Here are select March 2014 rulings of the Supreme Court of the Philippines on civil law:

CIVIL CODE

Action for quieting of title; trial court had no jurisdiction to determine who among the parties have better right over the disputed property which is admittedly still part of the public domain. Having established that the disputed property is public land, the trial court was therefore correct in dismissing the complaint to quiet title for lack of jurisdiction. The trial court had no jurisdiction to determine who among the parties have better right over the disputed property which is admittedly still part of the public domain. As held in Dajunos v. Tandayag (G.R. Nos. L-32651-52, 31 August 1971, 40 SCRA 449):

x x x The Tarucs’ action was for “quieting of title” and necessitated determination of the respective rights of the litigants, both claimants to a free patent title, over a piece of property, admittedly public land. The law, administration, disposition and alienation of public lands with the Director of Lands subject, of course, to the control of the Secretary of Agriculture and Natural Resources.

In sum, the decision rendered in Civil Case No. 1218 on October 28, 1968 is a patent nullity. The lower court did not have power to determine who (the Firmalos or the Tarucs) were entitled to an award of free patent title over that piece of property that yet belonged to the public domain. Neither did it have power to adjudge the Tarucs as entitled to the “true equitable ownership” thereof, the latter’s effect being the same: the exclusion of the Firmalos in favor of the Tarucs. Heirs of Pacifico Pocido, et al. v. Arsenia Avila and Emelinda Chua, G.R. No. 199146, March 19, 2014.

Action for quieting of title. In an action for quieting of title, the complainant is seeking for “an adjudication that a claim of title or interest in property adverse to the claimant is invalid, to free him from the danger of hostile claim, and to remove a cloud upon or quiet title to land where stale or unenforceable claims or demands exist.” Heirs of Pacifico Pocido, et al. v. Arsenia Avila and Emelinda Chua, G.R. No. 199146, March 19, 2014.

Action for quieting of title; two indispensable requisites. Under Articles 476 and 477 of the Civil Code, the two indispensable requisites in an action to quiet title are: (1) that the plaintiff has a legal or equitable title to or interest in the real property subject of the action; and (2) that there is a cloud on his title by reason of any instrument, record, deed, claim, encumbrance or proceeding, which must be shown to be in fact invalid or inoperative despite its prima facie appearance of validity. Heirs of Pacifico Pocido, et al. v. Arsenia Avila and Emelinda Chua, G.R. No. 199146, March 19, 2014.

Co-ownership; Article 493 of the Civil Code; rights of a co-owner of a certain property; each one of the co-owners with full ownership of their parts can sell their fully owned part. Article 493 of the Code defines the ownership of the co-owner, clearly establishing that each co-owner shall have full ownership of his part and of its fruits and benefits. Pertinent to this case, Article 493 dictates that each one of the parties herein as co-owners with full ownership of their parts can sell their fully owned part. The sale by the petitioners of their parts shall not affect the full ownership by the respondents of the part that belongs to them.  Their part which petitioners will sell shall be that which may be apportioned to them in the division upon the termination of the co-ownership. With the full ownership of the respondents remaining unaffected by petitioners’ sale of their parts, the nature of the property, as co-owned, likewise stays. In lieu of the petitioners, their vendees shall be co-owners with the respondents. The text of Article 493 says so. Raul V. Arambulo and Teresita Dela Cruz v. Genaro Nolasco and Jeremy Spencer Nolasco, G.R. No. 189420, March 26, 2014.

Co-ownership; Article 494 of the Civil Code; partition. Article 494 of the Civil Code provides that no co-owner shall be obliged to remain in the co-ownership, and that each co-owner may demand at any time partition of the thing owned in common insofar as his share is concerned. Raul V. Arambulo and Teresita Dela Cruz v. Genaro Nolasco and Jeremy Spencer Nolasco, G.R. No. 189420, March 26, 2014.

Co-ownership; Article 498 of the Civil Code; when this may be resorted to. Article 498 of the Civil Code states that whenever the thing is essentially indivisible and the co-owners cannot agree that it be allotted to one of them who shall indemnify the others, it shall be sold and its proceeds accordingly distributed. This is resorted to (a) when the right to partition the property is invoked by any of the co-owners but because  of  the  nature  of  the  property,  it  cannot  be 

subdivided or  its subdivision would prejudice the interests of the co-owners, and (b) the co-owners are not in agreement as to who among them shall be allotted or assigned the entire property upon proper reimbursement of the co-owners. Raul V. Arambulo and Teresita Dela Cruz v. Genaro Nolasco and Jeremy Spencer Nolasco, G.R. No. 189420, March 26, 2014.

Damages; actual or compensatory damages. Article 2199 of the Civil Code states that “[e]xcept as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him a he has duly proved. Such compensation is referred to as actual or compensatory damages.” “Actual damages are compensation for an injury that will put the injured party in the position where it was before the injury. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the amount of loss be capable of proof; it must also be actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable.” International Container Terminal Services, Inc. v. Celeste M. Chua, G.R. No. 195031, March 26, 2014.

Damages; Attorney’s fees; when allowed. Article 2208 of the Civil Code does not prohibit recovery of attorney’s fees if there is a stipulation in the contract for payment of the same. Thus, in Asian Construction and Development Corporation v. Cathay Pacific SteelCorporation (CAPASCO), the Court, citing Titan ConstructionCorporation v. Uni-Field Enterprises, Inc., noted that the law allows a party to recover attorney’s fees under a written agreement. In Barons Marketing Corporation v. Court of Appeals, the Court ruled that attorney’s fees are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorney’s fees so provided areawarded in favor of the litigant, not his counsel.On the other hand, the law also allows parties to a contract tostipulate on liquidated damages to be paid in case of breach. A stipulationon liquidated damages is a penalty clause where the obligor assumes agreater liability in case of breach of an obligation. The obligor is bound topay the stipulated amount without need for proof on the existence and onthe measure of damages caused by the breach. However, even if such attorney’s fees are allowed by law, the courts still have the power to reduce the same if it is unreasonable. Mariano Lim v. Security Bank Corporation,G.R. No. 188539, March 12, 2014.

Damages; Attorney’s fees; when proper. An award of attorney’s fees has always been the exception rather than the rule and there must be some compelling legal reason to bring the case within the exception and justify the award.  In this case, none of the exceptions applies. “Attorney’s fees are not awarded every time a party prevails in a suit. The policy of the Court is that no premium should be placed on the right to litigate.” “Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still, attorney’s fees may not be awarded where no sufficient showing of bad faith could be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause.” International Container Terminal Services, Inc. v. Celeste M. Chua, G.R. No. 195031, March 26, 2014.

Damages; moral damages. Certainly, an award of moral damages must be anchored on a clear showing  that  the  party  claiming  the  same actually  experienced  mental anguish,  besmirched  reputation,  sleepless  nights,  wounded  feelings,  or similar injury. In the case herein under consideration, the records are bereft of any proof that respondent in fact suffered moral damages as contemplated in the afore-quoted provision of the Civil Code. The ruling of the trial court provides simply that: “[Petitioner’s] outright denial and unjust refusal to heed [respondent’s] claim for payment of the value of her lost/damaged shipment caus[ed] the latter to suffer serious anxiety, mental anguish and wounded feelings warranting the award of moral damages x x x.” The testimony of respondent, on the other hand, merely states that when she failed to recover damages from petitioner, she “was saddened, had sleepless nights and anxiety” without providing specific details of the suffering she allegedly went through. “Since an award of moral damages is predicated on a categorical showing by the claimant that she actually experienced emotional and mental sufferings, it must be disallowed absent any evidence thereon.” International Container Terminal Services, Inc. v. Celeste M. Chua, G.R. No. 195031, March 26, 2014.

Damages; Nominal damages; when awarded; Network Bank did not violate any of Baric’s rights.Nominal damages are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown.

Under Article 2221 of the Civil Code, nominal damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, not for indemnifying the plaintiff for any loss suffered. Nominal damages are not for indemnification of loss suffered but for the vindication or recognition of a right violated or invaded.

Network Bank did not violate any of Baric’s rights; it was merely a purchaser or transferee of the property. Surely, it is not prohibited from acquiring the property even while the forcible entry case was pending, because as the registered owner of the subject property, Palado may transfer his title at any time and the lease merely follows the property as a lien or encumbrance. Any invasion or violation of Baric’s rights as lessee was committed solely by Palado, and Network Bank may not be implicated or found guilty unless it actually took part in the commission of illegal acts, which does not appear to be so from the evidence on record. On the contrary, it appears that Barie was ousted through Palado’s acts even before Network Bank acquired the subject property or came into the picture. Thus, it was error to hold the bank liable for nominal damages. One Network Rural Bank, Inc. v. Danilo G. Baric,G.R. No. 193684, March 5, 2014.

Damages; Temperate damages.  In the absence of competent proof on the amount of actual damages suffered, a party is entitled to receive temperate damages. Article 2224 of the New Civil Code provides that: “Temperate or moderate damages, which are  more  than  nominal  but  less  than  compensatory  damages,  may  be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty.” The amount thereof is usually left to the sound discretion of the courts but the same should be reasonable, bearing in mind that temperate damages should be “more than nominal but less than compensatory.” International Container Terminal Services, Inc. v. Celeste M. Chua, G.R. No. 195031, March 26, 2014.

Fraud; concept of; Article 1338 of the Civil Code. According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals (G.R. No. 108245, November 25, 1994, 238 SCRA 397), causal fraud is defined as “a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.”

Fraud cannot be presumed but must be proved by clear and convincing evidence. Whoever alleges fraud affecting a transaction must substantiate his allegation, because a person is always presumed to take ordinary care of his concerns, and private transactions are similarly presumed to have been fair and regular. To be remembered is that mere allegation is definitely not evidence; hence, it must be proved by sufficient evidence. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al., G.R. No. 154390, March 17, 2014.

Fraud; Article 1390, in relation to Article 1391 of the Civil Code; consent obtained through fraud; action for annulment; prescriptive period. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al., G.R. No. 154390, March 17, 2014.

Mortgage; a higher degree of prudence must be exercised by the mortgagee in cases where he does not directly deal with the registered owner of real property. In Bank of Commerce v. Spouses San Pablo, Jr. (550 Phil. 805, 821 (2007)), the court declared that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property offered as security, and in the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake further investigation.

However, in Bank of Commerce v. Spouses San Pablo, Jr. (550 Phil. 805, 821 (2007)), the court also ruled that “[i]n cases where the mortgagee does not directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee.” Specifically, the court cited Abad v. Sps. Guimba (503 Phil. 321, 331-332 (2005)), where it held,

“x x x While one who buys from the registered owner does not need to look behind the certificate of title, one who buys from one who is not the registered owner is expected to examine not only the certificate of title but all factual

circumstances necessary for [one] to determine if there are any flaws in the title of the transferor, or in [the] capacity to transfer the land.”

Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term “purchaser.”

Thus, where the mortgagor is not the registered owner of the property but is merely an attorney-in-fact of the same, it is incumbent upon the mortgagee to exercise greater care and a higher degree of prudence in dealing with such mortgagor. Macaria Arguelles and the Heirs of the Deceased Petronio Arguelles v. Malarayat Rural Bank, Inc., G.R. No. 200468, March 19, 2014.

Mortgage; banks are enjoined to exert a higher degree of diligence, care, and prudence than individuals in handling real estate transactions; it cannot rely merely on the certificate of title. In Ursal v. Court of Appeals (509 Phil. 628, 642 (2005)), the court held that where the mortgagee is a bank, it cannot rely merely on the certificate of title offered by the mortgagor in ascertaining the status of mortgaged properties. Since its business is impressed with public interest, the mortgagee-bank is duty-bound to be more cautious even in dealing with registered lands. Indeed, the rule that person dealing with registered lands can rely solely on the certificate of title does not apply to banks. Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owners thereof. The apparent purpose of an ocular inspection is to protect the “true owner” of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto. Macaria Arguelles and the Heirs of the Deceased Petronio Arguelles v. Malarayat Rural Bank, Inc., G.R. No. 200468, March 19, 2014.

1. Negligence, the Court said in Layugan v. Intermediate Appellate Court (G.R. No. L-73998, November 14, 1988), is “the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would not do, or as Judge Cooley defines it, ‘(t)he failure to observe for the protection of the interests of another person, that degree of care, precaution, and vigilance which the circumstances justly demand, whereby such other person suffers injury.’”  In order that a party may be held liable for damages for any injury brought about by the negligence of another, the claimant must prove that the negligence was the immediate and proximate cause of the injury.  BJDC Construction, represented by its Manager/Proprieto Janet S. Dela Cruz v. Nena E. Lanuzo, et al., G.R. No. 161151, March 24, 2014.

Negligence; Medical negligence; four elements the plaintiff must prove by competent evidence. An action upon medical negligence – whether criminal, civil or administrative – calls for the plaintiff to prove by competent evidence each of the following four elements, namely: (a) the duty owed by the physician to the patient, as created by the physician-patient relationship, to act in accordance with the specific norms or standards established by his profession; (b) the breach of the duty by the physician’s failing to act in accordance with the applicable standard of care; (3) the causation, i.e., there must be a reasonably close and causal connection between the negligent act or omission and the resulting injury; and (4) the damages suffered by thepatient. Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Negligence; Medical Negligence; standard of care of the medical profession; standard of care observed by other members of the profession in good standing under similar circumstances. Negligence is defined as the failure to observe for the protection of the interests of another person that degree of care, precaution, and vigilance that the circumstances justly demand, whereby such other person suffers injury. Reckless imprudence, on the other hand, consists of voluntarily doing or failing to do, without malice, an act from which material damage results by reason of an inexcusable lack of precaution on the part of the person performing or failing to perform such act.

The Court aptly explained in Cruz v. Court of Appeals that: Whether or not a physician has committed an “inexcusable lack of precaution” in the treatment of his patient is to be determined according to the standard of care observed by other members of the profession in good standing under similar circumstances bearing in mind the advanced state of the profession at the time of treatment or the present state of medical science. In the recent case of Leonila Garcia-Rueda v. Wilfred L. Pacasio,et. al., this Court stated that in accepting a case, a doctor in effect represents that, having the needed

training and skill possessed by physicians and surgeons practicing in the same field, he will employ such training, care and skill in the treatment of his patients. He therefore has a duty to use at least the same level of care that any other reasonably competent doctor would use to treat a condition under the same circumstances. It is in this aspect of medical malpractice that expert testimony is essential to establish not only the standard of care of the profession but also that the physician’s conduct in the treatment and care falls below such standard. Further, inasmuch as the causes of the injuries involved in malpractice actions are determinable only in the light of scientific knowledge, it has been recognized that expert testimony is usually necessary to support the conclusion as to causation. Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Negligence; Medical negligence; standard of care; an objective standard by which the conduct of a physician sued for negligence or malpractice may be measured.In the medical profession, specific norms or standards to protect the patient against unreasonable risk, commonly referred to as standards of care, set the duty of the physician to act in respect of the patient. Unfortunately, no clear definition of the duty of a particular physician in a particular case exists. Because most medical malpractice cases are highly technical, witnesses with special medical qualifications must provide guidance by giving the knowledge necessary to render a fair and just verdict. As a result, the standard of medical care of a prudent physician must be determined from expert testimony in most cases; and in the case of a specialist (like an anesthesiologist), the standard of care by which the specialist is judged is the care and skill commonly possessed and exercised by similar specialists under similar circumstances. The specialty standard ofcare may be higher than that required of the general practitioner. Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Negligence, test to determine its existence. The test by which the existence of negligence in a particular case is determined is aptly stated in the leading case of Picart v. Smith (G.R. No. 12219, March 15, 1918).

According to this case, the test by which to determine the existence of negligence in a particular case may be stated as follows:

“Did the defendant in doing the alleged  negligent  act  use  that  reasonable  care  and  caution  which  an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed  to  be  supplied  by  the  imaginary  conduct  of  the  discreet paterfamilias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in the light of human experience and in view of the facts involved in the particular case. Abstract speculation cannot here be of much value but this much can be  profitably  said:  Reasonable  men  govern  their  conduct  by  the circumstances which are before them or known to them. They are not, and are not supposed to be, omniscient of the future.  Hence they can be expected to take care only when there is something before them to suggest or warn of danger. Could a prudent man, in the case under consideration, foresee harm as a result of the course actually pursued? If so, it was the duty  of  the  actor  to  take  precautions  to  guard  against  that  harm. Reasonable foresight of harm, followed by the ignoring of the suggestion born of this prevision, is always necessary before negligence can be held to exist. Stated in these terms, the proper criterion for determining the existence of negligence in a given case is this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against its consequences.” BJDC Construction, represented by its Manager/Proprieto Janet S. Dela Cruz v. Nena E. Lanuzo, et al.,G.R. No. 161151, March 24, 2014.

Property; Recovery of possession of real property; three kinds of actions available. In Sps. Bonifacio R. Valdez, Jr. et al. vs. Hon. Court of Appeals, et al. (523 Phil. 39 (2006)), the Court is instructive anent the three kinds of actions available to recover possession of real property, viz: (a) accion interdictal; (b) accion publiciana; and (c) accion reivindicatoria.

Accion interdictal comprises two distinct causes of action, namely, forcible entry (detentacion) and unlawful detainer (desahuico) [sic]. In forcible entry, one is deprived of physical possession of real property by means of force, intimidation, strategy, threats, or stealth whereas in unlawful detainer, one illegally withholds possession after the

expiration or termination of his right to hold possession under any contract, express or implied. The two are distinguished from each other in that in forcible entry, the possession of the defendant is illegal from the beginning, and that the issue is which party has prior de facto possession while in unlawful detainer, possession of the defendant is originally legal but became illegal due to the expiration or termination of the right to possess.

The jurisdiction of these two actions, which are summary in nature, lies in the proper municipal trial court or metropolitan trial court. Both actions must be brought within one year from the date of actual entry on the land, in case of forcible entry, and from the date of last demand, in case of unlawful detainer. The issue in said cases is the right to physical possession.

Accion publiciana is the plenary action to recover the right of possession which should be brought in the proper regional trial court when dispossession has lasted for more than one year. It is an ordinary civil proceeding to determine the better right of possession of realty independently of title. In other words, if at the time of the filing of the complaint more than one year had elapsed since defendant had turned plaintiff out of possession or defendant’s possession had become illegal, the action will be, not one of the forcible entry or illegal detainer, but an accion publiciana. On the other hand, accion reivindicatoria is an action to recover ownership also brought in the proper regional trial court in an ordinary civil proceeding. Carmencita Suarez v. Mr. and Mrs. Felix E. Emboy, Jr. and Marilou P. Emboy-Delantar, G.R. No. 187944, March 12, 2014.

Res ipsa loquitor; a mode of proof or a mere procedural convenience.In Jarcia, Jr. v. People, the court has underscored that the doctrine is not a rule of substantive law, but merely a mode of proof or a mere procedural convenience. The doctrine, when applicable to the facts and circumstances of a given case, is not meant to and does not dispense with the requirement of proof of culpable negligence against the party charged. It merely determines and regulates what shall be prima facie evidence thereof, and helps the plaintiff in proving a breach of the duty. The doctrine can be invoked when and only when, under the circumstances involved, direct evidence is absent and not readily available. Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Res ipsa loquitor; applicability in medical negligence cases. The applicability of the doctrine of res ipsa loquitur in medical negligence cases was significantly and exhaustively explained in Ramos v. Court of Appeals, where the Court said–Medical malpractice cases do not escape the application of this doctrine. Thus, res ipsa loquitur has been applied when the circumstances attendant upon the harm are themselves of such a character as to justify an inference of negligence as the cause of that harm. The application of resipsa loquitur in medical negligence cases presents a question of law since it is a judicial function to determine whether a certain set of circumstances does, as a matter of law, permit a given inference. Although generally, expert medical testimony is relied upon in malpractice suits to prove that a physician has done a negligent act or that he has deviated from the standard medical procedure, when the doctrine of res ipsa loquitur is availed by the plaintiff, the need for expert medical testimony is dispensed with because the injury itself provides the proof of negligence. The reason is that the general rule on the necessity of expert testimony applies only to such matters clearly within the domain of medical science, and not to matters that are within the common knowledge of mankind which may be testified to by anyone familiar with the facts. Ordinarily, only physicians and surgeons of skill and experience are competent to testify as to whether a patient has been treated or operated upon with a reasonable degree of skill and care. However, testimony as to the statements and acts of physicians and surgeons, external appearances, and manifest conditions which are observable by any one may be given by non-expert witnesses. Hence, in cases where the res ipsa loquitur is applicable, the court is permitted to find a physician negligent upon proper proof of injury to the patient, without the aid of expert testimony, where the court from its fund of common knowledge can determine the proper standard of care. Where common knowledge and experience teach that a resulting injury would not have occurred to the patient if due care had been exercised, an inference of negligence may be drawn giving rise to an application of the doctrine of res ipsa loquitur without medical evidence, which is ordinarily required to show not only what occurred but how and why it occurred. When the doctrine is appropriate, all that the patient must do is prove a nexus between the particular act or omission complained of and the injury sustained while under the custody and management of the defendant without need to produce expert medical testimony to establish the standard of care. Resort to res ipsa loquitur is allowed because there is no other way, under usual and ordinary conditions, by which the patient can obtain redress for injury suffered by him. Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Res ipsa loquitur; applied in conjunction with the doctrine of common knowledge.It is simply “a recognition of the postulate that, as a matter of common knowledge and experience, the very nature of certain types of occurrences may justify an inference of negligence on the part of the person who controls the instrumentality causing the injury in the absence of some explanation by the defendant who is charged with negligence. It is grounded in the superior logic of ordinary human experience and on the basis of such experience or common knowledge, negligence may be deduced from the mere occurrence of the accident itself. Hence, res ipsa loquitur is applied in conjunction with the doctrine ofcommon knowledge.” Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Res ipsa loquitor. Res ipsa loquitur is literally translated as “the thing or the transaction speaks for itself.” The doctrine res ipsa loquitur means that “where the thing which causes injury is shown to be under the management of the defendant, and the accident is such as in the ordinary course of things does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of an explanation by the defendant, thatthe accident arose from want of care.” Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Res ipsa loquitur. The doctrine of res ipsa loquitur is “based on the theory that the defendant either knows the cause of the accident or has the best opportunity of  ascertaining  it  and  the  plaintiff,  having  no  knowledge  thereof,  is compelled  to  allege  negligence  in general  terms.  In such instance, the plaintiff relies on proof of the happening of the accident alone to establish negligence.” The principle, furthermore, provides a means by which a plaintiff can hold liable a defendant who, if innocent, should be able to prove that  he  exercised  due  care  to  prevent  the  accident  complained  of  from happening. It is, consequently, the defendant’s responsibility to show that there was no negligence on his part.   International Container Terminal Services, Inc. v. Celeste M. Chua, G.R. No. 195031, March 26, 2014.

Res ipsa loquitur; concept of; requirements for the doctrine to apply.  In Tan v. JAM Transit, Inc. (G.R. No. 183198, November 25, 2009), the Court noted that res ipsa loquitur is a Latin phrase that literally means “the thing or the transaction speaks for itself.”  It is a maxim for the rule that the fact of the occurrence of an injury, taken with the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a plaintiff’s prima facie case, and present a question of fact for defendant to meet with an explanation.  Where  the  thing  that  caused  the  injury complained of is shown to be under the management of the defendant or his servants; and the accident, in the ordinary course of things, would not happen  if  those  who  had  management  or  control  used proper care, it affords reasonable evidence—in the absence of a sufficient, reasonable and logical explanation by defendant—that the accident arose from or was caused by the defendant’s want of care. This rule is grounded on the superior logic of ordinary human experience, and it is on the basis of such experience or common knowledge that negligence may be deduced from the mere occurrence of the accident itself. Hence, the rule is applied in conjunction with the doctrine of common knowledge.”

For the doctrine to apply, the following requirements must be shown to exist, namely: (a) the accident is of a kind that ordinarily does not occur in  the  absence  of  someone’s  negligence;  (b)  it  is  caused  by  an instrumentality within the exclusive control of the defendant or defendants; and (c) the possibility of contributing conduct that would make the plaintiff responsible is eliminated. BJDC Construction, represented by its Manager/Proprieto Janet S. Dela Cruz v. Nena E. Lanuzo, et al., G.R. No. 161151, March 24, 2014.

Res ipsa loquitor; doctrine does not automatically apply to all cases of medical negligence as to mechanically shift the burden of proof to the defendant.Despite the fact that the scope of res ipsa loquitur has been measurably enlarged, it does not automatically apply to all cases of medical negligence as to mechanically shift the burden of proof to the defendant to show that he is not guilty of the ascribed negligence. Res ipsa loquitur is not a rigid or ordinary doctrine to be perfunctorily used but a rule to be cautiously applied, depending upon the circumstances of each case. It is generally restricted to situations in malpractice cases where a layman is able to say, as a matter of common knowledge and observation, that the consequences of professional care were not as such as would ordinarily have followed if due care had been exercised. A distinction must be made between the failure to secure results, and the occurrence of something more unusual and not ordinarily found if the service or treatment rendered followed the usual procedure of those skilled in that particular practice. It must be conceded that the doctrine of res ipsa loquitur can have no application in a suit against a physician or surgeon which involves the merits of a diagnosis or of a scientific treatment. The physician or surgeon is not required at his peril to explain why any particular diagnosis was not correct, or why any particular scientific treatment did not produce the desired result. Thus, res ipsa loquitur is not available in a malpractice suit if the

only showing is that the desired result of an operation or treatment was not accomplished. The real question, therefore, is whether or not in the process of the operation any extraordinary incident or unusual event outside of the routine performance occurred which is beyond the regular scope of customary professional activity in such operations, which, if unexplained would themselves reasonably speak to the average man as the negligent cause or causes of the untoward consequence. If there was such extraneous intervention, the doctrine of res ipsa loquitur may be utilized and the defendant is calledupon to explain the matter, by evidence of exculpation, if he could. Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Res ipsa loquitor; essential requisites.In order to allow resort to the doctrine, therefore, the following essential requisites must first be satisfied, to wit: (1) the accident was of a kind that does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency that caused the injury was under the exclusive control of the person charged; and (3) the injury suffered must not have been due to any voluntary action or contribution of the person injured. Dr. Fernando P. Solidum v. People of the Philippines,G.R. No. 192123, March 10, 2014.

Res ipsa loquitur; when may be invoked.  The  doctrine “can  be invoked  when  and  only  when,  under  the  circumstances  involved,  direct evidence is absent and not readily available.” Here, there was no evidence as to how or why the fire in the container yard of petitioner started; hence, it was up to petitioner to satisfactorily prove that it exercised the diligence required to prevent the fire from happening. International Container Terminal Services, Inc. v. Celeste M. Chua, G.R. No. 195031, March 26, 2014.

Suretyship; Continuing suretyship; nature of; example of.A Continuing Suretyship, which the Court described in Saludo, Jr. v. Security Bank Corporation as follows:

The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking Corporation in this wise: Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing companywhich anticipates entering into a series of credit transactions with a particular company, normallyrequires the projected principal debtor to execute acontinuing surety agreement along with its sureties. Byexecuting such an agreement, the principal places itselfin a position to enter into the projected series oftransactions with its creditor; with such suretyshipagreement, there would be no need to execute a separatesurety contract or bond for each financing or creditaccommodation extended to the principal debtor.

The terms of the Continuing Suretyship executed by petitioner are very clear. It states that petitioner, as surety, shall, without need for any notice, demand or any other act or deed, immediately become liable and shall pay “all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings,  amendments or novations thereof, as well as (i) all obligations of theDebtor presently or hereafter owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as defined hereinbelow.” Mariano Lim v. Security Bank Corporation,G.R. No. 188539, March 12, 2014.

Suretyship. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the obligee. Although the contract of a surety is secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. This was explained in the case of Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, where it was written: The surety’s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a suretyis in essence secondary only to a valid principalobligation, his liability to the creditor or promisee of theprincipal is said to be direct, primary and absolute; inother words, he is directly and equally bound with theprincipal.

Thus, suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for the purpose of fulfilling an obligation. A surety is considered in law as being the same party asthe debtor in relation to whatever is adjudged touching the obligationof the latter, and their liabilities are interwoven as to be inseparable. Mariano Lim v. Security Bank Corporation,G.R. No. 188539, March 12, 2014.

SPECIAL LAWS

Comprehensive Agrarian Reform Law (CARL); Section 65   of   R.A. 6657; DAR   is   empowered   to authorize,   under   certain   conditions,   the   reclassification   or   conversion   of agricultural lands . Under Section 65 of R.A. No. 6657, the DAR is empowered to authorize, under certain conditions, the reclassification or conversion of agricultural lands. Pursuant to this authority and in the exercise of its rulemaking power under Section 49 of R.A. No. 6657, the DAR issued Administrative Order No. 12, series of 1994 (DAR A.O. 12-94) (the then prevailing administrative order), providing the rules and procedure governing agricultural land conversion. Item VII of DAR A.O. 12-94 enumerates the documentary requirements for approval of an application for land conversion.35 Notably, Item VI-E provides that no application for conversion shall be given due course if: (1) the DAR has issued a Notice of Acquisition under the compulsory acquisition process; (2) a Voluntary Offer to Sell covering the subject property has been received by the DAR; or (3) there is already a perfected agreement between the landowner and the beneficiaries under Voluntary Land Transfer. Heirs of Teresita Montoya, et al. v. National Housing Authority, et al., G.R. No. 181055, March 19, 2014.

Comprehensive Agrarian Reform Law (CARL); Section 6 of R.A. 6657; retention limits. Section 6 of R.A. No. 6657 specifically governs retention limits. Under its last paragraph, “any sale, disposition, lease, management, contract or transfer of possession of private lands executed by the original landowner in violation of [R.A. No. 6657]” is considered null and void. A plain reading of the last paragraph appears to imply that the CARL absolutely prohibits sales or dispositions of private agricultural lands. The interpretation or construction of this prohibitory clause, however, should be made within the context of Section 6, following the basic rule in statutory construction that every part of the statute be “interpreted with reference to the context, i.e., that every part of the statute must be considered together with the other parts, and kept subservient to the general intent of the whole enactment.” Notably, nothing in this paragraph, when read with the entire section, discloses any legislative intention to absolutely prohibit the sale or other transfer agreements of private agricultural lands after the effectivity of the Act.

In other words, therefore, the sale, disposition, etc. of private lands that Section 6 of R.A. No. 6657 contextually prohibits and considers as null and void are those which the original owner executes in violation of this provision, i.e., sales or dispositions executed with the intention of circumventing the retention limits set by R.A. No. 6657. Consistent with this interpretation, the proscription in Section 6 on sales or dispositions of private agricultural lands does not apply to those that do not violate or were not intended to circumvent the CARL’s retention limits. Heirs of Teresita Montoya, et al. v. National Housing Authority, et al., G.R. No. 181055, March 19, 2014.

Emancipation of Tenants; P.D. 27; CLT; legal effects of issuance; tenant-farmer does not acquire full ownership of the covered landholding simply by the issuance of a CLT. A CLT is a document that the government issues to a tenant-farmer of an agricultural land primarily devoted to rice and corn production placed under the coverage of the government’s OLT program pursuant to P.D. No. 27. It serves as the tenant-farmer’s (grantee of the certificate) proof of inchoate right over the land covered thereby.

A CLT does not automatically grant a tenant-farmer absolute ownership of the covered landholding. Under PD No. 27, land transfer is effected in two stages: (1) issuance of the CLT to the tenant-farmer in recognition that said person is a “deemed owner”; and (2) issuance of an Emancipation Patent (EP) as proof of full ownership upon the tenant-farmer’s full payment of the annual amortizations or lease rentals.

As a preliminary step, therefore, the issuance of a CLT merely evinces that the grantee thereof is qualified to avail of the statutory mechanism for the acquisition of ownership of the land tilled by him, as provided under P.D. No. 27. The CLT is not a muniment of title that vests in the tenant-farmer absolute ownership of his tillage. It is only after compliance with the conditions which entitle the tenant-farmer to an EP that the tenant-farmer acquires the vested right of absolute ownership in the landholding. Stated otherwise, the tenant-farmer does not acquire full ownership of the covered landholding simply by the issuance of a CLT. The tenant-farmer must first comply with the prescribed conditions and procedures for acquiring full ownership but until then, the title remains with the landowner. Heirs of Teresita Montoya, et al. v. National Housing Authority, et al., G.R. No. 181055, March 19, 2014.

Land registration; Classification of land; evidence of a positive act from the government reclassifying the lot as alienable and disposable agricultural land of the public domain. Accordingly, jurisprudence has required that an applicant for registration of title acquired through a public land grant must present incontrovertible evidence that the

land subject of the application is alienable or disposable by establishing the existence of a positive act of the government, such as a presidential proclamation or an executive order; an administrative action; investigation reports of Bureau of Lands investigators; and a legislative act or a statute. Sps. Antonio Fortuna and Erlinda Fortuna v. Republic of the Philippines,G.R. No. 173423, March 5, 2014.

Land registration; Classification of land; Executive prerogative.Under Section 6 of the Public Land Act, the classification and the reclassification of public lands are the prerogative of the Executive Department. The President, through a presidential proclamation or executive order, can classify or reclassify a land to be included or excluded from the public domain. The Department of Environment and Natural Resources Secretary is likewise empowered by law to approve a land classification and declare such land as alienable and disposable. Sps. Antonio Fortuna and Erlinda Fortuna v. Republic of the Philippines,G.R. No. 173423, March 5, 2014.

Land registration; it is essential for any applicant for registration of title to land derived through a public grant to establish foremost the alienable and disposable nature of the land. The Constitution declares that all lands of the public domain are owned by the State. Of the four classes of public land, i.e., agricultural lands, forest or timber lands, mineral lands, and national parks, only agricultural lands may be alienated. Public land that has not been classified as alienable agricultural land remains part of the inalienable public domain. Thus, it is essential for any applicant for registration of title toland derived through a public grant to establish foremost the alienableand disposable nature of the land. The Public Land Act provisions on the grant and disposition of alienable public lands, specifically, Sections 11 and 48(b), will find application only from the time that a public land has been classified as agricultural and declared as alienable and disposable. Sps. Antonio Fortuna and Erlinda Fortuna v. Republic of the Philippines,G.R. No. 173423, March 5, 2014.

Land registration; Judicial confirmation of imperfect or incomplete title; cut-off date for applications. As mentioned, the Public Land Act is the law that governs the grant and disposition of alienable agricultural lands. Under Section 11 of the PLA, alienable lands of the public domain may be disposed of, among others, by judicial confirmation of imperfect or incomplete title. This mode of acquisition of title is governed by Section 48(b) of the PLA, the original version of which states:

Sec. 48. The following-described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

x x x x

(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, except as against the Government, since July twenty-sixth, eighteen hundred and ninety-four, except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a government grant and shall be entitled to a certificate of title under the provisions of this chapter. [emphasis supplied]

On June 22, 1957, the cut-off date of July 26, 1894 was replaced by a 30-year period of possession under RA No. 1942. Section 48(b) of the PLA, as amended by RA No. 1942, read:

(b) Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title, except when prevented by war or force majeure.

On January 25, 1977, PD No. 1073 replaced the 30-year period of possession by requiring possession since June 12, 1945. Section 4 of PD No. 1073 reads:

SEC. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII of the Public Land Act are hereby amended in the sense that these provisions shall apply only to alienable and disposable lands of the public domain which have been in open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his predecessor-in-interest, under a bona fide claim of acquisition of ownership, since June 12, 1945.

Under the P.D. No. 1073 amendment, possession of at least 32 years – from 1945 up to its enactment in 1977 – is required. This effectively impairs the vested rights of applicants who had complied with the 30-year possession required under the RA No. 1942 amendment, but whose possession commenced only after the cut-off date of June 12, 1945 was established by the PD No. 1073 amendment. To remedy this, the Court ruled in Abejaron v. Nabasa that “Filipino citizens who by themselves or their predecessors-in-interest have been, prior to the effectivity of P.D. 1073on January 25, 1977, in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least 30 years, or atleast since January 24, 1947 may apply for judicial confirmation of their imperfect or incomplete title under Sec. 48(b) of the [PLA].” January 24,1947 was considered as the cut off date as this was exactly 30 yearscounted backward from January 25, 1977 – the effectivity date of PDNo. 1073.

It appears, however, that January 25, 1977 was the date PD No. 1073 was enacted; based on the certification from the National PrintingOffice, PD No. 1073 was published in Vol. 73, No. 19 of the Official Gazette, months later than its enactment or on May 9, 1977. Thisuncontroverted fact materially affects the cut-off date for applications forjudicial confirmation of incomplete title under Section 48(b) of the PLA.Although Section 6 of PD No. 1073 states that “[the] Decree shalltake effect upon its promulgation,” the Court has declared in Tañada, et al.v. Hon. Tuvera, etc., et al. that the publication of laws is an indispensablerequirement for its effectivity. “[A]ll statutes, including those of localapplication and private laws, shall be published as a condition for theireffectivity, which shall begin fifteen days after publication unless a differenteffectivity date is fixed by the legislature.” Accordingly, Section 6 of PDNo. 1073 should be understood to mean that the decree took effect onlyupon its publication, or on May 9, 1977. This, therefore, moves the cut-off date for applications for judicial confirmation of imperfect or incomplete title under Section 48(b) of the PLA to May 8, 1947. In otherwords, applicants must prove that they have been in open, continuous,exclusive and notorious possession and occupation of agricultural lands ofthe public domain, under a bona fide claim of acquisition of ownership,for at least 30 years, or at least since May 8, 1947. Sps. Antonio Fortuna and Erlinda Fortuna v. Republic of the Philippines,G.R. No. 173423, March 5, 2014.

Land registration; Possession; as a requirement for the application for registration of title.Notably, Section 48(b) of the PLA speaks of possession and occupation. “Since these words are separated by the conjunction and, the clear intention of the law is not to make one synonymous with the other. Possession is broader than occupation because it includes constructive possession. When, therefore, the law adds the word occupation, it seeks to delimit the all-encompassing effect of constructive possession. Taken together with the words open, continuous, exclusive and notorious, the word occupation serves to highlight the fact that for an applicant to qualify, his possession must not be a mere fiction.” Nothing in Tax Declaration No. 8366 shows that Pastora exercised acts of possession and occupation such as cultivation of or fencing off the land. Indeed, the lot was described as “cogonal.” Sps. Antonio Fortuna and Erlinda Fortuna v. Republic of the Philippines,G.R. No. 173423, March 5, 2014.

Public Land Act; Sec 48(b), as amended by P.D. 1073; requirements for judicial confirmation of title. The requirements for judicial confirmation of imperfect title are found in Section 48(b) of the Public Land Act, as amended by Presidential Decree No. 1073, as follows:

“Sec. 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

x x x x

(b)  Those who by themselves or through their predecessors in interest have been in the open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition or ownership, since June 12, 1945, or earlier, immediately preceding the filing of the application for

confirmation of title except when prevented by war or force majeure.  These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.”

Republic of the Philippines represented by Aklan National Colleges of Fisheries (ANCF) and Dr. Elenita R. Adrade, in her capacity as ANCF Superintendent v. Heirs of Maxima Lachica Sin, namely: Salvacion L. Sin, Rosario S. Enriquez, Francisco L. Sin, Maria S. Yuchintat, Manuel L. Sin, Jaime Cardinal Sin, Ramon L. Sin, and Ceferina S. Vita,G.R. No. 157485, March 26, 2014.

Regalian Doctrine; all lands of the public domain belong to the State and that lands not appearing to be clearly within private ownership are presumed to belong to the State.  As this Court held in the fairly recent case of Valiao v. Republic (G.R. No. 170757, November 28, 2011,): “Under the Regalian doctrine, which is embodied in our Constitution, all lands of the public domain belong to the State, which is the source of any asserted right to any ownership of land.  All lands not appearing to be clearly within private ownership are presumed to belong to the State. Accordingly, public lands not shown to have been reclassified or released as alienable agricultural land or alienated to a private person by the State remain part of the inalienable public domain. Unless public land is shown to have been reclassified as alienable or disposable to a private person by the State, it remains part of the inalienable public domain. Property of the public domain is beyond the commerce of man and not susceptible of private appropriation and acquisitive prescription. Occupation thereof in the concept of owner no matter how long cannot ripen into ownership and be registered as a title. The burden of proof in overcoming the presumption of State ownership of the lands of the public domain is on the person applying for registration (or claiming ownership), who must prove that the land subject of the application is alienable or disposable.   To overcome this presumption, incontrovertible evidence must be established that the land subject of the application (or claim) is alienable or disposable.”  Republic of the Philippines represented by Aklan National Colleges of Fisheries (ANCF) and Dr. Elenita R. Adrade, in her capacity as ANCF Superintendent v. Heirs of Maxima Lachica Sin, namely: Salvacion L. Sin, Rosario S. Enriquez, Francisco L. Sin, Maria S. Yuchintat, Manuel L. Sin, Jaime Cardinal Sin, Ramon L. Sin, and Ceferina S. Vita, G.R. No. 157485, March 26, 2014.

Public Land Act; two requisites for judicial confirmation of title.   The two requisites for judicial confirmation of imperfect or incomplete title under CA No. 141, namely: (1) open, continuous, exclusive, and notorious possession and occupation of the subject land by himself or through his predecessors-in-interest under a bona fide claim of ownership since time immemorial or from June 12, 1945; and (2) the classification of the land as alienable and disposable land of the public domain.  Republic of the Philippines represented by Aklan National Colleges of Fisheries (ANCF) and Dr. Elenita R. Adrade, in her capacity as ANCF Superintendent v. Heirs of Maxima Lachica Sin, namely: Salvacion L. Sin, Rosario S. Enriquez, Francisco L. Sin, Maria S. Yuchintat, Manuel L. Sin, Jaime Cardinal Sin, Ramon L. Sin, and Ceferina S. Vita, G.R. No. 157485, March 26, 2014.

Regalian Doctrine; failure of Republic to show competent evidence that the subject land was declared a timberland before its formal classification as such in 1960 does not lead to the presumption that said land was alienable and disposable prior to said date.  Accordingly, in the case at bar, the failure of petitioner Republic to show competent evidence that the subject land was declared a timberland before  its  formal  classification  as  such  in  1960  does  not  lead to  the presumption that said land was alienable and disposable prior to said date.  On the contrary, the presumption is that unclassified lands are inalienable public lands.  It is therefore the respondents which have the burden to identify a positive act of the government, such as an official proclamation, declassifying inalienable public land into disposable land for agricultural or other purposes.  Since respondents failed to do so, the alleged possession by them and by their predecessors-in-interest is inconsequential and could never ripen into ownership.  Republic of the Philippines represented by Aklan National Colleges of Fisheries (ANCF) and Dr. Elenita R. Adrade, in her capacity as ANCF Superintendent v. Heirs of Maxima Lachica Sin, namely: Salvacion L. Sin, Rosario S. Enriquez, Francisco L. Sin, Maria S. Yuchintat, Manuel L. Sin, Jaime Cardinal Sin, Ramon L. Sin, and Ceferina S. Vita, G.R. No. 157485, March 26, 2014.

 (Rose thanks Anna Katerina Rodriguez for assisting in the preparation of this post.)

Here are select February 2014 rulings of the Supreme Court of the Philippines on civil law:

Contract law; principle of relativity. 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 “Where there is no privity of contract, there is likewise no obligation or liability to speak about.” Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Contract of sale; obligations of the parties; there is nothing in the decision of the HLURB, as affirmed by the OP and the CA, which shows that the petitioner is being ordered to assume the obligation of any of the respondents.In a contract of sale, the parties’ obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing that is the object of sale. On the other hand, the principal obligation of a vendee is to pay the full purchase price at the agreed time. Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Contract to sell; ownership; right to mortgage the property by the owner. Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is not to pass until full payment of the purchase price. In other words, at the time of the mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v. Spouses Lozada the Court affirmed the right of the owner/developer to mortgage the property subject of development, to wit: “[P.D.] No. 957 cannot totally prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of the purchase price by the installment buyer.” Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Dacion en pago ; concept of.Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a mode of extinguishing an existing obligation and partakes the nature of sale as the creditor is really buying the thing or property of the debtor, the payment for which is to be charged against the debtor’s debt. Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement – express or implied, or by their silence – consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Co-ownership; when present.Art . 484 . There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. Art. 1078. When there are two or more heirs, the whole estate of the decedent is, before its partition, owned in common by such heirs, subject to the payment of debts of the deceased. Teodoro S. Teodoro, et al. v. Danilo Espino, et al., G.R. No. 189248, February 5, 2014.

Co-ownership; right of possession.Certainly, and as found by the trial courts, the whole of Lot No. 2476 including the portion now litigated is, owing to the fact that it has remained registered in the name of Genaro who is the common ancestor of both parties herein, co-owned property. All, or both Teodoro Teodoro and respondents are entitled to exercise the right of possession as co-owners. Neither party can exclude the other from possession. Although the property remains unpartitioned, the respondents in fact possess specific areas. Teodoro Teodoro can likewise point to a specific area, which is that which was possessed by Petra. Teodoro Teodoro cannot be dispossessed of such area, not only by virtue of Petra’s bequeathal in his favor but also because of his own right of possession that comes from his co-ownership of the property. Teodoro S. Teodoro, et al. v. Danilo Espino, et al., G.R. No. 189248, February 5, 2014.

Alienable and disposable land; to prove that the land subject of an application for registration is alienable, an applicant must establish the existence of a positive act of the government; annotation in the survey plan is not sufficient. However, Cortez’ reliance on the foregoing annotation in the survey plan is amiss; it does not constitute incontrovertible evidence to overcome the presumption that the subject property remains part of the inalienable public domain. In Republic of the Philippines v. Tri-Plus Corporation, the Court clarified that, the applicant must at the very least submit a certification from the proper government agency stating that the parcel of land subject of the application for registration is indeed alienable and disposable, viz: It must be stressed that incontrovertible evidence must be presented to establish that the land subject of the application is alienable or disposable. In the present case, the only evidence to prove the character of the subject lands as required by law is the notation appearing in the Advance Plan stating in effect that the said properties are alienable and disposable. However, this is hardly the kind of proof required by law. To prove that the

land subject of an application for registration is alienable, anapplicant must establish the existence of a positive act of the government such as a presidential proclamation or an executive order, an administrative action, investigation reports of Bureau of Lands investigators, and a legislative act or statute. The applicant may also secure a certification from the Government that the lands applied for are alienable and disposable. Republic of the Philippines v. Emmanuel C. Cortez, G.R. No. 186639. February 5, 2014.

Patrimonial property; susceptible to acquisitive prescription; start of the running of the prescriptive period.The Civil Code makes it clear that patrimonial property of the State may be acquired by private persons through prescription. This is brought about by Article 1113, which states that “[a]ll things which are within the commerce of man are susceptible to prescription,” and that [p]roperty of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription.”Nonetheless, Article 422 of the Civil Code states that “[p]roperty of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State.”  It is this provision that controls how public dominion property may be converted into patrimonial property susceptible to acquisition by prescription. After all, Article 420(2) makes clear that those property “which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth” are public dominion property. For as long as the property belongs to the State, although already classified as alienable or disposable, it remains property of the public dominion if when it is “intended for some public service or for the development of the national wealth.” Accordingly, there must be an express declaration by the State that the public dominion property is no longer intended for public service or the development of the national wealth or that the property has been converted into patrimonial. Without such express declaration, the property, even if classified as alienable or disposable, remains property of the public dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription. It is only when such alienable and disposable lands are expressly declared by the State to be no longer intended for public service or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law. Republic of the Philippines v. Emmanuel C. Cortez,G.R. No. 186639. February 5, 2014.

Sale; warranties of sellers.Indeed, this Court is convinced – from an examination of the evidence and by the concurring opinions of the courts below – that Bignay purchased the property without knowledge of the pending Civil Case No. Q-52702.  Union Bank is therefore answerable for its express undertaking under the December 20, 1989 deed of sale to “defend its title to the Parcel/s of Land with improvement thereon against the claims of any person whatsoever.”  By this warranty, Union Bank represented to Bignay that it had title to the property, and by assuming the  obligation to defend such title, it promised to do so at least in good faith and with sufficient prudence, if not to the best of its abilities. Bignay EX-IM Philippines, Inc. v. Union Bank of the Philippines / Union Bank of the Philippines v. Bignay EX-IM Philippines, Inc., G.R. No. 171590 & G.R. No. 171598, February 12, 2014.

Breach of contract; gross negligence.The record reveals, however, that Union Bank was grossly negligent in the handling and prosecution of Civil Case No. Q-52702. Its appeal of the December 12, 1991 Decision in said case was dismissed by the CA for failure to file the required appellant’s brief.  Next, the ensuing Petition for Review on Certiorari filed with this Court was likewise denied due to late filing and payment of legal fees. Finally, the bank sought the annulment of the December 12, 1991 judgment, yet again, the CA dismissed the petition for its failure to comply with Supreme Court Circular No. 28-91. As a result, the December 12, 1991 Decision became final and executory, and Bignay was evicted from the property. Such negligence in the handling of the case is far from coincidental; it is decidedly glaring, and amounts to bad faith. “[N]egligence may be occasionally so gross as to amount tomalice [or bad faith].” Indeed, in culpa contractual or breach of contract, gross negligence of a party amounting to bad faith is a ground for the recovery of Damages by the injured party.Bignay EX-IM Philippines, Inc. v. Union Bank of the Philippines / Union Bank of the Philippines v. Bignay EX-IM Philippines, Inc., G.R. No. 171590 & G.R. No. 171598, February 12, 2014.

Unenforceable contract; entering into a contract without or beyond authority; sale of property despite objection of laymen’s committee.The Court finds it erroneous for the CA to ignore the fact that the laymen’s committee objected to the sale of the lot in question. The Canons require that ALL the church entities listed in Article IV (a) thereof should give its approval to the transaction. Thus, when the Supreme Bishop executed the contract of sale of petitioner’s lot despite the opposition made by the laymen’s committee, he acted beyond his powers. This case clearly falls under the category of unenforceable contracts mentioned in Article 1403, paragraph (1) of the Civil Code, which provides, thus:

Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; In Mercado v. Allied Banking Corporation, the Court explained that: x x x Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal capacity. x x x. Iglesia Felipina Independiente v. Heirs of Bernardino Taeza,G.R. No. 179597, February 3, 2014.

Unenforceable contract; analogous cases. Closely analogous cases of unenforceable contracts are those where a person signs a deed of extrajudicial partition in behalf of co-heirs without the latter’s authority; where a mother as judicial guardian of her minor children, executes a deed of extrajudicial partition wherein she favors one child by giving him more than his share of the estate to the prejudice of her other children; and where a person, holding a special power of attorney, sells a property of his principal that is not included in said special power of attorney. Iglesia Felipina Independiente v. Heirs of Bernardino Taeza,G.R. No. 179597, February 3, 2014.

Article 1456, Civil Code; implied trust; acquiring property through mistake. In the present case, however, respondents’ predecessor-in-interest, Bernardino Taeza, had already obtained a transfer certificate of title in his name over the property in question.  Since the person supposedly transferring ownership was not authorized to do so, the property had evidently been acquired by mistake.  In Vda. de Esconde v. Court ofAppeals, the Court affirmed the trial court’s ruling that the applicable provision of law in such cases is Article 1456 of the Civil Code which states that “[i]f property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.” Iglesia Felipina Independiente v. Heirs of Bernardino Taeza,G.R. No. 179597, February 3, 2014.

Constructive trust; concept of. A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary. Iglesia Felipina Independiente v. Heirs of Bernardino Taeza,G.R. No. 179597, February 3, 2014.

Constructive trust; prescriptive period.A constructive trust having been constituted by law between respondents as trustees and petitioner as beneficiary of the subject property, may respondents acquire ownership over the said property? The Court held in the same case of Aznar, that unlike in express trusts and resulting implied trusts where a trustee cannot acquire by prescription any property entrusted to him unless he repudiates the trust, in constructive implied trusts, the trustee may acquire the property through prescription even if he does not repudiate the relationship. It is then incumbent upon the beneficiary to bring an action for reconveyance before prescription bars the same.An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the property. It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the deed or the date of the issuance of the certificate of title over the property, Iglesia Felipina Independiente v. Heirs of Bernardino Taeza, G.R. No. 179597, February 3, 2014.

  Surety; concept of. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Surety; solidary debtor. The fundamental reason therefor is that a contract of suretyship effectively binds the surety as a solidary debtor. This is provided under Article 2047 of the Civil Code which states: By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. Thus, since the surety is a solidary debtor, it is not necessary that the original debtor first failed to pay before the surety could be made liable; it is enough that a demand for payment is made by the creditor for the surety’s liability to attach. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Surety; distinguished from guarantor. Comparing a surety’s obligations with that of a guarantor, the Court, in the case of Palmares v. CA, illumined that a surety is responsible for the debt’s payment at once if the principal debtor makes default, whereas a guarantor pays only if the principal debtor is unable to pay, viz. : A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety promises to pay the principal’s debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Surety; extension given to debtor without consent of guarantor; effect of. Despite these distinctions, the Court in Cochingyan, Jr. v. R&B Surety & Insurance Co., Inc., and later in the case of Security Bank, held that Article 2079 of the Civil Code, which pertinently provides that “[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty,” equally applies to bothcontracts of guaranty and suretyship. The rationale therefor was explained by the Court as follows: The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety’s consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Surety; extension given to debtor without consent of guarantor; the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement did not have the effect of extinguishing the bonding companies’ obligations to TIDCORP under the Surety Bonds, notwithstanding the fact that said extensions were made without their consent. This is because Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the principal debtor without the consent of the guarantor or surety. In this case, the Surety Bonds are suretyship contracts which secure the debt of ASPAC, the principal debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur under the Letters of Guarantee, within the bounds of the bonds’ respective coverage periods and amounts. No payment extension was, however, granted by TIDCORP in favor of ASPAC in this regard; hence, Article 2079 of the Civil Code should not be applied with respect to the bonding companies’ liabilities to TIDCORP under the Surety Bonds.

The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORP’s own debt under the Letters of Guarantee wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations to the banks in the event of its (ASPAC) default. In other words, the Letters of Guarantee secured ASPAC’s loan agreements to the banks. Under this arrangement, TIDCORP therefore acted as a guarantor, with ASPAC as the principal debtor, and the banks as creditors. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Deed of mortgage; effect when the authorized agent failed to indicate in the mortgage that she was acting for and on behalf of her principal. Similarly, in this case, the authorized agent failed to indicate in the mortgage that she was acting for and on behalf of her principal. The Real Estate Mortgage, explicitly shows on its face, that it was signed by Concepcion in her own name and in her own personal capacity. In fact, there is nothing in the document to show that she was acting or signing as an agent of petitioner. Thus, consistent with the law on agency and established jurisprudence, petitioner cannot be bound by the acts of Concepcion. Nicanora G. v. Rural Bank of El Salvador, Inc. et al., G.R. No. 179625. February 24, 2014.

Bank; negligence of. At this point, we find it significant to mention that respondent bank has no one to blame but itself. Not only did it act with undue haste when it granted and released the loan in less than three days, it also acted negligently in preparing the Real Estate Mortgage as it failed to indicate that Concepcion was signing it for and on behalf of petitioner. We need not belabor that the words “as attorney-in-fact of,” “as agent of,” or “for and on behalf of,” are vital in order for the principal to be bound by the acts of his agent. Without these words, any mortgage, although signed by the agent, cannot bind the principal as it is considered to have been signed by the agent in his personal capacity. Nicanora G. v. Rural Bank of El Salvador, Inc. et al., G.R. No. 179625. February 24, 2014.

Agent; liability when deed of mortgage is signed in personal capacity. Concepcion, on the other hand, is liable to pay respondent bank her unpaid obligation under the Promissory Note dated June 11, 1982, with interest. As we have said, Concepcion signed the Promissory Note in her own personal capacity; thus, she cannot escape liability. She is also liable to reimburse respondent bank for all damages, attorneys’ fees, and costs the latter is adjudged to pay petitioner in this case. Nicanora G. v. Rural Bank of El Salvador, Inc. et al., G.R. No. 179625. February 24, 2014.

Article 1308 of the Civil Code; principle of mutuality of contracts. The credit agreement executed succinctly stipulated that the loan would be subjected to interest at a rate “determined by the Bank to be its prime rate plus applicable spread, prevailing at the current month.” This stipulation was carried over to or adopted by the subsequent renewals of the credit agreement. PNB thereby arrogated unto itself the sole prerogative to determine and increase the interest rates imposed on the Spouses Manalo. Such a unilateral determination of the interest rates contravened the principle of mutuality of contracts embodied in Article 1308 of the Civil Code.Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Contracts; a contract where there is no mutuality between the parties partakes of the nature of a contract of adhesion. The Court has declared that a contract where there is no mutuality between the parties partakes of the nature of a contract of adhesion, and any obscurity will be construed against the party who prepared the contract, the latter being presumed the stronger party to the agreement, and who caused the obscurity. PNB should then suffer the consequences of its failure to specifically indicate the rates of interest in the credit agreement. We spoke clearly on this in Philippine Savings Bank v. Castillo, to wit: The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts under Article 1308 of the Civil Code, which provides that ‘[t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.’ A perusal of the Promissory Note will readily show that the increase or decrease of interest rates hinges solely on the discretion of petitioner. It does not require the conformity of the maker before a new interest rate could be enforced. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result, thus partaking of the nature of a contract of adhesion, is void. Any stipulation regarding the validity or compliance of the contract left solely to the will of one of the parties is likewise invalid. Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Interest; interest should be computed from the time of the judicial or extrajudicial demand; rule when there is no demand. Indeed, the Court said in Eastern Shipping Lines, Inc. v. Court of Appeals that interest should be computed from the time of the judicial or extrajudicial demand. However, this case presents a peculiar situation, the peculiarity being that the Spouses Manalo did not demand interest either judicially or extrajudicially. In the RTC, they specifically sought as the main reliefs the nullification of the foreclosure proceedings brought by PNB, accounting of the payments they had made to PNB, and the conversion of their loan into a long term one. In its judgment, the RTC even upheld the validity of the interest rates imposed by PNB. In their appellant’s brief, the Spouses Manalo again sought the nullification of the foreclosure proceedings as the main relief. It is evident, therefore, that the Spouses Manalo made no judicial or extrajudicial demand from which to reckon the interest on any amount to be refunded to them. Such demand could only be reckoned from the promulgation of the CA’s decision because it was there that the right to the refund was

first judicially recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, the amount to be refunded and the interest thereon should earn interest to be computed from the finality of the judgment until the full refund has been made.Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Interest; Monetary Board Circular No. 799 reduced the interest rates from 12% per annum to 6% per annum. Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court, in Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, already applied Monetary Board Circular No. 799 by reducing the interest rates allowed in judgments from 12% per annum to 6% per annum. Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Interest; prospective application of Monetary Board Circular No. 799. According to Nacar v. Gallery Frames, MB Circular No. 799 is applied prospectively, and judgments that became final and executory prior to its effectivity on July 1, 2013 are not to be disturbed but continue to be implemented applying the old legal rate of 12% per annum. Hence, the old legal rate of 12% per annum applied to judgments becoming final and executory prior to July 1, 2013, but the new rate of 6% per annum applies to judgments becoming final and executory after said date. Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Mortgagee in good faith; doctrine of. In Bank of Commerce v. San Pablo, Jr., the doctrine of mortgagee in good faith was explained:There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising there from are given effect by reason of public policy. This is the doctrine of “the mortgagee in good faith” based on the rule that all persons dealing with property covered by the Torrens Certificates of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Mortgagee in good faith; HSLB, as a mortgagee, had a right to rely in good faith on Delgado’s title, and in the absence of any sign that might arouse suspicion, HSLB had no obligation to undertake further investigation.When the property was mortgaged to HSLB, the registered owner of the subject property was Delgado who had in her name TCT No. 44848. Thus, HSLB cannot be faulted in relying on the face of Delgado’s title. The records indicate that Delgado was at the time of the mortgage in possession of the subject property and Delgado’s title did not contain any annotation that would arouse HSLB’s suspicion. HSLB, as a mortgagee, had a right to rely in good faith on Delgado’s title, and in the absence of any sign that might arouse suspicion, HSLB had no obligation to undertake further investigation. As held by this Court in Cebu International Finance Corp. v. CA: The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee or transferee in good faith is nonetheless entitled to protection. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Purchaser in good faith; doctrine of; duty of a prospective buyer. purchaser in good faith is defined as one who buys a property without notice that some other person has a right to, or interest in, the property and pays full and fair price at the time of purchase or before he has notice of the claim or interest of other persons in the property.When a prospective buyer is faced with facts and circumstances as to arouse his suspicion, he must take precautionary steps to qualify as a purchaser in good faith. In Spouses Mathay v. CA, we determined the duty of a prospective buyer: Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title, it is also a firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/tenants thereon, it is of course, expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in the concept of the owner. As is the common practice in the real estate industry, an ocular inspection of the premises involved is a safeguard a cautious a nd prudent purchaser usually takes. Should he find out that the land he intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual possession, it would then be incumbent upon the purchaser to verify the extent

of the occupant’s possessory rights. The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a purchaser in good faith. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Notice of lis pendens ; definition of; purpose of . Lis pendens is a Latin term which literally means, “a pending suit or a pending litigation” while a notice of lis pendens is an announcement to the whole world that a real property is in litigation, serving as a warning that anyone who acquires an interest over the property does so at his/her own risk, or that he/she gambles on the result of the litigation over the property. It is a warning to prospective buyers to take precautions and investigate the pending litigation.

The purpose of a notice of lis pendens is to protect the rights of the registrant while the case is pending resolution or decision. With the notice of lis pendens duly recorded and remaining uncancelled, the registrant could rest secure that he/she will not lose the property or any part thereof during litigation. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Notice of lis pendens ; effect of actual knowledge of the annotated Notice of Lis Pendens . Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of the annotated Notice of Lis Pendens. Instead of heeding the same, HSLB continued with the purchase knowing the legal repercussions a notice of lis pendens entails. HSLB took upon itself the risk that the Notice of Lis Pendens leads to. As correctly found by the CA, “the notice of lis pendens was annotated on 14 September 1995, whereas the foreclosure sale, where the appellant was declared as the highest bidder, took place sometime in 1997. There is no doubt that at the time appellant purchased the subject property, it was aware of the pending litigation concerning the same property and thus, the title issued in its favor was subject to the outcome of said litigation.” Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Mortgage; mortgagor must be absolute owner of the thing mortgaged. That the mortgagor be the absolute owner of the thing mortgaged is an essential requisite of a contract of mortgage. Article 2085 (2) of the Civil Code specifically says so: Art. 2085. The following requisites are essential to the contracts of pledge and mortgage: x x x x (2) That the pledgor or mortagagor be the absolute owner of the thing pledged or mortgaged. Succinctly, for a valid mortgage to exist, ownership of the property is an essential requisite. Reyes v. De Leon cited the case of Philippine National Bank v. Rocha where it was pronounced that “a mortgage of real property executed by one who is not an owner thereof at the time of the execution of the mortgage is without legal existence.” Such that, according to DBP v. Prudential Bank, there being no valid mortgage, there could also be no valid foreclosure or valid auction sale. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

SPECIAL LAWS

  P.D. No. 957; subdivision lots; a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to sell.Thus, in Luzon Development Bank v. Enriquez, the Court reiterated the rule that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to sell. However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. x x x. x x x x x x x Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a third party:“[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot

be deemed to be an innocent mortgagee. x x x” Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Section 14 of P.D. No. 1529; original registration of title to land; who may apply. Applicants for original registration of title to land must establish compliance with the provisions of Section 14 of P.D. No. 1529, which pertinently provides that: Sec.14. Who may apply. The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives:(1) Those who by themselves or through their predecessors-in interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. (2) Those who have acquired ownership of private lands by prescription under the provision of existing laws.Republic of the Philippines v. Emmanuel C. Cortez, G.R. No. 186639. February 5, 2014.

Section 14 of P.D. No. 1529; original registration of title to land; requisites.Section 14(1) of P.D. No. 1529 refers to the judicial confirmation of imperfect or incomplete titles to public land acquired under Section 48(b)of C.A. No.141, as amended by P.D. No. 1073. “Under Section 14(1) [of P.D. No. 1529], applicants for registration of title must sufficiently establish first, that the subject land forms part of the disposable and alienable lands of the public domain; second, that the applicant and his predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and occupation of the same; and third, that it is under a bona fide claim of ownership since June 12, 1945, or earlier.” Republic of the Philippines v. Emmanuel C. Cortez, G.R. No. 186639. February 5, 2014.

Psychological incapacity; concept of; characterizations. “Psychological incapacity,” as a ground to nullify a marriage under Article 36 of the Family Code, should refer to no less than a mental – not merely physical – incapacity that causes a party to be truly incognitive of the basic marital covenants that concomitantly must be assumed and discharged by the parties to the marriage which, as so expressed in Article 68 of the Family Code, among others, include their mutual obligations to live together, observe love, respect and fidelity and render help and support.There is hardly any doubt that the intendment of the law has been to confine the meaning of “psychological incapacity” to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage. Republic of the Philippines v. Rodolfo O. De Gracia, G.R. No. 171557. February 12, 2014.

Psychological incapacity; emotional immaturity, irresponsibility, or even sexual promiscuity, cannot be equated with psychological incapacity.Keeping with these principles, the Court, in Dedel v. CA, held that therein respondent’s emotional immaturity and irresponsibility could not be equated with psychological incapacity as it was not shown that these acts are manifestations of a disordered personality which make her completely unable to discharge the essential marital obligations of the marital state, not merely due to her youth, immaturity or sexual promiscuity. Republic of the Philippines v. Rodolfo O. De Gracia, G.R. No. 171557. February 12, 2014.

Psychological incapacity; although expert opinions furnished by psychologists regarding the psychological temperament of parties are usually given considerable weight by the courts, the existence of psychological incapacity must still be proven by independent evidence. Verily, although expert opinions furnished by psychologists regarding the psychological temperament of parties are usually given considerable weight by the courts, the existence of psychological incapacity must still be proven by independent evidence. Republic of the Philippines v. Rodolfo O. De Gracia, G.R. No. 171557. February 12, 2014.

Psychological incapacity; refusal to live with Rodolfo and to assume her duties as wife and mother as well as her emotional immaturity, irresponsibility and infidelity do not rise to the level of psychological incapacity that would justify the nullification of the parties’ marriage. To the Court’s mind, Natividad’s refusal to live with Rodolfo and to assume her duties as wife and mother as well as her emotional immaturity, irresponsibility and infidelity do not rise to the level of psychological incapacity that would justify the nullification of the parties’ marriage. Indeed, to be declared clinically or medically incurable is one thing; to refuse or be reluctant to perform one’s duties is another. To hark back to what has been earlier discussed, psychological incapacity refers only to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage. Republic of the Philippines v. Rodolfo O. De Gracia, G.R. No. 171557. February 12, 2014.

Section 14 (1), Presidential Decree No. 1529; judicial confirmation of imperfect or incomplete titles to public land; requisites. Section 14(1) of P.D. No. 1529 refers to the judicial confirmation of imperfect or incomplete titles to public

land acquired under Section 48(b) of Commonwealth Act (C.A.) No. 141, or the Public Land Act, as amended by P.D. No. 1073. Under Section 14(1) of P.D. No. 1529, applicants for registration of title must sufficiently establish: first, that the subject land forms part of the disposable and alienable lands of the public domain; second, that the applicant and his predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and occupation of the same; and third, that it is under a bona fide claim of ownership since June 12, 1945, or earlier. Republic of the Philippines v. Remman Enterprises, Inc. represented by Ronnie P. Inocencio, G.R. No. 199310. February 19, 2014.

Proof that land is alienable and disposable; certifications insufficient. However, the said certifications presented by the respondent are insufficient to prove that the subject properties are alienable and disposable. In Republic of the Philippines v. T.A.N. Properties, Inc., the Court clarified that, in addition to the certification issued by the proper government agency that a parcel of land is alienable and disposable, applicants for land registration must prove that the DENR Secretary had approved the land classification and released the land of public domain as alienable and disposable. They must present a copy of the original classification approved by the DENR Secretary and certified as true copy by the legal custodian of the records. Republic of the Philippines v. Remman Enterprises, Inc. represented by Ronnie P. Inocencio, G.R. No. 199310. February 19, 2014.

Possession and occupation; proof of specific acts of ownership must be presented to substantiate the claim of open, continuous, exclusive, and notorious possession and occupation of the land subject of the application. For purposes of land registration under Section 14(1) of P.D. No. 1529, proof of specific acts of ownership must be presented to substantiate the claim of open, continuous, exclusive, and notorious possession and occupation of the land subject of the application. Applicants for land registration cannot just offer general statements which are mere conclusions of law rather than factual evidence of possession. Actual possession consists in the manifestation of acts of dominion over it of such a nature as a party would actually exercise over his own property. Republic of the Philippines v. Remman Enterprises, Inc. represented by Ronnie P. Inocencio, G.R. No. 199310. February 19, 2014.

Possession and occupation; mere casual cultivation of portions of the land by the claimant does not constitute possession under claim of ownership. Although Cerquena testified that the respondent and its predecessors-in-interest cultivated the subject properties, by planting different crops thereon, his testimony is bereft of any specificity as to the nature of such cultivation as to warrant the conclusion that they have been indeed in possession and occupation of the subject properties in the manner required by law. There was no showing as to the number of crops that are planted in the subject properties or to the volume of the produce harvested from the crops supposedly planted thereon. Further, assuming ex gratia argumenti that the respondent and its predecessors-in-interest have indeed planted crops on the subject properties, it does not necessarily follow that the subject properties have been possessed and occupied by them in the manner contemplated by law. The supposed planting of crops in the subject properties may only have amounted to mere casual cultivation, which is not the possession and occupation required by law. “A mere casual cultivation of portions of the land by the claimant does not constitute possession under claim of ownership. For him, possession is not exclusive and notorious so as to give rise to a presumptive grant from the state. The possession of public land, however long the period thereof may have extended, never confers title thereto upon the possessor because the statute of limitations with regard to public land does not operate against the state, unless the occupant can prove possession and occupation of the same under claim of ownership for the required number of years.” Republic of the Philippines v. Remman Enterprises, Inc. represented by Ronnie P. Inocencio, G.R. No. 199310. February 19, 2014.

 (Rose thanks Ferdinand Richard Michael M. Manotoc for assisting in the preparation of this post.)

Here are select January 2014 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Bad faith cannot be presumed; it is a question of fact that must be proven by clear and convincing evidence. It is worth stressing at this point that bad faith cannot be presumed. “It is a question of fact that must be proven” by clear and convincing evidence. “[T]he burden of proving bad faith rests on the one alleging it.” Sadly, spouses Vilbar failed to adduce the necessary evidence. Thus, this Court finds no error on the part of the CA when it did not find bad faith on the part of Gorospe, Sr. Sps. Bernadette and Rodulfo Vilbar v. Angelito L. Opinion, G.R. No. 176043. January 15, 2014.

Banks; exercise the highest degree of diligence, as well as to observe the high standards of integrity and performance in all its transactions because its business was imbued with public interest. Being a banking institution, DBP owed it to Guariña Corporation to exercise the highest degree of diligence, as well as to observe the high standards of integrity and performance in all its transactions because its business was imbued with public interest. The high standards were also necessary to ensure public confidence in the banking system, for, according to Philippine National Bank v. Pike: “The stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks.” Development Bank of the Philippines (DBP) v. Guariña Agricultural and Realty Development Corporation, G.R. No. 160758. January 15, 2014

Common carrier; cargoes while being unloaded generally remain under the custody of the carrier. It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the carrier. As hereinbefore found by the RTC and affirmed by the CA based on the evidence presented, the goods were damaged even before they were turned over to ATI. Such damage was even compounded by the negligent acts of petitioner and ATI which both mishandled the goods during the discharging operations. Eastern Shipping Lines, Inc. v. BPI/MS Insurance Corp., and Mitsui Sumitomo Insurance Co., Ltd.,G.R. No. 193986, January 15, 2014.

Common carrier; extraordinary diligence.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 transported by them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them. Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such high level of diligence. Eastern Shipping Lines, Inc. v. BPI/MS Insurance Corp., and Mitsui Sumitomo Insurance Co., Ltd.,G.R. No. 193986, January 15, 2014.

Contracts; breach of contract; petitioner is guilty of breach of contract when it unjustifiably refused to release respondents’ deposit despite demand; liable for damages. In cases of breach of contract, moral damages may be recovered only if the defendant acted fraudulently or in bad faith, or is “guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations.”

In this case, a review of the circumstances surrounding the issuance of the “Hold Out” order reveals that petitioner issued the “Hold Out” order in bad faith. First of all, the order was issued without any legal basis. Second, petitioner did not inform respondents of the reason for the “Hold Out.” Third, the order was issued prior to the filing of the criminal complaint. Records show that the “Hold Out” order was issued on July 31, 2003, while the criminal complaint was filed only on September 3, 2003. All these taken together lead us to conclude that petitioner acted in bad faith when it breached its contract with respondents. As we see it then, respondents are entitled to moral damages. Metropolitan Bank & Trust Company v. Ana Grace Rosales and Yo Yuk To, G.R. No. 183204, January 13, 2014.

Contracts; buyer in good faith. It is settled that a party dealing with a registered land does not have to inquire beyond the Certificate of Title in determining the true owner thereof, and in guarding or protecting his interest, for all that he has to look into and rely on are the entries in the Certificate of Title.

Inarguably, Opinion acted in good faith in dealing with the registered owners of the properties. He relied on the titles presented to him, which were confirmed by the Registry of Deeds to be authentic, issued in accordance with the law, and without any liens or encumbrances. Sps. Bernadette and Rodulfo Vilbar v. Angelito L. Opinion, G.R. No. 176043. January 15, 2014.

Contracts; Doctrine of in pari delicto ; exception . According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot recover from one another and are not entitled to an affirmative relief because they are in pari delicto or in equal fault. The doctrine of in pari delicto is a universal doctrine that holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property

agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.

Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An accepted exception arises when its application contravenes well-established public policy. In this jurisdiction, public policy has been defined as “that principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good.” Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014.

Contracts; Hold-out clause; applies only if there is a valid and existing obligation arising from any of the sources of obligation enumerated in Article 1157. Considering that respondent Rosales is not liable under any of the five sources of obligation, there was no legal basis for petitioner to issue the “Hold Out” order.

The “Hold Out” clause applies only if there is a valid and existing obligation arising from any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to issue a “Hold Out” order as the case is still pending and no final judgment of conviction has been rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner issued the “Hold Out” order, the criminal complaint had not yet been filed. Thus, considering that respondent Rosales is not liable under any of the five sources of obligation, there was no legal basis for petitioner to issue the “Hold Out” order. Metropolitan Bank & Trust Company v. Ana Grace Rosales and Yo Yuk To, G.R. No. 183204, January 13, 2014.

Contracts; Mortgage; nature of mortgage. It is true that loans are often secured by a mortgage constituted on real or personal property to protect the creditor’s interest in case of the default of the debtor. By its nature, however, a mortgage remains an accessory contract dependent on the principal obligation, such that enforcement of the mortgage contract will depend on whether or not there has been a violation of the principal obligation. While a creditor and a debtor could regulate the order in which they should comply with their reciprocal obligations, it is presupposed that in a loan the lender should perform its obligation – the release of the full loan amount – before it could demand that the borrower repay the loaned amount. Development Bank of the Philippines (DBP) v. Guariña Agricultural and Realty Development Corporation, G.R. No. 160758. January 15, 2014.

Contracts; mortgagee in good faith. Assuming arguendo that the Gorospes’ titles to the subject properties happened to be fraudulent, public policy considers Opinion to still have acquired legal title as a mortgagee in good faith. As held in Cavite Development Bank v. Spouses Lim:

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of ‘the mortgagee in good faith’ based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.

Sps. Bernadette and Rodulfo Vilbar v. Angelito L. Opinion, G.R. No. 176043. January 15, 2014.

Sales; proof capacity of seller; difference when there is a special power of attorney and when there is none.The strength of the buyer’s inquiry on the seller’s capacity or legal authority to sell depends on the proof of capacity of the seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of the face of such public document already constitutes sufficient inquiry. If no such special power of attorney is provided or there is one but there appears to be flaws in its notarial acknowledgment, mere inspection of the document will not do; the buyer must show that his investigation went beyond the document and into the circumstances of its execution. The Heirs of Victorino Sarili, namely, Isabel A. Sarili, et al. v. Pedro F. Lagrosa, represented in this act by his Attorney-in-Fact, Lourdes Labios Mojica, G.R. No. 193517, January 15, 2014.

Contracts; Principle of quantum merit ; when allowed . Case law instructs that under this principle (quantum meruit), a contractor is allowed to recover the reasonable value of the thing or services rendered despite the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit means that, in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves. The measure of recovery should relate to the reasonable value of the services performed because the principle aims to prevent undue enrichment based on the equitable postulate that it is unjust for a person to retain any benefit without paying for it. Rivelisa Realty, Inc., represented by Ricardo P. Venturina v. First Sta. Clara Builders Corporation, represented by Ramon A. Pangilinan, as President, G.R. No. 189618. January 15, 2014.

Contracts; rescission; proper when there is non-performance of obligation. Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. Fil-Estate Properties, Inc. and Fil-Estate Network, Inc. v. Spouses Conrado and Maria Victoria Ronquillo, G.R. No. 185798, January 13, 2014.

Contracts; void contract; effects. Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that “a contract, which is the direct result of a previous illegal contract, is also void and inexistent.” Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014.

Damages; moral damages; when awarded.[S]uffice it to say that the dispute over the subject property had caused respondent serious anxiety, mental anguish and sleepless nights, thereby justifying the aforesaid award. Likewise, since respondent was constrained to engage the services of counsel to file this suit and defend his interests, the awards of attorney’s fees and litigation expenses are also sustained. The Heirs of Victorino Sarili, namely, Isabel A. Sarili, et al. v. Pedro F. Lagrosa, represented in this act by his Attorney-in-Fact, Lourdes Labios Mojica, G.R. No. 193517, January 15, 2014.

Damages; moral damages; when awarded. Every person is entitled to the physical integrity of his body. Although we have long advocated the view that any physical injury, like the loss or diminution of the use of any part of one’s body, is not equatable to a pecuniary loss, and is not susceptible of exact monetary estimation, civil damages should be assessed once that integrity has been violated. The assessment is but an imperfect estimation of the true value of one’s body. The usual practice is to award moral damages for the physical injuries sustained. Dr. Encarnacion C. Lumantas v. Hanz Calapiz, represented by his parents, Hilario Calapiz, Jr. and Helita Calapiz, G.R. No. 163753. January 15, 2014.

Foreclosure; premature foreclosure; order of restoration of possession and payment of reasonable rentals. Having found and pronounced that the extrajudicial foreclosure by DBP was premature, and that the ensuing foreclosure sale was void and ineffectual, the Court affirms the order for the restoration of possession to Guarifia Corporation and the payment of reasonable rentals for the use of the resort. The CA properly held that the premature and invalid foreclosure had unjustly dispossessed Guarifia Corporation of its properties. Consequently, the restoration of possession and the payment of reasonable rentals were in accordance with Article 561 of the Civil Code, which expressly states that one who recovers, according to law, possession unjustly lost shall be deemed for all purposes which may redound to his benefit to have enjoyed it without interruption. Development Bank of the Philippines (DBP) v. Guariña Agricultural and Realty Development Corporation, G.R. No. 160758. January 15, 2014.

Foreclosure; purchaser in foreclosure sale may take possession of the property even before the expiration of the redemption period. A writ of possession is a writ of execution employed to enforce a judgment to recover the possession of land. It commands the sheriff to enter the land and give possession of it to the person entitled under the judgment. It may be issued in case of an extrajudicial foreclosure of a real estate mortgage under Section 7 of Act No. 3135, as amended by Act No. 4118.

Under said provision, the writ of possession may be issued to the purchaser in a foreclosure sale either within the one-year redemption period upon the filing of a bond, or after the lapse of the redemption period, without need of a bond.

We have consistently held that the duty of the trial court to grant a writ of possession is ministerial. Such writ issues as a matter of course upon the filing of the proper motion and the approval of the corresponding bond. No discretion is left to the trial court. Any question regarding the regularity and validity of the sale, as well as the consequent cancellation of the writ, is to be determined in a subsequent proceeding as outlined in Section 8 of Act No. 3135. Such question cannot be raised to oppose the issuance of the writ, since the proceeding is ex parte. The recourse is available even before the expiration of the redemption period provided by law and the Rules of Court. LZK Holdings and Development Corporation v. Planters Development Bank, G.R. No. 187973, January 20, 2014.

Interest; legal interest; interest rate pegged at 6% regardless of the source of obligation. The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar v. Gallery Frames, embodying the amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which pegged the interest rate at 6% regardless of the source of obligation. Fil-Estate Properties, Inc. and Fil-Estate Network, Inc. v. Spouses Conrado and Maria Victoria Ronquillo, G.R. No. 185798, January 13, 2014.

Interest; legal interest; proper rate. In Eastern Shipping, it was observed that the commencement of when the legal interest should start to run varies depending on the factual circumstances obtaining in each case. As a rule of thumb, it was suggested that “where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained).”

During the pendency of this case, however, the Monetary Board issued Resolution No. 796 dated May 16, 2013, stating that in the absence of express stipulation between the parties, the rate of interest in loan or forbearance of any money, goods or credits and the rate allowed in judgments shall be 6% per annum. Said Resolution is embodied in Bangko Sentral ng Pilipinas Circular No. 799, Series of2013, which took effect on July 1, 2013. Hence, the 12% annual interest mentioned above shall apply only up to June 30, 2013. Thereafter, or starting July 1, 2013, the applicable rate of interest for both the debited amount and undocumented withdrawals shall be 6% per annum compounded annually, until fully paid. Land Bank of the Philippines v. Emmanuel C. Oñate, G.R. No. 192371, January 15, 2014.

Interest; legal interest; rate. The legal interest rate to be imposed from February 11, 1993, the time of the extrajudicial demand by respondent, should be 6% per annum in the absence of any stipulation in writing in accordance with Article 2209 of the Civil Code, which provides:

Article 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. First United Constructors Corporation, et al. v. Bayanihan Automotive Corporation, G.R. No. 164985, January 15, 2014.

Interest; legal interest; when awarded. Many years have gone by since Hanz suffered the injury. Interest of 6% per annum should then be imposed on the award as a sincere means of adjusting the value of the award to a level that is not only reasonable but just and commensurate. Unless we make the adjustment in the permissible manner by prescribing legal interest on the award, his sufferings would be unduly compounded. For that purpose, the reckoning of interest should be from the filing of the criminal information on April 1 7, 1997, the making of the judicial demand for the liability of the petitioner. Dr. Encarnacion C. Lumantas v. Hanz Calapiz, represented by his parents, Hilario Calapiz, Jr. and Helita Calapiz, G.R. No. 163753. January 15, 2014.

Obligations; default; borrower would not be in default without demand to pay. Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an effective demand for payment upon Guariña Corporation to perform its obligation under the loan. According to Development Bank of the Philippines v. Licuanan, it would only be when a demand to pay had been made and was subsequently refused that a borrower could be considered in default, and the lender could obtain the right to collect the debt or to foreclose the mortgage. Development Bank of the Philippines (DBP) v. Guariña Agricultural and Realty Development Corporation, G.R. No. 160758. January 15, 2014.

Obligations; extinguishment of obligations; compensation; requisites. Compensation is defined as a mode of extinguishing obligations whereby two persons in their capacity as principals are mutual debtors and creditors of each

other with respect to equally liquidated and demandable obligations to which no retention or controversy has been timely commenced and communicated by third parties.53 The requisites therefor are provided under Article 1279 of the Civil Code which reads as follows:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

The rule on legal compensation is stated in Article 1290 of the Civil Code which provides that “[w]hen all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation.” Union Bank of the Philippines v. Development Bank of the Philippines, G.R. No. 191555, January 20, 2014.

Obligations; legal compensation; requisites. Legal compensation takes place when the requirements set forth in Article 1278 and Article 1279 of the Civil Code are present, to wit:

Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.”

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consists in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

First United Constructors Corporation, et al. v. Bayanihan Automotive Corporation, G.R. No. 164985, January 15, 2014.

Property; builder in good faith; concept of. To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds, i.e. , that he be a possessor in concept of owner, and that he be unaware that there exists in his title or mode of acquisition any flaw which invalidates it. Good faith is an intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The Heirs of Victorino Sarili, namely, Isabel A. Sarili, et al. v. Pedro F. Lagrosa, represented in this act by his Attorney-in-Fact, Lourdes Labios Mojica, G.R. No. 193517, January 15, 2014.

Property; ownership; accession; accessory follows the principal; exception. While it is a hornbook doctrine that the accessory follows the principal, that is, the ownership of the property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially, such rule is not without exception. In cases where there is a clear and convincing evidence to prove that the principal and the accessory are not owned by one and the same person or entity, the presumption shall not be applied and the actual ownership shall be upheld. In a number of cases, we recognized the separate ownership of the land from the building and brushed aside the rule that accessory follows the principal. Magdalena T. Villasi v. Filomena Garcia, substituted by his heirs, namely, Ermelinda H. Garcia, et al., G.R. No. 190106, January 15, 2014.

Quasi-contracts; Unjust enrichment. Unjust enrichment exists, according to Hulst v. PR Builders, Inc., “when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.” The prevention of unjust enrichment is a recognized public policy of the State, for Article 22 of the Civil Code explicitly provides that “[e]very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.” Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014.

Sales; Article 1599 of the Civil Code; recoupment; definition of; when entitled. Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon which one is sued by means of a legal or equitable right resulting from a counterclaim arising out of the same transaction. It is the setting up of a demand arising from the same transaction as the plaintiff’s claim, to abate or reduce that claim.

The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of the Civil Code, viz:

Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:

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

x x x x

First United Constructors Corporation, et al. v. Bayanihan Automotive Corporation, G.R. No. 164985, January 15, 2014.

Sales; sale of a piece of land or any interest therein is through an agent; authority of the agent shall be in writing; otherwise, the sale shall be void. The due execution and authenticity of the subject SPA are of great significance in determining the validity of the sale entered into by Victorino and Ramon since the latter only claims to be the agent of the purported seller (i.e., respondent). Article 1874 of the Civil Code provides that “[w]hen a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.” In other words, if the subject SPA was not proven to be duly executed and authentic, then it cannot be said that the foregoing requirement had been complied with; hence, the sale would be void. The Heirs of Victorino Sarili, namely, Isabel A. Sarili, et al. v. Pedro F. Lagrosa, represented in this act by his Attorney-in-Fact, Lourdes Labios Mojica, G.R. No. 193517, January 15, 2014.

SPECIAL LAWS

Section 23 of Presidential Decree No. 957; non-forfeiture of payments. Section 23 of Presidential Decree No. 957, the rule governing the sale of condominiums, which provides: No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. Fil-Estate Properties, Inc. and Fil-Estate Network, Inc. v. Spouses Conrado and Maria Victoria Ronquillo, G.R. No. 185798, January 13, 2014.

Section 6 of Presidential Decree No. 1594; right of assignment and subcontract. There is no question that every contractor is prohibited from subcontracting with or assigning to another person any contract or project that he has with the DPWH unless the DPWH Secretary has approved the subcontracting or assignment. This is pursuant to Section 6 of Presidential Decree No. 1594, which provides that “[T]he contractor shall not assign, transfer, pledge, subcontract or make any other disposition of the contract or any part or interest therein except with the approval of the Minister of Public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be. Approval of the subcontract shall not relieve the main contractor from any liability or obligation under his contract with the Government nor shall it create any contractual relation between the subcontractor and the Government.”  Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014.

Family law; conjugal property; all property of the marriage is presumed to be conjugal, unless it is shown that it is owned exclusively by the husband or the wife.  There is a presumption that all property of the marriage is conjugal, unless it is shown that it is owned exclusively by the husband or the wife; this presumption is not overcome by the fact that the property is registered in the name of the husband or the wife alone; and the consent of both spouses is required before a conjugal property may be mortgaged. However, we find it iniquitous to apply the foregoing presumption especially since the nature of the mortgaged property was never raised as an issue before the RTC, the CA, and even before this Court. In fact, petitioner never alleged in his Complaint that the said property was conjugal in nature. Hence, respondent had no opportunity to rebut the said presumption. Francisco Lim v. Equitable PCI Bank, now known as Banco De Oro Unibank, Inc., G.R. No. 183918. January 15, 2014.

Family law; exclusive property of spouse; when the property is registered in the name of a spouse only and there is no showing as to when the property was acquired by said spouse, this is an indication that the property belongs exclusively to said spouse. Article 160 of the Civil Code provides as follows: All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.”

The presumption applies to property acquired during the lifetime of the husband and wife. In this case, it appears on the face of the title that the properties were acquired by Donata Montemayor when she was already a widow. When the property is registered in the name of a spouse only and there is no showing as to when the property was acquired by said spouse, this is an indication that the property belongs exclusively to said spouse. And this presumption under Article 160 of the Civil Code cannot prevail when the title is in the name of only one spouse and the rights of innocent third parties are involved. Francisco Lim v. Equitable PCI Bank, now known as Banco De Oro Unibank, Inc., G.R. No. 183918. January 15, 2014.

Torrens system; certificate of title; a certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein. “[A] certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein.” Having no certificate of title issued in their names, spouses Vilbar have no indefeasible and incontrovertible title over Lot 20 to support their claim. Further, it is an established rule that “registration is the operative act which gives validity to the transfer or creates a lien upon the land.” “Any buyer or mortgagee of realty covered by a Torrens certificate of title x x x is charged with notice only of such burdens and claims as are annotated on the title.” Failing to annotate the deed for the eventual transfer of title over Lot 20 in their names, the spouses Vilbar cannot claim a greater right over Opinion, who acquired the property with clean title in good faith and registered the same in his name by going through the legally required procedure. Sps. Bernadette and Rodulfo Vilbar v. Angelito L. Opinion, G.R. No. 176043. January 15, 2014.

Torrens system; Torrens title; a person dealing with a registered land has a right to rely upon the face of the Torrens certificate of title; exceptions. The well-known rule in this jurisdiction is that a person dealing with a registered land has a right to rely upon the face of the torrens certificate of title and to dispense with the need of inquiring further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.

A torrens title concludes all controversy over ownership of the land covered by a final decree of registration. Once the title is registered the owner may rest assured without the necessity of stepping into the portals of the court or sitting in the mirador de su casa to avoid the possibility of losing his land. Francisco Lim v. Equitable PCI Bank, now known as Banco De Oro Unibank, Inc., G.R. No. 183918. January 15, 2014.

Torrens title; a person dealing with a registered land has a right to rely upon the face of the Torrens certificate of title; exception in the case of a person who buys from a person who is not the registered owner.The general rule is that every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the condition of the property. Where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defects or inchoate right that may subsequently defeat his right thereto.

However, a higher degree of prudence is required from one who buys from a person who is not the registered owner, although the land object of the transaction is registered. In such a case, the buyer is expected to examine not only the certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the transferor. The buyer also has the duty to ascertain the identity of the person with whom he is dealing with and the latter’s legal authority to convey the property. The Heirs of Victorino Sarili, namely, Isabel A. Sarili, et al. v. Pedro F. Lagrosa, represented in this act by his Attorney-in-Fact, Lourdes Labios Mojica, G.R. No. 193517, January 15, 2014.

Torrens system;even if the procurement of a certificate of title was tainted with fraud and misrepresentation, such defective title may be the source of a completely legal and valid title in the hands of an innocent purchaser for value. It is well-settled that even if the procurement of a certificate of title was tainted with fraud and misrepresentation, such defective title may be the source of a completely legal and valid title in the hands of an innocent purchaser for value. Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate. The effect of such an outright cancellation would be to impair public confidence in the certificate of title, for everyone dealing with property registered under the Torrens system would have to inquire in every instance whether the title has been regularly or irregularly issued. This is contrary to the evident purpose of the law. The Heirs of Victorino Sarili, namely, Isabel A. Sarili, et al. v. Pedro F. Lagrosa, represented in this act by his Attorney-in-Fact, Lourdes Labios Mojica, G.R. No. 193517, January 15, 2014.

Torrens system; levy on attachment, duly registered, takes preference over a prior unregistered sale.”[T]he settled rule that levy on attachment, duly registered, takes preference over a prior unregistered sale. This result is a necessary consequence of the fact that the [properties] involved [were] duly covered by the Torrens system which works under the fundamental principle that registration is the operative act which gives validity to the transfer or creates a lien upon the land.” Sps. Bernadette and Rodulfo Vilbar v. Angelito L. Opinion, G.R. No. 176043. January 15, 2014.

(Rose thanks Anna Katarina Rodriguez and Amirah Pendatun  for their assistance in the preparation of this post.) 

Here are seclect December 2013 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contracts; concept of contracts. A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. The real nature of a contract may be determined from the express terms of the written agreement and from the contemporaneous and subsequent acts of the contracting parties. However, in the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued. The denomination or title given by the parties in their contract is not conclusive of the nature of its contents. ACE Foods, Inc. v. Micro Pacific Technologies Co., Ltd., G.R. No. 200602,   December 11, 2013.

Contracts; contract of loan; interest stipulated; reduced for being iniquitous and unconscionable. Parties to a loan contract have wide latitude to stipulate on any interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983. It is, however, worth stressing that interest rates whenever unconscionable may still be declared illegal. There is nothing in the circular which grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.In Menchavez v. Bermudez, the interest rate of 5% per month, which when summed up would reach 60% per annum, is null and void for being excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law. Florpina Benvidez v. Nestor Salvador, G.R. No. 173331, December 11, 2013.

Damages; award of costs; when entitled. Costs shall be allowed to the prevailing party as a matter of course unless otherwise provided in the Rules of Court. The costs Ramirez may recover are those stated in Section 10, Rule 142 of the Rules of Court. For instance, Ramirez may recover the lawful fees he paid in docketing his action for annulment of sale before the trial court. The court adds thereto the amount of P3,530 or the amount of docket and lawful fees paid by Ramirez for filing this petition before this Court. 35(35) The court deleted the award of moral and exemplary damages; hence, the restriction under Section 7, Rule 142 of the Rules of Courtwould have prevented Ramirez to recover any cost of suit. But the court certifies, in accordance with said Section 7, that Ramirez’s action for annulment of sale involved a substantial and important right such that he is entitled to an award of costs of suit. Needless to stress, the purpose of paragraph N of the real estate mortgage is to apprise the mortgagor, Ramirez, of any action that the mortgagee-bank might take on the subject properties, thus according him the opportunity to safeguard his rights. Jose T. Ramirez v. The Manila Banking Corporation, G.R. No. 198800, December 11, 2013.

Damages; exemplary damages; when entitled. No exemplary damages can be awarded since there is no basis for the award of moral damages and there is no award of temperate, liquidated or compensatory damages.Exemplary damages are imposed by way of example for the public good, in addition to moral, temperate, liquidated or compensatory damages. Jose T. Ramirez v. The Manila Banking Corporation, G.R. No. 198800, December 11, 2013.

Damages; moral damages; when entitled. Nothing supports the trial court’s award of moral damages. There was no testimony of any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury suffered by Ramirez. The award of moral damages must be anchored on a clear showing that Ramirez actually experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury. Ramirez’s testimony is also wanting as to the moral damages he suffered. Jose T. Ramirez v. The Manila Banking Corporation, G.R. No. 198800, December 11, 2013.

Foreclosure; extrajudicial foreclosure; notice of extrajudicial foreclosure proceedings not necessary unless stipulated by the parties. In Carlos Lim, et al. v. Development Bank of the Philippines, the court held that unless the parties stipulate, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary because Section 3 of Act No. 3135 only requires the posting of the notice of sale in three public places and the publication of that notice in a newspaper of general circulation. In this case, the parties stipulated in paragraph N of the real estate mortgage that all correspondence relative to the mortgage including notifications of extrajudicial actions shall be sent to mortgagor Ramirez at his given address. Respondent had no choice but to comply with this contractual provision it has entered into with Ramirez. The contract is the law between them. Hence, the court cannot agree with the bank that paragraph N of the real estate mortgage does not impose an additional obligation upon it to provide personal notice of the extrajudicial foreclosure sale to the mortgagor Ramirez. Jose T. Ramirez v. The Manila Banking Corporation, G.R. No. 198800, December 11, 2013.

Foreclosure of mortgage; proceeds; obligations covered. The petitioner contends that there was no excess or surplus that needs to be returned to the respondent because her other outstanding obligations and those of her attorney-in-fact were paid out of the proceeds.

The relevant provision, Section 4 of Rule 68 of the Rules of Civil Procedure, mandates that:

Section 4. Disposition of proceeds of sale. — The amount realized from the foreclosure sale of the mortgaged property shall, after deducting the  costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person entitled to it.

Thus, in the absence of any evidence showing that the mortgage also covers the other obligations of the mortgagor, the proceeds from the sale should not be applied to them. Philippine Bank of Communication v. Mary Ann O. Yeung, G.R. No. 179691, December 4, 2013.

Laches; concept of. Well settled is the rule that the elements of laches must be proven positively. Laches is evidentiary in nature, a fact that cannot be established by mere allegations in the pleadings and cannot be resolved in a motion to dismiss. At this stage therefore, the dismissal of the complaint on the ground of laches is premature. Those issues must

be resolved at the trial of the case on the merits, wherein both parties will be given ample opportunity to prove their respective claims and defenses. Modesto Sanchez v. Andrew Sanchez, G.R. No. 187661, December 4, 2013 .

Mortgage; redemption period; reckoning of the period of redemption by the mortgagor or his successor-in-interest starts from the registration of the sale in the Register of Deeds. The reckoning of the period of redemption by the mortgagor or his successor-in-interest starts from the registration of the sale in the Register of Deeds. Although Section 6 of Act No. 3135, as amended, specifies that the period of redemption starts from and after the date of the sale, jurisprudence has since settled that such period is more appropriately reckoned from the date of registration.United Coconut Planters Bank v. Christopher Lumbo and Milagros Lumbo, G.R. No. 162757, December 11, 2013.

Obligations; force majeure; concept of force majeure. Anent petitioners’ reliance on force majeure, suffice it to state that Peakstar’s breach of its obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous event under jurisprudential formulation.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same.

To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. Metro Concast Steel Corp., Spouses Jose S. Dychiao and Tiu Oh Yan, et al. v. Allied Bank Corporation, G.R. No. 177921, December 4, 2013.

Obligations; modes of extinguishment. Article 1231 of the Civil Code states that obligations are extinguished either by payment or performance, the loss of the thing due, the condonation or remission of the debt, the confusion or merger of the rights of creditor and debtor, compensation or novation. Metro Concast Steel Corp., Spouses Jose S. Dychiao and Tiu Oh Yan, et al. v. Allied Bank Corporation, G.R. No. 177921, December 4, 2013.

Obligations; novation; extinctive novation distinguished from modificatory novation.To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. In either case, however, novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. ACE Foods, Inc. v. Micro Pacific Technologies Co., Ltd., G.R. No. 200602,   December 11, 2013.

Property; action for reconveyance; prescriptive period; exception. The Court likewise takes note that Paraguya’s complaint is likewise in the nature of an action for reconveyance because it also prayed for the trial court to order Sps. Crucillo to “surrender ownership and possession of the properties in question to [Paraguya], vacating them altogether . . . .” Despite this, Paraguya’s complaint remains dismissible on the same ground because the prescriptive period for actions for reconveyance is ten (10) years reckoned from the date of issuance of the certificate of title, except when the owner is in possession of the property, in which case the action for reconveyance becomes imprescriptible. Laura F. Paraguya v. Sps. Alma Escurel-Crucillo and Emeterio Crucillo and the Register of Deeds of Sorsogon, G.R. No. 200265, December 2, 2013.

Property; possessor in good faith; reimbursement of necessary and useful expenses. Dionisio was well aware that this temporary arrangement may be terminated at any time. Respondents cannot now refuse to vacate the property or eventually demand reimbursement of necessary and useful expenses under Articles 448 and 546 of the New Civil Code, because the provisions apply only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. Persons who occupy land by virtue of tolerance of the owners are not possessors in good faith. Heirs of Cipriano Trazona, et al. v. Heirs of Dionisio Cañada, et al., G.R. No. 175874, December 11, 2013.

Property; Spanish titles can no longer be used as evidence of ownership after six (6) months from the effectivity of PD 892. Based on Section 1 of PD 892, entitled “Discontinuance of the Spanish Mortgage System of Registration and of the Use of Spanish Titles as Evidence in Land Registration Proceedings,” Spanish titles can no longer be used as evidence of ownership after six (6) months from the effectivity of the law, or starting August 16, 1976. Laura F. Paraguya v. Sps. Alma Escurel-Crucillo and Emeterio Crucillo and the Register of Deeds of Sorsogon, G.R. No. 200265, December 2, 2013.

Property; waiver of interest; when absolute and unconditional.Lucila did not say, “to put everything in proper order, I promise to waive my right” to the property, which is a future undertaking, one that is demandable only when everything is put in proper order. But she instead said, “to put everything in proper order, I hereby waive” etc. The phrase “hereby waive” means that Lucila was, by executing the affidavit, already waiving her right to the property, irreversibly divesting herself of her existing right to the same. After he and his co-owner Emelinda accepted the donation, Isabelo became the owner of half of the subject property having the right to demand its partition.Isabelo C. Dela Cruz v. Lucila C. Dela Cruz, G.R. No. 192383, December 4, 2013.

Quasi-contract; unjust enrichment; concept of; elements.In light of the foregoing, it is unfair to deny petitioner a refund of all his contributions to the car plan. Under Article 22 of the Civil Code, “[e]very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.” Antonio Locsin II v. Mekeni Food Corporation, G.R. No. 192105, December 9, 2013.

Quasi-contract; concept of quasi-contract. Article 2142 of the same Code likewise clarifies that there are certain lawful, voluntary and unilateral acts which give rise to the juridical relation of quasi-contract, to the end that no one shall be unjustly enriched or benefited at the expense of another. In the absence of specific terms and conditions governing the car plan arrangement between the petitioner and Mekeni, a quasi-contractual relation was created between them. Antonio Locsin II v. Mekeni Food Corporation, G.R. No. 192105, December 9, 2013.

Quasi-delict; elements. Article 2176 of the Civil Code provides that “[w]hoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is a quasi-delict.” Under this provision, the elements necessary to establish a quasi-delict case are: (1) damages to the plaintiff; (2) negligence, by act or omission, of the defendant or by some person for whose acts the defendant must respond, was guilty; and (3) the connection of cause and effect between such negligence and the damages. These elements show that the source of obligation in a quasi-delict case is the breach or omission of mutual duties that civilized society imposes upon its members, or which arise from non-contractual relations of certain members of society to others. Dra. Leila A. Dela Llana v. Rebecca Biong, doing business under the name and style of Pongkay Trading, G.R. No. 182356, December 4, 2013.

Quasi-delict; quantum of proof; preponderance of evidence. Based on these requisites, Dra. dela Llana must first establish by preponderance of evidence the three elements of quasi-delict before we determine Rebecca’s liability as Joel’s employer. She should show the chain of causation between Joel’s reckless driving and her whiplash injury. Only after she has laid this foundation can the presumption — that Rebecca did not exercise the diligence of a good father of a family in the selection and supervision of Joel — arise.Once negligence, the damages and the proximate causation are established, this Court can then proceed with the application and the interpretation of the fifth paragraph of Article 2180 of the Civil Code. Under Article 2176 of the Civil Code, in relation with the fifth paragraph of Article 2180, “an action predicated on an employee’s act or omission may be instituted against the employer who is held liable for the negligent act or omission committed by his employee.”The rationale for these graduated levels of analyses is that it is essentially the wrongful or negligent act or omission itself which creates the vinculum juris in extra-contractual obligations. Dra. Leila A. Dela Llana v. Rebecca Biong, doing business under the name and style of Pongkay Trading, G.R. No. 182356, December 4, 2013.

Sales; car plan benefit; contributions as installment payments distinguished from rental payments. From the evidence on record, it is seen that the Mekeni car plan offered to petitioner was subject to no other term or condition than that Mekeni shall cover one-half of its value, and petitioner shall in turn pay the other half through deductions from his monthly salary. Mekeni has not shown, by documentary evidence or otherwise, that there are other terms and conditions governing its car plan agreement with petitioner. There is no evidence to suggest that if petitioner failed to completely

cover one-half of the cost of the vehicle, then all the deductions from his salary going to the cost of the vehicle will be treated as rentals for his use thereof while working with Mekeni, and shall not be refunded. Indeed, there is no such stipulation or arrangement between them. Thus, the CA’s reliance on Elisco Tool is without basis, and its conclusions arrived at in the questioned decision are manifestly mistaken. To repeat what was said in Elisco Tool, “[P]etitioner does not deny that private respondent Rolando Lantan acquired the vehicle in question under a car plan for executives of the Elizalde group of companies. Under a typical car plan, the company advances the purchase price of a car to be paid back by the employee through monthly deductions from his salary. The company retains ownership of the motor vehicle until it shall have been fully paid for. However, retention of registration of the car in the company’s name is only a form of a lien on the vehicle in the event that the employee would abscond before he has fully paid for it. There are also stipulations in car plan agreements to the effect that should the employment of the employee concerned be terminated before all installments are fully paid, the vehicle will be taken by the employer and all installments paid shall be considered rentals per agreement.“

It was made clear in this pronouncement that installments made on the car plan may be treated as rentals only when there is an express stipulation in the car plan agreement to such effect. It was therefore patent error for the appellate court to assume that, even in the absence of express stipulation, petitioner’s payments. Antonio Locsin II v. Mekeni Food Corporation, G.R. No. 192105, December 9, 2013.

Sales; contract of sale; elements; distinguished from contract to sell. Corollary thereto, a contract of sale is classified as a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold.

In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the purchase price. A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. ACE Foods, Inc. v. Micro Pacific Technologies Co., Ltd., G.R. No. 200602,   December 11, 2013.

  Sales; contract to sell; concept of. Verily, in a contract to sell, the prospective seller binds himself to sell the property  subject of the agreement exclusively to the prospective buyer upon fulfillment of the condition agreed upon which is the full payment of the purchase price but reserving to himself the ownership of the subject property despite delivery thereof to the prospective buyer.The full payment of the purchase price in a contract to sell is a suspensive condition, the non-fulfillment of which prevents the prospective seller’s obligation to convey title from becoming effective, as in this case. Optimum Development Bank v. Spouses Benigno v. Jovellanos and Lourdes R. Jovellanos, G.R. No. 189145, December 4, 2013.

Sales; contract to sell; real property in installments; covered by Realty Installment Buyer Protection Act. Further, it is significant to note that given that the Contract to Sell in this case is one which has for its object real property to be sold on an installment basis, the said contract is especially governed by — and thus, must be examined under the provisions of — RA 6552, or the “Realty Installment Buyer Protection Act”, which provides for the rights of the buyer in case of his default in the payment of succeeding installments. Optimum Development Bank v. Spouses Benigno v. Jovellanos and Lourdes R. Jovellanos, G.R. No. 189145, December 4, 2013.

SPECIAL LAWS

Property Registration Decree; alienable lands of public domain; proof of; to prove that the land subject of an application for registration is alienable, an applicant must establish the existence of a positive act of the Government. The burden of proof in overcoming the presumption of State ownership of lands of the public domain is on the person applying for registration, or in this case, for homestead patent. The applicant must show that the land subject of the application is alienable or disposable. It must be stressed that incontrovertible evidence must be presented to establish that the land subject of the application is alienable or disposable.

As the court pronounced in Republic of the Phils. v. Tri-Plus Corporation, to prove that the land subject of an application for registration is alienable, an applicant must establish the existence of a positive act of the Government such as a presidential proclamation or an executive order, an administrative action, investigation reports of Bureau of Lands investigators, and a legislative act or statute. The applicant may also secure a certification from the Government that the lands applied for are alienable and disposable. Republic of the Philippines-Bureau of Forest Development v. Vicente Roxas, et al./Provident Tree Farms, Inc. v. Vicente Roxas, et al., G.R. Nos. 157988/160640, December 11, 2013.

Property Registration Decree; estoppel; the principle of estoppel does not operate against the Government for the act of its agents. Neither can respondent Roxas successfully invoke the doctrine of estoppel against petitioner Republic. While it is true that respondent Roxas was granted Homestead Patent No. 111598 and OCT No. P-5885 only after undergoing appropriate administrative proceedings, the Government is not now estopped from questioning the validity of said homestead patent and certificate of title. It is, after all, hornbook law that the principle of estoppel does not operate against the Government for the act of its agents. And while there may be circumstances when equitable estoppel was applied against public authorities,  i.e., when the Government did not undertake any act to contest the title for an unreasonable length of time and the lot was already alienated to innocent buyers for value, such are not present in this case. More importantly, we cannot use the equitable principle of estoppel to defeat the law. Republic of the Philippines-Bureau of Forest Development v. Vicente Roxas, et al./Provident Tree Farms, Inc. v. Vicente Roxas, et al., G.R. Nos. 157988/160640, December 11, 2013.

Property Registration Decree; homestead patent; once registered, the certificate of title issued by virtue of said patent has the force and effect of a Torrens title issued under said registration laws; provided that the land covered by said certificate is a disposable public land within the contemplation of the Public Land Law.It is true that once a homestead patent granted in accordance with the Public Land Act is registered pursuant to Act 496, otherwise known as The Land Registration Act, or Presidential Decree No. 1529, otherwise known as The Property Registration Decree, the certificate of title issued by virtue of said patent has the force and effect of a Torrens title issued under said registration laws.We expounded in Ybañez v. Intermediate Appellate Court that:

The certificate of title serves as evidence of an indefeasible title to the property in favor of the person whose name appears therein. After the expiration of the one (1) year period from the issuance of the decree of registration upon which it is based, it becomes incontrovertible. The settled rule is that a decree of registration and the certificate of title issued  pursuant thereto may be attacked on the ground of actual fraud within one (1) year from the date of its entry and such an attack must be direct and not by a collateral proceeding. The validity of the certificate of title in this regard can be threshed out only in an action expressly filed for the purpose.

It must be emphasized that a certificate of title issued under an administrative proceeding pursuant to a homestead patent, as in the instant case, is as indefeasible as a certificate of title issued under a judicial registration proceeding, provided the land covered by said certificate is a disposable public land within the contemplation of the Public Land Law.  Republic of the Philippines-Bureau of Forest Development v. Vicente Roxas, et al./Provident Tree Farms, Inc. v. Vicente Roxas, et al., G.R. Nos. 157988/160640, December 11, 2013.

Property Registration Decree; reversion; nature of; grounds. We do not find evidence indicating that respondent Roxas committed fraud when he applied for homestead patent over the subject property. It does not appear that he knowingly and intentionally misrepresented in his application that the subject property was alienable and disposable agricultural land. Nonetheless, we recognized in Republic of the Phils. v. Mangotara that there are instances when we granted reversion for reasons other than fraud:

Reversion is an action where the ultimate relief sought is to revert the land back to the government under the Regalian doctrine. Considering that the land subject of the action originated from a grant by the government, its cancellation is a matter between the grantor and the grantee. In Estate of the Late Jesus S. Yujuico v. Republic (Yujuico  case),  reversion was defined as an action which seeks to restore public land fraudulently awarded and disposed of to private individuals or corporations to the mass of public domain. It bears to point out, though, that the Court also allowed the resort by the Government to actions for reversion to cancel titles that were void for reasons other than fraud, i.e., violation by the grantee of a patent of the conditions imposed by law; and lack of jurisdiction of the Director of Lands to grant a patent covering inalienable forest land or portion of a river, even when such grant was made through mere oversight. In

Republic v. Guerrero, the Court gave a more general statement that the remedy of reversion can be availed of “only in cases of fraudulent or unlawful inclusion of the land in patents or certificates of title.” Republic of the Philippines-Bureau of Forest Development v. Vicente Roxas, et al./Provident Tree Farms, Inc. v. Vicente Roxas, et al., G.R. Nos. 157988/160640, December 11, 2013.

Property Registration Decree; Torrens certificate of title is not conclusive proof of ownership. It is an established rule that a Torrens certificate of title is not conclusive proof of ownership. Verily, a party may seek its annulment on the basis of fraud or misrepresentation. However, such action must be seasonably filed, else the same would be barred. Laura F. Paraguya v. Sps. Alma Escurel-Crucillo and Emeterio Crucillo and the Register of Deeds of Sorsogon, G.R. No. 200265, December 2, 2013.

Property Registration Decree; Torrens certificate of title is not conclusive proof of ownership becomes incontrovertible and indefeasible after one (1) year from the date of its entry. In this relation, Section 32 of PD 1529 provides that the period to contest a decree of registration shall be one (1) year from the date of its entry and that, after the lapse of the said period, the Torrens certificate of title issued thereon becomes incontrovertible and indefeasible, viz.:

Sec. 32. Review of decree of registration; Innocent purchaser for value.— The decree of registration shall not be reopened or revised by reason of absence, minority, or other disability of any person adversely affected thereby, nor by any proceeding in any court for reversing judgments, subject, however, to the right of any person, including the government and the branches thereof, deprived of land or of any estate or interest therein by such adjudication or confirmation of title obtained by actual fraud, to file in the proper Court of First Instance a petition for reopening and review of the decree of registration not later than one year from and after the date of the entry of such decree of registration, but in no case shall such petition be entertained by the court where an innocent purchaser for value has acquired the land or an interest therein, whose rights may be prejudiced. Whenever the phrase “innocent purchaser for value” or an equivalent phrase occurs in this Decree, it shall be deemed to include an innocent lessee, mortgagee, or other encumbrancer for value.

Upon the expiration of said period of one year, the decree of registration and the certificate of title issued shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or any other persons responsible for the fraud. (Emphases and underscoring supplied) Laura F. Paraguya v. Sps. Alma Escurel-Crucillo and Emeterio Crucillo and the Register of Deeds of Sorsogon, G.R. No. 200265, December 2, 2013.

 (Rose thanks Anna Lorraine Mendoza for assisting in the preparation of this post.)

Here are select November 2013 rulings of the Supreme Court of the Philippines on civil law:

CIVIL CODE

Contracts; binding effect. It is hornbook doctrine in the law on contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to provided that such stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. Consolidated Industrial Gases, Inc. v. Alabang Medical Center, G.R. No. 181983, November 13, 2013.

Contracts; breach of; when moral damages may be awarded. In Francisco v. Ferrer,this Court ruled that moral damages may be awarded on the following bases:

To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless, malicious, in bad faith, oppressive or abusive.

Under the provisions of this law, in culpa contractual or breach of contract, moral damages may be recovered when the defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton disregard of his contractual obligation and, exceptionally, when the act of breach of contract itself is constitutive of tort resulting in physical injuries.

Moral damages may be awarded in breaches of contracts where the defendant acted fraudulently or in bad faith.

Bad faith does not simply connote bad judgment or negligence, it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud.

The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, serious anxiety as the result of the actuations of the other party. Invariably such action must be shown to have been willfully done in bad faith or will ill motive. Mere allegations of besmirched reputation, embarrassment and sleepless nights are insufficient to warrant an award for moral damages. It must be shown that the proximate cause thereof was the unlawful act or omission of the [private respondent] petitioners.

An award of moral damages would require certain conditions to be met, to wit: (1) first, there must be an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be culpable act or omission factually established; (3) third, the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428, November 11, 2013.

Contracts; breach of; damages; exemplary damages; concept. Exemplary damages are discussed in Article 2229 of the Civil Code, as follows:

ART. 2229. Exemplary or corrective damages are imposed, by way of example or correction of the public good, in addition to moral, temperate, liquidated or compensatory damages.

Exemplary damages are further discussed in Articles 2233 and 2234, particularly regarding the pre-requisites of ascertaining moral damages and the fact that it is discretionary upon this Court to award them or not:

ART. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated.

ART. 2234. While the amount of the exemplary damages need not be proven, the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded x x x

The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar offense. The case of People v. Rante citing People v. Dalisay held that:

Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to serve as a deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of outrageous conduct. These terms are generally, but not always, used interchangeably. In common law, there is preference in the use of exemplary damages when the award is to account for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly inflicted, the theory being that there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant—associated with such circumstances as willfulness, wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud—that intensifies the injury. The terms punitive or vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his outrageous conduct. In either case, these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct in the future.

To justify an award for exemplary damages, the wrongful act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent manner. Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428, November 11, 2013.

Contracts; fraud; concept; dolo incidente distinguished from dolo causante. In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al.,this Court elaborated on the distinction between dolo causante and dolo incidente: Fraud refers to all kinds of deception — whether through insidious machination, manipulation, concealment or misrepresentation — that would lead an ordinarily prudent person into error after taking the circumstances into account. In contracts, a fraud known as dolo causante or causal fraud is basically a deception used by one party prior to or simultaneous with the contract, in order to secure the consent of the other. Needless to say, the deceit employed must be serious. In contradistinction, only some particular or accident of the obligation is referred to by incidental fraud or dolo incidente, or that which is not serious in character and without which the other party would have entered into the contract anyway. Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428, November 11, 2013.

Contracts; fraud; dolo incidente and dolo causante; effect on contracts.The distinction between fraud as a ground for rendering a contract voidable or as basis for an award of damages is provided in Article 1344: In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. (1270) There are two types of fraud contemplated in the performance of contracts: dolo incidente or incidental fraud and dolo causante or fraud serious enough to render a contract voidable.

This fraud or dolo which is present or employed at the time of birth or perfection of a contract may either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those which are not serious in character and without which the other party would still have entered into the contract. Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only to some particular or accident of the obligation. The effects of dolo causante are the nullity of the contract and the indemnification of damages, and dolo incidente also obliges the person employing it to pay damages.  Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428, November 11, 2013.

Contracts; fraud; quantum of evidence required to prove existence of; clear and convincing evidence. Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo causante that must be proven by clear and convincing evidence. It stands to reason that both dolo incidente and dolo causante must be proven by clear and convincing evidence. The only question is whether this fraud, when proven, may be the basis for making a contract voidable (dolo causante), or for awarding damages (dolo incidente), or both.

The standard of proof required is clear and convincing evidence. This standard of proof is derived from American common law. It is less than proof beyond reasonable doubt (for criminal cases) but greater than preponderance of evidence (for civil cases). The degree of believability is higher than that of an ordinary civil case. Civil cases only require a preponderance of evidence to meet the required burden of proof. However, when fraud is alleged in an ordinary civil case involving contractual relations, an entirely different standard of proof needs to be satisfied. The imputation of fraud in a civil case requires the presentation of clear and convincing evidence. Mere allegations will not suffice to sustain the existence of fraud. The burden of evidence rests on the part of the plaintiff or the party alleging fraud. The quantum of evidence is such that fraud must be clearly and convincingly shown. Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428, November 11, 2013.

Contracts; Reciprocal obligations; concept; for failing to perform all its correlative obligation under the reciprocal contract, a party cannot unilaterally demand performance by the other party. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other.” In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

In reciprocal obligations, before a party can demand the performance of the obligation of the other, the former must also perform its own obligation. Consolidated Industrial Gases, Inc. v. Alabang Medical Center, G.R. No. 181983, November 13, 2013.

Contracts; rescission; grounds. Rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement. Whether a breach is substantial is largely determined by the attendant circumstances. Consolidated Industrial Gases, Inc. v. Alabang Medical Center, G.R. No. 181983, November 13, 2013.

Damages; actual damages; concept; when awarded. For damages to be recovered, the best evidence obtainable by the injured party must be presented. Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. The Court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered and on evidence of the actual amount. If the proof is flimsy and unsubstantial, no damages will be awarded. Consolidated Industrial Gases, Inc. v. Alabang Medical Center, G.R. No. 181983, November 13, 2013.

Estoppel; cannot be made to apply against the government. Granting that the persons representing the government was negligent, the doctrine of estoppel cannot be taken against the Republic. It is a well-settled rule that the Republic or its government is not estopped by mistake or error on the part of its officials or agents.

In any case, even granting that the said official was negligent, the doctrine of estoppel cannot operate against the State. “It is a well-settled rule in our jurisdiction that the Republic or its government is usually not estopped by mistake or error on the part of its officials or agents (Manila Lodge No. 761 vs. CA, 73 SCRA 166, 186; Republic vs. Marcos, 52 SCRA 238, 244; Luciano vs. Estrella, 34 SCRA 769). Republic of the Philippines v. Antonio Bacas, et al., G.R. No. 182913, November 20, 2013.

Sales; sale of real property; authority of the agent must be in writing; otherwise the sale is null and void. Articles 1874 of the Civil Code provides:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.

Likewise, Article 1878 paragraph 5 of the Civil Code specifically mandates that the authority of the agent to sell a real property must be conferred in writing, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

(1) x x x

x x x

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

x x x.

The foregoing provisions explicitly require a written authority when the sale of a piece of land is through an agent, whether the sale is gratuitously or for a valuable consideration. Absent such authority in writing, the sale is null and void. Spouses Eliseo R. Bautista and Emperatriz C. Bautista v. Spouses Mila Jalandoni and Antonio Jalandoni and Manila Credit Corporation, G.R. No. 171464/G.R. No. 199341, November 27, 2013.

Sales; sale of real property; buyer in good faith; conditions to prove good faith; failure to verify extent and nature of agent’s authority. A buyer in good faith is one who buys the property of another without notice that some other person has a right to or interest in such property. He is a buyer for value if he pays a full and fair price at the time of the purchase or before he has notice of the claim or interest of some other person in the property. “Good faith connotes an honest intention to abstain from taking unconscientious advantage of another.”To prove good faith, the following conditions must be present: (a) the seller is the registered owner of the land; (b) the owner is in possession thereof; and (3) at the time of the sale, the buyer was not aware of any claim or interest of some other person in the property, or of any defect or restriction in the title of the seller or in his capacity to convey title to the property. All these conditions

must be present, otherwise, the buyer is under obligation to exercise extra ordinary diligence by scrutinizing the certificates of title and examining all factual circumstances to enable him to ascertain the seller’s title and capacity to transfer any interest in the property. Spouses Eliseo R. Bautista and Emperatriz C. Bautista v. Spouses Mila Jalandoni and Antonio Jalandoni and Manila Credit Corporation, G.R. No. 171464/G.R. No. 199341, November 27, 2013.

Sales; sale of real property on installment; grace period. Section 3(a) of R.A. 6552 provides that the total grace period corresponds to one month for every one year of installment payments made, provided that the buyer may exercise this right only once in every five years of the life of the contract and its extensions. The buyer’s failure to pay the installments due at the expiration of the grace period allows the seller to cancel the contract after 30 days from the buyer’s receipt of the notice of cancellation or demand for rescission of the contract by a notarial act.

Sale of real property on installment; cash surrender value; when the buyer is entitled thereto. Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment Buyer Protection Act, has the declared public policy of “protecting buyers of real estate on installment payments against onerous and oppressive conditions.”

Section 3 of R.A. 6552 provides for the rights of a buyer who has paid at least two years of installments but defaults in the payment of succeeding installments. Section 3 provides that in all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under R.A. No. 3844, as amended by R.A. No. 6389, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made. Gatchalian Realty, Inc. v. Evelyn Angeles, G.R. No. 202358, November 27, 2013.

Sales; sale of real property on installment; cancellation of; twin requirements of a notarized notice of cancellation and a refund of the cash surrender value. The Court has been consistent in ruling that a valid and effective cancellation under R.A. 6552 must comply with the mandatory twin requirements of a notarized notice of cancellation and a refund of the cash surrender value.

In Olympia Housing, Inc. v. Panasiatic Travel Corp., the Court ruled that the notarial act of rescission must be accompanied by the refund of the cash surrender value.

The actual cancellation of the contract can only be deemed to take place upon the expiry of a 30-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value.

In Pagtalunan v. Dela Cruz Vda. De Manzano, the Court ruled that there is no valid cancellation of the Contract to Sell in the absence of a refund of the cash surrender value. It stated that “Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of the payments on the property to the buyer before cancellation of the contract. The provision does not provide a different requirement for contracts to sell which allow possession of the property by the buyer upon execution of the contract like the instant case. Hence, petitioner cannot insist on compliance with the requirement by assuming that the cash surrender value payable to the buyer had been applied to rentals of the property after respondent failed to pay the installments due.” Gatchalian Realty, Inc. v. Evelyn Angeles, G.R. No. 202358, November 27, 2013.SPECIAL LAWS

Land registration; application for land registration requires that the names and addresses of all adjoining owners and occupants be stated, if known, and if not known, to state the search made to find them; omission thereof constitutes fraud. The governing rule in the application for registration of lands at that time was Section 21 of Act 496 which provided for the form and content of an application for registration, and it provides that the application shall be in writing, signed and sworn to by applicant, or by some person duly authorized in his behalf. It shall also state the name in full and the address of the applicant, and also the names and addresses of all adjoining owners and occupants, if known; and, if not known, it shall state what search has been made to find them.

The reason behind the law was explained in the case of Fewkes vs. Vasquez,where it was noted that under Section 21 of the Land Registration Act an application for registration of land is required to contain, among others, a description of the land subject of the proceeding, the name, status and address of the applicant, as well as the names and addresses of all occupants of the land and of all adjoining owners, if known, or if unknown, of the steps taken to locate them. When the application is set by the court for initial hearing, it is then that notice (of the hearing), addressed to all persons appearing to have an interest in the lot being registered and the adjoining owners, and indicating the location, boundaries and technical description of the land being registered, shall be published in the Official Gazette for two consecutive times. It is this publication of the notice of hearing that is considered one of the essential bases of the jurisdiction of the court in land registration cases, for the proceedings being in rem, it is only when there is constructive seizure of the land, effected by the publication and notice, that jurisdiction over the res is vested on the court. Furthermore, it is such notice and publication of the hearing that would enable all persons concerned, who may have any rights or interests in the property, to come forward and show to the court why the application for registration thereof is not to be granted.Republic of the Philippines v. Antonio Bacas, et al., G.R. No. 182913, November 20, 2013.

Land registration; any title to inalienable public land is void ab initio; all proceedings of the Land Registration Court involving the such property is without legal effect, hence cannot attain finality. In Collado v. Court of Appeals and the Republic, the Court declared that any title to an inalienable public land is void ab initio. Any procedural infirmities attending the filing of the petition for annulment of judgment are immaterial since the LRC never acquired jurisdiction over the property. All proceedings of the LRC involving the property are null and void and, hence, did not create any legal effect. A judgment by a court without jurisdiction can never attain finality. The Land Registration Court has no jurisdiction over non-registrable properties, such as public navigable rivers which are parts of the public domain, and cannot validly adjudge the registration of title in favor of private applicant. Republic of the Philippines v. Antonio Bacas, et al., G.R. No. 182913, November 20, 2013.

Land registration; confirmation and registration of imperfect and incomplete title; qualifications. C.A. No. 141 governs the classification and disposition of lands of the public domain. Section 11 of C.A. No. 141 provides, as one of the modes of disposing public lands that are suitable for agriculture, the “confirmation of imperfect or incomplete titles.” Section 48, on the other hand, enumerates those who are considered to have acquired an imperfect or incomplete title over public lands and, therefore, entitled to confirmation and registration under the Land Registration Act.

As amended by P.D. No. 1073 on January 25, 1977, Section 48(b) of C.A. No. 141 provides:

Section 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance [now Regional Trial Court] of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

x x x x

(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, since June 12, 1945, or earlier, immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

Prior to the amendment introduced by P.D. No. 1073, Section 48(b) of C.A. No. 141, then operated under the Republic Act (R.A.) No. 1942 (June 22, 1957) amendment, which reads:

(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, for at least thirty years, immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

xxx

In relation to C.A. No. 141, Section 14 of Presidential Decree P.D.) No. 1529 or the Property Registration Decree specifies those who are qualified to register their incomplete title over an alienable and disposable public land under the Torrens system. P.D. No. 1529, which was approved on June 11, 1978, superseded and codified all laws relative to the registration of property.

The pertinent portion of Section 14 of P.D. No. 1529 reads:

Section 14. Who may apply. The following persons may file in the proper Court of First Instance [now Regional Trial Court] an application for registration of title to land, whether personally or through their duly authorized representatives:

(1) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.

Roman Catholic Archbishop of Manila v. Cresencia Sta. Teresa Ramos, assisted by her husband, Ponciano Francisco, G.R. No. 179181, November 18, 2013.

Land registration; confirmation and registration of imperfect and incomplete title; open, continuous, exclusive and notorious possession. The possession contemplated by Section 48(b) of C.A. No. 141 is actual, not fictional or constructive. In Carlos v Republic of the Philippines,the Court explained the character of the required possession, as follows:

The law speaks of possession and occupation. Since these words are separated by the conjunction and, the clear intention of the law is not to make one synonymous with the other. Possession is broader than occupation because it includes constructive possession. When, therefore, the law adds the word occupation, it seeks to delimit the all-encompassing effect of constructive possession. Taken together with the words open, continuous, exclusive and notorious, the word occupation serves to highlight the fact that for an applicant to qualify, his possession must not be a mere fiction. Actual possession of a land consists in the manifestation of acts of dominion over it of such a nature as a party would naturally exercise over his own property.

Proof of actual possession of the property at the time of the filing of the application is required because the phrase adverse, continuous, open, public, and in concept of owner,” the RCAM used to describe its alleged possession, is a conclusion of law,not an allegation of fact. Possession is open when it is patent, visible, apparent [and] notorious x x x continuous when uninterrupted, unbroken and not intermittent or occasional; exclusive when [the possession is characterized by acts manifesting] exclusive dominion over the land and an appropriation of it to [the applicant’s] own use and benefit; and notorious when it is so conspicuous that it is generally known and talked of by the public or the people in the neighborhood.”Roman Catholic Archbishop of Manila v. Cresencia Sta. Teresa Ramos, assisted by her husband, Ponciano Francisco, G.R. No. 179181, November 18, 2013.Land registration; lands forming part of a military reservation are inalienable, hence not registrable. The law governing the applications was Commonwealth Act (C.A.) No. 141,as amended by RA 1942, particularly Sec. 48(b) which provided that those who by themselves or through their predecessors in interest have been in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the

conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

As can be gleaned therefrom, the necessary requirements for the grant of an application for land registration are the following:

1. The applicant must, by himself or through his predecessors-in-interest, have been in possession and occupation of the subject land;

2. The possession and occupation must be open, continuous, exclusive and notorious;

3. The possession and occupation must be under a bona fide claim of ownership for at least thirty years immediately preceding the filing of the application; and

4. The subject land must be an agricultural land of the public domain. As earlier stated, in 1938, President Quezon issued Presidential Proclamation No. 265, which took effect on March 31, 1938, reserving for the use of the Philippine Army parcels of the public domain situated in the barrios of Bulua and Carmen, then Municipality of Cagayan, Misamis Oriental. The subject parcels of land were withdrawn from sale or settlement or reserved for military purposes, “subject to private rights, if any there be.”

Such power of the President to segregate lands was provided for in Section 64(e) of the old Revised Administrative Code and C.A. No. 141 or the Public Land Act. Later, the power of the President was restated in Section 14, Chapter 4, Book III of the 1987 Administrative Code. When a property is officially declared a military reservation, it becomes inalienable and outside the commerce of man.It may not be the subject of a contract or of a compromise agreement. A property continues to be part of the public domain, not available for private appropriation or ownership, until there is a formal declaration on the part of the government to withdraw it from being such. In the case of Republic v. Court of Appeals and De Jesus, it was even stated that

Lands covered by reservation are not subject to entry, and no lawful settlement on them can be acquired.The claims of persons who have settled on, occupied, and improved a parcel of public land which is later included in a reservation are considered worthy of protection and are usually respected, but where the President, as authorized by law, issues a proclamation reserving certain lands and warning all persons to depart therefrom, this terminates any rights previously acquired in such lands by a person who was settled thereon in order to obtain a preferential right of purchase. And patents for lands which have been previously granted, reserved from sale, or appropriate, are void. Republic of the Philippines v. Antonio Bacas, et al., G.R. No. 182913, November 20, 2013.

Trademark registration; not a mode of acquiring ownership but merely creates presumption of the validity of the registration, of the registrant’s ownership of the trademark and of the exclusive right to the use thereof. It must be emphasized that registration of a trademark, by itself, is not a mode of acquiring ownership.If the applicant is not the owner of the trademark, he has no right to apply for its registration. Registration merely creates a prima facie presumption of the validity of the registration, of the registrant’s ownership of the trademark, and of the exclusive right to the use thereof. Such presumption, just like the presumptive regularity in the performance of official functions, is rebuttable and must give way to evidence to the contrary.

Clearly, it is not the application or registration of a trademark that vests ownership thereof, but it is the ownership of a trademark that confers the right to register the same. A trademark is an industrial property over which its owner is entitled to property rights which cannot be appropriated by unscrupulous entities that, in one way or another, happen to register such trademark ahead of its true and lawful owner. The presumption of ownership accorded to a registrant must then necessarily yield to superior evidence of actual and real ownership of a trademark.

The Court’s pronouncement in Berris Agricultural Co., Inc. v. Abyadang is instructive on this point:

The ownership of a trademark is acquired by its registration and its actual use by the manufacturer or distributor of the goods made available to the purchasing public. x x x A certificate of registration of a mark, once issued, constitutes prima facie evidence of the validity of the registration, of the registrant’s ownership of the mark, and of the registrant’s

exclusive right to use the same in connection with the goods or services and those that are related thereto specified in the certificate. x x x In other words, the prima facie presumption brought about by the registration of a mark may be challenged and overcome in an appropriate action, x x x by evidence of prior use by another person, i.e. , it will controvert a claim of legal appropriation or of ownership based on registration by a subsequent user. This is because a trademark is a creation of use and belongs to one who first used it in trade or commerce.

Birkenstock Orthopaedi GmBH and Co. Kg, etc. v. Philippine Shoe Expo Marketing Corp., G.R. No. 194307, November 20, 2013.

Here are select September 2013 rulings of the Supreme Court of the Philippines on civil law:

CIVIL CODE

Civil registry; nature of civil register books; books making up the civil register and all documents relating thereto are public documents and shall be prima facie evidence of the facts therein contained; as public documents, they are admissible in evidence even without further proof of their due execution and genuineness.There is no question that the documentary evidence submitted by petitioner are all public documents. As provided in the Civil Code:

ART. 410. The books making up the civil register and all documents relating thereto shall be considered public documents and shall be prima facie evidence of the facts therein contained.

As public documents, they are admissible in evidence even without further proof of their due execution and genuineness. Thus, the RTC erred when it disregarded said documents on the sole ground that the petitioner did not present the records custodian of the NSO who issued them to testify on their authenticity and due execution since proof of authenticity and due execution was not anymore necessary. Moreover, not only are said documents admissible, they deserve to be given evidentiary weight because they constitute prima facie evidence of the facts stated therein. And in the instant case, the facts stated therein remain unrebutted since neither the private respondent nor the public prosecutor presented evidence to the contrary. In Yasuo Iwasawa v. Felisa Custodio Gangan (a.k.a. “Felisa Gangan Arambulo” and “Felisa Gangan Iwasawa”), et al., G.R. No. 204169, September 11, 2013.  

Contracts; contract to sell distinguished from contract of sale; in a contract to sell, ownership remains with the vendor and does not pass to the vendee until full payment of the purchase price; a deed of sale is absolute when there is no stipulation in the contract that title to the property remains with the seller until the full payment of the purchase price.   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. To differentiate, 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. Ramos v. Heruela held that Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale, while R.A. No. 6552 applies to contracts to sell. Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11, 2013.

Contracts; lease contracts; lease contracts survive the death of the parties and continue to bind the heirs except if the contract states otherwise; the provision in the lease contract stating that “this contract is nontransferable unless prior written consent of the lessor is obtained in writing” refers to transfers inter vivos and not transmissions mortis causa. The Supreme Court has previously ruled that lease contracts, by their nature, are not personal. The general rule, therefore, is lease contracts survive the death of the parties and continue to bind the heirs except if the contract states otherwise. In Sui Man Hui Chan v. Court of Appeals, we held that: “A lease contract is not essentially personal in character. Thus, the rights and obligations therein are transmissible to the heirs. The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the subject Contract of Lease, not only were there no stipulations prohibiting any transmission of rights, but its very terms and conditions explicitly provided for the transmission of the rights of the lessor and of the lessee to their respective heirs and successors. The contract is the law between the parties. The death of a party does not excuse nonperformance of a contract, which involves a property right, and the rights and obligations thereunder pass to the successors or representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party

has a property interest in the subject matter of the contract.” Section 6 of the lease contract provides that “[t]his contract is nontransferable unless prior consent of the lessor is obtained in writing.” Section 6 refers to transfers inter vivos and not transmissions mortis causa. What Section 6 seeks to avoid is for the lessee to substitute a third party in place of the lessee without the lessor’s consent. Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11, 2013.

Contracts; lease contracts; sublease arrangement; concept. Assignment or transfer of lease, which is covered by Article 1649 of the Civil Code, is different from a sublease arrangement, which is governed by Article 1650 of the same Code. In a sublease, the lessee becomes in turn a lessor to a sub-lessee. The sub-lessee then becomes liable to pay rentals to the original lessee. However, the juridical relation between the lessor and lessee is not dissolved. The parties continue to be bound by the original lease contract. Thus, in a sublease arrangement, there are at least three parties and two distinct juridical relations. Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11, 2013.

Contracts; lease contracts; lessee’s right upon the termination of the lease to (a) claim reimbursement from the lessor for half the value of the useful improvements introduced by the lessee in good faith, or to (b) demolish of such improvements. The CA erred in not applying Article 1678 of the Civil Code which provides: “Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary. With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished.”

The foregoing provision applies if the improvements were: (1) introduced in good faith; (2) useful; and (3) suitable to the use for which the lease is intended, without altering the form and substance. We find that the aforementioned requisites are satisfied in this case. The buildings were constructed before German’s demise, during the subsistence of a valid contract of lease. It does not appear that HDSJ prohibited German from constructing the buildings. Thus, HDSJ should have reimbursed German (or his estate) half of the value of the improvements as of 2001. If HDSJ is not willing to reimburse the Inocencios, then the latter should be allowed to demolish the buildings. Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11, 2013.

Contracts; tortious interference; elements; exception. As correctly pointed out by the Inocencios, tortious interference has the following elements: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of the contract; and (3) interference of the third person without legal justification or excuse. In So Ping Bun v. Court of Appeals, we held that there was no tortious interference if the intrusion was impelled by purely economic motives. In So Ping Bun, we explained that: “Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One view is that, as a general rule, justification for interfering with the business relations of another exists where the actor’s motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferer’s interest outweighs that of the party whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection. Moreover, justification for protecting one’s financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives.” Analita P. Inocencion, substituting for Ramon Inocencion (deceased) v. Hospicio de San Jose, G.R. No. 201787, September 25, 2013.

Damages; loss of earning capacity; compensation for lost income is in the nature of damages and as such requires due proof of the damages suffered; there must be unbiased proof of the deceased’s income. In People v. Caraig, the Supreme Court had drawn two exceptions to the rule that “documentary evidence should be presented to substantiate the claim for damages for loss of earning capacity,” and have thus awarded damages where there is testimony that the victim was either (1) self-employed earning less than the minimum wage under current labor laws, and judicial notice may be taken of the fact that in the victim’s line of work no documentary evidence is available; or (2) employed as a daily-wage worker earning less than the minimum wage under current labor laws.” In People of the Philippines v. Edwin Ibanez y

Albante, et al., G.R. No. 197813, September 25, 2013.

Estoppel; requisites. For estoppel to take effect, there must be knowledge of the real facts by the party sought to be estopped and reliance by the party claiming estoppel on the representation made by the former. In this case, petitioner cannot be estopped from asking for the return of the vessel in the condition that it had been at the time it was seized by respondent because he had not known of the deteriorated condition of the ship. Ernesto Dy v. Hon. Gina M. Bibat-Palamos, in her capacity as Presiding Judge of the RTC, Branch 64, Makati City, and Orix Metro Leasing and Finance Corporation, G.R. No. 196200, September 11, 2013.

Interest; Judgment   award; imposition of interests; under BSP Circular No. 799, effective on July 1, 2013,   the interest rate to be imposed for a loan or forbearance of money, goods or credits and the rate allowed in judgments in the absence of stipulation thereon, was changed from 12%   to 6%. Notice must be taken that in Resolution No. 796 dated May 16, 2013, the Monetary Board of the Bangko Sentral ng Pilipinas approved the revision of the interest rate to be imposed for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest. Thus, under BSP Circular No. 799, issued on June 21, 2013 and effective on July 1, 2013, the said rate of interest is now back at six percent (6%), S.C. Megaworld Construction and Development Corporation v. Engr. Luis U. Parada, represented by Engr. Leonardo A. Parada of Genlite Industries, G.R. No. 183804, September 11, 2013.

Laches; concept; the question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations. Laches has been defined as the failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it.

On this score, it is a well-settled principle of law that laches is a recourse in equity, which is, applied only in the absence of statutory law. And though laches applies even to imprescriptible actions, its elements must be proved positively. Ultimately, the question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations. Citibank, N.A. and the Citigroup Private Bank v. Ester H. Tanco-Gabaldon, et al./ Carol Lim v. Ester H. Tanco-Gabaldon, et al., G.R. No. 198444/G.R. No. 198469-70, September 4, 2013.

Obligations; novation; concept; elements. In novation, a subsequent obligation extinguishes a previous one through substitution either by changing the object or principal conditions, by substituting another in place of the debtor, or by subrogating a third person into the rights of the creditor. Novation requires (a) the existence of a previous valid obligation; (b) the agreement of all parties to the new contract; (c) the extinguishment of the old contract; and (d) the validity of the new one. There cannot be novation in this case since the proposed substituted parties did not agree to the PRA’s supposed assignment of its obligations under the contract for the electrical and light works at Heritage Park to the HPMC. The latter definitely and clearly rejected the PRA’s assignment of its liability under that contract to the HPMC. Philippine Reclamation Authority (formerly known as the Public Estates Authority v. Romago, Inc./Romago, Inc. Vs. Philippine Reclamation Authority, G.R. Nos. 174665 and 175221, September 18, 2013.

Obligations; novation as a mode of extinguishing an obligation; concept; novation is never presumed but must be clearly and unequivocally shown. 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. It is “the substitution of a new contract, debt, or obligation for an existing one between the same or different parties.” The settled rule is that novation is never presumed, but must be clearly and unequivocally shown. In order for a new agreement to supersede the old one, the parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. Thus, the mere substitution of debtors will not result in novation, and the fact that the creditor accepts payments from a third person, who has assumed the obligation, will result merely in the addition of debtors and not novation, and the creditor may enforce the obligation against both debtors. If there is no agreement as to solidarity, the first and new debtors are considered obligated jointly. Philippine Reclamation Authority (formerly known as thePublic Estates Authority v. Romago, Inc./Romago, Inc. Vs. Philippine Reclamation Authority,G.R. Nos. 174665 and 175221, September 18, 2013.

SPECIAL LAWS

Land registration; an applicant who seeks to have a land registered in his name has the burden of proving that he is its owner in fee simple. As held in Republic v. Lee:

The most basic rule in land registration cases is that “no person is entitled to have land registered under the Cadastral or Torrens system unless he is the owner in fee simple of the same, even though there is no opposition presented against such registration by third persons. x x x In order that the petitioner for the registration of his land shall be permitted to have the same registered, and to have the benefit resulting from the certificate of title, finally, issued, the burden is upon him to show that he is the real and absolute owner, in fee simple.

In First Gas Power Corporation v. Republic of the Philippines, Represented by the Office of the Solicitor General, G.R. No. 169461, September 2, 2013.

Land registration; Nature of land registration proceedings; land registration proceedings are in rem in nature and, hence, by virtue of the publication requirement, all claimants and occupants of the subject property are deemed to be notified of the existence of a cadastral case involving the subject lots; parties are precluded from re-litigating the same issues already determined by final judgment. In this case, records disclose that petitioner itself manifested during the proceedings before the RTC that there subsists a decision in a previous cadastral case, i.e., Cad. Case No. 37, which covers the same lots it applied apprised of the existence of the foregoing decision even before the rendition of the RTC Decision and Amended Order through the LRA Report dated as early as November 24, 1998 which, as above-quoted, states that the subject lots “were previously applied for registration of title in the [c]adastral proceedings and were both decided under [Cad. Case No. 37], GLRO Record No. 1969, and are subject to the following annotation x x x: ‘Lots 1298 (45-1) [and] 1315 (61-1) Pte. Nueva doc.’”  Since it had been duly notified of an existing decision which binds over the subject lots, it was incumbent upon petitioner to prove that the said decision would not affect its claimed status as owner of the subject lots in fee simple. In First Gas Power Corporation v. Republic of the Philippines, Represented by the Office of the Solicitor General, G.R. No. 169461, September 2, 2013.

Land registration proceedings; nature; being a proceeding in rem, there is no need to give personal notice to the owners or claimants of the land sought to be registered in order to vest the courts with power and authority over the res. Since no issue was raised as to Antonia Victorino’s compliance with the prerequisites of notice and publication, she is deemed to have followed such requirements. As a consequence, petitioner is deemed sufficiently notified of the hearing of Antonia’s application. Hence, she cannot claim that she is denied due process. In Crisanta Guido-Enriquez v. Alicia I. Victorino, et al., G.R. No. 180427, September 30, 2013.

Land registration; requirement that the application for land registration must state the full names and addresses of all occupants of the land and those of the adjoining owners, if known, and if not known, it must state the extent of the search made to find them. As to the alleged denial of petitioner’s right to due process due to Antonia Victorino’s failure to identify petitioner as indispensable party in her application for registration, as well as to serve her with actual and personal notice, Section 15 of Presidential Decree No. 1529 simply requires that the application for registration shall “state the full names and addresses of all occupants of the land and those of the adjoining owners, if known, and, if not known, it shall state the extent of the search made to find them.” A perusal of Antonia Victorino’s Application shows that she enumerated the adjoining owners. She also indicated therein that, to the best of her knowledge, no person has any interest or is in possession of the subject land. The fact that she did not identify petitioner as an occupant or an adjoining owner is not tantamount to denial of petitioner’s right to due process and does not nullify the RTC Decision granting such application. In Crisanta Guido-Enriquez v. Alicia I. Victorino, et al., G.R. No. 180427, September 30, 2013.

Land Registration; Torrens title; conclusive evidence of ownership of the land; the phrase “married to” is merely descriptive of the civil status of the registered owner. A Torrens title is generally a conclusive evidence of the ownership of the land referred to, because there is a strong presumption that it is valid and regularly issued.25 The phrase “married

to” is merely descriptive of the civil status of the registered owner. In Juan Sevilla Salas, Jr. v. Eden Villena Aguil, G.R. No. 202370, September 23, 2013.

Marriage; property regimes for marriages that are subsequently declared void under Article 36 of the Family Code; property acquired during the marriage is presumed to have been obtained through the couple’s joint efforts and governed by the rules on co-ownership. In Diño v. Diño,  the Supreme Court held that Article 147 of the Family Code applies to the union of parties who are legally capacitated and not barred by any impediment to contract marriage, but whose marriage is nonetheless declared void under Article 36 of the Family Code, as in this case. Article 147 of the Family Code provides:

ART. 147. When a man and a woman who are capacitated to marry each other, live exclusively with each other as husband and wife without the benefit of marriage or under a void marriage, their wages and salaries shall be owned by them in equal shares and the property acquired by both of them through their work or industry shall be governed by the rules on coownership.

In the absence of proof to the contrary, properties acquired while they lived together shall be presumed to have been obtained by their joint efforts, work or industry, and shall be owned by them in equal shares. For purposes of this Article, a party who did not participate in the acquisition by the other party of any property shall be deemed to have contributed jointly in the acquisition thereof if the former’s efforts consisted in the care and maintenance of the family and of the household.

Neither party can encumber or dispose by acts inter vivos of his or her share in the property acquired during cohabitation and owned in common, without the consent of the other, until after the termination of their cohabitation.

When only one of the parties to a void marriage is in good faith, the share of the party in bad faith in the co-ownership shall be forfeited in favor of their common children. In case of default of or waiver by any or all of the common children or their descendants, each vacant share shall belong to the respective surviving descendants. In the absence of descendants, such share shall belong to the innocent party. In all cases, the forfeiture shall take place upon termination of the cohabitation. (Emphasis supplied)

Under this property regime, property acquired during the marriage is prima facie presumed to have been obtained through the couple’s joint efforts and governed by the rules on co-ownership. In Juan Sevilla Salas, Jr. v. Eden Villena Aguil, G.R. No. 202370, September 23, 2013.

Marriage; nullity of marriage; a judicial declaration of nullity is required before a valid subsequent marriage can be contracted, or else, what transpires is a bigamous marriage. The Supreme Court has consistently held that a judicial declaration of nullity is required before a valid subsequent marriage can be contracted; or else, what transpires is a bigamous marriage,  which is void from the beginning as provided in Article 35(4) of the Family Code of the Philippines. In Yasuo Iwasawa v. Felisa Custodio Gangan (a.k.a. “Felisa Gangan Arambulo” and “Felisa Gangan Iwasawa”), et al., G.R. No. 204169, September 11, 2013. 

Realty Installment Buyer Act; right of buyer to refund on installments in case he defaults in the payments of succeeding installments accrues only when he has paid at least two years of installments. Under R.A. No. 6552, the right of the buyer to refund accrues only when he has paid at least two years of installments. In this case, respondent has paid less than two years of installments; hence, it is not entitled to a refund. Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11, 2013.

Here are select August 2013 rulings of the Supreme Court of the Philippines on civil law:

Compensation; Concept; Requisites. Compensation is a mode of extinguishing to the concurrent amount, the debts of persons who in their own right are creditors and debtors of each other. The object of compensation is the prevention of unnecessary suits and payments through the mutual extinction by operation of law of concurring debts.  Article 1279 of the Civil Code provides for the requisites for compensation to take effect:

Article 1279. In order that compensation may be proper, it is necessary:

(1)That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2)That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3)That the two debts be due;

(4)That they be liquidated and demandable;

(5)That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

Adelaida Soriano v. People of the Philippines, G.R. No. 181692, August 14, 2013.

Compensation; when both debts are liquidated and demandable.  A debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of relevant documents. Adelaida Soriano v. People of the Philippines, G.R. No. 181692, August 14, 2013.

Contracts; determination of nature of contract. In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement. As such, therefore, documentary and parol evidence may be submitted and admitted to prove such intention. Hur Tin Yang v. People of the Philippines, G.R. No. 195117, August 14, 2013.

Co-ownership; rights of co-owners.  Having succeeded to the property as heirs of Gregoria and Romana, petitioners and respondents became co-owners thereof. As co-owners, they may use the property owned in common, provided they do so in accordance with the purpose for which it is intended and in such a way as not to injure the interest of the co-ownership or prevent the other co-owners from using it according to their rights. They have the full ownership of their parts and of the fruits and benefits pertaining thereto, and may alienate, assign or mortgage them, and even substitute another person in their enjoyment, except when personal rights are involved. Each co-owner may demand at any time the partition of the thing owned in common, insofar as his share is concerned. Finally, no prescription shall run in favor of one of the co-heirs against the others so long as he expressly or impliedly recognizes the co-ownership. Antipolo Ining (deceased), survived by Manuel Villanueva, Teodora Villanueva-Francisco, Camilo Francisco, Adolfo Francisco, Lucimo Francisco, Jr., Milagros Francisco,Celedonio Francisco, Herminigildo Francisco; Ramon Tresvalles, Roberto Tajonera, Natividad Ining-Ibea (deceased) survived by Edilberto Ibea, Josefa Ibea, Martha Ibea, Carmen Ibea, Amparo Ibea-Fernandez, Henry Ruiz, Eugenio Ruiz and Pastor Ruiz; Dolores Ining-Rimon (deceased) survived by Jesus Rimon, Cesaria Rimon Gonzales and Remedios Rimon Cordero; and Pedro Ining (deceased) survived by Elisa Tan Ining (wife) and Pedro Ining, Jr. v. Leonardo R. Vega, substituted by Lourdes Vega, Restonilo I. Vega, Crispulo M. Vega, Milbuena Vega-Restituto and Lenard Vega, G.R. No. 174727, August 12, 2013.

Co-ownership; prescription; for prescription to set in, the repudiation must be done by a co-owner; requisites. Time and again, it has been held that “a co-owner cannot acquire by prescription the share of the other co-owners, absent any clear repudiation of the co-ownership. In order that the title may prescribe in favor of a co-owner, the following requisites must concur: (1) the co-owner has performed unequivocal acts of repudiation amounting to an ouster of the other co-owners; (2) such positive acts of repudiation have been made known to the other co-owners; and (3) the evidence thereof is clear and convincing.” In fine, since none of the co-owners made a valid repudiation of the existing co-ownership, Leonardo could seek partition of the property at any time. Antipolo Ining (deceased), survived by Manuel Villanueva, Teodora Villanueva-Francisco, Camilo Francisco, Adolfo Francisco, Lucimo Francisco, Jr., Milagros Francisco,Celedonio Francisco, Herminigildo Francisco; Ramon Tresvalles, Roberto Tajonera, Natividad Ining-Ibea (deceased) survived by Edilberto Ibea, Josefa Ibea, Martha Ibea, Carmen Ibea, Amparo Ibea-Fernandez, Henry Ruiz, Eugenio Ruiz and Pastor Ruiz; Dolores Ining-Rimon (deceased) survived by Jesus Rimon, Cesaria Rimon Gonzales and Remedios Rimon Cordero; and Pedro Ining (deceased) survived by Elisa Tan Ining (wife) and Pedro Ining, Jr. v.

Leonardo R. Vega, substituted by Lourdes Vega, Restonilo I. Vega, Crispulo M. Vega, Milbuena Vega-Restituto and Lenard Vega, G.R. No. 174727, August 12, 2013.

Damages; actual damages; requires competent proof of the actual amount of loss. To justify an award for actual damages, there must be competent proof of the actual amount of loss. Credence can be given only to claims duly supported by receipts. Respondents did not submit any documentary proof, like receipts, to support their claim for actual damages. Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano, G.R. No. 170942, August 28, 2013. 

Damages; attorney’s fees; allowed when exemplary damages are awarded or where the plaintiff has incurred expenses to protect his interest by reason of defendant’s act or omission. Article 2208 of the Civil Code allows recovery of attorney’s fees when exemplary damages are awarded or where the plaintiff has incurred expenses to protect his interest by reason of defendant’s act or omission. Considering that exemplary damages were properly awarded here, and that respondents hired a private lawyer to litigate its cause, the Supreme Court agrees with the RTC and CA that the P30,000.00 allowed as attorney’s fees were appropriate and reasonable. Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano, G.R. No. 170942, August 28, 2013.

Damages; Award of attorney’s fees and litigation expenses and costs; justified when there is bad faith. Even granting that Atty. Sabitsana has ceased to act as the Muertegui family’s lawyer, he still owed them his loyalty. The termination of attorney-client relation provides no justification for a lawyer to represent an interest adverse to or in conflict with that of the former client on a matter involving confidential information which the lawyer acquired when he was counsel. The client’s confidence once reposed should not be divested by mere expiration of professional employment. This is underscored by the fact that Atty. Sabitsana obtained information from Carmen which he used to his advantage and to the detriment of his client.

[F]rom the foregoing disquisition, it can be seen that petitioners are guilty of bad faith in pursuing the sale of the lot despite being apprised of the prior sale in respondent’s favor. Moreover, petitioner Atty. Sabitsana has exhibited a lack of loyalty toward his clients, the Muerteguis, and by his acts, jeopardized their interests instead of protecting them. Over and above the trial court’s and the CA’s findings, this provides further justification for the award of attorney’s fees, litigation expenses and costs in favor of the respondent. Spouses Celemencio C. Sabitsana, Jr. and Ma. Rosario M. Sabitsana v. Juanito F. Muertegui, represented by his attorney-in-fact, Domingo A. Muertegui, Jr., G.R. No. 181359, August 5, 2013.

Damages; Attorney’s fees; what constitute bad faith. There was no gross and evident bad faith on the part of Asian Construction in filing its complaint against Sumitomo since it was merely seeking payment of its unpaid works done pursuant to the Agreement. Neither can its subsequent refusal to accept Sumitomo’s offered compromise be classified as a badge of bad faith since it was within its right to either accept or reject the same owing to its contractual nature. Absent any other just or equitable reason to rule otherwise, these incidents are clearly off-tangent with a finding of gross and evident bad faith which altogether negates Sumitomo’s entitlement to attorney’s fees. Asian Construction and Development Corporation v. Sumitomo Corporation / Sumitomo Corporation v. Asia Construction and Development Corporation, G.R. No. 196723 / G.R. No. 196728, August 28, 2013.

Damages; Attorney’s fees; when awarded. Jurisprudence dictates that in the absence of a governing stipulation, attorney’s fees may be awarded only in case the plaintiff’s action or defendant’s stand is so untenable as to amount to gross and evident bad faith. This is embodied in Article 2208 of the Civil Code which states:

Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

x x x x

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

x x x x

Asian Construction and Development Corporation v. Sumitomo Corporation / Sumitomo Corporation v. Asia Construction and Development Corporation, G.R. No. 196723 / G.R. No. 196728, August 28, 2013.

Damages; Exemplary damages; the law allows the grant of exemplary damages to set an example for the public good. The law allows the grant of exemplary damages to set an example for the public good. The business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and meticulousness ingiving irreproachable service. For this reason, the bank should guard against injury attributable to negligence or bad faith on its part. The banking sector must at all times maintain a high level of meticulousness. The grant of exemplary damages is justified by the initial carelessness of petitioner, aggravated by its lack of promptness in repairing its error. Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano, G.R. No. 170942, August 28, 2013.

Damages; Moral damages; recoverable for acts or actions referred to in Article 20 of the Civil Code. In their amended complaint, respondents claimed that the acts of GCB Builders and Comsavings Bank had caused them to suffer sleepless nights, worries and anxieties. The claim was well founded. Danilo worked in Saudi Arabia in order to pay the loan used for the construction of their family home. His anxiety and anguish over the incomplete and defective construction of their house, as well as the inconvenience he and his wife experienced because of this suit were not easily probable. On her part, Estrella was a mere housewife, but was the attorney-in-fact of Danilo in matters concerning the loan transaction. With Danilo working abroad, she was alone in overseeing the house construction and the progress of the present case. Given her situation, she definitely experienced worries and sleepless nights. The award of moral damages of P100,000.00 awarded by the CA as exemplary damages is proper. Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano, G.R. No. 170942, August 28, 2013.

Damages; Temperate damages; may be recovered when the court finds that some pecuniary loss was suffered but its amount cannot be proved with certainty. Nonetheless, it cannot be denied that they had suffered substantial losses. Article 2224 of the Civil Code allows the recovery of temperate damages when the court finds that some pecuniary loss was suffered but its amount cannot be proved with certainty. In lieu of actual damages, therefore, temperate damages of P25,000.00 are awarded. Such amount, in the court’s view, is reasonable under the circumstances. Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano, G.R. No. 170942, August 28, 2013.

Damages; Interests; Eastern Shipping Lines guidelines as modified by BSP-MB Circular No. 799.  The Supreme Court set out the following guidelines on damages and interest due:

1. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages.

2. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

(a)  When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 the Civil Code.

(b) When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of

the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

(c)  When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.  Dario Nacar v. Gallery Frames and/or Felipe Borde, Jr., G.R. No. 189871, August 13, 2013.

Gross negligence; concept. Based on the provisions, a banking institution like Comsavings Bank is obliged to exercise the highest degree of diligence as well as high standards of integrity and performance in all its transactions because its business is imbued with public interest. As aptly declared in Philippine National Bank v. Pike: “[T]he stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks.” Gross negligence connotes want of care in the performance of one’s duties; it is a negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but willfully and intentionally, with a conscious indifference to consequences insofar as other persons may be affected. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them. Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano, G.R. No. 170942, August 28, 2013.

Interest; Legal rate of interest effective July 1, 2013; pursuant to BSP Circular 799, series of 2013, the legal rate of interest shall be 6% per annum. The Court held that “[P]ursuant to Circular No. 799, series of 2013 of the Bangko Sentral ng Pilipinas which took effect July 1, 2013, the amount of P6,000.00, erroneously paid by Petitioner to the bank, shall earn interest at the rate of 6% per annum computed from the filing of the Petition in Civil Case No. 5535 up to its full satisfaction.” Virginia M. Venzon v. Rural Bank of Buenavista, Inc., represented by Lourdesita E. Parajes, G.R. No. 178031, August 28, 2013.

Interest; legal rate of interest; interest at 6% per annum imposed on award in favor of illegally dismissed employees.  Interest at the rate of 6% per annum must be imposed on the award for separation pay, back wages, and attorney’s fees to illegally dismissed employees in accordance with Circular No. 799, Series of 2013 of the Bangko Sentral ng Pilipinas which took effect July 1, 2013. Vicente Ang v. Seferino San Joaquin, Jr., and Diosdado Fernandez, G.R. No. 185549, August 7, 2013.

Interest; legal interest; where obligation constitutes a loan or forbearance of money, goods or credit; legal rate allowed in judgments. In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be 12% per annum. As reflected in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799, the interest rate will now be 6% per annum effective July 1, 2013. Dario Nacar v. Gallery Frames and/or Felipe Borde, Jr., G.R. No. 189871, August 13, 2013.

Interest; Legal interest; prospective application. It should be noted that the new rate could only be applied prospectively and not retroactively. Consequently, the 12% per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of 6% per annum shall be the prevailing rate of interest when applicable. Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. Dario Nacar v. Gallery Frames and/or Felipe Borde, Jr., G.R. No. 189871, August 13, 2013.

Laches; definition. The Court observes that laches had already set in, thereby precluding the Andrades from pursuing their claim. Case law defines laches as the “failure to assert a right for an unreasonable and unexplained length of time, warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it.” Bobby Tan v. Grace Andrade, et al./Grace Andrade, et al. v. Bobby Tan, G.R. Nos. 171904 & 172017, August 7, 2013.

Quasi-contracts; solutio indebiti ; concept. In a controversy over payment made after the foreclosure of the mortgaged property, the Court held: “Since respondent was not entitled to receive the said amount, as it is deemed fully paid from

the foreclosure of petitioner’s property since its bid price at the auction sale covered all that petitioner owed it by way of principal, interest, attorney’s fees and charges, it must return the same to petitioner. ‘If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.’” Virginia M. Venzon v. Rural Bank of Buenavista, Inc., represented by Lourdesita E. Parajes, G.R. No. 178031, August 28, 2013.

Sales; double sale involving unregistered land; Article 1544 of the Civil Code does not apply; prior sale, even if made through an unnotarized deed of sale, prevails; registration of second sale is unavailing as registration does not vest title; Under Act 3344, registration if instruments affecting unregistered lands is without prejudice to a third party with a better right; actual and prior knowledge of the first sale makes the subsequent buyers purchasers in bad faith. Article 1544 of the Civil Code does not apply to sales involving unregistered land. Both the trial court and the CA are, however, wrong in applying Article 1544 of the Civil Code. Both courts seem to have forgotten that the provision does not apply to sales involving unregistered land. Suffice it to state that the issue of the buyer’s good or bad faith is relevant only where the subject of the sale is registered land, and the purchaser is buying the same from the registered owner whose title to the land is clean. In such case, the purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in good faith for value.

The sale to respondent Juanito was executed on September 2, 1981 via an unnotarized deed of sale, while the sale to petitioners was made via a notarized document only on October 17, 1991, or ten years thereafter. Thus, Juanito who was the first buyer has a better right to the lot, while the subsequent sale to petitioners is null and void, because when it was made, the seller Garcia was no longer the owner of the lot. Nemo dat quod non habet.

The fact that the sale to Juanito was not notarized does not alter anything, since the sale between him and Garcia remains valid nonetheless. Notarization, or the requirement of a public document under the Civil Code, is only for convenience, and not for validity or enforceability. And because it remained valid as between Juanito and Garcia, the latter no longer had the right to sell the lot to petitioners, for his ownership thereof had ceased.

Nor can petitioners’ registration of their purchase have any effect on Juanito’s rights. The mere registration of a sale in one’s favor does not give him any right over the land if the vendor was no longer the owner of the land, having previously sold the same to another even if the earlier sale was unrecorded. Neither could it validate the purchase thereof by petitioners, which is null and void. Registration does not vest title; it is merely the evidence of such title. Our land registration laws do not give the holder any better title than what he actually has.

Under Act No. 3344, registration of instruments affecting unregistered lands is ‘without prejudice to a third party with a better right.’ The aforequoted phrase has been held by the Court to mean that the mere registration of a sale in one’s favor does not give him any right over the land if the vendor was not anymore the owner of the land having previously sold the same to somebody else even if the earlier sale was unrecorded.

Petitioners’ defense of prescription, laches and estoppel are unavailing since their claim is based on a null and void deed of sale. The fact that the Muerteguis failed to interpose any objection to the sale in petitioners’ favor does not change anything, nor could it give rise to a right in their favor; their purchase remains void and ineffective as far as the Muerteguis are concerned. Spouses Celemencio C. Sabitsana, Jr. and Ma. Rosario M. Sabitsana v. Juanito F. Muertegui, represented by his attorney-in-fact, Domingo A. Muertegui, Jr., G.R. No. 181359, August 5, 2013.

Sales; actual and prior knowledge of the first sale makes the subsequent buyers purchasers in bad faith. Petitioners’ actual and prior knowledge of the first sale to Juanito makes them purchasers in bad faith. It also appears that petitioner Atty. Sabitsana was remiss in his duties as counsel to the Muertegui family. Instead of advising the Muerteguis to register their purchase as soon as possible to forestall any legal complications that accompany unregistered sales of real property, he did exactly the opposite: taking advantage of the situation and the information he gathered from his inquiries and investigation, he bought the very same lot and immediately caused the registration thereof ahead of his clients, thinking that his purchase and prior registration would prevail. The Court cannot tolerate this mercenary attitude. Instead of protecting his client’s interest, Atty. Sabitsana practically preyed on him. Spouses Celemencio C. Sabitsana, Jr. and Ma. Rosario M. Sabitsana v. Juanito F. Muertegui, represented by his attorney-in-fact, Domingo A. Muertegui,

Jr., G.R. No. 181359, August 5, 2013.

Succession; siblings are heirs of decedent who died without issue. Since Leon died without issue, his heirs are his siblings, Romana and Gregoria, who thus inherited the property in equal shares. In turn, Romana’s and Gregoria’s heirs – the parties herein – became entitled to the property upon the sisters’ passing. Under Article 777 of the Civil Code, the rights to the succession are transmitted from the moment of death. Antipolo Ining (deceased), survived by Manuel Villanueva, Teodora Villanueva-Francisco, Camilo Francisco, Adolfo Francisco, Lucimo Francisco, Jr., Milagros Francisco,Celedonio Francisco, Herminigildo Francisco; Ramon Tresvalles, Roberto Tajonera, Natividad Ining-Ibea (deceased) survived by Edilberto Ibea, Josefa Ibea, Martha Ibea, Carmen Ibea, Amparo Ibea-Fernandez, Henry Ruiz, Eugenio Ruiz and Pastor Ruiz; Dolores Ining-Rimon (deceased) survived by Jesus Rimon, Cesaria Rimon Gonzales and Remedios Rimon Cordero; and Pedro Ining (deceased) survived by Elisa Tan Ining (wife) and Pedro Ining, Jr. v. Leonardo R. Vega, substituted by Lourdes Vega, Restonilo I. Vega, Crispulo M. Vega, Milbuena Vega-Restituto and Lenard Vega, G.R. No. 174727, August 12, 2013.

Special Laws

Correction of name; adversary proceeding; impleading and notice to affected and interested parties; when failure to implead and notify is cured by publication of notice of hearing; strict compliance with the Rules of Court mandated when petition involves substantial and controversial alterations. Respondent’s birth certificate shows that her full name is Anita Sy, that she is a Chinese citizen and a legitimate child of Sy Ton and Sotera Lugsanay. In filing the petition, however, she seeks the correction of her first name and surname, her status from “legitimate” to “illegitimate” and her citizenship from “Chinese” to “Filipino.” Thus, respondent should have impleaded and notified not only the Local Civil Registrar but also her parents and siblings as the persons who have interest and are affected by the changes or corrections respondent wanted to make.

The fact that the notice of hearing was published in a newspaper of general circulation and notice thereof was served upon the State will not change the nature of the proceedings taken. A reading of Sections 4 and 5, Rule 108 of the Rules of Court shows that the Rules mandate two sets of notices to different potential oppositors: one given to the persons named in the petition and another given to other persons who are not named in the petition but nonetheless may be considered interested or affected parties. Summons must, therefore, be served not for the purpose of vesting the courts with jurisdiction but to comply with the requirements of fair play and due process to afford the person concerned the opportunity to protect his interest if he so chooses.

While there may be cases where the Court held that the failure to implead and notify the affected or interested parties may be cured by the publication of the notice of hearing, earnest efforts were made by petitioners in bringing to court all possible interested parties. Such failure was likewise excused where the interested parties themselves initiated the corrections proceedings; when there is no actual or presumptive awareness of the existence of the interested parties; or when a party is inadvertently left out.

It is clear from the foregoing discussion that when a petition for cancellation or correction of an entry in the civil register involves substantial and controversial alterations, including those on citizenship, legitimacy of paternity or filiation, or legitimacy of marriage, a strict compliance with the requirements of Rule 108 ofthe Rules of Court is mandated. If the entries in the civil register could be corrected or changed through mere summary proceedings and not through appropriate action wherein all parties who may be affected by the entries are notified or represented, the door to fraud or other mischief would be set open, the consequence of which might be detrimental and far reaching. Republic of the Philppines v. Dr. Norma S. Lugsanay Uy, G.R. No. 198010, August 12, 2013.

Correction of name; Appropriate adversary proceeding; definition. What is meant by “appropriate adversary proceeding?” Black’s Law Dictionary defines “adversary proceeding” as follows:

One having opposing parties; contested, as distinguished from an ex parte application, one of which the party seeking relief has given legal warning to the other party, and afforded the latter an opportunity to contest it. Excludes an adoption proceeding. Republic of the Philppines v. Dr. Norma S. Lugsanay Uy, G.R. No. 198010, August 12, 2013.

Correction of name; errors in a civil registry and facts established in an appropriate adversary proceeding. It has been settled in a number of cases starting with Republic v. Valencia that even substantial errors in a civil registry may be corrected and the true facts established provided the parties aggrieved by the error avail themselves of the appropriate adversary proceeding. The pronouncement of the Court in that case is illuminating:

“It is undoubtedly true that if the subject matter of a petition is not for the correction of clerical errors of a harmless and innocuous nature, but one involving nationality or citizenship, which is indisputably substantial as well as controverted, affirmative relief cannot be granted in a proceeding summary in nature. However, it is also true that a right in law may be enforced and a wrong may be remedied as long as the appropriate remedy is used. This Court adheres to the principle that even substantial errors in a civil registry may be corrected and the true facts established provided the parties aggrieved by the error avail themselves of the appropriate adversary proceeding.” Republic of the Philppines v. Dr. Norma S. Lugsanay Uy, G.R. No. 198010, August 12, 2013.

Family Relations; Conjugal property; presumption that all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife; for presumption to apply, party invoking the same must preliminarily prove that the property was indeed acquired during the marriage; presumption cannot apply where there is no showing as to when the property alleged to be conjugal was acquired.   Pertinent to the resolution of this second issue is Article 160 of the Civil Code which states that “[a]ll property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.” For this presumption to apply, the party invoking the same must, however, preliminarily prove that the property was indeed acquired during the marriage. As held in Go v. Yamane:

x x As a condition sine qua non for the operation of [Article 160] in favor of the conjugal partnership, the party who invokes the presumption must first prove that the property was acquired during the marriage.

In other words, the presumption in favor of conjugality does not operate if there is no showing of when the property alleged to be conjugal was acquired. Moreover, the presumption may be rebutted only with strong, clear, categorical and convincing evidence. There must be strict proof of the exclusive ownership of one of the spouses, and the burden of proof rests upon the party asserting it.

In this case, there is no evidence to indicate when the property was acquired by petitioner Josefina. Thus, we agree with petitioner Josefina’s declaration in the deed of absolute sale she executed in favor of the respondent that she was the absolute and sole owner of the property. Bobby Tan v. Grace Andrade, et al./Grace Andrade, et al. v. Bobby Tan, G.R. Nos. 171904 & 172017, August 7, 2013.

Family relations. Under the Family Code, family relations, which is the primary basis for succession, exclude relations by affinity. Antipolo Ining (deceased), survived by Manuel Villanueva, Teodora Villanueva-Francisco, Camilo Francisco, Adolfo Francisco, Lucimo Francisco, Jr., Milagros Francisco,Celedonio Francisco, Herminigildo Francisco; Ramon Tresvalles, Roberto Tajonera, Natividad Ining-Ibea (deceased) survived by Edilberto Ibea, Josefa Ibea, Martha Ibea, Carmen Ibea, Amparo Ibea-Fernandez, Henry Ruiz, Eugenio Ruiz and Pastor Ruiz; Dolores Ining-Rimon (deceased) survived by Jesus Rimon, Cesaria Rimon Gonzales and Remedios Rimon Cordero; and Pedro Ining (deceased) survived by Elisa Tan Ining (wife) and Pedro Ining, Jr. v. Leonardo R. Vega, substituted by Lourdes Vega, Restonilo I. Vega, Crispulo M. Vega, Milbuena Vega-Restituto and Lenard Vega, G.R. No. 174727, August 12, 2013.

Land titles; indefeasibility of certificate of title to public land issued pursuant to a grant or patent; false statement exception; reversion of land. The certificate of title issued pursuant to any grant or patent involving public lands is as conclusive and indefeasible as any other certificate of title issued to private lands in the ordinary or cadastral registration proceedings. It is not subject to collateral attack. However, Section 91 of Commonwealth Act No. 141 (The Public Land Act) provides for the cancellation of the concession, title or permit granted for any false statement in the application or omission of facts in the application.

Once a patent is registered and the corresponding certificate of title is issued, the land covered by it ceases to be part of the public domain and becomes private property, and the Torrens Title issued pursuant to the patent becomes indefeasible upon the expiration of one year from the date of issuance of such patent. However, as held in The Director of Lands v. De Luna, et al., even after the lapse of one year, the State may still bring an action under Section 101 of

Commonwealth Act No. 141 for the reversion to the public domain of land which has been fraudulently granted to private individuals. The burden of proof rests on the party who asserts the affirmative of an issue. Republic of the Philippines v. Angeles Bellate, and Spouses Jesus Cabanto and Marieta Juanerio, G.R. No. 175685, August 7, 2013.

Land titles; Fraud in an application for grant of title to public land or patent; definition. It was held on Libudan v. Gil that “[t]he fraud must consist in an intentional omission of facts required by law to be stated in the application or a willful statement of a claim against the truth. It must show some specific acts intended to deceive and deprive another of his right. The fraud must be actual and extrinsic, not merely constructive or intrinsic; the evidence thereof must be clear, convincing and more than merely preponderant, because the proceedings which are assailed as having been fraudulent are judicial proceedings which by law, are presumed to have been fair and regular.” Republic of the Philippines v. Angeles Bellate, and Spouses Jesus Cabanto and Marieta Juanerio, G.R. No. 175685, August 7, 2013.

Trust receipts; purpose. To emphasize, the Trust Receipts Law was created to “to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. Hur Tin Yang v. People of the Philippines, G.R. No. 195117, August 14, 2013.

Trust receipts; when not a trust receipts transaction. Nonetheless, when both parties enter into an agreement knowing fully well that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. Hur Tin Yang v. People of the Philippines, G.R. No. 195117, August 14, 2013.

Civil Code

Agency; apparent authority of an agent based on estoppel; concept. In Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc. the Court stated that “persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.” In other words, when the petitioner relied only on the words of respondent Alejandro without securing a copy of the SPA in favor of the latter, the petitioner is bound by the risk accompanying such trust on the mere assurance of Alejandro.

The same Woodchild case stressed that apparent authority based on estoppel can arise from the principal who knowingly permit the agent to hold himself out with authority and from the principal who clothe the agent with indicia of authority that would lead a reasonably prudent person to believe that he actually has such authority. Apparent authority of an agent arises only from “acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant and such must have produced a change of position to its detriment.” In the instant case, the sale to the Spouses Lajarca and other transactions where Alejandro allegedly represented a considerable majority of the co-owners transpired after the sale to the petitioner; thus, the petitioner cannot rely upon these acts or conduct to believe that Alejandro had the same authority to negotiate for the sale of the subject property to him. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013.

Agency; definition under the Civil Code; form of contract. Article 1868 of the Civil Code defines a contract of agency as a contract whereby 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.” It may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

As a general rule, a contract of agency may be oral.

However, it must be written when the law requires a specific form. Specifically, Article 1874 of the Civil Code provides that the contract of agency must be written for the validity of the sale of a piece of land or any interest therein.

Otherwise, the sale shall be void. A related provision, Article 1878 of the Civil Code, states that special powers of attorney are necessary to convey real rights over immovable properties. Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013.

Agency; general power of attorney; an agency couched in general terms comprises only acts of administration. The certification is a mere general power of attorney which comprises all of Joy Training’s business. Article 1877 of the Civil Code clearly states that “[a]n agency couched in general terms comprises only acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general and unlimited management.” Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013. 

Agency; sale of property by a supposed agent is unenforceable if there is really no agency to sell such property; persons dealing with an agent must ascertain not only the fact of agency, but also the nature and extent of the agent’s authority. Necessarily, the absence of a contract of agency renders the contract of sale unenforceable; Joy Training effectively did not enter into a valid contract of sale with the spouses Yoshizaki. Sally cannot also claim that she was a buyer in good faith. She misapprehended the rule that persons dealing with a registered land have the legal right to rely on the face of the title and to dispense with the need to inquire further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry. This rule applies when the ownership of a parcel of land is disputed and not when the fact of agency is contested. Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013.

Agency; special power of attorney; must express the powers of the agent in clear and unmistakable language; when there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document. We unequivocably declared in Cosmic Lumber Corporation v. Court of Appeals that a special power of attorney must express the powers of the agent in clear and unmistakable language for the principal to confer the right upon an agent to sell real estate. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document. The purpose of the law in requiring a special power of attorney in the disposition of immovable property is to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another and to caution the buyer to assure himself of the specific authorization of the putative agent. Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013.

Agency; special power of attorney for sale of property; must expressly mention a sale or include a sale as a necessary ingredient of the authorized act. The special power of attorney mandated by law must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the authorized act. We unequivocably declared in Cosmic Lumber Corporation v. Court of Appeals that a special power of attorney must express the powers of the agent in clear and unmistakable language for the principal to confer the right upon an agent to sell real estate. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document. The purpose of the law in requiring a special power of attorney in the disposition of immovable property is to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another and to caution the buyer to assure himself of the specific authorization of the putative agent. Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013.

Agency; special power of attorney; required for an agent to sell an immovable property; authority must be in writing, otherwise sale is void. In Alcantara v. Nido, the Court emphasized the requirement of an SPA before an agent may sell an immovable property. In the said case, Revelen was the owner of the subject land. Her mother, respondent Brigida Nido accepted the petitioners’ offer to buy Revelen’s land at Two Hundred Pesos (P200.00) per sq m. However, Nido was only authorized verbally by Revelen. Thus, the Court declared the sale of the said land null and void under Articles 1874 and 1878 of the Civil Code. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013.

Arrastre operator; functions; duty to take good care of goods and to turn them over to the party entitled to their possession. The functions of an arrastre operator involve the handling of cargo deposited on the wharf or between the establishment of the consignee or shipper and the ship’s tackle. Being the custodian of the goods discharged from a

vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to the party entitled to their possession. Handling cargo is mainly the arrastre operator’s principal work so its drivers/operators or employees should observe the standards and measures necessary to prevent losses and damage to shipments under its custody. Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.) v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos. 181163/181262/181319, July 24, 2013.

Attorney’s fees; dual concept. In order to resolve the issues in this case, it is necessary to discuss the two concepts of attorney’s fees – ordinary and extraordinary. In its ordinary sense, it is the reasonable compensation paid to a lawyer by his client for legal services rendered. In its extraordinary concept, it is awarded by the court to the successful litigant to be paid by the losing party as indemnity for damages. Francisco L. Rosario, Jr. v. Lellani De Guzman, Arleen De Guzman, et al., G.R. No. 191247, July 10, 2013.

Attorney’s fees for professional services rendered; may be claimed in the very action itself or in a separate action; prescription for oral contract of attorney’s fees is 6 years; concept of quantum meruit; guidelines under the Code of Professional Responsibility. The Court now addresses two important questions: (1) How can attorney’s fees for professional services be recovered? (2) When can an action for attorney’s fees for professional services be filed? The case of Traders Royal Bank Employees Union-Independent v. NLRC is instructive:

As an adjunctive episode of the action for the recovery of bonus differentials in NLRC-NCR Certified Case No. 0466, private respondent’s present claim for attorney’s fees may be filed before the NLRC even though or, better stated, especially after its earlier decision had been reviewed and partially affirmed. It is well settled that a claim for attorney’s fees may be asserted either in the very action in which the services of a lawyer had been rendered or in a separate action.

With respect to the first situation, the remedy for recovering attorney’s fees as an incident of the main action may be availed of only when something is due to the client. Attorney’s fees cannot be determined until after the main litigation has been decided and the subject of the recovery is at the disposition of the court. The issue over attorney’s fees only arises when something has been recovered from which the fee is to be paid. While a claim for attorney’s fees may be filed before the judgment is rendered, the determination as to the propriety of the fees or as to the amount thereof will have to be held in abeyance until the main case from which the lawyer’s claim for attorney’s fees may arise has become final. Otherwise, the determination to be made by the courts will be premature. Of course, a petition for attorney’s fees may be filed before the judgment in favor of the client is satisfied or the proceeds thereof delivered to the client.

It is apparent from the foregoing discussion that a lawyer has two options as to when to file his claim for professional fees. Hence, private respondent was well within his rights when he made his claim and waited for the finality of the judgment for holiday pay differential, instead of filing it ahead of the award’s complete resolution. To declare that a lawyer may file a claim for fees in the same action only before the judgment is reviewed by a higher tribunal would deprive him of his aforestated options and render ineffective the foregoing pronouncements of this Court.

In this case, petitioner opted to file his claim as an incident in the main action, which is permitted by the rules. As to the timeliness of the filing, this Court holds that the questioned motion to determine attorney’s fees was seasonably filed.

The records show that the August 8, 1994 RTC decision became final and executory on October 31, 2007. There is no dispute that petitioner filed his Motion to Determine Attorney’s Fees on September 8, 2009, which was only about one (1) year and eleven (11) months from the finality of the RTC decision. Because petitioner claims to have had an oral contract of attorney’s fees with the deceased spouses, Article 1145 of the Civil Code16 allows him a period of six (6) years within which to file an action to recover professional fees for services rendered. Respondents never asserted or provided any evidence that Spouses de Guzman refused petitioner’s legal representation. For this reason, petitioner’s cause of action began to run only from the time the respondents refused to pay him his attorney’s fees, as similarly held in the case of Anido v. Negado.

With respect to petitioner’s entitlement to the claimed attorney’s fees, it is the Court’s considered view that he is deserving of it and that the amount should be based on quantum meruit. Quantum meruit – literally meaning as much as he deserves – is used as basis for determining an attorney’s professional fees in the absence of an express agreement.

The recovery of attorney’s fees on the basis of quantum meruit is a device that prevents an unscrupulous client from running away with the fruits of the legal services of counsel without paying for it and also avoids unjust enrichment on the part of the attorney himself. An attorney must show that he is entitled to reasonable compensation for the effort in pursuing the client’s cause, taking into account certain factors in fixing the amount of legal fees.

Rule 20.01 of the Code of Professional Responsibility lists the guidelines for determining the proper amount of attorney fees, to wit:

Rule 20.1 – A lawyer shall be guided by the following factors in determining his fees:

a) The time spent and the extent of the services rendered or required;

b) The novelty and difficulty of the questions involved;

c) The importance of the subject matter;

d) The skill demanded;

e) The probability of losing other employment as a result of acceptance of the proffered case;

f) The customary charges for similar services and the schedule of fees of the IBP chapter to which he belongs;

g) The amount involved in the controversy and the benefits resulting to the client from the service;

h) The contingency or certainty of compensation;

i) The character of the employment, whether occasional or established; and

j) The professional standing of the lawyer.

Francisco L. Rosario, Jr. v. Lellani De Guzman, Arleen De Guzman, et al., G.R. No. 191247, July 10, 2013.

Attorney’s fees; recoverable in actions for indemnity under workmen’s compensation and employer’s liability laws. However, the Court finds that the petitioner is entitled to attorney’s fees pursuant to Article 2208(8) of the Civil Code which states that the award of attorney’s fees is justified in actions for indemnity under workmen’s compensation and employer’s liability laws. Camilo A. Esguerra v. United Philippines Lines, Inc., et al., G.R. No. 199932, July 3, 2013.

Attorney’s fees; when recoverable. The Court of Appeals rightfully upheld the NLRC’s affirmance of the grant of attorney’s fees to San Miguel. Thereby, the NLRC did not commit any grave abuse of its discretion, considering that San Miguel had been compelled to litigate and to incur expenses to protect his rights and interest. In Producers Bank of the Philippines v. Court of Appeals, the Court ruled that attorney’s fees could be awarded to a party whom an unjustified act of the other party compelled to litigate or to incur expenses to protect his interest. It was plain that petitioner’s refusal to reinstate San Miguel with backwages and other benefits to which he had been legally entitled was unjustified, thereby entitling him to recover attorney’s fees. Zuellig Freight and Cargo Systems v. National Labor Relations Commission, et al., G.R. No. 157900, July 22, 2013  

Attorney’s fees; when recoverable. With respect to the award of attorney’s fees, Article 2208 of the Civil Code provides, among others, that such fees may be recovered when exemplary damages are awarded, when the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest, and where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs’ plainly valid, just and demandable claim. Joyce V. Ardiente v. Spouses Javier and Ma. Theresa Pastofide, G.R. No. 161921, July 17, 2013.

Common carriers; extraordinary diligence in vigilance of goods transported; cargoes while being unloaded generally remain under the custody of the carrier. 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 transported by them. Subject to

certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them. Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.) v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos. 181163/181262/181319, July 24, 2013.

Contract; absolutely simulated contracts; void from the beginning. The Court is in accord with the observation and findings of the (RTC, Kalibo, Aklan) thus:

“The amplitude of foregoing undisputed facts and circumstances clearly shows that the sale of the land in question was purely simulated. It is void from the very beginning (Article 1346, New Civil Code). If the sale was legitimate, defendant Glenda should have immediately taken possession of the land, declared in her name for taxation purposes, registered the sale, paid realty taxes, introduced improvements therein and should not have allowed plaintiff to mortgage the land. These omissions properly militated against defendant Glenda’s submission that the sale was legitimate and the consideration was paid.

Dr. Lorna C. Formaran v. Dr. Glenda B. Ong and Solomon S. Ong, G.R. No. 186264, July 8, 2013.

Contract of sale; elements. A valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing; and (c) the price certain in money or its equivalent. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013.

Contract to sell; payment of the price; positive suspension condition; effect of failure to pay. Clearly, the RTC arrived at the above-quoted conclusion based on its mistaken premise that rescission is applicable to the case. Hence, its determination of whether there was substantial breach. As may be recalled, however, the CA, in its assailed Decision, found the contract between the parties as a contract to sell, specifically of a real property on installment basis, and as such categorically declared rescission to be not the proper remedy. This is considering that in a contract to sell, payment of the price is a positive suspensive condition, failure of which is not a breach of contract warranting rescission under Article 1191 of the Civil Code but rather just an event that prevents the supposed seller from being bound to convey title to the supposed buyer. Also, and as correctly ruled by the CA, Article 1191 cannot be applied to sales of real property on installment since they are governed by the Maceda Law.

There being no breach to speak of in case of non-payment of the purchase price in a contract to sell, as in this case, the RTC’s factual finding that Lourdes was willing and able to pay her obligation – a conclusion arrived at in connection with the said court’s determination of whether the non-payment of the purchase price in accordance with the terms of the contract was a substantial breach warranting rescission – therefore loses significance. The spouses Bonrostro’s reliance on the said factual finding is thus misplaced. They cannot invoke their readiness and willingness to pay their obligation on November 24, 1993 as an excuse from being made liable for interest beyond the said date. Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constacia Luna, G.R. No.172346, July 24, 2013.

Damages; damages for loss of earning capacity; must be duly proven by documentary evidence; exceptions. The Supreme Court agrees with the Court of Appeals when it removed the RTC’s award respecting the indemnity for the loss of earning capacity. As it has already previously ruled that damages for loss of earning capacity is in the nature of actual damages, which as a rule must be duly proven by documentary evidence, not merely by the self-serving testimony of the widow.

By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when (1) the deceased is self-employed earning less than the minimum wage under current labor laws, and judicial notice may be taken of the fact that in the deceased’s line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws. People of the Philippines v. Garry Vergara y Oriel and Joseph Incencio y Paulino, G.R. No. 177763, July 3, 2013  

Damages; exemplary damages; concept. As for exemplary damages, Article 2229 provides that exemplary damages may be imposed by way of example or correction for the public good. Nonetheless, exemplary damages are imposed not to enrich one party or impoverish another, but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. In the instant case, the Court agrees with the CA in sustaining the award of exemplary damages, although it reduced the amount granted, considering that respondent spouses were deprived of their water supply for more than nine (9) months, and such deprivation would have continued were it not for the relief granted by the RTC. Joyce V. Ardiente v. Spouses Javier and Ma. Theresa Pastofide, G.R. No. 161921, July 17, 2013.

Damages; exemplary damages; awarded if there is an aggravating circumstance, whether ordinary or qualifying. Unlike the criminal liability which is basically a State concern, the award of exemplary damages, however, is likewise, if not primarily, intended for the offended party who suffers thereby. It would make little sense for an award of exemplary damages to be due the private offended party when the aggravating circumstance is ordinary but to be withheld when it is qualifying. Withal, the ordinary or qualifying nature of an aggravating circumstance is a distinction that should only be of consequence to the criminal, rather than to the civil, liability of the offender. In fine, relative to the civil aspect of the case, an aggravating circumstance, whether ordinary or qualifying, should entitle the offended party to an award of exemplary damages within the unbridled meaning of Article 2230 of the Civil Code. People of the Philippines v. Garry Vergara y Oriel and Joseph Incencio y Paulino, G.R. No. 177763, July 3, 2013.

Damages; interest thereon; where obligation does not constitute a loan or forbearance of money. The CA erred in imposing an interest rate of 12% on the award of damages. Under Article 2209 of the Civil Code, when an obligation not constituting a loan or forbearance of money is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. In the similar case of Belgian Overseas Chartering and Shipping NV v. Philippine First Insurance Co., lnc., the Court reduced the rate of interest on the damages awarded to the carrier therein to 6% from the time of the filing of the complaint until the finality of the decision. Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.) v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos. 181163/181262/181319, July 24, 2013.

Damages; moral damages; when recoverable. In Philippine National Bank v. Spouses Rocamora, the Supreme Court said that:

Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the defendant acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive. Likewise, a breach of contract may give rise to exemplary damages only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1, 2013.

Damages; moral damages; awarded where the victim of a crime suffered a violent death, even in the absence of proof of mental and emotional suffering of the victim’s heirs. The Supreme Court sustained the RTC’s award for moral damages in the amount of P50,000.00 even in the absence of proof of mental and emotional suffering of the victim’s heirs. As borne out by human nature and experience, a violent death invariably and necessarily brings about emotional pain and anguish on the part of the victim’s family. While no amount of damages may totally compensate the sudden and tragic loss of a loved one it is nonetheless awarded to the heirs of the deceased to at least assuage them. People of the Philippines v. Garry Vergara y Oriel and Joseph Incencio y Paulino, G.R. No. 177763, July 3, 2013

Damages; moral and exemplary damages in claims for disability benefits; not recoverable where employer was not negligent in affording the employee with medical treatment, and employer did not forsake employee during the period of disability. The CA correctly denied an award of moral and exemplary damages. The respondents were not negligent in affording the petitioner with medical treatment neither did they forsake him during his period of disability. Camilo A. Esguerra v. United Philippines Lines, Inc., et al., G.R. No. 199932, July 3, 2013.

Human Relations; abuse of rights; Article 19 of the Civil Code; concept; damages as reliefs. The principle of abuse of rights as enshrined in Article 19 of the Civil Code provides that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

In this regard, the Court’s ruling in Yuchengco v. The Manila Chronicle Publishing Corporation is instructive, to wit:

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This provision of law sets standards which must be observed in the exercise of one’s rights as well as in the performance of its duties, to wit: to act with justice; give everyone his due; and observe honesty and good faith.

In Globe Mackay Cable and Radio Corporation v. Court of Appeals, it was elucidated that while Article 19 “lays down a rule of conduct for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for damages under either Article 20 or Article 21 would be proper.” The Court said:

One of the more notable innovations of the New Civil Code is the codification of “some basic principles that are to be observed for the rightful relationship between human beings and for the stability of the social order.” [REPORT ON THE CODE COMMISSION ON THE PROPOSED CIVIL CODE OF THE PHILIPPINES, p. 39]. The framers of the Code, seeking to remedy the defect of the old Code which merely stated the effects of the law, but failed to draw out its spirit, incorporated certain fundamental precepts which were “designed to indicate certain norms that spring from the fountain of good conscience” and which were also meant to serve as “guides for human conduct [that] should run as golden threads through society, to the end that law may approach its supreme ideal, which is the sway and dominance of justice.” (Id.) Foremost among these principles is that pronounced in Article 19 x x x.

xxxx

This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which must be observed not only in the exercise of one’s rights, but also in the performance of one’s duties. These standards are the following: to act with justice; to give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for damages under either Article 20 or Article 21 would be proper. Joyce V. Ardiente v. Spouses Javier and Ma. Theresa Pastofide, G.R. No. 161921, July 17, 2013.

Human Relations; civil case for fraud; Article 33 of the Civil Code provides that a civil case for damages based on fraud may proceed independently of the criminal case therefor; said civil case will not operate as a prejudicial question that will justify the suspension of a criminal case. It is well settled that a civil action based on defamation, fraud and physical injuries may be independently instituted pursuant to Article 33 of the Civil Code, and does not operate as a prejudicial question that will justify the suspension of a criminal case. This was precisely the Court’s thrust in G.R. No. 148193, thus:

Moreover, neither is there a prejudicial question if the civil and the criminal action can, according to law, proceed independently of each other. Under Rule 111, Section 3 of the Revised Rules on Criminal Procedure, in the cases provided in Articles 32, 33, 34 and 2176 of the Civil Code, the independent civil action may be brought by the offended party. It shall proceed independently of the criminal action and shall require only a preponderance of evidence. In no case, however, may the offended party recover damages twice for the same act or omission charged in the criminal action.

In the instant case, Civil Case No. 99-95381, for Damages and Attachment on account of the alleged fraud committed by respondent and his mother in selling the disputed lot to PBI is an independent civil action under Article 33 of the

Civil Code. As such, it will not operate as a prejudicial question that will justify the suspension of the criminal case at bar. Rafael Jose Consing, Jr. v. People of the Philippines, G.R. No. 161075, July 15, 2013.

Letter of credit; definition; nature. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of his goods before paying. However, letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties to the original transaction, in these cases, Nichimen Corporation as the seller and Universal Motors as the buyer. Hence, the latter, as the buyer of the Nissan CKD parts, should be regarded as the person entitled to delivery of the goods. Accordingly, for purposes of reckoning when notice of loss or damage should be given to the carrier or its agent, the date of delivery to Universal Motors is controlling. Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.) v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos. 181163/181262/181319, July 24, 2013.

Mortgage; includes all natural or civil fruits and improvements found on the mortgaged property when the secured obligation becomes due; in case of non-payment of the secured debt, foreclosure proceedings shall cover not only the hypothecated property but all its accessions and accessories as well; indispensable requisite that mortgagor be the absolute owner of the encumbered property. Rent, as an accessory, follows the principal. In fact, when the principal property is mortgaged, the mortgage shall include all natural or civil fruits and improvements found thereon when the secured obligation becomes due as provided in Article 2127 of the Civil Code, viz:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person.

Consequently, in case of non-payment of the secured debt, foreclosure proceedings shall cover not only the hypothecated property but all its accessions and accessories as well. This was illustrated in the early case of Cu Unjieng e Hijos v. Mabalacat Sugar Co. where the Court held:

That a mortgage constituted on a sugar central includes not only the land on which it is built but also the buildings, machinery, and accessories installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the mortgagor, installed after the constitution thereof x x x [.]

Applying such pronouncement in the subsequent case of Spouses Paderes v. Court of Appeals, the Court declared that the improvements constructed by the mortgagor on the subject lot are covered by the real estate mortgage contract with the mortgagee bank and thus included in the foreclosure proceedings instituted by the latter.

However, the rule is not without qualifications. In Castro, Jr. v. CA the Court explained that Article 2127 is predicated on the presumption that the ownership of accessions and accessories also belongs to the mortgagor as the owner of the principal. After all, it is an indispensable requisite of a valid real estate mortgage that the mortgagor be the absolute owner of the encumbered property. Philippine National Bank v. Sps. Bernard and Cresencia Marañon, G.R.No. 189316, July 1, 2013.

Mortgage; mortgagee in good faith; right to have mortgage lien carried over and annotated on the new certificate of title. The protection afforded to PNB as a mortgagee in good faith refers to the right to have its mortgage lien carried over and annotated on the new certificate of title issued to Spouses Marañon as so adjudged by the RTC. Thereafter, to enforce such lien thru foreclosure proceedings in case of non- payment of the secured debt, as PNB did so pursue. The principle, however, is not the singular rule that governs real estate mortgages and foreclosures attended by fraudulent transfers to the mortgagor. Philippine National Bank v. Sps. Bernard and Cresencia Marañon,  G.R.No. 189316, July 1, 2013.

Obligations; conditions; fulfillment thereof; deemed fulfilled when obligor voluntarily prevents it fulfillment; requisites. The spouses Bonrostro want to be relieved from paying interest on the amount of P214,492.62 which the spouses Luna paid to Bliss as amortizations by asserting that they were prevented by the latter from fulfilling such obligation. They invoke Art. 1186 of the Civil Code which provides that “the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.”

However, the Court finds Art. 1186 inapplicable to this case. The said provision explicitly speaks of a situation where it is the obligor who voluntarily prevents fulfillment of the condition. Here, Constancia is not the obligor but the obligee. Moreover, even if this significant detail is to be ignored, the mere intention to prevent the happening of the condition or the mere placing of ineffective obstacles to its compliance, without actually preventing fulfillment is not sufficient for the application of Art. 1186. Two requisites must concur for its application, to wit: (1) intent to prevent fulfillment of the condition; and, (2) actual prevention of compliance. Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constacia Luna, G.R. No.172346, July 24, 2013.

Obligations; constructive fulfillment; Article 1186 of the Civil Code; requisites. As aptly pointed out by the CA, Article 1186 of the Civil Code, which states that “the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment,” does not apply in this case, viz:

Article 1186 enunciates the doctrine of constructive fulfillment of suspensive conditions, which applies when the following three (3) requisites concur, viz: (1) The condition is suspensive; (2) The obligor actually prevents the fulfillment of the condition; and (3) He acts voluntarily. Suspensive condition is one the happening of which gives rise to the obligation. It will be irrational for any Bank to provide a suspensive condition in the Promissory Note or the Restructuring Agreement that will allow the debtor-promissor to be freed from the duty to pay the loan without paying it.

Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1, 2013.

Obligations; if an obligation consists of payment of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest. Under Article 2209 ofthe Civil Code, “[i]fthe obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest· agreed upon, and in the absence of stipulation, the legal interest x x x.” There being no stipulation on interest in case ofdelay in the payment ofamortization, the CA thus correctly imposed interest at the legal rate which is now 12%per annum. Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constacia Luna, G.R. No.172346, July 24, 2013.

Penalties and interest rates; penalties and interest rates should be expressly stipulated in writing. As to the imposition of additional interest and penalties not stipulated in the Promissory Notes, this should not be allowed. Article 1956 of the Civil Code specifically states that “no interest shall be due unless it has been expressly stipulated in writing.” Thus, the payment of interest and penalties in loans is allowed only if the parties agreed to it and reduced their agreement in writing. Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1, 2013.

Prescription; Article 1144 of the Civil Code. We concur with the CA’s ruling that respondent’s action did not yet prescribe. The legal provision governing this case was not Article 1146 of the Civil Code, but Article 1144 of the Civil Code, which states:

Article 1144. The following actions must be brought within ten years from the time the cause of action accrues:

(1)Upon a written contract; (2) Upon an obligation created by law; (3)Upon a judgment.

Vector Shipping Corporation, et al. v. American Home Assurance Co., et al., G.R. No. 159213, July 3, 2013.

Property; co-ownership; sale of co-owned property; if only one co-owner agreed to the sale, said co-owner only sold his aliquot share in the subject property. But as held by the appellate court, the sale between the petitioner and Alejandro is

valid insofar as the aliquot share of respondent Alejandro is concerned. Being a co-owner, Alejandro can validly and legally dispose of his share even without the consent of all the other co-heirs. Since the balance of the full price has not yet been paid, the amount paid shall represent as payment to his aliquot share.  This then leaves the sale of the lot of the Altamiranos to the Spouses Lajarca valid only insofar as their shares are concerned, exclusive of the aliquot part of Alejandro, as ruled by the CA. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013.

Property; patrimonial property and property of public dominion; patrimonial property of the State may be the object of prescription, however, those intended for some public service or the development of national wealth are property of public dominion, which are not susceptible to acquisition by prescription; public domain lands become patrimonial property only if there is a declaration that these are alienable or disposable, together with an express government manifestation that the property is already patrimonial or no longer retained for public service or the development of national wealth. Under Article 422 of the Civil Code, public domain lands become patrimonial property only if there is a declaration that these are alienable or disposable, together with an express government manifestation that the property is already patrimonial or no longer retained for public service or the development of national wealth. Only when the property has become patrimonial can the prescriptive period for the acquisition of property of the public dominion begin to run. Also under Section 14(2) of Presidential Decree (P.D.) No. 1529, it is provided that before acquisitive prescription can commence, the property sought to be registered must not only be classified as alienable and disposable, it must also be expressly declared by the State that it is no longer intended for public service or the development of the national wealth, or that the property has been converted into patrimonial. Absent such an express declaration by the State, the land remains to be property of public dominion. Dream Village Neighborhood Association, Inc., represented by its Incumbent President Greg Seriego v. Bases Conversion Development Authority, G.R. No.192896, July 24, 2013.

Rent; civil fruit; rightful recipient. Rent is a civil fruit that belongs to the owner of the property producing it by right of accession. The rightful recipient of the disputed rent in this case should thus be the owner of the subject lot at the time the rent accrued. Philippine National Bank v. Sps. Bernard and Cresencia Marañon, G.R.No. 189316, July 1, 2013.

Subrogation; basis; definition. Consistent with the pertinent law and jurisprudence, therefore, Exhibit I was already enough by itself to prove the payment of P7,455,421.00 as the full settlement of Caltex’s claim. The payment made to Caltex as the insured being thereby duly documented, respondent became subrogated as a matter of course pursuant to Article 2207 of the Civil Code. In legal contemplation, subrogation is the “substitution of another person in the place of the creditor, to whose rights he succeeds in relation to the debt;” and is “independent of any mere contractual relations between the parties to be affected by it, and is broad enough to cover every instance in which one party is required to pay a debt for which another is primarily answerable, and which in equity and conscience ought to be discharged by the latter.” Vector Shipping Corporation, et al. v. American Home Assurance Co., et al., G.R. No. 159213, July 3, 2013.

Subrogation in insurance cases; accrues simply upon payment by the insurance company of the insurance claim; payment by the insurer to the insured operates as an equitable assignment to the insurer of all remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The Court holds that petitioner Philam has adequately established the basis of its claim against petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the consignee, Universal Motors Corporation, pursuant to the Subrogation Receipt executed by the latter in favor of the former. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. Petitioner Philam’s action finds support in Article 2207 of the Civil Code, which provides as follows:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x.

Yet, even with the exclusion of Marine Certificate No. 708-8006717-4, the Subrogation Receipt, on its own, is adequate proof that petitioner Philam paid the consignee’s claim on the damaged goods. Petitioners ATI and Westwind failed to offer any evidence to controvert the same. In Malayan Insurance Co., Inc. v. Alberto, the Court explained the effect of payment by the insurer of the insurance claim in this wise:

We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay. Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.) v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos. 181163/181262/181319, July 24, 2013.

Tender of payment; concept; tender of payment, if refused without just cause, will discharge the debtor only after a valid consignation with the court; when tender of payment is not accompanied by the means of payment, and the debtor did not take any immediate step to make a consignation, then interest is not suspended from the time of such tender. Tender of payment “is the manifestation by the debtor of a desire to comply with or pay an obligation. If refused without just cause, the tender of payment will discharge the debtor of the obligation to pay but only after a valid consignation of the sum due shall have been made with the proper court.” “Consignation is the deposit of the [proper amount with a judicial authority] in accordance with rules prescribed by law, after the tender of payment has been refused or because of circumstances which render direct payment to the creditor impossible or inadvisable.”

“Tender of payment, without more, produces no effect.” “[T]o have the effect of payment and the consequent extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation.”

As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino explained as follows:

When a tender of payment is made in such a form that the creditor could have immediately realized payment if he had accepted the tender, followed by a prompt attempt of the debtor to deposit the means of payment in court by way of consignation, the accrual of interest on the obligation will be suspended from the date of such tender. But when the tender of payment is not accompanied by the means of payment, and the debtor did not take any immediate step to make a consignation, then interest is not suspended from the time of such tender. x x x x (Emphasis supplied) Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constacia Luna, G.R. No.172346, July 24, 2013.

Special Laws

Act No. 3135; foreclosure sale; personal notice to the mortgagor in extrajudicial foreclosure proceedings is necessary where there is a stipulation to this effect, and failure to comply with the stipulated notice requirement is a contractual breach sufficient to render the foreclosure sale null and void. It has been consistently held that unless the parties stipulate, “personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary” because Section 3117 of Act 3135 only requires the posting of the notice of sale in three public places and the publication of that notice in a newspaper of general circulation.

In this case, the parties stipulated in paragraph 11 of the Mortgage that:

11. All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or notification of any judicial or extra-judicial action shall be sent to the Mortgagor at xxx or at the address that may hereafter be given in writing by the Mortgagor or the Mortgagee;

However, no notice of the extrajudicial foreclosure was sent by DBP to petitioners about the foreclosure sale scheduled on July 11, 1994. The letters dated January 28, 1994 and March 11, 1994 advising petitioners to immediately pay their obligation to avoid the impending foreclosure of their mortgaged properties are not the notices required in paragraph 11 of the Mortgage. The failure of DBP to comply with their contractual agreement with petitioners, i.e., to send notice, is a breach sufficient to invalidate the foreclosure sale. Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1, 2013.

Bases Conversion Development Authority (BCDA); BCDA holds title to Fort Bonifacio; Dream Village sits on the abandoned C-5 Road, which lies outside the areas declared in Proclamation Nos. 2476 and 172 as alienable and

disposable. That the BCDA has title to Fort Bonifacio has long been decided with finality. In Samahan ng Masang Pilipino sa Makati, Inc. v. BCDA, it was categorically ruled as follows:

First, it is unequivocal that the Philippine Government, and now the BCDA, has title and ownership over Fort Bonifacio. The case of Acting Registrars of Land Titles and Deeds of Pasay City, Pasig and Makati is final and conclusive on the ownership of the then Hacienda de Maricaban estate by the Republic of the Philippines. Clearly, the issue on the ownership of the subject lands in Fort Bonifacio is laid to rest. Other than their view that the USA is still the owner of the subject lots, petitioner has not put forward any claim of ownership or interest in them. Dream Village Neighborhood Association, Inc., represented by its Incumbent President Greg Seriego v. Bases Conversion Development Authority, G.R. No.192896, July 24, 2013.  

Common Carrier; Carriage of Goods by Sea Act (COGSA); prescriptive period for filing an action for loss or damage of goods. The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in paragraph (6), Section 3, thus:

(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.) v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos. 181163/181262/181319, July 24, 2013.

Common Carrier; Carriage of Goods by Sea Act (COGSA); prescriptive period for filing an action for loss or damage of goods. The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in paragraph (6), Section 3, thus:

(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.  Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.) v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos. 181163/181262/181319, July 24, 2013.

Family Code; marriage; void ab initio for lack of a marriage license; no inconsistency in finding the marriage null and void ab initio and, at the same time, non-existent; contracts which are absolutely simulated or fictitious are inexistent

and void from the beginning. There is no inconsistency in finding the marriage between Benjamin and Sally null and void ab initio and, at the same time, non-existent. Under Article 35 of the Family Code, a marriage solemnized without a license, except those covered by Article 34 where no license is necessary, “shall be void from the beginning.” In this case, the marriage between Benjamin and Sally was solemnized without a license. It was duly established that no marriage license was issued to them and that Marriage License No. N-07568 did not match the marriage license numbers issued by the local civil registrar of Pasig City for the month of February 1982. The case clearly falls under Section 3 of Article 3520 which made their marriage void ab initio. The marriage between Benjamin and Sally was also non-existent. Applying the general rules on void or inexistent contracts under Article 1409 of the Civil Code, contracts which are absolutely simulated or fictitious are “inexistent and void from the beginning.” Thus, the Court of Appeals did not err in sustaining the trial court’s ruling that the marriage between Benjamin and Sally was null and void ab initio and non-existent. Sally Go-Bangayan v. Benjamin Bangayan, Jr., G.R. No. 201061, July 3, 2013.

Family Code; marriage license; certification from the local civil registrar is adequate to prove the non-issuance of a marriage license and, absent any suspicious circumstance, the certification enjoys probative value. The certification from the local civil registrar is adequate to prove the non-issuance of a marriage license and absent any suspicious circumstance, the certification enjoys probative value, being issued by the officer charged under the law to keep a record of all data relative to the issuance of a marriage license. Sally Go-Bangayan v. Benjamin Bangayan, Jr., G.R. No. 201061, July 3, 2013.

Family Code; property relations in cases of cohabitation without the benefit of marriage; rules. The Court of Appeals correctly ruled that the property relations of Benjamin and Sally is governed by Article 148 of the Family Code which states:

Art. 148. In cases of cohabitation not falling under the preceding Article, only the properties acquired by both of the parties through their actual joint contribution of money, property, or industry shall be owned by them in common in proportion to their respective contributions. In the absence of proof to the contrary, their contributions and corresponding shares are presumed to be equal. The same rule and presumption shall apply to joint deposits of money and evidences of credit.

If one of the parties is validly married to another, his or her share in the co-ownership shall accrue to the absolute community of conjugal partnership existing in such valid marriage. If the party who acted in bad faith is not validly married to another, his or her share shall be forfeited in the manner provided in the last paragraph of the preceding Article.

The foregoing rules on forfeiture shall likewise apply even if both parties are in bad faith.

Benjamin and Sally cohabitated without the benefit of marriage. Thus, only the properties acquired by them through their actual joint contribution of money, property, or industry shall be owned by them in common in proportion to their respective contributions.  Sally Go-Bangayan v. Benjamin Bangayan, Jr., G.R. No. 201061, July 3, 2013.

Land ownership; decree of registration for which an OCT was issued is accorded greater weight as against tax declarations and tax receipts in the name of another; tax declarations and tax receipts only become the basis of a claim of ownership when coupled with proof of actual possession of property. In the case of Ferrer-Lopez v. CA, the Court ruled that as against an array of proofs consisting of tax declarations and/or tax receipts which are not conclusive evidence of ownership nor proof of the area covered therein, an original certificate of title, which indicates true and legal ownership by the registered owners over the disputed premises, must prevail. Accordingly, respondents’ Decree No. 98992 for which an original certificate of title was issued should be accorded greater weight as against the tax declarations and tax receipts presented by petitioners in this case. Besides, tax declarations and tax receipts may only become the basis of a claim for ownership when they are coupled with proof of actual possession of the property. Heirs of Alejandra Delfin, namely, Leopoldo Delfin, et al. v. Avelina Rabadon, G.R. No. 165014, July 31, 2013.

Land registration; decree of registration bars all claims and rights which arose or may have existed prior to the decree of registration. It is an elemental rule that a decree of registration bars all claims and rights which arose or may have existed prior to the decree of registration. By the issuance of the decree, the land is bound and title thereto quieted,

subject only to certain exceptions under the property registration decree. Heirs of Alejandra Delfin, namely, Leopoldo Delfin, et al. v. Avelina Rabadon, G.R. No. 165014, July 31, 2013.

Republic Act No. 26; reconstitution of title; nature of proceeding; Torrens system; sources of reconstitution; mandatory requirements of publication, posting, and notice. At the outset, the Court notes that the present amended petition for reconstitution is anchored on the owner’s duplicate copy of TCT No. 8240 – a source for reconstitution of title under Section 3(a)29 of RA 26 which, in turn, is governed by the provisions of Section 10 in relation to Section 9 of RA 26 with respect to the publication, posting, and notice requirements. Section 10 reads:

SEC. 10. Nothing hereinbefore provided shall prevent any registered owner or person in interest from filing the petition mentioned in section five of this Act directly with the proper Court of First Instance, based on sources enumerated in sections 2(a), 2(b), 3(a), 3(b), and/or 4(a) of this Act: Provided, however, That the court shall cause a notice of the petition, before hearing and granting the same, to be published in the manner stated in section nine hereof: And, provided, further, That certificates of title reconstituted pursuant to this section shall not be subject to the encumbrance referred to in section seven of this Act.

Corollarily, Section 9 reads in part:

SEC. 9. x x x Thereupon, the court shall cause a notice of the petition to be published, at the expense of the petitioner, twice in successive issues of the Official Gazette, and to be posted on the main entrance of the provincial building and of the municipal building of the municipality or city in which the land lies, at least thirty days prior to the date of hearing, and after hearing, shall determine the petition and render such judgment as justice and equity may require. x x x.

The foregoing provisions, therefore, clearly require that (a) notice of the petition should be published in two (2) successive issues of the Official Gazette; and (b) publication should be made at least thirty (30) days prior to the date of hearing. Substantial compliance with this jurisdictional requirement is not enough; it bears stressing that the acquisition of jurisdiction over a reconstitution case is hinged on a strict compliance with the requirements of the law. Republic of the Philippines v. Ricordito N. De Asis, Jr., G.R. No. 193874, July 24, 2013.

Torrens system; the issue on the validity of title necessitates a remand of the case. The Court recognizes the importance of protecting the country’s Torrens system from fake land titles and deeds. Considering that there is an issue on the validity of the title of petitioner VSD, which title is alleged to be traceable to OCT No. 994 registered on April 19, 1917, which mother title was held to be inexistent in Manotok Realty, Inc. v. CLT Realty Development Corporation, in the interest of justice, and to safeguard the correct titling of properties, a remand is proper to determine which of the parties derived valid title from the legitimate OCT No. 994 registered on May 3, 1917. Since this Court is not a trier of facts and not capacitated to appreciate evidence of the first instance, the Court may remand this case to the Court of Appeals for further proceedings, as it has been similarly tasked in Manotok Realty, Inc. v. CLT Realty Development Corporation. VSD Realty & Development Corporation v. Uniwide Sales, Inc. and Dolores Baello Tejada, G.R. No. 170677, July 31, 2013

Torrens system; Torrens title; lands under a Torrens title cannot be acquired by prescription or adverse possession. Moreover, it is a settled rule that lands under a Torrens title cannot be acquired by prescription or adverse possession. Section 47 of P.D. No. 1529, the Property Registration Decree, expressly provides that no title to registered land in derogation of the title of the registered owner shall be acquired by prescription or adverse possession. And, although the registered landowner may still lose his right to recover the possession of his registered property by reason of laches, nowhere has Dream Village alleged or proved laches, which has been defined as such neglect or omission to assert a right, taken in conjunction with lapse of time and other circumstances causing prejudice to an adverse party, as will operate as a bar in equity. Put any way, it is a delay in the assertion of a right which works disadvantage to another because of the inequity founded on some change in the condition or relations of the property or parties. It is based on public policy which, for the peace of society, ordains that relief will be denied to a stale demand which otherwise could be a valid claim. Dream Village Neighborhood Association, Inc., represented by its Incumbent President Greg Seriego v. Bases Conversion Development Authority, G.R. No.192896, July 24, 2013.

Here are select June 2013 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contract; contract of carriage; definition; common carrier; definition; breach of contract of carriage; entitlement to damages; contract of services; standard of care required; damages; when recoverable; quasi-delict; solidary liability of joint tortfeasors. A contract of carriage is defined as one whereby a certain person or association of persons obligate themselves to transport persons, things, or news from one place to another for a fixed price. On its face, the airplane ticket is a valid written contract of carriage. This Court has held that when an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger has every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage.

Under Article 1732 of the Civil Code, this “persons, corporations, firms, or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public” is called a common carrier.

In contrast, the contractual relation between Sampaguita Travel and respondents is a contract for services. … Since the contract between the parties is an ordinary one or services, the standard of care required of respondent is that of a good father of a family under Article 1173 of the Civil Code. This connotes reasonable care consistent with that which an ordinarily prudent person would have observed when confronted with a similar situation. The test to determine whether negligence attended the performance of an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.

For one to be entitled to actual damages, it is necessary to prove the actual amount of loss with a reasonable degree of certainty, premised upon competent proof and the best evidence obtainable by the injured party. To justify an award of actual damages, there must be competent proof of the actual amount of loss. Credence can be given only to claims which are duly supported by receipts.

Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in breaches of contract, is in order upon a showing that the defendant acted fraudulently or in bad faith. What the law considers as bad faith which may furnish the ground for an award of moral damages would be bad faith in securing the contract and in the execution thereof, as well as in the enforcement of its terms, or any other kind of deceit. In the same vein, to warrant the award of exemplary damages, defendant must have acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.

Nominal damages are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown. Under Article 2221 of the Civil Code, nominal damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, not for indemnifying the plaintiff for any loss suffered.

The amount to be awarded as nominal damages shall be equal or at least commensurate to the injury sustained by respondents considering the concept and purpose of such damages. The amount of nominal damages to be awarded may also depend on certain special reasons extant in the case. The amount of such damages is addressed to the sound discretion of the court and taking into account the relevant circumstances, such as the failure of some respondents to board the flight on schedule and the slight breach in the legal obligations of the airline company to comply with the terms of the contract, i.e., the airplane ticket and of the travel agency to make the correct bookings.

Cathay Pacific and Sampaguita Travel acted together in creating the confusion in the bookings which led to the erroneous cancellation of respondents’ bookings. Their negligence is the proximate cause of the technical injury sustained by respondents. Therefore, they have become joint tortfeasors, whose responsibility for quasi-delict, under Article 2194 of the Civil Code, is solidary. Cathay Pacific Airways v. Juanita Reyes, et al., G.R. No. 185891, June 26, 2013

Contract; contract of sale; disputable presumptions; failure to pay the price; effect of; double sale; effect; registration in good faith; buyer in good faith; duty of a buyer when a piece of land is in the actual possession of third persons. Under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of business has been followed; and (3) there was sufficient consideration for a contract. These presumptions operate against an adversary who has not introduced proof to rebut them. They create the necessity of presenting evidence to rebut the prima facie case they created, and which, if no proof to the contrary is presented and offered, will prevail. The burden of proof remains where it is but, by the presumption, the one who has that burden is relieved for the time being from introducing evidence in support of the averment, because the presumption stands in the place of evidence unless rebutted.

Granting that there was no delivery of the consideration, the seller would have no right to sell again what he no longer owned. His remedy would be to rescind the sale for failure on the part of the buyer to perform his part of their obligation pursuant to Article 1191 of the New Civil Code. In the case of Clara M. Balatbat v. Court Of Appeals and Spouses Jose Repuyan and Aurora Repuyan, it was written:

The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract. [Emphases supplied]

[O]wnership of an immovable property which is the subject of a double sale shall be transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith. The requirement of the law then is two-fold: acquisition in good faith and registration in good faith. Good faith must concur with the registration. If it would be shown that a buyer was in bad faith, the alleged registration they have made amounted to no registration at all.

When a piece of land is in the actual possession of persons other than the seller, the buyer must be wary and should investigate the rights of those in possession. Without making such inquiry, one cannot claim that he is a buyer in good faith. When a man proposes to buy or deal with realty, his duty is to read the public manuscript, that is, to look and see who is there upon it and what his rights are. A want of caution and diligence, which an honest man of ordinary prudence is accustomed to exercise in making purchases, is in contemplation of law, a want of good faith. The buyer who has failed to know or discover that the land sold to him is in adverse possession of another is a buyer in bad faith.

[I]f a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at all, and the buyer who has first taken possession of the property in good faith shall be preferred.  Hospicio D. Rosaroso, et al. v. Lucila Laborte Soria, et al., G.R. No. 194846, June 19, 2013

Contract; contract of sale; elements; contract to sell; elements; difference between a contract of sale and a contract to sell; effect of non-payment in a contract of sale; laches; definition; Torrens system; exception to general rule that action to recover registered land covered by the Torrens System may not be barred by laches.  A contract of sale is defined under 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 therefore a price certain in money or its equivalent.

The elements of a contract of sale are: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter; and (c) price certain in money or its equivalent.

A contract to sell, on the other hand, is defined by Article 1479 of the Civil Code:

[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 prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold, whereas in a contract to sell, the ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price.

Even assuming, arguendo, that the petitioner was not paid, such non payment is immaterial and has no effect on the validity of the contract of sale. A contract of sale is a consensual contract and what is required is the meeting of the minds on the object and the price for its perfection and validity. In this case, the contract was perfected the moment the petitioner and the respondent agreed on the object of the sale – the two-hectare parcel of land, and the price – Three Thousand Pesos (P3,000.00). Non-payment of the purchase price merely gave rise to a right in favor of the petitioner to either demand specific performance or rescission of the contract of sale.

Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence could or should have been done earlier. It should be stressed that laches is not concerned only with the mere lapse of time. As a general rule, an action to recover registered land covered by the Torrens System may not be barred by laches. Neither can laches be set up to resist the enforcement of an imprescriptible legal right. In exceptional cases, however, the Court allowed laches as a bar to recover a titled property. Thus, in Romero v. Natividad, the Court ruled that laches will bar recovery of the property even if the mode of transfer was invalid. Likewise, in Vda. de Cabrera v. CA, the Court ruled:

In our jurisdiction, it is an enshrined rule that even registered owners of property may be barred from recovering possession of property by virtue of laches. Under the Land Registration Act (now the Property Registration Decree), no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession. The same is not true with regard to laches.

More particularly, laches will bar recovery of a property, even if the mode of transfer used by an alleged member of a cultural minority lacks executive approval. Thus, in Heirs of Dicman v. Cariño, the Court upheld the Deed of Conveyance of Part Rights and Interests in Agricultural Land executed by Ting-el Dicman in favor of Sioco Cariño despite lack of executive approval. The Court stated that “despite the judicial pronouncement that the sale of real property by illiterate ethnic minorities is null and void for lack of approval of competent authorities, the right to recover possession has nonetheless been barred through the operation of the equitable doctrine of laches.” Ali Akang v. Municipality of Isulan, Sultan Kudarat Province, G.R. No. 186014, June 26, 2013

Contract; contract of sale; disqualification of a lawyer to buy under Article 1491; elements of a contract; autonomous nature; obligatory nature of contract; interpretation; courts have no authority to alter a contract by construction or to make a new contract for the parties;   penal clause; generally substitutes the indemnity for damages and the payment of interests in case of non-compliance. Admittedly, Article 1491 (5) of the Civil Code prohibits lawyers from acquiring by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession. The CA lost sight of the fact, however, that the prohibition applies only during the pendency of the suit and generally does not cover contracts for contingent fees where the transfer takes effect only after the finality of a favorable judgment.

Defined as a meeting of the minds between two persons whereby one binds himself, with respect to the other to give something or to render some service, a contract requires the concurrence of the following requisites: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; and, (c) cause of the obligation which is established.

Viewed in the light of the autonomous nature of contracts enunciated under Article 1306 of the Civil Code, on the other hand, we find that the Kasunduan was correctly found by the RTC to be a valid and binding contract between the parties.

Obligations arising from contracts, after all, have the force of law between the contracting parties who are expected to abide in good faith with their contractual commitments, not weasel out of them. Moreover, when the terms of the contract are clear and leave no doubt as to the intention of the contracting parties, the rule is settled that the literal meaning of its stipulations should govern. In such cases, courts have no authority to alter a contract by construction or to make a new contract for the parties. Since their duty is confined to the interpretation of the one which the parties have

made for themselves without regard to its wisdom or folly, it has been ruled that courts cannot supply material stipulations or read into the contract words it does not contain. Indeed, courts will not relieve a party from the adverse effects of an unwise or unfavorable contract freely entered into.

An accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation, the foregoing stipulation is a penal clause which serves to strengthen the coercive force of the obligation and provides for liquidated damages for such breach. “The obligor would then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the breach.”

In obligations with a penal clause, the penalty generally substitutes the indemnity for damages and the payment of interests in case of non-compliance. Usually incorporated to create an effective deterrent against breach of the obligation by making the consequences of such breach as onerous as it may be possible, the rule is settled that a penal clause is not limited to actual and compensatory damages. Heirs of Manuel Uy Ek Liong v. Mauricia Meer Castillo, Heirs of Buenaflor C. Umali, represented by Nancy Umali, et al., G.R. No. 176425, June 5, 2013.

Contract; default of debtor; definition; requisites; liquidated damages; stipulation therefor; double function; penalty clause; definition; function. Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the former. It is the nonfulfillment of an obligation with respect to time.

It is a general rule that one who contracts to complete certain work within a certain time is liable for the damage for not completing it within such time, unless the delay is excused or waived.

In this jurisdiction, the following requisites must be present in order that the debtor may be in default: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.

Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code. A stipulation for liquidated damages is attached to an obligation in order to ensure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. The amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project. As a precondition to such award, however, there must be proof of the fact of delay in the performance of the obligation.

A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. It functions to strengthen the coercive force of obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. It is well-settled that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon the obligor. J Plus Asia Development Corporation v. Utility Assurance Corporation, G.R. No. 199650, June 26, 2013

Contract; rescission under Article 1191; mutual restitution; contracts; definition. Mutual restitution is required in cases involving rescission under Article 1191 of the Civil Code; such restitution is necessary to bring back the parties to their original situation prior to the inception of the contract.

As a general rule, a contract is a meeting of minds between two persons. The Civil Code upholds the spirit over the form; thus, it deems an agreement to exist, provided the essential requisites are present. A contract is upheld as long as there is proof of consent, subject matter and cause. Moreover, it is generally obligatory in whatever form it may have been entered into. From the moment there is a meeting of minds between the parties, [the contract] is perfected. Fil-Estate Gold and Development, Inc., et al. v. Vertex Sales and Trading, Inc., G.R. No. 202079, June 10, 2013.

Contract; void contracts; effect. A void contract is equivalent to nothing; it produces no civil effect; and it does not create, modify or extinguish a juridical relation. Joselito C. Borromeo v. Juan T. Mina, G.R. No. 193747, June 5, 2013.

Credit; concurrence and preference of credit; tax clearance is not required for the approval of a project of partition. The position of the BIR, insisting on prior compliance with the tax clearance requirement as a condition for the approval of the project of distribution of the assets of a bank under liquidation, is contrary to both the letter and intent of the law on liquidation of banks by the PDIC.

The law expressly provides that debts and liabilities of the bank under liquidation are to be paid in accordance with the rules on concurrence and preference of credit under the Civil Code. Duties, taxes, and fees due the Government enjoy priority only when they are with reference to a specific movable property, under Article 2241(1) of the Civil Code, or immovable property, under Article 2242(1) of the same Code. However, with reference to the other real and personal property of the debtor, sometimes referred to as “free property,” the taxes and assessments due the National Government, other than those in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate income tax, will come only in ninth place in the order of preference. On the other hand, if the BIR’s contention that a tax clearance be secured first before the project of distribution of the assets of a bank under liquidation may be approved, then the tax liabilities will be given absolute preference in all instances, including those that do not fall under Articles 2241(1) and 2242(1) of the Civil Code. In order to secure a tax clearance which will serve as proof that the taxpayer had completely paid off his tax liabilities, PDIC will be compelled to settle and pay first all tax liabilities and deficiencies of the bank, regardless of the order of preference under the pertinent provisions of the Civil Code. Following the BIR’s stance, therefore, only then may the project of distribution of the bank’s assets be approved and the other debts and claims thereafter settled, even though under Article 2244 of the Civil Code such debts and claims enjoy preference over taxes and assessments due the National Government. Philippine Deposit Insurance Corporation v. Bureau of Internal Revenue, G.R. No. 172892, June 13, 2013

Damages; Attorney’s fees; dual concept of attorney’s fees; an award of attorney’s fees under Article 2208 demands factual, legal, and equitable justification. Article 2208 of the New Civil Code of the Philippines states the policy that should guide the courts when awarding attorney’s fees to a litigant. As a general rule, the parties may stipulate the recovery of attorney’s fees. In the absence of such stipulation, this article restrictively enumerates the instances when these fees may be recovered.

In ABS-CBN Broadcasting Corp. v. CA, this Court had the occasion to expound on the policy behind the grant of attorney’s fees as actual or compensatory damages:

(T)he law is clear that in the absence of stipulation, attorney’s fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. The general rule is that attorney’s fees 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 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney’s fees may not be awarded where no sufficient showing of bad faith could be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause.

We have consistently held that an award of attorney’s fees under Article 2208 demands factual, legal, and equitable justification to avoid speculation and conjecture surrounding the grant thereof. Due to the special nature of the award of attorney’s fees, a rigid standard is imposed on the courts before these fees could be granted. Hence, it is imperative that they clearly and distinctly set forth in their decisions the basis for the award thereof. It is not enough that they merely state the amount of the grant in the dispositive portion of their decisions. It bears reiteration that the award of attorney’s fees is an exception rather than the general rule; thus, there must be compelling legal reason to bring the case within the exceptions provided under Article 2208 of the Civil Code to justify the award. Philippine National Construction Corporation v. Apac Marketing Corporation, represented by Cesar M. Ong, Jr., G.R. No. 190957, June 5, 2013.

Damages; nominal damages; when warranted in labor cases. [W]hile Van Doorn has a just and valid cause to terminate the respondents’ employment, it failed to meet the requisite procedural safeguards provided under Article 283 of the Labor Code. In the termination of employment under Article 283, Van Doorn, as the employer, is required to serve a written notice to the respondents and to the DOLE of the intended termination of employment at least one month prior to the cessation of its fishing operations. Poseidon could have easily filed this notice, in the way it represented Van

Doorn in its dealings in the Philippines. While this omission does not affect the validity of the termination of employment, it subjects the employer to the payment of indemnity in the form of nominal damages. Poseidon International Maritime Services, Inc. v. Tito R. Tamala, et al., G.R. No. 186475, June 26, 2013

Damages; temperate damages; when warranted. Article 2224 of the New Civil Code provides that “(t)emperate or moderate damages, which are more than nominal but less than compensatory damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, proved with certainty.” People of the Philippines v. Reggie Bernardo, G.R. No. 198789, June 3, 2013.

Interest rates; a stipulated interest of 24% per annum is not unconscionable; surcharge on principal loan; a surcharge of 1% per month on the principal loan is valid; surcharge or penalty partakes of the nature of liquidated damages; different from interest payment. In Villanueva v. Court of Appeals, where the issue raised was whether the 24% p.a. stipulated interest rate is unreasonable under the circumstances, we answered in the negative and held:

In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, this Court held that the interest rate of 24% per annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties and they are bound by its stipulations.

Also, in Garcia v. Court of Appeals, this Court sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender.

Based on the above jurisprudence, the Court finds that the 24% per annum interest rate, provided for in the subject mortgage contracts for a loan of P225,000.00, may not be considered unconscionable. Moreover, considering that the mortgage agreement was freely entered into by both parties, the same is the law between them and they are bound to comply with the provisions contained therein.

In Ruiz v. CA, we held:

 The 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.

Spouses Florentino T. Mallari and Aurea V. Mallari v. Prudential Bank of the Philippines, G.R. No. 197861, June 5, 2013

Tort; collateral source rule; unjust enrichment; elements. As part of American personal injury law, the collateral source rule was originally applied to tort cases wherein the defendant is prevented from benefiting from the plaintiff’s receipt of money from other sources. Under this rule, if an injured person receives compensation for his injuries from a source wholly independent of the tortfeasor, the payment should not be deducted from the damages which he would otherwise collect from the tortfeasor. In a recent Decision by the Illinois Supreme Court, the rule has been described as “an established exception to the general rule that damages in negligence actions must be compensatory.” The Court went on to explain that although the rule appears to allow a double recovery, the collateral source will have a lien or subrogation right to prevent such a double recovery. In Mitchell v. Haldar, the collateral source rule was rationalized by the Supreme Court of Delaware:

The collateral source rule is ‘predicated on the theory that a tortfeasor has no interest in, and therefore no right to benefit from monies received by the injured person from sources unconnected with the defendant’. According to the collateral source rule, ‘a tortfeasor has no right to any mitigation of damages because of payments or compensation received by

the injured person from an independent source.’ The rationale for the collateral source rule is based upon the quasi-punitive nature of tort law liability. It has been explained as follows:

The collateral source rule is designed to strike a balance between two competing principles of tort law: (1) a plaintiff is entitled to compensation sufficient to make him whole, but no more; and (2) a defendant is liable for all damages that proximately result from his wrong. A plaintiff who receives a double recovery for a single tort enjoys a windfall; a defendant who escapes, in whole or in part, liability for his wrong enjoys a windfall. Because the law must sanction one windfall and deny the other, it favors the victim of the wrong rather than the wrongdoer.

Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if it results in a windfall for the innocent plaintiff. (Citations omitted)

As seen, the collateral source rule applies in order to place the responsibility for losses on the party causing them. Its application is justified so that “‘the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may exist between the injured party and third persons.” Thus, it finds no application to cases involving no-fault insurances under which the insured is indemnified for losses by insurance companies, regardless of who was at fault in the incident generating the losses.

To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully. A claim for unjust enrichment fails when the person who will benefit has a valid claim to such benefit. Mitsubishi Motors Philippines Salaried Employees Union v. Mitsubishi Motors Philippines Corporation, G.R. No. 175773, June 17, 2013.

Unjust enrichment; definition; elements.  Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them. To be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconveyance. Rather, it is a prerequisite for the enforcement of the doctrine of restitution. There is unjust enrichment when:

1. A person is unjustly benefited; and

2. Such benefit is derived at the expense of or with damages to another.

 Philippine Transmarine Carriers, Inc. v. Leandro Legaspi, G.R. No. 202791, June 10, 2013.

Special Laws

Family Code; support; in proportion to the resources or means of the giver and to the needs of the recipient; support pendente lite in cases of legal separation and petitions for declaration of nullity or annulment of marriage; judicial determination is guided by the Rule on Provisional Orders; support in arrears; deductions from accrued support pendente lite; judgment for support does not become final. As a matter of law, the amount of support which those related by marriage and family relationship is generally obliged to give each other shall be in proportion to the resources or means of the giver and to the needs of the recipient. Such support comprises everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family.

Upon receipt of a verified petition for declaration of absolute nullity of void marriage or for annulment of voidable marriage, or for legal separation, and at any time during the proceeding, the court, motu proprio or upon verified application of any of the parties, guardian or designated custodian, may temporarily grant support pendente lite prior to the rendition of judgment or final order. Because of its provisional nature, a court does not need to delve fully into the merits of the case before it can settle an application for this relief. All that a court is tasked to do is determine the kind and amount of evidence which may suffice to enable it to justly resolve the application. It is enough that the facts be established by affidavits or other documentary evidence appearing in the record.

Judicial determination of support pendente lite in cases of legal separation and petitions for declaration of nullity or annulment of marriage are guided by the provisions of the Rule on Provisional Orders.

On the issue of crediting of money payments or expenses against accrued support, we find as relevant the following rulings by US courts.

In Bradford v. Futrell, appellant sought review of the decision of the Circuit Court which found him in arrears with his child support payments and entered a decree in favor of appellee wife. He complained that in determining the arrearage figure, he should have been allowed full credit for all money and items of personal property given by him to the children themselves, even though he referred to them as gifts. The Court of Appeals of Maryland ruled that in the suit to determine amount of arrears due the divorced wife under decree for support of minor children, the husband (appellant) was not entitled to credit for checks which he had clearly designated as gifts, nor was he entitled to credit for an automobile given to the oldest son or a television set given to the children. Thus, if the children remain in the custody of the mother, the father is not entitled to credit for money paid directly to the children if such was paid without any relation to the decree.

In Martin, Jr. v. Martin, the Supreme Court of Washington held that a father, who is required by a divorce decree to make child support payments directly to the mother, cannot claim credit for payments voluntarily made directly to the children. However, special considerations of an equitable nature may justify a court in crediting such payments on his indebtedness to the mother, when such can be done without injustice to her.

Suffice it to state that the matter of increase or reduction of support should be submitted to the trial court in which the action for declaration for nullity of marriage was filed, as this Court is not a trier of facts. The amount of support may be reduced or increased proportionately according to the reduction or increase of the necessities of the recipient and the resources or means of the person obliged to support. As we held in Advincula v. Advincula:

Judgment for support does not become final. The right to support is of such nature that its allowance is essentially provisional; for during the entire period that a needy party is entitled to support, his or her alimony may be modified or altered, in accordance with his increased or decreased needs, and with the means of the giver. It cannot be regarded as subject to final determination.

Susan Lim-Lua v. Danilo Y. Lua, G.R. Nos. 175279-80, June 5, 2013.

Family Code; Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages; not applicable in an action for recognition of foreign judgment; foreign judgment relating to the marital status of a person; special proceeding for cancellation or correction of entries in the civil registry under Rule 108 of the Rules of Court; the first husband has a right to file the petition; effect of a foreign divorce decree to a Filipino spouse; Article 26 of the Family Code. The Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages (A.M. No. 02-11-10-SC) does not apply in a petition to recognize a foreign judgment relating to the status of a marriage where one of the parties is a citizen of a foreign country. Moreover, in Juliano-Llave v. Republic, this Court held that the rule in A.M. No. 02-11-10-SC that only the husband or wife can file a declaration of nullity or annulment of marriage “does not apply if the reason behind the petition is bigamy.”

A foreign judgment relating to the status of a marriage affects the civil status, condition and legal capacity of its parties. However, the effect of a foreign judgment is not automatic. To extend the effect of a foreign judgment in the Philippines, Philippine courts must determine if the foreign judgment is consistent with domestic public policy and other mandatory laws. Article 15 of the Civil Code provides that “[l]aws relating to family rights and duties, or to the status, condition and legal capacity of persons are binding upon citizens of the Philippines, even though living abroad.” This is the rule of lex nationalii in private international law. Thus, the Philippine State may require, for effectivity in the Philippines, recognition by Philippine courts of a foreign judgment affecting its citizen, over whom it exercises personal jurisdiction relating to the status, condition and legal capacity of such citizen.

A petition to recognize a foreign judgment declaring a marriage void does not require relitigation under a Philippine court of the case as if it were a new petition for declaration of nullity of marriage. Philippine courts cannot presume to know the foreign laws under which the foreign judgment was rendered. They cannot substitute their judgment on the

status, condition and legal capacity of the foreign citizen who is under the jurisdiction of another state. Thus, Philippine courts can only recognize the foreign judgment as a fact according to the rules of evidence.

Since the recognition of a foreign judgment only requires proof of fact of the judgment, it may be made in a special proceeding for cancellation or correction of entries in the civil registry under Rule 108 of the Rules of Court. Rule 1, Section 3 of the Rules of Court provides that “[a] special proceeding is a remedy by which a party seeks to establish a status, a right, or a particular fact.” Rule 108 creates a remedy to rectify facts of a person’s life which are recorded by the State pursuant to the Civil Register Law or Act No. 3753. These are facts of public consequence such as birth, death or marriage, which the State has an interest in recording. There is no doubt that the prior spouse has a personal and material interest in maintaining the integrity of the marriage he contracted and the property relations arising from it. There is also no doubt that he is interested in the cancellation of an entry of a bigamous marriage in the civil registry, which compromises the public record of his marriage. The interest derives from the substantive right of the spouse not only to preserve (or dissolve, in limited instances) his most intimate human relation, but also to protect his property interests that arise by operation of law the moment he contracts marriage. These property interests in marriage include the right to be supported “in keeping with the financial capacity of the family” and preserving the property regime of the marriage.

Section 2(a) of A.M. No. 02-11-10-SC does not preclude a spouse of a subsisting marriage to question the validity of a subsequent marriage on the ground of bigamy. On the contrary, when Section 2(a) states that “[a] petition for declaration of absolute nullity of void marriage may be filed solely by the husband or the wife” ―it refers to the husband or the wife of the subsisting marriage. Under Article 35(4) of the Family Code, bigamous marriages are void from the beginning. Thus, the parties in a bigamous marriage are neither the husband nor the wife under the law. The husband or the wife of the prior subsisting marriage is the one who has the personality to file a petition for declaration of absolute nullity of void marriage under Section 2(a) of A.M. No. 02-11-10-SC.

[A] Filipino citizen cannot dissolve his marriage by the mere expedient of changing his entry of marriage in the civil registry. However, this does not apply in a petition for correction or cancellation of a civil registry entry based on the recognition of a foreign judgment annulling a marriage where one of the parties is a citizen of the foreign country. There is neither circumvention of the substantive and procedural safeguards of marriage under Philippine law, nor of the jurisdiction of Family Courts under R.A. No. 8369. A recognition of a foreign judgment is not an action to nullify a marriage. It is an action for Philippine courts to recognize the effectivity of a foreign judgment, which presupposes a case which was already tried and decided under foreign law. The procedure in A.M. No. 02-11-10-SC does not apply in a petition to recognize a foreign judgment annulling a bigamous marriage where one of the parties is a citizen of the foreign country. Neither can R.A. No. 8369 define the jurisdiction of the foreign court.

Article 26 of the Family Code confers jurisdiction on Philippine courts to extend the effect of a foreign divorce decree to a Filipino spouse without undergoing trial to determine the validity of the dissolution of the marriage. The second paragraph of Article 26 of the Family Code provides that “[w]here a marriage between a Filipino citizen and a foreigner is validly celebrated and a divorce is thereafter validly obtained abroad by the alien spouse capacitating him or her to remarry, the Filipino spouse shall have capacity to remarry under Philippine law.” The second paragraph of Article 26 of the Family Code only authorizes Philippine courts to adopt the effects of a foreign divorce decree precisely because the Philippines does not allow divorce. Philippine courts cannot try the case on the merits because it is tantamount to trying a case for divorce. Minoru Fujiki v. Maria Paz Galela Marinay, et al., G.R. No. 196049, June 26, 2013.

Family Courts Act of 1997; Violence Against Women and Children Act of 2004; Family Courts; jurisdiction; a special court of the same level as RTC; RTCs designated as family courts remain possessed of authority as courts of general original jurisdiction. At the outset, it must be stressed that Family Courts are special courts, of the same level as Regional Trial Courts. Under R.A. 8369, otherwise known as the “Family Courts Act of 1997,” family courts have exclusive original jurisdiction to hear and decide cases of domestic violence against women and children. In accordance with said law, the Supreme Court designated from among the branches of the Regional Trial Courts at least one Family Court in each of several key cities identified. To achieve harmony with the first mentioned law, Section 7 of R.A. 9262 now provides that Regional Trial Courts designated as Family Courts shall have original and exclusive jurisdiction over cases of VAWC defined under the latter law.

Inspite of its designation as a family court, the RTC of Bacolod City remains possessed of authority as a court of general original jurisdiction to pass upon all kinds of cases whether civil, criminal, special proceedings, land registration, guardianship, naturalization, admiralty or insolvency. It is settled that RTCs have jurisdiction to resolve the constitutionality of a statute, “this authority being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the criterion of their conformity to the fundamental law.” The Constitution vests the power of judicial review or the power to declare the constitutionality or validity of a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation not only in this Court, but in all RTCs. Jesus C. Garcia v. The Hon. Ray Alan T. Drilon, et al., G.R. No. 179267, June 25, 2013

Torrens system; purpose. Torrens title; generally conclusive evidence of the ownership of the land; not subject to collateral attack; Land Registration Authority; functions. The real purpose of the Torrens system is to quiet title to land and to stop forever any question as to its legality. Once a title is registered, the owner may rest secure, without the necessity of waiting in the portals of the court, or sitting on the “mirador su casa,” to avoid the possibility of losing his land. A Torrens title is generally a conclusive evidence of the ownership of the land referred to therein. A strong presumption exists that Torrens titles are regularly issued and that they are valid.

Section 48 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, explicitly provides that “[a] certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.”

The duty of LRA officials to issue decrees of registration is ministerial in the sense that they act under the orders of the court and the decree must be in conformity with the decision of the court and with the data found in the record. They have no discretion in the matter. However, if they are in doubt upon any point in relation to the preparation and issuance of the decree, these officials ought to seek clarification from the court. They act, in this respect, as officials of the court and not as administrative officials, and their act is the act of the court. They are specifically called upon to “extend assistance to courts in ordinary and cadastral land registration proceedings.” Deogenes O. Rodriguez v. Hon. Court of Appeals and Philippine Chinese Charitable Association, Inc., G.R. No. 184589, June 13, 2013

Here are select April 2013 rulings of the Supreme Court of the Philippines on civil law:

Contract; Rescission; effect. Rescission entails a mutual restitution of benefits received. An injured party who has chosen rescission is also entitled to the payment of damages. Sandoval Shipyards, Inc. v. Philippine Merchant Marine Academy (PMMA); G.R. No. 188633. April 10, 2013

Obligation; Extinguishment of obligations; consignation; when tender of payment not necessary; judicial in character; difference between consignation and tender of payment. Under Article 1256 of the Civil Code, the debtor shall be released from responsibility by the consignation of the thing or sum due, without need of prior tender of payment, when the creditor is absent or unknown, or when he is incapacitated to receive the payment at the time it is due, or when two or more persons claim the same right to collect, or when the title to the obligation has been lost.

Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that consignation shall be made by depositing the thing or things due at the disposal of judicial authority. The said provision clearly precludes consignation in venues other than the courts.

Elsewhere, what may be made is a valid tender of payment, but not consignation. The two, however, are to be distinguished.

Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. (8 Manresa 325).  

Sps. Cacayorin v. Armed Forces and Police Mutual Benefit Association, Inc.; G.R. No. 171298. April 15, 2013

Property; Ejectment; only issue is who is entitled to physical possession; forcible entry; prior physical possession is vital; judgment conclusive between the parties and their successors-in-interest; effects if prevailing party is a usufructuary; usufruct; death of usufructuary extinguishes usufruct. Ejectment cases – forcible entry and unlawful detainer – are summary proceedings designed to provide expeditious means to protect actual possession or the right to possession of the property involved. The only question that the courts resolve in ejectment proceedings is: who is entitled to the physical possession of the premises, that is, to the possession de facto and not to the possession de jure. It does not even matter if a party’s title to the property is questionable. Thus, “an ejectment case will not necessarily be decided in favor of one who has presented proof of ownership of the subject property.”

Indeed, possession in ejectment cases “means nothing more than actual physical possession, not legal possession in the sense contemplated in civil law.” In a forcible entry case, “prior physical possession is the primary consideration[.]” “A party who can prove prior possession can recover such possession even against the owner himself. Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to remain on the property until a person with a better right lawfully ejects him.” “[T]he party in peaceable, quiet possession shall not be thrown out by a strong hand, violence, or terror.”

The judgment in an ejectment case is conclusive between the parties and their successors-in interest by title subsequent to the commencement of the action; hence, it is enforceable by or against the heirs of the deceased. This judgment entitles the winning party to: (a) the restitution of the premises, (b) the sum justly due as arrears of rent or as reasonable compensation for the use and occupation of the premises, and (c) attorney’s fees and costs.

[T]he right to the usufruct is now rendered moot by the death of Wilfredo since death extinguishes a usufruct under Article 603(1) of the Civil Code. This development deprives the heirs of the usufructuary the right to retain or to reacquire possession of the property even if the ejectment judgment directs its restitution.

Thus, what actually survives under the circumstances is the award of damages, by way of compensation. Rivera-Calingasan v. Rivera; G.R. No. 171555. April 17, 2013

Property; Public property; public plaza forms part of the public dominion; cannot be the object of appropriation, lease, any other contractual undertaking; void contracts.  [Public plaza is for] public use and thereby, forming part of the public dominion. Accordingly, it cannot be the object of appropriation either by the State or by private persons. Nor can it be the subject of lease or any other contractual undertaking. In Villanueva v. Castañeda, Jr., citing Espiritu v. Municipal Council of Pozorrubio, the Court pronounced that:

x x x Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties.

In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose is contrary to law, morals, good customs, public order or public policy is considered void and as such, creates no rights or obligations or any juridical relations. Land Bank of the Philippines v. Cacayurin; G.R. No. 191667. April 17, 2013

Special Laws

Foreclosure of Mortgage pursuant to P.D. No. 385; when its purpose is served; when hearing is necessary before issuance of writ of possession; foreclosure of mortgage under Section 33, Rule 39 of the Rules on Civil Procedure; when issuance of writ of possession is not ministerial. While the Supreme Court had already declared in Philippine National Bank v. Adil that once the property of a debtor is foreclosed and sold to a GFI, it would be mandatory for the court to place the GFI in the possession and control of the property—pursuant to Section 4 of P.D. No. 385 (Requiring Government Financial Institutions to Foreclose Mandatorily All Loans with Arrearages, Including Interest and Charges Amounting to at Least Twenty (20%) of the Total Outstanding Obligation) — this rule should not be construed as absolute or without exception.

The evident purpose underlying P.D. 385 is sufficiently served by allowing foreclosure proceedings initiated by GFIs to continue until a judgment therein becomes final and executory, without a restraining order, temporary or permanent

injunction against it being issued. But if a parcel of land is occupied by a party other than the judgment debtor, the proper procedure is for the court to order a hearing to determine the nature of said adverse possession before it issues a writ of possession. This is because a third party, who is not privy to the debtor, is protected by the law. Such third party may be ejected from the premises only after he has been given an opportunity to be heard, to comply with the time honored principle of due process.

In the same vein, under Section 33 of Rule 39 of the Rules on Civil Procedure, the possession of a mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure, unless a third party is actually holding the property adversely vis-à-vis the judgment debtor.

[T]he obligation of a court to issue a writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial, once it appears that there is a third party who is in possession of the property and is claiming a right adverse to that of the debtor/mortgagor. We explained in Philippine National Bank v. Austria that the foregoing doctrinal pronouncements are not without support in substantive law, to wit:

x x x. Notably, the Civil Code protects the actual possessor of a property, to wit:

Art. 433. Actual possession under claim of ownership raises a disputable presumption of ownership. The true owner must resort to judicial process for the recovery of the property.

Under the aforequoted provision, one who claims to be the owner of a property possessed by another must bring the appropriate judicial action for its physical recovery. The term “judicial process” could mean no less than an ejectment suit or reivindicatory action, in which the ownership claims of the contending parties may be properly heard and adjudicated.

Royal Savings Bank v. Asia, et al.; G.R. No. 183658. April 10, 2013

Family Code; Declaration of Presumptive Death; judgment is immediately final and executory; proper remedy is a special civil action for certiorari filed in the Court of Appeals; decision of Court of Appeals reviewable by the Supreme Court via certiorari under Rule 45. [It is improper to avail of] an ordinary appeal as a vehicle for questioning a trial court’s decision in a summary proceeding for the declaration of presumptive death under Article 41 of the Family Code.

As explained in Republic v. Tango, the remedy of a losing party in a summary proceeding is not an ordinary appeal, but a petition for certiorari, to wit:

By express provision of law, the judgment of the court in a summary proceeding shall be immediately final and executory. As a matter of course, it follows that no appeal can be had of the trial court’s judgment in a summary proceeding for the declaration of presumptive death of an absent spouse under Article 41 of the Family Code. It goes without saying, however, that an aggrieved party may file a petition for certiorari to question abuse of discretion amounting to lack of jurisdiction. Such petition should be filed in the Court of Appeals in accordance with the Doctrine of Hierarchy of Courts. To be sure, even if the Court’s original jurisdiction to issue a writ of certiorari is concurrent with the RTCs and the Court of Appeals in certain cases, such concurrence does not sanction an unrestricted freedom of choice of court forum. From the decision of the Court of Appeals, the losing party may then file a petition for review on certiorari under Rule 45 of the Rules of Court with the Supreme Court. This is because the errors which the court may commit in the exercise of jurisdiction are merely errors of judgment which are the proper subject of an appeal.

When the OSG filed its notice of appeal under Rule 42, it availed itself of the wrong remedy. As a result, the running of the period for filing of a Petition for Certiorari continued to run and was not tolled. Upon lapse of that period, the Decision of the RTC could no longer be questioned. Republic of the Philippines v. Narceda; G.R. No. 182760. April 10, 2013

The Subdivision and Condominium Buyers’ Protective Decree; contract to sell; validity is not affected by lack of certificate of registration of subdivision developer and failure to register the contract before the Register of Deeds; Maceda Law. In Spouses Co Chien v. Sta. Lucia Realty and Development Corporation, Inc. this Court has already ruled that the lack of a certificate of registration and a license to sell on the part of a subdivision developer does not result to

the nullification or invalidation of the contract to sell it entered into with a buyer. The contract to sell remains valid and subsisting. In said case, the Court upheld the validity of the contract to sell notwithstanding violations by the developer of the provisions of PD 957. We held that nothing in PD 957 provides for the nullity of a contract validly entered into in cases of violation of any of its provisions such as the lack of a license to sell.

Moreover, Flora claims that the contract she entered into with Moldex is void because of the latter’s failure to register the contract to sell/document of conveyance with the Register of Deeds, in violation of Section 1730 of PD 957. However, just like in Section 5 which did not penalize the lack of a license to sell with the nullification of the contract, Section 17 similarly did not mention that the developer’s or Moldex’s failure to register the contract to sell or deed of conveyance with the Register of Deeds resulted to the nullification or invalidity of the said contract or deed… [T]hus, non-registration of an instrument of conveyance will not affect the validity of a contract to sell. It will remain valid and effective between the parties thereto as under PD 1529 or The Property Registration Decree, registration merely serves as a constructive notice to the whole world to bind third parties.

Under the Maceda Law, the defaulting buyer who has paid at least two years of installments has the right of either to avail of the grace period to pay or, the cash surrender value of the payments made:

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight Hundred Forty-four, as amended by Republic Act Numbered Sixty-three Hundred Eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of  the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.

Moldex Realty, Inc. v. Saberon; G.R. No. 176289. April 8, 2013

Here are select March 2013 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contracts; contract of sale; perfection; essential elements; stages. A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. Thus, for a contract of sale to be valid, all of the following essential elements must concur: a) consent or meeting of the minds; b) determinate subject matter; and c) price certain in money or its equivalent.

As for the price, fixing it can never be left to the decision of only one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.

As regards consent, when there is merely an offer by one party without acceptance of the other, there is no contract. The decision to accept a bidder’s proposal must be communicated to the bidder. However, a binding contract may exist between the parties whose minds have met, although they did not affix their signatures to any written document, as acceptance may be expressed or implied. It can be inferred from the contemporaneous and subsequent acts of the contracting parties. Thus, the Supreme Court has held:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.

Contracts undergo three stages: (a) negotiation that begins from the time the prospective contracting parties indicate interest in the contract and ends at the moment of their agreement; (b) perfection or birth that which takes place when the parties agree upon all the essential elements of the contract; and (c) consummation that occurs when the parties fulfill or perform the terms agreed upon, culminating in the extinguishment thereof. Robern Development Corporation, et al. vs. People’s Landless Association represented by Florida Ramos, et al.; G.R. No. 173622.   March 11, 2013

Contracts; obligatory nature of contracts; interpretation; Joint Affidavit of Undertaking may be a contract in itself; due execution; default, elements; judicial demand; computation of interest. Contracts are obligatory no matter what their forms may be, whenever the essential requisites for their validity are present. In determining whether a document is an affidavit or a contract, the Court looks beyond the title of the document, since the denomination or title given by the parties in their document is not conclusive of the nature of its contents. In the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued. If the terms of the document are clear and leave no doubt on the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the parties’ evident intention, the latter shall prevail over the former.

A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that it contains stipulations characteristic of a contract. The Joint Affidavit of Undertaking contained a stipulation where Cruz and Leonardo promised to replace the damaged car of Gruspe, 20 days from October 25, 1999 or up to November 15, 1999, of the same model and of at least the same quality. In the event that they cannot replace the car within the same period, they would pay the cost of Gruspe’s car in the total amount of P350,000, with interest at 12% per month for any delayed payment after November 15, 1999, until fully paid.

An allegation of vitiated consent must be proven by preponderance of evidence. Although the undertaking in the affidavit appears to be onerous and lopsided, this does not necessarily prove the alleged vitiation of consent. They, in fact, admitted the genuineness and due execution of the Joint Affidavit and Undertaking when they said that they signed the same to secure possession of their vehicle.

In order that the debtor may be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and extrajudicially. Default generally begins from the moment the creditor demands the performance of the obligation. Rodolfo G. Cruz and Esperanza Ibias vs. Atty. Delfin Gruspe; G.R. No. 191431.   March 13, 2013

Contracts; parties may establish any agreement, term, and condition they may deem advisable, provided they are not contrary to law, morals or public policy; if the language used is clear, there is no need for construction; mortgage; court’s duty, merely to interpret the intent of the parties; even if not expressly so stated, the mortgage extends to the improvements; machineries and equipment are considered real properties. As held in Gateway Electronics Corp. v. Land Bank of the Philippines, the rule in this jurisdiction is that the contracting parties may establish any agreement, term, and condition they may deem advisable, provided they are not contrary to law, morals or public policy. The right to enter into lawful contracts constitutes one of the liberties guaranteed by the Constitution.

It has been explained by the Supreme Court in Norton Resources and Development Corporation v. All Asia Bank Corporation in reiteration of the ruling in Benguet Corporation v. Cabildo that:

A court’s purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law.

Then till now the pronouncement has been that if the language used is as clear as day and readily understandable by any ordinary reader, there is no need for construction.

Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage extends to the improvements.

Article 2127 of the Civil Code provides:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person.

In the early case of Bischoff v. Pomar and Cia. General de Tabacos, the Court ruled that even if the machinery in question was not included in the mortgage expressly, Article 111 of the [old] Mortgage Law provides that chattels permanently located in a building, either useful or ornamental, or for the service of some industry even though they were placed there after the creation of the mortgage shall be considered as mortgaged with the estate, provided they belong to the owner of said estate.

The real estate mortgage over the machineries and equipment is even in full accord with the classification of such properties by the Civil Code of the Philippines as immovable property. Thus:

Article 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil;

xxxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works.

Star Two (SPV-AMC), Inc. vs. Paper City Corporation of the Philippines; G.R. No. 169211.   March 6, 2013

Property; encroachment on property; builder in bad faith; options available to owner of the land; rules in the determining the reckoning period for valuing the property. Under Article 448 pertaining to encroachments in good faith, as well as Article 450 referring to encroachments in bad faith, the owner of the land encroached upon – petitioner herein – has the option to require respondent builder to pay the price of the land.

Although these provisions of the Civil Code do not explicitly state the reckoning period for valuing the property, Ballatan v. Court of Appeals already specifies that in the event that the seller elects to sell the lot, “the price must be fixed at the prevailing market value at the time of payment.”

More recently, Tuatis v. Spouses Escol illustrates that the present or current fair value of the land is to be reckoned at the time that the landowner elected the choice, and not at the time that the property was purchased. … In Sarmiento v. Agana, we reckoned the valuation of the property at the time that the real owner of the land asked the builder to vacate the property encroached upon. Moreover, the oft-cited case Depra v. Dumlao likewise ordered the courts of origin to compute the current fair price of the land in cases of encroachment on real properties. Vda. de Roxas v. Our Lady’s Foundation, Inc.; G.R. No. 182378.   March 6, 2013

Special Laws

Agrarian Reform; land ownership; mere issuance of the Certificate of Land Transfer does not vest full ownership on the holder and does not automatically operate to divest the land owner of all of his rights over the landholding; requirements

to effect a transfer of ownership; agricultural lands; any sale or disposition of agricultural lands made after the effectivity of R.A. No. 6657 which has been found contrary to its provisions shall be null and void; procedures for the reallocation of farmholdings covered by P.D. No. 27 by reason of abandonment or the refusal to become a beneficiary; requisites of abandonment. The mere issuance of the Certificate of Land Transfer (“CLT”) does not vest full ownership on the holder and does not automatically operate to divest the landowner of all of his rights over the landholding. The holder must first comply with certain mandatory requirements to effect a transfer of ownership. Under R.A. No. 6657 (Comprehensive Agrarian Reform Law of 1988) in relation with P.D. No. 27 (Decreeing the Emancipation of Tenants from the Bondage of the Soil, Transferring to Them the Ownership of the Land they Till and Providing the Instruments and Mechanism Therefor) and E.O. No. 228 (Declaring Full Land Ownership to Qualified Farmer Beneficiaries Covered by P.D. No. 27: Determining the Value of Remaining Unvalued Rice and Corn Lands Subject to P.D. No. 27; and Providing for the Manner of Payment by the Farmer Beneficiary and Mode of Compensation to the Landowner), the title to the landholding shall be issued to the tenant-farmer only upon the satisfaction of the following requirements: (1) payment in full of the just compensation for the landholding, duly determined by final judgment of the proper court; (2) possession of the qualifications of a farmer-beneficiary under the law; (3) full-pledged membership of the farmer-beneficiary in a duly recognized farmers’ cooperative; and (4) actual cultivation of the landholding. We explained in several cases that while a tenant with a CLT is deemed the owner of a landholding, the CLT does not vest full ownership on him. The tenant-holder of a CLT merely possesses an inchoate right that is subject to compliance with certain legal preconditions for perfecting title and acquiring full ownership.

Pursuant to R.A. No. 6657 (Comprehensive Agrarian Reform Law of 1988) in relation with P.D. No. 27 (Decreeing the Emancipation of Tenants from the Bondage of the Soil, Transferring to Them the Ownership of the Land they Till and Providing the Instruments and Mechanism Therefor), any sale or disposition of agricultural lands made after the effectivity of R.A. No. 6657 which has been found contrary to its provisions shall be null and void. The proper procedure for the reallocation of the disputed lot must be followed to ensure that there indeed exist grounds for the cancellation of the CLT or for forfeiture of rights under it, and that the lot is subsequently awarded to a qualified farmer-tenant pursuant to the law.

Under Ministry Memorandum Circular No. 04-83 (Supplemental Guidelines to Govern Transfer Action of Areas Covered by P.D. 27 by Reason of Abandonment, Waiver of Rights and Illegal Transactions) in relation with Ministry Memorandum Circular No. 08-80 (Guidelines in the Disposition and Reallocation of Farmholdings of Tenant-Farmers who Refuses to Become Beneficiaries of P.D. No. 27) and Ministry Memorandum Circular No. 07-79 (Rules and Regulations Governing Transactions Involving Lands Covered by P.D. No. 27), the following procedures must be observed for the reallocation of farmholdings covered by P.D. No. 27 by reason of abandonment or the refusal to become a beneficiary, among others:

I.       Investigation Procedure

1. The conduct of verification by the concerned Agrarian Reform Team Leader (ARTL) to ascertain the reasons for the refusal. All efforts shall be exerted to convince the tenant-farmer to become a beneficiary and to comply with his obligations as such beneficiary.

2. If the tenant-farmer still refuses, the ARTL shall determine the substitute. The ARTL shall first consider the immediate member of the tenant-farmer’s family who assisted in the cultivation of the land, and who is willing to be substituted to all the rights and obligations of the tenant-farmer. In the absence or refusal of such member, the ARTL shall choose one from a list of at least three qualified tenants recommended by the President of the Samahang Nayon or, in default, any organized farmer association, subject to the award limits under P.D. No. 27.

3. Formal notice of the report shall be given to the concerned farmer-beneficiary together with all the pertinent documents and evidences.

4. The ARTL shall submit the records of the case with his report and recommendation to the District Officer within 5 days from the ARTL’s determination of the substitute. The District Officer shall likewise submit his report and recommendation to the Regional Director and the latter to the Bureau of Agrarian Legal Assistance, for review, evaluation, and preparation of the final draft decision for final approval.

5. The decision shall declare the cancellation of the CLT if issued.

In the event of the farmer-beneficiary’s death, the transfer or reallocation of his landholding to his heirs shall be governed by Ministry Memorandum Circular No. 19-78 (Rules and Regulations In Case of Death of a Tenant-Beneficiary).

For abandonment to exist, the following requisites must concur: (1) a clear intent to abandon; and (2) an external act showing such intent. The term is defined as the “willful failure of the ARB, together with his farm household, to cultivate, till, or develop his land to produce any crop, or to use the land for any specific economic purpose continuously for a period of two calendar years.” It entails, among others, the relinquishment of possession of the lot for at least two (2) calendar years and the failure to pay the amortization for the same period. What is critical in abandonment is intent which must be shown to be deliberate and clear. The intent must be established by the factual failure to work on the landholding absent any valid reason as well as a clear intent, which is shown as a separate element. Heirs of Lorenzo Buensuceso vs. Perez; G.R. No. 173926.   March 6, 2013

General Banking Law and Act No. 3135; right of redemption; period; juridical entities; General Banking Law of 2000 merely modified the time for the exercise of such right by reducing the one-year period originally provided in Act No. 3135; right of redemption, being statutory, it must be exercised in the manner prescribed by the statute, and within the prescribed time limit to make it effective. The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages), as amended by Act No. 4118 (An Act to Amend Act No. 3135). Section 6 thereof provides:

SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors-in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

The one-year period of redemption is counted from the date of the registration of the certificate of sale. In this case, the parties provided in their real estate mortgage contract that upon petitioner’s default and the latter’s entire loan obligation becoming due, respondent may immediately foreclose the mortgage judicially in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as amended (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages).

However, Section 47 of R.A. No. 8791 otherwise known as “The General Banking Law of 2000” which took effect on June 13, 2000, amended Act No. 3135. Said provision reads:

SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three

(3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. (Emphasis supplied.)

Under the new law, an exception is thus made in the case of juridical persons which are allowed to exercise the right of redemption only “until, but not after, the registration of the certificate of foreclosure sale” and in no case more than three (3) months after foreclosure, whichever comes first.

Section 47 (of the General Banking Law of 2000) did not divest juridical persons of the right to redeem their foreclosed properties but only modified the time for the exercise of such right by reducing the one-year period originally provided in Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages). The new redemption period commences from the date of foreclosure sale, and expires upon registration of the certificate of sale or three months after foreclosure, whichever is earlier. There is likewise no retroactive application of the new redemption period because Section 47 (of the General Banking Law of 2000) exempts from its operation those properties foreclosed prior to its effectivity and whose owners shall retain their redemption rights under Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages).

The right of redemption being statutory, it must be exercised in the manner prescribed by the statute, and within the prescribed time limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it has to give way to police power exercised for public welfare. Goldenway Merchandising Corporation vs. Equitable PCI Bank; G.R. No. 195540.   March 13, 2013

Here are select February 2013 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Common Carrier; requisite before presumption of negligence arises; bill of lading; interpretation thereof; inherent nature of the subject shipment or its packaging as ground for exempting common carrier from liability; failure to prove negligence does not entitle claimant for damages. Though it is true that common carriers are presumed to have been at fault or to have acted negligently if the goods transported by them are lost, destroyed, or deteriorated, and that the common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption, the plaintiff must still, before the burden is shifted to the defendant, prove that the subject shipment suffered actual shortage. This can only be done if the weight of the shipment at the port of origin and its subsequent weight at the port of arrival have been proven by a preponderance of evidence, and it can be seen that the former weight is considerably greater than the latter weight, taking into consideration the exceptions provided in Article 1734 of the Civil Code.

The Berth Term Grain Bill of Lading states that the subject shipment was carried with the qualification “Shipper’s weight, quantity and quality unknown,” meaning that it was transported with the carrier having been oblivious of the weight, quantity, and quality of the cargo. This interpretation of the quoted qualification is supported by Wallem Philippines Shipping, Inc. v. Prudential Guarantee & Assurance, Inc., a case involving an analogous stipulation in a bill of lading, wherein the Supreme Court held that:

Indeed, as the bill of lading indicated that the contract of carriage was under a “said to weigh” clause, the shipper is solely responsible for the loading while the carrier is oblivious of the contents of the shipment. (Emphasis supplied)

Hence, the weight of the shipment as indicated in the bill of lading is not conclusive as to the actual weight of the goods. Consequently, the respondent must still prove the actual weight of the subject shipment at the time it was loaded at the port of origin so that a conclusion may be made as to whether there was indeed a shortage for which petitioner must be liable.

The shortage, if any, may have been due to the inherent nature of the subject shipment or its packaging since the subject cargo was shipped in bulk and had a moisture content of 12.5%.

Considering that respondent was not able to establish conclusively that the subject shipment weighed 3,300 metric tons at the port of loading, and that it cannot therefore be concluded that there was a shortage for which petitioner should be

responsible; bearing in mind that the subject shipment most likely lost weight in transit due to the inherent nature of Soya Bean Meal; assuming that the shipment lost weight in transit due to desorption, the shortage of 199.863 metric tons that respondent alleges is a minimal 6.05% of the weight of the entire shipment, which is within the allowable 10% allowance for loss; and noting that the respondent was not able to show negligence on the part of the petitioner and that the weighing methods which respondent relied upon to establish the shortage it alleges is inaccurate, respondent cannot fairly claim damages against petitioner for the subject shipment’s alleged shortage. Asian Terminals, Inc. vs. Simon Enterprises, Inc.; G.R. No. 177116. February 27, 2013

Contract; contract to sell; seller’s obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer’s full payment of the purchase price; rescission; effects; requires mutual restitution; Subdivision and Condominium Buyers’ Protective Decree (PD 957);   intent of PD 957 to protect the buyer against unscrupulous developers, operators and/or sellers; damages; when moral damages may be awarded; when exemplary damages may be awarded; propriety of award of attorney’s fees. It is settled that in a contract to sell, the seller’s obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer’s full payment of the purchase price. In this relation, Section 25 of PD 957 (Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof), which regulates the subject transaction, imposes on the subdivision owner or developer the obligation to cause the transfer of the corresponding certificate of title to the buyer upon full payment, to wit:

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith. (Emphasis supplied.)

The long delay in the performance of GPI’s obligation from date of demand on September 16, 2002 was unreasonable and unjustified. It cannot therefore be denied that GPI substantially breached its contract to sell with Sps. Fajardo which thereby accords the latter the right to rescind the same pursuant to Article 1191 of the Code, viz:

 ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

Rescission does not merely terminate the contract and release the parties from further obligations to each other, but abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made. Consequently, mutual restitution, which entails the return of the benefits that each party may have received as a result of the contract, is thus required.

To be sure, it has been settled that the effects of rescission as provided for in Article 1385 of the Code are equally applicable to cases under Article 1191, to wit:

x x x Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the parties back to their original status prior to the inception of the contract. Article 1385 of the Civil Code provides, thus:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obligated to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

The Court has consistently ruled that this provision applies to rescission under Article 1191:

[S]ince Article 1385 of the Civil Code expressly and clearly states that “rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest,”  the Court finds no justification to sustain petitioners’ position that said Article 1385 does not apply to rescission under Article 1191. x x x (Emphasis supplied; citations omitted.)

As a necessary consequence, considering the propriety of the rescission as earlier discussed, Sps. Fajardo must be able to recover the price of the property pegged at its prevailing market value consistent with the Court’s pronouncement in Solid Homes, viz:

Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only the purchase price plus interest. It is definite that the value of the subject property already escalated after almost two decades from the time the petitioner paid for it. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value. Surely, such a situation should not be countenanced for to do so would be contrary to reason and therefore, unconscionable. Over time, courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law. (Emphasis supplied.)

On this score, it is apt to mention that it is the intent of PD 957 (Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof) to protect the buyer against unscrupulous developers, operators and/or sellers who reneged on their obligations. Thus, in order to achieve this purpose, equity and justice dictate that the injured party should be afforded full recompense and as such, be allowed to recover the prevailing market value of the undelivered lot which had been fully paid for.

Furthermore, the Court finds that there is proper legal basis to accord moral and exemplary damages and attorney’s fees, including costs of suit. Verily, GPI’s unjustified failure to comply with its obligations as above discussed caused Sps. Fajardo serious anxiety, mental anguish and sleepless nights, thereby justifying the award of moral damages. In the same vein, the payment of exemplary damages remains in order so as to prevent similarly minded subdivision developers to commit the same transgression. And finally, considering that Sps. Fajardo were constrained to engage the services of counsel to file this suit, the award of attorney’s fees must be likewise sustained. Gotesco Properties, Inc., et al. vs. Sps. Eugenio and Angelina Fajardo; G.R. No. 201167. February 27, 2013

Contracts; interpretation thereof; intention of the parties; relativity of contracts; credit line; definition; trust receipt; characteristics; coverage; contract of adhesion; generally not a one-sided document; interest rate; parties have the right to agree on rate of interest; interest rate must not be excessive, iniquitous, unconscionable and exorbitant; attorney’s fees; award must rest on a factual basis and legal justification stated in the body of the decision under review. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.  In determining their intention, their contemporaneous and subsequent acts shall be principally considered.

Under the notion of relativity of contracts embodied in Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns and heirs. Hence, the farmer-participants, not being themselves parties to the contractual documents signed by Gloria, were not to be thereby liable.

A credit line is really a loan agreement between the parties. According to Rosario Textile Mills Corporation v. Home Bankers Savings and Trust Co.:

x x x [A] credit line is “that amount of money or merchandise which a banker, a merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance.” It is a fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customer’s line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings.

A trust receipt is “a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.” It is a security agreement that “secures an indebtedness and there can be no such thing as security interest that secures no obligation.”

The contract, its label notwithstanding, was not a trust receipt transaction in legal contemplation or within the purview of the Trust Receipts Law (Presidential Decree No. 115) such that its breach would render Gloria criminally liable for estafa. Under Section 4 of the Trust Receipts Law, the sale of goods by a person in the business of selling goods for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, or who sells the goods to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of the law.

In Land Bank v. Perez, the Court has elucidated on the coverage of Section 4 (of the Trust Receipts Law), to wit:

There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolverla) to the owner. Thus, under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts.

In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative – the return of the proceeds of the sale or the return or recovery of the goods, whether raw or processed. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. (Bold emphasis supplied)

A contract of adhesion prepared by one party, usually a corporation, is generally not a one-sided document as long as the signatory is not prevented from studying it before signing. … At any rate, the social stature of the parties, the nature of the transaction, and the amount involved were also factors to be considered in determining whether the aggrieved party “exercised adequate care and diligence in studying the contract prior to its execution.” Thus, “[u]nless a contracting party cannot read or does not understand the language in which the agreement is written, he is presumed to know the import of his contract and is bound thereby.”

The Usury Law allowed the parties in a loan agreement to exercise discretion on the interest rate to be charged. Once a judicial demand for payment has been made, however, Article 2212 of the Civil Code should apply, that is: “Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.”

The Central Bank circulars on interest rates granted to the parties leeway on the rate of interest agreed upon. In this regard, the Court has said:

The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 (Amendment of Books I to IV of the Manual of Regulations for Banks and Other Financial Intermediaries) which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is

within the range of judicial notice which courts are bound to take into account. Although interest rates are no longer subject to a ceiling, the lender does not have an unbridled license to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing.

Accordingly, the interest rate agreed upon should not be “excessive, iniquitous, unconscionable and exorbitant;” otherwise, the Court may declare the rate illegal.

The award of attorney’s fees must rest on a factual basis and legal justification stated in the body of the decision under review. Absent the statement of factual basis and legal justification, attorney’s fees are to be disallowed. In Abobon v. Abobon, the Court has expounded on the requirement for factual basis and legal justification in order to warrant the grant of attorney’s fees to the winning party, viz:

As to attorney’s fees, the general rule is that such fees cannot be recovered by a successful litigant as part of the damages to be assessed against the losing party because of the policy that no premium should be placed on the right to litigate. Indeed, prior to the effectivity of the present Civil Code, such fees could be recovered only when there was a stipulation to that effect. It was only under the present Civil Code that the right to collect attorney’s fees in the cases mentioned in Article 2208 of the Civil Code came to be recognized. Such fees are now included in the concept of actual damages.

Even so, whenever attorney’s fees are proper in a case, the decision rendered therein should still expressly state the factual basis and legal justification for granting them. Granting them in the dispositive portion of the judgment is not enough; a discussion of the factual basis and legal justification for them must be laid out in the body of the decision.

Sps. Dela Cruz vs. Planters Products, Inc.; G.R. No. 158649.   February 18, 2013

Contract; rescission under Article 1191; recognizes an implied resolutory condition in reciprocal obligations; effects thereof. The action for the rescission of the deed of sale on the ground that Advanced Foundation did not comply with its obligation actually seeks one of the alternative remedies available to a contracting party under Article 1191 of the Civil Code, to wit:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Article 1191 of the Civil Code recognizes an implied or tacit resolutory condition in reciprocal obligations. The condition is imposed by law, and applies even if there is no corresponding agreement thereon between the parties. The explanation for this is that in reciprocal obligations a party incurs in delay once the other party has performed his part of the contract; hence, the party who has performed or is ready and willing to perform may rescind the obligation if the other does not perform, or is not ready and willing to perform.

It is true that the rescission of a contract results in the extinguishment of the obligatory relation as if it was never created, the extinguishment having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract. However, until the contract is rescinded, the juridical tie and the concomitant obligations subsist. Teodoro A. Reyes vs. Ettore Rossi; G.R. No. 159823. February 18, 2013.

Ejectment; distinction between a summary action of ejectment and a plenary action for recovery of possession and/or ownership of the land; power of the inferior courts to rule on the question of ownership in ejectment suits; partition;

validity of oral partition; actual possession and exercise of dominion over definite portions of the property are considered strong proof of an oral partition; ownership; tax declarations and tax receipts alone are not conclusive evidence. It is well to be reminded of the settled distinction between a summary action of ejectment and a plenary action for recovery of possession and/or ownership of the land. What really distinguishes an action for unlawful detainer from a possessory action (accion publiciana) and from a reinvindicatory action (accion reinvindicatoria) is that the first is limited to the question of possession de facto. Unlawful detainer suits (accion interdictal) together with forcible entry are the two forms of ejectment suit that may be filed to recover possession of real property. Aside from the summary action of ejectment, accion publiciana or the plenary action to recover the right of possession and accion reinvindicatoria or the action to recover ownership which also includes recovery of possession, make up the three kinds of actions to judicially recover possession.

Under Section 3 of Rule 70 of the Rules of Court, the Summary Procedure governs the two forms of ejectment suit, the purpose being to provide an expeditious means of protecting actual possession or right to possession of the property. They are not processes to determine the actual title to an estate. If at all, inferior courts are empowered to rule on the question of ownership raised by the defendant in such suits, only to resolve the issue of possession and its determination on the ownership issue is not conclusive.

The validity of an oral partition is well-settled in our jurisdiction. In Vda. de Espina v. Abaya, this Court declared that an oral partition is valid:

Anent the issue of oral partition, We sustain the validity of said partition. “An agreement of partition may be made orally or in writing. An oral agreement for the partition of the property owned in common is valid and enforceable upon the parties. The Statute of Frauds has no operation in this kind of agreements, for partition is not a conveyance of property but simply a segregation and designation of the part of the property which belong to the co-owners.”

In Maestrado v. CA, the Supreme Court upheld the partition after it found that it conformed to the alleged oral partition of the heirs, and that the oral partition was confirmed by the notarized quitclaims executed by the heirs subsequently. In Maglucot-Aw v. Maglucot, the Supreme Court elaborated on the validity of parol partition:

On general principle, independent and in spite of the statute of frauds, courts of equity have enforce [sic] oral partition when it has been completely or partly performed.

Regardless of whether a parol partition or agreement to partition is valid and enforceable at law, equity will [in] proper cases[,] where the parol partition has actually been consummated by the taking of possession in severalty and the exercise of ownership by the parties of the respective portions set off to each, recognize and enforce such parol partition and the rights of the parties thereunder. Thus, it has been held or stated in a number of cases involving an oral partition under which the parties went into possession, exercised acts of ownership, or otherwise partly performed the partition agreement, that equity will confirm such partition and in a proper case decree title in accordance with the possession in severalty.

In numerous cases it has been held or stated that parol partition may be sustained on the ground of estoppel of the parties to assert the rights of a tenant in common as to parts of land divided by parol partition as to which possession in severalty was taken and acts of individual ownership were exercised. And a court of equity will recognize the agreement and decree it to be valid and effectual for the purpose of concluding the right of the parties as between each other to hold their respective parts in severalty.

A parol partition may also be sustained on the ground that the parties thereto have acquiesced in and ratified the partition by taking possession in severalty, exercising acts of ownership with respect thereto, or otherwise recognizing the existence of the partition.

A number of cases have specifically applied the doctrine of part performance, or have stated that a part performance is necessary, to take a parol partition out of the operation of the statute of frauds. It has been held that where there was a partition in fact between tenants in common, and a part performance, a court of equity would have regard to and enforce such partition agreed to by the parties.

It is settled that tax declarations and tax receipts alone are not conclusive evidence of ownership. They are merely indicia of a claim of ownership,61 but when coupled with proof of actual possession of the property, they can be the basis of claim of ownership through prescription. In the absence of actual, public and adverse possession, the declaration of the land for tax purposes does not prove ownership. Casilang vs. Casilang-Dizon, et al.; G.R. No. 180269.   February 20, 2013

Mortgage; accommodation mortgage; sanctioned under Article 2085 of the Civil Code; accommodation mortgagor is ordinarily not the recipient of the loan; reasonable promptness in attacking the validity of a mortgage; unreasonable delay may delay may amount to ratification. The validity of an accommodation mortgage is allowed under Article 2085 of the Civil Code which provides that “[t]hird persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.” An accommodation mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his designation as such.

It bears stressing that an accommodation mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his designation as such. We have held that it is not always necessary that the accommodation mortgagor be apprised beforehand of the entire amount of the loan nor should it first be determined before the execution of the Special Power of Attorney in favor of the debtor. This is especially true when the words used by the parties indicate that the mortgage serves as a continuing security for credit obtained as well as future loan availments.

Mortgagors desiring to attack a mortgage as invalid should act with reasonable promptness, and unreasonable delay may amount to ratification. Spouses Ramos vs. Raul Obispo and Far East Bank and Trust Co.; G.R. No. 193804. February 27, 2013

Tort; Doctrine of Last Clear Chance; definition and characteristics; contributory negligence; definition; effect; apportionment of damages between parties who are both negligent involving banking transactions; highest degree of diligence is required for banks. The doctrine of last clear chance, stated broadly, is that the negligence of the plaintiff does not preclude a recovery for the negligence of the defendant where it appears that the defendant, by exercising reasonable care and prudence, might have avoided injurious consequences to the plaintiff notwithstanding the plaintiff’s negligence. The doctrine necessarily assumes negligence on the part of the defendant and contributory negligence on the part of the plaintiff, and does not apply except upon that assumption. Stated differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence. Moreover, in situations where the doctrine has been applied, it was defendant’s failure to exercise such ordinary care, having the last clear chance to avoid loss or injury, which was the proximate cause of the occurrence of such loss or injury.

A collecting bank is guilty of contributory negligence when it accepted for deposit a post-dated check notwithstanding that said check had been cleared by the drawee bank which failed to return the check within the 24-hour reglementary period.

In the cited case of Philippine Bank of Commerce v. Court of Appeals, while the Court found petitioner bank as the culpable party under the doctrine of last clear chance since it had, thru its teller, the last opportunity to avert the injury incurred

by its client simply by faithfully observing its own validation procedure, it nevertheless ruled that the plaintiff depositor (private respondent) must share in the loss on account of its contributory negligence. Thus:

The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was likewise negligent in not checking its monthly statements of account. Had it done so, the company would have been alerted to the series of frauds being committed against RMC by its secretary. The damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC amounts to contributory negligence which shall mitigate the damages that may be awarded to the private respondent under Article 2179 of the New Civil Code, to wit:

“x x x. When the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the

defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.”

In view of this, we believe that the demands of substantial justice are satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the damage awarded by the respondent appellate court, except the award of P25,000.00 attorney’s fees, shall be borne by private respondent RMC; only the balance of 60% needs to be paid by the petitioners. The award of attorney’s fees shall be borne exclusively by the petitioners. (Italics in the original; emphasis supplied)

“Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection.” Admittedly, petitioner’s acceptance of the subject check for deposit despite the one year postdate written on its face was a clear violation of established banking regulations and practices. In such instances, payment should be refused by the drawee bank and returned through the PCHC within the 24-hour reglementary period. As aptly observed by the CA, petitioner’s failure to comply with this basic policy regarding post-dated checks was “a telling sign of its lack of due diligence in handling checks coursed through it.”

It bears stressing that “the diligence required of banks is more than that of a Roman paterfamilias or a good father of a family. The highest degree of diligence is expected,” considering the nature of the banking business that is imbued with public interest. While it is true that respondent’s liability for its negligent clearing of the check is greater, petitioner cannot take lightly its own violation of the long-standing rule against encashment of post-dated checks and the injurious consequences of allowing such checks into the clearing system. Allied Banking Corporation vs. Bank of the Philippine Islands; G.R. No. 188363. February 27, 2013

Special Laws

Torrens system; curtain principle; right to rely on the Torrens certificate of title; exception, when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry; purchaser in good faith; definition. Under the Torrens system of land registration, the registered owner of realty cannot be deprived of her property through fraud, unless a transferee acquires the property as an innocent purchaser for value. A transferee who acquires the property covered by a reissued owner’s copy of the certificate of title without taking the ordinary precautions of honest persons in doing business and examining the records of the proper Registry of Deeds, or who fails to pay the full market value of the property is not considered an innocent purchaser for value.

Under the Torrens system of land registration, the State is required to maintain a register of landholdings that guarantees indefeasible title to those included in the register. The system has been instituted to combat the problems of uncertainty, complexity and cost associated with old title systems that depended upon proof of an unbroken chain of title back to a good root of title. The State issues an official certificate of title to attest to the fact that the person named is the owner of the property described therein, subject to such liens and encumbrances as thereon noted or what the law warrants or reserves.

One of the guiding tenets underlying the Torrens system is the curtain principle, in that one does not need to go behind the certificate of title because it contains all the information about the title of its holder. This principle dispenses with the need of proving ownership by long complicated documents kept by the registered owner, which may be necessary under a private conveyancing system, and assures that all the necessary information regarding ownership is on the certificate of title. Consequently, the avowed objective of the Torrens system is to obviate possible conflicts of title by giving the public the right to rely upon the face of the Torrens certificate and, as a rule, to dispense with the necessity of inquiring further; on the part of the registered owner, the system gives him complete peace of mind that he would be secured in his ownership as long as he has not voluntarily disposed of any right over the covered land.

The Philippines adopted the Torrens system through Act No. 496, also known as the Land Registration Act, which was approved on November 6, 1902 and took effect on February 1, 1903. In this jurisdiction, therefore, “a person dealing in registered land has the right to rely on the Torrens certificate of title and to dispense with the need of inquiring further, except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry”.

Good faith is the honest intention to abstain from taking unconscientious advantage of another. It means the “freedom from knowledge and circumstances which ought to put a person on inquiry.”  Given this notion of good faith, therefore, a purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or interest in, such property and pays full and fair price for the same. Spouses Cusi vs. Lilia V. De Vera, et al.; G.R. Nos. 195825/195871.   February 27, 2013

Torrens System; right to rely on Torrens title. [It is a] settled principle that one who deals with property registered under the Torrens System need not go beyond the same, but only has to rely on the title. … Moreover, since the subject property was already covered by a Torrens title at the time that respondents bought the same, the law does not require them to go beyond what appears on the face of the title. The lot has, thus, passed to respondents, who are presumed innocent purchasers for value, in the absence of any allegation to the contrary. Mercado, et al. vs. Sps. Espina; G.R. No. 173987. February 25, 2013

The Office of the Civil Registrar General of the National Statistics Office promulgated Administrative Order No. 1 series of 2012 (AO 1) on October 24, 2012. The AO implements the provisions of Republic Act 10172, the amendatory law to Republic Act 9048, and supplements Administrative Order 1 series of 2001, which, in turn, implements RA 9048. Both statutes provide a means of correcting erroneous entries in the civil registry without need of judicial action.

Prior to RA 10172, RA 9048 allowed changes in a person’s first name or nickname as well as corrections to typographical entries through an administrative petition to the local civil registry or the consul-general. RA 10172 expands RA 9048 and expressly allows corrections to entries concerning a person’s date of birth or sex. More specifically, the law amended Sections 1, 2, 5 and 8 of RA 9048, which respectively defined the scope of the powers of the civil registry, the terms used in the Act, the form and contents of the petition and the authority to charge fees for the correction.

Only clerical or typographical errors are allowed to be corrected. For substantial amendments to any entry in the civil registry, except for change of first name or nickname, an adversarial proceeding under Rule 108 of the Rules of Court is still required. These include petitions to change nationality, age or status. Under the act, clerical or typographical errors are “harmless and innocuous…visible to the eyes or obvious to the understanding, and can be corrected or changed only by reference to other existing record or records.”

As in RA 9048, a sworn affidavit with relevant supporting documents is required for the petition. These documents shall include a certified true copy of the certificate containing the erroneous entry and at least two public or private documents containing the entries on which the civil registry will base its correction. The AO also requires publication of the petition once a week for two consecutive weeks, the affidavit of publication and a copy of the newspaper clipping, a certification that petitioner has no pending administrative, civil or criminal case or criminal record from the NBI, PNP and petitioner’s employer, if any, and submission of the petitioner’s school records or school documents such as “medical records, baptismal records and other documents issued by religious authorities” if the entry to be corrected pertains to the date of birth or sex of a person. Moreover, if the entry sought to be corrected pertains to gender, the law, and the AO also requires a certification by a government physician that petitioner has not undergone sex change or transplant. The Act also allows the city or municipal registrar to require other documents to support the petition.

The petition must be filed in triplicate in the local civil registry in which the erroneous entry was registered. If one is currently living outside the Philippines or is residing in the Philippines but far from the civil registry where the entries are registered, then the petition may be filed with the consul-general or the local civil registry of the place where petitioner is currently residing.

A stricter rule is imposed for petitions concerning changes in the entry as to sex. The IRR requires personal filing of the petition with the city or municipal civil registry or consulate where the record to be corrected is registered.

Under the AO, the civil registry may collect PhP3,000 for every petition. Only indigent petitioners are exempt from payment. Indigency may be proved by a certification to that effect from the city or municipal social welfare office. If the petition is filed with the consul-general, a filing fee of USD150, or its equivalent, may be collected. Migrant petitions, or those filed with a civil registrar other than the one where the entries are registered, shall be charged an additional

service fee of PhP1,000. A petition that includes corrections under both RA 9048 and RA 10172 will only be charged a single filing fee of PhP3,000.

While errors in the date of birth is now correctible administratively, the IRR clarifies that it excludes corrections to the year of birth since the law still does not allow administrative corrections to entries pertaining to age. In relation to the medical certification required for changes in entries of a person’s sex, the IRR requires that the physician issuing such a certification must be registered with the Professional Regulations Commission and employed in a government hospital, public health office or health institution.

The petition may be filed by the owner of the record sought to be corrected or by his or her representative, namely a spouse, child, parent, sibling, grandparent, guardian or other person authorized by the owner or by law. Petitions on behalf of a minor or incapacitated person may be brought by these same representatives.

Finally, while the AO generally adopts the procedures for processing, posting and publishing the petition as well as the duties of the civil registrar and the civil registrar general outlined under AO 1 series of 2001 for petitions under RA 9048, it adds to the duties of the Civil Registrar by requiring it to issue a certification as to the authenticity of the medical certification to be issued by the accredited government physician in cases where the petition relates to changes in the entry on sex. This requirement was not provided for by law, prompting a petition by the local civil registrar of Quezon City for the issuance of a temporary restraining order (TRO) against the implementation of the IRR on this issue. The petition also claims that the provision requiring local governments (LGUs) to ratify the fees imposed under the AO unduly restricted the authority given by law to the civil registrar to impose fees under the Act. Finally, the petition for TRO also claims that the AO was issued without consultation with the association of local civil registrars. The Regional Trial Court of Quezon City denied the prayer for a TRO last December and the IRR remains effective as of this writing.

Here are select January 2013 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Compromise Agreement; definition and nature; distinction between judicial and extrajudicial. Under Article 2028 of the Civil Code, a compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. Accordingly, a compromise is either judicial, if the objective is to put an end to a pending litigation, or extrajudicial, if the objective is to avoid a litigation. As a contract, a compromise is perfected by mutual consent. However, a judicial compromise, while immediately binding between the parties upon its execution, is not executory until it is approved by the court and reduced to a judgment. The validity of a compromise is dependent upon its compliance with the requisites and principles of contracts dictated by law. Also, the terms and conditions of a compromise must not be contrary to law, morals, good customs, public policy and public order. Land Bank of the Philippines vs. Heirs of Spouses Jorja Rigor Soriano and Magin Soriano; G.R. No. 178312. January 30, 2013

Contract; contract of suretyship; definition;   nature of liability of surety; surety’s liability is direct, primary and absolute as well as joint and several. A contract of suretyship is defined as “an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206 (An Act Relative to Recognizances, Stipulations, Bonds and Undertakings, and to Allow Certain Corporations to be Accepted as Surety Thereon).” We have consistently held that a surety’s liability is joint and several, limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in relation to the principal contract between the obligor and the obligee. It bears stressing, however, that although the contract of suretyship is secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct, primary, and absolute. The Manila Insurance Company, Inc. vs. Spouses Roberto and Aida Amurao; G.R. No. 179628. January 16, 2013

Contract; law between the parties; rules on interpretation; easement of right of way; just compensation; attorney’s fees; exception rather than the general rule. Indeed, the rule is settled that a contract constitutes the law between the parties who are bound by its stipulations which, when couched in clear and plain language, should be applied according to their literal tenor. Courts cannot supply material stipulations, read into the contract words it does not contain or, for that

matter, read into it any other intention that would contradict its plain import. Neither can they rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not.

Where the right of way easement, as in this case, similarly involves transmission lines which not only endangers life and limb but restricts as well the owner’s use of the land traversed thereby, the ruling in Gutierrez remains doctrinal and should be applied. It has been ruled that the owner should be compensated for the monetary equivalent of the land if, as here, the easement is intended to perpetually or indefinitely deprive the owner of his proprietary rights through the imposition of conditions that affect the ordinary use, free enjoyment and disposal of the property or through restrictions and limitations that are inconsistent with the exercise of the attributes of ownership, or when the introduction of structures or objects which, by their nature, create or increase the probability of injury, death upon or destruction of life and property found on the land is necessary. Measured not by the taker’s gain but the owner’s loss, just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator.

The determination of just compensation in eminent domain proceedings is a judicial function and no statute, decree, or executive order can mandate that its own determination shall prevail over the court’s findings. Any valuation for just compensation laid down in the statutes may serve only as a guiding principle or one of the factors in determining just compensation, but it may not substitute the court’s own judgment as to what amount should be awarded and how to arrive at such amount. Hence, Section 3A of R.A. No. 6395, as amended (An Act Revising the Charter of the National Power Corporation), is not binding upon this Court.

For want of a statement of the rationale for the award in the body of the RTC’s 14 March 2000 Decision, we are constrained, however, to disallow the grant of attorney’s fees in favor of the Spouses Cabahug in an amount equivalent to 5% of the just compensation due as well as the legal interest thereon. Considered the exception rather than the general rule, the award of attorney’s fees is not due every time a party prevails in a suit because of the policy that no premium should be set on the right to litigate. Jesus L. Cabahug and Coronacion M. Cabahug vs. National Power Corporation; G.R. No. 186069. January 30, 2013

Contract; perfection of contracts; consent; offer and acceptance; contract of sale; consensual in nature. Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The requisite acceptance of the offer is expressed in Article 1319 of the Civil Code which states:

ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

In Palattao v. Court of Appeals, this Court held that if the acceptance of the offer was not absolute, such acceptance is insufficient to generate consent that would perfect a contract. Thus:

Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of the minds. Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment, a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer.

The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. Where a party sets a different purchase price than the amount of the offer, such acceptance was qualified which can be at most considered as a counter-offer; a perfected contract would have arisen only if the other party had accepted this counteroffer. In Villanueva v. Philippine National Bank this Court further elucidated on the meaning of unqualified acceptance, as follows:

 …While it is impossible to expect the acceptance to echo every nuance of the offer, it is imperative that it assents to those points in the offer which, under the operative facts of each contract, are not only material but motivating as well. Anything short of that level of mutuality produces not a contract but a mere counter-offer awaiting acceptance. More particularly on the matter of the consideration of the contract, the offer and its acceptance must be unanimous both on the rate of the payment and on its term. An acceptance of an offer which agrees to the rate but varies the term is ineffective. (Emphasis supplied)

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract. When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties. Heirs of Fausto C. Ignacio vs. Home Bankers Savings and Trust Co., et al.; G.R. No. 177783. January 23, 2013

Damages; moral damages; requisites; granted when rights of individuals are violated; exemplary damages; actual damages; nature; in the absence of proof, temperate damages may be awarded; attorney’s fees; exception rather than the general rule. Moral damages are awarded to compensate the claimant for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Jurisprudence has established the following requisites for the award of moral damages: (1) there is an injury whether physical, mental or psychological, which was clearly sustained by the claimant; (2) there is a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code.

Pertinent to the case at hand, Article 32 of the Civil Code provides for the award of moral damages in cases where the rights of individuals, including the right against deprivation of property without due process of law, are violated. In Quisumbing v. Manila Electric Company, this Court treated the immediate disconnection of electricity without notice as a form of deprivation of property without due process of law, which entitles the subscriber aggrieved to moral damages. We stressed:

More seriously, the action of the defendant in maliciously disconnecting the electric service constitutes a breach of public policy. For public utilities, broad as their powers are, have a clear duty to see to it that they do not violate nor transgress the rights of the consumers. Any act on their part that militates against the ordinary norms of justice and fair play is considered an infraction that gives rise to an action for damages. Such is the case at bar.

In addition to moral damages, exemplary damages are imposed by way of example or correction for the public good. In this case, to serve as an example – that before disconnection of electric supply can be effected by a public utility, the requisites of law must be complied with – we sustain the award of exemplary damages to respondents.

Actual damages are compensation for an injury that will put the injured party in the position where it was before the injury. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the amount of loss be capable of proof; it must also be actually proven with a reasonable degree of certainty premised upon competent proof or the best evidence obtainable.

Actual or compensatory damages cannot be presumed, but must be duly proved with a reasonable degree of certainty. The award is dependent upon competent proof of the damage suffered and the actual amount thereof. The award must be based on the evidence presented, not on the personal knowledge of the court; and certainly not on flimsy, remote, speculative and unsubstantial proof.

Nonetheless, in the absence of competent proof on the amount of actual damages suffered, a party is entitled to temperate damages. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The amount thereof is usually left to the discretion of the courts but the same should be reasonable, bearing in mind that temperate damages should be more than nominal but less than compensatory.

An award of attorney’s fees has always been the exception rather than the rule. Attorney’s fees are not awarded every time a party prevails in a suit. The policy of the Court is that no premium should be placed on the right to litigate. The trial court must make express findings of fact and law that bring the suit within the exception. What this demands is that factual, legal or equitable justifications for the award must be set forth not only in the fallo but also in the text of the decision, or else, the award should be thrown out for being speculative and conjectural. Manila Electric Company (MERALCO) vs. Atty. P.M. Castillo, doing business under the trade name and style of Permanent Light Manufacturing Enterprises, et al.; G.R. No. 182976. January 14, 2013

Damages; moral damages; when awarded. The Court has awarded moral damages in termination cases when bad faith, malice or fraud attend the employee’s dismissal or where the act oppresses labor, or where it was done in a manner contrary to morals, good customs or public policy. General Milling Corporation vs. Violeta L. Viajar; G.R. No. 181738. January 30, 2013

Effectivity of laws; generally, no retroactive effect; exception, when law is procedural. As a general rule, laws shall have no retroactive effect. However, exceptions exist, and one such exception concerns a law that is procedural in nature. The reason is that a remedial statute or a statute relating to remedies or modes of procedure does not create new rights or take away vested rights but only operates in furtherance of the remedy or the confirmation of already existing rights. A statute or rule regulating the procedure of the courts will be construed as applicable to actions pending and undetermined at the time of its passage. All procedural laws are retroactive in that sense and to that extent. The retroactive application is not violative of any right of a person who may feel adversely affected, for, verily, no vested right generally attaches to or arises from procedural laws. Spouses Augusto G. Dacudao and Ofelia R. Dacudao vs. Secretary of Justice Raul M. Gonzales of the Department of Justice; G.R. No. 188056. January 8, 2013

Ejectment; unlawful detainer; estoppel against tenants; conclusive presumption; foreclosure of mortgage; title to land remains in the mortgagor until expiration of redemption period; inchoate character of purchaser’s right. [T]he only question that the courts resolve in ejectment proceedings is: who is entitled to the physical possession of the premises, that is, to the possession de facto and not to the possession de jure. It does not even matter if a party’s title to the property is questionable.

In an unlawful detainer case, the sole issue for resolution is the physical or material possession of the property involved, independent of any claim of ownership by any of the party litigants. Where the issue of ownership is raised by any of the parties, the courts may pass upon the same in order to determine who has the right to possess the property. The adjudication is, however, merely provisional and would not bar or prejudice an action between the same parties involving title to the property.

[I]n unlawful detainer, one unlawfully withholds possession thereof after the expiration or termination of his right to hold possession under any contract, express or implied. In such case, the possession was originally lawful but became unlawful by the expiration or termination of the right to possess; hence, the issue of rightful possession is decisive for, in such action, the defendant is in actual possession and the plaintiff’s cause of action is the termination of the defendant’s right to continue in possession.

The conclusive presumption found in Section 2 (b), Rule 131 of the Rules of Court, known as estoppel against tenants, provides as follows:

Sec. 2. Conclusive presumptions. – The following are instances of conclusive presumptions:

(b) The tenant is not permitted to deny the title of his landlord at the time of the commencement of the relation of landlord and tenant between them. (Emphasis supplied).

It is clear from the abovequoted provision that what a tenant is estopped from denying is the title of his landlord at the time of the commencement of the landlord-tenant relation. If the title asserted is one that is alleged to have been acquired subsequent to the commencement of that relation, the presumption will not apply. Hence, the tenant may show that the landlord’s title has expired or been conveyed to another or himself; and he is not estopped to deny a claim for rent, if he has been ousted or evicted by title paramount.

It is settled that during the period of redemption, it cannot be said that the mortgagor is no longer the owner of the foreclosed property, since the rule up to now is that the right of a purchaser at a foreclosure sale is merely inchoate until after the period of redemption has expired without the right being exercised. The title to land sold under mortgage foreclosure remains in the mortgagor or his grantee until the expiration of the redemption period and conveyance by the master’s deed. Indeed, the rule has always been that it is only upon the expiration of the redemption period, without the judgment debtor having made use of his right of redemption, that the ownership of the land sold becomes consolidated in the purchaser.

Stated differently, under Act. No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted in or Annexed to Real Estate Mortgages), the purchaser in a foreclosure sale has, during the redemption period, only an inchoate right and not the absolute right to the property with all the accompanying incidents. He only becomes an absolute owner of the property if it is not redeemed during the redemption period. Juanita Ermitaño, represented by her Attorney-in-fact, Isabelo Ermitaño vs. Lailanie M. Paglas; G.R. No. 174436. January 23, 2013

Interest; 12% interest rate doctrine in Eastern Shipping Lines vs. CA. [T]he imposition of 12% interest is still warranted in the case at bar, not from the date of sale on November 9, 1994, as the respondents insist; but from the finality of the decision up to the satisfaction of judgment in line with the doctrine laid down in Eastern Shipping Lines, Inc. v. Court of Appeals. … [T]he payment of 12% interest from the finality of judgment is in order pursuant to Eastern Shippings Lines, Inc. where the Court held that:

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

Spouses Ricardo and Elena Golez vs. Spouses Carlos and Amelita Navarro; G.R. No. 192532. January 30, 2013

Legal Compensation; mode of extinguishing obligations; difference with conventional compensation; requisites. Compensation is a mode of extinguishing to the concurrent amount the obligations of persons who in their own right and as principals are reciprocally debtors and creditors of each other. Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites. Legal compensation requires the concurrence of the following conditions:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

Mondragon Personal Sales, Inc. vs. Victoriano S. Sola, Jr.; G.R. No. 174882. January 21, 2013  

Marriage; essential and formal requisites; marriage license; certification of non-issuance by civil registrar; diligent search requirement compared to presumption of regularity in performance of official duties; effect of absence of marriage license. As the marriage of Gloria and Syed was solemnized on January 9, 1993, Executive Order No. 209, or the Family Code of the Philippines, is the applicable law. The pertinent provisions that would apply to this particular case are Articles 3, 4 and 35(3), which read as follows:

Art. 3. The formal requisites of marriage are:

(1) Authority of the solemnizing officer;

(2) A valid marriage license except in the cases provided for in Chapter 2 of this Title; and

(3) A marriage ceremony which takes place with the appearance of the contracting parties before the solemnizing officer and their personal declaration that they take each other as husband and wife in the presence of not less than two witnesses of legal age.

Art. 4. The absence of any of the essential or formal requisites shall render the marriage void ab initio, except as stated in Article 35(2).

A defect in any of the essential requisites shall render the marriage voidable as provided in Article 45.

An irregularity in the formal requisites shall not affect the validity of the marriage but the party or parties responsible for the irregularity shall be civilly, criminally and administratively liable.

Art. 35. The following marriages shall be void from the beginning:

x x x x

(3) Those solemnized without a license, except those covered by the preceding Chapter.

Under Sec. 3(m), Rule 131 of the Rules of Court, it is a disputable presumption that an official duty has been regularly performed, absent contradiction or other evidence to the contrary. We held, “The presumption of regularity of official acts may be rebutted by affirmative evidence of irregularity or failure to perform a duty.” No such affirmative evidence was shown that the Municipal Civil Registrar was lax in performing her duty of checking the records of their office, thus the presumption must stand. In fact, proof does exist of a diligent search having been conducted, as Marriage License No. 996967 was indeed located and submitted to the court. The fact that the names in said license do not correspond to those of Gloria and Syed does not overturn the presumption that the registrar conducted a diligent search of the records of her office.

In the case of Cariño v. Cariño, following the case of Republic, it was held that the certification of the Local Civil Registrar that their office had no record of a marriage license was adequate to prove the non-issuance of said license. The case of Cariño further held that the presumed validity of the marriage of the parties had been overcome, and that it became the burden of the party alleging a valid marriage to prove that the marriage was valid, and that the required marriage license had been secured.

Article 4 of the Family Code is clear when it says, “The absence of any of the essential or formal requisites shall render the marriage void ab initio, except as stated in Article 35(2).” Article 35(3) of the Family Code also provides that a marriage solemnized without a license is void from the beginning, except those exempt from the license requirement under Articles 27 to 34, Chapter 2, Title I of the same Code. Syed Azhar Abbas vs. Gloria Goo Abbas; G.R. No. 183896. January 30, 2013

Marriage; psychological incapacity; definition; burden of proof; sexual infidelity and abandonment do not necessarily constitute psychological incapacity; psychological fitness as a wife not equated with professional relationship; doubts are resolved in favor of marriage. Article 36 of the Family Code governs psychological incapacity as a ground for declaration of nullity of marriage. It provides that “[a] marriage contracted by any party who, at the time of the

celebration, was psychologically incapacitated to comply with the essential marital obligations of marriage, shall likewise be void even if such incapacity becomes manifest only after its solemnization.” In interpreting this provision, we have repeatedly stressed that psychological incapacity contemplates “downright incapacity or inability to take cognizance of and to assume the basic marital obligations”; not merely the refusal, neglect or difficulty, much less ill will, on the part of the errant spouse. The plaintiff bears the burden of proving the juridical antecedence (i.e., the existence at the time of the celebration of marriage), gravity and incurability of the condition of the errant spouse.

In any event, sexual infidelity and abandonment of the conjugal dwelling, even if true, do not necessarily constitute psychological incapacity; these are simply grounds for legal separation. To constitute psychological incapacity, it must be shown that the unfaithfulness and abandonment are manifestations of a disordered personality that completely prevented the erring spouse from discharging the essential marital obligations.

Aside from the time element involved, a wife’s psychological fitness as a spouse cannot simply be equated with her professional/work relationship; workplace obligations and responsibilities are poles apart from their marital counterparts. While both spring from human relationship, their relatedness and relevance to one another should be fully established for them to be compared or to serve as measures of comparison with one another.

Once again, we stress that marriage is an inviolable social institution protected by the State. Any doubt should be resolved in favor of its existence its existence and continuation and against its dissolution and nullity. It cannot be dissolved at the whim of the parties nor by transgressions made by one party to the other during the marriage. Republic of the Philippines vs. Cesar Encelan; G.R. No. 170022. January 9, 2013

Possession; de jure vs. de facto nature of possession; elements of forcible entry. Ownership carries the right of possession, but the possession contemplated by the concept of ownership is not exactly the same as the possession in issue in a forcible entry case. Possession in forcible entry suits refers only to possession de facto, or actual or material possession, and not possession flowing out of ownership; these are different legal concepts for which the law provides different remedies for recovery of possession. As the court explained in Pajuyo v. Court of Appeals, and again in the more recent cases of Gonzaga v. Court of Appeals, De Grano v. Lacaba, and Lagazo v. Soriano, the word “possession” in forcible entry suits refers to nothing more than prior physical possession or possession de facto, not possession de jure or legal possession in the sense contemplated in civil law. Title is not the issue, and its absence “is not a ground for the courts to withhold relief from the parties in an ejectment case.” Thus, in a forcible entry case, “a party who can prove prior possession can recover such possession even against the owner himself.

Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to remain on the property until a person with a better right lawfully ejects him.” He cannot be ejected by force, violence or terror — not even by its owners. For these reasons, an action for forcible entry is summary in nature aimed only at providing an expeditious means of protecting actual possession. Ejectment suits are intended to “prevent breach of x x x peace and criminal disorder and to compel the party out of possession to respect and resort to the law alone to obtain what he claims is his.” Thus, lest the purpose of these summary proceedings be defeated, any discussion or issue of ownership is avoided unless it is necessary to resolve the issue of de facto possession.

Under Section 1, Rule 70 of the Rules of Court, for a forcible entry suit to prosper, the plaintiff must allege and prove: (1) prior physical possession of the property; and (2) unlawful deprivation of it by the defendant through force, intimidation,  strategy, threat or stealth. As in any civil case, the burden of proof lies with the complainants (the respondents in this case) who must establish their case by preponderance of evidence. Nenita Quality Foods Corporation vs. Crisostomo Galabo, et al.; G.R. No. 174191. January 30, 2013

Quasi-contracts; definition; requisites of solutio indebiti . A quasi-contract involves a juridical relation that the law creates on the basis of certain voluntary, unilateral and lawful acts of a person, to avoid unjust enrichment. The Civil Code provides an enumeration of quasi-contracts, but the list is not exhaustive and merely provides examples.

Article 2154 embodies the concept “solutio indebiti” which arises when something is delivered through mistake to a person who has no right to demand it. It obligates the latter to return what has been received through mistake. Solutio indebiti, as defined in Article 2154 of the Civil Code, has two indispensable requisites: first, that something has been

unduly delivered through mistake; and second, that something was received when there was no right to demand it. Metropolitan Bank & Trust Company vs. Absolute Management Corporation; G.R. No. 170498. January 9, 2013

Torts; abuse of rights; elements; award of damages. While the Court mindfully notes that damages may be recoverable due to an abuse of right under Article 21 in conjunction with Article 19 of the Civil Code of the Philippines, the following elements must, however, obtain: (1) there is a legal right or duty; (2) exercised in bad faith; and (3) for the sole intent of prejudicing or injuring another. Records reveal that none of these elements exists in the case at bar and thus, no damages on account of abuse of right may he recovered. Eleazar S. Padillo vs. Rural Bank of Nabunturan, Inc., et al.; G.R. No. 199338. January 21, 2013

Torts; proximate cause; vicarious liability is not applicable in the absence of employer-employee or principal-agent relationship; contracts; requisites of stipulation pour autrui ; Lease; act of parking a vehicle in a garage upon payment of a fixed amount, is a lease; obligations of lessor; contracts of adhesion; actual damages must be proved with reasonable degree of certainty. Proximate cause has been defined as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury or loss, and without which the result would not have occurred.

Neither will the vicarious liability of an employer under Article 2180 of the Civil Code apply in this case. It is uncontested that Peña and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard Service Contract. Clearly, therefore, no employer-employee relationship existed between BSP and the security guards assigned in its premises. Consequently, the latter’s negligence cannot be imputed against BSP but should be attributed to AIB, the true employer of Peña and Gaddi. In the case of Soliman, Jr. v. Tuazon, the Court enunciated thus:

It is settled that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security guards, the agency is the employer of such guards and watchmen. Liability for illegal or harmful acts committed by the security guards attaches to the employer agency, and not to the clients or customers of such agency. As a general rule, a client or customer of a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the agency shall be assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards cannot, in the ordinary course of events, be demanded from the client whose premises or property are instructions or directions to the security guards assigned to it, does not, by itself, render the client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions. Those instructions or directions are ordinarily no more than requests commonly envisaged in the contract for services entered into with the security agency.

Nor can it be said that a principal-agent relationship existed between BSP and the security guards Peña and Gaddi as to make the former liable for the latter’s complained act. Article 1868 of the Civil Code states that “[b]y 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.” The basis for agency therefore is representation, which element is absent in the instant case. Records show that BSP merely hired the services of AIB, which, in turn, assigned security guards, solely for the protection of its properties and premises. Nowhere can it be inferred in the Guard Service Contract that AIB was appointed as an agent of BSP. Instead, what the parties intended was a pure principal-client relationship whereby for a consideration, AIB rendered its security services to BSP.

[I]n order that a third person benefited by the second paragraph of Article 1311, referred to as a stipulation pour autrui, may demand its fulfillment, the following requisites must concur: (1) There is a stipulation in favor of a third person; (2) The stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly and deliberately conferred a favor to the third person – the favor is not merely incidental; (4) The favor is unconditional and uncompensated; (5) The third person communicated his or her acceptance of the favor before its revocation; and (6) The contracting parties do not represent, or are not authorized, by the third party.

It has been held that the act of parking a vehicle in a garage, upon payment of a fixed amount, is a lease. Even in a majority of American cases, it has been ruled that where a customer simply pays a fee, parks his car in any available space in the lot, locks the car and takes the key with him, the possession and control of the car, necessary elements in bailment, do not pass to the parking lot operator, hence, the contractual relationship between the parties is one of lease.

Article 1654 of the Civil Code provides that “[t]he lessor (BSP) is obliged: (1) to deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) to make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary; and (3) to maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract.” In relation thereto, Article 1664 of the same Code states that “[t]he lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder.”

[C]ontracts of adhesion are not void per se. It is binding as any other ordinary contract and a party who enters into it is free to reject the stipulations in its entirety. If the terms thereof are accepted without objection, as in this case, where plaintiffs-appellants have been leasing BSP’s parking space for more or less 20 years, then the contract serves as the law between them.

It is axiomatic that actual damages must be proved with reasonable degree of certainty and a party is entitled only to such compensation for the pecuniary loss that was duly proven. Thus, absent any competent proof of the amount of damages sustained, the CA properly deleted the said awards. Spouses Benjamin C. Mamaril and Sonia P. Mamaril vs. The Boy Scout of the Philippines, et al.; G.R. No. 179382. January 14, 2013

Special laws

Usury Law; CB Circular No. 905; suspension of ceilings for interest rates does not authorize excessive and unconscionable interest rates; effect of void stipulation of usurious interest. The power of the Central Bank to effectively suspend the Usury Law pursuant to P.D. No. 1684 (Amending Further Act No. 2655, as amended, Otherwise Known As “The Usury Law) has long been recognized and upheld in many cases. As the Court explained in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 (Amendment of Books I to IV of the Manual of  Regulations for Banks and Other Financial Intermediaries) “did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity;” that “a [CB] Circular cannot repeal a law, [for] only a law can repeal another law;” that “by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective;” and “Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.” … [B]y lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of contract to agree freely on the rate of interest. It cited Article 1306 of the New Civil Code, under which the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. As held in Castro v. Tan:

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.

Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals, if not against the law. Indeed, under Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor may the right to set up their illegality as a defense be waived.

Nonetheless, the nullity of the stipulation of usurious interest does not affect the lender’s right to recover the principal of a loan, nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the debtor to pay the debt due. The debt due is considered as without the stipulated excessive interest, and a legal interest of 12% per annum will be added in place of the excessive interest formerly imposed, following the guidelines laid down in the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, regarding the manner of computing legal interest. Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board, Represented by its Chairman, Governor Armando M. Tatangco, Jr., etc.; G.R. No. 192986. January 15, 2013