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Arellano University School of Law

1st Semester A.Y. 2019–2020

CIVIL LAW REVIEW II


Case Digest for Years 2018-2019

Submitted to:

ATTY. CRISOSTOMO A. URIBE


Professor

Submitted by:

#16 SALVADOR, ANTONIO DOMINIC G.


Student No. 2016-0501
WEDNESDAY 5:00pm - 9:00pm
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TABLE OF CONTENTS Page
Obligations and Contracts
I. Obligations
A. In General
1. Definition
2. Kinds of Obligations as to basis & enforceability
3. Prescription of Actions
4. Elements of Obligation
B. Sources of Civil Obligations
1. Law
2. Contracts
3. Quasi-contracts
a. Negotiorum Gestio
b. Solutio Indebiti
c. Other quasi-contracts
4. Acts or omissions punished by law
5. Quasi-delicts
C. Compliance with Obligations
D. Kinds of Civil Obligations
1. As to Perfection and Extinguishment
a. Pure
b. Conditional

1. CLEMENTE v. REPUBLIC
G.R. No. 220008, February 20, 2019 1-2
Carpio, J. | Second Division

c. With a term or period


2. As to Plurality of Prestation
a. Conjunctive
b. Alternative
c. Facultative
3. As to Right and Obligations of Multiple Parties
a. Joint
b. Solidary
c. Disjunctive
4. As to Performance of Prestation
a. Divisible
b. Indivisible
c. Joint Indivisible
d. Solidary Indivisible
5. As to Presence of an Accessory undertaking in case of breach
a. With a Penal Clause
Distinguish from Liquidated Damages
E. Breach of Obligations
Manner of Breach
1. Fraud
2. Negligence

2. FEDERAL EXPRESS CORPORATION v. ANTONINO


G.R. No. 199455, June 27, 2018 3-5
Leonen, J. | Third Division

3. Delay

iii
3. PINEDA v. ZUÑIGA VDA. DE VEGA
G.R. No. 233774, April 10, 2019 6-7
Caguioa, J. | Second Division

4. Any other manner of contravention


Excuses for Non-Performance
1. Fortuitous Event
2. Act of Creditor
F. Remedies for Breach of Obligation
1. Extra-judicial remedies
a. Expressly granted by law
b. Stipulated
2. Judicial Remedies

4. FACILITIES, INCORPORATED v. LOPEZ


G.R. No. 208642, February 7, 2018 8-9
Tijam, J. | First Division

a. Principal remedies
b. Subsidiary remedies
c. Ancillary remedies
G. Modes of Extinguishment of Obligations
Other Modes
1. Payment or Performance
Special forms of Payment
a. Dation in payment

5. NUÑEZ v. MOISES-PALMA
G.R. No. 224466, March 27, 2019 10-11
Caguioa, J. | Second Division

b. Application of Payments
c. Payment by Cession or Assignment
d. Tender of Payment and Consignation
2. Loss of the thing due or Impossibility of Performance
3. Condonation or remission of debt
4. Confusion or Merger of Rights
5. Compensation
Kinds of Compensation
a. Legal
b. Conventional
Facultative
c. Judicial
6. Novation

6. YUJUICO v. FAR EAST BANK AND TRUST COMPANY


(NOW BANK OF THE PHILIPPINE ISLANDS)
G.R. No. 186196 (Resolution), August 15, 2018 12-13
Caguioa, J. | Second Division

Kinds of Novation
a. As to its nature
i. Subjective
ii. Objective or real
b. As to its form

iv
i. Express
ii. Implied

7. SPS. CELONES v. METROPOLITAN BANK AND TRUST


COMPANY & DIONIDO 14-15
G.R. No. 215691, November 21, 2018
Tijam, J. | First Division

II. Contracts – Arts. 1305-1422


A. In General
1. Definition
Auto-contract
2. Elements of Contract
a. Essential
b. Natural
c. Accidental
B. Fundamental Characteristics/Principles of Contracts
1. Consensuality of Contracts
Contract of Adhesion

8. FEDERAL EXPRESS CORPORATION v. ANTONINO 16-18


G.R. No. 199455, June 27, 2018
Leonen, J. | Third Division

2. Autonomy of Contracts

9. REY v. ANSON
G.R. No. 211206, November 7, 2018 19-20
Peralta, J. | Third Division

10. STRICKLAND v. ERNST & YOUNG, LLP


G.R. No. 193782, August 1, 2018 21-22
Jardeleza, J. | First Division

11. CUARTOCRUZ v. ACTIVE WORKS, INC.


G.R. No. 209072, July 24, 2019 23-24
Jardeleza, J. | First Division

3. Mutuality of Contracts

12. VILLA-CRISTA MONTE REALTY AND DEVELOPMENT


CORPORATION v. EQUITABLE PCI BANK (now BANCO DE ORO) 25-26
G.R. No. 208336, November 21, 2018
Bersamin, J. | First Division

Accelaration Clause

Escalation Clause

13. SECURITY BANK CORPORATION v. SPS. MERCADO


G.R. No. 192934, June 27, 2018 27-29
Jardeleza, J. | First Division

14. VILLA-CRISTA MONTE REALTY AND DEVELOPMENT

v
CORPORATION v. EQUITABLE PCI BANK (now BANCO DE ORO)
G.R. No. 208336, November 21, 2018 30-31
Bersamin, J. | First Division

4. Obligatory Force of Contracts


5. Relativity of Contracts
Privity of Contracts

15. ASIAN TERMINALS, INC. v. PADOSON STAINLESS


STEEL CORPORATION 32-33
G.R. No. 211876, June 25, 2018
Tijam, J. | First Division

16. EXCELLENT ESSENTIALS INTERNATIONAL


CORPORATION v. EXTRA EXCEL INTERNATIONAL
PHILIPPINES, INC. 34-35
G.R. No. 192797, April 18, 2018
Martires, J. | Third Division

17. DE ROCA v. DABUYAN 36-37


G.R. No. 215281, March 5, 2018
Del Castillo, J. | First Division

C. Classification of Contracts
1. According to degree or dependence
a. Preparatory
b. Principal
c. Accessory
2. According to perfection
a. Consensual
b. Real
c. Formal
3. According to solemnity or form
a. Any form
b. Special form
4. According to purpose
a. Transfer of ownership
b. Conveyance of use
c. Rendition of service
5. According to nature of obligation produced
a. bilateral
b. unilateral
6. According to cause
a. Onerous
b. Gratuitous
c. Remuneratory
7. According to risk
a. Commutative
b. Aleatory
8. According to name
a. Nominate
b. Innominate
9. According to subject matter
a. Thing
b. Right
c. Service

vi
D. Stages of contracts
1. Negotiation
Contract of Option
2. Perfection
3. Performance
4. Consummation
E. Essential Elements of Contracts
1. Consent of the contracting parties

18. AYALA LAND, INC. v. ASB REALTY CORPORATION


G.R. No. 210043, September 26, 2018 38-39
Del Castillo, J. | First Division

2. Object Certain which is the subject matter of the contract


3. Cause of obligation
4. Delivery
5. Due Observance of prescribed formalities

19. CONSOLIDATED BUILDING MAINTENANCE, INC. v.


ASPREC, JR. AND BATALLER 40-41
G.R. No. 217301, June 6, 2018
Reyes, Jr., J. | Second Division

F. Form of Contracts
1. Any form – oral
2. Special form
a. Validity
b. Enforceability
c. Greater efficacy or convenience

20. DIAMPOC v. BUENAVENTURA


G.R. No. 200383, March 19, 2018 42-43
Del Castillo, J. | First Division

G. Reformation of Contracts
H. Interpretation of Contracts
I. Kinds of Contracts as to Validity
1. Valid and Binding
2. Valid but defective
i. Rescissible Contract
ii. Voidable Contract
iii. Unenforceable Contract
3. Void or Inexistent

21. GLORIA v. BUILDERS SAVINGS AND LOAN


ASSOCIATION, INC. 44-45
G.R. No. 202324, June 4, 2018
Del Castillo, J. | First Division

Special Contracts
Sales
A. In General
Definition
Characteristics
Kinds of Sale

vii
22. NUÑEZ v. MOISES-PALMA
G.R. No. 224466, March 27, 2019 46-48
Caguioa, J. | Second Division

Distinguished from other transactions

23. VILLAMIL v. SPOUSES ERGUIZA


G.R. No. 195999, June 20, 2018 49-50
Martires, J. | Third Division

B. Elements of Contract of Sale

24. RACELIS v. SPOUSES JAVIER


G.R. No. 189609, January 29, 2018 51-53
Leonen, J. | Third Division

Essential Elements
1. Consent of the contracting parties
2. Determinate subject matter
3. Price certain in money or its equivalent
C. Perfection of the Contract
Contract of Option
Formalities of Contract of Sale
D. Rights and Obligations of the Vendor
To transfer ownership
Double Sales
Risk of Loss
To deliver object
Warranties

25. SPOUSES BATALLA v. PRUDENTIAL BANK


G.R. No. 200676, March 25, 2019 54-55
Reyes, J. Jr., J. | Second Division

E. Rights and Obligations of the Vendee


Payment of Price
Right of Inspection
Acceptance
Maceda Law
F. Remedies for Breach of Contract
Remedies of Unpaid Seller

26. NUÑEZ v. MOISES-PALMA


G.R. No. 224466, March 27, 2019 56-58
Caguioa, J. | Second Division

Remedies of Buyer
Recto Law
G. Extinguishment of Sale
Causes
Redemption

27. HEIRS OF JARQUE v. JARQUE


G.R. No. 196733, November 21, 2018 59-60
Jardeleza, J. | First Division

viii
Barter or Exchange

LEASE
I. Nature
A. Kinds of Lease
1. Lease of things
2. Lease of work or service
a. Household services
b. Contract of labor (employment contract)
c. Contract for a piece of work
d. Contract with common carriers (contract of carriage)
3. Lease of right – License/Franchise
B. Definitions
C. Characteristics
D. Distinguished from other contracts/legal relations
II. Essential Elements
A. Consent
B. Object/Purpose: Period
C. Cause
Formalities
III. Rights and Obligations of the Lessor and Lessee

28. RACELIS v. SPOUSES JAVIER


G.R. No. 189609, January 29, 2018 61-63
Leonen, J. | Third Division

A. Necessary repairs
B. Improvements
C. Collapse of a building
D. Reduction of the Rent
E. Extension of the Lease
F. Right of First Refusal
G. Sublease and Assignment of the Lease
IV. Rights and Obligations of Third Persons
A. Suppliers
B. Buyers
V. Termination of the Lease
A. Loss of the thing
B. Death of either party
C. Expiration of the period
Implied New Lease or Tacita Reconduccion

AGENCY
I. In General: Nature
A. Definition

29. STRICKLAND v. ERNST & YOUNG, LLP


G.R. No. 193782, August 1, 2018 64-65
Jardeleza, J. | First Division

B. Characteristics
C. Distinguished from/compared with other relations
[Features of a contract of agency]
II. Kinds of Agency
A. Actual agency

ix
Kinds of Actual Agency
1. As to manner of creation: express and implied

29. STRICKLAND v. ERNST & YOUNG, LLP


G.R. No. 193782, August 1, 2018 64-65
Jardeleza, J. | First Division

2. As to compensation
3. As to scope of authority
B. Apparent or Ostensible Agency

30. CITYSTATE SAVINGS BANK v. TOBIAS


G.R. No. 227990, March 7, 2018 66-68
Reyes, Jr., J. | Third Division

C. Agency by Estoppel
III. Essential Elements of a Contract of Agency
(1) Consent of the contracting parties: principal and agent only
(2) Object: execution of a juridical act
(3) Cause: presumed to be for compensation
Form
IV. Obligations of the Agent
A. To carry out the agency
1. To act within the scope of his authority
2. To act on behalf of his principal
Liability of two or more agents
B. To render an accounting of his transactions and to deliver…
C. To be responsible for the acts of the substitute
D. Rules applicable to a commission agent
Rules applicable to a guarantee commission agent: Del credere agent
V. Rights and Obligations of the Principal
A. To comply with all the obligations which the agent may have
contracted within the scope… and in representation of the principal
B. To advance to the agent the sums necessary
C. To reimburse the agent the sums advanced
Liability when there are two or more principals: solidary
Rights of Third Persons in Incompatible contracts with agent and
principal
VI. Modes of Extinguishment of Agency

PARTNERSHIP
I. In General
A. Defintion

31. SALUDO, JR. v. PHILIPPINE NATIONAL BANK


G.R. No. 193138, August 20, 2018 69-71
Jardeleza, J. | First Division

B. Characteristics of Partnership as a Contract


C. Distinguished from other Combinations and Relations
II. Essential Requisites
A. Consent of the contracting parties
B. Object certain: to engage in lawful activity
C. Cause
Formal Requirements
III. Classes of Partnerships

x
A. As to its Object: Universal and Particular Partnership
B. As to its Liability of Partners: General and Limited Partnership
C. As to term: Fixed Term, Particular Undertaking and Partnership at
Will
IV. Classes of Partners
A. According to their liability: General and Limited Partners
B. According to their contribution: Capitalist Partner and Industrial
Partner
C. According to the time they join the partnership: Incoming
D. According to Special Duties: Managing
V. The property rights of a partner
A. His rights in specific partnership property
B. His interest in the partnership
C. His right to participate in the management
VI. Obligations of Partners Among Themselves
A. To make good his promised contribution
B. Fiduciary Duty
C. To participate in the losses
Nature of Liability of individual partners: Pro-rata, Subsidiary, Joint or
Solidary
VII. Obligations of Partners with Regard to Third Persons
VIII. Dissolution, Winding Up and Termination
A. Nature and Effect of Dissolution
B. Causes of Dissolution
C. Distribution of Assets
IX. Limited Partnership

TRUSTS
1. In General
2. Kinds of Trusts
a. Express
b. Implied

CREDIT TRANSACTIONS: LOAN, DEPOSIT, GUARANTY AND


SURETYSHIP
I. Nature of Credit Transactions
A. Definition
B. Scope
C. Distinguished from Bailments
II. Loans
A. Definition: Purpose

32. SPOUSES BATALLA v. PRUDENTIAL BANK


G.R. No. 200676, March 25, 2019 72-73
Reyes, J. Jr., J. | Second Division

B. Kinds of Loan
1. Commodatum: Precarium
2. Mutuum or Simple Loan
C. Characteristics
D. Essential Elements: Consent, Object, Cause
Formalities
E. Rights and Obligations of Bailor and Bailee in Commodatum
Liability for loss/deterioration due to a fortuitous event
F. Rights and Obligations of Bailor and Bailee in Mutuum

xi
To pay interest: Kinds: Rate
G. Modes of Extinguishment

III. Deposit
1. Nature: Definition: Purpose
2. Kinds of Deposit
1. Extra-judicial: Conventional and Necessary: Irregular Deposit
Judicial
3. Characteristics
4. Essential Elements: Subject Matter
5. Rights and Obligations of Depositor and Depositary
6. Modes of Extinguishment
IV. Aleatory Contracts – Insurance, Gambling, Life Annuity
V. Guaranty and Suretyship: Distinctions
A. Nature: Definition: Purpose
B. Characteristics
C. Effects of Guaranty
1. Between the Guarantor and the Creditor: Benefit of Excussion
2. Between the Guarantor and the Debtor: Subrogation
3. Between the Co-Guarantors: Benefit of Division
D. Modes of Extinguishment

CREDIT TRANSACTIONS: PLEDGE, MORTGAGE AND


ANTICHRESIS
I. Provisions common to Pledge and Mortgage
A. Nature: Definition: Purpose
B. Essential elements
C. Indivisibility of the Contract
D. PactumCommissorium
E. Right to recover deficiency: Who is entitled to excess?
F. Equity and Right of Redemption
II. Pledge
A. In general
a. Kinds of Pledge
b. Characteristics of Pledge
c. Extent/Coverage of the Pledge
B. Rights and Obligations of the Pledgor [Debtor or Third Person]
C. Rights and Obligations of the Pledgee [Creditor]
D. Modes of Extinguishment
III. Chattel and Real Estate Mortgage
A. In general
a. Characteristics
b. Subject Matter
c. Extent/Coverage of the Mortgage
B. Essential Requisites
C. Rights and Obligations of the Mortgagor [Debtor or Third Person]
D. Rights and Obligations of the Mortgagee [Creditor]
E. Modes of Extinguishment
IV. Antichresis
A. Nature and Characteristics
B. Rights and Obligations of the Debtor and Creditor
V. Concurrence and Preference of Credits
A. General Provisions
B. Classification of Credits
C. Order of Preference of Credits

xii
TORTS AND DAMAGES
I. Introduction
A. Nature of Quasi-delict
B. Quasi-delict distinguished from Tort, Crime, Contract
C. Scope/Sources of Law
II. Elements of Quasi-Delict
A. Act or Omission, there being Fault or Negligence
1. Concept of Negligence
2. Standard of Care: Degree of Diligence
3. Proof of Negligence: Burden of Proof
Presumption of Negligence
Doctrine of Res Ipsa Loquitur
B. Damage or Injury
C. Causal Connection Between the Act or Omission and the Damage
III. Persons liable
A. The Tortfeasor
B. Vicarious Liability: Persons liable for Tortious Acts of another
C. Nature of Liability
D. Defenses
1. Absence of an element
2. Fortuitous Event
3. Contributory Negligence
4. Prescription
5. Doctrine of Last Clear Chance
6. Double Recovery
7. Lack of Jurisdiction
IV. Liability for Torts: Damages
A. In General
B. Kinds of Damages
1. Actual or Compensatory

33. ISLA v. ESTORGA


G.R. No. 233974, July 2, 2018 74-75
Perlas-Bernabe, J. | Second Division

2. Moral
3. Nominal
4. Temperate or Moderate
5. Liquidated

xiii
OBLIGATIONS

CLEMENTE v. REPUBLIC
G.R. No. 220008, February 20, 2019
Carpio, J. | Second Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorari under


Rule 45 of the Rules of Court, challenging the Decision and Resolution of the
Court of Appeals. The CA affirmed the Decision and Resolution of the Regional
Trial Court (RTC), Branch 64 of Mauban, Quezon, dismissing the Complaint and
Amended Complaint for Revocation of Donation, Reconveyance and Recovery of
Possession filed by Socorro T. Clemente (Socorro) against the Republic of the
Philippines through its agency, the Department of Public Works and Highways
(DPWH) Region IV-A.

FACT:
Municipal Mayor Amado A. Clemente (Mayor Clemente), Dr. Vicente A.
Clemente, Judge Ramon A. Clemente, and Milagros A. Clemente (Clemente
Siblings) were the owners of a parcel of land. During their lifetime, they executed
a Deed of Donation over a one-hectare portion of their property in favor of the
Republic of the Philippines. The Deed provided that such property donated was
only for the purpose of constructing a government hospital. The government
accepted the donation. In accordance with the Deed of Donation, the
construction of a building for a hospital was started in the following year.
However, for reasons unknown, the construction was never completed and only
its foundation remains until this day.
After a number of letters and correspondences, the DPWH informed Socorro that
they were no longer planning to construct the hospital for reasons of lack of
budget. In 2004, almost forty-one (41) years after the Deed of Donation was
executed, Socorro, as heir and successor-in-interest of Mayor Clemente, filed a
Complaint for revocation of the donation, reconveyance and recovery of
possession, alleging that the Republic of the Philippines failed to comply with the
condition imposed on the Deed of Donation, which was to use the property
"solely for hospital site only and for no other else, where a [government [h]ospital
shall be constructed."

ISSUE/S:
Whether or not donation may be revoked by the non-fulfillment of the condition

HELD: Yes.
The Supreme Court held that, “the nature of the donation made by the Clemente
Siblings is a donation subject to a condition – the condition being the construction
of a government hospital and the use of the Subject Property solely for hospital
purposes. Upon the non-fulfillment of the condition, the donation may be revoked

1
OBLIGATIONS

and all the rights already acquired by the donee shall be deemed lost and
extinguished. This is a resolutory condition because it is demandable at once by
the done but the non-fulfillment of the condition gives the donor the right to
revoke the donation.”
In the case at bar, upon the execution of the Deed of Donation and the
acceptance of such donation in the same instrument, ownership was transferred
to the Republic, evidenced by the new certificate of title issued in the name of the
government. Because the condition in the Deed of Donation is a resolutory
condition, until the donation is revoked, it remains valid. However, for the
donation to remain valid, the donee must comply with its obligation to construct a
government hospital and use the Subject Property as a hospital site. The failure
to do so gives the donor the right to revoke the donation, as provided for in
Article 764 of the Civil Code
In this case, the property donated shall be returned to the donor, the alienations
made by the donee and the mortgages imposed thereon by him being void, with
the limitations established, with regard to third persons, by the Mortgage Law and
the Land Registration Laws. This action shall prescribe after four years from the
non-compliance with the condition, may be transmitted to the heirs of the donor,
and may be exercised against the donee's heirs.
The records show that the donee failed to comply with its obligation to construct
a government hospital and to use the premises as a hospital site.
When the parties provided in the Deed of Donation that the donee should
construct a government hospital, their intention was to have such hospital built
and completed, and to have a functioning hospital, as evidenced by the
accompanying words in the Deed of Donation – "solely for hospital site only and
for no other else, where a government hospital shall be constructed." In this
case, the condition imposed upon the donee has two parts: first, to construct a
government hospital, and second, to use the property solely as a hospital site. A
foundation of a building is obviously not a government hospital. The other
condition, which is to use the property solely as a hospital site, is also not
complied with when the property is left idle, which means the property is not
being used as a hospital site. The foundation of a building cannot function as a
hospital site. Thus, even if we are to consider, for the sake of argument, that the
construction of the foundation of a hospital building is enough to comply with the
obligation to construct a government hospital, the subsequent abandonment of
the construction results in the non-compliance with the second part of the
donee's obligation – which is to use the property solely as a hospital site.

2
OBLIGATIONS

FEDERAL EXPRESS CORPORATION v. ANTONINO


G.R. No. 199455, June 27, 2018
Leonen, J. | Third Division

NATURE OF THE ACTION: The petition is a Petition for Review on Certiorari


under Rule 45 of the 1997 Rules of Civil Procedure praying that the assailed
Court of Appeals Decision and Resolution, denying the appeal filed by FedEx
and affirming the Decision of Branch 217, Regional Trial Court, Quezon City,
awarding moral and exemplary damages, and attorney's fees to Luwalhati and
Eliza, be reversed and set aside and that Luwalhati R. Antonino (Luwalhati) and
Eliza Bettina Ricasa Antonino (Eliza) be held liable on Federal Express
Corporation's (FedEx) counterclaim.

FACTS:
Eliza Antonino was the owner of a condominium unit located in New York City,
United States. Sometime in November 2003, the monthly charges of the unit
became due, in the amount of US$9,742.81. On December 15, 2003,
respondents Luwalhati and Eliza were in the Philippines. Again, the monthly
common charges on the Unit became due. To be able to pay the same, they
decided to send several Citibank checks to Veronica Z. Sison (Sison), who was
based in New York. The checks allegedly amounted to US$17, 726.18 for the
payment of monthly charges and US$1 l,619.35 for the payment of real estate
taxes. These were sent by Luwalhati through Federal Express Corporation
(FedEx). The package was addressed to Sison who was tasked to deli~er the
checks payable to Maxwell-Kates, Inc. and to the New York County Department
of Finance. However, Sison allegedly did not receive the package, resulting in
the non-payment of respondent's obligations and the subsequent foreclosure of
the Unit. Sison inquired with FedEx about the alleged non-delivery. She was
informed that the package was delivered to her neighbor but there was no signed
receipt.
Because of the foreclosure of the unit as a result of the non-delivery of the
package (containing the checks), respondents sent a demand letter to FedEx, for
payment of damages for non-delivery. However, the same was unheeded.
Hence, respondents filed a Complaint for Damages. For its part, FedEx denied
liability, arguing that the respondents shipped prohibited items under the Airway
Bill and misdeclared the same as “documents.” It also argued that the
respondents failed to file a written notice of claim within 45 days from acceptance
of shipment.

ISSUE/S:
Whether or not petitioner FedEx may be held liable for damages on account of
the failure to deliver the checks shipped by respondents

3
OBLIGATIONS

HELD: Yes.
As to FedEx’ contention that the period to file the notice of claim was not
complied with, the Supreme Court answers in the negative. The Court ruled that
the condition precedent has been substantially complied with. However, the
Court noted that “a provision in a contract of carriage requiring the filing of a
formal claim within a specified period is a valid stipulation. Jurisprudence
maintains that compliance with this provision is a legitimate condition precedent
to an action for damages arising from loss of the shipment. The fundamental
reason or purpose of such a stipulation is not to relieve the carrier from just
liability, but reasonably to inform it that the shipment has been damaged and that
it is charged with liability therefore and to give it an opportunity to examine the
nature and extent of the injury. This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims
Nonetheless, the Court stated that The Civil Code mandates common carriers to
observe extraordinary diligence in caring fot the goods they are transporting.
Article 1733 provides that “Common carriers, from the nature of their business
and for reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. The Court defines
"extraordinary diligence” as “that extreme measure of care and caution which
persons of usual prudence and circumspection use for securing and preserving
their own property or rights."
Consistent with such mandate of extraordinary diligence, the Civil Code
stipulates that in case of loss or damage to goods, common carriers are
presumed to be negligent or at fault, except in the following instances: (1) flood,
storm, earthquake, lightning, or other natural disaster or calamity; (2) act of the
public enemy in war, whether international or civil; (3) act or omission of the
shipper or owner of the goods; (4) the character of the goods or defects in the
packing or in the containers; and (5) order or act or competent public authority. In
all other cases, common carriers must prove that they exercised extraordinary
diligence in the performance of their duties, if they are to be absolved of liability.
The Court stated that, “the responsibility of common carriers to exercise
extraordinary diligence lasts from the time the goods are unconditionally placed
in their possession until they are delivered to the consignee, or to the person who
has a right to receive them. Thus, part of the extraordinary responsibility of
common carriers is the duty to ensure that shipments are received by none but
"the person who has a right to receive them. Common carriers must ascertain the
identity of the recipient. Failing to deliver shipment to the designated recipient
amounts to a failure to deliver. The shipment shall then be considered lost, and
liability for this loss ensues. As here, petitioner is unable to prove that it exercised
extraordinary diligence in ensuring delivery of the package to its designated
consignee. It claims to have made a delivery but it even admits that it was not to
the designated consignee.

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OBLIGATIONS

Further, the Court notes is that the Airway Bill created a confusion as to the
terms “money” as a prohibited item, in relation to the checks shipped by
respondents. The Court concluded in this wise: “What this Court's protracted
discussion reveals is that petitioner's Air Waybill lends itself to a great deal of
confusion. The clarity of its terms leaves much to be desired. This lack of clarity
can only militate against petitioner's cause. The contract between petitioner and
respondents is a contract of adhesion; it was prepared solely by petitioner for
respondents to conform to. Although not automatically void, any ambiguity in a
contract of adhesion is construed strictly against the party that prepared it.
Accordingly, the prohibition against transporting money must be restrictively
construed against petitioner and liberally for respondents. Viewed through this
lens, with greater reason should respondents be exculpated from liability for
shipping documents or instruments, which are reasonably understood as not
being money, and for being unable to declare them as such. Ultimately, in
shipping checks, respondents were not violating petitioner's Air Waybill, it follows
that they committed no breach of warranty that would absolve petitioner of
liability.

5
OBLIGATIONS

PINEDA v. ZUÑIGA VDA. DE VEGA


G.R. No. 233774, April 10, 2019
Caguioa, J. | Second Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorari under


Rule 45 of the Rules of Court assailing the Decision and the Resolution of the
Court of Appeals. The CA Decision reversed and set aside the Decision and the
Resolution of the Regional Trial Court of Malolos City, Bulacan, Branch 17.

FACTS:
On March 25, 2003, respondent Virginia Zuniga Vda. De Vega (Virginia)
borrowed P500,000.00 from petitioner Ma. Luisa Pineda (Luisa), payable within
one year with an interest rate of 8% per month. As security for the loan,
respondent executed a real estate mortgage (2003 Agreement) over a parcel of
land together with all the buildings and improvements existing thereon, in
petitioner's favor. Upon maturity however, Virginia failed to pay her loan despite
repeated demands. As of May 2005, her unpaid accumulated interest amounted
to P232,000.00. This prompted Luisa to file a Complaint praying for the payment
of respondents obligation with interest, and the foreclosure of the property
subject real estate mortgage. On the other hand, respondent Virginia argued
among others that the interest rate imposed by petitioner Luisa was excessive
and unconscionable, and that the amount of P500,000.00 was for another
obligation she secured from petitioner.
The RTC of Malolos Bulacan rendered its decision in favor of petitioner Luisa,
and declaring the propriety of judicial foreclosure, but imposing the legal rate of
interest of 12% per annum, declaring that the interest rate imposed in the
agreement was unconscionable. However, on appeal to the CA, the appellate
court reversed the decision of the RTC, arguing that there was no prior demand
from petitioner Luisa to respondent Virginia. What was only offered in evidence
was a photocopy of a registry return card, which was held as incompetent proof
of such demand.

ISSUE/S:
Whether or not there was a valid demand on respondent Virginia, and that the
same constituted delay or mora

HELD: Yes.
Here, the Supreme Court held that, “what petitioner seeks to enforce against
respondent is a contract of loan, which is secured by a real estate mortgage.”
Based on the sources of obligations enumerated under Article 1157 of the Civil
Code, the obligation that petitioner seeks to make respondent liable for is one
which arises from contract. Liability for damages arises pursuant to Article 1170

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OBLIGATIONS

of the Civil Code against "[t]hose who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof."
Delay or mora is governed by Article 1169 of the Civil Code. Default or mora,
which is a kind of voluntary breach of an obligation, signifies the idea of delay in
the fulfillment of an obligation with respect to time. In positive obligations, like an
obligation to give, the obligor or debtor incurs in delay from the time the obligee
or creditor demands from him the fulfillment of the obligation. Demand may be
judicial - if the creditor files a complaint against the debtor for the fulfillment of the
obligation - or extrajudicial - if the creditor demands from the debtor the fulfillment
of the obligation either orally or in writing. Whether the demand is judicial or
extrajudicial, if the obligor or debtor fails to fulfill or perform his obligations, like
payment of a loan, as in this case, he is in mora solvendi, and, thus, liable for
damages.
While delay on the part of respondent was not triggered by an extrajudicial
demand because petitioner had failed to so establish receipt of her demand
letter, this delay was triggered when petitioner judicially demanded the payment
of respondent's loan from petitioner. While the CA was correct in observing that
default generally begins from the moment the creditor demands the performance
of the obligation, and without such demand, judicial or extrajudicial, the effects of
default will not arise, it failed to acknowledge that when petitioner filed her
complaint such filing constituted the judicial demand upon respondent to pay the
latter's principal obligation and the interest thereon. Respondent, having thus
incurred in delay (counted from the filing of the complaint), is liable for damages
pursuant to Article 1170 of the Civil Code.

7
OBLIGATIONS

FACILITIES, INCORPORATED v. LOPEZ


G.R. No. 208642, February 7, 2018
Tijam, J. | First Division

NATURE OF THE ACTION: The present case involves two consolidated


Petitions for Review on Certiorari filed under Rule 45 of the Rules of Court,
assailing the Decision and Resolution both of the Court of Appeals.

FACTS:
Sometime in July 1999, a Memorandum of Agreement (MOA) was entered into
between petitioner Facilities, Inc. represented by its president Vicente Araneta,
and Primelink Properties and Development Corporation (PPDC), represented by
its developer and president herein respondent Ralph Lito Lopez. According to the
MOA, PPDC is the owner of the parcels of land to be developed into a residential
subdivision known as Tagaytay Woodsborough Residential Estate in Tagaytay
City. On the other hand, Facilities is the owner of two condominium units in
Summit One Office Tower in Mandalauyong. A Contract to Sell was then
executed between the parties over to subject parcels of land, and a Contract of
Lease over the condominium units. The parties denominated the contracts as a
“swap arrangement” contained in the MOA.
Under the “swap arrangement”, Facilities agreed to lease the condominium units
for a period of four years to PPDC. As a consideration for the first twenty (21)
months of the four-year lease, PPDC through Lopez, agreed to execute a deed
of absolute sale covering the subject lots in favor of Facilities. PPDC also
committed to deliver the transfer certificate of title (TCT) in Facilities' name within
a period of 360 days. PPDC further bound itself to issue a certificate of
ownership over the subject lots during the pendency of the processing and
issuance of the individual titles. Further, as a security measure, the arrangement
provides that Facilities shall have the right to demand the cancellation of the
contract to sell and the payment of ₱2,384,985.60 from PPDC, in case of PPDC's
failure to comply with its undertaking.
Pursuant to these agreements, PPDC moved into the condominium units in
August 1999 and occupied the same for over a period of 21 months. Facilities, on
the other hand, followed-up on PPDC's commitment to deliver the TCTS over the
subject lots. Despite repeated demands, PPDC failed to comply with its
contractual obligation and instead vacated the leased premises without leaving
any forwarding address. Later on, Facilities discovered that contrary to PPDC's
representation, the title over the subject lots was still registered in the name of a
certain Primo.
Consequently, a Complaint-Affidavit was filed by Facilities, through Araneta, for
PPDC’s violation of PD 957 and for Lopez commission of the crime of estafa
under the RPC. The Office of the City Prosecutor, however, dismissed the same,
arguing that the remedy is civil in nature. On appeal to the DOJ, the decision of
the OCP was reversed and the petition of Facilities was granted. Before the CA,

8
OBLIGATIONS

the appellate court found no probable cause for the prosecution of Lopez for
estafa but found that PPDC and Lopez may be prosecuted for violation of PD
957. Both parties appealed to the Supreme Court.

ISSUE/S:
Whether or not the remedy of Facilities for the alleged breach of contract of
Lopez and PPDC is only civil in nature

HELD: No.
In this case, there is evidence showing that more likely than not Lopez violated
Section 25 of P.D. No. 957 and committed acts constitutive of the crime of estafa
under paragraph 1, Article 316 of the RPC. The Court elaborated, “Section 25 of
P.D. No. 957, requires a developer, such as PPDC, of which Lopez is the
President and CEO, to deliver the title of the lot or unit to the buyer, upon full
payment of the said lot or unit. The failure to comply with this explicit obligation
makes the developer or the person who was charge of the administration of the
business, criminally liable under Section 39 of the same law.”
Further, the unconverted fact is that Primo Erni, the registered owner of the
subject lots has not yet transferred the titles in the name of PPDC. Facilities' non-
payment of the taxes is reasonable for the simple reason that these taxes are
required to be paid only after the tax on the sale (ordinary tax and capital gains
tax) has already been paid. Until the sales tax over the subject lots have been
paid by PPDC, no title could be issued in Facilities' favor. Thus, Facilities has no
obligation yet to pay notarial fees, documentary stamps, transfer and registration
fees.
The Court concluded that, “at any rate, it is basic that a contract is the law
between the parties. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith." Here,
Lopez who represented PPDC, freely signed the MOA. He cannot now be
allowed to renege on his obligation to deliver the titles over the subject lots,
based on his claim that PPDC was unable to occupy the entire portion of the
condominium units.
Further, contrary to Lopez's stance, a suit for the violation of P.D. No. 957 is
independent from whatever remedy granted under the MOA, i.e., rescission of
the Contract to Sell, or under existing laws, which obviously includes the
provisions of the RPC. A perusal of P.D. No. 957 reveals that a violation of its
provisions may be the subject of a criminal action, and not merely limited to a
civil remedy. The decree expressly recognizes that the aggrieved party may avail
of the remedies provided not only in P.D. No. 957, but also under existing laws.

9
OBLIGATIONS

NUÑEZ v. MOISES-PALMA
G.R. No. 224466, March 27, 2019
Caguioa, J. | Second Division,

NATURE OF THE ACTION: This is a Petition for Review on Certiorari under


Rule 45 of the Rules of Court assailing the Decision and Resolution of the Court
of Appeals, affirming with modifications the Decision of the Regional Trial Court,
Branch 21, Mambusao, Capiz, which modified the Decision of the Municipal Trial
Court, Mambusao, Capiz (MTC)

FACTS:
Vicentico Nuñez, petitioner’s father, was the original owner of a parcel of land
located in Mambusao, Capiz. Sometime in 1992, Vicentico borrowed P30,000
from Rosita Moises for his diabetes treatment, and as security executed a real
estate mortgage over his property. However, because Rosita had no money, the
funds actually came from his daughter, herein respondent Norma Moises-Palma.
Allegedly, the loan was eventually paid as evidenced by the Affidavit Authorizing
Release of Mortgage (AARM). Thereafter, upon Vicentico’s death, the parcel of
land was transferred to his heirs, herein petitioners. Sometime in 1995,
respondent was able to secure the signature of all the heirs for a Deed of
Adjudication and Sale (DAS) where petitioners purportedly sold to Norma their
respective pro indiviso shares in the subject lot for P50,000.00, but the DAS
reflected P30,000.00 as the consideration. After the execution of the DAS,
Norma immediately took possession of the subject lot.
Respondent executed a promissory note in favor of petitioners and thereafter
executed an Acknowledgment of Debt (AOD) admitting her indebtedness of
P50,000.00. She was not able to pay the aforesaid purchase price but
nonetheless was able to caause the registration of the land before the Registry of
Deeds. Consequently, petitioners, separately, filed cases for the declaration of
nullity of the aforesaid sales, and reconveyance and recovery of the said parcel
of land with damages before the MTC.
The MTC rendered its decision in favor of petitioners. However, the RTC, on
appeal, reversed the MTC decision, to which the CA affirmed.

ISSUE/S:
Whether or not the transaction was a decion en pago

HELD: No.
The Supreme Court found that, “from the last paragraph of the DAS wherein the
Real Estate Mortgage (REM) which Vicentico executed was ‘cancelled and
considered null and void and no effect’ that a dation in payment might have been

10
OBLIGATIONS

intended by the parties therein.” As such, under Article 1245 of the Civil Code,
there is dation in payment when property is alienated to the creditor in
satisfaction of a debt in money and is governed by the law of sales. In the case at
bar, while the DAS seems to suggest a dation in payment, the subsequent
actuations of the parties, especially Norma, negate the same or the contemplated
offset. The execution of the PN and AOD by Norma, for an agreed consideration,
to respect Norma's ownership and possession shows an opposite declaration,
i.e., there was no dation in payment or offset.
From the documents presented by the parties, thus, there is preponderant
evidence that supports the finding that the DAS was not intended by the parties
to be a dation in payment. And, even assuming that the DAS was a dation in
payment, the documents that were subsequently executed had the effect of
novating the same. Under Article 1291 of the Civil Code, obligations may be
modified by: (1) changing their object or principal conditions; (2) substituting the
person of the debtor; and (3) subrogating a third person in the rights of the
creditor. When Norma executed the PN, AOD and Compromise Agreement, she
was acknowledging that the principal condition or stipulation on the payment of
the purchase price in the DAS had been modified from the offset or cancellation
of Vicentico' s indebtedness secured by the REM, without which would have
amounted to a dation in payment, to a loan payable within a certain period, which
converted the transaction to a sale on credit.

11
OBLIGATIONS

YUJUICO v. FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE
PHILIPPINE ISLANDS)
G.R. No. 186196 (Resolution), August 15, 2018
Caguioa, J. | Second Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorari under


Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals,
partially granting the appeal and affirmed with modification the Decision of the
Regional Trial Court, Branch 146, Makati City.

FACTS:
Far East Bank and Trust Company (FEBTC) approved a renewal of the Omnibus
Credit Line (OCL) of GTI Sportswear Corporation (GTI) in the amount of 35
million pesos. This was secured by a Comprehensive Surety Agreement
executed by Yujuico in his personal capacity. It should be noted that Yujuico was
the president of GTI. Sometime in May 1995, negotiations were undertaken to
settle GTI's trust receipt obligation under the OCL. During these negotiations,
GTI made known to FEBTC its request for the conversion of its peso loan to US
dollar-denominated loan. An exchange of communications concerning the
conversion transpired but no definite agreement on the said conversion was put
into writing. Subsequently, Yujuico, in behalf of GTI and in his personal capacity
as surety, and FEBTC’s First Vice President Ricardo G. Lazatin, in behalf of the
bank, signed a Loan Restructuring Agreement (LRA), the subject of which was
GTI's outstanding balance on its OCL in the amount of 25 million pesos. The
agreement expressly stated that the restructured loan continues to be secured by
the Comprehensive Surety Agreement previously executed by Yujuico in favor of
the bank. After the signing of the said agreement, GTI, reiterated its request for
the re-denomination. FEBTC however, denied the request and informed
appellees that the conversion was not deemed workable. In a letter, FEBTC
demanded that GTI update all its unpaid amortizations on the outstanding
restructured loan with a principal balance of 11 millionp pesos and to settle all its
other past due obligations to avert any legal action.
On October 29, 1997, Yujuico and GTI filed a Complaint for Specific
Performance with Preliminary Injunction with the RTC of Makati City, alleging that
during the signing of the loan restructuring agreement, they were assured by the
officers of FEBTC, that after a few payments on its obligation, GTI's peso loan
would be converted to US dollars. Also, it was alleged that the officers confirmed
by phone that the conversion of GTI's loan from peso to US Dollars had been
approved by the bank. This was not denied by appellant bank until December 18,
1996 when it informed appellees that the conversion of the restructured loan to
US dollars was not deemed workable because of certain considerations. These
considerations, however, were not conveyed to appellees beforehand.

ISSUE/S:

12
OBLIGATIONS

Whether or not a novation existed between GTI and FEBTC

HELD: No.
The Supreme Court provided for the concept of novation as follows: “As to its
essence, novation may be classified into: (a) objective or real, (b) subjective or
personal, or (c) mixed. Article 1291(1) contemplates an objective or real novation
where there is a change in the cause, object or principal conditions of the
obligations while (2) and (3) of said Article contemplate a passive one where
there is a substitution of the person of the debtor and an active one where there
is subrogation of a third person in the rights of the creditor. Mixed novation, on
the other hand, refers to a combination of objective and subjective novation. As
to its form or constitution, novation may be express, when it is declared in
unequivocal terms that the old obligation is extinguished by a new one which
substitutes the same, or implied or tacit, when the old and the new obligations
are incompatible with each other on every point. As to extent or effect, novation
may be total or extinctive, when there is an absolute extinguishment of the old
obligation, or partial, when there is merely a modification of the old obligation.
The Court agrees with the finding of the CA that "[t]he attendant facts do not
make out a case of novation" in the sense of a total or extinctive novation. As
explained by the CA, there is no document that states in unequivocal terms that
the agreement to convert the loan from peso to US dollar would abrogate the
loan restructuring agreement or the omnibus credit line. Instead what is readily
apparent from the exchange of communications concerning the request for
conversion is that the parties recognize the subsistence of the loan restructuring
agreement. The letter sent by GTI to FEBTC reiterating the former's request to
re-dominate its loan obligation from peso to US dollar, even assuring FEBTC that
the other terms of the restructuring agreement would be complied with. Verily,
where the parties to the new obligation expressly recognize the continuing
existence and validity of the old one, there can be no novation.
The Court also held that there was no substantial incompatibility between the
obligations of the parties under the restructuring agreement and the agreement
to convert the loan as to warrant a finding of an implied novation. Implied
novation necessitates that the incompatibility between the old and new
obligations be total on every point such that the old obligation is completely
superseded by the new one. This is not present in this case. The only
modification that the conversion agreement introduced was that the loan
obligation would be payable in US dollars instead of Philippine pesos.
Incidentally, the applicable interest rate is lower on account of the change in
currency. These alterations, however, do not suffice to constitute novation. The
well-settled rule is that, with respect to obligations to pay a sum of money, the
obligation is not novated by an instrument that expressly recognizes the old,
changes only the terms of payment, adds other obligations not incompatible with
the old ones, or the new contract merely supplements the old one. At most, the
changes introduced by the conversion of the loan obligation amount merely to
modificatory novation, which results from the alteration of the terms and
conditions of an obligation without altering its essence.

13
OBLIGATIONS

14
OBLIGATIONS

SPS. CELONES v. METROPOLITAN BANK AND TRUST COMPANY &


DIONIDO
G.R. No. 215691, November 21, 2018
Tijam, J. | First Division

NATURE OF THE ACTION: The petition is a Petition for Review on Certiorari,


assailing the Decision and of the Court of Appeals, reversing the Order of the
Regional Trial Court of Pasig City, Branch 154, declaring the Memorandum of
Agreement5 (MOA) without force and effect and declaring that Spouses Celones
were the ones who redeemed the mortgaged properties.

FACTS:
Spouses Celones, herein petitioners, together with their company, Processing
Partners and Packaging Corporation (PPPC), obtained various loans from
respondent Metropolitan Bank and Trust Co. (Metrobank), secured by mortgaged
properties, in the total amount of 64 million pesos. Subsequently, the spouses
defaulted in their obligations which resulted to Metrobank foreclosing the
mortgaged properties. The foreclosed properties were sold to Metrobank as the
winning bidder. The Spouses Celones then offered to redeem the properties.
Metrobank then issued a Conditional Notice of Approval of Redemption to the
petitioners stating that the property shall be redeemed in the amount of 55 million
pesos, to be paid on or before December 20, 2007. The petitioners then asked
for assistance from Atty. Dionido, who was willing to loan them the amount.
Atty. Dionido issued two manager’s checks in the amount of 35 million and 20
million, respectively, to the petitioners. In lieu of the loan, the parties executed a
MOA wherein the parties agreed for the subrogation of Atty. Dionido to all the
rights, interests of Metro bank over the loan obligation of Spouses Celones and
the foreclosed properties.
Believing that they have already redeemed the foreclosed properties, the
petitioners 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, and as such, he should be the one to issue the said certificate.
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.
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.
The RTC rendered its decision in favor of the Spouses Celones. However, the
CA reversed.

15
OBLIGATIONS

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

HELD: No.
Metrobank and Atty. Dionido claimed that the MOA being of a later date,
superseded and novated the CNAR. As such, the redemption agreed upon by
Metrobank and Spouses Celones was no longer controlling. The Supreme Court
discussed the concept of novation in this wise: “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. 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.” 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." The
Court ruled that “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 CNAR, it is provided that Metrobank approved the offer of Spouses
Celones to redeem the property in the amount of P55 Million. While under the
MOA, Metrobank assigned all its rights and interests to Atty. Dionido over the
foreclosed properties including the issuance of a certificate of redemption. After
careful scrutiny of the records, we find that the CNAR only deals with the
redemption right of Spouses Celones while the MOA deals with the assignment
of credit of Metrobank to Atty. Dionido. As such, the CNAR and the MOA can be
reconciled and can both stand together. Under the MOA, Metrobank assigned all
its rights and interests over the foreclosed properties to Atty. Dionido. The Court
discussed that, "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." Atty. Dionido being an assignee of
Metrobank, he merely steps into the shoes of the assignor, Metro bank. 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, therefore, 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.

16
CONTRACTS

FEDERAL EXPRESS CORPORATION v. ANTONINO


G.R. No. 199455, June 27, 2018
Leonen, J. | Third Division

NATURE OF THE ACTION: The petition is a Petition for Review on Certiorari


under Rule 45 of the 1997 Rules of Civil Procedure praying that the assailed
Court of Appeals Decision and Resolution, denying the appeal filed by FedEx
and affirming the Decision of Branch 217, Regional Trial Court, Quezon City,
awarding moral and exemplary damages, and attorney's fees to Luwalhati and
Eliza, be reversed and set aside and that Luwalhati R. Antonino (Luwalhati) and
Eliza Bettina Ricasa Antonino (Eliza) be held liable on Federal Express
Corporation's (FedEx) counterclaim.

FACTS:
Eliza Antonino was the owner of a condominium unit located in New York City,
United States. Sometime in November 2003, the monthly charges of the unit
became due, in the amount of US$9,742.81. On December 15, 2003,
respondents Luwalhati and Eliza were in the Philippines. Again, the monthly
common charges on the Unit became due. To be able to pay the same, they
decided to send several Citibank checks to Veronica Z. Sison (Sison), who was
based in New York. The checks allegedly amounted to US$17, 726.18 for the
payment of monthly charges and US$1 l,619.35 for the payment of real estate
taxes. These were sent by Luwalhati through Federal Express Corporation
(FedEx). The package was addressed to Sison who was tasked to deli~er the
checks payable to Maxwell-Kates, Inc. and to the New York County Department
of Finance. However, Sison allegedly did not receive the package, resulting in
the non-payment of respondent's obligations and the subsequent foreclosure of
the Unit. Sison inquired with FedEx about the alleged non-delivery. She was
informed that the package was delivered to her neighbor but there was no signed
receipt.
Because of the foreclosure of the unit as a result of the non-delivery of the
package (containing the checks), respondents sent a demand letter to FedEx, for
payment of damages for non-delivery. However, the same was unheeded.
Hence, respondents filed a Complaint for Damages. For its part, FedEx denied
liability, arguing that the respondents shipped prohibited items under the Airway
Bill and misdeclared the same as “documents.” It also argued that the
respondents failed to file a written notice of claim within 45 days from acceptance
of shipment.

ISSUE/S:
Whether or not petitioner FedEx may be held liable for damages on account of
the failure to deliver the checks shipped by respondents

17
CONTRACTS

HELD: Yes.
As to FedEx’ contention that the period to file the notice of claim was not
complied with, the Supreme Court answers in the negative. The Court ruled that
the condition precedent has been substantially complied with. However, the
Court noted that “a provision in a contract of carriage requiring the filing of a
formal claim within a specified period is a valid stipulation. Jurisprudence
maintains that compliance with this provision is a legitimate condition precedent
to an action for damages arising from loss of the shipment. The fundamental
reason or purpose of such a stipulation is not to relieve the carrier from just
liability, but reasonably to inform it that the shipment has been damaged and that
it is charged with liability therefore and to give it an opportunity to examine the
nature and extent of the injury. This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims
Nonetheless, the Court stated that The Civil Code mandates common carriers to
observe extraordinary diligence in caring fot the goods they are transporting.
Article 1733 provides that “Common carriers, from the nature of their business
and for reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. The Court defines
"extraordinary diligence” as “that extreme measure of care and caution which
persons of usual prudence and circumspection use for securing and preserving
their own property or rights."
Consistent with such mandate of extraordinary diligence, the Civil Code
stipulates that in case of loss or damage to goods, common carriers are
presumed to be negligent or at fault, except in the following instances: (1) flood,
storm, earthquake, lightning, or other natural disaster or calamity; (2) act of the
public enemy in war, whether international or civil; (3) act or omission of the
shipper or owner of the goods; (4) the character of the goods or defects in the
packing or in the containers; and (5) order or act or competent public authority. In
all other cases, common carriers must prove that they exercised extraordinary
diligence in the performance of their duties, if they are to be absolved of liability.
The Court stated that, “the responsibility of common carriers to exercise
extraordinary diligence lasts from the time the goods are unconditionally placed
in their possession until they are delivered to the consignee, or to the person who
has a right to receive them. Thus, part of the extraordinary responsibility of
common carriers is the duty to ensure that shipments are received by none but
"the person who has a right to receive them. Common carriers must ascertain the
identity of the recipient. Failing to deliver shipment to the designated recipient
amounts to a failure to deliver. The shipment shall then be considered lost, and
liability for this loss ensues. As here, petitioner is unable to prove that it exercised
extraordinary diligence in ensuring delivery of the package to its designated
consignee. It claims to have made a delivery but it even admits that it was not to
the designated consignee.
Further, the Court notes is that the Airway Bill created a confusion as to the
terms “money” as a prohibited item, in relation to the checks shipped by
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respondents. The Court concluded in this wise: “What this Court's protracted
discussion reveals is that petitioner's Air Waybill lends itself to a great deal of
confusion. The clarity of its terms leaves much to be desired. This lack of clarity
can only militate against petitioner's cause. The contract between petitioner and
respondents is a contract of adhesion; it was prepared solely by petitioner for
respondents to conform to. Although not automatically void, any ambiguity in a
contract of adhesion is construed strictly against the party that prepared it.
Accordingly, the prohibition against transporting money must be restrictively
construed against petitioner and liberally for respondents. Viewed through this
lens, with greater reason should respondents be exculpated from liability for
shipping documents or instruments, which are reasonably understood as not
being money, and for being unable to declare them as such. Ultimately, in
shipping checks, respondents were not violating petitioner's Air Waybill, it follows
that they committed no breach of warranty that would absolve petitioner of
liability.

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REY v. ANSON
G.R. No. 211206, November 7, 2018
Peralta, J. | Third Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorari, under


Rule 45 of the Rules of Court assailing the the Decision of the Court of Appeals,
which reversed and set aside the Decision of the Regional Trial Court 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.

FACTS:
Petitioner Rosemarie Rey is the President and one of the owners of Southern
Luzon Technological College Foundation Incorporated. Sometime in August
2002, she approached her friend Ben Del Castillo, for money for the said school.
The latter then introduced petitioner to respondent Cesar Anson. Thereafter,
Petitioner borrowed from respondent the amount of P200,000.00 payable in one
year, and subject to the following conditions: “7.5% interest per month or Pl
5,000.00 monthly interest, which would be paid bi-monthly by way of postdated
checks.” The loan was then secured by a real estate mortgage on petitioner’s
property. The agreement states that “in the event of default,(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. Petitioner 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.
Petitioner 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 then appealed to respondent not to
foreclose the mortgage or to impose the stipulated penalty charges, but instead
to extend the terms thereof, to which the latter agreed and petitioner later signed
a promissory note and executed a Deed of Real Estate Mortgage, 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, 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. Again, petitioner was able to make good on her
interest payments, but thereafter failed to pay the principal amount. Similarly,
petitioner was not able to pay the monthly interests and the principal amount of
her second loan. She, again, appealed to respondent for an extension, to which
the latter agreed. However, despite the same, petitioner was not able to fulfill her
obligations. Notwithstanding these, she obtained a third and fourth loan from
respondent Anson for the same amount of P100,000.00. Again, she was not able
to comply with her obligation to pay both.
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Consequently, respondent Anson sent petitioner a Statement of Account which


shows that the total amount of petitioner’s obligation is P2,214,587.80. Instead of
paying these loan obligations, petitioner sent a letter to respondent Anson
demanding a recomputation of the interests on the said loans, arguing that the
same were irregular and contrary to law. Further, petitioner argued that she had
overpaid respondent on account of the excessive interests she paid, thereafter
demanding a return of the overpaid amount. Subsequently, On August 16, 2005,
the Spouses Rey and Isabel Quinto filed a Complaint for Recomputation of
Loans and Recovery of Excess Payments and Cancellation of Real Estate
Mortgages and Checks against Cesar Anson with the R TC of Legazpi City.

ISSUE/S:
Whether or not the interest imposed are excessive and unconscionable, and
should therefore be reduced

HELD: Yes.
The Court held that, 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." Citing
Sps. Albos v. Sps. Elbisan, the Court held “As case law instructs, the imposition
of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property, repulsive to the common
sense of man. It has no support in law, in principles of justice, or in the human
conscience nor is there any reason whatsoever which may justify such imposition
as righteous and as one that may be sustained within the sphere of public or
private morals.”
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 the case at bar, 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 Appeals33 and the 5% monthly interest rate imposed
in Sps. Albos v. Sps. Embisan, et al. 34 Based on the ruling in Sps. Albos, the
Court held that “the interest rates of 7.5% and 7% are excessive,
unconscionable, iniquitous, and contrary to law and morals and, therefore, void
ab initio.” In the case of the third and fourth loans, it was 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

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Code which provides that "no interest shall be due unless it has been stipulated
in writing."

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STRICKLAND v. ERNST & YOUNG, LLP


G.R. No. 193782, August 1, 2018
Jardeleza, J. | First Division

NATURE OF THE ACTION: These are consolidated Petitions for Review


on Certiorari under Rule 45 of the Rules of Court both filed by petitioner Dale
Strickland (Strickland): (1) against respondent Ernst & Young LLP (EYLLP)
assailing the Decision of the Court of Appeals, which annulled and set aside the
Orders of the Regional Trial Court, Branch 150, Makati City, ordered EYLLP to
be dropped as defendant, and referred the dispute between Strickland and
EYLLP to arbitration; and (2) against respondent Punongbayan & Araullo (PA),
and assailing the Decision of the CA which declared null and void the Orders of
the RTC and directed it to suspend proceedings.

FACTS:
The National Home Mortgage Finance Corporation (NHMFC) and Punongbayan
and Araullo (PA) entered into a Financial Advisory Services Agreement (FASA)
for the liquidation of the NHMFC's Unified Home Lending Program (UHLP). At
the time of the agreement, PA was the Philippine member of respondent global
company, Ernst and Young LLP (EYLLP). Consequently, PA sent a letter to
NHMFC confirming their engagement as exclusive Financial Advisor for the
UHLP Project, and that PA be designated as P&A/Ernst & Young. On the other
hand, Strickland was also a partner of EYLLP, and was listed In the FASA as a
member of the engagement team, designated as “Lead Due Diligence Partner”.
Strickland also played a significant part in the negotiation FASA, to which PA
wrote to formalize the working relationship.
Subsequently, EYLLP wrote to PA terminating the latter’s membership with the
former. Despite this termination, the working relationship continued. An
assignment letter was sent by EYLLP to NHMFC confirming the assignment of
petitioner Strickland to Manila as partner. However, the relationship turned for the
worst, to which Strickland was eventually separated from EYLLP. Since NHMFC
was intent on retaining Strickland's services despite his separation from EYLLP,
the parties entered into negotiations to define Strickland's possible continued
participation in the UHLP Project. PA, NHMFC, and Strickland exchanged letters
containing proposed amendments to cover the new engagement and Strickland's
participation within the UHLP Project. No actual written and final agreement
among the parties materialized
Strickland’s counsel then demanded PA for the “equitable compensation for
professional services” allegedly due to Strickland for the services rendered to
NHMFC on the UHLP Project. However, counsel for PA denied the contractual
relationship between Strickland and PA. Consequently, Strickland, through his
counsel filed a Complaint praying that judgment be rendered ordering EYLLP,
PA, and NHMFC to pay him jointly and solidarily the amount of 18 million pesos
as “equitable compensation for his services” A subsequent motion was then filed
by EYLLP to refer the case for arbitration, to which according to was in

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accordance with the Partnership Agreement with Strickland, which, however, the
RTC denied. On appeal before the CA, the appellate court granted the motion to
refer to arbitration and thereafter, the proceedings in the main case was
suspended.

ISSUE/S:
Whether or not the Partnership Agreement, and its Arbitration Clause, between
Strickland and EYLLP may be enforced in this jurisdiction

HELD: Yes.
The Supreme Court upheld the validity and enforceability of the Partnership
Agreement and its Arbitration Clause, stating that, mainly because Strickland
failed to deny the same in accordance with the Rules of Court, “plainly,
considering that the arbitration clause is in itself a contract, the setting forth of its
provisions in EYLLP's answer and in its motion to refer to arbitration,42 coupled
with the actual submission by EYLLP of the Partnership Agreement, complies
with the requirements of Section 7, Rule 8 of the Rules of Court which Strickland
should have specifically denied.” The Court continued, “While the cases before
us have a foreign element involving foreign parties and international transactions,
the parties do not question the jurisdiction of our courts to hear and decide the
case. The parties quibble only on whether the dispute between Strickland and
EYLLP should be referred to arbitration despite Strickland's alleged causes of
action based on tortious conduct of the parties in refusing to compensate him for
services rendered.”
The Court affirmed that “commercial relationships covered by our arbitration laws
are purely private and contractual in nature.” Article 1306 of the Civil Code
provides for autonomy of contracts where the parties are free to stipulate on such
terms and conditions except for those which go against law, morals, and public
policy. In our jurisdiction, commercial arbitration is a purely private system of
adjudication facilitated by private citizens which we have consistently recognized
as valid, binding, and enforceable.

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CUARTOCRUZ v. ACTIVE WORKS, INC.


G.R. No. 209072, July 24, 2019
Jardeleza, J. | First Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorai under Rule
45 of the Rules of Court, assailing the Decision and Resolution of the Court of
Appeals, denying the petition for certiorari and affirming the decision of the
National Labor Relations Commission, which found that petitioner Arlene A.
Cuartocruz was illegally dismissed. The latter filed a partial motion for
reconsideration which was thereafter denied by the appellate court.

FACTS:
Herein petitioner Arlene Cuartocruz and Cheng Chi Ho, a Hong Kong national,
entered into a contract of employment whereby petitioner would work as the
latter’s domestic helper or kasambahay for a period of two years. Among
petitioner’s tasks were to do household chores and baby-sit, for a monthly salary
of HK$3,400.00, together with other benefits. On the other hand, respondent
Active Works, Inc. (AWI) is a Philippine corporation engaged in the recruitment of
domestic helpers for work in Hong Kong, with Ma. Isabel Hermosa as its branch
manager.
Upon her arrival in Hong Kong, petitioner proceeded to the residence of her
employer. Seven days thereafter, she received a “warning letter” from the same
employer ordering her to improve her performance of her tasks, and failure to do
so would result to the termination of her contract of employment. On the same
day, petitioner replied stating her apologies and promising to improve her work
performance. Despite this, her employer proceeded to terminate the contract for
disobedience of the latter’s orders, submission of false bio-data, and refusal to
take care of the latter’s child.
Petitioner Cuartocruz appealed her case to the employment adjudication board in
Hong Kong but the same was futile. She was eventually repatriated at the
instance of respondent AWI. In the Philippines, AWI attempted to settle with
petitioner in the amount of P15,000, but the latter refused, believing that she is
entitled to more than said amount. Consequently, petitioner filed a case before
the Labor Arbiter (LA) for illegal dismissal.
The LA dismissed the case, arguing that the termination was valid and that
petitioner is not entitled to the salaries corresponding the unexpired portion of the
contract. On appeal to the NLRC, however, the decision was reversed.
Respondents appealed to the CA, but the latter affirmed the NLRC decision.
Petitioner moved for partial reconsideration with regard to the computation of her
entitlement to the salaries pertaining to the unexpired portion of the contract.

ISSUE/S:

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Whether or not Philippine law applies to the employment contract entered into by
Cuartocruz and her employer and AWI

HELD: Yes.
Philippine law applies in this case. Although the employment contract is
punctuated with provisions referring to Hong Kong law as the applicable law that
governs the various aspects of employment, Hong Kong law was not proved.
Indeed, a contract freely entered into is considered the law between the parties
who can establish stipulations, clauses, terms and conditions as they may deem
convenient, including the laws which they wish to govern their respective
obligations, as long as they are not contrary to law, morals, good customs, public
order or public policy. It is hornbook principle, however, that the party invoking
the application of a foreign law has the burden of proving the law. The foreign law
is treated as a question of fact to be properly pleaded and proved as the judge or
labor arbiter cannot take judicial notice of it. He is presumed to know only
domestic or forum law. Here, respondent did not prove the pertinent Hong Kong
law that governs the contract of employment. Thus, the international law doctrine
of presumed-identity approach or processual presumption applies. Where a
foreign law is not pleaded or, even if pleaded, is not proved, the presumption is
that foreign law is the same as ours. Consequently, we apply Philippine labor
laws in determining the issues in this case.

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VILLA-CRISTA MONTE REALTY AND DEVELOPMENT CORPORATION v.


EQUITABLE PCI BANK (now BANCO DE ORO)
G.R. No. 208336, November 21, 2018
Bersamin, J. | First Division

NATURE OF THE ACTION: This appeal has been taken under a Petition for
Review on Certiorari under Rule 45 of the Rules of Court to seek the review and
reversal of the adverse decision by the Court of Appeals affirming the judgment
rendered Regional Trial Court, Branch 216, in Quezon City

FACTS:
Villa-Crista Monte Realty Corp. (Villa-Crista) is engaged in the business of real
estate development. After its organization, it acquired a parcel of land in Old
Balara, Quezon City from a certain Alfonso Lim, which was intended to be
developed into a residential subdivision. It subsequently acquired adjoining
lands. In order to fully develop its subdivision project, it applied for, and was
granted a credit line by Equitable PCI Bank, now Banco De Oro (BDO), in the
amount of 80 million pesos, secured by a real estate mortgage (contract) over
the 80,000-square meter land. Villa-Crista applied further for an additional 50
million pesos credit line which was also approved. BDO granted the said credit
line on the condition that the REM contract would be amended to conform to the
aforesaid changes in the amount of credit line.
During the duration of the agreement, BDO apprised Villa-Crista of the increase
in interest rates. Eventually, however, the latter failed to pay its outstanding
obligations to BDO, in the total amount of 129 million pesos. This prompted BDO
to institute the foreclosure proceedings on the basis of the REM contract, to
which Villa-Crista opposed. As its causes of action, Villa-Crista alleged that: (1)
BDO unilaterally increased the interest rates without their acquiescence, (2) the
imposition of the interest rates are exorbitant and contrary to law and public
policy, and (3) substantial payments have already been made when the increase
of interest rates were made by BDO.

ISSUE/S:
Whether or not the stipulations contained in the promissory notes allowing for the
increase in interest rates in the loan valid

HELD: Yes.
The Supreme Court found that the promissory notes contained an “escalation
clause”, or an agreement between the parties on allowing the imposition of
increasing interest rates on the loan. “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.” Despite
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this, the Court stated that, “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. Such escalation clause violates the principle of mutuality of
contracts, and should be annulled.”
The Court emphasized that, “the escalation clause, to be valid, should
specifically provide: (I) 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.”
“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
Villa-Crista by BDO indicated that on some occasions, the bank had reduced or
adjusted the interest rates downward.”
Here, the Court upheld the validity and enforceability of the escalation clause
despite the absence of the de-escalation clause reasoning that, “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.”

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SECURITY BANK CORPORATION v. SPOUSES MERCADO


G.R. No. 192934, June 27, 2018
Jardeleza, J. | First Division

NATURE OF THE ACTION: These are consolidated petitions seeking to nullify


the Court of Appeals' Decision and Resolution, modifying the Decision of Branch
84, Regional Trial Court (RTC), Batangas City in the consolidated cases, which
nullified the extrajudicial foreclosure sales over petitioners-spouses’ properties,
and the interest rates imposed.

FACTS:
Petitioner Security Bank granted respondent spouses Mercado a revolving credit
line in the amount of ₱1,000,000.00. Under the agreement, the the Spouses
agree “to pay Security Bank interest on outstanding Availments at a per
annum rate determined from time to time, by Security Bank and advised through
my Statement of Account every month. I hereby agree that the basis for the
determination of the interest rate by Security Bank on my outstanding availments
will be Security Bank's prevailing lending rate at the date of availment.” Further,
the agreement provided that if the account is declared delinquent, the petitioner
bank shall impose a penalty of 2% per month computed on the amount due and
unpaid or in excess of the credit limit. To secure the aforesaid credit line, the
respondents executed a Real Estate Mortgage in favor of petitioner over their
properties located in Lipa City and San Jose, Batangas The respondents
executed another Real Estate Mortgage over their properties located in Batangas
City, Batangas to secure an additional amount of ₱7,000,000.00 under the same
revolving credit agreement. Subsequently, the spouses Mercado defaulted in
their payment under the revolving credit line agreement. Security Bank requested
the spouses Mercado to update their account, and sent a final demand letter.
Eventually, the properties were foreclosed with petitioner Security Bank as the
winning bidder. The spouses Mercado offered to redeem the foreclosed
properties for ₱10,000,000.00. However, Security Bank allegedly refused the
offer and made a counter-offer in the amount of ₱15,000,000.00.
Respondent spouses Mercado filed a complaint for annulment of foreclosure
sale, damages, injunction, specific performance with the RTC of Batangas City.
They alleged, among others that the interests and the penalties imposed by
Security Bank on their obligations were iniquitous and unconscionable.
ISSUE/S:
Whether or not the interests and penalties imposed by petitioner bank were
iniquitous and unconscionable and should therefore be nullified

HELD: Yes.
The Court ruled that under principle of mutuality of contracts in Article 1308 of the
Civil Code, “contracts must bind both contracting parties, and its validity or

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compliance cannot be left to the will of one of them.” The binding effect of any
agreement between parties to a contract is premised on two settled principles:
(1) that any obligation arising from contract has the force of law between the
parties; and (2) that there must be mutuality between the parties based on their
essential equality. As such, any contract which appears to be heavily weighed in
favor of one of the parties so as to lead to an unconscionable result is void.
Further, the Court explained that, “any stipulation regarding the validity or
compliance of the contract that is potestative or is left solely to the will of one of
the parties is invalid. This holds true not only as to the original terms of the
contract but also to its modifications. Consequently, any change in a contract
must be made with the consent of the contracting parties, and must be mutually
agreed upon. Otherwise, it has no binding effect.”
As in the case at bar, “stipulations as to the payment of interest are subject to the
principle of mutuality of contracts. As a principal condition and an important
component in contracts of loan, interest rates are only allowed if agreed upon by
express stipulation of the parties, and only when reduced into writing. Any
change to it must be mutually agreed upon, or it produces no binding effect”. The
Court held that, the same treatment is given to stipulations that give one party the
unbridled discretion, without the conformity of the other, to increase the rate of
interest notwithstanding the inclusion of a similar discretion to decrease it, or
those otherwise called “escalation clauses.” The Court noted that, depiste being
valid stipulations, the clause “did not give petitioner the unbridled right to
unilaterally adjust interest rates. The adjustment should have still been subjected
to the mutual agreement of the contracting parties. In light of the absence of
consent on the part of respondents to the modifications in the interest rates, the
adjusted rates cannot bind them notwithstanding the inclusion of a de-escalation
clause in the loan agreement.”
Here, what is present is a “stipulation on floating rate of interest.” The Court
discussed as follows: the spouses Mercado supposedly: (1) agreed to pay an
annual interest based on a "floating rate of interest;" (2) to be determined solely
by Security Bank; (3) on the basis of Security Bank's own prevailing lending rate;
(4) which shall not exceed the total monthly prevailing rate as computed by
Security Bank; and (5) without need of additional confirmation to the interests
stipulated as computed by Security Bank. “Notably, stipulations on floating rate of
interest differ from escalation clauses. Escalation clauses are stipulations which
allow for the increase (as well as the mandatory decrease) of the original fixed
interest rate. Meanwhile, floating rates of interest refer to the variable interest
rate stated on a market-based reference rate agreed upon by the parties. The
former refers to the method by which fixed rates may be increased, while the
latter pertains to the interest rate itself that is not fixed. Nevertheless, both are
contractual provisions that entail adjustment of interest rates subject to the
principle of mutuality of contracts.”
As held by the Supreme Court, the Manual of Regulations for Banks (MORB) of
the Bangko Sentral ng Pilipinas allows banks and borrowers to agree on a
floating rate of interest, provided that it must be based on market-based
reference rates. However, in the present case, petitioner Security Bank was
given the unbridled discretion to change the interest rates, without the need of
any written assent of the respondents. Further, the interests imposed lacked a

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stated and valid reference rate. The Court concluded that there was no other
stipulation under the contract and its addendum that provided for the basis of the
interest rates imposes. Therefore, the same should be struck down. The Court
noted however, that despite the imposed interest being struck down, the
petitioner bank may still impose the legal interest.

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VILLA-CRISTA MONTE REALTY AND DEVELOPMENT CORPORATION v.


EQUITABLE PCI BANK (now BANCO DE ORO)
G.R. No. 208336, November 21, 2018
Bersamin, J. | First Division

NATURE OF THE ACTION: This appeal has been taken under a Petition for
Review on Certiorari under Rule 45 of the Rules of Court to seek the review and
reversal of the adverse decision by the Court of Appeals affirming the judgment
rendered Regional Trial Court, Branch 216, in Quezon City

FACTS:
Villa-Crista Monte Realty Corp. (Villa-Crista) is engaged in the business of real
estate development. After its organization, it acquired a parcel of land in Old
Balara, Quezon City from a certain Alfonso Lim, which was intended to be
developed into a residential subdivision. It subsequently acquired adjoining
lands. In order to fully develop its subdivision project, it applied for, and was
granted a credit line by Equitable PCI Bank, now Banco De Oro (BDO), in the
amount of 80 million pesos, secured by a real estate mortgage (contract) over
the 80,000-square meter land. Villa-Crista applied further for an additional 50
million pesos credit line which was also approved. BDO granted the said credit
line on the condition that the REM contract would be amended to conform to the
aforesaid changes in the amount of credit line.
During the duration of the agreement, BDO apprised Villa-Crista of the increase
in interest rates. Eventually, however, the latter failed to pay its outstanding
obligations to BDO, in the total amount of 129 million pesos. This prompted BDO
to institute the foreclosure proceedings on the basis of the REM contract, to
which Villa-Crista opposed. As its causes of action, Villa-Crista alleged that: (1)
BDO unilaterally increased the interest rates without their acquiescence, (2) the
imposition of the interest rates are exorbitant and contrary to law and public
policy, and (3) substantial payments have already been made when the increase
of interest rates were made by BDO.

ISSUE/S:
Whether or not the escalation clause contained in the promissory notes violate
the mutuality of contracts
HELD: No.
The binding effect on the parties of any agreement is premised on two settled
principles, namely: (1) that any obligation arising from contract has the force of
law between the parties; and (2) that there must be mutuality between the parties
based on their essential equality. Any contract that appears to be heavily
weighed in favor of only one of the parties so as to lead to an unconscionable
result is void. Specifically, any stipulation regarding the validity or compliance of
the contract that is left solely to the will of one of the parties is likewise invalid.

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The principle of mutuality of contracts is embodied in Article 1308 of the Civil


Code, to wit: “The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.” The Court held, “It is
elementary that there can be no contract in the absence of the mutual assent of
the parties. When the assent of either party is wanting, the act of the non-
assenting party has no efficacy for his act is as if it was done under duress or by
an incapacitated person. Naturally, any modification made in the contract must
still be with or upon the consent of the contracting parties. There must still be a
meeting of the minds of all the parties on the modification, especially when the
modification relates to an important or material aspect of the agreement. In loan
contracts, the rate of interest is always important or material because it can make
or break the capital ventures.”
Contrary to the petitioner's position, there was mutuality of contracts in the
present case. Villa-Crista’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. Equally of significance was that the respondent
allowed the petitioner the sufficient time and opportunity either to reject the
imposition of the increased interest rates by paying the outstanding obligations or
by accepting the same through payment of whatever amounts were due. The
sufficient time and opportunity negated the petitioner's insistence about the
respondent having unilaterally determined the interest rates in violation of the
principle of mutuality of contracts embodied in Article 1308.

33
CONTRACTS

ASIAN TERMINALS, INC. v. PADOSON STAINLESS STEEL CORPORATION


G.R. No. 211876, June 25, 2018
Tijam, J. | First Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorari under


Rule 45 of the Rules of Court assailing the Decision and Resolution of the Court
of the Appeals, which affirmed the Decision of the Regional Trial Court (RTC) of
Manila, Branch 41.

FACTS:
Respondent Padoson Stainless Steel Corporation (Padoson) hired petitioner
Asian Terminals Inc. (ATI) for arrastre, wharfage and storage services of their
shipment of stainless steel coils and hot-rolled steel coils, with respondent
Padoson as consignee. The shipments were then stored within ATI’s premises.
However, the shipments became the subject of a “Hold-Order” issued by the
Bureau of Customs (BOC) by reason of a pending case filed by the latter
because of respondent Padoson’s tax liabilities over its shipments. Pending such
case, for the storage services it rendered, ATI made several demands from
Padoson for the payment of arrastre, wharfage and storage services, in the total
amount of P8,914,535.28. However, these demands were left unheeded.
Consequently, ATI filed a Complaint with the RTC of Manila for Sum of Money
and Damages against Respondent Padoson in the aforesaid amount plus legal
interests and damages. For its part, Padoson filed its Answer with counterclaim,
arguing primarily that during the time when the shipments were in ATI's custody
and possession, they suffered material and substantial deterioration, and that ATI
failed to exercise the extraordinary diligence required of an arrastre operator and
thus it should be held responsible for the damages. The RTC rendered its
decision dismissing both ATI’s complaint and Padoson’s counterclaim, which was
appealed to the CA. The appellate court similarly denied the appeal.

ISSUE/S:
Whether or not Padoson is liable for storage fees for the services rendered by
ATI

HELD: Yes.
The Supreme Court held that, granting that the BOC has constructive possession
over Padoson's shipment by virtue of the Hold-Order, this does not, in itself
release Padoson from its obligation to pay the storage fees due to ATI.
It has been established that Padoson engaged ATI to perform arrastre, wharfage
and storage services over its shipments, until it was discharged from ATI's
premises. Although Padoson's shipments were the subject of BOC's Hold-Order,
the fact remains that it was Padoson, and not BOC, that entered into a contract
of service with ATI and consequently was the one who was benefited therefrom.
34
CONTRACTS

The basic principle of relativity of contracts is that contracts can only bind the
parties who entered into it, and cannot favor or prejudice a third person, even if
he is aware of such contract and has acted with knowledge thereof. Further,
"where there is no privity of contract, there is likewise no obligation or liability to
speak about."
Guided by this doctrine, the Court held that, “Padoson cannot shift the burden of
paying the storage fees to BOC since the latter has never been privy to the
contract of service between Padoson and ATI. To rule otherwise would create an
absurd situation wherein a private party may free itself from liability arising from a
contract of service, by merely invoking that the BOC has constructive possession
over its shipment by the issuance of a Hold-Order.” Further, the Hold-Order is not
in any way related to the contract of service between A TI and Padoson. Rather,
it is directed at Padoson's shipment by reason of Padoson's tax liability and
which triggered the filing of the Customs Case. The BOC's exclusive jurisdiction
over the shipment is solely for the purpose of enforcing customs laws against
Padoson's tax delinquency. The BOC's interest over the shipment was limited to
discharging its duty to collect Padoson's tax liability. In other words, the BOC's
Hold-Order is extraneous to Padoson's obligation to pay the storage fees in favor
of ATI. Even Padoson admitted that the Hold Order was issued by the BOC
merely as a leverage to claim Padoson's alleged unpaid duties. Clearly, Padoson
has two monetary obligations, albeit of different characters - one is its liability for
storage fees with ATI based on its contract of service, and the other is its tax
liability with the BOC which is the subject of the Customs case pending with the
RTC.

35
CONTRACTS

EXCELLENT ESSENTIALS INTERNATIONAL CORPORATION v. EXTRA


EXCEL INTERNATIONAL PHILIPPINES, INC.
G.R. No. 192797, April 18, 2018
Martires, J. | Third Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorari assailing


the Decision of the Court of Appeals which reversed the Regional Trial Court,
Branch 138, Makati City, by ordering petitioner Excellent Essentials International
Corporation to pay respondent Extra Excel International Philippines, Inc.
damages, attorney's fees, and costs of suit.

FACTS:
E. Excel International, Inc. (Excel International) and respondent Extra Excel
Philippines, Inc. (Excel Philippines) entered into an exclusive rights contract.
Under the said contract, the respondent was granted exclusive rights to distribute
E. Excel products in the Philippines. Under the same contract, Excel International
reserved the right to discontinue or alter their agreement at any time. In over a
span of four years, Excel International experienced intra-corporate struggle over
the control of the corporation and the operations of its various exclusive
distributors in Asia. These disputes even reached the Judicial District Court of
Utah (Utah Court). Eventually, the conflict between the principal stakeholders of
Excel International was resolved with Jau-Hwa Stewart gaining control of the
company. Sometime in December 2000, Stewart, in her capacity as president of
Excel International, revoked Excel Philippines' exclusive rights contract and
appointed petitioner Excellent Essentials International Corporation (Excellent
Essentials) as its new exclusive distributor in the Philippines. However, despite
the revocation of its exclusive rights contract and the appointment of petitioner,
respondent continued its operation in violation of the new exclusive
distributorship agreement.
Consequently, Excel International, through counsel, demanded that respondent
cease from selling, importing, distributing, or advertising, directly or indirectly, any
and all of E. Excel products. This demand was left unheeded, and Excel
International and Excellent Essentials was constrained to file a complaint for
injunction and damages against Excel Philippines. For its answer, respondent
attached an agreement between Excel International and Bright Vision
Philippines, showing that Excel Philippines' exclusive distributorship was
irrevocable. The document also showed that Excel Philippines was incorporated
so that it would become Excel International's exclusive distributor within the
Philippines.

ISSUE/S:
Whether or not corporation, who is a third party to a contract, may be held liable
for damages if used as a means to breach the obligations between the
contracting parties

36
CONTRACTS

HELD: Yes.
The Supreme Court held that, under the principle of relativity of contracts, only
those who are parties to a contract are liable to its breach. Under Article 1314 of
the Civil Code, however, any third person who induces another to violate his
contract shall be liable to damages to the other contracting party. Said provision
of law embodies what we often refer to as “tortuous or contractual interference.”
Citing So Ping Bun v. CA, the Court laid out the elements of tortuous interference
as follows: (1) existence of a valid contract; (2) knowledge on the part of the third
person of the existence of contract; and (3) interference of the third person is
without legal justification or excuse.
Applying the foregoing in this case, the Court held, “prior to the revocation of its
exclusive distributorship, Excel International had an existing contract with Bright
Vision wherein they agreed to set up a corporation to exclusively distribute E.
Excel products within the Philippines. This corporation, eventually, turned out to
be Excel Philippines who was given the irrevocable and exclusive right to
distribute, market, and/or sell. Under its agreement with Bright Vision, Excel
Philippines' exclusive distributorship right was irrevocable and may only be
modified, transferred, or terminated upon the mutual consent of both parties. The
relationship between Excel International and Excel Philippines took an
unexpected turn when Stewart, acting as Excel International's president,
unilaterally revoked Excel Philippines' right and conferred it to Excellent
Essentials. At this point, Excel International had already breached its contractual
obligations by unilaterally revoking Excel Philippines' exclusive distributorship
even if it was prohibited from doing so.
As found by the Court, under the circumstances, “those behind Excellent
Essentials not only had knowledge that Excel International had the obligation to
honor Excel Philippines' exclusive right, but also conspired with Stewart to
undermine Excel Philippines.” The Court concluded that, “to sustain a case for
tortuous interference, the defendant must have acted with malice or must have
been driven by purely impure reasons to injure plaintiff; otherwise stated, his act
of interference cannot be justified.” For the Court, the word “induce” refers to
situations where a person causes another to choose one course of conduct by
persuasion or intimidation. Finally, “contrary to Excellent Essentials' argument in
the instant petition, its participation in the scheme against Excel Philippines
transgressed the bounds of permissible financial interest. Its mere corporate
existence played an important factor for Stewart to revoke Excel Philippines'
exclusive· right to distribute E. Excel products in the Philippines. For without it, or
the participation of its incorporators, Excel International would not have the
means to connect with the marketing network Excel Philippines established.
Simply put, Excellent Essentials became the vessel for the breach of Excel
International's contractual undertaking with Excel Philippines.”

37
CONTRACTS

DE ROCA v. DABUYAN
G.R. No. 215281, March 5, 2018
Del Castillo, J. | First Division

NATURE OF THE ACTION: This Petition for Review on Certiorari seeks to set


aside the Decision and Resolution of the Court of Appeals, dismissing the
Petition for Certiorari and denying herein petitioner's Motion for Reconsideration

FACTS:
A case for illegal dismissal was filed by herein respondents before the Labor
Arbiter (LA) against RAF Mansion Hotel Old Management and New Management
(RAF), Victor Ewayan and herein petitioner Rolando De Roca. In his motion to
dismiss, De Roca alleged that while he is the owner of the RAF building, the
same was being leased by Ewayan, the owner of Oceanics Travel and Tour
Agency (Oceanic). It was further alleged that Ewayan was the employer of herein
respondents. Thereafter, the labor arbiter rendered a decision directing
petitioner, among others, to pay backwages and other monetary award to private
respondents. In said decision, the labor arbiter also denied the motion to dismiss
for having been filed beyond the reglementary period. The NLRC, and
subsequently the CA dismissed petitioner De Roca’s petition for annulment of
judgment, and certiorari, respectively.

ISSUE/S:
Whether or not petitioner was correctly impleaded as a party in the labor case

HELD: No.
The Supreme Court sided with herein petitioner, stating that, from the fact on
record and the evidence that petitioner's building was an existing hotel called the
"RAF Mansion Hotel", which Oceanic agreed to continue to operate under the
same name. Further, there is no connection between petitioner and Oceanic
other than through the lease agreement executed by them; they are not partners
in the operation of RAF Mansion Hotel. It just so happens that Oceanic decided
to continue operating the hotel using the original name – "RAF Mansion Hotel".
It also apperead to the Court that the belated attempt of respondents to implead
petitioner in the labor case was only an afterthought. Further, The Supreme
Court held that “the fact that respondents recognize petitioner as embodying the
"new management" of RAF Mansion Hotel betrays an admission on their part
that he had no hand in the "old management" of the hotel under Ewayan, during
which they were hired and maintained as hotel employees.” This means that
petitioner was never considered as Ewayan's partner and co-employer, with
respondents merely viewing petitioner as the subsequent manager taking over
from Ewayan. This strengthens petitioner’s allegation that Ewayan had
absconded and left respondents without recourse other than to implead him as
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CONTRACTS

the "new management" upon whom the obligation to settle the claims abandoned
by Ewayan now fell.
The Supreme Court concluded in this wise: "’Contracts take effect only between
the parties, their assigns and heirs, except in case where the lights and
obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law.’ The contract of employment between
respondents, on the one hand, and Oceanic and Ewayan on the other, is
effective only between them; it does not extend to petitioner, who is not a party
thereto. His only role is as lessor of the premises which Oceanic leased to
operate as a hotel; he cannot be deemed as respondent's employer - not even
under the pretext that he took over as the "new management" of the hotel
operated by Oceanic. There simply is no truth to such claim. Thus, to allow
respondents to recover their monetary claims from petitioner would necessarily
result in their unjust enrichment.”

39
CONTRACTS

AYALA LAND, INC. v. ASB REALTY CORPORATION


G.R. No. 210043, September 26, 2018
Del Castillo, J. | First Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorari to assail


the Decision and Resolution of the Court of Appeals affirming Decision of the
Regional Trial Court (RTC) of Imus, Cavite, Branch 20, which (a) declared null
and void and unenforceable the Contract to Sell entered into between ALI, on the
one hand, and Emerita B. Ramos, Jr., Januario B. Ramos, Josefa R. de la Rama,
Victoria R. Tanjuatco, Horacia de la Rama and Teofilo Tanjuatco III; and, (b)
declared valid, binding and enforceable the Letter-Agreement entered into
between respondent E.M. Ramos & Sons, Inc. (EMRASON) and ASB Realty
Corporation (ASBRC).

FACTS:
Both petitioner Ayala Land Inc. (ALI) and respondent ASB Realty Corporation
(ASBRC) are domestic corporations engaged in real estate development. On the
other hand, EM Ramos and Sons (EMRS) is a domestic corporation organized
for the management of a 372-hectare property in Dasmarinas, Cavite. According
to ALI, EMRS sent a proposal for a joint venture agreement (JVA) for the
developmet of the subject property. ALI also alleged that EMRS made it appear
that Ramos, Jr., Januario, and Antonio (Ramos children) had full authority to act
in behalf of the latter corporation. This authority was acknowledged by EMRS’
president, Ramos, Sr. through a letter sent to ALI. Thereafter, ALI entered into a
Contract to Sell with the Ramos children for the subject property. However, ALI
alleged that a Letter-Agreement between EMRS and ASBRC with regard to the
same property was executed, to which ALI informed the latter that a Contract to
Sell is already existing between ALI and EMRS.
On the other hand, respondent ASBRC allege that the proposal sent by ALI to
EMRS was rejected by the latter, for the reason that the proposal of the former
(ASBRC) was more beneficial and advantageous to the property owners EMRS.
Consequently, a Letter-Agreement was executed between ASBRC, and EMRS,
through Ramos, Sr. and Antonio and thereafter a Real Estate Mortgage was
executed by the former (ASBRC) in compliance with the provisions of the
aforesaid agreement. It should be noted that the authority of Ramos, Sr. and
Antonio was in accordance with a Board Resolution duly approved by the
stockholders of EMRS. Upon learning of the Contract to Sell between petitioner
ALI and the Ramos children (allegedly in behalf of EMRS), ASBRC filed a
Complaint to nullify the Contract to Sell and to cancel the annotations on the title
to the subject property.

ISSUE/S:
Whether or not the Contract to Sell was validly executed between ALI and EMRS

40
CONTRACTS

HELD: No.
"A contract is void if one of the essential requisites of contracts under Article
1318 of the New Civil Code is lacking." Consent, being one of these requisites, is
vital to the existence of a contract "and where it is wanting, the contract is non-
existent." For juridical entities, consent is given through its board of directors.
Citing First Philippine Holdings Corporation v. Trans Middle East (Phils.)
Equities, Inc, the Supreme Court held that “a juridical entity, like EMRS,cannot
act except through its board of directors as a collective body, which is vested with
the power and responsibility to decide whether the corporation should enter into
a contract that will bind the corporation, subject to the articles incorporation, by-
laws, or relevant provisions of law." Further, the Court held that “although the
general rule is that ‘no person, not even its officers, can validly bind a
corporation’ without the authority of the corporation's board of directors, this
Court has recognized instances where third persons' actions bound a corporation
under the doctrine of apparent authority or ostensible agency.”
The Court held that the exceptions of apparent authority or ostensible agency
does not apply in the case at bar. The Court stated, thus, “a perusal of the letter
shows that EMRS, through Ramos, Sr. authorized Ramos, Jr. and Antonio
merely to ‘collaborate and continue negotiating and discussing with ALI terms
and conditions that are mutually beneficial’ to the parties therein. Nothing more,
nothing less. To construe the letter as a virtual carte blanche for the Ramos
children to enter into a Contract to Sell regarding the subject property would be
unduly stretching one's imagination.”
Finally, the Court held, "Acts done by the corporate officers beyond the scope of
their authority cannot bind the corporation unless it has ratified such acts
expressly or is estopped from denying them." What is clear from the letter is that
EMRS authorized the Ramos children only to negotiate the terms of a potential
sale over the subject property, and not to sell the property in an absolute way or
act as signatories in the contract.

41
CONTRACTS

CONSOLIDATED BUILDING MAINTENANCE, INC. v. ASPREC, JR. AND


BATALLER
G.R. No. 217301, June 6, 2018
Reyes, Jr., J. | Second Division

NATURE OF THE ACTION: This is is a Petition for Review on Certiorari under


Rule 45 of the Rules of Court seeking to annul and set aside the Decision and
Resolution of the Court of Appeals denying the petition for certiorari filed by
Consolidated Building Maintenance, Inc. (CBMI) and its Human Resource
Manager Sarah Delgado, which assailed the Resolution of the National Labor
Relations Commission (NLRC) and reinstated the Decision of the Labor Arbiter
(LA), and denying the subsequent motion for reconsideration

FACTS:
Consolidated Building Maintenance, Inc. (CBMI) is a corporation engaged in
providing janitorial, kitchen and messengerial services to various entities, among
them is Philippine Pizza Inc., - Pizza Hut (Pizza Hut). CBMI provided kitchen,
delivery, sanitation, and other allied services to Pizza Hut pursuant a Contract of
Services entered into between the two parties. On the other hand, respondents
Asprec, Jr., and Bataller alleged that they are regular employees of Pizza Hut,
working as “riders” or delivery crew and team member/slice cashier respectively,
both assigned in Pizza Hut Marcos Highway branch.
In their Sinumpaang Salaysay, they alleged that they were ordered to go on
leave for a certain period of time, and thereafter resumed their usual work upon
being interviewed by their superiors. CBMI, however, alleged that respondents
were its employees, and that they were investigated by virtue of an Incident
Report of Pizza Hut’s store manager for attempted theft, where an excess of two
pizza boxes were delivered but the said employees failed to report the same.
Both respondents Asprec Jr. and Bataller denied the allegations. Nonetheless,
they were suspended from work. Thereafter, an interview was conducted and
that after such interview, they were no longer allowed to return to work.
Consequently, respondents filed a Complaint for constructive illegal dismissal,
among others, before the Labor Arbiter (LA).
The LA granted the respondents’ Complaint, which was then affirmed by the
NLRC with modifications, dropping Pizza Hut as a party to the case. This
modification was reversed by the CA, holding that CBMI failed to prove that it
was engaged in job contracting.

ISSUE/S:
Whether or not CBMI was engaged in legitimate job contracting

HELD: Yes.

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CONTRACTS

Under the premises and based on the evidence presented by the parties, the
Court is inclined to sustain the position of CBMI that it is an independent
contractor. Labor-only contracting is defined by Article 106 of the Labor Code of
the Philippines, as an arrangement where a person, who does not have
substantial capital or investment, supplies workers to an employer to perform
activities which are directly related to the principal business of such employer.
The issue in this case being the status of the respondents, the pertinent
Department Order (DO) implementing the aforecited provision of the Labor Code
is DOLE DO No. 18-02, Series of 2002, the regulation in force at the time the
respondents were hired and assigned to PPI.
As provided for in DO No. 18-02, job contracting is not absolutely prohibited. The
Court held, “indeed, an employer is allowed to farm out the performance or
completion of a specific job, work or service, within a definite or specified period,
and regardless of whether the said task is to be performed or completed within or
outside its premises. Job contracting is deemed legitimate and permissible when
the contractor has substantial capital or investment, and runs a business that is
independent and free from control by the principal.”
Citing Norkis Trading Co., Inc. v. Genilo, the Supreme Court stated that, “it is
required that the agreement between the principal and the contractor or
subcontractor assures the contractual employees' entitlement to all labor and
occupational safety and health standards, free exercise of the right to self-
organization, security of tenure, and social welfare benefits." The absence of any
of these elements results in a finding that the contractor is engaged in labor-only
contracting.
Further, it was found by the Court that CBMI is a duly licensed labor contractor
by the DOLE. Being the primary agency tasked to regulate job contracting, DOLE
is presumed to have acted in accordance with its mandate and after due
evaluation of rules and regulations in its registration of CBMI. The Certificate of
Registration issued by DOLE recognizes CBMI as an independent contractor as
of February 13, 2008, and regards the validity of the latter's registration as such
until February 14, 2011, well within the period relevant to this appeal.

43
CONTRACTS

DIAMPOC v. BUENAVENTURA
G.R. No. 200383, March 19, 2018
Del Castillo, J. | First Division

NATURE OF THE ACTION: This is a Petition for Review on Certiorari which


seeks to set aside the Decision and Resolution of the Court of .Appeals, which
denied herein petitioner's appeal and affirmed the Decision of the Regional Trial
Court of Pasig City, Branch 268.

FACTS:
Petitioner Norma Diampoc and her husband Wilbur Diampoc (Diampocs) were
allegedly owners of a parcel of land located in Signal Village, Taguig City. On the
other hand, respondent Jessie Buenaventura was their friend. The latter was
alleged to have “borrowed” the title to the Diampocs’ parcel of land, to be used as
security for a ₱1,000,000.00 loan obtained by him. From the proceeds of the said
loan, Buenaventura promised to give the Diampocs ₱300,000.00. Sometime in
July 2000, Buenaventura caused the Diampocs to sign a “folded document”
without giving the latter the opportunity to examine the same. Thereafter, it
appeared that because of the signing of the aforesaid document, Buenaventura
became the owner of one-half portion of the parcel of land belonging to the
Diampocs. Upon this knowledge, they immediately proceeded to the notary
public who notarized the said purported deed of sales and discovered that the
said portion was purportedly sold to Buenaventura for ₱200,000.00.
Barangay proceedings were commenced, but the same was futile. The Diampocs
thereafter filed a Complaint for annulment of deed of sale and recovery of
duplicate original copy of title, with damages, against respondent and the
Registry of Deeds for the Province of Rizal. They argue primarily that the alleged
sale was spurious and that the deed was obtained through fraud and deceit.
They prayed that purported deed of sale be annulled, the annotation thereof be
canceled, and that the owner's duplicate copy be returned to them.

ISSUE/S:
Whether or not there was a valid contract of sale

HELD: Yes.
The Supreme Court held that, "the absence of notarization of the deed of sale
would not invalidate the transaction evidenced therein; it merely reduces the
evidentiary value of a document to that of a private document, which requires
proof of its due execution and authenticity to be admissible as evidence." Further,
"a defective notarization will strip the document of its public character and reduce
it to a private instrument. Consequently, when there is a defect in the notarization
of a document, the clear and convincing evidentiary standard normally attached

44
CONTRACTS

to a duly-notarized document is dispensed with, and the measure to test the


validity of such document is preponderance of evidence."
Citing Castillo v. Security Bank, the Court ruled: “x x x Article 1358 of the Civil
Code requires that the form of a contract that transmits or extinguishes real rights
over immovable property should be in a public document, yet the failure to
observe the proper form does not render the transaction invalid. The necessity of
a public document for said contracts is only for convenience; it is not essential for
validity or enforceability. Even a sale of real property, though not contained in a
public instrument or formal writing, is nevertheless valid and binding, for even a
verbal contract of sale or real estate; produces legal effects between the parties.
Consequently, when there is a defect in the notarization of a document, the clear
and convincing evidentiary standard originally attached to a duly-notarized
document is dispensed with, and the measure to test the validity of such
document is preponderance of evidence.”
It was found by the Court that petitioner and her husband conceded that there
was such a deed of sale, but only that they were induced to sign it without being
given the opportunity to read its contents -believing that the document they were
signing was a mere authorization to obtain a bank loan.“ The Court held that “the
petitioner and her husband's admission that they failed to exercise prudence can
only be fatal to their cause. They are not unlettered people possessed with a
modicum of intelligence; they are educated property owners capable of securing
themselves and their property from unwarranted intrusion when required. They
knew the wherewithal of property ownership. Their failure to thus observe the
care and circumspect expected of them precludes the courts from lending a
helping hand, and so they must bear the consequences flowing from their own
negligence.”
The Court concluded, “It is also a well-settled principle that the law will not relieve
parties from the effects of an unwise, foolish or disastrous agreement they
entered into with all the required formalities and with full awareness of what they
were doing. Courts have no power to relieve them from obligations they
voluntarily assumed, simply because their contracts turn out to be disastrous
deals or unwise investments. Neither the law nor the courts will extricate them
from an unwise or undesirable contract which they entered into with all the
required formalities and with full knowledge of its consequences."

45
CONTRACTS

GLORIA v. BUILDERS SAVINGS AND LOAN ASSOCIATION, INC.


G.R. No. 202324, June 4, 2018
Del Castillo, J. | First Division

NATURE OF THE ACTION: This Petition for Review on Certiorari assails the
Decision and Resolution of the Court of Appeals, which respectively reversed the
Order of the Quezon City Regional Trial Court, Branch 224, and denied herein
petitioner' Motion for Reconsideration.

FACTS:
Spouses Juan and petitioner Conchita Gloria are the registered owners of a
parcel of land located in Kamuning, Quezon City. Petitioner Maria Lourdes
Gloria-Payduan is their daughter. Jaun died sometime in August 1987. In the
Complaint, herein petitioners claimed that respondent Builders Savings and Loan
Association (Builders), and a certain Benildo Biag, induced them into
surrendering the title of the subject property, believing that Biag would verify the
title claiming that the title was transferred to another when the Regisrty of Deeds
of QC was gutted by fire. However, Biag instead used the title to mortgage the
Kamuning property to respondent Builders Savings and that Conchita was
fraudulently made to sign the subject loan and mortgage documents by Biag,
who deceived Conchita into believing that it was actually Lourdes who requested
that these documents be signed. It was further alleged that Biag and respondent
Builders conspired in the execution of the forged loan and mortgage documents;
that the forged loan and mortgage documents were not signed/affirmed before a
notary public; that on account of Biag and respondent’s collusion, the subject
property was foreclosed and sold at auction to the latter. Petitioners filed a
Complaint for the declaration of null and void the real estate mortgage,
promissory note, and the cancellation of notation in the transfer certificate of title,
and damages.

ISSUE/S:
Whether or not the mortgage contract is void and without force and effect

HELD: Yes.
The Supreme Court found that that these documents were simulated. The Court
discussed that, petitioners merely entrusted the title to the subject property to
Biag for the purpose of reconstituting the same as he claimed that the title on file
with the Registrar of Deeds of Quezon City may have been lost by fire. It is clear
that petitioners did not intend for Biag to mortgage the subject property to secure
a loan yet the latter, without petitioners' knowledge and consent, proceeded to do
just that, and in the process, he falsified the loan and mortgage documents and
the accompanying promissory note by securing Conchita's signatures thereon
through fraud and misrepresentation and taking advantage of her advanced age

46
CONTRACTS

and naivete and forged Juan's signature and made it appear that the latter was
still alive at the time, when in truth and in fact, he had passed away in 1987.
Under the Article 1346 of the Civil Code, it provides, “an absolutely simulated or
fictitious contract is void. x x x” Further, in Article 1409, is provides that “those
which are absolutely simulated or fictitious” are inexistent and void from the
beginning.
The Court concluded, “as a consequence of Biag's fraud and forgery of the loan
and mortgage documents, the same were rendered null and void. This proceeds
from the fact that Biag was not the owner of the subject property and may not
thus validly mortgage it, as well as the well-entrenched rule that a forged or
fraudulent deed is a nullity and conveys no title.” The Court further discussed
that, "in a real estate mortgage contract, it is essential that the mortgagor be the
absolute owner of the property to be mortgaged; otherwise, the mortgage is void.
And when the instrument presented for registration is forged, even if
accompanied by the owner's duplicate certificate of title, the registered owner
does not thereby lose his title, and neither does the mortgagee acquire any right
or title to the property. In such a case, the mortgagee under the forged
instrument is not a mortgagee protected by law. Lastly, when the person applying
for the loan is other than the registered owner of the real property being
mortgaged, it should have already raised a red flag and x x x should have
induced the mortgagee to make inquiries into and confirm the authority of the
mortgagor."

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SALES

NUÑEZ v. MOISES-PALMA
G.R. No. 224466, March 27, 2019
Caguioa, J. | Second Division,

NATURE OF THE ACTION: This is a Petition for Review on Certiorari under


Rule 45 of the Rules of Court assailing the Decision and Resolution of the Court
of Appeals, affirming with modifications the Decision of the Regional Trial Court,
Branch 21, Mambusao, Capiz, which modified the Decision of the Municipal Trial
Court, Mambusao, Capiz (MTC)

FACTS:
Vicentico Nuñez, petitioner’s father, was the original owner of a parcel of land
located in Mambusao, Capiz. Sometime in 1992, Vicentico borrowed P30,000
from Rosita Moises for his diabetes treatment, and as security executed a real
estate mortgage over his property. However, because Rosita had no money, the
funds actually came from his daughter, herein respondent Norma Moises-Palma.
Allegedly, the loan was eventually paid as evidenced by the Affidavit Authorizing
Release of Mortgage (AARM). Thereafter, upon Vicentico’s death, the parcel of
land was transferred to his heirs, herein petitioners. Sometime in 1995,
respondent was able to secure the signature of all the heirs for a Deed of
Adjudication and Sale (DAS) where petitioners purportedly sold to Norma their
respective pro indiviso shares in the subject lot for P50,000.00, but the DAS
reflected P30,000.00 as the consideration. After the execution of the DAS,
Norma immediately took possession of the subject lot.
Respondent executed a promissory note in favor of petitioners and thereafter
executed an Acknowledgment of Debt (AOD) admitting her indebtedness of
P50,000.00. She was not able to pay the aforesaid purchase price but
nonetheless was able to caause the registration of the land before the Registry of
Deeds. Consequently, petitioners, separately, filed cases for the declaration of
nullity of the aforesaid sales, and reconveyance and recovery of the said parcel
of land with damages before the MTC.
The MTC rendered its decision in favor of petitioners. However, the RTC, on
appeal, reversed the MTC decision, to which the CA affirmed.

ISSUE/S:
Whether or not the transaction was a contract of sale

HELD:
A contract of sale is defined in Article 1458 of the Civil Code: “By the contract of
sale, one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent. A contract of sale may be absolute or conditional.” The

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Court differentiated an absolute sale from a conditional sale as follows: “Article


1458 of the Civil Code provides that a contract of sale may be absolute or
conditional. A contract of sale is absolute when title to the property passes to the
vendee upon delivery of the thing sold. A deed of sale is absolute when there is
no stipulation in the contract that title to the property remains with the seller until
full payment of the purchase price. The sale is also absolute if there is no
stipulation giving the vendor the right to cancel unilaterally the contract the
moment the vendee fails to pay within a fixed period. In a conditional sale, as in a
contract to sell, ownership remains with the vendor and does not pass to the
vendee until full payment of the purchase price. The full payment of the purchase
price partakes of a suspensive condition, and non-fulfillment of the condition
prevents the obligation to sell from arising.”
Here, the DAS is an absolute sale because there is no stipulation in the contract
that title to the property remains with the sellers until full payment of the purchase
price and there is no stipulation giving the vendors the right to cancel unilaterally
the contract the moment the vendee fails to pay within a fixed period. It will be
recalled that after the execution of the DAS, Norma immediately took possession
of the subject lot and there was no retention of ownership by the heirs of
Vicentico until full payment of the purchase price by Norma that was stipulated in
the DAS.
The Court then stated, “What then is the legal effect of the non-payment of the
purchase price of P50,000.0074 by Norma to petitioners?” Pursuant to Article
1458 of the Civil Code, a contract of sale is a reciprocal obligation to give; and
the prestation or obligation of the seller or vendor is "to transfer the ownership of
and to deliver a determinate thing" while the prestation or obligation of the buyer
or vendee is "to pay therefor a price certain in money or its equivalent." The full
payment of the purchase price is the buyer's prestation. The non-payment of the
purchase price by the buyer after the seller has delivered the object of the sale to
the buyer constitutes a breach of the buyer's prestation in a contract of sale. The
buyer has contravened the very tenor of the contract. The Court provided that,
generally, under Article 1594 of the Civil Code, "actions for breach of the contract
of sale of goods shall be governed particularly by the provisions of this Chapter
[Chapter 6 on 'Actions for Breach of Contract of Sale of Goods'], and as to
matters not specifically provided for herein, by other applicable provisions of this
Title [Title VI on 'Sales']."
One remedy is provided in Article 1595, ”Where, under a contract of sale, the
ownership of the goods has passed to the buyer, and he wrongfully neglects or
refuses to pay for the goods according to the terms of the contract of sale, the
seller may maintain an action against him for the price of the goods. In addition,
the buyer may be held liable for damages under Article 1596, ”Where the buyer
wrongfully neglects or refuses to accept and pay for the goods, the seller may
maintain an action against him for damages for nonacceptance. Also, an unpaid
seller, who is deemed as such "[w]hen the whole of the price has not been paid
or tendered" as provided in Article 1525(1 ), has the right to rescind the sale
under Article 1526.
With respect to the sale of immovable properties, the remedies of the vendor are
provided in the following Civil Code provisions: (1) Article 1591 provides, “Should
the vendor have reasonable grounds to fear the loss of immovable property sold
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and its price, he may immediately sue for the rescission of the sale.” Should such
ground not exist, the provisions of Article 1191 shall be observed. Further, in
Article 1592, “In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may 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 a notarial act. After the
demand, the court may not grant him a new term. x x x” With respect to
reciprocal obligations, rescission or more appropriately resolution is another
remedy pursuant to Article 1191.
The Supreme Court finally held that it is clear from the complaint that the remedy
of specific performance was not availed of by petitioners. They do not seek to
collect from Norma the purchase price of P50,000.00. While they have not
expressly sought the resolution of the DAS on account of Norma's nonpayment
of the purchase price, such remedy could be implied when they sought the
nullification of Norma's TCT, the reconveyance to them of the subject lot and the
return of the possession to them. When the remedy of resolution of reciprocal
obligations, as in rescission, is sought, "the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its
interests" is created pursuant to Article 1385 of the Civil Code.

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VILLAMIL v. SPOUSES ERGUIZA


G.R. No. 195999, June 20, 2018
Martires, J. | Third Division

NATURE OF THE ACTION: This is a petition for review on certiorari seeking to


reverse and set aside the Decision and Resolution of the Court of Appeals which
nullified the Decision of the Regional Trial Court, Dagupan City, Branch 44, in the
action for recovery of possession.

FACTS:
Petitioner Lily Villamil is the absolute and exclusive owner of a parcel of land
situated in Pantal, Dagupan City. Sometime in September 1972, petitioner and
her siblings entered into an agreement with one of the respondent spouses,
Juanito Erguiza, for the purpose of selling the the aforementioned property, on
the condition that plaintiff and her siblings would file a petition to secure the
authorization of the minor children before the proper forum. Further, the
agreement provided that in case of failure to secure such authorization, the
partial payments made by Erguiza would constitute rent of the premises for 20
years. However, as petitioner alleged, after expiration of the said 20-year period,
respondents refused to return possession of the property despite formal
demands of petitioner. On the other hand, respondents argue that the contract
was that of sale on condition, and that, despite being a conditional sale, the
ownership is already thereby transferred to them.

ISSUE/S:
Whether or not the contract entered into by the parties was a contract to sell

HELD: Yes.
The Supreme Court held that the agreement entered into by the parties in the
case at bar was a contract to sell. The Court defined the contract to sell in this
wise: “A contract to sell is defined as a bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the
full payment of the purchase price and/or compliance with the other obligations
stated in the contract to sell. Given its contingent nature, the failure of the
prospective buyer to make full payment and/or abide by his commitments stated
in the contract to sell prevents the obligation of the prospective seller to execute
the corresponding deed of sale to effect the transfer of ownership to the buyer
from arising.” The Court further elaborated and distinguished such contract from
that of a sale. “A contract to sell is akin to a conditional sale where the efficacy or
obligatory force of the vendor's obligation to transfer title is subordinated to the
happening of a future and uncertain event, so that if the suspensive condition

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does not take place, the parties would stand as if the conditional obligation had
never existed. In a contract to sell, the fulfillment of the suspensive condition will
not automatically transfer ownership to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to
the prospective buyer by entering into a contract of absolute sale. 33 On the
other hand, in a conditional contract of sale, the fulfillment of the suspensive
condition renders the sale absolute and the previous delivery of the property has
the effect of automatically transferring the seller's ownership or title to the
property to the buyer.”
The Court elaborated thus, “an examination of the agreement would reveal that
the parties entered into a contract to sell the subject property. First, petitioner and
her siblings who were then co-owners merely promised to sell the subject
property, thus, signifying their intention to reserve ownership. Second, the
execution of a deed of absolute sale was made dependent upon the proper
court's approval of the sale of the shares of the minor owners. Third, the
agreement between the parties was not embodied in a deed of sale. The
absence of a formal deed of conveyance is a strong indication that the parties did
not intend immediate transfer of ownership. Fourth, petitioner retained
possession of the certificate of title of the lot. This is an additional indication that
the agreement did not transfer to private respondents, either by actual or
constructive delivery, ownership of the property. Finally, respondent Juanito
admitted during trial that they have not finalized the sale in 1972 because there
were minor owners such that when they constructed their house thereon, they
sought the permission of petitioner.”

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RACELIS v. SPOUSES JAVIER


G.R. No. 189609, January 29, 2018
Leonen, J. | Third Division

NATURE OF THE ACTION: This Petition for Review on Certiorari challenges the
Court of Appeals Decision and Resolution, which ordered her to reimburse the
sum of P24,000.00 to respondents Spouses Germil Javier and Rebecca Javier.

FACTS:
Before the death of Pedro Nacu, Sr., he appointed her daughter, herein petitioner
Victoria Racelis to administer his properties, which includes, among others, a
residential house and lot in Marikina City. Nacu then requested his heirs to sell
this property first. Acting on the request, petitioner immediately advertised it for
sale. Subsequently, in August 2001, the respondents, Spouses Javier offered to
purchase the Marikina property. However, because they could not afford to pay
the price of ₱3,500,000.00, they offered instead to lease the property while they
raise enough money. The parties agreed on a month-to-month lease and rent of
₱10,000.00 per month which was later increased to ₱11,000.00. The Spouses
Javier used the property as their residence and as the site of their tutorial school,
the Niño Good Shepherd Tutorial Center. After some time, Racelis inquired
whether the Spouses Javier were still interested to purchase the property. The
Spouses Javier reassured her of their commitment and even promised to pay
₱100,000.00 to buy them more time within which to pay the purchase price.
The respondents tendered the sum of ₱65,000.00 representing "initial payment
or goodwill money." and tendered small sums of money to complete the
promised ₱100,000.00. However, by the end of 2003, they were only able to
deliver a total of ₱78,000.00. While continuing to lease the property, they
consistently paid rent. However, they started to fall behind by February 2004.
“Realizing that the Spouses Javier had no genuine intention of purchasing the
property, Racelis wrote to inform them that her family had decided to terminate
the lease agreement and to offer the property to other interested buyers. In the
same letter, Racelis demanded that they vacate the property by May 30, 2004.” It
was further found that Racelis forfeited the earnest money of P78,000.00 for
failure of the respondents to purchase the property.
Failing to reach a conciliation, petitioner Racelis demanded respondents to
vacate the premises. However, despite repeated demands, the respondents
refused to pay. Consequently, because of this refusal, Racelis caused the
disconnection of the electrical service over the property forcing the Spouses
Javier to purchase a generator. This became a subject of a complaint for
damages against petitioner, but the latter was absolved by the trial court, and
respondent did not interpose an appeal. Petitioner Racelis then filed a complaint
for ejectment against the respondent Spouses Javier before the MTC of Marikina
City.
Petitioner claims that she did not waive her right over the initial payment of
₱78,000.00 but merely extended an offer to reimburse this amount, which
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respondents rejected. This, she claims, entitled her to retain the said amount and
the same cannot be used to offset respondents' accrued rent. On the other hand,
respondents do not dispute their liability to pay accrued rent. However, the
Spouses Javier insist that their liability should be offset by the initial payment of
₱78,000.00. They argue that petitioner waived her right over the amount. Hence,
it can be applied to pay their obligation.
Respondents admit their liability to pay accrued rent for the continued use and
possession of the property. However, they contend the proper treatment of the
₱78,000.00 initial payment. Throughout the proceedings, respondents insist that
the amount was intended as advanced rent, which can be used to offset their
obligation.

ISSUE/S:
Whether or not the ₱78,000.00 initial payment can be used to offset respondent
Spouses Javier's accrued rent.

HELD: No.
The ₱78,000.00 initial payment cannot be characterized as advanced rent. First,
records show that respondents continued to pay monthly rent despite having
delivered the ₱78,000.00 to petitioner on separate dates in 2003. Second, as
observed by the Metropolitan Trial Court, respondents indicated in the receipt
that the ₱78,000.00 was initial payment or goodwill money. They could have
easily stated in the receipt that the ₱78,000.00 was advanced rent instead of
denominating it as "initial payment or goodwill money." Respondents even
proposed that the initial payment be used to offset their accrued rent. Both the
Metropolitan Trial Court and the Regional Trial Court rejected respondents'
assertion that the ₱78,000.00 was advanced rent and characterized it as earnest
money.
Under Article 1482 of the Civil Code, whenever earnest money is given in a
contract of sale, it shall be considered as "proof of the perfection of the contract."
However, this is a disputable presumption, which prevails in the absence of
contrary evidence. The delivery of earnest money is not conclusive proof that a
contract of sale exists. The existence of a contract of sale depends upon the
concurrence of the following elements: (1) consent or meeting of the minds; (2) a
determinate subject matter; and (3) price certain in money or its equivalent. The
defining characteristic of a contract of sale is the seller's obligation to transfer
ownership of and deliver the subject matter of the contract. Without this essential
feature, a contract cannot be regarded as a sale although it may have been
denominated as such.
In a contract of sale, title to the property passes to the buyer upon delivery of the
thing sold. In contrast, in a contract to sell, ownership does not pass to the
prospective buyer until full payment of the purchase price. The title of the
property remains with the prospective seller.
In a contract of sale, the non-payment of the purchase price is a resolutory
condition that entitles the seller to rescind the sale. In a contract to sell, the
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payment of the purchase price is a positive suspensive condition that gives rise
to the prospective seller's obligation to convey title. However, non-payment is not
a breach of contract but "an event that prevents the obligation of the vendor to
convey title from becoming effective." The contract would be deemed terminated
or canceled, and the parties stand "as if the conditional obligation had never
existed."
Based on the evidence on record, petitioner and respondents executed a
contract to sell, not a contract of sale. Petitioner reserved ownership of the
property and deferred the execution of a deed of sale until receipt of the full
purchase price.
Further, in this case, since respondents failed to deliver the purchase price at the
end of 2003, the contract to sell was deemed cancelled. The contract's
cancellation entitles petitioner to retain the earnest money given by respondents.
Earnest money, under Article 1482 of the Civil Code, is ordinarily given in a
perfected contract of sale. However, earnest money may also be given in a
contract to sell. In a contract to sell, earnest money is generally intended to
compensate the seller for the opportunity cost of not looking for any other buyers.
It is a show of commitment on the part of the party who intimates his or her
willingness to go through with the sale after a specified period or upon
compliance with the conditions stated in the contract to sell.

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SPOUSES BATALLA v. PRUDENTIAL BANK


G.R. No. 200676, March 25, 2019
Reyes, J. Jr., J. | Second Division

NATURE OF THE ACTION: This is a petition for review on certiorari under Rule


45 of the Rules of Court seeking to reverse and set aside the Decision and
Resolution of the Court of Appeals, which affirmed with modification the Decision
of the Regional Trial Court, Branch 4, Legazpi City.

FACTS:
Petitioner Spouses Batalla purchased a a brand new Honda Civic from
respondent Honda Cars San Pablo, Inc. (Honda). Respondent Alicia Rantael
(Rantael), then acting manager of Pilipinas Bank, now merged with respondent
Prudential Bank (Prudential), was the one who brokered the deal. Petitioner
Spouses then obtained a motor vehicle loan from Prudential in order to finance
the purchase. Thereafter, they executed a promissory note in the amount of
P292,000.00 payable within 36 months. The Car Loan Agreement was then
approved by the respondent bank. Consequently, respondent bank issued a
manager’s check payable to Honda. Spouses Batalla paid P214,000.00
corresponding to the remaining portion of the purchase price for the Honda,
P11,000.00 for delivery costs, and P28,333.56 for insurance.
Shortly after the petitioners received the car, or three days thereafter, the right
door of the car broke down. It was brought to a repair shop and was discovered
that the car was not brand new as its roof was merely repainted. The petitioners
sent a letter to the manager of respondent bank informing him of the defects and
demanding the immediate replacement of the motor vehicle. The vehicle was
then brought to another repair shop for evaluation, which also confirmed that the
vehicle was not brand new. However, instead of replacing the vehicle,
respondent bank’s manager and representatives from Honda offered to repair the
vehicle, to which the petitioner spouses refused. Unable to secure a replacement
for the defective vehicle, the petitioner Spouses Batalla filed for Rescission of
Contract and Damages against Prudential and Honda.

ISSUE/S:
Whether or not the petitioners may rescind the contract of sale on the basis of
the alleged defects

HELD: No.
Based on the evidence presented before it, the Supreme Court found that “the
alleged defects of the car door be sufficient basis to prove that what was
delivered to Spouses Batalla was a second hand car.” It was also admitted that
they immediately had a remote control door mechanism installed. It could not be
readily ascertained whether the defects in the car door were existing at the time
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of the car's manufacture or was caused by the installation of the remote control
door system. The Court held, thus, that the defects in the car door or in the paint,
neither establish that the car was second hand nor could it be attributed to the
fault of Honda. Even assuming that the car delivered to Spouses Batalla had a
defective car door, they still do not have any grounds for rescinding the contract
of sale.
The Court stated that Article 1561 of the Civil Code provides for an implied
warranty against hidden defects in that the vendor shall be responsible for any
hidden defects which render the thing sold unfit for the use for which it is
intended, or should they diminish its fitness for such use to such an extent that,
had the vendee been aware thereof, he would not have acquired it or would have
given a lower price. In an implied warranty against hidden defects, vendors
cannot raise the defense of ignorance as they are responsible to the vendee for
any hidden defects even if they were not aware of its existence. The Court further
elaborates that, in order for the implied warranty against hidden defects to be
applicable, the following conditions must be met: (1) defect is Important or
Serious, which means that the thing sold is unfit for the use which it is intended,
or such diminishes its fitness for such use or to such an extent that the buyer
would not have acquired it had he been aware thereof; (2) defect is hidden; (3)
defect exists at the time of the sale; and (4) the buyer gives notice of the defect
to the seller within reasonable time.
The Court concluded that, the redhibitory action pursued by the petitioners was
without basis. For one, it was not sufficiently proven that the defects of the car
door were important or serious. The hidden defect contemplated under Article
1561 of the Civil Code is an imperfection or defect of such nature as to engender
a certain degree of importance and not merely one of little consequence.
Spouses Batalla failed to prove that such defect had severely diminished the
roadworthiness of the motor vehicle. In fact, they admitted that they had no
problem as to the roadworthiness of the car. Further, it cannot be ascertained
whether the defects existed at the time of the sale. As previously admitted, a
remote control door mechanism was immediately installed after the car was
delivered to the petitioners. The modification made to the motor vehicle raises
the possibility that the defect could have been caused or had occurred after the
installation of the remote control door system. As the party alleging hidden
defects, petitioners had the burden to prove the same. Unfortunately, they failed
to do so considering that they did not present as witnesses, the persons who had
actually examined the car door and found it defective.

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NUÑEZ v. MOISES-PALMA
G.R. No. 224466, March 27, 2019
Caguioa, J. | Second Division,

NATURE OF THE ACTION: This is a Petition for Review on Certiorari under


Rule 45 of the Rules of Court assailing the Decision and Resolution of the Court
of Appeals, affirming with modifications the Decision of the Regional Trial Court,
Branch 21, Mambusao, Capiz, which modified the Decision of the Municipal Trial
Court, Mambusao, Capiz (MTC)

FACTS:
Vicentico Nuñez, petitioner’s father, was the original owner of a parcel of land
located in Mambusao, Capiz. Sometime in 1992, Vicentico borrowed P30,000
from Rosita Moises for his diabetes treatment, and as security executed a real
estate mortgage over his property. However, because Rosita had no money, the
funds actually came from his daughter, herein respondent Norma Moises-Palma.
Allegedly, the loan was eventually paid as evidenced by the Affidavit Authorizing
Release of Mortgage (AARM). Thereafter, upon Vicentico’s death, the parcel of
land was transferred to his heirs, herein petitioners. Sometime in 1995,
respondent was able to secure the signature of all the heirs for a Deed of
Adjudication and Sale (DAS) where petitioners purportedly sold to Norma their
respective pro indiviso shares in the subject lot for P50,000.00, but the DAS
reflected P30,000.00 as the consideration. After the execution of the DAS,
Norma immediately took possession of the subject lot.
Respondent executed a promissory note in favor of petitioners and thereafter
executed an Acknowledgment of Debt (AOD) admitting her indebtedness of
P50,000.00. She was not able to pay the aforesaid purchase price but
nonetheless was able to caause the registration of the land before the Registry of
Deeds. Consequently, petitioners, separately, filed cases for the declaration of
nullity of the aforesaid sales, and reconveyance and recovery of the said parcel
of land with damages before the MTC.
The MTC rendered its decision in favor of petitioners. However, the RTC, on
appeal, reversed the MTC decision, to which the CA affirmed.

ISSUE/S:
Whether or not the transaction was a contract of sale

HELD: Yes.
A contract of sale is defined in Article 1458 of the Civil Code: “By the contract of
sale, one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent. A contract of sale may be absolute or conditional.” The

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Court differentiated an absolute sale from a conditional sale as follows: “Article


1458 of the Civil Code provides that a contract of sale may be absolute or
conditional. A contract of sale is absolute when title to the property passes to the
vendee upon delivery of the thing sold. A deed of sale is absolute when there is
no stipulation in the contract that title to the property remains with the seller until
full payment of the purchase price. The sale is also absolute if there is no
stipulation giving the vendor the right to cancel unilaterally the contract the
moment the vendee fails to pay within a fixed period. In a conditional sale, as in a
contract to sell, ownership remains with the vendor and does not pass to the
vendee until full payment of the purchase price. The full payment of the purchase
price partakes of a suspensive condition, and non-fulfillment of the condition
prevents the obligation to sell from arising.”
Here, the DAS is an absolute sale because there is no stipulation in the contract
that title to the property remains with the sellers until full payment of the purchase
price and there is no stipulation giving the vendors the right to cancel unilaterally
the contract the moment the vendee fails to pay within a fixed period. It will be
recalled that after the execution of the DAS, Norma immediately took possession
of the subject lot and there was no retention of ownership by the heirs of
Vicentico until full payment of the purchase price by Norma that was stipulated in
the DAS.
The Court then stated, “What then is the legal effect of the non-payment of the
purchase price of P50,000.0074 by Norma to petitioners?” Pursuant to Article
1458 of the Civil Code, a contract of sale is a reciprocal obligation to give; and
the prestation or obligation of the seller or vendor is "to transfer the ownership of
and to deliver a determinate thing" while the prestation or obligation of the buyer
or vendee is "to pay therefor a price certain in money or its equivalent." The full
payment of the purchase price is the buyer's prestation. The non-payment of the
purchase price by the buyer after the seller has delivered the object of the sale to
the buyer constitutes a breach of the buyer's prestation in a contract of sale. The
buyer has contravened the very tenor of the contract. The Court provided that,
generally, under Article 1594 of the Civil Code, "actions for breach of the contract
of sale of goods shall be governed particularly by the provisions of this Chapter
[Chapter 6 on 'Actions for Breach of Contract of Sale of Goods'], and as to
matters not specifically provided for herein, by other applicable provisions of this
Title [Title VI on 'Sales']."
One remedy is provided in Article 1595, ”Where, under a contract of sale, the
ownership of the goods has passed to the buyer, and he wrongfully neglects or
refuses to pay for the goods according to the terms of the contract of sale, the
seller may maintain an action against him for the price of the goods. In addition,
the buyer may be held liable for damages under Article 1596, ”Where the buyer
wrongfully neglects or refuses to accept and pay for the goods, the seller may
maintain an action against him for damages for nonacceptance. Also, an unpaid
seller, who is deemed as such "[w]hen the whole of the price has not been paid
or tendered" as provided in Article 1525(1 ), has the right to rescind the sale
under Article 1526.
With respect to the sale of immovable properties, the remedies of the vendor are
provided in the following Civil Code provisions: (1) Article 1591 provides, “Should
the vendor have reasonable grounds to fear the loss of immovable property sold
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and its price, he may immediately sue for the rescission of the sale.” Should such
ground not exist, the provisions of Article 1191 shall be observed. Further, in
Article 1592, “In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may 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 a notarial act. After the
demand, the court may not grant him a new term. x x x” With respect to
reciprocal obligations, rescission or more appropriately resolution is another
remedy pursuant to Article 1191.
The Supreme Court finally held that it is clear from the complaint that the remedy
of specific performance was not availed of by petitioners. They do not seek to
collect from Norma the purchase price of P50,000.00. While they have not
expressly sought the resolution of the DAS on account of Norma's nonpayment
of the purchase price, such remedy could be implied when they sought the
nullification of Norma's TCT, the reconveyance to them of the subject lot and the
return of the possession to them. When the remedy of resolution of reciprocal
obligations, as in rescission, is sought, "the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its
interests" is created pursuant to Article 1385 of the Civil Code.

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HEIRS OF JARQUE v. JARQUE


G.R. No. 196733, November 21, 2018
Jardeleza, J. | First Division

NATURE OF THE ACTION: This is a petition for review on certiorari under Rule
45 of the Rules of Court seeking to nullify the Court of Appeals' Decision and
Resolution granting the petition for review under Rule 42 filed by Marcial Jarque
(Marcial), Lelia Jarque-Lagsit (Lelia), and Teresita Jarque-Bailon (Teresita)
(respondents) against the Decision of the Regional Trial Court (RTC), Branch 52,
Sorsogon City, which affirmed the Decision of the 1st Municipal Circuit Trial Court
(MCTC), Casiguran, Sorsogon.

FACTS:
Laureano Jarque (Laureano) is the original owner of a parcel of land situated in
Casiguran, Sorsogon. Laureano was married to Servanda Hagos (Servanda)
with whom he had four children, namely: Roger, Lupo, Sergio, and Natalia.
Herein petitioners are the heirs of Roger. On the other hand, respondents are the
living children of Lupo. It was alleged that, since their grandfather Laureano's
death in 1946, their father, Roger, inherited Lot No. 2560 (the subject property)
and exercised all attributes of ownership and possession over it. Upon
Servanda's death in 1975, their children orally partitioned among themselves the
properties of their parents' estate such that the subject property and another
parcel of land in Busay, Sorsogon were ceded to Roger. The latter mortgaged
the subject property to Dominador Grajo which he redeemed through his nephew
before the period of redemption expired. He subsequently mortgaged the
property again to Benito Coranes (Benito) for P700.00. However, when Roger
was about to redeem the property, Benito told him that it had already been
redeemed by Lupo. “When Roger went to Lupo to take back the property, Lupo
pleaded with Roger to let the property remain with him as he needed. a source of
income to support his children's education. Roger acceded to Lupo's request.
When Lupo died, Roger informed Lupo's wife, Asuncion, of his desire to take
back the property. Asuncion however, requested that she be allowed to continue
possessing the property since she needed a source of livelihood for her family's
survival. Once again, Roger acquiesced. Upon Asuncion's death, her eldest
child, Dominga, likewise pleaded with Roger to allow her to continue possession
of the property. Again, Roger yielded to the request. When Dominga died, single
and without issue, her siblings, respondents here, continued to possess the
property under the same terms and conditions as their predecessors-in-interest.
Thus, from 1992 until the filing of the complaint, Roger and his children
repeatedly asked to take back the property, which respondents rejected under
the same assurance that they will take care of the property.
Sometime in 2004, Roger's sons, Eduardo and Laureano, went to Casiguran to
finally take back the property for good. However, they were surprised to discover
that respondents were already claiming ownership over the subject property.
Upon inquiry with the Municipal Assessor's Office, they found that Dominga,
during her lifetime, executed and registered a document ratifying ownership over
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the property where she claimed to have acquired the property through
redemption from Benito. They learned that Marcial and Teresita executed a
waiver of rights in favor of Lelia, who caused the issuance of a tax declaration
over the property in her name.
The present complaint prays for the annulment of the deeds and other
documents, and recovery of ownership over the subject property among others.

ISSUE/S:
Whether or not the right to repurchase the property was transferred to Dominga
from Servanda and that ownership was thereafter similarly transferred

HELD: No.
Dominga did not acquire ownership over the subject property because it was not
proven that Servanda's right to repurchase the same was transferred to her. The
Court discussed the same in this wise: “In a sale with right to repurchase (pacto
de retro), the title and ownership of the property sold are immediately vested in
the vendee, subject to the resolutory condition of repurchase by the vendor within
the stipulated period. The right of repurchase agreed upon is one of conventional
redemption governed by Article 1601, in relation to Article 1616, of the New Civil
Code. This right is separate and distinct from the legal redemption granted to co-
owners under Article 1620 of the New Civil Code. More importantly, the right to
repurchase is separate from the title or ownership over the property subject of
the sale with pacto de retro.”
Further, the Court ruled that the right to repurchase under Article 1601 may only
be exercised by the vendor, or his successors, as a rule. “If so exercised, the
ownership of the property reverts back to the vendor or his successor. On the
other hand, if a third person redeems the property on behalf of the vendor, he or
she does not become owner of the property redeemed, but only acquires a lien
over the property for the amount advanced for its repurchase. As such, the third
person's right merely consists of the right to be reimbursed for the price paid to
the vendee.” The foregoing being applied in this case, the right to repurchase
belonged to Servanda which she may transfer to anyone, including Dominga.
However, the evidence submitted before the Court fails to prove the claim that
Servanda transferred her right of repurchase to Dominga so as to make the latter
acquire title to or ownership over the aliquot share of Servanda in her own right.
Finally, Dominga's exercise of Servanda's right of redemption does not vest in
her title to, or ownership over the subject property. The title devolved back to the
co-ownership, subject only to the lien over the property in the amount advanced
by Dominga.

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RACELIS v. SPOUSES JAVIER


G.R. No. 189609, January 29, 2018
Leonen, J. | Third Division

NATURE OF THE ACTION: This Petition for Review on Certiorari challenges the
Court of Appeals Decision and Resolution, which ordered her to reimburse the
sum of P24,000.00 to respondents Spouses Germil Javier and Rebecca Javier.

FACTS:
Before the death of Pedro Nacu, Sr., he appointed her daughter, herein petitioner
Victoria Racelis to administer his properties, which includes, among others, a
residential house and lot in Marikina City. Nacu then requested his heirs to sell
this property first. Acting on the request, petitioner immediately advertised it for
sale. Subsequently, in August 2001, the respondents, Spouses Javier offered to
purchase the Marikina property. However, because they could not afford to pay
the price of ₱3,500,000.00, they offered instead to lease the property while they
raise enough money. The parties agreed on a month-to-month lease and rent of
₱10,000.00 per month which was later increased to ₱11,000.00. The Spouses
Javier used the property as their residence and as the site of their tutorial school,
the Niño Good Shepherd Tutorial Center. After some time, Racelis inquired
whether the Spouses Javier were still interested to purchase the property. The
Spouses Javier reassured her of their commitment and even promised to pay
₱100,000.00 to buy them more time within which to pay the purchase price.
The respondents tendered the sum of ₱65,000.00 representing "initial payment
or goodwill money." and tendered small sums of money to complete the
promised ₱100,000.00. However, by the end of 2003, they were only able to
deliver a total of ₱78,000.00. While continuing to lease the property, they
consistently paid rent. However, they started to fall behind by February 2004.
“Realizing that the Spouses Javier had no genuine intention of purchasing the
property, Racelis wrote to inform them that her family had decided to terminate
the lease agreement and to offer the property to other interested buyers. In the
same letter, Racelis demanded that they vacate the property by May 30, 2004.” It
was further found that Racelis forfeited the earnest money of P78,000.00 for
failure of the respondents to purchase the property.
Failing to reach a conciliation, petitioner Racelis demanded respondents to
vacate the premises. However, despite repeated demands, the respondents
refused to pay. Consequently, because of this refusal, Racelis caused the
disconnection of the electrical service over the property forcing the Spouses
Javier to purchase a generator. This became a subject of a complaint for
damages against petitioner, but the latter was absolved by the trial court, and
respondent did not interpose an appeal. Petitioner Racelis then filed a complaint
for ejectment against the respondent Spouses Javier before the MTC of Marikina
City.
Both the MTC (although reversed by the RTC) and the CA the ruled that, “the
Spouses Javier were entitled to suspend the payment of rent under Article 1658
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of the Civil Code due to Racelis' act of disconnecting electric service over the
property. The courts further declared that the Spouses Javier's obligation had
been extinguished. Their advanced rent and deposit were sufficient to cover their
unpaid rent.

ISSUE/S:
Whether or not the respondent Spouses Javier were justified in suspending
payment of rent

HELD: No.
The Court emphasized that, “lessees are entitled to suspend the payment of rent
under Article 1658 of the Civil Code if their legal possession is disturbed. Acts of
physical disturbance that do not affect legal possession is beyond the scope of
this rule.”
A contract of lease is a "consensual, bilateral, onerous and commutative contract
by which the owner temporarily grants the use of his property to another who
undertakes to pay rent therefor." Further, Article 1658 of the Civil Code allows a
lessee to postpone the payment of rent if the lessor fails to either (1) "make the
necessary repairs" on the property or (2) "maintain the lessee in peaceful and
adequate enjoyment of the property leased." This provision implements the
obligation imposed on lessors under Article 1654(3) of the Civil Code. The failure
to maintain the lessee in the peaceful and adequate enjoyment of the property
leased does not contemplate all acts of disturbance. Lessees may suspend the
payment of rent under Article 1658 of the Civil Code only if their legal possession
is disrupted.
The Court helad that in this case, the disconnection of electrical service over the
leased premises was not just an act of physical disturbance but one that is meant
to remove respondents from the leased premises and disturb their legal
possession as lessees. Ordinarily, this would have entitled respondents to invoke
the right accorded by Article 1658 of the Civil Code.
However, this rule will not apply in the present case because the lease had
already expired when petitioner requested for the temporary disconnection of
electrical service. Petitioner had already demanded respondents to vacate the
premises, but instead of surrendering the premises to petitioner, respondents
unlawfully withheld possession of the property. Respondents thereafter continued
to stay in the premises until they moved to their new residence. From there,
petitioner was no longer obligated to maintain respondents in the "peaceful and
adequate enjoyment of the lease for the entire duration of the contract." It
becomes clear that respondents cannot use the disconnection of electrical
service as justification to suspend the payment of rent.
Even assuming that respondents were entitled to invoke their right under Article
1658 of the Civil Code, this does exonerate them from their obligation under
Article 1657 of the Civil Code "to pay the price of the lease according to the terms
stipulated." The Court holds that “lessees who exercise their right under Article
1658 of the Civil Code are not freed from the obligations imposed by law or
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contract.” Further, respondents' obligation to pay rent was not extinguished when
they transferred to their new residence. Respondents are liable for a reasonable
amount of rent for the use and continued occupation of the property upon the
expiration of the lease. To hold otherwise would unjustly enrich respondents at
petitioner's expense.

66
LEASE

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STRICKLAND v. ERNST & YOUNG, LLP


G.R. No. 193782, August 1, 2018
Jardeleza, J. | First Division

NATURE OF THE ACTION: These are consolidated Petitions for Review


on Certiorari under Rule 45 of the Rules of Court both filed by petitioner Dale
Strickland (Strickland): (1) against respondent Ernst & Young LLP (EYLLP)
assailing the Decision of the Court of Appeals, which annulled and set aside the
Orders of the Regional Trial Court, Branch 150, Makati City, ordered EYLLP to
be dropped as defendant, and referred the dispute between Strickland and
EYLLP to arbitration; and (2) against respondent Punongbayan & Araullo (PA),
and assailing the Decision of the CA which declared null and void the Orders of
the RTC and directed it to suspend proceedings.

FACTS:
The National Home Mortgage Finance Corporation (NHMFC) and Punongbayan
and Araullo (PA) entered into a Financial Advisory Services Agreement (FASA)
for the liquidation of the NHMFC's Unified Home Lending Program (UHLP). At
the time of the agreement, PA was the Philippine member of respondent global
company, Ernst and Young LLP (EYLLP). Consequently, PA sent a letter to
NHMFC confirming their engagement as exclusive Financial Advisor for the
UHLP Project, and that PA be designated as P&A/Ernst & Young. On the other
hand, Strickland was also a partner of EYLLP, and was listed In the FASA as a
member of the engagement team, designated as “Lead Due Diligence Partner”.
Strickland also played a significant part in the negotiation FASA, to which PA
wrote to formalize the working relationship.
Subsequently, EYLLP wrote to PA terminating the latter’s membership with the
former. Despite this termination, the working relationship continued. An
assignment letter was sent by EYLLP to NHMFC confirming the assignment of
petitioner Strickland to Manila as partner. However, the relationship turned for the
worst, to which Strickland was eventually separated from EYLLP. Since NHMFC
was intent on retaining Strickland's services despite his separation from EYLLP,
the parties entered into negotiations to define Strickland's possible continued
participation in the UHLP Project. PA, NHMFC, and Strickland exchanged letters
containing proposed amendments to cover the new engagement and Strickland's
participation within the UHLP Project. No actual written and final agreement
among the parties materialized
Strickland’s counsel then demanded PA for the “equitable compensation for
professional services” allegedly due to Strickland for the services rendered to
NHMFC on the UHLP Project. However, counsel for PA denied the contractual
relationship between Strickland and PA. Consequently, Strickland, through his
counsel filed a Complaint praying that judgment be rendered ordering EYLLP,
PA, and NHMFC to pay him jointly and solidarily the amount of 18 million pesos
as “equitable compensation for his services” A subsequent motion was then filed
by EYLLP to refer the case for arbitration, to which according to was in

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accordance with the Partnership Agreement with Strickland, which, however, the
RTC denied. On appeal before the CA, the appellate court granted the motion to
refer to arbitration and thereafter, the proceedings in the main case was
suspended.

ISSUE/S:
Whether or not PA is an agent of EYLLP, and the proceedings be suspended

HELD:
The Supreme Court concurred with the CA. The FASA between NHMFC and PA,
where PA, as one of the parties, designated in all references PA as "P&A/ERNST
& YOUNG" or "P&A/E&Y." This fact of agency relationship between PA and
EYLLP cannot be denied and avoided by Strickland, given Articles 1868 and
1873 of the Civil Code which provides: “By the contract of agency a person binds
himself to render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter.” Further, Article 1873
provides, that “If a person specially informs another or states by public
advertisement that he has given a power of attorney to a third person, the latter
thereby becomes a duly authorized agent, in the former case with respect to the
person who received the special information, and in the latter case with regard to
any person.”
Clearly, with the foregoing documents, PA is considered an agent of EYLLP. The
Supreme Court concurred with the findings of the CA that: “Having established
the fact of agency, there is no question that P&A derives its authority for the
UHLP liquidation from Ernst & Young Asia. As such agent, P &A cannot sue and
be sued on the contract of employment between Strickland and Ernst & Young
Asia. As explained by a recognized authority in civil law: ‘(a) Normally, the agent
has neither rights nor liabilities as against the third party. He cannot sue or be
sued on the contract. Since the contract may be violated only by the parties
thereto against each other, the real party-in-interest, either as plaintiff or
defendant in an action upon that contract must, generally be a party to said
contract.’ In this case, the conflict arose from the terms of Strickland's
employment contract with Ernst & Young Asia and P&A's involvement in the
same was a mere consequence that the termination occurred while the UHLP
was ongoing. The fact of agency in itself and the aforequoted discussion of its
effects shows that PA's liability is anchored on that of Ernst & Young Asia, giving
rise to a reason why the trial court's proceedings must be suspended in the light
of the pending arbitration proceedings between PA's principal, EYLLP, and x x x
Strickland.”

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AGENCY

CITYSTATE SAVINGS BANK v. TOBIAS


G.R. No. 227990, March 7, 2018
Reyes, Jr., J. | Third Division

NATURE OF THE ACTION: This is a petition for review on certiorari1 under Rule


45 of the Rules of Court seeking to annul and set aside the Decision and
Resolution issued by the Court of Appeals.

FACTS:
Rolando Robles (Robles) is a certified public accountant, and was an employee
of petitioner Citystate Savings Bank (CSB). Eventually, he was promoted to
manager of CSB’s Baliuag Bulacan branch. Sometime in 2002, respondent
Teresita Tobias, a meat vendor, was persuaded by Robles into opening an
account with petitioner bank. The respondent yielded to Robles, who would then
frequent Tobias' stall at the public market to deliver the interest earned by her
deposit accounts in the amount of Php 2,000.00. In turn, respondent would hand
over her passbook to Robles for updating. The passbook would be returned the
following day with typewritten entries but without the corresponding counter
signatures. Robles then introduced to respondent the “back-to-back” scheme.
Under the scheme, the depositors authorize the bank to use their bank deposits
and invest the same in different business ventures that yield high interest. Robles
promised that the interest previously earned by Tobias would be doubled and
assured her that he will do all the paper work. Lured by the attractive offer,
Tobias signed the pertinent documents without reading its contents and invested
a total of Php 1,800,000.00.
In 2005, Robles failed to remit to respondents the interest as scheduled.
Respondents tried to reach Robles but he can no longer be found. It became
known through a meeting with Robles' siblings, that Robles withdrew the money
and appropriated it for personal use. Robles later talked to the respondents,
promised that he would return the money by installments and pleaded that they
do not report the incident to the petitioner bank. Robles however reneged on his
promise. Petitioner bank also refused to make arrangements for the return of
respondents' money despite several demands.
Consequently, respondent filed a Complaint for sum of money and damages
against Robles and the petitioner, alleging that Robles committed fraud in the
performance of his duties as branch manager when he lured Tobias in signing
several pieces of blank documents, under the assurance as bank manager of
petitioner, everything was in order.

ISSUE/S:
Whether or not petitioner CSB is jointly and solidarily with Robles

HELD:
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While recognizing that the doctrine· of imputed negligence makes a principal


liable for the wrongful acts of its agents, this Court noted that the liability of the
principal would nonetheless depend on whether the act of its agent is the
proximate cause of the injury to the third person.
It is without question that when the action against the bank is premised on
breach of contractual obligations, a bank's liability as debtor is not merely
vicarious but primary, in that the defense of exercise of due diligence in the
selection and supervision of its employees is not available. Liability of banks is
also primary and sole when the loss or damage to its depositors is directly
attributable to its acts, finding that the proximate cause of the loss was due to the
bank's negligence or breach.
The bank, in its capacity as principal, may also be adjudged liable under the
doctrine of apparent authority. The principal's liability in this case however, is
solidary with that of his employee. The doctrine of apparent authority or what is
sometimes referred to as the "holding out" theory, or the doctrine of ostensible
agency, imposes liability, not "as the result of the reality of a contractual
relationship, but rather because of the actions of a principal or an employer in
somehow misleading the public into believing that the relationship or the authority
exists." Succinctly stating the foregoing principles, the liability of a bank to third
persons for acts done by its agents or employees is limited to the consequences
of the latter's acts which it has ratified, or those that resulted in performance of
acts within the scope of actual or apparent authority it has vested.
In the case at bar, petitioner does not deny the validity of respondents' accounts,
in fact it suggests that transactions with it have all been accounted for as it is
based on official documents containing authentic signatures of Tobias. The point
is well-taken. In fine, respondents' claim for damages is not predicated on breach
of their contractual relationship with petitioner, but rather on Robles' act of mis-
appropriation.
At any rate, it cannot be said that the petitioner is guilty of breach of contract so
as to warrant the imposition of liability solely upon it. Records show that
respondents entered into two types of transactions with the petitioner, the first
involving savings accounts, and the other loan agreements. Both of these
transactions were entered into outside the petitioner bank's premises, through
Robles. Moreover, that the respondents have been lured by Robles into signing
the said documents without knowing the implications thereof does not prove
complicity or knowledge on the part of the petitioner of Robles' inappropriate
acts.
Nonetheless, while it is clear that the proximate cause of respondents' loss is the
misappropriation of Robles, petitioner is still liable under Article 1911 of the Civil
Code, to wit: “Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers.” To recall, prior to the alleged back-to-back scheme entered into
by the respondents, Robles has consistently held himself out as representative of
the petitioner in seeking and signing respondents as depositors to various
accounts. It bears to stress that in the course of the said investment, the practice
has been for Tobias to surrender the passbook to Robles' for updating.46 All of

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which accounts have been in order until after the respondents was lured into
entering the back-to-back scheme.
Respondents cannot be blamed for believing that Robles has the authority to
transact for and on behalf of the petitioner and for relying upon the
representations made by him. After all, Robles as branch manager is recognized
"within his field and as to third persons as the general agent and is in general
charge of the corporation, with apparent authority commensurate with the
ordinary business entrusted him and the usual course and conduct thereof."
Consequently, petitioner is estopped from denying Robles' authority. As the
employer of Robles, petitioner is solidarily liable to the respondents for damages
caused by the acts of the former, pursuant to Article 1911 of the Civil Code.

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PARTNERSHIP

SALUDO, JR. v. PHILIPPINE NATIONAL BANK


G.R. No. 193138, August 20, 2018
Jardeleza, J. | First Division

NATURE OF THE ACTION: This is a petition for review on certiorari assailing


the Decision and Resolution of the Court of Appeals, affirming with modification
the Omnibus Order issued by Branch 58 of the Regional Trial Court (RTC) of
Makati City, and ruled that respondent Philippine National Bank's (PNB)
counterclaims against Saludo and the Saludo Agpalo Fernandez and Aquino Law
Office (SAFA Law Office) should be reinstated in its answer.

FACTS:
SAFA Law Office entered into a Contract of Lease with PNB, whereby the latter
agreed to lease the second floor of the PNB Financial Center Building in Quezon
City for a period of three years and for a monthly rental fee of P189,600.00. The
rental fee is subject to a yearly escalation rate of 10%. SAFA Law Office then
occupied the leased premises and paid advance rental fees and security deposit
in the total amount of P1,137,600.00. Subsequently, the Contract of Lease
expired. According to PNB, SAFA Law Office continued to occupy the leased
premises but discontinued paying its monthly rental obligations. Consequently,
PNB sent a demand letter dated for SAFA Law Office to pay its outstanding
unpaid rents in the amount of P4,648,086.34. PNB sent another letter demanding
the payment of unpaid rents in the amount of P5,856,803.53 which was received
by SAFA Law Office.
SAFA Law Office expressed its intention to negotiate. It claimed that it was
enticed by the former management of PNB into renting the leased premises by
promising to: (1) give it a special rate due to the large area of the place; (2)
endorse PNB's cases to the firm with rents to be paid out of attorney's fees; and
(3) retain the firm as one of PNB's external counsels. When new management
took over, it allegedly agreed to uphold this agreement to facilitate rental
payments. However, not a single case of significance was referred to the firm.
SAFA Law Office then vacated the leased premises. PNB sent a demand letter
requiring the firm to pay its rental arrears in the total amount of P10,951,948. In
response, SAFA Law Office sent a letter proposing a settlement by providing a
range of suggested computations of its outstanding rental obligations, with
deductions for the value of improvements it introduced in the premises, among
others. PNB, however, declined the settlement proposal stating that it was not
amenable to the settlement's terms. PNB then made a final demand for SAFA
Law Office to pay its outstanding rental obligations in the amount of
P25,587,838.09.
Saludo, in his capacity as managing partner of SAFA Law Office, filed a
complaint for accounting and/or recomputation of unpaid rentals and damages
against PNB in relation to the Contract of Lease. PNB filed its Answer. By way of
compulsory counterclaim, it sought payment from SAFA Law Office in the sum of
P25,587,838.09, representing overdue rentals.
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PARTNERSHIP

PNB filed a motion to include an indispensable party as plaintiff,18 praying that


Saludo be ordered to amend anew his complaint to include SAFA Law Office as
principal plaintiff. PNB argued that “the lessee in the Contract of Lease is not
Saludo but SAFA Law Office, and that Saludo merely signed the Contract of
Lease as the managing partner of the law firm. Thus, SAFA Law Office must be
joined as a plaintiff in the complaint because it is considered an indispensable
party.” On the other hand, Saludo opposed the motion arguing that “SAFA Law
Office is neither a legal entity nor party litigant. As it is only a relationship or
association of lawyers in the practice of law and a single proprietorship which
may only be sued through its owner or proprietor, no valid counterclaims may be
asserted against it.”

ISSUE:
Whether or not SAFA Law Office is the real-party-in interest

HELD:
Contrary to Saludo's submission, SAFA Law Office is a partnership and not a
single proprietorship. Article 1767 of the Civil Code provides that “by a contract of
partnership, two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits among
themselves.” Two or more persons may also form a partnership for the exercise
of a profession. Under Article 1771, a partnership may be constituted in any form,
except where immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary. Article 1784, on the other hand,
provides that a partnership begins from the moment of the execution of the
contract, unless it is otherwise stipulated.
Here, absent evidence of an earlier agreement, SAFA Law Office was constituted
as a partnership at the time its partners signed the Articles of Partnership
wherein they bound themselves to establish a partnership for the practice of law,
contribute capital and industry for the purpose, and receive compensation and
benefits in the course of its operation. Further, the subsequent registration of the
Articles of Partnership with the SEC, on the other hand, was made in compliance
with Article 1772 of the Civil Code, since the initial capital of the partnership was
P500,000.00. Article 1772 states that “Every contract of partnership having a
capital of three thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.”
The other provisions of the Articles of Partnership also positively identify SAFA
Law Office as a partnership. It constantly used the words "partners" and
"partnership." It designated petitioner Saludo as managing partner, and Attys.
Ruben E. Agpalo, Filemon L. Fernandez, and Amado D. Aquino as industrial
partners. These provisions would not have been necessary if what had been
established was a sole proprietorship. Indeed, it may only be concluded from the
circumstances that, for all intents and purposes, SAFA Law Office is a
partnership created and organized in accordance with the Civil Code provisions
on partnership.
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PARTNERSHIP

Furthermore, the Memorandum of Understanding (MOU) executed between the


partners shows the parties' intention to entirely shift any liability that may be
incurred by SAFA Law Office in the course of its operation to Saludo, who shall
also receive all the remaining assets of the firm upon its dissolution. This MOU,
however, does not serve to convert SAFA Law Office into a sole proprietorship.
As discussed, SAFA Law Office was manifestly established as a partnership
based on the Articles of Partnership. The MOU, from its tenor, reinforces this
fact. It did not change the nature of the organization of SAFA Law Office but only
excused the industrial partners from liability.
The law, in its wisdom, recognized the possibility that partners in a partnership
may decide to place a limit on their individual accountability. Consequently, to
protect third persons dealing with the partnership, the law provides a rule,
embodied in Article 1816 of the Civil Code, which states: “All partners, including
industrial ones, shall be liable pro rata with all their property and after all the
partnership assets have been exhausted, for the contract which may be entered
into in the name and for the account of the partnership, under its signature and
by a person authorized to act for the partnership. However, any partner may
enter into a separate obligation to perform a partnership contract. The foregoing
provision does not prevent partners from agreeing to limit their liability, but such
agreement may only be valid as among them. Thus, Article 1817 of the Civil
Code provides: “Any stipulation against the liability laid down in the preceding
article shall be void, except as among the partners.”
The MOU is an agreement forged under the foregoing provision. Consequently,
the sole liability being undertaken by Saludo serves to bind only the parties to the
MOU, but never third persons like PNB. Considering that the MOU is sanctioned
by the law on partnership, it cannot change the nature of a duly-constituted
partnership. Hence, we cannot sustain Saludo's position that SAFA Law Office is
a sole proprietorship.

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76
LOAN, DEPOSIT, GUARANTY & SURETYSHIP

SPOUSES BATALLA v. PRUDENTIAL BANK


G.R. No. 200676, March 25, 2019
Reyes, J. Jr., J. | Second Division

NATURE OF THE ACTION: This is a petition for review on certiorari under Rule


45 of the Rules of Court seeking to reverse and set aside the Decision and
Resolution of the Court of Appeals, which affirmed with modification the Decision
of the Regional Trial Court, Branch 4, Legazpi City.

FACTS:
Petitioner Spouses Batalla purchased a brand new Honda Civic from respondent
Honda Cars San Pablo, Inc. (Honda). Respondent Alicia Rantael (Rantael), then
acting manager of Pilipinas Bank, now merged with respondent Prudential Bank
(Prudential), was the one who brokered the deal. Petitioner Spouses then
obtained a motor vehicle loan from Prudential in order to finance the purchase.
Thereafter, they executed a promissory note in the amount of P292,000.00
payable within 36 months. The Car Loan Agreement was then approved by the
respondent bank. Consequently, respondent bank issued a manager’s check
payable to Honda. Spouses Batalla paid P214,000.00 corresponding to the
remaining portion of the purchase price for the Honda, P11,000.00 for delivery
costs, and P28,333.56 for insurance.
Shortly after the petitioners received the car, or three days thereafter, the right
door of the car broke down. It was brought to a repair shop and was discovered
that the car was not brand new as its roof was merely repainted. The petitioners
sent a letter to the manager of respondent bank informing him of the defects and
demanding the immediate replacement of the motor vehicle. The vehicle was
then brought to another repair shop for evaluation, which also confirmed that the
vehicle was not brand new. However, instead of replacing the vehicle,
respondent bank’s manager and representatives from Honda offered to repair the
vehicle, to which the petitioner spouses refused. Unable to secure a replacement
for the defective vehicle, the petitioner Spouses Batalla filed for Rescission of
Contract and Damages against Prudential and Honda.

ISSUE/S:
Whether or not the petitioners may rescind the Car Loan Agreement and the
Promissory Notes on the basis of the same defects

HELD: No.
The Supreme Court distinguished a contract of loan from a contract of sale in this
wise: “A contract of loan is one where one of the parties delivers money or other
consumable thing upon the condition that the same amount of the same kind and
quality shall be paid. It is perfected upon delivery of the object of the contract. On
the other hand, a contract of sale is a special contract whereby the seller
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LOAN, DEPOSIT, GUARANTY & SURETYSHIP

obligates himself to deliver a determinate thing and to transfer its ownership to


the buyer. The same is perfected by mere consent of the parties. Thus, it is
readily apparent that a contract of loan is distinct and separate from a contract of
sale. In a loan, the object certain is the money or consumable thing borrowed by
the obligor, while in a sale the object is a determinate thing to be sold to the
vendee for a consideration. In addition, a loan agreement is perfected only upon
the delivery of the object i.e., money or another consumable thing, while a
contract of sale is perfected by mere consent of the parties.”
The Court then pointed out the “absurdity of the position of petitioners that they
could rescind the car loan agreement and promissory note with Prudential on the
ground of alleged defects of the car delivered to them by Honda.” From the
foregoing discussions, the transactions of petitioners with Prudential and Honda
are distinct .and separate from each other. From the time they accepted the loan
proceeds from Prudential, the loan agreement had been perfected. As such, they
were bound to comply with their obligations under the loan agreement regardless
of the outcome of the contract of sale with Honda. Even assuming that the car
that petitioner received was not brand new or had hidden defects, they could not
renege on their obligation of paying Prudential the loan amount.

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TORTS & DAMAGES

ISLA v. ESTORGA
G.R. No. 233974, July 2, 2018
Perlas-Bernabe, J. | Second Division

NATURE OF THE ACTION: This is a petition for review on certiorari assailing


the Decision and Resolution of the Court of Appeals, which affirmed with
modification the Decision of the Regional Trial Court of Pasay City, Branch 112
(RTC), directing petitioners to pay respondent the following sums: (a)
P100,000.00 representing the principal of the loan obligation; (b) an amount
equivalent to twelve percent (12%) of P100,000.00 computed from November 16,
2006 until full payment, representing interest on the loan; (c) an amount
equivalent to six percent (6%) of the sums due in (a) and (b) per
annum computed from the finality of the CA Decision until full payment,
representing legal interest; and (d) P20,000.00 as attorney's fees.

FACTS:
On December 6, 2004, petitioners Catalina, Elizabeth, and Gilbert Isla obtained a
loan in the amount of P100,000.00 from respondent, payable anytime from six (6)
months to one (1) year, and subject to interest at the rate of ten percent (10%)
per month, payable on or before the end of each month. As security, a real estate
mortgage was constituted over a parcel of land located in Pasay City, and
registered under the name of Edilberto Isla (Edilberto), married to Catalina.
However, when petitioners failed to pay the said loan, respondent sought
assistance from the barangay, and consequently, a Kasulatan ng Pautang was
executed the parties. Again, petitioners, however, failed to comply with its terms,
prompting respondent to send a demand letter. Once more, petitioners failed to
comply with the demand, causing respondent to file a Petition for Judicial
Foreclosure against them before the RTC.

ISSUE/S:
Whether or not the interest rate of 12% on the principal obligation until full
payment and attorney’s fees should be awarded

HELD: No.
The Supreme Court began its discussion by distinguishing two types of interests:
monetary and compensatory. It ruled, “case law states that there are two (2)
types of interest, namely, monetary interest and compensatory interest. Monetary
interest is the compensation fixed by the parties for the use or forbearance of
money. On the other hand, compensatory interest is that imposed by law or by
the courts as penalty or indemnity for damages. Accordingly, the right to recover
interest arises only either by virtue of a contract (monetary interest) or as
damages for delay or failure to pay the principal loan on which the interest is
demanded (compensatory interest). Anent monetary interest, the parties are free

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TORTS & DAMAGES

to stipulate their preferred rate. However, courts are allowed to equitably temper
interest rates that are found to be excessive, iniquitous, unconscionable, and/or
exorbitant, such as stipulated interest rates of three percent (3%) per month or
higher. In such instances, it is well to clarify that only the unconscionable interest
rate is nullified and deemed not written in the contract; whereas the parties'
agreement on the payment of interest on the principal loan obligation subsists. It
is as if the parties failed to specify the interest rate to be imposed on the principal
amount, in which case the legal rate of interest prevailing at the time the
agreement was entered into is applied by the Court.
The Court further reasoned that, “according to jurisprudence, the legal rate of
interest is the presumptive reasonable compensation for borrowed money. As
applied in this case, petitioners and respondent entered into a loan obligation and
clearly stipulated for the payment of monetary interest. However, the stipulated
interest of ten percent (10%) per month was found to be unconscionable, and
thus, the courts a quo struck down the same and pegged a new monetary
interest of twelve percent (12%) per annum, which was the prevailing legal rate
of interest for loans and forbearances of money at the time the loan was
contracted.
The Court concluded, “following the foregoing pronouncements, the Court rules
that the CA correctly imposed a straight monetary interest rate of twelve percent
(12%) per annum on the principal loan obligation of petitioners to respondent,
reckoned from the date of extrajudicial demand until finality of this ruling.”
On the issue of attorney's fees, the Court ruled that, the general rule is that the
same cannot be recovered as part of damages because of the policy that no
premium should be placed on the right to litigate. They are not to be awarded
every time a party wins a suit. The power of the court to award attorney's fees
under Article 2208 of the Civil Code demands factual, legal, and equitable
justification. It must clearly state the reasons for awarding attorney's fees in the
body of its decision, and not merely in its dispositive portion. In this case, the CA
awarded the amount of P20,000.00 as attorney's fees premised merely on the
general statement "upon equity and in the exercise of its discretion." Hence,
since the CA failed to "clearly state the· reasons for awarding attorney's fees in
the body of its decision", the Court finds it proper to delete the same.

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