OBLIGATIONS

STOLT-NIELSEN TRANSPORTATION GROUP, INC. VS MEDEQUILLO

GR# 177498, January18, 2012
FACTS:
Medequillo was hired as an Assistant Engineer on board the vessel Stolt Aspiration for a
period of nine months for a monthly salary of $1,212.00. After three months, he was ordered to
disembark and repatriated back to Manila and transferred to another vessel named Stolt Pride
under the same terms of the first contract. Thereafter, a second contract was made but he was not
deployed and so, he filed a case praying for actual, moral and exemplary damages for not
complying with the second contract. A decision was rendered in his favor by the arbiter holding
that Stolt Nielsen cannot be held liable under the first contract but only under the second contract
because of a breach thereof and because the second contract novated the first contract.
ISSUE:
W/N the second contract novated the first contract as a basis for the award of damages.
HELD:
The essential elements of novation are:
1. There must be a previous valid obligation
2. There must be an agreement of the parties concerned to a new contract
3. There must be the extinguishment of the old contract and
4. There must be the validity of the new contract.
In the case at bar, novation became an unavoidable conclusion. The parties impliedly
extinguished the first contract by agreeing to enter into the second contract to placate Medequillo
who was unexpectedly dismissed and repatriated to manila. The second contract would not have
been necessary if the petitioners abided by the terms and conditions of Madequillos employment
under the first contract. Likewise, the first contract was for Stolt Aspiration while the second
contract was for Stolt Pride and both parties accepted the terms and conditions of the second
contract.

MERCADO VS ESPINOCILLA
GR# 184109, February 1, 2012
FACTS:
Doroteo Espinocilla owned a parcel of land with an area of 552 sq. meters. After he died,
his five children divided the lot equally among themselves. Mercado sued to recover two
portions totaling 57 sq. meters. He avers that his is entitled to own and possess the lot having
inherited it from his mother and bought 28.5 sq. m. from his aunt (one of the five heirs). He
claims that Espinocilla encroached on his land by 39 sq. m. After trial, the court decided in favor
of Mercado. Espinocilla appealed and the Court of appeals reversed the RTC decision on the
ground that extraordinary acquisitive prescription has already set in.
ISSUE:
W/N Mercados action to recover the subject portion of the land is barred by prescription.
HELD:
Prescription as a mode of acquiring ownership and other real rights over immovable
property, is concerned with lapse of time in the manner and under conditions laid down by law,
namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted
and adverse. Acquisitive prescription of real rights may be ordinary and extraordinary. Ordinary
acquisitive prescription requires possession in good faith and with just title for 10 years. In
extraordinary prescription,
ownership and other real rights over immovable property are
acquired through uninterrupted adverse possession for 30 years without need of title or of good
faith.
Here, the petitioner admits the adverse nature of respondents possession with his assertion
that Macarios fraudulent acquisition of Dionisias share created a constructive trust. In a
constructive trust, there is neither a promise nor any fiduciary relation to speak of and the socalled trustee neither accepts any trust nor intends holding the property for the beneficiary. The
relation of trustee and cestui que trust does not in fact exist and the holding of a constructive
trust is for the trustee himself and therefore, at all times adverse.

PORTILLO VS RUDOLF LIETZ INC.

GR# 196539, October 10, 2012
FACTS:
Portillo was an employee of respondent for ten years. In her thirteenth year, she resigned
as she intended to engage in the business of rice dealership. Upon her retirement, she was
reminded of the Goodwill Clause in which she is prevented, within three 3 from her
resignation, to engage directly or indirectly in an employment in which Lietz Inc. is engaged in.
Subsequently, respondent found out that Portillo was hired by Ed Keller Philippines, a purported
competitor of respondent. Meanwhile, petitioners demands for the payment of her remaining
salaries and commissions from Lietz went unheeded. Lietz raised the defense of legal
compensation wherein Portillos money claims be offset against her liability to Lietz for
liquidated damages for Portillos alleged breach of the Goodwill Clause when she employed
with Ed Keller Philippines.
ISSUE:
W/N Portillos money claims for unpaid salaries may be offset against respondents claim
for liquidated damages.
HELD:
The Goodwill Clause in this case is likewise a postemployment issue should brook no
argument. There is no dispute as to the cessation of Portillos employment with Lietz Inc. She
simply claims her unpaid salaries and commissions, which Lietz Inc. does not contest. At that
juncture, Portillo was no longer an employee of Lietz Inc.24 The Goodwill Clause or the
Non-Compete Clause is a contractual undertaking effective after the cessation of the
employment relationship between the parties. In accordance with jurisprudence, breach of the
undertaking is a civil law dispute, not a labor law case.
It is clear, therefore, that while Portillos claim for unpaid salaries is a money claim that
arises out of or in connection with an employer-employee relationship, Lietz Inc.s claim against
Portillo for violation of the goodwill clause is a money claim based on an act done after the
cessation of the employment relationship. And, while the jurisdiction over Portillos claim is
vested in the labor arbiter, the jurisdiction over Lietz Inc.s claim rests on the regular courts. the
difference in the nature of the credits that one has against the other, conversely, the nature of the
debt one owes another, which difference in turn results in the difference of the forum where the
different credits can be enforced, prevents the application of compensation. Simply, the labor
tribunal in an employees claim for unpaid wages is without authority to allow the compensation
of such claims against the post employment claim of the former employer for breach of a post
employment condition. The labor tribunal does not have jurisdiction over the civil case of breach
of contract. There is no causal connection between the petitioner employees claim for unpaid
wages and the respondent employers claim for damages for the alleged Goodwill Clause
violation. Portillos claim for unpaid salaries did not have anything to do with her alleged
violation of the employment contract as, in fact, her separation from employment is not rooted
in the alleged contractual violation. She resigned from her employment. She was not dismissed.
Portillos entitlement to the unpaid salaries is not even contested. Indeed, Lietz Inc.s argument
about legal compensation necessarily admits that it owes the money claimed by Portillo.

RCJ BUS LINES VS MASTER TOURS AND TRAVEL

GR# 177232, October 11, 2012
FACTS:
Respondent entered into a 5-year lease agreement with petitioner covering four Daewoo
air-conditioned buses for P600,000 with P400,000 payable upon agreement and P200,000
payable upon rehabilitation of the buses. More than four years into the lease or on June 16, 1997
Master Tours wrote RCJ a letter, demanding the return of the four buses so Master Tours could
settle its obligation with creditors who wanted to foreclose on the buses. RCJ did not, however,
heed the demand. Master Tours wrote RCJ a letter, demanding the return of the buses to it and
the payment of the lease fee of P600,000.00 that had remained unpaid. RCJ wrote back through
counsel that it had no obligation to pay the lease fee and that it would return the buses only after
Master Tours shall have paid RCJ the storage fees due on them. RCJ alleged that it had no use
for the buses, they being non-operational, and that the lease agreement had been modified into a
contract of deposit of the buses for which Master Tours agreed to pay RCJ storage fees of
P4,000.00 a month. To prove the new agreement, RCJ cited Master Tours letter which
acknowledged that the buses were brought to RCJs garage for safekeeping.
ISSUE:
W/N there was a novation in the agreement of the parties from one of lease to one of
deposit.
HELD:
There was no novation of their agreement.
Although the buses were described in the lease agreement as junked and not
operational, it is clear from the prescribed manner of payment of the rental fee (P400,000.00
down and P200,000.00 upon completion of their rehabilitation) that RCJ would rehabilitate such
buses and use them for its transport business. Now, RCJs theory is that the parties subsequently
changed their minds and terminated the lease but, rather than have Master Tours get back its
junked buses, RCJ agreed to store them in its garage as a service to Master Tours subject to
payment of storage fees.
Two things militate against RCJs theory.
First, RCJ failed to present any clear proof that it agreed with Master Tours to abandon
the lease of the buses and in its place constitute RCJ as depositary of the same, providing storage
service to Master Tours for a fee. The only evidence RCJ relied on is Master Tours letter of June
16, 1997 in which it demanded the return of the four buses which were placed in RCJs garage
for safekeeping.
For one thing, the letter does not on its face constitute an agreement. It contains no
contractual stipulations respecting some warehousing arrangement between the parties
concerning the buses. At best, the letter acknowledges that five Master Tours buses were
brought to your [RCJs] garagefor safekeeping. But the idea of RCJ safekeeping the buses
for Master Tours is consistent with their lease agreement. The lessee of a movable property has
an obligation to return the thing leased, upon the termination of the lease, just as he received
it.8 This means that RCJ must, as an incident of the lease, keep the buses safe from injury or
harm while these were in its possession.
For another, it is evident from the tenor of Master Tours letter that RCJs safekeeping
was to begin from the time the buses were delivered at its garage. There is no allegation or
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evidence that Master Tours pulled out the buses at some point, signifying the pre-termination of
the lease agreement, then brought them back to RCJs garage, this time for safekeeping. This
circumstance rules out any notion that an agreement for RCJ to hold the buses for safekeeping
had overtaken the lease agreement.
Second, it did not make sense for Master Tours to pre-terminate its lease of the junked buses to
RCJ, which would earn Master Tours P600,000.00, in exchange for having to pay RCJ storage
fees for keeping those buses just the same. As pointed out above, the lease already implied an
obligation on RCJs part to safekeep the buses while they were being rented.

SPOUSES SY VS ANDOKS LITSON CORPORATION

GR# 192108, November 21, 2012
FACTS:
Petitioner and respondent entered into a lease contract wherein respondent would lease a
parcel of land of petitioner for five years. Andoks alleged that while it was applying for
electrical connection on the improvements to be constructed on Sys land, it was discovered that
Sy has an unpaid MERALCO bill. Andoks further complained that construction for the
improvement it intended for the leased premises could not proceed because another tenant,
Mediapool, Inc. incurred delay in the construction of a billboard structure also within the leased
premises. Several demand letters were sent to Sy but the letters were not answered.
The RTC decided in favor of respondent. The CA affirmed the decision of the RTC.
ISSUE:
W/N rescission may be availed of in a contract of lease
HELD:
Yes. Rescission may be availed of.
Article 1191 of the Civil Code provides that 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.
A lease contract is a reciprocal contract. By signing the lease agreement, the lessor grants
possession over his/her property to the lessee for a period of time in exchange for rental
payment. Indeed, rescission is statutorily recognized in a contract of lease.
The aggrieved party is given the option to the aggrieved party to ask for: (1) the
rescission of the contract; (2) rescission and indemnification for damages; or (3) only
indemnification for damages, allowing the contract to remain in force.

MONDRAGON SALES INC. VS VICTORIANO SOLA

GR# 174882, January 21, 2013
FACTS:
Petitioner Mondragon Personal Sales Inc., a company engaged in the business of selling
various consumer products through a network of sales representatives, entered into a Contract of
Services with Respondent Victoriano S. Sola, Jr. for a period of three years commencing on
October 2, 1994 up to October 1, 1997. Under the said contract, Respondent, as service
contractor, would provide service facilities, i.e., bodega cum office, to Petitioner's products, sales
force and customers in General Santos City and as such, he was entitled to commission or
service fee.
Prior to the execution of the contract, however, Respondents wife, Lina Sola, had an
existing obligation with Petitioner arising from her Franchise Distributorship Agreement with the
latter. On January 26, 1995, Respondent wrote a letter addressed to petitioner wherein he
acknowledged and confirmed his wifes indebtedness to Petitioner in the amount
ofP1,973,154.73 (the other accountability in the sum of P1,490,091.15 was still subject to
reconciliation) and, together with his wife, bound himself to pay on installment basis the said
debt. Consequently, Petitioner withheld the payment of Respondent's service fees from February
to April 1995 and applied the same as partial payments to the debt which he obligated to pay. On
April 29, 1995, Respondent closed and suspended operation of his office cum bodega where
Petitioner's products were stored and customers were being dealt with.
On May 24, 1995, Respondent filed with the Regional Trial Court (RTC), a
Complaint for accounting and rescission against petitioner alleging that petitioner withheld
portions of his service fees covering the months from October 1994 to January 1995 and his
whole service fees for the succeeding months of February to April 1995, the total amount of
which was P222,202.84; that petitioner's act grossly hampered, if not paralyzed, his business
operation, thus left with no other recourse, he suspended operations to minimize losses. He
prayed for the rescission of the contract of services and for Petitioner to render an accounting of
his service fees.
In its Answer with Counterclaim filed on June 14, 1995, Petitioner contended that
Respondents letter dated January 26, 1995 addressed to Petitioner, confirmed and obligated
himself to pay on installment basis the accountability of his wife with Petitioner, thus
Respondent's service fees/commission earned for the period of February to April 1995
amounting to P125,040.01 was applied by way of compensation to the amounts owing to it; that
all the service fees earned by Respondent prior to February 1995 were fully paid to him.
The RTC ruled in favor of Petitioner. The Ca, on appeal, reversed the decision of the
RTC.
ISSUE:
W/N Petitioner's act of withholding Respondent's service fees and thereafter applying
them as partial payment to the obligation of Respondent's wife with Petitioner was unlawful,
considering that respondent never assumed his wifes obligation thus there can be no legal
compensation.
HELD:
The Court disagrees.
In his letter dated January 26, 1995 addressed to Petitioner. Respondent wrote, and which
we quote in full:
Gentlemen:
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This refers to the account of my wife, Lina (Beng) Sola, with Mondragon Personal Sales,
Inc. in the amount of P3,463,173.88. Of this total amount, we are initially confirming the
total amount ofP1,973,154.73 as due from Lina (Beng) Sola, while the remaining balance
of P1,490,091.15 will be subject to a reconciliation on or before February 5, 1995.
In recognition of Lina (Beng) Sola's account, we undertake to pay P100,000.00 on or
before February 01, 1995 and the balance of P1,873,154.73 plus interest of 18% per
annum and 2% administrative charge per month on the diminishing balance will be
covered by postdated checks of not less thanP100,000.00 per month starting February
28, 1995 and every end of the month thereafter but not to exceed eighteen (18) months or
July 31, 1996.
With regards to the remaining balance of P1,490,019.15, we agree that upon final
verification of these accounts, we will issue additional postdated checks subject to the
same terms and conditions as stated above.
We further agree that all subsequent orders that will be released to us will be covered by
postdated checks.
I fully understand and voluntarily agree to the above undertaking with full knowledge of
the consequences which may arise therefrom.
Very truly yours,
(signed)
Victoriano S. Sola

A reading of the letter shows that Respondent becomes a co-debtor of his wife's
accountabilities with Petitioner. Notably, the last paragraph of his letter which states "I fully
understand and voluntarily agree to the above undertaking with full knowledge of the
consequences which may arise therefrom" and which was signed by respondent alone, shows that
he solidarily bound himself to pay such debt. Based on the letter, respondent's wife had an
account with petitioner in the amount of P3,463,173.88, out of which only the amount
of P1,973,154.73 was confirmed while the remaining amount of P1,490,019.15 would still be
subject to reconciliation. As respondent bound himself to pay the amount of P1,973,154.73, he
becomes petitioner's principal debtor to such amount.
We find that petitioner's act of withholding respondent's service fees/commissions and
applying them to the latter's outstanding obligation with the former is merely an
acknowledgment of the legal compensation that occurred by operation of law between the
parties. Compensation is a mode of extinguishing to the concurrent amount the obligations of
persons who in their own right and as principals are reciprocally debtors and creditors of each
other. Legal compensation takes place by operation of law when all the requisites are present, as
opposed to conventional compensation which takes place when the parties agree to compensate
their mutual obligations even in the absence of some requisites. Legal compensation requires the
concurrence of the following conditions:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter has
been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
We find the presence of all the requisites for legal compensation. Petitioner and
respondent are both principal obligors and creditors of each other. Their debts to each other
consist in a sum of money. Respondent acknowledged and bound himself to pay petitioner the
amount of P1,973,154.73 which was already due, while the service fees owing to respondent by
petitioner become due every month. Respondent's debt is liquidated and demandable, and
petitioner's payments of service fees are liquidated and demandable every month as they fall due.
Finally, there is no retention or controversy commenced by third persons over either of the debts.
Thus, compensation is proper up to the concurrent amount where petitioner owes
respondent P125,040.01 for service fees, while respondent owes petitioner P1,973,154.73.

GPI VS SPS FAJARDO

GR# 201167, February 27, 2013

FACTS:
On January 24, 1995, Respondent-Spouses Eugenio and Angelina Fajardo (Sps. Fajardo)
entered into a Contract to Sell (contract) with petitioner-corporation Gotesco Properties, Inc.
(GPI) for the purchase of a 100-square meter lot identified as Lot No. 13, Block No.6, Phase No.
IV of Evergreen Executive Village, a subdivision project owned and developed by GPI located at
Deparo Road, Novaliches, Caloocan City. The subject lot is a portion of a bigger lot covered by
Transfer Certificate of Title (TCT) No. 244220 (mother title).
Under the contract, Sps. Fajardo undertook to pay the purchase price of P126,000.00
within a 10-year period, including interest at the rate of nine percent (9%) per annum. GPI, on
the other hand, agreed to execute a final deed of sale (deed) in favor of Sps. Fajardo upon full
payment of the stipulated consideration. However, despite its full payment of the purchase price
on January 17, 2000 and subsequent demands, GPI failed to execute the deed and to deliver the
title and physical possession of the subject lot.
On May 3, 2006, Sps. Fajardo filed before the Housing and Land Use Regulatory BoardExpanded National Capital Region Field Office (HLURBENCRFO) a complaint for specific
performance or rescission of contract with damages against GPI. They averred that GPI violated
Section 20 of Presidential Decree No. 957 (PD 957) due to its failure to execute the deed, to
deliver the corresponding certificate of title and the physical possession of the subject lot within
a reasonable period, and to develop Evergreen Executive Village.
GPI argued that the provision on which Sps. Fajardo anchor their right of rescission
remained inapplicable since they were actually willing to comply with their obligation but were
only prevented from doing so because while GPI's petition for inscription of technical
description was favorably granted by the RTC, the same was reversed by the CA, thus causing
the delay in the subdivision of the property into individual lots with individual titles.
The HLURBENCRFO ruled in favor of the Respondent. The OP, on appeal, affirmed the
HLURBs ruling. The CA, on appeal, affirmed the decision of the OP.
ISSUE:
W/N Sps. Fajardo have no right to rescind the contract considering that GPI's inability to
comply therewith was due to reasons beyond its control and thus, should not be held liable to
refund the payments they had received.
HELD:
It is settled that in a contract to sell, the seller's obligation to deliver the corresponding
certificates of title is simultaneous and reciprocal to the buyer's full payment of the purchase
price. In this relation, Section 25 of PD 957, which regulates the subject transaction, imposes on
the subdivision owner or developer the obligation to cause the transfer of the corresponding
certificate of title to the buyer upon full payment, to wit:
Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit
to the buyer upon full payment of the lot or unit. No fee, except those required for the
registration of the deed of sale in the Registry of Deeds, shall be collected for the
issuance of such title. In the event a mortgage over the lot or unit is outstanding at the
time of the issuance of the title to the buyer, the owner or developer shall redeem the
10

mortgage or the corresponding portion thereof within six months from such issuance in
order that the title over any fully paid lot or unit may be secured and delivered to the
buyer in accordance herewith. (Emphasis supplied.)

Clearly, the long delay in the performance of GPI's obligation from date of demand on
September 16, 2002 was unreasonable and unjustified. It cannot therefore be denied that GPI
substantially breached its contract to sell with Sps. Fajardo which thereby accords the latter the
right to rescind the same pursuant to Article 1191 of the Code, viz:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

At this juncture, it is noteworthy to point out that rescission does not merely terminate the
contract and release the parties from further obligations to each other, but abrogates the contract
from its inception and restores the parties to their original positions as if no contract has been
made. Consequently, mutual restitution, which entails the return of the benefits that each party
may have received as a result of the contract, is thus required. To be sure, it has been settled that
the effects of rescission as provided for in Article 1385 of the Code are equally applicable to
cases under Article 1191.
In this light, it cannot be denied that only GPI benefited from the contract, having received full
payment of the contract price plus interests as early as January 17, 2000, while Sps. Fajardo
remained prejudiced by the persisting non-delivery of the subject lot despite full payment. As a
necessary consequence, considering the propriety of the rescission as earlier discussed, Sps.
Fajardo must be able to recover the price of the property pegged at its prevailing market value
consistent with the Courts pronouncement in Solid Homes.

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REYES VS ROSSI
GR# 159823, February 18, 2013
FACTS:
On October 31, 1997, Petitioner Teodoro A. Reyes (Reyes) and Advanced Foundation
Construction Systems Corporation (Advanced Foundation), represented by its Executive Project
Director, Respondent Ettore Rossi (Rossi), executed a deed of conditional sale involving the
purchase by Reyes of equipment consisting of a Warman Dredging Pump HY 300A
worth P10,000,000.00. The parties agreed therein that Reyes would pay the sum
of P3,000,000.00 as downpayment, and the balance of P7,000,000.00 through four post-dated
checks. Reyes complied, but in January 1998, he requested the restructuring of his obligation
under the deed of conditional sale by replacing the four post-dated checks with nine post-dated
checks that would include interest at the rate of P25,000.00/month accruing on the unpaid
portion of the obligation on April 30, 1998 up to October 31, 1998. Advanced Foundation
assented to Reyes request, and returned the four checks. In turn, Reyes issued and delivered nine
postdated checks in the aggregate sum of P7,125,000.00
Rossi deposited three of the post-dated checks on their maturity dates in Advanced
Foundations bank account. Two of the checks were denied payment ostensibly upon Reyes
instructions to stop their payment, while the third was dishonored for insufficiency of funds. It
likewise deposited two more checks in Advanced Foundations account, but the checks were
returned with the notation Account Closed stamped on them. He did not anymore deposit the
three remaining checks on the assumption that they would be similarly dishonored.
On July 29, 1998, Reyes commenced an action for rescission of contract and damages in
the Regional Trial Court (RTC). The complaint sought for judgment declaring the deed of
conditional sale "rescinded and of no further force and effect," and ordering Advanced
Foundation to return the P3,000,000.00 downpayment with legal interest from June 4, 1998 until
fully paid; and to pay to him attorneys fees, and various kinds and amounts of damages.
On September 8, 1998, Rossi charged Reyes with five counts of estafa and five counts of
violation of Batas Pambansa Blg. 22 in the Office of the City Prosecutor. On September 29,
1998, Reyes, in his counter-affidavit claims that the criminal proceedings for estafa and BP 22
should be suspended because of the pendency in the RTC of the civil action for rescission of
contract that posed a prejudicial question as to the criminal proceedings.
The City Prosecutor recommended the dismissal of the complaint for estafa and to
suspend the procceding for BP 22 until the prejudicial question raised in the Civil Case for
Rescission of Contract and Damages which is now pending with the RTC has been duly
resolved. The DOJ, on appeal, affirmed the decision of the City Prosecutor. The CA, on appeal,
affirmed the decision of the DOJ but lifted the suspension of the proceeding in the BP 22 case.
ISSUE:
W/N the civil action for rescission of the contract of sale raised a prejudicial question that
required the suspension of the criminal prosecution for violation of BP 22
HELD:
For a civil action to be considered prejudicial to a criminal case as to cause the
suspension of the criminal proceedings until the final resolution of the civil, the following
requisites must be present: (1) the civil case involves facts intimately related to those upon which
the criminal prosecution would be based; (2) in the resolution of the issue or issues raised in the
civil action, the guilt or innocence of the accused would necessarily be determined; and (3)
jurisdiction to try said question must be lodged in another tribunal.

12

If both civil and criminal cases have similar issues or the issue in one is intimately related
to the issues raised in the other, then a prejudicial question would likely exist, provided the other
element or characteristic is satisfied. It must appear not only that the civil case involves the same
facts upon which the criminal prosecution would be based, but also that the resolution of the
issues raised in the civil action would be necessarily determinative of the guilt or innocence of
the accused. If the resolution of the issue in the civil action will not determine the criminal
responsibility of the accused in the criminal action based on the same facts, or there is no
necessity "that the civil case be determined first before taking up the criminal case," therefore,
the civil case does not involve a prejudicial question. Neither is there a prejudicial question if the
civil and the criminal action can, according to law, proceed independently of each other.
The action for the rescission of the deed of sale on the ground that Advanced Foundation
did not comply with its obligation actually seeks one of the alternative remedies available to a
contracting party under Article 1191 of the Civil Code, to wit:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Article 1191 of the Civil Code recognizes an implied or tacit resolutory condition in
reciprocal obligations. The condition is imposed by law, and applies even if there is no
corresponding agreement thereon between the parties. The explanation for this is that in
reciprocal obligations a party incurs in delay once the other party has performed his part of the
contract; hence, the party who has performed or is ready and willing to perform may rescind the
obligation if the other does not perform, or is not ready and willing to perform.
It is true that the rescission of a contract results in the extinguishment of the obligatory
relation as if it was never created, the extinguishment having a retroactive effect. The rescission
is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before
the celebration of the contract.20 However, until the contract is rescinded, the juridical tie and the
concomitant obligations subsist.
To properly appreciate if there is a prejudicial question to warrant the suspension of the
criminal actions, reference is made to the elements of the crimes charged. The violation of Batas
Pambansa Blg. 22 requires the concurrence of the following elements, namely: (1) the making,
drawing, and issuance of any check to apply for account or for value; (2) the knowledge of the
maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit
with the drawee bank for the payment of the check in full upon its presentment; and (3) the
subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment. The issue in the criminal actions upon the violations of Batas Pambansa Blg. 22
is, therefore, whether or not Reyes issued the dishonoured checks knowing them to be without
funds upon presentment. On the other hand, the issue in the civil action for rescission is whether
or not the breach in the fulfilment of Advanced Foundations obligation warranted the rescission
of the conditional sale. If, after trial on the merits in the civil action, Advanced Foundation would
be found to have committed material breach as to warrant the rescission of the contract, such
result would not necessarily mean that Reyes would be absolved of the criminal responsibility
for issuing the dishonored checks because, as the aforementioned elements show, he already
committed the violations upon the dishonor of the checks that he had issued at a time when the
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conditional sale was still fully binding upon the parties. His obligation to fund the checks or to
make arrangements for them with the drawee bank should not be tied up to the future event of
extinguishment of the obligation under the contract of sale through rescission. Indeed,
under Batas Pambansa Blg. 22, the mere issuance of a worthless check was already the offense
in itself. Under such circumstances, the criminal proceedings for the violation of Batas
Pambansa Blg. 22 could proceed despite the pendency of the civil action for rescission of the
conditional sale.

14

ANCHOR SAVINGS BANK VS FURIGAY

GR# 191178, March 13, 2013
FACTS:
On April 21, 1999, ASB filed a verified complaint at the RTC, docketed as Civil Case No.
99-865, for sum of money and damages with application for replevin against Ciudad Transport
Services, Inc. (CTS), its president, respondent Henry H. Furigay; his wife, respondent Gelinda C.
Furigay; and a "John Doe."
On 8 March 2001, while Civil Case No. 99-865 was pending, respondent spouses donated
their registered properties in Alaminos, Pangasinan, to their minor children, respondents Hegem
G. Furigay and Herriette C. Furigay. On April 4, 2001, the said propertis were registered and
issued in the names of donees, Hegem and Herriette Furigay. On November 7, 2003, the RTC
rendered its decision in Civil Case No. 99-865 in favor of ASB.
On October 14, 2005, ASB filed a Complaint for Rescission of Deed of Donation, Title
and Damages at the RTC against the respondent spouses and their children under the claim that
the donation of these properties was made in fraud of creditors. Instead of filing an answer,
respondents sought the dismissal of the complaint on the ground of prescription of action for
rescission.
The RTC ruled in favor of Respondent. The RTCs contention is that the four-year
prescriptive period should be reckoned from the date of registration of the deed of donation and
not from the date of the actual discovery of the registration of the deeds of donation because
registration is considered notice to the whole world. The CA, on appeal, reversed the decision of
the RTC. The CAs contention is that an action for rescission, which is subsidiary in nature, has
not yet prescribed for it must be emphasized that it has not even accrued in the first place thus it
was premature because petitioner failed to show that that it has resorted to all legal remedies to
obtain satisfaction of his claim.
ISSUE:
W/N the action for rescission of the deed of donation on the ground of fraud of creditors
has already prescribed.
HELD:
To answer the issue of prescription, the case of Khe Hong Cheng vs. Court of Appeals
(G.R. No. 144169, March 28, 2001) is pertinent. In said case, Philam filed an action for
collection against Khe Hong Cheng. While the case was still pending, or on December 20, 1989,
Khe Hong Cheng, executed deeds of donations over parcels of land in favor of his children, and
on December 27, 1989, said deeds were registered. Thereafter, new titles were issued in the
names of Khe Hong Chengs children. Then, the decision became final and executory. But upon
enforcement of writ of execution, Philam found out that Khe Hong Cheng no longer had any
property in his name. Thus, on February 25, 1997, Philam filed an action for rescission of the
deeds of donation against Khe Hong Cheng alleging that such was made in fraud of creditors.
However, Khe Hong Cheng moved for the dismissal of the action averring that it has already
prescribed since the four-year prescriptive period for filing an action for rescission pursuant to
Article 1389 of the Civil Code commenced to run from the time the deeds of donation were
registered on December 27, 1989. Khe Hong Cheng averred that registration amounts to
constructive notice and since the complaint was filed only on February 25, 1997, or more than
four (4) years after said registration, the action was already barred by prescription. The trial court
ruled that the complaint had not yet prescribed since the prescriptive period began to run only
from December 29, 1993, the date of the decision of the trial court. Such decision was affirmed
by this court but reckoned the accrual of Philam's cause of action in January 1997, the time when
it first learned that the judgment award could not be satisfied because the judgment creditor, Khe

15

Hong Cheng, had no more properties in his name. Hence, the case reached the Supreme Court
which ruled that the action for rescission has not yet prescribed, ratiocinating as follows:
"Essentially, the issue for resolution posed by petitioners is this: When did the
four (4) year prescriptive period as provided for in Article 1389 of the Civil Code for
respondent Philam to file its action for rescission of the subject deeds of donation
commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, The action to claim
rescission must be commenced within four years. Since this provision of law is silent as
to when the prescriptive period would commence, the general rule, i.e, from the moment
the cause of action accrues, therefore, applies. Article 1150 of the Civil Code is
particularly instructive:
ARTICLE 1150. The time for prescription for all kinds of actions, when there is
no special provision which ordains otherwise, shall be counted from the day they may be
brought.
Indeed, this Court enunciated the principle that it is the legal possibility of
bringing the action which determines the starting point for the computation of the
prescriptive period for the action. Article 1383 of the Civil Code provides as follows:
ARTICLE 1383. An action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to obtain reparation
for the same.
It is thus apparent that an action to rescind or an accion pauliana must be of last
resort, availed of only after all other legal remedies have been exhausted and have been
proven futile. For an accion pauliana to accrue, the following requisites must concur:
1) That the plaintiff asking for rescission, has a credit prior to the alienation,
although demandable later; 2) That the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person; 3) That the creditor has no other legal
remedy to satisfy his claim, but would benefit by rescission of the conveyance to the third
person; 4) That the act being impugned is fraudulent; 5) That the third person who
received the property conveyed, if by onerous title, has been an accomplice in the fraud.

From the foregoing, it is clear that the four-year prescriptive period commences to run
neither from the date of the registration of the deed sought to be rescinded nor from the date the
trial court rendered its decision but from the day it has become clear that there are no other legal
remedies by which the creditor can satisfy his claims.

16

CONTRACTS
MCA-MBF COUNTDOWN CARDS PHIL. INC. VS MBF CARD INTL.
LTD.
GR# 173586, March 14 2012
FACTS:
In 1993, MBF Card entered into negotiations for the execution of a Joint Venture
Agreement to conduct a business of selling Discount Cards. For this reason, MBF cards (a
foreign registered company) remitted $74,074.00 to be applied as MBF Cards payment of its
40% shareholding in the Joint Venture Agreement where they will have a joint venture company.
Even before the Joint Venture Agreement could be signed and while the parties were still in the
process of incorporating their group into a company, MCA-MBF started advertising, marketing
and selling its products to the public. For this reason, MBF Card filed a complaint for recovery
of money, unfair competition and damages. On the other hand, MCA alleged that hey could sell
the products considering that when MBF remitted the $74,074.00 to them, there was already a
perfected contract.
ISSUE:
W/N there was a perfected contract between MBF Card and MCA, after the former
remitted the amount of $74,074.00 which would allow the latter to advertise, market and sell the
products of the former?
HELD:
The parties were yet negotiating the terms and conditions of the contract. There was yet
no meting of the minds as to the subject matter. Contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their validity are
present. In the case at bar, the joint venture company which the parties were supposed to
incorporate, has not been formed. No shares of stocks have been delivered to MBF Card. As
such, there is no perfected contract to be proven since there was yet no meeting of the minds of
the parties.

17

R.S. TOMAS, INC. VS RIZAL CEMENT COMPANY, INC.

GR# 173155, March 21, 2012
FACTS:
Petitioner and respondent entered into a contract for the supply of labor, materials and
technical supervision of wiring and electrical lines of Rizal Cement for a total contract sum of
P2,944,000.00. Petitioner undertook to finish the project within 120 days from the effectivity of
the contract and the respondent paid P1,458,618.18 as down payment plus a daily penalty of
P29,440.00 for every day of delay but not to exceed 10% of the contract price.
When petitioner started work, it found out that the materials to be used were totally
broken and they needed to import the materials. For this reason, it requested for an extension of
75 days to complete the job. It still failed to complete the project despite the extension. For this
reason, Rizal demanded for the refund of the amount already paid then it entered into a contract
with another company for the completion of the projects.
Petitioner failed to return the money it advanced and alleged that it relied on the
assurance of the company that the machines could still be rewound and converted when in fact,
they have been badly damaged. Rizal Cement then filed for a breach of contract against
petitioner. After trial, the court dismissed the case saying that Rizal Cement committed deceit
and misrepresentation when it entered into a contract with the petitioner.
Rizal Cement then appealed to the Court of Appeals and it was able to get a favorable
judgment. It reversed and set aside the trial courts decision and ordered the refund of the money
paid by Rizal Cement to petitioner.
ISSUE:
W/N petitioner is liable for breach of contract and damages.
HELD:
Petitioner simply failed to complete the projects within the agreed period. As agreed upon
by the parties, the projects were to be completed within 120 days from the effectivity of the
contract. Admittedly, petitioner failed to perform its part of the contract on time and failed to
complete the projects and is therefore guilty of breach of contract.
Breach of contract is defined as the failure without legal reason to comply with the terms
of a contract. It is also defined as the failure, without legal excuse to perform any promise which
forms the whole or part of the contract. Considering that petitioner breached the contract, it must
be held liable for damages that are the natural and probable consequences of its breach of
obligation.

18

BEUMER VS AMORES
GR# 195670, DECEMBER 12, 2012
FACTS:
Petitioner, a Dutch national, married respondent, a Filipina. However, thw marriage was
nullified on the basis of petitioners psychological incapacity. Consequently, petitioner filed for
dissolution of Conjugal Partnership praying for the distribution of their properties acquired
during their marriage. One of the disputed properties in the said petition were two lands that
petitioner alleged that he has ownership because such lands were acquired by his own money. By
her defense, respondent said that she acquired the same through inheritance. The RTC of Negros
Oriental awarded the parcels of land to the respondent as her paraphernal properties. It ruled that
petitioner could not have acquired any right whatsoever over these properties as petitioner still
attempted to acquire them notwithstanding his knowledge of the constitutional prohibition
against foreign ownership of private lands. The Court of Appeals rendered judgment affirming in
toto the decision of the RTC.
ISSUE:
W/N petitioners acquisition of the lands are valid.
HELD:
The issue to be resolved is not of first impression. In In Re: Petition For Separation of
Property-Elena Buenaventura Muller v. Helmut Muller the Court had already denied a claim for
reimbursement of the value of purchased parcels of Philippine land instituted by a foreigner
Helmut Muller, against his former Filipina spouse, Elena Buenaventura Muller. It held that
Helmut Muller cannot seek reimbursement on the ground of equity where it is clear that he
willingly and knowingly bought the property despite the prohibition against foreign ownership of
Philippine land24 enshrined under Section 7, Article XII of the 1987 Philippine Constitution
which reads:
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the
public domain.

Undeniably, petitioner openly admitted that he is well aware of the [above-cited]

constitutional prohibition and even asseverated that, because of such prohibition, he and
respondent registered the subject properties in the latters name. Clearly, petitioners actuations
showed his palpable intent to skirt the constitutional prohibition. On the basis of such admission,
the Court finds no reason why it should not apply the Muller ruling and accordingly, deny
petitioners claim for reimbursement. As also explained in Muller, the time-honored principle is
that he who seeks equity must do equity, and he who comes into equity must come with clean
hands. Conversely stated, he who has done inequity shall not be accorded equity. Thus, a litigant
may be denied relief by a court of equity on the ground that his conduct has been inequitable,
unfair and dishonest, or fraudulent or deceitful.
In this case, petitioners statements regarding the real source of the funds used to
purchase the subject parcels of land dilute the veracity of his claims: While admitting to have
previously executed a joint affidavit that respondents personal funds were used to purchase Lot
1, he likewise claimed that his personal disability funds were used to acquire the same.
Evidently, these inconsistencies show his untruthfulness. Thus, as petitioner has come before the
Court with unclean hands, he is now precluded from seeking any equitable refuge. In any event,
the Court cannot, even on the grounds of equity, grant reimbursement to petitioner given that he
acquired no right whatsoever over the subject properties by virtue of its unconstitutional
purchase. It is well established that equity as a rule will follow the law and will not permit that to
19

be done indirectly which, because of public policy, cannot be done directly. Surely, a contract
that violates the Constitution and the law is null and void, vests no rights, creates no obligations
and produces no legal effect at all. Corollary thereto, under Article 1412 of the Civil Code,
petitioner cannot have the subject properties deeded to him or allow him to recover the money he
had spent for the purchase thereof. The law will not aid either party to an illegal contract or
agreement; it leaves the parties where it finds them.

20

SPS MAMARIL VS BOY SCOUT OF THE PHIL.

GR# 179382, January 14, 2013
FACTS:
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney
operators. They would park their six (6) passenger jeepneys every night at the Boy Scout of the
Philippines' (BSP) compound for a fee of P300.00 per month for each unit. On May 26, 1995 at 8
o'clock in the evening, all these vehicles were parked inside the BSP compound. The following
morning, one of the vehicles with Plate No. DCG 392 was missing and was never
recovered. According to the security guards Cesario Pea (Pea) and Vicente Gaddi (Gaddi) of
AIB Security Agency, Inc. (AIB) with whom BSP had contracted for its security and protection,
a male person who looked familiar to them took the subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint for damages before the Regional
Trial Court against BSP, AIB, Pea and Gaddi for They therefore prayed that Pea and Gaddi,
together with AIB and BSP, be held liable for the: (a) the value of the subject vehicle and its
accessories in the aggregate amount of P300,000.00; (b) P275.00 representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit, on the contention that the loss of the subject
vehicle was due to the gross negligence of the above-named security guards on-duty who
allowed the subject vehicle to be driven out by a stranger despite their agreement that only
authorized drivers duly endorsed by the owners could do so.
In its Answer, BSP denied any liability contending that not only did Sps. Mamaril directly
deal with AIB with respect to the manner by which the parked vehicles would be handled, but the
parking ticket itself expressly stated that the "Management shall not be responsible for loss of
vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril
erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers, and employees. In addition
to the foregoing defenses, AIB alleged that it has observed due diligence in the selection, training
and supervision of its security guards while Pea and Gaddi claimed that the person who drove
out the lost vehicle from the BSP compound represented himself as the owners' authorized driver
and had with him a key to the subject vehicle.
The RTC ruled in favor of Petitioners. The CA, on appeal, affirmed the decision of the
RTC but absolved BSP of its liability and deleted the award of damages.
ISSUE:
1. W/N the the exculpatory clause: "Management shall not be responsible for loss of
vehicle or any of its accessories or article left therein" contained in the BSP issued
parking ticket was void for being a contract of adhesion and against public policy.
2. W/N BSP should be held liable for the loss of Sps Mamaril on the basis of the guard
service contract that the former entered into with AIB and their parking agreement
with BSP.
HELD:
1. Contracts of adhesion are not void per se. It is binding as any other ordinary contract
and a party who enters into it is free to reject the stipulations in its entirety. If the
terms thereof are accepted without objection, as in this case, where plaintiffsappellants have been leasing BSP's parking space for more or less 20 years, then the
contract serves as the law between them. Besides, the parking fee of P300.00 per
month or P10.00 a day for each unit is too minimal an amount to even create an
21

inference that BSP undertook to be an insurer of the safety of plaintiffs-appellants'

vehicles.
2. Such contention cannot be sustained.
Article 1311 of the Civil Code states that: Contracts take effect only between the
parties, their assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received
from the decedent.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person.
Thus, in order that a third person benefited by the second paragraph of Article
1311, referred to as a stipulation pour autrui, may demand its fulfillment, the
following requisites must concur: (1) There is a stipulation in favor of a third person;
(2) The stipulation is a part, not the whole, of the contract; (3) The contracting parties
clearly and deliberately conferred a favor to the third person - the favor is not merely
incidental; (4) The favor is unconditional and uncompensated; (5) The third person
communicated his or her acceptance of the favor before its revocation; and (6) The
contracting parties do not represent, or are not authorized, by the third
party. However, none of the foregoing elements obtains in this case. It is undisputed
that Sps. Mamaril are not parties to the Guard Service Contract. Neither did the
subject agreement contain any stipulation pour autrui. And even if there was, Sps.
Mamaril did not convey any acceptance thereof. Thus, under the principle of
relativity of contracts, they cannot validly claim any rights or favor under the said
agreement.
The Guard Service Contract between defendant-appellant BSP and defendant
AIB Security Agency is purely between the parties therein. It may be observed that
although the whereas clause of the said agreement provides that defendant-appellant
desires security and protection for its compound and all properties therein, as well as
for its officers and employees, while inside the premises, the same should be
correlated with paragraph 3(a) thereof which provides that the security agency shall
indemnify defendant-appellant for all losses and damages suffered by it attributable to
any act or negligence of the former's guards. Otherwise stated, defendant-appellant
sought the services of defendant AIB Security Agency for the purpose of the security
and protection of its properties, as well as that of its officers and employees, so much
so that in case of loss of [sic] damage suffered by it as a result of any act or
negligence of the guards, the security agency would then be held responsible therefor.
There is absolutely nothing in the said contract that would indicate any obligation
and/or liability on the part of the parties therein in favor of third persons such as
herein plaintiffs-appellees.

22

DIEGO VS DIEGO
GR# 179965, Februaury 20, 2013
FACTS:
On 1993, Petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, Respondent
herein, entered into an oral contract to sell covering Nicolass share, fixed at P500,000.00, as coowner of the familys Diego Building situated in Dagupan City. Rodolfo made a downpayment
of P250,000.00. It was agreed that the deed of sale shall be executed upon payment of the
remaining balance of P250,000.00. However, Rodolfo failed to pay the remaining balance.
Meanwhile, the building was leased out to third parties, but Nicolass share in the rents were not
remitted to him by herein Respondent Eduardo, another brother of Nicolas and designated
administrator of the Diego Building. Instead, Eduardo gave Nicolass monthly share in the rents
to Rodolfo. Despite demands and protestations by Nicolas, Rodolfo and Eduardo failed to render
an accounting and remit his share in the rents and fruits of the building, and Eduardo continued
to hand them over to Rodolfo.
On May 17, 1999, Nicolas filed a Complaint against Rodolfo and Eduardo before the
RTC. Nicolas prayed that Eduardo be ordered to render an accounting of all the transactions over
the Diego Building; that Eduardo and Rodolfo be ordered to deliver to Nicolas his share in the
rents; and that Eduardo and Rodolfo be held solidarily liable for attorneys fees and litigation
expenses. Nicolas contention is that there was no perfected contract of sale even though Rodolfo
had partially paid the price; that in the absence of the third element in a sale contract the price
there could be no perfected sale; that failing to pay the required price in full, Nicolas had the
right to rescind the agreement as an unpaid seller; and based on his agreement with Rodolfo,
there was to be no transfer of title over his share in the building until Rodolfo has effected full
payment of the purchase price, thus, giving no right to the latter to collect his share in the rentals.
Rodolfo and Eduardo filed their Answer with Counterclaim for damages and attorneys
fees. They argued that Nicolas had no more claim in the rents in the Diego Building since he had
already sold his share to Rodolfo. Rodolfo admitted having remitted only P250,000.00 to
Nicolas. He asserted that he would pay the balance of the purchase price to Nicolas only after the
latter shall have executed a deed of absolute sale.
The RTC ruled in favor of Respondent. The CA, on appeal, affirmed the decision of the
RTC.
ISSUE:
W/N Petitioner Nicolas Diego acted legally and correctly when he unilaterally rescinded
and revoked his agreement of sale with Respondent Rodolfo Diego considering Rodolfos
material and substantial breach of the contract.
HELD:
The stipulation to execute a deed of absolute sale upon full payment of the purchase
price, is a unique and distinguishing characteristic of a contract to sell. In Reyes v. Tuparan,15 this
Court ruled that a stipulation in the contract, "[w]here the vendor promises to execute a deed of
absolute sale upon the completion by the vendee of the payment of the price," indicates that the
parties entered into a contract to sell. According to this Court, this particular provision is
tantamount to a reservation of ownership on the part of the vendor. Explicitly stated, the Court
ruled that the agreement to execute a deed of sale upon full payment of the purchase price
"shows that the vendors reserved title to the subject property until full payment of the purchase
price."

23

Having established that the transaction was a contract to sell, the remedy of rescission is
not available in contracts to sell. As explained in Spouses Santos v. Court of Appeals:
In view of our finding in the present case that the agreement between the parties
is a contract to sell, it follows that the appellate court erred when it decreed that a
judicial rescission of said agreement was necessary. This is because there was no
rescission to speak of in the first place. As we earlier pointed out, in a contract to sell,
title remains with the vendor and does not pass on to the vendee until the purchase price
is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive
suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual
or serious, but a situation that prevents the obligation of the vendor to convey title from
acquiring an obligatory force. This is entirely different from the situation in a contract of
sale, where non-payment of the price is a negative resolutory condition. The effects in
law are not identical. In a contract of sale, the vendor has lost ownership of the thing
sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a
contract to sell, however, the vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase price. If the vendor should eject
the vendee for failure to meet the condition precedent, he is enforcing the contract and
not rescinding it. When the petitioners in the instant case repossessed the disputed house
and lot for failure of private respondents to pay the purchase price in full, they were
merely enforcing the contract and not rescinding it. As petitioners correctly point out, the
Court of Appeals erred when it ruled that petitioners should have judicially rescinded the
contract pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of
non-payment of the purchase price as a resolutory condition. It does not apply to a
contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592
when applied to sales of immovable property. Neither provision is applicable in the
present case.

Similarly, we held in Chua v. Court of Appeals that "Article 1592 of the Civil Code
permits the buyer to pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by notarial act. However,
Article 1592 does not apply to a contract to sell where the seller reserves the ownership until full
payment of the price," as in this case.
Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay the
purchase price, the contract to sell was deemed terminated or cancelled. As we have held
in Chua v. Court of Appeals, "[s]ince the agreement x x x is a mere contract to sell, the full
payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the
condition prevents the obligation to sell from arising and ownership is retained by the seller
without further remedies by the buyer." Similarly, we held in Reyes v. Tuparan that "petitioners
obligation to sell the subject properties becomes demandable only upon the happening of the
positive suspensive condition, which is the respondents full payment of the purchase
price.Without respondents full payment, there can be no breach of contract to speak of because
petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the
purchase price in full is not the breach of contract contemplated under Article 1191 of the New
Civil Code but rather just an event that prevents the petitioner from being bound to convey title
to respondent." Otherwise stated, Rodolfo has no right to compel Nicolas to transfer ownership
to him because he failed to pay in full the purchase price. Correlatively, Nicolas has no
obligation to transfer his ownership over his share in the Diego Building to Rodolfo.

24

CRUZ VS GRUSPE
GR# 191431, March 13, 2013
FACTS:
On October 24, 1999, the mini bus owned and operated by Cruz and driven by one Arturo
Davin collided with the Toyota Corolla car of Gruspe resulting to it being a total wreck. The next
day, on October 25, 1999, Cruz, along with Leonardo Q. Ibias went to Gruspes office,
apologized for the incident, and executed a Joint Affidavit of Undertaking promising jointly and
severally to replace the Gruspes damaged car in 20 days, or until November 15, 1999, of the
same model and of at least the same quality; or, alternatively, they would pay the cost of
Gruspes car amounting to P350,000.00, with interest at 12% per month for any delayed payment
after November 15, 1999, until fully paid. Cruz and Leonardo failed to comply with their
undertaking.
On November 19, 1999, Gruspe filed a complaint for collection of sum of money against
them before the RTC. In their answer, Cruz and Leonardo denied Gruspes allegation, claiming
that the Joint Affidavit of Undertaking is not a contract that can be the basis of an obligation to
pay a sum of money in favor of Gruspe because an affidavits purpose is simply to attest to facts
that are within his knowledge, while a contract requires that there be a meeting of the minds
between the two contracting parties. That even if the Joint Affidavit of Undertaking was
considered as a contract, Cruz and Esperanza claim that it is invalid because Cruz and
Leonardos consent thereto was vitiated; the contract was prepared by Gruspe who is a lawyer,
and its contents were never explained to them and they were simply forced to affix their
signatures, otherwise, the mini van would not be released.
The RTC ruled in favor of Gruspe . The CA, on appeal, affirmed the decision of the RTC.
ISSUE:
1. W/N a Joint Affidavit of Undertaking is considered a contract.
2. W/N the consent of Petitioners was vitiated when they signed the Joint Affidavit of
Undertaking.
HELD:
1. Contracts are obligatory no matter what their forms may be, whenever the essential
requisites for their validity are present. In determining whether a document is an affidavit
or a contract, the Court looks beyond the title of the document, since the denomination or
title given by the parties in their document is not conclusive of the nature of its
contents. In the construction or interpretation of an instrument, the intention of the parties
is primordial and is to be pursued. If the terms of the document are clear and leave no
doubt on the intention of the contracting parties, the literal meaning of its stipulations
shall control. If the words appear to be contrary to the parties evident intention, the latter
shall prevail over the former.
A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that
it contains stipulations characteristic of a contract. The Joint Affidavit of Undertaking
contained a stipulation where Cruz and Leonardo promised to replace the damaged car of
Gruspe, 20 days from October 25, 1999 or up to November 15, 1999, of the same model
and of at least the same quality. In the event that they cannot replace the car within the
same period, they would pay the cost of Gruspes car in the total amount ofP350,000.00,
with interest at 12% per month for any delayed payment after November 15, 1999, until
fully paid. These are very simple terms that both Cruz and Leonardo could easily
understand.
2. Although the undertaking in the affidavit appears to be onerous and lopsided, this does
not necessarily prove the alleged vitiation of consent. They, in fact, admitted the
25

genuineness and due execution of the Joint Affidavit and Undertaking when they said that
they signed the same to secure possession of their vehicle. If they truly believed that the
vehicle had been illegally impounded, they could have refused to sign the Joint Affidavit
of Undertaking and filed a complaint, but they did not. That the release of their mini bus
was conditioned on their signing the Joint Affidavit of Undertaking does not, by itself,
indicate that their consent was forced they may have given it grudgingly, but it is not
indicative of a vitiated consent that is a ground for the annulment of a contract.

26

SALES
STARBRIGHT SALES ENTERPRISES, INC. VS PHILIPPINE REALTY
CORPORATION
GR# 177936, January 18, 2012
FACTS:
Ramon Licup wrote Msgr. Cirilos offering to buy three parcels of land in Paranaque that
the Holy See and Philippine Realty Corp. owned for P1,240.00 per square meter. Licup accepted
the responsibility of removing illegal settlers on the land and enclosed a P100,000.00 to close
the transaction ass earnest money and undertook to pay the balance once the property has been
cleared of its occupants. Msgr. Cirilos agreed but Licup ordered a stop payment order of the
check because it requested that the land be transferred to Starbright Sales enterprises instead and
enclosed a new check for the same amount.
Later, Msgr. Cirilos requested Starbright to remove the occupants on the property,
otherwise, he would return the P100,000.00 that he received. Starbright replied that it would be
willing to do so provided it lowered the price of the land to P1,150.00. Msgr. Rejected the
proposal saying that there were other buyers who were willing to acquire the property at
P1,400.00 per square meters on an as is where is basis and returned the P100.000.00 to
Starbright. The latter objected saying that they already had a perfected contract but it learned
later that the land was sold to another entity, hence it filed for an annulment of sale. The trial
court agreed with Starbright: that there was already a perfected contract of sale. However, the
Court of Appeals reversed the decision saying no perfected contract of sale happened at all.
ISSUE:
W/N the Court of Appeals erred in holding that no perfected contract of sale existed
between Starbright and Msgr. Cirilos.
HELD:
Under the law on sales, a contract of sale is perfected when the seller obligates himself
for a price certain, to deliver and to transfer ownership of a thing or right to the buyer, over
which the latter agrees. From that moment, the parties may demand reciprocal performance.
In the case at bar, the proposed substitution of Licup by Starbright as buyer, opened the
negotiation stage for a new contract of sale. Where the parties merely exchanged offers and
counter-offers, no contract is perfected since they did not give their consent to such offers.
Earnest money applies to a perfected sale.

VILLAMAR VS MANGAOIL
27

GR# 188661, April 11, 2012

FACTS:
Villamar is the registered owner of a parcel of land in Isabela. On March 30, 1998, she
entered into a contract of sale with Mangaoil. The purchase price of the said land is P630,000.
The amount of P185,000 was already received by Villamar for payment of the loan secured by
certificate of title covering the land in favour of the Rural bank of Cauayan in Isabala. After the
release of the certificate title covering the land, the necessary deed of absolute sale in favor of
Managoil shall be executed and the transfer be immediately effected. In a letter dated September
18, 1998, Mangaoil informed Villamar that he was backing out from the sale agreed upon
because the area is not yet fully cleared by incumbrances as there are tenants who are not willing
to vacate the land without giving them back the amount that they mortgaged the land. Mangaoil
demanded refund of his [P]185,000.00 down payment.
Reiterating said demand in another letter dated April 29, 1999, the same, however, was
unheeded. the respondent filed before the RTC a complaint for rescission of contract against the
petitioner. In the said complaint, the respondent sought the return of P185,000.00 which he paid
to the petitioner, payment of interests thereon to be computed from March 27, 1998 until the
suit's termination. In the respondents answer to the complaint, she averred that she had complied
with her obligations to the respondent. Specifically, she claimed having caused the release of the
TCT to by the Rural Bank of Cauayan and its delivery to a certain Atty. Pedro C. Antonio. The
petitioner alleged that Atty. Antonio was commissioned to facilitate the transfer of the said title in
the respondent's name. The petitioner likewise insisted that it was the respondent who
unceremoniously withdrew from their agreement for reasons only the latter knew.
ISSUE:
W/N the failure of the petitioner to deliver to the respondent both the physical possession
of the subject property and the certificate of title covering the same amount to a substantial
breach of the former's obligations to the latter constituting a valid cause to rescind the agreement
and deed of sale entered into by the parties.
HELD:
Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver a
determinate thing to the buyer, who shall in turn pay therefor a price certain in money or its
equivalent. In addition thereto, Article 1495 of the NCC binds the seller to warrant the thing
which is the object of the sale. On the other hand, Article 1498 of the same code provides that
when the sale is made through a public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if from the deed, the contrary does
not appear or cannot clearly be inferred.
As can be gleaned from the agreement of the contending parties, the respondent initially
paid the petitioner P185,000.00 for the latter to pay the loan obtained from the Rural Bank of
Cauayan and to cause the release from the said bank of the certificate of title covering the subject
property. The rest of the amount shall be used to pay the mortgages over the subject property
which was executed in favor of Lacaden and Parangan. After the release of the TCT, a deed of
sale shall be executed and transfer shall be immediately effected so that the title covering the
subject property can be used as a collateral for a loan the respondent will apply for, the proceeds
of which shall be given to the petitioner.
Article 1191 of the NCC is clear that 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 respondent cannot be deprived of his right to demand for rescission in view of the
petitioners failure to abide with item nos. 2 and 3 of the agreement. This remains true
notwithstanding the absence of express stipulations in the agreement indicating the consequences
28

of breaches which the parties may commit. To hold otherwise would render Article 1191 of the
NCC as useless.

BANGIS VS HEIRS OF ADOLFO

29

GR# 190875, June 13, 2012

FACTS:
The spouses Serafin, Sr. and Saludada Adolfo were the original registered owners located
in Valencia, Malaybalay, Bukidnon. This property was mortgaged to the then Rehabilitation
Finance Corporation (now Development Bank of the Philippines or DBP) and upon default in the
payment of the loan obligation, was foreclosed and ownership was consolidated in DBP's name.
Serafin Adolfo, Sr., however, repurchased the same. Sometime in 1975, Serafin Adolfo, Sr.
(Adolfo) allegedly mortgaged the subject property to Aniceto Bangis (Bangis) who immediately
took possession of the land. The said transaction was, however, not reduced into writing. When
Adolfo died, his heirs, namely, Luz Adolfo Bannister, Serafin Adolfo, Jr. and Eleuterio Adolfo
(Heirs of Adolfo), executed a Deed of Extrajudicial Partition covering the subject property. In
June 1998, the Heirs of Adolfo expressed their intention to redeem the mortgaged property from
Bangis but the latter refused, claiming that the transaction between him and Adolfo was one of
sale. During the conciliation meetings in the barangay, Bangis' son, Rudy Bangis, showed them a
copy of a deed of sale and a certificate of title to the disputed lot. The parties having failed to
amicably settle their differences, a certificate to file action was issued by the barangay. In the
RTC, the Heirs of Adolfo filed a complaint. for annulment of deed of sale and declaration of the
purported contract of sale as antichresis, accounting and redemption of property and damages
against Bangis. The RTC declared that the contract between the parties was a mortgage, not a
sale. The CA affirmed the decision of the RTC.
ISSUE:
W/N the transaction between the parties was one of sale and not a mortgage or
antichresis.
HELD:
There was neither an antichresis nor sale.
For the contract of antichresis to be valid, Article 2134 of the Civil Code requires that
"the amount of the principal and of the interest shall be specified in writing; otherwise the
contract of antichresis shall be void." In this case, the Heirs of Adolfo were indisputably unable
to produce any document in support of their claim that the contract between Adolfo and Bangis
was an antichresis, hence, the CA properly held that no such relationship existed between the
parties

30

ASSOCIATED MARINE OFFICERS AND SEAMENS UNION OF THE

PHILIPPNES PTGWO-ITF VS NORIEL DECENA
GR# 178584, October 8, 2012
FACTS:
Petitioner entered into a contract with respondent involving a residential lot. Among
others, the contract stated that respondent has the obligation to reimburse petitioner the cost in
180 equal monthly instalments and that in case respondent fails to remit three (3) monthly
reimbursement payments, he shall be given a 3-month grace period within which to remit his
arrears, otherwise, the contract shall be automatically revoked or cancelled and respondent shall
voluntarily vacate the premises without need of demand or judicial action. Subsequently,
respondent failed to pay twenty-five (25) monthly reimbursement payments covering the period
August 1999 to August 2001,despite demands. Hence, petitioner cancelled the contract and
treated all his reimbursement payments as rental payments for his occupancy of the house and
lot. Petitioner sent respondent a notice of final demand requiring him to fulfill his obligation
within a 30-day grace period. The MeTC ruled in favour of petitioner in which the RTC affirmed
in toto. On appeal, the CA set aside the decision of the RTC and entered a new judgment
dismissing the complaint for unlawful detainer and restoring respondent to the peaceful
possession of the subject house and lot. The CA held that the contract between the parties is not a
contract of lease, but a contract to sell, which stipulates that upon full payment of the value of the
house and lot, respondent shall become the owner thereof.
ISSUE:
W/N the contract between the parties is a contract to sell or a contract of lease.
HELD:
They entered into a contract to sell.
The Shelter Contract Award granted to respondent expressly stipulates that (u)pon
completion of payment of the amount of US$28,563 representing the full value of the House and
Lot subject of (the) Contract Award, the UNION shall execute a Deed of Transfer and shall cause
the issuance of the corresponding Transfer Certificate of Title in favor of and in the name of the
AWARDEE. It cannot be denied, therefore, that the parties herein entered into a contract to sell
in the guise of a reimbursement scheme requiring respondent to make monthly reimbursement
payments which are, in actuality, installment payments for the value of the subject house and lot.
While respondent occupied the subject premises, title nonetheless remained with petitioner.
Considering, therefore, that the basis for such occupation is a contract to sell the premises on
installment, the contractual relations between the parties are more than that of a lessor-lessee.
The appellate court thus correctly ruled that the Shelter Contract Award has not been converted
into one of lease.

31

NERI ET. AL VS HEIRS OF UY

G.R. NO. 194366, October 10, 2012
FACTS:
Neri (Anunciacion) had seven children, two (2) from her first marriage with Gonzalo Illut
and five (5) from her second marriage with Enrique Neri. Throughout the marriage of spouses
Enrique and Anunciacion, they acquired several homestead properties with a total area of
296,555 square meters located in Samal, Davao del Norte. Anunciacion died intestate. Her
husband, Enrique, in his personal capacity and as natural guardian of his minor children Rosa
and Douglas, together with Napoleon, Alicia, and Visminda executed an Extra-Judicial
Settlement of the Estate with Absolute Deed of Sale8 on July 7, 1979, adjudicating among
themselves the said homestead properties, and thereafter, conveying themto the late spouses
Hadji Yusop Uy and Julpha Ibrahim Uy. On June 11, 1996, the children of Enrique filed a
complaint for annulment of saleof the said homestead properties against spouses Uy (later
substituted by their heirs)before the RTC assailing the validity of the sale for having been sold
within the prohibited period.
RTC rendered a decision ordering the annulment of the Extra-Judicial Settlement of the
Estate with Absolute Deed of Sale. On appeal, the CA reversed and set aside the ruling of the
RTC. the CA found it unconscionable to permit the annulment of the sale considering spouses
Uys possession thereof for 17 years.
ISSUE:
W/N the deed of absolute sale is valid.
HELD:
The deed of absolute sale is valid.
The disputed sale entered into by Enrique in behalf of his minor children without the
proper judicial authority, unless ratified by them upon reaching the age of majority,15 is
unenforceable in accordance with Articles 1317 and 1403(1) of the Civil Code.
Ratification means that one under no disability voluntarily adopts and gives sanction to
some unauthorized act or defective proceeding, which without his sanction would not be binding
on him. It is this voluntary choice, knowingly made, which amounts to a ratification of what was
theretofore unauthorized, and becomes the authorized act of the party so making the ratification.
Once ratified, expressly or impliedly such as when the person knowingly received benefits from
it, the contract is cleansed from all its defects from the moment it was constituted,17 as it has a
retroactive effect.
Records, however, show that Rosa had ratified the extrajudicial settlement of the estate
with absolute deed of sale. In their manifestation before the RTC, they stated that:
Concerning the sale of our parcel of land executed by our father, Enrique Neri concurred in and
conformed to by us and our other two sisters and brother (the other plaintiffs), in favor of Hadji Yusop Uy
and his spouse Hadja Julpa Uy on July 7, 1979, we both confirmed that the same was voluntary and
freely made by all of us and therefore the sale was absolutely valid and enforceable as far as we all
plaintiffs in this case are concerned; (Underscoring supplied)

Clearly, the foregoing statements constituted ratification of the settlement of the estate and the
subsequent sale, thus, purging all the defects existing at the time of its execution and legitimizing
the conveyance of Rosas 1/16 share in the estate of Anunciacion to spouses Uy.
32

PASCUA VS G&G REALTY CORPORATION

GR# 196383, October 15, 2012
FACTS:
The parties in this case entered into an agreement wherein the petitioner would construct
a four-storey commercial building and a two-story kitchen with dining hall. Under such
agreement, petitioner will provide all the materials and labor while respondent will pay
P11,000,000 to petitioner. However, the construction was temporarily halted because respondent
required petitioner to undertake several additional works and changes which were not covered in
the original agreement. The construction of the building was finished albeit behind the
scheduled turnover date. However, after completing all the punch listing requirements,
respondent refused to settle its outstanding obligation to petitioner. Hence, petitioner filed a
complaint for sum of money with damages before the RTC of Pasig City. The trial court rendered
judgment in favour of petitioner. On appeal, the CA affirmed the decision of the RTC but upon
motion for reconsideration filed by respondent, CA reconsidered and vacated the earlier
judgment of the RTC. It held that petitioner is not entitled to the unpaid balance of the contract
price since the cause of delay of the construction of the building was due to petitioners
acceptance of two new other contracts for repair works.
ISSUE:
W/N petitioner is entitled to the payment of the outstanding balance of the contract price.
HELD:
Yes. Petitioner is entitled.
Apropos, Dieparine, Jr. v. Court of Appeals states that a construction contract
necessarily involves reciprocal obligations, as it imposes upon the contractor the obligation to
build the structure subject of the contract, and upon the owner the obligation to pay for the
project upon its completion. Pursuant to the aforementioned contractual obligations, petitioner
completed the construction of the four-storey commercial building and two storey kitchen with
dining hall. Thus, this Court finds no legal basis for respondent to not comply with its obligation
to pay the balance of the contract price due the petitioner. What's more, in Heirs of Ramon Gaite
v. The Plaza, Inc.,10 this Court held that under the principle of quantum meruit, a contractor is
allowed to recover the reasonable value of the thing or service rendered in order to avoid unjust
enrichment. Quantum meruit means that in an action for work and labor, payment shall be made
in such amount as the plaintiff reasonably deserves. To deny payment for a building almost
completed and already occupied would be to permit unjust enrichment at the expense of the
contractor." As in this case, petitioner already completed the construction of the project. Hence, it
would be the height of injustice to allow respondent to enjoy the fruits of petitioner's labor
without paying the contract price.

33

SANTIAGO VS VILLAMOR
GR# 168499, November 26, 2012
FACTS:
Respondents mortgaged their land to the Rural bank of San Jacinto, Masbate as security
for a P10,000 loan. For non-payment of the loan, the San Jacinto Bank extrajudicially foreclosed
the mortgage, and, as the highest bidder at the public auction, bought the land. When the spouses
Villamor, Sr. failed to redeem the property within the prescribed period, the San Jacinto Bank
obtained a final deed of sale in its favor sometime in 1991. The San Jacinto Bank then offered
the land for sale to any interested buyer.
On July 19, 1994 the San Jacinto Bank issued a deed of sale in favor of Domingo, Sr.12
On July 21, 1994, the spouses Villamor, Sr. sold the land to the petitioners for P150,000.00. After
the respondents and Catalina refused the petitioners demand to vacate the land, the petitioners
filed on October 20, 1994 a complaint for quieting of title and recovery of possession against the
respondents.
The RTC declared the petitioners as the legal and absolute owners of the land, finding
that the petitioners were purchasers in good faith. The CA found that the petitioners action to
quiet title could not prosper because the petitioners failed to prove their legal or equitable title to
the land. It noted that there was no real transfer of ownership since neither the spouses Villamor,
Sr. nor the petitioners were placed in actual possession and control of the land after the execution
of the deeds of sale.
ISSUE:
W/N petitioners have any legal title over the disputed land.
HELD:
Article 1477 of the Civil Code recognizes that the ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof. Related to this article
is Article 1497 which provides that [t]he thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee.
With respect to incorporeal property, Article 1498 of the Civil Code lays down the
general rule: the execution of a public instrument shall be equivalent to the delivery of the thing
which is the object of the contract, if from the deed the contrary does not appear or cannot
clearly be inferred. However, the execution of a public instrument gives rise only to a prima
facie presumption of delivery, which is negated by the failure of the vendee to take actual
possession of the land sold. [A] person who does not have actual possession of the thing sold
cannot transfer constructive possession by the execution and delivery of a public instrument.
In this case, no constructive delivery of the land transpired upon the execution of the deed
of sale since it was not the spouses Villamor, Sr. but the respondents who had actual possession
of the land. The presumption of constructive delivery is inapplicable and must yield to the reality
that the petitioners were not placed in possession and control of the land.
Moreover, petitioners are not purchasers in good faith.
A purchaser in good faith is one who buys property without notice that some other
person has a right to or interest in such property and pays its fair price before he has notice of the
adverse claims and interest of another person in the same property.However, where the land
sold is in the possession of a person other than the vendor, the purchaser must be wary and must
34

investigate the rights of the actual possessor; without such inquiry, the buyer cannot be said to be
in good faith and cannot have any right over the property.
In this case, the spouses Villamor, Sr. were not in possession of the land. The petitioners,
as prospective vendees, canied the burden of investigating the rights of the respondents and
respondent John who were then in actual possession of the land. The petitioners cannot take
refuge behind the allegation that, by custom and tradition in San Jacinto, Masbate, the children
use their parents' property, since they offered no proof supporting their bare allegation. The
burden of proving the status of a purchaser in good faith lies upon the party asserting that status
and cannot be discharged by reliance on the legal presumption of good faith. The petitioners
failed to discharge this burden.

35

DIEGO VS DIEGO
GR# 179965, Februaury 20, 2013
FACTS:
On 1993, Petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, Respondent
herein, entered into an oral contract to sell covering Nicolass share, fixed at P500,000.00, as coowner of the familys Diego Building situated in Dagupan City. Rodolfo made a downpayment
of P250,000.00. It was agreed that the deed of sale shall be executed upon payment of the
remaining balance of P250,000.00. However, Rodolfo failed to pay the remaining balance.
Meanwhile, the building was leased out to third parties, but Nicolass share in the rents were not
remitted to him by herein Respondent Eduardo, another brother of Nicolas and designated
administrator of the Diego Building. Instead, Eduardo gave Nicolass monthly share in the rents
to Rodolfo. Despite demands and protestations by Nicolas, Rodolfo and Eduardo failed to render
an accounting and remit his share in the rents and fruits of the building, and Eduardo continued
to hand them over to Rodolfo.
On May 17, 1999, Nicolas filed a Complaint against Rodolfo and Eduardo before the
RTC. Nicolas prayed that Eduardo be ordered to render an accounting of all the transactions over
the Diego Building; that Eduardo and Rodolfo be ordered to deliver to Nicolas his share in the
rents; and that Eduardo and Rodolfo be held solidarily liable for attorneys fees and litigation
expenses. Nicolas contention is that there was no perfected contract of sale even though Rodolfo
had partially paid the price; that in the absence of the third element in a sale contract the price
there could be no perfected sale; that failing to pay the required price in full, Nicolas had the
right to rescind the agreement as an unpaid seller; and based on his agreement with Rodolfo,
there was to be no transfer of title over his share in the building until Rodolfo has effected full
payment of the purchase price, thus, giving no right to the latter to collect his share in the rentals.
Rodolfo and Eduardo filed their Answer with Counterclaim for damages and attorneys
fees. They argued that Nicolas had no more claim in the rents in the Diego Building since he had
already sold his share to Rodolfo. Rodolfo admitted having remitted only P250,000.00 to
Nicolas. He asserted that he would pay the balance of the purchase price to Nicolas only after the
latter shall have executed a deed of absolute sale.
The RTC ruled in favor of Respondent. The CA, on appeal, affirmed the decision of the
RTC.
ISSUE:
W/N no perfected contract of sale between Petitioner Nicolas Diego and Respondent
Rodolfo Diego over Nicolas share of the building because the suspensive condition has not been
fulfilled.
HELD:
The stipulation, to execute a deed of absolute sale upon full payment of the purchase
price, is a unique and distinguishing characteristic of a contract to sell. In Reyes v. Tuparan, this
Court ruled that a stipulation in the contract, "[w]here the vendor promises to execute a deed of
absolute sale upon the completion by the vendee of the payment of the price," indicates that the
parties entered into a contract to sell. According to this Court, this particular provision is
tantamount to a reservation of ownership on the part of the vendor. Explicitly stated, the Court
ruled that the agreement to execute a deed of sale upon full payment of the purchase price"shows
that the vendors reserved title to the subject property until full payment of the purchase price."
In Tan v. Benolirao, this Court, speaking through Justice Brion, ruled that the parties
entered into a contract to sell as revealed by the following stipulation:
36

d) That in case, BUYER has complied with the terms and conditions of this
contract, then the SELLERS shall execute and deliver to the BUYER the appropriate
Deed of Absolute Sale;

The Court further held that "[j]urisprudence has established that where the seller
promises to execute a deed of absolute sale upon the completion by the buyer of the payment of
the price, the contract is only a contract to sell."
The acknowledgement receipt signed by Nicolas as well as the contemporaneous acts of
the parties show that they agreed on a contract to sell, not of sale. The absence of a formal deed
of conveyance is indicative of a contract to sell. The records show that Nicolas signed a mere
receipt acknowledging partial payment ofP250,000.00 from Rodolfo. It states:
July 8, 1993
Received the amount of [P250,000.00] for 1 share of Diego Building as partial
payment for Nicolas Diego.
(signed)
Nicolas Diego

As we ruled in San Lorenzo Development Corporation v. Court of Appeals, the parties

could have executed a document of sale upon receipt of the partial payment but they did not.
This is thus an indication that Nicolas did not intend to immediately transfer title over his share
but only upon full payment of the purchase price. Having thus reserved title over the property,
the contract entered into by Nicolas is a contract to sell. In addition, Eduardo admitted that he
and Rodolfo repeatedly asked Nicolas to sign the deed of sale but the latter refused because he
was not yet paid the full amount. As we have ruled in San Lorenzo Development Corporation v.
Court of Appeals, the fact that Eduardo and Rodolfo asked Nicolas to execute a deed of sale is a
clear recognition on their part that the ownership over the property still remains with Nicolas. In
fine, the totality of the parties acts convinces us that Nicolas never intended to transfer the
ownership over his share in the Diego Building until the full payment of the purchase price.
Without doubt, the transaction agreed upon by the parties was a contract to sell, not of sale.
In fine, "the need to execute a deed of absolute sale upon completion of payment of the
price generally indicates that it is a contract to sell, as it implies the reservation of title in the
vendor until the vendee has completed the payment of the price." In addition, "[a] stipulation
reserving ownership in the vendor until full payment of the price is x x x typical in a contract to
sell." Thus, contrary to the pronouncements of the trial and appellate courts, the parties to this
case only entered into a contract to sell; as such title cannot legally pass to Rodolfo until he
makes full payment of the agreed purchase price.

LEASE
37

Optima Realty Corp vs Hertz Phil Exclusice Cars Inc.

GR# 183035, January 9, 2013
FACTS:
On 12 December 2002, Petitioner (Optima) entered into a Contract of Lease with
Respondent (Hertz) over a 131-square-meter office unit and a parking spot in the Optima
Building for a period of three years commencing on 1 March 2003 and ending on 28 February
2006. On 9 March 2004, the parties amended their lease agreement by shortening the lease
period to two years and five months, commencing on 1 October 2003 and ending on 28 February
2006. The Respondent however failed to pay its rentals for the months of August to December of
2005 and January to February 2006 or a total of seven months and its utility bills for the months
of November and December of 2005 and January and February of 2006, or a total of four
months. On 8 December 2005, Petitioner wrote a letter to Respondent, reminding the latter that
the Contract of Lease could be renewed only by a new negotiation between the parties and upon
written notice by the lessee to the lessor at least 90 days prior to the termination of the lease
period. As no letter was received from Respondent regarding its intention to seek negotiation and
extension of the lease contract within the 90-day period, Petitioner informed it that the lease
would expire on 28 February 2006 and would not be renewed.
On 30 January 2006, Respondent filed a Complaint for Injunction to enjoin Petitioner
from committing acts that would tend to disrupt Respondents peaceful use and possession of the
leased premises and for Petitioner to be ordered to renegotiate a renewal of the Contract of
Lease. On 1 March 2006, Petitioner, through counsel, wrote to Respondent a letter requiring the
latter to surrender and vacate the leased premises in view of the expiration of the Contract of
Lease on 28 February 2006. It likewise demanded payment of the sum of 420,967.28 in rental
arrearages, unpaid utility bills and other charges. Respondent, however, refused to vacate the
leased premises. As a result, Petitioner was constrained to file before the MeTC a Complaint for
Unlawful Detainer and Damages with Prayer for the Issuance of a TRO and/or Preliminary
Mandatory Injunction against Respondent.
The MeTC ruled in favor of Petitioner. The RTC. on appeal, affirmed the decision of the
MeTC. The CA, on appeal, reversed the decision of the RTC.
ISSUE:
W/N the ejectment of Respondent on the basis of non-payment of rental arrearages and
utility bills and failure to notify Petitioner of its intent to renew the Contract of Lease is proper.
HELD:
The RTCs ruling upholding the ejectment of Respondent from the building premises was
proper. First, Respondent failed to pay rental arrearages and utility bills to Petitioner; and,
second, the Contract of Lease expired without any request from Respondent for a renegotiation
thereof at least 90 days prior to its expiration.
On the first ground, the records show that Respondent failed to pay rental arrearages and
utility bills to Petitioner. Failure to pay timely rentals and utility charges is an event of default
under the Contract of Lease, entitling the lessor to terminate the lease. Moreover, the failure of
Respondent to pay timely rentals and utility charges entitles the lessor to judicially eject it under
the provisions of the Civil Code.
On the second ground, the records likewise show that the lease had already expired on 28
February 2006 because of Respondents failure to request a renegotiation at least 90 days prior to
the termination of the lease period. The pertinent provision of the Contract of Lease reads:

38

x x x. The lease can be renewed only by a new negotiation between the parties upon
written notice by the LESSEE to be given to the LESSOR at least 90 days prior to termination of
the above lease period.

As the lease was set to expire on 28 February 2006, Respondent had until 30 November
2005 within which to express its interest in negotiating an extension of the lease with Petitioner.
However, respondent failed to communicate its intention to negotiate for an extension of the
lease within the time agreed upon by the parties. Thus, by its own provisions, the Contract of
Lease expired on 28 February 2006. Under the Civil Code, the expiry of the period agreed upon
by the parties is likewise a ground for judicial ejectment.

SPS MAMARIL VS BOY SCOUT OF THE PHIL.

GR# 179382, January 14, 2013
39

FACTS:
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney
operators. They would park their six (6) passenger jeepneys every night at the Boy Scout of the
Philippines' (BSP) compound for a fee of P300.00 per month for each unit. On May 26, 1995 at 8
o'clock in the evening, all these vehicles were parked inside the BSP compound. The following
morning, one of the vehicles with Plate No. DCG 392 was missing and was never
recovered. According to the security guards Cesario Pea (Pea) and Vicente Gaddi (Gaddi) of
AIB Security Agency, Inc. (AIB) with whom BSP had contracted for its security and protection,
a male person who looked familiar to them took the subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint for damages before the Regional
Trial Court against BSP, AIB, Pea and Gaddi for They therefore prayed that Pea and Gaddi,
together with AIB and BSP, be held liable for the: (a) the value of the subject vehicle and its
accessories in the aggregate amount of P300,000.00; (b) P275.00 representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit, on the contention that the loss of the subject
vehicle was due to the gross negligence of the above-named security guards on-duty who
allowed the subject vehicle to be driven out by a stranger despite their agreement that only
authorized drivers duly endorsed by the owners could do so.
In its Answer, BSP denied any liability contending that not only did Sps. Mamaril directly
deal with AIB with respect to the manner by which the parked vehicles would be handled, but the
parking ticket itself expressly stated that the "Management shall not be responsible for loss of
vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril
erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers, and employees. In addition
to the foregoing defenses, AIB alleged that it has observed due diligence in the selection, training
and supervision of its security guards while Pea and Gaddi claimed that the person who drove
out the lost vehicle from the BSP compound represented himself as the owners' authorized driver
and had with him a key to the subject vehicle.
The RTC ruled in favor of Petitioners. The CA, on appeal, affirmed the decision of the
RTC but absolved BSP of its liability and deleted the award of damages.
ISSUE:
W/N the agreement between BSP and Sps Mamaril is a contract of lease, whereby BSP is
not duty bound to protect or take care of Sps Mamarils vehicle.
HELD:
The contract between the parties herein was one of lease as defined under Article 1643 of
the Civil Code. It has been held that the act of parking a vehicle in a garage, upon payment of a
fixed amount, is a lease. Even in a majority of American cases, it has been ruled that where a
customer simply pays a fee, parks his car in any available space in the lot, locks the car and takes
the key with him, the possession and control of the car, necessary elements in bailment, do not
pass to the parking lot operator, hence, the contractual relationship between the parties is one of
lease.
In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP
compound for a monthly fee of P300.00 for each unit and took the keys home with them. Hence,
a lessor-lessee relationship indubitably existed between them and BSP. On this score, Article
1654 of the Civil Code provides that "the lessor (BSP) is obliged: (1) to deliver the thing which
is the object of the contract in such a condition as to render it fit for the use intended; (2) to make
on the same during the lease all the necessary repairs in order to keep it suitable for the use to
which it has been devoted, unless there is a stipulation to the contrary; and (3) to maintain the
lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract."
40

In relation thereto, Article 1664 of the same Code states that "the lessor is not obliged to answer
for a mere act of trespass which a third person may cause on the use of the thing leased; but the
lessee shall have a direct action against the intruder." Here, BSP was not remiss in its obligation
to provide Sps. Mamaril a suitable parking space for their jeepneys as it even hired security
guards to secure the premises; hence, it should not be held liable for the loss suffered by Sps.
Mamaril.

SPS CASTRO VS AMPARO VALENZUELA, ETC. AL

GR# 184698, January 21, 2013
FACTS:

41

On March 1994, Respondents leased out several fishponds to Petitioners. The lease was
to be for five years, or from March 1, 1994 up to June 30, 1999. The Contract of Lease of the
parties provided for the following salient provisions:
1. For the entire duration of the lease, the Castro spouses shall pay a total consideration of
P14,126,600.00, via postdated checks and according to the following schedule:
a. Upon signing of the lease agreement, petitioners shall pay P842,300.00 for the lease period
March 1, 1994 to June 30, 1994;
b.

On or before June 1, 1994, petitioners shall pay P2,520,000.00 for the one-year lease
period July 1, 1994 to June 30, 1995;

c.

On or before June 1, 1995, petitioners shall pay P2,520,000.00 for the one-year lease
period July 1, 1995 to June 30, 1996;

d.

On or before June 1, 1996, petitioners shall pay P2,520,000.00 for the one-year lease
period July 1, 1996 to June 30, 1997;

e.

On or before June 1, 1997, petitioners shall pay P2,796,000.00 for the one-year lease
period July 1, 1997 to June 30, 1998; and

f.

On or before June 1, 1998, petitioners shall pay P2,928,300.00 for the one-year lease
period July 1, 1998 to June 30, 1999.
2. Petitioners committed to pay respondents the amount of P500,000.00 in five yearly
installments from June 1, 1994. The amount represents arrears of the previous lessee, which
petitioners
agreed
to
assume;
3. Petitioners shall exercise extraordinary care and diligence in the maintenance of the
leased premises, with the obligation to maintain in good order, repair and condition, among
others,
two
warehouses
found
thereon;
4. Necessary repairs, licenses, permits, and other fees necessary and incidental to the
operation
of
the
fishpond
shall
be
for
petitioners
account;
5.

Petitioners

shall

not

sublease

the

premises

to

third

parties; and,

6. Should respondents be constrained to file suit against petitioners on account of the lease,
the latter agrees to pay liquidated damages in the amount of P1,000,000.00, 25% as
attorneys fees, and costs of the suit.

The lease expired on June 30, 1999, but petitioners did not vacate and continued
to occupy and operate the fishponds until August 11, 1999, or an additional 41 days
beyond the contract expiration date. On July 22, 1999, Respondents sent a letter to
Petitioners declaring the latter as trespassers and demanding the settlement of the latters
outstanding obligations, including rent for Petitioners continued stay within the
premises, in the amount of P378,451.00.
On June 8, 2000, Respondents instituted Civil Case for collection of a sum of
money with damages in the Regional Trial Court (RTC), claiming that Petitioners
committed violations of their lease agreement which are non-payment of rents as
stipulated, subletting the fishponds, failure to maintain the warehouses, and refusal to
vacate the premises on expiration of the lease which caused Respondents to incur actual
and liquidated damages and other expenses in the respective amounts of P570,101.00 for
unpaid rent, P275,430.00 for unpaid additional rent for petitioners one-month extended
stay beyond the contract date, and P2,000,000.00 for expenses incurred in restoring and
repairing their damaged warehouses. Petitioners were declared in default for its failure to
file an answer.
42

The RTC ruled in favor of Respondents. The CA, on appeal, affirmed the decision of
the RTC.
ISSUE:
W/N Respondent is authorized to charge Petitioner additional rent for their
extended stay.
HELD:
As for petitioners submission that respondents were not authorized to charge
additional rent for their extended stay, this issue should be deemed settled by their very
reliance on the July 22, 1999 demand letter, where a charge for additional rent for their
extended stay in the amount of P244,025.00 is included. By adopting the letter as their
own evidence in seeking a reduction in the award of unpaid rent, petitioners are
considered to have admitted liability for additional rent as stated therein, in the amount of
P244,025.00. Petitioners may not simultaneously accept and reject the demand letter; this
would go against the rules of fair play. Besides, respondents are correct in saying that
when the lease expired on June 30, 1999 and petitioners continued enjoying the premises
without objection from the respondents, an implied new lease was created pursuant to
Article 1670 of the Civil Code, which placed upon petitioners the obligation to pay
additional rent.

LICOMCEN INC. VS ABAINZA

GR# 199781, February 18, 2013
FACTS:
43

On 1997 and 1998, Respondent was hired by Liberty to do various projects in their
commercial centers, mainly at the LCC Central Mall, Naga City, for the supply, fabrication, and
installation of air-conditioning ductworks. During the awarding of the work, Petitioners wanted
the aircon ducts changed from rectangular to round ducts. The changing of the rectangular ducts
to round ducts entailed additional cost in labor and materials.
After Respondent completed the project which included some changes and revisions of
the original plan at the behest of Liberty, accomplishment reports had been submitted by
Respondent and approved by ESCA, project was turned over in 1998 but Respondent was not
paid the balance corresponding to the changed plan of work and additional work performed by it.
Series of communications demanding payment were made but Petitioner refused to pay.
Respondent filed an action for sum of money and damages against Liberty Commercial
Center, Inc. (Liberty) for its failure to pay the remaining balance due on the project in the sum of
P1,777,202.80 which was incurred due to the changes made in the original plan. Petitioner
denied the material allegations of the complaint and raised the defense of Article 1724 of the
Civil Code.
The RTC ruled in favor of Respondent. The CA, on appeal, affirmed the decision of the
RTC.
ISSUE:
W/N the Petitioner is liable for the additional costs incurred for labor, materials, and
equipment on the revised project.
HELD:
Art. 1724. The contractor who undertakes to build a structure or any other work for a
stipulated price, in conformity with plans and specifications agreed upon with the landowner,
can neither withdraw from the contract nor demand an increase in the price on account of the
higher cost of labor or materials, save when there has been a change in the plans and
specifications, provided:
(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been determined in writing by
both parties.

Article 1724 of the Civil Code is not applicable to this case. It is evident from the
records that the original contract agreement, submitted by Respondent as evidence, which
stated a total contract price of P5,300,000, was never signed by the parties considering
that there were substantial changes in the plan imposed by Petitioner in the course of the
work on the project. Petitioner admitted paying P6,700,000 to Respondent which was
allegedly the agreed cost of the project. However, Petitioner did not submit any written
contract signed by both parties which would substantiate its claim that the agreed cost of
the project was only P6,700,000. Clearly, Petitioner cannot invoke Article 1724 of the
Civil Code to avoid paying its obligation considering that the alleged original contract
was never even signed by both parties because of the various changes imposed by
Petitioner on the original plan. The fact that Petitioner paid P1,400,000 more than the
amount stated in the unsigned contract agreement clearly indicates that there were indeed
additional costs during the course of the work on the project. It is just unfortunate that
Petitioner is now invoking Article 1724 of the Civil Code to avoid further payment of the
additional costs incurred on the project.

44

LOAN
45

PENTA CAPITAL FINANCE CORPORATION VS BAY

GR# 162100, January 18, 2012
FACTS:
Penta Capital accepts funds from depositors to whom it issues interest bearing promissory
notes. Mr. Reynoso, one of its employees deposited personal funds to Penta and issued him
interest-bearing promissory Notes. In a separate transaction, Reynoso also mortgaged to Penta
his house and lot at Valle Verde, Pasig and when he failed to pay, his house and lot was
foreclosed by Penta. Penta then filed a sum of money case against Reynoso on the allegation that
he embezzled company funds amounting to P1,300,593.11. the case was dismissed but it
awarded a counterclaim to Reynoso in the total amount of P3.8 million plus 14% interest per
annum. Time passed by because of the retirement of the presiding judge and a lot of collateral
incidents. When a new judge presided, he awarded P74M in favor of Reynoso by way of
interests because they were interests on money market placements that were rolled over, to
which Penta strongly objected. The Court of Appeals held the computation of interests as
excessive. The award to Reynoso should only be P13.9 million and not P74M.
ISSUE:
W/N the computation of interest rates under the circumstances is correct.
HELD:
The basis of the computation of interest is only 12% per annum. In the absence of a
written stipulation, the applicable interest rated to be imposed is judgments involving a
forbearance of credit shall be 12% per annum in accordance with Central Bank Circular No. 416.
On the other hand, if the judgment refers to payment of indemnities in the concept of
damages arising from a breach or delay in the performance of obligations in general, the
applicable interest rate is 6% per annum in accordance with Art. 2206 of the Civil Code. Both
interests apply from the time of judicial or extrajudicial demand until the finality of the
judgment.

LLENADO VS PEOPLE
GR# 193279, March 14, 2012
46

FACTS:
Llenado was convicted by MTC Valenzuela for four counts of violation of BP 22.
However, she settled the loans subject matter of three criminal cases by using the funds of Mary
Immaculate College, thereby leaving P1.5M as balance. After hearing, Llenado was ordered to
pay 1.5M plus P200,000.00 fine with subsidiary imprisonment in case of insolvency. It also
made Mary Immaculate College liable for the value of the check for being the drawer thereof.
Llenado appealed to the RTC but it affirmed the MTC decision, so Llenado appealed to
the Court of Appeals. The CA ruled that the elements of BP 22 were established but it held that
the trial court erred in holding Mary Immaculate College civilly liable. It modified the judgment
by awarding 12% interest per annum based on P1.5M from the date of judicial demand plus
attorneys fees of P20,000.00 and litigation expenses.
Llenado then appealed to the Supreme Court alleging that the ruling of the Court of Appeals is
not correct.
ISSUE:
W/N the computation with respect to the imposition of interests is correct.
HELD:
In the absence of stipulation the rate of interest shall be 12% per annum to be computed
from default, that is, from judicial or extrajudicial demand under and subject to the provisions of
Art. 1169 of the Civil Code.
In this case, Llenado should be held liable for the amount of the dishonored check which
is P1.5m pus 12% legal interest covering the period from the date of receipt of the demand letter
to the finality of this Decision. All the other monetary awards were affirmed.

ESTORES VS SUPANGAN
GR# 175139, April 18, 2012
47

FACTS:
Petitioner Estores and respondents Supangan entered into a Conditional Deed of Sale
whereby Estores offered to sell to spouses Supangan a parcel of land located in Naic, Cavite for P4.7
million. However, for almost seven years, petitioner failed to comply with her obligation. Respondents
demanded via letter the return of P3.5 million within 15 daysfrom receipt of such demand. Petitioner
replied acknowledging the return of P3.5 million and promised to return it within 120 days. Respondents
were amenable to said proposal but subject to an interest of 12% compounded annually shall be imposed
on the principal. When petitioner still failed to return the amount despite demand, respondent-spouses
were constrained to file a Complaint for sum of money before the Regional Trial Court (RTC) of
Malabon. In their Answer with Counterclaim, petitioner and Arias averred that they are willing to return
the principal amount of P3.5 million but without any interest as the same was not agreed upon. They
argued that since the Conditional Deed of Sale provided only for the return of the downpayment in case
of breach, they cannot be held liable to pay legal interest as well. The RTC rendered a decision in favour
of respondents but only at the rate of 6%. The Court of Appeals affirmed the decision of the RTC but
adjusted the period from which the interest would start.
ISSUE:
W/N the imposition of interest is proper.
HELD:
The interest rate of 12% is applicable in this case.
Anent the interest rate, the general rule is that the applicable rate of interest shall be computed in
accordance with the stipulation of the parties. Absent any stipulation, the applicable rate of interest shall
be 12% per annum when the obligation arises out of a loan or a forbearance of money, goods or
credits. In other cases, it shall be six percent (6%). In this case, the parties did not stipulate as to the
applicable rate of interest. The only question remaining therefore is whether the 6% as provided under
Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.
The contract involved in this case is admittedly not a loan but a Conditional Deed of
Sale. However, the contract provides that the seller (petitioner) must return the payment made by the
buyer (respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact,
not been fulfilled as the seller (petitioner) has admitted this. Notwithstanding demand by the buyer
(respondent-spouses), the seller (petitioner) has failed to return the money and should be
considered in default from the time that demand was made on September 27, 2000.

AGENCY
48

VILLORIA VS CONTINENTAL AIRLINES

GR# 188288, January 16, 2012
FACTS:
While in the United States of America, Fernando Viloria purchased for himself and his
wife, two round trip tickets from San Diego California to New jersey on board Continental
Airlines for $400.00 each from a travel agency called Holiday Travel, manned by Margaret
Mager. Viloria bought said tickets because Mager informed him that there were no more seats at
Amtrak (a train). Later however, Viloria found out that there were available seats at Amtrak and
demanded for a refund of $800.00 from Continental Airlines. It refused and instead counter
proposed that it could re-schedule his trip so Viloria filed a case before the RTC of Antipolo for
damages. He won the case but the Court of Appeals reversed the decision holding that Holiday
Travel represented by Mager is not an agent of Continental Airlines.
ISSUE:
W/N the travel agency represented by Margaret Mager is an agent of Continental
Airlines.
HELD:
Yes, because the elements of agency is present. Thus, the essential elements of agency
are:
1. There is consent express or implied of the parties to establish the relationship
2. The object is the execution of a juridical act in relation to a third person.
3. The agent acts as a representative and not for himself and
4. The agent acts within the scope of his authority.
In the case at bar, Continental does not deny that it concluded an agreement with Holiday
Travel whereby it could enter into a contract of carriage with third persons on Continentals
behalf. Holiday Travel also acted in a representative capacity and it is Continental who is bound
by the contract of carriage. Likewise, has not made any allegation that Holiday Travel exceeded
the authority that was granted to it. The authority of the agent to act emanates from the powers
granted to him by his principal; his act is the act of the principal if done within the scope of the
authority.

49

PETRON CORPORATION VS JOVERO

GR# 151038, January 18, 2012
FACTS:
Petron entered into a Retail Dealer Contract with Rubin Uy for a period of five years. In
the agreement, the parties agreed that Petron shall be free and harmless against all lossess and
claims for death, damage of injury of all employees of Uy. In turn, Uy contracted Villaruz for the
hauling and delivery of oil products by using three trucks. The agreement also stipulated that Uy
shall not be liable for any damage, death of injury to anybody in the course of the conduct of its
business. One day, Villaruz hired the services of a truck driver to deliver gasoline to its outlets.
While unloading petroleum from one of the trucks, to a gasoline station in Iloilo, s fire started in
the fill pipe and spread to the rubber hose connected to the tank truck. The truck driver was not
present at that time but when he arrived, he tried to put out the flames getting into the truck and
drove in reverse dragging the burning fuel hose along the way and three houses were burned in
the process. The three victims filed a damage suit against Petron, Uy (the dealer) and the truck
driver. After the hearing, the trial court rendered a decision in favor of the victims holding all
three defendants solidarily liable. Petron appealed saying that the dealer and driver is not its
employees nor its agents and therefore, it should not be held civilly liable.
ISSUE:
W/N a contract of agency exists between Petron, the dealer and the truck driver.
HELD:
Yes. With regard to the delivery of the petroleum, Villaruz was acting as the agent of the
petitioner Petron, For a fee, he delivered the petroleum products on its behalf. The dealer shared
the responsibility for the maintenance of the equipment used in the gasoline station and for
making sure that the unloading of highly flammable products were without incident. As both
were equally negligent in those aspects, Petron cannot pursue a claim against the dealer for the
incident. Therefore, both are solidarily liable to the victims for damages caused by the fire.

50

SPS MAMARIL VS BOY SCOUT OF THE PHIL.

GR# 179382, January 14, 2013
FACTS:
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney
operators. They would park their six (6) passenger jeepneys every night at the Boy Scout of the
Philippines' (BSP) compound for a fee of P300.00 per month for each unit. On May 26, 1995 at 8
o'clock in the evening, all these vehicles were parked inside the BSP compound. The following
morning, one of the vehicles with Plate No. DCG 392 was missing and was never
recovered. According to the security guards Cesario Pea (Pea) and Vicente Gaddi (Gaddi) of
AIB Security Agency, Inc. (AIB) with whom BSP had contracted for its security and protection,
a male person who looked familiar to them took the subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint for damages before the Regional
Trial Court against BSP, AIB, Pea and Gaddi for They therefore prayed that Pea and Gaddi,
together with AIB and BSP, be held liable for the: (a) the value of the subject vehicle and its
accessories in the aggregate amount of P300,000.00; (b) P275.00 representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit, on the contention that the loss of the subject
vehicle was due to the gross negligence of the above-named security guards on-duty who
allowed the subject vehicle to be driven out by a stranger despite their agreement that only
authorized drivers duly endorsed by the owners could do so.
In its Answer, BSP denied any liability contending that not only did Sps. Mamaril directly
deal with AIB with respect to the manner by which the parked vehicles would be handled, but the
parking ticket itself expressly stated that the "Management shall not be responsible for loss of
vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril
erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers, and employees. In addition
to the foregoing defenses, AIB alleged that it has observed due diligence in the selection, training
and supervision of its security guards while Pea and Gaddi claimed that the person who drove
out the lost vehicle from the BSP compound represented himself as the owners' authorized driver
and had with him a key to the subject vehicle.
The RTC ruled in favor of Petitioners. The CA, on appeal, affirmed the decision of the
RTC but absolved BSP of its liability and deleted the award of damages.
ISSUE:
W/N a contract of agency exists between BSP and the security guards Pena and Gaddi.
HELD:
It cannot be said that a principal-agent relationship existed between BSP and the security
guards Pea and Gaddi as to make the former liable for the latter's complained act. Article 1868
of the Civil Code states that "by the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with the consent or authority
of the latter." The basis for agency therefore is representation, which element is absent in the
instant case. Records show that BSP merely hired the services of AIB, which, in turn, assigned
security guards, solely for the protection of its properties and premises. Nowhere can it be
inferred in the Guard Service Contract that AIB was appointed as an agent of BSP. Instead, what
the parties intended was a pure principal-client relationship whereby for a consideration, AIB
rendered its security services to BSP.

51

TRUST
GOYANCO JR. VS UCPB
GR# 179096, February 6, 2013
FACTS:
On 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos
(P2,000,000.00) with Philippine Asia Lending Investors, Inc. (PALII) family, represented by the
Petitioner, and his illegitimate family presented conflicting claims to PALII for the release of the
investment. Pending the investigation of the conflicting claims, PALII deposited the proceeds of
the investment with UCPB on October 29, 1996 under the name "Phil Asia: ITF (In Trust For)
The Heirs of Joseph Goyanko, Sr." (ACCOUNT). On September 27, 1997, the deposit under the
ACCOUNT was P1,509,318.76. On December 11, 1997, UCPB allowed PALII to withdraw One
Million Five Hundred Thousand Pesos (P1,500,000.00) from the Account, leaving a balance of
only P9,318.76. The Petitoners demanded that UCPB restore the amount withdrawn plus legal
interest but UCPB refused.
The petitioner filed a complaint before the RTC. Their contention is that an express trust
was created, as clearly shown by PALIIs March 28, 1996 and November 15, 1996 letters. Citing
jurisprudence, the petitioner emphasizes that from the established definition of a trust, PALII is
clearly the trustor as it created the trust; UCPB is the trustee as it is the party in whom
confidence is reposed as regards the property for the benefit of another; and the HEIRS are the
beneficiaries as they are the persons for whose benefit the trust is created and UCPB was
negligent and in bad faith in allowing the withdrawal and in failing to inquire into the nature of
the ACCOUNT.
In its answer to the complaint, UCPB admitted, among others, the opening of the
ACCOUNT under the name "ITF (In Trust For) The Heirs of Joseph Goyanko, Sr.," (ITF
HEIRS) and the withdrawal on December 11, 1997 and argued that that the ACCOUNT involves
an ordinary deposit contract between PALII and UCPB only, which created a debtor-creditor
relationship obligating UCPB to return the proceeds to the account holder-PALII. Thus, it was
not negligent in handling the ACCOUNT when it allowed the withdrawal. The mere designation
of the ACCOUNT as "ITF" is insufficient to establish the existence of an express trust or charge
it with knowledge of the relation between PALII and the HEIRS.
The RTC ruled in favor of Respondent. The CA, on appeal, affirmed the decision of the
RTC.
ISSUE:
W/N UCPB should be held liable for the amount withdrawn because a trust agreement
existed between PALII and UCPB, in favor of the HEIRS, when PALII opened the ACCOUNT
with UCPB.
HELD:
A trust, either express or implied, is the fiduciary relationship "x x x between one person
having an equitable ownership of property and another person owning the legal title to such
property, the equitable ownership of the former entitling him to the performance of certain duties
and the exercise of certain powers by the latter." Express or direct trusts are created by the direct
and positive acts of the trustor or of the parties. No written words are required to create an
express trust. This is clear from Article 1444 of the Civil Code, but, the creation of an express
52

trust must be firmly shown; it cannot be assumed from loose and vague declarations or
circumstances capable of other interpretations.
In Rizal Surety & Insurance Co. v. CA, we laid down the requirements before an express
trust will be recognized:
Basically, these elements include a competent trustor and trustee, an
ascertainable trust res, and sufficiently certain beneficiaries. xxx each of the
above elements is required to be established, and, if any one of them is missing, it
is fatal to the trusts (sic). Furthermore, there must be a present and complete
disposition of the trust property, notwithstanding that the enjoyment in the
beneficiary will take place in the future. It is essential, too, that the purpose be an
active one to prevent trust from being executed into a legal estate or interest, and
one that is not in contravention of some prohibition of statute or rule of public
policy. There must also be some power of administration other than a mere duty
to perform a contract although the contract is for a thirdparty beneficiary. A
declaration of terms is essential, and these must be stated with reasonable
certainty in order that the trustee may administer, and that the court, if called
upon so to do, may enforce, the trust. [emphasis ours]
Under these standards, we hold that no express trust was created. First, while an
ascertainable trust res and sufficiently certain beneficiaries may exist, a competent trustor and
trustee do not. Second, UCPB, as trustee of the ACCOUNT, was never under any equitable duty
to deal with or given any power of administration over it. On the contrary, it was PALII that
undertook the duty to hold the title to the ACCOUNT for the benefit of the HEIRS.Third, PALII,
as the trustor, did not have the right to the beneficial enjoyment of the ACCOUNT. Finally, the
terms by which UCPB is to administer the ACCOUNT was not shown with reasonable certainty.
While we agree with the petitioner that a trusts beneficiaries need not be particularly identified
for a trust to exist, the intention to create an express trust must first be firmly established, along
with the other elements laid above; absent these, no express trust exists.
UCPBs records and the testimony of UCPBs witness likewise lead us to the same
conclusion. While the words "ITF HEIRS" may have created the impression that a trust account
was created, a closer scrutiny reveals that it is an ordinary savings account. We give credence to
UCPBs explanation that the word "ITF" was merely used to distinguish the ACCOUNT from
PALIIs other accounts with UCPB. A trust can be created without using the word "trust" or
"trustee," but the mere use of these words does not automatically reveal an intention to create a
trust. If at all, these words showed a trustee-beneficiary relationship between PALII and the
HEIRS.
Contrary to the petitioners position, UCPB did not become a trustee by the mere opening
of the ACCOUNT. While this may seem to be the case, by reason of the fiduciary nature of the
banks relationship with its depositors, this fiduciary relationship does not "convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether express or
implied." It simply means that the bank is obliged to observe "high standards of integrity and
performance" in complying with its obligations under the contract of simple loan. Per Article
1980 of the Civil Code, a creditor-debtor relationship exists between the bank and its
depositor. The savings deposit agreement is between the bank and the depositor; by receiving the
deposit, the bank impliedly agrees to pay upon demand and only upon the depositors order.
Since the records and the petitioners own admission showed that the ACCOUNT was
opened by PALII, UCPBs receipt of the deposit signified that it agreed to pay PALII upon its
demand and only upon its order. Thus, when UCPB allowed PALII to withdraw from the
ACCOUNT, it was merely performing its contractual obligation under their savings deposit
agreement. No negligence or bad faith can be imputed to UCPB for this action. As far as UCPB
was concerned, PALII is the account holder and not the HEIRS. As we held in Falton Iron Works
Co. v. China Banking Corporation. the banks duty is to its creditor-depositor and not to third
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persons. Third persons, like the HEIRS here, who may have a right to the money deposited,
cannot hold the bank responsible unless there is a court order or garnishment.

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QUASI-DELICT

DEL CARMEN VS BACOY

GR# 173870, April 25, 2012
FACTS:
At dawn on New Years Day of 1993, Emilia Bacoy Monsalud (Emilia), along with her spouse
Leonardo Monsalud, Sr. and their daughter Glenda Monsalud, were on their way home from a Christmas
party were run over by a Fuso passenger that was being driven by Allan Maglasang (Allan). The jeep was
registered in the name of petitioner Oscar del Carmen, Jr. (Oscar Jr.) and used as a public utility vehicle
plying the Molave, Zamboanga del Sur to Sominot, Zamboanga del Sur and vice versa route.
A criminal case for Reckless Imprudence Resulting in Multiple Homicide was filed against Allan
before the Regional Trial Court (RTC). The said court declared Allan guilty beyond reasonable doubt of
the crime charged. During the pendency of the criminal case, Bacoy filed an independent civil action for
damages based on culpa aquiliana against Allan and his employers. Defendants refused to assume civil
liability for the victims deaths. Oscar Sr. averred that the Monsaluds have no cause of action against
them because he and his wife do not own the jeep and that they were never the employers of Allan.[8] For
his part, Oscar Jr. claimed to be a victim himself. He alleged that Allan and his friends[9] stole his jeep
while it was parked beside his drivers rented house to take it for a joyride. Oscar Jr. clarified that Allan
was his jeep conductor and that it was the latters brother, Rodrigo Maglasang (Rodrigo), who was
employed as the driver. The RTC rendered a decision exculpating Oscar Sr. and Norma del Carmen. But,
their son, Oscar Jr., was held civilly liable in a subsidiary capacity. Upon a motion for reconsideration
filed by Oscar jr., the RTC set aside its earlier decision citing Article 103 of the Revised Penal Code
which provides that for an employer to be subsidiarily liable for the criminal acts of his employee, the
latter should have committed the same in the discharge of his duties. The court agreed with Oscar Jr. that
this condition is wanting in Allans case as he was not acting in the discharge of his duties as a conductor
when he drove the jeep. However, upon appeal of Geronimo, the CA reversed the decision of the RTC.
ISSUE:
W/N Oscar Jr. is negligent under the doctrine of res ipsa loquitur.
HELD:
The requisites of the doctrine of res ipsa loquitur as established by jurisprudence are as follows:
1. The accident is of a kind which does not ordinarily occur unless someone is negligent;
2. The cause of the injury was under the exclusive control of the person in charge and
3. The injury suffered must not have been due to any voluntary action or contribution
on the part of the person injured.
The above requisites are all present in this case. First, no person just
walking along the road would suddenly be sideswiped and run over by an on-rushing vehicle
unless the one in charge of the said vehicle had been negligent. Second, the jeep which caused the injury
was under the exclusive control of Oscar Jr. as its owner. When Oscar Jr. entrusted the ignition key to
Rodrigo, he had the power to instruct him with regard to the specific restrictions of the jeeps use,
including who or who may not drive it. As he is aware that the jeep may run without the ignition key, he
also has the responsibility to park it safely and securely and to instruct his driver Rodrigo to observe the
same precaution. Lastly, there was no showing that the death of the victims was due to any voluntary
action or contribution on their part.
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The aforementioned requisites having been met, there now arises a presumption of negligence
against Oscar Jr. which he could have overcome by evidence that he exercised due care and diligence in
preventing strangers from using his jeep. Unfortunately, he failed to do so.

56

FILCAR TRNSPORT SERVICES VS ESPINAS

GR# 174156, June 20, 2012
FACTS:
On November 22, 1998, respondent Jose A. Espinas was driving his car along Leon
Guinto Street in Manila. Upon reaching the intersection of Leon Guinto and President Quirino
Streets, Espinas stopped his car. When the signal light turned green, he proceeded to cross the
intersection. He was already in the middle of the intersection when petitioners car suddenly hit
and bumped his car. Petitioners car was able to escape the scene. Espinas sent several letters to
Filcar and to its President and General Manager Carmen Flor, demanding payment for the
damages sustained by his car. On May 31, 2001, Espinas filed a complaint for damages against
Filcar and Carmen Flor before the Metropolitan Trial Court (MeTC) of Manila. Espinas
demanded that petitioner pay actual damages sustained by his car. Filcar argued that while it is
the registered owner of the car that hit and bumped Espinas car, the car was assigned to its
Corporate Secretary Atty. Candido Flor, the husband of Carmen Flor. Filcar further stated that
when the incident happened, the car was being driven by Atty. Flors personal driver, Timoteo
Floresca. Filcar denied any liability to Espinas and claimed that the incident was not due to its
fault or negligence since Floresca was not its employee but that of Atty. Flor. Filcar and Carmen
Flor both said that they always exercised the due diligence required of a good father of a family
in leasing or assigning their vehicles to third parties. The MeTC ruled in favour of Espinas and
ordered Filcar to pay actual damages. The RTC affirmed the decision of the MeTC. However, the
Court of Appeals modified the RTC decision by ruling that Carmen Flor, President and General
Manager of Filcar, is not personally liable to Espinas.
ISSUE:
W/N Filcar, as registered owner of the motor vehicle which figured in an accident, may
be held liable for the damages caused to Espinas.
HELD:
Under Article 2176, in relation with Article 2180, of the Civil Code, an action predicated
on an employees act or omission may be instituted against the employer who is held liable for
the negligent act or omission committed by his employee.
Although the employer is not the actual tortfeasor, the law makes him vicariously liable
on the basis of the civil law principle of pater familias for failure to exercise due care and
vigilance over the acts of ones subordinates to prevent damage to another. In the last paragraph
of Article 2180 of the Civil Code, the employer may invoke the defense that he observed all the
diligence of a good father of a family to prevent damage.
As its core defense, Filcar contends that Article 2176, in relation with Article 2180, of the
Civil Code is inapplicable because it presupposes the existence of an employer-employee
relationship. According to Filcar, it cannot be held liable under the subject provisions because the
driver of its vehicle at the time of the accident, Floresca, is not its employee but that of its
Corporate Secretary, Atty. Flor.
We cannot agree. 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.

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SPS MAMARIL VS BOY SCOUT OF THE PHIL.

GR# 179382, January 14, 2013
FACTS:
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney
operators. They would park their six (6) passenger jeepneys every night at the Boy Scout of the
Philippines' (BSP) compound for a fee of P300.00 per month for each unit. On May 26, 1995 at 8
o'clock in the evening, all these vehicles were parked inside the BSP compound. The following
morning, one of the vehicles with Plate No. DCG 392 was missing and was never
recovered. According to the security guards Cesario Pea (Pea) and Vicente Gaddi (Gaddi) of
AIB Security Agency, Inc. (AIB) with whom BSP had contracted for its security and protection,
a male person who looked familiar to them took the subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint for damages before the Regional
Trial Court against BSP, AIB, Pea and Gaddi for They therefore prayed that Pea and Gaddi,
together with AIB and BSP, be held liable for the: (a) the value of the subject vehicle and its
accessories in the aggregate amount of P300,000.00; (b) P275.00 representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit, on the contention that the loss of the subject
vehicle was due to the gross negligence of the above-named security guards on-duty who
allowed the subject vehicle to be driven out by a stranger despite their agreement that only
authorized drivers duly endorsed by the owners could do so.
In its Answer, BSP denied any liability contending that not only did Sps. Mamaril directly
deal with AIB with respect to the manner by which the parked vehicles would be handled, but the
parking ticket itself expressly stated that the "Management shall not be responsible for loss of
vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril
erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers, and employees. In addition
to the foregoing defenses, AIB alleged that it has observed due diligence in the selection, training
and supervision of its security guards while Pea and Gaddi claimed that the person who drove
out the lost vehicle from the BSP compound represented himself as the owners' authorized driver
and had with him a key to the subject vehicle.
The RTC ruled in favor of Petitioners. The CA, on appeal, affirmed the decision of the
RTC but absolved BSP of its liability and deleted the award of damages.
ISSUE:
W/N BSP should be held liable under the law on quasi-delicts.
HELD:
Art. 2176 of the civil code states that: 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 preexisting contractual relation between the parties, is called a quasidelict and is governed by the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle
was the negligent act of security guards Pea and Gaddi in allowing an unidentified person to
drive out the subject vehicle. Proximate cause has been defined as that cause, which, in natural
and continuous sequence, unbroken by any efficient intervening cause, produces the injury or
loss, and without which the result would not have occurred. Moreover, Pea and Gaddi failed to

58

refute Sps. Mamaril's contention that they readily admitted being at fault during the investigation
that ensued.
Neither will the vicarious liability of an employer under Article 2180 of the Civil Code
apply in this case. It is uncontested that Pea and Gaddi were assigned as security guards by AIB
to BSP pursuant to the Guard Service Contract. Clearly, therefore, no employer-employee
relationship existed between BSP and the security guards assigned in its premises. Consequently,
the latter's negligence cannot be imputed against BSP but should be attributed to AIB, the true
employer of Pea and Gaddi.
In the case of Soliman, Jr. v. Tuazon, the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires and assigns the work of its
watchmen or security guards, the agency is the employer of such guards and watchmen. Liability for
illegal or harmful acts committed by the security guards attaches to the employer agency, and not to the
clients or customers of such agency. As a general rule, a client or customer of a security agency has no
hand in selecting who among the pool of security guards or watchmen employed by the agency shall be
assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards
cannot, in the ordinary course of events, be demanded from the client whose premises or property are
protected by the security guards. The fact that a client company may give instructions or directions to the
security guards assigned to it, does not, by itself, render the client responsible as an employer of the
security guards concerned and liable for their wrongful acts or omissions. Those instructions or
directions are ordinarily no more than requests commonly envisaged in the contract for services entered
into with the security agency.

59

ALLIED BANKING CORP. VS BPI

GR# 188363, February 27, 2013
FACTS:
On October 10, 2002, a check in the amount of P1,000,000.00 payable to "Mateo Mgt.
Group International" (MMGI) was presented for deposit and accepted at Petitioner's Kawit
Branch. The check, post-dated "Oct. 9, 2003", was drawn against the account of Marciano
Silva, Jr. with Respondent Bank of the Philippine Islands (BPI) Bel-Air Branch. Upon receipt,
Petitioner sent the check for clearing to Respondent through the Philippine Clearing House
Corporation (PCHC). The check was cleared by Respondent and Petitioner credited the account
of MMGI with P1,000,000.00. On October 22, 2002, MMGIs account was closed and all the
funds therein were withdrawn. A month later, Silva discovered the debit of P1,000,000.00 from
his account. In response to Silvas complaint, Respondent credited his account with the aforesaid
sum.
On March 21, 2003, Respondent returned a photocopy of the check to Petitioner for the
reason: "Postdated." Petitioner, however, refused to accept and sent back to Respondent a
photocopy of the check. On May 6, 2003, Respondent requested the PCHC to take custody of the
check. The PCHC accepted the request while implementing Clearing House Operating Memo
(CHOM) No. 279 dated 06 September 1996 (50/50 apportionment of loss) and submitted the
case for resolution thru the PCHC Arbitration Mechanism.
Petitioner then filed a complaint before the Arbitration Committee, asserting that
Respondent should solely bear the entire face value of the check due to its negligence in failing
to return the check to Petitioner within the 24-hour reglementary period as provided in Section
20.1 of the Clearing House Rules and Regulations8 (CHRR) 2000. Petitioner prayed that
Respondent be ordered to reimburse the sum of P500,000.00 with 12% interest per annum, and
to pay attorneys fees and other arbitration expenses. In its Answer with Counterclaims,
Respondent charged Petitioner with gross negligence for accepting the post-dated check in the
first place. It contended that Petitioners admitted negligence was the sole and proximate cause
of the loss.
The PCHC Arbitration Committee ruled in favor of Petitioner. The RTC, on appeal,
affirmed the decision of the PCHC Arbitration Committee. The CA, on appeal, reversed the
decision of the RTC and modified the sharing from 50/50 to 60/40 in favor of Respondent.
ISSUE:
W/N the 60-40 apportionment of loss ordered by the CA on the ground of contributory
negligence of Petitioner was justified.
HELD:
Petitioner is found guilty of contributory negligence in accepting what is clearly a postdated check. The CA found that Petitioners failure to notice the irregularity on the face of the
check was a breach of its duty to the public and a telling sign of its lack of due diligence in
handling checks coursed through it. While the CA conceded that the drawee bank has a bigger
responsibility in the clearing of checks, it declared that the presenting bank cannot take lightly its
obligation to make sure that only valid checks are introduced into the clearing system. According
to the CA, considerations of public policy and substantial justice will be served by allocating the
damage on a 60-40 ratio.
In the case of Philippine Bank of Commerce v. Court of Appeals, while the Court found
petitioner bank as the culpable party under the doctrine of last clear chance since it had, thru its
teller, the last opportunity to avert the injury incurred by its client simply by faithfully observing

60

its own validation procedure, it nevertheless ruled that the plaintiff depositor (private respondent)
must share in the loss on account of its contributory negligence. Thus:
The foregoing notwithstanding, it cannot be denied that, indeed, private
respondent was likewise negligent in not checking its monthly statements of account. Had
it done so, the company would have been alerted to the series of frauds being committed
against RMC by its secretary. The damage would definitely not have ballooned to such
an amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance
in their financial affairs. This omission by RMC amounts to contributory negligence
which shall mitigate the damages that may be awarded to the private respondent under
Article 2179 of the New Civil Code, to wit:
"x x x. When the 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."

In view of this, we believe that the demands of substantial justice are satisfied
by allocating the damage on a 60-40 ratio. Thus, 40% of the damage awarded by the
respondent appellate court, except the award ofP25,000.00 attorneys fees, shall be borne by
private respondent RMC; only the balance of 60% needs to be paid by the petitioners. The award
of attorneys fees shall be borne exclusively by the petitioners.

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