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RECENT PRONOUNCEMENTS OF THE SUPREME COURT IN

CIVIL and COMMERCIAL LAWS


for the 2019 Bar Examinations

BANKS –

1. The Court agrees with the appellate court that in cases of unauthorized payment
of checks to a person other than the payee named therein, the drawee bank may be
held liable to the drawer. The drawee bank, in turn, may seek reimbursement from
the collecting bank for the amount of the check. This rule on the sequence of
recovery in case of unauthorized check transactions had already been deeply
embedded in jurisprudence. (Bank of America vs. Associated Citizens Bank, 588 SCRA
51 cited in BDO Unibank, Inc. vs. Lao, 827 SCRA 493-494)

The liability of the drawee bank is based on its contract with the drawer and its duty
to charge to the latter’s accounts only those payables authorized by him. A drawee
bank is under strict liability to pay the check only to the payee or to the payee’s
order. When the drawee bank pays a person other than the payee named in the check,
it does not comply with the terms of the check and violates its duty to charge the
drawer’s account only for properly payable items. (PNB vs. Rodriguez, 566 SCRA 513
cited in BDO vs. Lao, 827 SCRA 494)

2. On the other hand, the liability of the collecting bank is anchored on its
guarantees as the last endorser of the check. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants “that the instrument is genuine and in all
respects what it purports to be; that he has good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his endorsement valid
and subsisting.”

It has been repeatedly held that in check transactions, the collecting bank generally
suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to
ascertain the genuineness of the endorsements. If any of the warranties made by the
collecting bank turns out to be false, then the drawee bank may recover from it up
to the amount of the check. (Areza vs. Express Savings Bank, Inc., 734 SCRA 588 cited
in BDO vs. Lao, 827 SCRA 494-495)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
3. The Court agrees with the appellate court that in cases of unauthorized payment
of checks to a person other than the payee named therein, the drawee bank may be
held liable to the drawer. The drawee bank, in turn, may seek reimbursement from
the collecting bank for the amount of the check. This rule on the sequence of
recovery in case of unauthorized check transactions had already been deeply
embedded in jurisprudence. (Bank of America vs. Associated Citizens Bank, 588 SCRA
51 cited in BDO Unibank, Inc. vs. Lao, 827 SCRA 493-494)

4. The liability of the drawee bank is based on its contract with the drawer and its
duty to charge to the latter’s accounts only those payables authorized by him. A
drawee bank is under strict liability to pay the check only to the payee or to the
payee’s order. When the drawee bank pays a person other than the payee named in
the check, it does not comply with the terms of the check and violates its duty to
charge the drawer’s account only for properly payable items. (PNB vs. Rodriguez, 566
SCRA 513 cited in BDO vs. Lao, 827 SCRA 494)

5. On the other hand, the liability of the collecting bank is anchored on its
guarantees as the last endorser of the check. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants “that the instrument is genuine and in all
respects what it purports to be; that he has good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his endorsement valid
and subsisting.”

It has been repeatedly held that in check transactions, the collecting bank generally
suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to
ascertain the genuineness of the endorsements. If any of the warranties made by the
collecting bank turns out to be false, then the drawee bank may recover from it up
to the amount of the check. (Areza vs. Express Savings Bank, Inc., 734 SCRA 588 cited
in BDO vs. Lao, 827 SCRA 494-495)

6. Banks assume a degree of prudence and diligence higher than that of a good
father of a family, because their business is imbued with public interest and is
inherently fiduciary. Thus, banks have the obligation to treat the amounts of its
clients “meticulously and with the highest degree of care.” With respect to its
fiduciary duties, this Court explained:

“The law imposes on banks high standards in view of the fiduciary


nature of banking. Section 2 of Republic Act No. 8791 (“RA 8791”),
which took effect on 13 June 2000, declares that the State recognizes
the “fiduciary nature of banking that requires high standards of
integrity and performance.” This new provision in the general

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
banking law, introduced in 2000, is a statutory affirmation of Supreme
Court decisions, starting with the 1990 case of Simex International v.
Court of Appeals, holding that “the bank is under obligation to treat
the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.”

This fiduciary relationship means that the bank’s obligation to observe


“high standards of integrity and performance” is deemed written into
every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of
the Civil Code states that the degree of diligence required of an obligor
is that prescribed by law or contract, and absent such stipulation then
the diligence of a good father of a family. Section 2 of RA 8791
prescribes the statutory diligence required from banks – that banks
must observe “high standards of integrity and performance” in
servicing their depositors.”

The high degree of diligence required of banks equally holds true in their dealing
with mortgaged real properties, and subsequently acquired through foreclosure, such
as the Unit purchased by petitioner.

In the same way that banks are “presumed to be familiar with the rules on land
registration,” given that they are in the business of extending loans secured by real
estate mortgage, banks are also expected to exercise the highest degree of diligence.
This is especially true when investigating real properties offered as security, since
they are aware that such property may be passed on to an innocent purchaser in the
event of foreclosure. Indeed, “the ascertainment of the status or condition of a
property offered to it as security for a loan must be a standard and indispensable
part of a bank’s operations.” (Poole-Blundenr vs. Union Bank of the Phil. 847 SCRA
170-172)

BUILDER IN GOOD FAITH –


The settled rule is bad faith should be established by clear and convincing evidence
since the law always presumes good faith. In this particular case, petitioners were
not able to prove that respondents were in bad faith in constructing the house on the
subject land. Bad faith does not simply connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious doing of a
wrong. It means breach of a known duty through some motive, interest or ill will
that partakes of the nature of fraud. For anyone who claims that someone is in bad
faith, the former has the duty to prove such. Hence, petitioners err in their argument
that respondents failed to prove that they are builders in good faith in spite of the
findings of the RTC and the CA that they are.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
As such, Article 448 of the Civil Code must be applied. It applies when the builder
believes that he is the owner of the land or that by some title he has the right to build
thereon, or that, at least, he has a claim of title thereto. In Tuatis v. Spouses Escol,
et al. (604 SCRA 471), this Court ruled that the seller (the owner of the land) has two
options under Article 448: (1) he may appropriate the improvements for himself
after reimbursing the buyer (the builder in good faith) the necessary and useful
expenses under Articles 546 and 548 of the Civil Code; or (2) he may sell the land
to the buyer, unless its value is considerably more than that of the improvements, in
which case, the buyer shall pay reasonable rent, thus:

The rule that the choice under Article 448 of the Civil Code belongs to
the owner of the land is in accord with the principle of accession, i.e.,
that the accessory follows the principal and not the other way around.
Even as the option lies with the landowner, the grant to him,
nevertheless, is preclusive. The landowner cannot refuse to exercise
either option and compel instead the owner of the building to remove it
from the land.

The raison d’etre for this provision has been enunciated thus: Where
the builder, planter or sower has acted in good faith, a conflict of rights
arises between the owners, and it becomes necessary to protect the
owner of the improvements without causing injustice to the owner of
the land. In view of the impracticability of creating a state of forced
co-ownership, the law has provided a just solution by giving the owner
of the land the option to acquire the improvements after payment of the
proper indemnity, or to oblige the builder or planter to pay for the land
and the sower the proper rent. He cannot refuse to exercise either
option. It is the owner of the land who is authorized to exercise the
option, because his right is older, and because, by the principle of
accession, he is entitled to the ownership of the accessory thing.

The rule that the right of choice belongs to the owner of the land is in
accordance with the principle of accession. However, even if this right
of choice is exclusive to the landowner, he cannot refuse to exercise
either option and demand, instead for the removal of the building.

Instead of requiring defendants-appellants to sell the land, the court a


quo must determine the option which they would choose. The first
option, to appropriate the building upon payment of indemnity or the
second option, to sell the land to the plaintiffs-appellees. Moreover,

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

the court a quo should also ascertain: (a) under the first option, the
amount of indemnification for the building; or (b) under the second
option, the value of the subject property vis-à-vis that of the building,
and depending thereon, the price of, or the reasonable rent for, the
subject property.

Hence, following the ruling in the recent case of Briones vs. Macabagdal, (626 SCRA
300), this case must be remanded to the court a quo for the conduct of further
proceedings to assess the current fair market of the kind and to determine other
matters necessary for the proper application of Article 448, in relation to Articles
546 and 548 of the New Civil Code. (Sps. Espinoza vs. Sps. Mayandoc, 828 SCRA 610
– 613)

CHANGE OF NAME –

1. On changes of first name, Republic Act No. 10172, which amended Republic
Act No. 9048, is helpful in identifying the nature of the determination sought.

Republic Act No. 10172 defines a clerical or typographical error as a recorded


mistake, “which is visible to the eyes or obvious to the understanding.” Thus:

Section 2. Definition of Terms. – As used in this Act, the following


terms shall mean:

xxx

(3) “Clerical or typographical error” refers to a mistake committed


in the performance of clerical work in writing, copying, transcribing or
typing an entry in the civil register that is harmless and innocuous, such
as misspelled name or misspelled place of birth, mistake in the entry of
day and month in the date of birth or the sex of the person or the like,
which is visible to the eyes or obvious to the understanding, and can be
corrected or changed only by reference to other existing record or
records: Provided, however, that no correction must involve the change
of nationality, age, or status of the petitioner.

Likewise, Republic Act No. 9048 states:

Section 2. Definition of Terms. – As used in this Act, the following


terms shall mean:

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

xxx
(3) “Clerical or typographical error” refers to a mistake committed in
the performance of clerical work in writing, copying, transcribing or
typing an entry in the civil register that is harmless and innocuous, such
as misspelled name or misspelled place of birth or the like, which is
visible to the eyes or obvious to the understanding, and can be
corrected or changed only by reference to other existing record or
records: Provided, however, That no correction must involve the
change of nationality, age, status or sex of the petitioner.

By qualifying the definition of a clerical, typographical error as a mistake “visible


to the eyes or obvious to the understanding,” the law recognizes that there is a factual
determination made after reference to and evaluation of existing documents
presented.

Thus, corrections may be made even though the error is not typographical if it
is “obvious to the understanding,” even if there is no proof that the name or
circumstance in the birth certificate was ever used. (Republic vs. Gallo, 851 SCRA
585-586)

2. In 2012, Republic Act No. 9048 was amended by Republic Act No. 10172.

In addition to the change of the first name, the day and month of birth, and the sex
of a person may now be changed without judicial proceedings. Republic Act No.
10172 clarifies that these changes may now be administratively corrected where it
is patently clear that there is a clerical or typographical mistake in the entry. It may
be changed by filing a subscribed and sworn affidavit with the local civil registry
office of the city or municipality where the record being sought to be corrected or
changed is kept.

Section 1. Authority to Correct Clerical or Typographical Error and


Change of First Name or Nickname – No entry in a civil register shall
be changed or corrected without a judicial order, except for clerical or
typographical errors and change of first name or nickname, the day
and month in the date of birth or sex of a person where it is patently
clear that there was a clerical or typographical error or mistake in the
entry, which can be corrected or changed by the concerned city or
municipal civil registrar or consul general in accordance with the
provisions of this Act and its implementing rules and regulations.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
Under the doctrine of primary administrative jurisdiction, if an administrative
tribunal has jurisdiction over a controversy, courts should not resolve the issue
even if it may be within its proper jurisdiction. This is especially true when the
question involves its sound discretion requiring special knowledge, experience,
and services to determine technical and intricate matters of fact. (Republic vs.
Gallo, 851 SCRA 606-607)

COMMON CARRIERS –

1. While the immediate beneficiaries of the standard of extraordinary diligence are


the passengers, they are not the only persons the law seeks to benefit. If we were to
solely require this standard of diligence for a common carrier’s passengers, this
would be incongruent to the State’s responsibility to curb accidents on the road.
That common carriers should carefully observe the statutory standard of
extraordinary diligence in respect of their passengers, such diligence should
similarly benefit pedestrians and the owners and passengers of other vehicles
who are equally entitled to the safe and convenient use of our roads and
highways.

2. Since the damages imposed were the result of a complaint for damages based on
a quasi-delict, the interest on these awards must be computed from the date
when the RTC rendered its decision in the civil case, or on 26 January 2004, as
it was at this time that a quantification of the damages may be deemed to have
been reasonably ascertained. From the finality of a judgment awarding a sum of
money until it is satisfied, the award shall be considered a forbearance of credit,
regardless of whether the award in fact pertained to one. To be consistent with the
foregoing, the interest on the monetary awards shall then be fixed at six percent (6%)
per annum, until the damages are fully paid. (Cacho, et al., etc. vs. Manahan, et al., 851
SCRA 502-503)

3. Extraordinary diligence is that extreme measure of care and caution which


persons of unusual prudence and circumspection use for securing and
preserving their own property or rights. When the copper concentrates delivered
were contaminated with seawater, the petitioners have failed to exercise
extraordinary diligence in the carriage thereof. (Loadstar Shipping Company, Inc. et
al. vs. Malayan Insurance Company, Inc., 825 SCRA 22)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

COMPROMISE AGREEMENT –
A compromise is defined under the Civil Code as “a contract whereby the
parties, by making reciprocal concessions avoid a litigation or put an end to one
already commenced.” It may either be judicial or extrajudicial depending on its
object or the purpose of the parties. A compromise is judicial if the parties purpose
is to terminate a suit already commenced. On the other hand, a compromise is extra-
judicial if its object is to avoid litigation.

In any case, a compromise validly entered into has the authority and effect of res
judicata as between the parties. To this extent, a judicial compromise and an extra-
judicial compromise are no different from each other.

However, unlike an extrajudicial compromise, a compromise that has received


judicial imprimatur “becomes more than a mere contract.” A judicial compromise
is regarded as a “determination of the controversy” between the parties and
has the force and effect of [a final] judgment. In other words, it is both a
contract and “a judgment on the merits.” It may neither be disturbed nor set
aside except in cases where there is forgery or when either of the parties’ consent
has been vitiated. (Chiquita Brands, Inc., et al. vs. Omelio, et al., 826 SCRA 256 – 265)

CONDONATION, WAIVER and REFUND, explained –

The “plain meaning rule” or verba legis in statutory construction enjoins that if the
statute is clear, plain and free from ambiguity, it must be given its literal meaning
and applied without interpretation. This rule of interpretation is in deference to the
plenary power of Congress to make, alter and repeal laws as this power is an
embodiment of the People’s sovereign will. Accordingly, when the words of a
statute are clear and unambiguous, courts cannot deviate from the text of the
law and resort to interpretation lest they end up betraying their solemn duty to
uphold the law and worse, violating the constitutional principle of separation of
powers.

Condonation or remission of debt is an act of liberality, by virtue of which, without


receiving any equivalent, the creditor renounces the enforcement of the obligation,
which is extinguished in its entirety or in that part or aspect of the same to which the
remission refers. It is essentially gratuitous for no equivalent is received for the
benefit given.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

Relatedly, waiver is defined as a voluntary and intentional relinquishment or


abandonment of a known existing legal right, advantage, benefit, claim or privilege,
which except for such waiver the party would have enjoyed; the voluntary
abandonment or surrender, by a capable person, of a right to known by him to exist,
with the intent that such right shall be surrendered and such person forever deprived
of its benefit; or such conduct as warrants an inference of the relinquishment of such
right; or the intentional doing of an act inconsistent with claiming it.

On the other hand, refund is an act of giving back or returning what was received.
In cases of monetary obligations, a claim for refund exists only after the payment
has been made and, in the act of doing so, the debtor either delivered excess funds
or there exists no obligation to pay in the first place. This right arises either by virtue
of solution indebiti as provided for in Articles 2154 to 2163 of the Civil Code or by
provision of another positive law, such as tax laws or amnesty laws. (H. Villarica
Pawnshop, Inc., et al. vs. Social Security Commission, et al., 853 SCRA 193 - 194)

CORPORATION & CORPORATE REHABILITATION –

1. BENEFICIAL OWNERSHIP OF SHARES –

The definition of “beneficial owner or beneficial ownership” in the SRC-IRR,


which is in consonance with the concept of “full beneficial ownership” in the FIA-
IRR, is, as stressed in the Decision, relevant in resolving only the question of who is
the beneficial owner or has beneficial ownership of each “specific stock” of the
public utility company whose stocks are under review.

If the Filipino has the voting power of the “specific stock,” i.e., he can vote the
stock or direct another to vote for him, or the Filipino has the investment power
over the “specific stock,” i.e., he can dispose of the stock or direct another to dispose
of it for him, or both, i.e., he can vote and dispose of that “specific stock” or direct
another to vote or dispose it for him, then such Filipino is the “beneficial owner” of
that “specific stock.”

Being considered Filipino, that “specific stock” is then to be counted as part of the
60% Filipino ownership requirement under the Constitution. The right to the
dividends, jus fruendi – a right emanating from ownership of that “specific stock”
necessarily accrues to its Filipino “beneficial owner.”

So long as Filipinos have controlling interest of a public utility corporation,


their decision to declare more dividends for a particular stock over other kinds
of stock is their sole prerogative – an act of ownership that would presumably
be for the benefit of the public utility corporation itself. (Roy III vs. Herbosa, et
al. 823 SCRA 147 – 148)

NOTE –
The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

2. To be considered a close corporation, an entity must abide by the requirements


laid out in Section 96 of the Corporation Code, which reads:
Definition and applicability of Title. - A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide
that: (1) all the corporation's issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a specified
number of persons, not exceeding twenty (20); (2) all the issued stock
of all classes shall be subject to one or more specified restrictions on
transfer permitted by this Title; and (3) the corporation shall not list in
any stock exchange or make any public offering of any of its stock of any
class. Notwithstanding the foregoing, a corporation shall not be
deemed a close corporation when at least two-thirds (2/3) of its voting
stock or voting rights is owned or controlled by another corporation
which is not a close corporation within the meaning of this Code.
In San Juan Structural and Steel Fabricators. Inc. v. Court ol Appeals (296 SCRA
631) this Court held that a narrow distribution of ownership does not, by itself,
make a close corporation. Courts must look into the articles of incorporation
to find provisions expressly stating that: (l) the number of stockholders shall
not exceed 20; or (2) a pre-emption of shares is restricted in favor of any
stockholder or of the corporation; or (3) the listing of the corporate stocks in
any stock exchange or making a public offering of those stocks is prohibited.
Section 97 of the Corporation Code only specifies that "the stockholders of the
corporation shall be subject to all liabilities of directors." Nowhere in that
provision do we find any inference that stockholders of a close corporation are
automatically liable for corporate debts and obligations.
Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly
provides for personal liability of stockholders of close corporation, viz:
Agreements by stockholders. –
x xxx
5. To the extent that the stockholders are actively engaged in the
management or operation of the business and affairs of a close
corporation, the stockholders shall be held to strict fiduciary duties to
each other and among themselves. Said stockholders shall
be personally liable for corporate torts unless the corporation has
obtained reasonably adequate liability insurance.
NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

As can be read in that provision, several requisites must be present for its
applicability. None of these were alleged in the case of Spouses Cruz. Neither did
the RTC or the CA explain the factual circumstances for this Court to discuss the
personally liability of respondents to their creditors because of corporate torts."
(Naguiat vs NLRC, 269 SCRA 564)
We thus apply the general doctrine of separate juridical personality, which provides
that a corporation has a legal personality separate and distinct from that of people
comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the
principle of limited liability: the corporate debt is not the debt of the stockholder.
(PNB vs. Hydro Resources Contractors Corp., 693 SCRA 294) Thus, being an officer or
a stockholder of a corporation does not make one's property the property also of the
corporation. (Traders Royal Bank vs. CA, 177 SCRA 788)
Situs Development Corp. v. Asiatrust Bank (677 SCRA 495) is analogous to the case
at bar. We held therein that the parcels of land mortgaged to creditor banks were
owned not by the corporation, but by the spouses who were its stockholders.
Applying the doctrine of separate juridical personality, we ruled that the parcels of
land of the spouses could not be considered part of the corporate assets that could be
subjected to rehabilitation proceedings.
In rehabilitation proceedings, claims of creditors are limited to demands of whatever
nature or character against a debtor or its property, whether for money or
otherwise. In several cases, we have already held that stay orders should only cover
those claims directed against corporations or their properties, against their
guarantors, or their sureties who are not solidarily liable with them, to the exclusion
of accommodation mortgagors.
To repeat, properties merely owned by stockholders cannot be included in the
inventory of assets of a corporation under rehabilitation. (Bustos vs. Millians Shoe,
Inc., et al., (824 SCRA 73-77)
3. The doctrine of piercing the veil of corporate fiction is a legal percept that
allows a corporation’s separate personality to be disregarded under certain
circumstances, so that a corporation and its stockholders or members, or a
corporation and another related corporation could be treated as a single entity.
The doctrine is an equitable principle, it being meant to apply only in a situation
where the separate corporate personality of a corporation is being abused or being
used for wrongful purposes. As Manila Hotel Corporation v. NLRC (343 SCRA 1)
explains:

“Piercing the veil of corporate entity is an equitable remedy. It is resorted to


when the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud or defend a crime. It is done only when a corporation is a mere
alter ego or business conduit of a person or another corporation.”

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
In Concept Builders, Inc. v. NLRC (257 SCRA 149), we laid down the following test
to determine when it would be proper to apply the doctrine of piercing the veil of
corporate fiction:

1. Control, not mere majority or complete stock control, but complete


domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive
legal duty, or dishonest and unjust act in contravention of plaintiff’s
legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury
or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil.

In applying the instrumentality or alter ego doctrine, the courts are concerned with
reality and not forum, with how the corporation operated and the individual
defendant’s relationship to that operation.

Relative to the Concept Builders test are the following critical ruminations from
Rufina Luy Lim v. CA (323 SCRA 102):

“More ownership by a single stockholder or by another corporation of all


or nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities.”

Moreover, to disregard the separate juridical personality of a corporation, the


wrongdoing must be clearly and convincingly established. It cannot be presumed.
(Veterans Federation of the Philippines vs. Montenegro, et al., (847 SCRA 26-28)

4. While a corporation may exist for any lawful purpose, the law will regard it as
an association of person, or in case of two corporations, merge them into one, when
its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine
of piercing the veil of corporate fiction which applies only when such corporate
fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime, or when it is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or where

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.

To disregard the separate juridical personality of a corporation, the


wrongdoing must be established clearly and convincingly. It cannot be
presumed.

Thus, to hold a director or officer personally liable for corporate obligations,


two requisites must concur: (1) complainant must allege in the complaint that
the director or officer assented to patently unlawful acts of the corporation, or
that the officer was guilty of gross negligence or bad faith; and (2) complainant
must clearly and convincingly prove such unlawful acts, negligence or bad faith.

Also, the existence of interlocking directors, corporate officers and


shareholders, which the LA considered, without more, is not enough
justification to pierce the veil of corporate fiction in the absence of fraud or
other public policy considerations.

Any piercing of the corporate veil has to be done with caution. The wrongdoing
must be clearly and convincingly established. It cannot just be presumed. ( Zaragoza
vs. Tan, et al., (847 SCRA 450-456)

5. Any piercing of the corporate veil must be done with caution (Vda de Roxas vs.
Our Lady’s Foundation, Inc., 692 SCRA 578). As the CA had correctly observed, it must
be certain that the corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of rights. Moreover, the
wrongdoing must be clearly and convincingly established. Sarona v. NLRC (663
SCRA394) instructs, thus:
“Whether the separate personality of the corporation should be pierced
hinges on obtaining facts appropriately pleaded or proved. However,
any piercing of the corporate veil has to be done with caution, albeit,
the Court will not hesitate to disregard the corporate veil when it is
misused or when necessary in the interest of justice. After all, the
concept of corporate entity was not meant to promote unfair
objectives.”
The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: (1) defeat of public convenience as when the corporate fiction is used
as a vehicle for the evasion of an existing obligation; (2) fraud cases or

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

when the corporate entity is used to justify a wrong, protect fraud, or defend a
crime; or (3) alter ego cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation.
CMCI 's alter ego theory rests on the alleged interlocking boards of directors and
stock ownership of the two corporations. The CA, however, rejected this theory
based on the settled rule that mere ownership by a single stockholder of even all
or nearly all of the capital stocks of a corporation, by itself, is not sufficient
ground to disregard the corporate veil. We can only sustain the CA's ruling.
The instrumentality or control test of the alter ego doctrine requires not mere
majority or complete stock control, but complete domination of finances, policy and
business practice with respect to the transaction in question. The corporate entity
must be shown to have no separate mind, will, or existence of its own at the time of
the transaction. (California Manufacturing, Co., Inc. vs. Advanced Technology System,
Inc., 824 SCRA 303-305)

6. A corporation is an artificial being created by operation of law. It possesses the


right of succession and such powers, attributes, and properties expressly authorized
by law or incident to its existence. It has a personality separate and distinct form the
persons composing it, as well as from any other legal entity to which it may be
related.
Equally well-settled is the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation. For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.

Hence, any application of the doctrine of piercing the corporation veil should be
done with caution. A court should be mindful of the milieu where it is to be applied.
It must be certain that the corporate fiction was misused to such an extent that
injustice, fraud, or crime was committed against another, in disregard of rights. The
wrongdoing must be clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may result from an erroneous
application.

Further, the Court’s ruling in Philippine National Bank v. Hydro Resources


Contractors Corporation, (693 SCRA 294) in enlightening, viz.:

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

The doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely: (1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing
obligation; (2) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or (3) alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.

xxx

In this connection, case law lays down a three-pronged test to


determine the application of the alter ego theory, which is also known
as the instrumentality theory, namely:

(1) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice
in respect to the transaction attacked so that the corporate entity as
to this transaction had at the time no separate mind, will or existence
of its own;

(2) Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive
legal duty, or dishonest and unjust act in contravention of plaintiff’s
legal right; and

(3) The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of.

The first prong is the “instrumentality” or “control” test.” This test


requires that the subsidiary be completely under the control and
domination of the parent. It examines the parent corporation’s
relationship with the subsidiary. It inquires whether a subsidiary
corporation is so organized and controlled and its affairs are so
conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity
will be ignored. It seeks to establish whether the subsidiary corporation
has no autonomy and the parent corporation, though acting through the
subsidiary in form and appearance, “is operating the business directly
for itself.”

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
The second prong is the “fraud” test. This test requires that the parent
corporation’s conduct in using the subsidiary corporation be unjust,
fraudulent or wrongful. It examines the relationship of the plaintiff to
the corporation. It recognizes that piercing is appropriate only if the
parent corporation uses the subsidiary in a way that harms and plaintiff
creditor. As such, it requires a showing of “an element of injustice or
fundamental unfairness.”

The third prong is the “harm” test. This test requires the plaintiff to
show that the defendant’s control, exerted in a fraudulent, illegal or
otherwise unfair manner toward it, caused the harm suffered. A causal
connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage
incurred by the plaintiff should be established. The plaintiff must prove
that, unless the corporate veil is pierced, it will have been treated
unjustly by the defendant’s exercise of control and improper use of the
corporate form and, thereby, suffer damages.

To summarize, piercing the corporate veil based on the alter ego


theory requires the concurrence of three elements: control of the
corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or
damage caused to the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements prevents
piercing the corporate veil.

Although ownership by one corporation of all or a great majority of stocks of another


corporation and their interlocking directorates may serve as indicia of control, by
themselves and without more, these circumstances are insufficient to establish an
alter ego relationship or connection between Philippine Carpet on the one hand and
Pacific Carpet on the other hand, that will justify the puncturing of the latter’s
corporate cover.

This Court has declared that “mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality. It has likewise
ruled that the “existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the
absence of fraud or other public policy considerations. (Pantranco Employees
Association vs. NLRC, 581 SCRA 598, cited in Zambrano vs. Philippine Carpet
Manufacturing Corporation, et al. 828 SCRA 162– 166)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

7. Section 74 of the Corporation Code provides for the liability for damages of any
officer or agent of the corporation for refusing to allow any director, trustee,
stockholder or member of the corporation to examine and copy excerpts from its
records or minutes. Section 144 of the same Code further provides for other
applicable penalties in case of violation of any provision of the Corporation Code.
Hence, to prove any violation under the aforementioned provisions, it is necessary
that: (1) a director, trustee, stockholder or member has made a prior demand in
writing for a copy of excerpts from the corporation records or minutes; (2) any
officer or agent of the concerned corporation shall refuse to allow the said director,
trustee, stockholder or member of the corporation to examine and copy said excerpts;
(3) if such refusal is made pursuant to a resolution or order of the board of directors
of trustees, the liability under this section for such action shall be imposed upon the
directors or trustees who voted for such refusal; and (4) where the officer or agent
of the corporation sets up the defense that the person demanding to examine and
copy excerpts from the corporation’s records and minutes has improperly used any
information secured through any prior examination of the records or minutes of such
corporation or of any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand, the contrary must be shown or proved.

Clearly, Ongjoco, as a member of BMTODA, had a right to examine documents and


records pertaining to said association. To recall, Ongjoco made a prior demand in
writing for copy of pertinent records of BMTODA from Roque and Singson. Onjoco
sent his letters dated December 13, 2003 and August 29, 2004 to Roque and Singson,
respectively. However, both of them refused to furnish Ongjoco copies of such
pertinent records. (Roque vs. People, 826 SCRA 622- 623)
8. In any case, the revocation of a corporation’s Certificate of Registration does
not automatically warrant the extinction of the corporation itself such that its rights
and liabilities are likewise altogether extinguished. In the case of Clemente v. Court
of Appeals, (242 SCRA 717) the Court explained that the termination of the life of a
juridical entity does not, by itself, cause the extinction or diminution of the rights
and liabilities of such entity nor those of its owners and creditors. (Roque vs. People,
826 SCRA 622- 624)

CREDIT CARDS –

1. After all, credit card arrangements are simple loan arrangements between the
card issuer and the card holder.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
Simply put, every credit card transaction involves three contracts, namely: (a)
the sales contract between the credit card holder and the merchant or the
business establishment which accepted the credit card; (b) the loan agreement
between the credit card issuer and the credit card holder; and lastly, (c) the
promise to pay between the credit card issuer and the merchant or business
establishment. (Bankard, Inc. vs. Alarte, 824 SCRA 13)

2. Since credit card is “any card, plate, coupon book, or other credit device existing
for the purpose of obtaining money, goods, property, labor or services or anything
of value on credit, it is considered an access device.

A counterfeit access device is “any access device that is counterfeit, fictitious,


altered, or forged, or an identifiable component of an access device or counterfeit
access device.”

Under Section 9(a) and (e) of Republic Act No. 8484, the possession and use of an
access device is not illegal. Rather, what is prohibited is the possession and use
of a counterfeit access device. Therefore, the corpus delicti of the crime is not
merely the access device, but also any evidence that proves that it is counterfeit.
(Cruz vs. People, 826 SCRA 574 – 575)

CROSSED CHECKS –

1. A crossed check is one where two parallel lines are drawn across its face or
across the corner thereof. A check may be crossed generally or specially. A check
is crossed especially when the name of a particular banker or company is written
between the parallel lines drawn. It is crossed generally when only the words “and
company” are written at all between the parallel lines. (Go vs. Metrobank, 628 SCRA
107 cited in BDO vs. Lao, 827 SCRA 495-496)

2. Jurisprudence dictates that the effects of crossing a check are: (1) that the
check may not be encashed but only deposited in the bank; (2) that the check
may be negotiated only once – to one who has an account with a bank; and (3)
that the act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

The effects of crossing a check, thus, relate to the mode of payment, meaning that
the drawer had intended the check for deposit only by the rightful person. i.e., the
payee named therein.

3. In Associated Bank vs. Court of Appeals (Associated Bank) (208 SCRA465), the
person who suffered the loss as a result of the unauthorized encashment of crossed
checks was allowed to recover the loss directly from the negligent bank despite the
latter’s contention of lack of privity of contract. The Court said:

There being no evidence that the crossed checks were actually


received by the private respondent, she would have a right of action
against the drawer companies, which in turn could go against their
respective drawee banks, which in turn could sue the herein petitioner
as collecting bank. In a similar situation, it was held that, to simplify
proceedings, the payee of the illegally encashed checks should be
allowed to recover directly from the bank responsible for such
encashment regardless of whether or not the checks were actually
delivered to the payee. We approve such direct action in the case at
bar. (cited in BDO vs. Lao, 827 SCRA 497)

4. The Court is of the considered view that the pronouncements made in Associated
Bank as regards the simplification of the recovery proceedings are applicable in the
present case. The factual milieu of this case are substantially similar with that of
Associated Bank, i.e., a crossed check was presented and deposited, without
authority, in the account of a person other than the payee named therein; the
collecting bank endorsed the crossed check and warrant the validity of all prior
endorsements and/or lack of it; the warranty turned out to be false; and, a party to
the check transaction, which would otherwise be held liable to the party aggrieved,
was not made a party in the proceedings in court.” (BDO vs. Lao, 827 SCRA 499)
DAMAGES –

1. The cases when moral damages may be awarded are specific. Unless the case
falls under the enumeration as provided in Article 2219, which is exclusive, and
Article 2220 of the Civil Code, moral damages may not be awarded.

*Article 2219 provides: Moral damages may be recovered in the


following and analogous cases:

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

(1) A criminal offense resulting in physical injuries;


(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32,
34 and 35.

Article 2220 provides the following additional legal grounds for awarding moral
damages: (1) willful injury to property if the court should find that, under the
circumstances, such damages are justly due; and (2) breaches of contract where the
defendant acted fraudulently or in bad faith.

2. As to exemplary or corrective damages, these may be granted in quasi-delicts if


the defendant acted with gross negligence pursuant to Article 2231 of the Civil
Code. (Coca-Cola Bottlers Phils., Inc.vs. Meñez, 846 SCRA 304-306)

3. Present jurisprudence holds that when the circumstances surrounding the crime
call for the imposition of reclusion perpetua only, there being no ordinary
aggravating circumstance, the proper amounts for damages should be P75,000.00 as
civil indemnity, P75,000.00 as moral damages, and P75,000.00 as exemplary
damages, regardless of the number of qualifying aggravating circumstances present.
In conformity thereto, the Court awards the foregoing damages in the instant case.
(People vs. Pantoja, 847 SCRA 320)

4. The award of temperate damage is proper since under Article 2224 of the Civil
Code, temperate damages may be recovered when the court finds that some
pecuniary loss had been suffered but its amount cannot, from the nature of the case,
be proved with certainty. Likewise, the Court finds the deletion of nominal damages
proper.

The CA is correct in holding that temperate and nominal damages are


incompatible and thus, cannot be granted concurrently. Under Article 2221 of
the Civil Code, nominal damages are given in order that a right of the plaintiff which
has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him. ( People
vs. De la Peña, 853 SCRA 577 – 578)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

5. Following the new jurisprudential ruling in People vs. Jugueta (788 SCRA 331),
where the penalty for the crime committed is death which, however, cannot be
imposed, we increase the amounts of indemnity and damages to be imposed as
follows: PhP100,000 as civil indemnity; PhP100,000 as moral damages; and
PhP100,000 as exemplary damages. The Court likewise affirms the actual
damages of PhP30,000 awarded by the RTC as it was expressly provided on record
that the heirs of the victim actually incurred such expense for the wake and burial of
the victim evidenced by the corresponding receipts. Lastly, interest at the rate of
6% per annum is imposed on all damages awarded reckoned from the date of
the finality of this judgment until fully paid. (People vs. Sabida, 827 SCRA 389)

6. Moral damages are awarded to enable the injured party to obtain means,
diversions, or amusements that will serve to alleviate the moral suffering he has
undergone, by reason of the defendant’s culpable action. For a claim for moral
damages to prosper, the claimant must prove that: first, there must be an injury,
whether physical, mental or psychological, clearly sustained by the claimant;
second, there must be culpable act or omission factually established; third, the
wrongful act or omission of the defendant is the proximate cause of the injury
sustained by the claimant; and fourth, the award of damages is predicated on any
of the cases stated in Article 2219 of the Civil Code. (Arco Pulp and Paper vs. Lim,
727 SCRA 275 cited in Santos-Yllana Realty vs. Deang, 827 SCRA 638-639)

7. Moral damages are awarded to allow a plaintiff to obtain means, diversion, or


amusement that will serve to alleviate the moral suffering he has undergone due to
the defendant’s culpable action. (LADECO vs. Angala, 525 SCRA 229)

DAMNUM ABSQUE INJURIA –


In The Orchard Golf & Country Club, Inc. vs. Yu, (253 SCRA 483), The Court has
fittingly pointed out the distinction, viz.:

x xx Injury is the illegal invasion of a legal right, damage is the loss,


hurt, or harm which results from the injury; and damages are the
recompense or compensation awarded for the damage suffered. Thus,
there can be damage without injury in those instances in which the loss
or harm was not the result of a violation of a legal duty. These
situations are often called damnum absque injuria.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

In every situation of damnum absque injuria, therefore, the injured person alone
bears the consequences because the law affords no remedy for damages resulting
from an act that does not amount to a legal injury or wrong.

For instance, in BPI Express Card Corporation v. Court of Appeals, (296 SCRA 260),
the Court turned down the claim for damages of a cardholder whose credit card had
been cancelled after several defaults in payment, holding therein that there could be
damage without injury where the loss or harm was not the result of a violation of a
legal duty towards the plaintiff. In such situation, the injured person alone should
bear the consequences because the law afforded no remedy for damages resulting
from an act that did not amount to a legal injury or wrong. Indeed, the lack of malice
in the conduct complained of precluded the recovery of damages.

Here, although the petitioners suffered humiliation resulting from their unwitting use
of the counterfeit US dollar bills, the respondent, by virtue of its having observed
the proper protocols and procedure in handling the US dollar bills involved, did not
violate any legal duty towards them. Being neither guilty of negligence nor remiss
in its exercise of the degree of diligence required by law or the nature of its obligation
as a banking institution, the latter was not liable for damages. Given the situation
being one of damnum absque injuria, they could not be compensated for the damage
sustained. (Sps. Carbonell, vs. Metrobank, (825 SCRA 12 –13)

DECLARATION OF NULLITY OF MARRIAGE –

1. Time and again, it has been held that “psychological incapacity” has been
intended by law to be confined to the most serious cases of personality disorders
clearly demonstrative of an utter insensitivity or inability to give meaning and
significance to the marriage. Psychological incapacity must be characterized by: (a)
gravity, i.e., it must be grave and serious such that the party would be incapable of
carrying out the ordinary duties required in a marriage; (b) juridical antecedence,
i.e., it must be rooted in the history of the party ante-dating the marriage, although
the overt manifestations may emerge only after the marriage; and (c) incurability,
i.e., it must be incurable, or even if it were otherwise, the cure would be beyond the
means of the party involved.

The case of Republic of the Philippines vs. Court of Appeals (268 SCRA 198) has set
out the guidelines that has been the core of discussion of practically all declarations
of nullity of marriage on the basis of psychological incapacity cases that we have
decided:

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

(1) that he burden of proof to show the nullity of the marriage belongs to
the plaintiff. Any doubt should be resolved in favor of the existence and
continuation of the marriage and against its dissolution and nullity. xxx

(2) that the root cause of the psychological incapacity must be: (a)
medically or clinically identified; (b) alleged in the complaint; (c)
sufficiently proven by experts; and (d) clearly explained in the
decision. xxx

(3) that the incapacity must be proven to be existing at “the time of the
celebration” of the marriage. xxx

(4) that such incapacity must also be shown to be medically or clinically


permanent or incurable. xxx

(5) that such illness must be grave enough to bring about the disability of
the party to assume the essential obligations of marriage. xxx

(6) that the essential marital obligations must be those embraced by


Articles 68 up to 71 of the Family Code as regards the husband and
wife as well as Articles 220, 221 and 225 of the same Code in regard
to parents and their children. xxx

(7) that interpretations given by the National Appellate Matrimonial


Tribunal of the Catholic Church in the Philippines, while not
controlling or decisive, should be given great respect by our courts.
xxx

(8) The trial court must order the prosecuting attorney or fiscal and the
Solicitor General to appear as counsel for the state. No decision shall
be handed down unless the Solicitor General issues a certification,
which will be quoted in the decision, briefly stating therein his reasons
for his agreement or opposition, as the case may be, to the petition. xxx
(Republic vs. Tobora-Tionglico, 851 SCRA 113-115)

2. In declaration of nullity and annulment of marriage cases, the investigation


report of the prosecutor on whether there is collusion between the parties is a
condition sine qua non for setting the case for pre-trial or further proceedings.
Thus, it matters not that the public prosecutors manifested

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

before Judges Felicen, Quisumbing and Mangrobang that they would just actively
participate in the proceedings to safeguard against collusion or fabricated evidence,
in lieu of an investigation report on collusion. No further proceedings should have
been held without the investigation report. In Corpus vs. Ochotorena (435 SCRA
446), the Court found the respondent judge therein administratively liable for failure
to observe the mandatory requirement of ordering the investigating public prosecutor
to determine whether collusion existed between the parties. The Court emphasized
that the active participation of the public prosecutor in the proceedings of the case
could not take the place of the investigation report. (Office of the Court Administrator
vs. Cabrera-Faller), 851 SCRA 290)

3. In Maquilan vs. Maquilan (524 SCRA 166), we enunciated that the appearances
of the Solicitor General and/or public prosecutor in proceedings for the
declaration of nullity and annulment of marriage are mandatory.

Under A.M. No. 02-11-10-SC, the failure of the petitioner to file a pre-trial brief
or even comply with its required contents has the same effect as the failure to
appear at the pretrial, which means the dismissal of the case. (OCA vs. Cabrera-
Faller, et al., 851 SCRA 298 )

4. Under Section 19(3) of A.M. No. 02-11-10-SC, a decision of the court granting
the petition for declaration of nullity or annulment of marriage becomes final upon
the expiration of 15 days from notice to the parties. Entry of judgment shall be made
if no motion for reconsideration or new trial, or appeal, is filed by any of the parties,
the public prosecutor, or the Solicitor General. If the parties have no properties, the
court shall forthwith issue the corresponding decree of declaration of absolute nullity
or annulment of marriage upon the finality of the decision. Otherwise, upon the
finality of the decision, the court shall observe the procedure prescribed for the
liquidation, partition and distribution of the properties of the spouses,
including custody, support of common children, and delivery of their
presumptive legitimes. In both cases, the entry of judgment shall be registered
in the civil registry where the marriage was recorded and in the civil registry
where the family court granting the petition for the declaration of absolute
nullity or annulment of marriage is located. (OCA vs. Cabrera-Faller, et al.,
851SCRA 295)
If the parties have properties, the decree of declaration of absolute nullity or
annulment of marriage shall be issued only after the registration of the
approved partition and distribution of the properties of the spouses in the
proper Register of Deeds where the real properties are located; and after the
delivery of the children’s presumptive legitimes in cash, property, or sound
securities. The approved deed of partition shall be attached to the decree.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

Again, in both cases in which the parties have or do not have properties, the
decree shall be registered: (a) in the civil registry where the marriage was
registered; (b) the civil registry of the place where the family court is situated,
(c) as well as in the National Census and Statistics Office. (OCA vs. Cabrera-
Faller, et al., 851 SCRA 295-296)

EARNEST MONEY –

1. Earnest money, under Article 1482 of the Civil Code, is ordinarily given in a
perfected contract of sale. However, earnest money may also be given in a
contract to sell.

In a contract to sell, earnest money generally intended to compensate the seller for
the opportunity cost of not looking for any other buyers. It is a show of commitment
on the part of the party who intimates his or her willingness to go through with the
sale after a specified period or upon compliance with the conditions stated in the
contract to sell.

Opportunity cost is defined as “the cost of the foregone alternative.” In a potential


sale, the seller reserves the property for a potential buyer and foregoes the alternative
of searching for other offers.

This Court in Philippine National Bank vs. Court of Appeals (262 SCRA 464)
construed earnest money given in a contract to sell as “consideration for [seller’s]
promise to reserve the subject property for [the buyer].” The seller, “in excluding
all other prospective buyers from bidding for the subject property . . . [has given] up
what may have been more lucrative offers or better deals.

Earnest money, therefore, is paid for the seller’s benefit. It is part of the
purchase price while at the same time proof of commitment by the potential
buyer. Absent proof of a clear agreement to the contrary, it is intended to be
forfeited if the sale does not happen without the seller’s fault. The potential
buyer bears the burden of proving that the earnest money was intended other than as
part of the purchase price and to be forfeited if the sale does not occur without the
fault of the seller. Respondents were unable to discharge this burden.

There is no unjust enrichment on the part of the seller should the initial
payment be deemed forfeited. After all, the owner could have found other offers
or a better deal. The earnest money given by respondents is the cost of holding this
search in abeyance. (Racelis vs. Javier, 853 SCRA 274)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
2. Whenever earnest money is given in a contract of sale, it shall be considered as
part of the price and as proof of perfection of the contract. The earnest money forms
part of the consideration only if the sale is consummated upon full payment of the
purchase price. (Umigpig vs. People, 677 SCRA 53)

GOOD FAITH, defined –

1. Good faith is ordinarily used to describe that state of mind denoting “honesty of
intention, and freedom from knowledge of circumstances which ought to put the
holder upon inquiry; an honest intention to abstain from taking any unconscientious
advantage of another, even through technicalities of law, together with absence of
all information, notice, or benefit or belief of facts which render the transaction
unconscientious. (Gambito vs. Bacena, 853 SCRA 102)

2. The doctrine of mortgage in good faith presupposes that the mortgagor, who
is not the rightful owner of the property, has already succeeded in obtaining a
Torrens title over the property in his or her name and that, after obtaining the said
title, he or she succeeds in mortgaging the property to another who relies on what
appears on the said title. In this case, Marissa is undoubtedly not the registered
owner of the subject lot; and the certificate of title was in the name of her parents at
the time of the mortgage transaction. She merely acted as the attorney-in-fact of
Corazon and Delfin by virtue of the falsified SPA. The protection accorded by law
to mortgages in good faith cannot be extended to mortgagees of properties that are
not yet registered with the RD or registered but not under the mortgagor’s name.
(Dadis vs. De Guzman, et al. 826 SCRA 509)

3. When the mortgagee does not directly deal with the registered owner of the real
property, like an attorney-in-fact of the owner, it is incumbent upon the mortgagee
to exercise greater care and a higher degree of prudence in dealing with such
mortgagor. As Abad v. Sps. Guimba (465 SCRA 356) reminded:

xxx A person who deals with registered land through someone who is
not the registered owner is expected to look behind the certificate of
title and examine all factual circumstances, in order to determine if the
mortgagor/vendee has the capacity to transfer any interest in the land.
One has the duty to ascertain the identity of the person with whom one
is dealing, as well as the latter’s legal authority to convey.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

The law “requires a higher degree of prudence from one who buys from
a person who is not the registered owner, although the land object of
the transaction is registered. While one who buys from the registered
owner does not need to look behind the certificate of title, one who buys
from one who is not the registered owner is expected to examine not
only the certificate of title but all factual circumstances necessary for
[one] to determine if there are any flaws in the title of the transferor,
or in [the] capacity to transfer the land.” Although the instant case
does not involve a sale but only a mortgage, the same rule applies
inasmuch as the law itself includes a mortgagee in the term
“purchaser.” (Dadis vs. De Guzman, et al. 826 SCRA 510)

LACHES –
The defense of laches is based on equity. (Pabalate vs. Echarri, 37 SCRA 518) It is
not based on the title of the party invoking it, but on the right holder’s “long
inaction or inexcusable neglect” to assert his claim.

This Court rules that the Spouses Po are not barred by laches. There is no showing
that they abandoned their right to the property. The factual findings reveal that the
Spouses Po had their rights over the property registered in the assessor’s office. They
testified that they introduced improvements by cultivating fruit trees after they
purchased the lots. When the Spouses Po discovered that Ciriaco executed a
quitclaim renouncing his interest over Lot No. 2807 in favor of Roberto, the Spouses
Po executed a Memorandum of Agreement with Ciriaco to protect their interest in
Lot No. 2835.

The Spouses Po also had the property declared for taxation purposes in their names
and Tax Declaration No. 0634-A was issued. Thus, when the Spouses Aboitiz also
had the property declared for taxation purposes, it had the annotation: “This tax
declaration is also declared in the name of Mrs. Victoria Lee Po, married to Peter Po
under Tax Dec. No. 0634-A so that one may be considered a duplicate to the other.”
(Aboitiz vs. Po, 825 SCRA 488)

LAND REGISTRATION –
1. There is indeed a situation where, despite the fact that the mortgagor is not the
owner of the mortgaged property, his title being fraudulent, the mortgage contract
and any foreclosure sale arising therefrom are given effect by reason of public
policy. This is the doctrine of “the mortgagee in good faith” based on the rule that
buyers or mortgagees dealing with property covered by a Torrens Certificate of Title
are not required to be beyond what appears on the face of the title.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
Indeed, a mortgagee has a right to rely in good faith on the certificate of title of the
mortgagor of the property given as security, and in the absence of any sign that might
arouse suspicion, the mortgagee has no obligation to undertake further investigation.
This doctrine presupposes, however, that the mortgagor, who is not the rightful
owner of the property, has already succeeded in obtaining Torrens title over the
property in his name and that, after obtaining the said title, he succeeds in
mortgaging the property to another who relies on what appears on the title.

The Court, in the case of Andres, et al. vs. Philippine National Bank (738 SCRA 344),
explained the dynamics of the burden of discovery in said doctrine, to wit:

“The doctrine protecting mortgagees and innocent purchasers in good


faith emanates from the social interest embedded in the legal concept
granting indefeasibility of titles. The burden of discovery of invalid
transactions relating to the property covered by a title appearing
regular on its face is shifted from the third party relying on the title to
the co-owners or the predecessors of the title holder. Between the third
party and the co-owners, it will be the latter that will be more intimately
knowledgeable about the status of the property and its history. The
costs of discovery of the basis of invalidity, thus, are better borne by
them because it would naturally be lower. A reverse presumption will
only increase costs for the economy, delay transactions, and, thus,
achieve a less optimal welfare level for the entire society.” (Miles vs.
Lao, 846 SCRA 288-289)

2. The Torrens system was adopted to “obviate possible conflicts of title by giving
the public the right to rely upon the face of the Torrens certificate and to dispense,
as a rule, with the necessity of inquiring further.” (Leong vs. See, 743 SCRA 677). From
this sprung the doctrinal rule that every person dealing with registered land may
safely rely on the correctness of the certificate of title issued therefor and is in no
way obliged to go beyond the certificate to determine the condition of the property.
(Locsin vs. Hizon, 735 SCRA 547)

To be sure, this Court is not unaware of the recognized exceptions to this rule,
to wit: (1) when the party has actual knowledge of facts and circumstances
that would impel a reasonably cautious man to make further inquiry; (2) when
the buyer has knowledge of a defect or the lack of title in his vendor; or (3)
when the buyer/mortgagee is a bank or an institution of similar nature as they
are enjoined to exert a higher degree of diligence, care, and prudence than
individuals in handling real estate transactions. (Arguelles vs. Malarayat Rural
Bank, Inc. 719 SCRA 563)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

Complementing this doctrinal rule is the concept of an innocent purchaser for


value, which refers to someone who buys the property of another without notice
that some other person has a right to or interest in it, and who pays in full and
fair the price at the time of the purchase or without receiving any notice of
another person’s claim. (Leong – See case cited earlier) (Calma vs. Lachica, 846 SCRA
463)

3. It is settled that a defective title may still be the source of a completely legal and
valid title in the hands of an innocent purchaser for value. (Leong vs. See cited earlier)

4. The rule on double or multiple sales applies only when all the purchasers are in
good faith. (Alfaro vs. Dumalagan, 715 SCRA 476)

5. The rule that persons dealing with registered lands can rely solely on the
certificate of title is not applicable to banks. (Jalbay, Sr. vs. Philippine National Bank,
764 SCRA 569)

6. Respondents were not obliged to look beyond the title before they purchased the
property. They may rely solely on the face of the title.

The only exception to the rule is when the purchaser has actual knowledge of any
defect or other circumstance that would cause “a reasonably cautions man” to inquire
into the title of the seller. If there is anything which arouses suspicion, the vendee
is obliged to investigate beyond the face of the title. Otherwise, the vendee cannot
be deemed a purchaser in good faith entitled to protection under the law. (Aboitiz vs.
Po, 825 SCRA 512)

7. We note, too, that under Section 9 of the Rules and Regulations Implementing
Presidential Decree No. 957, as amended by Presidential Decree No. 1216, the
registered owner or developer of the subdivision who has secured the certificate of
completion and has executed the deed of donation in favor of the city or
municipality “shall be deemed relieved of the responsibility of maintaining the
road lots and open space of the subdivision notwithstanding the refusal of the
City/Municipality concerned to accept the donation.” (TGN Realty Corp. vs. Villa
Teresa Homeowners Association, Inc., 823 SCRA 496)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

LEASE –
This Court in Chua Tee Dee vs. Court of Appeals, (429 SCRA 418) struck down the
lessee’s argument and held that “the duty ‘to maintain the lessee in the peaceful and
adequate enjoyment of the lease for the duration of the contract’ mentioned in No. 3
of Article 1654 is merely a warranty that the lessee shall not be disturbed in his legal,
and not physical, possession.” Furthermore, this Court found that there was no
disturbance in the lessee’s legal possession because her right to possess the property
was neither questioned nor raised as an issue in any legal proceeding. Hence, she
was not entitled to suspend the payment of rent.

In this case, the disconnection of electrical service over the leased premises on May
14, 2004 was not just an act of physical disturbance but one that is meant to remove
respondents from the leased premises and disturb their legal possession as lessees.
Ordinarily, this would have entitled respondents to invoke the right accorded by
Article 1658 of the Civil Code.

However, this rule will not apply in the present case because the lease had
already expired when petitioner requested for the temporary disconnection of
electrical service. Petitioner demanded respondents to vacate the premises by
May 30, 2004.

Instead of surrendering the premises to petitioner, respondents unlawfully withheld


possession of the property. Respondents continued to stay in the premises until they
moved to their new residence on September 26, 2004. At that point, petitioner was
no longer obligated to maintain respondents in the “peaceful and adequate
enjoyment of the lease for the entire duration of the contract.” Therefore,
respondents cannot use the disconnection of electrical service as justification to
suspend the payment of rent.

Assuming that respondents were entitled to invoke their right under Article 1658 of
the Civil Code, this does exonerate them from their obligation under Article 1657 of
the Civil Code “to pay the price of the lease according to the terms stipulated.”
Lessees who exercise their right under Article 1658 of the Civil Code are not
freed from the obligations imposed by law or contract.

Moreover, respondents’ obligation to pay rent was not extinguished when they
transferred to their new residence. Respondents are liable for a reasonable amount
of rent for the use and continued occupation of the property upon the expiration of
the lease. To hold otherwise would unjustly enrich respondents at petitioner’s
expense. (Racelis vs. Javier, 853 SCRA 269-270)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

MCLE REQUIREMENT IN PLEADINGS –

On point is People vs. Arrojado (774 SCRA 193) where it was held that the failure
of a lawyer to indicate in his or her pleadings the number and date of issue of his or
her MCLE Certificate of Compliance will no longer result in the dismissal of the
case:

In any event, to avoid inordinate delays in the disposition of cases


brought about by a counsel’s failure to indicate in his or her pleadings
the number and date of issue of his or her MCLE Certificate of
Compliance, this Court issued an En Banc Resolution, dated January
14, 2014 which amended B.M. No. 1922 by repealing the phrase
“Failure to disclose the required information would cause the
dismissal of the case and the expunction of the pleadings from the
records” and replacing it with “Failure to disclose the required
information would subject the counsel to appropriate penalty and
disciplinary action.” Thus, under the amendatory Resolution, the
failure of a lawyer to indicate in his or her pleadings the number and
date of issue of his or her MCLE Certificate of Compliance will no
longer result in the dismissal of the case and expunction of the
pleadings from the records. Nonetheless, such failure will subject the
lawyer to the prescribed fine and/or disciplinary action. (Luis S. Doble,
Jr. vs. ABB, Inc./Nitin Desai, 825 SCRA 577 - 578)

NUISANCE (Torre de Manila case) –

In Manila Electric Company v. Public Service Commission, (60 Phil. 658), the Court
held that "what is not expressly or impliedly prohibited by law may be done,
except when the act is contrary to morals, customs and public order."
This principle is fundamental in a democratic society, to protect the weak against the
strong, the minority against the majority, and the individual citizen against the
government. In essence, this principle, which is the foundation of a civilized society
under the rule of law, prescribes that the freedom to act can be curtailed only through
law. Without this principle, the rights, freedoms, and civil liberties of citizens can
be arbitrarily and whimsically trampled upon by the shifting passions of those who
can spout the loudest, or those who can gather the biggest crowd or the most number
of Internet trolls. In other instances, the Court has allowed or upheld actions that
were not expressly prohibited by statutes when it determined that these acts were not
contrary to morals, customs, and public order, or that upholding the same would lead
to a more equitable solution to the controversy.
NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

However, it is the law itself - Articles 1306 and 1409 (1) of the Civil Code - which
prescribes that acts not contrary to morals, good customs, public order, or public
policy are allowed if also not contrary to law.
In this case, there is no allegation or proof that the Torre de Manila project is
"contrary to morals, customs, and public order" or that it brings harm, danger, or
hazard to the community. On the contrary, the City of Manila has determined that
DMCI-PDI complied with the standards set under the pertinent laws and local
ordinances to construct its Torre de Manila project.

Pro hac vice means a specific decision does not constitute a precedent because
the decision is for the specific case only, not to be followed in other cases. A pro
hac vice decision violates statutory law - Article 8 of the Civil Code - which states
that "judicial decisions applying or interpreting the laws or the Constitution shall
form part of the legal system of the Philippines." The decision of the Court in this
case cannot be pro hac vice because by mandate bf the law every decision of the
Court forms part of the legal system of the Philippines. If another case comes up
with the same facts as the present case, that case must be decided in the same way
as this case to comply with the constitutional mandate of equal protection of the law.
Thus, a pro hac vice decision also violates the equal protection clause of the
Constitution.

The Court recognizes two kinds of nuisances. The first, nuisance per
se, is one "recognized as a nuisance under any and all circumstances,
because it constitutes a direct menace to public health or safety, and,
for that reason, may be abated summarily under the undefined law of
necessity." The second, nuisance per accidens, is that which
"depends upon certain conditions and circumstances, and its
existence being a question of fact, it cannot be abated without due
hearing thereon in a tribunal authorized to decide whether such a
thing in law constitutes a nuisance." (Aquino vs. Municipality of Malay,
Aklan, 737 SCRA 145)
It can easily be gleaned that the Torre de Manila is not a nuisance per se. The Torre
de Manila project cannot be considered as a "direct menace to public health or
safety."
Not only is a condominium project commonplace in the City of Manila, DMCI-PDI
has, according to the proper government agencies, complied with health and safety
standards set by law. DMCI-PDI has been granted the following permits and
clearances prior to starting the project: (1) Height Clearance Permit from the Civil
Aviation Authority of the Philippines; (2) Development Permit from the
HLURB; (3) Zoning Certification from the HLURB; (4) Certificate of
NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

Environmental Compliance Commitment from the Environment Management


Bureau of the Department of Environment and Natural Resources; (5) Barangay
Clearance; (6) Zoning Permit; (7) Building Permit; and (8) Electrical and
Mechanical Permit.

Later, DMCI-PDI also obtained the right to build under a variance recommended by
the MZBAA and granted by the City Council of Manila. Thus, there can be no doubt
that the Torre de Manila project is not a nuisance perse.
On the other hand, the KOR now claims that the Torre de Manila is a nuisance per
accidens.
By definition, a nuisance per accidens is determined based on its surrounding
conditions and circumstances. These conditions and circumstances must be
well established, not merely alleged. The Court cannot simply accept these
conditions and circumstances as established facts as the KOR would have us do
in this case.

The KOR itself concedes that the question of whether the Torre de Manila is a
nuisance per accidens is a question of fact.
The authority to decide when a nuisance exists is an authority to find facts, to
estimate their force, and to apply rules of law to the case thus made. This Court is
no such authority. It is not a trier of facts. It cannot simply take the allegations in
the petition and accept these as facts, more so in this case where these allegations
are contested by the respondents.
The task to receive and evaluate evidence is lodged with the trial courts. The
question, then, of whether the Torre de Manila project is a nuisance per
accidens must be settled after due proceedings brought before the proper Regional
Trial Court. The KOR cannot circumvent the process in the guise be protecting
national culture and heritage. (Knights of Rizal vs. DMCI Homes, Inc., et al., 824 SCRA
388-412)

QUASI-DELICTS –
1. The CA (Court of Appeals) correctly ruled that prior resort to BFD (Bureau of Food
and Drugs) is not necessary for a suit for damages under Article 2187 of the Civil
Code to prosper. Article 2187 unambiguously provides:

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
Art. 2187. Manufacturers and processors of foodstuffs, drinks, toilet
articles and similar goods shall be liable for death or injuries caused
by any noxious or harmful substances used, although no contractual
relation exists between them and the consumers.
Quasi-delict being the source of obligations upon which Meñez bases his cause
of action for damages against CCBPI, the doctrine of exhaustion of
administrative remedies is not applicable. Such is not a condition precedent
required in a complaint for damages with respect to obligations arising from quasi-
delicts under Chapter 2, Title XVII on Extra-Contractual Obligations, Article 2176,
et seq. of the Civil Code which includes Article 2187. (Coca-Cola Bottlers Phils.,
Inc.vs. Meñez, 846 SCRA 304-306)

2. An action for damages due to the negligence of another may be instituted on the
basis of Article 2176 of the Civil Code, which defines a quasi-delict:

Whoever by act or omission causes damage to another, there being


fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, it there is no preexisting contractual relation between
the parties, is called a quasi-delict and is governed by the provisions of
this Chapter.

The elements of a quasi-delict are: (1) an act or omission; (2) the presence of
fault or negligence in the performance or non- performance of the act; (3)
injury; (4) a causal connection between the negligent act and the injury; and
(5) no pre-existing contractual relation. (St. Martin Polyclinic, Inc. vs. LWC
Construction Corporation, 847 SCRA 390-391)

REAL ESTATE MORTGAGE –

1. In Sps. Yap and Guevarra vs. First e-Bank Corp. (601 SCRA 250), this Court
already recognized that if the debtor fails (or unjustly refuses) to pay his debt when
it falls due and the debt is secured by a mortgage and by a check, the creditor has
three options against the debtor and the exercise of one will bar the exercise of the
others. The remedies include foreclosure and filing of a criminal case for violation
of BP 22 (Bouncing Checks Law). Verily, when respondent opted to foreclosure,
he merely exercised a privilege granted to him by law as a secured creditor. Hence,
without sufficient justification, we cannot impute bad faith on respondent by her
exercise of such right. (cited in Miles vs. Lao, (846 SCRA 292)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
(Note – The remedies are: 1. an action for specific performance [collection
case]; 2. foreclosure of the mortgage; and 3. an action for Violation of B.P.
No. 22)
2. It is settled that a mortgagee does not become the owner of the mortgaged
property until he has foreclosed the mortgage and, thereafter, purchased the property
at the foreclosure sale. (Quintos vs. Dept. of Agrarian Reform, 715 SCRA 592)

3. In extra-judicial foreclosure of mortgage, where the proceeds of the sale are


insufficient to pay the debt, the mortgagee has the right to recover the deficiency
from the debtor. (Metrobank vs. CPR Promotions and Marketing, Inc., 760 SCRA 59)

4. That only Boston Equity Resources, Inc. had participated in the bidding during
the foreclosure sale did not constitute a defect that nullified or voided the foreclosure
sale considering that the Court had already dispensed with the two-bidder rule
for purposes of the foreclosure sale of private properties.

In A.M. No. 99-10-05-0 dated January 30, 2001(Re: Procedure in Extra-Judicial


Foreclosure of Mortgage), therefore, the Court, acting on letters containing
observations and proposals about the rules of procedure to be undertaken in the
extrajudicial foreclosure of mortgages as embodied in Circular A.M. No. 99-10-05-
0 (inclusive of the bidding requirements, and the publication of notices), expressly
resolved:

“After due deliberation on the points raised by the parties and


considering the report of the OCA, the Court resolved as follows:

1. Paragraph 5 of the Circular A.M. No. 99-10-05-0 provides

No auction sale shall be held unless there are at least two (2)
participating bidders, otherwise the sale shall be postponed to
another date. If on the new date set for the sale there shall not be
at least two bidders, the sale shall then proceed. The names of
the bidders shall be reported by the sheriff or the notary public
who conducted the sale to the Clerk of Court before the issuance
of the certificate of sale.

It is contended that this requirement is not found in Act No. 3135 and
that it is impractical and burdensome, considering that not all auction
sales are commercially attractive to prospective bidders.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
The observation is well taken, Neither Act No. 3135 nor the previous
circulars issued by the Court governing extrajudicial foreclosures
provide for a similar requirement. The two-bidder rule is provided
under P.D. No. 1594 and its implementing rules with respect to contracts
for government infrastructure projects because of the public interest
involved. Although there is a public interest in the regularity of
extrajudicial foreclosure of mortgages, the private interest is
predominant. The reason, therefore, for the requirement that there must
be at least two bidders is not as exigent as in the case of contracts for
government infrastructure projects.

On the other hand, the new requirement will necessitate


republication of the notice of auction sale in case only one bidder
appears at the scheduled auction sale. This is not only costly but,
more importantly, it would render naught the binding effect of the
publication of the originally scheduled sale. Prior publication of
the extrajudicial foreclosure sale in a newspaper of general
circulation operates as constructive notice to the whole world.”
(Boston Equity xxx vs. Del Rosario, (846- SCRA 565-568)

5. The findings of the CA on the lack of Rosie’s written consent to the REM and
its amendment stand unrefuted. Such findings warrant the nullification not only of
the REM and its amendment, but also of all the proceedings taken to foreclose the
REM. Such invalidity applied to the entire mortgage, even to the portion
corresponding to the share of Edgardo in the conjugal estate. Article 124 of the
Family Code clearly so provides:

“Art. 124. The administration and enjoyment of the conjugal


partnership shall belong to both spouses jointly. In case of
disagreement, the husband’s decision shall prevail, subject to recourse
to the court by the wife for proper remedy, which must be availed of
within five years form the date of the contract implementing such
decision.

In the event that one spouse is incapacitated or otherwise unable to


participate in the administration of the conjugal properties, the other
spouse may assume sole powers of administration. These powers do
not include disposition or encumbrance without authority of the court
or the written consent of the other spouse. In the absence of such
authority or consent, the disposition or encumbrance shall be void.
However, the transaction shall be

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
construed as a continuing offer on the part of the consenting spouse
and the third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court before
the offer is withdrawn by either or both offerors.”
What the CA declared void was the REM. Since the REM was an encumbrance on
the conjugal properties, the contracting thereof by Edgardo sans the written consent
of Rosie rendered only the REM void and legally inexistent. The petitioners could
still recover the loan from the conjugal partnership in a proper case for the purpose.
Where the mortgage was not valid, the principal obligation that the mortgage
guaranteed was not thereby rendered null and void. The liability of the debtor
under the principal contract of the loan subsisted despite the illegality of the REM.
That obligation matured and became demandable in accordance with the stipulation
pertaining to it. What was lost was only the right to foreclose the REM as a
special remedy for satisfying or settling the debt that was the principal
obligation. In case of its nullity, the mortgage deed remained as evidence or proof
of the debtor’s personal obligation, and the amount due to the creditor could be
enforced in an ordinary action. (Boston Equity xxx vs. Del Rosario, (846- SCRA 573-575)

6. There is no dispute that Mahinay had a lien on the property subsequent to the
mortgage. Consequently, he had the right to buy it back from the purchaser at the
sale, Dura Tire in this case, “from and at any time within the term of one year from
and after the date of the sale.” Section 6 of Act No. 3135 provides:

In all cases in which an extrajudicial sale is made under the special


power hereinbefore referred to, the debtor, his successors-in-interest
or any judicial creditor or judgment creditor of said debtor, or any
person having a lien on the property subsequent to the mortgage or
deed of trust under which the property is sold, may redeem the same at
any time within the term of one year from and after the date of the sale;
and such redemption shall be governed by the provisions of sections
four hundred and sixty-four to four hundred and sixty-six, inclusive, of
the Code of Civil Procedure, in so far as these are not inconsistent with
the provisions of this Act.

The “date of the sale” referred to in Section 6 is the date the certificate of sale
is registered with the Register of Deeds. This is because the sale of registered
land does not “take effect as a conveyance, or bind the land’ until it is
registered.”

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

The right of redemption being statutory, the mortgagor may compel the purchaser to
sell back the property within the one (1)-year period under Act No. 3135.

If the purchaser refuses to sell back the property, the mortgagor may tender
payment to the Sheriff who conducted the foreclosure sale.
As early as 1956, this Court held in Mateo vs. Court of Appeals (99 Phil. 1042) that
“the right of redemption . . .must . . . be exercised in the mode prescribed by the
statute.” The one (1)-year period of redemption is fixed, hence, non-extendible, to
“avoid prolonged economic uncertainty over the ownership of the thing sold.”

Since the period of redemption is fixed, it cannot be tolled or interrupted by the


filing of cases to annul the foreclosure sale or to enforce the right of redemption.
“To rule otherwise . . . would constitute a dangerous precedent. A likely offshoot
of such a ruling is the institution of frivolous suits for annulment of mortgage
intended merely to give the mortgagor more time to redeem the mortgaged property.
(Mahinay vs. Dura Tire & Rubber Industries, Inc., 825 SCRA 392 –393)

7. In Mobil Oil Philippines, Inc. v. Diocares, et al. (29 SCRA 656), the trial court
refused to order the foreclosure of the mortgaged properties on the ground that while
an unregistered REM contract created a personal obligation between the parties, the
same did not validly establish a REM. In reversing the trial court, the Court said:

“The lower court predicated its inability to order the foreclosure in


view of the categorical nature of the opening sentence of [Article 2125]
that it is indispensable, “in order that a mortgage may be validly
constituted, that the document in which it appears be recorded in the
Registry of Property.” Note that it ignored the succeeding sentence:
“If the instrument is not recorded, the mortgage is nevertheless binding
between the parties.” Its conclusion, however, is that what was thus
created was merely “a personal obligation but did not establish a
[REM].”

Such a conclusion does not commend itself for approval. The codal
provision is clear and explicit. Even if the instrument were not
recorded, “the mortgage is nevertheless binding between the parties.”
The law cannot be any clearer. Effect must be given to it as written.
The mortgage subsists; the parties are bound. As between them, the
mere fact that there is as yet no compliance with the requirement
that it be recorded cannot be a bar to foreclosure.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

8. A dragnet clause is a stipulation in a REM contract that extends the coverage


of a mortgage to advances or loans other than those already obtained or specified in
the contract. Where there are several advances, however, a mortgage containing a
dragnet clause will not be extended to cover future advances, unless the document
evidencing the subsequent advance refers to the mortgage as providing security
therefor or unless there are clear and supportive evidence to the contrary.
This is especially true in this case where the advances were not only several but were
covered by different sub-facilities. (Paradigm Development Corporation of the
Philippines vs. BPI, 826 SCRA 288)

In the absence of clear, supportive evidence of a contrary intention, a mortgage


containing a “dragnet clause” will not be extended to cover future advances
unless the document evidencing the subsequent advance refers to the mortgage
as providing security therefor. (Paradigm Development Corporation of the Philippines
vs. BPI, 826 SCRA 290)

9. We restate: the general rule is that personal notice to the mortgagor in extra-
judicial foreclosure proceedings is not necessary, and posting and publication will
suffice. Sec. 3 of Act 3135 governing extra-judicial foreclosure of [REMs], as
amended by Act 4118, requires only posting of the notice of sale in three public
places and the publication of that notice in a newspaper of general circulation. The
exception is when the parties stipulate that personal notice is additionally
required to be given the mortgagor. Failure to abide by the general rule, or its
exception, renders the foreclosure proceedings null and void. (Global Holiday
Ownership Corp. vs. Metrobank, 590 SCRA 188 cited in Paradigm Dev. Corp. of the Phil.
vs. BPI, 826 SCRA 294)

OBLIGATIONS –

1. In Ajax Marketing and Development Corporation vs. CA (248 SCRA 222), the
Court had already ruled that:

The well-settled rule is that novation is never presumed. Novation will


not be allowed unless it is clearly shown by express agreement, or by
acts of equal import. Thus, to effect an objective novation it is
imperative that the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new obligation be on
every point incompatible with the new one. In the same vein, to effect

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
a subjective novation by a change in the person of the debtor it is
necessary that the old debtor be released expressly from the obligation,
and the third person or new debtor assumes his place in the relation.
There is no novation without such release as the third person who has
assumed the debtor’s obligation becomes merely a co-debtor or surety.
(Paradigm Development Corp. of the Phil. vs. BPI, 826 SCRA 280 – 295)
2. Solidary liability under Philippine law is not to be inferred lightly but must be
clearly expressed. Under Article 1207 of the Civil Code, there is solidary liability
when “the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.”

The Compromise Agreement provided:

25. Affiliates and Successors

This Agreement and the rights, obligations, and covenants contained


herein shall inure to the benefit of and be binding upon The Plaintiffs
and Settling Defendants and their respective subsidiaries, affiliates,
controlled and related entities, successors, and assigns.

Clearly, the Compromise Agreement did not impose solidary liability on the parties’
subsidiaries, affiliates, controlled, and related entities, successors, and assigns but
merely allowed them to benefit from its effects. Thus, respondent Judge Omelio
gravely abused his discretion in holding that the petitioners’ subsidiaries and
affiliates were solidarily liable under the Compromise Agreement.

Furthermore, there is no reason for respondent court to pierce the veil of corporate
fiction. There is hardly any evidence to show that petitioners abused their separate
juridical identity to evade their obligation under the Compromise Agreement.
(Chiquita Brands, Inc., et al. vs. Omelio, et al., 826 SCRA 256 – 265)

RECONVEYANCE vs. ANNULMENT OF TITLE –


A complaint for reconveyance is an action which admits the registration of title
of another party but claims that such registration was erroneous or wrongful.
It seeks the transfer of the title to the rightful and legal owner, or to the party who
has a superior right over it, without prejudice to innocent purchasers in good faith.
It seeks the transfer of a title issued in a valid proceeding. The relief prayed for may
be granted on the basis of intrinsic fraud – fraud committed on the true owner instead
of fraud committed on the procedure amounting to lack of jurisdiction.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
An action for annulment of title questions the validity of the title because of lack
of due process of law. There is an allegation of nullity in the procedure and thus
the invalidity of the title that is issued. (Aboitiz vs. Po, 825 SCRA 475)

A complaint for reconveyance is a remedy where the plaintiff argues for an order for
the defendant to transfer its title issued in a proceeding not otherwise invalid. The
relief prayed for may be granted on the basis of intrinsic rather than extrinsic fraud;
that is, fraud committed on the real owner rather than fraud committed on the
procedure amounting to lack of jurisdiction.
An action for annulment of title, on the other hand, questions the validity of the grant
of title on grounds which amount to lack of due process of law. The remedy is
premised in the nullity of the procedure and thus the invalidity of the title that is
issued. (Aboitiz vs. Po, 825 SCRA 479)

SALES –

1. In Hian v. Court of Tax Appeals (109 SCRA 470), this Court construed an as-is-
where-is stipulation as pertaining to the “physical condition” of the thing sold and
“not to [its] legal situation.”

As further explained in National Development Company vs. Madrigal Wan Hai


Lines Corporation (412 SCRA 375):

In Hian v. Court of Tax Appeals, we had the occasion to construe the phrase
“as is, where is” basis, thus:

“We cannot accept the contention in the Government’s Memorandum


of March 31, 1976 that Condition No. 5 in the Notice of Sale to the
effect that “The above mentioned articles (the tobacco) are offered for
sale ‘AS IS’ and the Bureau of Customs gives no warranty as to their
condition’ relieves the Bureau of Customs of liability for the storage
fees in dispute. As we understand said Condition No. 5, it refers to the
physical condition of the tobacco and not to the legal situation in which
it was at the time of the sale, as could be implied from the right of
inspection to prospective bidders under Condition No. 1.”

The phrase “as is, where is” basis pertains solely to the physical condition of
the thing sold, not to its legal situation. In the case at bar, the US tax liabilities
constitute a potential lien which applies to NSCP’s legal situation, not to its physical
aspect. Thus, respondent as a buyer, has no obligation to shoulder the same.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
Thus, in Asset Privatization v. T.J. Enterprises (587 SCRA 481), the as-is-where-is
stipulation was understood as one which “merely describes the actual state and
location of the machinery and equipment sold, and nothing else. Features that may
be physical but which can only be revealed after examination by persons with
technical competence cannot be covered by as-is-where-is stipulations. A
buyer cannot be considered to have agreed “to take possession of the things sold
‘in the condition where they are found and from the place where they are
located” if the critical defect is one which he or she cannot even readily sense.
(Poole-Blunden vs. Union Bank of the Phil., 847 SCRA 165-166)
2. This Court is not unaware of the practice by many vehicle buyers and second-
hand car traders of not transferring registration and ownership over vehicles
purchased from their original owners, and rather instructing the latter to execute and
sign in blank deeds of sale covering these vehicles, so that these buyers and dealers
may freely and readily trade or re-sell the vehicles in the second-hand car market
without difficulty. This way, multiple transfers, sales, or trades of the vehicle using
these undated deeds signed in blank become possible, until the latest purchaser
decides to actually transfer the certificate of registration in his name. For many car
owners-sellers, this is an easy concession; so long as they actually receive the sale
price, they will sign sale deeds in blank and surrender them to the buyers or dealers;
and for the latter, this is convenient since they can "flip'' or re-sell the vehicles to the
public many times over with ease, using these blank deeds of sale.

In many cases as well, busy vehicle owners selling their vehicles actually leave them,
together with all the documents of title, spare keys, and deeds of sale signed in blank,
with second-hand car traders they know and trust, in order for the latter to display
these vehicles for actual viewing and inspection by prospective buyers at their lots,
warehouses, garages, or showrooms, and to enable the traders to facilitate sales on-
the-spot, as-is-where-is, without having to inconvenience the owners with random
viewings and inspections of their vehicles.

For this kind of arrangement, an agency relationship is created between the


vehicle owners, as principals, and the car traders, as agents. The situation is akin
to an owner of jewelry who sells the same through an agent, who receives the jewelry
in trust and offers it for sale to his/her regular clients; if a sale is made, the agent
takes payment under the obligation to remit the same to the jewelry owner, minus
the agreed commission or other compensation.

Since Ong was able to sell the subject vehicle to Chua, petitioner thus ceased to be
the owner thereof. Nor is he entitled to the possession of the vehicle; together with
his ownership, petitioner lost his right of possession over the vehicle. His

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

argument that respondent is a buyer in bad faith, when the latter nonetheless
proceeded with the purchase and registration of the vehicle on March 7, 2011,
despite having been apprised of petitioner's earlier November, 2010 "Failed to
Return Vehicle" report filed with the PNP-HPG, is unavailing. Petitioner had no
right to file said report, as he was no longer the owner of the vehicle at the time;
indeed, his right of action is only against Ong, for collection of the proceeds of the
sale. (Siy vs. Tomlin, 824 SCRA 120-122)

3. As held in Carrascoso, Jr. vs. CA (477 SCRA 666), the following requisites must
be established in order to prove that there is an express warranty in a contract of sale:
(1) the express warranty must be an affirmation of fact or any promise by the seller
relating to the subject matter of the sale; (2) the natural effect of the affirmation or
promise is to induce the buyer to purchase the thing; and (3) the buyer purchases
the thing relying on the affirmation or promise.

A warranty is a statement or representation made by the seller of goods –


contemporaneously and as part of the contract of sale – that has reference to
the character, quality or title of goods; and is issued to promise or undertake to
insure that certain facts are or shall be as the seller represents them. A warranty
is not necessarily written. It may be oral as long as it is not given as a mere opinion
or judgment. Rather, it is a positive affirmation of a fact that buyers rely upon, and
that influences or induces them to purchase the product.

There being an express warranty, this Court holds that the prescription period
applicable to the instant case is that prescribed for breach of an express warranty.
The applicable prescription period is therefore that which is specified in the contract;
in its absence, that period shall be based on the general rule on the rescission of
contracts: four years (see Article 1389, Civil Code). In this case, no prescription period
specified in the contract between the parties has been put forward. Quiñones filed
the instant case on 6 September 1996 or several months after the last delivery of the
thing sold. His filing of the suit was well within the prescriptive period of four years;
hence, his action has not prescribed.

Instead, following the ruling of this Court in Harrison Motors Corporation v.


Navarro (331 SCRA 202), Article 1599 of the Civil Code applies when an express
warranty is breached. The provision reads:

Where there is a breach of warranty by the seller, the buyer may, at his
election:

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

(1) Accept or keep the goods and set up against the seller, the breach
of warranty by way of recoupment in diminution or extinction of the
rice;

(2) Accept or keep the goods and maintain an action against the seller
for damages for the breach of warranty;

(3) Refuse to accept the goods, and maintain an action against the
seller for damages for the breach of warranty;

(4) Rescind the contract of sale and refuse to receive the goods or if
the goods have already been received, return them or offer to return
them to the seller and recover the price or any part thereof which
has been paid.

When the buyer has claimed and been granted a remedy in anyone of
these ways, no other remedy can thereafter be granted, without
prejudice to the provisions of the second paragraph of Article 1191.

Where the goods have been delivered to the buyer, he cannot rescind
the sale if he knew of the breach of warranty when he accepted the
goods without protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he fails to return or to
offer to return the goods to the seller in substantially as good condition
as they were in at the time the ownership was transferred to the buyer.
But if deterioration or injury of the goods is due to the breach of
warranty, such deterioration or injury shall not prevent the buyer from
returning or offering to return the goods to the seller and rescinding
the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he
shall cease to be liable for the price upon returning or offering to return
the goods. If the price or any part thereof has already been paid, the
seller shall be liable to repay so much thereof as he has been paid,
concurrently with the return of the goods, or immediately after an offer
to return the goods in exchange for repayment of the price.

Where the buyer is entitled to rescind the sale and elects to do so, if the
seller refuses to accept an offer of the buyer to return the goods, the
buyer shall thereafter be deemed to hold the goods as bailee for the
seller, but subject to a lien to secure the payment of any portion of the
price which has been paid, and with the remedies for the enforcement
of such lien allowed to an unpaid seller by Article 1526.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

(5) In the case of breach of warranty of quality, such loss, in the


absence of special circumstances showing proximate damage of a
greater amount, is the difference between the value of the goods at
the time of delivery to the buyer and the value they would have had
if they had answered to the warranty.

According to the provision, recoupment refers to the reduction or extinction of the


price of the same item, unit, transaction or contract upon which a plaintiff’s claim is
founded. (Philippine Steel Coating Corp. vs. Quiñones, (823 SCRA 637 –646)

4. The sale (or encumbrance) of conjugal property without the consent of the
husband was not merely voidable but void; hence, it could not be ratified. A
void contract is equivalent to nothing and is absolutely wanting in civil effects;
it cannot be validated either by ratification or prescription. (Fuentes vs. Roca, 618
SCRA 702 cited in Dadis vs. De Guzman, et al. 826 SCRA 518)

TRADEMARK –

1. The Intellectual Property Code defines a “mark” as “any visible sign capable of
distinguishing the goods (trademark) or services (service mark) of an enterprise.”
Case law explains that trademarks deal with the psychological function of symbols
and the effect of these symbols on the public at large.” It is a merchandising shortcut,
and, “whatever the means employed, the aim is the same to convey through the mark,
in the minds of potential customers, the desirability of the commodity upon which it
appears.” Thus, the protection of trademarks as intellectual property is intended
not only to preserve the goodwill and reputation of the business established on the
goods or services bearing the mark through actual use over a period of time, but
also to safeguard the public as consumers against confusion on these goods or
services.

2. As viewed by modern authorities on trademark law, trademarks perform three


(3) distinct functions: (1) they indicate origin or ownership of the articles to
which they are attached; (2) they guarantee that those articles come up to a
certain standard of quality; and (3) they advertise the articles they symbolize.

In Berries Agricultural Co., Inc. v. Abyadang (647 SCRA 517), this Court explained
that “the ownership of a trademark is acquired by its registration and its actual use
by the manufacturer or distributor of the goods made available to the purchasing
public. xxx A certificate of registration of a mark, once issued,

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
constitutes prima facie evidence of the validity of the registration, of the registrant’s
ownership of the mark, and of the registrant’s exclusive right to use the same in
connection with the goods or services and those that are related thereto specified in
the certificate.” However, “the prima facie presumption brought about by the
registration of a mark may be challenged and overcome, in an appropriate action, by
proof of, among others, non-use of the mark, except when excused.

The actual use of the mark representing the goods or services introduced and
transacted in commerce over a period of time creates that goodwill which the law
seeks to protect. For this reason, the IP Code, under Section 124.2, requires the
registrant or owner of a registered mark to declare “actual use of the mark” (DAU)
and present evidence of such use within the prescribed period. Failing in which, the
IPO DG may cause the motu propio removal from the register of the mark’s
registration.
The IP Code and the Trademark Regulations have not specifically defined “use.”
However, it is understood that the “use” which the law requires to maintain the
registration of a mark must be genuine, and not merely token. (W Land Holdings,
Inc. vs. Starwood Hotels …, 847 SCRA 414-418)

3. The following shall be accepted as proof of actual use of the mark: (a) labels
of the mark as these are used; (b) downloaded pages from the website of the
applicant or registrant clearly showing that the goods are being sold or the
services are being rendered in the Philippines; (c) photographs (including digital
photographs printed on ordinary paper) of goods bearing the marks as these are
actually used or of the stamped or marked container of goods and of the
establishment/s where the services are being rendered; (d) brochures or advertising
materials showing the actual use of the mark on the goods being sold or services
being rendered in the Philippines; (e) for online sale, receipts of sale of the goods
or services rendered or other similar evidence of use, showing that the goods
are placed on the market or the services are available in the Philippines or that
the transaction took place in the Philippines; (f) copies of contracts for sevices
showing the use of the mark. (ditto, p. 423)

4. Computer printouts of the drawing or reproduction of marks will not be accepted


as evidence of use. (ditto, p. 423)

5. Goodwill is no longer confined to the territory of actual market penetration;


it extends to zones where the marked article has been fixed in the public mind
through advertising. Whether in the print, broadcast or electronic
communications medium, particularly on the Internet, advertising has paved
the way for growth and expansion of the product by creating and earning a
reputation that crosses over borders, virtually turning the whole world into one
vast marketplace. (ditto, p. 426)

NOTE –
The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
6. It must be emphasized, however, that the mere exhibition of goods or services
over the Internet, without more, is not enough to constitute actual use. To
reiterate, the “use” contemplated by law is genuine use – that is, a bona fide kind of
use tending towards a commercial transaction in the ordinary course of trade. Since
the Internet creates a borderless marketplace, it must be shown that the owner has
actually transacted, or at the very least, intentionally targeted customers of a
particular jurisdiction in order to be considered as having used the trademark
in the ordinary course of his trade in that country. A showing of an actual
commercial link to the country is therefore imperative. Otherwise, an
unscrupulous registrant would be able to maintain his mark by the mere expedient
of setting up a website, or by posting his goods or services on another’s site, although
no commercial activity is intended to be pursued in the Philippines. This type of
token use renders inutile the commercial purpose of the mark, and hence, negates
the reason to keep its registration active. As the IP Code expressly requires, the
use of the mark must be “within the Philippines.” (ditto, p. 427)

As earlier intimated, mere use of a mark on a website which can be accessed


anywhere in the world will not automatically mean that the mark has been used in
the ordinary course of trade of a particular country. Thus, the use of mark on the
internet must be shown to result into a within-State sale, or at the very least,
discernibly intended to target customers that reside in that country. This being so,
the use of the mark on an interactive website, for instance, may be said to target
local customers when they contain specific details regarding or pertaining to
the target State, sufficiently showing an intent towards realizing a within-State
commercial activity or interaction. These details may constitute a local contact
phone number, specific reference being available to local customers, a specific local
webpage, whether domestic language and currency is used on the website, and/or
whether domestic payment methods are accepted. (ditto, p. 430)

7. To establish trademark infringement, the following elements must be shown: (a)


the validity of plaintiff’s mark; (b) the plaintiff’s ownership of the mark; and (c)
the use of the mark or its colorable imitation by the alleged infringer results in
“likelihood of confusion.” (Ong vs. People, 661 SCRA 104 [2011]).

8. The first condition of the proscription requires resemblance or similarity between


a prospective mark and an earlier mark. Similarity does not mean absolute identity
of marks. To be regarded as similar to an earlier mark, it is enough that a
prospective mark be a colorable imitation of the former. Colorable imitation
denotes such likeness in form, content, words, sound, meaning, special
arrangement or general appearance of one mark with respect to another as
would likely mislead an average buyer in the ordinary course of purchase.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
In determining whether there is similarity or colorable imitation between two
marks, authorities employ either: (a) the dominancy test or (b) the holistic
test. In Mighty Corporation vs. E. & J. Gallo Winery (434 SCRA 473), we
distinguished between the two tests as follows:

The Dominancy Test focuses on the similarity of the prevalent features of


the competing trademarks which might cause confusion or deception, and
thus infringement. If the competing trademark contains the main,
essential or dominant features of another, and confusion or deception is
likely to result, infringement takes place. Duplication or imitation is not
necessary; nor is it necessary that the infringing label should suggest an
effort to imitate. The question is whether the use of the marks involved is
likely to cause confusion or mistakes in the mind of the public or deceive
purchasers.

On the other hand, the Holistic Test requires that the entirety of the marks
is question be considered in resolving confusing similarity. Comparison of
words is not the only determining factor. The trademarks in their entirety as
they appear in their respective labels or hang tags must also be considered in
relation to the goods to which they are attached. The discerning eye of the
observer must focus not only on the predominant words but also on the other
features appearing in both labels in order that he may draw his conclusion
whether one is confusingly similar to the other.

There are currently no fixed rules as to which of the two tests can be applied in any
given case. However, recent case law on trademark seems to indicate an
overwhelming judicial preference towards applying the dominancy test. (UFC Phil,
Inc. vs. Barrio Fiesta Mfg. Corp., 781 SCRA 424)

The second condition of the proscription requires that the prospective mark pertain
to goods or services that are either identical, similar or related to the goods or
services represented by the earlier mark. While there can be no quibble that the curl
snack product for which the registration of the OK Hotdog Inasal mark is sought
cannot be considered as identical or similar to the restaurant services represented by
the Mang Inasal mark, there is ample reason to conclude that the said product and
services may nonetheless be regarded as related to each other.

Related goods and services are those that, though non-identical or non-similar,
are so logically connected to each other that they may reasonably be assumed
to originate from one manufacturer or from economically-linked
manufacturers. (Mang Inasal Phil., Inc. vs. IFP Manufacturing Corp., 827 SCRA 472-
476)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

9. The mere unauthorized use of a container bearing a registered trademark


is connection with the sale, distribution or advertising of goods or services
which is likely to cause confusion, mistake or deception among the buyers or
consumers can be considered as trademark infringement. (Republic Gas
Corporation vs. Petron Corporation, 698 SCRA 666)

TRUSTS –
1. Article 1456 of the Civil Code provides that a person acquiring a property
through fraud becomes an implied trustee of the property’s true and lawful owner.

An implied trust is based on equity and is either: (1) a constructive trust, or (2) a
resulting trust. A resulting trust is created by implication of law and is presumed
as intended by the parties. A constructive trust is created by force of law such
as when a title is registered in favor of a person other than the true owner.
(Salvatierra vs. CA, 261 SCRA 45)

The implied trustee only acquires the right “to the beneficial enjoyment of the
property.” The legal title remains with the true owner. In Crisostomo v. Garcia, Jr.
(481 SCRA 402):

Art. 1456 of the Civil Code provides:

If property is acquired through mistake or fraud, the person obtaining


it is by force or law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes.

Thus, it was held that when a party uses fraud or concealment to obtain
a certificate of title of property, a constructive trust is created in favor
of the defrauded party.

Constructive trusts are “created by the construction of equity in order


to satisfy the demands of justice and prevent unjust enrichment. They
arise contrary to intention against one who, by fraud, duress or abuse
of confidence, obtains or holds the legal right to property which he
ought not, in equity and good conscience, to hold.”

When property is registered in another’s name, an implied or


constructive trust is created by law in favor of the true owner. The
action for reconveyance of the title to the rightful owner prescribes in
10 years from the issuance of the title.” (Crisostomo vs. Garcia, 481 SCRA
412-413)

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.
Thus, the law creates a trust in favor of the property’s true owner. (Aboitiz vs. Po, 825
SCRA 481-482)

The prescriptive period to enforce this trust is 10 years from the time the right of
action accrues. Article 1144 of the Civil Code provides:

The following actions must be brought within ten years from the time
the right of action accrues:

(1) upon a written contract;


(2) upon an obligation created by law;
(3) upon a judgment.

In an action for reconveyance, the right of action accrues from the time the property
is registered. (Crisostomo vs. Garcia, 481 SCRA 406)

2. This Court, however, ruled that the right of action accrued from the time the
property was registered because registration is the act that signifies that the adverse
party repudiates the implied trust:

In the case at bar, respondent’s action which is for Reconveyance and


Cancellation of Title is based on an implied trust under Art. 1456 of
the Civil Code since he averred in his complaint that through fraud
petitioners were able to obtain a Certificate of Title over the property.
He does not seek the annulment of a voidable contract whereby
Articles 1390 and 1391 of the Civil Code would find application such
that the cause of action would prescribe in four years.

An action for reconveyance based on implied or constructive trust


prescribes in ten years from the alleged fraudulent registration or
date of issuance of the certificate of title over the property.

It is now well-settled that the prescriptive period to recover property


obtained by fraud or mistake, giving rise to an implied trust under
Art. 1456 of the Civil Code, is 10 years pursuant to Art. 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. (Crisostomo vs. Garcia, 481
SCRA 412, quoted in Aboitiz vs. Po)

Likewise, in Duque vs. Domingo (80 SCRA 654):

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.

The registration of an instrument in the Office of the Register of Deeds


constitutes constructive notice to the whole world, and, therefore,
discovery of the fraud is deemed to have taken place at the time of
registration. Such registration is deemed to be a constructive notice
that the alleged fiduciary or trust relationship has been repudiated. It
is now settled that an action on an implied or constructive trust
prescribes in ten (10) years from the date of action accrued. The
issuance of Transfer Certificate of Title No. 7501 in 1931 to Mariano
Duque commenced the effective assertion of adverse title for the
purpose of the statute of limitations.

Registration of the property is a “constructive notice to the whole world.” Thus, in


registering the property, the adverse party repudiates the implied trust. Necessarily,
the cause of action accrues upon registration.

In Nielson & Co., Inc. vs. Lepanto Consolidated Mining Co. (18 SCRA 1040):

Appellee is correct in its contention that the defense of laches applies


independently of prescription. Laches is different from the statute of
limitations. Prescription is concerned with the fact of delay. Whereas
laches is concerned with the effect of delay. Prescription is a matter of
time; laches is principally a question of inequity of permitting a claim
to be enforced, this inequity being founded on some change in the
condition of the property or the relation of the parties. Prescription is
statutory; laches is not. Laches applies in equity, whereas prescription
applies at law. Prescription is based on fixed time, laches is not.

NOTE –

The preceding notes were quoted from various volumes of the S.C.R.A and are provided GRATUITOUSLY
to those preparing to take the 2019 bar examinations.