NFF INDUSTRIAL CORPORATION vs.

G & L ASSOCIATED BROKERAGE and/or GERARDO TRINIDAD

G.R. No. 178169 January 12, 2015
PONENTE: PERALTA, J. Decided by: Third Division

FACTS:
Petitioner NFF Industrial Corporation is engaged in the business of manufacturing bulk bags, while
respondent G & L Associated Brokerage, Inc. is among its customers. On July 20, 1999, according to the
petitioner, respondent company ordered one thousand pieces of bulk bags from petitioner, at P380.00
per piece, or a total purchase price of Three Hundred Eighty Thousand Pesos P380,000.00, payable within
thirty (30) days from delivery. Respondent company ordered an additional one thousand (1,000) pieces
of bulk bags, thus for a total of two thousand (2,000) pieces, at the same price per bag and with the same
terms of payment as well as the same instructions for delivery. Respondent contended that the bulk bags
were not delivered to respondent company, the same not having been received by the authorized
representative in conformity with the terms of the Purchase Order.
Thirty (30) days elapsed from the time the last alleged delivery was made but no payment was
effected by respondent company. This prompted petitioner to send series of demand letters to
respondent company and followed up its claim from the former through a series of telephone calls. As
the demands remained unheeded, petitioner filed a complaint for sum of money against respondents on
December 19, 2001.

ISSUE:
Whether or not there was valid delivery on the part of petitioner which would give rise to an
obligation to pay on the part of respondent for the value of the bulk bags.

HELD:
The Court ruled in the affirmative. The resolution of the issue at bar necessitates a scrutiny of the
concept of "delivery" in the context of the Law on Sales. Under the Civil Code, the vendor is bound to
transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. The
ownership of thing sold is considered acquired by the vendee once it is delivered to him in the following
wise:
Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment
it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other
manner signifying an agreement that the possession is transferred from the vendor to
the vendee.
Art. 1497. The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee.
Thus, ownership does not pass by mere stipulation but only by delivery. Manresa explains, "the
delivery of the thing x x x signifies that title has passed from the seller to the buyer." Moreover, according
to Tolentino, the purpose of delivery is not only for the enjoyment of the thing but also a mode of acquiring
dominion and determines the transmission of ownership, the birth of the real right. The delivery under
any of the forms provided by Articles 1497 to 1505 of the Civil Code signifies that the transmission of
ownership from vendor to vendee has taken place. Here, emphasis is placed on Article 1497 of the Civil
Code, which contemplates what is known as real or actual delivery, when the thing sold is placed in the
control and possession of the vendee.
Based on the foregoing, it is clear that petitioner has actually delivered the bulk bags to
respondent company, albeit the same was not delivered to the person named in the Purchase Order. In
addition, by allowing petitioner’s employee to pass through the guard-on-duty, who allowed the entry of
delivery into the premises of Hi-Cement, which is the designated delivery site, respondents had effectively
abandoned whatever infirmities may have attended the delivery of the bulk bags. As a matter of fact, if
respondents were wary about the manner of delivery, such issue should have been brought up
immediately after the first delivery was made. Instead, Mr. Trinidad acknowledged receipt of the first
batch of the bulk bags and even followed up the remaining balance of the orders for delivery. x x x
We find merit in petitioner’s argument that despite its failure to strictly comply with the
instruction to deliver the bulk bags to the specified person, acceptance of delivery may be inferred from
the conduct of the respondents. Accordingly, respondents may be held liable to pay for the price of the
bulk bags pursuant to Article 1585 of the Civil Code, which provides that:
ARTICLE 1585. The buyer is deemed to have accepted the goods when he intimates to the seller
that he has accepted them, or when the goods have been delivered to him, and he does any act in relation
to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable
time, he retains the goods without intimating to the seller that he has rejected them.
 RODRIGO RIVERA vs. SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA
G.R. No. 184458 January 14, 2015
PONENTE: PEREZ, J. Decided by: First Division

FACTS:
The parties were friends of long standing having known each other since 1973, Rivera and
Salvador are kumpadres, the former is the godfather of the Spouses Chua’s son. On 24 February 1995,
Rivera obtained a loan from the Spouses Chua for Php 120,000.00. Chua executed a promissory in
connection with the loan stating that he agree to pay the full amount on December 31, 1995 and to pay
the sum equivalent to 5% interest monthly from the date of default until the entire obligation is fully paid.
Rivera issued and delivered to the Spouses Chua, as payee, 2 checks, drawn against Rivera’s
current account with the Philippine Commercial International Bank (PCIB). Upon presentment for
payment, the two checks were dishonored for the reason "account closed." As of 31 May 1999, the
amount due the Spouses Chua was pegged at P366,000.00 covering the principal of P120,000.00 plus five
percent (5%) interest per month from 1 January 1996 to 31 May 1999. The Spouses Chua alleged that they
have repeatedly demanded payment from Rivera to no avail. Because of Rivera’s unjustified refusal to
pay, the Spouses Chua were constrained to file a suit on 11 June 1999. Rivera claimed forgery of the
subject Promissory Note and denied his indebtedness thereunder and pointed out that the Spouses Chua
never demanded payment for the loan nor interest thereof from him for almost 4 years from the time of
the alleged default in payment.

ISSUES:
1. Assuming the validity of the Promissory Note, whether or not demand was still necessary in
order to charge Rivera liable.
2. Whether or not the 5% interest to be paid monthly from the date of default until the entire
obligation is fully paid for is considered a penal clause.
HELD:
On the first issue, the Court ruled in the negative. Section 184 of the NIL defines what negotiable
promissory note is, A negotiable promissory note within the meaning of this Act is an unconditional
promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or
at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is
drawn to the maker’s own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees. However, even if
Rivera’s Promissory Note is not a negotiable instrument and therefore outside the coverage of Section 70
of the NIL which provides that presentment for payment is not necessary to charge the person liable on
the instrument, Rivera is still liable under the terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due and becomes
demandable—31 December 1995. As of 1 January 1996, Rivera had already incurred in delay when he
failed to pay the amount of P120,000.00 due to the Spouses Chua on 31 December 1995 under the
Promissory Note.
Article 1169 of the Civil Code explicitly provides: 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.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or (2) When from the nature and the
circumstances of the obligation it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for the establishment of the contract;
or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
There are four instances when demand is not necessary to constitute the debtor in default: (1)
when there is an express stipulation to that effect; (2) where the law so provides; (3) when the period is
the controlling motive or the principal inducement for the creation of the obligation; and (4) where
demand would be useless. In the first two paragraphs, it is not sufficient that the law or obligation fixes a
date for performance; it must further state expressly that after the period lapses, default will commence.
On the second issue, the Court also ruled in the negative. Art. 2209 states that, If the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six percent per annum.
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of
money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or before 31 December 1995;
and (3) the Promissory Note provides for an indemnity for damages upon default of Rivera which is the
payment of a 5%monthly interest from the date of default.
The Court do not consider the stipulation on payment of interest in this case as a penal clause
although Rivera, as obligor, assumed to pay additional 5% monthly interest on the principal amount of
P120,000.00 upon default.
Article 1226 of the Civil Code provides, In obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is
no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty
or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code. The penal clause is generally undertaken to insure performance and works as either, or both,
punishment and reparation. It is an exception to the general rules on recovery of losses and damages. As
an exception to the general rule, a penal clause must be specifically set forth in the obligation.
In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as
a penal clause, and is simply an indemnity for damages incurred by the Spouses Chua because Rivera
defaulted in the payment of the amount of P120,000.00. The measure of damages for the Rivera’s delay
is limited to the interest stipulated in the Promissory Note. In apt instances, in default of stipulation, the
interest is that provided by law.
 RICARDO C. HONRADO vs. GMA NETWORK FILMS, INC
G.R. No. 204702 January 14, 2015
PONENTE: CARPIO, J. Decided by: Second Division

FACTS:
On 11December 1998, respondent GMA Network Films, Inc. entered into a "TV Rights Agreement"
with petitioner under which petitioner, as licensor of 36 films, granted to GMA Films, for a fee of P60.75
million, the exclusive right to telecast the 36 films for a period of three years. The parties agreed that "all
betacam copies of the films should pass through broadcast quality test conducted by GMA-7," the TV
station operated by GMA Network, Inc., an affiliate of GMA Films. The parties also agreed to submit the
films for review by the Movie and Television Review and Classification Board (MTRCB) and stipulated on
the remedies in the event that MTRCB bans the telecasting of any of the films.
In 2003, GMA Films sued petitioner in the Regional Trial Court of Quezon City to collect P1.6
million representing the fee it paid for Evangeline Katorse, P1.5 million and a portion of the fee it paid for
Bubot, P350,004. GMA Films alleged that it rejected Evangeline Katorse because "its running time was too
short for telecast" and petitioner only remitted P900,000 to the owner of Bubot, Juanita Alano, keeping
for himself the balance of P350,000. GMA Films prayed for the return of such amount on the theory that
an implied trust arose between the parties as petitioner fraudulently kept it for himself. Petitioner denied
liability, counter-alleging that after GMA Films rejected Evangeline Katorse, he replaced it with another
film, Winasak na Pangarap, which GMA Films accepted. As proof of such acceptance, petitioner invoked a
certification of GMA Network attesting that such film "is of good broadcast quality".
ISSUE:
Whether the petitioner is liable for breach of the Agreement and breach of trust.
HELD:
The Court ruled in the negative. GMA Films also seeks refund for the balance of the fees it paid to
petitioner for Bubot which petitioner allegedly failed to turn-over to the film’s owner, Alano. Implicit in
GMA Films’ claim is the theory that the Agreement obliges petitioner to give to the film owners the entire
amount he received from GMA Films and that his failure to do so gave rise to an implied trust, obliging
petitioner to hold whatever amount he kept in trust for GMA Films. The CA sustained GMA Films’
interpretation, noting that the Agreement "does not provide that the licensor is entitled to any
commission."
This is error. The Agreement, as its full title denotes ("TV Rights Agreement"), is a licensing
contract, the essence of which is the transfer by the licensor (petitioner) to the licensee (GMA Films), for
a fee, of the exclusive right to telecast the films listed in the Agreement. Stipulations for payment of
"commission" to the licensor is incongruous to the nature of such contracts unless the licensor merely
acted as agent of the film owners. Nowhere in the Agreement, however, did the parties stipulate that
petitioner signed the contract in such capacity. On the contrary, the Agreement repeatedly refers to
petitioner as "licensor" and GMA Films as "licensee." Nor did the parties stipulate that the fees paid by
GMA Films for the films listed in the Agreement will be turned over by petitioner to the film owners.
Instead, the Agreement merely provided that the total fees will be paid in three installments.
 We entertain no doubt that petitioner forged separate contractual arrangements with the owners
of the films listed in the Agreement, spelling out the terms of payment to the latter. Whether or not
petitioner complied with these terms, however, is a matter to which GMA Films holds absolutely no
interest. Being a stranger to such arrangements, GMA Films is no more entitled to complain of any breach
by petitioner of his contracts with the film owners than the film owners are for any breach by GMA Films
of its Agreement with petitioner.
We find it unnecessary to pass upon the question whether an implied trust arose between the
parties, as held by the CA. Such conclusion was grounded on the erroneous assumption that GMA Films
holds an interest in the disposition of the licensing fees it paid to petitioner.
 MANUEL JUSAYAN, ALFREDO JUSAYAN, AND MICHAEL JUSAYAN vs. JORGE SOMBILLA
G.R. No. 163928 January 21, 2015
PONENTE: BERSAMIN, J. Decided by: First Division

FACTS:
Wilson Jesena owned four parcels of land situated in New Lucena, Iloilo. On June 20, 1970, Wilson
entered into an agreement with respondent Jorge Sombilla, wherein Wilson designated Jorge as his agent
to supervise the tilling and farming of his riceland in crop year 1970-1971. Before the expiration of the
agreement, Wilson sold the four parcels of land to Timoteo Jusayan. Jorge and Timoteo verbally agreed
that Jorge would retain possession of the parcels of land and would deliver 110 cavans of palay annually
to Timoteo without need for accounting of the cultivation expenses provided that Jorge would pay the
irrigation fees. In 1975, the parcels of land were transferred in the names of Timoteo’s sons, namely;
Manuel, Alfredo and Michael (petitioners). In 1984, Timoteo sent several letters to Jorge terminating his
administration and demanding the return of the possession of the parcels of land.
Due to the failure of Jorge to render accounting and to return the possession of the parcels of
land despite demands, Timoteo filed on June 30, 1986 a complaint for recovery of possession and
accounting against Jorge in the RTC. Following Timoteo’s death on October 4, 1991, the petitioners
substituted him as the plaintiffs.
RTC upheld the contractual relationship of agency between Timoteo and Jorge and ordered Jorge
to deliver the possession of the parcels of land to the petitioners.
ISSUE:
Whether or not the relationship between the petitioners and respondent is that of agency or
agricultural leasehold.
HELD:
The Court ruled that there is an Agricultural Leasehold between parties. In agency, the agent binds
himself to render some service or to do something in representation or on behalf of the principal, with
the consent or authority of the latter. The basis of the civil law relationship of agency is representation,
the elements of which are, namely: (a) the relationship is established by the parties’ consent, express or
implied; (b) the object is the execution of a juridical act in relation to a third person; (c) the agent acts as
representative and not for himself; and (d) the agent acts within the scope of his authority. Whether or
not an agency has been created is determined by the fact that one is representing and acting for another.
The law does not presume agency; hence, proving its existence, nature and extent is incumbent upon the
person alleging it.
The claim of Timoteo that Jorge was his agent contradicted the verbal agreement he had
fashioned with Jorge. By assenting to Jorge’s possession of the land sans accounting of the cultivation
expenses and actual produce of the land provided that Jorge annually delivered to him 110 cavans of palay
and paid the irrigation fees belied the very nature of agency, which was representation. The verbal
agreement between Timoteo and Jorge left all matters of agricultural production to the sole discretion of
Jorge and practically divested Timoteo of the right to exercise his authority over the acts to be performed
by Jorge. While inpossession of the land, therefore, Jorge was acting for himself instead offor Timoteo.
Unlike Jorge, Timoteo did not benefit whenever the production increased, and did not suffer whenever
the production decreased. Timoteo’s interest was limited to the delivery of the 110 cavans of palay
annually without any concern about how the cultivation could be improved in order to yield more
produce.
On the other hand, to prove the tenancy relationship, Jorge presented handwritten receipts
indicating that the sacks of palay delivered to and received by one Corazon Jusayan represented payment
of rental. In this regard, rental was the legal term for the consideration of the lease. Consequently, the
receipts substantially proved that the contractual relationship between Jorge and Timoteo was a lease.

Yet, the lease of an agricultural land can be either a civil law or an agricultural lease. In the civil
law lease, one of the parties binds himself to give to another the enjoyment or use of a thing for a price
certain, and for a period that may be definite or indefinite. In the agricultural lease, also termed as a lease
hold tenancy, the physical possession of the land devoted to agriculture is given by its owner or legal
possessor (landholder) to another (tenant) for the purpose of production through labor of the latter and
of the members of his immediate farm household, in consideration of which the latter agrees to share the
harvest with the landholder, or to pay a price certain or ascertainable, either in produce or in money, or
in both. Specifically, in Gabriel v. Pangilinan, this Court differentiated between a leasehold tenancy and a
civil law lease in the following manner, namely: (1) the subject matter of a leasehold tenancy is limited to
agricultural land, but that of a civil law lease may be rural or urban property; (2) as to attention and
cultivation, the law requires the leasehold tenant to personally attend to and cultivate the agricultural
land; the civil law lessee need not personally cultivate or work the thing leased; (3) as to purpose, the
landholding in leasehold tenancy is devoted to agriculture; in civil law lease, the purpose may be for any
other lawful pursuits; and(4) as to the law that governs, the civil law lease is governed by the Civil Code,
but the leasehold tenancy is governed by special laws.
The sharing of the harvest in proportion to the respective contributions of the landholder and
tenant, otherwise called share tenancy, was abolished on August 8, 1963 under Republic Act No. 3844. To
date, the only permissible system of agricultural tenancy is leasehold tenancy, a relationship wherein a
fixed consideration is paid instead of proportionately sharing the harvest as in share tenancy.
In Teodoro v. Macaraeg, this Court has synthesized the elements of agricultural tenancy to wit:
(1) the object of the contract or the relationship is an agricultural land that is leased or rented for the
purpose of agricultural production; (2) the size of the landholding is such that it is susceptible of personal
cultivation by a single person with the assistance of the members of his immediate farm household; (3)
the tenant-lessee must actually and personally till, cultivate or operate the land, solely or with the aid of
labor from his immediate farm household; and (4) the landlord-lessor, who is either the lawful owner or
the legal possessor of the land, leases the same to the tenant-lessee for a price certain or ascertainable
either in an amount of money or produce.
It can be gleaned that in both civil law lease of an agricultural land and agricultural lease, the
lessor gives to the lessee the use and possession of the land for a price certain. Although the purpose of
the civil law lease and the agricultural lease may be agricultural cultivation and production, the distinctive
attribute that sets a civil law lease apart from an agricultural lease is the personal cultivation by the lessee.
An agricultural lessee cultivates by himself and with the aid of those of his immediate farm household.
Conversely, even when the lessee is in possession of the leased agricultural land and paying a
consideration for it but is not personally cultivating the land, he or she is a civil law lessee.
 STRONGHOLD INSURANCE COMPANY, INC. vs. SPOUSES RUNE and LEA STROEM
G.R. No. 204689 January 21, 2015
PONENTE: LEONEN, J. Decided by: Second Division

FACTS:
Spouses Rune and Lea Stroem entered into an Owners-Contractor Agreement4 with Asis-Leif &
Company, Inc. (Asis-Leif) for the construction of a two-storey house on the lot owned by Spouses Stroem.
Pursuant to the agreement, Asis-Leif secured Performance Bond in the amount of P4,500,000.00 from
Stronghold Insurance Company, Inc. Stronghold and Asis-Leif, through Ms. Ma. Cynthia Asis-Leif, bound
themselves jointly and severally to pay the Spouses Stroem the agreed amount in the event that the
construction project is not completed.
Asis-Leif failed to finish the project on time despite repeated demands of the Spouses Stroem.
Spouses Stroem subsequently rescinded the agreement. They then hired an independent appraiser to
evaluate the progress of the construction project. Appraiser Asian Appraisal Company, Inc.’s evaluation
resulted in the following percentage of completion: 47.53% of the residential building, 65.62% of the
garage, and 13.32% of the swimming pool, fence, gate, and land development.
On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting that the company settle its
obligations witht he Spouses Stroem. No response was received from Asis-Leif. On September 12, 2002,
the Spouses Stroem filed a Complaint for breach of contract and for sum of money with a claim for
damages against Asis-Leif, Ms. Cynthia Asis-Leif, and Stronghold. Only Stronghold was served summons.
Ms. Cynthia Asis-Leif allegedly absconded and moved out of the country.
Regional Trial Court rendered a judgment in favor of the Spouses Stroem. The trial court ordered
Stronghold to pay the Spouses Stroem P4,500,000.00 with 6% legal interest from the time of first demand.
ISSUE:
Whether or not the dispute, liability of a surety under a performance bond, is connected to a
construction contract and, therefore, falls under the exclusive jurisdiction of the CIAC.
HELD:
The Court ruled in the affirmative. Respondents argue that petitioner is not a party to the
arbitration agreement. Petitioner did not consent to arbitration. It is only respondent and Asis-Leif that
may invoke the arbitration clause in the contract.
This court has previously held that a performance bond, which is meant "to guarantee the supply
of labor, materials, tools, equipment, and necessary supervision to complete the project," is significantly
and substantially connected to the construction contract and, therefore, falls under the jurisdiction of the
CIAC.
Prudential Guarantee and Assurance Inc. v. Anscor Land, Inc. involved circumstances similar to
the present case. In Prudential, property owner Anscor Land, Inc. (ALI) entered into a contract for the
construction of an eight-unit townhouse located inCapitol Hills, Quezon City with contractor Kraft Realty
and Development Corporation (KRDC). KRDC secured the completion of the construction project through
a surety and performance bond issued by Prudential Guarantee and Assurance Inc. (PGAI).
 The delay in the construction project resulted in ALI’s termination of the contract and claim
against the performance bond. "ALI [subsequently] commenced arbitration proceedings against KRDC and
PGAI in the CIAC." PGAI, however, argued that it was not a party to the construction contract.
The CIAC ruled that PGAI was not liable under the performance bond. Upon review, the Court of
Appeals held that PGAI was jointly and severally liable with KRDC under the performance bond.
PGAI appealed the Court of Appeals Decision and claimed that CIAC did not have jurisdiction over
the performance bond. This court ruled:
A guarantee or a surety contract under Article 2047 of the Civil Code of the Philippines is an
accessory contract because it is dependent for its existence upon the principal obligation guaranteed by
it.
In fact, the primary and only reason behind the acquisition of the performance bond by KRDC was
to guarantee to ALI that the construction project would proceed in accordance with the contract terms
and conditions. In effect, the performance bond becomes liable for the completion of the construction
project in the event KRDC fails in its contractual undertaking. Because of the performance bond, the
construction contract between ALI and KRDC is guaranteed to be performed even if KRDC fails in its
obligation. In practice, a performance bond is usually a condition or a necessary component of
construction contracts. In the case at bar, the performance bond was so connected with the construction
contract that the former was agreed by the parties to be a condition for the latter to push through and at
the same time, the former is reliant on the latter for its existence as an accessory contract.
Although not the construction contract itself, the performance bond is deemed as an associate of
the main construction contract that it cannot be separated or severed from its principal. The Performance
Bond is significantly and substantially connected to the construction contract that there can be no doubt
it is the CIAC, under Section 4 of EO No. 1008, which has jurisdiction over any dispute arising from or
connected with it.
At first look, the Owners-Contractor Agreement and the performance bond reference each other;
the performance bond was issued pursuant to the construction agreement.
A performance bond is a kind of suretyship agreement. A suretyship agreement is an agreement
"whereby a party, called the surety, guarantees the performance by another party, called the principal or
obligor, of an obligation or undertaking in favor of another party, called the obligee." In the same vein, a
performance bond is "designed to afford the project owner security that the . . . contractor, will faithfully
comply with the requirements of the contract . . . and make good [on the] damages sustained by the
project owner in case of the contractor’s failure to so perform."
It is settled that the surety’s solidary obligation for the performance of the principal debtor’s obligation is
indirect and merely secondary. Nevertheless, the surety’s liability to he "creditor or promisee of the
principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with
the principal."
Verily, "in enforcing a surety contract, the ‘complementary contracts-construed-together’
doctrine finds application. According to this principle, an accessory contract must be read in its entirety
and together with the principal agreement." Article 1374 of the Civil Code provides, The various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which
may result from all of them taken jointly.
Applying the "complementary-contracts-construed-together" doctrine, this court in Prudential held that
the surety willingly acceded to the terms of the construction contract despite the silence of the
performance bond as to arbitration:
In the case at bar, the performance bond was silent with regard to arbitration. On the other hand,
the construction contract was clear as to arbitration in the event of disputes. Applying the said doctrine,
we rule that the silence of the accessory contract in this case could only be construed as acquiescence to
the main contract. The construction contract breathes life into the performance bond. We are not ready
to assume that the performance bond contains reservations with regard to some of the terms and
conditions in the construction contract where in fact it is silent. On the other hand, it is more reasonable
to assume that the party who issued the performance bond carefully and meticulously studied the
construction contract that it guaranteed, and if it had reservations, it would have and should have
mentioned them in the surety contract.
 FIRST OPTIMA REALTY CORPORATION vs. SECURITRON SECURITY SERVICES, INC.,
G.R. No. 199648 January 28, 2015
PONENTE: DEL CASTILLO, J. Decided by: Second Division

FACTS:
Petitioner First Optima Realty Corporation is a domestic corporation engaged in the real estate
business and the registered owner of a 256-square meter parcel of land with improvements located in
Pasay City. Respondent Securitron Security Services, Inc., is a domestic corporation with offices located
beside the subject property. Looking to expand its business and add to its existing offices, respondent,
through its General Manager, Antonio Eleazar, addressed to petitioner, Carolina T. Young, offering to
purchase the subject property at P6,000.00 per square meter.
Sometime thereafter, Eleazar personally went to petitioner’s office offering to pay for the subject
property in cash, which he already brought with him. However, Young declined to accept payment, saying
that she still needed to secure her sister’s advice on the matter. She likewise informed Eleazar that prior
approval of petitioner’s Board of Directors was required for the transaction, to which remark Eleazar
replied that respondent shall instead await such approval. On February 4, 2005, respondent sent a Letter
of even date to petitioner. It was accompanied by Philippine National Bank Check, issued for P100,000.00
and made payable to petitioner.
The letter and check were coursed through an ordinary receiving clerk/receptionist of the
petitioner, who thus received the same and therefor issued and signed a provisional receipt for earnest
money or partial payment. The check was eventually deposited with and credited to petitioner’s bank
account. Thereafter, respondent demanded in writing that petitioner proceed with the sale of the
property. Petitioner through its Executive Vice President, replied that they are not accepting the
respondent’s offer and that they shall refund the money which was previously tendered.
Respondent sued petitioner for specific performance with damages, compelling the latter to
consummate the supposed sale of the subject property. It contended that there was a perfected contract
of sale and it paid the earnest money which petitioner accepted. The RTC ruled that, First Optima Realty
Corporation is directed to comply with its obligation by accepting the remaining balance of One Million
Five Hundred Thirty-Six Thousand Pesos and Ninety-Nine Centavos (P1,536,000.99), and executing the
corresponding deed of sale in favor of the plaintiff Securitron Security Services, Inc. over the subject parcel
of land.
ISSUE:
Whether or not the money delivered by the respondent was earnest money, thus providing a
perfected contract of sale.
HELD:
The Court ruled in the negative. Thus, the trial and appellate courts failed to appreciate that
respondent’s offer to purchase the subject property was never accepted by the petitioner at any instance,
even after negotiations were held between them. Thus, as between them, there is no sale to speak of.
"When there is merely an offer by one party without acceptance of the other, there is no contract. "To
borrow a pronouncement in a previously decided case, the stages of a contract of sale are: (1) negotiation,
starting from the time the prospective contracting parties indicate interest in the contract to the time the
contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of
the sale; and (3) consummation, which commences when the parties perform their respective
undertakings under the contract of sale, culminating in the extinguishment of the contract.
In the present case, the parties never got past the negotiation stage. Nothing shows that the parties had
agreed on any final arrangement containing the essential elements of a contract of sale, namely, (1)
consent or the meeting of the minds of the parties; (2) object or subject matter of the contract; and (3)
price or consideration of the sale.
Respondent’s subsequent sending of the February 4, 2005 letter and check to petitioner – without
awaiting the approval of petitioner’s board of directors and Young’s decision, or without making a new
offer – constitutes a mere reiteration of its original offer which was already rejected previously; thus,
petitioner was under no obligation to reply to the February 4, 2005 letter. It would be absurd to require a
party to reject the very same offer each and every time it is made; otherwise, a perfected contract of sale
could simply arise from the failure to reject the same offer made for the hundredth time. Thus, said letter
cannot be considered as evidence of a perfected sale, which does not exist in the first place; no binding
obligation on the part of the petitioner to sell its property arose as a consequence. The letter made no
new offer replacing the first which was rejected.
Since there is no perfected sale between the parties, respondent had no obligation to make
payment through the check; nor did it possess the right to deliver earnest money to petitioner in order to
bind the latter to a sale. As contemplated under Art. 1482 of the Civil Code, "there must first be a
perfected contract of sale before we can speak of earnest money." "Where the parties merely exchanged
offers and counter-offers, no contract is perfected since they did not yet give their consent to such offers.
Earnest money applies to a perfected sale."
This Court is inclined to accept petitioner’s explanation that since the check was mixed up with all
other checks and correspondence sent to and received by the corporation during the course of its daily
operations, Young could not have timely discovered respondent’s check payment; petitioner’s failure to
return the purported earnest money cannot mean that it agreed to respondent’s offer.
Thus, as between respondent’s irregular and improper actions and petitioner’s failure to timely
return the P100,000.00 purported earnest money, this Court sides with petitioner. In a manner of
speaking, respondent cannot fault petitioner for not making a refund since it is equally to blame for
making such payment under false pretenses and irregular circumstances, and with improper motives.
Parties must come to court with clean hands, as it were.
In a potential sale transaction, the prior payment of earnest money even before the property owner can
agree to sell his property is irregular, and cannot be used to bind the owner to the obligations of a seller
under an otherwise perfected contract of sale; to cite a well-worn cliché, the carriage cannot be placed
before the horse. The property owner-prospective seller may not be legally obliged to enter into a sale
with a prospective buyer through the latter’s employment of questionable practices which prevent the
owner from freely giving his consent to the transaction; this constitutes a palpable transgression of the
prospective seller’s rights of ownership over his property, an anomaly which the Court will certainly not
condone. An agreement where the prior free consent of one party thereto is withheld or suppressed will
be struck down, and the Court shall always endeavor to protect a property owner’s rights against devious
practices that put his property in danger of being lost or unduly disposed without his prior knowledge or
consent. As this ponente has held before, "[t]his Court cannot presume the existence of a sale of land,
absent any direct proof of it.”
Nor will respondent's supposed payment be 'treated as a deposit or guarantee; its actions will not
be dignified and must be called for what they are: they were done irregularly and with a view to acquiring
the subject property against petitioner's consent.
 YULIM INTERNATIONAL COMPANY LTD., JAMES YU, JONATHAN YU, and ALMERICK TIENG LIM vs.
INTERNATIONAL EXCHANGE BANK (now Union Bank of the Philippines)
G.R. No. 203133 February 18, 2015
PONENTE: REYES, J.: Decided by: Third Division

FACTS:
On June 2, 2000, iBank, a commercial bank, granted Yulim, a domestic partnership, a credit facility
in the form of an Omnibus Loan Line for P5,000,000.00, as evidenced by a Credit Agreement which was
secured by a Chattel Mortgage over Yulim’s inventories in its merchandise warehouse Caloocan City. As
further guarantee, the partners, James, Jonathan and Almerick, executed a Continuing Surety Agreement
in favor of iBank.
The 5 promissory notes were later consolidated under a single promissory note for P4,246,310.00,
to mature on February 28, 2002.7 Yulim defaulted on the said note. On April 5, 2002, iBank sent demand
letters to Yulim, through its President, James, and through Almerick, but without success.
iBank then filed a Complaint for Sum of Money with Replevin against Yulim and its sureties. On August 8,
2002, the Court granted the application for a writ of replevin. Pursuant to the Sheriff’s Certificate of Sale
dated November 7, 2002, the items seized from Yulim’s warehouse were worth only P140,000.00, not
P500,000.00 as the petitioners have insisted. On October 2, 2002, the petitioners moved to dismiss the
complaint insisting that their loan had been fully paid after they assigned to iBank their Condominium
Unit No. 141, with parking space, at 20 Landsbergh Place in Tomas Morato Avenue, Quezon City. They
claimed that while the pre-selling value of the condominium unit was P3.3 Million, its market value has
since risen to 5.5 Million. The RTC ruling on the merits ordered Yulim alone to pay iBank the amount of
P4,246,310.00, plus interest at 16.50% per annum from February 28, 2002 until fully paid, plus costs of
suit, and dismissed the complaint against petitioners James, Jonathan and Almerick, stating that there
was no iota of evidence that the loan proceeds benefited their families.
ISSUE:
1. Whether or not Yulim’s loans have been extinguished with the execution of a Deed of Assignment
of their condominium unit in favor of iBank.
2. Whether or not petitioners James, Jonathan and Almerick should be held solidarily liable with
Yulim for its loans and other obligations to iBank.
HELD:
On the first issue, the Court ruled in the negative. As regards the petitioners’ contention that iBank
in its letter dated May 4, 2001 had "accepted/approved" the assignment of its condominium unit in Tomas
Morato Avenue as full and final payment of their various loan obligations, the Court is far from persuaded.
On the contrary, what the letter accepted was only the collaterals provided for the loans, as well as the
consolidation of the petitioners’ various PN’s under one PN for their aggregate amount of P4,246,310.00.
The letter goes on to spell out the terms of the new PN, such as, that its expiry would be February 28,
2002 or a term of 360 days, that interest would be due every 90 days, and that the rate would be based
on the 91-day Treasury Bill rate or other market reference.
 Nowhere can it be remotely construed that the letter even intimates an understanding by iBank
that the Deed of Assignment would serve to extinguish the petitioners’ loan. Otherwise, there would have
been no need for iBank to mention therein the three "collaterals" or "supports" provided by the
petitioners, namely, the Deed of Assignment, the Chattel Mortgage and the Continuing Surety Agreement
executed by the individual petitioners. In fact, Section 2.01 of the Deed of Assignment expressly
acknowledges that it is a mere "interim security for the repayment of any loan granted and those that
may be granted in the future by the BANK to the ASSIGNOR and/or the BORROWER, for compliance with
the terms and conditions of the relevant credit and/or loan documents thereof." The condominium unit,
then, is a mere temporary security, not a payment to settle their promissory notes.
Even more unmistakably, Section 2.02 of the Deed of Assignment provides that as soon as title to
the condominium unit is issued in its name, Yulim shall "immediately execute the necessary Deed of Real
Estate Mortgage in favor of the BANK to secure the loan obligations of the ASSIGNOR and/or the
BORROWER." This is a plain and direct acknowledgement that the parties really intended to merely
constitute a real estate mortgage over the property. In fact, the Deed of Assignment expressly states, by
way of a resolutory condition concerning the purpose or use of the Deed of Assignment, that after the
petitioners have delivered or caused the delivery of their title to iBank, the Deed of Assignment shall then
become null and void. Shorn of its legal efficacy as an interim security, the Deed of Assignment would
then become functus officio once title to the condominium unit has been delivered to iBank. This is so
because the petitioners would then execute a Deed of Real Estate Mortgage over the property in favor of
iBank as security for their loan obligations.
On the second issue, the Court ruled affirmative. Firstly, the individual petitioners do not deny
that they executed the Continuing Surety Agreement, wherein they "jointly and severally with the
PRINCIPAL [Yulim], hereby unconditionally and irrevocably guarantee full and complete payment when
due, whether at stated maturity, by acceleration, or otherwise, of any and all credit accommodations that
have been granted" to Yulim by iBank, including interest, fees, penalty and other charges. Under Article
2047 of the Civil Code, these words are said to describe a contract of suretyship. It states: Art. 2047. By
guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such case the contract is called a suretyship. In a contract of
suretyship, one lends his credit by joining in the principal debtor’s obligation so as to render himself
directly and primarily responsible with him without reference to the solvency of the principal. According
to the above Article, if a person binds himself solidarily with the principal debtor, the provisions of Articles
1207 to 1222, or Section 4, Chapter 3, Title I, Book IV of the Civil Code on joint and solidary obligations,
shall be observed. Thus, where there is a concurrence of two or more creditors or of two or more debtors
in one and the same obligation, Article 1207 provides that among them, "[t]here is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity."
 "A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable."
And it is well settled that when the obligor or obligors undertake to be "jointly and severally" liable, it
means that the obligation is solidary, as in this case.
The liability of the SURETIES shall be direct, immediate and not contingent upon the pursuit of the
BANK of whatever remedies it may have against the PRINCIPAL of the other securities for the
Accommodation. Thereunder, in addition to binding themselves "jointly and severally" with Yulim to
"unconditionally and irrevocably guarantee full and complete payment" of any and all credit
accommodations that have been granted to Yulim, the petitioners further warrant that their liability as
sureties "shall be direct, immediate and not contingent upon the pursuit [by] the BANK of whatever
remedies it may have against the PRINCIPAL of other securities." There can thus be no doubt that the
individual petitioners have bound themselves to be solidarily liable with Yulim for the payment of its loan
with iBank.
 R TRANSPORT CORPORATION vs. LUISITO G. YU
G.R. No. 174161 February 18, 2015
PONENTE: PERALTA, J. Decided by: Third Division

FACTS:
At around 8:45 in the morning of December 12, 1993, Loreta J. Yu, after having alighted from a
passenger bus in front of Robinson's Galleria along the north-bound lane of Epifanio de los Santos Avenue
(EDSA), was hit and run over by a bus driven by Antonio P. Gimena, who was then employed by petitioner
R Transport Corporation. Loreta was immediately rushed to Medical City Hospital where she was
pronounced dead on arrival.
On February 3, 1994, the husband of the deceased, respondent Luisito G. Yu, filed a Complaint for
damages before the Regional Trial Court of Makati City against petitioner R Transport, Antonio Gimena,
and Metro Manila Transport Corporation (MMTC) for the death of his wife. MMTC denied its liability
reasoning that it is merely the registered owner of the bus involved in the incident, the actual owner,
being petitioner R Transport. It explained that under the Bus Installment Purchase Program of the
government, MMTC merely purchased the subject bus, among several others, for resale to petitioner R
Transport, which will in turn operate the same within Metro Manila. Since it was not actually operating
the bus which killed respondent’s wife, nor was it the employer of the driver thereof, MMTC alleged that
the complaint against it should be dismissed. For its part, petitioner R Transport alleged that respondent
had no cause of action against it for it had exercised due diligence in the selection and supervision of its
employees and drivers and that its buses are in good condition. Meanwhile, the driver Antonio Gimena
was declared in default for his failure to file an answer to the complaint.
After trial on the merits, the trial court rendered judgment in favor of respondent Yu ruling that
petitioner R Transport failed to prove that it exercised the diligence required of a good father of a family
in the selection and supervision of its driver, who, by its negligence, ran over the deceased resulting in her
death. It also held that MMTC should be held solidarily liable with petitioner R Transport because it would
unduly prejudice a third person who is a victim of a tort to look beyond the certificate of registration and
prove who the actual owner is in order to enforce a right of action. Thus, the trial court ordered the
payment of damages.
ISSUE:
1. Whether or not the driver Gimena is negligent in driving which cause the death of Loreta Yu.
2. Whether or not R Transport is solidarily liable with the driver Gimena.
HELD:
On the first issue, the Court ruled in the affirmative. Negligence has been defined as "the failure
to observe for the protection of the interests of another person that degree of care, precaution, and
vigilance which the circumstances justly demand, whereby such other person suffers injury." Verily,
foreseeability is the fundamental test of negligence. It is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do,
or the doing of something which a prudent and reasonable man would not do.
 In this case, the records show that driver Gimena was clearly running at a reckless speed. As
testified by the police officer on duty at the time of the incident and indicated in the Autopsy Report, not
only were the deceased’s clothes ripped off from her body, her brain even spewed out from her skull and
spilled over the road. Indeed, this Court is not prepared to believe petitioner’s contention that its bus was
travelling at a "normal speed" in preparation for a full stop in view of the fatal injuries sustained by the
deceased. Moreover, the location wherein the deceased was hit and run over further indicates Gimena’s
negligence. As borne by the records, the bus driven by Gimena bumped the deceased in a loading and
unloading area of a commercial center. The fact that he was approaching such a busy part of EDSA should
have already cautioned the driver of the bus. In fact, upon seeing that a bus has stopped beside his lane
should have signalled him to step on his brakes to slow down for the possibility that said bus was unloading
its passengers in the area. Unfortunately, he did not take the necessary precaution and instead, drove on
and bumped the deceased despite being aware that he was traversing a commercial center where
pedestrians were crossing the street. Ultimately, Gimena should have observed due diligence of a
reasonably prudent man by slackening his speed and proceeding cautiously while passing the area.
On the second issue, the Court also ruled on the affirmative. Under Article 2180 of the New Civil
Code, employers are liable for the damages caused by their employees acting within the scope of their
assigned tasks. Once negligence on the part of the employee is established, a presumption instantly arises
that the employer was remiss in the selection and/or supervision of the negligent employee. To avoid
liability for the quasi-delict committed by its employee, it is incumbent upon the employer to rebut this
presumption by presenting adequate and convincing proof that it exercised the care and diligence of a
good father of a family in the selection and supervision of its employees.
Unfortunately, however, the records of this case are bereft of any proof showing the exercise by
petitioner of the required diligence. As aptly observed by the CA, no evidence of whatever nature was
ever presented depicting petitioner’s due diligence in the selection and supervision of its driver, Gimena,
despite several opportunities to do so. In fact, in its petition, apart from denying the negligence of its
employee and imputing the same to the bus from which the victim alighted, petitioner merely reiterates
its argument that since it is not the registered owner of the bus which bumped the victim, it cannot be
held liable for the damage caused by the same. Nowhere was it even remotely alleged that petitioner had
exercised the required diligence in the selection and supervision of its employee. Because of this failure,
petitioner cannot now avoid liability for the quasi-delict committed by its negligent employee.
Indeed, this Court has consistently been of the view that it is for the better protection of the public
for both the owner of record and the actual operator to be adjudged jointly and severally liable with the
driver. As aptly stated by the appellate court, "the principle of holding the registered owner liable for
damages notwithstanding that ownership of the offending vehicle has already been transferred to
another is designed to protect the public and not as a shield on the part of unscrupulous transferees of
the vehicle to take refuge in, in order to free itself from liability arising from its own negligent act."
Hence, considering that the negligence of driver Gimena was sufficiently proven by the records of
the case, and that no evidence of whatever nature was presented by petitioner to support its defense of
due diligence in the selection and supervision of its employees, petitioner, as the employer of Gimena,
may be held liable for damages arising from the death of respondent Yu's wife.
 SPOUSES ROLANDO and HERMINIA SALVADOR vs. SPOUSES ROGELIO AND ELIZABETH RABAJA
and ROSARIO GONZALES
G.R. No. 199990 February 4, 2015
PONENTE: MENDOZA, J. Decided by: Second Division

FACTS:
Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador were looking for a buyer of
their property in Mandaluyong City. Petitioner Herminia Salvador personally introduced Gonzales to them
as the administrator of the said property. Spouses Salvador even handed to Gonzales the owner’s
duplicate certificate of title over the subject property. Spouses Rabaja made an initial payment of
P48,000.00 to Gonzales in the presence of Herminia. Gonzales then presented the Special Power of
Attorney, executed by Rolando Salvador and dated July 24, 1998. On the same day, the parties executed
the Contract to Sell which stipulated that for a consideration of P5,000,000.00, Spouses Salvador sold,
transferred and conveyed in favor of Spouses Rabaja the subject property. Spouses Rabaja made several
payments totalling P950,000.00, which were received by Gonzales pursuant to the SPA provided earlier
as evidenced by the check vouchers signed by Gonzales and the improvised receiptssigned by Herminia.
Sometime in June 1999, however, Spouses Salvador complained to Spouses Rabaja that they did
not receive any payment from Gonzales. This prompted Spouses Rabaja to suspend further payment of
the purchase price and as a consequence, they received a notice to vacate the subject property from
Spouses Salvador for non-payment of rentals. Thereafter, Spouses Salvador instituted an action for
ejectment against Spouses Rabaja. In turn, Spouses Rabaja filed an action for rescission of contract against
Spouses Salvador and Gonzales, the subject matter of the present petition.
RTC rendered a decision in favor of Spouses Rabaja. It held that the signature of Spouses Salvador
affixed in the contract to sell appeared to be authentic. It also held that the contract, although
denominated as "contract to sell," was actually a contract of sale because Spouses Salvador, as vendors,
did not reserve their title to the property until the vendees had fully paid the purchase price. Since the
contract entered into was a reciprocal contract, it could bevalidly rescinded by Spouses Rabaja, and in the
process, they could recover the amount of P950,000.00 jointly and severally from Spouses Salvador and
Gonzales.
ISSUES:
1. Whether or not there is a valid contract of sell between Spouses Salvador and Spouses Rabaja.
2. Whether or not the amount of Php 593,400 garnished by the Court during the ejectment
proceedings be returned to Spouses Rabaja.
3. Whether or not the damages awarded are proper.
HELD:
On the first issue, the Court ruled in the affirmative. The Court agrees with the courts below in
finding that the contract entered into by the parties was essentially a contract of sale which could be
validly rescinded. Spouses Salvador insist that they did not receive the payments made by Spouses Rabaja
from Gonzales which totalled P950,000.00 and that Gonzales was not their duly authorized agent. These
contentions, however, must fail in light of the applicable provisions of the New Civil Code which state:
 Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms of the power
of attorney, as written, even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.
xxxx
Art. 1902. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions as regards
the agency. Private or secret orders and instructions of the principal do not prejudice third
persons who have relied upon the power of attorney or instructions shown them.
xxxx
Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
Persons dealing with an agent must ascertain not only the fact of agency, but also the nature and
extent of the agent’s authority. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions as regards the agency.
The basis for agency is representation and a person dealing with an agent is put upon inquiry and must
discover on his own peril the authority of the agent.
According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an act is
deemed to have been performed within the scope of the agent's authority, if such act is within the terms
of the power of attorney, as written. In this case, Spouses Rabaja did not recklessly enter into a contract
to sell with Gonzales. They required her presentation of the power of attorney before they transacted
with her principal. And when Gonzales presented the SPA to Spouses Rabaja, the latter had no reason not
to rely on it.
The law mandates an agent to act within the scope of his authority which what appears in the
written terms of the power of attorney granted upon him. The Court holds that, indeed, Gonzales acted
within the scope of her authority. The SPA precisely stated that she could administer the property,
negotiate the sale and collect any document and all payments related to the subject property. As the
agent acted within the scope of his authority, the principal must comply with all the obligations. As
correctly held by the CA, considering that it was not shown that Gonzales exceeded her authority or that
she expressly bound herself to be liable, then she could not be considered personally and solidarily liable
with the principal, Spouses Salvador.
Perhaps the most significant point which defeats the petition would be the fact that it was
Herminia herself who personally introduced Gonzalez to Spouses Rabaja as the administrator of the
subject property. By their own ostensible acts, Spouses Salvador made third persons believe that Gonzales
was duly authorized to administer, negotiate and sell the subject property. This fact was even affirmed by
Spouses Salvador themselves in their petition where they stated that they had authorized Gonzales to
look for a buyer of their property. It is already too late in the day for Spouses Salvador to retract the
representation to unjustifiably escape their principal obligation.
 As correctly held by the CA and the RTC, considering that there was a valid SPA, then Spouses
Rabaja properly made payments to Gonzales, as agent of Spouses Salvador; and it was as if they paid to
Spouses Salvador. It is of no moment, insofar as Spouses Rabaja are concerned, whether or not the
payments were actually remitted to Spouses Salvador. Any internal matter, arrangement, grievance or
strife between the principal and the agent is theirs alone and should not affect third persons. If Spouses
Salvador did not receive the payments or they wish to specifically revoke the SPA, then their recourse is
to institute a separate action against Gonzales. Such action, however, is not any more covered by the
present proceeding.
On the second issue, the Court ruled in the negative. First, the garnishment of the amount of
P593,400.00 against Spouses Rabaja was pursuant to the CA decision in CA-G.R. SP No. 89259, an entirely
different case involving an action for ejectment, and it does not concern the rescission case which is on
appeal before this Court. Moreover, the decision on the ejectment case is final and executory and an entry
of judgment has already been made. Nothing is more settled in law than that when a final judgment is
executory, it thereby becomes immutable and unalterable. The judgment may no longer be modified in
any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion
of fact or law, and regardless of whether the modification is attempted to be made by the court which
rendered it or by the highest Court of the land. The doctrine is founded on consideration of public policy
and sound practice that, at the risk of occasional errors, judgments must become final at some definite
point in time.
The March 31, 2006 CA decision in CA-G.R. SP No. 89259has long been final and executory and
cannot any more be disturbed by the Court. Public policy dictates that once a judgment becomes final,
executory and unappealable, the prevailing party should not be denied the fruits of his victory by some
subterfuge devised by the losing party. Unjustified delay in the enforcement of a judgment sets at naught
the role and purpose of the courts to resolve justiciable controversies with finality.
Meanwhile, in ruling that the garnishment was improper and thus ordering the return of the
garnished amount, the CA referred to its decision in CA-G.R. SP No. 89260. Spouses Salvador, however,
clarified in its motion for reconsideration before the CA and in the present petition that the garnishment
was pursuant to CA-G.R. SP No. 89259, and not CA-G.R. SP No. 89260, another ejectment case involving
another property. A perusal of the records reveals that indeed the garnishment was pursuant to the
ejectment case in the MeTC, docketed as Civil Case No. 17344,47 where Spouses Rabaja were the
defendants. The MeTC decision was then reinstated by the CA in CA-G.R. SP No. 89259, not CA-G.R. SP
No. 89260. There, a writ of execution and notice of pay were issued against Spouses Rabaja in the amount
of P591,900.00.
Second, Spouses Rabaja’s appeal with the RTC never sought relief in returning the garnished
amount. Such issue simply emerged in the RTC decision. This is highly improper because the court’s grant
of relief is limited only to what has been prayed for in the complaint or related thereto, supported by
evidence, and covered by the party’s cause of action.
If Spouses Rabaja would have any objection on the manner and propriety of the execution, then
they must institute their opposition to the execution proceeding a separate case. Spouses Rabaja can
invoke the Civil Code provisions on legal compensation or set-off under Articles 1278, 1279 and 1270. The
two obligations appear to have respectively offset each other, compensation having taken effect by
operation of law pursuant to the said provisions of the Civil Code, since all the requisites provided in Art.
1279 of the said Code for automatic compensation are duly present.
On the last issue, the Court also ruled in the negative. The award of damages to Spouses Rabaja
cannot be sustained by this Court. The filing alone of a civil action should not be a ground for an award of
moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral
damages. Article 2220 of the New Civil Code provides that to award moral damages in a breach of
contract, the defendant must act fraudulently or in bad faith. In this case, Spouses Rabaja failed to
sufficiently show that Spouses Salvador acted in a fraudulent manner or with bad faith when it breached
the contract of sale. Thus, the award of moral damages cannot be warranted.
As to the award of exemplary damages, Article 2229 of the New Civil Code provides that
exemplary damages may be imposed by way of example or correction for the public good, in addition to
the moral, temperate, liquidated or compensatory damages. The claimant must first establish his right to
moral, temperate, liquidated or compensatory damages. In this case, considering that Spouses Rabaja
failed to prove moral or compensatory damages, then there could be no award of exemplary damages.
With regard to attorney’s fees, neither Spouses Rabaja nor Gonzales is entitled to the award. The
settled rule is that no premium should be placed on the right to litigate and that not every winning party
is entitled to an automatic grant of attorney’s fees. The RTC reasoned that Gonzales was forced to litigate
due to the acts of Spouses Salvador. The Court does not agree. Gonzales, as agent of Spouses Salvador,
should have expected that she would be called to litigation in connection with her fiduciary duties to the
principal.
 ROBERT and NENITA DE LEON vs. GILBERT and ANALYN DELA LLANA
G.R. No. 212277 February 11, 2015
PONENTE: PERLAS-BERNABE, J. Decided by: First Division

FACTS:
The case stemmed from an unlawful detainer complaint, first ejectment complaint, filed by
respondent Gilbert dela Llana against petitioner Robert de Leon and a certain Gil de Leon before Municipal
Circuit Trial Court of Nabunturan-Mawab, Compostela Valley Province. In the said complaint, Gilbert
averred that sometime in 1999, he, through an undated contract of lease, leased a portion of a 541 square-
meter property situated in Poblacion, Nabunturan, Compostela Valley Province, registered in his name,
to Robert, which the latter intended to use as a lottery outlet. The lease contract had a term of five (5)
years and contained a stipulation that any case arising from the same shall be filed in the courts of Davao
City only. Gilbert claimed that Robert and Gil failed to pay their rental arrears to him and refused to vacate
the subject property, despite repeated demands, thus, the first ejectment complaint.
In their defense, Robert and Gil posited that the aforementioned lease contract was simulated
and, hence, not binding on the parties.

ISSUE:
Whether or not the undated contract of lease is simulated.
HELD:
The Court ruled in the affirmative. The Court deems it apt to correct the MCTC-Nabunturan-
Mawab’s characterization of the simulated character of the undated lease contract, which, to note, stands
as a mere error in terminology that would not negate the granting of the present petition on the ground
of res judicata. Properly speaking, the contract, as gathered from the MCTC-Nabunturan-Mawab’s
ratiocination, should be considered as an absolutely and not a relatively simulated contract. The
distinction between the two was discussed in Heirs of Intac v. CA,48 viz.: Articles 1345 and 1346 of the
Civil Code provide:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when
the parties do not intend to be bound at all; the latter, whenthe parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement.
If the parties state a false cause in the contract to conceal their real agreement, the contract is
only relatively simulated and the parties are still bound by their real agreement. Hence, where the
essential requisites of a contract are present and the simulation refers only to the content or terms of the
contract, the agreement is absolutely binding and enforceable between the parties and their successors
in interest.
In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. "The main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical situation
of the parties." "As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract."
The relevant portions of the MCTC-Nabunturan-Mawab’s January 24, 2006 Decision read:
On the issue that the contract is simulated, the [MCTCNabunturan-Mawab] affords [Robert’s] counsel the
benefit of doubt. The Court submits that the contract is relatively simulated for cogent reasons:
It tickles the [MCTC-Nabunturan-Mawab’s] imagination why, despite the stark fact that [Robert
and Gil have] failed to pay the agreed monthly rentals for more or less six (6) years, it was only upon the
filing of the instant complaint that [Gilbert] wanted [Robert and Gil] ejected. In spite of the undeniable
fact that [Robert and Gil have] failed to pay their monthly rentals, there was not any effort exerted by
[Gilbert] to collect the same prior to the filing of the action.
Failure of other parties to demand performance of the obligation of the other for unreasonable
length of time renders the contract ineffective x x x.
Now the [MCTC-Nabunturan-Mawab] entertains the thought that the filing of the case at bench
on March 7, 2005 was just a mere leverage or shall we say a cushion in view of [Fely de Leon’s] filing of
the aforesaid civil case against [Gilbert] on June 28, 2004.
In a simulated contract, the parties do not intend to be bound by the same x x x.
The [MCTC-Nabunturan-Mawab] is now inclined to toe the line of [Robert and Gil] that the
execution of the contract was just a mere formality with the requirement of the PCSO for one to install or
put up a lottery outlet.
As may be gleaned from the foregoing, it is quite apparent that the MCTC-Nabunturan-Mawab
actually intended to mean that the undated lease contract subject of this case was absolutely simulated.
Its pronouncement that the parties did not intend to be bound by their agreement is simply inconsistent
with relative simulation. Note that regardless of the correctness of its ruling on the contract’s simulated
character, the fact of the matter is that the same had already attained finality. As a result, the MCTC
Nabunturan-Mawab’s January 24, 2006 Decision bars any other action involving the same parties, subject
matter, and cause of action, such as the second ejectment complaint.
Further, with the undated lease contract definitely settled as absolutely simulated, and hence,
void, there can be no invocation of the exclusive venue stipulation on the part of either party; thus, the
general rule on the filing of real actions in the court where the property is situated – as in the filing of the
first ejectment complaint before the MCTC-Nabunturan-Mawab located in Compostela Valley same as the
subject property of this case – prevails.
 UNKNOWN OWNER OF THE VESSEL M/V CHINA JOY, SAMSUN SHIPPING LTD., AND INTER-ASIA
MARINE TRANSPORT, INC., vs. ASIAN TERMINALS, INC.,
G.R. No. 195661 March 11, 2015
PONENTE: REYES, J. Decided by: Third Division

FACTS:
On 25 January 1997, the cargo ship M/V “China Joy” arrived at the Mariveles Grain Terminal
Wharf, operated by plaintiff ATI. According to the Berth Term Grain Bills of Lading, the Vessel carried
soybean meal that had been shipped by ContiQuincyBunge L.L.C., an exporter of soybean meal and related
products, in favor of several consignees in the Philippines.
Under the Charter Party Agreement over M/V “China Joy,” ContiQuincyBunge represented itself
as the Charterer of the Vessel, with San Miguel Foods, Inc. as Co-Charterer, and defendant Samsun
represented itself as the Agent of the Shipowners. Samsun is a foreign corporation not doing business in
the Philippines. It is represented in the Philippines by Inter-Asia. In effect, Inter-Asia is the agent of the
agent of the shipowner.
ATI claims that its equipment Siwertell Unloader No. 2, a pneumatic vacubator that uses
compressed gas to vertically move heavy bulk grain from within the hatch of the ship in order to unload
it off the M/V “China Joy” , was damaged due to the presence of a flat steel bar in the middle of the
soybean meal. The total cost to fix the damage totaled more than $39M.
ATI first sent a claim to the Master of the Vessel which was denied because the metal came from
the cargo and not the vessel itself. Then, it sent a claim to Inter-Asia which was also rejected on the ground
that it was not the Shipowner’s Agent. Instead it related the claim to the alleged vessel-owner, Trans-
Pacific Shipping Co., c/o Lasco Shipping Company.
The negotiations for settlement ultimately failed, ATI filed the instant Complaint for Damages
against Samsun, Inter-Asia and the “Unknown Owner of the Vessel M/V ‘China Joy’” on 9 March 1999.
In the joint Answer, Inter-Asia reiterated that it is not the Agent of the Shipowners. Defendants
further averred that the soybean meal was shipped on board the M/V “China Joy” under a Free-In-and-
Out-Stowed-and-Trimmed (FIOST) Clause, which supposedly means that the Shipper/Charterer itself
ContiQuincyBunge LLC loaded the cargo on board the Vessel, and the latter and her complement had no
participation therein except to provide the use of the Vessel’s gear. Similarly, under the FIOST clause, the
discharge of the cargo was to be done by the consignees’ designated personnel without any participation
of the Vessel and her complement.
ISSUE:
Whether or not the doctrine of res ipsa loquitur is applicable in this case.
HELD:
The Court ruled in the affirmative. The Court agrees with the CA that the petitioners are liable to
ATI for the damage sustained by the latter’s unloader. However, the Court finds the petitioners’ liability
to be based on quasi-delict and not on a contract of carriage.
The petitioners cannot evade liability for the damage caused to ATI’s unloader in view of Article
2176 of the New Civil Code, which pertinently provides as follows:
 Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
In Taylor v. Manila Electric Railroad and Light Co., the Court explained that to establish a
plaintiff’s right to recovery for quasi-delicts, three elements must exist, to wit: (a) damages to the plaintiff;
(b) negligence by act or omission of which defendant personally, or some person for whose acts it must
respond, was guilty; and (c) the connection of cause and effect between the negligence and the damage.
Negligence, on the other hand, is defined as the failure to observe that degree of care, precaution
and vigilance that the circumstances justly demand, whereby another suffers injury.
In the case under consideration, the parties do not dispute the facts of damage upon ATI’s
unloader, and of such damage being the consequence of someone’s negligence. However, the petitioners
deny liability claiming that it was not established with reasonable certainty whose negligence had caused
the co-mingling of the metal bars with the soybean meal cargo. The Court, on this matter, agrees with the
CA’s disquisition that the petitioners should be held jointly and severally liable to ATI. ATI cannot be
faulted for its lack of direct access to evidence determinative as to who among the shipowner, Samsun,
ContiQuincyBunge and Inter-Asia should assume liability. The CA had exhaustively discussed why the
doctrine of res ipsa loquitur applies. The metal bars which caused damage to ATI’s unloader was found
co-mingled with the cargo inside Hold No. 2 of the ship, which was then within the exclusive control of
the petitioners. Thus, the presumption that it was the petitioners’ collective negligence, which caused the
damage, stands. This is, however, without prejudice to the petitioners’ rights to seek reimbursements
among themselves from the party whose negligence primarily caused the damage.
 SWIRE REALTY DEVELOPMENT CORPORATION vs. JAYNE YU
G.R. No. 207133 March 09, 2015
PONENTE: PERALTA, J. Decided by: Third Division

FACTS:
Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a
Contract to Sell on July 25, 1995 covering one residential condominium unit of the Palace of Makati, with
an area of 137.30 square meters for the total contract price of P7,519,371.80, payable in equal monthly
installments until September 24, 1997. Respondent likewise purchased a parking lot in the same
condominium building for P600,000.00.
On September 24, 1997, respondent paid the full purchase price of P7,519,371.80 for the unit
while making a down payment of P20,000.00 for the parking lot. However, notwithstanding full payment
of the contract price, petitioner failed to complete and deliver the subject unit on time. This prompted
respondent to file a Complaint for Rescission of Contract with Damages before the Housing and Land Use
Regulatory Board (HLURB) Expanded National Capital Region Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a Decision dismissing respondent’s complaint.
It ruled that rescission is not permitted for slight or casual breach of the contract but only for such
breaches as are substantial and fundamental as to defeat the object of the parties in making the
agreement.
ISSUE:
Whether or not rescission of the contract is proper in the instant case.
HELD:
The Court ruled in the affirmative. Article 1191 of the Civil Code sanctions the right to rescind the
obligation in the event that specific performance becomes impossible, to wit:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission, even after
he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
Basic is the rule that the right of rescission of a party to an obligation under Article 1191 of the
Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them.
The breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation.
When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in
the absence of any just cause for the court to determine the period of compliance, the court shall decree
the rescission.
 In the instant case, the CA aptly found that the completion date of the condominium unit was
November 1998 pursuant to License No. 97-12-3202 dated November 2, 1997 but was extended to
December 1999 as per License to Sell No. 99-05-3401 dated May 8, 1999. However, at the time of the
ocular inspection conducted by the HLURB ENCRFO, the unit was not yet completely finished as the
kitchen cabinets and fixtures were not yet installed and the agreed amenities were not yet available.
From the foregoing, it is evident that the report on the ocular inspection conducted on the subject
condominium project and subject unit shows that the amenities under the approved plan have not yet
been provided as of May 3, 2002, and that the subject unit has not been delivered to respondent as of
August 28, 2002, which is beyond the period of development of December 1999 under the license to sell.
Incontrovertibly, petitioner had incurred delay in the performance of its obligation amounting to breach
of contract as it failed to finish and deliver the unit to respondent within the stipulated period. The delay
in the completion of the project as well as of the delay in the delivery of the unit are breaches of statutory
and contractual obligations which entitle respondent to rescind the contract, demand a refund and
payment of damages.
 SPOUSES CHIN KONG WONG CHOI AND ANA O. CHUA vs. UNITED COCONUT PLANTERS BANK
G.R. No. 207747 March 11, 2015
PONENTE: CARPIO, J. Decided by: Second Division

FACTS:
Petitioner spouses Chin Kong Wong Choi and Ana O. Chua entered into a Contract to Sell with
Primetown Property Group, Inc., a domestic corporation engaged in the business of condominium
construction and real estate development. The Contract to Sell provided that Spouses Choi agreed to buy
condominium unit no. A-322 in Kiener Hills Cebu from Primetown for a consideration of P1,151,718.75,
with a down payment of P100,000.00 and the remaining balance payable in 40 equal monthly installments
of P26,292.97 from 16 January 1997 to 16 April 2000.
On 23 April 1998, respondent United Coconut Planters Bank (UCPB), a commercial bank duly
organized and existing under the laws of the Philippines, executed a Memorandum of Agreement10 and
Sale of Receivables and Assignment of Rights and Interests with Primetown. The Agreement provided that
Primetown, in consideration of P748,000,000.00, “assigned, transferred, conveyed and set over unto
UCPB all Accounts Receivables accruing from Primetown’s Kiener together with the assignment of all its
rights, titles, interests and participation over the units covered by or arising from the Contracts to Sell
from which the Accounts Receivables have arisen.” Included in the assigned accounts receivable was the
account of Spouses Choi, who proved payment of one monthly amortization to UCPB on 3 February 1999.
On 11 April 2006, the Spouses Choi filed a complaint for refund of money with interest and
damages against Primetown and UCPB before the Housing and Land Use Regulatory Board (HLURB)
Regional Field Office. Spouses Choi alleged that despite their full payment of the purchase price,
Primetown failed to finish the construction of Kiener and to deliver the condominium unit to them.
ISSUE:
Whether or not under the Agreement between Primetown and UCPB, the latter assumed the
liabilities and obligations of the former under its contract to sell with Spouses Choi.
HELD:
The Court ruled in the negative. An assignment of credit has been defined as an agreement by
virtue of which the owner of a credit, known as the assignor, by a legal cause - such as sale, dation in
payment or exchange or donation - and without need of the debtor’s consent, transfers that credit and
its accessory rights to another, known as the assignee, who acquires the power to enforce it to the same
extent as the assignor could have enforced it against the debtor. In every case, the obligations between
assignor and assignee will depend upon the judicial relation which is the basis of the assignment. An
assignment will be construed in accordance with the rules of construction governing contracts generally,
the primary object being always to ascertain and carry out the intention of the parties. This intention is to
be derived from a consideration of the whole instrument, all parts of which should be given effect, and is
to be sought in the words and language employed.
In the present case, the Agreement between Primetown and UCPB provided that Primetown, in
consideration of P748,000,000.00, “assigned, transferred, conveyed and set over unto [UCPB] all Accounts
Receivables accruing from Primetown’s Kiener x x x together with the assignment of all its rights, titles,
interests and participation over the units covered by or arising from the Contracts to Sell from which the
Accounts Receivables have arisen.”
The Agreement further stipulated that “x x x this sale/assignment is limited to the Receivables
accruing to [Primetown] from the [b]uyers of the condominium units in x x x [Kiener] and the
corresponding Assignment of Rights and Interests arising from the pertinent Contract to Sell and does not
include except for the amount not exceeding 30,000,000.00, Philippine currency, either singly or
cumulatively any and all liabilities which [Primetown] may have assumed under the individual Contract to
Sell.”
The Agreement conveys the straightforward intention of Primetown to “sell, assign, transfer,
convey and set over” to UCPB the receivables, rights, titles, interests and participation over the units
covered by the contracts to sell. It explicitly excluded any and all liabilities and obligations, which
Primetown assumed under the contracts to sell. The intention to exclude Primetown’s liabilities and
obligations is further shown by Primetown’s subsequent letters to the buyers, which stated that “this
payment arrangement shall in no way cause any amendment of the other terms and conditions, nor the
cancellation of the Contract to Sell you have executed with [Primetown].” It is a basic rule that if the terms
of a contract are clear and leave no doubt upon the intention of the parties, the literal meaning shall
control. The words should be construed according to their ordinary meaning, unless something in the
assignment indicates that they are being used in a special sense. Furthermore, in order to judge the
intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered.
It was not clear whether the “amount not exceeding 30,000,000.00, Philippine currency” in the
Agreement referred to receivables or liabilities. Under the Rules of Court, when different constructions of
a provision are otherwise equally proper, that is to be taken which is the most favorable to the party in
whose favor the provision was made. The Memorandum of Agreement’s whereas clauses provided that
Primetown desired to settle its obligation with UCPB. Therefore, the tenor of the Agreement is clearly in
favor of UCPB. Thus, the excluded amount referred to receivables.
Considering that UCPB is a mere assignee of the rights and receivables under the Agreement,
UCPB did not assume the obligations and liabilities of Primetown under its contract to sell with Spouses
Choi.
In an assignment of credit, the vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale. In Filinvest Credit Corporation v. Philippine Acetylene Co.,
Inc., the Court ruled that the assignee did not acquire the burden of unpaid taxes over the assigned
property, since what was transferred only were the rights, title and interest over the property.
Contrary to Spouses Choi’s argument that UCPB was estopped, we find that estoppel would not
lie since UCPB’s letters to the buyers only assured them of the completion of their units by the
developer.46 UCPB did not represent to be the new owner of Kiener or that UCPB itself would complete
Kiener.
 Since there is no other ground to hold UCPB solidarily liable with Primetown and there is no reason
to depart from the ratio decidendi in UCPB v. Ho, UCPB is only liable to refund Spouses Choi the amount
it indisputably received, which is P26,292.97 based on the evidence presented by Spouses Choi.
 METROPOLITAN BANK AND TRUST COMPANY vs. S.F. NAGUIAT ENTERPRISES, INC.,
G.R. No. 178407 March 18, 2015
PONENTE: LEONEN, J. Decided by: Second Division

FACTS:
Sometime in April 1997, Spouses Rommel Naguiat and Celestina Naguiat and S.F. Naguiat
Enterprises, Inc. executed a real estate mortgage in favor of Metropolitan Bank and Trust Company to
secure certain credit accommodations obtained from the latter amounting to P17 million. The mortgage
was constituted over two properties, one in Pampanga and another in Marikina, Rizal. S.F. Naguiat
represented by Celestina T. Naguiat, Eugene T. Naguiat, and Anna N. Africa obtained a loan from
Metrobank in the amount of P1,575,000.00. The loan was likewise secured by the 1997 real estate
mortgage by virtue of the Agreement on Existing Mortgages executed between the parties.
On July 7, 2005, S.F. Naguiat filed a Petition for Voluntary Insolvency with Application for the
Appointment of a Receiver pursuant to Act No. 1956, as amended, before the Regional Trial Court. Among
the assets declared in the Petition was one of the properties mortgaged to Metrobank.
The Presiding Judge issued an Order, declaring S.F. Naguiat insolvent and directing the Deputy Sheriff to
take possession of all the properties of S.F. Naguiat until the appointment of a receiver/assignee and
forbidding payment of any debts due, delivery of properties, and transfer of any of its properties.
S.F. Naguiat defaulted in paying its loan.19 On November 8, 2005, Metrobank instituted an
extrajudicial foreclosure proceeding against the mortgaged property and sold the property at a public
auction held on December 9, 2005 to Phoenix Global Energy, Inc., the highest bidder. Afterwards, Sheriff
Claude B. Balasbas prepared the Certificate of Sale and submitted it for approval to Clerk of Court Vicente
S. Fernandez, Jr. and Executive Judge Bernardita Gabitan-Erum. However, Executive Judge Gabitan-Erum
issued an Order denying her approval of the Certificate of Sale in view of the July 12, 2005 Order issued
by the insolvency court. Metrobank's subsequent Motion for Reconsideration was also denied in the
Order dated April 24, 2006.
Aggrieved by both Orders of Executive Judge Gabitan-Erum, Metrobank filed a Petition for
certiorari and mandamus before the Court of Appeals on June 22, 2006. S.F. Naguiat filed its Manifestation
stating that it was not interposing any objection to the Petition and requested that the issues raised in the
Petition be resolved without objection and argument on its part.
On November 15, 2006, the Court of Appeals rendered its Decision dismissing the Petition on the
basis of Metrobank's failure to "obtain the permission of the insolvency court to extrajudicially foreclose
the mortgaged property." The Court of Appeals declared that "a suspension of the foreclosure
proceedings is in order, until an assignee or receiver, is elected or appointed by the insolvency court so as
to afford the insolvent debtor proper representation in the foreclosure proceedings."
ISSUE:
Whether or not the approval and consent of the insolvency court is required under Act No. 1956,
otherwise known as the Insolvency Law, before a secured creditor like petitioner Metropolitan Bank and
Trust Company can proceed with the extrajudicial foreclosure of the mortgaged property.
HELD:
 The Court ruled in the affirmative. The first insolvency law, Act No. 1956, was enacted on May 20,
1909. It was derived from the Insolvency Act of California (1895), with a few provisions taken from the
United States Bankruptcy Act of 1898. Act No. 1956 was entitled "An Act Providing for the Suspension of
Payments, the Relief of Insolvent Debtors, the Protection of Creditors, and the Punishment of Fraudulent
Debtors." The remedies under the law were through a suspension of payment (for a debtor who was
solvent but illiquid) or a discharge from debts and liabilities through the voluntary or involuntary
insolvency proceedings (for a debtor who was insolvent).
The objective of suspension of payments is the deferment of the payment of debts until such time
as the debtor, which possesses sufficient property to cover all its debts, is able to convert such assets into
cash or otherwise acquires the cash necessary to pay its debts. On the other hand, the objective in
insolvency proceedings is "to effect an equitable distribution of the bankrupt's properties among his
creditors and to benefit the debtor by discharging him from his liabilities and enabling him to start afresh
with the property set apart for him as exempt."
Act No. 1956 was meant to be a complete law on insolvency, and debts were to be liquidated in
accordance with the order of priority set forth under Chapter VI, Sections 48 to 50 on "Classification and
Preference of Creditors"; and Sections 29 and 59 with respect to mortgage or pledge of real or personal
property, or lien thereon. Jurisdiction over suspension of payments and insolvency was vested in the
Courts of First Instance (now the Regional Trial Courts).
The Civil Code58 (effective August 30, 1950) established a system of concurrence and preference
of credits, which finds particular application in insolvency proceedings. Philippine Savings Bank v. Hon.
Lantin explains this scheme:
Concurrence of credits occurs when the same specific property of the debtor or all of his
property is subjected to the claims of several creditors. The concurrence of credits raises no
questions of consequence where the value of the property or the value of all assets of the debtor
is sufficient to pay in full all the creditors. However, it becomes material when said assets are
insufficient for then some creditors of necessity will not be paid or some creditors will not obtain
the full satisfaction of their claims. In this situation, the question of preference will then arise,
that is to say who of the creditors will be paid ahead of the others. (Caguioa, Comments and Cases
on Civil Law, 1970 ed., Vol. VI, p. 472.)
The credits are classified into three general categories, namely, "(a) special preferred credits listed
in Articles 224162 and 2242, (b) ordinary preferred credits listed in Article 2244[,] and (c) common credits
under Article 2245."
The special preferred credits enumerated in Articles 2241 (with respect to movable property) and
2242 (with respect to immovable property) are considered as mortgages or pledges of real or personal
property, or liens within the purview of Act No. 1956. These credits, which enjoy preference with respect
to a specific movable or immovable property, exclude all others to the extent of the value of the property.
If there are two or more liens on the same specific property, the lienholders divide the value of the
property involved pro rata, after the taxes on the same property are fully paid.
 "Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take
precedence over ordinary preferred credits so far as concerns the property to which the liens have
attached. The specially preferred credits must be discharged first out of the proceeds of the property to
which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds."
"In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property
which follow such property. What Article 2244 creates are simply rights in favor of certain creditors to
have the cash and other assets of the insolvent applied in a certain sequence or order of priority."
It was held that concurrence and preference of credits can only be ascertained in the context of
a general liquidation proceeding that is in rem, such as an insolvency proceeding, where properties of the
debtor are inventoried and liquidated and the claims of all the creditors may be bindingly adjudicated.
The application of this order of priorities established under the Civil Code in insolvency proceedings
assures that priority of claims are respected and credits belonging to the same class are equitably treated.
Conformably, it is the policy of Act No. 1956 to place all the assets and liabilities of the insolvent
debtor completely within the jurisdiction and control of the insolvency court without the intervention of
any other court in the insolvent debtor's concerns or in the administration of the estate. It was considered
to be of prime importance that the insolvency proceedings follow their course as speedily as possible in
order that a discharge, if the insolvent debtor is entitled to it, should be decreed without unreasonable
delay. "Proceedings of [this] nature cannot proceed properly or with due dispatch unless they are
controlled absolutely by the court having charge thereof."
In 1981, Presidential Decree No. 1758 amended Presidential Decree No. 902-A, the Securities and
Exchange Commission charter. Under its terms, jurisdiction regarding corporations that sought
suspension of payments process was taken away from the regular courts and given to the Securities and
Exchange Commission. In addition, an alternative to suspension of payments — rehabilitation — was
introduced. It enables a corporation whose assets are not sufficient to cover its liabilities to apply to the
Securities and Exchange Commission for the appointment of a rehabilitation receiver and/or management
committee and then to develop a rehabilitation plan with a view to rejuvenating a financially distressed
corporation. However, the procedure to avail of the remedy was not spelled out until 20 years later when
the Securities and Exchange Commission finally adopted the Rules of Procedure on Corporate Recovery
on January 4, 2000.
Shortly thereafter, with the passage of Republic Act No. 8799 or The Securities Regulation Code
on July 19, 2000, jurisdiction over corporation rehabilitation cases was reverted to the Regional Trial
Courts designated as commercial courts or rehabilitation courts. This legal development was implemented
by the Interim Rules of Procedure on Corporate Rehabilitation (made effective in December 2000), which
was later replaced by A.M. 00-8-10-SC or the Rules of Procedure on Corporate Rehabilitation of 2008.
Act No. 1956 continued to remain in force and effect until its express repeal on July 18, 2010 when
Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act of 2010, took
effect. Republic Act No. 10142 now provides for court proceedings in the rehabilitation or liquidation of
debtors, both juridical and natural persons, in a "timely, fair, transparent, effective and efficient" manner.
The purpose of insolvency proceedings is "to encourage debtors . . . and their creditors to collectively and
realistically resolve and adjust competing claims and property rights" while "maintaining] certainty and
predictability in commercial affairs, preserving] and maximizing] the value of the assets of these debtors,
recognizing] creditor rights and respecting] priority of claims, and ensuring] equitable treatment of
creditors who are similarly situated." It has also been provided that whenever rehabilitation is no longer
feasible, "it is in the interest of the State to facilitate a speedy and orderly liquidation of [the] debtors'
assets and the settlement of their obligations."
Unlike Act No. 1956, Republic Act No. 10142 provides a broad definition of the term, "insolvent":
SEC. 4. Definition of Terms. - As used in this Act, the term:
....
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to
pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets.
Republic Act No. 10142 also expressly categorizes different forms of debt relief available to a
corporate debtor in financial distress. These are out-of-court restructuring agreements; pre-negotiated
rehabilitation; court-supervised rehabilitation; and liquidation (voluntary and involuntary). An insolvent
individual debtor can avail of suspension of payments, or liquidation.
During liquidation proceedings, a secured creditor may waive its security or lien, prove its claim,
and share in the distribution of the assets of the debtor, in which case it will be admitted as an unsecured
creditor; or maintain its rights under the security or lien, in which case:
1. [T]he value of the property may be fixed in a manner agreed upon by the creditor and the
liquidator. When the value of the property is less than the claim . . . the [creditor] will be admitted ... as a
creditor for the balance. If its value exceeds the claim . . . the liquidator may convey the property to the
creditor and waive the debtor's right of redemption upon receiving the excess from the creditor;
2. [T]he liquidator may sell the property and satisfy the secured creditor's entire claim from
the proceeds of the sale; or
3. [T]he secured creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.
A secured creditor, however, is subject to the temporary stay of foreclosure proceedings
for a period of 180 days, upon the issuance by the court of the Liquidation Order.
Republic Act No. 10142 was to govern all petitions filed after it had taken effect, and all further
proceedings in pending insolvency, suspension of payments, and rehabilitation cases, except when its
application "would not be feasible or would work injustice, in which event the procedures set forth in
prior laws and regulations shall apply."
The relevant proceedings in this case took place prior to Republic Act No. 10142; hence, the issue
will be resolved according to the provisions of Act No. 1956.
 COMGLASCO CORPORATION/AGUILA GLASS vs. SANTOS CAR CHECK CENTER CORPORATION
G.R. No. 202989 March 25, 2015
PONENTE: REYES, J. Decided by: Third Division

FACTS:
On August 16, 2000, respondent Santos Car Check Center Corporation, owner of a showroom in
Iloilo City, leased out the said space to petitioner Comglasco Corporation, an entity engaged in the sale,
replacement and repair of automobile windshields, for a period of five years at a monthly rental of
P60,000.00 for the first year, P66,000.00 on the second year, and P72,600.00 on the third through fifth
years. On October 4, 2001, Comglasco advised Santos through a letter that it was pre-terminating their
lease contract effective December 1, 2001. Santos refused to accede to the pre-termination, reminding
Comglasco that their contract was for five years. On January 15, 2002, Comglasco vacated the leased
premises and stopped paying any further rentals. Santos sent several demand letters, which Comglasco
completely ignored. On September 15, 2003, Santos sent its final demand letter, which Comglasco again
ignored. On October 20, 2003, Santos filed suit for breach of contract.
Summons and a copy of the complaint, along with the annexes, were served on Comglasco. but it
moved to dismiss the complaint for improper service. The Regional Trial Court (RTC) of Iloilo City
dismissed the motion and ordered the summons served anew. On June 28, 2004, Comglasco filed its
Answer. Santos moved for a judgment on the pleadings, which the RTC granted. On August 18, 2004, the
trial court rendered its judgment in favor of Santos and against Comglasco.
ISSUE:
Whether or not the pre-termination of the contract due to business setback made by Comglasco
is valid.
HELD:
The Court ruled in the negative. In Philippine National Construction Corporation v. CA (PNCC),
which also involves the termination of a lease of property by the lessee “due to financial, as well as
technical, difficulties,” the Court ruled:
The obligation to pay rentals or deliver the thing in a contract of lease falls within the prestation
“to give”; hence, it is not covered within the scope of Article 1266. At any rate, the unforeseen event and
causes mentioned by petitioner are not the legal or physical impossibilities contemplated in said article.
Besides, petitioner failed to state specifically the circumstances brought about by “the abrupt change in
the political climate in the country” except the alleged prevailing uncertainties in government policies on
infrastructure projects.
The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory,
the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist,
the contract also ceases to exist. This theory is said to be the basis of Article 1267 of the Civil Code, which
provides:
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of contractual
relations. The parties to the contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of circumstances that equity
demands assistance for the debtor.
In this case, petitioner wants this Court to believe that the abrupt change in the political climate
of the country after the EDSA Revolution and its poor financial condition “rendered the performance of
the lease contract impractical and inimical to the corporate survival of the petitioner.”
This Court cannot subscribe to this argument. As pointed out by private respondents:
xxxx
Anent petitioner’s alleged poor financial condition, the same will neither release petitioner from
the binding effect of the contract of lease. As held in Central Bank v. Court of Appeals, cited by private
respondents, mere pecuniary inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for specific performance.
Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate its lease with
Santos, Comglasco invokes the 1997 Asian currency crisis as causing it much difficulty in meeting its
obligations. But in PNCC, the Court held that the payment of lease rentals does not involve a prestation
“to do” envisaged in Articles 1266 and 1267 which has been rendered legally or physically impossible
without the fault of the obligor-lessor. Article 1267 speaks of a prestation involving service which has
been rendered so difficult by unforeseen subsequent events as to be manifestly beyond the
contemplation of the parties. To be sure, the Asian currency crisis befell the region from July 1997 and
for sometime thereafter, but Comglasco cannot be permitted to blame its difficulties on the said regional
economic phenomenon because it entered into the subject lease only on August 16, 2000, more than
three years after it began, and by then Comglasco had known what business risks it assumed when it
opened a new shop in Iloilo City.
This situation is no different from the Court’s finding in PNCC wherein PNCC cited the
assassination of Senator Benigno Aquino Jr. on August 21, 1983 and the ensuing national political and
economic crises as putting it in such a difficult business climate that it should be deemed released from
its lease contract. The Court held that the political upheavals, turmoils, almost daily mass demonstrations,
unprecedented inflation, and peace and order deterioration which followed Senator Aquino’s death were
a matter of judicial notice, yet despite this business climate, PNCC knowingly entered into a lease with
therein respondents on November 18, 1985, doing so with open eyes of the deteriorating conditions of
the country. The Court rules now, as in PNCC, that there are no “absolutely exceptional changes of
circumstances that equity demands assistance for the debtor.”
As found by the CA, Comglasco’s Answer admitted the material allegations in the complaint, to
wit: a) that Santos holds absolute title to a showroom space; b) that Comglasco leased the said showroom
from Santos; c) that after a little over a year, Comglasco pre-terminated the lease; d) that, disregarding
Santos’ rejection of the pre-termination of their lease, Comglasco vacated the leased premises on January
15, 2002; e) that Comglasco never denied the existence and validity of the parties’ lease contract.
Specifically, the CA noted that Paragraph 2 of the Answer admitted the allegations in Paragraphs 2, 3 and
4 of the complaint that the lease was for five years, starting on August 16, 2000 and to expire on August
15, 2005, at a monthly rental of P60,000.00 on the first year, P66,000.00 on the second year, and
P72,600.00 on the third up to the fifth year.
 BANK OF THE PHILIPPINE ISLANDS vs. AMADOR DOMINGO
G.R. No. 169407 March 25, 2015
PONENTE: LEONARDO-DE CASTRO, J. Decided by: First Division

FACTS:
On September 27, 1993, respondent Amador Domingo and his wife, the late Mercy Maryden
Domingo, executed a Promissory Note in favor of Makati Auto Center, Inc. in the sum of P629,856.00,
payable in 48 successive monthly installments in the amount of P13,122.00 each. They simultaneously
executed a Deed of Chattel Mortgage over a 1993 Mazda 323 to secure the payment of their Promissory
Note. Makati Auto Center, Inc. then assigned, ceded, and transferred all its rights and interests over the
said Promissory Note and chattel mortgage to Far East Bank and Trust Company (FEBTC).
On April 7, 2000, the Securities and Exchange Commission (SEC) approved and issued the
Certificate of Filing of the Articles of Merger and Plan of Merger by and between BPI, the surviving
corporation, and FEBTC, the absorbed corporation. By virtue of said merger, all the assets and liabilities
of FEBTC were transferred to and absorbed by BPI.
The spouses Domingo defaulted when they failed to pay 21 monthly installments that had fallen
due consecutively from January 15, 1996 to September 15, 1997. BPI, being the surviving corporation after
the merger, demanded that the spouses Domingo pay the balance of the Promissory Note including
accrued late payment charges/interests or to return the possession of the subject vehicle for the purpose
of foreclosure in accordance with the undertaking stated in the chattel mortgage. When the spouses
Domingo still failed to comply with its demands, BPI filed on November 14, 2000 a Complaint for Replevin
and Damages or in the alternative, for the collection of sum of money, interest and other charges, and
attorney's fees. BPI included a John Doe as defendant because at the time of filing of the Complaint, BPI
was already aware that the subject vehicle was in the possession of a third person but did not yet know
the identity of said person.
ISSUE:
Whether or not there had been a novation of the loan obligation with chattel mortgage of the
spouses Domingo to BPI so that the spouses Domingo were released from said obligation and Carmelita
was substituted as debtor.
HELD:
The Court ruled in the negative. In De Cortes v. Venturanza, the Court discussed some principles
and jurisprudence underlying the concept and nature of novation as a mode of extinguishing obligations:
According to Manresa, novation is the extinguishment of an obligation by the substitution or change of
the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object
or principal conditions, or by substituting the person of the debtor, or by subrogating a third person to
the rights of the creditor (8 Manresa 428, cited in IV Civil Code of the Philippines by Tolentino 1962 ed.,
p. 352). Unlike other modes of extinction of obligations, novation is a juridical act with a dual function - it
extinguishes an obligation and creates a new one in lieu of the old.
Article 1293 of the New Civil Code provides: "Novation which consists in substituting a new
debtor in the place of the original one, may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor."
 Under this provision, there are two forms of novation by substituting the person of the debtor,
and they are: (1) expromision and (2) delegacion. In the former, the initiative for the change does not
come from the debtor and may even be made without his knowledge, since it consists in a third person
assuming the obligation. As such, it logically requires the consent of the third person and the creditor. In
the latter, the debtor offers and the creditor accepts a third person who consents to the substitution and
assumes the obligation, so that the intervention and the consent of these three persons are necessary (8
Manresa 436-437, cited in IV Civil Code of the Philippines by Tolentino, 1962 ed., p. 360). In these two
modes of substitution, the consent of the creditor is an indispensable requirement (Garcia vs. Khu Yek
Chiong, 65 Phil. 466, 468).
The Court also emphasized in De Cortes the indispensability of the creditor's consent to the
novation, whether expromision or delegacion, given that the "substitution of one debtor for another may
delay or prevent the fulfillment of the obligation by reason of the financial inability or insolvency of the
new debtor; hence, the creditor should agree to accept the substitution in order that it may be binding
on him."
Both the RTC and the Court of Appeals found that there was novation by delegacion in the case
at bar. The Deed of Sale with Assumption of Mortgage was executed between Mercy (representing herself
and her husband Amador) and Carmelita, thus, their consent to the substitution as debtors and third
person, respectively, are deemed undisputed. It is the existence of the consent of BPI (or its absorbed
corporation FEBTC) as creditor that is being challenged herein.
As a general rule, since novation implies a waiver of the right the creditor had before the novation,
such waiver must be express. The Court explained the rationale for the rule in Testate Estate of Lazaro
Mota v. Serra:
It should be noted that in order to give novation its legal effect, the law requires that the creditor
should consent to the substitution of a new debtor. This consent must be given expressly for the reason
that, since novation extinguishes the personality of the first debtor who is to be substituted by a new one,
it implies on the part of the creditor a waiver of the right that he had before the novation, which waiver
must be express under the principle that renuntiatio non praesumitor, recognized by the law in declaring
that a waiver of right may not be performed unless the will to waive is indisputably shown by him who
holds the right.
However, in Asia Banking Corporation v. Elser, the Court qualified thus:
The aforecited article 1205 [now 1293] of the Civil Code does not state that the creditor's consent
to the substitution of the new debtor for the old be express, or given at the time of the substitution, and
the Supreme Court of Spain, in its judgment of June 16, 1908, construing said article, laid down the
doctrine that "article 1205 of the Civil Code does not mean or require that the creditor's consent to the
change of debtors must be given simultaneously with the debtor's consent to the substitution; its evident
purpose being to preserve the creditor's full right, it is sufficient that the latter's consent be given at any
time and in any form whatever, while the agreement of the debtors subsists." The same rule is stated in
the Enciclopedia Juridica Española, volume 23, page 503, which reads: "The rule that this kind of novation,
like all others, must be express, is not absolute; for the existence of the consent may well be inferred from
the acts of the creditor, since volition may as well be expressed by deeds as by words." The understanding
between Henry W. Elser and the principal director of Yangco, Rosenstock & Co., Inc., with respect to Luis
R. Yangco's stock in said corporation, and the acts of the board of directors after Henry W. Elser had
acquired said shares, in substituting the latter for Luis R. Yangco, are a clear and unmistakable expression
of its consent. When this court said in the case of Estate of Mota vs. Serra (47 Phil., 464), that the creditor's
express consent is necessary in order that there may be a novation of a contract by the substitution of
debtors, it did not wish to convey the impression that the word "express" was to be given an unqualified
meaning, as indicated in the authorities or cases, both Spanish and American, cited in said decision.
Hence, based on the aforequoted ruling in Asia Banking, the existence of the creditor's consent may also
be inferred from the creditor's acts, but such acts still need to be "a clear and unmistakable expression of
[the creditor's] consent."
In Ajax Marketing and Development Corporation v. Court of Appeals, the Court further clarified
that:
The well settled rule is that novation is never presumed. Novation will not be allowed unless it is
clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective novation it is
imperative that the new obligation expressly declare that the old obligation is thereby extinguished, or
that the new obligation be on every point incompatible with the new one. In the same vein, to effect a
subjective novation by a change in the person of the debtor it is necessary that the old debtor be released
expressly from the obligation, and the third person or new debtor assumes his place in the relation. There
is no novation without such release as the third person who has assumed the debtor's obligation becomes
merely a co-debtor or surety.
The determination of the existence of the consent of BPI to the substitution of debtors, in
accordance with the standards set in the preceding jurisprudence, is a question of fact because it requires
the Court to review the evidence on record. It is an established rule that the jurisdiction of the Court in
cases brought before it from the Court of Appeals via a petition for review on certiorari under Rule 45 of
the Rules of Court is generally limited to reviewing errors of law as the former is not a trier of facts. Thus,
the findings of fact of the Court of Appeals are conclusive and binding upon the Court in the latter's
exercise of its power to review for it is not the function of the Court to analyze or weigh evidence all over
again. However, several of the recognized exceptions to this rule are present in the instant case that justify
a factual review, i.e., the inference is manifestly mistaken, the judgment is based on misapprehension of
facts, and the findings of the Court of Appeals and the RTC are contrary to those of the MeTC.
The burden of establishing a novation is on the party who asserts its existence. Contrary to the
findings of the Court of Appeals and the RTC, Amador failed to discharge such burden as he was unable
to present proof of the clear and unmistakable consent of BPI to the substitution of debtors.
Irrefragably, there is no express consent of BPI to the substitution of debtors. The Court of Appeals
and the RTC inferred the consent of BPI from the following facts: (1) BPI had a copy of the Deed of Sale
and Assumption of Mortgage executed between Mercy and Carmelita in its file, indicating its knowledge
of said agreement, and still it did not interpose any objection to the same; (2) BPI (through FEBTC)
returned the spouses Domingo's checks and accepted Carmelita's payments; and (3) BPI did not demand
any payment from the spouses Domingo not until 30 months after Carmelita assumed the payment of
balance on the Promissory Note.
The Court disagrees with the inferences made by the Court of Appeals and the RTC.
First, that BPI (or FEBTC) had a copy of the Deed of Sale and Assumption of Mortgage executed
between Mercy and Carmelita in its file does not mean that it had consented to the same. The very Deed
itself states:
That the VENDEE [Carmelita] assumes as he/she had assumed to pay the aforecited mortgage in
accordance with the original terms and conditions of said mortgage, and the parties hereto [Mercy and
Carmelita] have agreed to seek the conformity of the MORTGAGEE [FEBTC].
This brings the Court back to the original question of whether there is proof of the conformity of
BPI.
The Court notes that the documents of BPI concerning the car loan and chattel mortgage are still
in the name of the spouses Domingo. No new promissory note or chattel mortgage had been executed
between BPI (or FEBTC) and Carmelita. Even the account itself is still in the names of the spouses Domingo.
The absence of objection on the part of BPI (or FEBTC) cannot be presumed as consent.
Jurisprudence requires presentation of proof of consent, not mere absence of objection. Amador cannot
rely on Babst which involved a different factual milieu. Relevant portions of the Court's ruling in Babst are
reproduced below:
In the case at bar, Babst, MULTI and ELISCON all maintain that due to the failure of BPI to register
its objection to the take-over by DBP of ELISCON's assets, at the creditors' meeting held in June 1981 and
thereafter, it is deemed to have consented to the substitution of DBP for ELISCON as debtor.
We find merit in the argument. Indeed, there exist clear indications that BPI was aware of the
assumption by DBP of the obligations of ELISCON. In fact, BPI admits that—
"[T]he Development Blank of the Philippines (DBP), for a time, had proposed a formula for the
settlement of Eliscon's past obligations to its creditors, including the plaintiff [BPI], but the formula was
expressly rejected by the plaintiff as not acceptable (long before the filing of the complaint at bar)."
The Court of Appeals held that even if the account officer who attended the June 1981 creditors'
meeting had expressed consent to the assumption by DBP of ELISCON's debts, such consent would not
bind BPI for lack of a specific authority therefor. In its petition, ELISCON counters that the mere presence
of the account officer at the meeting necessarily meant that he was authorized to represent BPI in that
creditors' meeting. Moreover, BPI did not object to the substitution of debtors, although it objected to
the payment formula submitted by DBP.
Indeed, the authority granted by BPI to its account officer to attend the creditors' meeting was an
authority to represent the bank, such that when he failed to object to the substitution of debtors, he did
so on behalf of and for the bank. Even granting arguendo that the said account officer was not so
empowered, BPI could have subsequently registered its objection to the substitution, especially after it
had already learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its failure
to do so can only mean an acquiescence in the assumption by DBP of ELISCON's obligations. As repeatedly
pointed out by ELISCON and MULTI, BPI's objection was to the proposed payment formula, not to the
substitution itself.
In Babst, there was a clear opportunity for BPI, as creditor therein, to object to the substitution
of debtors given that its representative attended a creditor's meeting, during which, said representative
already objected to the proposed payment formula made by DBP, as the new debtor. Hence, the silence
of BPI during the same meeting as to the matter of substitution of debtors could already be interpreted
as its acquiescence to the same. In contrast, there was no clear opportunity for BPI (or FEBTC) to have
expressed its objection to the substitution of debtors in the case at bar.
Second, the consent of BPI to the substitution of debtors cannot be deduced from its acceptance
of payments from Carmelita, absent proof of its clear and unmistakable consent to release the spouses
Domingo from their obligation. Since the spouses Domingo remained as debtors of BPI, together with
Carmelita, the fact that BPI demanded payment from the spouses Dokningo months after accepting
payment from Carmelita is insignificant.
The acceptance by a creditor of payments from a third person, who has assumed the obligation,
will result merely to the addition of debtors and not novation. The creditor may therefore enforce the
obligation against both debtors. As the Court pronounced in Magdalena Estates, Inc. v. Rodriguez, "[t]he
mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed
to assume the obligation, when there is no agreement that the first debtor shall be released from
responsibility, does not constitute a novation, and the creditor can still enforce the obligation against the
original debtor." The Court reiterated in Quinto v. People that "[n]ot too uncommon is when a stranger
to a contract agrees to assume an obligation; and while this may have the effect of adding to the number
of persons liable, it does not necessarily imply the extinguishment of the liability of the first debtor.
Neither would the fact alone that the creditor receives guaranty or accepts payments from a third person
who has agreed to assume the obligation, constitute an extinctive novation absent an agreement that the
first debtor shall be released from responsibility."
Absent proof that BPI gave its clear and unmistakable consent to release the spouses Domingo
from the obligation to pay the car loan, Carmelita is simply considered an additional debtor. Consequently,
BPI can still enforce the obligation against the spouses Domingo even 30 months after it had started
accepting payments from Carmelita.
And third, there is no sufficient or competent evidence to establish the return of the checks to
the spouses Domingo and the assurance made by FEBTC that the spouses Domingo were already released
from their obligation.
The Court is therefore convinced that there is no novation by delegacion in this case and Amador
remains a debtor of BPI. The Court reinstates the MeTC judgment ordering Amador to pay for the
P275,562.00 lance on the Promissory Note, 10% attorney's fees, and costs of suit; but modifies the rate
of interest imposed and the date when such interest began to run.
 FAJ CONSTRUCTION & DEVELOPMENT CORPORATION vs. SUSAN M. SAULOG
G.R. No. 200759 March 25, 2015
PONENTE: DEL CASTILLO, J. Decided by: Second Division

FACTS:
On June 15, 1999, petitioner FAJ Construction and Development Corporation and respondent
Susan M. Saulog entered into an Agreement for the construction of a residential building in San Lorenzo
Village, Makati City for a contract price of P12,500,000.00. Payment to petitioner contractor shall be on
a progress billing basis, after inspection of the work by respondent.
Construction of the building commenced, and respondent made a corresponding total payment
to petitioner in the amount of P10,592,194.80. However, for the October 31 and November 6, 2000
progress billing statements sent by petitioner in the total amount of P851,601.58, respondent refused to
pay. After performing additional work, petitioner made another request for payment, but respondent
again refused to pay, prompting petitioner to terminate the construction contract pursuant to Article
27(b) of the Uniform General Conditions of Contract for Private Construction of the Construction Industry
Authority of the Philippines, Department of Trade and Industry.
Petitioner then sent demand letters to respondent on November 24, 2000 and September 28,
2001. In reply, respondent claimed that petitioner’s work was defective, and that it should instead be
made liable thereon.
Petitioner thus filed with the RTC of Quezon City a civil case for collection of a sum of money with
damages against respondent. The Complaint alleged that despite faithful compliance with the
construction agreement, respondent refused to pay the outstanding balance of P851,601.58, which
prompted it to stop construction of the building.
In her Answer with Compulsory Counterclaim, respondent claimed that while she religiously paid
petitioner pursuant to their construction agreement, petitioner’s work was defective and delayed; that
petitioner failed to remedy said defects; that as a result, rainwater seeped through the building and
caused extensive damage to the unfinished building; and that she had to incur additional substantial
expenses for the repair of the building, to remedy the defects caused by petitioner, and to finish
construction of the building.
ISSUE:
Whether or not the petitioner is liable for actual damages for violating construction agreement.
HELD:
The Court ruled in the affirmative. We find – relying on the identical findings of the trial and
appellate courts – that petitioner is guilty of violating the construction agreement, for its defective and
incomplete work, delay, and for unjustified abandonment of the project. Indeed, we find no reason to
disturb the identical pronouncements of the trial court and the CA. The same holds true with respect to
the issue of damages raised by petitioner; it requires an inquiry into the facts, which is no longer this
Court’s realm. In a case previously decided by this ponente concerning a construction contract and where
similar allegations of abandonment, delay and defective workmanship were advanced, it was held that –
Petitioner endeavors to convince us to determine, yet again, the weight, credence, and probative value
of the evidence presented. This cannot be done in this petition for review on certiorari under Rule 45 of
the Rules of Court where only questions of law may be raised by the parties and passed upon by us.
XXXX
There is no ground either to doubt the testimony of Calinawan, who testified on the defective
quality of petitioner’s work and the state of construction after the latter abandoned the project. Her
testimony merely corroborates already existing evidence – such as photographs – as well as the testimony
of respondent herself. All in all, these pieces of evidence collectively proved the facts in issue. Besides,
Calinawan need not be qualified as an expert witness in order to testify on facts which are readily apparent
to the eye, and even to the layman: it does not require an expert to conclude that flooring is sloppily done,
or that the electrical outlet and switch are not aligned, or that the flooring is stained with paint, or that
incorrect colored cement was used to fill the gap between tiles, or that a door jamb needs repair, or that
grouting of tiles is sloppily done, or that there are unwanted bubbles in the varnishing works, or that the
parquet flooring is unaligned or uneven, or that the window sills are dirty, or that windows lacked the
necessary screws and rubber, or that the roof panels are damaged, or that the installation of asphalt
shingles on the roof was improper. Any ordinary individual building a home would readily notice such
defects.
Since respondent suffered damages as a result of petitioner’s defective and delayed work and
unjustified abandonment of the project, the principle of damnum absque injuria cannot apply. The
principle cannot apply when there is an abuse of a person’s right.
Coming now to the issue of delay, we find that the trial and appellate courts’ grant of
P1,387,500.00 not excessive; it is, in fact, liberal. Construction period was agreed upon at 240 days from
receipt by petitioner of a notice to proceed. Said notice was issued on June 18, 1999, thus giving petitioner
approximately eight months from said date, or – roughly computed – up to February 18, 2000, to complete
the project. Yet, petitioner was still working on the project as late as on November 22, 2000, after which
it stopped work and abandoned the project; this fact is not denied by petitioner. Thus, petitioner was
already delayed for more than nine months – that is, beginning March 2000 and ending November of the
same year – or approximately 270 days. At P12,500.00 agreed penalty imposed for each day of delay,
petitioner should be correspondingly liable to respondent for P3,375,000.00 liquidated damages, more or
less, under the construction agreement. Yet, the courts below awarded a mere P1,387,500.00; this award
is certainly not excessive and should remain, accepted as it is without question by the respondent.
 NUNELON R. MARQUEZ, Petitioner, v. ELISAN CREDIT CORPORATION
G.R. No. 194642 April 06, 2015
PONENTE: BRION, J. Decided by: Second Division

FACTS:
On December 16, 1991, petitioner Nunelon R. Marquez obtained a loan from respondent Elisan
Credit Corporation for fifty-three thousand pesos payable in one-hundred eighty days. The petitioner
signed a promissory note which provided that it is payable in weekly installments and subject to twenty-
six percent annual interest. In case of non-payment, the petitioner agreed to pay ten percent monthly
penalty based on the total amount unpaid and another twenty-five percent of such amount for attorney's
fees exclusive of costs, and judicial and extrajudicial expenses.
To further secure payment of the loan, the petitioner executed a chattel mortgage over a motor
vehicle. The contract of chattel mortgage provided among others, that the motor vehicle shall stand as a
security for the first loan and "all other obligations of every kind already incurred or which may hereafter
be incurred. Both the petitioner and respondent acknowledged the full payment of the first loan.
Subsequently, the petitioner obtained another loan, second loan from the respondent for fifty-
five thousand pesos evidenced by a promissory note and a cash voucher both dated June 15, 1992. The
promissory note covering the second loan contained exactly the same terms and conditions as the first
promissory note. When the second loan matured on December 15, 1992, the petitioner had only paid
twenty-nine thousand nine hundred sixty pesos (P29,960.00), leaving an unpaid balance of twenty five
thousand forty pesos (P25,040.00).
Due to liquidity problems, the petitioner asked the respondent if he could pay in daily installments
(daily payments) until the second loan is paid. The respondent granted the petitioner's request. Thus, as
of September 1994 or twenty-one months after the second loan's maturity, the petitioner had already
paid a total of fifty-six thousand four-hundred forty pesos (P56,440.00), an amount greater than the
principal.
Despite the receipt of more than the amount of the principal, the respondent filed a complaint
for judicial foreclosure of the chattel mortgage because the petitioner allegedly failed to settle the balance
of the second loan despite demand. The respondent further alleged that pursuant to the terms of the
promissory note, the petitioner's failure to fully pay upon maturity triggered the imposition of the ten
percent (10%) monthly penalty and twenty-five percent (25%) attorney's fees. The respondent prayed
that the petitioner be ordered to pay the balance of the second loan plus accrued penalties and interest.
Before the petitioner could file an answer, the respondent applied for the issuance of a writ of
replevin. The MTC issued the writ and by virtue of which, the motor vehicle covered by the chattel
mortgage was seized from the petitioner and delivered to the respondent.
ISSUES:
1. Whether or not the respondent acted pursuant to law and jurisprudence when it credited the
daily payments against the interest instead of the principal.
2. Whether or not the chattel mortgage could not cover the second loan.
HELD:
 In the first issue, the Court ruled in the affirmative. There is a need to analyze and harmonize
Article 1176 and Article 1253 of the Civil Code to determine whether the daily payments made after the
second loan's maturity should be credited against the interest or against the principal.
Article 1176 provides that: "The receipt of the principal by the creditor, without reservation with
respect to the interest, shall give rise to the presumption that said interest has been paid. xxx."
On the other hand, Article 1253 states: "If the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests have been covered."
The above provisions appear to be contradictory but they in fact support, and are in conformity
with, each other. Both provisions are also presumptions and, as such, lose their legal efficacy in the face
of proof or evidence to the contrary. Thus, the settlement of the first issue depends on which of these
presumptions prevails under the given facts of the case.
There are two undisputed facts crucial in resolving the first issue: (1) the petitioner failed to pay
the full amount of the second loan upon maturity; and (2) the second loan was subject to interest, and in
case of default, to penalty and attorney's fees.
Article 1176 in relation to Article 1253
Article 1176 falls under Chapter I (Nature and Effect of Obligations) while Article 1253 falls under
Subsection I (Application of Payments), Chapter IV (Extinguishment of Obligations) of Book IV (Obligations
and Contracts) of the Civil Code.
The structuring of these provisions, properly taken into account, means that Article 1176 should
be treated as a general presumption subject to the more specific presumption under Article 1253. Article
1176 is relevant on questions pertaining to the effects and nature of obligations in general, while Article
1253 is specifically pertinent on questions involving application of payments and extinguishment of
obligations.
The presumption under Article 1176 does not resolve the question of whether the amount
received by the creditor is a payment for the principal or interest. Under this article the amount received
by the creditor is the payment for the principal, but a doubt arises on whether or not the interest is waived
because the creditor accepts the payment for the principal without reservation with respect to the
interest. Article 1176 resolves this doubt by presuming that the creditor waives the payment of interest
because he accepts payment for the principal without any reservation.
On the other hand, the presumption under Article 1253 resolves doubts involving payment of
interest-bearing debts. It is a given under this Article that the debt produces interest. The doubt pertains
to the application of payment; the uncertainty is on whether the amount received by the creditor is
payment for the principal or the interest. Article 1253 resolves this doubt by providing a hierarchy:
payments shall first be applied to the interest; payment shall then be applied to the principal only after
the interest has been fully-paid.
Correlating the two provisions, the rule under Article 1253 that payments shall first be applied to
the interest and not to the principal shall govern if two facts exist: (1) the debt produces interest (e.g., the
payment of interest is expressly stipulated) and (2) the principal remains unpaid.
 The exception is a situation covered under Article 1176, i.e., when the creditor waives payment
of the interest despite the presence of (1) and (2) above. In such case, the payments shall obviously be
credited to the principal. Since the doubt in the present case pertains to the application of the daily
payments, Article 1253 shall apply. Only when there is a waiver of interest shall Article 1176 become
relevant.
Under this analysis, we rule that the respondent properly credited the daily payments to the
interest and not to the principal because: (1) the debt produces interest, i.e., the promissory note securing
the second loan provided for payment of interest; (2) a portion of the second loan remained unpaid upon
maturity; and (3) the respondent did not waive the payment of interest.
There was no waiver of interest
The fact that the official receipts did not indicate whether the payments were made for the
principal or the interest does not prove that the respondent waived the interest. We reiterate that the
petitioner made the daily payments after the second loan had already matured and a portion of the
principal remained unpaid. As stipulated, the principal is subject to 26% annual interest.
In other words, the so-called interest for default (as distinguished from the stipulated monetary
interest of 26% per annum) in the form of the 10% monthly penalty accrued and became due and
demandable. Thus, when the petitioner started making the daily payments, two types of interest were at
the same time accruing, the 26% stipulated monetary interest and the interest for default in the form of
the 10% monthly penalty.
Article 1253 covers both types of interest. As noted by learned civilist, Arturo M. Tolentino, no
distinction should be made because the law makes no such distinction. He explained:
"Furthermore, the interest for default arises because of non-performance by the debtor, and to
allow him to apply payment to the capital without first satisfying such interest, would be to place him in
a better position than a debtor who has not incurred in delay. The delay should worsen, not improve, the
position of a debtor."
The petitioner failed to specify which of the two types of interest the respondent allegedly waived.
The respondent waived neither.
In Swagman Hotels and Travel Inc. v. Court of Appeals, we applied Article 1253 of the Civil Code
in resolving whether the debtor has waived the payments of interest when he issued receipts describing
the payments as "capital repayment." We held that,
"Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall
not be deemed to have been made until the interest has been covered. In this case, the private respondent
would not have signed the receipts describing the payments made by the petitioner as "capital
repayment" if the obligation to pay the interest was still subsisting.
"There was therefore a novation of the terms of the three promissory notes in that the interest
was waived..."
The same ruling was made in an older case where the creditor issued a receipt which specifically
identified the payment as referring to the principal. We held that the interest allegedly due cannot be
recovered, in conformity with Article 1110 of the Old Civil Code, a receipt from the creditor for the
principal, that contains no stipulation regarding interest, extinguishes the obligation of the debtor with
regard thereto when the receipt issued by the creditor showed that no reservation whatever was made
with respect to the interest.
In both of these cases, it was clearly established that the creditors accepted the payment of the
principal. The creditors were deemed to have waived the payment of interest because they issued receipts
expressly referring to the payment of the principal without any reservation with respect to the interest.
As a result, the interests due were deemed waived. It was immaterial whether the creditors intended to
waive the interest or not. The law presumed such waiver because the creditors accepted the payment of
the principal without reservation with respect to the interest.
In the present case, it was not proven that the respondent accepted the payment of the principal.
The silence of the receipts on whether the daily payments were credited against the unpaid balance of
the principal or the accrued interest does not mean that the respondent waived the payment of interest.
There is no presumption of waiver of interest without any evidence showing that the respondent accepted
the daily installments as payments for the principal.
Ideally, the respondent could have been more specific by indicating on the receipts that the daily
payments were being credited against the interest. Its failure to do so, however, should not be taken
against it. The respondent had the right to credit the daily payments against the interest applying Article
1253.
It bears stressing that the petitioner was already in default. Under the promissory note, the
petitioner waived demand in case of non-payment upon due date. The stipulated interest and interest for
default have both accrued. The only logical result, following Article 1253 of the Civil Code, is that the daily
payments were first applied against either or both the stipulated interest and interest for default.
Moreover, Article 1253 is viewed as having an obligatory character and not merely suppletory. It
cannot be dispensed with except by mutual agreement. The creditor may oppose an application of
payment made by the debtor contrary to this rule.
In any case, the promissory note provided that "interest not paid when due shall be added to, and
become part of the principal and shall likewise bear interest at the same rate, compounded monthly."
Hence, even if we assume that the daily payments were applied against the principal, the principal
had also increased by the amount of unpaid interest and the interest on such unpaid interest. Even under
this assumption, it is doubtful whether the petitioner had indeed fully paid the second loan.
On the second issue of whether the chattel mortgage covered the second loan, the Court in this
case, ruled in the negative. In Acme Shoe, Rubber and Plastic Corp. v. Court of Appeals, the debtor
executed a chattel mortgage, which had a provision to this effect:
"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."
In due time, the debtor settled the loan covered by the chattel mortgage. Subsequently, the
debtor again borrowed from the creditor. Due to financial constraints, the subsequent loan was not
settled at maturity.
On the issue whether the chattel mortgage could be foreclosed due to the debtor's failure to
settle the subsequent loan, we held that,
"[c]ontracts of security are either personal or real, x x x In contracts of real security, such as a
pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property — in
pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the
execution of the corresponding deed substantially in the form prescribed by law; x x x — upon the
essential condition that if the principal obligation becomes due and the debtor defaults, then the property
encumbered can be alienated for the payment of the obligation, but that should the obligation be duly
paid, then the contract is automatically extinguished proceeding from the accessory character of the
agreement. As the law so puts it, once the obligation is complied with, then the contract of security
becomes, ipso facto, null and void."
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
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."
The only obligation specified in the chattel mortgage contract was the first loan which the
petitioner later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the
obligation automatically rendered the chattel mortgage terminated; the chattel mortgage had ceased to
exist upon full payment of the first loan. Being merely an accessory in nature, it cannot exist independently
of the principal obligation.
The parties did not execute a fresh chattel mortgage nor did they amend the chattel mortgage to
comply with the Chattel Mortgage Law which requires that the obligation must be specified in the affidavit
of good faith. Simply put, there no longer was any chattel mortgage that could cover the second loan upon
full payment of the first loan. The order to foreclose the motor vehicle therefore had no legal basis.
 SPOUSES MAGDALINO AND CLEOFE BADILLA vs. FE BRAGAT
G.R. No. 187013 April 22, 2015
PONENTE: PERALTA,J. Decided by: Third Division

FACTS:
Azur Pastrano and his wife Profitiza Ebaning were the original owners of a lot at Tablon, Cagayan
de Oro City. Its Original Certificate of Title No. P-2035, consisting of 1,015 sq. m. was issued on November
18, 1980. The OCT was in the name of Azur Pastrano.
Before the issuance of the OCT, the Spouses Pastrano, on November 18, 1968, sold the lot to
Eustaquio P. Ledesma, Jr., as evidenced by a Deed of Definite Sale of Unregistered Coconut and Residential
Land. The petitioners, the spouses Magdalino and Cleofe Badilla claimed that in 1970, Ledesma sold to
them, "on installment" basis, a portion amounting to 200 sq. m. of the subject lot. The sale was not
reduced in writing, however, possession of the portion sold was transferred to the Badillas, which portion
the Badillas claim was designated as Lot No. 19986-B.
On April 18, 1978, the spouses Florito Bragat and Fe Bragat bought 991 sq. m. of the property
from Ledesma and his wife, via a Deed of Absolute Sale of a Residential Lot.5 Two tax declarations were
allegedly issued as a result of the sale: one designated a lot as Lot No. 19986-A with an area of 642 sq. m.,
while another designated the other lot as Lot No. 19986-B with an area of 349 sq. m.
On May 5, 1984, the Spouses Pastrano executed another Deed of Absolute Sale of Registered Land
in favor of herein petitioner Fe Bragat, covered by OCT No. P-2035 and with an area of 1,015 sq. m. On
the same date, Azur Pastrano executed an Affidavit of Loss reporting the loss of the owner's duplicate
copy of OCT No. P-2035. It was Bragat, however, who petitioned the court for the issuance of a new
owner's duplicate copy of OCT No. P-2035. Thus, on July 24, 1987, the RTC ordered the issuance of a new
owner's copy of OCT No. P-2035.
On October 2, 1987, the Spouses Pastrano executed yet another Deed of Sale of Registered Land
in favor of Bragat, which land is again covered by OCT No. P-2035 with an area of 1,015 sq. m.11 As a
result, OCT No. P-2035 was canceled and TCT No. T-47759 was issued in the name of Bragat.
On March 7, 1991, Bragat, through her counsel, made a written demand to vacate against the
Spouses Badilla. In response, the Spouses Badilla, also through their counsel's letter, refused the demand
and raised the earlier sale made by the Spouses Pastrano to Ledesma and the subsequent sale by Ledesma
to the Badillas.
ISSUE:
Whether or not the Spouses Badillas are the owners of the 152 sq. m. portion of the disputed
property.
HELD:
The Court ruled in the affirmative. This ruling is compelled by the involvement in this case of not
just one instance of double sales but a series of such sales made by two different vendors. First, it is
admitted that Pastrano sold the property to Ledesma in 1968; then, Pastrano sold it again to Bragat in
1984 and 1987. But Ledesma, too, sold part of the property to the Spouses Badilla in 1970 and then the
entire lot to the Spouses; Bragat in 1978. In such a situation of multiple sales, Article 1544 of the Civil
Code relates that ownership shall belong to the person acquiring the property who, in good faith, first
recorded such acquisition. Presently, however, it cannot be said that Bragat's recording of her 1987
purchase was in good faith because that sale was simulated and Bragat was aware of other persons who
have an interest on the property. That the 1987 sale is void is further revealed by evidence to show that
one of its signatories, Profitiza Pastrano was already dead when it was executed. Bragat herself also
admitted that she knew of the Spouses Badillas' occupation prior to her purchase. In that case, the same
Article 1544 of the Civil Code provides that when neither buyer registered, in good faith, the sale of the
properties with the register of deeds, the one who took prior possession of the properties shall be the
lawful owner thereof. Such prior possessors, at least with respect to the 152-sq.-m. portion, are
indisputably the Spouses Badilla.
 HEIRS OF ANTERO SOLIVA vs. SEVERINO, JOEL, GRACE, CENON, JR., RENATO, EDUARDO,
HILARIO, ALL SURNAMED SOLIVA, ROGELIO V. ROLEDA, AND SANVIC ENTERPRISES, INC.,
REPRESENTED BY ITS MANAGER, SANTOS PORAQUE
G.R. No. 159611 April 22, 2015
PONENTE: BRION, J. Decided by: Second Division

FACTS:
The Spouses Ceferino Soliva and Juana Endeza possessed and owned, during their lifetime, three
parcels of land in Calbayog City. Ceferino died in 1954, while Juana died in 1972. They had five children,
namely: Dorotea (deceased), Cenon, Severino, Victoriano and Antero. Dorotea is survived by Romeo and
Sergio.
Earlier or on June 22, 1949, Mancol sold to Cenon the 1,600-square meter portion of Parcel 2
through a notarized deed entitled "Escritura de Compra-Venta Absoluta.” As Cenon then lived in Manila,
he left the possession and enjoyment of this portion to his parents. However, when Ceferino died in 1954,
Cenon took over the administration of the entire estate, including Parcel 1.
On November 13, 1970, Juana sold to Cenon Parcel 2 through a Deed of Conditional Sale with
Pacto A Retro. In 1975, TD No. 24419 covering Parcel 2 was cancelled and TD No. 38009 was issued in the
name of Cenon.
On January 21, 1986, Cenon sold to Roleda a 4,092-square meter portion of Parcel 2, who
subsequently sold to SEI through Poraque, along with Lot 2-C of the Plan of Land which Roleda acquired
from a certain Silverio Agura. Meanwhile, Cenon died in 1987; he was survived by his children, namely:
Joel, Grace, Cenon, Renato, Eduardo and Hilario.
On November 22, 1991, Antero instituted the Complaint for Partition and Accounting, originally
against Severino, Victoriano, Joel, Grace, Cenon, Renato, Eduardo, Hilario, Sergio, Romeo, and Roleda. He
subsequently amended the complaint joining Victoriano, Sergio and Romeo as plaintiffs, and impleading
the SEI as additional defendant.
Antero, et al. prayed the RTC to declare the 1970 Pacto de Retro Sale as an equitable mortgage;
order the partition of Parcels 1 and 2; order Cenon's heirs to account for the proceeds of the sale of the
portion of Parcel 2 which Cenon sold to Roleda, with legal interest to be counted from 1986; and order
SEI to vacate the premises and to pay rentals in the amount of P500.00 a month until the termination of
the action.
ISSUE:
1. Whether or not the concept of accretion, under Article 1015 of the Civil Code shall apply in
distributing Severino's supposed share in Parcel 2 in favor of Ceferino's other heirs.
HELD:
On the first issue, the Court ruled in the negative. There was no accretion of inheritance within
the terms of Article 1015 of the Civil Code.
Article 1015 of the Civil Code provides:
Art. 1015. Accretion is a right by virtue of which, when two or more persons are called to the
same inheritance, devise or legacy, the part assigned to the one who renounces or cannot receive his
share, or who died before the testator, is added or incorporated to that of his co¬heirs, co-devisees, or
co-legatees.
We illustrate below in clearer terms the manner by which the CA arrived at the parties' respective
shares.
a. Had Severino not received any share in their parents' estate in 1959:
First, the 1,600-square meter portion which Cenon purchased from Mancol in 1949 should first
be deducted from the total area of Parcel 2 as stated in the Plan of Land. Thus, 14,609 square meters less
1,600 square meters equals 13,009 square meters.
Second, the remaining 13,009-square meter area of Parcel 2 should be divided into 2 equal
portions — one portion for Juana, as her share in the conjugal partnership, and the other for Ceferino.
Thus, each would receive a 6,504.5-square meter portion share of Parcel 2.
And third, Ceferino's 6,504.5-square meter share in Parcel 2 should be distributed to his six heirs,
namely: Juana, Victoriano, Severino, Cenon, Dorotea and Antero. Thus, each heir would be entitled to a
1/6 share of Ceferino's inheritance or a 1,084-square meter portion each of Parcel 2.
Under this formulation, Parcel 2 would have been divided and partitioned among Ceferino's heirs
in the following manner:
1. Juana - 7,588.5 square meters
2. Severino - 1,084 square meters
3. Victoriano - 1,084 square meters
4. Cenon - 2,684 square meters
5. Dorotea - 1,084 square meters
6. Antero - 1,084 square meters
b. Partition of Parcel 2 that excludes Severino
First, similarly with the above computation, the 1,600-square meter portion which Cenon
purchased from Mancol in 1949 should first be deducted from the total area of Parcel 2. This leaves an
area of 13,009 square meters.
Second, Juana's one-half conjugal partnership share in Parcel 2 should likewise first be deducted,
leaving a total distributable area of 6,504.5 square meters.
And third, Ceferino's 6,504.5-square meter portion share of Parcel 2 should be distributed to his
heirs, excluding Severino. Thus, each heir -Juana, Victoriano, Cenon, Dorotea and Antero - would be
entitled to a 1/5 share of Ceferino's inheritance or 1,300.9 square meters each of Parcel 2.
Under this formulation, Parcel 2 was divided and partitioned by the CA among Ceferino's heirs in
the following manner:
1. Juana - 7,805.4 square meters29
2. Victoriano - 1,300.9 square meters
3. Cenon - 2,900 square meters30
4. Dorotea - 1,300.9 square meters
5. Antero - 1,300.9 square meters
 Under the first formulation above, Severino would have received a total of 1,084 square meters
as his share. Considering, however, that he had already received his share in his parents' estate in 1959,
the CA "added" this supposed share to those of Severino's co-heirs —Juana, Cenon, Victoriano, Dorotea
and Antero.
In effect, each of these heirs would be receiving an additional 216.8 square meters in their
respective shares or a total of 1,300.9 square meters. This is precisely the same area which each heir,
except Severino, would be receiving under the second formulation.
In short, the CA's computation of the parties' respective interests in Parcel 2 already excludes
Severino - one of the ends which Antero seek in this petition. For these reasons, we find Antero's argument
on this point to be completely without basis.
 PEOPLE OF THE PHILIPPINES, vs. VICTORIANO VILLAR @ Boy
G.R. No. 202708 April 13, 2015
PONENTE: DEL CASTILLO, J. Decided by: Second Division

FACTS:
In an Information dated September 21, 1987, Wilson Suitos, Vic Suitos, Alvaro Suitos and
appellant Victoriano Villar @ Boy, appellant, were charged with the murder of Jesus Ylarde. Among the
accused, Alvaro and Wilson were apprehended and tried. The Regional Trial Court of Lingayen,
Pangasinan, found Alvaro and Wilson guilty of murder and appealed all the way to the Supreme Court
which affirmed their conviction.
On arraignment, appellant Victoriano Villar entered a plea of not guilty. Trial on the merits
thereafter ensued. The RTC convicted appellant of murder based on the eyewitness accounts of the
victim's daughters. The appellant appealed the decision of the RTC to the Court of Appeals, which denied
the same. Both the RTC and the CA ordered to pay the heirs for the loss of earning capacity of the victim.
ISSUE:
Whether or not the RTC and the CA erred in the award of loss of earning capacity.
HELD:
The Court ruled in the affirmative. The award of loss of earning capacity must be deleted for lack
of basis. Records show that the widow of the deceased testified that her husband "has a net income of
P16,000.00 a year as farmer, sari-sari store owner, driver and operator of two tricycles and caretaker of
Hacienda Bancod." Thus, lost earnings in the amount of P320,000.00 was awarded computed as follows:
"2/3 x (80-49)=life expectancy of 20 years . . . multiplied by the annual net income of the deceased
(P16,000.00), equivalent to P320,000.00." However, it is also on record that the widow of the deceased
subsequently testified that "before his death, her husband earns P50.00 a day as tricycle driver and
P150.00 from their sari-sari store and had a net income of P4,000.00 a month. As a farmer her husband
produces 270 cavans of palay a year with a price of P135.00 a cavan weighing 50 kilos."
Preliminarily, we note that the indemnity for lost earnings was erroneously computed. It is already
settled jurisprudence that "the formula that has gained acceptance over time has limited recovery to net
earning capacity; x x x [meaning], less the necessary expense for his own living." Here, the computation
for lost income of P16,000.00 did not take into consideration the deceased's necessary expenses.
Moreover, it was explained in Da Jose v. Angeles that –
Under Article 2206 of the Civil Code, the heirs of the victim are entitled to indemnity for loss of
earning capacity. Compensation of this nature is awarded not for loss of earnings, but for loss of capacity
to earn. The indemnification for loss of earning capacity partakes of the nature of actual damages which
must be duly proven by competent proof and the best obtainable evidence thereof. Thus, as a rule,
documentary evidence should be presented to substantiate the claim for damages for loss of earning
capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence
of documentary evidence when (1) the deceased is self-employed and earning less than the minimum
wage under current labor laws, in which case, judicial notice may be taken of the fact that in the
deceased's line of work no documentary evidence is available; or (2) the deceased is employed as a daily
wage worker earning less than the minimum wage under current labor laws.
Corollarily, we also held in OMC Carriers, Inc. v. Nabua that –
For one to be entitled to actual damages, it is necessary to prove the actual amount of loss with
a reasonable degree of certainty, premised upon competent proof and the best evidence obtainable by
the injured party. Actual damages are such compensation or damages for an injury that will put the injured
party in the position in which he had been before he was injured. They pertain to such injuries or losses
that are actually sustained and susceptible of measurement. To justify an award for actual damages, there
must be competent proof of the actual amount of loss. Credence can be given only to claims which are
duly supported by receipts.
Finally, in People v. Gonza, we declared that –
Finally, the trial court was correct in not awarding damages for lost earnings. The prosecution
merely relied on Zenaida Mortega's self-serving statement, that her husband was earning P5,000 per
month as a farmhand. Compensation for lost income is in the nature of damages and requires due proof
of the amount of the damages suffered. For loss of income due to death, there must be unbiased proof
of the deceased's average income. Also, the award for lost income refers to the net income of the
deceased, that is, his total income less average expenses. In this case, Zenaida merely gave a self-serving
testimony of her husband's income. No proof of the victim's expenses was adduced; thus, there can be
no reliable estimate of his lost income.
In fine, it is settled that the indemnity for loss of earning capacity is in the form of actual damages;
as such, it must be proved by competent proof, "not merely by the self-serving testimony of the widow."
By way of exception, damages for loss of earning capacity may be awarded in two instances: 1) the victim
was self-employed and receiving less than the minimum wage under the current laws and no documentary
evidence is available in the decedent's line of business; and, 2) the deceased was employed as a daily
wage worker and receiving less than the minimum wage. Here, the award for loss of earning capacity lacks
basis. For one, the widow of the deceased gave conflicting testimonies. At first, she testified that her
husband "has a net income of P16, 000. 00 a year as farmer, sari-sari store owner, driver and operator of
two tricycles and caretaker of Hacienda Bancod." Next, she claimed that "before his death, her husband
earns P50.00 a day as tricycle driver and P150.00 from their sari-sari store and had a net income of
P4,000.00 a month. As a farmer her husband produces 270 cavans of palay a year with a price of P135.00
a cavan weighing 50 kilos." Aside from giving inconsistent statements, the amounts mentioned were
arbitrary and were not proved to be below the prescribed minimum wage. Plainly, this case does not fall
under any of the exceptions exempting the submission of documentary proof. To reiterate, "[a]ctual
damages, to be recoverable, must not only be capable of proof, but must actually be proved with a
reasonable degree of certainty. Courts cannot simply rely on speculation, conjecture or guesswork in
determining the fact and amount of damages. To justify an award of actual damages, there must be
competent proof of the actual amount of loss, credence can be given only to claims which are duly
supported by receipts."
 PRISCILO B. PAZ vs. NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC.,
G.R. No. 203993 April 20, 2015
PONENTE: PERLAS-BERNABE, J. Decided by: First Division

FACTS:
On March 1, 2000, petitioner, as the officer-in-charge of the Aircraft Hangar at the Davao
International Airport, Davao City, entered into a Memorandum of Agreement with Captain Allan J. Clarke,
President of International Environmental University, whereby for a period of four (4) years, unless pre-
terminated by both parties with six (6) months advance notice, the former shall allow the latter to use the
aircraft hangar space at the said Airport "exclusively for company aircraft/helicopter." Said hangar space
was previously leased to Liberty Aviation Corporation, which assigned the same to petitioner.
On August 19, 2000, petitioner complained in series of letters addressed to "MR. ALLAN J. CLARKE,
International Environmental Universality, Inc., that the hangar space was being used for trucks and
equipment, vehicles maintenance and fabrication, instead of for company helicopter/aircraft only, and
thereby threatened to cancel the MOA if the "welding, grinding, and fabrication jobs" were not stopped
immediately. In his final letter the petitioner strongly demanded the respondent to vacate the premises
and further informed Capt. Clarke that the company will "apply for immediate electrical disconnection
with the Davao Light and Power Company (DLPC), so as to compel to desist from continuing with the
works" thereon.
On September 4, 2002, respondent New International Environmental Universality, Inc. filed a
complaint against petitioner for breach of contract before the RTC, claiming that: petitioner had
disconnected its electric and telephone lines; upon petitioner’s instruction, security guards prevented its
employees from entering the leased premises by blocking the hangar space with barbed wire; and
petitioner violated the terms of the MOA when he took over the hangar space without giving respondent
the requisite six (6)-month advance notice of termination.
The RTC found respondent to have been effectively evicted from the leased premises between
July and August of2002, or long before the expiration of the term thereof in 2004. when petitioner: (a)
placed a gate/fence that prevented ingress to and egress from the leased premises; (b) parked a plane
inside and outside the leased premises; (c) disconnected the electrical and telephone connections of
respondent; and (d) locked respondent’s employees out.
ISSUE:
Whether or not the petitioner is liable for breach of contract of lease for effectively evicting the
respondent from the leased premises even before the expiration of the term of the lease.
HELD:
The Court ruled in the affirmative. Section 21 of the Corporation Code explicitly provides that one
who assumes an obligation to an ostensible corporation, as such, cannot resist performance thereof on
the ground that there was in fact no corporation. Clearly, petitioner is bound by his obligation under the
MOA not only on estoppel but by express provision of law. As aptly raised by respondent in its Comment
to the instant petition, it is futile to insist that petitioner issued the receipts for rental payments in
respondent’s name and not with Capt. Clarke’s, whom petitioner allegedly contracted in the latter’s
personal capacity, only because it was upon the instruction of an employee. Indeed, it is disputably
presumed that a person takes ordinary care of his concerns, and that all private transactions have been
fair and regular. Hence, it is assumed that petitioner, who is a pilot, knew what he was doing with respect
to his business with respondent.
Petitioner’s pleadings, however, abound with clear indications of a business relationship gone
sour. In his third letter dated July 19, 2002, petitioner lamented the fact that Capt. Clarke’s alleged
promise to buy an aircraft had not materialized. He likewise insinuated that Capt. Clarke's real motive in
staying in the leased premises was the acquisition of petitioner's right to possess and use the hangar
space.
Be that as it may, it is settled that courts have no power to relieve parties from obligations they
voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments.
The lower courts, therefore, did not err in finding petitioner liable for breach of contract for
effectively evicting respondent from the leased premises even before the expiration of the term of the
lease. The Court reiterates with approval the ratiocination of the RTC that, if it were true that respondent
was violating the terms and conditions of the lease, "[petitioner] should have gone to court to make the
[former] refrain from its 'illegal' activities or seek rescission of the [MOA], rather than taking the law into
his own hands."
 GO TONG ELECTRICAL SUPPLY CO., INC. AND GEORGE C. GO vs. BPI FAMILY SAVINGS BANK,
INC., SUBSTITUTED BY PHILIPPINE INVESTMENT ONE [SPV-AMC], INC.,
G.R. No. 187487 June 29, 2015
PONENTE: PERLAS-BERNABE, J. Decided by: First Division

FACTS:
As early as 1996, Go Tong Electrical had applied for and was granted financial assistance by the
then Bank of South East Asia. Subsequently, DBS Bank of the Philippines, Inc. became the successor-in-
interest of BSA. The application for financial assistance was renewed on January 6, 1999 through a Credit
Agreement.8On even date, Go Tong Electrical, represented by Go, among others, obtained a loan from
DBS in the principal amount of P40,491,051.65, for which Go Tong Electrical executed Promissory Note
for the same amount in favor of DBS, maturing on February 5, 2000. Under the PN's terms, Go Tong
Electrical bound itself to pay a default penalty interest at the rate of one percent (1%) per month in
addition to the current interest rate, as well as attorney's fees equivalent to twenty-five percent (25%) of
the amount sought to be recovered. As additional security, Go executed a Comprehensive Surety
Agreement (CSA) covering any and all obligations undertaken by Go Tong Electrical, including the
aforesaid loan. Upon default of petitioners, DBS - and later, its successor-in-interest, herein respondent -
demanded payment from petitioners, but to no avail.
On October 4, 2002, respondent filed a complaint against petitioners Go Tong Electrical Supply
Co., Inc. and its President, George C. Go, seeking that the latter be held jointly and severally liable to it for
the payment of their loan obligation in the aggregate amount of P87,086,398.71, inclusive of the principal
sum, interests, and penalties as of May 28, 2002, as well as attorney's fees, litigation expenses, and costs
of suit.
The RTC ruled in favor of respondent, thereby ordering petitioners to jointly and severally pay the
former: (a) the principal sum of P40,491,051.65, with legal interest to be reckoned from the filing of the
Complaint; (b) penalty interest of one percent (1%) per month until the obligation is fully paid; and (c)
attorney's fees in the sum of P50,000.00.
ISSUE:
Whether or not President George Go shall be held jointly and severally liable for the payment of
the loan obligation.
HELD:
The Court ruled in the affirmative. Finally, the Court finds as untenable petitioners' theory on Go's
supposed non-liability. As established through the CSA, Go had clearly bound himself as a surety to Go
Tong Electrical's loan obligation. Thus, there is no question that Go's liability thereto is solidary with the
former. As provided in Article 2047 of the Civil Code, "the surety undertakes to be bound solidarity with
the principal obligor. That undertaking makes a surety agreement an ancillary contract as it presupposes
the existence of a principal contract. Although the contract of a surety is in essence secondary only to a
valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses
no direct or personal interest over the obligations nor does it receive any benefit therefrom. Let it be
stressed that notwithstanding the fact that the surety contract is secondary to the principal obligation,
the surety assumes liability as a regular party to the undertaking," as Go in this case.
ANASTACIO TINGALAN, substituted by his heirs, namely: ROMEO L. TINGALAN, ELPEDIO L. TINGALAN,
JOHNNY L. TINGALAN and LAURETA T. DELA CERNA, vs. SPOUSES RONALDO and WINONA MELLIZA
G.R. No. 195247 June 29, 2015
PONENTE: VILLARAMA, JR., J. Decided by: Third Division

FACTS:
The original owner in fee simple of the subject property was petitioner Anastacio, a member of
the Bukidnon Tribe. His ownership is evidenced by Original Certificate of Title and Tax Declaration over a
five-hectare property located in Dalwangan, Malaybalay City, Bukidnon. The free patent was issued under
his name on October 4, 1976. n a Deed of Absolute Sale dated March 28, 1977, petitioner Anastacio sold
the subject property to respondent-spouses. Since then, respondent-spouses have been in actual,
exclusive, peaceful, uninterrupted and adverse possession of the subject property. The Owner's Duplicate
Certificate of Title and Tax Declaration were also issued under the names of respondent-spouses who paid
for the transfer and real property taxes pertaining to the property in question.
Around 23 years later, or on June 7, 2000, one Elena Tunanan filed an adverse claim over the
subject property. Petitioner Anastacio countered and demanded that respondent-spouses vacate the
property, but the latter refused claiming ownership over the same as supported by the Deed executed
between them and petitioner Anastacio on March 28, 1977. Petitioner Anastacio then filed a complaint
before the Office of the Barangay Captain but the summons were unheeded by respondent-spouses.
On October 22, 2001, Anastacio filed Civil Case No. 3120-01 with the court a quo for Quieting of
Title and Recovery of Possession against respondent-spouses and Elena. In the complaint, petitioner
Anastacio claimed that he remains to be the owner of the subject property as his title under OCT No. P-
8757 has never been cancelled and that the sale was null and void since the Deed was executed within
the five-year prohibitory period under the Public Land Act, as amended. The Deed was also written in the
English language which, allegedly, he could neither speak nor understand. He further averred that being
a member of a cultural minority, the Deed should have been approved by the Chairman of the Commission
on National Integration under Sections 120 and 124 of Republic Act No. 3872, as amended.
Respondent-spouses countered that in view of the Deed dated March 28, 1977, the Owner's
Duplicate Certificate of Title and Tax Declaration were issued under their names and they have been in
actual, exclusive and uninterrupted possession of the subject property since the execution of the Deed.
The trial court dismissed the case for lack of cause of action and find in favor of the respondents.
The trial court upheld the validity of the sale despite the Deed being executed within the five-year
prohibitory period because "the sale executed by petitioner to the respondent is not the kind of violation
as contemplated in accordance of Section of the Public Land Act" as the transfer was not yet completed
by the issuance of a new certificate of title under the name of respondent-spouses On the issue on the
validity of the Deed due to petitioner Anastacio's alleged inability to understand its stipulations which are
written in English, the trial court held that being a notarized document, the Deed enjoys the presumption
of regularity.
ISSUE:
Whether or not the contract of sale entered into by Anastacio and respondent spouses valid under
the Public Land Act.
HELD:
The contract of sale entered into between petitioner Anastacio and respondent-spouses on
March 28, 1977 is null and void from inception for being contrary to law and public policy. As a void
contract - it is imprescriptible and not susceptible of ratification.
The law is clear under Section 118 of the Public Land Act, as amended, that unless made in favor
of the government or any of its branches, units or institutions, lands acquired under free patent or
homestead provisions shall not be subject to any form of encumbrance for a term of five years from and
after the date of issuance of the patent or grant, viz.:
SEC. 118. Except in favor of the Government or any of its branches, units, or institutions,
or legally constituted banking corporations, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation from the date of the approval of the
application and for a term of five years from and after the date of issuance of the patent or grant,
nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of
said period; but the improvements or crops on the land may be mortgaged or pledged to qualified
persons, associations, or corporations.
No alienation, transfer, or conveyance of any homestead after five years and before twenty-five
years after issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural
Resources, which approval shall not be denied except on constitutional and legal grounds.
Following Section 118, the subject land could not have been validly alienated or encumbered on
March 28, 1977 which was way within five years from the date of the issuance of the free patent under
the name of petitioner Anastacio on October 4, 1976. The legal consequences of such sale - clearly made
within the prohibitory period - are stated under Section 124 of the Public Land Act, as amended, viz.:
SEC. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed
in violation of any of the provisions of sections one hundred and eighteen, one hundred and twenty, one
hundred and twenty-one, one hundred and twenty-two, and one hundred and twenty-three of this Act
shall be unlawful and null and void from its execution and shall produce the effect of annulling and
cancelling the grant, title, patent, or permit originally issued, recognized or confirmed, actually or
presumptively, and cause the reversion of the property and its improvements to the State.
The foregoing provision of law unambiguously classifies the subject contract of sale executed on
March 28, 1977 as unlawful and null and void ab initio for being in violation of Section 118, i.e., entered
into within the five-year prohibitory period. This provision of law is clear and explicit and a contract which
purports to alienate, transfer, convey or encumber any homestead within the prohibitory period is void
from its execution. The Court has held in a number of cases that such provision of law is Mandatory with
the purpose of promoting a specific public policy to preserve and keep in the family of the patentee that
portion of the public land which the State has gratuitously given to them.
xxx
It is clear as day that during the period of the five-year prohibition, the scheme devised by
petitioner Anastacio and respondent-spouses had resulted in practically depriving the grantees - herein
petitioner Anastacio and his heirs - that piece of land that the government had gratuitously given to them,
giving rise to a situation which is the exact antithesis of the primordial aim of our free patent and
homestead provisions under the Public Land Act, as amended.
Our ruling in the case of Manzano, et al. v. Ocampo, et al. is both pertinent and informative, viz.:
The law prohibiting any transfer or alienation of homestead land within five years from the
issuance of the patent does not distinguish between executory and consummated sales; and it would
hardly be in keeping with the primordial aim of this prohibition to preserve and keep in the family of the
homesteader the piece of land that the state had gratuitously given to them, to hold valid a homestead
sale actually perfected during the period of prohibition but with the execution of the formal deed of
conveyance and the delivery of possession of the land sold to the buyer deferred until after the expiration
of the prohibitory period, purposely to circumvent the very law that prohibits and declares invalid such
transaction to protect the homesteader and his family. To hold valid such arrangements would be to throw
the door wide open to all possible fraudulent subterfuges and schemes that persons interested in land
given to homesteaders may devise to circumvent and defeat the legal provision prohibiting their
alienation within five years from the issuance of the homesteader's patent.
We, therefore, hold that the sale in question is illegal and void for having been made within five
years from the date of Manzano's patent, in violation of section 118 of the Public Land Law.
 BERNARDO U. MESINA, Petitioner, v. PEOPLE OF THE PHILIPPINES
G.R. No. 162489 June 17, 2015
PONENTE: BERSAMIN, J. Decided by: First Division

FACTS:
On July 9, 1998, an information was filed in the RTC charging the Petitioner Mesina with qualified
theft. Upon his motion, he was granted a reinvestigation. After the reinvestigation, an amended
information was filed charging him instead with malversation of public funds. The Defense presented the
oral testimony of the petitioner and documentary evidence. He admitted collecting the total amount of
P468,394.46 from Baclit, including the subject patubig collection totaling to P167,976.90, but adamantly
denied misappropriating, misapplying, and embezzling the patubig collection, maintaining that the
patubig collection was found complete in his vault during the inspection. He explained that he deliberately
kept the collection in his vault upon learning that his wife had suffered a heart attack and had been rushed
to the hospital for immediate medical treatment. He believed that he did not yet need to remit the
amount to the OIC of the Cash Receipt Division because it was still to be re-counted. He claimed that when
he returned to the Main City Hall that same day his vault was already sealed. He said that the accusation
was politically motivated.
On November 8, 2001, the RTC found the petitioner guilty beyond reasonable doubt of the crime
of malversation.
ISSUE:
Whether or not Petitioner Mesina is civilly liable for the amount subject of malversation.
HELD:
The Supreme Court ruled in the affirmative. Pursuant to Article 100 of the Revised Penal Code,
every person criminally liable for a felony is also civilly liable. The Court pointedly remind all trial and
appellate courts to avoid omitting reliefs that the parties are properly entitled to by law or in equity under
the established facts. Their judgments will not be worthy of the name unless they thereby fully determine
the rights and obligations of the litigants. It cannot be otherwise, for only by a full determination of such
rights and obligations would they be true to the judicial office of administering justice and equity for all.
Courts should then be alert and cautious in their rendition of judgments of conviction in criminal cases.
They should prescribe the legal penalties, which is what the Constitution and the law require and expect
them to do. Their prescription of the wrong penalties will be invalid and ineffectual for being done without
jurisdiction or in manifest grave abuse of discretion amounting to lack of jurisdiction. They should also
determine and set the civil liability ex delicto of the accused, in order to do justice to the complaining
victims who are always entitled to them. The Rules of Court mandates them to do so unless the
enforcement of the civil liability by separate actions has been reserved or waived.
Under the law, the civil liability of the petitioner may involve restitution, reparation of the damage
caused, and indemnification for consequential damages. Given that his obligation requires the payment
of the amount misappropriated to the City of Caloocan, the indemnification for damages is through legal
interest of 6% per annum on the amount malversed, reckoned from the finality of this decision until full
payment.
 SPS. FERNANDO VERGARA AND HERMINIA VERGARA v. ERLINDA TORRECAMPO SONKIN

G.R. No. 193659 June 15, 2015

PONENTE: PERLAS-BERNABE Decided by: First Division

FACTS:
Petitioners-spouses Fernando Vergara and Herminia Vergara and Spouses Ronald Mark Sonkin
and Erlinda Torrecampo Sonkin are adjoining landowners in Poblacion, Norzagaray, Bulacan. In view of
the geographical configuration of the adjoining properties, the property owned by Sps. Sonkin is slightly
lower in elevation than that owned by Sps. Vergara.
When Sps. Sonkin bought the Sonkin Property sometime in 1999, they raised the height of the
partition wall and caused the construction of their house thereon. The house itself was attached to the
partition wall such that a portion thereof became part of the wall of the master's bedroom and bathroom.
Sometime in 2001, Sps. Vergara levelled the uneven portion of the Vergara Property by filling it
with gravel, earth, and soil. As a result, the level of the Vergara Property became even higher than that of
the Sonkin Property by a third of a meter. Eventually, Sps. Sonkin began to complain that water coming
from the Vergara Property was leaking into their bedroom through the partition wall, causing cracks, as
well as damage, to the paint and the wooden parquet floor. Sps. Sonkin repeatedly demanded that Sps.
Vergara build a retaining wall on their property in order to contain the landfill that they had dumped
thereon, but the same went unheeded. Hence, Sps. Sonkin filed the instant complaint for damages and
injunction with prayer for preliminary mandatory injunction and issuance of a temporary restraining order
against Sps. Vergara, as well as Sps. Rowena Santiago and Harold Santiago, Dolores Vergara-Orbistondo,
and Rosario Vergara-Payumo, the other possessors of the Vergara Property.
RTC found Sps. Vergara civilly liable to Sps. Sonkin for damages.
ISSUE:
Whether or not the award of moral damages and attorney’s fee is proper.
HELD:
The Supreme Court ruled in the negative. Article 2179 of the Civil Code reads:
Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of
his injury, he cannot recover damages. But if his negligence was only contributory, the immediate
and proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded.
Verily, contributory negligence is conduct on the part of the injured party, contributing as a legal
cause to the harm he has suffered, which falls below the standard to which he is required to conform for
his own protection.
In the case at bar, it is undisputed that the Sonkin property is lower in elevation than the Vergara
property, and thus, it is legally obliged to receive the waters that flow from the latter, pursuant to Article
637 of the Civil Code. This provision refers to the legal easement pertaining to the natural drainage of
lands, which obliges lower estates to receive from the higher estates water which naturally and without
the intervention of man descends from the latter, i.e., not those collected artificially in reservoirs, etc.,
and the stones and earth carried by the waters,
 Art. 637. Lower estates are obliged to receive the waters which naturally and without the
intervention of man descend from the higher estates, as well as the stones or earth which they
carry with them.
The owner of the lower estate cannot construct works which will impede this easement; neither
can the owner of the higher estate make works which will increase the burden.
In this light, Sps. Sonkin should have been aware of such circumstance and, accordingly, made the
necessary adjustments to their property so as to minimize the burden created by such legal easement.
Instead of doing so, they disregarded the easement and constructed their house directly against the
perimeter wall which adjoins the Vergara property, thereby violating the National Building Code in the
process, specifically Section 708 (a) thereof which

Section 708. Minimum Requirements for Group A Dwellings.

(a) Dwelling Location and Lot Occupancy.
The dwelling shall occupy not more than ninety percent of a corner lot and eighty percent
of an inside lot, and subject to the provisions on Easement on Light and View of the Civil Code of
the Philippines, shall be at least 2 meters from the property line.
Hence, the CA correctly held that while the proximate cause of the damage sustained by the house
of Sps. Sonkin was the act of Sps. Vergara in dumping gravel and soil onto their property, thus, pushing
the perimeter wall back and causing cracks thereon, as well as water seepage, the former is nevertheless
guilty of contributory negligence for not only failing to observe the two (2)-meter setback rule under the
National Building Code, but also for disregarding the legal easement constituted over their property. As
such, Sps. Sonkin must necessarily and equally bear their own loss.
In view of Sps. Sonkin's contributory negligence, the Court deems it appropriate to delete the
award of moral damages in their favor. While moral damages may be awarded whenever the defendant's
wrongful act or omission is the proximate cause of the plaintiffs physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar
injury in the cases specified or analogous to those provided in Article 2219 of the Civil Code, they are only
given to ease the defendant's grief and suffering and should, therefore, reasonably approximate the
extent of hurt caused and the gravity of the wrong done.
Anent the issue on attorney's fees, the general rule is that the same cannot be recovered as part
of damages because of the policy that no premium should be placed on the right to litigate. They are not
to be awarded every time a party wins a suit. The power of the court to award attorney's fees under
Article 2208 of the Civil Code demands factual, legal, and equitable justification. Even when a claimant is
compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may
not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a
case other than an erroneous conviction of the righteousness of his cause. In this case, the Court observes
that neither Sps. Sonkin nor Sps. Vergara (thru their compulsory counterclaim) were shown to have acted
in bad faith in pursuing their respective claims against each other. The existence of bad faith is negated
by the fact that both parties have valid contentions against each other. Thus, absent cogent reason to
hold otherwise, the Court deems it inappropriate to award attorney's fees in favor of either party.
 ALLIED BANKING CORPORATION vs. JESUS S. YUJUICO (DECEASED), REPRESENTED BY BRENDON V.
YUJUICO
G.R. No. 163116 June 29, 2015
PONENTE: BERSAMIN, J. Decided by: First Division

FACTS:
On January 10, 1966, the board of directors of General Bank & Trust Company approved a
resolution granting YLTC an Omnibus Credit Line in the amount of P800,000.00 to be made available by
overdrafts, loans and advances upon condition that the principals of YLTC would personally bind
themselves in a Continuing Guarantee to secure payment of obligations drawn on said credit extended by
Genbank. In order to secure punctual payment at maturity of YLTC's obligations, defendants-appellees
Gregoria Y. Paredes, Clarencio S. Yujuico and defendant-appellee Jesus S. Yujuico, principal stockholders
of YLTC as sureties, executed a Continuing Guarantee for the amount of P800,000 binding themselves in
their personal capacities as required by Genbank. Following the expiration of the first credit line, Genbank
passed a board resolution granting YLTC a credit line of P1.5M which included the preceding P800,000-
credit line. Pursuant to bank requirements, defendant-appellee Jesus S. Yujuico, Gregoria S. Paredes and
Clarencio S. Yujuico again executed a Continuing Guarantee for the entire amount of P1.5M. This replaced
the previous Continuing Guarantee.
After the second credit line expired, Genbank passed a board resolution approving the renewal
of YLTC's credit line of P1.5M for another year covered again by the Continuing Guarantee of P1.5M.
YLTC's credit line was renewed successively for the following years 1969, 1970, 1971, 1972 and 1973.
On January 7, 1974, Genbank's board of directors passed a resolution granting YLTC a credit line
of P5M or "up to statutory limits", whichever is higher. To cover that credit line, Clarence S. Yujuico, as
lone surety, executed a Continuing Guarantee to secure payment of YLTC's loan obligations in an amount
not exceeding P5M or up to statutory limits allowed by law, whichever is higher. Said credit line included
the previous P1.5M credit accommodation. On January 7, 1975, Genbank passed a board resolution which
continued the effectivity of YLTC's P5M-credit line for the year 1975. On December 8, 1975, Genbank
passed a board resolution renewing the time loan of P5.2M for another year or up to December 31, 1976.
Meanwhile, loans contracted by YLTC in 1975 and 1976 evidenced by promissory notes became
due and demandable. In 1977, Genbank was placed under liquidation by the Monetary Board. Pursuant
to a Memorandum of Agreement executed between the duly appointed bank liquidator and here plaintiff-
appellant Allied Banking Corporation, the latter acquired all assets and liabilities of Genbank. Plaintiff-
appellant, as successor-in-interest of Genbank, sought to collect the amount covered by the promissory
notes. YLTC failed to pay constraining plaintiff-appellant to file the instant collection suit in court.
On November 19, 1997, the RTC rendered judgment dismissing the complaint against Jesus, as
well as his counterclaim.
ISSUE:
Whether or not Jesus S. Yujuico is liable as surety under the continuing guaranty.
HELD:
 The Court ruled in the affirmative. Written on Genbank letterhead, the continuing guaranty dated
February 8, 196616 and the continuing guaranty dated February 22, 196717 contained identical principal
provisions to the effect that: (a) he had guaranteed the "punctual payment at maturity" of the loans
secured by the continuing guaranty; (b) Genbank, as the creditor bank of YLTC, could "make or cause"
payments under the terms and conditions of their loan agreement; (c) under paragraph II, Jesus had
offered as security for the loans of YLTC his own properties in the possession of Genbank or for which
Genbank had attached a lien, which, upon default by YLTC in paying the loan, Genbank, "without demand
or notice" upon respondent, would have the full power and authority to sell; (d) should YLTC incur in
default in the payment of the loans, Genbank could "proceed directly" against Jesus "without exhausting
the property" of YLTC; and (e) paragraph XII expressly stated that the liability of the signatory or
signatories to the continuing guaranty would be "joint and several."
It is apparent that the courts below, as well as the petitioner, interchangeably used the terms
guaranty and surety in characterizing the undertakings of Jesus under the continuing guaranties. The
terms are distinct from each other, however, and the distinction is expressly delineated in the Civil Code,
to wit:
Article 2047. By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such case the contract is called a suretyship.
Thus, in guaranty, the guarantor "binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so." The liability of the guarantor is secondary to that
of the principal debtor because he "cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor."
In contrast, the surety is solidarily bound to the obligation of the principal debtor.
Although the first part of the continuing guaranties showed that Jesus as the signatory had agreed
to be bound "either as guarantor or otherwise," the usage of term guaranty or guarantee in the caption
of the documents, or of the word guarantor in the contents of the documents did not conclusively
characterize the nature of the obligations assumed therein. What properly characterized and defined the
undertakings were the contents of the documents and the intention of the parties. In holding that the
continuing guaranty executed in E. Zobel, Inc. v. Court of Appeals was a surety instead of a guaranty, the
Court accented the distinctions between them, viz.:
A contract of surety is an accessory promise by which a person binds himself for another
already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A
contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in
case the latter does not pay the debt.
Strictly speaking, guaranty and surety are nearly related, and many of the principles are common
to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his
principal by the same instrument, executed at the same time, and on the same consideration. He is an
original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his
principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal,
or by want of notice of the default of the principal, no matter how much he may be injured thereby. On
the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the
principal does not join. It is usually entered into before or after that of the principal, and is often supported
on a separate consideration from that supporting the contract of the principal. The original contract of his
principal is not his contract, and he is not bound to take notice of its non-performance. He is often
discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified
of the default of the principal.
Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the
solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the
insurer of the debt, and he obligates himself to pay if the principal does not pay.
With the stipulations in the continuing guaranties indicating that he was the surety of the credit
line extended to YLTC, Jesus was solidarity liable to Genbank for the indebtedness of YLTC. In other words,
he thereby rendered himself "directly and primarily responsible" with YLTC, "without reference to the
solvency of the principal.
 REYNALDO P. BASCARA vs. SHERIFF ROLANDO G. JAVIER and EVANGELINE PANGILINAN
G.R. No. 188069 June 17, 2015
PONENTE: PERALTA, J. Decided by: Third Division

FACTS:
on August 13,2004, Rosalina P. Pardo executed in favor of Pangilinan a real estate mortgage over
a parcel of land covered by Transfer Certificate of Title No. 135066 as a security for the payment of a loan
in the amount of P200,000.00; that Pardo failed to comply with the terms and conditions of the
promissory note with REM; that upon compliance with the statutory requirements, the mortgaged
property was sold at public auction to Pangilinan as the highest bidder; that the one-year redemption
period already elapsed without Pardo exercising the right to redeem the subject property; that the title
over the lot was consolidated and transferred in the name of Pangilinan as evidenced by TCT No. 147777;
and, that Pardo, her agents, and persons claiming rights under her failed and refused to vacate the subject
premises despite several demands.
On January 31, 2007, the trial court granted the petition. The Notice to Vacate and Surrender
Possession was issued by respondent Sheriff Rolando G. Javier on April 15 2007 pursuant to the writ of
possession issued by the court on March 26, 2007. Claiming as the true, lawful and absolute owner of the
subject property that is in his possession, petitioner filed an Affidavit of Third-Party Claim and a Motion
to Recall Writ of Possession on April 23, 2007.
Meanwhile, in April 2007, petitioner filed an action for Annulment of Title and Damages against
Pangilinan and Robert H. Guillermo in his official capacity as the Register of Deeds of Pasay City. After
exchanges of subsequent pleadings in LRC, the trial court eventually ruled in favor of Pangilinan. On
January 17, 2008, it denied petitioner’s motion to recall the writ of possession and directed respondent
Sheriff Javier to implement the same. On April 3, 2008, petitioner’s motion for reconsideration was
likewise denied.
ISSUE:
Whether or not the trial court has the ministerial duty to issue a writ of possession, which cannot
be stayed by an injunction or a pending action for annulment of the real estate mortgage or the extra-
judicial foreclosure proceedings.
HELD:
The Court ruled in the affirmative. In extrajudicial foreclosures of real estate mortgages, the
issuance of a writ of possession is governed by Section 7 of Act No. 3135, as amended, which provides:
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition
the Court of First Instance (Regional Trial Court) of the province or place where the property or any
part thereof is situated, to give him possession thereof during the redemption period, furnishing
bond in an amount equivalent to the use of the property for a period of twelve months, to
indemnify the debtor in case it be shown that the sale was made without violating the mortgage
or without complying with the requirements of this Act. Such petition shall be made under oath
and filed in form of an ex parte motion in the registration or cadastral proceedings if the property
is registered, or in special proceedings in the case of property registered under the Mortgage Law
 or under section one hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any register of deeds in
accordance with any existing law, and in each case the clerk of the court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen
of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight
hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the property is situated, who
shall execute said order immediately.
Although the above provision clearly pertains to a writ of possession availed of and issued within
the redemption period of the foreclosure sale, the same procedure also applies to a situation where a
purchaser is seeking possession of the foreclosed property bought at the public auction sale after the
redemption period has expired without redemption having been made. The only difference is that in the
latter case, no bond is required therefor, as held in China Banking Corporation v. Lozada, thus:
It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of the
property purchased if it is not redeemed during the period of one year after the registration of the
sale. As such, he is entitled to the possession of the said property and can demand it at any time
following the consolidation of ownership in his name and the issuance to him of a new transfer
certificate of title. The buyer can in fact demand possession of the land even during the redemption
period except that he has to post a bond in accordance with Section 7 of Act No. 3135, as amended.
No such bond is required after the redemption period if the property is not redeemed. x x x
Upon the expiration of the period to redeem and no redemption was made, the purchaser, as
confirmed owner, has the absolute right to possess the land and the issuance of the writ of possession
becomes a ministerial duty of the court upon proper application and proof of title.
There is, however, an exception to the rule. Under Section 33, Rule 39 of the Rules of Court,the
possession of the property shall be given to the purchaser or last redemptioner unless a third party is
actually holding the property in a capacity adverse to the judgment obligor. Thus, the court’s obligation
to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases
to be ministerial when there is a third party in possession of the property claiming a right adverse to that
of the judgment debtor/mortgagor. In such a case, the issuance of the writ of possession ceases to be ex-
parte and non-adversarial as the trial court must order a hearing to determine the nature of said
possession, i.e., whether or not possession of the subject property is under a claim averse to that of the
judgment debtor. We repeatedly emphasize though that the exception provided under Section 33
contemplates a situation in which a third party holds the property by adverse title or right vis-a-vis the
judgment debtor or mortgagor, such as that of a co-owner, agricultural tenant or usufructuary, who
possesses the property in his or her own right, and is not merely the successor or transferee of the right
of possession of another co-owner or the owner of the property.
In this case, while it is undisputed that petitioner was in possession of the subject property, it
cannot be said that his right to possess the same is by virtue of being a co-owner, agricultural tenant or
usufructuary; nor is the claim to his right of possession analogous to the foregoing situations. What is clear
is that he allegedly acquired the property from Pardo by reason of a donation mortis causa. He is,
therefore, a transferee or successor-in-interest who merely stepped into the shoes of his aunt. He cannot
assert that his right of possession is adverse to that of Pardo as he has no independent right of possession.
Consequently, under legal contemplation, he cannot be considered as a "third party who is actually
holding the property adversely to the judgment obligor." The trial court had the ministerial duty to issue,
as it did issue, the possessory writ in favor of respondent Pangilinan. As it appeared, there was no reason
for it to order the recall of the writ already issued.
Moreover, it is not amiss to point that the execution of Pardo of donation mortis causa in favor of
petitioner does not immediately transfer title to the property to the latter. Considering that the alleged
donation is one of mortis causa, the same partake of the nature of testamentary provision. As such, said
deed must be executed in accordance with the requisites on solemnities of wills and testaments under
Articles 805 and 806 of the New Civil Code; otherwise, the donation is void and would produce no effect.
Unless and until the alleged donation is probated, i.e., proved and allowed in the proper court, no right
to the subject property has been transmitted to petitioner.
 METRO MANILA TRANSIT CORPORATION v. REYNALDO CUEVAS AND JUNNEL CUEVAS
REPRESENTED BY REYNALDO CUEVAS
G.R. No. 167797 June 15, 2015
PONENTE: BERSAMIN, J. Decided by: First Division

FACTS:
Metro Manila Transit Corporation and Mina's Transit Corporation entered into an agreement to
sell whereby the latter bought several bus units from the former at a stipulated price. They agreed that
MMTC would retain the ownership of the buses until certain conditions were met, but in the meantime
Mina's Transit could operate the buses within Metro Manila.
On October 14, 1994, one of the buses subject of the agreement to sell, bearing plate number
NXM-449-TB-pil 94, hit and damaged a Honda Motorcycle owned by Reynaldo and driven by Junnel. As a
result, plaintiff Junnel Cuevas and his companion were thrown to the road and plaintiffs right leg was
severely fractured, and the Honda Motorcycle owned by plaintiff Reynaldo Cuevas was extensively
damaged. Reynaldo and Junnel sued MMTC and Mina's Transit for damages in the Regional Trial Court in
Cavite.
In its answer with compulsory counterclaim and cross-claim, MMTC denied liability, and averred
that although it retained the ownership of the bus, the actual operator and employer of the bus driver
was Mina's Transit; and that, in support of its cross-claim against Mina's Transit, a provision in the
agreement to sell mandated Mina's Transport to hold it free from liability arising from the use and
operation of the bus units.
On its part, Mina's Transit contended that it was not liable because: (a) it exercised due diligence
in the selection and supervision of its employees; (b) its bus driver exercised due diligence; and (c) Junnel's
negligence was the cause of the accident.
Meanwhile, Mina's Transit filed a third-party complaint against its insurer, Perla Compania de
Seguros, Inc., seeking reimbursement should it be adjudged liable, pursuant to its insurance policy issued
by Perla with the following coverage: (a) third-party liability of P50,000.00 as the maximum amount; and
(b) third-party damage to property of P20,000.00 as the maximum amount.
In its answer to the third-party complaint, Perla denied liability as insurer because Mina's Transit
had waived its recourse by failing to notify Perla of the incident within one year from its occurrence, as
required by Section 384 of the Insurance Code. It submitted that even assuming that the claim had not
yet prescribed, its liability should be limited to the maximum of P50,000.00 for third-party liability and
P20,000.00 for third-party damage.
After trial, the RTC rendered judgment in favor of the respondents ordering petitioner Metro
Manila Transit Corporation and its co-defendant Mina's Transit Corporation to pay damages in favor of
respondents Reynaldo Cuevas and Junnel Cuevas.
ISSUE:
Whether or not Metro Manila Transit Corporation was liable for the injuries sustained by the
respondents despite the provision in the agreement to sell that shielded it from liability.
HELD:
 The Court ruled in the affirmative. In view of MMTC's admission in its pleadings that it had
remained the registered owner of the bus at the time of the incident, it could not escape liability for the
personal injuries and property damage suffered by the Cuevases. This is because of the registered-owner
rule, whereby the registered owner of the motor vehicle involved in a vehicular accident could be held
liable for the consequences. The registered-owner rule has remained good law in this jurisdiction
considering its impeccable and timeless rationale, as enunciated in the 1957 ruling in Erezo, et al. v. Jepte,
where the Court pronounced:
Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration cases, because the administrative
proceeding of registration does not bear any essential relation to the contract of sale between
the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and
operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended.) The
main aim of motor vehicle registration is to identify the owner so that if any accident happens, or
that any damage or injury is caused by the vehicle on the public highways, responsibility therefor
can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles
running on public highways caused accidents or injuries to pedestrians or other vehicles without
positive identification of the owner or drivers, or with very scant means of identification. It is to
forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the determination of persons responsible for
damages or injuries caused on public highways.
"'One of the principal purposes of motor vehicles legislation is identification of the vehicle and of
the operator, in case of accident; and another is that the knowledge that means of detection are always
available may act as a deterrent from lax observance of the law and of the rules of conservative and safe
operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary
purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because
of lack of means to discover him.' The purpose of the statute is thwarted, and the displayed number
becomes a 'snare and delusion,' if courts would entertain such defenses as that put forward by appellee
in this case. No responsible person or corporation could be held liable for the most outrageous acts of
negligence, if they should be allowed to place a 'middleman' between them and the public, and escape
liability by the manner in which they recompense their servants." (King vs. Brenham Automobile Co., 145
S.W. 278, 279.)
The Court has reiterated the registered-owner rule in other rulings, like in Filcar Transport
Services v. Espinas,13 to wit:
x x x It is well settled that in case of motor vehicle mishaps, the registered owner of the
motor vehicle is considered as the employer of the tortfeasor-driver, and is made primarily liable
for the tort committed by the latter under Article 2176, in relation with Article 2180, of the Civil
Code.
 In Equitable Leasing Corporation v. Suyom, we ruled that in so far as third persons are concerned,
the registered owner of the motor vehicle is the employer of the negligent driver, and the actual employer
is considered merely as an agent of such owner.
In that case, a tractor registered in the name of Equitable Leasing Corporation figured in an
accident, killing and seriously injuring several persons. As part of its defense, Equitable claimed that the
tractor was initially leased to Mr. Edwin Lim under a Lease Agreement, which agreement has been
overtaken by a Deed of Sale entered into by Equitable and Ecatine Corporation. Equitable argued that it
cannot be held liable for damages because the tractor had already been sold to Ecatine at the time of the
accident and the negligent driver was not its employee but of Ecatine.
In upholding the liability of Equitable, as registered owner of the tractor, this Court said that
"regardless of sales made of a motor vehicle, the registered owner is the lawful operator insofar as the
public and third persons are concerned; consequently, it is directly and primarily responsible for the
consequences of its operation." The Court further stated that "[i]n contemplation of law, the
owner/operator of record is the employer of the driver, the actual operator and employer being
considered as merely its agent." Thus, Equitable, as the registered owner of the tractor, was considered
under the law on quasi delict to be the employer of the driver, Raul Tutor; Ecatine, Tutor's actual
employer, was deemed merely as an agent of Equitable.
Thus, it is clear that for the purpose of holding the registered owner of the motor vehicle primarily
and directly liable for damages under Article 2176, in relation with Article 2180, of the Civil Code, the
existence of an employer-employee relationship, as it is understood in labor relations law, is not required.
It is sufficient to establish that Filcar is the registered owner of the motor vehicle causing damage in order
that it may be held vicariously liable under Article 2180 of the Civil Code.
Indeed, MMTC could not evade liability by passing the buck to Mina's Transit. The stipulation in
the agreement to sell did not bind third parties like the Cuevases, who were expected to simply rely on
the data contained in the registration certificate of the erring bus.
Although the registered-owner rule might seem to be unjust towards MMTC, the law did not leave
it without any remedy or recourse. According to Filcar Transport Services v. Espinas, MMTC could recover
from Mina's Transit, the actual employer of the negligent driver, under the principle of unjust enrichment,
by means of a cross-claim seeking reimbursement of all the amounts that it could be required to pay as
damages arising from the driver's negligence. A cross-claim is a claim by one party against a co-party
arising out of the transaction or occurrence that is the subject matter either of the original action or of a
counterclaim therein, and may include a claim that the party against whom it is asserted is or may be
liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.
 CCC INSURANCE CORPORATION, Petitioner, v. KAWASAKI STEEL CORPORATION, F.F.
MAÑACOP CONSTRUCTION CO., INC., AND FLORANTE F. MAÑACOP
G.R. No. 156162 June 22, 2015
PONENTE: LEONARDO-DE CASTRO, J. Decided by: First Division

FACTS:
On August 16, 1988, Kawasaki, represented by its Manager, Yoshimitsu Hosoya, and F.F. Mañacop
Construction Company, Inc., represented by its President, Florante F. Mañacop, executed a Consortium
Agreement for Pangasinan Fishing Port Network Project. Kawasaki and FFMCCI formed a consortium for
the purpose of contracting with the Philippine Government for the construction of a fishing port network
in Pangasinan . According to their Consortium Agreement, Kawasaki and FFMCCI undertook to perform
and accomplish their respective and specific portions of work in the intended contract with the Philippine
Government.
The Project was awarded to the Kawasaki-FFMCCI Consortium for the contract price of
P62,000,441.00, 33.37% of which or P20,692,026.00 was the price of work of FFMCCI. On October 4, 1988,
the Republic of the Philippines, through the Department of Public Works and Highways, represented by
former Secretary Romulo M. del Rosario, as owner, and the Kawasaki-FFMCCI Consortium, represented
by Shigeru Kohda, as contractor, entered into a Contract Agreement entitled Stage I-A Construction of
Pangasinan Fishing Port Network.
In accordance with Article 10 of the Consortium Agreement, "Consortium Leader" Kawasaki, on
behalf of the Consortium, secured from the Philippine Commercial International Bank Letter of Credit No.
38-001-1836178 in the amount of P6,200,044.10 in favor of DPWH, available from September 9, 1988 to
November 19, 1990. Said Letter of Credit guaranteed the faithful performance by Kawasaki-FFMCCI
Consortium of its obligation under the Construction Contract.
Sometime in April 1989, FFMCCI ceased performing its work in the Project after suffering financial
problems and/or business reverses. After discussions, Kawasaki and FFMCCI then executed a new
Agreement on August 24, 1989 wherein Kawasaki recognized the "Completed Portion of Work" of FFMCCI
as of April 25, 1989, and agreed to take over the unfinished portion of work of FFMCCI, referred to as
"Transferred Portion of Work." Kawasaki and FFMCCI further agreed that "[a]ny profit or benefit arising
from the performance by [Kawasaki] of the Transferred Portion of Work shall accrue to [Kawasaki]."
In a letter dated September 14, 1989, Kawasaki informed CCCIC about the cessation of operations
of FFMCCI, and the failure of FFMCCI to perform its obligations in the Project and repay the advance
payment made by Kawasaki. Consequently, Kawasaki formally demanded that CCCIC, as surety, pay
Kawasaki the amounts covered by the Surety and Performance Bonds.
ISSUE:
Whether or not CCCIC is liable to Kawasaki under the Surety Bonds and Performance Bond.
HELD:
The Court ruled in the affirmative. The statutory definition of suretyship is found in Article 2047
of the Civil Code, thus:
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so.
 If a person binds himself solidarity with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such case the contract is called a suretyship.
Jurisprudence also defines a contract of suretyship as "an agreement where a party called the
surety guarantees the performance by another party called the principal or obligor of an obligation or
undertaking in favor of a third person called the obligee. Specifically, suretyship is a contractual relation
resulting from an agreement whereby one person, the surety, engages to be answerable for the debt,
default or miscarriage of another, known as the principal."2 The Court expounds that "a surety's liability
is joint and several, limited to the amount of the bond, and determined strictly by the terms of contract
of suretyship in relation to the principal contract between the obligor and the obligee. It bears stressing,
however, that although the contract of suretyship is secondary to the principal contract, the surety's
liability to the obligee is nevertheless direct, primary, and absolute."
At the outset, the Court ascertains that there are two principal contracts in this case: (1) the
Consortium Agreement wherein Kawasaki and FFMCCI agreed to jointly enter into a contract with the
Republic for the Project, each assuming the performance of specific scopes of work in said Project; and
(2) the Construction Contract whereby the Republic awards the Project to the Kawasaki-FFMCCI
Consortium. While there is a connection between these two contracts, they are each distinguishable from
and enforceable independently of one another: the first governs the rights and obligations between
Kawasaki and FFMCCI, while the second covers contractual relations between the Republic and the
Kawasaki-FFMCCI Consortium. The Surety and Performance Bonds from CCCIC guaranteed the
performance by FFMCCI of its obligations under the Consortium Agreement; whereas the Letter of Credit
from PCIB warranted the completion of the Project by the Kawasaki-FFMCCI Consortium. At the crux of
the instant controversy are the Surety and Performance Bonds issued by CCCIC in relation to the
Consortium Agreement.
xxxx
The Court reiterates that a surety's liability is determined strictly by the terms of contract of
suretyship, in relation to the principal contract between the obligor and the obligee. Hence, the Court
looks at the Surety and Performance Bonds, in relation to the Consortium Agreement.
According to the principle of relativity of contracts in Article 1311 of the Civil Code, a contract
takes effect only between the parties, their assigns, and heirs; except when the contract contains a
stipulation in favor of a third person, which gives said person the right to demand fulfillment of said
stipulation. In this case, the Surety and Performance Bonds are enforceable by and against the parties
FFMCCI (the obligor) and CCCIC (the surety), as well as the third person Kawasaki (the obligee) in whose
favor said bonds had been explicitly constituted; while the related Consortium Agreement binds the
parties Kawasaki and FFMCCI. Since the Republic is neither a party to the Surety and Performance Bonds
nor the Consortium Agreement, any action or omission on its part has no effect on the liability of CCCIC
under said bonds.
The Surety and Performance Bonds state that their purpose was "to secure the Ml and faithful
performance on [FFMCCI's] part of said undertaking," particularly, the repayment by FFMCCI of the
downpayment advanced to it by Kawasaki (in the case of the Surety Bond) and the full and faithful
performance by FFMCCI of its portion of work in the Project (in the case of the Performance Bond). These
are the only undertakings expressly guaranteed by the bonds, the fulfillment of which by FFMCCI would
release CCCIC from its obligations as surety; or conversely, the non-performance of which would give rise
to the liabilities of CCCIC as a surety.
The Surety and Performance Bonds do not contain any condition that CCCIC would be liable only
if, in addition to the default on its undertakings by FFMCCI, the Republic also made a claim against the
PCIB Letter of Credit furnished by Kawasaki, on behalf of the Kawasaki-FFMCCI Consortium. The Court
agrees with the observation of the Court of Appeals that "it is not provided, neither in the Consortium
Agreement nor in the subject bonds themselves that before KAWASAKI may proceed against the bonds
posted by [FFMCCI] and CCCIC, the Philippine government as employer must first exercise its rights against
the bond issued in its favor by the consortium."
The Court cannot give any additional meaning to the plain language of the undertakings in the
Surety and Performance Bonds. The extent of a surety's liability is determined by the language of the
suretyship contract or bond itself. Article 1370 of the Civil Code provides that "[i]f the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control."
There is no basis for the interpretation by CCCIC of the word "counter-guarantee" in Article 10 of
the Consortium Agreement. The first paragraph of Article 10 of the Consortium Agreement provides that
Kawasaki, as the Consortium Leader, shall arrange, at its own cost but on behalf of the Kawasaki-FFMCCI
Consortium, for all necessary bonds and guarantees under the Construction Contract with the Republic.
The same paragraph requires, in turn, that FFMCCI, at its own cost, to furnish Kawasaki with suitable
counter-guarantees for the repayment by FFMCCI for the advance payment from Kawasaki and
performance by FFMCCI of its portion of work in the Project. Clearly, the "guarantees" and "counter-
guarantees" were securities for the fulfillment of the obligations of the Kawasaki-FFMCCI Consortium to
the Republic under the Construction Contract and of FFMCCI to the Consortium Leader Kawasaki under
the Consortium Agreement, respectively. The CCCIC Surety and Performance Bonds were not counter-
guarantees to the PCIB Letter of Credit. In fact, in the event that the Republic did make a claim on the
PCIB Letter of Credit, the second paragraph of Article 10 of the Consortium Agreement stipulates that
Kawasaki and FFMCCI would still have to determine their respective responsibilities, reimbursements,
and/or compensations according to the provisions of the Consortium Agreement, instead of simply
allowing Kawasaki to recover on the "counter-guarantees" of FFMCCI.
It is not disputed that FFMCCI, due to financial difficulties, was unable to repay the advance
payment it received from Kawasaki and to finish its scope of work in the Project, thus, FFMCCI defaulted
on its obligations to Kawasaki. Given the default of FFMCCI, CCCIC as surety became directly, primarily,
and absolutely liable to Kawasaki as the obligee under the Surety and Performance Bonds. The following
pronouncements of the Court in Asset Builders Corporation v. Stronghold Insurance Company, Inc. are
relevant herein:
 Respondent, along with its principal, Lucky Star, bound itself to the petitioner when it
executed in its favor surety and performance bonds. The contents of the said contracts clearly
establish that the parties entered into a surety agreement as defined under Article 2047 of the
New Civil Code. x x x.
As provided in Article 2047, the surety undertakes to be bound solidarily with the
principal obligor. That undertaking makes a surety agreement an ancillary contract as it
presupposes the existence of a principal contract. Although the contract of a surety is in essence
secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of
another although it possesses no direct or personal interest over the obligations nor does it
receive any benefit therefrom. Let it be stressed that notwithstanding the fact that the surety
contract is secondary to the principal obligation, the surety assumes liability as a regular party to
the undertaking.
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, reiterating the ruling
in Garcia v. Court of Appeals, expounds on the nature of the surety's liability:
xxx. The surety's obligation is not an original and direct one for the performance of his
own act, but merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid principal
obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the principal.
Suretyship, in essence, contains two types of relationship - the principal relationship between the
obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the
principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the surety's
solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not change in any
material way the obligee's relationship with the principal obligor. Neither does it make the surety an active
party to the principal obligee-obligor relationship. Thus, the acceptance does not give the surety the right
to intervene in the principal contract. The surety's role arises only upon the obligor's default, at which
time, it can be directly held liable by the obligee for payment as a solidary obligor.
In the case at bench, when Lucky Star failed to finish the drilling work within the agreed time
frame despite petitioner's demand for completion, it was already in delay. Due to this default, Lucky Star's
liability attached and, as a necessary consequence, respondent's liability under the surety agreement
arose.
Undeniably, when Lucky Star reneged on its undertaking with the petitioner and further failed to
return the P575,000.00 downpayment that was already advanced to it, respondent, as surety, became
solidarily bound with Lucky Star for the repayment of the said amount to petitioner. The clause, "this bond
is callable on demand," strongly speaks of respondent's primary and direct responsibility to the petitioner.
Accordingly, after liability has attached to the principal, the obligee or, in this case, the petitioner,
can exercise the right to proceed against Lucky Star or respondent or both. xxx.
Similarly, there are two sets of transactions in the present case covered by two different contracts:
the Consortium Agreement between Kawasaki and FFMCCI and the Construction Contract between the
Republic and the Kawasaki-FFMCCI Consortium. The Surety and Performance Bonds guaranteed the
performance of the obligations of FFMCCI to Kawasaki under the Consortium Agreement. The Republic
was not a party in either the Surety and Performance Bonds or the Consortium Agreement. Under these
circumstances, there was no creditor-debtor relationship between the Republic and FFMCCI and Article
2079 of the Civil Code did not apply. The extension granted by the Republic to Kawasaki modified the
deadline for the completion of the Project under the Construction Contract, but had no effect on the
obligations of FFMCCI to Kawasaki under the Consortium Agreement, much less, on the liabilities of CCCIC
under the Surety and Performance Bonds.
RICARDO V. QUINTOS v. DEVELOPMENT BANK OF THE PHILIPPINES AND PHILIPPINE NATIONAL BANK
G.R. No. 168258 August 17, 2015
PONENTE: LEONARDO-DE CASTRO, J. Decided by: First Division

FACTS:
GCFI, formerly known as Alta Tierra Agri-Business, Inc., is a corporation existing under Philippine
laws, primarily engaged in livestock production and agri-business. Quintos is the majority stockholder of
GCFI with 74,233 shares of stock, representing about 74% of all GCFI shares issued, outstanding, and
entitled to vote. Quintos had served as President and Director of GCFI.
In 1975, the NIDC approved an application for financial assistance of GCFI in the amount of
$5,700,000.00, or its estimated equivalent of P43,000,000.00. According to the application of GCFI, the
loan proceeds would be used for the integration and expansion of the poultry farm of GCFI in Mamburao,
Occidental Mindoro, particularly for: (a) restructuring of existing liabilities of GCFI; (b) construction of
breeder and broiler houses; and (c) acquisition of machinery and equipment for an integrated poultry
operation. To secure the loan, mortgage and pledge were constituted on real and personal property
owned by GCFI and Quintos personally, including all of Quintos's shares of stock in GCFI and the machinery
and equipment which GCFI would acquire using the loan proceeds. Quintos also bound himself as surety
for the obligations of GCFI to NIDC for the said loan.
The following year, in 1976, GCFI applied for and was granted by DBP an agricultural loan
amounting to P57,000,000.00 for the acquisition of machinery and equipment and construction of broiler
houses. NIDC and DBP agreed to share on a pari passu basis the same securities earlier given by GCFI and
Quintos for the NIDC loan, and the contracts of mortgage and pledge were amended accordingly adding
DBP as party and the amount of loan extended by DBP as consideration. The proceeds of both NIDC and
DBP loans were released. Thereafter, Armando T. Romualdez took over management of GCFI as President,
but Quintos continued to serve as Director of the corporation.
By the end of the 1970s, GCFI was suffering from financial problems due to poor sales, low
production, and weak liquidity problems. Of its loan obligations to NIDC and DBP, GCFI was only able to
pay P2,200,000.00. On August 1, 1980, NIDC and DBP took over management of GCFI. As of June 30, 1986,
the loan obligations of GCFI to NIDC and DBP totaled P364,938,010.00.
Proclamation No. 50 dated December 8, 1986 and its amendment by Proclamation No. 50-A dated
December 15, 1986 then created the Asset Privatization Trust (APT) to take over title to and possession
of, conserve, provisionally manage, and dispose of the non-performing assets of the National
Government. Administrative Order No. 14 dated February 3, 1987 approved the identification of and
transfer to the National Government of certain assets and liabilities of PNB and DBP. The loans of GCFI
were among the non-performing assets of PNB and DBP transferred to the National Government. A Trust
Agreement was executed on February 28, 1987 whereby the National Government constituted APT as its
trustee over the Trust Properties, which included the loans to GCFI.
On July 27, 1987, the Presidential Commission on Good Government (PCGG) issued a Writ of
Sequestration. Just a few days later, on August 7, 1987, PNB, DBP, and APT jointly filed a Petition for
Extrajudicial Foreclosure Sale8 requesting the Clerk of Court and Ex-Officio Sheriff of the RTC of Occidental
Mindoro to take possession of the mortgaged properties of GCFI and Quintos, consisting of real properties
and chattel, and to sell the same at a public auction to satisfy the indebtedness of GCFI to PNB and DBP
in the amounts of P233,255,249.43 and P322,272,538.51, respectively, or in the total amount of
P555,527,787.94, as of June 30, 1987. As countermeasure, Quintos filed on April 4, 1988 with the RTC of
Makati City, Branch 134 a Complaint for the annulment of the loan and mortgage contracts with prayer
for the issuance of a writ of preliminary injunction.
ISSUE:
Whether or not the loan and collateral documents are void ab initio because Quintos only
executed the same under duress and said contracts are completely simulated for lack of consideration.
HELD:
The Supreme Court ruled in the negative. Upon scrutiny, Quintos's fundamental allegations -
particularly, that it was Romualdez who negotiated with NIDC and DBP for the grant of the loans; that
Quintos signed the loan and collateral agreements because of the intimidation exerted upon his person
by Romualdez; that despite being warned by Quintos, NIDC and DBP still released the proceeds of the
loans to Romualdez; that Romualdez did not turnover to or infuse the loan proceeds into GCFI but used
the entire amount for personal purposes; that even former First Lady Imelda and Gen. Ver confronted and
threatened Quintos; that there were no actual stockholders' and board of directors' meetings held to
approve the loans; and that Quintos was only forced and intimidated by Romualdez and Atty. De Joya into
signing the Secretary's Certificates and other corporate documents on the supposed stockholders' and
board of directors' meetings approving said loans long after the release of the loan proceeds - were
essentially based on Quintos's own testimony. Quintos, however, is an interested party, not only was he
a signatory to the loan and collateral documents, but he stands to benefit the most from the declaration
of nullity of the loans and collateral contracts being the majority stockholder of GCFI and a surety for the
loans. Uncorroborated testimony of an interested party should not be accepted hook, line, and sinker. It
should be assessed with extreme care.

Quintos generally alleged that he was merely "coerced" and "forced" by Romualdez into signing
the loan and collateral contracts and the Secretary's Certificates on the stockholders' and board of
directors' meetings approving the loans with NIDC and DBP which did not actually take place. Quintos,
however, failed to provide any details as to how Romualdez precisely exercised said coercion and force
upon him. What Quintos was able to narrate with some particularity were the incidents with former First
Lady Imelda and Gen. Ver, but even then, according to Quintos, former First Lady Imelda and Gen. Ver
referred to the sale of Quintos's shares of stock in GCFI to Romualdez and warned Quintos against
speaking to others about Romualdez not having yet paid for said shares. Former First Lady Imelda and
Gen. Ver made no mention at all of the loan transactions with NIDC and DBP. Neither can the Court give
much weight to what the RTC described as the "atmosphere prevailing" under Martial Law absent proof
of how it specifically affected Quintos and the loan transactions with NIDC and DBP. Under Article 1335
of the Civil Code:
 Article 1335. There is violence when in order to wrest consent, serious or irresistible force
is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or property, or upon the person or property
of his spouse, descendants or ascendants, to give his consent.
To determine the degree of the intimidation, the age, sex and condition of the person shall be
borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or legal, does not
vitiate consent.
Absent details on how Quintos was "coerced" and "forced" or even intimidated into signing the
loan and collateral contracts, the Court has no way of determining, in accordance with the standards set
forth in Article 1335 of the Civil Code, whether there was sufficient degree of violence or intimidation
exercised upon Quintos that vitiated his consent to the loan and collateral contracts.
Quintos further argued that there was no consideration for the loan and collateral contracts as
the loan proceeds were not infused into GCFI but were personally used by Romualdez. Without
consideration, the loan and collateral contracts were simulated.
The Court is not persuaded.

Quintos, in fact, admitted that the loan proceeds were released by NIDC and DBP through checks
payable to GCFI. The checks from DBP were even released to one Felixberto P. Buenaventura
(Buenaventura) per the letter of authority63 dated August 19, 1976 executed by Quintos as President of
GCFI. Quintos did not clarify the identity or role of Buenaventura nor repudiate the letter of authority he
issued in Buenaventura's favor. Evidently, there were sufficient considerations for both loans. NIDC and
DBP had already released the loan proceeds to GCFI after completion of the documentary requirements
and execution of the collateral contracts by GCFI. As far as NIDC and DBP were concerned, they had
already fulfilled their obligations under the loan contracts. NIDC and DBP, at that point, had no authority
to look into and interfere with the internal affairs of GCFI, including how the GCFI directors and officers
actually spent the loan proceeds after receipt. Assuming that Romualdez did misappropriate the loan
proceeds intended for GCFI for his personal purposes, then the remedy of Quintos and GCFI was not to
invalidate the loan and collateral contracts but to hold Romualdez liable.
The basic characteristic of a simulated contract is that it is not really desired or intended to
produce legal effects or does not in any way alter the juridical situation of the parties. In Velasquez v.
Court of Appeals, the Court expounds on the nature of a simulated contract thus:
The real nature of a contract may be determined from the express terms of the agreement
and from the contemporaneous and subsequent acts of the parties thereto. When the parties do
not intend to be bound at all by the purported contract, it is called an absolutely simulated contract
which under the law is void and the parties may recover what they gave under the simulated
contract. If, on the other hand, the parties state a false cause in the contract to conceal their real
 agreement, the contract is relatively simulated and the parties' real agreement may be held
binding between them.
Based on the contemporaneous and subsequent acts of the parties herein, it cannot be said that
the loan and collateral contracts were merely simulated. GCFI submitted loan applications with supporting
documents to NIDC and DBP. GCFI and Quintos (as President of GCFI and in his personal capacity), on one
hand, and NIDC and DBP, on the other hand, executed the necessary loan and collateral contracts and had
them notarized. The Board of Directors of NIDC and DBP approved the loan applications of GCFI. NIDC and
DBP insisted on the registration of the mortgages and pledges. NIDC and DBP wholly released to GCFI the
loan proceeds as stated in the loan contracts. In a series of letters, Quintos wrote to NIDC/PNB and DBP
explicitly acknowledging and/or expressing willful or voluntary compliance with the loan and collateral
contracts.
xxx
Based on the foregoing, it is apparent that the parties intended to be bound by the loan and
collateral contracts, which were not simulated at all.
Furthermore, Quintos can be held in estoppel on the basis of his acts contemporaneous and
subsequent to the execution of the loan and collateral contracts. "Where a party, by his or her deed or
conduct, has induced another to act in a particular manner, estoppel effectively bars the former from
adopting an inconsistent position, attitude or course of conduct that causes loss or injury to the latter.
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice,
and its purpose is to forbid one to speak against his own act, representations, or commitments to the
injury of one to whom they were directed and who reasonably relied thereon." After consistently
recognizing NIDC/PNB and DBP as mortgage creditors of GCFI, Quintos is now estopped from adopting a
contrary position which denies the same.
Quintos attributed bad faith on the part of NIDC and DBP when he averred that NIDC and DBP
knew of Romualdez's scheme and acted in connivance with Romualdez by still approving and releasing
the loans to GCFI. It is a basic principle that good faith is presumed and the burden of proving bad faith
rests on the one alleging it. Allegations of bad faith and fraud must be proved by clear and convincing
evidence. Quintos's testimony hardly constituted clear and convincing evidence of bad faith, not only
because it was unsubstantiated, but it also lacked pertinent details. Quintos testified that he warned the
"creditors" of GCFI of Romualdez's fraudulent scheme but did not identify which creditors, and if such
creditors were corporations, who among the officers or employees of such corporations did he warn as
to bind the corporations. Quintos likewise did not describe the manner by which he gave his warning. The
fact that NIDC and DBP were warned and had knowledge of Romualdez's plan to divert the loan proceeds
to his personal use needed to be established clearly and convincingly for it is determinative of the bad
faith of NIDC and DBP if NIDC and DBP still released the loan proceeds despite said warning/knowledge.
The RTC erred in saying that "[t]he defendant banks x x x failed to rebut plaintiff Quintos's
testimony that such funds 'did not go to the corporation' and that he was just 'coerced and forced to sign
long after the loan was consummated.'" The burden of evidence was upon Quintos to overcome the
presumptions of regularity, observance of the ordinary course of business, and sufficient consideration
accorded the loan transactions and of authenticity, genuineness, and regular execution enjoyed by the
notarized documents, and since he failed to present sufficient evidence to discharge such burden, the
burden of evidence did not even shift to PNB and DBP.
 METROPOLITAN BANK AND TRUST COMPANY v. CPR PROMOTIONS AND MARKETING, INC. AND
SPOUSES CORNELIO P. REYNOSO, JR. AND LEONIZA* F. REYNOSO,
G.R. No. 200567 June 22, 2015
PONENTE: VELASCO JR., J.: Decided by: FIRST DIVISION
FACTS:
Petitioner Metropolitan Banking and Trust Company's claims for deficiency payment upon
foreclosing respondents' mortgaged properties. From February to October 1997, Respondent CPR
Promotions and Marketing, Inc. obtained loans from petitioner MBTC. To secure the loans, the spouses
Reynoso executed two deeds of real estate mortgage on separate dates. The first mortgage, securing the
amount of PhP 6,500,000, was executed on February 2, 1996 over real estate; the other was executed on
July 18, 1996 over properties to secure the amount of PhP 2,500,000. All of the mortgaged properties are
registered under the spouses Reynoso's names, except for one, which is registered under CPR
Promotions.c
Thereafter, on December 8, 1997, the spouses Reynoso executed a continuing surety agreement
binding themselves solidarity with CPR Promotions to pay any and all loans CPR Promotions may have
obtained from petitioner MBTC, including those covered by the said PNs, but not to exceed PhP
13,000,000. Upon maturity of the loans, respondents defaulted, prompting MBTC to file a petition for
extra-judicial foreclosure of the real estate mortgages, pursuant to Act No. 3135, as amended.
Subsequently, on May 5, 1998, the mortgaged properties covered by TCT Nos. 624835 and 565381
were sold at a public auction sale. MBTC participated therein and submitted the highest bid in the amount
of PhP 10,374,000. The day after, on May 6, 1998, petitioner again participated and won in the public
auction sale of the remaining mortgaged properties, having submitted the highest bid amounting to PhP
3,240,000. As a result, petitioner was issued the corresponding Certificates of Sale on July 15 and 16, 1998,
covering the properties subjected to the first and second public auctions, respectively.
Notwithstanding the foreclosure of the mortgaged properties for the total amount of PhP
13,614,000, petitioner MBTC alleged that there remained a deficiency balance of PhP 2,628,520.73, plus
interest and charges as stipulated and agreed upon in the PNs and deeds of real estate mortgages. Despite
petitioner's repeated demands, however, respondents failed to settle the alleged deficiency. Thus,
petitioner filed an action for collection of sum of money against respondents.
ISSUE:
Whether or not the CA gravely abused its discretion when it failed to consider the continuing
surety agreement presented in evidence and in ruling that petitioner MBTC failed to prove that the
spouses Reynoso are solidarity liable with respondent CPR Promotions.
HELD:
The Court ruled in the affirmative. The CA erred in ruling that the total amount due was PhP
12,891,397.
To recall, the CA, in its assailed Decision, made the following findings as regards the amount due
on the loan against which the proceeds from the auction sales are to be applied:c
In the application for extrajudicial foreclosure sale dated March 6, 1998, the total amount due as
of February 10, 1998 was stated to be P11,216,783.99. The plaintiff categorically declared that
P11,216,783.99 was the total amount due on February 10, 1998. By the time the auction sales were
conducted, in May 1998, as reflected in the certificate of Sale, the principal amount was said to be
P12,891,397.78. What is the meaning of the change from total amount due to principal amount? If from
February to May 1998, a matter of three months, the amount sought to be collected ballooned to
P12,891,397.78, the increase could have resulted from no other source than the interest and other
charges under the promissory notes after the defendants incurred in default. Thus, the amount of
P12,891,397.78 as of May 1998, must mean the principal and interest and other charges. The statement
in the certificates of sale that it is the principal amount is a subtle change in language, a legerdemain to
suggest that the amount does not include the interest and other charges.
In short, the CA concluded that the amount of PhP 12,891,397.78 is actually comprised of the PhP
11,216,783.99 due as of February 10, 1998, plus additional interest and other charges that became due
from February 10, 1998 until the date of foreclosure on May 5, 1998.
The appellate court is mistaken.
By simply adding the figures stated in the PNs as the principal sum, it can readily be seen that the
amount of PhP 12,891,397.78 actually pertains to the aggregate value of the fifteen (15) PNs.
This belies the findings of the CA that PhP 12,891,397.78 is the resulting value of PhP
11,216,783.99 plus interest and other charges. Consequently, the CA's conclusion that there is an excess
of PhP 722,602.22, after deducting the amount of PhP 12,891,397.78 from the total bid price of PhP
13,614,000, is erroneous.
Nevertheless, while the CA's factual finding as to the amount due is flawed, petitioner, is still not
entitled to the alleged deficiency balance of PhP 2,628,520.73.
 ANGEL V. TALAMPAS, JR., v. MOLDEX REALTY, INC.,
G.R. No. 170134 June 17, 2015
PONENTE: BRION, J.: Decided by: SECOND DIVISION

FACTS:
The petitioner is the owner and general manager of Angel V. Talampas, Jr. Construction, a
business engaged in general engineering and building. He entered into a contract with the respondent to
develop a residential subdivision on a land owned by the latter, Aguinaldo Highway, Cavite, and known as
the Metrogate Silang Estates.
The petitioner undertook to perform roadworks, earthworks and site-grading, and to procure
materials, labor, equipment, tools and facilities, for the contract price of P10,500,000.00, to be paid by
the respondent through progress billings. The respondent made an initial down payment of P500,000.00
at the start of the contract. Construction works on the Metrogate project started on January 14, 1993 and
was projected to be completed by the petitioner within three hundred (300) calendar days from this
starting date.
On May 14, 1993, Metrogate’s Project Manager, Engr. Honorio ‘Boidi’ Almeida, asked the
petitioner to suspend construction work on the site for one week due to a change in the project’s
subdivision plan. The suspension lasted for more than one week, leaving the petitioner’s personnel and
equipment idle at the site for three weeks. In a letter dated June 1, 1993, the petitioner inquired from
Engr. Almeida whether the respondent would still push through with the project. On June 16, 1993, the
petitioner received from the respondent’s Vice President, Engr. Jose Po, an antedated April 23, 1993 letter
that contained the respondent’s decision to terminate the parties’ contract.
In a letter dated August 18, 1993, the petitioner demanded from the respondent the payment of
the following amounts: (a) P1,485,000.00 as equipment rentals incurred from May 14, 1993 to June 16,
1993 - the period of suspension of construction works on the Metrogate project, and (b) P2,100,000.00
or twenty percent (20%) of the P10,500,000.00 contract price as cost of opportunity lost due to the
respondent’s early termination of their contract. The respondent received the letter on August 18, 1993,
but refused to heed the petitioner’s demands.
Petitioner filed a complaint for breach of contract and damages against the respondent before
the RTC. He alleged that the respondent committed the following acts: (1) breach of contract for
unilaterally terminating their agreement, and (2) fraud for failing to disclose the Metrogate project’s lack
of a conversion clearance certificate from the Department of Agrarian Reform, which he claimed to be
the real reason why the respondent terminated their contract.
ISSUE:
Whether or not the subject development contract was unilaterally abrogated by respondent
without justifiable cause.
HELD:
The Court ruled in the affirmative. The parties’ contract is the law between them and must be
complied with in good faith. Contracts have the force of law between the parties and must be complied
with in good faith. A contracting party’s failure, without legal reason, to comply with contract stipulations
breaches their contract and can be the basis for the award of damages to the other contracting party.
In the present case, we find that the respondent failed to comply with its contractual stipulations
on the unilateral termination when it terminated their contract due to the redesign of the Metrogate
Silang Estates’ subdivision plan.
The respondent could not have validly and unilaterally terminated its contract with the petitioner,
as the latter has not committed any of the stipulated acts of default. In fact, the petitioner at that time
was willing and able to perform his obligations under their contract.
Thus, the respondent’s termination of the subject contract violated the parties’ agreement as the
reason for the termination, i.e., the redesign of the project’s subdivision plan, was not a stipulated cause
for the unilateral termination under Paragraph 8.1 of their contract.
In the first place, the respondent failed to fully establish that a meeting took place as alleged.
Except for the self-serving testimony of Engr. Po that the May 21, 1993 meeting took place, the
respondent presented no other evidence to prove that Engr. Po and Engr. Talampas met on that date to
discuss the fate of their contract. No document or record the minutes of their May 21, 1993 meeting
appeared to have been made despite the importance of their alleged discussion. The questions that this
evidentiary gap raised cannot but be resolved against the respondent.
Even assuming that the May 21, 1993 meeting between Engr. Po and Engr. Talampas did indeed
take place, we cannot discern from the developments the petitioner’s claimed agreement or consent to
the termination of the construction contract.
The respondent contended that the petitioner’s request for an official letter of termination was
proof that the latter consented to the termination of their contract. We disagree with this view. The
request for an official letter of termination does not necessarily mean consent to the termination; by
itself, the request for an official letter of termination does not really signify an agreement; it was nothing
more than a request for a final decision from the respondent.
To our mind, the petitioner fully disclosed the intent behind his letter and it was not consent.
Thus, we find it erroneous to conclude, based on this letter that the petitioner had consented to the
termination of the construction contract.
The respondent also contended that the petitioner ratified the termination of their contract by
accepting payments for progress billings, costs of equipment mobilization/demobilization, refund of
insurance bond payments, and the release of retention fees. However, we do not see the petitioner’s
receipt of these payments to be acts of ratification or consent to the contract’s termination.
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain, and the acceptance, whether express or
implied, must be absolute. An acceptance is considered absolute and unqualified when it is identical in all
respects with that of the offer so as to produce consent or a meeting of the minds.
We find no such meeting of the minds between the parties on the matter of termination because
the petitioner’s acceptance of the respondent’s offer to terminate was not absolute.
 To terminate their contract, the respondent offered to pay the petitioner billings for accomplished
works, unrecouped costs of equipment mobilization and demobilization, unrecouped payment of
insurance bond, and the release of all retention fees and payments that the petitioner accepted or
received.
But despite receipt of payments, no absolute acceptance of the respondent’s offer took place
because the petitioner still demanded the payment of equipment rentals, cost of opportunity lost, among
others. In fact, the payments received were for finished or delivered works and for expenses incurred for
the respondent’s account. By making the additional demands, the petitioner effectively made a qualified
acceptance or a counter-offer, which the respondent did not accept. Under these circumstances, we see
no full consent.
 CEBU STATE COLLEGE OF SCIENCE AND TECHNOLOGY (CSCST), REPRESENTED BY ITS INCUMBENT
PRESIDENT v. LUIS S. MISTERIO, GABRIEL S. MISTERIO, FRANCIS S. MISTERIO, THELMA S. MISTERIO,
AND ESTELA S. MISTERIO-TAGIMACRUZ
G.R. No. 179025 June 17, 2015
PONENTE: PERALTA, J.: Decided by: THIRD DIVISION

FACTS:
On December 31, 1956, the late Asuncion Sadaya, mother of herein respondents, executed a Deed
of Sale covering a parcel of land denominated as Lot 1064, consisting of an area of 4,563 square meters,
located at Lahug, Cebu City, and covered by Transfer Certificate of Title of the Register of Deeds, Cebu
Province, in favor of Sudlon Agricultural High School.
The sale was subject to the right of the vendor to repurchase the property after SAHS shall have
ceased to exist, or shall have transferred its school site elsewhere. Consequently, on May 22, 1957, TCT
No. 13086 was cancelled, and in lieu thereof, TCT No. 15959 was issued in the name of SAHS, with the
vendor's right to repurchase annotated at its dorsal portion.
On March 18, 1960, the Provincial Board of Cebu donated 41 parcels of land, covering 104.5441
hectares of the Banilad Friar Lands Estate to the SAHS subject to two (2) conditions: (1) that if the SAHS
ceases to operate, the ownership of the lots would automatically revert to the province, and (2) that the
SAHS could not alienate, lease or encumber the properties.
On June 10, 1983, Batas Pambansa (BP) Blg. 412, entitled "An Act Converting the Cebu School of
Arts and Trades in Cebu City into a Chartered College to be known as the Cebu State College of Science
and Technology, Expanding its Jurisdiction and Curricular Programs" took effect. It incorporated and
consolidated several schools in the Province of Cebu, including the SAHS, as part of the Cebu State College
of Science and Technology.
On August 19, 1988, respondents Luis, Gabriel, Francis, Thelma,-all surnamed Misterio, and Estella
S. Misterio-Tagimacruz, as heirs of the late Asuncion Sadaya, informed the then Governor of the Province
of Cebu, Emilio Osmena, through a tetter, of their intention to repurchase the subject property as
stipulated in the Deed of Sale. Thereafter, on March 13, 1990, respondents informed petitioner of their
'intention to exercise their right to repurchase under the Deed of Sale on the ground that the SAHS had
ceased to exist. However, petitioner's Vocational School Superintendent II, Jesus T. Bonilla, informed
respondents that SAHS still existed as only the name of the school was changed.
On December 23, 1993, respondents filed a Complaint before the RTC for Nullity of Sale and/or
Redemption against CSCST, its chairman, Armand Fabella, and president, Dr. Mussolini Barillo.
ISSUE:
Whether or not the respondents can exercise their right of repurchase
HELD:
The Court ruled in the negative. Its transfer to another location for purposes of expanding its
services for the benefit of its students did not amount to the happening of the suspensive condition for it
was in furtherance of the educational purpose for which the contract of sale was executed.
 In the present case, the Deed of Sale executed by the parties provide for a right to repurchase the
subject property upon the occurrence of either of two suspensive conditions, particularly: (1) the
cessation of existence of SAHS; or (2) the transfer of SAHS to another school site.
In cases of conventional redemption when the vendor a retro reserves the right to repurchase the
property sold, the parties to the sale must observe the parameters set forth by Article 1606 of the New
Civil Code, which states:
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement,
shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from the
time final judgment was rendered in a civil action on the basis that the contract was a true sale
with right to repurchase.
Thus, depending on whether the parties have agreed upon a specific period within which the
vendor a retro may exercise his right to repurchase, the property subject of the sale may be redeemed
only within the limits prescribed by the aforequoted provision.
In the Decision dated June 23, 2005, this Court ruled that since, petitioner and respondents in this
case did not agree on any period for the exercise of the right to repurchase the property herein,
respondents may use said right within four (4) years from the happening of the allocated conditions
contained in their Deed of Sale: (a) the cessation of the existence of the SAHS, or (b) the transfer of the
school to other site.28 However, due to respondents' failure to exercise their right to redeem the property
within the required four (4) years from the time when SAHS had ceased to exist, or from June 10, 1983,
the date of effectivity of BP Blg. 412, this Court held that respondents are barred by prescription.
Despite this, respondents nevertheless insist on the redemption of the subject property pursuant
to the second suspensive condition, namely, petitioner's transfer of its school site. Applicable law and
jurisprudence, however, runs contrary to respondents' stance.
In the instant case, while the four (4)-year period was counted from the time the right to
repurchase could be exercised or when the SAHS ceased to exist, even beyond ten (10) years from the
execution of the deed of sale, one must not nevertheless lose sight of the fundamental spirit and intent
of the law which have been upheld in jurisprudence, time and time again, viz.:
The question of the period within which the repurchase may be made is unanimously
considered as a question of public interest. It is not a good thing that the title to property should
be left for a long period of time subject to indefinite conditions of this nature. For this reason,
the intention of the law is restrictive and limitative.
A long term for redemption renders the tenure of property uncertain and redounds to
its detriment, for neither does the precarious holder cultivate the ground with the same interest
as the owner, nor does he properly attend to the preservation of the building, and owing to the
fact that his enjoyment of the property is temporary, he endeavours above all to derive the
greatest benefit therefrom, economizing to that end even the most essential expenses.
 Hence, while the occurrence of the second suspensive condition may give rise to a separate cause
of action, the same must always be taken in conjunction with the periods prescribed by law insofar as
they frown upon the uncertainty of titles to real property. Otherwise, vendors may simply impose several
resolutory conditions, the happening of each will practically extend the life of the contract beyond the
parameters set forth by the Civil Code. This is certainly not in line with the spirit and intent of the law. To
permit respondents to exercise their right to repurchase upon the happening of the second resolutory
condition, when they utterly failed to timely exercise the same upon the happening of the first, would
effectively result in a circumvention of the periods expressly mandated by law.
Article 1606 expressly provides that in the absence of an agreement as to the period within which
the vendor a retro may exercise his right to repurchase, the same must be done within four (4) years from
the execution of the contract. In the event the contract specifies a period, the same cannot exceed ten
(10) years. Thus, whether it be for a period of four (4) or ten (10) years, this Court consistently implements
the law and limits the period within which the right to repurchase may be exercised, adamantly striking
down as illicit stipulations providing for an unlimited right to repurchase. Indubitably, it would be rather
absurd to permit respondents to repurchase the subject property upon the occurrence of the second
suspensive condition, particularly, the relocation of SAHS on October 3, 1997, the time when petitioner
ceded the property to the Province of Cebu, which is nearly forty-one (41) years after the execution of the
Deed of Sale on December 31, 1956. This Court must, therefore, place it upon itself to suppress these
kinds of attempts in keeping with the fundamentally accepted principles of law.
Indeed, the freedom to contract is not absolute. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs, public order, or public policy. When the conditions in a contract manifest
an effective circumvention of existing law and jurisprudence, it is incumbent upon the courts to construe
the same in accordance with its ultimate spirit and intent.
 GEORGE C. FONG v. JOSE V. DUEÑAS.
G.R. No. 185592, June 15, 2015
Ponente: BRION, J.: Decided by: SECOND DIVISION

FACTS:
In November 1996, Dueñas and Fong entered into a verbal joint venture contract where they
agreed to engage in the food business and to incorporate a holding company under the name Alliance
Holdings, Inc. (Alliance or the proposed corporation). Its capitalization would be Sixty Five Million Pesos
(P65 Million), to which they would contribute in equal parts. The parties agreed that Fong would
contribute Thirty Two Million and Five Hundred Thousand Pesos (P32.5 Million) in cash while Dueñas
would contribute all his Danton and Bakcom shares which he valued at P32.5 Million. Fong required
Dueñas to submit the financial documents supporting the valuation of these shares.
On November 25, 1996, Fong started remitting in his share in the proposed corporation’s capital.
He made the remittances under the impression that his contribution would be applied as his subscription
to fifty percent (50%) of Alliance’s total shareholdings. On the other hand, Dueñas started processing the
Boboli international license that they would use in their food business.
On June 13, 1997, Fong sent a letter to Dueñas informing him of his decision to limit his total
contribution from P32.5 Million to P5 Million.
Fong observed that despite his P5 Million contribution, Dueñas still failed to give him the financial
documents on the valuation of the Danton and Bakcom shares. Thus, except for Dueñas’ representations,
Fong had nothing to rely on to ensure that these shares were really valued at P32.5 Million. Moreover,
Dueñas failed to incorporate and register Alliance with the Securities and Exchange Commission.
These circumstances convinced Fong that Dueñas would no longer honor his obligations in their
joint venture agreement. Thus, on October 30, 1997, Fong wrote Dueñas informing him of his decision to
cancel the joint venture agreement. He also asked for the refund of the P5 Million that he advanced. In
response, Dueñas admitted that he could not immediately return the money since he used it to defray
the business expenses of Danton and Bakcom. Since Dueñas did not pay, Fong filed a complaint against
him for collection of a sum of money and damages.
ISSUE:
Whether the action is for a collection of a sum of money or rescission.
HELD:
The Court ruled that it is an action for rescission. At the outset, the Court notes that the parties’
joint venture agreement to incorporate a company that would hold the shares of Danton and Bakcom and
that would serve as the business vehicle for their food enterprise, is a valid agreement. The failure to
reduce the agreement to writing does not affect its validity or enforceability as there is no law or
regulation which provides that an agreement to incorporate must be in writing.
A well-settled rule in procedural law is that the allegations in the body of the pleading or the
complaint, and not its title, determine the nature of an action.
An examination of Fong’s complaint shows that although it was labeled as an action for a sum of
money and damages, it was actually a complaint for rescission.
 The following allegations in the complaint support this finding:c
9. Notwithstanding the aforesaid remittances, defendant failed for an unreasonable length of
time to submit a valuation of the equipment of D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff, defendant failed to accomplish the
organization and incorporation of the proposed holding company, contrary to his representation
to promptly do so.
xxxx
17. Considering that the incorporation of the proposed holding company failed to materialize,
despite the lapse of one year and four months from the time of subscription, plaintiff has the
right to revoke his pre-incorporation subscription. Such revocation entitles plaintiff to a refund
of the amount of P5,000,000.00 he remitted to defendant, representing advances made in favor
of defendant to be considered as payment on plaintiff’s subscription to the proposed holding
company upon its incorporation, plus interest from receipt by defendant of said amount until fully
paid.
Fong’s allegations primarily pertained to his cancellation of their verbal agreement because
Dueñas failed to perform his obligations to provide verifiable documents on the valuation of the Danton’s
and Bakcom’s shares, and to incorporate the proposed corporation. These allegations clearly show that
what Fong sought was the joint venture agreement’s rescission.
As a contractual remedy, rescission is available when one of the parties substantially fails to do
what he has obligated himself to perform. It aims to address the breach of faith and the violation of
reciprocity between two parties in a contract.
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
Dueñas submits that Fong’s prayer for the return of his cash contribution supports his claim that
Fong’s complaint is an action for collection of a sum of money. However, Dueñas failed to appreciate that
the ultimate effect of rescission is to restore the parties to their original status before they entered in a
contract.
Accordingly, when a decree for rescission is handed down, it is the duty of the court to require
both parties to surrender that which they have respectively received and to place each other as far as
practicable in his original situation.
In this light, we rule that Fong’s prayer for the return of his contribution did not automatically
convert the action to a complaint for a sum of money. The mutual restitution of the parties’ original
contributions is only a necessary consequence of their agreement’s rescission.
Reciprocal obligations are those which arise from the same cause, in which each party is a debtor
and a creditor of the other, such that the obligation of one is dependent on the obligation of the other.
Fong and Dueñas’ execution of a joint venture agreement created between them reciprocal obligations
that must be performed in order to fully consummate the contract and achieve the purpose for which it
was entered into.
 Both parties verbally agreed to incorporate a company that would hold the shares of Danton and
Bakcom and which, in turn, would be the platform for their food business. Fong obligated himself to
contribute half of the capital or P32.5 Million in cash. On the other hand, Dueñas bound himself to
shoulder the other half by contributing his Danton and Bakcom shares, which were allegedly also valued
at P32.5 Million. Aside from this, Dueñas undertook to process Alliance’s incorporation and registration
with the SEC. When the proposed company remained unincorporated by October 30, 1997, Fong
cancelled the joint venture agreement and demanded the return of his P5 Million contribution.
As the Court ruled in Velarde v. Court of Appeals:
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s failure to comply with an existing
obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek
rescission and in the absence of any just cause for the court to determine the period of compliance,
the court shall decree the rescission.
In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the purchase
price. Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation
that consequently gave rise to private respondents’ right to rescind the same in accordance with law.
However, the Court notes that Fong also breached his obligation in the joint venture agreement.
In his June 13, 1997 letter, Fong expressly informed Dueñas that he would be limiting his cash
contribution from P32.5 Million to P5 Million because of the following reasons which we quote verbatim:
First, we were faced with the ‘personal’ factor which was explained to you one time. This has
caused us to turn down a number of business opportunities;
1. Secondly, since last year, the operation of Century 21 has been taking more time from us
than anticipated. That is why we decided to relinquish our original plan to manage and operate ‘Boboli’
knowing this limitation. For us, it does not make sense anymore to go for a significant shareholding when
we cannot be hands on and participate actively as originally planned. x x x.
Although these reasons appear to be valid, they do not erase the fact that Fong still reneged on his original
promise to contribute P32.5 Million. The joint venture agreement was not reduced to writing and the
evidence does not show if the parties agreed on valid causes that would justify the limitation of the
parties’ capital contributions. Their only admission was that they obligated themselves to contribute P32.5
Million each.
Hence, Fong’s diminution of his capital share to P5 Million also amounted to a substantial breach
of the joint venture agreement, which breach occurred before Fong decided to rescind his agreement
with Dueñas. Thus, Fong also contributed to the non-incorporation of Alliance that needed P65 Million as
capital to operate.
Fong cannot entirely blame Dueñas since the substantial reduction of his capital contribution also
greatly impeded the implementation of their agreement to engage in the food business and to incorporate
a holding company for it.
 As both parties failed to comply with their respective reciprocal obligations, we apply Article 1192
of the Civil Code, which provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of
the first infractor shall be equitably tempered by the courts. If it cannot be determined which of
the parties first violated the contract, the same shall be deemed extinguished, and each shall bear
his own damages.
Notably, the Court is not aware of the schedule of performance of the parties’ obligations since
the joint venture agreement was never reduced to writing. The facts, however, show that both parties
began performing their obligations after executing the joint venture agreement. Fong started remitting
his share while Dueñas started processing the Boboli international license for the proposed corporation’s
food business.
The absence of a written contract renders the Court unsure as to whose obligation must be
performed first. It is possible that the parties agreed that Fong would infuse capital first and Dueñas’
submission of the documents on the Danton and Bakcom shares would just follow. It could also be the
other way around. Further, the parties could have even agreed to simultaneously perform their respective
obligations.
Despite these gray areas, the fact that both Fong and Dueñas substantially contributed to the non-
incorporation of Alliance and to the failure of their food business plans remains certain.
As the Court cannot precisely determine who between the parties first violated the agreement,
we apply the second part of Article 1192 which states: “if it cannot be determined which of the parties
first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.”
In these lights, the Court holds that the joint venture agreement between Fong and Dueñas is
deemed extinguished through rescission under Article 1192 in relation with Article 1191 of the Civil Code.
Dueñas must therefore return the P5 Million that Fong initially contributed since rescission requires
mutual restitution.44After rescission, the parties must go back to their original status before they entered
into the agreement. Dueñas cannot keep Fong’s contribution as this would constitute unjust enrichment.
 TAGAYTAY REALTY CO., INC., v. ARTURO G. GACUTAN
G.R. No. 160033 July 01, 2015
Ponente by: BERSAMIN, J.: Decided by: FIRST DIVISION

FACTS:
On September 6, 1976, the respondent entered into a contract to sell with the petitioner for the
purchase on installment of a residential lot with an area of 308 square meters situated in the Foggy
Heights Subdivision then being developed by the petitioner.
Petitioners hereby undertake to complete the development of the roads, curbs, gutters, drainage
system, water and electrical systems, as well as all the amenities to be introduced in FOGGY HEIGHTS
SUBDIVISION, such as, swimming pool, pelota court, tennis and/or basketball court, bath house, children's
playground and a clubhouse within a period of two years from 15 July 1976, on the understanding that
failure on their part to complete such development within the stipulated period shall give the VENDEE the
option to suspend payment of the monthly amortization on the lot/s he/she purchased until completion
of such development without incurring penalty interest.
It is clearly understood, however, that the period or periods during which we cannot pursue said
development by reason of any act of God, any act or event constituting force majeure or fortuitous event,
or any restriction, regulation, or prohibition by the government or any of its branches or instrumentalities,
shall suspend the running of said 2-year period and the running thereof shall resume upon the cessation
of the cause of the stoppage or suspension of said development.
In his letter dated November 12, 1979, the respondent notified the petitioner that he was
suspending his amortizations because the amenities had not been constructed in accordance with the
undertaking. Despite receipt of the respondent's other communications requesting updates on the
progress of the construction of the amenities so that he could resume his amortization, the petitioner did
not reply. Instead, on June 10, 1985, the petitioner sent to him a statement of account demanding the
balance of the price, plus interest and penalty. He refused to pay the interest and penalty.
On October 4, 1990, the respondent sued the petitioner for specific performance in the HLURB,
praying that the petitioner be ordered to accept his payment of the balance of the contract without
interest and penalty, and to deliver to him the title of the property.
In its answer, the petitioner sought to be excused from performing its obligations under the
contract, invoking Article 1267 of the Civil Code as its basis. It contended that the depreciation of the
Philippine Peso since the time of the execution of the contract, the increase in the cost of labor and
construction materials, and the increase in the value of the lot in question were valid justifications for its
release from the obligation to construct the amenities.
ISSUE:
Whether or not the defense of depreciation of the Philippine Peso will relieve the petitioner from
liabilities.
HELD:
The Court ruled in the negative. Petitioner was not relieved from its statutory and contractual
obligations to complete the amenities.
 There is no question that the petitioner did not comply with its legal obligation to complete the
construction of the subdivision project, including the amenities, within one year from the issuance of the
license.
Instead, it unilaterally opted to suspend the construction of the amenities to avoid incurring
maintenance expenses. In so opting, it was not driven by any extremely difficult situation that would place
it at any disadvantage, but by its desire to benefit from cost savings. Such cost-saving strategy dissuaded
the lot buyers from constructing their houses in the subdivision, and from residing therein.
Considering that the petitioner's unilateral suspension of the construction of the amenities was intended
to save itself from costs, its plea for relief from its contractual obligations was properly rejected because
it would thereby gain a position of advantage at the expense of the lot owners like the respondent. Its
invocation of Article 1267 of the Civil Code, which provides that "(w)hen the service has become so difficult
as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom
in whole or in part," was factually unfounded. For Article 1267 to apply, the following conditions should
concur, namely: (a) the event or change in circumstances could not have been foreseen at the time of the
execution of the contract; (b) it makes the performance of the contract extremely difficult but not
impossible; (c) it must not be due to the act of any of the parties; and (d) the contract is for a future
prestation. The requisites did not concur herein because the difficulty of performance under Article 1267
of the Civil Code should be such that one party would be placed at a disadvantage by the unforeseen
event. Mere inconvenience, or unexepected impediments, or increased expenses did not suffice to relieve
the debtor from a bad bargain.
R And, secondly, the unilateral suspension of the construction had preceded the worsening of
economic conditions in 1983; hence, the latter could not reasonably justify the petitioner's plea for release
from its statutory and contractual obligations to its lot buyers, particularly the respondent. Besides, the
petitioner had the legal obligation to complete the amenities within one year from the issuance of the
license (under Section 20 of Presidential Decree No. 957), or within two years from July 15, 1976 (under
the express undertaking of the petitioner). Hence, it should have complied with its obligation by July 15,
1978 at the latest, long before the worsening of the economy in 1983.
 PAULINO M. EJERCITO, JESSIE M. EJERCITO AND JOHNNY D. CHANG v. ORIENTAL ASSURANCE
CORPORATION,.
G.R. No. 192099 July 08, 2015
PONENTE SERENO, C.J.: Decided by: FIRST DIVISION

FACTS:
On 10 May 1999, respondent Oriental Assurance Corporation, through its Executive Vice
President Luz N. Cotoco issued a Surety Bond in favor of FFV Travel & Tours, Inc. The bond was intended
to guarantee the Company's payment of airline tickets purchased on credit from participating members
of International Air Transport Association to the extent of P3 million. Petitioners and Merissa C. Somes
executed a Deed of Indemnity in favor of respondent. The Surety Bond was effective for one year from its
issuance until 10 May 2000. It was renewed for another year, from 10 May 2000 to 10 May 2001. The
corresponding renewal premium amounting to P15, 024.54 was paid by the insured corporation under
Official Receipt No. 100262.
FFV Travel & Tours, Inc. has been declared in default for failure to pay its obligations amounting
to P5, 484,086.97 and USD 18,760.98 as of 31 July 2000. Consequently, IATA demanded payment of the
bond, and respondent heeded the demand on 28 November 2000. IATA executed a Release of Claim on
29 November 2000 acknowledging payment of the surety bond. Respondent sent demand letters to
petitioners for reimbursement of the P3 million pursuant to the indemnity agreement. For their failure to
reimburse respondent, the latter filed a collection suit.
ISSUE:
Whether or not the petitioners are liable to indemnify the respondent under the deed of
indemnity considering that petitioners did not give their consent to be bound thereby beyond the one
year effectivity period of the original surety bond.

HELD:
The Court ruled in the negative. The contract of indemnity is the law between the parties. It is a
cardinal rule in the interpretation of a contract that if its terms are clear and leave no doubt on the
intention of the contracting parties, the literal meaning of its stipulation shall control. The provisions in
the contract could not exonerate petitioners from their liability.
The Deed of Indemnity contains the following stipulations:
INDEMNITY: - To indemnify the COMPANY for any damages, payments, advances,
prejudices, loss, costs and expenses of whatever kind and nature, including counsel or attorney's
fees, which the Company may at any time, sustain or incur, as a consequence of having executed
the above-mentioned Bond, its renewals, extensions, modifications or substitutions and said
attorney's fees shall not be less than fifteen (15%) per cent of the amount claimed by the Company
in each action, the same to be due and payable, irrespective of whether the case is settled
judicially or extrajudicially.
xxxx
MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH: - The said indemnities will
be paid to the COMPANY as soon as demand is received from the Creditor, or as soon as it
 becomes liable to make payment of any sum under the terms of the above-mentioned Bond, its
renewals, extension, modifications or substitutions, whether the said sum or sums or part
thereof, have been actually paid or not. We authorize the COMPANY to accept in any case and at
its entire discretion, from any of us, payment on account of the pending obligation, and to grant
extensions to any of us, to liquidate said obligations, without necessity of previous knowledge or
consent from the obligors.
xxxx
INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY:
-- Any payment or disbursement made by the COMPANY on account of the above-
mentioned Bond, its renewals, extensions, modifications or substitutions either in the belief that
the Company was obligated to make such payment or in the belief that said payment was
necessary in order to avoid greater losses or obligation for which the company might be liable by
virtue of the terms of the above-mentioned Bond, its renewals, extensions, modifications or
substitutions shall be final and will not be disputed by the undersigned who jointly and severally
bind themselves to indemnify the COMPANY of any and all such payments as stated in the
preceding clauses.
xxx
WAIVER: — The undersigned hereby waive all the rights, privileges, and benefits that they
have or may have under Articles 2077, 2078, 2079, 2080 and 2081 of the Civil Code.
xxx
RENEWALS, ALTERATIONS AND SUBSTITUTIONS: - The undersigned hereby empower and
authorize the Company to grant or consent to the granting of, any extension, continuation,
increase, modifications, change, alteration and/or renewal of the original bond herein referred
to, and to execute or consent to the execution of any substitution for said bond with the same or
different conditions and parties, and the undersigned hereby hold themselves jointly and
severally liable to the Company for the original bond hereinabove mentioned or for any
extension, continuation, increase, modification, change, alteration, renewal or substitution
thereof until the full amount including principal interests, premiums, costs and other expenses
due to the Company thereunder is fully paid up.
Clearly, as far as respondent is concerned, petitioners have expressly bound themselves to the
contract, which provides for the terms granting authority to the Company to renew the original bond. The
terms of the contract are clear, explicit and unequivocal. Therefore, the subsequent acts of the Company,
through Somes, that led to the renewal of the surety bond are binding on petitioners as well.
The intention of Somes to renew the bond cannot be denied, as she paid the renewal premium and even
submitted the renewed bond to IATA.
The claim of petitioners that they only consented to the one-year validity of the surety bond must
be directed against Somes in a separate action. She allegedly convinced them that the bond was valid for
one year only. The allegation of petitioners is an agreement outside of the contract. In other words,
respondent is not privy to the alleged agreement between Somes and petitioners. For respondent, there
was a valid indemnity agreement executed by the parties, and contained a proviso that became the basis
for the authority to renew the original bond.
With regard to the contention that the Deed of Indemnity is a contract of adhesion, the Court has
consistently held that contracts of adhesion are not invalid per se and that their binding effects have been
upheld on numerous occasions. The pretension that petitioners did not consent to the renewal of the
bond is belied by the fact that the terms of the contract which they voluntarily entered into contained a
clause granting authority to the Company to grant or consent to the renewal of the bond. Having entered
into the contract with full knowledge of its terms and conditions, petitioners are estopped from asserting
that they did so under the ignorance of the legal effect of the contract or the undertaking.
It is true that on some occasions, the Court has struck down such contract as void when the
weaker party is imposed upon in dealing with the dominant party and is reduced to the alternative of
accepting the contract or leaving it, completely deprived of the opportunity to bargain on equal footing.
This reasoning cannot be used in the instant case. One of the petitioners, Paulino M. Ejercito, is a lawyer
who cannot feign ignorance of the legal effect of his undertaking. Petitioners could have easily inserted a
remark in the clause granting authority to the Company to renew the original bond, if the renewal thereof
was not their intention.
The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of
the one who signs it may also be applied to this Indemnity Agreement. And the mistake of petitioners as
to the legal effect of their obligation is ordinarily no reason for relieving them of liability.
 ROBERTO STA. ANA DY, JOSE ALAINEO DY, AND ALTEZA A. DY FOR THEMSELVES AND AS
HEIRS/SUBSTITUTES OF DECEASED-PETITIONER CHLOE ALINDOGAN DY v. BONIFACIO A. YU, SUSANA
A. TAN, AND SOLEDAD ARQUILLA SUBSTITUTING DECEASED-RESPONDENT ROSARIO ARQUILLA
G.R. No. 202632 July 08, 2015
PONENTE: PERLAS-BERNABE, J.: Decided by: FIRST DIVISION

FACTS:
In 1936, Adriano Dy Chiao, the original owner of Lot 1519, gave said lot to his wife Manuela Sta.
Ana and their children, namely, Carlos, Lilia, and herein petitioner Roberto, all surnamed Dy. After the
death of Dy Chiao and Manuela, the surviving children executed an Extrajudicial Settlement with Sale
dated October 4, 1982 to partition their parents' estate which consisted only of Lot 1519 and Lot 1531. In
the said document, both Carlos and Lilia sold their respective shares over the properties to Roberto.
Roberto filed an application for registration of Lot 1519 before the RTC of Naga City Branch 23,
on the basis of the extrajudicial settlement. RTC ruled in favor of Roberto and was issued OCT No. 511 by
the Office of the Register of Deeds for the City of Naga.
However, Lot 1519-A, having been included in OCT No. 511, became a subject matter of three
cases such as: (1) recovery of possession and damages; (2) reconveyance with damages; and (3)
annulment and/or rescission of deed of donation.
Roberto instituted the first case against Susana and Sixto Tan before the RTC-Branch 24 of Naga.
He alleged that he acquired the property by virtue of an extrajudicial settlement with sale. During the
lifetime of Manuela, the latter, by mere accommodation, permitted Rosario to temporarily occupy a
portion of Lot 1519 (which would turned out to be Lot 1519-A after the mother lot's subdivision) covering
approximately 80 square meters, as well as to construct a house thereon, with the understanding that she
would vacate the premises upon demand. Rosario took possession of the property, who was later
succeeded by Susana and Sixto. However, despite repeated demands to vacate, Susana and Sixto refused
to do so. Thus, Roberto prayed that the possession of said premises be surrendered to him, and that he
be paid reasonable rent and damages.
Meanwhile, Rosario moved to intervene in the proceedings and in her Answer-in-Intervention,
claimed that the property occupied by her and Susana was segregated from a bigger parcel of land by way
of Subdivision Plan survey and identified as Lot 1519-A containing a total area of 174 square meters. The
said portion was donated to her by Dy Chiao in 1938, and that she has since been in continuous possession
of the same for over 50 years. She also maintained that she owned the house constructed thereon and
that she requested Susana to live with her.
RTC-Branch 24 dismissed Roberto's complaint for lack of merit and thereby declared Rosario as
the lawful owner of Lot 1519-A. It held that while the donation of the subject portion by Dy Chiao in favor
of Rosario was found to be void for failure to comply with the formalities provided under the Civil Code,
the latter had, nonetheless, acquired ownership thereof by acquisitive prescription given her actual,
public, and continued possession of Lot 1519-A in good faith and in the concept of an owner for more
than ten (10) years. The RTC-Branch 24 added that since the nature of Rosario's Answer-in-Intervention
amounted to an action for reconveyance and the subject portion was found to have been fraudulently
included and registered by Roberto, the latter was ordered to reconvey said portion to Rosario being its
rightful owner and to further pay attorney's fees, as well as costs of suit.
In the second case, prior to the resolution of Rosario's motion for reconsideration in the Recovery
Case, Rosario filed a complaint49for reconveyance with damages against Roberto before the RTC-Branch
26. She alleged the same matters contained in her Answer-in-Intervention. In an Order dated November
3, 1998, the RTC-Branch 26 dismissed the Reconveyance Case on the ground of litis pendentia and forum
shopping since the appeal of the Recovery Case, which was still pending appeal before the CA, which
involved the same parties, subject matter, and relief sought.
Meanwhile, Rosario discovered that Lot 1519 together with Lot 1519-A had been transferred by
Roberto to his children, Jose and Alteza, by way of donation, and that said lot was eventually registered
in their names under TCT No. 26227. Thus, Rosario filed another complaint which is annulment and/or
rescission of deed of donation with damages. RTC ruled in favor of the respondents and declared that the
latter’s ownership was based on acquisitive prescription as it was shown that Rosario was in actual, open,
public, and continuous possession of the same in the concept of an owner for more than 30 years. It
likewise found actual fraud on the part of Roberto in concealing in his application for land registration the
adverse possession of respondents in violation of Section 15 of PD 1529. Accordingly, petitioners were
ordered to reconvey the said portion in favor of the respondents. In addition, petitioners were also
ordered to pay respondents attorney's fees and costs of suit. CA affirmed the ruling of RTC Brach 26 and
awarded attorney's fees in the amount of P75,000.00 in favor of respondents, reasoning that they were
compelled to litigate to protect their interests.

ISSUE:
Whether or not the attorney’s fees were properly awarded

HELD:
The Court ruled in the negative. The Court finds it apt to delete the attorney's fees awarded in
favor of respondents given that the trial court failed to explain its findings of facts and law to justify the
award.
It bears to stress that power of the court to award attorney's fees demands factual, legal, and
equitable justification, without which the award is a conclusion without a premise, its basis being
improperly left to speculation and conjecture. In fact, such failure or oversight of the trial court cannot
even be supplanted by the CA.
As elucidated in the case of S.C. Megaworld Construction and Development Corporation v.
Parada:
Article 2208 of the New Civil Code enumerates the instances where such may be awarded
and, in all cases, it must be reasonable, just and equitable if the same were to be granted.
Attorney's fees as part of damages are not meant to enrich the winning party at the expense of
the losing litigant. They are not awarded every time a party prevails in a suit because of the policy
that no premium should be placed on the right to litigate. The award of attorney's fees is the
exception rather than the general rule. As such, it is necessary for the trial court to make findings
of facts and law that would bring the case within the exception and justify the grant of such award.
The matter of attorney's fees cannot be mentioned only in the dispositive portion of the decision.
They must be clearly explained and justified by the trial court in the body of its decision. On appeal,
the CA is precluded from supplementing the bases for awarding attorney's fees when the trial court
failed to discuss in its Decision the reasons for awarding the same. Consequently, the award of
attorney's fees should be deleted.
 SPOUSES SALVADOR ABELLA AND ALMA ABELLA, v. SPOUSES ROMEO ABELLA AND ANNIE ABELLA,.
G.R. No. 195166 July 08, 2015
PONENTE: LEONEN, J.: Decided by: SECOND DIVISION

FACTS:
Petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money and damages
with prayer for preliminary attachment against respondents Spouses Romeo and Annie Abella before the
RTC. Petitioners alleged that respondents obtained a loan from them in the amount of P500,000.00. The
loan was evidenced by an acknowledgment receipt dated March 22, 1999 and was payable within 1 year.
Petitioners added that respondents were able to pay a total of P200,000.00, P100,000.00 paid on two
separate occasions leaving an unpaid balance of P300,000.00.
In their Answer respondents alleged that the amount involved did not pertain to a loan they
obtained from petitioners but was part of the capital for a joint venture involving the lending of money.
RTC ruled in favor of petitioners. It noted that the terms of the acknowledgment receipt executed
by respondents clearly showed that: (a) respondents were indebted to the extent of P500,000.00; (b) this
indebtedness was to be paid within one (1) year; and (c) the indebtedness was subject to interest. Thus,
the trial court concluded that respondents obtained a simple loan, although they later invested its
proceeds in a lending enterprise. The Regional Trial Court adjudged respondents solidarity liable to
petitioners. Respondents filed motion for reconsideration, but it was denied by the trial court.
On appeal, the Court of Appeals ruled that while respondents had indeed entered into a simple
loan with petitioners, respondents were no longer liable to pay the outstanding amount of P300,000.00.
CA reasoned that the loan could not have earned interest, whether as contractually stipulated interest or
as interest in the concept of actual or compensatory damages. As to the loan's not having earned
stipulated interest, CA anchored its ruling on Article 1956 of the Civil Code, which requires interest to be
stipulated in writing for it to be due.
ISSUE:
Whether or not the interest accrued on respondents' loan from petitioners, if so, at what rate?
HELD:
The Court ruled in the affirmative and at the legal rate. CA and RTC ruled that respondents entered
into a simple loan or mutuum, rather than a joint venture, with petitioners. Respondents' claims, as
articulated in their testimonies before the trial court, cannot prevail over the clear terms of the document
attesting to the relation of the parties.
Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a contractual
relation is one of simple loan or mutuum. The text of the acknowledgment receipt is uncomplicated and
straightforward. It attests to: first, respondents' receipt of the sum of P500,000.00 from petitioner Alma
Abella; second, respondents' duty to pay tack this amount within 1 year from March 22, 1999; and third,
respondents' duty to pay interest. Consistent with what typifies a simple loan, petitioners delivered to
respondents with the corresponding condition that respondents shall pay the same amount to petitioners
within 1 year.
 Although the Court has settled the nature of the contractual relation between petitioners and
respondents, controversy persists over respondents' duty to pay conventional interest, i.e., interest as the
cost of borrowing money. Article 1956 of the Civil Code spells out the basic rule that “[n]o interest shall
be due unless it has been expressly stipulated in writing.”
Petitioners here insist upon the imposition of 2.5% monthly or 30% annual interest. Compounded at
this rate, respondents' obligation would have more than doubled—increased to 219.7% of the principal—
by the end of the third year after which the loan was contracted if the entire principal remained unpaid.
By the end of the ninth year, it would have multiplied more than tenfold (or increased to 1,060.45%). In
2015, this would have multiplied by more than 66 times (or increased to 6,654.17%). Thus, from an initial
loan of only P500,000.00, respondents would be obliged to pay more than P33 million.
In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the
application of any interest rate other than that specifically provided for by the parties in their loan
document or, in lieu of it, the legal rate. Here, as the contracting parties failed to make a specific
stipulation, the legal rate must apply. Moreover, the rate that petitioners adverted to is unconscionable.
The conventional interest due on the principal amount loaned by respondents from petitioners is held to
be 12% per annum.
Apart from respondents' liability for conventional interest at the rate of 12% per annum, outstanding
conventional interest—if any is due from respondents—shall itself earn legal interest from the time
judicial demand was made by petitioners, i.e., on July 31, 2002, when they filed their Complaint. This is
consistent with Article 2212 of the Civil Code.
Application of payments must be in accordance with Article 1253 of the Civil Code, which reads:
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered.
Thus, the payments respondents made must first be reckoned as interest payments. Thereafter, any
excess payments shall be charged against the principal.
In Moreno-Lentfer v. Wolff, this court explained the application of solutio indebiti:
The quasi-contract of solutio indebiti under Art. 2154 harks back to the ancient principle that
no one shall enrich himself unjustly at the expense of another. It applies where (1) a payment is
made when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment, and (2) the payment is made through mistake, and not through
liberality or some other cause.
As respondents had already fully paid the principal and all conventional interest that had accrued,
they were no longer obliged to make further payments. Any further payment they made was only because
of a mistaken impression that they were still due. Accordingly, petitioners are now bound by a quasi-
contractual obligation to return any and all excess payments delivered by respondents.
Further, Article 2159 of the Civil Code provides:
Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of
money is involved, or shall be liable for fruits received or which should have been received if the
thing produces fruits.
 He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for
damages to the person who delivered the thing, until it is recovered.
Consistent however, with our finding that the excess payment made by respondents were borne out
of a mere mistake that it was due, we find it in the better interest of equity to no longer hold petitioners
liable for interest arising from their quasi-contractual obligation.
 GAMES AND GARMENTS DEVELOPERS, INC. v. ALLIED BANKING CORPORATION
G.R. No. 181426, July 13, 2015
PONENTE: LEONARDO-DE CASTRO, J.: Decided by: FIRST DIVISION

FACTS:
Bienvenida, married to Benedicto Pantaleon, agreed to purchase a parcel of land located at
Bayanan, Muntinlupa, covered by TCT in the name of petitioner Games and Garments Developers, Inc.,
for the sums of P14,000,000.00 payable to the Cosay Family, and P1,000,000.00 as attorney's fees payable
to GGDI VP-Legal and counsel Atty. Cesar M. Lao.
The parties executed a Memorandum of Agreement stating the manner of payment which is
upon signing of the MOA, 6 million pesos shall be paid to GGDI and the balance of 8 million with 18%
interest rate per annum until full payment by way of postdated check in 90 days from date of this
Agreement with bank [guaranty] of paying the same by Allied Banking Corp. Also upon signing of the MOA,
3 million pesos shall be paid to Cosay family, 1 million pesos balance without interest shall be paid by
Allied Banking Corp. The sum of 1 million pesos together with interest of 18% per annum until the same
is fully paid shall be paid directly to Atty. Cesar M. Lao by way of postdated check 90 days from date of
the MOA, with bank [guaranty] of paying the same issued by Allied Banking Corp.
On August 22, 1996, Branch Manager of Allied Bank-Pasong Tamo, Mercado, issued a letter to
Atty. Lao of GGDI with Bienvenida’s conforme which states that Bienvenida Pantaleon has an approved
real estate loan with Allied Bank amounting to 11 million and the portion of the proceeds of which shall
be used to partially liquidate the account with GGDI. Because of this, GGDI through its president executed
a Deed of Sale in favor of spouses Pantaleon.
On April 15, 1998, GGDI filed before the RTC a Complaint for Breach of Contract (Rescission) and
Damages with prayer for Preliminary Attachment against the spouses Pantaleon, Mercado, and Allied
Bank. GGDI prayed for: (1) the payment of the balance of the purchase price for the subject property,
damages, attorney's fees, and costs of the suit; (2) the annulment of the Deed of Sale, TCT No. 206877 in
Bienvenida's name, and the Real Estate Mortgage constituted on the subject property by Bienvenida in
favor of Allied Bank; and (3) the reconveyance of the subject property to GGDI or the cancellation by the
Register of Deeds of TCT No. 206877, as well as the annotations thereon of the mortgage in favor of Allied
Bank and the Special Power of Attorney in favor of Bienvenida.
In September 2003, RTC ruled in favor of GGDI and against the spouses Pantaleon and Allied Bank,
but was completely silent regarding Mercado’s liability. Allied Bank moved for reconsideration but the
trial court denied the same. On appeal, the CA disagreed with the RTC and held that Allied Bank should
not be held liable under MOA and Deed of Sale executed between the spouses Pantaleon and GGDI for
the bank was not a party or witness to the said documents. GGDI filed a partial motion for reconsideration
but the CA denied it for lack of imperative reason to disturb or modify its early decision.
ISSUE:
Whether or not the Bank's assertion that Section 74 of the General Banking Act prohibits banks
from entering directly or indirectly into any contract of guaranty or surety.
HELD:
 The Court ruled in the negative. Mercado's letters are not contracts of guaranty covered by the
prohibition in the General Banking Act, as amended.
A contract of surety is an accessory promise by which a person binds himself for another already
bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of guaranty,
on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay
the debt.
There was no express undertaking in Mercado's letters dated August 22, 1996 and January 27, 1997
to pay Bienvenida's debt to GGDI in case Bienvenida failed to do so. In said letters, Mercado merely
acknowledged that Bienvenida and/or her company had an approved real estate loan with Allied Bank
and guaranteed that subsequent releases from the loan would be made directly to GGDI provided that
the certificate of title over the subject property would be transferred to Bienvenida's name and the real
estate mortgage constituted on the subject property in favor of Allied Bank would be annotated on the
said certificate. Mercado, by the plain language of his letters, merely committed to the manner by which
the proceeds of Bienvenida's approved loan from Allied Bank would be released, but did not obligate
Allied Bank to be answerable with its own money to GGDI should Bienvenida default on the payment of
the purchase price for the subject property. For this reason, Mercado's letters may not be deemed as
contracts of guaranty, although they may be binding as innominate contracts. The rule is settled that a
contract constitutes the law between the parties who are bound by its stipulations which, when couched
in clear and plain language, should be applied according to their literal tenor. We cannot supply material
stipulations, read into the contract words it does not contain or, for that matter, read into it any other
intention that would contradict its plain import. Neither can we rewrite contracts because they operate
harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the
detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily
consented to, or impose on him those which he did not.
Allied Bank is a mortgagee in bad faith and the foreclosure on the real estate mortgage and public
auction sale of the subject property are null and void.
Allied Bank was well aware that the subject property was not yet fully paid for and that the balance
of the purchase price was to be paid for from the proceeds of Bienvenida's approved loan from the bank.
Allied Bank was just as cognizant of the fact that the proceeds of the loan were already released to the
spouses Pantaleon, and not to GGDI, on August 23, 1996, merely a day after Mercado issued his letter
dated August 22, 1996 and same day as the execution by GGDI in Bienvenida's favor of the Deed of Sale
for the subject property. While it is true that on its face, Bienvenida's TCT No. 206877 appeared clean,
Allied Bank knew of the possibility that the sale of the subject property by GGDI to Bienvenida could be
rescinded for nonpayment of the balance of the purchase price and, worse, that the bank itself was partly
responsible for the nonpayment because it did not honor its letter dated August 22, 1996. Moreover,
despite the repeated notices and demands for payment made by GGDI upon Allied Bank as early as
November 21, 1996, the bank proceeded with the foreclosure on the mortgage and public auction sale of
the subject property on March 19, 1998.
 For its failure to comply with its undertaking under the letters dated August 22, 1996 and January
27, 1997, Allied Bank is liable to GGD for temperate/moderate, exemplary/corrective damages, and
attorney's fees.
As a result of our findings herein that Mercado's letters dated August 22, 1996 and January 27, 1997
were not contracts of guaranty prohibited by Section 74 of the General Banking Act, as amended, and that
they bind Allied Bank by virtue of Mercado's apparent authority to issue the same, then Allied Bank is
liable for not complying with its obligation under said letters to release the proceeds of Bienvenida's
approved loan, equivalent to the balance of the purchase price for the subject property, directly to GGDI.
This case undeniably caused GGDI pecuniary losses because for almost two decades it had been
deprived of the balance of the purchase price for the subject property or, in the alternative, the use of
and/or profits from the subject property. Such losses, however, are not easily quantifiable.
The Civil Code allows the award of temperate or moderate damages under Articles 2224 and 2225.
Temperate or moderate damages may be allowed in cases where from the nature of the case, definite
proof of pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party
suffered some pecuniary loss. The computation of the amount of temperate or moderate damages is
usually left to the discretion of the courts, but the amount must be reasonable, bearing in mind that
temperate damages should be more than nominal but less than compensatory. In this case, we find it
proper to hold Allied Bank liable to GGDI for temperate or moderate damages in the amount of
P500,000.00.
Under Article 2229, exemplary or corrective damages may be imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated, or compensatory damages.
We reiterate that the business of banking is impressed with public interest and great reliance is made on
the bank's sworn profession of diligence and meticulousness in giving irreproachable service. Banks must
always act in good faith and must win the confidence of clients and people in general. Because Allied Bank
failed to comply with its undertaking in the letters dated August 22, 1996 and January 27, 1997, it is
ordered to pay GGDI exemplary damages in the sum of P150,000.00.
And since we awarded exemplary/corrective damages, we also order Allied Bank to pay GGDI
P100,000.00 as attorney's fees based on Article 2208(1) of the Civil Code.
Allied Bank shall further be liable to pay, jointly and severally with the spouses Pantaleon, the costs
of suit.
 NORLINDA S. MARILAG v. MARCELINO B. MARTINEZ
G.R. No. 201892, July 22, 2015
PONENTE: PERLAS-BERNABE, J.: Decided by: FIRST DIVISION

FACTS:
Rafael Martinez, respondent's father, obtained from petitioner a loan in the amount of
P160,000.00, with a stipulated monthly interest of 5%, payable within 6 months. The loan was secured by
a real estate mortgage over a parcel of land covered by TCT. Rafael failed to settle his obligation upon
maturity and despite repeated demands, prompting petitioner to file a Complaint for Judicial Foreclosure
of Real Estate Mortgage before RTC-Imus.
Rafael failed to file his answer and, upon petitioner's motion, was declared in default. After an ex
parte presentation of petitioner's evidence, the RTC-Imus issued a Decision in the foreclosure case,
declaring the stipulated 5% monthly interest to be usurious and reducing the same to 12% per annum.
Accordingly, it ordered Rafael to pay petitioner the amount of P229,200.00, consisting of the principal of
P160,000.00 and accrued interest of P59,200.00 from July 30, 1992 to September 30, 1995. Records do
not show that this Decision had already attained finality.
Meanwhile, prior to Rafael's notice of the above decision, respondent agreed to pay Rafael's
obligation to petitioner which was pegged at P689,000.00. After making a total payment of P400,000.00,
he executed a promissory note, binding himself to pay the balance on or before March 31, 1998. After
learning of the RTC’s Decision, respondent refused to pay the balance despite demands, prompting
petitioner to file a complaint for sum of money and damages before the court a quo.
The court a quo denied recovery on the subject PN. It found that the consideration for its
execution was Rafael's indebtedness to petitioner, the extinguishment of which necessarily results in the
consequent extinguishment of the cause therefor. Petitioner moved for reconsideration which is granted
by the court a quo. Because of this, respondent filed a motion for reconsideration which was denied. On
appeal, CA set aside the latter decision and reinstated the first one in favor of the respondent. Petitioner
moved for reconsideration but it was denied. Hence, this petition.
ISSUE:
Whether or not petitioner can still collect from respondent by virtue of the promissory note
considering that he already availed of judicial foreclosure
HELD:
The Court ruled in the negative. In loan contracts secured by a real estate mortgage, the rule is
that the creditor-mortgagee has a single cause of action against the debtor-mortgagor, i.e., to recover the
debt, through the filing of a personal action for collection of sum of money or the institution of a real
action to foreclose on the mortgage security. The two remedies are alternative, not cumulative or
successive, and each remedy is complete by itself. Thus, if the creditor-mortgagee opts to foreclose the
real estate mortgage, he waives the action for the collection of the unpaid debt, except only for the
recovery of whatever deficiency may remain in the outstanding obligation of the debtor-mortgagor after
deducting the bid price in the public auction sale of the mortgaged properties. Accordingly, a deficiency
judgment shall only issue after it is established that the mortgaged property was sold at public auction for
an amount less than the outstanding obligation.
In the present case, records show that petitioner, as creditor-mortgagee, instituted an action for
judicial foreclosure pursuant to the provisions of Rule 68 of the Rules of Court in order to recover on
Rafael's debt. In light of the foregoing discussion, the availment of such remedy thus bars recourse to the
subsequent filing of a personal action for collection of the same debt, in this case, under the principle of
litis pendentia, considering that the foreclosure case only remains pending as it was not shown to have
attained finality.
While the ensuing collection case was anchored on the promissory note executed by respondent
who was not the original debtor, the same does not constitute a separate and distinct contract of loan
which would have given rise to a separate cause of action upon breach. Notably, records are bereft of any
indication that respondent's agreement to pay Rafael's loan obligation and the execution of the subject
PN extinguished by novation the contract of loan between Rafael and petitioner, in the absence of express
agreement or any act of equal import.
As petitioner had already instituted judicial foreclosure proceedings over the mortgaged property,
she is now barred from availing herself of an ordinary action for collection, regardless of whether or not
the decision in the foreclosure case had attained finality. In fine, the dismissal of the collection case is in
order. Considering, however, that respondent's claim for return of excess payment partakes of the nature
of a compulsory counterclaim and, thus, survives the dismissal of petitioner's collection suit, the same
should be resolved based on its own merits and evidentiary support.
 FILADELFA T. LAUSA, LORETA T. TORRES, PRIMITIVO TUGOT AND ANACLETO T. CADUHAY, v.
MAURICIA QUILATON, RODRIGO Q. TUGOT, PURIFICACION T. CODILLA, TEOFRA T. SADAYA,
ESTRELLITA T. GALEOS AND ROSITA T. LOPEZ,.
G.R. No. 170671, August 19, 2015
PONENTE: BRION, J.: Decided by: SECOND DIVISION

FACTS:
The petitioners and the respondents are relatives residing in Lot No. 557. Petitioners Filadelfa T.
Lausa, Loreta T. Torres, Primitivo Tugot, and Anacleto T. Caduhay are cousins of respondents Rodrigo
Tugot, Purificacion Codilla, Teofra Sadaya, and Estrellita Galeos; while Mauricia Quilaton is the
respondents' mother and the petitioners' aunt-in-law.
The respondent Rosita T. Lopez, on the other hand, acquired the rights of Rodrigo when he
mortgaged Lot No. 557-A, a portion of Lot No. 557, to her. Rodrigo subsequently defaulted on his loan.
The petitioners and respondents, with the exception of Mauricia and Rosita, are all grandchildren of
Alejandro Tugot. Alejandro had possessed Lot No. 557 since September 13, 1915, after it was assigned to
him by Martin Antonio.
Lot No. 557 formed part of the Banilad Friar Estate Lands, which had been bought by the
government through Act No. 1120 for distribution to its occupants. Antonio had initially been Lot No.
557's beneficiary, but subsequently assigned his rights over Lot No. 557 to Alejandro. Since then, Alejandro
possessed Lot No. 557 until his death; thereafter, his children and grandchildren continued to reside in
the lot. The present controversy arose when the respondents, claiming to be its registered owners,
attempted to eject the petitioners from Lot No. 557.
In 1993, Mauricia filed a petition before the RTC of Cebu City praying for the issuance of a new
owner’s duplicate of TCT No. 571, which purportedly covers Lot No. 557, alleging that her copy was lost
during strong typhoon. RTC, after due hearing, granted Mauricia’s petition and issued new owner’s
duplicate. In 1994, Mauricia donated Lot No. 557 to her children. Thus, TCT No. 571 was cancelled, and
re-issued as TCT Nos. 130517, 130518, 130519, 130520 and 130521 in the names of Mauricia's children.
Many cases were filed in court involving Lot No. 557 such as Rodrigo’s land covered by TCT No.
130517 was sold in public auction because he defaulted on his loan, Mauricia’s children filed a complaint
for ejectment against petitioners. In response, the petitioners filed civil case for the annulment of TCT No.
571 and the subsequent titles that originate from TCT No. 571, as well as criminal complaints for
falsification and perjury against the respondents.

The RTC found TCT No. 571 to be a forgery, and declared it and all titles originating from it to be
null and void ab initio and that the petitioners had better title to Lot No. 557 than the respondents. The
respondents filed a motion for reconsideration contesting the RTC's decision. After the RTC denial of the
motion, the respondents appealed to the CA.
The CA reversed the RTC's decision, and upheld the validity of TCT No. 571 and all the titles
originating from it. The petitioners filed a motion for reconsideration assailing the CA's decision, which
motion the CA denied. The denial opened the way for the present petition for review on certiorari before
this Court.
ISSUES:
1. Whether or not Alejandro Tugot acquire Lot No. 557 through acquisitive prescription.
2. Whether or not Lopez is an innocent purchaser for value of Lot 5 57-A.
3. Whether or not CA erred in finding that the petitioners' claim of ownership over Lot No. 557
had been barred by prescription and laches.

HELD:
The Court ruled in the negative. Alejandro Tugot did not acquire Lot No. 557 through acquisitive
prescription. The Court agreed with the CA's conclusion that Lot No. 557 cannot be acquired through
prescription, but for a different reason.
In the present case, the Deed of Assignment between Antonio and Alejandro was cancelled three
months after it was executed. The Deed, executed on September 13, 1915, was inscribed with the phrase:
"Cancelled December 21, 1915. See letter # 12332." Both the trial court and the CA found this inscription
to be sufficient proof that the Deed of Assignment had been cancelled three months after its execution.
As a consequence, the Deed of Assignment could not have vested Antonio's rights over Lot No. 557 to
Alejandro.
Thus, Lot No. 557 reverted to its original status after the Deed of Assignment was cancelled. It
remained subject to the conditional sale between the government and Antonio; under the Certificate of
Sale between the Bureau of Lands and Antonio, the government should transfer title to Lot No. 557 to
Antonio upon full payment of the lot's purchase price.
The nature of the contract of sale between Antonio and the government is in line with Section 15 of
Act No. 1120, which provides for the administration, temporary lease, and sale of friar lands that the
government bought through sections 63 to 65 of "An Act temporarily to provide for the administration of
the affairs of civil government in the Philippine Islands, and for other purposes." These friar lands included
the Banilad Estate Friar Lands, from where Lot No. 557 originated.
According to jurisprudence, Section 15 of Act No. 1120 reserves to the government the naked title to
the friar lands, until its beneficiaries have fully paid their purchase price. Since the intent of Act No. 1120
was to transfer ownership of the friar lands to its actual occupants, the equitable and beneficial title to
the land passes to them the moment the first installment is paid and a certificate of sale is issued. This
right is subject to the resolutory condition that the sale may be rescinded if the agreed price shall not be
paid in full.
On the second issue, the Court also ruled in the negative. Lopez is not an innocent purchaser for
value of Lot 5 57-A. As a general rule, a person dealing with registered land has a right to rely on the
Torrens certificate of title and to dispense with the need of further inquiring over the status of the lot.
Jurisprudence has established exceptions to the protection granted to an innocent purchaser for value,
such as when the purchaser has actual knowledge of facts and circumstances that would compel a
reasonably cautious man to inquire into the status of the lot; or of a defect or the lack of title in his vendor;
or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the
property in litigation.
 In particular, the Court has consistently held that that a buyer of a piece of land that is in the
actual possession of persons other than the seller must be wary and should investigate the rights of those
in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith. We find
that Lopez knew of circumstances that should have prodded her to further investigate the Lot No. 557-
A's status before she executed a mortgage contract over it with Rodrigo.
On the last issue, the Court ruled in the affirmative. The CA erred in finding that the petitioners' claim
of ownership over Lot No. 557 had been barred by prescription and laches.
An action for annulment of title or reconveyance based on fraud is imprescriptible where the
plaintiff is in possession of the property subject of the fraudulent acts. One who is in actual possession
of a piece of land on a claim of ownership thereof may wait until his possession is disturbed or his title is
attacked before taking steps to vindicate his right.
The records of the case show that the petitioners resided in the property at the time they learned
about TCT No. 571. Being in possession of Lot No. 557, their claim for annulment of title had not expired.
Their ownership of Lot No. 571, however, is a different matter.
In sum, the petition is partially granted. CA’s decision is modified and the following titles are declared
null and void: (1) TCT No. 571 issued to Mauricia Quilaton; (2) TCT No. 130517 issued to Rodrigo Tugot;
(3) TCT No. 130518 issued to Purificacion Codilla; (4) TCT No. 130519 issued to Teofra Sadaya; (5) TCT No.
130520 issued to Estrellita Galeos; (5) TCT No. 130521 issued to Rodrigo Tugot; and (6) TCT No. 143511
issued to Rosita Lopez. The claim of the petitioners Filadelfa T. Lausa, Loreta T. Torres, Primitivo Tugot and
Anacleto T. Caduhay for recognition of their ownership over Lot No. 557 is denied.