) tried to redeem the first property that was sold from Hilado but she failed, so
she filed a suit against Rafael and Hilado for Legal redemption before the RTC. So, Rafael filed a cross-
claim against Hilado, alleging that the first deed of sale was in fact an equitable mortgage to secure a
loan from Hilado. The latter denied that the agreement between them was a loan but a Deed of Sale,
reflecting their true agreement.

Issue: Whether the Deed of Absolute Sale executed by Medalla and Hilado is in fact an equitable
mortgage.

Held: Under Art. 1602 in relation to Art. 1604, NCC, a contract purporting to be an absolute sale is
presumed to be an equitable mortgage--- (1) when the price of a sale….is unusually inadequate; (2)
when the vendor remains in possession as lessee or otherwise;(3) when after the expiration of the right
to repurchase another instrument extending the period of the redemption or granting a new period is
executed;(4) when the purchaser retains for himself a part of the purchase price;(5) when the vendor
binds himself to pay the taxes on the thing sold;(6) in any other case where it may be fairly inferred that
theh real intention of the parties is that the presence of any of these circumstances is sufficient for a
contract to be presumed as an equitable mortgage.

In view of the conclusions we have reached, it is unnecessary to pass upon Hilado’s contention that
respondents are bound by the terms of the “Deed of Sale” in question as the law between the parties. It
will suffice to say that even if a document appears on its face to be a sale, the owner of the property
may prove that the contract is really a loan with a mortgage that the document does not express the
true intent and agreement of the parties.

CONTRACTS OF SALE; ELEMENTS;CONTRACT WHERE CONSENT IS VITIATED IS VOIDABLE;ANNULMENT

AND RESTITUTION OF THE PROPERTY AND ITS FRUITS TO THE RESPONDENT IS JUST AND PROPER.

KATIPUNAN VS. KATIPUNAN, JR.

3537 SCRA 199. January 30, 2002

Facts: Respondent Braulio Katipunan Jr. is the registered owner of a lot and a five-door apartment
constructed thereon, which were occupied by lessees. Respondent assisted by his brother petitioner
Miguel entered into a Deed of Absolute Sale with brothers Edardo Balguma and Leopoldo Balguma, Jr. (
co-petitioners), represented by their lawyer-father involving the subject property for a consideration of
P187,000.00. So, the title was registered in the names of the Balguma brothers and they started
collecting rentals thereon.

Later, Braulio filed a complaint for annulment of the Deed of Absolute Sale, contending that his brother
Miguel, Atty. Balguma and Inocencio Valdez ( one of the petitioners) convinced him to work abroad.
Through insidious words and machinations, they made him sign a document purportedly a contract of
employment, which document turned out to be a Deed of Absolute Sale. He further alleged that he did
not receive the consideration stated in the contract. He claimed that there was evident bad faith and
conspiracy in taking advantage of his ignorance, he being only a third grader.

The RTC dismissed the complaint because Braulio failed to prove his cause of action since he admitted
that he obtained loans from the Balgumas, he signed the Deed of Absolute Sale, and he acknowledged
selling the property and stopped collecting the rentals. But when the case was elevated, the decision of
RTC was reversed and it was held that Braulio was incompetent, has very low I.Q., illiterate and has a
slow comprehension. The CA based its decision on Arts.1332 and 1390 of NCC and Sec. 2, Rule 92 of the
Rules of Court, concerning the incompetence of a party in contract.

Issue: Whether there was a valid contract of sale between the parties.

Held: The Supreme Court found the petition devoid of merit. There was a vitiated consent on the part of
the respondent as he signed the Deed of Absolute Sale without the remotest idea of what it was and
received no consideration thereof. The contract entered into by the parties being voidable contract, was
correctly annulled on appeal.

A contract of sale is born from the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. This meeting of minds speaks of the intent of the parties in
entering the contract respecting the subject matter and the consideration thereof. Thus, the elements
of a contract of a sale are consent, object, and price in money or its equivalent. Under Art. 1330 of NCC,
consent may be vitiated by any of the following: mistake, violence, intimidation, undue influence, and
fraud. The presence of any of these vices renders the contract voidable.

A contract where one of the parties is incapable of giving consent or where consent is vitiated by
mistake, fraud, or intimidation is not void ab initio but only voidable and is binding upon the parties
unless annulled proper court action. The effect of annulment is to restore the parties to the status quo
ante insofar as legally and equitably possible---this much is dictated by Art. 1398 provides that when the
defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not
obliged to make any restitution, except when he has been benefited by the things or price received by
him. Thus, since the Deed of Absolute Sale between respondent and Balguma brothers is voidable and
hereby annulled, then the restitution of the property and its fruits to respondent is just and proper.

SALE BY AN AGENT;SPECIAL POWER OF ATTORNEY

PINEDA VS. COURT OF APPEALS

367 SCRA 222. February 6,2002

Facts: Nelson and Mercedez Bañez are the original owners of a parcel of land together with its
improvements located at White Plains, Q.C.(Q.C. Property) while Alejandria Pineda is the owner of a
house located at Los Angeles, California (California Property), the two parties executed an “Agreement
to Exchange Real Properties.” In the agreement, they agreed to: 1) exchange their respective properties,
2) Pineda to pay an earnest money of $ 12,000 on February 1983, and 3) to consummate the exchange
of properties not later than June 1983. It was agreed also that both should undertake to clear the
mortgages over their respective properties.

The Bañez were allowed to occupy or lease to a tenant the California property, and Pineda was
authorized to occupy the Q.C. property. Pursuant to the agreement, Pineda paid the earnest money of
$12,000, but the latter failed to clear the mortgages over her California property. Later, unknown to the
Bañezes, Pineda and spouses Duque executed an “Agreement to Sell” over the Q.C. property whereby
Pineda sold the property to the spouse Duque for 1.6 M.

The record shows that pursuant to the agreement to sell, there were payments that occupying their Q.C.
property. The latter were interested in the property so the Bañezes did not insist on the return of said
property. So, there were negotiations for the purchase of the property that was held between them, but
the same failed which resulted in the Bañezes’ demanding for the Duques to vacate the property and
later filed a case before the court.

Issue: Whether the Duques validly acquired the Q.C. property.

Held: Pineda’s sale of the property to Duques was not authorized by the real owners of the land Bañez.
The Civil Code provides that in a sale of a parcel of land or any interest therein made through an agent, a
special power of attorney is essential. This authority must be in writing; otherwise the sale shall be void.
In his testimony, Duque confirmed that at the time he purchased the property from Pineda, the latter
had no special power of attorney to sell the property.

A special power of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired for a valuable consideration. Without an authority in writing,
Pineda could not validly sell the subject property to Duque. Hence, any sale in favor of Duque is void.

As the consent of the real owner of the property was not obtained, no contract was perfected (Art. 1318
of the Civil Code)

LAND TITLES AND DEEDS

JURISDICTION
MATEO vs. COURT OF APPEALS

G.R. No. 128392 April 29, 2005

Facts: Casimiro Development Corporation (CDC) alleged that it was the owner of a parcel of registered
land since it acquired the same from the previous owner, China Banking Corporation (CBC). After the
sale CDC advised the petitioners that it was the new owner and that they had failed to pay the rentals
due to it and to its predecessors-in-interest. The petitioners refused to pay and vacate the premises
despite demands to settle their obligations and notice to vacate were served upon them. This prompted
CDC to file a complaint for Unlawful Detainer against the petitioners before the Metropolitan Trial Court
(MeTC). The petitioners maintained that since the land was classified as agricultural as evidenced by a
Tax Declaration Certificate, it is the Department of Agrarian Reform Adjudication Board (DARAB) that
has jurisdiction over the case. It should be noted that the land is covered by a Transfer Certificate of Title
in the name of CDC’s predecessor-in-interest CBC.

Issue: Whether or not jurisdiction over the subject matter lies with the DARAB or with the Metropolitan
Trial Court.

Held: For the DARAB to have jurisdiction over the case, there must be a tenancy relationship between
the parties. One of the indispensable elements in order for a tenancy agreement to take hold over a
dispute is that the parties are the landowner and the tenant or agricultural lessee. It must be noted that
the petitioners failed to adequately prove ownership of the land. They merely showed tax declarations.
As against a transfer certificate of title, tax declarations or receipts are not adequate proofs of
ownership. Hence, it is the MeTC that has jurisdiction over the subject matter there being no proof of
tenancy relationship.

RECONVEYANCE

HEIRS OF POMPOSA SALUDARES VS. COURT OF APPEALS

G.R. No. 128254. January 16, 2004

Facts: The heirs and their father, Juan Dator executed a Deed of Extrajudicial Partition of the share of
Pomposa in the Tanza estate with the eastern portion thereof going to Juan and the western half to the
children. Juan remained in possession of his share until his death. Isabel Dator applied for a free patent
over the entire Tanza estate in behalf of the heirs thus it was awarded. Private respondents filed an
action for reconveyance against petitioner heirs. They alleged that they were the owners in fee simple
and they were in possession of the land, and Isabel Dator obtained free patent in favor of the heirs by
means of fraud and misrepresentation. Petitioners alleged that they and their predecessors in interest
had been in actual, continuous, adverse and public possession of the land in the concept of owners since
time immemorial, and the title to the lot was issued to them after faithful compliance with the
requirements for the issuance of a free patent.

Issues: 1) Whether or not the reconveyance is still available notwithstanding the indefeasibility of the
Torrens Title.

2) Whether or not the heirs have been in open and continuous possession of the disputed lot.

Held: 1) The registered owner may still be compelled to reconvey the registered property to its true
owner. Reconveyance does not set aside or re-subject to review the findings of fact of the Bureau of
Lands. Thus, the decree of registration is respected as incontrovertible. What is sought is the transfer of
the property or its title, which has been wrongfully or erroneously registered in another person’s name,
to its rightful or legal owner or to the one with a better right.

2) The heirs convincingly established their open and continuous occupation of the entire Tanza estate.
The farm was under the administration of Beata and Isabel Dator who took over its management after
Petra Dator died; heir’s tenant Miguel Dahilig had been consistently tending the land since 1947 and was
the one who planted the various crops and trees on the lot.

EXTRINSIC FRAUD

REXLON REALTY GROUP, INC. VS. COURT OF APPEALS

G.R. No. 128412. March 15, 2002

Facts: Respondent Alex David was the registered owner of two parcel of land. Petitioner Rexlon Realty
Group, Inc. (Rexlon) entered into an agreement with respondent for the purchase of the two parcels of
land as evidenced by an “absolute deed of sale.” Respondent filed with the Regional Trial Court a
petition for the issuance of the owner’s duplicate copies which were allegedly lost; petition granted by
the court. Rexlon then filed with the Court of Appeals a petition for annulment of the decision of the
trial court on the ground that David allegedly employed fraud and deception in securing the
replacement owner’s duplicate copies.
Issue: Whether or not such misrepresentation or fraud of respondent David can be characterized as an
extrinsic fraud as to merit the annulment of the trial court’s decision.

Held: Extrinsic fraud contemplates a situation where a litigant commits acts outside the trial of the case;
the effect of which prevents a party from having a trial, a real contest, or from presenting all of his case
to the court, or where it operates upon matters pertaining to the judgment itself, but to the manner in
which it was produced so that there is not a fair submission of the controversy. It is well settled that the
use of forged instrument or prejudiced testimonials during trial is not an extrinsic fraud, because such
evidence does not preclude the participation of any party in the proceedings. While a perjured
testimony may prevent a fair and just determination of a case, it does not bar the adverse party from
rebutting or opposing the use of such evidence. Furthermore, it should be stressed that extrinsic fraud
pertains to an act committed outside of the trial. The alleged fraud in this case was perpetrated during
the trial.

PRESCRIPTION DOES NOT RUN AGAINST THE STATE

PAGKATIPUNAN VS. COURT OF APPEALS

G.R. No. 129682. March 21, 2002

Facts: On June 15, 1967, the Court of First Instance of Gumaca, Quezon promulgated a decision
confirming petitioner’s title to properties located in San Narciso, Quezon. Almost eighteen (18) years
later, the Republic of the Philippines filed with the Intermediate Appellate Court an action to declare the
proceedings in the LRC case null and void and to cancel the original certificate of title and to confirm the
subject land as part of the public domain. The Republic claimed that the subject land was classified as
timberland; hence, inalienable and not subject to registration. On the other hand, petitioners raised the
special defense of indefeasibility of title and res judicata.

Issues: 1) Whether or not prescription runs against the state.

2) Whether or not occupation will ripen into ownership.

Held: 1) Prescription does not run against the state. The lengthy occupation of the disputed land by
petitioners cannot be counted in their favor, as it remained part of the patrimonial property of the state
which is inalienable and not disposable.
2) Unless public land is shown to have been reclassified or alienated to a private person by the state it
remains part of the inalienable public domain. Occupation thereof in the concept of owner, no matter
how long, cannot ripen into ownership and be registered as a title.

A TORRENS TITLE, ONCE REGISTERED, SERVES AS NOTICE TO THE WHOLE WORLD

ALVARICO VS. SOLA

G.R. No. 138953. June 6, 2002

Facts: Fermina Lopez executed a Deed of Self-Adjudication and Transfer of Rights over lot 5 in favor of
Amelita Sola, who agreed to assume all the obligations, duties and conditions imposed which was
approved by the Bureau of Lands. Castorio Alvarico filed a civil case for reconveyance against Amelita.
He claimed that Fermina donated the land to him and immediately thereafter, he took possession of the
same. He averred that the donations to him had the effect of withdrawing the earlier transfer to
Amelita. Amelita maintained that the donation to petitioner was void because Fermina was no longer
the owner of the property when it was allegedly donated to petitioner, the property having been
transferred earlier to her. She added that the donation was void because of lack of approval from the
Bureau of Lands and that she had validly acquired the land as Fermina’s rightful heir.

Issue: Who between the petitioner and respondent has a better claim to the land?

Held: The execution of public documents, as in the case of Affidavits of Adjudication is entitled to the
presumption of regularity, hence convincing evidence is required to assail and controvert them. A
Torrens title, once registered, serves as notice to the whole world. All persons must take notice and no
one can plead ignorance of its registration. Clearly then, petitioner has no standing at all to question the
validity of Amelita’s title. It follows that he cannot recover the property because he has not shown that
he is the rightful owner thereof.

OPEN, CONTINUOUS, AND NOTORIOUS POSSESSION OF THE LAND

DEL ROSARIO VS. REPUBLIC

G.R. No. 148338. June 6, 2002

Facts: Petitioner filed an application for registration of a parcel of land. The clerk of court transmitted to
the Land Registration Authority (LRA) the duplicate copy of petitioner’s application for registration, the
original tracing cloth plan, and the other documents submitted by petitioner in support of his
application. During the initial hearing, no oppositor appeared except for the provincial prosecutor who
appeared on behalf of the Solicitor General in representation of the Republic of the Philippines. The trial
court granted the application. Respondent appealed for failure of petitioner to submit in evidence the
original tracing cloth plan and to establish that he and his predecessors in interest had been in open,
continuous, and notorious possession of the land.

Issues: 1) Whether or not the submission in evidence of the original tracing cloth plan is a mandatory
requirement.

2) Whether or not petitioners had been in open, continuous, and notorious possession of the land.

Held: 1) The submission in evidence of the original tracing cloth plan duly approved by the Bureau of
Lands in cases for application of original registration of land is mandatory requirement. The reason for
the rule is to establish the true identity of the land to ensure that it does not overlap a parcel of land or
portion thereof already covered by a previous land registration, and to forestall the possibility that it will
be overlapped by a subsequent registration.

2) A mere casual cultivation of portions of the land by the claimant does not constitute possession under
claim of ownership for him. Possession is not exclusive and notorious so as to give rise to a presumptive
grant from the state. The possession of the land however long the period thereof may have extended
never confers title thereto upon the possessor because the Statute of Limitations with regard to public
land does not operate against the state unless the occupant can prove possession and occupation of the
same under the claim of ownership for the required number of years.
REDEMPTION PERIOD OF THE PROPERTY

RECAÑA VS. COURT OF APPEALS

G.R. No. 123850. January 5, 2001

Facts: Lot 6 of Block 2 of the Tondo Foreshore Land of the Land Tenure Administration was sold to
Macario Arboleda, petitioner-spouses’ predecessor in interest. The land was covered by an original
certificate in the name of Arboleda. The city treasurer of Manila auctioned the lot at a public auction
sale due to tax delinquency. Spouses Cirilo and Miguela Montejo sold the property to petitioner-spouses
who refunded the amount equivalent to the delinquent taxes and other expenses entailed. Private
respondents, the other children and heirs of Macarion Arboleda filed for declaration of co-ownership
and partition against petitioner. They asserted that the repurchase by the petitioner of the lot
redounded to their benefit as co-heirs and now as co-owners. Petitioners contended that Section 4 of
R.A. 1597, the law governing the subdivision of the Tondo Foreshore Lands from which the subject
property emanated does not apply to the attendant facts in this case. Instead they instead that it was
Section 78 of P.D. 464 which was applicable.

Issue: Which of the two laws, Section 4 of R.A. 1597 or Section 78 of P.D. 464, should apply in so far as
the redemption period of the subject property is concerned?

Held: A special statute, provided for a particular case or class of cases, is not repealed by a subsequent
statute, general in its terms, provisions and applications, unless the intent to repeal or alter is manifest
although the terms of the general law are broad enough to include the cases embraced in the special
law. Repeal of laws should be made clear and express. The failure to add a specific repealing clause
indicates that the intent was not to repeal any existing law unless there is an irreconcilable or
repugnancy between Section 4 of R.A. 1597 and Section 78 of P.D. 464. The former law is of special and
exclusive application to lots acquired from the Tondo Foreshore Land only. The latter is a law or decree
of general application. Petitioner’s repurchase of the subject lot within the five-year redemption period
of Section 4 of R.A. 1597 is within the purview of redemption by a co-owner which inures to the benefit
of all the other co-owners of the property.

INNOCENT PURCHASER FOR VALUE

NAZARENO VS. COURT OF APPEALS

G.R. No. 138842. October 18, 2000

Facts: Petitioners and respondent Romeo Nazareno are three of the five children of spouses Maximino
and Aurea Nazareno, who during their marriage had acquired properties. After the death of Maximino,
Sr., Romeo filed for intestate proceedings and he was thereafter appointed administrator of his father’s
estate. Romeo discovered a deed o f sale selling petitioner Natividad six lots including Lot-3b occupied
by Romeo but which was sold to petitioner Maximino, Jr. Maximino, Jr. filed an action for recovery of
possession which was favored by the court. Romeo in turn filed an annulment of the sales on the ground
of lack of consideration in that the transfer was merely to avoid inheritance tax and that Natividad was
only to hold the said lots in trust for her siblings. Petitioners on the other hand filed a third party
complaint against Romeo and his wife Eliza seeking the annulment of the transfer to Romeo of Lot 3
which is granted by the trial court except as to Lots 3, 13-b, 13 and 14 which had passed on to third
persons.

Issue: Whether or not a person dealing with a registered land may rely on the certificate of title.

Held: The sale of Lots 13 and 14 to Ros-Alva Marketing will have to be upheld for Ros-Alva Marketing is
an innocent purchaser for value which relied on the title of Natividad. The rule is settled that “every
person dealing with registered land may safely rely on the correctness of the certificate of title issued
therefore and the law will in no way oblige him to go behind the certificate to determine the condition
of the property.”

TORTS AND DAMAGES

YHT Realty Corp, et al vs. Court of Appeals

G.R. No. 126780. February 17, 2005

Facts: MAURICE McLaughlin is an Australian national who comes to the Philippines for business. During
his trips he stays in Tropicana, a hotel recommended to him by Brunhilda Tan. McLaughlin deposited
cash and jewelry to the safety deposit box of the Hotel. The safety deposit box cannot be opened unless
the key of the guest and that of the management are present. Lainez and Payam are employees of
Tropicana who is charged with the custody of the keys. Thereafter, McLaughlin found out that some of
the money and jewelry he deposited were missing. Lainez and Payam admitted that they assisted Tan to
open his deposit box. Tan admitted that she stole McLaughlin’s keys. Tan executed a promissory note to
cover the amount of the stolen money and jewelry. McLaughlin wanted to make the management liable.

Issue: Whether or not a hotel may evade liability for the loss of items left with it for safekeeping by its
guests, by having these guests execute written waivers holding the establishment or its employees free
from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers.

Held: The issue of whether the “Undertaking For The Use of Safety Deposit Box” executed by
McLoughlin is tainted with nullity presents a legal question appropriate for resolution in this petition.
Notably, both the trial court and the appellate court found the same to be null and void. We find no
reason to reverse their common conclusion. Article 2003 is controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that
he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the
guest whereby the responsibility of the former as set forth in Articles 1998 to 2001[37] is suppressed or
diminished shall be void.

Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply
to situations such as that presented in this case. The hotel business like the common carrier’s business is
imbued with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging
for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of
the business. The law in turn does not allow such duty to the public to be negated or diluted by any
contrary stipulation in so-called “undertakings” that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.

Nikko Hotel Manila Garden & Ruby Lim vs. Reyes

G.R. No. 154259. February 28, 2005

Facts: Robeto Reyes known as “Amay Bisaya” saw in a hotel lobby his friend Dr. Violeta Filart who he
said to have invite him the party of the hotel’s outgoing manager. So Reyes carried the fruit basket of
Filart to the penthuse where the party is. However, Ruby Lim, the coordinator of the party asked him to
leave since it is an exclusive party and he is not one of those invited. Reyes did not leave the party as
was instructed but created a scene, thereby he was escorted out. He sued the hotel and Ruby Lim for
damages.

Issue: Whether or not Ruby Lim acted abusively in asking Roberto Reyes, a.k.a. “Amay Bisaya,” to leave
the party where he was not invited by the celebrant thereof thereby becomes liable under Articles 19
and 21 of the Civil Code.

Held: The Supreme Court ruled that Ruby Lim did not act abusively in asking Roberto Reyes in leaving
the party to which he is not invited. In the absence of any proof of motive on the part of Ms. Lim to
humiliate Mr. Reyes and expose him to ridicule and shame, it is highly unlikely that she would shout at
him from a very close distance. Ms. Lim having been in the hotel business for twenty years wherein
being polite and discreet are virtues to be emulated, the testimony of Mr. Reyes that she acted to the
contrary does not inspire belief and is indeed incredible. Thus, the lower court was correct in observing
that –Considering the closeness of defendant Lim to plaintiff when the request for the latter to leave the
party was made such that they nearly kissed each other, the request was meant to be heard by him only
and there could have been no intention on her part to cause embarrassment to him. It was plaintiff’s
reaction to the request that must have made the other guests aware of what transpired between them,
had plaintiff simply left the party as requested; there was no need for the police to take him out.

Article 19 involves a legal wrong committed for which the wrongdoer must be responsible. The object of
this article, therefore, is to set certain standards which must be observed not only in the exercise of
one’s rights but also in the performance of one’s duties. Its elements are the following: (1) There is a
legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring
another. When Article 19 is violated, an action for damages is proper under Articles 20 or 21 of the Civil
Code. Article 20 pertains to damages arising from a violation of law which does not obtain herein as Ms.
Lim was perfectly within her right to ask Mr. Reyes to leave. Article 21refers to acts contra bonus mores
and has the following elements: (1) There is an act which is legal; (2) but which is contrary to morals,
good custom, public order, or public policy; and (3) it is done with intent to injure. Under the above
mentioned articles the act must be intentional. Absent such intention and as the Court observed the
conduct of Lim of asking Reyes to leave was in an exemplary manner, there can be no damages to be
awarded. Any damage suffered by Reyes must be borne by him alone.

Quezon City Government vs. Dacara

G R No. 150304 June 15, 2005

Facts: Dacara Jr.’s car turned turtle upon hitting a rammed into a pile of earth/street diggings found at
Matahimik St., Quezon City, which was then being repaired by the Quezon City government. As a result,
Dacarra (sic), Jr. allegedly sustained bodily injuries and the vehicle suffered extensive damage. Thus his
father Fulgencio Dacara Senior (Fulgencio) filed a calim for damages against the Local Government. The
LGU contended that the fault is with the driver, since the LGU have out up warning signs. The trial court
ruled that the LGU is liable.

Issue: Whether or not the Quezon City Government is liable for moral and exemplary damges due to the
injuries suffered by Dacara Jr.

Held: To award moral damages, a court must be satisfied with proof of the following requisites: (1) an
injury -- whether physical mental, or psychological -- clearly sustained by the claimant; (2) a culpable act
or omission factually established; (3) a wrongful act or omission of the defendant as the proximate
cause of the injury sustained by the claimant; and (4) the award of damages predicated on any of the
cases stated in Article 2219. In the present case, the Complaint alleged that respondent’s son Fulgencio
Jr. sustained physical injuries. The son testified that he suffered a deep cut on his left arm when the car
overturned after hitting a pile of earth that had been left in the open without any warning device
whatsoever. It is apparent from the Decisions of the trial and the appellate courts, however, that no
other evidence (such as a medical certificate or proof of medical expenses) was presented to prove
Fulgencio Jr.’s bare assertion of physical injury. Thus, there was no credible proof that would justify an
award of moral damages based on Article 2219(2) of the Civil Code. Moreover, the Decisions are
conspicuously silent with respect to the claim of respondent that his moral sufferings were due to the
negligence of petitioners. The Decision of the trial court, which summarizes the testimony of
respondent’s four witnesses, makes no mention of any statement regarding moral suffering, such as
mental anguish, besmirched reputation, wounded feelings, social humiliation and the like. well-settled is
the rule that moral damages cannot be awarded -- whether in a civilor a criminal case, in the absence of
proof of physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, or similar injury. The award of moral damages must be solidly
anchored on a definite showing that respondent actually experienced emotional and mental sufferings.
Mere allegations do not suffice; they must be substantiated by clear and convincing proof.
Article 2231 of the Civil Code mandates that in cases of quasi-delicts, exemplary damages may be
recovered if the defendant acted with gross negligence. Gross negligence means such utter want of care
as to raise a presumption that the persons at fault must have been conscious of the probable
consequences of their carelessness, and that they must have nevertheless been indifferent (or worse) to
the danger of injury to the person or property of others. The negligence must amount to a reckless
disregard for the safety of persons or property. Such a circumstance obtains in the instant case. A
finding of gross negligence can be discerned from the Decisions of both the CA and the trial court. We
quote from the RTC Decision: “Sad to state that the City Government through its instrumentalities have
failed to show the modicum of responsibility, much less, care expected of them (sic) by the constituents
of this City. It is even more deplorable that it was a case of a street digging in a side street which caused
the accident in the so-called ‘premier city.’ Article 2229 of the Civil Code provides that exemplary
damages may be imposed by way of example or correction for the public good. The award of these
damages is meant to be a deterrent to socially deleterious actions. Public policy requires such imposition
to suppress wanton acts of an offender. It must be emphasized that local governments and their
employees should be responsible not only for the maintenance of roads and streets, but also for the
safety of the public. Thus, they must secure construction areas with adequate precautionary measures.

SUCCESSION

AZNAR BROTHERS REALTY COMPANY VS. LAURENCIO AYING

G.R. No. 144773. May 16, 2005

Facts: The disputed property is Lot No. 4399 with an area of 34,325 square meters located at Dapdap,
Lapu-Lapu City. Crisanta Maloloy-on petitioned for the issuance of a cadastral decree in her favor over
said parcel of land. After her death in 1930, the Cadastral Court issued a Decision directing the issuance
of a decree in the name of Crisanta Maloloy-on’s eight children, namely: Juan, Celedonio, Emiliano,
Francisco, Simeon, Bernabe, Roberta and Fausta, all surnamed Aying. The certificate of title was,
however, lost during the war. The siblings extra-judicially sold the lot however, three siblings, namely,
Roberta, Emiliano and Simeon Aying did not participate in the extra-judicial partition. After the partition
the lot was sold. 29 years after, the Roberta, Emiliano and Simen filed a case for the ejectment of the
present occupants.

Issue: Whether or not respondents’ cause of action is imprescriptible

Held: The facts on record show that petitioner acquired the entire parcel of land with the mistaken
belief that all the heirs have executed the subject document. Thus, the trial court is correct that the
provision of law applicable to this case is Article 1456 of the Civil Code which states: ART. 1456. If
property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from whom the property comes. The rule that a
trustee cannot acquire by prescription ownership over property entrusted to him until and unless he
repudiates the trust, applies to express trusts and resulting implied trusts. However, in constructive
implied trusts, prescription may supervene even if the trustee does not repudiate the relationship.
Necessarily, repudiation of said trust is not a condition precedent to the running of the prescriptive
period. An action for reconveyance based on an implied or constructive trust must perforce prescribe in
ten years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that,
illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an
implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the
property. With regard to petitioner’s argument that the provision of Article 1104 of the Civil Code,
stating that a partition made with preterition of any of the compulsory heirs shall not be rescinded,
should be applied, suffice it to say that the Extra-Judicial Partition of Real Estate with Deed of Absolute
Sale is not being rescinded. In fact, its validity had been upheld but only as to the parties who
participated in the execution of the same. As discussed above, what was conveyed to petitioner was
ownership over the shares of the heirs who executed the subject document. Thus, the law, particularly,
Article 1456 of the Civil Code, imposed the obligation upon petitioner to act as a trustee for the benefit
of respondent heirs of Emiliano and Simeon Aying who, having brought their action within the
prescriptive period, are now entitled to the reconveyance of their share in the land in dispute.

TESTATE ESTATE OF THE LATE ALIPIO ABADA, BELINDA CAPONONG-NOBLE, petitioner, vs. ALIPIO ABAJA
and NOEL ABELLAR

G.R. No. 147145. January 31, 2005

Facts: This is a case of the probate of the will of Alipio Abada. Thereafter, the probate of the will of Paula
Toray was also filed with the court. The oppositors in the will of Abada nand Toray are their nephews
and nieces. The ground for opposition is that decedent left no will or if there is a will it was executed not
in consonance with the law. Belinda Caponong-Noble was assigned as the administratix of the estate of
Abada by the trial court. Thereafter, Abellar was appointed administratix of Toray’s property. The RTC
ruled only on , whether the will of Abada has an attestation clause as required by law. The RTC-
Kabankalan further held that the failure of the oppositors to raise any other matter forecloses all other
issues. Unsatisfied with the decision Caponong-Noble appealed.

Issue: Whether or not the will of Abada has an attestation clause, and if so, whether the attestation
clause complies with the requirements of the applicable laws.

Held: The Court of Appeals did not err in sustaining the RTC-Kabankalan in admitting to probate the will
of Abada. Abada executed his will on 4 June 1932. The laws in force at that time are the Civil Code of
1889 or the Old Civil Code, and Act No. 190 or the Code of Civil Procedurewhich governed the execution
of wills before the enactment of the New Civil Code. The matter in dispute in the present case is the
attestation clause in the will of Abada. Section 618 of the Code of Civil Procedure, as amended by Act
No. 2645 governs the form of the attestation clause of Abada’s will.

There is no statutory requirement to state in the will itself that the testator knew the language or dialect
used in the will. This is a matter that a party may establish by proof aliunde. Caponong-Noble further
argues that Alipio, in his testimony, has failed, among others, to show that Abada knew or understood
the contents of the will and the Spanish language used in the will. However, Alipio testified that Abada
used to gather Spanish-speaking people in their place. In these gatherings, Abada and his companions
would talk in the Spanish language. This sufficiently proves that Abada speaks the Spanish language. An
attestation clause is made for the purpose of preserving, in permanent form, a record of the facts
attending the execution of the will, so that in case of failure of the memory of the subscribing witnesses,
or other casualty, they may still be proved. (Thompson on Wills, 2d ed., sec. 132.) A will, therefore,
should not be rejected where its attestation clause serves the purpose of the law. We rule to apply the
liberal construction in the probate of Abada’s will. Abada’s will clearly shows four signatures: that of
Abada and of three other persons. It is reasonable to conclude that there are three witnesses to the will.
The question on the number of the witnesses is answered by an examination of the will itself and
without the need for presentation of evidence aliunde. The Court explained the extent and limits of the
rule on liberal construction. Precision of language in the drafting of an attestation clause is desirable.
However, it is not imperative that a parrot-like copy of the words of the statute be made. It is sufficient
if from the language employed it can reasonably be deduced that the attestation clause fulfills what the
law expects of it.

PRESCRIPTIVE PERIOD TO RECOVER PROPERTY OBTAINED BY FRAUD GIVING RISE TO AN IMPLIED TRUST;
PROBATE FOR WILL

SPOUSES RICARDO PASCUAL AND CONSOLACION SISON VS. COURT OF APPEALS AND REMEDIOS
EGUENIO-GINO

G.R. No. 115925. August 15, 2003

Facts: Petitioner Sison and respondent Eugenio-Gino are the niece and granddaughter , respectively of
the late Canuto Sison. Canuto and 11 other individuals including his sister Catalina and his brother
Victoriano were co-owners of a property known as Lot 2 covered by an original certificate of title.

On September 26, 1956, Canuto and Consolacion executed a Kasulatan ng Bilihang Tuluyan under which,
Canuto sold his share in Lot 2 in favor of Consolacion.

On October 23, 1968, the surviving children of Canuto, namely Felicidad and Beatriz, executed a joint
affidavit affirming the Kasulatan in favor of Consolacion, which the latter registered with the Office of
the Register of Deeds.

On February 4, 1988, Remedios filed a complaint against Consolacion and her spouse, Ricardo Pascual
for annulment of transfer of certificate of title because the former claimed that she is the owner of the
lots since Catalina devised the land to her in Catalina’s last will. Remedies also added that the lots were
obtained through fraudulent means since the area covered by the TCT is twice the size of Canuto.

Petitioner sought to dismiss the complaint on the ground of prescription. Petitioners claim that the basis
of the action is fraud and the action should have been filed within four years from the registration of
Consolacion’s title on October 28, 1968 and not some 19 years later on February 4, 1988.

The trial court denied petitioner’s motion to dismiss holding that the reckoning of the prescriptive
period for filing complaint is evidentiary in nature and must await the presentation of the parties’
evidence during the trial.

Issue: Whether or not the action for annulment or cancellation of transfer of certificate of title by
Remedios has prescribed.
Held: The four-year prescriptive period relied upon by the trial court applies only if the fraud does not
give rise to an implied trust and the action is to annul a voidable contract under Article 1390 of the Civil
Code. In such a case, the four-year prescriptive period begins to run from the time of the discovery of
the mistake, violence, intimidation, undue influence or fraud.

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.

Remedies filed her complaint on February 4, 1988 or more than 19 years after Consolacion registered
her title over the lot on October 28, 1968. Unquestionably, Remedios filed the complaint late thus
warranting its dismissal.

Remedies anchors her right in filing the suit on her being a devisee of Catalina’s last will. However, since
the probate court has not admitted Catalina’s last will, Remedios has not acquired any right under the
last will. Remedies is thus without any cause of action either to seek reconveyance of Lot 2 or to enforce
an implied trust over these lots.

It was inappropriate to order the reconveyance of the subject lots to Remedios in her capacity as
executrix of Catalina’s last will because she sued petitioners not in such capacity but as the alleged
owner of the disputed lots.

SUCCESSION; PARTITION INTER VIVOS MAY BE DONE FOR AS LONG AS LEGITIMATES ARE NOT
PRECLUDED; LEGITIME OF COMPULSORY HEIRS IS DETERMINED AFTER COLLATION; PROPERTY
CERTIFICATE NOT SUBJECT TO COLLATERAL ATTACK

SPOUSES FLORENTINO ZARAGOZA AND ERLINDA ENRIQUEZ-ZARAGOZA VS. THE HONORABLE COURT OF
APPEALS

G.R. No. 106401. September 29, 2000

Facts: Flavio Zaragoza Cano was the registered owner of certain parcels of land. He had four children
namely: Gloria, Zacariaz, Florentino and Alberta, all surnamed Zaragoza. On December 9, 1964, he died
without a will and was survived by his four children.

On December 28, 1981, private respondent Alberta Zaragoza-Morgan filed a complaint with the Court of
First Instance against petitioner-spouses Florentino and Erlinda for delivery of her inheritance share and
for payment of damages. She claims that she is a natural-born Filipino citizen and the youngest child of
the late Flavio. She further alleged that her father in his lifetime partitioned the properties among his
four children. The shares of her brothers and sister were given to them in advance by way of deed of
sale, but without valid consideration, while her share was not conveyed by way of deed of sale then.

Petitioners denied knowledge of an alleged distribution by way of deeds of sale to them by their father.
They denied knowledge of the alleged intention of their father to convey the cited lots to Alberta, much
more, the reason for his failure to do so because she became an American citizen. They denied that
there was partitioning of the estate of their father during his lifetime.
The Regional Trial Court rendered judgment adjudicating Lot 471 in the name of Flavio Zaragoza Cano to
Alberta Zaragoza-Morgan as appertaining her share in his estate.

Issues: (1) Whether the partition inter vivos by Flavio Zaragoza Cano of his properties is valid.

(2) Whether the validity of the deed of sale and consequently, the transfer certificate of title over the lot
registered in the name of petitioners can be a valid subject matter of the entire proceeding for the
delivery of inheritance share.

Held: Both the trial court and the public respondent found that during the lifetime of Flavio, he already
partitioned and distributed his properties among his three children, excepting private respondent
through deeds of sale. A deed of sale was not executed in favor of private respondent because she had
become an American citizen and the Constitution prohibited a sale in her favor.

It is basic in the law of succession that a partition inter vivos may be done for as long as legitimes are not
prejudiced. Unfortunately, collation cannot be done in this case where the original petition for delivery
of inheritance share only impleaded one of the other compulsory heirs. The petition must therefore be
dismissed without prejudice to the institution of a new proceeding where all the indispensable parties
are present for the rightful determination of their respective legitime and if the legitimes were
prejudiced by the partitioning inter vivos.

Private respondent, in submitting her petition for the delivery of inheritance share, was in effect
questioning the validity of the deed of sale in favor of petitioner and consequently, the transfer of
certificate of title issued in the latter’s name. although the trial court, as an obiter, made a finding of
validity of the conveyance of the said lot, since according to it, private respondent did not question the
genuineness of the signature of the deceased, nevertheless, when the case was elevated to the Court of
Appeals, the latter declared the sale to be fictitious because of finding of marked differences in the
signature of Flavio in the deed of sale vis-à-vis signatures found in earlier documents. Could this be
done? The petition is a collateral attack. A certificate of title shall not be subject to collateral attack. It
cannot be altered, modified or cancelled except in a direct proceeding in accordance with law.

CREDIT TRANSACTIONS

FIRST FIL-SIN LENDING CORPORATION VS. GLORIA PADILLO

G.R. No. 160533. January 12, 2005

Facts: Respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending
Corp. and subsequently obtained another P500,000.00 loan from the same. In both instances,
respondent executed a promissory note and disclosure statement. For the first loan, respondent made
13 monthly interest payments of P22,500.00 each before she settled the P500,000.00 outstanding
principal obligation. As regards the second loan, respondent made 11 monthly interest payments of
P25,000.00 each before paying the principal loan of P500,000.00. In sum, respondent paid a total of
P792,500.00 for the first loan and P775,000.00 for the second loan. Thereafter, respondent filed an
action for sum of money against petitioner alleging that she only agreed to pay interest at the rates of
4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per month. The trial court
dismissed respondent’s complaint. On appeal, the appellate court ruled that, based on the disclosure
statements executed by respondent, the interest rates should be imposed on a monthly basis but only
for the 3-month term of the loan. Thereafter, the legal interest rate will apply. The court also found the
penalty charges pegged at 1% per day of delay highly unconscionable as it would translate to 365% per
annum. Thus, it was reduced to 1% per month or 12% per annum.

Petitioner maintains that the interest rates are to be imposed on a monthly and not on a per annum
basis. However, it insists that the 4.5% and 5% monthly interest shall be imposed until the outstanding
obligations have been fully paid.

As to the penalty charges, petitioner argues that the 12% per annum penalty imposed by the Court of
Appeals in lieu of the 1% per day as agreed upon by the parties violates their freedom to stipulate terms
and conditions as they may deem proper.

Respondent avers that the interest on the loans is per annum as expressly stated in the promissory
notes and disclosure statements. The provision as to annual interest rate is clear and requires no room
for interpretation. Respondent asserts that any ambiguity in the promissory notes and disclosure
statements should not favor petitioner since the loan documents were prepared by the latter.

Issue: Whether or not the applicable interest should be the legal interest of twelve percent (12%) per
annum despite the clear agreement of the parties on another applicable rate.

Held: Perusal of the promissory notes and the disclosure statements pertinent to the loan obligations of
respondent clearly and unambiguously provide for interest rates of 4.5% per annum and 5% per annum,
respectively. Nowhere was it stated that the interest rates shall be applied on a monthly basis. Thus,
when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it
any alleged intention of the parties, the terms are to be understood literally just as they appear on the
face of the contract. It is only in instances when the language of a contract is ambiguous or obscure that
courts ought to apply certain established rules of construction in order to ascertain the supposed intent
of the parties.

PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS

G.R. No. 126908. January 16, 2003

Facts: Spouses Mateo and Carlita Cruz owned a parcel of land. They obtained a loan from the Philippine
National Bank (PNB) in the amount of Php70,000 and constituted a real estate mortgage using their
parcel of land to secure said loan. Subsequently, Mateo Cruz obtained an agricultural crop loan from
PNB in the amount of Php156,000 which was also secured by a real estate mortgage. After Land Bank
remitted to PNB Php359, 500 in bonds, Php174.43 in cash and transferred Php25,500 in bonds, PNB
issued a Deed of Release of Real Estate Mortgage in favor of the Spouses Cruz. Consequently, PNB
released all titles to them. Later Spouses Cruz loaned again from PNB and secured it with another real
estate mortgage. Spouses Antonio and Soledad So Hu paid for the release of the mortgaged property
since they were interested in it. Thus a Deed of Absolute Sale was entered into by Spouses So Hu and
Spouses Cruz, conveying the property to the former. PNB conducted a public auction sale covering the
property in question under the contention that Spouses Cruz failed to pay their loan. Since it was the
sole and highest bidder, it now claimed the property. When PNB found Spouses So Hu In possession of
the property, they were asked to vacate the property.

Issue: Is the extra judicial foreclosure of the third mortgage valid?

Held: It is manifested in records that Spouses So Hu had already paid the principal obligation secured by
the third mortgage. A contract of mortgage is an accessory contract which derives its existence from the
principal contract. Thus, if the principal ceases to be it also ceases. In this case, with the extinguishment
of the loan, the mortgage is also extinguished.

Note that the loan secured by the mortgage was already paid prior to the foreclosure. Thus, the
property can no longer be validly foreclosed since it would be a foreclosure that satisfies an extinguished
obligation.

RAMIREZ VS. COURT OF APPEALS

G.R. No. 133841. August 15, 2003

Facts: On December 29, 1965, private respondent spouses Loreto Claravall and Victoria Claravall
executed a deed of sale in favor of spouses Francisco and Carolina Ramirez covering a parcel of land
including the improvements thereon with an option to repurchase within a period of two years. At the
expiration of the two-year period, the Claravalls failed to redeem the property, prompting them to file a
complaint against the spouses Ramirez to compel the latter to sell the property back to them. The
Supreme Court found that the Deed of Absolute sale with option to repurchase was one of equitable
mortgage.

Following the death of Francisco Ramirez, the spouses Claravall filed a complaint for accounting and
damages against the Intestate Estate of Francisco Ramirez alleging among others that the spouses
Ramirez acted fraudulently and in bad faith in refusing and obstructing the redemption of the property
by the private respondents from January 2, 1968 to December 31, 1993 during which petitioners were
receiving rentals from the tenants of the property which must be accounted for and returned to private
respondents.

Issue: Whether or not petitioners were entitled to the fruits of the property as prior to the redemption
thereof, they were the registered owners and not private respondents.

Held: The declaration by the Supreme Court in the first case that the deed of sale with option to
repurchase entered into by the spouses Ramirez and private respondents was an equitable mortgage
necessarily takes the deed out of the ambit of the law on sales and puts into operation the law on
mortgage.

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 the 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.

CONTRACT OF LOAN; REAL CONTRACT; RECIPROCAL OBLIGATION

BPI INVESTMENT CORPORATION VS. COURT OF APPEALS

377 SCRA 177. February 15, 2002

Facts: Frank Roa obtained a loan Ayala Investment and Development Corporation (AIDC), the
predecessor of BPIIC, for the construction of a house on his lot in Muntinlupa. Said house and lot were
mortgaged to AIDC to secure the loan. In 1980, Roa sold the house and lot to respondents ALS
Management and Development Corporation (ALS) and Antonio Litonjua. As paty of the purchase price,
ALS and Litonjua assumed the balance of the Roa’s indebtedness with AIDC. Thereafter, AIDC granted
the respondents a new loan of P500 000 to be applied to Roa’s debt and such loan to be secured by the
property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years. On March 31, 1981, respondents executed a mortgage deed
containing the above stipulations with the provision that payments of monthly amortization shall
commence on May 1, 1981. On September 13, 1982, BPIIC released to respondents P&146.87
purporting to be what was left of the latter5’s loan after fully paying the loan of Roa.

On June 1984, BPIIC instituted foreclosure proceedings against the respondents because of their failure
to pay the mortgage indebtedness. However, respondents filed a civil case against BPIIC opposing the
foreclosure proceedings. In the said case, BPIIC claims that a contract of loan is a consensual contract
and a contract of loan is perfected at the time the contract of mortgage is executed conformably with
the ruling in Bonnevie vs. CA (125 SCRA 122). In the present case, the loan contract was perfected on
March 31, 1981, the date when the mortgage deed was executed; hence, the amortization and interests
on the loan should be computed from the said date. On the other hand, respondents argue that based
on Article 1934 of the NCC, a simple loan was perfected upon the delivery of the contract, hence a real
contract. In this case, it was only on September 13, 1982 that the loan contract was perfected, the date
when the full loan was released to the respondents. The trial court rendered a decision in favor of the
respondents, which was subsequently affirmed by the Court of Appeals.

Issue: Whether or not a contract of loan is a consensual contract or real contract.

Held: A contract of loan is not a consensual contract but a real contract. It is perfected only upon the
delivery of the object of the contract. Petitioner misapplied the Bonnevie case. The contract in Bonnevie
declared by this Court as a perfected consensual contract falls under the first clause of Art. 1934 of the
NCC. It is an accepted promise to deliver something by way of a simple loan.
Also, a contract of loan involves a reciprocal obligation wherein the obligation of each party is the
consideration for that of the other. 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; only
when a party has performed his part if the contract can he demand that the other party also fulfill his
own obligation an if the latter fails, default sets in. Consequently, petitioner could not demand for the
payment of the monthly amortization after September 134, 1982 for it was only then when it complied
with its obligation under the loan contract. Therefore, in computing the amount due, the starting date is
October 13, 1982 not May 1981.

MORTGAGE; BANKING INSTITUTION

BENJAMIN NAVARRO VS. SECOND LAGUNA DEV’T. BANK

G.R. No. 129428. February 27, 2003

Facts: Spouse Catalino and Consuelo Navarro owned a certain registered land and sold 5/6 of the said
lot to their five children. By virtue of the sale, petitioners Benjamin and Rosita Navarro are listed as co-
owners of the property. Without the knowledge and consent of the petitioners, the other owners of the
property executed a falsified deed of absolute sale wherein they made it appear that the entire lot was
sold to spouses Donalito Velasco and Esther Navarro. Thus a new TCT was issued in the name of the
spouses Velasco. Subsequently, spouses Velasco mortgaged the property to respondent Laguna
Development Bank to secure payment of a loan. Thereafter, the bank had the mortgaged foreclosed. On
two occasions, petitioners wrote the bank, offering to redeem the property which petitioner failed to do
and led to the consolidation of the ownership over the property in favor of the respondent bank.
Petitioners filed a complaint praying, inter alia, the annulment of the mortgage. They alleged that the
sale of the lot with respect to their 1/6 share is void ab initio considering the signatures appearing in the
Deed of Absolute Sale were falsified and as such the mortgage contract involving their share executed
by spouses alleging that the respondent spouses were purchasers in bad faith because they knew of the
pending litigation concerning the property.

Issue: Whether or not the respondent bank acted in bad faith when it accepted said mortgage the
property subject of a falsified Deed of Sale and when it subsequently sold property to respondent
spouses Guzman.

Held: Respondent did not act in bad faith. This Court stressed that a mortgagee-bank is expected to
exercise greater care and prudence before entering into a mortgage contract, even those involving
registered land. The ascertainment of the status or the consdition of a property offered to it as a
security for a loan must be a standard and indispensable part of its operation.
In entering into a mortgage contract with spouses Velasco, there was no indication that respondent
bank acted in bad faith. Spouses Velasco presented to the bank their TCT showing they were then the
absolute owners thereof. Indeed there was no circumstances or indications that aroused respondent
bank’s suspicion that the title was defective. Moreover, it is a settled jurisprudence that whoever alleges
bad faith in any transaction must substantiate his allegation, since, it is presumed that a person takes
ordinary care of his concerns and that private transactions are entered into in good faith. Clearly,
petitioners are wanting in this respect. In this connection, it bears reiterating that in their two letters to
respondent bank earlier mentioned, petitioners did not state that spouses Velasco falsified their
signatures appearing in the Deed of Absolute Sale. Nor did they question the validity of the mortgage
and its foreclosure. Indeed, those letters could have led the bank to believe that petitioners recognize
the validity of the Deed of Absolute Sale and the mortgage as well as its subsequent foreclosure.

MORTGAGE; BANKING INSTITUTION

CRUZ VS. BANCOM FINANCE CORPORATION

379 SCRA 490. March 19, 2002

Facts: Petitioners Edilberto and Simplicio Cruz were registered owners of a parcel of agricultural land.
They sold the land for P700,000 to Norma Sulit who gave P25, 000 as earnest money. However, Sulit
failed to pay the balance price; consequently, the petitioners did not transfer the title of the land to
Sulit. But capitalizing on the close relationship of one Candelaria Sanchez with the petitioners, Sulit
succeeded in having the petitioners execute a document of sale of the land in favor of Sanchez and on
the same day, Sanchez executed another deed of absolute sale over the said land in favor of Sulit. As a
result, Sulit was able to effect the transfer of the title in her name. In a special agreement, Sulit assumed
Sanchez’s obligation to pay the petitioners within six months. Unknown to the petitioners, Sulit
managed to obtain a loan from respondent Bancom secured by a mortgage over the land.

On account of Sulit’s failure to pay the amount stipulated, petitioners filed a complaint for reconveyance
of the land. Bancom intervened in the case and claimed priority as mortgagee in good faith. Meanwhile,
Sulit defaulted in her payment to Bancom and her mortgage was foreclosed. Petitioners argue that
respondent was not a mortgagee in good faith because at the time it registered the real estate
mortgage over the subject matter, their adverse claim and notice of lis pendens had already been
annotated in the title. On the other hand, respondent maintains that petitioners were the ones in bad
faith because they already had knowledge of the existence of the mortgage over the property when
they caused the annotations. Respondent further claims that, being an innocent mortgagee, it should
not be required to conduct an exhaustive investigation on the mortgagor’s title before it could extend a
loan.

Issue: Whether or not respondent Bancom is a mortgagee in good faith.

Held: First, as a general rule, every person dealing with a registered land may safely rely on the
correctness of the certificate of title and is no longer required to look behind the certificate in order to
determine the actual owner. This rule, however, is subject to the right of a person deprived of the land
through fraud to bring an action for rconveyance, provided the rights of innocent purchaser for value
and in good faith are not prejudiced. An innocent purchaser for value includes an innocent lessee,
mortgage or any other encumbrancer for value. Respondent, however, is not an ordinary mortgagee; it
is a mortgagee bank. As such, unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. The ascertainment of the status for a
loan must be a standard and indispensable part of its operations. Respondent was clearly wanting in the
observance of the necessary precautions to ascertain flaws in the title of Sulit. It should have not simply
relied on the face of the certificate of title as its ancillary function of investing funds required a greater
degree of diligence. The rule that persons dealing with registered lands can rely solely on the certificate
of title does not apply to banks.

Second, respondent was already aware that there was an adverse claim and notice of lis pendens
annotated on the certificate of title when it registered the mortgage. Although, registration is not the
operative act for a mortgage to be binding between parties, to third persons, it is indispensable. Thus,
petitioners being third parties to the unregistered mortgage were not bound by it.

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