EXTINGUISHMENT OF OBLIGATION

SPS. JUAN CHUY TAN and MARY TAN (deceased) substituted by surviving heirs, JOEL TAN
and ERIC TAN vs. CHINA BANKING CORPORATION
G.R. No. 200299, August 17, 2016
Ponente: J. Perez, 3rd Division
Nature of the Action: Petition for Review on Certiorari to reverse and set aside the Decision and
Resolution of the CA affirming with modification the Decision of the RTC by ordering that the
penalty surcharge of 24% per annum as stipulate in the contract of loan be reduced to 12% per
annum.
Facts: Petitioners Joel and Eric Tan, as substitutes for their deceased parents, represented Lorenze
Realty and Development Corporationa domestic corporation duly authorized by Philippine laws to
engage in real estate business. Respondent China Banking Corporation, on the other hand, is a
universal banking corporation duly authorized by Bangko Sentral ng Pilipinas to engage in banking
business. In 1997, Lorenze Realty obtained various amounts of loan and credit accommodations from
China Bankthe sum of which amounting to P71,050,000. Lorenze Realty in their Promissory
Notes, agreed to pay the additional amount of 1/10 of 1% per day of the total amount of obligation
due as penalty to be computed from the day that the default was incurred up to the time that the loan
obligations are fully paid. They also undertook to pay an additional 10% of the total amount due
including interests, surcharges and penalties as attorneys fees.
As security for the said obligations, Lorenze Realty executed Real Estate executed Real Estate
Mortgages (REM) over 11 parcels of land in Valenzuela City. When Lorenze Realty defaulted in
paying its amortization, China Bank caused the extra-judicial foreclosure of the REM constituted on
the securities. China Bank emerged as the highest bidder after bidding P85,000,000. However, there
still remained a balance. China Bank demanded payment for the deficiency but petitioners did not pay
the same. Hence, China Bank filed an action for collection of sum of money against Lorenze Realty
and its officers. RTC ruled in favor of China Bank. Aggrieved, China Bank appealed to CA. CA
affirmed the RTC Decision with modification.
Issue: Whether Lorenze Realtys obligation is extinguished upon the extra-judicial foreclosure of the
REM despite the deficiency?
Ruling: No. Obligations are extinguished, among others, by payment or performance, the mode most
relevant to the factual situation in the present case. Under Article 1232 of the Civil Code, payment
means not only the delivery of money but also the performance, in any other manner, of an obligation.
Article 1233 of the Code states that a debt shall not be understood to have been paid unless the thing
or service in which the obligation consists has been completely delivered or rendered, as the case may
be. In contracts of loan, the debtor is expected to deliver the sum of money due the creditor. These
provisions must be read in relation with the other rules on payment under the Civil Code, such as the
application of payment, to wit:
Art. 1252. He who has various debts of the same kind in favor of one and the same creditor,
may declare at the time of making the payment, to which of them the same must be applied. Unless
the parties so stipulate, or when the application of payment is made by the party for whose benefit the
term has been constituted, application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is
made, the former cannot complain of the same, unless there is a cause for invalidating the contract. In
interpreting the foregoing provision of the statute, the Court in Premiere Development Bank vs.
Central Surety & Insurance Company Inc., held that the right of the debtor to apply payment is
merely directory in nature and must be promptly exercised, lest, such right passes to the creditor.
Article 1252 gives the right to the debtor to choose to which of several obligations to apply a
particular payment that he tenders to the creditor. But likewise granted in the same provision is the
right of the creditor to apply such payment in case the debtor fails to direct its application. This is
obvious in Art. 1252, par. 2, viz.: If the debtor accepts from the creditor a receipt in which an
application of payment is made, the former cannot complain of the same. It is the directory nature of

this right and the subsidiary right of the creditor to apply payments when the debtor does not elect to
do so that make this right, like any other right, waivable.
Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals or
good customs, or prejudicial to a third person with a right recognized by law.
A debtor, in making a voluntary payment, may at the time of payment direct an application of it to
whatever account he chooses, unless he has assigned or waived that right. If the debtor does not do
so, the right passes to the creditor, who may make such application as he chooses. But if neither party
has exercised its option, the court will apply the payment according to the justice and equity of the
case, taking into consideration all its circumstances." [Emphasis supplied, citations omitted.]
In the event that the debtor failed to exercise the right to elect, the creditor may choose to which
among the debts the payment is applied as in the case at bar. It is noteworthy that after the sale of the
foreclosed properties at the public auction, Lorenze Realty failed to manifest its preference as to
which among the obligations that were all due the proceeds of the sale should be applied. Its silence
can be construed as acquiescence to China Bank's application of the payment first to the interest and
penalties and the remainder to the principal which is sanctioned by Article 1253 of the New Civil
Code which provides that:. Art. 1253. If the debt produces interest, payment of the principal shall not
be deemed to have been made until the interests have been covered.
That they assume that the obligation is fully satisfied by the sale of the securities does not hold any
water. Nowhere in our statutes and jurisprudence do they provide that the sale of the collaterals
constituted as security of the obligation results in the extinguishment of the obligation. The rights and
obligations of parties are governed by the terms and conditions of the contract and not by assumptions
and presuppositions of the parties. The amount of their entire liability should be computed on the
basis of the rate of interest as imposed by the CA minus the proceeds of the sale of the foreclosed
properties in public auction.

CONTRACTS
CONTRACT OF ADHESION
VICENTE CABANTING vs. BPI FAMILY SAVINGS BANK
G.R. No. 201927, February 17, 2016
Ponente: J. Peralta, 3rd Division
Nature of Action: Petition for Review on Certiorari under Rule 45 praying that the Decision of CA
on Sept. 28, 2011 and Resolution dated May 16, 2012 denying petitioners motion for reconsideration
be reversed and set aside.
Facts: On Jan. 14, 2003, petitioners bought on installment basis from Diamond Motors Corporation a
2002 Mitsubishi Adventure SS MT. Petitioners also executed and delivered to Diamond Motors a
Promissory Note (PN) with Chattel Mortgage. There, petitioners jointly and severally obligated
themselves to pay Diamond Motors the sum of P836,032.00 payable in monthly installments in
accordance with the schedule of payment indicated therein. Diamond Motors assigned to respondent
BPI Family its rights to the PN with Chattel Mortgage. On Oct. 16, 2003, BPI Family filed a
Complaint against petitioners for Replevin and damages before the RTC of Manila because
petitioners allegedly failed to pay three consecutive installments or surrender possession of the
vehicle to BPI Family despite several written demands. Petitioners, on the other hand alleged that
they sold the subject vehicle to one Victor Abalos with the agreement the the latter shall assume the
obligation to pay the remaining monthly installments. Petitioners further alleged that it was Abalos
who made payments to BPI through his personal checkswhich BPI accepted. Hence BPI shouldve
sued Abalos instead.
During trial, BPI Family dispensed with the testimony of its sole witness and formally offered its
documentary evidence. Petitioners, on the other hand, failed to present its defense and despite the
numerous opportunities given to them, they werent able to present their witness, Jacobina Alcantara,
despite courts issuance of a subpoena duces tecum ad testificandum. Hence, RTC granted BPIs
motion to hold petitioners right to present evidence be deemed waived and ordered petitioners to pay
the BPI P742,022.92 with 24% interest per annum plus attorneys fees. Aggrieved, petitioners
appealed to CA but the latter only affirmed with modification RTCs judgmentmaking petitioners
pay only P740, 155.18 with legal interest of 12% per annum plus attorneys fees. Hence, the instant
petition.
Issue: Whether or not the stipulation waiving demand in a contract of adhesion is invalid.
Ruling: No, the stipulation waiving demand in a contract of adhesion is not necessarily invalid.
CA is correct that no prior demand was necessary to make petitioners obligation due and payable.
The Promissory Note with Chattel Mortgage clearly stipulated that "[i]n case of my/our [petitioners']
failure to pay when due and payable, any sum which I/We x x x or any of us may now or in the future
owe to the holder of this note x x x then the entire sum outstanding under this note shall immediately
become due and payable without the necessity of notice or demand which I/We hereby waive."
Petitioners argue that such stipulation should be deemed invalid as the document they executed was a
contract of adhesion. It is important to stress the Court's ruling in Dia v. St. Ferdinand Memorial Park,
Inc., to wit:
A contract of adhesion, wherein one party imposes a ready-made form of contract on the
other, is not strictly against the law. A contract of adhesion is as binding as ordinary contracts, the
reason being that the party who adheres to the contract is free to reject it entirely. Contrary to
petitioner's contention, not every contract of adhesion is an invalid agreement. Contrary to petitioner's
contention, not every contract of adhesion is an invalid agreement. As we had the occasion to state in
Development Bank of the Philippines v. Perez:
x x x In discussing the consequences of a contract of adhesion, we held in Rizal Commercial
Banking Corporation v. Court of Appeals:
It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true
that we have, on occasion, struck down such contracts as void when the weaker party is imposed
upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or
leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts
3

of adhesion are not invalid per se; they are not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent.
The validity or enforceability of the impugned contracts will have to be determined by the peculiar
circumstances obtaining in each case and the situation of the parties concerned. Indeed, Article 24 of
the New Civil Code provides that "[in] all contractual, property or other relations, when one of
theparties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age, or other handicap, the courts must be vigilant for his protection." x x x8
Here, there is no proof that petitioners were disadvantaged, uneducated or utterly inexperienced in
dealing with financial institutions; thus, there is no reason for the court to step in and protect the
interest of the supposed weaker party. Verily, petitioners are bound by the aforementioned stipulation
in the Promissory Note with Chattel Mortgage waiving the necessity of notice and demand to make
the obligation due and payable.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, promulgated on
September 28, 2011, and the Resolution dated May 16, 2012 in CA-G.R. CV No. 91814 are
AFFIRMED with MODIFICATION by ordering payment of legal interest at the rate of twelve
percent ( 12%) per annum from the time of filing of the complaint up to June 30, 2013, and thereafter,
at the lower rate of six percent (6%) per annum from July 1, 2013 until full satisfaction, pursuant to
Bangko Sentralng Pilipinas - Monetary Board Circular No. 799, Series of 2013 and applicable
jurisprudence.

RESCISSION OF CONTRACT
CONCHITA A. SONGLEY vs. ANCHOR SAVINGS BANK/EQUICOM SAVINGS BANK
G.R. No. 205623, August 10, 2016
Ponente: J. Del Castillo, 2nd Division
Nature of Action: Petition for Review on Certiorari assailing CA Decision and Resolution denying
petitioners Urgent Motion for Reconsideration.
Facts: On March 13, 2009, petitioner filed a complaint for declaration of nullity of rescission of
contract and damages against respondent bank. Petitioner, in her complaint, alleged that she agreed to
purchase a parcel of land that had been foreclosed by respondent bank in Quezon City for P2.2M.
Petitioner and respondent entered into a Contract to Sell where the petitioner agreed to pay P200K as
downpayment with the balance of P2M payable in sixty monthly installmentsof P47,580. When
petitioner defaulted in paying the installments, respondent bank rescinded their contract to sell
which petitioner believes to be null and void since she has already substantially paid her obligation to
the bank. The bank, in its Answer denied petitioners allegations and contended that the post-dated
checks issued by petitioner in its favor covering the monthly installments were all dishonored by the
drawee bank when they were presented for payment.
After the Pre-Trial, parties agreed to settle amicably and entered into a Compromise Agreement. On
the basis thereof, the trial court rendered judgment whereby the petitioner agreed to repurchase the
subject property from respondent bank for P1,469,460.66 plus 12% interest per annum. However,
respondent bank later on filed a Manifestation and Motion for Execution claiming that petitioner had
not been paying the agreed monthly installments in accordance with the compromise agreement. Trial
court granted respondents motion. Aggrieved, petitioner filed a petition for certiorari before CA but
CA ruled against petitioner. Petitioner moved to reconsider but CA remained unconvinced. Hence, the
present petition.
Issue: Whether or not petitioners failure to abide by the compromise agreement could result in
execution, cancellation, and rescission of the compromise agreement and contract to sell, and her
eviction from the property.
Ruling: Yes, petitioners failure to abide by the compromise agreement could result in the execution,
cancellation, and rescission of the compromise agreement and contract to sell, and her eviction from
the property.
Certainly, a compromise agreement becomes the law between the parties and will not be set aside
other than [sic] the grounds mentioned above. In Ramnani v. Court of Appeals, we held that the main
purpose of a compromise agreement is to put an end to litigation because of the uncertainty that may
arise from it. Once the compromise is perfected, the parties are bound to abide by it in good faith.
Should a party fail or refuse to comply with the terms of a compromise or amicable
settlement, the other party could either enforce the compromise by a writ of execution or regard it as
rescinded and so insist upon his/her original demand.
Petitioner may be right in arguing that respondent has the option to proceed with the sale and charge
corresponding penalties instead, pursuant to the stipulations in the Contract to Sell; however,
respondent chose to rescind the same, an option which it is equally entitled to by contract and under
the law, and thus evict petitioner from the premises.
Respondent must have thought that if past actions were a gauge, petitioner was no longer in a position
to honor her obligations under the Contract to Sell. Respondents claim is straightforward: it seeks
rescission and eviction, with whatever amount paid by petitioner to be applied as rental for the
use and occupation of the subject property as agreed upon. Going by what is on record, it would
appear that petitioner paid the total amount of P497,412.76, while she has been occupying the
property, a 126.5-square meter parcel of land with improvements thereon located at Timex Street,
West Fairview, Quezon City, as her residence since 2007.In effect, petitioner would have paid a
measly sum as aggregate rent for her stay therein, which is more than just for her.
WHEREFORE, the Petition is DENIED. The August 28, 2012 Decision and January 25, 2013
Resolution of the Court of Appeals in CA-G.R. SP No. 122409 are AFFIRMED. The parties
Compromise Agreement and Contract to Sell dated December 21, 2007 are RESCINDED. Petitioner
5

Conchita A. Sonley is ordered to immediately VACATE the subject property and premises and
SURRENDER the 'same to respondent Anchor Savings Bank/Equicom Savings Bank.

VOID CONTRACT
MERCEDES ABELLA, MA. THERESA BALLESTEROS, AND MARIANITO ABELLA vs.
HEIRS OF FRANCISCA SAN JUAN
G.R.No. 182629, February 24, 2016
Ponente: J. Jardeleza, 3rd Division
Nature of Action:
Facts: Francisca San Juan was a tenant to a parcel of land in Balatas, Naga City covered by CLT No.
843 owned by petitioners. On Jan. 28, 1981, Dr. Manuel Abella and Francisca entered into an
Agreement exchanging the Balatas property with a lot situated in Cararayan, Naga City. The parties
agreed that in addition to the Cararayan property, Francisca shall receive from Dr. Abella the amount
of P5,250 as disturbance compensation and a 120-sq. m. home lot in Balatas. The Carayan property
was later on declared to be under the name of Francisca under Tax Dec. No. 01-006-0169 while the
home lot in Balatas was sold for P7,200 to Felimon Delfino, Jr. in 1988. Despite this, the original
CLT No. 843 was not cancelled.
Sometime in 1983, Benigna S.J. Vasquez, daughter of Francisca, sought permission from Mercedes
Abella, Dr. Abellas wife, to construct a small house on the Balatas property. Benigna and her
children constructed their residential houses on the property. However, when Mrs. Abella finally
requested Benigna and her children to vacate the property, they refused, claiming ownership. Hence,
Mrs. Abella filed an action for unlawful detainer against them. MTC ruled in favor of the heirs of Dr.
Abella and issued writs of execution and demolition against Benigna and her sons. Respondent heirs
of Francisca then filed an action to quiet title with prayer for TRO with the RTC against the heirs of
Dr. Abella. RTC however dismissed the Complaint for lack of merit. Respondents then appealed to
CA contending that under PD 27, title to the Balatas property could not have been acquired by the
petitioners since its transfer is limited only to the government or the grantees heirs by way of
succession. Thus, the Agreement is an invalid instrument. CA reversed the RTC Decision and ruled
that the Agreement was void for being violative of PD 27 and Memo Circular No. 7, s. 1979, which
declares as null and void the transfer by beneficiaries under PD 27 of the ownership, rights, and
possession of their farms/home lots to other persons. CA further ruled that DAR approval cannot
clother the void Agreement with validity. Petitioners filed a Motion for Reconsideration which the CA
denied. Hence the instant Petition.
Issue: Whether or not the Agreement is void for being contrary to law.
Ruling: Yes, the Agreement is void for contravening PD 27.
The resolution of this Petition hinges on the determination of whether the Agreement between
Dr. Abella and Francisca is void for violating PD 27.
We affirm the CA ruling.
PD 27 provides for only two exceptions to the prohibition on transfer, namely, (I) transfer by
hereditary succession and (2) transfer to the Government:
Torres v. Ventura40 explained the provision, thus:
xxx
The law is clear and leaves no room for doubt. Upon the promulgation of Presidential Decree
No. 27 on October 21, 1972, petitioner was DEEMED OWNER of the land in question. As of that
date, he was declared emancipated from the bondage of the soil. As such, he gained the rights to
possess, cultivate, and enjoy the landholding for himself. Those rights over that particular property
were granted by the government to him and to no other. To insure his continued possession and
enioymcnt of the property, he could not, under the law, make any valid form of transfer except to the
government or by hereditary succession, to his successors.
Yet, it is a fact that despite the prohibition, many farmer-beneficiaries like petitioner herein
were tempted to make use of their land to acquire much needed money. Hence, the then Ministry of
Agrarian Reform issued the following Memorandum Circular:

"Despite the above prohibition, however, there arc reports that many farmer-beneficiaries
of PD 27 have transferred tfte owners/tip, rights, and/or possession of their farmsllwmelots to other
persons or have surrendered the same to their former landowners. All these transactions/surrenders
are violative of PD 27 and therefore, null and void.
The intended exchange of properties by the parties as expressed in the Agreement and in the Deed of
Donation entailed transfer of all the rights and interests of Francisca over the Balatas propetiy to Dr.
Abella. It is the kind of transfer contemplated by and prohibited by law. Thus, petitioners' argument
that the Agreement was merely a relocation agreement, or one for the exchange or swapping of
properties between Dr. Abella and Francisca, and not a transfer or conveyance under PD 27, has no
merit. A relocation, exchange or swap of a property is a transfer of property. They cannot excuse
themselves from the prohibition by a mere play on words. We likewise agree with the CA that the
DAR's approval did not validate the Agreement. Under PD 27 and the pronouncements of this Court,
transfer of lands under PD 27 other than to successors by hereditary succession and the Government
is void.47 A void or inexistent contract is one which has no force and effect from the beginning, as if
it has never been entered into, and which cannot be validated either by time or ratification. No form
of validation can make the void Agreement legal.
WHEREFORE, the assailed Decision of the CA dated October 16, 2007 and Resolution dated April
14, 2008 are AFFIRMED with the MODIFICATION that respondents should return to the
petitioners the 6,000-square meter parcel of land located in Cararayan, Naga City, Camarines Sur, and
the amount of ?5,250.00 with legal interest computed at the rate of 6% per annum reckoned from the
finality of this judgment until fully paid. This case is remanded to the Regional Trial Court, Branch
23, Naga City for the determination of the fair market value of the Balatas home lot at the time of
donation.
SO ORDERED.

VOID CONTRACT
TOMAS TAN, JR. vs. JOSE HOSANA
G.R. No. 190846, February 3, 2016
Ponente: J. Brion, 2nd Division
Nature of Action: Petition for Review on certiorari challenging the Aug. 28, 2009 decision and Nov.
17, 2009 resolution of CA in CA-G.R. CV No. 88645.
Facts: Respondent Jose Hosana married Milagros Hosana on Jan. 14, 1979. During their marriage,
they bought a house and lot in Tinago, Naga City covered by TCT No. 21229. On Jan. 13, 1998,
Milagros the subject property to petitioner Tomas Tan, Jr. as evidenced by a deed of sale executed by
Milagros as herself and as attorney-in-fact of Jose, by virtue of an SPA executed by Jose in her favor.
The Deed of Sale stated that the purchase price for the lot was P200,000.00. However, on Oct. 19,
2001, Jose filed a Complaint for Annulment of Sale/Cancellation of Title/Reconveyance and
Damages against Milagros, Tomas, and the Register of Deeds of Naga City. Jose averred that while he
was working in Japan, Milagros, without his consent and knowledge, conspired with Tomas to
execute the SPA by forging Joses signature. Tomas, however, maintained that he was a buyer in good
faith and for value and alleged that the SPA authorizing Milagros to sell the property was annotated at
the back of the title. Tomas alleged that he made a partial payment of P350,000 and another P350,000
upon the execution of Deed of Absolute Sale. Tomas noticed that the consideration written on the
Deed of Sale was only P200,000 but when he inquired about it, Milagros explained that the reason for
said discrepancy was to save on taxes. After trial, RTC ruled in favor of Jose and nullified the sale of
the property to Tomas. Tomas appealed to CA but CA affirmed the RTC ruling that the deed of sale
and SPA were void and directed Milagros to reimburse Tomas the purchase price of P200,000. Tomas
filed a motion for reconsideration on the ground that the amount of P200,000 is insufficient but was
denied for lack of merit. Hence, the instant petition.
Issue: Whether or not a void Deed of Sale can be used as basis for the amount of consideration paid.
Ruling: Yes, a void Deed of Sale can be used as basis for the amount of consideration paid.
We affirm the CA ruling and deny the petition.
Whether Tomas paid the purchase price of P700,000.00 is a question of fact not proper in a petition
for review on certiorari. Appreciation of evidence and inquiry on the correctness of the appellate
court's factual findings are not the functions of this Court, as we are not a trier of facts.
We agree with the CA that Tomas bare allegation that he paid Milagros the sum of P700,000.00
cannot be considered as proof of payment, without any other convincing evidence to establish this
claim. Tomas bare allegation, while uncontroverted, does not automatically entitle it to be given
weight and credence.
It is settled in jurisprudence that one who pleads payment has the burden of proving it; the burden
rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. A mere
allegation is not evidence, and the person who alleges has the burden of proving his or her allegation
with the requisite quantum of evidence, which in civil cases is preponderance of evidence.
The force and effect of a void
contract is distinguished from its
admissibility as evidence.
The next question to be resolved is whether the CA correctly ordered the reimbursement of
P200,000.00, which is the consideration stated in the Deed of Sale, based on the principle of unjust
enrichment. The petitioner argues that the CA erred in relying on the consideration stated in the deed
of sale as basis for the reimbursable amount because a null and void document cannot be used as
evidence.
We find no merit in the petitioners argument.
A void or inexistent contract has no force and effect from the very beginning. This rule applies to
contracts that are declared void by positive other spouses written consent. A void contract is
9

equivalent to nothing and is absolutely wanting in civil effects. It cannot be validated either by
ratification or prescription. When, however, any of the terms of a void contract have been performed,
an action to declare its inexistence is necessary to allow restitution of what has been given under it. It
is basic that if a void contract has already been performed, the restoration of what has been given is
in order. This principle springs from Article 22 of the New Civil Code which states that every
person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the
same. Hence, the restitution of what each party has given is a consequence of a void and inexistent
contract.
While the terms and provisions of a void contract cannot be enforced since it is deemed inexistent, it
does not preclude the admissibility of the contract as evidence to prove matters that occurred in the
course ofexecuting the contract, i.e., what each party has given in the execution of the contract The
deed of sale as documentary evidence may be used as a means to ascertain the truthfulness of the
consideration stated and its actual payment.
The purpose of introducing the deed of sale as evidence is not to enforce the terms written in the
contract, which is an obligatory force and effect of a valid contract. The deed of sale, rather, is used as
a means to determine matters that occurred in the execution of such contract, i.e., the determination of
what each party has given under the void contract to allow restitution and prevent unjust enrichment.
Accordingly, the CA correctly ordered Jose to return the amount of P,200,000.00 since this the
consideration stated in the Deed of Sale and given credence by the lower court. Indeed, even Jose
expressly stated in his comment that Tomas is entitled to recover the money paid by him in the
amount of P,200,000.00 as appearing in the contract.
WHEREFORE, we hereby DENY the petition for review on certiorari. The decision dated August
28, 2009 and the resolution dated November 17, 2009, of the Court of Appeals in CA-G.R. CV No.
88645 is AFFIRMED. Costs against the petitioner.

10

SPECIAL CONTRACTS : SALES

DESIDERIO RANARA, JR. vs. ZACARIAS DE LOS ANGELES, JR.
G.R. No. 200765, August 8, 2016
Ponente; J. Reyes, 3rd Division
Nature of the Action: Petition for Review on Certiorari under Rule 45
Facts: Sometime in October 1989, Leonor Parada loaned from Zacarias de los Angeles, Sr. money
amounting to P60,000 payable within a period of 10 yrs. As security, Parada mortgaged a parcel of
land. Under their stipulation, respondent would take possession of and farm the land as payment for
the loan interest. Parada, executed a Deed of Sale with Right to Repurchase dated Oct. 26, 1989.
Respondent took possession of the land, paid taxes due and converted the forested portion into
irrigated land without objection from Parada. In 1991, OCT No. 10020 was issued in the name of
Parada who brought with her to Canada the original owners duplicate. Later, Parada gave the
owners duplicate to Zacarias, Sr. upon reports that someone attempted to enter the land. However, in
February 2001, respondent sold the land to petitioner for P300,000. In light of foregoing, two
documents of sale were executed: 1) for the actual sale price and 2) for P130,000 to be used as basis
for computation of taxes, registration, and transfer of ownership. Respondent then sent a letter to
Parada on July 17, 2001 giving her 15 days to repurchase the property. Parada respondent to said
letter claiming there was no pacto de retro sale and then tendered P60,000 as payment for the loan but
it was refused by respondent. Parada later learned that apparently, respondent had already
fraudulently registered the Deed of Sale with Right to Repurchase, falsified the affidavit of
seller/transferor and that respondent already sold the property to petitioner. Parada filed a Complaint
against petitioner and respondent for reformation of instrument, consignation, recovery of possession,
with prayer for writ of preliminary mandatory injunction and damages. Petitioner, in his Answer with
Cross-Claim and Counterclaim, denied any knowledge of any defect in the title of the property since
respondent was in the possession of and cultivating the land. Petitioner also claimed that aside from
paying the purchase price of P300,000, he also introduced permanent improvements on the property
amounting to P150,000 for the deep-well irrigation facilities and another P150,000for leveling
portions of the property and converting it into rice land.
RTC ruled in favor of Parada since Parada and respondent entered into an equitable mortgage
pursuant to Art. 1602 (6) of the Civil Code. It denied the petitioner and the respondents claim for
reimbursement from Parada. Moreover, RTC ruled that Petitioner was not privy to the contract
between Parada and respondent. Article 1616 of the Civil Code specifically provides that the vendor a
retros obligation to reimburse useful and necessary expenses only pertains to the vendee a retro. With
respect to the counterclaim and cross-claim of petitioner, RTC dismissed the same since petitioner
had knowledge of the propertys status when he purchased it from the respondent. Aggrieved,
petitioner appealed to CA but CA only affirmed RTCs decision. It ruled that petitioner, being a buyer
in bad faith, was not entitled to reimbursement since the water pump he introduced was a useful
expense and under Article 546 of the Civil Code, only possessors in good faith are entitled to
reimbursement of useful expenses. Hence, the instant petition.
Issue: Whether or not Petitioner is entitled to reimbursement for the improvements he introduced in
the property.
Ruling: No, he is not entitled to reimbursement. The Court denies the petition.
Here, both the RTC and CA have ruled that the petitioner and the respondent are both in bad faith and
such finding is binding on the Court since none of the exceptions warranting the Court's review are
availing.
In any event, the Court agrees with the courts a quo that the petitioner was in bad faith in purchasing
the land since it was his duty to investigate. A purchaser of land that is in the actual possession of the
seller must make some inquiry in the rights of the possessor of the land. The rule of caveat emptor
requires the purchaser to be aware of the supposed title of the vendor and one who buys without
checking the vendor's title takes all the risks and losses consequent to such failure.
The Court agrees with the courts a quo that the petitioner cannot claim reimbursement for any
expense incurred in the improvements on the lot.
11

Wherefore, the petition is DENIED. The Decision dated September 15, 2011 and Resolution dated
February 6, 2012 of the Court of Appeals in CA GR CV No. 90099, are AFFIRMED.

12

SALES
ROMAN CATHOLIC BISHOP OF TUGUEGARAO vs. FLORENTINA PRUDENCIO, et. al.
G.R. No. 187942, September 7, 2016
Ponente: J. Jardeleza, 3rd Division
Nature of the Action: Petition for review on certiorari assailing CA decision and resolution affirming
with modification RTC ruling declaring the sale to petitioner of a parcel of land in Cagayan to be null
and void.
Facts: Felipe Prudencio married twice during his lifetime. He had 5 children with his first wife Elena
Antonio and 2 children with his second wife Teodora Abad. During Felipe and Elenas marriage, they
acquired a parcel of land in Cagayan covered by OCT No. 1343. When Elena died, Felipe and their
children became co-owners of the property.
Felipe then died intestate during his second marriage. Upon his death, Teodora and her children
executed a Deed of Extra Judicial Partition of Estate of Felipe with Waiver of Rights in favor of
Teodora. While it was acknowledged in said deed that the land in Cagayan was acquired during
Felipes first marriage, it staed that Felipe and Elena did not have any children. Hence, Teodora and
her children appeared to be the only living heirs by operation of law. Teodora was able to transfer to
her name said property. Teodora then sold the land to Sps. Cepeda who sold then sold the said lot to
petitioner for P16,500.
On Sept. 15, 1972, respondents-appellees filed a Complaint for Partition with Reconveyance against
Sps. Cepeda. RTC ruled in favor of respondents appellees. On appeal, CA affirmed with modification
the ruling of the RTC. It declared that petitioner shall retain ownership of only 33,350 sq. m. which is
the are equivalent to Teodoras share. Petitioner moved for reconsideration but was denied. Hence,
this petition.
Issue: Whether or not the excluded heirs can recover what is rightfully theirs from persons who are
innocent purchasers for value.
Ruling: Yes, good faith is immaterial in this case because a person can only sell what he owns or is
authorized to sell. The buyer can as a consequence acquire no more than what the seller can legally
transfer.
Simply put, the sale of the Cagayan lot to Sps. Cepeda, then to petitioner is valid insofar as the share
of Teodora is concerned. In effect, petitioner merely holds the share of respondents-appellees under
an implied constructive trust. This is true through the TCTs covering the Cagayan lot were issued in
the name of Teodora, Sps. Cepeda and then petitioner by virtue of the subsequent sales. The issuance
of a certificate of title could not vest upon them ownership of the entire property; neither could it
validate their purchase of the same which is null and void to the extent of the shares of the
respondent-appellees. Registration does not vest title, for it is merely the evidence of such title. Our
land registration laws do not give the holder better title that what he actually has.
As it stands, petitioner which merely steps into the shoes of Teodora and respondents-appellees, are
now the pro-indiviso co-owners of the property.

13

DOUBLE SALE
THELMA RODRIGUEZ, joined by her husband vs. SPS. JAIME and ARMI SIOSON
G.R. No. 199180, July 27, 2016
Ponente: J. Reyes, 3rd Division
Nature of Action: Petition for review under rule 45.
Facts: In 1997, Municipality of Bataan purchased from Neri delos Reyes an area of about 1.7 ha. of
Lot 398 to be used for the extension of the Municipalitys public market. It was agreed that Neri will
surrender the mother title to the municipality upon full payment of purchase price.
Lot 398 was subsequently divided into 5 lots: A, B, C, D, and E. Lots C and D pertain to the portions
that were sold to the municipality while E is a road lot. Consequently, A and B were left as remaining
portions over which Neri retained absolute title. TCTs T-209894 and T-209895 were then issued over
lots A and B respectively and registered in Neris name married to Violeta Lacuata. The owners
duplicate copies were however retained by the municipality pending Neris payment in the share in
expenses incurred for the subdivision of the lot 398.
Neri, however, sold lot A to Thelma for P1,243,000 and on Mar. 20, 1997, Thelma issued a check for
said amount payable to Neri. When it fell due, no sufficient funds were available to cover the check.
Thelma promised to pay the purchase price in installments until Sept. 4, 1997 but Thelma was only
able to pay P442,293.50. On Nov. 12, 2001, Thelma caused the annotation of an adverse claim on lot
As title. She saw an announcement that a new Orani Common Terminal will be built on lot A.
Thelma then filed a complaint for injunction against incumbent Mayor Pascual and municipality
under claim of ownership.
In 2002, Neri executed an affidavit claiming that the owners copies of TCTs covering lots A and B
were lost and caused for the reconstitution of new owners copies. After new copies were issued, Neri
sold lot A to respondent Sps. Sioson, Sps. Camacho, and Agnes Samonte. Consequently, the TCT
covering lot A was cancelled and a new TCT was thus issued in the respondents names. Respondents
filled the said lot with about 40 truckloads of soil/fillings but Thelma sent two armed blue guards who
entered the premises and set up a tent therein. Respondents brought the matter to the attention of the
barangay who referred them to the mayor but mayor did not take any action. Respondents filed a
forcible entry case against Thelma.
Pending the ejectment case, Thelma sought for the annulment of the second sale of lot A. RTC in its
joint decision ruled in favor of Thelma. Respondents moved for reconsideration but was denied by
RTC. On appeal, CA granted the appeal and ruled that there was no double sale since the contract
between Neri and Thelma was a mere contract to sell and not contract of sale. Thelma moved for
reconsideration but was denied. Hence, this petition.
Issue: 1) Whether the contract entered into by Neri and Thelma is a contract to sell or a contract of
sale.
2) Whether double sale exists in the instant case.
Ruling: 1) The contract entered by Neri and Thelma is a contract to sell.
In determining the nature of the agreement between Thelma and Neri, the CA took note of these two
documents and coupled with Thelmas own admissions, correctly found that it was a mere contract to
sell. According to CA:
During trial, Thelma explained the apparent disparity between the 2 deeds of absolute sale by
testifying that the undated and unnotarized deed of sale served only as a receipt which was signed by
Neri when the latter received the downpayment for the lot. The dated and notarized deed of sale, on
the other hand, was signed by both Thelma and Neri upon Thelmas alleged full payment of purchase
price.
xxx
Second, the execution of the deed of absolute sale and the transfer and delivery of the title to
Thelmas name were conditional upon full payment of purchase price.
14

xxx
Despite the denomination of their agreement as one of sale, the circumstances tend to show that Neri
agreed to sell the subject property to Thelma on the condition that title and ownership would pass or
be transferred upon full payment of the purchase price. This is the very nature of a contract to sell
which is a bilateral contract whereby the prospective seller, while expressly reserving the ownership
of the property despite delivery thereof to the buyer, binds himself to sell the property exclusively to
the buyer upon fulfillment of the condition agreed upon, i.e. full payment of purchase price.
2) Double sale doesnt exist in this case.
It was established that Thelma was not able to pay the full purchase price. To bolster her claim,
Thelma insists that she holds title over the property after Neri allegedly delivered the subject lot to
her right after the execution of sale. There is however nothing on record to support this claim aside
from her bare allegations.
Moreover, the alleged delivery of property, even if true, is irrelevant considering that in a contract to
sell, ownership is retained by the registered owner in spite of the partial payment of the purchase
price and delivery of possession of the property.

15

SALES
LUZ S. NICOLAS vs. LEONORA C. MARIANO
G.R. No. 201070, August 1, 2016
Ponente: J. Del Castillo, 2nd Division
Nature of the Action: Petition for Review on Certiorari assails the Court of Appeals June 21, 2011
Decision and March 1, 2012 Resolution denying herein petitioners Motion for Partial
Reconsideration in CA-GR CV No. 93532.
Facts: In 1972, respondent Leonora Mariano applied for a land grant under the Bagong Barrio Project
of the NHA. NHA approved it in 1978 and she was instituted as grantee of the foregoing parcel of
land. The grant, however, is subject to a mortgage which was annotated on the dorsal side of the title.
According to the inscription, the grantee Leonora must pay the sum of P36,036.10 within 25 years
with annual interest of 12% until fully paid in 300 equal monthly installments. Furthermore, the
inscription says that except by hereditary succession, the lot or any part of it cannot be transferred or
encumbered within 5 yrs from the date of release of the mortgage inscribed without prior written
consent and authority from the NHA. NHA withheld the conveyance of the original TCT to Leonora
since issuance thereof is conditioned upon the full payment of the mortgage loan.
On Jan. 28, 1998, Leonora obtained a P100,000 loan from petitioner Luz Nicolas to be paid within 10
months at monthly interest rate of 7%. As security, respondent executed a Mortgage contract over one
half of the portion of the property. Leonora, however, defaulted in the payment of her obligation to
petitioner. Hence, respondent executed in favor of petitioner a second mortgage deed named
Sanglaan ng Lupa at Bahay which mortgages the property and its improvements for P552,000
inclusive of the original loan of P100,000 but respondent still failed to make payment on the second
obligation. Respondent executed a Deed of Absolute Sale of Real Property conveying to petitioner
Luz the ownership of the subject property. Notable however that at the time when negotiations were
taking place between petitioner and respondent, the mortgage loan of respondent to NHA remained
unpaid.
On July 8, 2004, respondent Leonora sued petitioner Luz before the RTC for Specific Performance
with Damages and Prayer for Issuance of a Temporary Restraining Order and a Permanent Mandatory
Injuction. Respondent sought to be released from the second mortgage agreement and to stop
petitioner from collecting credit through rentals from her apartments claiming that she has fully paid
her debt. RTC in its Decision decreed that it is inclined to believe that what had been entered into by
the parties was a mere contract of mortgage and not sale of real property. RTC did not uphold the
validity of the Deed of Absolute Sale because it was tainted with flaws and defects. Judgment was
rendered in favor of respondent Leonora and against petitioner Luz. Aggrieved, petitioner Luz
appealed before the CA assailing ruling of the RTC declaring the Absolute Sale of Real Property
invalid and cancelling the Mortgage Contract and Sanglaan ng Lupa and awarding moral damages to
respondent Leonora. CA ruled that the appeal was partly meritorious. It affirmed RTC decision
declaring the Absolute Sale of Real Property invalid not because it lacked any of the essential
requisites of a contract but because respondent Leonora, the supposed vendor, is not the owner
thereof. Also, it is a clear violation of the express proviso prohibiting any transfer or encumbrance of
the subject property within 5 yrs from the release of the mortgage. In the same way, respondent
Leonora, not being the owner of the property, the Mortgage Contract and Sanglaan ng Lupa at Bahay
she executed are void. Art. 2085 of the Civil Code requires that for a person to validly constitute a
mortgage on real estate, he must be the absolute owner of the property mortgaged. Hence, the instate
petition.
Issue: Whether or not respondent Leonora validly mortgaged and sold the property to petitioner Luz.
Ruling: No, respondent Leonoranot being the owner of the propertycould not have validly
mortgaged more so sold subject property to petitioner Luz.
The petition must be denied.
While title to TCT No. C-44249 is in the name of Mariano, she has not completed her installment
payments to NHA; this fact is not disputed, and as a matter of fact, Mariano admits it. Indeed,
Mariano even goes so far as to concede, in her Comments and Opposition to the Petition, that she is
not the owner of the subject property. Thus, if she never became the owner of the subject property,
16

then she could not validly mortgage and sell the same to Nicolas. The principle nemo dat quod non
habet certainly applies.
Indeed, the Torrens system of land registration merely confirms ownership and does not create it. It
cannot be used to divest lawful owners of their title for the purpose of transferring it to another one
who has not acquired it by any of the modes allowed or recognized by law.
WHEREFORE, the Petition is DENIED. The June 21, 2011 Decision and March 1, 2012 Resolution
of the Court of Appeals in CA-G.R. CV No. 93532 are AFFIRMED.

17

SALES
DESIGNER BASKETS, INC. vs. AIR SEA TRANSPORT, INC. and ASIA CARGO
CONTAINER LINES INC.
G.R. No. 184513, March 9, 2016
Ponente: J. Jardeleza, 3rd Division
Nature of Action: Petition for Review on Certiorari assailing the CA decision and resolution
absolving respondents from liability complaint for sum of money and damages filed by petitioner
DBI.
Facts: DBI is a domestic corporation engaged in the business of producing houseware and handicraft
items for export. In 1995, Ambiente, a foreign-based company, ordered from DBI 223 cartons of
assorted wooden items worth USD 12,590.87 and payable through telegraphic transfer. Ambiente
designated respondent ACCLIa domestic corporation acting as agent of respondent ASTI which is
a US based corporation engaged in carrier transport business in the Philippines.
DBI delivered the goods to ACCLI for sea transport to Ambiente in California. ACCLI issued ASTI
bills of lading. Ambiente and ASTI entered into an indemnity agreement. Under it, Ambiente
obligated ASTI to deliver the shipment to it without surrender of relevant bill(s) of lading due to the
non-arrival or loss thereof. Ambiente undertook to indemnify and hold ASTI free from any liability
as a result of the release of the shipment. ASTI released the shipment to Ambiente without the
knowledge of DBI and without it receiving payment for the total cost of shipment.
DBI demanded payment from Ambiente but to no avail. Thus, DBI filed a complaint against
respondents for payment of value of shipment plus interest at legal rate, among others. DBI claimed
that under the bill of lading, ASTI and ACCLI is to release cargo/shipment to consignee xxx, only
after the original copy or copies of the bill of lading are surrendered to them; otherwise, they become
liable to the shipper for the value of the shipment. DBI amended its complaint and impleaded
Ambiente. RTC ruled in favor of DBI and found ASTI, ACCLI, and Ambiente solidarily liable to DBI
for the value of the shipment. DBI, ASTI and ACCLI appealed to CA. CA affirmed RTCs finding
that Ambiente is liable to DBI but absolved ASTI and ACCLI from liability. Hence, this petition.
Issue: 1) Whether DBIs assertion that par. 3 of Article 1503 of the Civil Code is the applicable
provision in this case is correct.
2) Whether ASTI and ACCLI can be held liable for the payment of the value of goods sold.
Ruling: 1) No, DBIs assertion is untenable. Article 1503 is an exception to the general presumption
provided in the 1st paragraph of Article 1523 which reads:
Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buer or not for the
purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in
cases provided for in Article 1503, first, second, and third paragraphs, or unless a contrary intent
appears.
xxx
Article 1503, on the other hand, provides:
Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the
contract reserve the right of possession or ownership in the goods until certain conditions have been
fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of
the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.
Where goods are shipped and by the bill of lading the goods are deliverable to the seller or his agent
or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But,
if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment
of the goods, the sellers property in the goods shall be deemed to be only for the purpose of securing
performance by the buyer of his obligations under the contract.

18

Where the goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer
or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller
thereby reserves a right to the possession of the goods as against the buyer.
xxx
Articles 1523 and 1503, therefore, refer to a contract of sale between a seller and a buyer. In
particular, they refer to who between the seller and the buyer has the right of possession or ownership
over the goods subject of sale. Articles 1523 and 1503 do not apply to a contract of carriage between
the shipper and the common carrier. The third paragraph of Article 1503, upon which DBI relies, does
not oblige the common carrier to withhold deliver of the goods in the even that the bill of lading is
retained by the seller. Rather, it only gives the seller a better right to the possession of the goods as
against the mere inchoate right of the buyer. Thus, articles 1523 and 1503 find no application here.
The case before us does not involve an action where the seller asserts ownership over the goods as
against the buyer. Instead, we are confronted with a complaint for sum of money with damages filed
by seller against the buyer and the common carrier due to the non payment of the goods by the buyer
and the release of the goods by the carrier despite non-surrender of the bill of lading. A contract of
sale is separate and distinct from a contract of carriage. They involve different parties, different rights,
different obligations, and liabilities.
2) No, ASTI and ACCLI cannot be held liable for payment of the value of the goods sold.
The contract between DBI and ASTI is a contract of carriage of goods; hence, ASTIs liability should
be pursuant to the contract and the law on transportation of goods. Not being a party to the contract of
sale between DBI and Ambiente, ASTI cannot be held for payment of the value of the goods sold.
Xxx
In view of foregoing, we hold that under Bill of Lading No. AC/MLLA601317 and the pertinent law
and jurisprudence, ASTI and ACCLI are not liable to DBI. We sustain the finding of the CA that only
Ambiente, as the buyer of the goods, has the obligation to pay for the value of the shipment. Xxx
WHEREFORE, the petition is DENIED for lack of merit xxx Resolution of the CA in CA-GR CV
No. 79790 are hereby Affirmed with modification that from the finality of the decision until its full
satisfaction, the applicable rate of interest shall be 6% per annum.

19

SALES
EQUITABLE MORTGAGE
ROSARIO VICTORIA and ELMA PIDLAON vs. NORMITA, HERMINIGILDA, and
EUFEMIA PIDLAON
G.R. No. 196470, April 20, 2016
Ponente: J. Brion, 2nd Division
Nature of the Action: Petition for review on certiorari challenging the decision and resolution of CA
reversing the ruling of RTC and ruled that Elma donated her entire property to Normita.
Facts: Rosario Victoria and Elma lived together since 1978 until Rosario left for Saudi. In 1984,
Elma brought a parcel of land in Lucena City. When Rosario came home, she caused the construction
of a house on the Elmas lot but left again before the house was built. Elma allegedly mortgaged the
house to Thi Hong Villanueva in 1989. When the properties were about to be foreclosed, Elma
allegedly asked for help from her sister-in-law, Eufemia, to redeem the property. Eufemia called her
daughter, Normita, to lend Elma money.
Elma thereafter sold the lot to Normita. They executed a deed of sale transferring ownership of the lot
to Normita which provides that Elma shall eject the person who erected the house and deliver the lot
to Normita. It was signed by Elma, Normita, and two witnesses but it was unnotarized. This is
because when they were about to have it notarized, the notary public advised them to donate the lot
instead to avoid capital gains tax. Hence, the notarized deed of donation between Elma and Normita.
Rosario found out about the donation when she returned to the country. Petitioners then caused the
filing of a complaint for reformation of contract, cancellation of TCT, and damages with prayer for
preliminary injunction against respondents.
RTC ruled that petitioners co-owned the house and lot. Thus, Elma could only donate her one-half
share in the lot. Respondents then appealed to CA which reversed RTCs decision and dismissed the
complaint. CA also denied petitioners motion for reconsideration. Hence, this petition.
Issue: 1) Whether the deed of donation between Elma and Normita was simulated.
2) Whether the sale between Normita and Elma was a sale, donation, or an equitable mortgage.
Ruling: 1) We find that the deed of donation was simulated and the parties real intent was to enter
into a sale.
We first dwell on the genuineness of the deed of donation. There are two types of simulated
documentsabsolute and relative. A document is absolutely simulated when the parties have no
intent to bind themselves at all, while it is relatively simulated when the parties concealed their true
agreement. The true nature of a contract is determined by the parties intention, which can be
ascertained from their contemporaneous and subsequent acts.
In the present case, Elma and Normitas contemporaneous and subsequent acts show that they were
about to have the contract of sale notarized but the notary public ill-advised them to execute a deed of
donation instead. Following this advice, they returned the next day to have a deed of donation
notarized. Clearly, Elma and Normita intended to enter into a sale that would transfer the ownership
of the subject matter of their contract but disguised it as a donation. Thus, the deed of donation
subsequently executed by them was only relatively simulated. CA upheld the deed of donations
validity based on principle that notarized document enjoys the presumption of regularity but this
presumption is overthrown in this case by respondents own admission in their answer that the deed
of donation was simulated.
xxx
Having admitted the simulation, the respondents can no longer deny it at this stage. The CA erred in
disregarding this admission and upholding the validity of the deed of donation.
Considering that the deed of donation was relatively simulated, the parties are bound to their real
agreemend. The records show that the parties intended to transfer the ownership of the property to
Normita by absolute sale.
20

2) An equitable mortgage is one which although lacking in some formality or other requisites
demanded by statute, nevertheless reveals the intention of the parties to charge real property as
security for a debt and contains nothing impossible or contrary to law. Art. 1602 and 1604 of the Civil
Code provide that a contract of absolute sale shall be presumed an equitable mortgage if any of the
circumstances listed in Art. 1602 is attendant.
Two requisites must concur for Articles 1602 and 1604 of Civil Code to apply: one, the parties
entered into a contract denominated as a contract of sale; and two, their intention was to secure an
existing debt by way of mortgage.
In the present case, the unnotarized contract of sale is denominated as Panananto ng Pagkatanggap
ng Kahustuhang Bayad. Its contents show an unconditional sale of property. The document shows no
intention to secure a debt or to grant a right to repurchase. Thus, there is no evidence that the parties
agreed to mortgage the propery as contemplated in Art 1602 of the Civil Code. Clearly the constract
is not one of equitable mortgage.
xxx
In sum, we rule that based on the records, Elma and Normita entered in a sale contract, not donation.
Elma sold the entire property to Normita. Accordingly, TCT No. T-70990 was validly issued in
Normitas name .
WHEREFORE, we hereby PARTIALLY GRANT the petition. The decision and resolution of CA are
hereby AFFIRMED with MODIFICATION that the parties entered into a contract of sale, not a
donation, and that petitioner Elma Pidlaon sold the whole disputed property to respondent Normita
Pidlaon.

21

SALES
SALE OF CONJUGAL PROPERTY
MELECIO DOMINGO vs. SPS. GENARO and ELENA MOLINA
G.R. No. 200274, April 20, 2016
Ponente: J. Brion, 2nd Dvision
Nature of the Action: Petition for review on certiorari assailing decision and resolution of CA.
Facts: Sps. Anastacio and Flora Domingo bought a house in Tarlac consisting of a one-half undivided
portion over an 18,164 sq. m. land. The sale was annotated in the OCT covering the subject property.
Anastacio borrowed money from respondent sps. Molina. After Floras death, Anastacio sold his
interest over the land to sps. Molina to answer for his debts. The sale to sps. Molina was annotated at
the OCT of the subject property. In 1986, Anastacio died.
Melecio, one of Anastacio and Floras children, learned of the transfer of Anastacios interest to sps.
Molina. He filed a complaint for the annulment of title and recovery of ownership against sps.
Molina. He claims that the property served as collateral for money that Anastacio borrowed.
Anastacio could not have validly sold the interest over the property without Floras consent as Flora
was already dead at the time of sale. He also claims that Genaro Molina must have falsified the
document transferring Anastacio and Floras one-half undivided interest over the land. During the
pendency of the case, sps. Molina died and were substituted by their adopted son, Cornelio.
RTC dismissed the case because Melecio failed to establish his claim that Anastacio did not sell the
property to sps. Molina. RTC denied Melecios motion for reconsideration. Melecio appealed to CA.
CA affirmed RTC ruling in toto. Melecio filed a motion for reconsideration but was denied for lack of
merit. Hence, this instant petition.
Issue: Whether the sale of a conjugal property without Floras consent is valid and legal.
Ruling: We deny the petition.
It is well settled that when the trial courts factual findings have been affirmed by the CA, the findings
are generally conclusive and binding upon the Court and may no longer be reviewed on Rule 45
petitions. While there are exceptions20 to this rule, the Court finds no applicable exception with
respect to the lower courts finding that the subject property was Anastacio and Floras conjugal
property. Records before the Court show that the parties did not dispute the conjugal nature of the
property.
Melecio argues that the sale of the disputed property to the spouses Molina is void without Floras
consent.
We do not find Melecios argument meritorious.
Anastacio and Floras
conjugal partnership was
dissolved upon Floras death.
There is no dispute that Anastacio and Flora Domingo married before the Family Codes effectivity
on August 3, 1988 and their property relation is a conjugal partnership. 21
Conjugal partnership of gains established before and after the effectivity of the Family Code are
governed by the rules found in Chapter 4 (Conjugal Partnership of Gains) of Title IV (Property
Relations Between Husband and Wife) of the Family Code. This is clear from Article 105 of the
Family Code which states:
x x x The provisions of this Chapter shall also apply to conjugal partnerships of gains already
established between spouses before the effectivity of this Code, without prejudice to vested rights
already acquired in accordance with the Civil Code or other laws, as provided in Article 256.
22

The conjugal partnership of Anastacio and Flora was dissolved when Flora died in 1968,
pursuant to Article 175 (1) of the Civil Code22 (now Article 126 (1) of the Family Code).
Article 130 of the Family Code requires the liquidation of the conjugal partnership upon death of a
spouse and prohibits any disposition or encumbrance of the conjugal property prior to the conjugal
partnership liquidation, to quote:
Article 130. Upon the termination of the marriage by death, the conjugal partnership property
shall be liquidated in the same proceeding for the settlement of the estate of the deceased.
If no judicial settlement proceeding is instituted, the surviving spouse shall liquidate the conjugal
partnership property either judicially or extrajudicially within one year from the death of the deceased
spouse. If upon the lapse of the six month period no liquidation is made, any disposition or
encumbrance involving the conjugal partnership property of the terminated marriage shall be
void. x x x (emphases supplied)
While Article 130 of the Family Code provides that any disposition involving the conjugal property
without prior liquidation of the partnership shall be void, this rule does not apply since the provisions
of the Family Code shall be "without prejudice to vested rights already acquired in accordance with
the Civil Code or other laws."
An implied co-ownership
among Floras heirs governed
the conjugal properties
pending liquidation and
partition.
In the case of Taningco v. Register of Deeds of Laguna, we held that the properties of a dissolved
conjugal partnership fall under the regime of co-ownership among the surviving spouse and the heirs
of the deceased spouse until final liquidation and partition. The surviving spouse, however, has an
actual and vested one-half undivided share of the properties, which does not consist of determinate
and segregated properties until liquidation and partition of the conjugal partnership.
An implied ordinary co-ownership ensued among Floras surviving heirs, including Anastacio, with
respect to Floras share of the conjugal partnership until final liquidation and partition; Anastacio, on
the other hand, owns one-half of the original conjugal partnership properties as his share, but this is
an undivided interest.
Article 493 of the Civil Code on co-ownership provides:
Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another
person in its enjoyment, except when personal rights are involved. But the effect of the alienation or
the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted
to him in the division upon the termination of the co-ownership. (399) (emphases supplied)
Thus, Anastacio, as co-owner, cannot claim title to any specific portion of the conjugal properties
without an actual partition being first done either by agreement or by judicial decree. Nonetheless,
Anastacio had the right to freely sell and dispose of his undivided interest in the subject property.

23

SPECIAL CONTRACTS : LOAN

EQUITABLE SAVINGS BANK vs. ROSALINDA PALCES
G.R. No. 214752, March 9, 2016
Ponente: J. Perlas-Bernabe, 1st Division
Nature of Action: Petition for review on certiorari assailing the decision and resolution of CA
partially affirming the RTC decision and ordering petitioner to reimburse respondent installments
made in March amounting to P103,000.
Facts: Respondent purchased a Hyundai Starex through a loan granted by petitioner in the amount of
P1,196,100. Respondent executed a Promissory Note with Chattel Mortgage (PN with CM) in favor
of petitioner stating that a) she shall pay petitioner 36 monthly installments of P33,225 per month; b)
respondents default will render the remaining balance due and payable; and c) failure to pay any
installment shall give the petitioner the right to foreclose the chattel mortgage or file civil action for
collection and other actions allowed by law.
Respondent paid monthly installments from Sept. 18, 2005 to Dec. 21, 2006 but defaulted in January
and February 2007 which triggered the acceleration clause. Petitioner demanded full payment of
balance from respondent but demands were unheeded. Hence, petitioner filed a complaint for
recovery of possession with replevin with alternative prayer for sum of money and damages against
respondent. RTC ruled in favor of petitioner. On appeal, CA affirmed RTC ruling with modification.
It ordered petitioner to return the amount of P103,000 to respondent and deleted the award of
attorneys fees in favor of petitioner for lack of basis. Petitioner moved to reconsider but was denied.
Hence, this petition.
Issue: Whether or not CA correctly ruled that petitioner waived its right to recover any unpaid
installments when it sought a writ of replevin in order to regain possession of the subject vehicle.
Ruling: No, the CA is mistaken on this point.
Article 1484 of the Civil Code which governs the sale of personal properties in installments, states in
full:
Article 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendees failure to pay cover two or more installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendees failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
In this case, there was no vendor-vendee relationship between respondents and petitioner. Xxx
indubitably, a loan contract with the accessory chattel mortgageand not a contract of sale of
personal property in installmentswas entered into by the parties with the respondent standing as the
debtor-mortagagor and petitioner as creditor-mortgagee. Therefore the conclusion of CA that Art.
1484 finds application in this case is misplaced, and thus must be set aside.
Xxx
Further, there is nothing in the PN with CM that bars the petitioner from receiving any late partial
payments from respondent. If at all, petitioners acceptance of respondents late partial payments in
the aggregate amount of P103,000 will only operate to reduce her outstanding obligation to petitioner.
24

SPECIAL CONTRACTS : PREPARATORY CONTRACTS

AGENCY
MAGELLAN AEROSPACE CORPORATION vs. PHILIPPINE AIR FORCE
G.R. No. 216566, February 24, 2016
Ponente: J. Mendoza, 2nd Division
Nature of Action: Petition for review on certiorari under Rule 45
Facts: On Sept. 18, 2008, PAF contracted Chervin Enterprises for the overhaul of two T76 aircraft
engines in an agreement denominated as Contract for the Procurement of Services and Overhaul of
Two OV10 Engines. Chervin commissioned petitioner MAC to do the work for USD 364,577. MAC,
in turn, outsourced the overhaul service from another subcontractor, National Flight Services, Inc
(NFSI). The overhauled engines were eventually delivered to the PAF.
On Dec 15, 2008, MAC demanded from Chervin the payment of its balance of the contract price. PAF
confirmed that it had already released to Chervin the amount of P23,760,000 as partial payment but
withheld P2,376,000 as retention fund. Despite the release of funds to Chervin, it did not pay MAC
despite repeated demands. Unpaid, MAC demanded payment from PAF, but the latter rejected due to
the fact that the amount held in trust for Chervin cannot be released by PAF to MAC.
MAC filed a complaint for sum of money against Chervin and PAF. PAF moved to dismiss the
complaint averring that its contract with Chervin was for repair and overhaul and not agency ; that it
was never privy to any contract between Chervin and MAC; and that it already settled in full its
obligations with Chervin. Chervin, on the other hand, moved to dismiss the complaint against them
alleging that MAC had no capacity to sue because it was a non-resident doing business in the
Philippines without a license.
RTC granted both motions to dismiss and ordered the dismissal of the complaint filed by MAC. MAC
appealed to CA. CA partly granted MACs appeal by reversing the RTC order of dismissal of the
complaint against Chervin but affirmed the dismissal of the complaint against PAF. MAC moved for a
partial consideration but was denied. Hence, this instant petition.
Issue: Whether or not CA erred in ruling that there was no agency between respondent PAF and
Chervin.
Ruling: No, CA did not err in ruling that there was no agency between respondent PAF and Chervin.
In essence, MAC asserts that the allegations stating that Chervin acted for and in behalf of a
principal, PAF, in tapping its services for the overhaul of the aircraft engines, completed with the
requirements of sufficiency in stating its cause of action against PAF. MAC claims that its allegation
of Chervin being mere agents of PAF in the overhaul contract, establishes clearly, under the
premise of admitting them as true for purposes of a Rule 16 challenge, its entitlement to recover from
PAF, the latter being the principal and beneficiary.
The Court is not persuaded.
The standard requires that [e]very pleading shall contain in a methodical and logical form, a plain,
concise and direct statement of the ultimate facts on which the party pleading relies for his claim or
defense, as the case may be, omitting the statement of mere evidentiary facts. Thus, trial courts need
not overly stretch its limits in considering all allegations just because they were included in the
complaint. Evidently, matters that are required and expected to be sufficiently included in a complaint
and, thus, accorded the assumption of truth, exclude those that are mere legal conclusions, inferences,
evidentiary facts, or even unwarranted deductions.

25

In this case, the averment that Chervin acted as PAFs mere agents in subsequently contracting MAC
to perform the overhauling services is not an ultimate fact. Nothing can be found in the complaint that
can serve as a premise of PAFs status as the principal in the contract between Chervin and MAC. No
factual circumstances were alleged that could plausibly convince the Court that PAF was a party to
the subsequent outsourcing of the overhauling services. Not even in the annexes can the Court find
any plausible basis for the assertion of MAC on PAFs status as a principal. Had MAC went beyond
barren words and included in the complaint essential supporting details, though not required to be
overly specific, this would have permitted MAC to substantiate its claims during the trial and survive
the Rule 16 challenge. In short, factual circumstances serving as predicates were not provided to add
to MACs barren statement concerning PAFs liability. What MAC entirely did was to state a mere
conclusion of law, if not, an inference based on matters not stated in the pleading. To clarify, a mere
allegation that PAF, as a principal of Chervin, can be held liable for nonpayment of the amounts due,
does not comply with the ultimate fact rule.
Without the constitutive factual predicates, any assertion could never satisfy the threshold of an
ultimate fact. Not being an ultimate fact, the assumption of truth does not apply to the aforementioned
allegation made by MAC concerning PAF. Consequently, the narrative that PAF can be held liable as
a principal in the agreement between Chervin and MAC cannot be considered in the course of
applying the sufficiency test used in Section 1(g) Rule 16. It, therefore, produces no link to the
alleged PAFs correlative duty to pay the amounts being claimed by MAC a necessary element of a
cause of action that must be found in the pleading. Lacking that essential link, and after
hypothetically admitting the truth of all the allegations other than those that are ought to be excluded
for not being ultimate facts, it is demonstrable that the CA correctly ruled for the dismissal of the
complaint on the ground of MACs failure to state its cause
of action against PAF.
WHEREFORE, the petition is DENIED.

26

AGENCY
IMPLIED AGENCY
DRA. MERCEDES OLIVER vs. PHILIPPINE SAVINGS BANK and LILIA CASTRO
G.R. No. 214567, April 4, 2015
Ponente: J. Mendoza, 2nd Division
Nature of the case: Petition for review on certiorari seeking to reverse and set aside the Decision and
Resolution of CA which reversed RTCs Order in a case for injunction and damages.
Facts: Petitioner Dra. Mercedes Oliver was a depositor of respondent Philippine Savings Bank
(PSBank) . respondent Lilia Castro was the Asst. VP of ____Branch Manager of PSBank. Oliver, in
her Complaint, alleged that she made an initial deposit of P12M into her PSBank account. Castro then
convinced her to loan out her deposit as interim or bridge financing for the approved loans of bank
borrowers who were waiting for the actual release of their loan proceeds. Under this arrangement,
Castro would first show the approved loan documents to Oliver before withdrawing the amount
needed from Olivers account. Casto would then charge the rate of 4% per month from the loan
proceeds as interim or bridge financing interest. Meanwhile, Castro would earn a commission of 10%
from the interest. Their arrangement went on smoothly for months. Oliver entrusted her passbook to
Castro and because Oliver earned substantial profit, she was further convinced by Castro to avail of
an additional credit line in the amount of P10M secured by a real estate mortgage on her house and
lot in Ayala Alabang.
Oliver instructed Castro to pay P2M monthly to PSBank on Sept. 3, 1998 so that her credit line for
P10M would be fully paid by Jan. 3, 1999. However, beginning Sept. 1998, Castro stopped rendering
an accounting for Oliver. Oliver demanded from Castro the return of her passbook. When Castro
finally showed her the passbook she noticed many erasures and superimpositions and became
suspicious to erasures pertaining to December 1998 so she requested a copy of her transaction history
register from PSBank. Apparently, there were several transactions in December crediting and debiting
millions. Oliver learned that the additional P4.5M and P1,396,3120 loans were also secured by the
REM covering the same property in Ayala Alabang. Oliver received 2 collection letters from PSBank
referring to non-payment of unpaid loans of P4,491,250 from the additional loan and P1,396,310.45
from the P10M credit line which she neither availed of nor authorized the withdrawal of P7M. A final
demand letter was sent to her but Oliver still refused to pay. After which, Oliver received a notice of
sale involving the Ayala Alabang property. This prompted Oliver to file a Complaint against PSBank
and Castro. PSBank avers that Oliver failed to pay the P10M loan so she obtained another loan in the
amount of P4.5M days later she again acquired loan of P1,396,310.45 as shown by another
promissory note.
RTC dismissed the Complaint and rendered judgment in favor of PSBank and Castro. Oliver moved
for reconsideration which RTC granted by reversing its earlier decision. According to RTC, Olivers
assertion that the withdrawal was made without her consent prevailed in the absence of any proof to
the contrary. The cash savings withdrawal slips shouldve been offered in evidence to settle the issue
of whether the amount of P7M was actually withdrawn by Oliver or her authorized representative.
Aggrieved, Castro and PSBank appealed to CA. CA granted the appeal and reversed the RTC order.
Oliver moved for reconsideration but it was denied. Hence, this petition.
Issue: 1) Whether or not an agency exists between Oliver and Castro.
2) Whether or not agent acted beyond the scope of her authority.
Ruling: 1) Yes. There was an implied agency between Oliver and Castro.
A contract of agency may be inferred from all the dealings between Oliver and Castro. Agency can be
express or implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting on his behalf without authority. The
question of whether an agency has been created is ordinarily a question which may be established in
27

the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately
one of intention.
In this case, Oliver and Castro had a business agreement wherein Oliver would obtain loans from the
bank, through the help of Castro as its branch manager; and after acquiring the loan proceeds, Castro
would lend the acquired amount to prospective borrowers who were waiting for the actual release of
their loan proceeds. Oliver would gain 4% to 5% interest per month from the loan proceeds of her
borrowers, while Castro would earn a commission of 10% from the interests. Clearly, an agency was
formed because Castro bound herself to render some service in representation or on behalf of Oliver,
in the furtherance of their business pursuit.
For months, the agency between Oliver and Castro benefited both parties. Oliver, through Castros
representations, was able to obtain loans, relend them to borrowers, and earn interests; while Castro
acquired commissions from the transactions. Oliver even gave Castro her passbook to facilitate the
transactions.
Accordingly, the laws on agency apply to their relationship. Article 1881 of the New Civil Code
provides that the agent must act within the scope of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of the agency. Thus, as long as the agent acts within
the scope of the authority given by his principal, the actions of the former shall bind the latter.
2) P7 million was improperly withdrawn; agent acted beyond her scope of authority
Although it was proven that Oliver authorized the loans, in the aggregate amount of P5,888,149.33,
there was nothing in the records which proved that she also allowed the withdrawal of P7 million
from her bank account. Oliver vehemently denied that she gave any authority whatsoever to either
Castro or PSBank to withdraw the said amount.
Verily, Castro, as agent of Oliver and as branch manager of PS Bank, utterly failed to secure the
authorization of Oliver to withdraw such substantial amount. As a standard banking practice intended
precisely to prevent unauthorized and fraudulent withdrawals, a bank manager must verify with the
client-depositor to authenticate and confirm that he or she has validly authorized such withdrawal.
Castros lack of authority to withdraw the P7 million on behalf of Oliver became more apparent when
she altered the passbook to hide such transaction. It must be remembered that Oliver entrusted her
passbook to Castro. In the transaction history register for her account, it was clear that there was a
series of dealings from December 17, 1998 to December 23, 1998. When compared with Olivers
passbook, the latter showed that the next transaction from December 16, 1998 was on December 28,
1998. It was also obvious to the naked eye that the December 28, 1998 entry in the passbook was
altered. As aptly observed by the RTC, nowhere in the testimony of Castro could be gathered that she
made a detailed, plausible and acceptable explanation as to why she had to make numerous
corrections in the entries in the passbook. Even after the corrections allegedly done to reconcile the
records, the passbook and the transaction history register still contained different entries.
Curiously, though she asserts that Oliver obtained a loan of P4.5 million and authorized the
withdrawal of P7 million, Castro could not explain why these transactions were not reflected in the
passbook which was in her possession. Bearing in mind that the alleged unauthorized withdrawal
happened on December 21, 1998, while Castro was questionably withholding the passbook, the Court
is of the impression that she manipulated the entries therein to conceal the P7 million withdrawal.
Further, Castro claims that Oliver instructed her to withdraw the P7 million from her bank account
and to deposit the same in Lims account. Glaringly, Lim was not presented as a witness to
substantiate her defense. Even though she testified that the P7 million transfer from Olivers account
to Lims was duly documented, Castro never presented a single documentary proof of that specific
transaction.
28

The Court is convinced that Castro went beyond the scope of her authority in withdrawing the P7
million from Olivers bank account. Her flimsy excuse that the said amount was transferred to the
account of a certain Lim deserves scant consideration. Hence, Castro must be held liable for
prejudicing Oliver.

SPECIAL CONTRACTS : TRUST

IMPLIED TRUST
JOSE NORBERTO ANG vs. THE ESTATE OF SY SO
G.R. No. 182252, August 3, 2016
Ponente: C.J. Sereno, 1st Division
Nature of the Action: Petition for Review on Certiorari under Rule 45 assailing the Decision and
Resolution of the CA partially granting respondent Sy Sos appeal from RTC Decision.
Facts: Respondent Sy So, a Chinese national, and her husband, Jose Ang, were childless that is why
when a woman approached respondent and offered an infant for adoption, respondent immediately
accepted the offer. No formal adoption papers were processed but the child was christened as Jose
Norberto Ang, the petitioner in this case. Respondent subsequently adopted three other wards: Mary
Ang, Tony Ang, and Teresita Tan. Shortly after her husband died, respondent acquired a property in
Caloocan which she registered under TCT No. 73396 in the name of petitioner Jose, who was then
only 3 yrs. old, in keeping with the Chinese tradition of registering properties in the name of the
eldest male son or ward. Another property was again acquired by respondent also in Caloocan
registered under TCT No. 10425 under Joses name. Respondent, at her own expense, built an eightdoor apartment and for over 30 years, she, along with petitioner and her other wards, lived there.
Unknown to respondent, Jose filed Petition for Issuance of Second Owners Duplicate Certificate of
Title of the above mentioned properties and sold the one covered by TCT No. 10425 in 1971. In April
1974, Joses counsel wrote respondent Sy So to demand payment of P500 as her contribution for real
estate taxes on the 10th Ave. lot. In March 1989, said counsel wrote again formally demanding
respondent to vacate the property within 3 months and informing her that she would be charged
P5,000 as monthly rent. In July 1989, Jose filed an ejectment suit against respondent for nonpayment
of rentals byt the case was dismissed on Oct. 30, 1989 by the MeTC. Meanwhile, in 1993, respondent
Sy So filed with the RTC a case for Transfer of Trusteeship from the Defendant Jose Ang to the New
Trustee, Tony Ang, with Damages. Citing Joses gross ingratitude, disrespectfulness, dishonesty, and
breach of trust, respondent Sy So argued that she bought the two parcels of land and constructed the
apartment doors at her own expense. Thus, she alleged that there was an implied trust over the
properties in question. RTC ruled in favor of petitioner and dismissed respondents complaint. RTC
ruled there was no implied trust citing Art. 1448 of the Civil Code which states that if the person to
whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale,
no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.
Aggrieved, respondent appealed to CA. Respondent argued that in the absence of any formal adoption
proceedings, Art. 1448 cannot apply. CA partially granted respondents appeal by denyust.ing her
claim for reimbursement of the purchase price over the lot covered by TCT 10425 on the ground of
prescription and declaring her as the true and absolute owner of the property under TCT No. 73396.
Hence, this instant petition.
Issue: Whether or not the argument of respondent that there exists an implied trust is tenable.
Ruling: We grant the petition.
As early as Krivenko vs. Register of Deeds, we have interpreted the foregoing to mean that, under the
Constitution then in force, aliends may not acquire residential lands: One of the fundamental
principles underlying the provision of Article XIII of the Constitution x x x is that lands, minerals,
forests, and other natural resources constitute the exclusive heritage of the Filipino nation. They
29

should, therefore, be preserved for those under the sovereign authority of that nation and for their
posterity.
These provisions have been substantially carried over to the present Constitution, and Jurisprudence
confirms that aliens are disqualified from acquiring lands of the public domain. In Ting Ho vs. Teng
Gui, Muller vs. Muller, Frenzel vs. Catito, and Cheesman vs. Intermediate Appellate Court, all cited
in Matthews vs. Sps. Taylor, We upheld the constitutional prohibition on aliens acquiring land in the
Philippines. We have consistently ruled thus in line with constitutional intent to preserve and conserve
prohibition on aliens acquiring land in the Philippines. Our Constitution clearly reserves for Filipino
citizens or corporations at least sixty percent of the capital of which is owned by Filipinos the right to
acquire lands of public domain. The prohibition against aliens owning lands in the Philippines is
subject only to limited constitutional exceptions, and not even an implied trust can be permitted on
equity considerations.
Much as we sympathize with the plight of a mother who adopted an infant son, only to have her
ungrateful ward eject her from her property during her twilight years, we cannot grant her prayer.
Applying the above rules to the present case, we find that she acquired the subject parcels of land in
violation of the constitutional prohibition against aliens owning real property in the Philippines.
Axiomatically, the properties in question cannot be legally reconveyed to one who had no right to
own them in the first place. This being the case, we no longer find it necessary to pass upon the
question of respondent Sy Sos substitution in these proceedings.
The Solicitor General, however, may initiate an action for reversion or escheat of the land to the State.
In sales of real estate to aliens incapable of holding title thereto by virtue of the provisions of the
Constitution, both vendor and the vendee are deemed to have committed the constitutional violation.
Being in pari delicto the courts will not afford protection to either party. The proper party who could
assail the sale is the Solicitor General.
WHEREFORE, the instant petition for review is Granted.

30

SPECIAL CONTRACTS : ACCESSORY CONTRACTS

MORTGAGE
METROPOLITAN BANK &TRUST COMPANY vs. CHUY LU TAN, ROMERO TANCO, DR.
SY SE HIONG, and TAN CHU HSIU YEN
G.R. No. 202176, August 1, 2016
Ponente: J. Peralta, 3rd Division
Nature of Action: Petition for review on certiorari seeking to reverse and set aside the decision and
resolution of CA. The assailed CA Decision reversed and set aside the RTC decision in an action for
collection of sum of money while the CA Resolution denied petitioners motion for reconsideration.
Facts: Respondents Chuy Lu Tan (Chuy) and Romeo Tanco (Tanco) obtained 5 loans from
Metrobank amounting to P19,900,000.00 The loans are evidenced by 5 Promissory Notes which
respondents executed in different dates. As security, Chuy executed a Real Estate Mortgage (REM)
over a parcel of land in Quezon City covered by TCT No. RT-53314. In addition, respondents Sy Se
Hiong (Sy) and Tan Chu Hsiu Yen (Tan) also executed a Continuing Surety Agreement whereby they
bound themselves to be solidarily liable with Chuy and Tanco for the loan plus interests at the rate
stated in the obligation secured thereby, any or all penalties, costs and expenses which may be
incurred by Metrobank in granting and/or collecting the aforesaid obligations/
indebtedness/instruments, and including those for the custody, maintenance, and preservation of the
securities given therefor, as may be incurred by Metrobank before or after the date of the Surety
Agreement.
Chuy and Tanco failed to settle their loans which ballooned to P24,353,062.03 despite Metrobanks
repeated demands. This prompted Metrobank to extrajudicially foreclose the mortgage and the
property was sold to it as the highest bidder for the amount of P24,572,268.00. Metrobank claims that
there remained a deficiency of P1,641,815 because of the cost of foreclosure, interest, penalty
charges, attorneys fees, etc. Metrobank demanded payment of deficiency from respondents but
respondents did not heed to Metrobanks demand. Metrobank then filed an action for collection of
sum of money against respondents. RTC ruled in favor of Metrobank and ordered herein respondents
Chuy, Tanco, Sy, and Tan solidarily liable to Metrobank for the deficiency. Petitioner and
respondents, except Chuy, appealed to CA. CA reversed and set aside RTC decision and dismissed
Metrobanks complaint. Metrobank moved for reconsideration but it was denied. Hence, the present
petition.
Issue: Whether or not the CA erred in denying Metrobank its deficiency claim on the ground that
such claim is iniquitous, unconscionable, and exorbitant.
Ruling: Yes, the CA did err in denying Metrobank its deficiency claim.
The Court rules for the petitioner. Settled is the rule that a creditor is not precluded from recovering
any unpaid balance on the principal obligation if the extrajudicial foreclosure sale of the property
subject of the real estate mortgage results in a deficiency. In Spouses Rabat v. Philippine National
Bank, this Court held:
x x x it is settled that if the proceeds of the sale are insufficient to cover the debt in an
extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency
from the debtor. For when the legislature intends to deny the right of a creditor to sue for any
deficiency resulting from foreclosure of security given to guarantee an obligation it expressly
provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing
31

sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the
extrajudicial foreclosure of mortgages, while silent as to the mortgagee's right to recover,
does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that
a deficiency claim arising from the extrajudicial foreclosure is allowed.
Indeed, the fact that the mortgaged property was sold at an amount less than its actual market value
should not militate against the right to such recovery. This Court has likewise ruled that in deference
to the rule that a mortgage is simply a security and cannot be considered payment of an outstanding
obligation, the creditor is not barred from recovering the deficiency even if it bought the mortgaged
property at the extrajudicial foreclosure sale at a lower price than its market value notwithstanding the
fact that said value is more than or equal to the total amount of the debtor's obligation.
WHEREFORE, the petition is PARTLY GRANTED. The March 20, 2012 Decision and June 11, 2012
Resolution of the Court of Appeals in CA-GR. CV No. 92543 are REVERSED and SET ASIDE. The
July 17, 2008 Decision of the Regional Trial Court of Makati City, Branch 61 is REINSTATED with
the MODIFICATION that the sum of~l,641,815.00

32

MORTGAGE
HEIRS OF FELINO TIMBOL JR. vs. PHILIPPINE NATIONAL BANK
G.R. No. 207408, April 18, 2015
Ponente: J. Carpio, 2nd Division
Nature of the Action: Petition for review on certiorari under Rule 45 assailing the Decision and
Resolution of CA reversing and setting aside the RTC Decision.
Facts: In December 1996, Karrich Holdings Ltd (KHL) based in HK and owned by Felino Timbol
applied with PNBs wholly-owned HK-based subsidiary, PNB-IFL, for credit facilities in the amount
of P22,796,200. As security, Timbol executed real estate mortgages (REM) on his behalf and on
behalf of Emmanuela Languardia over 9 parcels of real estate registered in the name of Mr. and Mrs.
Timbol, Jr. When Timbol defaulted in paying his loan obligations, PNB, on behalf of PNB-IFL, sent a
demand letter stating that Timbols loan obligaton is P38,088,173.59. Timbol still failed to pay his
obligation so on Nov. 15, 1999, PNB caused the foreclosure of the mortgaged properties claiming that
Timbol violated the terms of the REM by defaulting on the payment of loan obligation despite
demands.
As of the date of foreclosure, the outstanding balance of Timbol already amounted to P42,320,611.62.
PNB was allegedly the highest bidder at the public auction sale with a bid price of P35,669,000. On
August 4, 2000, Timbol and Languardia filed suit against PNB, Espina, and the RD of Makati for
annulment of REM, foreclosure, and auction sale, for accounting and damages, and for a temporary
restraining order and/or injunction. They accused PNB of deliberately bloating the amount of the
obligation and that the foreclosure proceedings are highly irregular, invalid, and illegal.
RTC granted the issuance of a writ of preliminary injunction and denied PNBs motion for
reconsideration and supplemental motion for reconsideration while grating Timbols motion to reduce
bond which would ultimately be nullified and set aside by the SC. RTC declared the foreclosure of
mortgage by the defendant bank to be null and void. PNB elevated the case to CA and while the case
was pending, Timbol died. He was substituted by his heirs as petitioners. CA reversed RTCs decision
dismissing the complaint. Petitioners filed a motion for reconsideration but was denied. Hence, this
instant petition.
Issue: Whether or not PNB has the right to foreclose the real estate mortgage.
Ruling: Yes, PNB has the right to foreclose the real estate mortgage in this case.
As to the claim that there is no proper authority from PNB-IFL assigning its rights and interest in the
mortgage contract to PNB, the Court finds that the same is easily controverted by the REM itself.
Paragraph 21 of the REM states:
21. APPOINTMENT OF AGENT, ASSIGNMENT. The Mortgagee hereby appoints the PNB (Head
Office, Pasay City) as its attorney-in-fact with full power and authority to exercise all its rights and
obligations under this Agreement, such as but not limited to foreclosure of the Mortgaged Properties,
taking possession and selling of the mortgaged/foreclosed properties, and execution of covering
documents. The Mortgagee may also assign its rights and interest under this Agreement even without
need of prior notice to, or consent of, the Mortgagors.
The terms of the contract are clear and should end any further discussion on this issue.
33

In addition, petitioners never raised the authority of PNB to foreclose the mortgage on behalf of PNBIFL in their complaint before the trial court or in the proceedings before the CA.
It is not too late for petitioners to raise these issues before the Court. It is noteworthy that all these
could have been ventilated in the proceedings before the CA had petitioners not neglected to file their
Appellees Brief.
Thus, the foregoing discussion puts to rest the issues raised by petitioners. Consequently, the REM,
the subsequent foreclosure and auction sale are held to be valid. No irregularity attended the
execution of the mortgage contract, the foreclosure, and the auction sale, the same being within the
terms agreed upon by petitioners predecessor-in-interest and PNB.
Wherefore, the petition is Denied. The Decision of the CA is Affirmed.
So ordered.

34

BREACH OF CONTRACT
CENTURY PROPERTIES, INC. vs. EDWIN J. BABIANO and EMMA B. CONCEPCION
G.R. No. 220978, July 5, 2016
Ponente: J. Perlas-Bernabe, 1st Division
Nature of Action: Petition for review on certiorari assailing the Decision and Resolution of CA
which affirmed with modification the Decision of the NLRC and ordering the petitioner to pay
respondents unpaid commissions.
Facts: Respondent Babiano was hired by petitioner CPI as Director of Sales and was eventually
appointed as VP for Sales. His employment contract contained a Confidentiality of Documents and
Non Compete Clause which barred him from working in any business enterprise in direct
competition with CPI while employed and for a period of one year from date of resignation or
termination. Any breach thereof, his forms of compensation including commissions and incentives
will be forfeited. On February 25, 2009, Babiano tendered resignation and revealed that he had been
accepted as VP of First Global BYO Development Corporation (First Global)a competitor of
petitioner. Petitioner served him a Notice of Termination for being in AWOL, violating the
Confidenciality and Non-Compete Clause of their contract, and recruiting CPI personnel to join
competitor.
Respondent Concepcion, on the other hand, was initially hired as Sales Agent but eventually
promoted as Project Director. In her contracts with petitioner, it is stipulated that no employeremployee relationship that exists between them. On February 23, 2009, she resigned effective
immediately.
Respondents filed a complaint for non payment of commissions and damages against CPI before
NLRC. LA ruled in CPIs favor and dismissed the complaint for lack of merit. Respondents appealed
to NLRC which reversed and set aside the ruling of the LA. Aggrieved, CPI filed a petition for
certiorari before CA. CA affirmed NLRC ruling with modification. CPI sought for reconsideration but
was denied. Hence, this petition.
Issue: Whether or not CA erred in denying CPIs petition and holding it liable for unpaid
commissions despite violation of the Confidentiality and Non-Compete clause of respondent Babiano.
Ruling:
Article 1370 of the Civil Code provides that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall control.
Thus, in the interpretation of contracts, the Court must first determine whether a provision or
stipulation therein is ambiguous. Absent any ambiguity, the provision on its face will be read as it is
written and treat as the binding law of the parties to the contract.
In the case at bar, CPI primarily invoked the Confidentiality of Documents and Non-Compete
Clause found in Babianos contract to justify the forfeiture of his commissions, which states that in
order to ensure strict compliance herewith, you shall not work for whatever capacity, either as an
employee, agent, or consultant with any person whose business is in direct competition with the
company while you are employed and for a period of one year from date of resignation or termination
from the company. And Finally, if undersigned breaches any terms of this contract, forms of
compensation including commissions and incentives will be forfeited.

35

Verily, the foregoing clause is not only clear and unamibiguous in stating that Babiano is barred to
work for whatsoever capacity xxx with any person whose business is in direct competition with CPI
while employed and for a period of one year from date of resignation or termination from the
company, it also expressly provided in no uncertain terms that should Babiano breach any term of
the employment contract, forms of compensation including commissions and incentives will be
forfeited.
Here, the contracting partiesBabiano and CPIindisputably wanted the said clause to be effective
even during the existence of the employer-employee relationship between Babiano and CPI, thereby
indicating their intention to be bound by such clause by affixing their signatures to the employment
contract. Significantly, as CPI's Vice President for Sales, Babiano held a highly sensitive and
confidential managerial position as he "was tasked, among others, to guarantee the achievement of
agreed sales targets for a project and to ensure that his team has a qualified and competent manpower
resources by conducting recruitment activities, training sessions, sales rallies, motivational activities,
and evaluation programs."
Hence, to allow Babiano to freely move to direct competitors during and soon after his employment
with CPI would make the latter's trade secrets vulnerable to exposure, especially in a highly
competitive marketing environment. As such, it is only reasonable that CPI and Babiano agree on
such stipulation in the latter's employment contract in order to afford a fair and reasonable protection
to CPI. Indubitably, obligations arising from contracts, including employment contracts, have the
force of law between the contracting parties and should be complied with in good faith. Corollary
thereto, parties are bound by the stipulations, clauses, terms, and conditions they have agreed to,
provided that these stipulations, clauses, terms, and conditions are not contrary to law, morals, public
order or public policy, as in this case.
Therefore, the CA erred in limiting the "Confidentiality of Documents and Non-Compete Clause"
only to acts done after the cessation of the employer-employee relationship or to the "postemployment" relations of the parties. As clearly stipulated, the parties wanted to apply said clause
during the pendency of Babiano' s employment, and CPI correctly invoked the same before the labor
tribunals to resist the farmer's claim for unpaid commissions on account of his breach of the said
clause while the employer-employee relationship between them still subsisted. Hence, there is now a
need to determine whether or not Babiano breached said clause while employed by CPI, which would
then resolve the issue of his entitlement to his unpaid commissions.
A judicious review of the records reveals that in his resignation letter dated February 25, 2009,
Babiano categorically admitted to CPI Chairman Jose Antonio that on February 12, 2009, he sought
employment from First Global, and five (5) days later, was admitted thereto as vice president. From
the foregoing, it is evidently clear that when he sought and eventually accepted the said position with
First Global, he was still employed by CPI as he has not formally resigned at that time. Irrefragably,
this is a glaring violation of the "Confidentiality of Documents and Non-Compete Clause" in his
employment contract with PI, thus, justifying the forfeiture of his unpaid commissions.

36

BREACH OF CONTRACT
TORRES-MADRID BROKERAGE, INC. vs. FEB MITSUI MARINE INSURANCE CO., INC.
and BENJAMIN MANALASTAS, doing business under the name of BMT TRUCKING
SERVICES.
G.R. No. 194121, July 11, 2016
Ponente: J. Brion, 2nd Division
Nature of Action: Petition for review on certiorari challenging CA decision affirming RTCs
Decision finding Torres-Madrid Brokerage, Inc. (TMBI) and Benjamin Manalastas solidarily liable to
respondent FEB Mitsui Marine Insurance Co (Mitsui) for damages from the loss of transported cargo.
Facts: On Oct. 7, 2000, a shipment of electronic goods from Thailand and Malaysia arrived at the
Port of Manila for Sony Philippines. Prior to its arrival, Sony engaged services of TMBI to facilitate,
process, withdraw and deliver the shipment to its warehouse in Binan, Laguna. TMBI subcontracted
the services Manalastas companyBMT Trucking Services (BMT) to transport shipment from the
port to Laguna. BMT picked up the shipment from the port at 11am on Oct 7, 2000 but could not
immediately deliver them because of the truck ban and because the following day was a Sunday.
BMT scheduled the delivery on Oct.9, 2000.
On Oct. 9, 4 BMT trucks left for Laguna but only 3 arrived at Sonys warehouse because the truck
driven by Rufo Lapesura was found abandoned along Filinvest Alabang with both the truck driver
and shipment missing. BMT and TMBI reported the matter to the police. TMBI filed a complaint
against the driver for hijacking and notified Sony of the loss. TMBI sent BMT a demand letter for
the payment of the lost shipment but BMT refused to pay.
Sony then filed an insurance claim with Mitsui and after evaluating the merits Mitsui paid Sony
P7,923,386.23 corresponding the value of the lost goods. Mitsui then sent TMBI a demand letter for
payment of lost goods but TMBI refused to pay. Thus, Mitsui filed a complaint against TMBI. TMBI
impleaded Manalastas as 3 rd party defendant. RTC found TMBI and Manalastas solidarily liable to
pay Mitsui P7,293,386.23 among others. RTC also held TMBI and Manalastas were common carriers
and had acted negligently. On appeal, CA affirmed RTCs decision and held that hijacking is not
necessarily a fortuitous even because the term refers to the general stealing of cargo during transit and
that even if it was a fortuitous event, TMBIs failure to observe extraordinary diligence in overseeing
the cargo and adopting security measures make it liable for the loss. Lastly, that even if TMBI had not
been negligent, TMBI still breached its contractual obligation to Sony when it failed to deliver the
shipment. Hence, this instant petition.
Issue: 1) Whether or not TMBIa brokeragemay be considered a common carrier.
2) Whether or not a TMBI can be held liable for the loss of the goods due to hijacking.
.
Ruling: 1) Yes, a brokerage may be considered a common carrier if it also undertakes to deliver the
goods for its customers.
Common carriers are persons, corporations, firms, or associations engaged in the business of
transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public. By the nature of their business and for reasons of public policy, they are bound
to observe extraordinary diligence in the vigilance over the goods and safety of their passengers.
In A.F. Sanchez Brokerage Inc. v. Court of Appeals, we held that a customs broker whose principal
business is the preparation of the correct customs declaration and the proper shipping documents is
37

still considered a common carrier if it also undertakes to deliver the goods for its customers. The law
does not distinguish between one whose principal business activity is the carrying of goods and
one who undertakes this task only as an ancillary activity. This ruling has been reiterated in
Schmitz Transport & Brokerage Corp. v. Transport Venture, Inc., Loadmasters Customs Services,
Inc. v. Glodel Brokerage Corporation,and Westwind Shipping Corporation v. UCPB General
Insurance Co., Inc.
Despite TMBIs present denials, we find that the delivery of the goods is an integral, albeit ancillary,
part of its brokerage services. TMBI admitted that it was contracted to facilitate, process, and clear
the shipments from the customs authorities, withdraw them from the pier, then transport and deliver
them to Sonys warehouse in Laguna.
That TMBI does not own trucks and has to subcontract the delivery of its clients goods, is
immaterial. As long as an entity holds itself to the public for the transport of goods as a business, it is
considered a common carrier regardless of whether it owns the vehicle used or has to actually hire
one.
Lastly, TMBIs customs brokerage services including the transport/delivery of the cargo are
available to anyone willing to pay its fees. Given these circumstances, we find it undeniable that
TMBI is a common carrier.
2) Simply put, the theft or the robbery of the goods is not considered a fortuitous event or a force
majeure Nevertheless, a common carrier may absolve itself of liability for a resulting loss: (1) if it
proves that it exercised extraordinary diligence in transporting and safekeeping the goods; or (2) if it
stipulated with the shipper/owner of the goods to limit its liability for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence.
However, a stipulation diminishing or dispensing with the common carriers liability for acts
committed by thieves or robbers who do not act with grave or irresistible threat, violence, or force is
void under Article 1745 of the Civil Code for being contrary to public policy. Jurisprudence, too, has
expanded Article 1734s five exemptions. De Guzman v. Court of Appeals interpreted Article 1745 to
mean that a robbery attended by grave or irresistible threat, violence or force is a fortuitous event
that absolves the common carrier from liability.
That the cargo disappeared during transit while under the custody of BMT TMBIs subcontractor
did not diminish nor terminate TMBIs responsibility over the cargo. Article 1735 of the Civil Code
presumes that it was at fault.
Instead of showing that it had acted with extraordinary diligence, TMBI simply argued that it was not
a common carrier bound to observe extraordinary diligence. Its failure to successfully establish this
premise carries with it thepresumption of fault or negligence, thus rendering it liable to Sony/Mitsui
for breach of contract.
Specifically, TMBIs current theory that the hijacking was attended by force or intimidation is
untenable.
First, TMBI alleged in its Third Party Complaint against BMT that Lapesura was responsible for
hijacking the shipment. Further, Victor Torres filed a criminal complaint against Lapesura with the
NBI. These actions constitute direct and binding admissions that Lapesura stole the cargo.
Justice and fair play dictate that TMBI should not be allowed to change its legal theory on appeal.
Second, neither TMBI nor BMT succeeded in substantiating this theory through evidence.
Thus, the theory remained an unsupported allegation no better than speculations and conjectures. The
CA therefore correctly disregarded the defense of force majeure.

38

QUASI-DELICT
TRAVEL & TOURS ADVISERS, INCORPORATED vs. ALBERTO CRUZ, SR., EDGAR
HERNANDEZ, and VIRGINIA MUNOZ
G.R. No. 199282, March 14, 2016
Ponente: J. Peralta, 3rd Division
Nature of Action: Petition for Review on Certiorari under Rule 45
Facts: Respondent Edgar Hernandez was driving a passenger jeepney he owns along Angeles,
Pampanga. Meanwhile, a Daewoo passenger bus owned by petitioner and driven by Edgar Calaycay
was travelling in the same direction as that of respondent Hernandez vehicle. The bus bumped the
rear portion of the jeepney causing to ram into an acacia trea which resulted in the death of Alberto
Cruz, Jr. and the serious physical injuries of Virgina Munoz. Thus, respondents, filed a complaint for
damages.
For its defense, the petitioner claimed that it exercised the diligence of a good father of a family in the
selection and supervision of its employee Calaycay and further argued that it was Hernandez who was
driving his passenger jeepney in a reckless manner by suddenly entering the lane of petitioners bus
without seeing whether the road was clear to enter said lane. Further, petitioner alleged that
Hernandez violated his franchise by travelling along an unauthorized route and that the jeepney was
overloaded with passengers and the deceased Alberto Cruz, Jr. was clinging at the back thereof.
RTC ruled in favor of respondents. On appeal, CA partially granted the appeal and affirmed with
modification the ruling of RTC. Hence, this present petition.
Issue: Whether petitioner is liable for damages awarded to the respondents.
Ruling: Yes, the petitioner is also liable for damages awarded to respondents.
It has been held that drivers of vehicles who bump the rear of another vehicle are presumed to be
the cause of the accident, unless contradicted by other evidence. The rationale behind the
presumption is that the driver of the rear vehicle has full control of the situation as he is in a position
to observe the vehicle in front of them.
xxx
From the above findings, it is apparent that the proximate cause of the accident is the petitioners bus
and that the petitioner was not able to present evidence that would show otherwise.
xxx
Consequently, the petitioner being the owner of the bus and the employer of the driver, Edgar
Calaycay, cannot escape liability. Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done, such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
Complementing Article 2176 is Article 2180 which states:

39

The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but
also for those of persons for whom one is responsible xxx.
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry xxx.
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage.
Article 2180, in relation to Article 2176, of the Civil Code provides that the employer of a negligent
employee is liable for the damages caused by the latter. When an injury is caused by the negligence of
an employee, there instantly arises a presumption of the law that there was negligence on the part of
the employer either in the selection of his employee or in the supervision over him after such election.
The presumption, however may be rebutted by clear showing that it had exercised the care and
diligence of a good father of a family in the selection and supervision of his employee. Hence, to
escape liability for quasi-delict committed by an employee, the employer must adduce proof that it
exercised such degree of care. In this case, petitioner failed to do so.
xxx
The petitioner and its driver, therefore, are not solely liable for the damages caused to the victims.
The petitioner must be held liable only for the damages actually caused by his negligence. It is
therefore, proper to mitigate the liability of the petitioner and its driver. The determination of the
mitigation of the defendants liability varies depending on the circumstances of each case.

40

DAMAGES
LIQUIDATED DAMAGES
ACS DEVELOPMENT & PROPERTY MANAGERS, INC., vs. MONTAIRE REALTY AND
DEVELOPMENT CORPORATION
G.R. No. 195552, April 18, 2016
Ponente: J. Reyes, 3rd Division
Nature of the Action: Petition for certiorari to assail the CA Decion which affirmed with
modification the Decision of the CIAC (Construction Industry Arbitration Commission).
Facts: Petitioner ADPROM and respondent MARDC were parties to a Construction Agreement
executed on April 25, 1996 where ADPROM, as contractor, bound himself to construct 17 units of
MARDCs Villa Fresca Townhomes in Brgy. Kaybagal, Tagaytay City. The total consideration for the
contract was P39,500,000 inclusive of labor, materials, supervision and taxes. ADPROM was to be
paid periodically based on monthly progress billings, less 10% retention. They later on amended their
agreement reducing the no. of units to be erected to 11 and the total contract price to P22,500,000.
MARDC fully satisfied ADPROMs Progress Billing Nos. 1-8 for a total of P23,169,183.43. In
billing no.9, ADPROM demanded P1,495,345.24. However, only P94,460.28 was approved.
ADPROM refused such reduction. ADPROM decided on a work stoppage. This prompted MARDC
to serve to ADPROM a notice of default. MARDC decided to terminate the agreement and demanded
that ADPROM return the alleged overpayments amounting to P11,188,539.69 after it was determined
that ADPROM only accomplished 54.67%. Feeling aggrieved, ADPROM instituted with CIAC a case
for sum of money against MARDC. CIAC ordered MARDC to pay ADPROM P4,384,987.03.
Dissatisfied, MARDC appealed to CA which deleted the award of interest on unpaid billings and
holding ADPROM liable to MARDC for liquidated damages at P39,500 per calendar day starting
Mar. 20, 1997 to Sept. 1, 1997. Unyielding, ADPROM filed this petition.
Issue: Whether or not CA erred in holding ADPROM liable for liquidated damages.
Ruling: No, CA was correct in awarding liquidated damages to MARDC and holding ADPROM
liable for it.
The CA's award of liquidated damages upon MARDC was also supported by sufficient bases. In
justifying the award, the appellate court correctly cited the unjustified decision of ADPROM to cease
in its construction of MARDC's townhouse project. The pending conflict between the parties on the
unpaid billings was not a sufficient ground for such recourse. Article XIII, Section 13.1 of the
Construction Agreement even provided that "[t]he parties shall attempt to settle any dispute arising
from the Agreement amicably."
The Court reiterates that MARDC was allowed under the parties' contract to rely on the findings of
ALA on the percentage of completion and the appropriate payment that should be given therefor, and
to act in accordance with such findings. However, beginning March 18, 1997, at a time when no
approval for full payment was as yet issued by ALA, ADPROM proceeded with its threat to cease
working on the townhouse project already conveyed in its letter dated March 14, 1997. Such work
stoppage by ADPROM was not based on justifiable grounds, and thus rendered applicable the
following agreement of the parties on liability for liquidated damages:
Article IX
LIQUIDATED DAMAGES
41

9.1. [AD PROM] acknowledges that time is of the essence of this Agreement and that any unexcused
day of delay as determined in accordance with [S]ection 5.1 hereof as defined in the general
conditions of this Agreement will result in injury or damages to [MARDC], in view of which, the
parties have hereto agreed that for every calendar day of unexcused delay in the completion of its
Work under this Agreement, [ADPROM] shall pay [MARDC] the sum of Thirty[-]Nine Thousand
Five Hundred (P39,500.00) per calendar day as liquidated damages. Said amount is equivalent to
1110 of 1 % of the Total Contract Price. Liquidated damages under this provision may be deducted by
[MARDC] from the stipulated Contract Price or any balance thereof, or to any progress billings clue
[ADPROM].
Section 5.1 of Article V referred to in the aforequoted provision provides that the townhouse project
shall be completed within 180 calendar days, to be effective from the date of the agreement's
execution, MARDC 's payment of the required down payment and the issuance of a Notice to
Proceed. Based on records, the parties agreed on an extension of the period to complete the project
until April 30, 1997.
There clearly was an unexcused delay in the completion of the project because of ADPROM's
decision on a work stoppage. Given the terms of the Construction Agreement, ADPROM neither had
the authority to terminate their contract, nor to unilaterally decide to discontinue a prompt
performance of its duties under the agreement, especially after no default could as yet be attributed to
MARDC. Records indicate that MARDC had been prompt in the payment of Progress Billing Nos. l
to 8 for the period covering June 1996 to January 1997, having already paid a total amount of
P23,169,183.43 for the construction of the townhouses. The dispute only arose from the February
1997 billing. ADPROM's unilateral and hasty decision to cease constructing, and the consequent
delay in the project's completion, then made it liable for the stipulated liquidated damages.
In Philippine Charter Insurance Corporation v. Petroleum Distributors & Services Corporation, the
Court reiterated:
Article 2226 of the Civil Code allows the parties to a contract to stipulate on liquidated damages to be
paid in case of breach. It is attached to an obligation in order to insure performance and has a double
function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the
obligation by the threat of greater responsibility in the event of breach. As a general rule, contracts
constitute the law between the parties, and they are bound by its stipulations. For as long as they are
not contrary to law, morals, good customs, public order or public policy, the contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient. (Citations
omitted)
Subsequent to the execution of the 'Construction Agreement, the parties decided to vary the terms of
their contract by reducing the project's number of units and the corresponding contract price. There
was nonetheless no indication that they resolved to reduce the amount of liquidated damages to be
paid by ADPROM in the event of its unexcused delay. The foregoing circumstances also do not affect
ADPROM's entitlement to the unpaid billings of Pl ,468,348.60, after it was established before the
CIAC and by the CA that work for such value had been completed by the company. MARDC then
rightly had to compensate AD PROM for such amount, together with the l0% retention of
P2,806,814.00.
The imposable interest on the monetary awards after their finality must however be clarified, as the
CA made no pronouncement on the CIA C's award of interest on the total money judgment, pegged
by the CIAC at the rate of 12% per annum from the time they become due until full payment. To be
consistent with prevailing jurisprudence, this must be modified in that all monetary awards shall bear
interest at the rate of only six percent (6%) per annum, and to be computed from the time the awards
attain finality until full payment thereof.

42

WHEREFORE, the petition is DISMISSED. The Decision dated March 28, 2000 and Resolution
dated November 9, 2010 of the Court of Appeals in CA-G.R. SP No. 48805 are AFFIRMED with
MODIFICATION in that the monetary awards to the parties shall bear interest at the rate of six
percent ( 6%) per annum from the time the awards become final until full satisfaction thereof.
SO ORDERED.

DAMAGES
SPOUSES MAMERTO and ADELIA TIMADO vs. RURAL BANK OF SAN JOSE, INC.,
TEDDY MONASTERO and ATTY. AVELINO SALES
G.R. No. 201436, July 11, 2016
Ponente: J. Brion, 2nd Division
Nature of Action: Petition for review on certiorari assailing the CA decision that affirmed with
modification RTC joint decision dismissing complaint for reformation of instruments and petition for
indirect contempt filed by petitioners against respondents.
Facts: Petitioners obtained a loan from Rural Bank amounting to P178,000. As security, they
executed a real estate mortgage over a parcel of land in Camarines Sur and chattel mortgage over on
unit of rice mill machinery and one unit of diesel engine in favor of the bank. Petitioners failed to pay
the balance of their loan amounting to P125,700. The bank informed the petitioners of its intention to
foreclose the REM and CM to cover the balance.
Petitioners filed a complaint for reformation of instruments with prayer for injunction and TRO
against respondents but Ru ral Bank still proceeded with the extrajudicial foreclosure of the REM and
sold the property at public auction where Rural Bank emerged as the highest bidder. Provisional deed
of sale was registered. After one year, the title was consolidated in Rural Banks name and a definite
certificate of sale was issued in its favor since petitioners failed to redeem the property within the
redemption period.
While the reformation and indirect contempt cases were pending, Rural Bank filed a petition for
issuance of writ of possession over the property. RTC subsequently ordered the consolidation of the
reformation and indirect contempt cases. In its joint decision, RTC dismissed complaint for
reformation of instruments and petition for indirect contempt filed by petitioners and ordered the
Clerk of Court to issue a writ of possession to petitioners. On appeal, CA affirmed with modification
RTC Decision. CA in its Decision deleted the award of moral damages for lack of legal justification
and reduced the amount of exemplary damages awarded by RTC to petitioners. Hence, this instant
petition.
Issue: Whether the award of exemplary damages is proper considering that CA deleted award of
moral damages.
Ruling: No, it is not proper to award exemplary damages when CA deleted award of moral damages.
Exemplary or corrective damages are imposed by way of example or correction for the public good,
in addition to moral, temperate, liquidated, or compensatory damages. The award of exemplary
damages is allowed by law as a warning to the public and as a deterrent against the repetition of
socially deleterious actions.
The requirements for an award of exemplary damages to be proper are as follows:

43

First, they may be imposed by way of example or correction only in addition, among others, to
compensatory damages, and cannot be recovered as a matter of right, their determination depending
upon the amount of compensatory damages that may be awarded to the claimant.
Second, the claimant must first establish his right to moral, temperate, liquidated, or compensatory
damages.
And third, the wrongful act must be accompanied by bad faith; and the award would be allowed only
if the guilty party acted in a wanted, fraudulent, reckless, oppressive, or malevolent manner.
In the light of the appellate courts finding that the respondents are not entitled to moral damages, the
award of exemplary damages, too, must be deleted for lack of legal basis.

DAMAGES
CATHAY PACIFIC AIRWAYS, LTD. vs. SPS. ARNULFO and EVELYN FUENTEBELLA
G.R. No. 188283, July 20, 2016
Ponente: CJ Sereno, 1st Division
Nature of Action: Petition for review on certiorari assailing CA Decision affirming with modification
RTC decision.
Facts: Respondent then Congressman Arnulfo Fuentebella, Cong. Alberto Lopez, and Cong.
Leonardo Fugoso was to fly on official business to Sydney. Respondent Sps Fuentebella bought
business class tickets for Manila to Sydney via Hong Kong and back but decided to upgrade to first
class. Sps. Lopez and Sps. Fugoso were able to fly first class on all segments of the trip while
respondents were not. Petitioner admits that respondents were issued with first class tickets but that
the tickets were open-dated (waitlisted). Respondents claim that on Oct. 25, 1993 they queued in front
of the first class counter in the airport but they were issued boarding passes for business class seats in
a plane bound for Hong Kong from Manila and economy class seats in a plane bound for Sydney
from HK. Respondent requested that they be given first class tickets or at least access in the first class
lounge but were denied and was treated discourteously by the ground staff.
Respondents were able to travel first class from Sydney to HK but were issued boarding passes from
business class from HK to Manila. Upon arrival in the Philippines, respondents demanded a formal
apology and payment of damages from petitioner. The latter conducted an investigation after which it
maintained that no undue harm had been done to them. Respondents filed a complaint for damages
against petitioner. In their complaint, respondents prayed for P13M in damages for besmirched
reputation and honor and public embarrassment they suffered in a series of involuntary downgrades
of their trip from Manila to Sydney via Hong Kong and Hong Kong to Manila. RTC ruled in favor of
respondents and ordered petitioner to pay P5M to respondents, P1M as exemplary damages, and
P500,000 as attorneys fees. In settling the award, RTC considered the prestigious position held by
respondent as well as bad faith exhibited by petitioner. On appeal, CA affirmed RTC ruling with
modification that attorneys fees be reduced to P100,000. Hence this instant petition.
Issue: 1) Whether or not there was breach of contract.
2) Whether or not the award of moral and exemplary damages were without legal basis.
Ruling: 1) Yes, there was a breach of contract.
Air France v. Gillego, this ourt ruled that in an action based on a breach of contract of carriage, the
aggrieved party does not have to prove that the common carrier was at fault or was negligent; all that
he has to prove is the existence of the contract and the fact of its nonperformance by the carrier. In
this case, both the trial and appellate courts found that respondents were entitled to First Class
accommodations under the contract of carriage, and that petitioner failed to perform its obligation.

44

We shall not delve into this issue more deeply than is necessary because We have decided to accord
respect to the factual findings of the trial and appellate courts.
xxx
Petitioner tries to downplay the factual finding that no explanation was given to respondents with
regard to the types of ticket that were issued to them. It ventured that respondents were seasoned
travelers and therefore familiar with the concept of open-dated tickets. Petitioner attempts to draw
parallel with Sarreal, Jr. vs. JAL, in which the Court ruled that the airline could not be faulted for the
negligence of the passenger because the latter was aware of the restrictions carried by his ticket and
the usual procedure for travel. In that case, though, records showed that the plaintiff was a welltravelled person who averaged two trips to Europe and two trips to Bangkok every month for 34 yrs.
In the present case, no evidence was presented to show that respondents were indeed familiar with the
concept of open-dated ticket. In fact, the tickets do not even contain the term open-dated.
2) The award of moral and exemplary damages by RTC was with basis. But the amounts were
excessive.
Moral and exemplary damages are not ordinarily awarded in breach of contract cases. This Court has
held that damages may be awarded only when the breach is wanton and deliberately injurious or the
one responsible had acted fraudulently or with malice or bad faith. Bad faith is a question of fact that
must be proven by clear and convincing evidence. Both trial and appellate courts found that petitioner
had acted in bad faith. After review of records, We find no reason to deviate from their finding.
xxx
However, the award of P5M as moral damages is excessive considering that the highest amount ever
awarded by this Court for moral damages involving airlines is P500,000. As We said in Air France vs.
Gillego, the mere fact that respondent was a Congressman should not result in an automatic increase
in the moral and exemplary damages.
We find that upon the facts established, the amount of P500,00 as moral damages is reasonable to
obviate the moral suffering that respondents have undergon. With regard to exemplary damages,
jurisprudence shows that P50,000 is sufficient to deter similar acts of bad faith attributable to airline
representatives.

45

DAMAGES
TECHNO DEVELOPMENT & CHEMICAL CORPORATION vs. VIKING METAL
INDUSTRIES, INC.
G.R. No. 203179, July 4, 2016
Ponente: J. Peralta, 3rd Division
Nature of the Action: Petition for review on certiorari under Rule 45 seeking to reverse and set aside
the Decision and Resolution of the CA modifying the Decision of the RTC.
Facts: Respondent, through its President and Gen. Mgr., Brilly Bernardez, presented to the PNOC
Energy Development Corporation its bid proposal to supply and deliver within 160 days, various
fabricated items for the PNOC-EDC first MG Project. PNOC awarded said project to VMI. Pending
the execution of a formal contract, VMI and PNOC-EDC agreed that the bid documents and the
Notice of Award shall constitute as the binding contract between them. In a meeting among
representatives of PNOC, VMI and petitioner Techno Development & Chemical Corporation, parties
agreed to paint the fabricated items with Ultrazinc Primer, an anti-rust primer manufactured by
petitioner Techno. VMI purchased primers from Techno while Techno provided VMI with technical
personnel to supervise the application of the primer on the fabricated items.
VMI made several deliveries of the fabricated items to PNOC. However, PNOC advised VMI that
410 pieces of fabricated items were rejected due to premature rusting of its coated surfaces. VMI met
with Techno representatives and agreed that corrective measures on the defective painting would have
to be done. PNOC reminded VMI of its contractual obligations VMI. While the corrosion problems
on the fabricated items was being remedied, VMI incurred delays in submission of required
fabrication drawings, encountered difficulties in sourcing construction materials, and committed gross
miscalculation of the tons requirements, causing delay in the deliveries of structural supports. Despite
that, PNOC still proceeded to formally execute the Fabrication Contract with VMI.
VMI and PNOC further encountered several delays and contract extensions due to deficiencies and
non-conformance of the fabricated items with PNOCs specifications. PNOC advised VMI that it had
only until July 30, 1995 to complete the rectification work on the rejected items and that any
remaining undelivered items after said deadline will be inventoried and deleted from the contract.
Thus, contract price was reduced from P6,871,605.64 to P6,578,034.99. VMI appealed to PNOC to
reconsider its demand of P2,265,645.09 as the total collectible amount representing liquidated
damages and deductions saying that the delays were attributable to the poor and substandard primer
of Techno but PNOC only affirmed its deduction and informed VMI that its approval of Techno as
paint supplier does not relieve VMI of its obligations. VMI filed an action for Collection of Sum of
Money with Damages against PNOC for the remaining balance of the contract price. RTC decided in
favor of VMI and ordered PNOC to pay the balance of the contract price and Techno to pay the cost
of rectification. Aggrieved, Techno appealed to CA. CA modified the RTC Decision by deleting the
award of actual damages to VMI and reducing the award of unpaid balance of contract price. Techno
moved to reconsider but CA denied said motion. Hence, the instant pettion.
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Issue: Whether or not Techno is entitled to exemplary damages.

Ruling: No, Techno is not entitled to exemplary damages.
On the matter of petitioner Techno's prayer for exemplary damages in the amount of P200,000.00,
however, the Court resolves to deny the same. Article 2234 of the Civil Code of the Philippines
requires a party to first prove that he is entitled to moral, temperate or compensatory damages before
he can be awarded exemplary damages. Moreover, Article 2220 of the same Code provides that in
breaches of contract, moral damages may be awarded when the party at fault acted fraudulently or in
bad faith. Thus, to justify an award for exemplary damages, the wrongful act must be accompanied by
bad faith, and an award of damages would be allowed only if he guilty party acted in a wanton,
fraudulent, reckless or malevolent manner. In the instant case, there is no showing that VMI failed to
pay for its purchased paint products fraudulently or in bad faith. The Court, therefore, does not find
Techno to be entitled to exemplary damages.

COMPOUNDED INTEREST
TARCISIO CALILUNG vs. PARAMOUNT INSURANCE CORPORATION, RP TECHNICAL
SERVICES, INC., RENATO L. PUNZALAN, and JOSE MANALO, JR.
G.R. No. 195641, July 11, 2016
Ponente: J. Bersamin, 1st Division
Nature of the Action: Petition for review on certiorari
Facts: Petitioner Tarcisio Calilung commissioned Renato Punzalan, President of RP Technical
Services Inc (RPTSI) because of his desire to buy shares of stocks worth P1,000,000 from RPTSI.
RPTSI did not agree with Calilungs proposal because he will be in complete control of the
corporation. Instead, he was allowed to buy P2,820 worth of shares with the understanding that the
remaining balance of P718,750 would be invested to finance Shell Station Project in Batangas which
was being undertaken then by respondent RPTSI. RPTSI, thru Punzalan, executed a promissory note
(PN) in favor of Calilung for P718,750 with 14% interest per annum payable on or before April 9,
1988. The PN was guaranteed by respondent Paramount. On the same day, Punzalan and Jose
Manalo, Jr., another officer of RPTSI, executed an indemnity agreement to the effect that Paramount
would be reimbursed of all expenses it will incur under the surety bond.
RPTSI failed to pay Calulung the amount stated in the PN when it fell due prompting Calilung to file
a complaint for sum of money against RPTSI and Paramount. Paramount filed a third party complaint
against RPTSU and Punzalan and Manalo seeking reimbursement for all expenses it may incur under
the surety bond. In its answer, RPTSI denied that it authorized Punzalan and Manalo ro execute the
PN and claimed it did not profit from the loan obtained from Calilung. RTC rendered judgment in
favor of Calilung and against RPTSI and Paramount. It held RPTSI and Paramount solidarily liable to
petitioner for the amount of P718,750 with 14% interest plus attorneys fees and costs. It also held
Punzalan and Manalo solidarily liable to Paramount. Aggrieved, Paramount, Punzalan, and Manalo
appealed to CA but CA affirmed in toto the judgment of the RTC. They moved to consider but it was
denied. Hence, it went to SC on a petition for review on certiorari but SC only affirmed the Decision
and Resolution of CA.
The March 16, 2005 resolution of the SC became final and executor on July 19, 2005 and was
recorded in the book of entries of judgments on the same date. Petitioner moved for its execution.
RTC ordered that the loan be paid with 14% interest per annum. RTC reconsidered its first order and
allowed recovery of compounded interest. In its third order, RTC, acting on the motion for
reconsideration of Paramount, reverted to its stance under the first order to the effect of not allowing
recovery of compounded interest. Hence, this instant petition.
Issue: Whether it is correct to include compounded interest in the computation of judgment award.

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Ruling: No, RTC cannot allow recovery of compounded interest in the computation of judgment
award.
It is settled that upon the finality of the judgment, the prevailing party is entitled as a matter of right
to a writ of execution to enforce judgment, the issuance of which is a ministerial duty of the court.
The judgment directed the respondents to pay the petitioner the principal amount of P718,750 plus
interest of 14% per annum from Oct. 7, 1987 until full payment xxx. Being already final and
executor, it is immutable, and can no longer be modified or otherwise disturbed. Its immutability is
grounded on fundamental considerations of public policy and sound practice, which demand that
judgment of the courts, at the risk of occasional errors, must become final at some definite date set by
law or rule. Indeed, the proper enforcement of the rule of law and the administration of justice
requires that litigation must come to an end at some time and that once judgment attains finality, the
winning party should not be denied the fruits of his favorable result.
Xxx
The only interest to be collected from the respondents is the 14% per annum on the principal
obligation of P718,750.00 reckoned from October 7, 1987 until full payment. There was no basis for
the petitioner to claim compounded interest pursuant to Article 2212 of the Civil Code considering
that the judgment did not include such obligation. As such, neither the RTC nor any other court,
including this Court, could apply Article 2212 of the Civil Code because doing so would infringe the
immutability of the judgment.
Verily, the execution must conform to, and not vary from, the decree in the final and immutable
judgment.
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the orders issued
on July 28, 2009 and February 10, 2011 by the Regional Trial Court, Branch 154, in Pasig City to the
effect that the only interest to be collected from the respondents is 14% per annum reckoned from
October 7, 1987 until full payment; DIRECTS the Regional Trial Court to forthwith issue the writ of
execution to enforce the final and executory judgment in accordance with the decree thereof; and
ORDERS the petitioner to pay the costs of suit.

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