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CIVIL LAW REVIEW II

CASE DIGESTS
ARELLANO UNIVERSITY SCHOOL OF LAW
2nd SEMESTER S.Y. 2018-2019

SUBMITTED TO:
CRISOSTOMO URIBE

SUBMITTED BY:
#9 ROMUALDO A. MENZON JR.
STUDENT I.D. # 2012-0330
SUNDAY 1:00 – 5:00 PM
TABLE OF CONTENTS
TOPIC: OBLIGATIONS; PRESCRIPTION OF ACTIONS

G.R. No. 86994 June 30, 1993

JAIME LOOT, Petitioner, vs. GOVERNMENT SERVICE INSURANCE SYSTEM (Development Bank of the
Philippines), Respondents.

FACTS:

On 19 January 1965, petitioner Floro Mercene (Mercene) obtained a loan from respondent Government
Service Insurance System (GSIS) in the amount of ₱29,500.00. As security, a real estate mortgage was
executed over Mercene's property in Quezon City, registered under Transfer Certificate of Title No.
90535. The mortgage was registered and annotated on the title on 24 March 1965.

On 14 May 1968, Mercene contracted another loan with GSIS for the amount of ₱14,500.00. The loan
was likewise secured by a real estate mortgage on the same parcel of land. The following day, the loan
was registered and duly annotated on the title.

On 11 June 2004, Mercene opted to file a complaint for Quieting of Title against GSIS. He alleged that:
since 1968 until the time the complaint was filed, GSIS never exercised its rights as a mortgagee; the real
estate mortgage over his property constituted a cloud on the title; GSIS' right to foreclose had
prescribed. In its answer, GSIS assailed that the complaint failed to state a cause of action and that
prescription does not run against it because it is a government entity.

ISSUE:

Whether or not prescription has run against the GSIS

RULING:

No it has not.

In University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, et al., the Court clarified that prescription
runs in mortgage contract from the time the cause of action arose and not from the time of its
execution, to wit:

“The prescriptive period neither runs from the date of the execution of a contract nor does the
prescriptive period necessarily run on the date when the loan becomes due and demandable.
Prescriptive period runs from the date of demand, subject to certain exceptions.

In other words, ten (10) years may lapse from the date of the execution of contract, without barring a
cause of action on the mortgage when there is a gap between the period of execution of the contract
and the due date or between the due date and the demand date in cases when demand is necessary.”

Thus, applying the pronouncements of the Court regarding prescription on the right to foreclose
mortgages, the Court finds that the CA did not err in concluding that Mercene's complaint failed to state
a cause of action. It is undisputed that his complaint merely stated the dates when the loan was
contracted and when the mortgages were annotated on the title of the lot used as a security.
Conspicuously lacking were allegations concerning: the maturity date of the loan contracted and
whether demand was necessary under the terms and conditions of the loan.
As such, the RTC erred in ruling that GSIS' right to foreclose had prescribed because the allegations in
Mercene's complaint were insufficient to establish prescription against GSIS. The only information the
trial court had were the dates of the execution of the loan, and the annotation of the mortgages on the
title. As elucidated in the above-mentioned decisions, prescription of the right to foreclose mortgages is
not reckoned from the date of execution of the contract. Rather, prescription commences from the time
the cause of action accrues; in other words, from the time the obligation becomes due and demandable,
or upon demand by the creditor/mortgagor, as the case may be.
TOPIC: MODES OF EXTINGUISHMENT OF OBLIGATIONS; PAYMENT OR PERFORMANCE

G.R. No. 197920, January 22, 2018

DEMOSTHENES R. ARBILON, Petitioner, v. SOFRONIO MANLANGIT, Respondent.

FACTS:

Manlangit (respondent) in his complaint for recovery of possession with writ of replevin, alleged that he
purchased on credit one (1) compressor and one (1) unit of Stainless Pump, 3 horsepower, single phase for
P200,000.00 and P65,000.00, respectively, from Davao Diamond Industrial Supply (Davao Diamond).
Respondent claimed that the compressor had been in the possession of petitioner from November 1997 up
to the time of the filing of the complaint, that despite demand, petitioner failed to return the same to
respondent.

In his Answer with Counterclaim, petitioner argued that the respondent is not the owner of the compressor.
Petitioner alleged that the ownership of the compressor was never vested to respondent since the latter
failed to pay the purchase price of P200,000.00. Petitioner alleged that he voluntarily assumed the
obligation to pay the compressor to Davao Diamond in four installments.

Upon posting of bond, writ of replevin was granted and compressor was delivered to respondent.
During the trial, respondent alleged that he was once a financier and operator of a gold mine in Davao del
Norte but when he ran out of funds, petitioner and Major Efren Alcuizar (Alcuizar) took over the mining
operations. When petitioner and Alcuizar also ran out of funds, Lucia Sanchez Leanillo (Leanillo) became the
financier of the mining operations. It appears that Leanillo paid for the installments of the compressor on
account of a separate contract of sale entered into by Davao Diamond with her.

ISSUE:

Whether or not Manlangit paid for the compressor

RULING:

Yes he did.

The records of the case show that Leanillo paid the compressor in behalf of respondent.

The answer of petitioner to the complaint of respondent stated that the former voluntarily assumed paying
the compressor since the same was beneficial to the mining operations of Double A. Further, the
receipts issued by Davao Diamond to Leanillo state that the same is "in partial payment of the existing account
incurred by respondent" and is "in partial payment of respondent's account with Davao Diamond relative to
one (1) unit compressor."

The above-mentioned circumstances indubitably show that Leanillo paid the compressor not in her own right
but in behalf of respondent. If indeed Davao Diamond sold the compressor to Leanillo and that the latter paid
the compressor in accordance with her separate contract with Davao Diamond, such fact would have appeared
in the receipts. Sadly, that is not the case. There is nothing in the records that would compel Us to declare
that there is an independent contract of sale between Leanillo and Davao Diamond.

Having ruled that Leanillo paid the compressor in behalf of respondent, the latter has therefore complied with
his obligation to fully pay the compressor. Ownership of the compressor can now legally pass to respondent.
As such, the latter has the right to possess the compressor since possession is an attribute of ownership.
TOPIC: MODES OF EXTINGUISHMENT OF OBLIGATIONS; PAYMENT OR PERFORMANCE

G.R. No. 212362, March 14, 2018

JOSE T. ONG BUN, Petitioner, v. BANK OF THE PHILIPPINE ISLANDS, Respondent.

FACTS:
In 1989, Ma. Lourdes Ong, the wife of petitioner, purchased the following three (3) silver custodian
certificates (CC) in the Spouses' name from the Far East Bank & Trust Company (FEBTC):

a) CC No. 131157 dated June 9, 1989 in the name of Jose Ong Bun or Ma. Lourdes Ong for One Hundred
Thousand Pesos;

b) CC No. 131200 dated July 25, 1989 in the name of Jose Ong Bun or Ma. Lourdes Ong for Five Hundred
Thousand Pesos; and

c) CC No. 224826 dated November 8, 1989 in the name of Jose or Ma. Lourdes Ong Bun for One Hundred
Fifty Thousand Pesos.

The three CCs have the following common provisions:

This instrument is transferable only in the books of the Custodian by the holder, or in the event
of transfer, by the transferee or buyer thereof in person or by a duly authorized attorney-in-fact
upon surrender of this instrument together with an acceptable deed of assignment.

The Holder hereof or transferee can withdraw at anytime during office hours his/her Silver
Certificate of Deposit herein held in custody.

This instrument shall not be valid unless duly signed by the authorized signatories of the Bank,
and shall cease to have force and effect upon payment under the terms hereof.
Thereafter, FEBTC merged with BPI after about eleven years since the said CCs were purchased

in December 2002, petitioner discovered that the three CCs bought from FEBTC were still in the safety vault
of his deceased wife, as such he requested advice on how to claim them with the bank.

BPI replied to petitioner and informed the latter that upon its merger with FEBTC in 2000, there were no
Silver Certificates of Deposit outstanding, which meant that the certificates were fully paid on their
respective participation's maturity dates which did not go beyond 1991.

BPI, in its Answer, insists that as early as 1991, all the Silver Certificates of Deposits, including those issued
to petitioner and his wife, were already paid. It claimed that the CCs had terms of only 25 months and that
by the year 2000, when it merged with FEBTC and when the Trust and Investments Group of FEBTC was no
longer in existence, there were .no longer any outstanding CCs in its books. It had checked and double-
checked its records as well as those of FEBTC. It also claimed that FEBTC had fully paid all of its silver
certificates of time deposit on their maturity dates. According to BPI, contrary to petitioner's assertion, the
presentation or surrender of the certificates is not a condition precedent for its payment by FEBTC.

ISSUE:

Whether or not petitioner the bank had fully paid on the certificates

RULING:

No it had not.
It is undisputed that petitioner is in possession of three (3) CCs from FEBTC. Simply put, the said CCs are
proof that Silver Certificates of Deposits are in the custody of a custodian, which is, in this case, FEBTC. The
CA therefore, erred in suggesting that the possession of petitioner of the same CCs does not prove an
outstanding deposit because the latter are not the certificates of deposit themselves. What proves the
deposits of the petitioner are the Silver Certificates of Deposits that have been admitted by the Trust
Investments Group of the FEBTC to be in its custody as clearly shown by the wordings used in the subject
CCs. Custodian Certificate of Silver Certificate of Deposit No. 131200 reads, in part:

This is to certify that the TRUSTS INVESTMENTS GROUP of FAR EAST BANK AND TRUST COMPANY
(Custodian) has in its custody for and in behalf of ***** JOSE ONG BUN OR MA. LOURDES ONG
***** (Holder) the Silver Certificate of Deposit in the amount of PESOS: Php500,000.00.

This instrument is transferable only in the books of the Custodian by the holder, or in the event of
transfer, by the transferee or buyer thereof in person or by a duly authorized attorney-in-fact upon
surrender of this instrument together with an acceptable deed of assignment.

The Holder hereof or transferee can withdraw at anytime during office hours his/her Silver
Certificate of Deposit herein held in custody.

This instrument shall not be valid unless duly signed by the authorized signatories of the Bank, and
shall case to have force and effect upon payment under the terms hereof.

The other two custodian certificates are of the same tenor.

There was no proof or evidence that petitioner or his late wife withdrew the said Silver Certificates of
Deposit. When the existence of a debt is fully established by the evidence contained in the record, the
burden of proving that it has been extinguished by payment devolves upon the debtor who offers such
defense to the claim of the creditor. Even where it is the plaintiff ([petitioner] herein) who alleges non-
payment, the general rule is that the burden rests on the defendant ([respondent] herein) to prove
payment, rather than on the plaintiff to prove non-payment. Verily, an obligation may be extinguished by
payment. However, two requisites must concur: (1) identity of the prestation, and (2) its integrity. The first
means that the very thing due must be delivered or released; and the second, that the prestation be fulfilled
completely. In this case, no acknowledgment nor proof of full payment was presented by respondent but
merely a pronouncement that there are no longer any outstanding Silver Certificates of Deposits in its books
of accounts. Thus, the RTC did not err in the following findings:

A promise had been obtained by plaintiff from defendant bank that the custodian certificates would
be paid upon maturity. Hence, the latter reneged on its promise when it refused payment thereof
after demands were made by plaintiff for such payment considering that in 1989, his wife Ma.
Lourdes Ong Bun acquired in their names three (3) certificates of deposits from FEBTC in various
amounts, to wit: (a) Custodian Certificate of Silver Certificate of Deposit No. 131157 issued on June
9, 1989 in the amount of One Hundred Thousand Pesos (P100,000.00), (Exhibit "A"); (b) Custodian
Certificate of Silver Certificate of Deposit No. 131200 issued on July 25, 1989 in the amount of Five
Hundred Thousand Pesos (P500,000.00) (Exhibit "B"); (c) Custodian Certificate of Silver Certificate
ofDeposit No. 224826 issued on November 8, 1989 in the amount of One Hundred Fifty Thousand
Pesos (P150,000.00), (Exhibit "C"). His wife kept these certificates of deposits. The claim of
defendant bank, through the Manager of its Trust Department Asset Management, that the
aforementioned certificates had been paid, is not supported by credible evidence and, therefore,
unsubstantiated. Its position that the Silver

Certificates of Time Deposits in question and in the names of Jose Ong Bun or Ma. Lourdes Ong had
been paid by the Far East Bank and Trust Company as early as the year 1991, when the same
matured considering that at the time of the merger between Far East Bank and Trust Company and
the Bank of Philippine Islands, no such Silver Certificates of Time Deposits were outstanding on the
books of Far East Bank and Trust Company, is simply unconvincing.

The fact that the plaintiff still has [a] copy of the Custodian Certificate of the Silver Certificates of
Time Deposit is material, contrary to the stance of defendant, as it is inconceivable that the bank
would make payment without requiring the surrender thereof.
TOPIC: CONTRACTS; IN GENERAL

G.R. No. 192934, June 27, 2018

SECURITY BANK CORPORATION, Petitioner, v. SPOUSES RODRIGO AND ERLINDA MERCADO,


Respondents.

G.R. No. 197010, June 27, 2018

SPOUSES RODRIGO AND ERLINDA MERCADO, Petitioner, v. SECURITY BANK AND TRUST COMPANY,
Respondent.

FACTS:

On September 13, 1996, Security Bank granted spouses Mercado a revolving credit line in the amount of
P1,000,000.00. The terms and conditions of the revolving credit line agreement included the following
stipulations:

Interest on Availments – I hereby agree to pay Security Bank interest on outstanding Availments at
a per annum rate determined from time to time, by Security Bank and advised through my Statement
of Account every month. I hereby agree that the basis for the determination of the interest rate by
Security Bank on my outstanding Availments will be Security Bank's prevailing lending rate at the
date of availment. I understand that the interest on each availment will be computed daily from date
of availment until paid.

xxxx

Late Payment Charges – If my account is delinquent, I agree to pay Security Bank the payment
penalty of 2% per month computed on the amount due and unpaid or in excess of my Credit Limit.

On the other hand, the addendum to the revolving credit line agreement further provided that:

I hereby agree to pay Security Bank Corporation (SBC) interest on outstanding availments based on
annual rate computed and billed monthly by SBC on the basis of its prevailing monthly rate. It is
understood that the annual rate shall in no case exceed the total monthly prevailing rate as computed
by SBC. I hereby give my continuing consent without need of additional confirmation to the interests
stipulated as computed by SBC. The interests shall be due on the first day of every month after date
of availment. x x x

A real estate mortgage was executed to secure the credit line.


Subsequently, the spouses Mercado defaulted in their payment under the revolving credit line agreement.
Security Bank requested the spouses Mercado to update their account, and sent a final demand letter on
March 31, 1999.

The mortgage was later on foreclosed and soled, the winning bidder being the bank. The spouses tried to
recover the properties with an offer of 10,000,000 but the bank countered with 15,000,000.

On November 8, 2000, the spouses Mercado filed a complaint for annulment of foreclosure sale, damages,
injunction, specific performance, and accounting with application for temporary restraining order and/or
preliminary injunction. One of the main allegations of the spouses in the complaint was that the interests
and the penalties imposed by Security Bank on their obligations were iniquitous and unconscionable.

The RTC also ruled that the stipulation as to the interest rate on the availments under the revolving credit
line agreement "where the fixing of the interest rate is the sole prerogative of the creditor/mortgagee,
belongs to the class of potestatiye condition which is null and void under [Article] 1308 of the New Civil
[C]ode." It also violates Central Bank Circular No. 1191 which requires the interest rate for each re-pricing
period to be subject to a mutual agreement between the borrower and bank. As such, no interest has been
expressly stipulated in writing as required under Article 1956 of the New Civil Code.

ISSUE:

Whether or not stipulations in the credit line violated the principle of mutuality of contracts
RULING:

Yes it did.

The principle of mutuality of contracts is found in Article 1308 of the New Civil Code, which states that contracts
must bind both contracting parties, and its validity or compliance cannot be left to the will of one of them. The
binding effect of any agreement between parties to a contract is premised on two settled principles: (I) that
any obligation arising from contract has the force of law between the parties; and (2) that there must be
mutuality between the parties based on their essential equality. As such, any contract which appears to be
heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Likewise, any
stipulation regarding the validity or compliance of the contract that is potestative or is left solely to the will of
one of the parties is invalid. This holds true not only as to the original terms of the contract but also to its
modifications. Consequently, any change in a contract must be made with the consent of the contracting
parties, and must be mutually agreed upon. Otherwise, it has no binding effect.

Stipulations as to the payment of interest are subject to the principle of mutuality of contracts. As a principal
condition and an important component in contracts of loan, interest rates are only allowed if agreed upon by
express stipulation of the parties, and only when reduced into writing. Any change to it must be mutually
agreed upon, or it produces no binding effect:

Basic is the rule that there can be no contract in its true sense without the mutual assent of the
parties. If this consent is absent on the part of one who contracts, the act has no more efficacy than
if it had been done under duress or by a person of unsound mind. Similarly, contract changes must
be made with the consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement In the case of
loan contracts, the interest rate is undeniably always a vital component, for it can make or break a
capital venture. Thus, any change must be mutually agreed upon, otherwise, it produces no binding
effect.

Thus, in several cases, we declared void stipulations that allowed for the unilateral modification of interest
rates. In Philippine National Bank v. Court of Appeals, we disallowed the creditor-bank from increasing the
stipulated interest rate at will for being violative of the principle of mutuality of contracts. We said:

Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private
respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code:

"ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them."

In order that obligations arising from contracts may have the force of law between the parties, there
must be mutuality between the parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that
the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the character of a contract of adhesion,
where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being
reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil.
85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect
against abuse and imposition.
TOPIC: FUNDAMENTAL CHARACTERISTICS OF CONTRACTS; RELATIVITY

G.R. No. 192797, April 18, 2018

EXCELLENT ESSENTIALS INTERNATIONAL CORPORATION, Petitioner, v. EXTRA EXCEL INTERNATIONAL


PHILIPPINES, INC., Respondent.

DECISION

FACTS:

On 9 August 1996, Excel International and Excel Philippines entered into an exclusive rights contract wherein
the latter was granted exclusive rights to distribute E. Excel products in the Philippines. Under the same
contract, Excel International reserved the right to discontinue or alter their agreement at any time.

Over the span of four (4) years, Excel International experienced intra-corporate struggle over the control of
the corporation and the operations of its various exclusive distributors in Asia. The dispute even reached the
Judicial District Court of Utah (Utah Court). Eventually, the conflict between the principal stakeholders of Excel
International, Jau-Hwa Stewart (Stewart) and Jau-Fei Chen (Chen), took a turn and Stewart somehow
succeeded in gaining control of the company.

On 1 December 2000, Stewart, in her capacity as president of Excel International, revoked Excel Philippines'
exclusive rights contract and appointed Excellent Essentials as its new exclusive distributor in the Philippines.

Despite the revocation of its exclusive rights contract and the appointment of Excellent Essentials, Excel
Philippines continued its operation in violation of the new exclusive distributorship agreement. Thus, on 26
January 2001, Excel International, through counsel, demanded that Excel Philippines cease from selling,
importing, distributing, or advertising, directly or indirectly, any and all of E. Excel products.

With its demand unheeded, Excel International and Excellent Essentials filed a complaint for injunction and
damages against Excel Philippines. The complaint was originally filed before the RTC, Branch 56, of Makati
City (RTC, Branch 56).

On its part, Excel Philippines filed its answer with counterclaims saying that Excel International had no right
to unilaterally revoke its exclusive right to distribute E. Excel products in the Philippines. Attached to its answer
was an agreement dated 22 May 1995 between Excel International and Bright Vision Consultants, Ltd. (Bright
Vision) showing that Excel Philippines' exclusive distributorship was irrevocable. In fact, it was because of this
agreement that Excel Philippines was incorporated so that it would become Excel International's exclusive
distributor within the Philippines.

RTC, Branch 56 ruled in favor of Excel Philippines and enjoined Excellent Essentials from: (1) interfering with
Excel Philippines' exclusive right to distribute; (2) claiming, publishing, and announcing that Excel
Philippines has ceased to be Excel International's exclusive distributor in the Philippines; (3) intimidating,
enticing, or persuading Excel Philippines' agents to abandon the company; and (4) infringing and using in its
products, packaging, and promotional materials the trademarks, logos, designs, and other intellectual
property that Excel International has exclusively licensed to Excel Philippines.

A petition for certiorari before the CA by Excellent Essentials, where the decision of the RTC was reversed.
Part of the decision of the CA is as follows:

On the second requirement, it cannot be imagined how the continued operation of [Excellent
Essentials] could work injustice on [Excel Philippines'] operation. The operation of Excellent Essentials
appears to have no effect at all on [Excel Philippines] since it has not lifted a finger despite knowledge
of [Excellent Essentials'] operation. [Excel Philippines'] visible action on the matter surfaced only
when it was called by the court a quo to answer [Excellent Essentials'] cause of action. In fact, there
are no indications that it had been hindered, stopped and thwarted by the commencement of
[Excellent Essentials'] operations.

On the issue of damages, this Court is not convinced that [Excel Philippines] will suffer irreparable
injury to warrant the issuance of a writ of preliminary injunction.

ISSUE:

Whether or not Excellent Essentials can be held liable in this case


RULING:

Yes it can.

Under the principle of relativity of contracts, only those who are parties to a contract are liable to its
breach. Under Article 1314 of the Civil Code, however, any third person who induces another to violate his
contract shall be liable to damages to the other contracting party. Said provision of law embodies what we
often refer to as tortuous or contractual interference. In So Ping Bun v. CA, we laid out the elements of
tortuous interference: (1) existence of a valid contract; (2) knowledge on the part of the third person of the
existence of contract; and (3) interference of the third person is without legal justification or excuse.

, Excel International had an existing contract with Bright Vision wherein they agreed to set up a corporation
to exclusively distribute E. Excel products within the Philippines. This corporation, eventually, turned out to
be Excel Philippines who was given the irrevocable and exclusive right to distribute, market, and/or sell. Under
its agreement with Bright Vision, Excel Philippines' exclusive distributorship right was irrevocable and may
only be modified, transferred, or terminated upon the mutual consent of both parties.

The relationship between Excel International and Excel Philippines took an unexpected turn when Stewart,
acting as Excel International's president, unilaterally revoked Excel Philippines' right and conferred it to
Excellent Essentials. At this point, Excel International had already breached its contractual obligations by
unilaterally revoking Excel Philippines' exclusive distributorship even if it was prohibited from doing so under
the 22 May 1995 agreement. Stewart could not have done what she did during her temporary control over
Excel International because, under clause 8.5 of the agreement, any change in the management of Excel
International shall not affect the validity and continuity of the rights and obligations of both parties. In other
words, Stewart, as Excel International's interim president, was bound by the company's grant of exclusive
distributorship to Excel Philippines and the conditions that came with it.

Having established the first element of tortuous interference, we now have to determine if Excellent Essentials
had knowledge of Excel Philippines' exclusive right. On this score, we note that the exclusive distributorship
right was granted to Excellent Essentials before it existed. This circumstance suggests that even before
Excellent Essentials was organized, its incorporators had the preconceived plan to maneuver around Excel
Philippines. Worse, after going over the records, there is evidence showing that Excellent Essentials'
incorporators were officers of and/or affiliated with Excel Philippines. In fact, these incorporators remained at
work with Excel Philippines during this time and started to pirate its supervisors, employees, and agents to
join Excellent Essentials' multi-level marketing system.

Under these circumstances, we can conclude that those behind Excellent Essentials not only had knowledge
that Excel International had the obligation to honor Excel Philippines' exclusive right, but also conspired with
Stewart to undermine Excel Philippines.

On the last element, therefore, we cannot ascribe to Excellent Essentials' claim that it was not guilty of malice
or bad faith.

A duty which the law of torts is concerned with is respect for the property of others, and cause of action ex
delicto may be predicated by an unlawful interference by any person of the enjoyment of the other of his
private property. This may pertain to a situation where a third person induces a person to renege on or violate
his undertaking under a contract.37

In Yu v. CA,38 we ruled that the right to perform an exclusive distributorship agreement and to reap the profits
resulting from such performance are proprietary rights which a party may protect.39 In that case, the former
dealer of the same goods purchased the merchandise from the manufacturer in England though a trading firm
in West Germany and sold these in the Philippines. We held that the rights granted to the petitioner under the
exclusive distributorship agreement may not be diminished nor rendered illusory by the expedient act of
utilising or interposing a person or firm to obtain goods for which the exclusive distributorship was
conceptualized, at the expense of the sole authorized distributor.40

In the case before us, we observe the same unjust conduct exhibited by Excellent Essentials tantamount to
tortuous interference.

To sustain a case for tortuous interference, the defendant must have acted with malice or must have been
driven by purely impure reasons to injure plaintiff; otherwise stated, his act of interference cannot be
justified.41 We further explained that the word induce refers to situations where a person causes another to
choose one course of conduct by persuasion or intimidation.42

Contrary to Excellent Essentials' argument in the instant petition, its participation in the scheme against Excel
Philippines transgressed the bounds of permissible financial interest.43 Its mere corporate existence played an
important factor for Stewart to revoke Excel Philippines' exclusive right to distribute E. Excel products in the
Philippines. For without it, or the participation of its incorporators, Excel International would not have the
means to connect with the marketing network Excel Philippines established. Simply put, Excellent Essentials
became the vessel for the breach of Excel International's contractual undertaking with Excel Philippines.
TOPIC: REAL ESTATE MORTGAGE

G.R. No. 211232, April 11, 2018

COCA-COLA BOTTLERS PHILS., INC., Petitioner, v. SPOUSES EFREN AND LOLITA SORIANO, Respondents.

FACTS:

Plaintiffs-appellees spouses Efren and Lolita Soriano are engaged in the business of selling defendant-appellant
Coca-Cola products in Tuguegarao City, Cagayan. Sometime in 1999, defendant-appellant thru Cipriano
informed plaintiffs-appellees that the former required security for the continuation of their business. Plaintiffs-
appellees were convinced to hand over two (2) certificates of titles over their property and were made to sign
a document. Defendant Cipriano assured plaintiffs-appellees that it will be a mere formality and will never be
notarized.

Subsequently, plaintiffs-appellees informed defendant-appellant Coca-Cola of their intention to stop selling


Coca-Cola products due to their advanced age. Thus, plaintiffs-appellees verbally demanded from defendant-
appellant the return of their certificates of titles. However, the titles were not given back to them.

When plaintiffs-appellees were contemplating on filing a petition for the issuance of new titles, they discovered
for the first time that their land was mortgaged in favor of defendant-appellant Coca-Cola. Worse, the
mortgage land was already foreclosed. Hence, plaintiffs-appellees filed a complaint for annulment of sheriffs
foreclosure sale. They alleged that they never signed a mortgaged document and that they were never notified
of the foreclosure sale. In addition, plaintiffs-appellees aver that they never had monetary obligations or debts
with defendant-appellant. They always paid their product deliveries in cash.

Furthermore, plaintiffs-appellees claimed that they merely signed a document in Tuguegarao. They never
signed any document in Ilagan, lsabela nor did they appear before a certain Atty. Reymundo Ilagan on 06
January 2000 for the notarization of the said mortgage document.

On their part, defendant-appellant alleged that plaintiffs-appellees are indebted to them. Plaintiffs-appellees'
admission that they signed the real estate mortgage document in Tuguegarao, Cagayan indicates that the
mortgage agreement was duly executed. The failure of the parties to appear before the notary public for the
execution of the document does not render the same null and void or unenforceable.

ISSUE:

Whether or not the real estate mortgage was valid

RULING:

Yes it was.

At the outset, We stress that the registration of a REM deed is not essential to its validity. The law is clear on
the requisites for the validity of a mortgage, to wit:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and
in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging
their own property.

In relation thereto, Article 2125 provides:

Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a
mortgage may be validly constituted, that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding
between the parties.

Thus, as between the parties to a mortgage, the non-registration of a REM deed is immaterial to its validity.
In the case of Paradigm Development Corporation of the Philippines, v. Bank of the Philippine Islands, the
mortgagee allegedly represented that it will not register one of the REMs signed by the mortgagor. In upholding
the validity of the questioned REM between the said parties, the Court ruled that "with or without the
registration of the REMs, as between the parties thereto, the same is valid and [the mortgagor] is bound
thereby." The Court, thus, cited its ruling in the case of Mobil Oil Philippines, Inc., v. Ruth R. Diocares, et
al.11 a portion of which reads:

Xxx. The codal provision is clear and explicit. Even if the instrument were not recorded, "the mortgage
is nevertheless binding between the parties." The law cannot be any clearer. Effect must be given to
it as written. The mortgage subsists; the parties are bound. As between them, the mere fact that
there is as yet no compliance with the requirement that it be recorded cannot be a bar to
foreclosure.

xxxx

Moreover to rule as the lower court did would be to show less than fealty to the purpose that animated
the legislators in giving expression to their will that the failure of the instrument to be recorded does
not result in the mortgage being any the less "binding between the parties." In the language of the
Report of the Code Commission: "In Article [2125] an additional provision is made that if the
instrument of mortgage is not recorded, the mortgage, is nevertheless binding between the parties."
We are not free to adopt then an interpretation, even assuming that the codal provision lacks the
forthrightness and clarity that this particular norm does and therefore requires construction, that
would frustrate or nullify such legislative objective.
TOPIC: CONTRACTS; FORM

G.R. No. 200383

NORMA M. DIAMPOC, Petitioner

vs.

JESSIE BUENAVENTURA and THE REGISTRY OF DEEDS FOH THE CITY OF TAGUIG, Respondents

FACTS:
In July, 2004, petitioner Norma M. Diampoc and her husband Wilbur L. Diampoc (the Diampocs)
filed a Complaint for annulment of deed of sale and recovery of duplicate original copy of title, with
damages, against respondent Jessie Buenaventura (Buenaventura) and the Registry of Deeds for
the Province of Rizal.
The Diampocs alleged in their Complaint that they owned a 174- square meter parcel of land
(subject property) in Signal Village, Taguig City covered by Transfer Certificate of Title No. 25044
(TCT 25044); that Buenaventura became their friend; that Buenaventura asked to borrow the
owner's copy of TCT 25044 to be used as security for a ₱1 million loan she wished to secure; that
they acceded, on the condition that Buenaventura should not sell the subject property; that
Buenaventura promised to give them ₱300,000.00 out of the ₱1 million loan proceeds; that on July
2, 2000, Buenaventura cause them to sign a folded document without giving them the opportunity to
read its contents; that Buenaventura filed to give them a copy of the document which they signed;
that they discovered later on that Buenaventura became the owner of a one· half portion (87 square
meters) of the subject property by virtue of a supposed deed of sale in her favor; that they
immediately proceeded to the notary public who notarized the said purported deed of sales and
discovered that the said 87-square meter portion was purportedly sold to Buenaventura for
₱200,000.00; that barangay conciliation proceedings were commenced, but proved futile; that the
purported deed of sale is spurious; and that the deed was secured through fraud and deceit, and
thus null and void. The Diampocs thus prayed that the purported deed of sale be annulled and the
annotation thereof on TCT 25044 be canceled; that the owner's duplicate copy of TCT 25044 be
returned to them; and that attorney's fees and costs of suit be awarded to them.

ISSUE:

Whether or not the “sale” was valid

RULING:

Yes it is.

It must be remembered, however, that "the absence of notarization of the deed of sale would not
invalidate the transaction evidenced therein"; it merely "reduces the evidentiary value of a document
to that of a private document, which requires proof of its due execution and authenticity to be
admissible as evidence." "A defective notarization will strip the document of its public character and
reduce it to a private instrument. Consequently, when there is a defect in the notarization of a
document, the clear and convincing evidentiary standard normally attached to a duly-notarized
document is dispensed with, and the measure to test the validity of such document is preponderance
of evidence."

x x x Article 1358 of the Civil Code requires that the form of a contract that transmits or
extinguishes real rights over immovable property should be in a public document, yet the
failure to observe the proper form does not render the transaction invalid. The necessity of a
public document for said contracts is only for convenience; it is not essential for validity or
enforceability. Even a sale of real property, though not contained in a public instrument or
formal writing, is nevertheless valid and binding, for even a verbal contract of sale or real
estate; produces legal effects between the parties. Consequently, when there is a defect in
the notarization of a document, the clear and convincing evidentiary standard originally
attached to a duly-notarized document is dispensed with, and the measure to test the validity
of such document is preponderance of evidence.

x x x Nevertheless, the defective notarization of the deed does not affect the validity of the
sale of the house. Although Article 1358 of the Civil Code states that the sale of real property
must appear in a public instrument, the formalities required by this article is not essential for
the validity of the contract but is simply for its greater efficacy or convenience, or to bind third
persons, and is merely a coercive means granted to the contracting parties to enab1e them
to reciprocally compel the observance of the prescribed form. Consequently, the private
conveyance of the house is valid between the parties.

Thus, following the above pronouncements, the remaining judicial task, therefore, is to detenning if
the deed of sale executed by and between the parties should be upheld. The RTC and the CA are
unanimous in declaring that the deed should be sustained on account of petitioner's failure to
discredit it with her evidence. The CA farther found that petitioner and her husband received in full
the consideration of ₱200,000.00 for the sale. As far as the lower courts are concerned, the three
requirements of cause, object, and consideration concurred. This Court is left with no option but to
respect the lower courts' findings, for its jurisdiction in a petition for review on certiorari is limited to
reviewing only errors of law since it is not a trier of facts. This is especially so in view of the identical
conclusions affirmed at by them.

Indeed, petitioner and her husband conceded that there was such a deed of sale, but only that they
were induced to sign it without being given the opportunity to read its contents -believing that the
document they were signing was a mere authorization to obtain a bank loan. According to petitioner,
the document was "folded" when she affixed her signature thereon; on the other hand, her husband
added that at the time he signed the same, it was "dark". These circumstances, however, did not
prevent them from discovering the true nature of the document; being high school graduates and
thus literate, they were not completely precluded from reading the contents thereof, as they should
have done if they were prudent enough, Petitioner's excuses are therefore flimsy and specious.
TOPIC: CONTRACTS; VOID

G.R. No. 211425, November 19, 2018

HEIRS OF TOMAS ARAO, REPRESENTED BY PROCESO ARAO, EULALIA ARAO-MAGGAY, GABRIEL ARAO
AND FELIPA A. DELELIS, Petitioners, v. HEIRS OF PEDRO ECLIPSE, REPRESENTED BY BASILIO ECLIPSE;
HEIRS OF EUFEMIA ECLIPSE-PAGULAYAN, REPRESENTED BY BASILIA P. CUARESMA; HEIRS OF HONORATO
ECLIPSE, REPRESENTED BY VICENTE ECLIPSE, JUANITA E. AGAMATA AND JIMMY ECLIPSE; AND HEIRS OF
MARIA ECLIPSE-DAYAG, REPRESENTED BY OSMUNDO E. DAYAG, Respondents.

FACTS:
Subject of the controversy is a 5,587-square-meter landsituated in Ugac Sur, Tuguegarao City, Cagayan,
originally owned by Policarpio Eclipse (Policarpio), married to Cecilia Errera (spouses Eclipse).

In 1994, respondents discovered that the land in question had been subject of a Deed of Absolute Sale
dated September 5, 1969 by which the registered owner, Policarpio, with the consent of his wife Cecilia, sold
the land in question to Tomas Arao (Tomas), married to Tomasa Balubal. They averred that the sale was
registered, resulting in the cancellation of the original certificate, which was replaced by Transfer Certificate
of Title in the name of Tomas, married to Terasa Balubal. On June 30, 1977, Tomas executed a Deed of
Absolute Sale of the subject land in favor of his children Eulalia, Proceso and Felipa Arao, whose heirs are
herein petitioners. Eventually, Eulalia and Felipa registered the land in their names as TCT No. T-39071.

Respondents maintained that the said Deed of Sale dated September 5, 1969 was a forgery because at the
time of its execution, Policarpio and Cecilia were already dead. Policarpio died on November 21, 1936, while
Cecilia died on June 3, 1925. Respondents thus argued that on the basis of the said forged deed, the
subsequent transfer from Tomas to Eulalia and Felipa was likewise void. Hence, they filed the present action
for Nullity of a Deed of Absolute Sale and Reconveyance of Lot No. 1667, Recovery of Ownership and
Possession with Damages against herein petitioners, the heirs of Tomas.

Petitioners moved for the dismissal of the complaint on the ground of prescription, arguing that actions for
annulment of title and reconveyance prescribe in 10 years. Their motion was denied in a Resolution dated
June 7, 2002.

Thus, in their Answer with Counterclaim, petitiOners countered respondents' allegation by stating that the
children of spouses Eclipse, namely, Pedro, Eufemia, Honorato and Maria Eclipse sold the subject land to
Paulino Arao (Paulino), married to Balbina Cancino, per Deed of Sale dated June 25, 1940. Paulino and
Balbina died intestate and without an heir except Paulino's brother, Tomas. On June 30, 1977, Tomas sold it
to his children Eulalia, Proceso and Felipa, and the latter registered the land in their names as TCT No. T-
39071. During trial, petitioners also presented a Deed of Sale dated November 14, 1949 executed by a
certain Gavino Arao (Gavino), who was later identified as the son of Paulino, in favor of Tomas.

ISSUE:

Whether or not the sale was valid

RULING:

Not it was not.


When this 1969 Deed of Sale was executed, the seller thereof, Policarpio, was already deceased, having died
on November 21, 1936. It is settled that the death of a person terminates contractual capacity. If any one
party to a supposed contract was already dead at the time of its execution, such contract is undoubtedly
simulated and false, and, therefore, null and void by reason of its having been made after the death of the
party who appears as one of the contracting parties therein. There is no doubt, therefore, that this 1969
Deed of Sale is spurious and the signature of the seller appearing thereon is forged. Suffice it to say, a
forged deed is a nullity and conveys no title. As a forged deed is null and void, and conveys no title, all the
transactions subsequent to the alleged sale are likewise void.

Since the Deed of Absolute Sale dated September 5, 1969 is null and void, it follows then that all the TCTs
which were issued by virtue of the said spurious and forged document are also null and void.
TOPIC: CONTRACTS; VOID

A.C. No. 8502

CHRISTOPHER R. SANTOS, Complainant

vs.

ATTY. JOSEPH A. ARROJADO, Respondent

FACTS:

Complainant Santos alleged that he was the defendant in the unlawful detainer case filed by Lilia
Rodriguez (Lilia) wherein the respondent lawyer, Atty. Arrojado, was the counsel for Lilia. The case
eventually reached the Supreme Court which resolved2 the same in favor of Atty. Arrojado's client.

Complainant, however, claimed that on August 7, 2009, while the case was pending before the
Supreme Court, Lilia sold one of the properties in litis pendentia to Atty. Arrojado's son, Julius P.
Arrojado (Julius) and that Atty. Arrojado even signed as a witness of that sale. Believing that Atty.
Arrojado committed malpractice when he acquired, through his son Julius, an interest in the property
subject of the unlawful detainer case in violation of Article 1491 of the Civil Code, complainant
instituted the instant complaint.

In his Verified Comment, Atty. Arrojado admitted: (1) that Lilia was a client of the law firm wherein he
was a senior partner; (2) that Julius was his son; and (3) that one of the subject properties in the
ejectment suit was purchased by his son from Lilia.

ISSUE:

Whether or not the sale of the property to Julius is valid

RULING:

Yes it is.

For reference, Article 1491(5) of the Civil Code is reproduced below:

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another.

xxxx

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights
in litigation or levied upon on execution before the court within whose jurisdiction or territory
they exercise their respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the property and rights which may be
the object of any litigation in which they may take part by virtue of their profession.

In Pena v. Delos Santos, we held that:

The rationale advanced for the prohibition in Article 1491(5) is that public policy disallows the
transactions in view of the fiduciary relationship involved, i.e., the relation of trust and
confidence and the peculiar control exercised by these persons. It is founded on public policy
because, by virtue of his office, an attorney may easily take advantage of the credulity and
ignorance of his client and unduly enrich himself at the expense of his client. x x x

Undeniably, Article 1491(5) of the Civil Code prohibits the purchase by lawyers of any interest in the
subject matter of the litigation in which they participated by reason of their profession. Here,
however, respondent lawyer was not the purchaser or buyer of the property or rights in litigation. For,
in point of fact, it was his son Julius, and not respondent lawyer, who purchased the subject
property.

Were we to include within the purview of the law the members of the immediate family or relatives of
the lawyer laboring under disqualification, we would in effect be amending the law. We apply to this
case the old and familiar Latin maxim expressio unius est exclusio alterius, which means that the
express mention of one person, thing, act, or consequence excludes all others. Stated otherwise,
"where the terms are expressly limited to certain matters, it may not, by interpretation or
construction, be stretched or extended to other matters."
TOPIC: SALE; CONTRACT TO SELL

G.R. No. 189609, January 29, 2018

VICTORIA N. RACELIS, IN HER CAPACITY AS ADMINISTRATOR, Petitioner, v. SPOUSES GERMIL JAVIER AND
REBECCA JAVIER, Respondents.

FACTS:

Racelis, was the administratrix of a residential house and lot located in Marikina City which was advertised for
sale.

In August 2001, the Spouses Javier offered to purchase the Marikina property. However, they could not afford
to pay the price of P3,500,000.00. They offered instead to lease the property while they raise enough money.
Racelis hesitated at first but she eventually agreed. The parties agreed on a month-to-month lease and rent
of P10,000.00 per month. This was later increased to P11,000.00. The Spouses Javier used the property as
their residence and as the site of their tutorial school, the Niño Good Shepherd Tutorial Center.

Sometime in July 2002, Racelis inquired whether the Spouses Javier were still interested to purchase the
property. The Spouses Javier reassured her of their commitment and even promised to pay P100,000.00 to
buy them more time within which to pay the purchase price.

On July 26, 2002, the Spouses Javier tendered the sum of P65,000.00 representing "initial payment or goodwill
money." On several occasions, they tendered small sums of money to complete the promised
P100,000.00,16 but by the end of 2003, they only delivered a total of P78,000.00. Meanwhile, they continued
to lease the property. They consistently paid rent but started to fall behind by February 2004.

Realizing that the Spouses Javier had no genuine intention of purchasing the property, Racelis wrote to inform
them that her family had decided to terminate the lease agreement and to offer the property to other
interested buyers. In the same letter, Racelis demanded that they vacate the property by May 30,
2004. Racelis also stated that:

It is a common practice that earnest money will be forfeited in favor of the seller if the buyer fails to
consummate [the] sale after the lapse of a specified period for any reason so that we have the legal
right to forfeit your P78,000 on account of your failure to pursue the purchase of the property you
are leasing. However, as a consideration to you, we undertake to return to you the said amount after
we have sold the property and received the purchase price from [the] prospective buyer.

The Spouses Javier refused to vacate due to the ongoing operation of their tutorial business. They wrote
Racelis on March 16, 2004, informing her of their inability to purchase the property at P3,500,000.00 because
"Mrs. Rebecca Javier's plan for overseas employment did not materialize." They also informed her that they
had "purchased a more affordable lot." They insisted that the sum of P78,000.00 was advanced rent and
proposed that this amount be applied to their outstanding liability until they vacate the premises.

ISSUE:

Whether or not the 78,000 was earnest money

RULING:

Yes it was.

The P78,000.00 initial payment cannot be characterized as advanced rent. First, records show that
respondents continued to pay monthly rent until February 2004 despite having delivered the P78,000.00 to
petitioner on separate dates in 2003. Second, as observed by the Metropolitan Trial Court, respondents
indicated in the receipt that the P78,000.00 was initial payment or goodwill money. They could have easily
stated in the receipt that the P78,000.00 was advanced rent instead of denominating it as "initial payment or
goodwill money." Respondents even proposed that the initial payment be used to offset their accrued rent.

Both the Metropolitan Trial Court and the Regional Trial Court rejected respondents' assertion that the
P78,000.00 was advanced rent and characterized it as earnest money.

Under Article 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be
considered as "proof of the perfection of the contract." However, this is a disputable presumption, which
prevails in the absence of contrary evidence. The delivery of earnest money is not conclusive proof that a
contract of sale exists.
The existence of a contract of sale depends upon the concurrence of the following elements: (1) consent or
meeting of the minds; (2) a determinate subject matter; and (3) price certain in money or its equivalent. The
defining characteristic of a contract of sale is the seller's obligation to transfer ownership of and deliver the
subject matter of the contract. Without this essential feature, a contract cannot be regarded as a sale although
it may have been denominated as such.

In a contract of sale, title to the property passes to the buyer upon delivery of the thing sold. In contrast, in
a contract to sell, ownership does not pass to the prospective buyer until full payment of the purchase price.
The title of the property remains with the prospective seller.

In a contract of sale, the non-payment of the purchase price is a resolutory condition that entitles the seller
to rescind the sale. In a contract to sell, the payment of the purchase price is a positive suspensive condition
that gives rise to the prospective seller's obligation to convey title. However, non-payment is not a breach of
contract but "an event that prevents the obligation of the vendor to convey title from becoming effective." The
contract would be deemed terminated or cancelled, and the parties stand "as if the conditional obligation had
never existed."

Based on the evidence on record, petitioner and respondents executed a contract to sell, not a contract of
sale. Petitioner reserved ownership of the property and deferred the execution of a deed of sale until receipt
of the full purchase price. In her Letter dated March 4, 2004, petitioner stated:

It was our understanding that pending your purchase of the property you will rent the same for the
sum of P10,000.00 monthly. With our expectation that you will be able to purchase the property
during 2002, we did not offer the property for sale to third parties. We even gave you an extension
verbally for another twelve months or the entire year of 2003 within which we could finalize the sale
agreement and for you to deliver to us the amount of P3.5 Million, the agreed selling price of the
property. However, to this date, we are not certain whether or not you have the capacity to purchase
the property. The earnest money of P100,000 that we initially agreed upon only reached P78,000 as
of date accumulated through several installments during 2003. It is not our intention to wait for a
long time to dispose the property since you are very much aware of the situation of my mother.

In this case, since respondents failed to deliver the purchase price at the end of 2003, the contract to sell was
deemed cancelled. The contract's cancellation entitles petitioner to retain the earnest money given by
respondents.
TOPIC: TERMINATION OF LEASE; EXPIRATION OF THE PERIOD; IMPLIED LEASE

G.R. No. 215922, October 01, 2018

THELMA C. MULLER, GRACE M. GRECIA, KURT FREDERICK FRITZ C. MULLER, AND HOPE C. MULLER, IN
SUBSTITUTION OF THE LATE FRITZ D. MULLER, Petitioners, v. PHILIPPINE NATIONAL BANK, Respondent.

FACTS:
Spouses Fritz and Thelma Muller are the occupants of two (2) parcels of land owned by Philippine National
Bank (PNB).

On May 26, 1987, PNB informed the Mullers that their lease will expire on June 1, 1987; that they had rental
arrears for two and a half years amounting to PhP18,000.00.

Seeking to renew the lease contract for another year, Fritz Muller wrote to PNB proposing to buy the subject
properties as well as request to renew lease, PNB denied the request for renewal of the lease on June 13,
1987. On October 2, 1987, PNB informed Fritz that his offer to purchase the subject properties was not
given due course by the Head Office.

On March 17, 1988, PNB demanded for the Mullers to vacate the subject properties within fifteen (15) days
from the said date, in view of the expiration of the lease. The demand fell [on] deaf ears.

Due to continued occupation of the Mullers, PNB sent its final demand letter dated July 17, 2006, demanding
from them the payment of the rental arrears from June 1984 up to June 1, 2006.

The Mullers failed to pay due attention to the written demands against them which prompted PNB to
institute a Complaint for Ejectment.

Both RTC and CA ruled in favor of PNB.

Petitioners contend that the award of rentals should be reckoned from the time of receipt of the latest
demand - July 17, 2006 - and not prior demands; that prior to said last or latest demand, PNB had no right
to collect rent, since it is only after receipt of the latest demand that they may be considered illegal
occupants of the bank's property and thus obligated to pay rent; that prior to said latest or last demand,
their possession of the subject properties may be said to have been tolerated by PNB, and as such, they
were "not required to pay the rent within the period prior to their receipt of the latest demand to vacate."

ISSUE:

Whether or not the Mullers are liable to pay the rent for the period prior to the last demand

RULING:

Yes they are.


Petitioners argue that rentals may be awarded to respondent only from the time of the latest demand and
not prior ones; that prior to said latest demand, PNB had no right to collect rent, since it is only after receipt
thereof that they may be considered illegal occupants of the bank's property and thus obligated to pay rent;
and that prior to said latest or last demand, their possession of the subject properties may be said to have
been tolerated by PNB, and as such, they were "not required to pay the rent within the period prior to their
receipt of the latest demand to vacate." Such arguments are, however, fundamentally logically flawed,
because if they were to be believed, then no lessor would be compensated under a lease; the lessee's
outstanding rental obligations would simply be condoned. Any lessee would simply withhold the payment of
rent and wait until the lessor makes a demand to vacate - at which point the former will simply vacate the
premises, with no obligation to pay rent at all.

Under Article 1670 of the Civil Code, "[i]f at the end of the contract the lessee should continue enjoying the
thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by
either party has previously been given, it is understood that there is an implied new lease, not for the period
of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the
original contract shall be revived." Thus, when petitioners' written lease agreement with respondent expired
on June 1, 1987 and they did not vacate the subject properties, the terms of the written lease, other than
that covering the period thereof, were revived. The lease thus continued. In this sense, the prescriptive
periods cited by petitioners - as provided for in Articles 1144 and 1145 of the Civil Code - are inapplicable.
As far as the parties are concerned, the lease between them subsisted and prescription did not even begin
to set in.

Even then, it can be said that so long as petitioners continued to occupy the subject properties - with or
without PNB's consent - there was a lease agreement between them. They cannot escape the payment of
rent, by any manner whatsoever. First of all, given the circumstances where liberality is obviously not
present and was never a consideration for the lease contract, petitioners cannot be allowed to enjoy PNB's
properties without paying compensation therefor; this would be contrary to fundamental rules of fair play,
equity, and law. Basically, Article 19 of the Civil Code states that "[e]very person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith," and Article 20 provides that "[e]very person who, contrary to law, wilfully or negligently causes
damage to another, shall indemnify the latter for the same."

Secondly, even when the parties' lease agreement ended and petitioners failed or refused to vacate the
premises, it may be said that a forced lease was thus created where petitioners were still obligated to pay
rent to respondent as reasonable compensation for the use and occupation of the subject properties.
Indeed, even when there is no lease agreement between the parties, or even when the parties occupant
and property owner - are strangers as against each other, still the occupant is liable to pay rent to the
property owner by virtue of the forced lease that is created by the former's use and occupation of the
latter's property.
TOPIC: AGENCY;

G.R. No. 226587, November 21, 2018

DONABELLE V. GONZALES--SALDANA, Petitioner, v. SPOUSES GORDON R. NIAMATALI AND AMY V.


NIAMATALI, Respondents.

FACTS:
Sometime in January 2002, respondent-spouses Gordon and Amy Niamatali (respondent-spouses), then
residing in the United States of America, made known to petitioner Donabelle Gonzales-Saldana (petitioner)
their intention to acquire real properties in Metro Manila. Petitioner, informed them that a certain parcel of
land located in Las Piñas City would be sold in a public auction conducted by the DOLE Sheriff's Office.

Spouses Niamatali asked petitioner to participate in the public auction on their behalf. Consequently, on
January 30, 2002, they remitted US$60,000.00 or P3,000,000.00 to petitioner's bank account for the
purchase of the Las Piñas property. In March 2002, however, respondent spouses received from petitioner
photocopies of Transfer Certificates of Title (TCT) Nos. 105904 and 223102 covering properties located in
Manila and Parañaque contrary to their agreement that petitioner would purchase the Las Piñas property.
Petitioner explained to them that the auction sale of the Las Piñas property did not push through because of
a third-party claim, but the judgment creditor agreed to sell to her the Parañaque and Manila properties
which were also levied on execution. Upon their return to the Philippines in July 2002, petitioner brought
respondent-spouses to the Las Piñas property but it was locked up and a signboard was posted, on which
the words "Future Home of Lutheran School and Community Center" were written. Thus, respondent-
spouses informed petitioner that they were no longer interested in acquiring the Las Piñas property and
asked for the return of the P3,000,000.00, to which petitioner acceded. She even sent to respondent-
spouses a letter wherein she acknowledged receipt of the P3,000,000.00 and promised to return said
amount on or before September 14, 2002.

In her Answer, petitioner averred that the public bidding of the Las Piñas property was cancelled because of
a third-party claim. The DOLE Sheriff's Office, however, informed her that other properties of the losing
party would be put up in a public auction. Thus, petitioner asked respondent spouses whether they were
interested in buying the properties located in Manila and Parañaque, but the latter did not respond. In good
faith, and thinking that it would be beneficial for respondent-spouses, petitioner requested her friend,
Austria to participate in the bidding of the Manila and Parañaque properties. In both auctions, Austria was
declared the winning bidder. In July 2002, however, respondent-spouses told petitioner that they were no
longer interested in buying the Las Piñas property. She then told them that she would return their money
but she had to sell first the Manila and Parañaque properties.

Despite several demands from respondent-spouses, petitioner failed to return the P3,000,000.00. Thus, on
March 6, 2006, respondent-spouses filed a case for collection of sum of money, moral damages and
attorney's fees against petitioner.

ISSUE:

Whether or not petitioner is obligated to return the 3,000,000 to the spouses

RULING:

Yes she is.


There is an implied agency between petitioner and respondent-spouses.

By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. Agency may be express,
or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without authority. Acceptance by the agent may
also be express, or implied from his acts which carry out the agency, or from his silence or inaction
according to the circumstances.

A contract of agency may be inferred from all the dealings between petitioner and respondent-spouses. The
question of whether an agency has been created is ordinarily a question which may be established in the
same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of
intention. In this case, respondent-spouses communicated with petitioner as regards the purchase of the Las
Piñas property and they remitted P3,000,000.00 to petitioner's account for such purpose. For her part,
petitioner made inquiries with the DOLE Sheriff's Office and even talked to the judgment creditor for the
purchase of the said property. Also, she received P3,000,000.00 from respondent-spouses to finalize the
transaction. Thus, it is beyond dispute that an implied agency existed between petitioner and respondent-
spouses for the purpose of purchasing the Las Piñas property.

Petitioner, however, acted beyond the scope of her authority. It is worthy to note that it was petitioner who
introduced to respondent-spouses the idea of participating in the auction sale of the Las Piñas
property. When the parties came to an agreement as to the purchase of the said property, petitioner was
then unaware of other properties which were going to be sold on auction. As a result, the parties never
agreed on a substitute property to be purchased in case the bidding of the Las Piñas property failed to
materialize. As it happened, the Las Piñas property could not be auctioned on account of a third-party claim.
Thus, when petitioner was informed that certain properties in Manila and Parañaque were to be auctioned
for the same judgment creditor, she proceeded to participate in the bidding and decided not to wait for
respondent-spouses' approval. It was only after the sale that petitioner informed respondent-spouses that
she already settled for the Manila and Parañaque properties, worth more than P3,000,000.00 in
valuation. Thus, even though petitioner may have been motivated by good intentions and by a sincere belief
that the purchase of the Manila and Parañaque properties would benefit respondent-spouses, it cannot be
gainsaid that she acted outside the scope of the authority given to her, i.e., to purchase the Las Piñas
property. Hence, petitioner's failure to fulfill her obligation entitles respondent-spouses to the return of the
P3,000,000.00 which they remitted to her account.
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