SECOND DIVISION

[ G.R. No. 194126, October 17, 2018 ]

INDUSTRIAL PERSONNEL AND MANAGEMENT SERVICES, INC., PETITIONER,

V. COUNTRY BANKERS INSURANCE CORPORATION, RESPONDENT.

DECISION

CAGUIOA, J:

Before this Court is a Petition for Review on Certiorari[1] (Petition) under Rule 45 of
the Rules of Court filed by petitioner Industrial Personnel and Management Services,
Inc. (IPAMS) assailing the Decision[2] dated October 14, 2010 (assailed Decision) of
the Court of Appeals (CA) Eleventh Division in CA-G.R. SP No. 114683, which
reversed and set aside the following rulings:

1. the Resolution[3] dated June 26, 2007 and Order[4] dated December 4, 2007
issued by the Insurance Commission (IC);

2. the Decision[5] dated September 17, 2008 and Resolution [6] dated April 29,
2009 issued by the Department of Finance (DOF); and

3. the Decision[7] dated January 8, 2010 and Resolution[8] dated June 1, 2010
issued by the Office of the President (OP).

These issuances upheld the ruling of the IC that respondent Country Bankers
Corporation (Country Bankers) shall be subjected to disciplinary action pursuant to
Section 241 (now Section 247) and Section 247 (now Section 254) of the Insurance
Code, as amended,[9] if respondent Country Bankers does not settle the subject claims
presented by petitioner IPAMS.

In 2000, Industrial Personnel and Management Services, Inc. (IPAMS) began

recruiting registered nurses for work deployment in the United States of America
(U.S.). It takes eighteen (18) to twenty four (24) months for the entire immigration
process to complete. As the process requires huge amounts of money, such amounts
are advanced [to] the nurse applicants.

By reason of the advances made to the nurse applicants, the latter were required to
post surety bond. The purpose of the bond is to guarantee the following during its
validity period: (a) that they will comply with the entire immigration process, (b) that
they will complete the documents required, and (c) that they will pass all the qualifying
examinations for the issuance of immigration visa. The Country Bankers Insurance
Corporation (Country Bankers for brevity) and IPAMS agreed to provide bonds for the
said nurses. [Under the agreement of IPAMS and Country Bankers, the latter will
provide surety bonds and the premiums therefor were paid by IPAMS on behalf of the
nurse applicants.[10]]

[The surety bonds issued specifically state that the liability of the surety company, i.e.,
respondent Country Bankers, "shall be limited only to actual damages arising from
Breach of Contract by the applicant."[11]]

[On the basis of the MOA, IPAMS submitted its claims under the surety bonds issued
by Country Bankers. For its part, Country Bankers, upon receipt of the documents

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enumerated under the MOA, paid the claims to IPAMS.[13]] According to IPAMS,
starting 2004, some of its claims were not anymore settled by Country Bankers.

[Due to the unwillingness of Country Bankers to settle the claims of IPAMS, the latter
sought the intervention of the IC, through a letter-complaint dated February 9, 2007.[17]
]

On June 26, 2007, the Claims Division of the [IC] [issued] a [R]esolution [19] declaring
that there is no ground for the refusal of CBIC to pay the claims of IPAMS. Its failure
to settle the claim after having entered into an Agreement with the complainant,
IPAMS, demonstrates respondent's bad faith in the fulfillment of their obligation, to the
prejudice of the complainant.

Country Bankers made an appeal before the [DOF]. The [DOF] decided to affirm the
assailed orders of the [IC].

On appeal to the [OP], the ruling of the [DOF] was affirmed in a [D]ecision

The CA held that respondent Country Bankers was justified in delaying the payment
of the claims to petitioner IPAMS because of the purported lack of submission by
petitioner IPAMS of official receipts and other "competent proof[28] on the expenses
incurred by petitioner IPAMS in its recruitment of nurse applicants. The CA held that
Section 241 (now Section 247) of the Insurance Code, which defines an unfair claim
settlement practice, and Section 247 (now Section 254), which provides for the
suspension or revocation of the insurer's authority to conduct business, should not be
made to apply to respondent Country Bankers because of the failure of petitioner
IPAMS to provide competent proof of its claims.

The Court's Ruling

The appeal is partly meritorious.

In reversing and setting aside the rulings of the IC, DOF, and OP, the CA, in the main,
found that as provisions of applicable law are deemed written into contracts, Article
2199 of the Civil Code[32] should be applied regarding the MOA between petitioner
IPAMS and respondent Country Bankers.

Autonomy of Contracts

At the onset, it is important to note that according to the autonomy characteristic of

contracts, the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.[34]

The stipulation of the MOA at issue is the provision enumerating requirements

(Requirements for Claim Clause) that must be presented by petitioner IPAMS in order
to make a valid claim against the surety bond.

Petitioner IPAMS and respondent Country Bankers in essence made a stipulation to

the effect that mere demand letters, affidavits, and statements of accounts are enough
proof of actual damages — that more direct and concrete proofs of expenditures by
the petitioner such as official receipts have been dispensed with in order to prove
actual losses.

Considering the foregoing, the question is crystallized: Can the parties stipulate on the
requirements that must be presented in order to claim against a surety bond? And the
answer is a definite YES, pursuant to the autonomy characteristic of contracts, they

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can. In an insurance contract, founded on the autonomy of contracts, the parties are
generally not prevented from imposing the terms and conditions that determine the
contract's obligatory force.[37]

Thus, the view posited by the CA that the Requirements for Claim Clause is contrary
to law because it is incongruent with Article 2199 of the Civil Code and, therefore, an
exception to the rule on autonomy of contracts is erroneous. A more thorough
examination of Article 2199 does not support the CA's view.

Article 2199 of the Civil Code states:

Article 2199. Except as provided by law or by stipulation, one is entitled to an

adequate compensation only for such pecuniary loss suffered by him as he has duly
proved. Such compensation is referred to as actual or compensatory damages.
(Emphasis and underscoring supplied)

The law is clear and unequivocal when it states that one is entitled to adequate
compensation for pecuniary loss only for such losses as he has duly proved EXCEPT:
(1) when the law provides otherwise, or (2) by stipulation of the parties.
Otherwise stated, the amount of actual damages is limited to losses that were actually
incurred and proven, except when the law provides otherwise, or when the parties
stipulate that actual damages are not limited to the actual losses incurred or that actual
damages are to be proven by specific documents agreed upon.

To reiterate, Article 2199 of the Civil Code explicitly provides that the prerequisite of
proof for the recovery of actual damages is not absolute. This was illustrated in People
of the Philippines v. Jonjie Eso y Hungoy, et al.,[38] wherein this Court held that the
requirement of providing actual proof found under Article 2199 for the recovery of
actual and compensatory damages (in that case, funeral expenses) may. be
dispensed with, considering that there was a stipulation to that effect made by the
parties.

In the instant case, it is not disputed by any party that in the MOA entered into by the
petitioner IPAMS and respondent Country Bankers, the parties expressly agreed upon
a list of requirements to be fulfilled by the petitioner in order to claim from respondent
Country Bankers under the surety bond.

Hence, it is crystal clear that the petitioner IPAMS and respondent Country Bankers,
by express stipulation, agreed that in order for the former to have a valid claim under
the surety bond, the only requirements that need to be submitted are the two demand
letters, an Affidavit stating reason of any violation to be executed by responsible officer
of the Recruitment Agency, a Statement of Account detailing the expenses incurred,
and the Transmittal Claim Letter. Evidently, the parties did not include as
preconditions for the payment of claims the submission of official receipts or
any other more direct or concrete piece of evidence to substantiate the
expenditures of petitioner IPAMS. If the parties truly had the intention of treating the
submission of official receipts as a requirement for the payment of claims, they would
have included such requirement in the MOA. But they did not.

As found by the OP in its Decision dated January 8, 2010, respondent Country

Bankers "knew as a matter of IPAMS' regular course of business that these covered
transactions are generally not issued official receipts by US government and its
agencies and the US based professional organizations and institutions involved to
complete the requirements for the issuance of an immigrant visa." [41]

Further, as found by the IC in its Resolution dated June 26, 2007, which the CA did
not controvert in its assailed Decision, respondent Country Bankers had previously

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admitted liability and promised to make payment on similar claims under the surety
agreement even without the submission of official receipts.[42] In fact, respondent
Country Bankers had previously paid similar claims made by petitioner IPAMS on the
basis of the same set of documents, even without the submission of official receipts
and other pieces of evidence.

As the contemporaneous and subsequent acts of the contracting parties shall be

principally considered in determining the intention of the parties,[43] and that, by virtue
of estoppel, an admission or representation is rendered conclusive upon the person
making it and cannot be denied or disproved as against the person relying thereon,[44]
the prior actuations of respondent Country Bankers clearly establish that it did not
intend the submission of official receipts to be a prerequisite for the payment of claims.
Respondent Country Bankers is therefore estopped from claiming that the submission
of official receipts and other "competent proof” is a further requirement for the payment
of claims.

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FIRST DIVISION

[ G.R. No. 195919, November 21, 2018 ]

GENERAL MILLING CORPORATION, PETITIONERS, VS. NORBERTO

CONSTANTINO, MEMIE DAGUAY, EDITHA DAGANO, TRECILY MARFORI,
GARRY BALASE, ISIDRO GARGAR, SANDY TAPULGO, NERIZA CORBITA,
RICARDO MATUNOG, LEONARDO MAGBAGO, RAUL MAGBAGO, ANASTACIO
URDANSA, VICTORINO UGSOD, TEOGENES MACULA, EMETERIO UDARBE,
CARLITO DESLATE, ROLANDO JAVA, ANTONIO DURALIZA, NELSON
CONSTANTINO, JERRY CALVA, JOHN CARMAN, ISIDORO VELASCO,
LORELLA CABILING-ROXAS, MANUEL DAGUAY, QUINSITO BALASE,
ROSARITA BAJAO, FORTUNATO BALASE, JR., ELIAM BALASE, EDUARDO
ACTUB, CRISTINA BAJAO, FRANCISCO NICASIO, VICTOR PERATER,
ANATALIA HALLASGO, ESTEBAN CABEGUIN, WILSON SUMANGO, VILMER
HALLASGO, JOEL HALLASGO, NELMA FRONDA, MYRNA BONGHAW,
HIYASMIN OLALO, GARYGAD BALASE, IRMA CALTRODES, CELSA LABOR,
FELICIANO SABANAL, CECILIA FABREA, REYNALDO HABLADO, FERNANDO
HABLADO, EDMUND GONZALES, OBET PINIERO, PATERNO PINIERO, RANNY
DAGUAY, MARCOS SAMBAGAN, PABLEO TAPULGO, TEOGENES MACULA,
CARLITO DESLATE, LAURA PEPE, DULZURA MAGBAGO, MARCIANA
MADJOS, CIRILO RABANES, MAMERTO DUMAY, SR., GAUDIOSO BAJAR,
ARMANDO DUMAY, TARSILA BALASE, SHEILA CARCEDO, ROGELIO
TAPULGO, PRIMITIVO LUCIDO, MAMERTO DUMAY, JR., AND CONSOLACION
BULAN, RESPONDENTS,

DECISION

TIJAM, J.:

Before Us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court
assailing the Decision[2] of the Court of Appeals (CA) dated October 28, 2009 and
Resolution dated February 10, 2011 in CA-G.R. CV No. 65091, which reversed the
Decision[3] of the Regional Trial Court (RTC) of Cagayan de Oro City, Branch 18 dated
July 1, 1999 in Civil Case No. 91-132.

The instant controversy stemmed from a demolition of around 200 houses built on Lot
Nos. 19053 and 21827, located in Umalag, Barangay Tablon, Cagayan de Oro City,
covering an area of around 14,889 square meters (subject lands).[4]

On January 7, 1991, petitioner General Milling Corporation (GMC) wrote the Fiscal's
Office of Cagayan de Oro City, claiming that it is the owner of the subject lands and
accusing the occupants of the subject lands as squatters. Petitioner also wrote the
Office of the Building Official of the Department of Public Works and Highways
(DPWH).[5]
On April 19, 1991, the respondents, residents of the subject lands, filed a Complaint
for Cancellation of Miscellaneous Lease Application (MLA) (X-1) 47, Foreshore Lease
Application (FLA) (X-1) 155, TCT No. T-15846 with Injunction and Damages and
Prayer for Issuance of Temporary Restraining Order (TRO) against GMC and Engr.
Merilles before the RTC, Branch 18 of the Cagayan de Oro City, docketed as Civil
Case No. 91-132
The trial court denied the application for TRO in an Order dated April 25, 1991. Hence,
the demolition of the houses in subject lands proceeded. An ocular inspection

Page 5 of 51
conducted by the RTC on May 23, 1991 revealed that there were 34 houses left
standing on the subject lands.[9]
In their amended complaint,[10] respondents alleged that they and their predecessors-
in-interests occupied the subject lands since time immemorial as owners thereof. They
built their houses and resided on the subject lands openly, publicly and notoriously,
until they were disturbed, harassed and ejected by GMC without due process and any
lawful order from the court.[11]
The trial court ruled that GMC was able to sufficiently establish its claim of ownership
of the subject lands, as opposed to respondents who were unable to present any proof
of their claim of ownership over the subject lands. The trial court found that GMC's
demolition of respondents' houses was justified based on Engr. Merilles' letter and
under Article 429[19] of the Civil Code.[20] The trial court ruled that GMC was able to
sufficiently establish its claim of ownership of the subject lands, as opposed to
respondents who were unable to present any proof of their claim of ownership over
the subject lands. The trial court found that GMC's demolition of respondents' houses
was justified based on Engr. Merilles' letter and under Article 429[19] of the Civil
Code.[20]
After the filing of the parties' respective pleadings on October 28, 2009, the CA
rendered the assailed Decision, the dispositive portion of which reads: Decision now
on appeal is REVERSED and SET ASIDE.
The CA found that it had no authority to rule on GMC's right on Lot No. 19053, a public
land alleged to have been fraudulently titled. Such issue should properly be
determined through reversion proceedings under Commonwealth Act (CA) No. 141
for cancellation of homestead or free patents, to be commenced by the Government,
or through annulment of judgment or final orders and resolutions. [22]

However, as to Lot No. 21827, the Court ruled that GMC has no right over such land.
The Court found that the tax declarations presented by GMC were issued merely in
1991, the year the demolition took place, hence, of dubious nature. The Court ruled
that the right of petitioners as prior possessors are more superior to GMC. [23]

The Ruling of the Court

The petition has merit.

Basic is the rule that in civil cases, the party making allegations has the burden of
proving them by a preponderance of evidence. [28] In this case, respondents
substantially based their complaint on the petitioner's wrongful demolition of their
houses.
respondents anchored their claims against GMC on their possession and their
predecessors-in-interest's possession of the subject lands. However, the record does
not show that the respondents' possession had been established by evidence.
Respondents merely presented two witnesses who stated that various houses on the
subject lands were demolished on April 24, 1991. It was not even clarified from their
testimonies whether any of the named respondents in the complaint were the
homeowners of the structures purportedly demolished. The respondents did not even
present pictures or documents to show the kind of houses destroyed, or what materials
they were made from as to support their claims for damages.

Page 6 of 51
Proof of ownership by each of the respondents of the houses demolished is necessary
not only to give the court basis for the award of damages but also on account of the
fact that there were 34 remaining houses on the subject land when the RTC conducted
an ocular inspection.[30] To the mind of the Court, the respondents, in order to be
entitled to damages, must, at the very least, establish that they are not the owners of
the houses which remained on the subject property after the demolition. For it could
very well be that some of the named respondents were the homeowners of the
structures which were not even affected by the demolition. Further, this Court notes
that this was consistently raised by the petitioner. In such cases, there would be no
loss to speak of. Indeed, the rule is that in order to warrant the recovery of damages,
there must be both a right of action for a legal wrong inflicted by the defendant, and
damage resulting to the plaintiff therefrom.[31]
Nominal damages may be awarded to a plaintiff whose right has been violated or
invaded by the defendant, for the purpose of vindicating or recognizing that right, and
not for indemnifying the plaintiff for any loss suffered by him.[33] In this case, it has not
been demonstrated that each of the respondents had a right which had been violated
or invaded by defendant. Assuming, for the sake of argument, that GMC wrongfully
demolished certain houses in the subject land, the same does not automatically
warrant an award in favor of respondents.

Following the same line of argument, this Court likewise finds that the award of moral
damages is unwarranted. Considering its personal nature, jurisprudence teaches that
the claimant of moral damages must testify as to the mental anguish, serious anxiety,
wounded feelings and other emotional and mental suffering he purportedly
experienced.[34] Considering that the record is bereft of any such proof or testimony,
the CA's award of moral damages, is thus, baseless and unwarranted.

The Court is also constrained to reverse the CA's grant of exemplary damages.
Pursuant to Articles 2229[34] and 2234[35] of the Civil Code, exemplary damages may
be awarded only in addition to moral, temperate, liquidated, or compensatory
damages. Since respondents are not entitled to either moral, temperate, liquidated, or
compensatory damages, then their claim for exemplary damages is bereft of merit.

Lastly, in the absence of any of the circumstances under Article 2208 [36] of the Civil
Code where attorney's fees may be awarded, the same cannot be granted to
respondents.

Page 7 of 51
FIRST DIVISION

[ G.R. No. 198237, October 08, 2018 ]

BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. LAND INVESTORS AND

DEVELOPERS CORPORATION, RESPONDENT.

DECISION

TIJAM, J.:

Through this petition for review on certiorari[1] under Rule 45 of the Rules of Court,
petitioner Bank of the Philippine Islands (BPI) seeks to annul the Decision [2] dated
February 28, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93752 which
reversed and set aside the Resolutions dated April 14, 2009 and June 26, 2009 of the
Regional Trial Court (RTC) of Makati City, Branch 61.

In its assailed Decision, the CA found BPI liable to its depositor, respondent Land
Investors and Development Corporation for breach of fiduciary duty.

Between the years 1995 and 1999, respondent maintained savings and current
accounts with the Pamplona, Las Piñas Branch of Far East Bank & Trust Company
(FEBTC). FEBTC later on merged with BPI.[3] In its transactions with the bank,
respondent authorized any two of its Ruth Fariñas (Fariñas), Orlando Dela Peña (Dela
Peña) and Juanito Collas (Collas) as bank signatories. Dela Peña was respondent's
President.[4]

Sometime in 2001, Dela Peña was convicted for estafa and was consequently
dismissed from employment. It was also around this time that respondent discovered
that Dela Peña, acting in alleged conspiracy or taking advantage of the gross
negligence of BPI, succeeded in unlawfully withdrawing various amounts from
respondent's deposit accounts. Respondent alleged that BPI was negligent and
violated its fiduciary duties when it allowed the withdrawals in the total amount of
P3,652,095.01 on the basis of Dela Peña's lone signature or thru the forged signatures
of his cosignatories.[5] Despite demand, BPI failed to heed respondent's claims which
prompted the latter to file the complaint a quo for sum of money and damages against
BPI and Dela Peña.[6]
The RTC granted BPI's demurrer to evidence, reasoning thus: The testimonial and
documentary pieces of evidence of the herein [respondent] are so barren when it
comes to its allegation of connivance between BPI and Mr. Dela Peña.
While agreeing with the RTC that respondent failed to demonstrate that indeed Dela
Peña conspired with BPI, the CA nevertheless held that the non-existence of
conspiracy would not necessarily exculpate BPI from liability if there is evidence to
show that the latter violated its fiduciary duty to respondent. In other words, the CA
ruled that a negligent bank is liable regardless of any allegation of conspiracy. [16]
The CA, thus, held that the evidence sufficiency established that BPI breached its
fiduciary duty when it honored the subject withdrawals with only Dela Peña's signature
in violation of the "any two" authorized signatories requirement. The CA also found
that BPI failed to exercise extraordinary diligence in scrutinizing the checks.

These findings led the CA to conclude that the RTC committed reversible error in

Page 8 of 51
granting BPI's demurrer to evidence. Instead, the CA ruled that BPI should be held
solidarily liable with Dela Peña for actual losses plus 12% legal interest from the date
of each unauthorized withdrawal.
Ruling of the Court

The assailed CA decision is affirmed but with the modification that: (1) Dela Peña
should not be held solidarily liable with BPI considering that their specific liabilities are
anchored on two separate sources of obligations; and (2) the rate and reckoning
period of the interest imposed.
To emphasize, BPI's liability proceeds from a breach of contract. Under Article 1980
of the Civil Code, "fixed, savings, and current deposits of money in banks x x x shall
be governed by the provisions concerning simple loan[s]." By the contract of loan or
mutuum, one party delivers money to another upon the condition that the same
amount shall be paid.[34]
To recall, respondent was defrauded by several withdrawals from its deposit accounts
being allowed by BPI solely on the basis of Dela Peña's signature despite specific
instructions that withdrawals be done only upon the signatures of any two of
respondent's authorized signatories, and additional withdrawals being allowed on the
basis of the forged signatures of respondent's other authorized signatory. It is basic
that those who, in the performance of their obligations, are guilty of negligence, and
those who in any manner contravene the tenor thereof, are liable for damages.[35]
When BPI allowed Dela Peña to make unauthorized withdrawals, it failed to comply
with its obligation to secure said accounts by allowing only those withdrawals
authorized by respondent. In so doing, BPI violated the terms of its contract of loan
with respondent and should be held liable in this regard.

On the other hand, Dela Peña's liability arises from the commission of the crime of
estafa. Dela Peña had in fact been charged and convicted of estafa. Thus,
respondent's action to recover actual damages against Dela Peña was deemed
instituted with the criminal action, unless waived, reserved or previously instituted. [36]
There is no indication that such reservation had been done by respondent. As such,
to hold Dela Peña solidarily liable for damages in this case may result in double
recovery which is proscribed.[37] In any case, it is clear that the civil liability upon which
Dela Peña was being held liable by the CA is totally distinct and separate from the
source of BPI's liability. Thus, BPI and Dela Peña's respective liabilities cannot be
deemed joint and solidary.

The computation of the rate of interest likewise needs modification. In Nacar v. Gallery
Frames, et al.,[38] the Court modified the guidelines regarding the manner of computing
legal interest as follows:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is

Page 9 of 51
made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.[39] (Emphasis ours and italics in the original)

Page 10 of 51
THIRD DIVISION

[ G.R. No. 199851, November 07, 2018 ]

NOELL WHESSOE, INC.,[1] PETITIONER, V. INDEPENDENT TESTING

CONSULTANTS, INC., PETROTECH SYSTEMS, INC., AND LIQUIGAZ
PHILIPPINES CORP., RESPONDENTS.

DECISION

LEONEN, J.:

The contractor may be solidarily liable with the owner and the subcontractor for any
unpaid obligations to the subcontractor's supplier despite the absence of a contract
between the contractor and supplier. Full payment to the subcontractor, however,
serves as a valid defense against this liability.

Petition for Review on Certiorari[2] assailing the Court of Appeals April 28, 2011
Decision[3] and December 7, 2011 Resolution[4] in CA-G.R. CV No. 89300, which
affirmed the Regional Trial Court's finding that Noell Whessoe, Inc. (Noell Whessoe)
was solidarily liable with Liquigaz Philippines Corporation (Liquigaz) and Petrotech
Systems, Inc. (Petrotech) to Independent Testing Consultants, Inc. (Independent
Testing Consultants) for unpaid fees of P1,063,465.70.

Independent Testing Consultants is engaged in the business of conducting non-

destructive testing on the gas pipes and vessels of its industrial customers.[5]

Sometime in June 1998, Petrotech, a subcontractor of Liquigaz, engaged the services

of Independent Testing Consultants to conduct non-destructive testing on Liquigaz's
piping systems and liquefied petroleum gas storage tanks located in Barangay Alas-
Asin, Mariveles, Bataan.[6]

Independent Testing Consultants conducted the agreed tests. It later billed Petrotech,
on separate invoices, the amounts of P474,617.22 and P588,848.48 for its services.
However, despite demand, Petrotech refused to pay.[7]

Independent Testing Consultants filed a Complaint[8] for collection of sum of money

with damages against Petrotech, Liquigaz, and Noell Whessoe for P1,063,465.70 plus
legal interest. It joined Noell Whessoe as a defendant, alleging that it was Liquigaz's
contractor that subcontracted Petrotech.[9]

In its March 7, 2005 Decision,[22] the Regional Trial Court found Liquigaz, Noell
Whessoe, and Petrotech solidarity liable to Independent Testing Consultants. It ruled
that Liquigaz was liable considering that it was the entity which directly benefited from
Independent Testing Consultants' services. It likewise held that Noell Whessoe, as the
main contractor of the project, could not escape liability. Petrotech, as the
subcontractor of the project, was also held liable.[
In its April 28, 2011 Decision,[27] the Court of Appeals affirmed the Regional Trial Court
March 7, 2005 Decision and found that Noell Whessoe, Petrotech, and Liquigaz were
liable to Independent Testing Consultants. It found that Whessoe UK, as contractor,
assigned construction management to Noell Whessoe, effectively stepping into the
shoes of Whessoe UK.

Page 11 of 51
The Court of Appeals likewise found that Liquigaz had knowledge, as early as January
1999, that one of its subcontractors, Petrotech, failed to fulfill its contractual obligations
in the amount of P1,063,465.70 to another subcontractor, Independent Testing
Consultants.[30] It likewise found that Liquigaz still owed Noell Whessoe the amount of
US$9,000.00, which it could have withheld subject to Petrotech's fulfillment of its
contractual obligations. Thus, Liquigaz was liable to Independent Testing Consultants,
but only up to the amount of US$9,000.00, which it could also demand from Petrotech.
"[A] contract is law between the parties[.]"[55] Generally, contracts only take effect
between the parties, and their assigns and heirs. [56] Thus, subject to certain
exceptions,[57] those not privy to the contract would not be bound by any of its
provisions.
Petitioner contends that all contracts between the parties were undertaken by
Whessoe UK, an entity that it alleges is separate and distinct from itself. Both the
Regional Trial Court and the Court of Appeals rejected this argument on the ground
that petitioner's co-defendants, Liquigaz and Petrotech, alleged that petitioner was the
contracting party

There was insufficient evidence proving that Whessoe UK and petitioner were two (2)
separate and distinct entities. As with Pioneer International, prior acts by Liquigaz and
Petrotech indicate that they were contracting with the same entity, albeit with different
names. Thus, petitioner failed to prove that for the Mariveles Terminal Expansion
Project, it was a separate and distinct entity from Whessoe UK. Therefore, it cannot
set up the defense of privity of contract to escape liability.

Article 1729 of the Civil Code provides:

Article 1729. Those who put their labor upon or furnish materials for a piece of work
undertaken by the contractor have an action against the owner up to the amount owing
from the latter to the contractor at the time the claim is made. However, the following
shall not prejudice the laborers, employees and furnishers of materials:

1. Payments made by the owner to the contractor before they are due;

2. Renunciation by the contractor of any amount due him from the owner.

This article is subject to the provisions of special laws.

In JL Investment and Development, Inc. v. Tendon Philippines, Inc.,[81] this Court

explained that Article 1729 of the Civil Code is an exception to the general rule on the
privity of contracts:

By creating a constructive vinculum between suppliers of materials (and laborers), on

the one hand, and the owner of a piece of work, on the other hand, as an exception
to the rule on privity of contracts, Article 1729 protects suppliers of materials (and
laborers) from unscrupulous contractors and possible connivance between owners
and contractors. Only full payment of the agreed contract price serves as a defense
against the supplier's claim.

Under Article 1729, respondent Independent Testing Consultants had a cause of

action against Liquigaz and petitioner, even if its contract was only with Petrotech. The
Regional Trial Court and the Court of Appeals, therefore, did not err in concluding that
petitioner was solidarily liable with Liquigaz and Petrotech for unpaid fees to
respondent Independent Testing Consultants.

Page 12 of 51
Article 1729 creates a solidary liability between the owner, the contractor, and the
subcontractor. A solidary obligation is "one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation."[84]
Respondent Independent Testing Consultants may demand payment for all of its
unpaid fees from Liquigaz, petitioner, or Petrotech, even if its contract was only with
the latter.

However, Article 1729, while serving as an exception to the general rule on the privity
of contracts, likewise provides for an exception to this exception. The contractor is
solidarily liable with the owner and subcontractor for any liabilities against a supplier
despite the absence of contract between the contractor and the supplier, except when
the subcontractor has already been fully paid for its services.

Here, the Court of Appeals found that there was "uncontroverted evidence that
PETROTECH had already been paid for its services:"

While petitioner is absolved from its solidary liability, it is not, however, entitled to any
moral damages.

Petitioner asserts that it was entitled to moral damages of P1,000,000.00 on the basis
that respondent Independent Testing Consultants' collection suit "has tarnished its
good business name and standing[.]"[87]

Moral damages are awarded when the claimant suffers "physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury."[88] "These damages must be understood
to be in the concept of grants, not punitive or corrective in nature, calculated to
compensate the claimant for the injury suffered."[89] Its award is "aimed at a
restoration, within the limits possible, of the spiritual status quo ante; and therefore, it
must be proportionate to the suffering inflicted."[90]

A corporation is not a natural person. It is a creation of legal fiction and "has no

feelings[,] no emotions, no senses[.]"[91] A corporation is incapable of fright, anxiety,
shock, humiliation, and physical or mental suffering. "Mental suffering can be
experienced only by one having a nervous system and it flows from real ills, sorrows,
and griefs of life[.]"[92] A corporation, not having a nervous system or a human body,
does not experience physical suffering, mental anguish, embarrassment, or wounded
feelings. Thus, a corporation cannot be awarded moral damages.

Page 13 of 51
THIRD DIVISION

[ G.R. No. 200553, December 10, 2018 ]

SPOUSES GILDARDO C. LOQUELLANO AND ROSALINA JULIET B.

LOQUELLANO, PETITIONERS, VS. HONGKONG AND SHANGHAI BANKING
CORPORATION, LTD., HONGKONG AND SHANGHAI BANKING
CORPORATION-STAFF RETIREMENT PLAN AND MANUEL ESTACION,
RESPONDENTS.

DECISION

PERALTA, J.:

Petitioner Rosalina Juliet Loquellano used to be a regular employee in the Financial

Central Department of respondent Hongkong and Shanghai Banking Corporation, Ltd.
(respondent bank). As such, she became an automatic member of respondent
Hongkong and Shanghai Banking Corporation - Staff Retirement Plan (HSBC-SRP)
that provides retirement, disability and loan benefits to the bank's employees. In 1988,
petitioner Rosalina applied with respondent HSBC-SRP a housing loan in the amount
of P400,000.00 payable in twenty-five (25) years at six percent (6%) per annum,
through monthly salary deduction from petitioner Rosalina's salary savings account
with respondent HSBC.[3] It was provided in the loan application that the loan was
secured by setting-off petitioner Rosalina's retirement benefits and chattel mortgage.[4]
She executed a promissory note[5] for the payment of the said loan.

Subsequently, a labor dispute arose between the respondent bank and the bank
union, to which petitioner Rosalina was a member, which culminated in a strike staged
on December 22, 1993. Petitioner Rosalina, together with other bank employees, were
dismissed from the service for abandonment, among others.

In the meantime, due to petitioner Rosalina s termination from employment with the
bank on December 27, 1993, petitioners were unable to make any payments of the
amortizations due in Rosalina's salary savings account beginning January 1994.

On May 20, 1996, petitioners' mortgaged property was extrajudicially foreclosed by

respondent HSBC-SRP and was sold at public auction for the amount of P324,119.59,
with respondent Manuel S. Estacion as the highest bidder. A Certificate of Sale dated
June 5, 1996 was issued.

On August 22, 1996, petitioners filed with the Regional Trial Court (RTC) of Parañaque
City, Branch 274, a Complaint[20] for Annulment of Sale with Damages and Preliminary
Injunction against Hongkong and Shanghai Banking Corporation, Ltd;

On March 1, 2005, the RTC rendered its Decision[21] in favor of the petitioners,

In so ruling, the RTC found, among others, that the contract of real estate mortgage
executed between respondent HSBC-SRP and petitioners, which was the sole basis
for the extrajudicial foreclosure, did not contain the former's rules and regulations nor
were made known to petitioners during the execution of the contract; thus, not binding
on petitioners.

On August 11, 2011, the CA rendered its assailed Decision, the Decision of the RTC,
is hereby REVERSED and SET ASIDE, and the complaint in said case is DISMISSED.

Page 14 of 51
The CA found that petitioner Rosalina was able to avail of the housing loan from
respondent HSBC-SRP by virtue of her employment with the bank; that when she
availed of the housing loan under the SRP, she had, likewise, agreed and conformed
to the rules and regulations laid down in the said retirement plan, which provides that
should the employee's service with the bank be terminated prior to full repayment of
the loan, the employee shall make a single payment to cover the outstanding balance.
Hence, upon petitioner Rosalina's termination from employment on December 27,
1993, as an aftermath of joining the illegal strike, her entire outstanding obligations
owing to the HSBC-SRP immediately became due and demandable in accordance
with the SRP provision; that since petitioners refused and failed to settle their overdue
loans and obligations in full, respondents merely exercised their right to foreclose their
property in the event of default of payment in the principal obligation provided under
the real estate mortgage.

The issues for resolution are (1) whether the extrajudicial.foreclosure and auction sale
of petitioners' property by respondent HSBC-SRP on May 20, 1996 was valid; and (2)
whether petitioners are entitled to the payment of damages as well as attorney's fees.

We find that respondent HSBC-SRP's filing of the extrajudicial foreclosure

proceedings on May 20, 1996 has no basis and, therefore, invalid. To stress,
respondent HSBC-SRP continuously sent out monthly Installment Due Reminders to
petitioner Rosalina despite its demand letter dated September 25, 1995 to pay the full
amount of the loan obligation within 3 days from receipt of the letter. It, likewise,
continuously accepted petitioner Rosalina's subsequent monthly amortization
payments until June 1996; thus, making their default immaterial. Moreover, there was
no more demand for the payment of the full obligation afterwards. Consequently,
petitioners were made to believe that respondent HSBC-SRP was applying their
payments to their monthly loan obligations as it had done before. It is now estopped
from enforcing its right to foreclose by reason of its acceptance of the delayed
payments.[33]

Article 1431 of the Civil Code defines estoppel as follows:

Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.

Estoppel is a doctrine that prevents a person from adopting an inconsistent position,

attitude, or action if it will result in injury to another.[30] One who, by his acts,
representations or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts
to exist and such other rightfully relies and acts on such belief, can no longer deny the
existence of such fact as it will prejudice the latter.[31] The doctrine of estoppel is based
upon the grounds of public policy, fair dealing, good faith and justice. It springs from
equitable principles and the equities in the case. It is designed to aid the law in the
administration of justice where, without its aid, injustice might result. [32]

Also, Article 1235 of the Civil Code provides that when the creditor accepts
performance, knowing its incompleteness and irregularity without protest or objection,
the obligation is deemed complied with. Respondent HSBC-SRP accepted Rosalina's
payment of her housing loan account for almost one year without any objection.

Page 15 of 51
FIRST DIVISION

[ G.R. No. 205680, November 21, 2018 ]

HEIRS OF CIRIACO BAYOG-ANG, NAMELY: CELERINO VALLE AND PRIMITIVO

VALLE, PETITIONERS, VS. FLORENCE QUINONES, JOINTLY WITH HER
HUSBAND, JEREMIAS DONASCO, AS SUBSTITUTED BY THEIR SURVIVING
CHILDREN, NAMELY: JEANY FLOR Q. DONASCO, ROYCE Q. DONASCO, AND
WILMER Q. DONASCO, RESPONDENTS.

DECISION

TIJAM, J.:

This present case involves the conflicting claims over a parcel of land between a buyer
who claims title by virtue of a deed of sale executed in her favor by the original owner
of the land, but never had it titled in her name, and the heirs of the vendor who
adjudicated unto themselves the same land and had it titled in their names as part of
the extrajudicial settlement of their grandfather's estate.

For resolution by the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, assailing the Decision[1] dated February 8, 2012 of the Court of
Appeals (CA)-Cagayan De Oro City, in CA-G.R. CV No. 00782-MIN, entitled Florence
Quinones, jointly with her husband, Jeremias T. Donasco v. Heirs of Ciriaco Bayog-
Ang, namely, Celerino Valle and Primitivo Valle, and Register of Land Titles and
Deeds for the Province of Cotabato. The said Decision of the CA reversed and set
aside the Judgment[2] dated February 27, 2006 of the Regional Trial Court (RTC),
Branch 18, of Midsayap, Cotabato which dismissed Civil Case No. 98-014 for Specific
Performance with Damages.

In 1998, an action for Specific Performance and Damages was filed by Florence
Quinones (Florence), together with her husband Jeremias Donasco (respondents),
before the RTC of Midsayap Cotabato against the heirs of Bayog-Ang (petitioners).
The subject of this dispute is a 10,848 square-meter parcel of land which is part of the
property previously owned by Ciriaco Bayog-Ang (Bayog-Ang), located at Barrio
Sadaan, Municipality of Midsayap, Province of North Cotabato covered by Original
Certificate of Title (OCT) No. RP-1078 (1596) (subject land). Respondents claimed
that the said parcel of land was sold to her by Bayog-Ang as evidenced by a Deed of
Absolute Sale dated February 25, 1964, and she demanded from the petitioners that
the said portion be segregated and transferred but the same went unheeded. Worse,
the petitioners, through alleged malicious manipulation, executed an Extrajudicial
Settlement of Estate in 1996 adjudicating the land in their favor, and as a result of
which, OCT No. RP-1078 (1596) was canceled and Transfer Certificate of Title No. T-
91543 was issued on April 3, 1997 under their names.[3]

As earlier mentioned, the RTC of Midsayap, Cotabato, Branch 18, rendered judgment
dismissing Civil Case No. 98-014.
In ruling in favor of the petitioners, the RTC applied the rule on double sales under
Article 1544 of the Civil Code and concluded that since petitioners were the first to
register the land in good faith, they have a superior right over the subject land,

In ruling in the respondents' favor, the appellate court held the RTC already denied
the petitioners' affirmative defense of prescription in an Order dated March 15, 1999.
It also held that laches had not set in as to bar respondents from asserting their claim
of ownership since they were able to present evidence that they exercised acts of
dominion over the subject lot, as they in fact installed a tenant, without resistance from

Page 16 of 51
the petitioners, and were able to effect the transfer of the tax declaration in their name
in 1984. Furthermore, respondents promptly filed their complaint within a year from
the issuance of TCT No. T-91543.[13]

The Ruling of the Court

We deny the petition for lack of merit.

The quoted portion from the RTC Judgment must be understood in the context of how
the RTC justified its dismissal of the complaint on the basis of Article 1544 of the New
Civil Code. As earlier mentioned, the RTC dismissed the complaint since respondents
were not able to have the subject lot registered in their names under the Torrens
System and it was the petitioners who were able to have it first registered in good faith,
and such being the case, they have the preferred right over the subject lot. In other
words, the RTC made such statement in the context of the respondents' failure to have
the Deed of Absolute Sale annotated on OCT No. RP-1078 (1596) or to have a TCT
issued in their names.

Article 1544 of the New Civil Code does not apply in the present case

For Article 1544 to apply, it is required that the same thing must have been sold to
different vendees. It contemplates a case of double or multiple sales by a single
vendor. More specifically, it covers a situation where a single vendor sold one and the
same immovable property to two or more buyers.[27] What is undisputed from the facts
of this case is that while respondents anchor their claim on the subject lot through the
Deed of Absolute Sale executed between Bayog-Ang and Florence, petitioners claim
the same as part of their inheritance as heirs of Bayog-Ang. Thus, there is no double
sale in the present case because the "second transaction," as the RTC would describe
it, is not a sale. Therefore, the proper question that should have been addressed was
whether Florence was able to prove by preponderance of evidence that she already
acquired ownership of the subject lot from Bayog-Ang, as this will determine whether
the subject lot remained part of Bayog-Ang's estate which passed to his heirs by
succession at the moment of his death.[28]

Under Article 712 of the Civil Code, tradition as a consequence of contracts and
succession are modes of acquiring or transferring ownership

Succession is a mode of acquisition by virtue of which the property, rights and

obligations to the extent of the value of the inheritance, of a person are transmitted
through his death to another or others either by his will or by operation of law.[29] The
inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death.[30] These provisions emphasize that what is passed by a
decedent to his heirs by succession are those which he owned at the time of his death.
It follows then that his heirs cannot inherit from him what he does not own anymore.
Under the law on sales, Article 1496 of the New Civil Code provides that "the
ownership of the thing sold is acquired by the vendee from the moment it is delivered
to him in any of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the
vendee." In particular, Article 1497 provides that "the thing sold shall be understood
as delivered, when it is placed in the control and possession of the vendee," while
Article 1498 states that "when the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is the object of
the contract, if from the deed the contrary does not appear or cannot clearly be
inferred."

In the present case, what is fairly established is that the Deed of Absolute Sale is a

Page 17 of 51
notarized document. The RTC, in its Judgment dated February 27, 2006, stated that
during the proceedings, Florence testified that the Deed of Absolute Sale was "drafted
and ratified" before Atty. Cambronero at Midsayap, Cotabato. On the part of the
petitioners, they asserted, both in their Demurrer to Evidence[31] before the RTC and
in the present petition,[32] that Florence's testimony is not sufficient to prove the due
execution of the instrument, and respondents should have presented Atty.
Cambronero, the notary public before whom the Deed was acknowledged, or any of
the witnesses to the execution of the same, but failed to do so. Additionally, the CA
held that the Deed of Absolute Sale evidencing the conveyance enjoyed the
presumption of validity,[33] it having been duly notarized. Being a notarized document,
the Deed of Absolute Sale is a public document.

Thus, in accordance with Article 1498, the sale of the subject land through the Deed
of Absolute Sale dated February 25, 1964, which is a public instrument, transferred
ownership from Bayog-Ang to Florence, there being no indication of any intention to
the contrary.

Page 18 of 51
FIRST DIVISION

[ G.R. No. 208336, November 21, 2018 ]

VILLA CRISTA MONTE REALTY & DEVELOPMENT CORPORATION,

PETITIONER, VS. EQUITABLE PCI BANK (NOW KNOWN AS BANCO DE ORO
UNIBANK, INC.), AND THE EX-OFFICIO SHERIFF OF QUEZON CITY AND/OR HIS
DEPUTY OR AUTHORIZED REPRESENTATIVES, RESPONDENTS.

DECISION

BERSAMIN, J.:

An escalation clause without a concomitant de-escalation clause is void and

ineffectual for violating Presidential Decree No. 1684,[1] otherwise known as Amending
Further Act No. 2655, As Amended, Otherwise Known as "The Usury Law," as well as
the principle of mutuality of contracts unless the established facts and circumstances,
as well as the admissions of the parties, indicate that the lender at times lowered the
interest rates, or, at least, allowed the borrower the discretion to continue with the
repriced rates.

Not all contracts of adhesion are invalid. Only a contract of adhesion in which one of
the parties is shown to be the weaker as to have been imposed upon may be
invalidated and set aside.

This appeal has been taken by the borrower (petitioner) to seek the review and
reversal of the adverse decision promulgated on February 21, 2013, [2] whereby the
Court of Appeals (CA) affirmed the judgment rendered on April 7, 2009 by the
Regional Trial Court (RTC), Branch 216, in Quezon City in Civil Case No. Q-01-
43677.[3]

Sometime in 1994, plaintiff-appellant Villa Crista Monte Realty Corporation was

organized to engage in the business of real estate development. Soon after, it
acquired from a certain Alfonso Lim the 80,000 square meters (8 hectares) parcel of
land located at Old Balara, Quezon City, which land appellant intended to develop into
a residential subdivision. After successfully putting up its clubhouse, known as the
"Tivoli Royale Country Clubhouse," appellant Corporation later negotiated and
eventually succeeded in purchasing the adjoining 13.5 hectares land, thereby
consolidating its ownership over the 21.5 hectares of land[s].

In order to fully develop its subdivision project, appellant applied for and was granted
a credit line of P80 Million by then Equitable Philippine Commercial International Bank
(E-PCIB), now Banco De Oro. By way of security for the said credit line, appellant
executed a Real Estate Mortgage over the 80,000 square meters of its properties
(covered by TCT No. T-145652) with all the existing improvements thereon.

Appellant subsequently applied for an additional P50 Million credit accommodation

from E-PCIB to which the latter readily acceded. It being later established that the 41
lots, out of the 174 subdivided lots, would already be sufficient securities for the credit
accommodation, appellant then asked for the release of the remaining 133 titles from
the earlier mortgage. E-PCIB granted appellant's request on the condition that the real
estate mortgage contract be amended to conform to the changes in the amount of the
credit line and in the properties subject of the mortgage, to which condition appellant
readily agreed.

Page 19 of 51
Eventually, E-PCIB wrote several times to appellant apprising it of the increased rates
in the interest to be imposed on its loans covered by the promissory notes. The
increased rates ranged from 21% to 36% and were ostensibly anchored on the uniform
provision in the promissory notes on monthly repricing.

Appellant reneged on paying its loan obligations amounting to P129,700,00.00,

prompting E-PCIB to initiate foreclosure proceedings on the mortgaged properties.
Thereafter, the respondent Sheriff scheduled the auction of the subdivision lots which
led to appellant's filing of its initial complaint for the nullification of the promissory notes
and the mortgage agreements with prayer for injunctive relief.

On April 7, 2009, the RTC rendered judgment in favor of Equitable PCI Bank (E-PCIB),
holding that the loan contracts between the parties were supported by several
promissory notes, a fact admitted by no less than the petitioner's own President,
Cresencio Tio (Tio);[5] that Tio also testified that the documents included a rider dealing
with the monthly repricing of the interest rates; that the protest allegedly made against
the repricing was not established; that the plaintiff (petitioner herein) paid the adjusted
interest rates; and that the evidence on record sustained the validity of the real estate
mortgage and its amendment.[6]

The RTC concluded that the extra-judicial foreclosure proceedings taken against the
petitioner's mortgaged properties were valid; that the non inclusion in the notice of
sale of the exact amount of the lawful charges did not prejudice the petitioner; and
that the certificate of sale, the consolidation of title in the name of E-PCIB, and the
corresponding issuance of the certificates of title in its name were also valid.

As stated, the CA promulgated its now assailed decision on February 21, 2013
affirming the judgment of the RTC. The CA observed that the petitioner had defaulted
on its loan obligations, thereby triggering the foreclosure proceedings brought against
it; that the only real issue to be resolved was whether or not the monthly repricing of
the interest rates on the loans, which the petitioner claimed to have been unilaterally
imposed by E PCIB,[8] was valid; that the contracting parties were allowed to stipulate
on any rate of interest on the loans by virtue of Resolution No. 224 and Central Bank
Circular No. 905, which rendered the Usury Law ineffective; that nonetheless E-PCIB
as the lender could not unilaterally impose increased interest rates because the
parties had still to agree on the rate of interest to be applied to their transactions; [9]
that there was no proof showing that the petitioner had been coerced into agreeing to
the terms and conditions of the loans, or that it had been tricked into signing the
promissory notes pertaining to the monthly repricing of the interest rates;[10] that
despite the insistence of the petitioner that the stipulation on the monthly repricing of
interest rates was an adhesion, and that all the terms had been imposed by the
respondent bank thereby limiting the petitioner's participation therein to the mere
signing of the document, the monthly repricing was not necessarily invalid per se, for
a contract of adhesion was just as binding as other contracts once the other party
agreed to the terms; and that because the petitioner was fully aware of the contents
of the promissory notes, the judgment of the RTC should be upheld.

Ruling of the Court

The appeal lacks merit.

Inasmuch as the main issue under contention relates to the validity of the promissory
notes and their corresponding provision on repricing of the interest rates, an
examination of the assailed provision is in order. The uniform provision of the
promissory notes on the issue is as follows:
with interest thereon:

Page 20 of 51
at the rate of ____ percent (____ %) per annum payable ____
at the rate of ____ percent (____ %) per annum for the first ____ days of this Note
payable on, after which the interest rllte shall be determined by the Lender without
need of pdor notice to the Borrower at the beginning of each succeeding ____
period, payable ____ of each such period, at the rate of ____ percent (____ %) per
annum spread over ____ as announced anciJor published by the Bangko Sentral ng
Pilipinas ("BSP") on or immediately preceding the commencement of each ____
(____) month period payable ____ of each such period: provided, however, that if, in
either of the two above instances, where the rate is subject to periodic adjustment,
the Borrower disagrees with the new rate, he shall prepay within five (5) days
from the notice of the new rate the outstanding balance of the Loan with interest
at the last applicable rate, provided, further, that the Borrower's failure to so prepay
shall be deemed acceptance of the new rate.[15] (Bold underscoring for emphasis)

The agreement between the parties on the imposition of increasing interest rates on
the loan is commonly known as the escalation clause. Generally, the escalation clause
refers to the stipulation allowing increases in the interest rates agreed upon by the
contracting parties. There is nothing inherently wrong with the escalation clause
because it is validly stipulated in commercial contracts as one of the means adopted
to maintain fiscal stability and to retain the value of money in long term contracts. In
short, the escalation clause is not void per se.[16]

Yet, the escalation clause that "grants the creditor an unbridled right to adjust the
interest independently and upwardly, completely depriving the debtor of the right to
assent to an important modification in the agreement" is void. [17] Such escalation
clause violates the principle of mutuality of contracts, and should be annulled.

Accordingly, the Court has ruled in Banco Filipino Savings and Mortgage Bank v.
Judge Navarro[18] that there should be a corresponding de escalation clause that
authorizes a reduction in the interest rates corresponding to downward changes made
by law or by the Monetary Board. Verily, the escalation clause, to be valid, should
specifically provide: (1) that there can be an increase in interest rates if allowed by law
or by the Monetary Board; and (2) that there must be a stipulation for the reduction of
the stipulated interest rates in the event that the applicable maximum rates of interest
are reduced by law or by the Monetary Board. The latter stipulation ensures the
mutuality of contracts, and is known as the de-escalation clause.

Although it would not necessarily prevent the lender from discriminatorily increasing
the interest rates, the de-escalation clause's main objective is to prevent the unwanted
one-sidedness in favor of the lender, a quality that is repugnant to the principle of
mutuality of contracts. The clause proposes to ensure that any unconsented increase
in interest rates is ineffective for transgressing the principle of mutuality of contracts. [21]
Indeed, the clause creates a balance in the contractual relationship between the
lender and the borrower, and tempers the power of the stronger player between the
two, which is the former.

No express de-escalation clause was stipulated in the promissory notes signed by the
petitioner. Yet, the absence of the clause did not invalidate the repricing of the interest
rates. The repricing notices issued to the petitioner by E-PCIB indicated that on some
occasions, the bank had reduced or adjusted the interest rates downward.

It becomes inescapable for the Court to uphold the validity and enforceability of the
escalation clause involved herein despite the absence of the de-escalation clause.
The actual grant by the respondent of the decreases in the interest rates imposed on
the loans extended to the petitioner rendered inexistent the evil of inequality sought to
be thwarted by the enactment and application of Presidential Decree No. 1684. We

Page 21 of 51
do not see here a situation in which the petitioner did not stand on equality with the
lender bank.

Contrary to the petitioner's position, there was mutuality of contracts between itself
and the respondent. Tio, the petitioner's President, who signed the promissory notes
in behalf of the petitioner, was aware of the provision in the documents pertaining to
the monthly repricing of the interest rates. Although the promissory notes succinctly
stipulated that the loans were subject to interest without need of prior notice to the
borrower, the respondent sent notices to the petitioner each and every time it
increased the interest rate.

We also affirm the CA's findings despite the showing of the promissory notes being
contracts of adhesion.

A contract of adhesion is one wherein one party imposes a ready-made form of

contract on the other in which almost all of the provisions are drafted by one party,
thereby reducing the participation of the other to affixing its signature or to adhering
to the contract. However, the contract of adhesion is not invalid per se but is as binding
as any other contract. The only occasions in which the Court has struck down
contracts of adhesion as void have happened only when the weaker party has been
imposed upon in dealing with the dominant bargaining party as to be reduced to the
alternative of taking it or leaving it, being completely deprived of the opportunity to
bargain on equal footing. Thus, the validity or enforceability of the impugned contracts
will have to be determined by the peculiar circumstances obtaining in each case and
by the situation of the parties concerned.[26]

We are aware of the ruling in Limso v. Philippine National Bank (Limso),[27] which
reiterates the essentiality of the long standing dictum that the contract is void when
there is no mutuality between the parties. The ruling stresses that mutuality is absent
when the interest rate in a loan agreement is set at the sole discretion of one party; or
when there is no reasonable means by which the other party can determine the
applicable interest rate. This is because the parties are not then on equal footing when
they negotiated and concluded the terms of the contract.

There may be similarities in the factual antecedents of Limso and those in this case,
but both cases also had several remarkable distinctions that warranted the conclusion
that the principle of mutuality pervaded the agreements on the interest rates between
the parties herein.

For one, PNB, the lender in Limso, not only failed to consult the Limso petitioners as
the borrowers on the imposition of the new interest rates but also did not send notices
to them, or even allowed some of its notices to be received by mere employees not
authorized to receive such crucial communications. In fact, some of the
communications did not appear to have been received by the principal borrowers at
all. In this case, such irregularity was not attendant. As the CA pointed out, the
respondent sent the notices to the petitioner because the very receipt of the notices
increasing the interest rates became the reckoning point for either the effectivity of the
new rates imposed by the respondent, or for the effectivity of the petitioner's option to
pay the outstanding obligations should it object to the proposed rate.

Secondly, in Limso, the Spouses Limso and Davao Sunrise had their loans
restructured in the hopes of meeting their financial obligations with PNB. In contrast,
the petitioner herein had opened a credit line with the respondent from which it drew
specific amounts on various dates; each drawing from the credit line had a
corresponding promissory note signed by both parties; and the petitioner sometimes
drew more than five times in a month. Ostensibly, the frequency afforded to the
petitioner the opportunity to discuss or negotiate the interest rates being imposed not

Page 22 of 51
only on the current drawing of funds but also on those repriced and covered by other
promissory notes.

And, thirdly, that there was no showing by the petitioner herein that it had been placed
at any disadvantage in dealing with the respondent was decisive. On the contrary, it
appeared that mutuality always pervaded the relationship between the parties. As
noted by the CA, the petitioner had earlier requested the release of 133 of the
subdivision lots under mortgage to the respondent when it became established that
41 out of the 174 subdivision lots would already be sufficient securities for the credit
accommodation, and the respondent granted the request subject only to the condition
that the real estate mortgage contract be duly amended to make it conform to the
changes in the amount of the credit line and the lots covered by the mortgage. The
petitioner readily agreed to the condition. Also, in their transactions, Tiu, the
petitioner's President, who appeared to have been trained and experienced in
business at the time he acted in the petitioner's behalf in dealing with the respondent,
had functioned without duress or force in signing the various promissory notes and
allied agreements on petitioner's behalf. Furthermore, Tiu was aware of the rider of
the agreements and had full knowledge of the import of the rider. The rider contained
the agreements on the monthly repricing of the interest rates. The natural presumption
under the circumstances was that Tiu would not have signed the documents unless
he had informed himself of their contents, import and consequences. This
presumption was not overturned.

The foregoing distinctions indicated that the petitioner herein was never a party at a
disadvantage, unlike the Limso petitioners.

Page 23 of 51
THIRD DIVISION

[ G.R. No. 210816, December 10, 2018 ]

PEOPLE OF THE PHILIPPINES, PETITIONER, VS. EDGAR S. GO, RESPONDENT.

[G.R. No. 210854]

PURITA HIBE, JONATHAN A. TESSLER, CAROL T. MEJIAS, HEIDE V. LAUREL,

NISSAN V. LAUREL, ESTELA LAURELGELI, KATHERINE DELA CRUZ LAUREL,
ARLENE OLANG, SARLINA SEPE, ALLAN CARONO-O, EPHRAIM OSORIO,
JUARINA R. CRUZ, NESHAMIE PAGLINAWAN, JOSEPHINE PADUA, VICENTA
R. CHUA, ILLUMINADA TIMAJO, LILYBETH CUNANAN, ELORDE ILUSTRISIMO,
BOB ILLUT, ERNESTO B. CLARIN, ROQUE LABAD, EVELYN BAJIT,* LARINA L.
MATRIZ, BENITO S. ESPINA, MARLYN T. HIBE, CELERNA M. CALAYAG, NELLY
T. LOPEZ, AND SONIA O. MANZANILLA, VS. EDGAR S. GO, RESPONDENT.

DECISION

REYES, J. JR., J.:

Assailed in these consolidated petitions for review on certiorari filed under Rule 45 of
the Rules of Court are the March 22, 2013 Decision[1] and the January 8, 2014
Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP. No. 115165 which dismissed
the charge for reckless imprudence against respondent Edgar S. Go (respondent).

On June 20, 2008, M/V Princess of the Stars (Stars), a passenger cargo owned and
operated by Sulpicio Lines, Inc. (SLI), was expected to depart at 8:00 p.m. from the
Port of Manila for Cebu City. At 11:00 a.m. of June 20, 2008, the Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAGASA)
issued Severe Weather Bulletin (SWB) No. 7, raising Storm Warning Signal (SWS)
No. 1 over Romblon, Marinduque, Southern Quezon, Cebu, Bohol, Panay Island, and
Surigao del Norte. SWB No. 7 stated that the eye of Typhoon Frank was located 60
kilometers northeast of Guiuan, Eastern Samar, and forecasted to move west
northwest at 19 kilometers per hour.[3]

After obtaining a clearance from the Philippine Coast Guard (PCG), Stars departed at
8:04 p.m. for its regular Friday voyage to Cebu under Voyage No. 392 along its regular
route. On board the vessel were 709 passengers, 29 contractors and 111 crew
members or a total of 849 persons, which number was in compliance with the
Minimum Safe Manning Certificate and the PCG rules and regulations.[7]

At 8:30 a.m., the vessel was within the vicinity of Aklan Point where it was caught in
the center of Typhoon Frank. At 9:00 a.m., communications with the vessel were cut
off. Captain Ponteres communicated with Captain Marimon thrice between 11:30 a.m.
and past 12 noon, the last of which was Captain Marimon's declaration that he had
given the order to abandon ship via the vessel's public announcement system.
Continuously pounded by heavy waves and buffeted by strong winds, Stars eventually
capsized and sank in the Sibuyan Sea at around 12:30 p.m. of June 21, 2008. [10]

Due to inclement weather, immediate rescue efforts had to be deferred and it was only
at noon time of June 23, 2008. 1en the rescue arrived at the site. Of the 849 persons
on board, only 32 survived, 227 died and 592 were reported missing. [11]

In an Investigation Report[12] dated August 18, 2008, the Board of Marine Inquiry (BMI)
stated that SLI and its senior officers failed to ensure the safety of Stars, its

Page 24 of 51
passengers and its cargo because it did not assess the potential danger of Typhoon
Frank before the vessel departed on June 20, 2008 and while the vessel was in transit.
It added that SLI failed to monitor the condition of the vessel during the critical moment
from 7:00 a.m. to 9:00 a.m. of June 21, 2008, a period when the vessel was about 40
nautical miles from Typhoon Frank. The BMI also noted that SLI could have
discouraged the Master from sailing in its intended voyage considering that SWS No.
3 was hoisted in the vessel's route. It further observed that SLI did not inform
immediately the PCG when the vessel lost contact with the company at 9:00 a.m. of
June 21, 2008.

On September 2, 2008, the Volunteers Against Crime and Corruption and petitioners
in G.R. No. 210854, who are some of the heirs of the passengers of Stars, instituted
in the Department of Justice (DOJ) a complaint for reckless imprudence resulting in
multiple homicide, serious physical injuries, and damage to property under Article 365
of the Revised Penal Code (RPC) against SLI, its officers and Captain Marimon. They
alleged that the rough seas encountered by Stars on June 21, 2008 was reasonably
foreseeable by the owners and officers of SLI had they performed their bounden duty
to keep track of the weather conditions. They averred that SLI's officers allowed Stars
to sail and proceed on its usual sailing schedule despite the presence of the typhoon.

In a Resolution[15] dated June 22, 2009, the panel of four prosecutors (DOJ Panel)
created by the DOJ to conduct a preliminary investigation found probable cause to
indict Captain Marimon and respondent for reckless imprudence resulting in multiple
homicide, physical injuries, and damage to property. The DOJ Panel pronounced that
the lack of an appropriate passage plan, be it alternate voyage plan or alternate route,
on the part of SLI was a clear evidence of inexcusable negligence and lack of
foresight, and that such recklessness was further demonstrated when the vessel was
allowed to sail despite severe weather condition along its route.

During the pendency of respondent's petition for review with the DOJ Secretary, then
Department of Transportation and Communications Secretary Leandro Mendoza
issued a Resolution[19] on August 28, 2009, exculpating SLI from any negligence and
holding Captain Marimon solely responsible for the sinking of Stars

On March 22, 2010, then DOJ Secretary Alberto Agra denied respondent's petition for
review.[21] The DOJ Secretary ruled that there was sufficient evidence to warrant
respondent's indictment and that the issue on whether or not respondent was
responsible in the movement of Stars on June 20, 2008 was a matter that could be
better appreciated by the trial court.

In a Decision dated March 22, 2013, the CA held that the rule on non interference in
the conduct of preliminary investigations is not absolute such that where the
prosecutor's findings are tainted with grave abuse of discretion or manifest error, or
when, for various reasons, there was a misapprehension of facts, judicial interference
is warranted, for then it becomes the duty of the courts to temper the exclusive and
unilateral authority of the prosecuting authorities lest they be used for persecution.

the CA concluded that the charge for reckless imprudence against respondent in
Criminal Case No. 09-269169 must be dismissed as the latter's constitutional right to
due process and the higher interest of substantial justice must prevail over adherence
to the policy of non-interference on the executive prerogatives of the DOJ.

The Court's Ruling

Shipowner's liability based on the contract of carriage is separate and distinct from the
criminal liability of those who may be found negligent.

Page 25 of 51
Under Article 1755 of the Civil Code, a common carrier is bound to carry the
passengers safely as far as human care and foresight can provide using the utmost
diligence of very cautious persons with due regard for all the circumstances.
Moreover, under Article 1756 of the Civil Code, in case of death or injuries to
passengers, a common carrier is presumed to have been at fault or to have acted
negligently, unless it proves that it observed extraordinary diligence. In addition,
pursuant to Article 1759 of the same Code, it is liable for the death of, or injuries to
passengers through the negligence or willful acts of the former's employees. These
provisions evidently refer to a civil action based not on the act or omission charged as
a felony in a criminal case, but to one based on an obligation arising from other
sources, such as law or contract. Thus, the obligation of the common carrier to
indemnify its passenger or his heirs for injury or death arises from the contract of
carriage entered into by the common carrier and the passenger.[52]

On the other hand, "the essence of the quasi offense of criminal negligence under
[A]rticle 365 of the RPC lies in the execution of an imprudent or negligent act that, if
intentionally done, would be punishable as a felony. The law penalizes, thus, the
negligent or careless act, not the result thereof. The gravity of the consequence is only
taken into account to determine the penalty; it does not qualify the substance of the
offense."[53]

Consequently, in criminal cases for reckless imprudence, the negligence or fault

should be established beyond reasonable doubt because it is the basis of the action,
whereas in breach of contract, the action can be prosecuted merely by proving the
existence of the contract and the fact that the common carrier failed to transport his
passenger safely to his destination.[54] The first punishes the negligent act, with civil
liability being a mere consequence of a finding of guilt, whereas the second seeks
indemnification for damages. Moreover, the first is governed by the provisions of the
RPC, and not by those of the Civil Code. Thus, it is beyond dispute that a civil action
based on the contractual liability of a common carrier is distinct from an action based
on criminal negligence.

In this case, the criminal action instituted against respondent involved exclusively the
criminal and civil liability of the latter arising from his criminal negligence as
responsible officer of SLI. It must be emphasized that there is a separate civil action
instituted against SLI based on culpa contractual incurred by it due to its failure to
carry safely the passengers of Stars to their place of destination. The civil action
against a shipowner for breach of contract of carriage does not preclude criminal
prosecution against its employees whose negligence resulted in the death of or
injuries to passengers.

Page 26 of 51
[ G.R. No. 211204, December 10, 2018 ]

GOLDSTAR RIVERMOUNT, INC., PETITIONER, VS. ADVENT CAPITAL AND

FINANCE CORP., (FORMERLY ALL ASIA CAPITAL AND TRUST CORP.),*
RESPONDENT.

DECISION

J. REYES, JR., J.:

This case is about the validity of a dation in payment entered into between a debtor
and a creditor.

On December 9, 1998, petitioner Goldstar Rivermount, Inc. (Goldstar) borrowed

P55,000,000 from respondent Advent Capital and Finance Corp. (Advent), formerly
All Asia Capital and Trust Corp. The loan was payable in seven years, and it was
secured by a real estate mortgage over Goldstar's property, covered by Transfer
Certificate of Title No. T-278069, and a chattel mortgage over its equipment. [1]

Goldstar failed to pay its amortizations, which prompted it to offer its mortgaged
properties as payment for the loan that had ballooned to P66,012,292.85. On May 26,
2000, Goldstar and Advent signed a Dation in Payment as settlement for the loan.
They also executed a Memorandum of Agreement (Memorandum) on the same day,
wherein Goldstar was given the right to redeem the properties within one year, and
may continue to occupy and lease it for a monthly rental of P600,000.00.[2]

Later on, Goldstar learned that Advent had pnwiously assigned its receivables from
the loan to the Development Bank of the Philippines (DBP) on November 24, 1998.
Goldstar alleged that Advent was no longer its creditor when they agreed to a Dation
in Payment on May 26, 2000, thus, making the contract void. It is Goldstar's position
that since Advent had assigned its rights to DBP prior to the Dation in Payment, their
contract is a nullity.[4] Goldstar filed a complaint for declaration of nullity of the Dation
in Payment in the Regional Trial Court (RTC) of Davao City, Branch 13, and was
docketed as Civil Case No. 28,484-01.

On January 25, 2010, the RTC dismissed the complaint and rendered a Decision[9] in
Advent's favor. The RTC observed that at the time Goldstar filed its complaint on
March 23, 2001, it had barely two months before the expiration of its right of
redemption over the properties subject of the Dation in Payment. The RTC determined
that when Goldstar learned about the Deed of Assignment between Advent and DBP,
Goldstar found an excuse to file an action to nullify the Dation in Payment. [10]

The RTC agreed with Advent's argument that the reason for the execution of the Deed
of Assignment was to secure Advent's loan with DBP. Based on the wordings of the
Deed of Assignment, Advent remains the creditor of Investment Enterprises until it
defaults in its payment. Upon default, only then can DBP administer and enforce its
rights on the loans of Investment Enterprises.[11]

On May 30, 2013,[13] the CA affirmed the RTC, and sustained its finding that the Deed
of Assignment between Advent and DBP was for the security of Advent's loan.

In sum, the issue to be resolved is whether or not the CA committed a reversible

error in dismissing the appeal, and ruling that Advent may validly enter into a
Dation in Payment with Goldstar.

The Court's Ruling

Page 27 of 51
The petition is denied.

The CA held that the transfer of rights or credits from Advent to DBP was conditioned
on Advent's default in payment. The CA based its Decision on Sections 8 and 12 of
the Deed of Assignment, which clearly indicate that Advent has the right to administer
and enforce the loan, and unless it is in default in its payment to DBP, only then can
DBP substitute Advent as a creditor of Investment Enterprises.

In sum, both Sections 9 and 10 of the Deed of Assignment are proof that Advent may
validly enter in a Dation in Payment with Goldstar. Sections 9 and 10 validate the
Dacion in Payment and the Memorandum signed by Goldstar and Advent, as they
settle a due and demandable loan and, at the same time, secure Advent's loan to
DBP.

Article 1159 of the New Civil Code states that "[o]bligations arising from contracts have
the force of law between the contracting parties and should be complied with in good
faith." If the terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations shall control.[28] In its
Decision, the CA simply enforced what was stated in the terms and conditions of the
Deed of Assignment. Having established its basis in law and evidence on record, we
see no error in the CA's Decision.

Goldstar's argument that Advent was no longer its creditor at the time the Dation in
Payment and the Memorandum were signed is untenable, because the Deed of
Assignment specifically provides a condition before DBP may exercise its rights as
assignee. The deed clearly stated that Advent must be declared in default before DBP
may take over as assignee of the Project Loans. The unanimous finding of the trial
court and the appellate court that the condition was not met is persuasive and binding
upon the Court in the absence of substantial evidence to the contrary.

Page 28 of 51
THIRD DIVISION

[ G.R. No. 211206, November 07, 2018 ]

ROSEMARIE Q. REY, PETITIONER, VS. CESAR G. ANSON, RESPONDENT.

DECISION

PERALTA, J.:

This is a petition for review on certiorari,[1] under Rule 45 of the Rules of Court, of the
Decision[2] of the Court of Appeals dated September 6, 2013 in CA-G.R. CV No.
95012, which reversed and set aside the Decision[3] dated February 5, 2010 of the
Regional Trial Court (RTC) of Legazpi City, Branch 5, and entered a new judgment
ordering herein petitioner Rosemarie Q. Rey to pay respondent Cesar G. Anson the
sum of P902,847.87, plus twelve percent (12%) interest per annum from September
1, 2013 until fully paid, and to pay legal interest of twelve percent (12%) per annum
on the total award due, to be computed from the time the judgment becomes final and
executory until the same is fully satisfied.

On August 23, 2002, Rosemarie Rey borrowed from Cesar Anson the amount of
P200,000.00 payable in one year, and subject to 7.5% interest per month or
P15,000.00 monthly interest, which would be paid bi-monthly by way of postdated
checks. The loan was secured by a real estate mortgage on Spouses Teodoro and
Rosemarie Rey's property, Lot 1271-C-4, covered by Transfer Certificate of Title
(TCT) No. 50872. In the event of default, the Spouses Rey would pay a penalty charge
of 10% of the total amount, plus 12% attorney's fees. The terms and conditions of the
loan were embodied in a Deed of Real Estate Mortgage [4] dated August 23, 2002.
Rosemarie Rey thereafter issued 24 postdated checks for P7,500.00 each, as well as
another postdated check for the principal amount of P200,000.00.

Three days later, or on August 26, 2002, Rosemarie Rey again borrowed from Cesar
Anson P350,000.00, subject to 7% interest per month, and payable in four months.
The second loan was secured by a real estate mortgage over a parcel of land covered
by TCT No. 2776, registered in the name of Rosemarie Rey's mother, Isabel B. Quinto.
The parties executed a second Deed of Real Estate Mortgage [5] dated August 26,
2002.

Rosemarie Rey faithfully paid the interest on the first loan for twelve (12) months. She
was, however, unable to pay the principal amount of P200,000.00 when it became
due on August 24, 2003. She appealed to Cesar Anson not to foreclose the mortgage
or to impose the stipulated penalty charges, but instead to extend the terms thereof.
Cesar Anson agreed and Rosemarie Rey later signed a promissory note[6] dated April
23, 2004 and executed a Deed of Real Estate Mortgage[7] dated May 3, 2004, stating
that the Spouses Rey's principal obligation of P200,000.00 shall be payable in four (4)
months from the execution of the Deed of Real Estate Mortgage, and it shall be subject
to interest of 7.5% per month. These two documents cancelled, updated and replaced
the original agreement on the first loan. Rosemarie Rey once again issued postdated
checks to cover the interest payments on the amended first loan, the latest of which
was dated August 23, 2004, and another postdated check for P200,000.00 for the
principal amount. Rosemarie Rey was able to make good on her interest payments,
but thereafter failed to pay the principal amount of P200,000.00.

Anent the second loan of P350,000.00, Rosemarie Rey failed to faithfully pay monthly
interest thereon and she was unable to pay the principal amount thereof when it
became due on December 26, 2002. Rosemarie Rey appealed to Cesar Anson not to

Page 29 of 51
foreclose the mortgage securing the same or to impose the penalty charges, but
instead to extend the terms thereof. Cesar Anson agreed, and the parties executed
anew a Deed of Real Estate Mortgage[8] dated January 19, 2003 wherein Rosemarie
Rey acknowledged her indebtedness to Cesar Anson in the amount of P611,340.00,
payable within four months from the execution of the Deed of Real Estate Mortgage,
and subject to 7% interest per month.

Four months thereafter, Rosemarie Rey again failed to fulfill her obligation on the
second loan. The same was extended once more in a Deed of Real Estate Mortgage [9]
dated June 19, 2003 wherein Rosemarie Rey acknowledged indebtedness to Cesar
Anson in the amount of P761,450.00, payable within six months from the execution of
the Deed of Real Estate Mortgage, and subject to the same 7% interest per month.

On February 24, 2004, Rosemarie Rey obtained a third loan from Cesar Anson in the
amount of P100,000.00. The third loan was not put in writing, but the parties verbally
agreed that the same would be subject to 3% monthly interest.

A week later or on March 2, 2004, Rosemarie Rey obtained a fourth loan from Cesar
Anson for P100,000.00. It was also not put in writing, but there was an oral agreement
of 4% monthly interest.

On February 25, 2005, Cesar Anson sent Rosemarie Rey a Statement of Account [10]
seeking full payment of all four loans amounting to P2,214,587.50.

Instead of paying her loan obligations, Rosemarie Rey, through counsel, sent Cesar
Anson a letter[11] dated August 8, 2005, stating that the interest rates imposed on the
four loans were irregular, if not contrary to law.

On August 16, 2005, the Spouses Rey and Isabel Quinto filed a Complaint[12] for
Recomputation of Loans and Recovery of Excess Payments and Cancellation of Real
Estate Mortgages and Checks against Cesar Anson with the RTC of Legazpi City.

In a Decision[14] dated February 5, 2010, the RTC of Legazpi City, Branch 5 granted
the Spouses Rey's complaint for recomputation of the loans.

In regard to the third and fourth loans, the RTC held that since the said loans were not
in writing, they could not legally earn interest in accordance with Article 1956[15] of the
Civil Code. Therefore, whatever amounts of money that were applied as interest
payments in either Loan 3 or Loan 4 were invalid.

Anent the first and second loans with stipulated monthly interest rates at 7.5% and
7%, respectively, the RTC ruled that the stipulated interest rates at 90% per annum
and 84% per annum for the first and second loans, respectively, were void. It held that
the appropriate interest for the first two loans should be at the legal rate of 12% per
annum. It based its ruling on New Sampaguita Builders Construction, Inc. (NSBCI) v.
PNB,[16] which held that a combined stipulated interest and surcharge ranging from
62% to 71% per annum is iniquitous, unconscionable and exorbitant and, therefore,
void.

Rosemarie Rey paid the amount of 1,089,908 pesos as interest payments for the 4
loans x x x. Cesar Anson having received this amount must return it to Rosemarie
Rey; otherwise he would unduly enrich himself at her expense.

The 4 loans and the interest payments that obviously made Cesar Anson and
Rosemarie Rey in their own rights creditors and debtors to each other are money
obligations that are past due. In such a legal condition, compensation will extinguish
the obligations as explicitly provided by Article 1278 of the Civil Code x x x.

Page 30 of 51
In a Decision[21] dated September 6, 2013, the Court of Appeals reversed and set
aside the Decision of the RTC. It found the appeal of Cesar Anson partly meritorious.

Anent the third and fourth loans, the Court of Appeals held that the RTC correctly
declared the interest provisions on the third and fourth loans invalid and that Cesar
Anson must return the overpayments thereon to Rosemarie Rey. He admitted that the
third and fourth loans were not put in writing. As such, their agreement to impose
interests thereon remained verbal and, thus, invalid.

We find that legal compensation under Article 1279 of the Civil Code is proper in this
case.

x x x Here, plaintiff-appellant Rosemarie Rey and defendant-appellant Cesar Anson

are creditors and debtors of each other. Anson owes Rey the amount of P87,988.62
representing her overpayment [on] the third and fourth loans plus interest as of August
31, 2013. In turn, Rey's outstanding obligation under the first and second loans to
Anson is pegged at P990,836.49, also as of August 31, 2013. The obligations are due,
liquidated, and demandable. Thus, compensation is proper. Consequently, Rey's
remaining indebtedness as of August 31, 2013 is P902,847.87. The amount is still
subject to the legal rate of interest of 12% per annum until fully paid.

Whether or not the interest

I. rates on the first and second
loans are unconscionable
and contrary to morals.

Petitioner contends that the Decision of the Court of Appeals insofar as it declared
that the stipulated 7.5% and 7% monthly interest rates imposed on Loan 1 and Loan
2, respectively, are valid must be reversed and set aside, as it is contrary to the
jurisprudential pronouncements of this Court that stipulated interest rates of 3% per
month or higher are unconscionable and contrary to morals.

The Court agrees with petitioner.

The freedom of contract is not absolute. Article 1306 of the Civil Code provides that
"[t]he contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy."

In the case before us, even if Rosemarie Rey initially suggested the interest rate on
the first loan, voluntariness does not make the stipulation on an interest, which is
iniquitous, valid.[32] As Rosemarie Rey later realized through the counsel of her lawyer
that the interest rates of the first and second loans were excessive and no interest
should be imposed on the third and fourth loans, she came to court for recomputation
of the loans and recovery of excess payments.

In this case, the first loan had a 7.5% monthly interest rate or 90% interest per annum,
while the second loan had a 7% monthly interest rate or 84% interest per annum,
which rates are very much higher than the 3% monthly interest rate imposed in Ruiz
v. Court of Appeals[33] and the 5% monthly interest rate imposed in Sps. Albos v. Sps.
Embisan, et al.[34] Based on the ruling of the Spouses Albos case, the Court holds
that the interest rates of 7.5% and 7% are excessive, unconscionable, iniquitous, and
contrary to law and morals; and, therefore, void ab initio. Hence, the Court of Appeals
erred in sustaining the imposition of the said interest rates, while the RTC correctly
imposed the legal interest of 12% per annum in place of the said interest rates.

Page 31 of 51
Anent the third and fourth loans both in the amount of P100,000.00, the Court of
Appeals correctly held that as the agreement of 3% monthly interest on the third loan
and 4% monthly interest on the fourth loan was merely verbal and not put in writing.
no interest was due on the third and fourth loans. This is in accordance with Article
1956 of the Civil Code which provides that "[n]o interest shall be due unless it has
been stipulated in writing." Hence, the payments made as of March 18, 2005 in the
third loan amounting to P141,360.00[35] resulted in the overpayment of P41,360.00.
Moreover, the payments made as of February 2, 2005 in the fourth loan amounting to
P117,960.00[36] resulted in an overpayment of P17,960.00. Consequently, as found
by the Court of Appeals, there was a total overpayment of P59,320.00 for the third
and fourth loans.

II. Whether or not the

computation of payment of
interest and the principal
amount is correct in Loan 1
and Loan 2, and whether
interest is imposable on the
excess payments.

petitioner contends that she has made excess payments for the four loans in the total
sum of P269,700.68, which ought to be returned by Cesar Anson in accordance with
the principle of solutio indebiti under Article 2154 of the Civil Code.

In addition, petitioner contends that Cesar Anson is liable for payment of interest on
the excess payment from the time of extrajudicial demand until full payment.

The Court agrees with petitioner that Articles 1253 and 2154 of the Civil Code apply
to this case, and Cesar Anson is obliged to return to petitioner excess payments
received by him.

Article 1253 of the Civil Code states that "[i]f the debt produces interest, payment of
the principal shall not be deemed to have been made until the interests have been
covered." The Court reviewed the computation above made by petitioner for Loan 1
and Loan 2, and found the computation to be correct.

The Court finds that in Loan 1, petitioner already paid in full the principal amount of
P200,000.00 and monthly interest thereon on November 8, 2003, leaving an excess
payment of P1,759.64. Further payments made by petitioner from November 23, 2003
to August 23, 2004 resulted in overpayment amounting to P144,259.64. The excess
payment of P9,259.64 as of November 23, 2003 plus excess payments made from
December 23, 2003 to April 23, 2004 amounting to P84,259.64 in Loan 1 may be
applied to Loan 2, leaving a final excess payment of P60,000.00 for Loan 1.

As regards Loan 2, petitioner fully paid the principal amount of P350,000.00 and
monthly interest thereon on May 26, 2004, leaving an excess payment of P31,856.68.
Payments made thereafter, from June 26, 2004 to September 26, 2004, resulted in
excess payments amounting to P150,380.68 for Loan 2. Petitioner also made excess
payments of P41,360.00 in Loan 3, and P17,960.00 in Loan 4. Hence, the total excess
payments made by petitioner in the four loans amounted to P269,700.68.

Since Cesar Anson received a total overpayment of P269,700.68 from petitioner, he

is obliged to return the amount in accordance with the principle of solutio indebiti under
Article 2154 of the Civil Code,

Page 32 of 51
However, in regard to payment of interest on the overpayment made by petitioner,

In this case, the excess payments made by petitioner were also borne out of a mistake
that they were due; hence, following the ruling in Sps. Abella v. Sps. Abella,[115] the
Court deems it in the better interest of equity not to hold Cesar Anson liable for interest
on the excess payments.

III. Whether or not petitioner is

entitled to the award of
attorney's fees.

It is a settled rule that attorney's fees and litigation expenses cannot be automatically
recovered as part of damages in light of the policy that the right to litigate should bear
no premium.[117] Attorney's fees are awarded only in those cases enumerated in Article
2208[118] of the Civil Code. Considering the absence of facts that justify the award of
attorney's fees to herein petitioner, the Court of Appeals was correct in not awarding
attorney's fees and litigation expenses to petitioner.

Page 33 of 51
FIRST DIVISION

[ G.R. No. 215691, November 21, 2018 ]

SPOUSES FRANCIS N. CELONES AND FELICISIMA CELONES, PETITIONERS,

VS. METROPOLITAN BANK AND TRUST COMPANY AND ATTY. CRISOLITO O.
DIONIDO, RESPONDENTS.

DECISION

TIJAM, J.:

Before Us is a petition for review on certiorari[1] filed by petitioners Spouses Francis

N. Celones and Felicisima Celones (Spouses Celones), against respondents
Metropolitan Bank and Trust Company (Metrobank) and Atty. Crisolito O. Dionido
(Atty. Dionido), assailing the Decision[2] dated April 14, 2014 and the Resolution[3]
dated December 11, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. 96236,
reversing the Order[4] dated September 1, 2010 of the Regional Trial Court (RTC) of
Pasig City, Branch 154, declaring the Memorandum of Agreement[5] (MOA) without
force and effect and declaring that Spouses Celones were the ones who redeemed
the mortgaged properties.

The Spouses Celones together with their company, Processing Partners and
Packaging Corporation (PPPC), obtained various loans from Metrobank and for which
they mortgaged various properties.[6] The total obligation of Spouses Celones with
Metrobank was P64,474,058.73.[7]

The Spouses Celones defaulted in paying their loan, as such, Metrobank foreclosed
all the mortgaged properties. During the foreclosure sale, Metrobank was declared as
the winning bidder. The certificates of sale were issued on July 2007. Prior to the
expiration of the one year redemption period, Metrobank filed petitions for issuance of
writs of possession before several courts to take possession of the foreclosed
properties.[8]

Sometime in 2007, the spouses Celones offered to redeem the properties from
Metrobank. The latter issued a Conditional Notice of Approval for Redemption [9]
(CNAR) dated December 13, 2007 stating that the offer of Spouses Celones to
redeem the property in the amount of P55 Million has been approved to be paid on or
before December 20, 2007. Pressed for time, Spouses Celones sought the help of
banking and financing institutions who are willing to extend them a loan. Finally, they
found Atty. Dionido who agreed to loan them the said amount. [11]

Atty. Dionido then issued two (2) manager's check, one amounting to P35 Million and
another amounting to P20 Million.[12]

In lieu of executing a loan agreement, Spouses Celones, PPPC, Metrobank and Atty.
Dionido executed a MOA, wherein the parties agreed for the subrogation of Atty.
Dionido to all the rights, interests of Metrobank over the loan obligation of Spouses
Celones and the foreclosed properties.

On the belief that they have redeemed the foreclosed properties, the Spouses
Celones demanded from Metrobank the issuance of a Certificate of Redemption.
However, the latter refused to issue the same on the ground that all its rights and
interests over the foreclosed properties had been transferred to Atty. Dionido, as such,
he should be the one to issue the said certificate.[16]

Page 34 of 51
Meanwhile, Atty. Dionido sent several demand letters to Spouses Celones to vacate
the foreclosed properties in view of the expiration of the redemption period without
Spouses Celones redeeming the same.[17]

Aggrieved, Spouses Celones filed before the trial court a case for Declaratory Relief
and Injunction to compel Metrobank to issue the certificates of redemption and to
deliver to them the certificates of title over the foreclosed properties.[18]

On September 1, 2010, the RTC issued an Order[19] in favor of Spouses Celones,

The Court further declares the [Spouses Celones] to be the redemptioners of their
foreclosed properties and directs defendant Metrobank to execute and deliver the
corresponding certificates of redemption over the said properties and turn-over all the
Transfer Certificates of Titles covering the same to [Spouses Celones] so that they
could be registered in accordance with Section 29, Rule 39 of the Revised Rules of
Court.

Upon appeal to the CA, the latter reversed the RTC Order and rendered a Decision

Whether or not Spouses Celones were able to redeem the foreclosed properties from
Metrobank using the loan acquired from Atty. Dionido.

Spouses Celones claimed that the transaction between them and Atty. Dionido was
that of a loan.

On the other hand, Metrobank and Atty. Dionido both argued that the Spouses
Celones were not able to redeem the property because the CNAR has been novated
by the MOA executed by the parties on December 20, 2007. Under the MOA, the P55
Million paid by Atty. Dionido to Metrobank was in consideration of the transfer and
assignment of rights of Metrobank to Atty. Dionido over the foreclosed properties.
Metrobank claimed that if there was indeed a redemption that occurred, it should be
Atty. Dionido who should issue a Certificate of Redemption in view of the transfer and
assignment of its rights to the latter.

Ruling of the Court

The petition is impressed with merit.

It is undisputed that the amount of P55 Million paid to Metrobank came from Atty.
Dionido. The controversy lies as to what transaction occurred between spouses
Celones and Atty. Dionido. Spouses Celones claimed that it was a loan transaction
while Atty. Dionido claimed that it was in consideration of his subrogation to the rights
and interests of Metrobank over the foreclosed properties.

Novation is a mode of extinguishing an obligation by changing its objects or principal

obligations, by substituting a new debtor in place of the old one, or by subrogating a
third person to the rights of the creditor.[28] In order that an obligation may be
extinguished by another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other.[29] Thus, "[n]ovation must be stated in clear and
unequivocal terms to extinguish an obligation. It cannot be presumed and may be
implied only if the old and new contracts are incompatible on every point." [30]

Novation may:
[E]ither be extinctive or modificatory, much being dependent on the nature of the
change and the intention of the parties. Extinctive novation is never presumed;
there must be an express intention to novate; in cases where it is implied, the

Page 35 of 51
acts of the parties must clearly demonstrate their intent to dissolve the old
obligation as the moving consideration for the emergence of the new one.
Implied novation necessitates that the incompatibility between the old and new
obligation be total on every point such that the old obligation is completely
superceded by the new one. The test of incompatibility is whether they can
stand together, each one having an independent existence; if they cannot and
are irreconcilable, the subsequent obligation would also extinguish the first.

Examination of the MOA showed no express stipulation as to the novation or extinction

of the CNAR. Thus, for implied novation to exist, it is necessary to determine whether
the CNAR and the MOA are incompatible on every point such that they cannot be
reconciled and stand together.

Under the MOA, Metrobank assigned all its rights and interests over the foreclosed
properties to Atty. Dionido. "An assignment of credit has been defined as the process
of transferring the right of the assignor to the assignee who would then have the right
to proceed against the debtor."[33] Atty. Dionido being an assignee of Metrobank, he
merely steps into the shoes of the assignor, Metrobank. Atty. Dionido can acquire no
greater right than that pertaining to his assignor. Thus, when Atty. Dionido agreed to
the assignment of Metrobank's rights and interests over the foreclosed properties
under the MOA, he acquires exactly the rights and interests over the foreclosed
properties as of the date of the signing of the MOA.

Unfortunately for Atty. Dionido, he merely acquired what right Metrobank has, as of
the date of the signing of the MOA, which was the issuance of a Certificate of
Redemption, because as of that date, the foreclosed properties have already been
redeemed by Spouses Celones from Metrobank. The fact that Spouses Celones had
already redeemed the foreclosed properties was evidenced by the fact that as soon
as Metrobank was paid the redemption amount, the latter issued payment slips in the
name of Spouses Celones.

Had the P55 Million been paid by Atty. Dionido to Metrobank as a consideration for
the assigment of credit, the receipt should have been under the name of Atty. Dionido
and not under the name of Spouses Celones.

Atty. Dionido however is not left without any remedy or recourse against Spouses
Celones. Under Article 1236 of the Civil Code, it is provided that:
Art. 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor.
(Emphasis ours)
Thus, Atty. Dionido has the right to demand payment of the amount of P55 Million from
Spouses Celones since it is undisputed that such amount came from Atty. Dionido. It
is unjust enrichment on the part of Spouses Celones to acquire the amount ofP55
Million and not be required to pay the same.

Page 36 of 51
THIRD DIVISION

[ G.R. No. 217044, January 16, 2019 ]

SPOUSES RAINIER JOSE M. YULO AND JULIET L. YULO, PETITIONERS, VS.

BANK OF THE PHILIPPINE ISLANDS, RESPONDENT.

DECISION

LEONEN, J.:

When issuing a pre-screened or pre-approved credit card, the credit card provider
must prove that its client read and consented to the terms and conditions governing
the credit card's use. Failure to prove consent means that the client cannot be bound
by the provisions of the terms and conditions, despite admitted use of the credit card.

This resolves the Petition for Review on Certiorari[1] filed by Spouses Rainier Jose M.
Yulo (Rainier) and Juliet L. Yulo (Juliet), assailing the Court of Appeals February 20,
2015 Decision[2] in CA-G.R. SP No. 131192, which upheld the June 26, 2013
Decision[3] of the Regional Trial Court, Branch 62, Makati City.

On October 9, 2006,[4] the Bank of the Philippine Islands issued Rainier a pre-
approved credit card. His wife, Juliet, was also given a credit card as an extension of
his account. Rainier and Juliet (the Yulo Spouses) used their respective credit cards
by regularly charging goods and services on them. [5]

The Yulo Spouses regularly settled their accounts with the Bank of the Philippine
Islands at first, but started to be delinquent with their payments by July 2008. Their
outstanding balance ballooned to P264,773.56 by November 29, 2008. [6]

On November 11, 2008, the Bank of the Philippine Islands sent Spouses Yulo a
Demand Letter[7] for the immediate payment of their outstanding balance of
P253,017.62.

On February 12, 2009, the Bank of the Philippine Islands sent another Demand
Letter[8] for the immediate settlement of their outstanding balance of P325,398.42.

On February 23, 2009, the Bank of the Philippine Islands filed a Complaint[9] before
the Metropolitan Trial Court of Makati City for sum of money against the Yulo Spouses.
This was initially raffled to the Metropolitan Trial Court Branch 67, Makati City, and
was docketed as Civil Case No. 97470.

On June 29, 2012,[14] the Metropolitan Trial Court, in its Decision,[15] ruled in favor of
the Bank of the Philippine Islands and ordered the Spouses Yulo to pay the bank the
sum of P229,378.68.

The Yulo Spouses filed an Appeal, but it was dismissed on June 26, 2013 [18] by the
Regional Trial Court Branch 62, Makati City, which affirmed the Metropolitan Trial
Court Decision.

The Regional Trial Court declared that when it comes to pre-approved credit cards,
like those issued to the Yulo Spouses, the credit card provider had the burden of
proving that the credit card recipient agreed to be bound by the Terms and Conditions
governing the use of the credit card.[19]

The Regional Trial Court noted that the Bank of the Philippine Islands presented as

Page 37 of 51
evidence the Delivery Receipt for the credit card packet, which was signed by Rainier's
authorized representative, Jessica Baitan (Baitan). It held that the Bank of the
Philippine Islands successfully discharged its burden, as the signed Delivery Receipt
and Rainier's use of credit card were proofs that Rainier agreed to be bound by its
Terms and Conditions.[20]
The Court of Appeals concurred with the Regional Trial Court's finding that Rainier,
through his authorized representative, received the pre-approved credit card issued
by the Bank of the Philippine Islands, and thus, agreed to be bound by its Terms and
Conditions.[25]

The sole issue for this Court's resolution is whether or not petitioners Rainier Jose M.
Yulo and Juliet L. Yulo are bound by the Terms and Conditions on their use of credit
cards issued by respondent.

As a pre-screened client, petitioner Rainier did not submit or sign any application form
as a condition for the issuance of a credit card in his account. Unlike a credit card
issued through an application form, with the applicant explicitly consenting to the
Terms and Conditions on credit accommodation use, a pre-screened credit card
holder's consent is not immediately apparent.

Thus, respondent, as the credit card provider, had the burden of proving its allegation
that petitioner Rainier consented to the Terms and Conditions surrounding the use of
the credit card issued to him.[45]

While the Delivery Receipt[46] showed that Baitan received the credit card packet for
petitioner Rainier, it failed to indicate Baitan's relationship with him. Respondent also
failed to substantiate its claim that petitioner Rainier authorized Baitan to act on his
behalf and receive his pre-approved credit card. The only evidence presented was the
check mark in the box beside "Authorized Representative" in the Delivery Receipt.
This self-serving evidence is obviously insufficient to sustain respondent's claim.

A contract of agency is created when a person acts for or on behalf of a principal, with
the latter's consent or authority.[47] Unless required by law, an agency does not require
a particular form, and may be express or implied from the acts or silence of the
principal.[48] Rallos v. Felix Go Chan & Sons Realty Corporation[49] lays down the
elements of agency:
Out of the above given principles, sprung the creation an acceptance of the
relationship of agency whereby one party, called the principal (mandante), authorizes
another, called the agent (mandatario), to act for find (sic) in his behalf in transactions
with third persons. The essential elements of agency are: (1) there is consent, express
or implied, of the patties to establish the relationship; (2) the object is the execution of
a juridical act in relation to a third person; (3) the agents (sic) acts as a representative
and not for himself; and (4) the agent acts within the scope of his authority. [50]
(Emphasis in the original, citation omitted)
Respondent fell short in establishing an agency relationship between petitioner
Rainier and Baitan, as the evidence presented did not support its claim that petitioner
Rainier authorized Baitan to act on his behalf. Without proof that petitioner Rainier
read and agreed to the Terms and Conditions of his pre-approved credit card,
petitioners cannot be bound by it.

Petitioners do not deny receiving and using the credit cards issued to them.

This case thus falls squarely within Alcaraz v. Court of Appeals[56] and Ledda v. Bank
of the Philippine Islands,[57] where the credit card provider also failed to prove the pre-
screened client's consent to the credit card's terms and conditions. Alcaraz ruled that

Page 38 of 51
when the credit card provider failed to prove its client's consent, even if the latter did
not deny availing of the credit card by charging purchases on it, the credit card client
may only be charged with legal interest

Page 39 of 51
CIV 1

SECOND DIVISION

[ G.R. No. 217336, October 17, 2018 ]

REPUBLIC OF THE PHILIPPINES, PETITIONER, VS. SPS. ILDEFONSO

ALEJANDRE AND ZENAIDA FERRER ALEJANDRE, RESPONDENTS.

DECISION

CAGUIOA, J:

Before the Court is a petition for review on certiorari[1] (Petition) under Rule 45 of the
Rules of Court (Rules) assailing the Decision[2] dated February 27, 2015 (Decision) of
the Court of Appeals[3] (CA) in CA-G.R. CV No. 101259, which sustained the Amended
Decision[4] dated June 12, 2008 of the Regional Trial Court of Bangued, Abra, Branch
2 (RTC) in LRC Case No. N-20, which granted the respondents' application for
registration of Lot 6487, Cad. 536, Ap-CAR-000007, with an area of 256 square
meters located at Barrio Poblacion, Municipality of Bangued, Province of Abra.

On July 18, 1991, Spouses Alejandre (applicants-spouses, for brevity) filed an

application for the registration of Lot No. 6487 under P.D. No. 1529, described in plan
Ap-CAR-000007, Cad-536, with an area of 256 square meters. They alleged that they
are the owners of the subject property by virtue of a deed of sale or conveyance; that
the subject property was sold to them by its former owner Angustia Lizardo Taleon by
way of a Deed of Absolute Sale executed on June 20, 1990; that the said land is
presently occupied by the applicants-spouses.

After trial, the trial court rendered its Decision dated March 31, 2006 granting the
application for registration of title,

Disagreeing with the trial court's grant of the application for land registration, the
Republic interposed [an] appeal [to the CA].

The CA in its Decision[6] dated February 27, 2015 denied the appeal of the Republic.

The CA justified that based on the allegations of the applicants spouses Ildefonso
Alejandre and Zenaida Ferrer Alejandre (respondents) in their application for land
registration and subsequent pleadings, they come under paragraph 4 of Section 14,
Presidential Decree No. (PD) 1529[8] - those who have acquired ownership of lands in
any manner provided for by law - because they acquired the land in question by virtue
of a Deed of Absolute Sale executed on June 20, 1990 [9] from Angustia Alejandre
Taleon who acquired the land from her mother by inheritance. [10]

The Court's Ruling

The Petition is impressed with merit.

Pursuant to Article 419 of the Civil Code, property, in relation to the person to whom
it belongs, is either of public dominion or of private ownership. As such, properties are
owned either in a public capacity (dominio publico) or in a private capacity (propiedad
privado).[26]

There are three kinds of property of public dominion: (1) those intended for public use;

Page 40 of 51
(2) those intended for some public service; and (3) those intended for the development
of national wealth.

In turn, the Civil Code classifies property of private ownership into three categories:
(1) patrimonial property of the State under Articles 421 and 422; (2) patrimonial
property of LGUs under Article 424; and (3) property belonging to private individuals
under Article 425,

From the foregoing, property of private ownership or patrimonial property of the State
may be sub-classified into:

(1) "By nature or use" or those covered by Article 421, which are not property of public
dominion or imbued with public purpose based on the State's current or intended use;
and

(2) "By conversion" or those covered by Article 422, which previously assumed the
nature of property of public dominion by virtue of the State's use, but which are no
longer being used or intended for said purpose. Since those properties could only
come from property of public dominion as defined under Article 420, "converted"
patrimonial property of the State are separate from and not a subset of patrimonial
property "by nature or use" under Article 421.

With respect to lands, which are immovable property pursuant to Article 415(1) of the
Civil Code, they can either be lands of public dominion or of private ownership
following the general classification of property under Article 419.

Section 3, Article XII of the 1987 Constitution, which embodies the Regalian doctrine,
classifies lands of the public domain into five categories - agricultural lands, forest
lands, timber lands, mineral lands, and national parks. The provision states:
SEC. 3. Lands of the public domain are classified into agricultural, forest or timber,
mineral lands, and national parks. Agricultural lands of the public domain may be
further classified by law according to the uses to which they may be devoted.
Alienable lands of the public domain shall be limited to agricultural lands. x x x
(Emphasis supplied)
Section 3 mandates that only lands classified as agricultural may be declared
alienable, and thus susceptible of private ownership. As the connotative term
suggests, the conversion of land of the public domain into alienable and disposable
opens the latter to private ownership.[28] At that point (i.e., upon the declaration of
alienability and disposability), the land ceases to possess the characteristics inherent
in properties of public dominion that they are outside the commerce of man, cannot
be acquired by prescription, and cannot be registered under the land registration
law,[29] and accordingly assume the nature of patrimonial property of the State that is
property owned by the State in its private capacity.

Thus, it can be gathered from the foregoing that the subject of the land registration
application under Section 14 of PD 1529 is either alienable and disposable land of
public domain or private land. While Section 14(4) does not describe or identify the
kind of land unlike in (1), which refer to "alienable and disposable lands of the public
domain;" (2), which refer to "private lands"; and (3) "private lands or abandoned river
beds," the land covered by (4) cannot be other than alienable and disposable land of
public domain, i.e., public agricultural lands[31] and private lands or lands of private
ownership in the context of Article 435.

This premise proceeds from the well-entrenched rule that all lands not appearing to
be clearly of private dominion or ownership presumptively belong to the State. [32]
Accordingly, public lands not shown to have been classified, reclassified or
released as alienable agricultural land or alienated to a private person by the

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State remain part of the inalienable lands of public domain.[33] Therefore, the
onus to overturn, by incontrovertible evidence, the presumption that the land
subject of an application for registration is alienable and disposable rests with
the applicant.[34]

Respondents, based on the evidence that they adduced, are apparently claiming
ownership over the land subject of their application for registration by virtue of tradition,
as a consequence of the contract of sale, and by succession in so far as their
predecessors-in-interest are concerned. Both modes are derivative modes of
acquiring ownership. Yet, they failed to prove the nature or classification of the
land. The fact that they acquired the same by sale and their transferor by succession
is not incontrovertible proof that it is of private dominion or ownership. In the absence
of such incontrovertible proof of private ownership, the well-entrenched presumption
arising from the Regalian doctrine that the subject land is of public domain or dominion
must be overcome. Respondents failed to do this.

The real property tax declarations (Exhibits "L" and "M"), the Deed of Absolute Sale
dated June 20, 1990 (Exhibit "K" to "K5"), and the technical descriptions of the subject
property (Exhibit "J") are insufficient evidence to overcome the presumption that the
land subject of the registration is inalienable land of public domain or dominion. Thus,
respondents' application for land registration should not have been granted.

Page 42 of 51
THIRD DIVISION

[ G.R. No. 226088, February 27, 2019 ]

FOOD FEST LAND, INC. AND JOYFOODS CORPORATION, PETITIONERS, VS.

ROMUALDO C. SIAPNO, TEODORO C. SIAPNO, JR. AND FELIPE C. SIAPNO,
RESPONDENTS.

DECISION

PERALTA, J.:

At bench is an appeal[1]from the Decision[2] dated January 6, 2016 and the

Resolution[3] dated July 22, 2016 of the Court of Appeals (CA) in CA G.R. CV No.
101302, affirming the Decision and Resolution, dated February 20, 2013 and July 5,
2013, respectively, of the Regional Trial Court (RTC), Branch 41, Dagupan City in Civil
Case No. 2009-0084-D.

Respondents Romualdo C. Siapno, Teodoro C. Siapno and Felipe C. Siapno are the
registered owners[4] of a 521-square-meter parcel of land (subject land) in Dagupan
City.

On April 14, 1997, respondents entered into a Contract of Lease [5] involving the
subject land with petitioner Food Fest Land, Inc. (Food Fest), a local corporation who
wanted to use such land as the site of a fastfood restaurant.

In addition to the foregoing, the Contract of Lease also featured a non- waiver clause

16. NON-WAIVER- The failure of the parties to insist upon a strict performance of any
of the terms, conditions and covenants hereof shall not be deemed a relinquishment
or waiver of any rights or remedy that said party may have, nor shall it be construed
as a waiver of any subsequent breach or default of the terms, conditions and
covenants hereof which shall continue to be in full force and effect. No waiver by the
parties of any of their rights under this Contract of Lease shall be deemed to
have been made unless expressed in writing and signed by the party concerned.
[13]

Pursuant to the Contract of Lease, Food Fest proceeded to build and operate its
restaurant within the subject land.

In October 1998, Food Fest assigned all its rights and obligations under the Contract
of Lease unto one Tuck:y Foods, Inc. (Tucky Foods).[14] In September 2001, Tucky
Foods assigned all the said rights and obligations under such contract to petitioner
Joyfoods Corporation (Joyfoods).[15]

From the first up to the fifth year of the lease,[16] Food Fest and its assignees paid rent
at the monthly rate prescribed for under the Contract of Lease.[17] The rental escalation
clause in the said contract, which -requires the annual escalation of monthly rent by
10%, was consistently observed on the second to the fifth year.

At the start of the eleventh year of the lease,[23] however, respondents called the
attention of Food Fest and Joyfoods regarding its intent to enforce the rental
escalation clause of the Contract of Lease for the said year. [24] Accordingly,
respondents informed Food Fest and Joyfoods that the rent for the eleventh year of
the lease shall be P113,867.89 per month, unless such amount is renegotiated.

Page 43 of 51
In reply, Food Fest and Joyfoods, on June 27, 2007, sent to respondents a letter [25]
wherein they acknowledged that the applicable rate of rent following the Contract of
Lease would indeed be P113,867.89 per month, but proposed that the same be
reduced to only P80,000.00 per month. The proposal was rejected by the
respondents.

On July 4, 2007, Joyfoods sent to respondents another letter[26] wherein it proposed

the amount of P85,000.00 as monthly rental for the eleventh and twelfth years of the
lease. But this too was met with rejection by the respondents.

On October 27, 2008, during the lease's twelfth year, Joyfoods sent to respondents a
letter[27] conveying its intent to pre-terminate the lease. In the letter, Joyfoods stated
that "due to severe and irreversible business losses" it will cease its operations on the
29th of November 2008 and will turnover the subject land to the respondents on the
131h of December 2008.[28]

On April 20, 2009, respondents lodged before the RTC of Dagupan City a
Complaint[29] for sum of money against Food Fest and Joyfoods. In it, respondents
mainly seek payment of the sum of P988,907.74 from Food Fest and Joyfoods - which
sum respondents refer to as the "escalation for the years 2007 and 2008." [30] In
essence, the sum P988,907.74 was supposed to represent the balance between the
amount of rent due under the Contract of Lease for the period beginning from the
lease's eleventh year of up to its pre-termination, on one hand, and the amount of rent
that was actually paid by Food Fest and Joyfoods during the said period, on the other
(unpaid balance).

On February 20, 2013, the RTC rendered a Decision[31] in favor of respondents,

ordering Food Fest and Joyfoods to, among others, pay respondents the unpaid
balance in the amount of P988,907.74.

On January 6, 2016, the CA rendered a Decision[33] dismissing such appeal and

affirming the decision of the RTC. Food Fest and Joyfoods moved for a
reconsideration, but the CA was steadfast.[34]

Hence, this appeal.

Our Ruling

We deny the appeal. We affirm the decision of the CA.

II

We also reject the plea to limit liability for the unpaid balance solely with Joyfoods.

Food Fest and Joyfoods' plea is, in substance, an invocation of the concept of novation
- particularly, novation of an obligation by the substitution of the person of the debtor.
Their basic assertion is that the assignment by Food Fest of its rights and obligations
under the Contract of Lease to Tucky Foods, and the assignment by Tucky Foods of
the same rights and obligations to Joyfoods, ought to have resulted in Food Fest's
release from its obligations under the Contract of Lease and its substitution therein by
Joyfoods.

We do not agree.

Novation is the extinguishment of an obligation by its modification and replacement by

a subsequent one. It takes place when an obligation is modified in any of the following
ways: (a) by changing its object or principal conditions, (b) by substituting the person

Page 44 of 51
of the debtor, or (c) by subrogating a third person in the rights of the creditor.[41] In
such instances, the obligation ceases to exist as a new one — bearing the
modifications agreed upon — takes its place. Novation is, thus, a juridical act of dual
function— for as it extinguishes an obligation, it also creates a new one in lieu of the
old.[42]

Novation of an obligation by substituting the person of the debtor, as the term

suggests, entails the replacement of the debtor by a third person. When validly made,
it releases the debtor from the obligation which is then assumed by the third person
as the new debtor. To validly effect such kind of novation, however, it is not enough
for the debtor to merely assign his debt to a third person, or for the latter to assume
the debt of the former; the consent of the creditor to the substitution of the debtor is
essential and must be had. As Article 1293 of the Civil Code provides:

ARTICLE 1293. Novation which consists in substituting a new debtor in the place of
the original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in articles 1236 and 1237.[43]

The consent of the creditor to the substitution of a debtor, as a rule, may be given
expressly or impliedly.[46] As can be observed, the law does not require that the
creditor's consent to the substitution to come at a particular time or in a particular
form.[47] What it only demands is that the consent of the creditor be given one way or
another.[48] This notwithstanding, there is also nothing that precludes the parties
in an obligation, pursuant to their freedom to contract,[49] to agree to a specific
form by which the creditor's consent to any potential novation should be
expressed. Once an agreement is reached that subjects the creditor's consent to
certain formal requirements, such requirements naturally become binding upon the
parties.[50]

Going back to the instant case, We find that the established facts do not permit the
conclusion that novation had taken place.

First. The settled facts do not show that respondents had expressly consented in
writing to the substitution of Food Fest by Joyfoods. The consent of respondents to
such substitution has to be in writing, in . light of the non-waiver clause of the Contract
of Lease. As can be recalled, the non waiver clause of the Contract of Lease required
the parties thereto to express any waiver of their rights under said contract in writing
lest their waiver be considered null,

Respondents' consent to the substitution of Food Fest falls within the ambit of the
foregoing clause, because a novation by the substitution of the person of the
debtor implies a waiver on the part of the creditor of his right to enforce the
obligation as against the original debtor.

It should be noted that in order to give novation its legal effect, the law requires that
the creditor should consent to the substitution of a new debtor. This consent must be
given expressly for the reason that, since novation extinguishes the personality of
the first debtor who is to be substituted by a new one, it implies on the part of
the creditor a waiver of the right that he had before the novation which waiver
must be express under the principle that renuntiatio non praesumitor, recognized by
the law in declaring that a waiver of right may not be performed unless the will to waive
is indisputably shown by him who holds the right.

Second. Yet, even if we are to set aside the non-waiver clause of the Contract of
Lease, Food Fest and Joyfoods' claim of novation is still doomed to fail. This is so

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because the consent of respondents to the substitution of Food Fest, just the same,
cannot be deduced or implied from any of the established acts of the former. Indeed,
under the settled facts, the respondents did nothing in the way of releasing Food Fest
from its obligations other than, perhaps, its acceptance of rental payments from
Joyfoods.

The consent of respondents to the substitution of Food Fest by Joyfoods, however,

cannot be presumed from the sole fact that they accepted payments from Joyfoods. It
is well settled that mere acceptance by a creditor of payments from a third person for
the benefit of the debtor, sans any agreement that the original debtor will also be
released from his obligation, does not result in novation but merely the addition of
debtors.

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 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.[56]
All things considered, We find no valid reason to overturn the RTC and the CA's ruling
holding both Food Fest and Joyfoods liable for the unpaid balance. Under the limited
facts of the instant ease, no novation by the substitution of the person of debtor can
be appreciated. Accordingly, · Food Fest cannot be considered as released from its
obligations under the Contract of Lease. And Joyfoods' assumption of the debt of Food
Fest only made the former a co-debtor of the latter.[57]

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THIRD DIVISION

[ G.R. No. 230832, November 12, 2018 ]

ROYAL PLAINS VIEW, INC. AND/OR RENATO PADILLO, PETITIONERS, VS.

NESTOR C. MEJIA, RESPONDENT.

DECISION

J. REYES, JR., J.:

The Case

This resolves the Petition for Review on Certiorari[1] questioning the Decision[2] dated
May 26, 2016 and the Resolution[3] dated February 7, 2017 of the Court of Appeals
(CA)-Cagayan de Oro City, in CA-GR. CV No. 03284-MIN which reversed and set
aside the Decision[4] dated April 12, 2013 of the Regional Trial Court (RTC) ofTagum
City, Davao del Norte, Branch 31 that dismissed with prejudice Civil Case No. 4263,
for Declaration of Nullity of the Instrument denominated as Rescission of Conditional
Sale, Specific Performance, Sums of Money, etc.[5]

Subject of the present controversy is a parcel of land in Magdum, Tagum City, Davao
del Norte known as Lot No. 371 with an original area of 123,099 square meters, more
or less, covered by Original Certificate of Title (OCT) No. (P-1324) P-232[6] of the
Register of Deeds of the Province of Davao. The late Dominador Ramones
(Dominador) was the registered owner of the said parcel of land.[7]

During his lifetime, Dominador executed a Contract of Sale in favor of Bias Mejia
(Bias), father of respondent Nestor C. Mejia (Nestor), involving the western portion of
the subject land, consisting of 7,309 square meters.[8] The parties however, agreed to
reduce the area of the purchased lot to six hectares.[9] Despite the sale, the title over
the property remained in the name of Dominador married to Maria Ramones (spouses
Ramones).[10] The remaining portion of the lot was sold to a certain Pablo Benitez
(Pablo) on February 17, 1965 through a Deed of Absolute Sale of Land.[11]

After that transaction, Bias died and he was survived by his son, Nestor. Sometime in
2005, Nestor met petitioner Renato Padillo (Renato), the President of petitioner
Corporation, Royal Plains View, Inc., a real estate company.

Renato and Nestor agreed to split the entire lot (OCT No. [P-1324] P-232) into two
titles resulting to the issuance of Transfer Certificates of Title (TCT) Nos. T-225549
and T-225550.[14] Both titles were still under the name of spouses Ramones.[15] As
agreed upon, petitioner Corporation (through Renato) retained TCT No. T-225549
while TCT No. T-225550 was delivered to a person named Casimiro Benitez. [16]

On March 23, 2005, Nestor and petitioner Corporation, represented by Renato's wife,
Rosemarie Padillo, entered into a contract denominated as Deed of Conditional Sale
involving that said parcel of land covered by TCT No. T-225549 and registered in the
name of Dominador.[17] Under that contract, petitioner Corporation bound itself to pay
Nestor the sum of P8,000,000.00 of which P500,000.00 was for down payment. The
balance was to be paid in 36 equal monthly installments of P208,333.30 beginning
June 30, 2005 up to May 30, 2008.[18]

The March 23, 2005 Deed of Conditional Sale was later revoked and a new deed was
executed on April 11, 2007 between Nestor and petitioner Corporation, represented
by Renato.[19] The new Deed of Conditional Sale[20] stated that petitioner Corporation

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had paid respondent the amount of P1,972,000.00 and the remaining balance was to
be paid in 40 equal monthly installment of P150,000.00 starting on July 1, 2007 and
ending in June 2010.

One day, Nestor asked petitioner Renato to give him the original owner's duplicate
copy of TCT No. T-225549.[23] Petitioner Renato found out that Nestor had sold the
whole property to the spouses Harris and Caroline Egina (spouses Egina) for the sum
of P12,000,000.00.[24] As a consequence, eight TCTs were issued by the Register of
Deeds of Davao del Norte in the name of the spouses Egina. [25] These eight TCTs
were later on cancelled and the Court reinstated the derivative titles which are TCT
Nos. T-225549 and T-225550. Because of legal controversies besetting TCT No. T-
225549, it is now in the custody of the Registry of Deeds of Tagum City.

Renato attempted several times to contact Nestor, but the latter did not take his calls
and simply vanished.[27] Instead, Renato received a document entitled "Rescission of
Deed of Conditional Sale"[28] dated February 5, 2010 from Nestor whereby the latter
rescinded the April 11, 2007 Deed of Conditional Sale alleging that petitioners (Renato
and the Corporation) had defaulted in the payment of the monthly installments agreed
upon.[29] Renato alleged that since the time when TCT No. T-225549 was gone,
petitioner Corporation already stopped its marketing business.[30] Also, no one who
bought the individual lot had entered the subject property yet, as they were barred by
respondent Nestor.[31] Because of this, petitioners are now facing various cases in
court filed by some disgruntled lot buyers.[32]

On October 12, 2011, petitioners filed a Complaint for Declaration of Nullity of the
Instrument denominated as Rescission of Conditional Sale, Specific Performance,
Sums of Money, etc. against respondent Nestor and the heirs of the spouses
Ramones, represented by Remedios Ramones-Emperado, docketed with the RTC as
Civil Case No. 4263.

On April 12, 2013, the RTC issued a Decision[38] dismissing petitioners' complaint with
prejudice. The RTC found that the whole transaction between petitioners and Nestor
was tainted with badges of fraud. It ruled that respondent Nestor could not have been
the owner of the subject property because his father's (Bias') contract with Dominador
was a conditional sale and there was yet no conveyance of the same in Bias' favor.
There was also nothing on record which shows that Dominador's OCT No. (P-1324)
P-232 was cancelled with the issuance of TCT Nos. T-225549 and T-225550.
Petitioners, knowing that the subject property was still registered in the name of
Dominador, should not have paid a hefty amount to Nestor.

The RTC concluded that there was an attempt by petitioners and Nestor to deprive
Dominador's heirs of their rights to the subject property. Thus, the RTC found it difficult
to sympathize with petitioners' predicament as they did not come to court with clean
hands.

In reversing the RTC, the CA, in its Decision[39] dated May 26, 2016, ruled that from
the intent of the parties, the Deed of Conditional Sale entered into by them is a
Contract to Sell. As explicitly stated in the contract, upon full payment of the purchase
price, Nestor would be bound to execute the Deed of Absolute Sale. The CA made no
doubt that the intention of the contract is to reserve the ownership of the land to the
seller (Nestor) until the buyers (petitioners) made full payment of the purchase price.
Since petitioners had already paid at least two years of installments then the
provisions of Republic Act (R.A.) No. 6552 or the Maceda Law should be applied.
When Nestor cancelled the contract, he failed to comply with the requirement under
the Maceda Law, that is, the refund of the cash surrender value.

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The CA concluded that since there was no valid rescission of the contract to sell,
petitioners have not lost the statutory grace period within which to pay.

Two main issues were formed from the assigned errors of the petitioners: First, the
propriety of filing an appellee's brief by respondent Nestor despite the fact that he was
declared in default in the trial court; and second, the propriety of the rescission
and cancellation of the conditional sale executed by the parties.

The Courts Ruling

II.

In order to fully pass upon the validity and propriety of the Rescission of the Deed of
Conditional Sale executed by respondent Nestor, it is vital to characterize the nature
of the agreement between the parties - whether the same is a contract of sale or a
contract to sell.

The courts have repeatedly recognized the distinction between the two concepts.

A contract to sell and a contract of sale were clearly and thoroughly distinguished from
each other, with the High Tribunal stressing that in a contract of sale, the title passes
to the buyer upon the delivery of the thing sold. In a contract to sell, the ownership is
reserved in the seller and is not to pass until the full payment of the purchase price is
made. In the first case, non-payment of the price is a negative resolutory condition; in
the second case, full payment is a positive suspensive condition. In the first case, the
vendor has lost and cannot recover the ownership of the property until and unless the
contract of sale is itself resolved and set aside. In the second case, the title remains
in the vendor if the vendee does not comply with the condition precedent of making
payment at the time specified in the contract.

This Court agrees with the CA that the April 11, 2007 Deed of Conditional Sale
executed between the parties is a contract to sell. Pertinent portion of the agreement
indicative that it is a contract to sell reads:

That for and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00)
Philippine currency, receipt of which is hereby acknowledged from the VENDEE, the
VENDOR does hereby SELL, CEDE, TRANSFER and CONVEY unto the said
VENDEE, its heirs[,] successors, executors and assigns, the above-mentioned
property subject to the terms and conditions herein set forth:
x x x x

e. And upon full payment of the agreed consideration the Vendor shall execute the
deed of absolute sale in favor of the Vendee.[52]

As worded, the Deed of Conditional Sale dated April 11, 2007 (which substitutes the
earlier Deed of Conditional Sale dated March 23, 2005 except that there was already
a down payment made) provides that upon full payment of the agreed consideration,
the vendor shall execute the deed of absolute sale in favor of the vendee. [53] This
stipulation evinces the intention of the parties for the vendor (respondent) to reserve
ownership of the land and the same is not to pass until the remaining balance (payable
in 40 monthly installments) has been fully paid by the vendee (petitioners).

It is settled jurisprudence, to the point of being elementary, that an agreement which

stipulates that the seller shall execute a deed of sale only upon or after full payment
of the purchase price is a contract to sell, not a contract of sale. In Reyes v. Tuparan,
this Court declared in categorical terms that where the vendor promises to execute a

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deed of absolute sale upon the completion by the vendee of the payment of the price,
the contract is only a contract to sell.

However, contrary to the findings of the CA, the protection[55] provided under R.A. No.
6552 (Maceda Law) is not applicable. Notwithstanding the parties' stipulation for
installment payments, wherein the payment of the price is more than one, the parties'
contract to sell does not automatically fall under the coverage of the Maceda Law.

It is clear that the buyer's protection under R.A. No. 6552 only applies to contracts of
sale of real estate on installment payments, including residential condominium
apartments, but excluding industrial lots, commercial buildings and sales to tenants.
A purchase by a company involved in the real estate business, just like the petitioners
in this case, of a six-hectare lot can hardly be considered as residential. This is the
same interpretation conveyed in the case of Spouses Garcia v. Court of Appeals,[56]
when this Court held that the subject lands, comprising five parcels and aggregating
69,028 square meters, do not comprise residential real estate within the contemplation
of the Maceda Law. Moreso in this case where it was shown that petitioner Corporation
is already engaged in the selling of the portions of the said lots to individual buyers.

But this is not to say that sellers in a contract to sell of industrial and commercial lots
are precluded to cancel the contract when buyers defaulted in one installment. The
old case of Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc. [57] made it clear
that R.A. No. 6552 or the Maceda Law expressly recognizes the vendor's right of
cancellation of sale on installments of industrial and commercial properties with full
retention of previous payments.

In other words, whether the property is residential, commercial or industrial, Maceda

Law does not make any distinction insofar as the availability of the remedy of
cancellation by the seller in case of nonpayment of installments is concerned. The
only distinction lies on the added protection given by the law to residential buyers,
which is not enjoyed by commercial and industrial lot buyers. Indeed, the Maceda Law
addressed the predicament of thousands upon thousands of residential property
buyers who, in the words of this Court, are hounded to suffer the loss of their life
earnings only because of an oversight or difficulty in paying one or two installments.[59]
This is not the case for industrial or commercial lot buyers, who, the law perceives to
have deep pockets.

A careful reading of the notarized "Rescission of Deed of Conditional Sale" executed

by respondent Nestor reveals that he availed of the remedy of rescission apparently
because petitioners defaulted in the payment of their monthly installment in the
amount of P150,000.00.[61] Obviously, respondent Nestor used the word "rescission"
in a loose sense. To say that a contract to sell is rescissible is quite misplaced.
Jurisprudence abounds with rulings that the remedies of rescission, under Articles
1191[62] and 1592[63] of the Civil Code, are not available in contracts to sell. This Court
succinctly explains:

The respondent court did not err when it did not apply Articles 1191 and 1592 of the
Civil Code on rescission to the case at bar. The contract between the parties is not an
absolute conveyance of real property but a contract to sell. In a contract to sell real
property on installments, the full payment of the purchase price is a positive
suspensive condition, the failure of which is not considered a breach, casual or
serious, but simply an event which prevented the obligation of the vendor to convey
title from acquiring any obligatory force. The transfer of ownership and title would
occur after full payment of the purchase price.[64]
The breach contemplated in Article 1191 of the Civil Code is the obligor's failure to
comply with an obligation already extant, not a failure of a condition to render binding
that obligation.[65] Article 1592, on the other hand, speaks of nonpayment of the

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purchase price as a resolutory condition.[66] It permits the buyer to pay, even after the
expiration of the period, as long as no demand for rescission of the contract has been
made upon him either judicially or by notarial act. However, Article 1592 does not
apply to a contract to sell where the seller reserves the ownership until full payment
of the price.[67]

This only lends credence to the rule that rescission in its technical sense is not proper
in a contract to sell. Such that failure to pay the price agreed upon is not a mere
breach, casual or serious, rather, nonpayment is a condition that prevents the
obligation from acquiring an obligatory force.[68] This is entirely different from the
situation in a contract of sale, where nonpayment of the price is a negative resolutory
condition. The effects in law are not identical. In a contract of sale, the vendor has lost
ownership of the thing sold and cannot recover it, unless the contract of sale is
rescinded and set aside. In a contract to sell, however, the vendor remains the owner
for as long as the vendee has not complied fully with the condition of paying the
purchase price.[69] Strictly speaking, in a contract to sell, there can be no rescission or
resolution of an obligation that is still non-existent due to the non-happening of the
suspensive condition.[70]

Considering the foregoing, as well as the pronouncement by this Court in the Luzon
Brokerage case, it follows then that respondent Nestor's act of rescinding the Deed of
Conditional Sale, or, more correctly, canceling it, is theoretically valid and the parties
shall stand as if the obligation to sell never existed. [71] The reason is not that
respondent Nestor has the power to rescind such contract, but because their
obligation thereunder did not arise.[72]

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