Civ2 Case Digest 4D

1
Case Digests in Civil Law Review 2
TABLE OF CONTENTS
JAIME D. ANG V. COURT OF APPEALS AND BRUNO SOLEDAD ................. 5

NUTRIMIX FEEDS CORPORATION V. COURT OF APPEALS AND
SPOUSES EFREN AND MAURA EVANGELISTA ............................................... 7
PARTNERSHIP, AGENCY & TRUST ......................................9

PASCUAL V. COMMISSIONER ON INTERNAL REVENUE AND COURT OF
TAX APPEALS ............................................................................................................. 9
ESTANISLAO, JR., V. COURT OF APPEALS ..................................................... 11
DAN FUE LEUNG V. INTERMEDIATE APPELLATE COURT AND LEUNG
YIU ............................................................................................................................... 12
HEIRS OF TAN ENG KEE V. CA AND BENGUET LUMBER COMPANY ..... 14
SARDANE VS. COURT OF APPEALS .................................................................. 15
SANTOS VS. SPOUSES ARSENIO AND NIEVES REYES ................................ 15
TOCAO VS. COURT OF APPEALS........................................................................ 16
TORRES V. COURT OF APPEALS........................................................................ 17
LIM TONG LIM V PHILIPPINE FISHING GEAR INDUSTRIES, INC .......... 18
EVANGELISTA & CO. V ESTRELLA ABAD SANTOS ...................................... 20
MOBIL OIL PHILIPPINES, INC., V. COURT OF FIRST INSTANCE OF
RIZAL, BRANCH VI, GEMINIANO F. YABUT AND AGUEDA ENRIQUEZ
YABUT ........................................................................................................................ 22
San Beda College of Law, Mendiola, Manila
SY JUCO V. CASTRO ............................................................................................... 23

ROJAS V. MAGLANA .................................................................................................. 25
YU VS NLRC ................................................................................................................ 26
ORTEGA VS COURT OF APPEALS ...................................................................... 28
PIONEER INSURANCE VS COURT OF APPEALS ........................................... 29
CARMEN LIWANAG VS. THE HON. COURT OF APPEALS AND THE
PEOPLE OF THE PHILIPPINES .......................................................................... 30
CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI AND
MOTI G. RAMNANI VS. COURT OF APPEALS, SPOUSES ISHWAR
JETHMAL RAMNANI, SONYA JETHMAL RAMNANI AND OVERSEAS
HOLDING CO., LTD., ............................................................................................... 31
SUNGA-CHAN V. CHUA .......................................................................................... 32
EMNACE V. COURT OF APPEALS....................................................................... 33
GENEVIEVE LIM V. FLORENCIO SABAN ......................................................... 34
MANILA MEMORIAL PARK INC. V LINSANGAN ............................................ 36
VICTORIAS MILLING CO., INC., PETITIONER, VS. COURT OF APPEALS
AND CONSOLIDATED SUGAR CORPORATION, RESPONDENTS. ............. 37
ROSA LIM, PETITIONER VS. COURT OF APPEALS AND PEOPLE OF THE
PHILIPPINES, RESPONDENTS. .......................................................................... 38
DOMINION INSURANCE CORPORATION VS. COURT OF APPEALS ........ 39
CONDE VS. COURT OF APPEALS ....................................................................... 41
UNILAND RESOURCES VS. DBP ......................................................................... 42
MANILA REMNANT CO. VS. CA ........................................................................... 43
NAPOCOR V. NATIONAL MERCHANDISING CORPORATION .................... 45

SCHMID & OBERLY VS. RJL MARTINEZ FISHING CORPORATION ........ 46
BICOL SAVINGS AND LOAN ASSOCIATION VS. COURT OF APPEALS.... 47
CMS LOGGING INCORPORATED VS. COURT OF APPEALS ....................... 48
PROFESSIONAL SERVICES, INC. VS. NATIVIDAD AND ENRIQUE AGANA
...................................................................................................................................... 49
CARLOS SANCHEZ VS. MEDICARD PHILIPPINES, INC., ............................ 50
THE PHILIPPINE BANK OF COMMERCE VS. JOSE M. ARUEGO .............. 51
SIREDY ENTERPRISES, INC. VS.HON. COURT OF APPEALS AND
CONRADO DE GUZMAN......................................................................................... 52
SUMAOANG V. JUDGE RTC BR. XXXI, GUIMBA, NUEVA ECIJA AND ATTY.
PASCUA ...................................................................................................................... 54
OLACO V. CO CHO CHIT ....................................................................................... 55
HUANG VS. COURT OF APPEALS ....................................................................... 56
THOMSON VS. COURT OF APPEALS ................................................................. 57
JOSUE ARLEGUI VS. HON. COURT OF APPEALS AND SPOUSES GIL AND
BEATRIZ GENGUYON ............................................................................................ 58
RUPERTO L. VILORIA, PETITIONER, VS. COURT OF APPEALS, LIDA C.
AQUINO ...................................................................................................................... 60
SECUYA V. VDA DE SELMA .................................................................................. 61
HEIRS OF SALVADOR HERMOSILLA VS. SPOUSES REMOQUILLO ........ 62
ELENA J. TOMAS ET AL VS COURT OF APPEALS ......................................... 64
FILIPINAS PORT SERVICES, INC., REPRESENTED BY ELIODORO C.

CRUZ AND MINDANAO TERMINAL AND BROKERAGE SERVICES, INC. VS
VICTORIANO S. GO ET AL. ................................................................................... 65
VDA. DE CABRERA VS. COURT OF APPEALS ................................................. 66
SPOUSES RICARDO PASCUAL VS. COURT OF APPEALS ........................... 69
CREDIT TRANSACTIONS ...................................................72

ACME SHOE, RUBBER & PLASTIC CORPORATION VS. COURT OF
APPEALS.................................................................................................................... 72
NAVOA VS. COURT OF APPEALS........................................................................ 74
REPUBLIC V. PHILIPPINE NATIONAL BANK, THE FIRST NATIONAL
CITY BANK OF NEW YORK, ET AL. .................................................................... 76
PEOPLE V. VENANCIO CONCEPCION .............................................................. 77
BONNEVIE V. CA ..................................................................................................... 79
FRANCISCO HERRERA VS. PETROPHIL CORPORATION .......................... 82
SAURA IMPORT AND EXPORT CO VS.DEVELOPMENT BANK OF THE
PHILIPPINES ........................................................................................................... 83
CENTRAL BANK V. COURT OF APPEALS ........................................................ 83
REPUBLIC V. JOSE V. BAGTAS. ET. AL. ........................................................... 85
MINA, ET AL. V. RUPERTA PASCUAL, ET AL. ................................................. 86
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, VS.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ ...................................................................................................................... 88
MARGARITA QUINTOS AND ANGEL A. ANSALDO VS. BECK ..................... 89
CEBU INTERNATIONAL FINANCE CORP. V. COURT OF APPEALS ......... 90

MAMBULAO LUMBER COMPANY. V. PHILIPPINE NATIONAL BANK ..... 91
LIAM LAW VS. OLYMPIC SAWMILL CO. ET. AL. ............................................. 93
SPOUSES FLORANTE ET. AL. VS. PILAR DEVELOPMENT CORPORATION
...................................................................................................................................... 94
SEVERINO TOLENTINO AND POTENCIANA MANIO VS. BENITO
GONZALEZ SY CHIAM ............................................................................................ 95
THE COSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK) VS.
THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION,
GREGORY T. LIM AND SPOUSE .......................................................................... 97
COLINARES V. COURT OF APPEALS ................................................................ 99
REPUBLIC OF THE PHILIPPINES V. GRIJALDO ......................................... 100
JAIME D. ANG V. COURT OF APPEALS AND BRUNO SOLEDAD

G.R. No. 177874; September 29, 2008
FACTS:
Respondent Soledad sold his car to petitioner Ang by Deed of Absolute Sale dated July 28,
1992. Ang later offered the car he bought from Soldedad, for sale which was eventually sold
to Paul Bugash. However, the vehicle was seized by virtue of a writ of replevin on account of
the alleged failure of Ronaldo Panes, the owner of the vehicle prior to Soledad, to pay the
mortgage debt constituted thereon.
To secure the release of the vehicle, Ang paid BA Finance but Soledad refused to reimburse
the said amount, despite repeated demands. Ang filed on July 15, 1996 with the MTCC a
complaint which was however dismissed on the ground of prescription since more than 6
months elapsed from the delivery of the subject vehicle to the plaintiff buyer to the filing of
this action, pursuant to Article 1571.
Ang appealed to the RTC which affirmed the dismissal of the complaint but required
defendant to reimburse the amount plaintiff paid BA Finance Corporation. Soledads Motion
for Reconsideration was denied hence, he elevated the case to the Court of Appeals and
accordingly reversed the RTC decision and denied the petition.

Hence, the present recourse petition for review on certiorari, Ang maintaining that his
cause of action had not yet prescribed when he filed the complaint and he should not be
blamed for paying the mortgage debt.
ISSUE:
1. Whether or not the defendant Soledad in executing the Deed of Absolute Sale
declaring that, I hereby covenant my absolute ownership to (sic) the above-described
property and the same is free from all liens and encumbrances xxx ,made an
EXPRESS warranty, the prescriptive period for which is that specified in the contract,
and in the absence of such period, the general rule on rescission of contract, which is
four years; or an IMPLIED warranty which prescribes six months from the date of
delivery of the thing sold.
2. Whether or not petitioner Ang is entitled to damages for warranty against eviction by
virtue of the writ of replevin issued on account of the alleged failure of Ronaldo Panes,
the owner of the vehicle prior to Soledad, to pay the mortgage debt constituted on the
subject vehicle and pursuant to the declaration of defendant Soledad in the Absolute
Sale that, I will defend the same from all claims or any claim whatsoever; will save
the vendee from any suit by the government of the Republic of the Philippines.
HELD:
In declaring that he owned and had clean title to the vehicle at the time the Deed of
Absolute Sale was forged, Soledad gave an implied warranty of title. In pledging that he "will
defend the same from all claims or any claim whatsoever [and] will save the vendee from any
suit by the government of the Republic of the Philippines," Soledad gave a warranty against
eviction.
A warranty is a statement or representation made by the seller of goods,
contemporaneously and as part of the contract of sale, having reference to the character,
quality or title of the goods, and by which he promises or undertakes to insure that certain
facts are or shall be as he then represents them.
Warranties by the seller may be express or implied. Art. 1546 of the Civil Code defines
express warranty as any affirmation of fact or any promise by the seller relating to the thing
is an express warranty if the natural tendency of such affirmation or promise is to induce the
buyer to purchase the same, and if the buyer purchases the thing relying thereon.
On the other hand, an implied warranty is that which the law derives by application
or inference from the nature of the transaction or the relative situation or circumstances of
the parties, irrespective of any intention of the seller to create it. Among the implied warranty
provisions of the Civil Code are: as to the sellers title (Art. 1548), against hidden defects and
encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and against eviction
(Art. 1548).
Since what Soledad, as seller, gave was an implied warranty, the prescriptive period
to file a breach thereof is six months after the delivery of the vehicle, following Art. 1571.
Angs action therefore has already prescribed.
On the merits of his complaint for damages, Ang cannot recover damages for breach
of warranty against eviction due to the absence of the following essential requisites for such
breach, vz:

"A breach of this warranty requires the concurrence of the
following circumstances:
(1) The purchaser has been deprived of the whole or part of the
thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made
by the vendor; and
(4) The vendor has been summoned and made co-defendant in
the suit for eviction at the instance of the vendee.
For one, there is no judgment which deprived Ang of the vehicle. For another, there
was no suit for eviction in which Soledad as seller was impleaded as co-defendant at the
instance of the vendee.
NUTRIMIX FEEDS CORPORATION V. COURT OF APPEALS AND

SPOUSES EFREN AND MAURA EVANGELISTA
G.R. No. 152219; October 25, 2004
FACTS:
Respondent spouses herein started to directly procure various kinds of animal feeds
from petitioner Nutrimix Feeds Corporation. Initially, the respondents were good paying
customers. In some instances, however, they failed to issue checks despite the deliveries of
animal feeds which were appropriately covered by sales invoices. Consequently, the
respondents incurred an aggregate unsettled account with the petitioner. The petitioner
made several demands for the respondents to settle their unpaid obligation, but the latter
failed and refused to pay their remaining balance with the petitioner.
Petitioner filed with RTC a complaint, against the respondents for sum of money and
damages with a prayer for issuance of writ of preliminary attachment. In their answer with
counterclaim, the respondents admitted their unpaid obligation but impugned their liability
to the petitioner. They contended that inasmuch as the sudden and massive death of their
animals was caused by the contaminated products of the petitioner, the nonpayment of their
obligation was based on a just and legal ground.
The respondents also lodged a complaint for damages against the petitioner for the
untimely and unforeseen death of their animals supposedly effected by the adulterated
animal feeds the petitioner sold to them. Petitioner moved to dismiss the respondents
complaint on the ground of litis pendentia. The trial court denied the same and the petitioner
alleged that the death of the respondents animals was due to the widespread pestilence in
their farm. The petitioner, likewise, maintained that it received information that the

respondents were in an unstable financial condition and even sold their animals to settle
their obligations from other enraged and insistent creditors. It, moreover, theorized that it
was the respondents who mixed poison to its feeds to make it appear that the feeds were
contaminated.
ISSUE:
Is the petitioner corporation guilty of breach of warranty due to hidden defects despite
a finding that there was a difference of approximately three months from delivery of the
animal feeds, to respondent spouses, to the time the animals died and the animal feeds were
examined?
RULING:
A difference of approximately three months enfeebles the respondents theory that the
petitioner is guilty of breach of warranty by virtue of hidden defects. In a span of three
months, the feeds could have already been contaminated by outside factors and subjected to
many conditions unquestionably beyond the control of the petitioner.
The provisions on warranty against hidden defects are found in Articles 1561 and
1566 of the New Civil Code of the Philippines. A hidden defect is one which is unknown or
could not have been known to the vendee. Under the law, the requisites to recover on account
of hidden defects are as follows:
(a) the defect must be hidden;

(b) the defect must exist at the time the sale was made;
(c) the defect must ordinarily have been excluded from
the contract;
(d) the defect, must be important (renders thing UNFIT
or considerably decreases FITNESS);
(e) the action must be instituted within the statute of
limitations.
In the sale of animal feeds, there is an implied warranty that it is reasonably fit and
suitable to be used for the purpose which both parties contemplated. To be able to prove
liability on the basis of breach of implied warranty, three things must be established by the
respondents. The first is that they sustained injury because of the product; the second is that
the injury occurred because the product was defective or unreasonably unsafe; and finally,
the defect existed when the product left the hands of the petitioner. A manufacturer or seller
of a product cannot be held liable for any damage allegedly caused by the product in the

absence of any proof that the product in question was defective. The defect must be present
upon the delivery or manufacture of the product; or when the product left the sellers or
manufacturers control; or when the product was sold to the purchaser; or the product must
have reached the user or consumer without substantial change in the condition it was sold.
Tracing the defect to the petitioner requires some evidence that there was no tampering with,
or changing of the animal feeds. The nature of the animal feeds makes it necessarily difficult
for the respondents to prove that the defect was existing when the product left the premises
of the petitioner.
A review of the facts of the case would reveal that the petitioner delivered the animal
feeds, allegedly containing rat poison, on July 26, 1993; but it is astonishing that the
respondents had the animal feeds examined only on October 20, 1993, or barely three months
after their broilers and hogs had died. It bears stressing, too, that the chickens brought for
laboratory tests were healthy animals, and were not the ones that were ostensibly poisoned.
There was even no attempt to have the dead fowls examined. Neither was there any analysis
of the stomach of the dead chickens to determine whether the petitioners feeds really caused
their sudden death. Mere sickness and death of the chickens is not satisfactory evidence in
itself to establish a prima facie case of breach of warranty. Likewise, there was evidence
tending to show that the respondents combined different kinds of animal feeds and that the
mixture was given to the animals.
In essence, we hold that the respondents failed to prove that the petitioner is guilty of
breach of warranty due to hidden defects. It is, likewise, rudimentary that common law
places upon the buyer of the product the burden of proving that the seller of the product
breached its warranty. The bevy of expert evidence adduced by the respondents is too shaky
and utterly insufficient to prove that the Nutrimix feeds caused the death of their animals.
For these reasons, the expert testimonies lack probative weight. The respondents case of
breach of implied warranty was fundamentally based upon the circumstantial evidence that
the chickens and hogs sickened, stunted, and died after eating Nutrimix feeds; but this was
not enough to raise a reasonable supposition that the unwholesome feeds were the proximate
cause of the death with that degree of certainty and probability required.
PARTNERSHIP, AGENCY & TRUST
PASCUAL V. COMMISSIONER ON INTERNAL REVENUE AND

COURT OF TAX APPEALS
G.R. No. 78133; October 18, 1988
FACTS:
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Petitioners bought 2 parcels of land on June 2, 1965 and another 3 parcels of land on May 28,
1966. The first 2 parcels of land were then sold in 1968, and the 3 parcels of land were sold
in 1970. From their realized net profit from both sales, they incurred a capital gains tax which
they paid in 1973 and 1974 by availing of the tax amnesties granted in the said years. In
1979, Acting BIR Commissioners Plana, sent a letter to the petitioners stating that they were
assessed and required to pay an amount of P107, 101.70 as alleged deficiency corporate
income taxs for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had
availed of tax amnesties way back in 1974.Respondent Commissioner informed the
petitioners that in the 1968 and 1970, the petitioner as co-owners in the real estate
transactions formed an unregistered partnership or joint venture taxable as a corporation
under Section 20(b) and Sec 24 of the NIRC. It was mentioned that the unregistered
partnership was subject to corporate income tax and that the availment of tax
amnesty did not relieve the,m from the tax liability of the unregistered
partnership. Hence the petitioners were required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the CTA. But it affirmed the the decision of the
CIR. Hence this case.
ISSUE:
Whether or not petitioners who are co-owners of the parcels of land they sold, formed an
unregistered partnership
HELD:
The CIR and the CTA based their decision in the Evangelista case where the petitioners
therein borrowed a sum of money from their father, and together with their personal funds
they used the same for buying several properties. They appointed their brother to manage
their properties with full power to lease, collect, rent, issue receipts, etc. They had the real
properties rented or leased to various tenants for several years and they gained net profits
from the rental income. Thus, the Collector of Internal Revenue demanded the payment of
income tax on a corporation, among others, from them. In Evangelista case, there was a
series of transactions where petitioners purchased 24 lots showing that the purpose was not
limited to the conservation or preservation of the common fund or even the properties
acquired by them. The character of habituality peculiar to business transactions engaged in
for the purpose of gain was present.
However, in the present case, there was no evidence that petitioners entered into an
agreement to contribute money, property or industry to a common fund, and that they
intended to divide the profits among themselves. Respondent commissioner just assumed
these conditions to be present on the basis of the fact that petitioners purchased certain
parcels of land and became co-owners thereof. The transactions in the present case were
isolated. The character of habituality peculiar to business transactions for the purpose of gain
was not present.
In order to constitute a partnership inter sese there must be: (a) An intent to form the same;
(b) generally participating in both profits and losses; (c) and such a community of interest, as
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far as third persons are concerned as enables each party to make contract, manage the
business, and dispose of the whole property. (Municipal Paving Co. vs. Herring)
It is evident that an isolated transaction whereby two or more persons contribute funds to
buy certain real estate for profit in the absence of other circumstances showing a contrary
intention cannot be considered a partnership. The sharing of returns does not in itself
establish a partnership whether or not the persons sharing therein have a joint or common
right or interest in the property. There must be a clear intent to form a partnership, the
existence of a juridical personality different from the individual partners, and the freedom of
each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is
no adequate basis to support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased properties and sold the
same a few years thereafter did not thereby make them partners. They shared in the gross
profits as co- owners and paid their capital gains taxes on their net profits and availed of the
tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate income tax, as the respondent
commissioner proposes.
ESTANISLAO, JR., V. COURT OF APPEALS

G.R. No. L-49982; April 27, 1988
FACTS:
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots
at the corner of Annapolis and Aurora Blvd., Quezon City which were then being leased to
the Shell Company of the Philippines Limited (SHELL). They agreed to open and operate a
gas station thereat to be known as Estanislao Shell Service Station with an initial investment
of P 15,000.00 to be taken from the advance rentals due to them from SHELL for the
occupancy of the said lots owned in common by them. A joint affidavit was executed by them
on April 11, 1966. The petitione was allowed to operate and manage the gasoline service
station of the family.
The parties entered into an Additional Cash Pledge Agreement with SHELL wherein it was
reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover
advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and
supersedes the Joint Affidavit dated 11 April 1966 executed by the co-owners.
Petitioner contends that because of the said stipulation cancelling and superseding that
previous Joint Affidavit, whatever partnership agreement there was in said previous
agreement had thereby been abrogated.
ISSUE:
Whether or not a partnership exists between members of the same family arising from their
joint ownership of certain properties?
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Whether or not the proviso "cancels and supersedes the Joint Affidavit dated 11 April 1966
executed by the co-owners dissolved the existing partnership between the parties?
HELD:
There is evidently an existing partnership between the parties herein but the contention of
the petitioner that the proviso in the subsequent document abrogates the existing
partnership agreement between him and the private respondents, is not correct.
In the subsequent document entitled "Additional Cash Pledge Agreement," the private
respondents and petitioner assigned to SHELL the monthly rentals due them commencing
the 24th of May 1966 until such time that the monthly rentals accumulated equal P 15,000.00
which private respondents agree to be a cash deposit of petitioner in favor of SHELL to
increase his credit limit as dealer. It provided therein that "This agreement, therefore,
cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the COOWNERS." This cancelling provision was necessary for the Joint Affidavit speaks of P
15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to
advance rentals of the same amount starting May 24, 1966. There is a mere duplication of
reference to the P 15,000.00 hence the need to provide in the subsequent document that it
"cancels and supersedes" the previous one.
Other evidence in the record shows that there was in fact such partnership agreement
between the parties. This is attested by the testimonies of private respondent Remedies
Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic
accounting of the business. Petitioner gave a written authority to private respondent
Remedies Estanislao, his sister, to examine and audit the books of their "common
business'. Respondent Remedios assisted in the running of the business.
There is no doubt that the parties hereto formed a partnership when they bound themselves
to contribute money to a common fund with the intention of dividing the profits among
themselves. The sole dealership by the petitioner and the issuance of all government permits
and licenses in the name of petitioner was in compliance with the afore-stated policy of
SHELL and the understanding of the parties of having only one dealer of the SHELL
products.
DAN FUE LEUNG V. INTERMEDIATE APPELLATE COURT AND

LEUNG YIU
G.R. No. 70926; January 31, 1989
What is the prescriptive period within which a partner may demand an accounting?
DOCTRINE: The right to demand an accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership when the final
accounting is done.
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FACTS:
Respondent Leung Yiu filed a complaint to recover the sum equivalent to 22% of the annual
profits derived from the operation of Sun Wah Panciteria from petitioner Dan Fue Leung.
Although registered as a single proprietorship in the name of petitioner Dan Fue Leung,
respondent claimed that Sun Wah Panciteria, a restaurant, was actually a partnership and
that he was one of the partners having contributed P4,000.00 to its initial establishment.
Respondent adduced evidence that about the time Sun Wah Panciteria started to become
operational, he gave P4,000.00 as his contribution to the partnership evidenced by a receipt
wherein the petitioner acknowledged his acceptance. Furthermore, private respondent
received from petitioner the amount of P12,000.00 from the profits of the operation of the
restaurant for the year 1974.
The petitioner denied the existence of partnership and maintained that Sun Wah Panciteria
was a sole proprietorship. When the IAC ruled that the records sufficiently established that
there was a partnership, petitioner raised the issue of prescription. He argued that IAC
gravely erred in not resolving the issue of prescription in his favor. The alleged receipt is
dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of
22 years, 9 months and 12 days. From October 1, 1955 to July 13, 1978, no written
demands were ever made by private respondent. The petitioner's argument is based on
Article 1144 in relation to Article 1155 of the Civil Code.
ISSUE:
Whether respondents right to demand an accounting has prescribed?
HELD:
No. The private respondent is a partner of the petitioner in Sun Wah Panciteria. A partner
shares not only in profits but also in the losses of the firm. If excellent relations exist among
the partners at the start of business and all the partners are more interested in seeing the
firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a partner does not assert his rights anytime
within ten years from the start of operations, such rights are irretrievably lost. The private
respondent's cause of action is premised upon the failure of the petitioner to give him the
agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was
asking for an accounting of his interests in the partnership.
Regarding the prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting exists
as long as the partnership exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
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HEIRS OF TAN ENG KEE V. CA AND BENGUET LUMBER COMPANY

G.R. No. 126881; October 3, 2000
Is the lack of a demand for periodic accounting during the lifetime of an alleged
partner evidence that there was no partnership?
DOCTRINE: The essence of a partnership is that the partners share in the profits and losses.
Each has the right to demand an accounting as long as the partnership exists. We have
allowed a scenario wherein [i]f excellent relations exist among the partners at the start of
the business and all the partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly plausible. But in the
situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A
person is presumed to take ordinary care of his concerns. A demand for periodic accounting
is evidence of a partnership.
FACTS:
Following the death of Tan Eng Kee petitioners as heirs filed suit against the decedents
brother TAN ENG LA. The complaint, was for accounting, liquidation and winding up of the
alleged partnership formed after World War II between Tan Eng Kee and Tan Eng
Lay. Petitioners filed an amended complaint impleading private respondent BENGUET
LUMBER COMPANY.
The amended complaint principally alleged that after the second World War, Tan Eng
Kee and Tan Eng Lay, pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and hardware and construction
supplies. They named their enterprise Benguet Lumber which they jointly managed until
Tan Eng Kees death. However, they claimed that in 1981, Tan Eng Lay and his children
caused the conversion of the partnership Benguet Lumber into a corporation called
Benguet Lumber Company. The incorporation was purportedly a ruse to deprive Tan Eng
Kee and his heirs of their rightful participation in the profits of the business. Petitioners
prayed for accounting of the partnership assets, and the dissolution, winding up and
liquidation thereof, and the equal division of the net assets of Benguet Lumber.
ISSUE:
Whether there was a partnership in a situation where an alleged partner have never
requested for accounting nor distribution for himself of profits from the enterprise.
HELD:
There was no partnership. It is indeed odd, if not unnatural, that despite the forty
years the partnership was allegedly in existence, Tan Eng Kee never asked for an
accounting. The essence of a partnership is that the partners share in the profits and
losses. Each has the right to demand an accounting as long as the partnership exists. We
have allowed a scenario wherein [i]f excellent relations exist among the partners at the start
of the business and all the partners are more interested in seeing the firm grow rather than
get immediate returns, a deferment of sharing in the profits is perfectly plausible. But in
15

the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A
person is presumed to take ordinary care of his concerns.
A demand for periodic accounting is evidence of a partnership. During his lifetime,
Tan Eng Kee appeared never to have made any such demand for accounting from his brother,
Tang Eng Lay.
SARDANE VS. COURT OF APPEALS

G.R. No. L-47045 November 22, 1988
FACTS:
Private Respondent Acojedo brought an action in the City Court of Dipolog for collection of a
sum of P5,217.25 based on promissory notes executed by the herein petitioner Nobio Sardane
in his favor. In his oral testimony, Sardane contended that a partnership existed between
him and Acojedo making the promissory notes merely receipts for the contributions to said
partnership.
ISSUE:
Whether a partnership exist between Private Respondent Acojedo, who received shares on
the enterprise profits as salary and Petitioner Sardane.
RULING:
None. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share
of the profits of a business is prima facie evidence that he is a partner in the business, no
such inference shall be drawn if such profits were received in payment as wages of an
employee.
In this case, as manager of the business of Acojedo, Sarcado naturally has some degree of
control over the operations and maintenance thereof. The fact that he had received 50% of
the net profits does not conclusively establish that he was a partner of the private respondent
herein. Furthermore, herein Sardane had no voice in the management of the affairs of the
business.
SANTOS VS. SPOUSES ARSENIO AND NIEVES REYES

G.R. No. 135813; October 25, 2001
FACTS:
16

Petitioner Fernando Santos and Respondent Nieves Reyes were introduced to each other by
one Meliton Zabat regarding a lending business venture proposed by Nieves. It was verbally
agreed that Santos act as financier while Nieves and Zabat would take charge of solicitation
of members and collection of loan payments.Santos would also receive 70% of the profits while
Nieves and Zabat would earn 15% each.
Petitioner and Gragera, as representative of Monte Maria Development Corporation
subsequently executed an agreement providing funds for Monte Maria's members. Under the
agreement, Monte Maria, represented by Gragera, was entitled to P1.31 commission per
thousand paid daily to Santos.
Santos and Nieves later discovered that their partner Zabat engaged in the same lending
business in competition with their partnership. Zabat was thereby expelled from the
partnership.
Santos filed a complaint for recovery of sum of money and damages against respondents
Reyes allegedly in their capacities as employees with having misappropriated funds intended
for Gragera In their answer, respondents Reyes asserted that they were partners and not
mere employees of Santos.
ISSUE:
Whether or not a partnership exist between Santos and Spouses Reyes.
RULING:
Yes. By the contract of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund, with the intention of dividing the profits
among themselves.1The "Articles of Agreement" stipulated that the signatories shall share
the profits of the business in a 70-15-15 manner, with petitioner getting the lion's share. This
stipulation clearly proved the establishment of a partnership.
TOCAO VS. COURT OF APPEALS

G.R. No. 127405; October 4, 2000
FACTS:
Nenita Anay met petitioner William Belo through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchenwares. Belo volunteered
to finance the joint venture and assigned Anay the job of marketing the product, considering
her experience and relationship with West Bend Company, a manufacturer of kitchen wares
in the US. In the said joint venture, Belo was the capitalist, Tocao was made President and
General Manager, and Anay as the Head of the Marketing Department and later the VicePresident for Sales. The parties agreed further that Anay would be entitled to: (1) ten percent
(10%) of the annual net profits of the business; (2) overriding commission of six percent (6%)
17

of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name.
Anay later undertook the task of saving their business accounts due to unsatisfactory sales
records. She was then entitled to 37% commission for her personal sales as indicated in a
memo signed by Belo which will last till December 21, 1987. On October 9, 1987, Anay
learned that Tocao signed a letter addressed to their Cubao sales office that she was no longer
the Vice-President of Geminesse Enterprise. The following day, she received a note that
Tocao had barred her from holding office in both their Makati and Cubao offices. Anay
attempted to contact Belo demanding for her overriding commission for the period of January
8, 1988 to February 5, 1988 and the audit of the company to determine her share in the
net profits, but her letters were left unanswered by the same. Anay then filed a complaint
for sum of money with damages against Tocao and Belo before the RTC of Makati. In their
answer, Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was
neither reduced in writing, nor ratified, was either unenforceable or void or inexistent.
They alleged that Anay merely acted as marketing demonstrator of Geminesse Enterprise
for an agreed remuneration. Belo denied contributing capital to the business or receiving a
share in the profits because he merely served as a guarantor of Tocao. Tocao, on the other
hand, denied having entered into an oral partnership agreement with Anay. She admitted,
however, that Anay was granted commissions due to her expertise in the cookware business.
Both the RTC and the CA ruled in favor of Anay, hence, this petition.
ISSUE:
Whether or not Anay was a partner of Tocao and Belo and not a mere employee.
RULING:
Yes, Anay was in fact an industrial partner and not that of a mere employee of Tocao and
Belo. Petitioners admit that Anay had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was
through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that companys cookware products; it was through the same
efforts that the business was propelled to financial success.
TORRES V. COURT OF APPEALS

G.R. No. 134559; December 09, 1999
FACTS:
Petitioners and respondent entered into a joint venture agreement for the development of a
parcel land located at Lapu-Lapu City island of Mactan into a subdivision. Pursuant to the
18

contract, petitioners executed a deed of sale covering the said parcel of land in favor of the
respondent, who then had it registered in his name. Thereafter, respondent mortgaged the
property in the bank, and according to the joint agreement, the money obtained amounting
to P40,000.00 was to be used for the development of the subdivision. However, the project did
not push through, and the land was subsequently foreclosed by the bank. Because of this,
petitioners filed a civil case before the Regional Trial Court of Cebu City, which was later
dismissed by the trial court.
On appeal, the Court of Appeals affirmed the decision of the trial court. The appellate court
held that the petitioner and respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion
as their share in the profits stipulated in the contract. Aggrieved by the decision, petitioner
filed the instant petition contending that the Court of Appeals erred in concluding that the
transaction between the petitioners and respondent was that of a joint venture/partnership.
ISSUE:
Whether a joint venture existed between the petitioner and respondent.
RULING:
Yes, the Court held that a reading of the terms of the Joint Venture Agreement indubitably
showed the existence of a partnership pursuant to Article 1767 of the Civil Code. The Joint
Venture Agreement clearly states that the consideration for the sale was the expectation of
profits from the subdivision project. Its first stipulation states that petitioners did not
actually receive payment for the parcel of land sold to respondent. Consideration, more
properly denominated as cause, can take different forms, such as the prestation or promise
of a thing or service by another. In this case, the cause of the contract of sale consisted not in
the stated peso value of the land, but in the expectation of profits from the subdivision project,
for which the land was intended to be used. As explained by the trial court, "the land was in
effect given to the partnership as [petitioner's] participation therein. . . . There was therefore
a consideration for the sale, the [petitioners] acting in the expectation that, should the
venture come into fruition, they [would] get sixty percent of the net profits."
LIM TONG LIM V PHILIPPINE FISHING GEAR INDUSTRIES, INC

G.R. No. 136448, November 3, 1999
FACTS:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into
a Contract with Philippine Fishing Gear Industries, Inc. (respondent) for the purchase of
fishing nets (P532,045) and floats (P68,000). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was not a signatory to the
agreement.
19

The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim, as
general partners, with a prayer for a writ of preliminary attachment. Responded alleges
that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a
Certification from the SEC.
The trial court ruled that the respondent was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. Lim
appealed to the CA which affirmed RTCs decision. The CA held that petitioner was a
partner of Chua and Yao in a fishing business and may thus be held liable as such for the
fishing nets and floats purchased by and for the use of the partnership.
Below are some of the factual findings of the lower courts: (1)That Petitioner requested
Yao who was engaged in commercial fishing to join him, while Chua was already Yao's
partner; (2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to
acquire two fishing boats (3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture; (8)That subsequently, a civil case was
filed by Chua and Yao against Lim for (a) declaration of nullity of commercial documents;
(b) reformation of contracts; (c) declaration of ownership of fishing boats; (d) injunction; and
(e) damages; and (9)That the case was amicably settled through a Compromise Agreement
executed between the parties-litigants the terms of which are already enumerated above.
According to the CA, the evidence establishes that all the defendants including herein
appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for
commercial fishing. Obviously, the ultimate undertaking of the defendants was to divide
the profits among themselves which is what a partnership essentially is.
ISSUE:
Whether the petitioner is liable as a general partner in a contract entered into on behalf of
an unincorporated association or ostensible corporation in which he did not take direct part
of.
RULING:
Yes. The liability for a contract entered into on behalf of an unincorporated association or
ostensible corporation may lie in a person who may not have directly transacted on its
behalf, but reaped benefits from that contract.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats financed by a
loan secured from Jesus Lim. In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term "common fund" under Article 1767.
The contribution to such fund need not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or profit from the sale and
20

operation of the boats would be divided equally among them also shows that they had
indeed formed a partnership.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form
a corporation. Although it was never legally formed for unknown reasons, this fact alone
does not preclude the liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general
partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation.
However, having reaped the benefits of the contract entered into by persons with whom he
previously had an existing relationship, he is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppels.
EVANGELISTA & CO. V ESTRELLA ABAD SANTOS

G.R. No. L-31684, June 28, 1973
FACTS:
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co."
and On June 7, 1955, the Articles of Co-partnership was amended as to include herein
respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo
C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of P17,500 each.
On December 17, 1963 herein respondent filed suit against the three other partners
alleging that the partnership, which was also made a party-defendant, had been paying
dividends to the partners except to her; and that notwithstanding her demands the
defendants had refused and continued to refuse and let her examine the partnership books
or to give her information regarding the partnership affairs to pay her any share in the
dividends declared by the partnership. She therefore prayed that the defendants be ordered
to render accounting to her of the partnership business and to pay her corresponding share
in the partnership profits after such accounting, plus attorney's fees and costs.
The defendants denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to
examine the partnership books; and byway of affirmative defense alleged that the amended
Articles of Co-partnership did not express the true agreement of the parties, which was that
the plaintiff was not an industrial partner; that she did not in fact contribute industry to
the partnership.
The CFI of Manila rendered a decision declaring Estrella as an industrial partner. The
court ordered the capitalist partners to render accounting of the business, to pay Estrella
21

her share in the profits and/or dividends and to pay for her legal costs. Petitioners
appealed before the CA, which affirmed the decision of the CFI.
Hence, this appeal before the SC assigning the following error, among others:
I. The CA erred in the finding that the respondent is an industrial partner notwithstanding
the admitted fact that since 1954 and until after promulgation of the decision of the
appellate court the said respondent was one of the judges of the City Court of Manila, and
despite its findings that respondent had been paid for services allegedly contributed by her
to the partnership. In this connection the Court of Appeals erred:
ISSUE:
Whether the respondent, who is a judge, can be considered as an industrial partner hence
having the right to be rendered an accounting and to see the books of accounts.
RULING:
Yes. Petitioners raised the issue that respondent cannot qualify as an industrial partner
because she is one of the judges of the City Court of Manila, this, devoting all hert ime to
the performance of the duties of her public office and that she could not lawfull y contribute
her full time and industry which is the obligation of an industrial partner pursuant to Art.
1789 of the Civil Code.
'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist partners
may either exclude him from the firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for
himself seeks to prevent any conflict of interest between the industrial partner and the
partnership, and to insure faithful compliance by said partner with this prestation. There is
no pretense, however, even on the part of the appellee is engaged in any business
antagonistic to that of appellant company, since being a Judge of one of the branches of the
City Court of Manila can hardly be characterized as a business. That appellee has faithfully
complied with her prestation with respect to appellants.
What has gone before persuades us to hold with the lower Court that appellee is an
industrial partner of appellant company, with the right to demand for a formal accounting
and to receive her share in the net profit that may result from such an accounting, which
right appellants take exception under their second assigned error. Our said holding is based
on the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:
(1)
If he is wrongfully excluded from the partnership business or possession of its
property by his co-partners;
(2)
If the right exists under the terms of any agreement;
(3)
As provided by article 1807;
22

(4)
Whenever other circumstance render it just and reasonable.
MOBIL OIL PHILIPPINES, INC., V. COURT OF FIRST INSTANCE OF

RIZAL, BRANCH VI, GEMINIANO F. YABUT AND AGUEDA
ENRIQUEZ YABUT
G.R. No. 40457May 8, 1992
FACTS:
On November 8, 1972, petitioner filed a complaint 1 in the Court of First Instance of Rizal
against the partnership La Mallorca and its general partners, which included private
respondents, for collection of a sum of money arising from gasoline purchased on credit but
not paid, for damages and attorney's fees.
In its petition to Modify Decsision and/or Reconsideration,private respondents allege that
one Miguel Enriquez, not being a general partner, could not bind the partnership in the Sales
Agreement he signed with plaintiff; And that GeminianoYabut already wothdrew as a
partner of of La Mallorca.
ISSUE:
Whether Miguel Enriquez can be considered as a general partner of La Mallorca and thus
bind the partnership.
RULING:
YES, Mr. Enriquez is considered as a general partner.
Mr. Miguel Enriquez automatically became a general partner of the partnership La Mallorca
being one of the heirs of the deceased partner Mariano Enriquez. Article IV of the uncontested
Articles of Co-Partnership of La Mallorca provides:
"IV. Partners. The parties above-named, with their civil status, citizenship and
residences set forth after their respective names, shall be members comprising this
partnership, all of whom shall be general partners.
If during the existence of this co-partnership, any of the herein partners should die, the copartnership shall continue to exist amongst the surviving partners and the heir or heirs of
the deceased partner or partners; Provided, However, that if the heir or heirs of the deceased
partner or partners elect not to continue in the co-partnership, the surviving partners shall
have the right to acquire the interests of the deceased partner or partners at their book value
based upon the last balance sheet of the co-partnership, and in proportion to their respective
capital contributions; And, Provided Further, that should a partner or partners desire to
withdraw from the co-partnership and the remaining partners are not willing to acquire his
23

or their shares or interest in the co-partnership in accordance with the foregoing provisions,
the co-partnership shall not thereby be dissolved, but such retiring partner or partners shall
only be entitled to his or their shares in the assets of the co-partnership according to the
latest balance sheet which have been drawn prior to the date of his or their withdrawal. In
such event, the co-partnership shall continue amongst the remaining partners."
As to respondent Geminiano Yabut's claim that he cannot be liable as a partner, he having
withdrawn as such, does not convince Us. The debt was incurred long before his withdrawal
as partner and his resignation as President of La Mallorca on September 14, 1972.
Respondent Geminiano Yabut could not just withdraw unilaterally from the partnership to
avoid his liability as a general partner to third persons like the petitioner in the instant case.
This is likewise true with regard to the alleged non-active participation of respondent Agueda
Yabut in the partnership. Active participation in a partnership is not a condition precedent
for membership in a partnership so as to be entitled to its profits nor be burdened with its
liabilities.
SY JUCO V. CASTRO
GR No. 70403, July 7, 1989
FACTS:
Back in November 1964, Eugenio Lim, for and in his own behalf and as attorney-in-fact of
his mother, the widow Maria Moreno (now deceased) and of his brother Lorenzo, together
with his other brothers, Aramis, Mario and Paulino, and his sister, Nila, all hereinafter
collectively called the Lims, borrowed from petitioner Santiago Syjuco, Inc. (hereinafter,
Syjuco only) the sum of P800,000.00. The loan was given on the security of a first mortgage
on property registered in the names of said borrowers as owners in common under Transfer
Certificates of Title Numbered 75413 and 75415 of the Registry of Deeds of Manila.
Thereafter additional loans on the same security were obtained by the Lims from Syjuco, so
that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00, exclusive of interest,
and the security had been augmented by bringing into the mortgage other property, also
registered as owned pro indiviso by the Lims under two titles: TCT Nos. 75416 and 75418 of
the Manila Registry.
There is no dispute about these facts, nor about the additional circumstance that as
stipulated in the mortgage deed the obligation matured on November 8, 1967; that the Lims
failed to pay it despite demands therefor; that Syjuco consequently caused extra-judicial
proceedings for the foreclosure of the mortgage to be commenced by the Sheriff of Manila;
and that the latter scheduled the auction sale of the mortgaged property on December 27,
1968.
To prevent the execution of the judgment against them, a complaint was presented, not in
their individual names, but in the name of a partnership of which they themselves were the
only partners: "Heirs of Hugo Lim." The complaint advocated the theory that the mortgage
24

which they, together with their mother, had individually constituted (and thereafter
amended during the period from 1964 to 1967) over lands standing in their names in the
Property Registry as owners pro indiviso, in fact no longer belonged to them at that time,
having been earlier deeded over by them to the partnership, "Heirs of Hugo Lim", more
precisely, on March 30, 1959, hence, said mortgage was void because executed by them
without authority from the partnership.
ISSUE:
Whether the mortgage executed by the Lims be attributable to their partnership.
RULING:
YES. The mortgage executed by the Lims is attributable to their partnership.
The court held that the legal fiction of a separate juridical personality and existence will not
shield it from the conclusion of having such knowledge which naturally and irresistibly flows
from the undenied facts. It would violate all precepts of reason, ordinary experience and
common sense to propose that a partnership, as commonly known to all the partners or of
acts in which all of the latter, without exception, have taken part, where such matters or acts
affect property claimed as its own by said partnership.
If, therefore, the respondent partnership was inescapably chargeable with knowledge of the
mortgage executed by all the partners thereof, its silence and failure to impugn said mortgage
within a reasonable time, let alone a space of more than seventeen years, brought into play
the doctrine of estoppel to preclude any attempt to avoid the mortgage as allegedly
unauthorized.
Inaction or silence may under some circumstances amount to a misrepresentation and
concealment of the facts, so as to raise an equitable estoppel. When the silence is of such a
character and under such circumstances that it would become a fraud on the other party to
permit the party who has kept silent to deny what his silence has induced the other to believe
and act on, it will operate as an estoppel. This doctrine rests on the principle that if one
maintains silence, when in conscience he ought to speak, equity will debar him from speaking
when in conscience he ought to remain silent. He who remains silent when he ought to speak
cannot be heard to speak when he should be silent.
Equally or even more preclusive of the respondent partnership's claim to the mortgaged
property is the last paragraph of Article 1819 of the Civil Code, which contemplates a
situation duplicating the circumstances that attended the execution of the mortgage in favor
of Syjuco and therefore applies foursquare thereto. "Where the title to real property is in the
names of all the partners a conveyance executed by all the partners passes all their rights in
such property"
There is thus no reason to distinguish between the Lims, as individuals, and the partnership
itself, since the former constituted the entire membership of the latter. In other words,
despite the concealment of the existence of the partnership, for all intents and purposes and
25

consistently with the Lims' own theory, it was that partnership which was the real party in
interest in all the actions; it was actually represented in said actions by all the individual
members thereof, and consequently, those members' acts, declarations and omissions cannot
be deemed to be simply the individual acts of said members, but in fact and in law, those of
the partnership.
ROJAS V. MAGLANA
GR. No. 30616; December 10, 1990
FACTS:
Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Development
Enterprises (EDE). It was a partnership with an indefinite term of existence. Maglana shall
manage the business affairs while Rojas shall be the logging superintendant and shall
manage the logging operation. They shall share in all profits and loss equally. Due to
difficulties encountered they decided to avail of the sources of Pahamatong as industrial
partners. They again executed their Articles of Co-Partnership under EDE. The term is 30
years. After sometime Pamahatong sold his interest to Maglana and Rojas including
equipment contributed. After withdrawal of Pamahatong, Maglana and Rojas continued the
partnership. After 3 months, Rojas entered into a management contract with another logging
enterprise. He left and abandoned the partnership. He even withdrew his equipment from
the partnership and was transferred to CMS. He never told Maglana that he will not be able
to comply with the promised contributions and he will not work as logging superintendent.
Maglana then told Rojas that the latter share will just be 20% of the net profits. Rojas took
funds from the partnership more than his contribution. Thus, Maglana notified Rojas that
he dissolved the partnership.
ISSUE:
What is the nature of the partnership and legal relationship of Maglana and Rojas after
Pahamatong retired from the second partnership?
RULING:
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can
cause its dissolution by expressly withdrawing even before the expiration of the period, with
or without justifiable cause. Of course, if the cause is not justified or no cause was given, the
withdrawing partner is liable for damages but in no case can he be compelled to remain in
the firm. With his withdrawal, the number of members is decreased, hence, the dissolution.
And in whatever way he may view the situation, the conclusion is inevitable that Rojas and
Maglana shall be guided in the liquidation of the partnership by the provisions of its duly
registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall
be divided "share and share alike" between the partners.
26

But an accounting must first be made and which in fact was ordered by the trial court and
accomplished by the commissioners appointed for the purpose.It was not the intention of the
partners to dissolve the first partnership, upon the constitution of the second one, which they
unmistakably called additional agreement. Otherwise stated even during the existence of
the second partnership, all business transactions were carried out under the duly registered
articles. No rights and obligations accrued in the name of the second partnership except in
favor of Pahamatong which was fully paid by the duly registered partnership.
YU VS NLRC
GR. No. 97212; June 30, 1993
FACTS:
Benjamin Yu used to be the Assistant General Manager of Jade Mountain, a partnership
engaged in marble quarrying and export business. The majority of the founding partners
sold their interests in said partnership to Willy Co and Emmanuel Zapanta without Yus
knowledge. Said new partnership continued operating under the same name and continued
the businesss operations. However, it transferred its main office from Makati to
Mandaluyong. Said new partnership did not anymore availed of the services of Yu. Thus, he
filed a complaint for illegal dismissal, recovery of unpaid wages and damages.
ISSUE:
(1) Whether the partnership which had hired petitioner Yu as Assistant General Manager
had been extinguished and replaced by a new partnerships composed of Willy Co and
Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence, whether
petitioner Yu could nonetheless assert his rights under his employment contract as against
the new partnership.
RULING :
we agree with the result reached by the NLRC, that is, that the legal effect of the changes in
the membership of the partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel
Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is found
in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides
as follows:
Art. 1828.
The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished from the
27

winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830.
Dissolution is caused:
(1)
without violation of the agreement between the partners;
xxx
xxx
xxx
(b)
by the express will of any partner, who must act in good faith, when no definite term
or particular undertaking is specified;
xxx
xxx
xxx
(2)
in contravention of the agreement between the partners, where the circumstances do
not permit a dissolution under any other provision of this article, by the express will of any
partner at any time;
xxx
xxx
xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta.
The record does not show what happened to the remaining 18% of the original partnership
interest. The acquisition of 82% of the partnership interest by new partners, coupled with
the retirement or withdrawal of the partners who had originally owned such 82% interest,
was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal personality
of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists for
the limited purpose of winding up and closing of the affairs of the partnership. In the case at
bar, it is important to underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing the procedures
relating to dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding partnership,
and continued using the old name of Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership, paying off its debts, liquidating and
distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful tax considerations which
underlay such an informal approach to business on the part of the retiring and the incoming
partners. It is not, however, necessary to inquire into such matters.
28

What is important for present purposes is that, under the above described situation, not only
the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
continued the business of the old, dissolved, one, are liable for the debts of the preceding
partnership.The legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired Yu in 1984 and the emergence of a new
firm composed of Willy Co and Emmanuel Zapanta in 1987. The new partnership simply took
over the business enterprise owned by the preceeding partnership, and continued using the
old name of Jade Mountain Products Company Limited, without winding up the business
affairs of the old partnership, paying off its debts, liquidating and distributing its net assets,
and then re-assembling the said assets or most of them and opening a new business
enterprise. Not only the retiring partners but also the new partnership itself which continued
the business of the old, dissolved, one, are liable for the debts of the preceding partnership.
ORTEGA VS COURT OF APPEALS

GR. No. 109248; July 3, 1995
FACTS:
The Respondent was a Senior Partner of BITO, MIZA and LOZADA. The said law is
composed of Joaquin Miza, Jesus Bito and Mariano Lozada as senior partners and Gregorio
Ortega, Tomas Del Castillo and Benjamin Bacorro as Junior Partners. Such firm was duly
registered in the Mercantile Registry since 1937 and again registered with the Securities and
Exchange Commission on 1948. The record shows that there were several subsequent
amendments to the articles of partnership since the firm name was changed six (6) times
from 1958 to 1977.
Meanwhile, Atty. Joaquin Miza withdraw from the firm and reasons out that the Partnership
already ceased to be mutually satisfactory because of the working conditions of the employees
including the Assistant Attorneys. He filed to the SEC a petition for dissolution and
liquidation of the Partnership.
On 1989, the hearing officer rendered decision ruling that the withdrawal of Atty Misa did
not dissolve the law partnership.
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held the
withdrawal had dissolved the Partnership. The Commission ruled that, being a partnership
at will, the Law Firm could be dissolved by any partner at any time regardless of good faith
or bad faith, since no partner can be forced to continue partnership against his will.
Reconsideration was sought by the parties and Atty. Misa. In addition, asked for an
appointment of receivership. Respondent SEC denied the Reconsideration. Afterwards, the
parties filed their separate appeals.
29

During the pendency of the case, Atty Bito and Atty Lozada both died. The CA decision
affirmed in toto the SEC division and denied the appointment of receivership.
ISSUES:
1) Is the Partnership a Partnership at will; and
2) Did the withdrawal of Atty. Misa dissolve the Partnership regardless of good and bad
faith.
RULING:
1) A Partnership which does not fix its term is a Partnership at will. Accordingly, the said
partnership is a partnership at will as the partnership agreements states that: the
partnership shall continue as long as there is mutually satisfactory and upon death or legal
incapacity of the parties.
2) The birth of a Partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of a Partnership. Its continued existence is, in turn, dependent on
the mutual resolve of the Partnerss capability and the absence of causes of dissolution of the
partnership at will. However, such partner who wishes to dissolve the partnership must act
in good faith. Attendance of bad faith may hinder dissolution and render damage to the said
partner.
Among others, mutual agency arises and the doctrine of delectus personae allows them to
have the power to dissolve the partnership. An unjustified dissolution by the Partner can
subject him to damages.
PIONEER INSURANCE VS COURT OF APPEALS

GR. No. 84197; July 28, 1989
FACTS:
Jacob S. Lim is the owner-operator of Southern Airlines (SAL), a single proprietorship
company. Meanwhile, Japan Domestic Airlines (JDA) and Lim entered into a sales contract.
Pioneer Insurance and Surety Corporation executed its surety bond in favor of JDA on behalf
of its principal Lim Border Machinery and Heacy Equipment Co, Inc. Francisco and Modesto
Cervantes, and Constancio Maglana contributed funds based on the misrepresentation of
Lim that they will form a new corporation to expand his business. They executed two separate
indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly
signed by Lim for SAL Bormaheco and the Cervanteses the indemnity agreement stipulated
that the indemnitors principally agree and bind themselves jointly and severally to indemnify
and hold and save Pioneer from and against any/all damages, losses, etc. Of whatever kind
and nature may incur in consequence of having become surety.
30

Lim executed in favor of pioneer deed of chattel mortgage as security. Upon default on the
payments, Pioneer paid for him and filed a petition for the foreclosure of chattel mortgage as
security Maglana, Bormaheco and the Cervantess filled cross-claims against Lim alleging
that they were not privies to the contract signed by Lim and for recovery of the sum of money
they advanced to Lim for the purchases of the aircraft. The decision was rendered holding
Lim liable to pay.
ISSUE:
1. Does Pioneer Insurance have a cause of action against respondent?
2. Does failure to incorporate automatically result in de facto partnership?
RULING:
1. Pioneer has no right institute and maintain in its own name an action for the benefit of
the reinsurers, it is well-settled that an action brought by the attorney in fact in his own
name instead of that of the principal will not prosper, and this is so even where the name of
the principal is disclosed in the complaint. An attorney in fact is not real party in interest,
that there is no law permitting an action to be brought by an attorney in fact.
2. NO. Partnership inter se does not necessarily exist, for ordinary persons cannot be made
to assume the relation of partners as between themselves, when their purpose is that no
partnership shall exist and it should be implied only when necessary to do justice between
the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation
which is never legally formed does not become a partner with other subscribers who engage in
business under the name of the pretended corporation, so as to be liable as such in an action
for settlement of the alleged partnership and contribution.
CARMEN LIWANAG VS. THE HON. COURT OF APPEALS AND THE

PEOPLE OF THE PHILIPPINES
G.R. No. 114398 October 24, 1997
FACTS:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of
complainant Isidora Rosales (Rosales) and asked her to join them in the business of buying
and selling cigarettes. Convinced of the feasibility of the venture, Rosales readily agreed.
Under their agreement, Rosales would give the money needed to buy the cigarettes while
Liwanag and Tabligan would act as her agents, with a corresponding 40% commission to her
if the goods are sold; otherwise the money would be returned to Rosales. Consequently,
Rosales gave several cash advances to Liwanag and Tabligan amounting to P633,650.00.
At first, Liwanag visits Rosales every now and then to update her of the business. However,
31

after a few updates, Liwanag was nowhere to be found. Rosales filed an estafa case against
Liwanag.
Liwanag argues that their business is a partnership agreement. Thus, the failure to return
the money gives rise only to a civil liability.
ISSUE:
Whether or not a partnership exists
RULING:
No. The language of the receipt could not be any clearer. It indicates that the money delivered
to Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the event
the cigarettes cannot be sold, the money must be returned to Rosales.
Thus, even assuming that a contract of partnership was indeed entered into by and between
the parties, we have ruled that when money or property have been received by a partner for
a specific purpose (such as that obtaining in the instant case) and he later misappropriated
it, such partner is guilty of estafa.
CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI

AND MOTI G. RAMNANI VS. COURT OF APPEALS, SPOUSES ISHWAR
JETHMAL RAMNANI, SONYA JETHMAL RAMNANI AND OVERSEAS
HOLDING CO., LTD.,
G.R. No. 85494 May 7, 1991
FACTS:
Choithram and Ishwar are brothers. Since Ishwar is residing in New York, he appointed
Choithram as his attorney-in-fact in order to manage their properties in the Philippines.
Choithram bought 2 parcels of land from Ortigas & Co., Ltd and erected a building using the
money sent by Ishwar. The properties are now valued at no less than P22,304,000.00 due to
the efforts of Choithram. Later on, Ishwar revoked his general power of attorney to
Choithram. The latter, outraged, assigned his power of attorney to his daughter in law
Nirmla Ramnani without informing Ortigas. Thus, upon full payment of the land, the title
was named in favor of Nirmla.
Ishwar sought to recover all of his properties.
ISSUE:
Whether or not he can recover all his properties
32

RULING:
NO. Nevertheless, under the peculiar circumstances of this case and despite the fact that
Choithram, et al., have committed acts which demonstrate their bad faith and scheme to
defraud spouses Ishwar and Sonya of their rightful share in the properties in litigation, the
Court cannot ignore the fact that Choithram must have been motivated by a strong conviction
that as the industrial partner in the acquisition of said assets he has as much claim to said
properties as Ishwar, the capitalist partner in the joint venture.
We have a situation where two brothers engaged in a business venture. One furnished the
capital, the other contributed his industry and talent. Justice and equity dictate that the two
share equally the fruit of their joint investment and efforts. Perhaps this Solomonic solution
may pave the way towards their reconciliation. Both would stand to gain. No one would end
up the loser. After all, blood is thicker than water.
SUNGA-CHAN V. CHUA
GR. No. 143340; August 15, 2001
FACTS:
Lamberto Chua alleged that in 1977, he verbally entered into a partnership with Jacinto in
the distribution of Shellane LPG. For business convenience, Lamberto and Jacinto allegedly
agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE
CENTER, under the name of Jacinto as a sole proprietorship. Both Lamberto and Jacinto
contributed P100,000.00 to the partnership, with the intention that the profits would be
equally divided between them.
The partnership allegedly had Jacinto as manager, assisted by Josephine Sy, sister-in-law of
Lamberto. Upon Jacintos death in the later part of 1989, his daughter, Lilibeth took over
the operations of Shellite without Lambertos consent. Despite Lambertos repeated
demands for accounting, she failed to comply.
On June 22m 1992, Lamberto filed a complaint against Lilibeth with the RTC. RTC decided
in favor of Lamberto.
Lilibeth questions the correctness of the finding that a partnership existed between Lamberto
and Jacinto. In the absence of any written document to show such partnership between
Lamberto and Jacinto, Lilibeth argues that these courts were proscribed from hearing the
testimonies of Lamberto and his witness, Josephine, to prove the alleged partnership three
(3) years after Jacintos death.
To support the argument, Lilibeth invokes the DEAD MANS STATUTE OR
SURVIVORSHIP RULE under Sec. 23, Rule 130. Lilibeth thus implores this Court to rule
that the testimonies of Lamberto and his alter ego, Josephine, should not have been admitted
to prove certain claims against a deceased person (Jacinto).
33

ISSUE:
Whether or not the DEAD MANS STATUTE applies to this case so as to render
inadmissible Lambertos testimony and that if his witness, Josephine.
RULING:
No. The Dead Mans Statute provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the surviving party
is not entitled to the undue advantage of giving his own contradicted and unexplained
account of the transaction.
Lilibeth filed a compulsory counterclaim against Lamberto in their answer before the
RTC, and with the filing of their counterclaim, Lilibeth herself effectively removed this case
from the ambit of the Dead Mans Statute. Well entrenched is the rule that when it is the
executor or administrator or representatives of the estate that sets up the counterclaim,
Lamberto, may testify to occurrences before the death of the deceased to defeat the
counterclaim. Moreover, as defendant in the counterclaim, Lamberto is not disqualified from
testifying as to matters of fact occurring before the death of the deceased, said action not
having been bought against but by the estate or representatives of the deceased.
The testimony of Josephine is not covered by the Dead Mans Statute for the simple
reason that she is not a party or assignor of a party to a case or persons in whose behalf a
case is prosecuted. Lamberto offered the testimony of Josephine to establish the existence
of the partnership between Lamberto and Jacinto. Lilibeths insistence that Josephine is the
alter ego of Lamberto does not make her an assignor because of the term assignor of a party
means assignor of a cause of action which has arisen, and not the assignor of a right assigned
before any cause of action has arisen. Plainly then, Josephine is merely a witness of
Lamberto, latter being the plaintiff.
Lilibeths reliance alone on the Dead Mans Statue to defeat Lambertos claim cannot
prevail over the factual findings that a partnership was established between Lamberto and
Jacinto. Based not only on the testimonial evidence, but the documentary evidence as well,
they considered the evidence for Lamberto as sufficient to prove the formation of a
partnership, albeit an informal one.
EMNACE V. COURT OF APPEALS

GR. No. 126334; November 23, 2001
FACTS:
Emilio Emnace, Jacinto Divinagracia and Vicente Tabanao formed a partnership engaged in
the fishing industry. In 1986, Jacinto decided to leave the partnership hence they agreed to
dissolve the partnership. At that time, the partnership has an estimated asset amounting to
P30,000,000.00.
34

However, until the death of Vicente Tabanao in 1994, Emnace never rendered an accounting
either to Vicente or his heirs. Emnace reneged on his promise to turn over Tabanaos share
which is 1/3 of the P30M. The heirs of Tabanao then sued Emnace. Emnace argued, among
others, that the heirs are barred by prescription hence they can no longer demand an
accounting. He contends that the partnership was dissolved in 1986 and that was the time
when Tabanaos (and his heirs) right to inquire into the business affairs accrued; that said
right has expired in 1990 or 4 years after. So beyond 1990, they can no longer inquire.
ISSUE:
Whether Emnace contention that the heirs of his late partner Tabanao has already prescribed
is correct.
RULING:
No. Prescription has not run in this case, it has never begun. The three final stages of
partnership are: a) dissolution, b) winding up, and c) termination. In this case, Emnace and
his partners dissolved their partnership but such did not perfect the dissolution because no
accounting took place. The partnership, although dissolved, continues to exist and its legal
personality is retained, at which time it completes the winding up of its affairs, including the
partitioning and distribution of the net partnership assets to the partners. For as long as the
partnership exists, any of the partners (or legal representative in this case the heirs of
Tabanao) may demand an accounting of the partnerships business. Prescription of the said
right starts to run only upon the dissolution of the partnership when the final accounting is
done.
When a final accounting is made, it is only then that prescription begins to run. In the case
at bar, no final accounting has been made, and that is precisely what the heirs are seeking
in their action before the trial court, since Emnace has failed or refused to render an
accounting of the partnerships business and assets. Hence, the saidaction is not barred by
prescription.
GENEVIEVE LIM V. FLORENCIO SABAN

G.R. No. 163720 December 16, 2004
FACTS:
Eduardo Ybaez, owner of a 1,000-square meter lot in Cebu City, entered into an Agreement
and Authority to Negotiate and Sell with Florencio Saban. Under the Agency Agreement,
Ybaez authorized Saban to look for a buyer of the lot for P200,000.00 and to mark up the
selling price to include the amounts needed for payment of taxes, transfer of title and other
expenses incident to the sale, as well as Sabans commission for the sale.
Through Sabans efforts, Ybaez and his wife were able to sell the lot to Genevieve Lim and
the spouses Benjamin and Lourdes Lim. The price of the lot as indicated in the Deed of
35

Absolute Sale is P200,000.00. The vendees agreed to purchase the lot at the price of
P600,000.00, inclusive of taxes and other incidental expenses of the sale. After the sale, Lim
remitted to Saban the amounts of P113,257.00 for payment of taxes due on the transaction
as well as P50,000.00 as brokers commission.
Saban received checks in payment of his commission but all of them were dishonored upon
presentment. Thus, he filed a complaint for collection of sum of money and damages against
Ybaez and Lim. Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any
commission for the sale since he concealed the actual selling price of the lot from Ybaez and
because he was not a licensed real estate broker.
ISSUES:
(1) WON Saban is entitled to receive his commission from the sale; (2) if in the affirmative,
WON it is Lim who is liable to pay Saban his sales commission
RULING
(1) Yes.The agency was not revoked since Ybaez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation of the sale. At that time,
Saban had already performed his obligation as Ybaezs agent when, through his (Sabans)
efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was consummated through
his efforts would be a breach of his contract of agency with Ybaez which expressly states
that Saban would be entitled to any excess in the purchase price after deducting the
P200,000.00 due to Ybaez and the transfer taxes and other incidental expenses of the sale.
Sabans agency was not one coupled with an interest. an agency is deemed as one coupled
with an interest where it is established for the mutual benefit of the principal and of the
agent, or for the interest of the principal and of third persons, and it cannot be revoked by
the principal so long as the interest of the agent or of a third person subsists. In an agency
coupled with an interest, the agents interest must be in the subject matter of the power
conferred and not merely an interest in the exercise of the power because it entitles him to
compensation. When an agents interest is confined to earning his agreed compensation, the
agency is not one coupled with an interest, since an agents interest in obtaining his
compensation as such agent is an ordinary incident of the agency relationship. (See Art. 1927)
(2) Yes. It is just and proper for Lim to pay Saban the balance of P200,000.00. Furthermore,
since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his
asking price of P200,000.00, Saban may claim such excess from Ybaezs estate, if that
remedy is still available, in view of the trial courts dismissal of Sabans complaint as against
Ybaez, with Sabans express consent, due to the latters demise when the case was still
pending.
36
MANILA MEMORIAL PARK INC. V LINSANGAN

GR. No. 151319; November 22, 2004
FACTS:
Florencia Baluyot is authorized by the Manila Memorial Park Inc. (MMPI) to sell
burial lots to those interested in purchasing. Herein respondent Atty. Linsangan was
approached by Florencia with an offer to sell to the former a lot that she alleges to
have already been previously sold but the owner thereof has cancelled and thus, Atty.
Linsangan shall only continue the payment thereof amounting to P95,000, Atty.
Linsangan agreed and payed an initial P35, 000. Thereafter, Florencia advised Atty.
Linsangan that there were changes in the contract and that she needed him to sign
a new contract stipulating the total price of P132, 000 but Florencia assured Atty.
Linsangan that he would only pay the agreed P95, 000. In the new contract, Atty.
Linsangan acceded that he has read and understood all the stipulations therein. The
payment was made in installments for two years which Atty. Linsangan completed,
however, after two years, Florencia informed Linsangan that their contract was
cancelled and offered a different lot, Atty. Linsangan refused the offer and filed a suit
for breach of contract against MMPI and Florencia. MMPI avers that Florencia acted
beyond the scope of her authority as MMPIs agent since the latter did not allow her
to renegotiate existing contracts but only to sell new contracts. Atty. Lnsangan on the
other hand argues that MMPI should be liable for the acts of its agents.
ISSUE:
Whether or not MMPI is liable for the acts of Florencia.
RULING:
NO. The SC ruled that Florencia acted outside the scope of her authority as agent of
MMPI and Atty. Linsangan failed to ascertain the authority given to Florencia
especially that their agreement on the second contract had a different stipulation
than what he and Florencia agreed upon. Moreover, Atty. Linsangans signature over
37
the new contract signifies his agreement thereto and serves as a form of ratification
for the acts of Florencia which were outside the authority given her. As such, the SC
ruled that the principal cannot be held liable for actions of agents outside the scope
of their authority when such acts are ratified by the principal himself. On the part of
MMPI, they did not ratify Florencias acts, nor did they know of such actions.
VICTORIAS MILLING CO., INC., PETITIONER, VS. COURT OF

APPEALS AND CONSOLIDATED SUGAR
CORPORATION, RESPONDENTS.
G.R. No. 117356. June 19, 2000
FACTS:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias
Milling Co., Inc. In the course of their dealings, petitioner issued several Shipping
List/Delivery Receipts to STM as proof of purchases. Among these was SLDR No. 1214M,
which gave rise to the instant case. SLDR No. 1214M covers 25,000 bags of sugar. The
transaction it covered was a "direct sale."
Thereafter, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights
in SLDR No. 1214M. That same day, CSC wrote petitioner that it had been authorized by
STM to withdraw the sugar covered by the SLDR. However, after 2,000 bags had been
released, petitioner refused to allow further withdrawals of sugar. CSC thus inquired when
it would be allowed to withdraw the remaining 23,000 bags. In its reply, petitioner said that
it could notallow any further withdrawals of sugar because STM had already withdrawn all
the sugar covered by the cleared checks. Petitioner also noted that CSC had represented itself
to be STM's agent as it had withdrawn the 2,000 bags "for and in behalf" of STM.
As a result, CSC filed a complaint for specific performance. Petitioner's primary defense a
quo was that it was an unpaid seller for the 23,000 bags. Since STM had already drawn in
full all the sugar corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of
contract with CSC. Furthermore, the SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer of said party's rights and interests.
The Trial Court rendered its judgment favoring the private respondent CSC. The appellate
court affirmed said decision but modified the costs against petitioner.
38

ISSUE:
Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and
hence, estopped to sue upon SLDR No. 1214M as an assignee.
RULING:
No. It is clear from Article 1868 that the basis of agency is representation. One factor which
most clearly distinguishes agency from other legal concepts is control; one person - the agent
- agrees to act under the control or direction of another - the principal.
That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did
not establish an agency. Ultimately, what is decisive is the intention of the parties. That no
agency was meant to be established by the CSC and STM is clearly shown by CSC's
communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The
use of the words "sold and endorsed" means that STM and CSC intended a contract of sale,
and not an agency. Hence, on this score, no error was committed by the respondent appellate
court when it held that CSC was not STM's agent and could independently sue petitioner.
ROSA LIM, PETITIONER VS. COURT OF APPEALS AND PEOPLE OF

THE PHILIPPINES, RESPONDENTS.
G.R. No. 102784 April 7, 1997
FACTS:
On October 8, 1987, Rosa Lim who had come from Cebu received from private respondent
Victoria Suarez the following two pieces of jewelry; one 3.35 carat diamond ring worth P169K
and one bracelet worth P170K, to be sold on commission basis. The agreement was reflected
in a receipt.
On December 15, 1987, Lim returned the bracelet to Suarez, but failed to return the diamond
ring or to turn over the proceeds thereof if sold. As a result, private complainant, aside from
making verbal demands, wrote a demand letter to petitioner asking for the return of said
ring or the proceeds of the sale thereof.
Lim contended that she was not an agent of Suarez. In fact, she was a prospective buyer of
the pieces of jewelry. She told Mrs. Suarez that she would consider buying the pieces of
jewelry for her own use and that she would inform the private complainant of such decision
before she goes back to Cebu. She cannot be liable for estafa since she never received the
jewelries in trust or on commission basis from Vicky Suarez. The real agreement between
her and the private respondent was a sale on credit with Mrs. Suarez as the owner-seller and
39

petitioner as the buyer, as indicated by the bet that petitioner did not sign on the blank space
provided for the signature of the person receiving the jewelry but at the upper portion thereof
immediately below the description of the items taken.
ISSUE:
Whether or not the real transaction between Lim and Suarez was that of sale or that of
contract of agency to sell?
RULING:
It is a contract of agency. The receipt contains the following provisions:
XXX I received from Vicky Suarez the following jewelries XXX
XXX if I could not sell, I shall return all the jewelry within the period
mentioned above; if I would be able to sell, I shall immediately deliver and
account the whole proceeds of sale thereof to the owner of the jewelries at
his/her residence XXX.
Rosa Lims signature indeed appears on the upper portion of the receipt immediately below
the description of the items taken. This does not have the effect of altering the terms of the
transaction from a contract of agency to sell on commission basis to a contract of sale.
Contracts shall be obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present.
There are some provisions of the law which require certain formalities for particular
contracts. It is required for the validity of the contract; to make the contract effective as
against third parties and; for the purpose of proving the existence of the contract. A contract
of agency to sell on commission basis does not belong to any of these three categories, hence
it is valid and enforceable in whatever form it may be entered into.
DOMINION INSURANCE CORPORATION VS. COURT OF APPEALS

GR NO. 129919; February 6, 2002
FACTS:
Rodolfo S. Guevarra instituted a civil action for sum of money against Dominion Insurance
Corporation. Guevarra sought to recover thereunder the sum of P156,473.90 which he
claimed to have advanced in his capacity as manager of the corporation to satisfy certain
claims filed by corporations clients. The trial court favored Guerra ordering the corporation
to pay sum abovementioned. The Court of Appeals affirmed trial courts decision
40

ISSUE:
1. Did respondent Guevarra acted within his authority as agent for petitioner?
2. Is Respondent entitled to reimbursement of amounts he paid out of his personal
money in settling the claims of several insured?
RULING:
1. By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter. The basis for agency is representation. On the part of the principal, there must be an
actual intention to appoint or an intention naturally inferrable from his words or actions; and
on the part of the agent, there must be an intention to accept the appointment and act on it,
and in the absence of such intent, there is generally no agency.
A perusal of the Special Power of Attorney would show that petitioner and respondent
Guevarra intended to enter into a principal-agent relationship. Despite the word special in
the title of the document, the contents reveal that what was constituted was actually a
general agency. The agency comprises all the business of the principal, but, couched in
general terms, it is limited only to acts of administration.
2. Yes, Respondent is entitles to reimbursement. A general power permits the agent
to do all acts for which the law does not require a special power. The act of making payment
in the case at hand was not considered as an act of administration. Under the first paragraph
of Article 1878 of the Civil Code, special power of attorney is required.
However, respondent Guevarras authority to settle claims is embodied in the Memorandum
of Management Agreement which enumerates the scope of respondent Guevarras duties and
responsibilities as agency manager for San Fernando, Pampanga. However, respondent
Guevarras authority is further limited by the written standard authority to pay, which states
that the payment shall come from respondent Guevarras revolving fund or collection.
Having deviated from the instructions of the principal, the expenses that respondent
Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from
petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states
that:
The principal is not liable for the expenses incurred by the agent in the following cases:
(1) If the agent acted in contravention of the principals instructions, unless the latter should
wish to avail himself of the benefits derived from the contract.
xxx xxx xxx
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on obligations
and contracts.
Article 1236, second paragraph, Civil Code, provides:
41

Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.
In this case, when the risk insured against occurred, petitioners liability as insurer arose.
This obligation was extinguished when respondent Guevarra paid the claims and obtained
Release of Claim Loss and Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his principal. To rule otherwise would result
in unjust enrichment of petitioner. The Court ordered payment to Respondent amounting
only to P112,672.11 representing the total amount advanced by the latter in the payment of
the claims of petitioners clients.
CONDE VS. COURT OF APPEALS

GR NO. L-40242; DECEMBER 15 1982
FACTS:
Petitioner Dominga Conde and others, as heirs of Santiago Conde, sold with right of
repurchase, within ten (10) years from said date, a parcel of agricultural land located in
Leyte, to the Alteras for P165.00. The "Pacto de Retro Sale" further provided:
... (4) if at the end of 10 years the said land is not repurchased, a new agreement shall be
made between the parties and in no case title and ownership shall be vested in the hand of
the party of the SECOND PART (the Alteras).
On 28 November 1945, private respondent Paciente Cordero, son-in-law of the Alteras, signed
a document stating that he received the consideration for the repurchase of the lot. Neither
of the vendees-a-retro, Pio Altera nor Casimira Pasagui, was a signatory to the deed.
Petitioner maintains that because Pio Altera was very ill at the time, Paciente Cordero
executed the deed of resale for and on behalf of his father-in-law. Petitioner further states
that she redeemed the property with her own money as her co-heirs were bereft of funds for
the purpose.
However, On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde and
Catalina T. Conde (no relation to petitioner). Petitioner then filed a case for queting of title,
but the trial court decided against her. The Court of Appeals affirmed the decision, stating
that petitioner had failed to validly exercise her right of repurchase in view of the fact that
the Memorandum of Repurchase was signed by Paciente Cordero and not by Pio Altera, the
vendee-a-retro, and that there is nothing in said document to show that Cordero was
specifically authorized to act for and on behalf of the vendee a retro, Pio Altera.
ISSUE:
42

Whether there is an implied agency due to the failure of respondent Altera to repudiate the
Memorandum of Repurchase made by his son-in-law, Paciente Cordero.
RULING:
Yes, there was an implied agency. Although neither of the vendees-a-retro signed the
"Memorandum of Repurchase", and there was no formal authorization from the vendees for
Paciente Cordero to act for and on their behalf, they have done nothing to clear their title of
the encumbrance therein regarding petitioner's right to repurchase. No new agreement was
entered into by the parties as stipulated in the deed of pacto de retro, if the vendors a retro
failed to exercise their right of redemption after ten years. If, as alleged, petitioner exerted
no effort to procure the signature of Pio Altera after he had recovered from his illness, neither
did the Alteras repudiate the deed that their son-in-law had signed. Thus, an implied agency
must be held to have been created from their silence or lack of action, or their failure to
repudiate the agency.
Possession of the lot in dispute having been adversely and uninterruptedly with petitioner
from 1945 when the document of repurchase was executed, to 1969, when she instituted this
action, or for 24 years, the Alteras must be deemed to have incurred in laches.
UNILAND RESOURCES VS. DBP

G.R. No. 95709; 16 AUGUST 1991
FACTS:
Marinduque Mining Corporation (Marinduque) obtained a loan from DBP and mortgaged
certain real properties situated in Makati as security. The lots were primarily mortgaged
by Marinduque to Caltex, making the mortgage in favor of DBP a second mortgage. Such
account was later transferred to Assets Privatization Trust (ATP). When Marinduque
defaulted in paying its obligations with Caltex, the latter foreclosed the subject lots. In
order to recover the investment on the Marinduque account, ATP offered for sale its right
of redemption. Since Caltex required that both lots be redeemed, the bidding guidelines
made by DBP provided among others that any bid to purchase either of the two (2) lots
would be considered only should there be two bids or a bid for the two items which, when
combined, will fully cover the sale of the two lots. When the bidding was held, Counsel
Realty Corporation (Counsel), an affiliate of Glaxo Philippines, who is a client of petitioner,
was the only bidder and only offered to bid on the warehousing lot. This was rejected by
DBP. DBP redeemed the lots as physical assets by retrieving its account from ATP. A new
set of bidding guidelines was made by DBP. On the day of the bidding, only Charges Realty
Corporation, another affiliate of Glaxo, Philippines, was the bidder and offered only to bid
on the warehousing lot. Considering that the bid was higher than that of Counsel, such was
approved by DBP. The other lot was sold by DBP to BPI as trustee for the Perpetual Care
Fund of the Manila Memorial Park. DBP paid 5% brokers fee to DBP Management
43

Corporation as broker for the sale. Petitioner claimed the same brokers fee for acting as a
middleman between Charges Realty Corporation and DBP. The Bidding Committee
rejected the said claim which prompted petitioner to file an action before the court. The
trial court ruled in favor of petitioner. However, on appeal, the decision was reversed.
Petitioner now contends that there was an implied agency, hence, he should be awarded
his commission.
ISSUE:
1. Whether or not there was an implied agency between DBP and petitioner.
2. Whether or not a broker can claim for commission despite the absence of authority
form the seller for the former to be a middleman.
RULING:
1. No. Article 1869 of the Civil Code provides that an agency may be implied from the acts
of the principal, his silence or lack of action, or his failure to repudiate the agency knowing
that another person is acting on his behalf without authority. In the present case, it is evident
that only accredited brokers may be agents of DBP in its transactions and such fact was clear
and understood by petitioner. No necessary step is needed by DBP to prevent petitioner.
Hence, no agency, whether express or implied, existed between DBP and petitioner.
2. As a general rule, a broker can claim for commission if the sale was consummated. At the
same time, it is a well settled principle that no one may contract in the name of other without
the latters consent. Hence, the consummation of the sale and the authorization from the
principal are necessary. However, for equity considerations, a broker may still claim for
commission despite the absence of authorization. In the present case, considering that DBP
gained profit by petitioners act of introducing to the bidding process Charges Realty
Corporation, it is only fair and just to give petitioner his commission.
MANILA REMNANT CO. VS. CA

G.R. No. 82978; 22 NOVEMBER 1990
FACTS:
Petitioner is the owner of parcels of land located in Quezon City which constitute a
subdivision known as Capital Homes Subdivision I and II. Petitioner entered into a written
agreement with A.U. Valencia & Co. Inc. wherein the latter will develop the subdivision
with authority to manage sales thereof, execute contracts to sell to lot buyers and issue
official receipts. Artemio Valencia was the President then of both companies. On 3 March
1970, petitioner thru A.U. Valencia executed two (2) contracts to sell covering Lots 1 and 2
44

of Block 17 in favor of Oscar Ventanilla and Carmen Gloria Diaz where the latter paid the
agreed down payment even before the formal contract was signed.
After 10 days from the signing of the contract, little did the Ventanillas know that Valencia
sold the subject lots without consideration to Carlos Crisostomo. The fictitious Crisostomo
contracts were transmitted to petitioner and the contract of Ventanillas were kept in his
files. The amount paid by Ventanillas was also deposited in Valencias account. Valencia
even ordered that the monthly payments made by Ventanillas be remitted by petitioner to
Crisostomos account. Receipts were issued in favor of Crisostomo instead of the
Ventanillas.
Unfortunately, Valencia was terminated as President of both companies due to
discrepancies and irregularities on the sale of the subdivision lots. Petitioner filed before
the trial court an action to terminate the agency agreement between petitioner and A.U.
Valencia. The court ordered that the monthly amortizations be deposited before the court.
It prohibited A.U. Valencia from collecting the monthly dues and ordered the complete list
of lot buyers. Ventanillas were not on the list. Eventually, the court ordered the cancellation
of all contracts to sell executed by A.U. Valencia.
Believing that they have remitted almost P 36,000 for the subject lots, the Ventanillas went
to Remnant to pay the outstanding balance. They were surprised to discover that their
names were not on the list. Petitioner refused to accept the offer since it has no personality
to do so. The Ventanillas then filed an action against petitioner before the trial court which
ruled in favor of the Ventanillas. This was affirmed by the Court of Appeals, holding that
petitioner is solidarily liable with A.U Valencia to the Ventanillas.
ISSUE:
Whether or not petitioners liability together with A.U. Valencia and Carlos Crisostomo
should be solidary even if it did not consent on the conduct of Artemio Velencia.
RULING:
Yes. Article 1911 of the Civil Code provides that even when the agent has exceeded his
authority, the principal is solidarily liable with the agent if the former allowed the latter to
act as though he had full powers. This is intended to protect the rights of innocent persons
for in this situation, the agent and the principal are considered as joint tort feasors making
their liability joint and solidary. In the present case, it is well taken that Artemio Valencia
was the President of both Manila Remnant and A.U. Valencia. Considering such
circumstance, it will be impossible for petitioner not to have known the conduct nor consented
to the acts of Valencia. Moreover, by principle of estoppel, petitioner is precluded for
questioning his liability due to its negligence. Hence, petitioners liability is solidary based
on the principle of estoppel.
45
NAPOCOR V. NATIONAL MERCHANDISING CORPORATION

G.R. Nos. L-33819 and L-33897; October 23, 1982
FACTS:
Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National
Merchandising Corporation (NAMERCO), the Philippine representative of New York-based
International Commodities Corporation, executed a contract of sale of sulfur with a
stipulation for liquidated damages in case of breach.
Defendant-appellant Domestic Insurance Company executed a performance bond in favor of
NPC to guarantee the seller's obligation. In entering into the contract, Namerco, however,
did not disclose to NPC that Namerco's principal, in a cabled instruction, stated that the sale
was subject to availability of a steamer, and contrary to its principal's instruction, Namerco
agreed that non-availability of a steamer was not a justification for non-payment of liquidated
damages.
The New York supplier was not able to deliver the sulfur due to its inability to secure shipping
space. Consequently, the Government Corporate Counsel rescinded the contract of sale due
to the supplier's non-performance of its obligations, and demanded payment of liquidated
damages from both Namerco and the surety. Thereafter, NPC sued for recovery of the
stipulated liquidated damages. After trial, the Court of First Instance rendered judgment
ordering defendants-appellants to pay solidarity to the NPC reduced liquidated damages
with interest.
ISSUE:
Whether NaMerCo exceeded their authority by failing to disclose the instruction of its
principal.
RULING:
Yes, NaMerCo exceeded their authority.
The Supreme Court held that before the contract of sale was signed Namerco was already
aware that its principal was having difficulties in booking shipping space.
It is being enforced against the agent because article 1897 implies that the agent who acts in
excess of his authority is personally liable to the party with whom he contracted.
Moreover, the rule is complemented by article 1898 of the Civil Code which provides that "if
the agent contracts in the name of the principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the principal". Namerco never
disclosed to the Napocor the cabled or written instructions of its principal. For that reason
and because Namerco exceeded the limits of its authority, it virtually acted in its own name
46

and not as agent and it is, therefore, bound by the contract of sale which, however, is not
enforceable against its principal.
SCHMID & OBERLY VS. RJL MARTINEZ FISHING CORPORATION

G.R. No. 75198. October 18, 1988
FACTS:
RJL Martinez Fishing Corporation is engaged in deep-sea fishing. In the course of its
business, it needed electrical generators for the operation of its business. Schmid and Oberly
sells electrical generators with the brand of Nagata, a Japanese product. D. Nagata Co.
Ltd. of Japan was Schmids supplier. Schmid advertised the 12 Nagata generators for sale
and RJL purchased 12 brand new generators. Through an irrevocable line of credit,
Nagata shipped to the Schmid the generators and RJL paid the amount of the purchase price.
(First sale = 3 generators; Second sale = 12 generators).
Later, the generators were found to be factory defective. RJL informed the Schmid that it
shall return the 12 generators. 3were returned. Schmid replaced the 3 generators subject of
the first sale with generators of a different brand. As to the second sale, 3 were shipped
to Japan and the remaining 9 were not replaced.
RJL sued the defendant on the warranty, asking for rescission of the contract and that
Schmid be ordered to accept the generators and be ordered to pay back the purchase money
as well as be liable for damages. Schmid opposes such liability averring that it was merely
the indentor in the sale between Nagata Co., the exporter and RJL Martinez, the importer.
Asmere indentor, it avers that is not liable for the sellers implied warranty against hidden
defects, Schmid not having personally assumed any such warranty.
ISSUE:
1) Whether or not the second transaction between the parties was a sale or an indent
transaction.
2) Whether or not Schmid may still be liable for warranty if he is merely an indentor.
RULING:
1) The SC held it to be an indent transaction. An indentor is a middlemen in the same class
as commercial brokers and commission merchants. A broker is generally defined as one who
is engaged, for others, on a commission, negotiating contracts relative to property with the
custody of which he has no concern; the negotiator between other parties, never acting in his
own name but in the name of those who employed him; he is strictly a middle man and for
some purpose the agent of both parties. There are 3 parties to an indent transaction,
(1) buyer, (2) indentor, and (3) supplier who is usually a non-resident manufacturer residing
in the country where the goods are to be bought. The chief feature of a commercial broker
47

and a commercial merchant is that in effecting a sale, they are merely intermediaries or
middle-men, and act in a certain sense as the agent of both parties to the transaction.
RJL MARTINEZ admitted that the generators were purchased through indent order.
RJL admitted in its demand letter previously sent to SCHMID that 12 of 15 generators were
purchased through your company, by indent order and three(3) by direct purchase.
The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators,
and that the latter company itself invoiced the sale and shipped the generators directly to
the former. The only participation of Schmid was to act as an intermediary or middleman
between Nagata and RJL, by procuring an order from RJL and forwarding the same
to Nagata for which the company received a commission from Nagata.
2. Yes, Even as SCHMID was merely an indentor, there was nothing to prevent it from
voluntarily warranting that twelve (12)generators subject of the second transaction are free
from any hidden defects. In other words, SCHMID may be held answerable for some other
contractual obligation, if indeed it had so bound itself. As stated above, an indentor is to some
extent an agent of both the vendor and the vendee. As such agent, therefore, he may
expressly obligate himself to undertake the obligations of his principal.
BICOL SAVINGS AND LOAN ASSOCIATION VS. COURT OF APPEALS

GR 85302. March 31, 1989
FACTS:
Juan de Jesus was the owner of a parcel of land in Naga City. He executed a Special Power
of Attorney in favor of Jose de Jesus, his son, wherein the latter could negotiate and mortgage
the formers property in any bank preferably in the Bicol Savings and Loan Association. By
virtue of such document, Jose was able to obtain P20,000 from Bicol Savings. To secure
payment, he executed a deed of mortgage wherein it was stipulated that upon the
mortgagors failure or refusal to pay the obligation, the mortgageemay immediately foreclose
the property. Juan de Jesus died and the loan obligation was not paid. As a result, Bicol
Savings extrajudicially foreclosed the mortgaged property. The bank won as the
highest bidder during the auction sale. Jose and the other heirs failed to redeem the
property. Thereafter, they tried to negotiate with Bicol Savings but the parties did not come
up to an agreement. Bicol Savings sold the property to another person. Hence, Jose filed for
annulment of the foreclosure sale. The lower court dismissed the case. On appeal, the CA
reversed RTCs decision. Hence, this appeal.
ISSUE:
Whether or not the extrajudicial foreclosure sale of the property was valid.
48

RULING:
Yes. Art 1879 of the CC which states that special power to sell excludes the power to mortgage
and vice versa is inapplicable in the case. What it proscribes is a voluntary and independent
contract of sale and not an auction sale resulting from extrajudicial foreclosure caused by the
default of the mortgagor. The power to foreclose is not an ordinary agency but is primarily
conferred upon the mortgagee for its protection. The right of the bank to foreclose is
independent of the mortgage contract as it is recognized by the Rules of Court.
CMS LOGGING INCORPORATED VS. COURT OF APPEALS

GR L-41420. July 10, 1992
FACTS:
CMS (a forest concessionaire engaged in the logging business) and DRACOR (engaged in the
business of exporting and selling logs and lumber) entered into a contract of agency whereby
the former appointed the latter as its exclusive export and sales agent for all logs that the
former may produce, for a period of five (5) years. By virtue of this agreement, CMS was able
to sell 77M board feet of logs in Japan.
Six months before the expiration of the agreement, CMS president Atty. Sison and its
general manager and legal counsel Atty. Dominguez discovered while on a trip to Japan that
DRACOR had used Shinko Trading Corp. as agent, representative or liaison officer for selling
their companys logs and earned a commission of $1/1,000 board feet, such that it was able to
get $77k from the arrangement.
CMS claimed that this commission paid to Shinko was in violation of the agreement and that
it (CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS
contended that since DRACOR had been paid the 5% commission under the agreement, it is
no longer entitled to the additional commission paid to Shinko as this tantamount to
DRACOR receiving double compensation for the services it rendered.
ISSUE:
Whether or not DRACOR is entitled to a commission for the sales made by CMS directly to
Japanese firms.
RULING:
No, DRACOR is not entitled to its commission to the subsequent sales. Art. 1924 The agency
is revoked if the principal directly manages the business entrusted to the agent, dealing
directly with third persons. In this case, there was an implied revocation when CMS sold its
logs directly to Japanese firms. Since the contract of agency had been revoked by the time
these sales were effected, the DRACOR is no longer entitled to claim or retain commission in
relation to these transactions.
49
PROFESSIONAL SERVICES, INC. VS. NATIVIDAD AND ENRIQUE

AGANA
G.R. No. 126297, 126467, 127590; January 31, 2007
FACTS:
Natividad Agana was diagnosed by Dr. Miguel Ampil to be suffering from cancer of the
sigmoid. Dr. Ampil, assisted by the medical staff of the Medical City Hospital, performed an
anterior resection surgery on Natividad. He found that the malignancy in her sigmoid area
had spread on her left ovary, necessitating the removal of certain portions of it. Thus, Dr.
Ampil obtained the consent of Natividads husband, Enrique Agana, to permit Dr. Juan
Fuentes to perform hysterectomy on her. However, the operation appeared to be flawed. In
the corresponding Record of Operation, the attending nurses entered these remarks:
sponge count lacking 2
announced to surgeon searched (sic) done but to no avail continue for closure.
A couple of days after the surgery, Natividad complained of excruciating pain in her anal
region. She consulted both Dr. Ampil and Dr. Fuentes about it but was only told that the pain
was the natural consequence of the surgery. However, after some time her daughter found a
piece of gauze protruding from her vagina. Upon being informed about it, Dr. Ampil
proceeded to her house where he managed to extract by hand a piece of gauze and then he
assured her that the pains would soon vanish. But the pains intensified, prompting Natividad
to seek treatment at the Polymedic General Hospital. While confined there, another foreign
object was found in her vagina -- a foul-smelling gauze which badly infected her vaginal vault.
Natividad and her husband filed with the RTC a complaint for damages against the
Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr.
Fuentes. They alleged that the latter are liable for negligence for leaving two pieces of gauze
inside Natividads body and malpractice for concealing their acts of negligence.
ISSUE: Did PSI hold Dr. Ampil out as its agent and is thus liable for the latters negligence?
HELD: The court held in the positive. The liability of PSI is also anchored upon the agency
principle of apparent authority or agency by estoppel which have gained acceptance in the
determination of a hospitals liability for negligent acts of health professionals. Apparent
authority, or what is sometimes referred to as the holding out theory, or doctrine of
ostensible agency or agency by estoppel, has its origin from the law of agency. It imposes
liability, not as the result of the reality of a contractual relationship, but rather because of
the actions of a principal or an employer in somehow misleading the public into believing
that the relationship or the authority exists. The concept is essentially one of estoppel and
has been explained in this manner:
50

The principal is bound by the acts of his agent with the apparent authority which he
knowingly permits the agent to assume, or which he holds the agent out to the public as
possessing. The question in every case is whether the principal has by his voluntary act
placed the agent in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in presuming that such
agent has authority to perform the particular act in question.
Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article 1869
of the Civil Code reads:
ART. 1869. Agency 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.
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and
specializations of the physicians associated or accredited by it, including those of Dr. Ampil
and Dr. Fuentes. PSI is now estopped from passing all the blame to the physicians whose
names it proudly paraded in the public directory leading the public to believe that it vouched
for their skill and competence. Indeed, PSIs act is tantamount to holding out to the public
that Medical City Hospital, through its accredited physicians, offers quality health care
services. By accrediting Dr. Ampil and Dr. Fuentes and publicly advertising their
qualifications, the hospital created the impression that they were its agents, authorized to
perform medical or surgical services for its patients. As expected, these patients, Natividad
being one of them, accepted the services on the reasonable belief that such were being
rendered by the hospital or its employees, agents, or servants. Thus, PSI is solidarily liable
with Dr. Ampil for damages.
CARLOS SANCHEZ VS. MEDICARD PHILIPPINES, INC.,

G.R. No. 141525; September 2, 2005
FACTS:
Respondent Medicard appointed petitioner Sanchez as its special corporate agent. As such
agent, Medicard gave him a commission based on the cash brought in. Through petitioners
efforts, Medicard and Unilab executed a Health Care Program Contract for which petitioner
was paid a commission. Again, through petitioners initiative, the contract between Medicard
and Unilab was renewed for another year and petitioner was again given his commission.
Prior to the expiration of the renewed contract, Medicard proposed to Unilab, through
petitioner, an increase of the premium for the next year. Unilab rejected the proposal for
the reason that it was too high, prompting Medicard to request petitioner to reduce his
commission, but the latter refused. Subsequently, Unilab confirmed its decision not to renew
the health program contract with Medicard.
In order not to prejudice its personnel by the termination of their health insurance, Unilab
negotiated with Medicard, to discuss ways in order to continue the insurance coverage of
51

those personnel. Unilab and Medicard came to an agreement regarding a new scheme for
which petitioner did not receive any commission. Petitioner demanded from Medicard of his
commission plus damages, but the latter refused to heed his demand. Thus, petitioner filed
a complaint for sum of money against Medicard.
ISSUE:
Is petitioner entitled to a commission on the new scheme agreed upon between Medicard and
Unilab.
RULING
No. It is dictum that in order for an agent to be entitled to a commission, he must be the
procuring cause of the sale, which simply means that the measures employed by him and the
efforts he exerted must result in a sale. In other words, an agent receives his commission
only upon the successful conclusion of a sale. Conversely, it follows that where his efforts are
unsuccessful, or there was no effort on his part, he is not entitled to a commission.
In Prats vs. Court of Appeals, this Court held that for the purpose of equity, an agent who is
not the efficient procuring cause is nonetheless entitled to his commission, where said agent,
notwithstanding the expiration of his authority, nonetheless, took diligent steps to bring back
together the parties, such that a sale was finalized and consummated between them. The
proximate, close, and causal connection between the agents efforts and the principals sale
of his property cannot be ignored.
It may be recalled that before the expiration of the renewed contract, Medicard, through
petitioner, proposed an increase in premium, but Unilab rejected this proposal. In order not
to prejudice its personnel, Unilab negotiated with Medicard, which resulted in a new
contract. Since petitioner refused to reduce his commission, Medicard directly negotiated
with Unilab, thus revoking its agency contract with petitioner. Such revocation is authorized
by Article 1924 of the Civil Code which provides:
Art. 1924. The agency is revoked if the principal directly manages the business entrusted
to the agent, dealing directly with third persons.
Moreover, petitioner did not render services to Medicard, his principal, to entitle him to a
commission. Obviously, he was not the agent or the procuring cause of the third Health
Care Program Contract between Medicard and Unilab.
THE PHILIPPINE BANK OF COMMERCE VS. JOSE M. ARUEGO

G.R. Nos. L-25836-37 January 31, 1981
FACTS:
52

The Philippine Bank of Commerce instituted against Jose M. Aruego a civil case for the
recovery of a sum representing the cost of the printing of "World Current Events," a periodical
published by the defendant. To facilitate the payment of the printing the defendant obtained
a credit accommodation from the plaintiff. Thus, for every printing of the "World Current
Events," the printer, Encal Press and Photo Engraving, collected the cost of printing by
drawing a draft against the plaintiff, said draft being sent later to the defendant for
acceptance. As an added security for the payment of the amounts advanced to Encal Press
and Photo-Engraving, the plaintiff bank also required defendant Aruego to execute a trust
receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff
the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds
of the sale of said publication to answer for the payment of all obligations arising from the
draft.
The defendant filed his answer to the complaint interposing the following defenses: That he
signed the document upon which the plaintiff sues as an agent of Philippine Education
Foundation where he is President; that his liability is only secondary; and that he believed
that he was signing only as an accommodation party.
ISSUE:
Whether plaintiff acted as an agent of Phil. Education Foundation when he signed the drafts
and thus absolved of liability for the same.
RULING:
Section 20 of the Negotiable Instruments Law provides that "Where the instrument contains
or a person adds to his signature words indicating that he signs for or on behalf of a principal
or in a representative capacity, he is not liable on the instrument if he was duly authorized;
but the mere addition of words describing him as an agent or as filing a
representative character, without disclosing his principal, does not exempt him
from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed
that he was signing as a representative of the Philippine Education Foundation
Company. He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
ARGUEGO. For failure to disclose his principal, Aruego is personally liable for the
drafts he accepted.
SIREDY ENTERPRISES, INC. VS.HON. COURT OF APPEALS AND

CONRADO DE GUZMAN
G.R. No. 129039. September 17, 2002
FACTS:
Private respondent Conrado De Guzman is an architect-contractor doing business under the
name and style of Jigscon Construction. Herein petitioner Siredy Enterprises, Inc. (hereafter
53

Siredy) is the owner and developer of Ysmael Village. The president of Siredy is Ismael E.
Yanga.
Yanga executed an undated Letter of Authority authorizing one Hermogenes Santos to
negotiate and enter into contract to build Housing Units in Ysmael Village. Santos entered
into a Deed of Agreement with De Guzman to build housing units in Ysmael Village. The
deed expressly stated that Santos was representing Siredy Enterprises, Inc. Private
respondent was referred to as contractor while petitioner Siredy was cited as principal.
De Guzman constructed 26 residential units at Ysmael Village. Thirteen (13) of these were
fully paid but the other 13 remained unpaid. De Guzman tried but failed to collect the unpaid
account from petitioner. Thus, he instituted the action for specific performance against
Siredy, Yanga, and Santos who all denied liability.
ISSUE:
Whether or not Hermogenes B. Santos was a duly constituted agent of Siredy, with authority
to enter into contracts for the construction of residential units in Ysmael Village and thus
the capacity to bind Siredy to the Deed of Agreement; and Second, assuming arguendo that
Siredy was bound by the acts of Santos, whether or not under the terms of the Deed of
Agreement, Siredy can be held liable for the amount sought to be collected by private
respondent De Guzman.
RULING:
By the relationship of agency, one party called the principal authorizes another called the
agent to act for and in his behalf in transactions with third persons. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. He who acts through another acts
himself.
On its face, the Letter of Authority executed by Yanga clearly and unequivocally constituted
Santos to do and execute, among other things, the act of negotiating and entering into
contract or contracts to build Housing Units on our subdivision lots in Ysmael
Village. Nothing could be more express than the written stipulations contained therein.
It was upon the authority of this document that De Guzman transacted business with Santos
that resulted in the construction contract denominated as the Deed of Agreement.
However, petitioner denies any liability by stating that the nature of Siredys business did
not involve the construction of housing units since it was merely engaged in the selling of
empty lots.
Aside from the Letter of Authority, Siredys Articles of Incorporation, duly approved by the
Securities and Exchange Commission, shows that Siredy may also undertake to erect
buildings and houses on the lots and sell, lease, or otherwise dispose of said properties to
interested buyers.[24] Such Articles, coupled with the Letter of Authority, is sufficient to have
given De Guzman reason to believe that Santos was duly authorized to represent Siredy for
the purpose stated in the Deed of Agreement.
54

We find that a valid agency was created between Siredy and Santos, and the authority
conferred upon the latter includes the power to enter into a construction contract to build
houses such as the Deed of Agreement between Santos and De Guzmans Jigscon
Construction. Hence, the inescapable conclusion is that Siredy is bound by the contract
through the representation of its agent Santos.
The basis of agency is representation, that is, the agent acts for and in behalf of the
principal on matters within the scope of his authority (Art, 1881) and said acts have the same
legal effect as if they were personally done by the principal. By this legal fiction of
representation, the actual or legal absence of the principal is converted into his legal or
juridical presence.[26]
Moreover, even if arguendo Santos mandate was only to sell subdivision lots as Siredy
asserts, the latter is still bound to pay De Guzman. De Guzman is considered a third party
to the agency agreement who had no knowledge of the specific instructions or
agreements between Siredy and its agent. What De Guzman only saw was the written
Letter of Authority where Santos appears to be duly authorized.
The scope of the agents authority is what appears in the written terms of the power of
attorney. While third persons are bound to inquire into the extent or scope of the agents
authority, they are not required to go beyond the terms of the written power of
attorney. Third persons cannot be adversely affected by an understanding between the
principal and his agent as to the limits of the latters authority. In the same way, third
persons need not concern themselves with instructions given by the principal to his agent
outside of the written power of attorney.
SUMAOANG V. JUDGE RTC BR. XXXI, GUIMBA, NUEVA ECIJA AND

ATTY. PASCUA
G.R. No. 78173 October 26, 1992
FACTS:
Petitioner and his brothers engaged the services of private respondent Atty. Jorge A. Pascua
to protect their interest over the homestead acquired by their predecessor, promising the
latter a contingent fee of "not less than one-half (1/2)" of the entire homestead, if recovered.
The Bureau of Lands and the lower court decided in their favor, ordering the cancellation of
the homestead patent issued in favor of the Domingos and ordered the reversion of the land
to the State subject to the rights of petitioner and his brothers. The decision was affirmed by
the appellate courts and became final and executory. On the other hand, Atty. Pascua filed a
complaint for collection of attorney's fees against his former clients. The trial court stated in
its judgment that Atty. Pascua was entitled only to "the equivalent of one-half of the property
in its peso valuation" and ordered petitioner and his brothers to pay attorney's fees in the
amount of P110,000.00. A writ of execution was issued and the Sheriff then levied upon and
sold at public auction the entire lot of 21.3445 hectares here involved to Atty. Pascua as the
55

sole and the highest bidder, for and in consideration of P110,000.00 as partial payment of the
judgment obligation. Petitioner asked for the nullification of the decision as well as the writ
of execution, the notice of levy and auction sale and the certificate of sale issued in favor of
Atty. Pascua on the contention that the award of P110,000.00 as attorney's fees of Atty.
Pascua was unconscionable.
ISSUE:
Whether or not the said award of attorney fees was unconscionable.
RULING:
The Court considers that the fees which Atty. Pascua received from petitioner and his
brothers became unreasonable and unconscionable in character, not because the original
agreement between the parties was itself unreasonable and unconscionable but rather as a
result of the subsequent dispositions of the trial court. The respondent Judge, instead of
simply awarding Atty. Pascua a one-half (1/2) portion of the property involved as stipulated
in the contingent fee contract, unilaterally and officiously converted the form or medium into
a peso amount representing, in the mind of the Judge, the value of that one-half (1/2) portion.
Said judgment allowed Atty. Pascua to acquire the entire parcel of land which had been the
subject matter of the litigation and for the recovery of which, Atty. Pascua had been retained.
The Court said in Licudan v. CA, . . . There should never be an instance where a lawyer gets
as attorney's fees the entire property involved in the litigation. It is unconscionable for the
victor in litigation to lose everything he won to the fees of his own lawyer. The Court holds
that respondent Atty. Pascua, under the circumstances of this case, must be regarded as
holding the title of the property acquired by him at public sale under an implied trust set
forth in Article 1456 and based on the principles of the general law of trusts in favor of
petitioner and his brothers, to the extent of one-half (1/2) of that property. This must be so
even though the operative mistake was a mistake of respondent trial judge. Atty. Pascua
obviously knew that he was entitled to ask only for one-half (1/2) of the land and he took
advantage of the Judge's mistake in order to acquire the entire lot. By doing so, the amount
and character of his attorney's fees became unreasonable and unconscionable and constituted
unjust enrichment at the expense of his clients.
OLACO V. CO CHO CHIT

G.R. No. 58010 March 31, 1993
FACTS:
The Philippine Sugar Estate Development Company, Ltd., sold a parcel of land in Oroquieta
with the Deed of Absolute Sale naming Emilia O'Laco as vendee and a TCT was issued in her
name. The same property was sold by petitioner to the Roman Catholic Archbishop of Manila
for P230,000.00, with assumption of the real estate mortgage. The respondent-spouses sued
56

petitioner-spouses for the recovery of the purchase price of the land asserting that they were
the real vendees of the Oroquieta property.
ISSUE
1) Whether a resulting trust was intended by the parties in the acquisition of the property.
2) Whether prescription has set in.
RULING:
The Court holds that a resulting trust was indeed intended by the parties under Art. 1448 of
the New Civil Code which states, "There is an implied trust when property is sold, and the
legal estate is granted to one party but the price is paid by another for the purpose of having
the beneficial interest of the property. The former is the trustee, while the latter is the
beneficiary . . ." Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or interest and are presumed
always to have been contemplated by the parties. They arise from the nature or
circumstances of the consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in equity to hold his legal title for the benefit
of another. In the instant case, the respondent spouses have been in continued possession of
the documents of ownership since the time of sale in 1943 which strongly suggests that
O'Laco merely held the Oroquieta property in trust for them. Until the sale of the Oroquieta
property to the Roman Catholic Archbishop of Manila, petitioner actually recognized the
trust. Petitioner assured the respondent that the transfer of the property to them would be
arranged after the formers wedding. Petitioner also failed to convince the court that she was
financially capable of purchasing the Oroquieta property.
The action has not yet prescribed since the complaint for breach of trust was filed by
respondent-spouses two (2) months after acquiring knowledge of the sale. The Court, in Tale
v. CA, categorically ruled that an action for reconveyance based on an implied or constructive
trust must perforce prescribe in ten (10) years. While prescription may supervene in
constructive trusts, the rule of imprescriptibility may apply for as long as the trustee has not
repudiated the trust in case of resulting trusts. Once the resulting trust is repudiated,
however, it is converted into a constructive trust and is subject to prescription. A resulting
trust is repudiated if the following requisites concur: (a) the trustee has performed
unequivocal acts of repudiation amounting to an ouster of the cestui qui trust; (b) such
positive acts of repudiation have been made known to the cestui qui trust; and, (c) the
evidence thereon is clear and convincing. In the instant case, the prescriptive period
commences to run from the time respondent acquired knowledge of the sale, which is a
disavowal of the resulting trust.
HUANG VS. COURT OF APPEALS

G.R. No. 108525; September 3, 1994
57

FACTS:
Private respondents Dolores and Aniceto Sandoval wanted to buy two lots in Dasmarinas
Village, Makati but was allowed to buy only one lot per policy of the subdivision owner.
Private respondents bought Lot 21 and registered it in their name. Respondents also
boughtLot 20 but the deed of sale was in thename of petitioner Ricardo Huang and registered
in his name. Respondents constructed a house on Lot 21 while petitioners were allowed by
respondents to build a house on Lot 20. Petitioners were also allowed to mortgage theLot 20
to the SSS to secure a loan. Respondents actually financed the construction of thehouse,the
swimming pool, and the fence surrounding the properties on the understanding that the
petitioners would merely hold title in trust for the respondents beneficial interest.Petitioner
Huangs leased the property to Deltron Corporation for its official quarters without the
permission of the respondents. But later, the lessees prohibited the use of the swimming pool
by the respondents, and the Huangs began challenging the respondents ownership of the
property.
Thus,respondents filed a complaint before the trial court for the nullification of the deed of
sale to the petitioners and the quieting of title of Lot 20. The trial court found that the
respondents were the real owners of the Lot20 and therefore ordered the petitioners to vacate
the property and to remit to the respondents the rentals earned from Lot 20. The Court of
Appeals affirmed the lower courts decision. Hence, the instant recourse.
ISSUE:
Whether or not petitioners can claim ownership of the property registered in their name but
for which was paid by the respondents.
RULING:
No. Respondent Sandoval provided the money for the purchase of Lot 20but the
corresponding deed of sale and transfer certificate of title were placed in the name of
petitioner Huang.Through this transaction, a resulting trust was created. Petitioner became
the trustee of Lot 20 and its improvements for the benefit of respondent as owner. Article
1448 of theNew Civil Code provides that there is an implied trust when property is sold and
the legal estate is granted to one party but the price is paid by another for the purpose of
having the beneficial interest for the property. A resulting trust arises because of the
presumption the he who pays for a thing intends a beneficial therein for himself.Given these
provisions of law, petitioner was only a trustee of the property in question for the benefit of
the respondent who is the real owner. Therefore,petitioner cannot claim ownership of the
property even when it was registered in his name. Thus, petition is denied. The decision of
the trial court as sustained by the Court of Appeals is affirmed, with costs against petitioners.
THOMSON VS. COURT OF APPEALS

G.R. No. 116631; October 28, 1998
FACTS:
58

Petitioner Marsh Thomson was an officer of the respondent American Chamber of Commerce
(AmCham) for over ten years. When his superior retired, the latters proprietary share in the
Manila Polo Club (MPC) was listed in Thomsons name and paid for by AmCham through his
retiring superiors intercession. Thomson paid the corresponding transfer fee but AmCham
subsequently reimbursed the amount. However, it was agreed that Thomson shall execute a
document recognizing AmChams beneficial ownership over the shares. He failed to do so
despite the many demands from AmCham management.
When petitioners contract of employment was up for renewal, he notified his employer of his
unwillingness to continue his services. AmChain, however, asked the former to stay on for
another six (6) months. The petitioner made a counter-proposal, that he shall accept it if he
shall be allowed to retain the shares after reimbursing AmCham the purchase price. It was
rejected. Pending the negotiation, AmCham executed a Release and Quitclaim of its claims
against Thomsoin. The quitclaim did not mention the MPC shares. The company demanded
the return of the MPC shares and the transfer of said shares to the nominee of AMCHAM
but Thomson claims ownership of the MPG shares, asserting that he merely incurred a debt
to respondent when the latter advanced the funds for the purchase of the share. On the other
hand, AmChain asserts beneficial ownership whereby petitioner only holds the share in its
name but the beneficial title belongs to private respondent.
The trial court awarded the share to Thomson on the ground that the Articles of incorporation
of Manila Polo Club prohibits artificial persons to be club members. The Court of Appeals
reversed the decision.
ISSUE:
Whether or not petitioner has the obligation to transfer the MPG shares to the nominee of
AMCHAM.
RULING:
Petitioner is obligated to transfer the MPG shares to the nominee of AmCham as he is merely
holding the shares in trust. When AmChain paid the purchase price for the share but
Thomson was given legal title thereto, a resulting trust is presumed as a matter of law. As
an officer of AMCHAM, petitioner occupied a fiduciary position in the business of AmCham.
The respondents purpose in acquiring the share was to provide additional incentive to its
chosen executive. Although the share was placed in the name of the petitioner, his title is
limited to usufruct, that is, to enjoy the facilities and privileges of such membership. Such
arrangement reflects a trust relationship governed by the law and equity.
JOSUE ARLEGUI VS. HON. COURT OF APPEALS AND SPOUSES GIL

AND BEATRIZ GENGUYON
G.R. No. 126437 March 6, 2002
59

FACTS:
A residential apartment unit which was formerly owned by Serafia Real Estate, Incorporated
was leased to the spouses Gil and Beatriz Genguyon. Sometime thereafter, the Genguyon
Spouses and other tenants were informed that Serafia and its assets had been assigned and
transferred to A.B. Barretto Enterprises. The subject property was later on sold to Mateo Tan
Lu. The Genguyons continued to occupy the subject premises and paid the rentals therefor.
Mateo Tan Lu sold the subject property to Josue Arlegui. In the meantime, the tenants
formed the Barretto Apartment Tenants Association, apprehensive that they were about to
be ejected from their respective units, the tenants formed such organization. They elected
officers from among themselves to represent them in the negotiations with A.B. Barretto
Enterprises for the purchase of their respective apartment units. Among those elected were
Josue Arlegui as vice-president and Mateo Tan Lu as auditor of the association.. The election
of the two officers was done prior to the sale of the subject property to them. The respondents
Genguyons then filed an action for annulment of sale, specific performance, redemption and
damages against the Barrettos, Mateo Tan Lu and Josue Arlegui before the RTC of
Mandaluyong City.The trial court ruled against plaintiffs. Spouses Genguyon alleged that
they are entitled to claim the right of first refusal and further alleged that Mateo Tan Lu and
Josue Arlegui breached the trust reposed on them as officers of, and negotiators for, the
tenants' association.
The Court of Appeals set aside the RTC decision and ruled that there existed between the
Genguyons and the officers of the tenants' association, particularly Mateo Tan Lu and Josue
Arlegui, a fiduciary relationship and Mateo Tan Lu and Josue Arlegui committed a breach of
trust when they purchased the apartment unit leased by the Genguyons.
ISSUE:
Whether or not constructive trusts may arise out of abuse of confidence, in order to satisfy
the demands of justice?
RULING:
Constructive trusts do not only arise out of fraud or duress, but also by abuse of confidence,
in order to satisfy the demands of justice. If a person obtains legal title to property by fraud
and concealment, Courts of equity will impress upon the title a so called constructive trust
in favor of the defrauded party. In a similar vein, Tolentino opined: "a receiver, trustee,
attorney, agent, or any other person occupying fiduciary relations respecting property of
persons, is utterly disabled from acquiring for his own benefit the property committed to his
custody. No fraud in fact need be shown .The rule stands on the moral obligation to refrain
from placing one's self in positions which ordinarily excite conflicts between self interest and
integrity. It seeks to remove the temptation that might arise out of such a relation to serve
one's self interest at the expense of one's integrity and duty to another, by making it
impossible to profit by yielding to temptation. The absence of fraud or mistake on the part
of the petitioner does not prevent the court from ruling that an implied or constructive trust
was created nonetheless. There is no doubt that because of Tan Lu and Arlegui's violation of
the trust and confidence reposed in them as officers and negotiators in behalf of the tenantsmembers of the Association, damages have accrued upon spouses Genguyons for which they
must be indemnified.Mateo Tan Lu and petitioner Josue Arlegui breached the trust reposed
60

on them as officers of, and negotiators for, the tenants' association by acquiring for
themselves the subject property without informing the respondent spouses of the progress of
the negotiations, or of their desire to purchase the said property, Mateo Tan Lu and the
petitioner did not act with the candor and honesty expected of them. Their successful, albeit
clandestine, ploy to appropriate the apartment unit that they knew fully well the Genguyons
had every intention to buy from A.B. Barretto Enterprises violated the trust and confidence
so willingly and without reservation reposed on them.The Supreme Court ruled that as
lessees of the residential apartment unit, the Genguyons have no right of first refusal to
speak of.
RUPERTO L. VILORIA, PETITIONER, VS. COURT OF APPEALS, LIDA

C. AQUINO
G.R. No. 119974 June 30, 1999
FACTS:
The heirs of Rosaida and Nicolasa Viloria filed an action for partition with the Regional Trial
Court of Balaoan, La Union, against their co-heir, herein petitioner. They alleged that
Nicolasa and Rosaida, during their lifetime, were co-owners in equal shares and pro-indiviso
with petitioner of a commercial lot and an orchard. After Nicolasa and Rosaida died, private
respondents demanded from petitioner, who was in possession of the properties, to partition
the same among them, but he refused claiming that during their lifetime Nicolasa and
Rosaida sold and conveyed to him by virtue of a Deed of Sale all their shares over the
properties in question. Private respondents maintained that the transfer of title of the
commercial lot in the name of petitioner was only for loan and that petitioner assured
Nicolasa and Rosaida that they would remain as co-owners and the Deed of Sale returned to
them. As proof of this arrangement, private respondents asserted that Nicolasa and Rosaida
exercised acts of administration and dominion over the property and collected rentals from
the buildings standing thereon for 25 years or until they died. As regards the orchard, private
respondents asserted that Rosaida executed a deed of revocation of the sale. The trial court
ruled that the deed of sale of the commercial lot was an express trust and not a true
conveyance of real property and petitioner became a trustee to an express trust which
incapacitated him from acquiring for his own benefit the property committed to his custody
although titled in his name. The Court of Appeals affirmed the decision of the trial court.
Petitioner now impugns the decision of the Court of Appeals as and contends that the
appellate court committed serious errors when it affirmed the findings of the lower court that
the 1965 deed of sale of the commercial lot was an express trust and not a true conveyance of
real property and that prescription did not run against private respondents. Petitioner
contends that prescription has already run against co-owners Nicolasa and Rosaida Viloria,
since Ruperto Viloria openly, publicly and continuously owned and possessed the properties
for a period of more than 25 years, or from 1965 up to the filing of the case in 1991, with good
and just title.
61

ISSUE:
When does the prescriptive period for an action of reconveyance of real property based on
implied or constructive trust commence?
RULING:
Prescriptive period for an action of reconveyance of real property based on implied or
constructive trust which is counted from the date of registration of property applies when the
plaintiff is not in possession of the contested property. Moreover, an action to compel the
trustee to convey property registered in his name for the benefit of the cestui que trust does
not prescribe unless the trustee repudiates the trust. Nicolasa and Rosaida were in
possession of the land and were exercising acts of ownership and administration over the
property consistent with their responsibility as co-owners. At no time did Ruperto openly
repudiate the claims of his co-owners but continued to assure them of their rights regarding
the property. Hence, prescriptive period did not commence to run against private
respondents. Petitioner cannot rely on the registration of the land subject of the 1965 sale
and the corresponding issuance of a certificate of title in his name as vesting ownership on
him because the trial court found the deed of sale to be in fact an express trust. It has been
held that a trustee who obtains a Torrens title over property held in trust by him for another
cannot repudiate the trust by relying on the registration. Article 1390 of the New Civil Code
has no bearing in the instant case. The provision alludes to contracts which could be voided
by reason of absence or infirmity of consent and not to simulated contracts. The parties in
the instant case freely gave their consent to the 1965 deed of sale but intended it to be merely
a trust agreement and not a relinquishment of rights. It is therefore the nature of the contract
that is in issue and not the character of the consent given. Moreover, a separate declaration
of nullity is no longer necessary since the trial court already assumed jurisdiction over the
validity of the 1965 deed of sale in determining whether co-ownership in fact existed and
whether partition was proper.
SECUYA V. VDA DE SELMA

G.R. No. 136021
February 22, 2000
FACTS:
Maxima Caballero owned a land. She partitioned the said land and executed a deed selling
1/3 of the land to Pacencia Sabellona. Subsequently, Pacencia took possession of the parted
1/3 portion. Dalmacio Secuya bought the land from Pacencia by means of a private document
which was lost. Such sale was confirmed by Ramon Sabellona, the only heir of Pacienca.
Pursuant to Pacencia's will, Ramos inherited all of the latter's property.
After Secuya bought the land, he took possession of the such and cultivated it. A certain
Edilberto Superales married Secuya's neice. With The latter's tolerance, Superales was able
to build a house on the land and continuously lived there. Eventually, Secuya died. Being
62

single, his brothers and sisters took physical possession of the land. Then, a certain Selma
bought a portion of Lot 5679. The land was a portion of Lot 5679 and is included within the
boundary of what Selma acquired. Selma is now asserting ownership over the land on the
strength of his title. RTC-Cebu decided in favor of Selma. CA affirmed.
ISSUE:
Whether or not the land belongs to Selma.
RULING:
Yes. There is strength in his title. Since this is an action for quieting of title, it must first be
established if the Secuyas have the requisite title that would enable them to avail of the
remedy of quieting of title. The Secuyas contest their claim on the basis of 2 documents: the
Agreement of Partition executed by Maxima Caballero and Paciencia Sabellona, and The
Deed of Confirmation of Sale executed by Ramon Sabellona. Re: Partition
Upon closer look, the SC says this Agreement is not one of partition, because there was no
property to partition, and the parties in the contract are not co-owners. This is one in the
nature of a trust agreement. Trust is the right to the beneficial enjoyment of property, while
the legal title to land is vested in another. Caballero merely entrusted the portion specified
to Sabellona. It therefore does not constitute a title. Since this is a trust agreement, it can
be repudiated. This right to repudiation does not expire, and was therefore exercised by the
heirs of Caballeros, when they sold the land to a 3rd party buyer (Selma).
Regarding the sale, Secuyas contest that there was a sale, but allege that the contract had
been lost. SC says that although there is no form required for a sale to be valid, a sale such
as this (one pertaining to land) must be registered in the Registry of Property. If it was not,
and that it was only a private document, then the sale is valid as to only the contracting
parties, but not to 3rd parties, like Selma in this case.
HEIRS OF SALVADOR HERMOSILLA VS. SPOUSES REMOQUILLO

G.R. No. 167320
January 30, 2007
FACTS:
The subject property is a 65 sq.m. lot located in the San Pedro Tunasan Homesite. This
Homesite was acquired by the Republic of the Philippines in 1931. Apolinario Hermosilla
(Apolinario) was occupying a lot in such homesite until his death in 1964. He caused the
subdivision of the lots into two, Lot 12 and Lot 19, with the same area. The land subject of
this controversy forms part of Lot 19.
In 1962, Apolinario made a deed of assignment transferring possession of Lot 19 in favor of
his grandson, Jaime Remoquillo. The Land Tenure Administration later found that Lot 19 is
63

still available for qualified applicants. Jaime, being its occupant filed an application in 1963.
On that same year, Apolinario conveyed Lot 12 to his son Salvador. He filed for an application
to purchase the said lot, which the LTA granted in 1971. In 1972, Jaime and Salvador made
a agreement whereby Jaime transferred ownership of the 65 sq.m. in Lot 19 in favor of
Salvador. In 1986, the NHA (then LTA) awarded Lot 19 to Jaime, for which he and his wife
were issued a title. The petitioners filed for the annulment of the title on the ground of fraud
because by the virtue of the agreement, the 65 sq.m. in Lot 19 were already conveyed to
Salvador. The trial court held that the petitioners were co-owners of the subject property and
allowed for the action for specific performance. The CA reversed the trial courts decision,
rendering the agreement void because at the time of its execution (1972), the lot was still
owned by the Republic of the Philippines. Hence, no right was transferred to Jaime, who was
awarded the lot in 1986 and no right was transferred by Salvador to the petitioners. Also, the
CA held that the action had prescribed, it having been filed in 1992, more than four years
from the issuance of the title to the spouses Remoquillo. Hence, this petition.
ISSUE:
(1)Whether or not the property was acquired by the spouses Remoquillo through fraud which
by force of law, considered them trustees of an implied trusts
(2)Whether or not the prescriptive period to recover the property obtained by fraud is
applicable in the case at bar
RULING:
(1)NO. The property was previously a public land, petitioners have no personality to impute
fraud or misrepresentation against the State or violation of the law. If the title was in fact
fraudulently obtained, it is the State which should file the suit to recover the property
through the Office of the Solicitor General. The title originated from a grant by the
government, hence, its cancellation is a matter between the grantor and the grantee. At all
events, for an action for reconveyance based on fraud to prosper, the petitioners must prove
by clear and convincing evidence not only his title to the property but also the fact of fraud.
Fraud is never presumed. Intentional acts to deceive and deprive another of his right, or in
some manner injure him must be specifically alleged and proved by the petitioners by clear
and convincing evidence. Petitioners failed to discharge this burden, however.
(2)NO. From the allegations of the Complaint, petitioners seek the reconveyance of the
property based on implied trust. The prescriptive period for the reconveyance of fraudulently
registered real property is 10 years , reckoned from the date of the issuance of the certificate
of title, if the plaintiff is not in possession , but imprescriptible if he is in possession of the
property. It is undisputed that petitioners houses occupy the questioned property and that
respondents have not been in possession thereof. Since there was no actual need to reconvey
the property as petitioners remained in possession thereof, the action took the nature of a
suit for quieting of title, it having been filed to enforce an alleged implied trust after Jaime
refused to segregate title over Lot 19.One who is in actual possession of a piece of land
claiming to be the owner thereof may wait until his possession is disturbed or his title is
attacked before taking steps to vindicate his right. From the body of the complaint, this type
of action denotes imprescriptibility.
64
ELENA J. TOMAS ET AL VS COURT OF APPEALS

G.R. No. 79328; May 21, 1990
FACTS:
Respondents are the vendees of a parcel of land measuring 105 square meters covered by Tax
Declaration No. 2502 in the names of certain Cirila Mistica and her children. The original
deed executed on September 5, 1961 covered 57 square meters but the second deed executed
on February 5, 1963 covered 105 square meters instead of 57 square meters (may sukat na
Isang Daan at Limang (105) metrong parisukat humigit kumulang sa halip na Limamput
Pitong (57) metrong parisukat kasunduan ng Bilihang Tuluyan. Respondents claimed to be
in possession since 1963 of said parcel of land, where they constructed valuable
improvements, including a 3-door apartment in 1963. In the year 1978, respondents
discovered that defendant-petitioners together with their deceased brother, Lazaro Tomas,
applied for the registration of a parcel of land known as Lot No. 2826 of the Meycauayan
Cadastre, and either by mistake or by design included therein a portion of the land
belonging to respondents consisting of 65 square meters adjacent to the parcel owned by
petitioners on the Northern part thereof, and obtained Original Certificate of Title No. 06337 of the Registry of Deeds of Bulacan, which included the said 65 square meters of land.
Petitioners refused to reconvey the said land to respondents, thus an action for reconveyance
was instituted.
ISSUE:
Whether or not prescription will lie in favour of the petitioners who are not even in possession
of the disputed land.
RULING:
No. Prescription will not lie in favor of the petitioners who are not even in possession of the
disputed land. Undoubtedly, they obtained the property by mistake or fraud so that by
operation of law, they are considered as trustees of an implied trust for the benefit of the
respondents from whom the property came. Article 1456 of the Civil Code provides that: If
a 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.
In the present case, It is well-settled that an action for reconveyance based on an implied
trust or constructive trust prescribes in ten years from the issuance of torrens title over the
property which must be brought within ten years from the time of accrual of the cause of
action Respondents action for reconveyance was filed on January 2, 1979, one year from the
time respondents discovered that petitioners together with their deceased brother applied for
the registration of a parcel of land known as Lot No. 2626, in 1978. The prevailing rule in
this jurisdiction does not bar a land owner whose property was wrongfully or erroneously
65

registered under the Torrens System from bringing an action after one year from issuance of
the decree, for the reconveyance of the property in question.
FILIPINAS PORT SERVICES, INC., REPRESENTED BY ELIODORO C.

CRUZ AND MINDANAO TERMINAL AND BROKERAGE SERVICES,
INC. VS VICTORIANO S. GO ET AL.
G.R. No. 161886. March 16, 2007
FACTS:
The case is an intra-corporate dispute involving Filport, a domestic corporation engaged in
stevedoring services. On September 4, 1992, petitioner Eliodoro C. Cruz, Filports president
from 1968 until he lost his bid for reelection as Filports president during the general
stockholders meeting in 1991, wrote a letter to the corporations Board of Directors
questioning the boards creation of the various positions with a monthly remuneration of
P13,050.00 each. Cruz requested the board to take necessary action/actions to recover from
those elected to the aforementioned positions the salaries they have received. On June 14,
1993, Cruz, purportedly in representation of Filport and its stockholders, among which is
herein co-petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with
the SEC a petition which he describes as a derivative suit against the herein respondents
who were then the incumbent members of Filports Board of Directors, for alleged acts of
mismanagement detrimental to the interest of the corporation and its shareholders at large,
namely: 1. creation of an executive committee in 1991 composed of seven members of the
board with compensation of P500.00 for each member per meeting, an office which, to Cruz,
is not provided for in the by-laws of the corporation and whose function merely duplicates
those of the President and General Manager; 2. increase in the emoluments of the Chairman,
Vice-President, Treasurer and Assistant General Manager which increases are greatly
disproportionate to the volume and character of the work of the directors holding said
positions; 3. re-creation of the positions of Assistant Vice-Presidents for Corporate Planning,
Operations, Finance and Administration, and the election thereto of board members; and 4.
creation of the additional positions of Special Assistants to the President and the Board
Chairman. Cruz prayed that the respondent members of the board of directors be made to
pay Filport, jointly and severally, the sums of money variedly representing the damages
incurred as a result of the creation of the offices/positions complained of and the aggregate
amount of the questioned increased salaries. Respondents averred that Cruz and his copetitioner Minterbro, while admittedly stockholders of Filport, have no authority nor
standing to bring the so-called derivative suit for and in behalf of the corporation.
Respondents asserted that (1) the petition is not duly verified by petitioner Filport which is
the real party-in-interest; (2) Filport, as represented by Cruz and Minterbro, failed to exhaust
remedies for redress within the corporation before bringing the suit; and (3) the petition does
not show that the stockholders bringing the suit are joined as nominal parties.
ISSUE:
66

Whether or not petitioner Cruz can validly institute a derivative suit in representation and
in behalf of Filport and its stockholders.
RULING:
Yes. Under the Corporation Code, where a corporation is an injured party, its power to sue is
lodged with its board of directors or trustees. But an individual stockholder may be permitted
to institute a derivative suit in behalf of the corporation in order to protect or vindicate
corporate rights whenever the officials of the corporation refuse to sue, or when a demand
upon them to file the necessary action would be futile because they are the ones to be sued,
or because they hold control of the corporation. In such actions, the corporation is the real
party-in-interest while the suing stockholder, in behalf of the corporation, is only a nominal
party. In the instant case, the action is principally for damages resulting from alleged
mismanagement of the affairs of Filport by its directors/officers, it being alleged that the acts
of mismanagement are detrimental to the interests of Filport. Thus, the injury complained
of primarily pertains to the corporation so that the suit for relief should be by the corporation.
However, since the ones to be sued are the directors/officers of the corporation itself, a
stockholder, like petitioner Cruz, may validly institute a derivative suit to vindicate the
alleged corporate injury, in which case Cruz is only a nominal party while Filport is the real
party-in-interest. In the prayer portion of petitioners petition before the SEC, the reliefs
prayed were asked to be made in favor of Filport. The requisites before a derivative suit can
be filed by a stockholder are present in this case, to wit: 1. the party bringing suit should be
a shareholder as of the time of the act or transaction complained of, the number of his shares
not being material; 2. he has tried to exhaust intra-corporate remedies, i.e., has made a
demand on the board of directors for the appropriate relief but the latter has failed or refused
to heed his plea; and 3. the cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit. Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2)
he sought without success to have its board of directors remedy what he perceived as wrong
when he wrote a letter requesting the board to do the necessary action in his complaint; and
(3) the alleged wrong was in truth a wrong against the stockholders of the corporation
generally, and not against Cruz or Minterbro, in particular. In the end, it is Filport, not Cruz
which directly stands to benefit from the suit.
VDA. DE CABRERA VS. COURT OF APPEALS

G.R. No. 108547. February 3, 1997
FACTS:
In 1950, a parcel of unregistered land which was owned in common by Daniel, Albertana and
Felicidad Teokemian, having inherited the same from their late father, Domingo Teokemian,
was sold to Andres Orais wherein Felicidad was not able to sign in the Deed of Sale. In 1957,
67

Virgilia Orais, daughter of the vendee issued Free Patent and Original Certificate of Title
over the said property. In 1972, the one-third share of Felicidad Teokemian in her possession
was sold to espouses Elanoand Felicidad Cabrera who immediately took possession of it. In
1988, Virgilia Orais filed a civil case for quieting of title against Felicidad Teokemian and
Felicidad Cabrera. On April 27, 1989, the lower court rendered judgment in favor of
defendants against the plaintiff, ruling that the latter can no longer recover the portion of
land occupied by the former due to laches. The Court of Appeals reversed such findings upon
appeal on the justification that the defendants action for reconveyance based on an implied
trust had already been barred by prescription and that the action of the plaintiffs is not
barred by laches because what was sold to the Cabreras was a definite portion of the
community property.
ISSUE:
Whether or not the action of the plaintiffs is barred by laches.
RULING:
At the outset, it must be observed that the Certificate of Title of the plaintiff, which was
derived from Free Patent No. V-79089, issued in the name of Virgilia Orais, leaves much to
be desired in propriety, considering that the Deed of Sale executed by Daniel and Albertana
Teokemian, on one hand and Andres Orais on the other, did not bear the signature of
Felicidad Teokemian, and therefore, did not cover the latters share.
It was the respondent appellate court which observed that the registration of the
plaintiffs title over the subject property was fraudulent insofar as it involved the one-third
interest of Felicidad Teokemian who did not sign the Deed of Sale in favor of plaintiffs
predecessor-in-interest and, therefore, the latter held that portion as a trustee of an implied
trust for the benefit of Felicidad, pursuant to Art. 1456 of the Civil Code.
As can be discerned from the established facts, the Certificates of Title of the vendees Orais
are, to say the least, irregular, and were issued in a calculated move to deprive Felicidad
Teokemian of her dominical rights over the property reserved to her by descent. Plaintiff
could not have registered the part reserved to Felicidad Teokemian, as this was not among
those ceded in the Deed of Sale between Daniel/Albertana Teokemian and Andres Orais. It
must be remembered that registration does not vest title, it is merely evidence of such title
over a particular property.
The defense of indefeasibility of the Torrens Title does not extend to a transferee who takes
the certificate of title with notice of a flaw in his title. (Anonuevo vs. Court of Appeals) The
principle of indefeasibility of title is unavailing where there was fraud that attended the
issuance of the free patents and titles. (Meneses vs. Court of Appeals)
Be that as it may, that the right of the defendants for reconveyance of the subject
property arising from an implied trust under Article 1456 of the Civil Code is material to the
instant case, such remedy has not yet lapsed, as erroneously submitted by the plaintiffs, and,
is thus, a bar to the plaintiffs action. In the case of Heirs of Jose Olviga vs. Court of
68

Appeals, we observed that an action for reconveyance of a parcel of land based on implied or
constructive trust prescribes in ten years, the point of reference being the date of registration
of the deed or the date of the issuance of the certificate of title over the property, but this rule
applies only when the plaintiff or the person enforcing the trust is not in possession of the
property, since if a person claiming to be the owner thereof is in actual possession of the
property, as the defendant is in the instant case, the right to seek reconveyance, which in
effect seeks to quiet title to the property, does not prescribe. The reason for this is that one
who is in actual possession of a piece of land claiming to be the owner thereof may wait until
his possession is disturbed or his title is attacked before taking steps to vindicate his right,
the reason for the rule being, that his undisturbed possession gives him a continuing right to
seek the aid of a court of equity to ascertain and determine the nature of the adverse claim
of a third party and its effect on his own title, which right can be claimed only by one who is
in possession.
As it is, before the period of prescription may start, it must be shown that (a) the trustee
has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust;
(b) such positive acts of repudiation have been made known to the cestui que trust; and, (c)
the evidence thereon is clear and positive.
In the case at bar, the defendant Felicidad Teokemian, and thereafter, the Cabreras,
were in actual possession of the property since it was left to Felicidad Teokemian by her
father in 1941, which possession had not been interrupted, despite the sale of the two-third
portion thereof to the plaintiff in 1950, and the latters procurement of a Certificate of Title
over the subject property in 1957. Until the institution of the present action in 1988,
plaintiffs, likewise, have not displayed any unequivocal act of repudiation, which could be
considered as an assertion of adverse interest from the defendants, which satisfies the abovequoted requisites. Thus, it cannot be argued that the right of reconveyance on the part of the
defendants, and its use as defense in the present suit, has been lost by prescription.
On the other hand, the action for reconveyance (quieting of title) of the plaintiff was
instituted only in 1988, that is, thirty years from the time the plaintiffs husband was able to
acquire Certificate of Title covering the properties inherited by the Teokemians, and
apparently including that portion belonging to Felicidad Teokemian. In the meantime,
defendant Felicidad vda. De Cabrera and her late husband have been actively in possession
of the same, tilling it, and constructing an irrigation system thereon. This must surely
constitute such tardiness on the part of the plaintiff constituting the basis for laches.
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 is negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or declined to assert
it. The defense of laches is an equitable one and does not concern itself with the character of
the defendants title, but only with whether or not by reason of plaintiffs long inaction or
inexcusable neglect, he should be barred from asserting his claim at all, because to allow him
to do so would be inequitable and unjust to defendant. Laches is not concerned merely with
lapse of time, unlike prescription. While the latter deals with the fact of delay, laches deals
with the effect of unreasonable delay.
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This Court emphasized in Mejia de Lucas vs. Gampona,[19] the reason upon which the
rule is based is not alone the lapse of time during which the neglect to enforce the right has
existed, but the changes of condition which may have arisen during the period in which there
has been neglect. In other words, where a court finds that the position of the parties has to
change, that equitable relief cannot be afforded without doing injustice, or that the
intervening rights of third persons may be destroyed or seriously impaired, it will not exert
its equitable powers in order to save one from the consequences of his own neglect.
In our jurisdiction, it is an enshrined rule that even a registered owner of property may
be barred from recovering possession of property by virtue of laches.
The argument that laches does not apply because what was sold to the Cabreras was a
definite portion of the community property, and, therefore, void, is untenable. Under Article
493 of the Civil Code:
Each co-owner shall have the full ownership of his part and of the fruits and
benefits pertaining thereto, and even he may therefore alienate, assign or
mortgage it, and even substitute another person in its enjoyment, except when
personal rights are involved. But the effect of the alienation or the mortgage, with
respect to the co-owners, shall be limited to the portion which may be allotted to
him in the division upon the termination of the co-ownership.
Undisputed is the fact that since the sale of the two-third portion of the subject property to
the plaintiff, the latter had allowed Felicidad Teokemian to occupy that one-third portion
allotted to her. There has, therefore, been a partial partition, where the transferees of an
undivided portion of the land allowed a co-owner of the property to occupy a definite portion
thereof and has not disturbed the same, for a period too long to be ignored--the possessor is
in a better condition or right.
As early as 1923, this Court has ruled that even if a co-owner sells the whole property as
his, the sale will affect only his own share but not those of the other co-owners who did not
consent to the sale (Punzalan vs. Boon Liat, 44 Phil 320 [1923]). This is because under the
aforementioned codal provision, the sale or other dispostion affects only his undivided share
and the transferee gets only what would correspond to his grantor in the partition of the
things owned in common (Ramirez vs. Bautista, 14 Phil 528 [1909]). xxx For Article 494 of
the Civil Code explicitly declares: No prescription shall lie in favor of a co-owner or co-heir
so long as he expressly or impliedly recognizes the co-ownership.
SPOUSES RICARDO PASCUAL VS. COURT OF APPEALS

[G.R. No. 115925. August 15, 2003]
FACTS:
70

Petitioner Consolacion Sioson (CONSOLACION) and respondent Remedios S. EugenioGino (REMEDIOS) are the niece and granddaughter, respectively, of the late Canuto Sioson
(CANUTO). CANUTO and 11 other individuals, including his sister Catalina Sioson
(CATALINA) and his brother Victoriano Sioson (VICTORIANO), were co-owners of a
parcel of land in Tanza, Navotas, Metro Manila. The property, known as Lot 2 of Plan Psu
13245, had an area of 9,347 square meters and was covered by Original Certificate of Title
No. 4207 issued by the Register of Deeds of Rizal. CATALINA, CANUTO, and VICTORIANO
each owned an aliquot 10/70 share or 1,335 square meters of Lot 2. On 26 September 1956,
CANUTO
and
CONSOLACION
executed
a Kasulatan
ng
Bilihang
Tuluyan[4] (KASULATAN). Under the KASULATAN, CANUTO sold his 10/70 share in Lot
2 in favor of CONSOLACION for P2,250.00. The KASULATAN, notarized by Notary Public.
CONSOLACION immediately took possession of Lot Nos. 2-A and 2-E. She later declared the
land for taxation purposes and paid the corresponding real estate taxes
On 4 February 1988, REMEDIOS filed a complaint against CONSOLACION and her spouse
Ricardo Pascual in the Regional Trial Court of Malabon, Branch 165, for Annulment or
Cancellation of Transfer Certificate [of Title] and Damages. REMEDIOS claimed that she is
the owner of Lot Nos. 2-A and 2-E because CATALINA devised these lots to her in
CATALINAs last will and testament.
Petitioners sought to dismiss the complaint on the ground of prescription. Petitioners
claimed that the basis of the action is fraud, and REMEDIOS should have filed the action
within four years from the registration of CONSOLACIONs title on 28 October 1968 and not
some 19 years later on 4 February 1988.
ISSUE:
Whether or not the action is barred by prescription?
RULING:
Yes. The action is already barred by prescription. The four-year prescriptive period relied
upon by the trial court applies only if the fraud does not give rise to an implied trust, and the
action is to annul a voidable contract under Article 1391 of the Civil Code. In such a case,
the four-year prescriptive period under Article 1391 begins to run from the time of discovery
of the mistake, violence, intimidation, undue influence or fraud.
In the present case, REMEDIOS does not seek to annul the KASULATAN. REMEDIOS
does not assail the KASULATAN as a voidable contract. In fact, REMEDIOS admits the
validity of the sale of 1,335 square meters of land under the KASULATAN. However,
REMEDIOS alleges that the excess area of 1,335 meters is not part of the sale under the
KASULATAN. REMEDIOS seeks the removal of this excess area from TCT No. (232252)
1321 that was issued to CONSOLACION. Consequently, REMEDIOS action is for
Annulment or Cancellation of Transfer Certificate [of Title] and Damages.[14]
REMEDIOS action is based on an implied trust under Article 1456 since she claims that
the inclusion of the additional 1,335 square meters in TCT No. (232252) 1321 was without
71

basis. In effect, REMEDIOS asserts that CONSOLACION acquired the additional 1,335
square meters through mistake or fraud and thus CONSOLACION should be considered a
trustee of an implied trust for the benefit of the rightful owner of the property. Clearly, the
applicable prescriptive period is ten years under Article 1144 and not four years under
Articles 1389 and 1391.
It is now well-settled that the prescriptive period to recover property obtained by fraud
or mistake, giving rise to an implied trust under Article 1456 of the Civil Code, is ten years
pursuant to Article 1144.[16] This ten-year prescriptive period begins to run from the date
the adverse party repudiates the implied trust, which repudiation takes place when the
adverse party registers the land.
REMEDIOS filed her complaint on 4 February 1988 or more than 19 years after
CONSOLACION registered her title over Lot Nos. 2-A and 2-E on 28 October
1968. Unquestionably, REMEDIOS filed the complaint late thus warranting its
dismissal. As the Court recently declared in Spouses Alfredo v. Spouses Borras,[18]
Following Caro,[19] we have consistently held that an action for reconveyance based on an
implied trust prescribes in ten years. We went further by specifying the reference point of
the ten-year prescriptive period as the date of the registration of the deed or the issuance of
the title.
72
CREDIT TRANSACTIONS
ACME SHOE, RUBBER & PLASTIC CORPORATION VS. COURT OF

APPEALS
G.R. No. 103576. August 22, 1996
FACTS
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber
& Plastic Corporation," executed on 27 June 1978, for and in behalf of the company, a chattel
mortgage in favor of private respondent Producers Bank of the Philippines. The mortgage
stood by way of security for petitioner's corporate loan of three million pesos (P3,000,000.00).
A provision in the chattel mortgage agreement was to this effect
(c)
If the MORTGAGOR, his heirs, executors or administrators shall well and truly
perform the full obligation or obligations above-stated according to the terms thereof, then
this mortgage shall be null and void. . . .
In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal
of the former note, as an extension thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit, acceptances and bills of exchange,
releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as
security for the payment of the said promissory note or notes and/or accommodations without
the necessity of executing a new contract and this mortgage shall have the same force and
effect as if the said promissory note or notes and/or accommodations were existing on the
date thereof. This mortgage shall also stand as security for said obligations and any and all
other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature,
whether such obligations have been contracted before, during or after the constitution of this
mortgage.
In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in
1981, it obtained from respondent bank additional financial accommodations totalling
P2,700,000.00. These borrowings were on due date also fully paid.
On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of
one million pesos (P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due
to financial constraints, the loan was not settled at maturity. Respondent bank thereupon
applied for an extra judicial foreclosure of the chattel mortgage, herein before cited, with the
Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for
injunction, with damages and a prayer for a writ of preliminary injunction, before the
Regional Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court
73

dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held
petitioner corporation bound by the stipulations, aforequoted, of the chattel mortgage.
Petitioner corporation appealed to the Court of Appeals which, on 14 August 1991, affirmed,
"in all respects," the decision of the court a quo. The motion for reconsideration was denied
on 24 January 1992.
ISSUE
Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise
extend its coverage to obligations yet to be contracted or incurred?
RULING:
NO. While a pledge, real estate mortgage, or antichresis may exceptionally secure afterincurred obligations so long as these future debts are accurately described, a chattel
mortgage, however, can only cover obligations existing at the time the mortgage is
constituted. Although a promise expressed in a chattel mortgage to include debts that are yet
to be contracted can be a binding commitment that can be compelled upon, the security itself,
however, does not come into existence or arise until after a chattel mortgage agreement
covering the newly contracted debt is executed either by concluding a fresh chattel mortgage
or by amending the old contract conformably with the form prescribed by the Chattel
Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover
the after-incurred obligation can constitute an act of default on the part of the borrower of
the financing agreement whereon the promise is written but, of course, the remedy of
foreclosure can only cover the debts extant at the time of constitution and during the life of
the chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form
prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof,
is an affidavit of good faith. While it is not doubted that if such an affidavit is not appended
to the agreement, the chattel mortgage would still be valid between the parties (not against
third persons acting in good faith), the fact, however, that the statute has provided that the
parties to the contract must execute an oath that
. . . (the) mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the same is a just and valid obligation,
and one not entered into for the purpose of fraud.
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet
merely contemplated. In the chattel mortgage here involved, the only obligation specified in
the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later
fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage void or terminated.
74
NAVOA VS. COURT OF APPEALS

G.R. no. L-59255. December 29, 1995.
FACTS
On 17 December 1977 private respondents filed with the Regional Trial Court of Manila an
action against petitioners for collection of various sums of money based on loans obtained by
the latter. On 3 January 1978 petitioners filed a motion to dismiss the complaint on the
ground that the complaint stated no cause of action and that plaintiffs had no capacity to sue.
After private respondents submitted their opposition to the motion to dismiss on 9 January
1978 the trial court dismissed the case. A motion to reconsider the dismissal was denied.
On 27 March 1978 private respondents appealed to the Court of Appeals which on 11
December 1980 modified the order of dismissal "by returning the records of this case for trial
on the merits, upon filing of an answer subject to the provisions of Articles 1182 and 1197 of
the Civil Code for the first cause of action. The other causes of action should be tried on the
merits subject to the defenses the defendants may allege in their answer."
ISSUE
1. Whether or not the private respondents, Teresita Domdoma and Eduardo Domdoma, have
causes of action for collection of various sums of money based on loans obtained by the
petitioners, Olivia and Ernesto Navoa.
2. Whether petitioners committed an act or omission constituting a violation of the right of
private respondents.
RULING:
YES. A cause of action is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. The requisites for a cause of action are: (a) a right in favor
of the plaintiff by whatever means and under whatever law it arises or is created, (b) an
obligation on the part of the defendant to respect and not to violate such right; and, (c) an act
or omission on the part of the defendant constituting a violation of the plaintiff's right or
breach of the obligation of the defendant to the plaintiff. Briefly stated, it is the reason why
the litigation has come about; it is the act or omission of defendant resulting in the violation
of someone's right.
In determining the existence of a cause of action, only the statements in the complaint may
properly be considered. Lack of cause of action must appear on the face of the complaint and
its existence may be determined only by the allegations of the complaint, consideration of
other facts being proscribed and any attempt to prove extraneous circumstances not being
allowed.
In their first cause of action private respondents Eduardo and Teresita Domdoma alleged
that petitioner Olivia Navoa obtained from the latter a ring valued at P15,000.00 and issued
as security therefor a check for the same amount dated 15 August 1977 with the condition
that if the ring was not returned within fifteen (15) days the ring would be considered sold;
75

and, after the lapse of the period, private respondent Teresita Domdoma asked to deposit the
check but petitioner Olivia Navoa requested the former not to deposit it in the meantime;
that when Teresita Domdoma deposited the check after holding it for sometime the same was
dishonored for lack of funds. Private respondent Teresita Domdoma sought to collect the
amount of P15,000.00 plus interest from 15 August 1977 until fully paid.
From these facts the ring was considered sold to petitioner Olivia Navoa 15 days from 15
August 1977 and despite the sale the latter failed to pay the price therefor even as the former
was given ample time to pay the agreed amount covered by a check. Clearly, respondent
Teresita Domdoma's right under the agreement with petitioner Olivia Navoa was violated by
the latter.
In the second to the sixth causes of action it was alleged that private respondents granted
loans to petitioners in different amounts on different dates. All these loans were secured by
separate checks intended for each amount of loan obtained and dated one month after the
contracts of loan were executed. That when these checks were deposited on their due dates
they were all dishonored by the bank. As a consequence, private respondents prayed that
petitioners be ordered to pay the amounts of the loans granted to them plus one percent
interest monthly from the dates the checks were dishonored until fully paid.
Culled from the above, the right of private respondents to recover the amounts loaned to
petitioners is clear. Moreover, the corresponding duty of petitioners to pay private
respondents is undisputed.
2. YES. All the loans granted to petitioners are secured by corresponding checks dated a
month after each loan was obtained. In this regard, the term security is defined as a means
of ensuring the enforcement of an obligation or of protecting some interest in property. It may
be personal, as when an individual becomes a surety or a guarantor; or a property security,
as when a mortgage, pledge, charge, lien, or other device is used to have property held, out
of which the person to be made secure can be compensated for loss. Security is something to
answer for as a promissory note. That is why a secured creditor is one who holds a security
from his debtor for payment of a debt. From the allegations in the complaint there is no other
fair inference than that the loans were payable one month after they were contracted and the
checks issued by petitioners were drawn to answer for their debts to private respondents.
Petitioners failed to make good the checks on their due dates for the payment of their
obligations. Hence, private respondents filed the action with the trial court precisely to
compel petitioners to pay their due and demandable obligations. Art. 1169 of the Civil Code
is explicit those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
The continuing refusal of petitioners to heed the demand of private respondents stated in
their complaint unmistakably shows the existence of a cause of action on the part of the latter
against the former.
76
REPUBLIC V. PHILIPPINE NATIONAL BANK, THE FIRST NATIONAL

CITY BANK OF NEW YORK, ET AL.
G.R. No. L-16106
December 30, 1961
FACTS:
The Republic of the Philippines filed before the Court of First Instance of Manila a complaint
for escheat of certain unclaimed bank deposits balances under the provisions of Act No. 3936
against several banks, among them the First National City Bank of New York. It is alleged
that pursuant to Section 2 of said Act defendant banks forwarded to the Treasurer of the
Philippines a statement under oath of their respective managing officials of all the credits
and deposits held by them in favor of persons known to be dead or who have not made further
deposits or withdrawals during the period of 10 years or more. Wherefore, it is prayed that
said credits and deposits be escheated to the Republic of the Philippines by ordering
defendant banks to deposit them to its credit with the Treasurer of the Philippines. In its
answer the First National City Bank of New York claims that, while it admits that various
savings deposits, pre-war inactive accounts, and sundry accounts contained in its report
submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totaling more than
P100,000.00, which remained dormant for 10 years or more, are subject to escheat however,
it has inadvertently included in said report certain items amounting to P18,589.89 which,
properly speaking, are not credits or deposits within the contemplation of Act No. 3936.
Hence, it prayed that said items be not included in the claim of plaintiff.
ISSUE:
Whether demand drafts and telegraphic transfer payments do not come within the meaning
of the term "credits" or "deposits" employed in the law as ruled by the lower court?
RULING:
1. DEMAND DRAFT YES, it is not credit nor deposit.
To begin with, we may say that a demand draft is a bill of exchange payable on
demand. On the other hand, a bill of exchange within the meaning of our Negotiable
Instruments Law (Act No. 2031) does not operate as an assignment of funds in the hands of
the drawee who is not liable on the instrument until he accepts it. In other words, in order
that a drawee may be liable on the draft and then become obligated to the payee it is
necessary that he first accepts the same. Since it is admitted that the demand drafts herein
involved have not been presented either for acceptance or for payment, the inevitable
consequence is that the appellee bank never had any chance of accepting or rejecting them.
Verily, appellee bank never became a debtor of the payee concerned and as such the aforesaid
drafts cannot be considered as credits subject to escheat within the meaning of the law.
NOTE: But a demand draft is very different from a cashier's or manager's cheek, contrary to
appellant's pretense, for it has been held that the latter is a primary obligation of the bank
which issues it and constitutes its written promise to pay upon demand. A cashier's check,
being merely a bill of exchange drawn by a bank on itself, and accepted in advance by the act
of issuance, is not subject to countermand by the payee after indorsement, and has the same
77

legal effects as a certificate deposit or a certified check. Hence, it is within the meaning of the
terms credit or deposit
2. TELEGRAPHIC TRANSFER PAYMENT NO, it is within the meaning of the
terms credit or deposit.
. It is said that as the transaction is for the establishment of a telegraphic or
cable transfer the agreement to remit creates a contractual obligation that has been termed
a purchase and sale transaction (9 C.J.S. 368). The purchaser of a telegraphic transfer upon
making payment completes the transaction insofar as he is concerned, though insofar as the
remitting bank is concerned the contract is executory until the credit is established. We agree
with the following comment the Solicitor General: "This is so because the drawer bank was
already paid the value of the telegraphic transfer payment order. In the particular cases
under consideration it appears in the books of the defendant bank that the amounts
represented by the telegraphic payment orders appear in the names of the respective payees.
If the latter choose to demand payment of their telegraphic transfers at the time the same
were received by the defendant bank, there could be no question that this bank would have
to pay them. Now, the question is, if the payees decide to have their money remain for
sometime in the defendant bank, can the latter maintain that the ownership of said
telegraphic payment orders is now with the drawer bank? The latter was already paid the
value of the telegraphic payment orders otherwise it would not have transmitted the same to
the defendant bank. Hence, it is absurd to say that the drawer banks are still the owners of
said telegraphic payment orders."
PEOPLE V. VENANCIO CONCEPCION

G.R. No. L-19190
November 29, 1922
FACTS:
By telegrams and a letter of confirmation to the manager of the Aparri branch of the
Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank,
between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno
y Concepcion, S. en C." in the amount of P300,000. . Pursuant to this authorization, credit
aggregating P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only
security required consisting of six demand notes. The notes, together with the interest, were
taken up and paid by July 17, 1919. "Puno y Concepcion, S. en C." was a co-partnership
capitalized by several persons, one of whom is the wife of Venancio Concepcion. On the facts
recounted, Venancio Concepcion, as President of the Philippine National Bank and as
member of the board of directors of this bank, was charged in the Court of First Instance of
Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable
Enrique V. Filamor, Judge of First Instance. Section 35 of Act No. 2747, effective on February
20, 1918, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to
any of the members of the board of directors of the bank nor to agents of the branch banks."
ISSUE:
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1. Was the granting of a credit of P300,000 to the co-partnership a "loan" within the meaning
of section 35 of Act No. 2747 which prohibits the National Bank to grant loans, directly or
indirectly, to any of the members of the board of directors of the bank nor to agents of the
branch banks?
2. Was the granting of a credit of P300,000 to the co-partnership a "loan" or a
"discount"?
3. Was the granting of a credit of P300,000 to the co-partnership an "indirect loan"
within the meaning of section 35 of Act No. 2747?
RULING:
1. YES. The "credit" of an individual means his ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what he may promise. A "loan" means
the delivery by one party and the receipt by the other party of a given sum of money, upon
an agreement, express or implied, to repay the sum loaned, with or without interest. The
concession of a "credit" necessarily involves the granting of "loans" up to the limit of the
amount fixed in the "credit,"
2. Discounts are favored by bankers because of their liquid nature, growing, as they
do, out of an actual, live, transaction. But in its last analysis, to discount a paper is only a
mode of loaning money, with, however, these distinctions: (1) In a discount, interest is
deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a
discount is always on double-name paper; a loan is generally on single-name paper. The
conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en
C." were not discount paper but were mere evidences of indebtedness, because (1) interest
was not deducted from the face of the notes, but was paid when the notes fell due; and (2)
they were single-name and not double-name paper.
3. YES. A loan to a partnership of which the wife of a director of a bank is a member,
is an indirect loan to such director. In the interpretation and construction of statutes, the
primary rule is to ascertain and give effect to the intention of the Legislature. In this instance,
the purpose of the Legislature is plainly to erect a wall of safety against temptation for a
director of the bank. The prohibition against indirect loans is a recognition of the familiar
maxim that no man may serve two masters that where personal interest clashes with
fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is
financially interested in the success or failure of his wife's business venture, a loan to
partnership of which the wife of a director is a member, falls within the prohibition. That it
was the intention of the Legislature to prohibit exactly such an occurrence is shown by the
acknowledged fact that in this instance the defendant was tempted to mingle his personal
and family affairs with his official duties, and to permit the loan P300,000 to a partnership
of no established reputation and without asking for collateral security.
79
BONNEVIE V. CA
G.R. No. L-49101 October 24, 1983
FACTS:
Petitioner Honesto Bonnevie filed a complaint seeking the annulment of the Deed of
Mortgage executed in favor of the Philippine Bank of Commerce by the spouses Jose M.
Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made. It alleged that the
Deed of Mortgage lacks consideration and the mortgage was executed by one who was not
the owner of the mortgaged property. Likewise, the property was foreclosed pursuant to Act
No. 3135 as amended, without, however, complying with the condition imposed for a valid
foreclosure. It finally alleged that respondent Bank should have accepted petitioner's offer to
redeem the property under the principle of equity said justice.
Respondent bank in its answer raised that that it was with consideration because the
execution and registration of the securing mortgage, the signing and delivery of the
promissory note and the disbursement of the proceeds of the loan were mere implementation
of the basic consensual contract of loan. Likewise it raised that defendant was informed of
the alleged sale only after the foreclosure. The defendant has not given its written consent to
the sale of the mortgaged property to Bonnevie and the assumption by the latter of the loan
secured thereby as the law on contracts requires defendant's consent before Jose Lozano can
be released from his bilateral agreement with the former and before Honesto Bonnavie be
substituted for Jose Lozano and Alfonso Lim. Moreover, that demand letters and notice of
foreclosure were sent to Jose Lozano at his address, but was remain unpaid.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed
a motion for intervention as Honesto executed a Deed of Assignment covering the rights and
interests of Honesto over the subject property in favor of Raoul SV Bonnevie.
The trial court dismissed the complaint, which was affirmed by the appellate court. Hence,
this petition for review.
ISSUES:
1. Whether or not the mortgage was validly executed.
2. Whether or not the extrajudicial sale was validly and legally effected.
3. Whether or not the petitioners had the right to redeem the property.
RULING:
1. Yes. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed
was executed for and on condition of the loan granted to the Lozano spouses. The fact that
the latter did not collect from the respondent Bank the consideration of the mortgage on the
date it was executed is immaterial. A contract of loan being a consensual contract, the herein
contract of loan was perfected at the same time the contract of mortgage was executed. The
promissory note executed on December 12, 1966 is only an evidence of indebtedness and does
not indicate lack of consideration of the mortgage at the time of its execution.
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Moreover, petitioners failed to consider the provision 2 of the contract of mortgage which
prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged properties,
without the written consent of the mortgagee, as well as the additional proviso that if in spite
of said stipulation, the mortgaged property is sold, the vendee shall assume the mortgage in
the terms and conditions under which it is constituted. These provisions are expressly made
part and parcel of the Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with
assumption of mortgage. Coupled with the fact that the sale/assignment was not registered
so that the title remained in the name of the Lozano spouses, insofar as respondent Bank
was concerned, the Lozano spouses could rightfully and validly mortgage the property.
Respondent Bank had every right to rely on the certificate of title. It was not bound to go
behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser
for value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA
430; Mallorca vs. De Ocampo, 32 SCRA 48). Mortgage follows the property whoever the
possessor may be and subjects the fulfillment of the obligation for whose security it was
constituted. Finally, it can also be said that petitioners voluntarily assumed the mortgage
when they entered into the Deed of Sale with Assumption of Mortgage. They are, therefore,
estopped from impugning its validity whether on the original loan or renewals thereof.
2. Yes. As to the lack of notice of the foreclosure sale on petitioners, respondent Bank not
being a party to the Deed of Sale with Assumption of Mortgage, can validly claim that it was
not aware of the same and hence, it may not be obliged to notify petitioners. Secondly,
petitioner Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he
had transferred and assigned all his rights and interests over the property in favor of
intervenor Raoul Bonnevie and respondent Bank not likewise informed of the same. For the
same reason, Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does
not require personal notice on the mortgagor. The requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale
for not less than twenty days in at least three public places of
the municipality or city where the property is situated, and if
such property is worth more than four hundred pesos, such
notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the
municipality or city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7
and July 14, 1968 and notices of the sale were posted for not less than twenty days in at least
three (3) public places in the Municipality where the property is located. Petitioners were
thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because
said case involved a judicial foreclosure and the sale to the vendee of the mortgaged property
was duly registered making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in
accordance with law, namely: once a week for at least three consecutive weeks, the Court of
Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968 satisfies the
81

publication requirement under Act No. 3135 notwithstanding the fact that June 30 to July
14 is only 14 days. We agree. Act No. 3135 merely requires that such notice shall be published
once a week for at least three consecutive weeks." Such phrase, as interpreted by this Court
in Basa vs. Mercado, 61 Phil. 632, does not mean that notice should be published for three
full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in
accordance with law as said newspaper is not of general circulation must likewise be
disregarded. The affidavit of publication, executed by the Publisher, business/advertising
manager of the Luzon Weekly Courier, stares that it is "a newspaper of general circulation
in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30, July
7 and July 14, 1968. This constitutes prima facie evidence of compliance with the requisite
publication. Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide subscription list
of paying subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61 Phil.
632). The newspaper need not have the largest circulation so long as it is of general
circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do
read the Luzon Weekly Courier is no proof that said newspaper is not a newspaper of general
circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a
question of fact. It can no longer be entertained by this Court. (Reyes, et al. vs. CA, et al., 107
SCRA 126). Nevertheless, the records show that copies of said notice were posted in three
conspicuous places in the municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig
Municipal Market and Pasig Municipal Hall. In the same manner, copies of said notice were
also posted in the place where the property was located, namely: the Municipal Building of
San Juan, Rizal; the Municipal Market and on Benitez Street. The statement of Atty.
Santiago Pastor, head of the legal department of respondent bank as to the posting made is
not a sufficient countervailing evidence to prove that there was no compliance with the
posting requirement in the absence of proof or even of allegation that the notices were
removed before the expiration of the twenty- day period. A single act of posting (which may
even extend beyond the period required by law) satisfies the requirement of law. The burden
of proving that the posting requirement was not complied with is now shifted to the one who
alleges non-compliance.
3. No. No consent having been secured from respondent Bank to the sale with assumption of
mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their
rights were never recorded and hence, respondent Bank is charged with the obligation to
recognize the right of redemption only of the Lozano spouses. But even granting that as
purchaser or assignee of the property, as the case may be, the petitioners had acquired a
right to redeem the property, petitioners failed to exercise said right within the period
granted by law.
Granting that the petitioners had the right to redeem, the letter of Jose Lozano to respondent
Bank advising the latter that Honesto Bonnevie was authorized to make payments for the
amount secured by the mortgage on the subject property, to receive acknowledgment of
payments, obtain the Release of the Mortgage after full payment of the obligation and to take
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delivery of the title of said property, does not show that the petitioner is the new owner of the
property nor request that all correspondence and notice should be sent to him, it shows that
it was merely authorized to do acts mentioned therein.
FRANCISCO HERRERA VS. PETROPHIL CORPORATION

G.R. No. L-48349
December 29, 1986
ISSUE:
Whether or not under a lease contract, the interest collected out of the rentals paid by the
defendant for the first eight years, which amounted to Php98,828.03 out of the total sum of
Php180,288.47, was excessive and violative of the Usury Law.
HELD:
No. The contract between the parties is one of lease and not of a loan. The provision
for the payment of rentals in advance cannot be construed as a repayment of a loan because
there was no grant or forbearance of money as to constitute indebtedness on the part of the
lessor. On the contrary, the defendant-appellee was discharging its obligation in advance by
paying the eight years rentals, and it was for this advance payment that it was getting a
rebate or discount.
There is no usury in this case because no money was given by the defendant-appellee
to the plaintiff-appellant, nor did it allow him to use its money already in his possession.
There was neither a loan nor forbearance but a mere discount which was allowed to be
deducted from the total payments because they were being made in advance for eight years.
The discount was in effect a reduction of the rentals which the lessor had the right to
determine, and any reduction thereof, by any amount, would not contravene the Usury Law.
The difference between a discount and a loan or forbearance is that the former does
not have to be repaid. The loan or forbearance is subject to repayment and is therefore
governed by the laws on usury.
To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
something must be exacted for the use of the money in excess of and in addition to interest
allowed by law."
83
SAURA IMPORT AND EXPORT CO VS.DEVELOPMENT BANK OF THE

PHILIPPINES
G.R. No. L-24968 April 27, 1972
ISSUE:
Saura applied for a loan with DBP (formerly RFC) amounting to P500,000 which was
approved by DBP with some conditions. The Loan agreement was secured by a mortgage over
the properties of Saura. DBP failed to release the full amount of loan which caused damage
to Saura. Was there a perfected contract of loan to entitle Saura to claim damages?
HELD:
The court held that there was a perfected contract. Under Article 1954 of the Civil code:
ART. 1954. An accepted promise to deliver something, by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. But this fact alone falls short of resolving the basic
claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled
to recover damages.
CENTRAL BANK V. COURT OF APPEALS

G.R. No. L-45710, October 3, 1985
FACTS:
Island Savings Bank approved a loan application for P80,000.00 in favor of Sulpicio M.
Tolentino, who, as a security for the loan, executed a real estate mortgage over his 100hectare land located in Cubo, Las Nieves, Agusan which mortgage was annotated on its title.
Later, P17,000.00 partial release of the P80,000.00 loan was made by the Bank, thus Sulpicio
M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12%
annual interest, payable within 3 years from the date of execution of the contract at semiannual installments of P3,459. The Bank, thru its vice-president and treasurer, promised
repeatedly the release of the P63,000.00 balance.
Later, the Monetary Board of the Central Bank, after finding Island Savings Bank was
suffering liquidity problems, issued Resolution No. 1049, which prohibited the bank from
making new loans and investments. About 3 years after, the Monetary Board, after finding
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that Island Savings Bank failed to put up the required capital to restore its solvency, issued
Resolution No. 967 which prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of Banks to take charge of the assets
of Island Savings Bank.
In view of the non-payment of the P17,000 covered by the promissory note, Island Savings
Bank filed an application for the extra-judicial foreclosure of the real estate mortgage
covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction
for. Before the sale, Tolentino filed a petition for injunction, specific performance or rescission
and damages with preliminary injunction, alleging that since Island Savings Bank failed to
deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance
by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum
from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate
mortgage, which the court granted. An answer in intervention of Central bank and by the
Acting Superintendent of Banks, praying for the dismissal of the petition of Tolentino and
the setting aside of the restraining order was later on admitted by the court. After trial on
the merits, the trial court rendered its decision finding unmeritorious the petition of
Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal
interest and legal charges due thereon, and lifting the restraining order so that the sheriff
may proceed with the foreclosure. On appeal by Tolentino, CA modified the CFI's decision by
affirming the dismissal of Tolentino's petition for specific performance, but it ruled that
Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00
loan.
ISSUE:
Whether or not the bank can foreclose the real estate mortgage or collect the P17,000 loan.
RULING:
No. The consideration of the accessory contract of real estate mortgage is the same as that of
the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract
of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the
Civil Code).
The fact that when Tolentino executed his real estate mortgage, no consideration was then
in existence, as there was no debt yet because Island Savings Bank had not made any release
on the loan, does not make the real estate mortgage void for lack of consideration. It is not
necessary that any consideration should pass at the time of the execution of the contract of
real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or
subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage
can take effect only when the debt secured by it is created as a binding contract to pay (Parks
vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6).
And, when there is partial failure of consideration, the mortgage becomes unenforceable to
the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed.
CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less
than the sum named in the mortgage, the mortgage cannot be enforced for more than the
85

actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed.,
Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan,
the real estate mortgage of Tolentino became unenforceable to such extent. P63,000.00 is
78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable
to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares
subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure
a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil
Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be
divided among the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not
ask for the proportionate extinguishment of the pledge or mortgage
as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the
debt return the pledge or cancel the mortgage, to the prejudice of
other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted
presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence,
the rule of indivisibility of a mortgage cannot apply.
REPUBLIC V. JOSE V. BAGTAS. ET. AL.

G.R. No. L-17474; October 25, 1962
FACTS:
Jose Bagtas borrowed from the Republic three bulls from 8 May 1948 to 7 May 1949 for
breeding purposes subject to a government charge of breeding fee of 10% of the book value of
the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal
for another period of one year. However, the Secretary of Agriculture and Natural Resources
approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950
and requested the return of the other two. Jose Bagtas wrote to the Director of Animal
Industry that he would pay the value of the three bulls. Jose Bagtas failed to pay the book
value of the three bulls or to return them. A writ of execution was issued ordering him to
return the three bulls. Upon his death, his widow, the appointed administrator contended
that one of the bulls was accidentally killed during a raid by the Huk. That such death was
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due to a force majeure and thus, she should be relieved from the duty of returning the bull or
paying its value.
ISSUE:
Whether or not the contract was a commodatum.
RULING:
YES. A contract of commodatum is essentially gratuitous. If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil
Code the lessee would be subject to the responsibilities of a possessor in bad faith, because
she had continued possession of the bull after the expiry of the contract. And even if the
contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was
renewed for another period of one year to end on 8 May 1950. But the appellant kept and
used the bull until November 1953 when during a Huk raid it was killed by stray bullets.
Moreover, it was not stipulated that in case of loss of the bull due to fortuitous event the late
husband of the appellant would be exempt from liability.
MINA, ET AL. V. RUPERTA PASCUAL, ET AL.

G.R. No. L-8321; October 14, 1913
FACTS:
Francisco Fontanilla owns a lot located in Laoag, Ilocos Norte. Andres Fontanilla, Franciscos
brother, erected a warehouse on a part of the said lot, embracing 14 meters of its frontage by
11 meters of its depth. Francisco Fontanilla, the former owner of the lot, being dead, was
represented by herein plaintiffs. Andres Fontanilla, the former owner of the warehouse, also
having died, was represented by Ruperta Pascual and her children.
Ruperta Pascual, as the guardian of her minor children, petitioned the Court of First Instance
of Ilocos Norte for authorization to sell "the six-sevenths of the one-half of the warehouse, of
14 by 11 meters, together with its lot." The plaintiffs opposed the petition of Ruperta Pascual
for the reason that the latter had included therein the lot occupied by the warehouse, which
they claimed was their exclusive property. The warehouse, together with the lot on which it
87

stands, was sold to Cu Joco, the other defendant in this case. The plaintiff appealed to the
Supreme Court for the determination of the ownership of the property. The Supreme Court
ruled in the plaintiffs favor.
Plaintiffs commenced an action for the purpose of having the sale of the said lot declared null
and void and of no force and effect.
ISSUE:
Whether or not the sale is null and void.
RULING:
YES. The nullity of the sale of the lot is in all respects quite evident, whatsoever be the
manner in which the sale was effected, whether judicially or extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale
being a transfer of the ownership of the thing, it is evident that he who has only the mere
use of the thing cannot transfer its ownership. The sale of a thing effected by one who is not
its owner is null and void. The defendants never were the owners of the lot sold. The sale of
it by them is necessarily null and void. On cannot convey to another what he has never had
himself.
The Court interpreted the following agreement entered into by plaintiffs and defendants:
9. That the herein plaintiffs excepted to the judgment and appealed
therefrom to the Supreme Court which found for them by holding that they
are the owners of the lot in question, although there existed and still exists
a commodatum by virtue of which the guardianship (meaning the
defendants) had and has the use, and the plaintiffs the ownership, of the
property, with no finding concerning the decree of the lower court that
ordered the sale.
While plaintiffs were found to be the owners of the lot, the Court recognized the
existence of a commodatum under which the defendants held the lot. Nothing could
be more inexact. Possibly, also, the meaning of that clause is that, notwithstanding
the finding made by the Supreme Court that the plaintiffs were the owners, these
former and the defendants agree that there existed, and still exists, a commodatum.
What is essentially pertinent to the case is the fact that the defendant agree that
the plaintiffs have the ownership, and they themselves only the use, of the said lot.
88
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, VS.

COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ
G.R. No. 80294 March 23, 1990
FACTS:
The case originated from a land registration case where petitioner and private respondents
were asking for confirmation of their alleged imperfect titles to the lots in question under
Section 49 (b) of the Public Land Act. The appellate court found that the petitioner was not
entitled to confirmation of its imperfect title to Lots 2 and 3. In separate motions for
reconsideration filed by private respondents Heirs of Octaviano and Heirs of Juan Valdez
relating to the same decision, they also asked that said two lots be registered in their names.
On August 12, 1977, the Court of Appeals denied both motions. Effectively, therefore, in the
said decision the appellate court ruled that neither the petitioner nor the private respondents
are entitled to the confirmation of imperfect title over said two lots. That is now res judicata.
ISSUE:
Who is entitled to the land?
RULING:
The trial court and the appellate court have no lawful basis in ordering petitioner to return
and surrender possession of said lots to private respondents. Said property being a public
land, its disposition is subject to the provision of the Public Land Act, as amended.
In the decision of the appellate court in CA-G.R. No. 38830-R, it appears that the petitioner
was in possession of the said property as borrower in commodatum from private respondents
since 1906 but in 1951, petitioner repudiated the trust when it declared the property for tax
purposes under its name. When it filed its application for registration of the said property in
1962, petitioner had been in adverse possession of the same for at least 11 years. Article 555
of the Civil Code provides as follows:
Art. 555. A possessor may lose his possession:
(1) By the abandonment of the thing;
(2) By an assignment made to another either by onerous or
gratuitous title;
(3) By the destruction or total loss of the thing or because it goes
out of commerce;
(4) By the possession of another, subject to the provisions of
Article 537, if the new possession has lasted longer than one
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year. But the real right of possession is not lost till after the lapse
of ten years. (460a) (Emphasis supplied.)
From the foregoing provision of the law, particularly paragraph 4 thereof, it is clear that the
real right of possession of private respondents over the property was lost or no longer exists
after the lapse of 10 years that petitioner had been in adverse possession thereof. Thus, the
action for recovery of possession of said property filed by private respondents against
petitioner must fail.
The Court, therefore, finds that the trial court and the Court of Appeals erred in declaring
the private respondents to be entitled to the possession thereof. Much less can they pretend
to be owners thereof. Said lots are part of the public domain.
MARGARITA QUINTOS AND ANGEL A. ANSALDO VS. BECK

G.R. No. L-46240; November 3, 1939
FACTS:
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H.
del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease
between the plaintiff and the defendant, the former gratuitously granted to the latter the use
of the furniture, subject to the condition that the defendant would return them to the plaintiff
upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez
and on September 14, 1936, these three notified the defendant of the conveyance, giving him
sixty days to vacate the premises.
Thereafter, the plaintiff required the defendant to return all the furniture transferred to him
for them in the house where they were found on several instances. The plaintiff refused to
get the furniture in view of the fact that the defendant had declined to make delivery of all
of them. On November 15, before vacating the house, the defendant deposited with the Sheriff
all the furniture belonging to the plaintiff and they are now on deposit in the warehouse in
the custody of the said sheriff.
ISSUES:
1. Whether or not the defendant complied with his obligation to return the furniture
upon the plaintiff's demand;
2. Whether or not plaintiff is bound to bear the deposit fees thereof, and whether she is
entitled to the costs of litigation.
RULING:
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself
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the ownership thereof; by this contract the defendant bound himself to return the furniture
to the plaintiff, upon the latters demand. The obligation voluntarily assumed by the
defendant to return the furniture upon the plaintiff's demand, means that he should return
all of them to the plaintiff at the latter's residence or house. The defendant did not comply
with this obligation when he merely placed them at the disposal of the plaintiff, retaining for
his benefit the three gas heaters and the four eletric lamps.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon
the latter's demand, the Court could not legally compel her to bear the expenses occasioned
by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled
to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to
return the furniture, because the defendant wanted to retain the three gas heaters and the
four electric lamps.
The costs in both instances should be borne by the defendant because the plaintiff is the
prevailing party (Sec. 487 of the Code of Civil Procedure). The defendant was the one who
breached the contract of commodatum, and without any reason he refused to return and
deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just and
equitable that he pay the legal expenses and other judicial costs which the plaintiff would
not have otherwise defrayed.
CEBU INTERNATIONAL FINANCE CORP. V. COURT OF APPEALS

G.R. No. 123031; 12 october 1999
FACTS:
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in
money market operations. On April 25, 1991, private respondent, Vicente Alegre, invested
with CIFC, P500,000.00 in cash. Petitioner issued a promissory note to mature on May 27,
1991 in the amount of P516,238.67. This covered private respondent's placement plus
interest at twenty and a half (20.5%) percent for thirty-two (32) days.
On May 27, 1991, CIFC issued a BPI Check for P514,390.94 in favor of the private respondent
as proceeds of his matured investment plus interest. However, the check was dishonored by
BPI and took custody of the same pending an investigation for counterfeit checks issued
against CIFCs checking account. Despite repeated demands, private respondent was not
paid the amount embodied in the check. Respondent, thus, filed a civil action for collection of
sum of money. CIFC also filed a complaint against BPI for the recovery of the money credited
against its checking account from the counterfeit checks which included the amount owed to
respondent.
The lower court ruled in favor of respondent which was affirmed by the CA. Petitioner
contends that it must not be held liable anymore for it was discharged from paying the
obligation when BPI credited it against its checking account.
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ISSUE:
Whether or not petitioner is still liable for the amount owed to herein respondent.
RULING:
Yes, petitioner is still liable. A "money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and borrowers do not deal
directly with each other but through a middle man or dealer in open market. In a money
market transaction, the investor is a lender who loans his money to a borrower through a
middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan. The private respondent accepted the CHECK, instead
of requiring payment in money. Yet, when he presented it to RCBC for encashment, as early
as June 17, 1991, the same was dishonored by non-acceptance, with BPI's annotation: "Check
(is) subject of an investigation." These facts were testified to by BPI's manager. Under these
circumstances, and after the notice of dishonor, the holder has an immediate right of recourse
against the drawer, and consequently could immediately file an action for the recovery of the
value of the check.
In a loan transaction, the obligation to pay a sum certain in money may be paid in money,
which is the legal tender or, by the use of a check. A check is not a legal tender, and therefore
cannot constitute valid tender of payment. In the case of Philippine Airlines, Inc. vs. Court of
Appeals, this Court held:
Since a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment (citation omitted). A check,
whether a manager's check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee
or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3.)
MAMBULAO LUMBER COMPANY. V. PHILIPPINE NATIONAL BANK

G.R. No. l-22973; 13 January 1968
FACTS:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch
of defendant PNB and the former offered real estate, machinery, logging and transportation
equipments as collaterals. The application, however, was approved for a loan of P100,000
only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel
of land, together with the buildings and improvements existing thereon, situated in the
poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte as well as
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various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in
its compound in the aforementioned municipality.
The outstanding obligation of the petitioner amounted to 57, 495.86 pesos which it failed to
despite repeated demands. Respondent found out that petitioner had already stopped its
operations.
Respondent, then, sent a letter to the Sheriff of Camarines Norte to take possession of the
chattels and sell them at a public auction. An auction of the parcel of land was conducted in
Camarines Norte and PNB was the highest bidder in the amount of 56, 908 pesos. Thereafter,
petitioner remitted the amount of 738.59 pesos. However, despite fulfillment of the
obligation, respondent proceeded with another public auction, this time of the chattels owned
by petitioner, to answer for the 10% attorneys fees and expenses of the sale.
Petitioner now contends that the auction sale of the chattels was not anymore necessary and
that the sale should have been conducted in Manila and not in Camarines Norte in
accordance with their agreement.
ISSUE:
Whether or not the second auction sale of the chattels was valid.
RULING:
No, it is NOT VALID. From the, it is clear that there was no further necessity to foreclose
the mortgage of herein appellant's chattels; and on this ground alone, we may declare the
sale of appellant's chattels on the said date, illegal and void. But we take into consideration
the fact that the PNB must have been led to believe that the stipulated 10% of the unpaid
loan for attorney's fees in the real estate mortgage was legally maintainable, and in
accordance with such belief, herein appellee bank insisted that the proceeds of the sale of
appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as
it may, however, we still find the subsequent sale of herein appellant's chattels illegal and
objectionable on other grounds.
While the law grants power and authority to the mortgagee to sell the mortgaged property
at a public place in the municipality where the mortgagor resides or where the property is
situated, this Court has held that the sale of a mortgaged chattel may be made in a place
other than that where it is found, provided that the owner thereof consents thereto; or that
there is an agreement to this effect between the mortgagor and the mortgagee. But when, as
in this case, the parties agreed to have the sale of the mortgaged chattels in the City of
Manila, which, any way, is the residence of the mortgagor, it cannot be rightly said that
mortgagee still retained the power and authority to select from among the places provided
for in the law and the place designated in their agreement over the objection of the mortgagor.
In providing that the mortgaged chattel may be sold at the place of residence of the mortgagor
or the place where it is situated, at the option of the mortgagee, the law clearly contemplated
benefits not only to the mortgagor but to the mortgagee as well. Their right arising
thereunder, however, are personal to them; they do not affect either public policy or the rights
of third persons. They may validly be waived. So, when herein mortgagor and mortgagee
agreed in the mortgage contract that in cases of both judicial and extra-judicial foreclosure
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under Act 1508, as amended, the corresponding complaint for foreclosure or the petition for
sale should be filed with the courts or the Sheriff of Manila, as the case may be, they waived
their corresponding rights under the law. The correlative obligation arising from that
agreement has the force of law between them and should be complied with in good faith.
LIAM LAW VS. OLYMPIC SAWMILL CO. ET. AL.

No.L-30771. May 28, 1984
FACTS:
It appears that on or about September 7, 1957, plaintiff loaned P10,000.00, without interest,
to defendant partnership and defendant Elino Lee Chi, as the managing partner. The loan
became ultimately due on January 31, 1960, but was not paid on that date, with the debtors
asking for an extension of three months, or up to April 30, 1960.
On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00
was extended to April 30, 1960, but the obligation was increased by P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall form part
of the principal obligation to answer for attorneys fees, legal interest, and other cost incident
thereto to be paid unto the creditor and his successors in interest upon the termination of
this agreement.
ISSUE:
Whether the additional P6,000.00 constituted usurious interest.
RULING:
Section 9 of the Usury Law (Act 2655) envisages a complaint filed against an entity which
has committed usury, for the recovery of the usurious interest paid. In that case, if the entity
sued shall not file its answer under oath denying the allegation of usury, the defendant shall
be deemed to have admitted the usury. The provision does not apply to a case, as in the
present, where it is the defendant, not the plaintiff, who is alleging usury.
For sometime now, usury has been legally nonexistent. Interest can now be charged as lender
and borrower may agree upon.4 The Rules of Court in regards to allegations of usury,
procedural in nature, should be considered repealed with retroactive effect.
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SPOUSES FLORANTE ET. AL. VS. PILAR DEVELOPMENT

CORPORATION
G.R. No. 135046. August 17, 1999.*
FACTS:
In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in Pilar
Village, Las Pias, Metro Manila. To partially finance the purchase, they obtained from the
Apex Mortgage & Loan Corporation (Apex) a loan in the amount of P100,180.00. They
executed a promissory note on December 22, 1978 obligating themselves, jointly and
severally, to pay the principal sum of P100,180.00 with interest rate of 12% and service
charge of 3% for a period of 240 months, or twenty years, from date, in monthly installments
of P1,378.83.3 Late payments were to be charged a penalty of one and one-half per cent (1
1/2%) of the amount due. In the same promissory note, petitioners authorized Apex to
increase the rate of interest and/or service charges without notice to them in the event that
a law, Presidential Decree or any Central Bank regulation should be enacted increasing the
lawful rate of interest and service charges on the loan. Payment of the promissory note was
secured by a second mortgage on the house and lot purchased by petitioners.
Petitioner spouses failed to pay several installments. On September 20, 1982, they executed
another promissory note in favor of Apex. This note was in the amount of P142,326.43 at the
increased interest rate of twenty-one per cent (21%) per annum with no provision for service
charge but with penalty charge of 1 1/2% for late payments. Payment was to be made for a
period of 196 months or 16.33 years in monthly installments of P2,576.68, inclusive of
principal and interest. Petitioner spouses also authorized Apex to increase/decrease the rate
of interest and/or service charges on the note in the event any law or Central Bank
regulation shall be passed increasing or decreasing the same.
In November 1983, petitioner spouses again failed to pay the installments. On June 6, 1984,
Apex assigned the second promissory note to respondent Pilar Development Corporation
without notice to petitioners.
ISSUE:
Whether the terms of the second promissory note increasing the interest rate to 21% and the
escalation clauses authorizing Apex to increase interest rates pursuant to any law or Central
Bank regulation are null and void in the absence of a de-escalation clause in the same note.
RULING:
At the time the parties executed the first promissory note in 1978, the interest of 12% was
the maximum rate fixed by the Usury Law for loans secured by a mortgage upon registered
real estate. On December 1, 1979, the Monetary Board of the Central Bank of the
Philippines27 issued Circular No. 705 which fixed the effective rate of interest on loan
transactions with maturities of more than 730 days to twenty-one per cent (21%) per annum
for both secured and unsecured loans.28 On January 28, 1980, The Monetary Board issued
Circular No. 712 reiterating the effective interest rate of 21% on said loan transactions.29
On January 1, 1983, CB Circular No. 905, series of 1982, took effect. This Circular declared
that the rate of interest on any loan or forbearance of any money, goods or credits, regardless
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of maturity and whether secured or unsecured, shall not be subject to any ceiling prescribed
under or pursuant to the Usury Law, as amended.30 In short, Circular No. 905 removed the
ceiling on interest rates for secured and unsecured loans, regardless of maturity.31
When the second promissory note was executed on September 20, 1982, Central Bank
Circulars Nos. 705 and 712 were already in effect. These Circulars fixed the effective interest
rate for secured loan transactions with maturities of more than 730 days, i.e., two (2) years,
at 21% per annum. The interest rate of 21% provided in the second promissory note was
therefore authorized under these Circulars.
SEVERINO TOLENTINO AND POTENCIANA MANIO VS. BENITO

GONZALEZ SY CHIAM
G.R. No. 26085
August 12, 1927
FACTS:
The appellants purchased from the Luzon Rice Mills, Inc., a piece or parcel of land with
the for the price of P25,000, promising to pay therefor in three installments. The two
installments were paid as agreed. With regard to the last installment of P15,000, they
realized that they would be unable to pay the balance due so they began to make an effort to
borrow money with which to pay the balance of their indebtedness. An application was made
to the defendant Chiam. After some negotiations the defendants agreed to loan the plaintiffs
the sum of P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de
retro of said property. Thus, the appellants were able to pay the balance and the vendor of
said property had issued to them transfer certificate of title to said property, No. 528.
ISSUE:
Whether the transaction between the parties is a pacto de retro sale or a loan secured the
mortgage as when respondent Chiam agreed to loan the plaintiffs the sum of P17,500 upon
the condition that the plaintiffs execute and deliver to him a pacto de retro of said property.
HELD:
An examination of said contract of sale shows clearly that it is a pacto de retro and not a
mortgage. There is no pretension on the part of the appellant that said contract, standing
alone, is a mortgage. The intention to sell with the right to repurchase cannot be more clearly
expressed. In the present case the plaintiffs allege in their complaint that the contract in
question is a pacto de retro. They admit that they signed it. They admit they sold the property
in question with the right to repurchase it. The terms of the contract quoted by the plaintiffs
to the defendant was a "sale" with pacto de retro, and the plaintiffs have shown no
circumstance whatever which would justify the Court in construing said contract to be a mere
"loan" with guaranty.
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We are not unmindful of the fact that sales with pacto de retro are not favored and that the
court will not construe an instrument to one of sale with pacto de retro, with the stringent
and onerous effect which follows, unless the terms of the document and the surrounding
circumstances require it. In every case in which this court has construed a contract to be a
mortgage or a loan instead of a sale with pacto de retro, it has done so, either because the
terms of such contract were incompatible or inconsistent with the theory that said contract
was one of purchase and sale. There is not a word, a phrase, a sentence or a paragraph in the
entire record, which justifies this court in holding that the said contract of pacto de retro is a
mortgage and not a sale with the right to repurchase.
It will be noted from a reading of said sale of pacto de retro, that the vendor, recognizing the
absolute sale of the property, entered into a contract with the purchaser by virtue of which
she became the "tenant" of the purchaser.
During the period of redemption the purchaser was the absolute owner of the property and
the vendor was a tenant of the purchaser. During the period of redemption the relation which
existed between the vendor and the vendee was that of landlord and tenant. That relation
can only be terminated by a repurchase of the property by the vendor in accordance with the
terms of the said contract. The contract was one of rent. The contract was not a loan.
The appellant contends that the rental price paid during the period of the existence of the
right to repurchase, or the sum of P375 per month, based upon the value of the property,
amounted to usury. The collection of a rate of interest higher than that allowed by law is
condemned by the Philippine Legislature. It will be noted that the Legislature imposes a
penalty upon a "loan" or forbearance of any money, goods, chattels or credits, etc. The central
idea of said statute is to prohibit a rate of interest on "loans." A contract of "loan," is very
different contract from that of "rent".
A "loan" signifies the giving of a sum of money, goods or credits to another, with a promise to
repay, but not a promise to return the same thing. To "loan," in general parlance, is to deliver
to another for temporary use, on condition that the thing or its equivalent be returned; or to
deliver for temporary use on condition that an equivalent in kind shall be returned with a
compensation for its use. The word "loan," however, as used in the statute, has a technical
meaning. It never means the return of the same thing. It means the return of an equivalent
only, but never the same thing loaned. At all events, the money, goods or chattels, the
moment the contract is executed, cease to be the property of the former owner and becomes
the absolute property of the obligor.
It differs materially from a contract of "rent." In a contract of "rent" the owner of the property
does not lose his ownership. He simply loses his control over the property rented during the
period of the contract. In a contract of "loan" the thing loaned becomes the property of the
obligor. In a contract of "rent" the thing still remains the property of the lessor. He simply
loses control of the same in a limited way during the period of the contract of "rent" or lease.
In a contract of "rent" the relation between the contractors is that of landlord and tenant. In
a contract of "loan" of money, goods, chattels or credits, the relation between the parties is
that of obligor and obligee. "Rent" may be defined as the compensation either in money,
provisions, chattels, or labor, received by the owner of the soil from the occupant thereof. It
is defined as the return or compensation for the possession of some corporeal inheritance,
and is a profit issuing out of lands or tenements, in return for their use. It is that, which is
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to paid for the use of land, whether in money, labor or other thing agreed upon. A contract of
"rent" is a contract by which one of the parties delivers to the other some nonconsumable
thing, in order that the latter may use it during a certain period and return it to the former;
whereas a contract of "loan", as that word is used in the statute, signifies the delivery of
money or other consumable things upon condition of returning an equivalent amount of the
same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of
"rent," under the civil law, it is called a "commodatum."
The value of money, goods or credits is easily ascertained while the amount of rent to be paid
for the use and occupation of the property may depend upon a thousand different conditions;
It will thus be seen that the rent to be paid for the use and occupation of property is not
necessarily fixed upon the value of the property. The amount of rent is fixed, based upon a
thousand different conditions and may or may not have any direct reference to the value of
the property rented. To hold that "usury" can be based upon the comparative actual rental
value and the actual value of the property, is to subject every landlord to an annoyance not
contemplated by the law, and would create a very great disturbance in every business or
rural community. We cannot bring ourselves to believe that the Legislature contemplated
any such disturbance in the equilibrium of the business of the country.
As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right to
make contracts for parties. They made their own contract in the present case. There is not a
word, a phrase, a sentence or paragraph, which in the slightest way indicates that the parties
to the contract in question did not intend to sell the property in question absolutely, simply
with the right to repurchase. People who make their own beds must lie thereon.
THE COSOLIDATED BANK AND TRUST CORPORATION

(SOLIDBANK) VS. THE COURT OF APPEALS, CONTINENTAL
CEMENT CORPORATION, GREGORY T. LIM AND SPOUSE
G.R. No. 114286
April 19, 2001
FACTS:
On July 13, 1982, respondents and Gregory T. Lim obtained from petitioner Consolidated
Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of P
1,068,150.00. Such was used used to purchase around five hundred thousand liters of bunker
fuel oil from Petrophil Corporation, which was delivered directly to Continental Cement
Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the
amount of P 1,001,520.93 was executed by respondent Corporation, with respondent Lim as
signatory. Claiming that respondents failed to turn over the goods covered by the trust receipt
or the proceeds thereof, petitioner filed a complaint for sum of money with application for
preliminary attachment3 before the Regional Trial Court of Manila. In answer to the
complaint, respondents averred that the transaction between them was a simple loan and
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not a trust receipt transaction, and that the amount claimed by petitioner did not take into
account payments already made by them.
ISSUE:
Whether or not the transaction involved was a loan transaction or a trust receipt transaction
when the trust receipt was entered into after the debtor received the goods subject of the
trust receipt.
HELD:
The transaction was a loan transaction.
Inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt
itself was entered into, the transaction in question was a simple loan and not a trust receipt
agreement. Prior to the date of execution of the trust receipt, ownership over the goods was
already transferred to the debtor. This situation is inconsistent with what normally obtains
in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and
are only released to the importer in trust after the loan is granted.
In the case at bar, the delivery to respondent Corporation of the goods subject of the trust
receipt occurred long before the trust receipt itself was executed. More specifically, delivery
of the bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7, 1982
and was completed by July 19, 1982. Further, the oil was used up by respondent Corporation
in its normal operations by August, 1982. On the other hand, the subject trust receipt was
only executed nearly two months after full delivery of the oil was made to respondent
Corporation, or on September 2, 1982.
Furthermore, respondent Corporation is not an importer, which acquired the bunker fuel oil
for re-sale; it needed the oil for its own operations. More importantly, at no time did title over
the oil pass to petitioner, but directly to respondent Corporation to which the oil was directly
delivered long before the trust receipt was executed. The fact that ownership of the oil
belonged to respondent Corporation, through its President, Gregory Lim, was acknowledged
by petitioner's own account officer.
By all indications, then, it is apparent that there was really no trust receipt transaction that
took place. Evidently, respondent Corporation was required to sign the trust receipt simply
to facilitate collection by petitioner of the loan it had extended to the former.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans
and place them under the threats of criminal prosecution should they be unable to pay it may
be unjust and inequitable if not reprehensible. Such agreements are contracts of adhesion
which borrowers have no option but to sign lest their loan be disapproved. The resort to this
scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to
misinterpretation, as had happened in this case.
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COLINARES V. COURT OF APPEALS

G.R. No. 90828September 5, 2000
FACTS:
Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the
latters convent at Camaman-an, Cagayan de Oro City. Colinares applied for a commercial
letter of credit with the Philippine Banking Corporation, Cagayan de Oro City branch
(hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of
credit for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a proforma trust receipt as security.
PBC debited P6,720 from Petitioners marginal deposit as partial payment of the loan. After
the initial payment, the spouses defaulted. PBC wrote to Petitioners demanding that the
amount be paid within seven days from notice. Instead of complying with PBCs demand,
Veloso confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested
for a grace period of until 15 June 1980 to settle the account. Colinares proposed that the
terms of payment of the loan be modified P2,000 on or before 3 December 1980, and P1,000
per month . Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4 December
1980, and thereafter P500 on 11 February 1981, 16 March 1981, and 20 April 1981.
Concurrently with the separate demand for attorneys fees by PBCs legal counsel, PBC
continued to demand payment of the balance. On 14 January 1983, Petitioners were charged
with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the
Revised Penal Code.
During trial, petitioner Veloso insisted that the transaction was a clean loan as per verbal
guarantee of Cayo Garcia Tuiza, PBCs former manager. He and petitioner Colinares signed
the documents without reading the fine print, only learning of the trust receipt implication
much later.
ISSUE
What is the transaction covered under the Trust Receipts Law?
RULING:
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any
transaction by and between a person referred to as the entruster, and another person referred
to as the entrustee, whereby the entruster who owns or holds absolute title or security
interest over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latters execution and delivery to the entruster of a
signed document called a trust receipt wherein the entrustee binds himself to hold the
designated goods, documents or instruments with the obligation to turn over to the entruster
the proceeds thereof to the extent of the amount owing to the entruster or as appears in the
trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust
receipt.
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There are two possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold. The second is covered by the provision
which refers to merchandise received under the obligation to return it (devolvera) to the
owner.
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust
receipt to the entruster or to return said goods if they were not disposed of in accordance with
the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised
Penal Code, without need of proving intent to defraud.
This situation belies what normally obtains in a pure trust receipt transaction where goods
are owned by the bank and only released to the importer in trust subsequent to the grant of
the loan.The bank acquires a security interest in the goods as holder of a security title for
the advances it had made to the entrustee. The ownership of the merchandise continues to
be vested in the person who had advanced payment until he has been paid in full, or if the
merchandise has already been sold, the proceeds of the sale should be turned over to him by
the importer or by his representative or successor in interest. To secure that the bank shall
be paid, it takes full title to the goods at the very beginning and continues to hold that title
as his indispensable security until the goods are sold and the vendee is called upon to pay for
them; hence, the importer has never owned the goods and is not able to deliver possession.
In a certain manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as he has paid its
price.
Trust receipt transactions are 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
REPUBLIC OF THE PHILIPPINES V. GRIJALDO

G.R. No. L-20240; December 31, 1965
FACTS:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of
Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per
annum, compounded quarterly. These loans are evidenced by five promissory notes executed by
the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June
3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 1943,
P200.00, all notes without due dates, but because the loans were due one year after they were
incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros
Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for
in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of
Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the Philippine
101
Property Act of 1946 of the United States, these assets, including the loans in question, were
subsequently transferred to the Republic of the Philippines by the Government of the United States
under Transfer Agreement dated July 20, 1954. These assets were among the properties that were
placed under the administration of the Board of Liquidators created under Executive Order No.
372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477 and other
pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of
the Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment
of the account in question. The record shows that the appellant had actually received the written
demand for payment, but he failed to pay.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran,
Negros Occidental, to collect from the appellant the unpaid account in question. The Justice of the
Peace Of Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed.
The appellee appealed to the Court of First Instance of Negros Occidental and on March 26, 1962
the court a quo rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23
as of December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from
the date of the filing of the complaint until full payment was made.
The appellant appealed directly to this Court. During the pendency of this appeal the appellant
Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution of May 13,
1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who
are the legal heirs of Jose Grijaldo to appear and be substituted as appellants.
ISSUE:
Is an obligation to pay the loan extinguished by the loss or destruction of the object of the chattel
mortgage securing it?
RULING:
The appellant likewise maintains, in support of his contention that the appellee has no cause of
action, that because the loans were secured by a chattel mortgage on the standing crops on a land
owned by him and these crops were lost or destroyed through enemy action his obligation to pay
the loans was thereby extinguished. This argument is untenable. The terms of the promissory
notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd.
do not support the claim of appellant. The obligation of the appellant under the five promissory
notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or
the value of the crops that would be harvested from his land. Rather, his obligation was to pay a
generic thing the amount of money representing the total sum of the five loans, with interest.
The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts
of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to
another ... money or other consumable thing upon the condition that the same amount of the
same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant
under the five promissory notes evidencing the loans in questions is to pay the value thereof; that
102
is, to deliver a sum of money a clear case of an obligation to deliver, a generic thing. Article
1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security for the
fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the
crops did not extinguish his obligation to pay, because the account could still be paid from other
sources aside from the mortgaged crops.

Civ2 Case Digest 4D

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Case Digests in Civil Law Review 2

JAIME D. ANG V. COURT OF APPEALS AND BRUNO SOLEDAD ................. 5

PARTNERSHIP, AGENCY & TRUST ......................................9

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SY JUCO V. CASTRO ............................................................................................... 23

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NAPOCOR V. NATIONAL MERCHANDISING CORPORATION .................... 45

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FILIPINAS PORT SERVICES, INC., REPRESENTED BY ELIODORO C.

CREDIT TRANSACTIONS ...................................................72

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CEBU INTERNATIONAL FINANCE CORP. V. COURT OF APPEALS ......... 90

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(a) the defect must be hidden;

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ESTANISLAO, JR., V. COURT OF APPEALS

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If the right exists under the terms of any agreement;