BOOK IV.
OBLIGATIONS AND CONTRACTS The failure of RCPI to deliver the telegram containing the
TITLE I. OBLIGATIONS (ARTS. 1156-1304)
1. RCPI vs. Alfonso Verchez, GR 164349, Jan. 31, 2006
By: Abueg, Raponcel
Doctrine: The court may award moral damages in cases of
breach of contract where the defendant was guilty of gross
negligence amounting to bad faith, or in wanton disregard of
his contractual obligation.
Facts: On January 21, 1991, Editha was confined at Sorsogon
Provincial Hospital. On that same day, her daughter Grace
went to RCPI to send a telegram to her sister (Zenaida) in
Manila asking Zenaida to send her money because their
mother is sick. Three days after, Grace received no response
from Zenaida. So she sent a letter to Zenaida through JRS
Express and even reprimanding her sister for not sending any
financial aid.
Immediately after Zenaida received the letter, she and her
husband went to Sorsogon.
On her arrival at Sorsogon, she disclaimed having received
any telegram. The telegram was finally delivered to Zenaida 25
days later or on February 15, 1991.When asked, RCPI said
that there were technical difficulties in the radio transmitter
which caused the delay. On April 17, 1992, Editha died.
Editha’s husband, with his daughters Grace and Zenaida and
their respective spouses, filed a complaint against RCPI for
damages. They alleged that, the delay in delivering the
telegram contributed to the early demise of the late Editha.
Issue/s: Whether or not RCPI breached the contract and
therefore liable for damages.
Ruling: YES.
message of Grace on time consists in a breach of contract as
to the contracting party, Grace. The other plaintiffs may be
awarded damages under the quasi-delict having no contractual
relationship with RCPI. RCPI’s business obligated it to dispatch
the telegram to the addressee at the earliest possible time but
that it did not in view of the negligence of its employees to
repair its radio transmitter and the concomitant delay in
delivering the telegram on time
After RCPI’s first attempt to deliver the telegram failed, it did
not inform Grace of the non-delivery thereof and waited for 12
days before trying to deliver it again, knowing – as it should
know – that time is of the essence in the delivery of telegrams.
When its second long-delayed attempt to deliver the telegram
again failed, it, again, waited for another 12 days before
making a third attempt. Such nonchalance in performing its
urgent obligation indicates gross negligence amounting to bad
faith.
2. Barzaga vs. CA et. al., 268 SCRA 105, GR 115129, Feb.
12, 1997
By: Alegre, Kristine Joyce
Doctrine:
Those who in the performance of their obligation are guilty of
fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages. (ART
1170)
Also, note: Reciprocal Obligations (ART 1169, last par.)
Facts:
Ignacio Barzaga’s (Ignacio) wife suffered from a debilitating
ailment and was told by her doctors that she was dying. As
such, prior to her death, she requested to be laid to rest before
Christmas day. After her passing, Ignacio bought materials
from private respondents for the construction of her niche.
Private respondents however failed to deliver the materials on
the agreed time and date despite repeated follow-ups by
Ignacio. The niche was completed in the afternoon of the 27th
of December, and Barzaga's wife was finally laid to rest. She
was finally laid to rest two-and-a-half (2-1/2) days behind
schedule. Barzaga asked Alviar for recompense but the latter
did not reply. Hence, Barzaga filed a case against Alviar.
The RTC held Alviar to be in delay and granted damages to
Ignacio.
Upon appeal, the CA reversed the RTC decision and ruled that
there was no contractual commitment as to the exact time of
delivery since this was not indicated in the invoice receipts
covering the sale
Issue/s: Was Alviar is liable to Ignacio for the delay and thus
liable for damages?
Ruling: YES. Herein, Alviar is guilty of non-performance of a
reciprocal obligation.
In their contract of purchase and sale, Ignacio had already
complied fully with what was required of him as purchaser, i.e.,
the payment of the purchase price of P2,110.00. It was
incumbent upon Alviar to immediately fulfill his obligation
to deliver the goods otherwise delay would attach.
Alviar states that it is due to a fortuitous event (flat tire) that he
incurred a "bit of delay" in the delivery of petitioner's
purchases. He claims that Ignacio should have allowed his
delivery men more time to bring the construction materials over
to the cemetery since a few hours more would not really
matter. But the court held that private respondent had no right
to manipulate petitioner's timetable and substitute it with his
own. Here, Ignacio had a deadline to meet since he not only
had to finish the niche but also had to attend to other pressing
family concerns. Despite this, respondent's employees still
made light of his earnest request for an immediate delivery of
the materials.
The court thus sustained the award for both moral and
exemplary damages. It cannot be denied that petitioner and his
family suffered wounded feelings, mental anguish and serious
anxiety while keeping watch on Christmas day over the
remains of their loved one who could not be laid to rest on
Christmas day.
This sufficiently entitles petitioner Ignacio Barzaga to be
indemnified for the damage he suffered as a consequence of
delay or a contractual breach. The law expressly provides that
those who in the performance of their obligation are guilty of
fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.
SC: Court of Appeals Decision reversed.
3. Selegna Management Corporation vs. United Coconut
Planters Bank
G.R. No. 165662
Doctrine: There are three requisites necessary for a finding of
default. First, the obligation is demandable and liquidated;
second, the debtor delays performance; third, the creditor
judicially or extra-judicially requires the debtor’s performance.
Facts: On Sept. 19, 1995, Petitioners Selegna Management
and Development Corporation and Spouses Edgardo and
Zenaida Angeles were granted a credit facility in the amount of
P70 million by Respondent United Coconut Planters Bank
(UCPB). As security for this credit facility, petitioners executed
real estate mortgages over several parcels of land located in
the cities of Muntinlupa, Las Piñas, Antipolo and Quezon; and
over several condominium units in Makati. Petitioners were
likewise required to execute a promissory note in favor of
respondent every time they availed of the credit facility. As
required in these notes, they paid the interest in monthly
amortizations.
 The parties stipulated in their Credit Agreement dated
September 19, 1995, that failure to pay any availment of the
accommodation or interest, or any sum due shall constitute an
event of default, which shall consequently allow respondent
bank to declare as immediately due and payable] all
outstanding availments of the accommodation together with
accrued interest and any other sum payable. In need of further
business capital, petitioners obtained from UCPB an increase
in their credit facility. For this purpose, they executed a
Promissory Note for P103,909,710.82, which was to mature on
March 26, 1999. In the same note, they agreed to an interest
rate of 21.75 percent per annum, payable by monthly
amortizations.
On Dec. 21, 1998, respondent sent petitioners a
demand letter to pay asking to pay its obligation, total amount
of P14,959,525.10 which includes unpaid interest. Respondent
decided to invoke the acceleration provision in their Credit
Agreement. Respondent Bank sent another letter of demand
on March 4, 1999. It contained a final demand on petitioners to
settle in full petitioners’ said past due obligation to UCPB within
five (5) days from petitioners receipt of the letter. In response,
petitioners paid respondent the amount of P10,199,473.96 as
partial payment of the accrued interests. Apparently
unsatisfied, UCPB applied for extrajudicial foreclosure of
petitioners’ mortgaged properties.
When petitioners received the Notice of Extra Judicial
Foreclosure Sale on May 18, 1999, they requested UCPB to
give them a period of sixty (60) days to update their accrued
interest charges; and to restructure or, in the alternative, to
negotiate for a takeout of their account.
In order to forestall the extrajudicial foreclosure
scheduled for May 31, 1999, petitioners filed a Complaint for
Damages, Annulment of Interest, Penalty Increase and
Accounting with Prayer for Temporary Restraining Order/
Preliminary Injunction. All subsequent proceedings in the trial
court and in the CA involved only the propriety of issuing a
TRO and a writ of preliminary injunction.
Issue/s: Whether or not the Petitioners are in default.
Ruling: YES. It is a settled rule of law that foreclosure is
proper when the debtors are in default of the payment of their
obligation. In fact, the parties stipulated in their credit
agreements, mortgage contracts and promissory notes that
respondent was authorized to foreclose on the mortgages, in
case of a default by petitioners. That this authority was granted
is not disputed. Mora solvendi, or debtor’s default, is defined as
a delay in the fulfillment of an obligation, by reason of a cause
imputable to the debtor.
There are three requisites necessary for a finding of
default. First, the obligation is demandable and liquidated;
second, the debtor delays performance; third, the creditor
judicially or extra-judicially requires the debtor’s performance.
In the present case, the Promissory Note executed on
March 29, 1998, expressly states that petitioners had an
obligation to pay monthly interest on the principal obligation.
From respondent’s demand letter, it is clear and undisputed by
petitioners that they failed to meet those monthly payments
since May 30, 1998. Their nonpayment is defined as an "event
of default" in the parties’ Credit Agreement. Considering that
the contract is the law between the parties, respondent is
justified in invoking the acceleration clause declaring the entire
obligation immediately due and payable. That clause obliged
petitioners to pay the entire loan on January 29, 1999, the date
fixed by respondent. The foregoing discussion satisfactorily
shows that UCPB had every right to apply for extrajudicial
foreclosure on the basis of petitioners’ undisputed and
continuing default.
A debt is liquidated when the amount is known or is
determinable by inspection of the terms and conditions of the
relevant promissory notes and related documentation. Failure
to furnish a debtor a detailed statement of account does not
ipso facto result in an unliquidated obligation.
Petitioners executed a Promissory Note, in which they
stated that their principal obligation was in the amount of
P103,909,710.82, subject to an interest rate of 21.75 percent
per annum. Pursuant to the parties’ Credit Agreement,
petitioners likewise know that any delay in the payment of the
principal obligation will subject them to a penalty charge of one
percent per month, computed from the due date until the
obligation is paid in full.
It is in fact clear from the agreement of the parties that
when the payment is accelerated due to an event of default,
the penalty charge shall be based on the total principal amount
outstanding, to be computed from the date of acceleration until
the obligation is paid in full. Their Credit Agreement even
provides for the application of payments. It appears from the
agreements that the amount of total obligation is known or, at
the very least, determinable.
4. General Milling Corporation Vs Sps. Ramos G.R. No.
193723 July 20, 2011
By: Aricheta, Paula
Doctrine: Article 1169 of the Civil Code states that: those
obligated to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them
the fulfillment of their obligation. Demand is necessary for
delay to exist unless the contract states that no such demand
is needed.
Facts: General Milling Corporation (GMC) entered into a
Growers Contract with spouses Librado and Remedios Ramos
(Spouses Ramos). Under the contract, GMC was to supply
broiler chickens for the spouses to raise on their land. To
guarantee full compliance, the Growers Contract was
accompanied by a Deed of Real Estate Mortgage over a piece
of real property and a surety bond.
Spouses Ramos eventually were unable to settle their account
with GMC. The property was extrajudicially foreclosed and
GMC was the highest bidder. Spouses Ramos questioned the
validity of the foreclosure proceedings. The CA found that
GMC made no demand to spouses Ramos for the full payment
of their obligation. A perusal of the letters presented and
offered as evidence by defendant-appellant GMC did not
“demand” but only request spouses Ramos to go to the office
of GMC to “discuss” the settlement of their account.

Issue: WON GMC made sufficient demand to the spouses
Ramos to fulfill their obligation?
Ruling:
No. There are three requisites necessary for a finding of
default.
1.the obligation is demandable and liquidated;
2. the debtor delays performance; and
3. the creditor judicially or extrajudicially requires the
debtor's performance.
According to the CA, GMC did not make a demand on
Spouses Ramos but merely requested them to go to GMCs
office to discuss the settlement of their account. In spite of the
lack of demand made on the spouses, however, GMC
proceeded with the foreclosure proceedings.
Neither was there any provision in the Deed of Real
Estate Mortgage allowing GMC to extrajudicially foreclose the
mortgage without need of demand.Article 1169 of the Civil
Code states that: those obligated to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist, when the obligation or
the law expressly so declares. The Deed of Real Estate
Mortgage (contract) in the instant case has no such provision
stating that demand is not necessary for delay to exist. GMC
should have first made a demand on the spouses before
proceeding to foreclose the real estate mortgage.
5. SOLIDBANK CORPORATION/ METROPOLITAN BANK
AND TRUST COMPANY V SPOUSES PETER and SUSAN
TAN
DOCTRINE: “We enunciated that the degree of diligence
required of banks is more than that of a good father of a family
in keeping with their responsibility to exercise the necessary
care and prudence in handling their clients’ money.”
FACTS: Spouses Tan’s representative, Frias, deposited with
Solidbank ten checks. Neri, Solidbank’s teller no. 8 received
two deposit slips for the checks, an original and a duplicate.
Neri verified the checks and their amounts in the deposit slips
then returned the duplicate copy to Frias and kept the original
copy for Solidbank.
The usual practice between the parties, Sps. Tan’s
passbook was left with Solidbank for the recording of the
deposits on the bank’s ledger. The Tans retrieved the passbook
and discovered that one Metrobank check was not posted.
Tans immediately notified Solidbank of the problem.
Solidbank showed Sps Tan a duplicate copy of a deposit slip
list of checks deposited by Frias but it did not include the
missing check. The deposit slip bore the stamp mark "teller no.
7" instead of "teller no. 8" who previously received the checks.
Later on, Tan learned from Metrobank that the same check
was cleared and was deposited by a certain Dolores Lagsac in
Premier Bank in Laguna. Sps. Tan demanded that Solidbank to
pay the amount of the check but it refused, hence, they filed a
case for collection of a sum of money.
In its answer, petitioner averred that the deposit slips Frias
used when she deposited the checks were spurious. Petitioner
accused respondents of engaging in a scheme to illegally
exact money from it. It added that, contrary to the claim of
respondents, it was "teller no. 7" who received the deposit slips
and, although respondents insisted that Frias deposited ten
checks, only nine checks were actually received by said teller.
By way of counterclaim, it sought payment of ₱1,000,000 as
actual and moral damages and ₱500,000 as exemplary
damages.
RTC ruled in favor of Sps. Tan. CA which affirmed the
decision of the RTC. Solidbank filed a motion for
reconsideration but the CA dismissed it.
ISSUE: WON Solidbank was negligent for the loss of the check
thereby having failed to exercise the due diligence of a good
father of a family as required by the Civil Code for the award of
damages on the part of Sps. Tan.
HELD: YES. The court held that Solidbank was negligent on
Article 1173 of the Civil Code. The trial court merely made
reference to the kind of diligence that petitioner should have
performed under the circumstances. In other words, like a
common carrier whose business is also imbued with public
interest, petitioner should have exercised extraordinary
diligence to negate its liability to respondents.
Assuming arguendo that the trial court indeed used the
provisions on common carriers to pin down liability on
petitioner, still we see no reason to strike down the RTC and
CA rulings on this ground alone.
In one case, the Court did not hesitate to apply the
doctrine of last clear chance (commonly used in transportation
laws involving common carriers) to a banking transaction
where it adjudged the bank responsible for the encashment of
a forged check. There, we enunciated that the degree of
diligence required of banks is more than that of a good father
of a family in keeping with their responsibility to exercise the
necessary care and prudence in handling their clients’ money.
We find no compelling reason to disallow the application of
the provisions on common carriers to this case if only to
emphasize the fact that banking institutions (like petitioner)
have the duty to exercise the highest degree of diligence when
transacting with the public. By the nature of their business,
they are required to observe the highest standards of integrity
and performance, and utmost assiduousness as well.
6. Phil. Communications Satellite Corp. vs. Globe Telecom,
Inc., GR 147324, May 25, 2004
By: Bautista, Kresnie Anne F.
Doctrine: Article 1174, which exempts an obligor from liability
on account of fortuitous events or force majeure, refers not
only to events that are unforeseeable, but also to those which
are foreseeable, but inevitable. (ART 1174)
Facts: Globe Telecom, had been engaged for various
communication facilities for the US military bases in Clark Air
Base and Subic Naval Base.. The said communication facilities
are for the exclusive use of the US Defense Communications
Agency (USDCA), and for security reasons, were operated
only by its personnel or those of American companies
contracted by it to operate said facilities. The USDCA
contracted with said American companies, and the latter, in
turn, contracted with Globe for the use of the communication
facilities. Globe, on the other hand, contracted with local
service providers such as the Philcomsat for the installation of
the earth station.
In 1992, the US military personnel withdrew from Subic Naval
Base. Globe then notify Philcomsat of its intention to
discontinue the use of earth station citing that the withdrawal
constitutes a force majeure or fortuitous event.
After the US military forces left Subic Naval Base, Philcomsat
sent Globe a letter in 1993 demanding payment of its
outstanding obligations under the Agreement. However, Globe
refused to heed Philcomsats demand.
Globe argued that it was constrained to end the Agreement
due to the termination of the RP-US Military Bases Agreement
and the non-ratification by the Senate of the Treaty of
Friendship and Cooperation, which events constituted force
majeure under the Agreement.
Issue/s: Were the termination of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of Friendship,
Cooperation and Security, and the consequent withdrawal of
US military forces and personnel from Cubi Point constitute
force majeure which would exempt Globe from complying with
its obligation to pay rentals under its Agreement with
Philcomsat
Ruling: YES. In Article 1174, which exempts an obligor from
liability on account of fortuitous events or force majeure, refers
not only to events that are unforeseeable, but also to those
which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or
which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an “act of
God,” or natural occurrences such as floods or typhoons, or an
“act of man,” such as riots, strikes or wars.
Philcomsat and Globe agreed in Section 8 of the Agreement
that the following events shall be deemed events constituting
force majeure:
1.Any law, order, regulation, direction or request of the
Philippine Government;
2.Strikes or other labor difficulties;
3.Insurrection;
4.Riots;
5.National emergencies;
6.War;
7.Acts of public enemies;
8.Fire, floods, typhoons or other catastrophies or acts of
God;
 9.Other circumstances beyond the control of the parties.
10.Clearly, the foregoing are either unforeseeable, or
foreseeable but beyond the control of the parties. There is
nothing in the enumeration that runs contrary to, or
expands, the concept of a fortuitous event under Article
1174.
In order that Globe may be exempt from non-compliance with
its obligation to pay rentals under Section 8, the concurrence of
the following elements must be established: (1) the event must
be independent of the human will; (2) the occurrence must
render it impossible for the debtor to fulfill the obligation in a
normal manner; and (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor.
The abovementioned requisites are present in the instant case.
Philcomsat and Globe had no control over the non-renewal of
the term of the RP-US Military Bases Agreement when the
same expired in 1991, because the prerogative to ratify the
treaty extending the life thereof belonged to the Senate.
Neither did the parties have control over the subsequent
withdrawal of the US military forces and personnel from Cubi
Point
SC: Court of Appeals ruling affirmed.
7. Fil-Estate Properties, Inc. vs. Spouses
Ronquillo, GR 185798, Jan. 13, 2014
By: Bernardez, Ivy Clarize
Doctrine: The non-performance of petitioners’
obligation entitles respondents to rescission under
Article 1191 of the New Civil Code
Facts: Petitioner Fil-Estate Properties, Inc. is the
owner and developer of the Central Park Place Tower
while co-petitioner Fil-Estate Network, Inc. is its
authorized marketing agent. Respondent Spouses
Conrado and Maria Victoria Ronquillo purchased from
petitioners an 82-square meter condominium unit for a
pre-selling contract price of P5,174,000.00. On 29
August 1997, respondents executed and signed a
Reservation Application Agreement wherein they
deposited P200,000.00 as reservation fee. As agreed
upon, respondents paid the full downpayment of
P1,552,200.00 and had been paying the P63,363.33
monthly amortizations until September 1998.
Upon learning that construction works had
stopped, respondents likewise stopped paying their
monthly amortization. Claiming to have paid a total of
P2,198,949.96 to petitioners, respondents through two
(2) successive letters, demanded a full refund of their
payment with interest. When their demands went
unheeded, respondents were constrained to file a
Complaint for Refund and Damages before the
Housing and Land Use Regulatory Board (HLURB).
Respondents prayed for reimbursement/refund of
P2,198,949.96 representing the total amortization
payments, P200,000.00 as and by way of moral
damages, attorney’s fees and other litigation
expenses.
On 13 June 2002, the HLURB in favor of
herein respondents. The Arbiter considered petitioners’
failure to develop the condominium project as a
substantial breach of their obligation which entitles
respondents to seek for rescission with payment of
damages. The Arbiter also stated that mere economic
hardship is not an excuse for contractual and legal
delay.
Issue: Whether or not the Asian financial crisis
constitute a fortuitous event which would justify delay
by petitioners in the performance of their contractual
obligation
Ruling: No. The Supreme Court held that the Asian
financial crisis is not a fortuitous event that would
excuse petitioners from performing their contractual
obligation.
The Court ruled that “we cannot generalize
that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business
corporation. It is unfortunate that petitioner apparently
met with considerable difficulty e.g. increase cost of
materials and labor, even before the scheduled
commencement of its real estate project as early as
1995. However, a real estate enterprise engaged in
the pre-selling of condominium units is concededly a
master in projections on commodities and currency
movements and business risks. The fluctuating
movement of the Philippine peso in the foreign
exchange market is an everyday occurrence, and
fluctuations in currency exchange rates happen
everyday, thus, not an instance of caso fortuito.”
8. Manlar Rice Mill Inc. v. Lourdes Deyto
G.R. No. 191189 January 29, 2014
Doctrine: There is a solidary liability only when the obligation
expressly so states, when the law so provides or when the
nature of the obligation so requires.
Facts: Respondent Ang(Deyto’s daughter) entered into a rice
supply contract with Petitioner Manlar Rice Mill Inc. (Manlar)
where the former purchased rice from the latter. This
transaction was covered by nine (9) postdated checks issued
by Ang from her personal bank/checking account. Upon
presentment, all nine (9) checks were dishonored. Manlar
made oral and written demands upon respondents Deyto and
Ang, which went unheeded. It appears that during the time of
demand, Ang cannot be located. Thus, Manlar filed a
Complaint for Sum of Money against Deyto and Ang before the
RTC seeking to hold respondents solidarily liable on the rice
supply contract. Deyto filed her Answer claiming that she did
not contract with Manlar or any of its representatives regarding
the purchase and delivery of rice. She further argued that
Manlar’s claim has no factual and legal basis, that its claim is
not supported by documentary evidence, and that Manlar’s
impleading her is simply a desperate strategy or attempt to
recover its losses from her, considering that Janet Ang can no
longer be located.
The RTC ruled in favour of the petitioner, however, the CA
reversed and dismissed the complaint.
Issue: Whether or not Deyto can be held solidarily liable with
Ang for what the latter owes to Manlar.
Ruling: NO. Deyto cannot be held solidarily liable with Ang.
Well entrenched is the rule that solidary obligation cannot
lightly inferred. There is a solidary liability only when the
obligation expressly so states, when the law so provides or
when the nature of the obligation so requires. In this case,
there is no legal basis to hold Deyto solidarily liable with Ang
for what the latter may owe Manlar. The evidence does not
support Manlar’s view that both Deyto and Ang contracted with
Manlar for the delivery of the rice on credit. It shows that it was
Ang alone who entered into the rice supply agreement with
Manlar. In addition to that, Pua(sales manager of Manlar)
admitted that their allegations that Deyto guaranteed Ang’s
check and consented to held solidarily liable with Ang was not
made in writing and just a verbal assurance. Such will not
suffice. Also, the documentary evidence shows that the subject
checks were issued from a bank account in Chinabank
belonging to Ang alone. They did not emanate from an account
that belonged to both Ang and Deyto. Therefore, Deyto cannot
be held solidarily liable with Ang. Under article 1311 of the Civil
Code “contracts take effect only between parties, their assigns
and heirs.” Deyto is not a party to the rice supply contract.
Thus, Manlar may not sue Deyto.
9. Traveller’s Insurance & Surety Com. vs CA, G.R. No.
82036, May 22, 1997
By: Bustamante, Anne Murphy
Doctrine: While it is true that where the insurance contract
provides for indemnity against liability to third persons, such
third persons can directly sue the insurer, however, the direct
liability of the insurer under indemnity contracts against third-
party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found
at fault. The liability of the insurer is based on contract; that of
the insured is based on tort.
Facts: Feliza Vineza de Mendoza, 78-year old woman, was
bumped by a taxi that was running fast. Several persons
witnessed the accident, among whom were Rolando Marvilla,
Ernesto Lopez and Eulogio Tabalno. A good Samaritan that he
was, Marvilla ran towards the old woman and held her on his
lap to inquire from her what had happened. At this moment, a
private jeep stopped. With the driver of that vehicle, the two
helped board the old woman on the jeep and brought her to the
Mary Johnston Hospital in Tondo. Ernesto Lopez, also
witnessed the incident. Lopez told Mendoza brothers what had
happened. The victim was brought to the U.S.T. Hospital where
she expired at 9:00 o’clock that same morning. Death was
caused by traumatic shock as a result of the severe injuries
she sustained.
The evidence shows that at the moment the victim was
bumped by the vehicle, the latter was running fast, so much so
that because of the strong impact the old woman was thrown
away and she fell on the pavement. Three (3) witnesses who
were at the scene at the time identified the taxi involved,
though not necessarily the driver thereof. The eyewitnesses
were unanimous in pointing to that Lady Love Taxi with Plate
No. 438, obviously the vehicle involved herein. During the
investigation, defendant Armando Abellon, the registered
owner of Lady Love Taxi bearing No. 438-HA Pilipinas Taxi
1980, certified to the fact that the vehicle was driven last July
20, 1980 by one Rodrigo Dumlao.
Private respondent filed a complaint for damages against
Armando Abellon as the owner of the Lady Love Taxi and
Rodrigo Dumlao as the driver of the Lady Love taxicab that
bumped private respondents mother. Subsequently, private
respondent amended his complaint to include petitioner as the
compulsory insurer of the said taxicab.
Trial court rendered judgment in favor of private respondent.
CA Affirmed.
Petitioner mainly contends that it did not issue an insurance
policy as compulsory insurer of the Lady Love Taxi and that,
assuming arguendo that it had indeed covered said taxicab for
third-party liability insurance, private respondent failed to file a
written notice of claim with petitioner as required by Section
384 of P.D. No. 612, otherwise known as the Insurance Code.
Issue/s: Whether the petitioner is liable as an insurer of Lady
Love Taxi.
Ruling: No. It is significant to point out at this juncture that the
right of a third person to sue the insurer depends on whether
the contract of insurance is intended to benefit third persons
also or only the insured.
[A] policy x x x whereby the insurer agreed to indemnify the
insured against all sums x x x which the Insured shall become
legally liable to pay in respect of: a. death of or bodily injury to
any person x x x is one for indemnity against liability; from the
fact then that the insured is liable to the third person, such third
person is entitled to sue the insurer.
The right of the person injured to sue the insurer of the party at
fault (insured), depends on whether the contract of insurance is
intended to benefit third persons also or on the insured. And
the test applied has been this: Where the contract provides for
indemnity against liability to third persons, then third persons to
whom the insured is liable can sue the insurer. Where the
contract is for indemnity against actual loss or payment, then
third persons cannot proceed against the insurer, the contract
being solely to reimburse the insured for liability actually
discharged by him thru payment to third persons, said third
persons recourse being thus limited to the insured alone.
Since private respondent failed to attach a copy of the
insurance contract to his complaint, the trial court could not
have been able to apprise itself of the real nature and
pecuniary limits of petitioner’s liability. More importantly, the
trial court could not have possibly ascertained the right of
private respondent as third person to sue petitioner as insurer
of the Lady Love taxicab because the trial court never saw nor
read the insurance contract and learned of its terms and
conditions.
Apparently, the trial court did not distinguish between the
private respondents cause of action against the owner and the
driver of the Lady Love taxicab and his cause of action against
petitioner. The former is based on torts and quasi-delicts while
the latter is based on contract. Confusing these two sources of
obligations as they arise from the same act of the taxicab
fatally hitting private respondents mother, and in the face of
overwhelming evidence of the reckless imprudence of the
driver of the Lady Love taxicab, the trial court brushed aside its
ignorance of the terms and conditions of the insurance contract
and forthwith found all three - the driver of the taxicab, the
owner of the taxicab, and the alleged insurer of the taxicab -
jointly and severally liable for actual, moral and exemplary
damages as well as attorney’s fees and litigation expenses.
This is clearly a misapplication of the law by the trial court, and
respondent appellate court grievously erred in not having
reversed the trial court on this ground.
While it is true that where the insurance contract provides for
indemnity against liability to third persons, such third persons
can directly sue the insurer, however, the direct liability of the
insurer under indemnity contracts against third-party liability
does not mean that the insurer can be held solidarily liable with
the insured and/or the other parties found at fault. The liability
of the insurer is based on contract; that of the insured is based
on tort.
10. Subic Bay Legend Resorts & Casinos, Inc. vs.
Fernandez, GR 193426, Sept. 29, 2014
Doctrine: Any person in possession of genuine casino chips is
presumed to have paid for their representative value in
exchange therefor. These chips are paid for anyway; Bernard
would not have parted with the same if their corresponding
representative equivalent – in legal tender, goodwill, or
otherwise – was not received by it in return or exchange.
Facts:
●Ludwig visited the Legenda Hotel, a casino operated by
Subic Bay Legend Resorts.
●The casino’s CCTV footage showed Ludwig changed
$5,000 worth of chips into smaller denominations.
●Since it was unusual for a Filipino to play using dollar-
denominated chips, casino security personnel paid closer
attention to Ludwig.
●After playing a game of baccarat and winning $200,
Ludwig redeemed casino chips worth $7,200.
●Days later, Ludwig and his brother Deoven entered the
casino.
●After playing and losing, they encashed their chips, but
their chips were “frozen.”
●They were then accosted by the casino’s security
personnel and ordered to return the cash in their
possession.
●They were separately interrogated and were made to
confess that the chips were supplied by a casino
employee.
●After release, Deoven retracted his statement.
●Bernard, Ludwig and Deoven’s brother, filed a complaint
for recovery of sum of money and damages against the
casino.
●According to him, he got the chips as payment for
services rendered to a Chinese customer in his car shop
and that he went to the casino and handed to his brothers
$6,000 worth of chips belonging to him for use at the
casino; thereat, the company personnel accosted his
brothers and confiscated his casino chips worth $5,900.00,
and failed to return the same to him despite demand.
●The casino argued that Bernard had no cause of action
against it as the chips were stolen from the company, thus
it had the right to retain them.
●After trial, RTC ruled that Bernard had possession of the
chips and that the company failed to rebut the presumption
that a person in possession of the thing is the lawful owner
thereof.
●On appeal to the CA, the latter affirmed the RTC
judgment. Thus, the casino appealed to the Supreme
Court.
Issue: Whether Bernard is the lawful possessor of the casino
chips, entitling him to collect from the casino and award of
damages.
Held: YES.
●Though casino chips do not constitute legal tender, there
is no law which prohibits their use or trade outside of the
casino which issues them.
●In any case, it is not unusual – nor is it unlikely – that
Bernard could be paid by his Chinese client at his car shop
with the casino chips in question; said transaction, if not
common, is nonetheless not unlawful.
●These chips are paid for anyway; Bernard would not
have parted with the same if their corresponding
representative equivalent – in legal tender, goodwill, or
otherwise – was not received by it in return or
exchange.
●Given this premise – that casino chips are considered to
have been exchanged with their corresponding
representative value – it is with more reason that this Court
should require the company to prove convincingly and
persuasively that the chips it confiscated from Ludwin and
Deoven were indeed stolen from it; if so, any person in
possession of genuine casino chips is presumed to
have paid for their representative value in exchange
therefor.
●If petitioner cannot prove its loss, the presumption that
the chips were exchanged for value remains.
11. PHILIPPINE COMMERCIAL INTERNATIONAL BANK
(now BDO UNIBANK,INC.), vs. ARTURO P. FRANCO
G.R. No. 180069 March 5, 2014
By: CARLOMAN, Yasser A.
Doctrine: One who pleads payment has the burden of proof.
The Creditor’s possession of the documents of credit is prima
facie evidence of non-payment.
Facts:
Arturo Franco secured from defendant PCIB Trust Indenture
Certificates. That despite demands, defendants refused and
still refuses to return to plaintiff the trust amounts, plus the
stipulated interest. In several times, Arturo had visited the
defendant bank to request for a status on his investments,
bank officers would normally pull out his ledger card and show
plaintiff the updated amount due him. Later, to his surprise, he
received a letter signed by defendant’s counsel, in effect
denying plaintiff’s request for payment by stating that due to
the conversion of all outstanding PCIBank trust indenture
accounts into common trust certificates, all such PCIBank trust
indenture certificates have been rendered "null and void."
Arturo prays for the payment of the amounts under the Trust
Indenture Certificates, plus interest, moral and exemplary
damages and attorney’s fees.
Issue:
Who has the burden of proving payment? – Debtor
Are the obligations already extinguished – No
Ruling:
Jurisprudence abounds that, in civil cases, one who pleads
payment has the burden of proving it. Even where the plaintiff
must allege non-payment, the general rule is that the burden
rests on the defendant to prove payment, rather than on the
plaintiff to prove non-payment. When the creditor is in
possession of the document of credit, he need not prove non-
payment for it is presumed. The creditor's possession of the
evidence of debt is proof that the debt has not been discharged
by payment.
In this case, respondent's possession of the original
copies of the subject TICs strongly supports his claim that
petitioner Bank's obligation to return the principal plus interest
of the money placement has not been extinguished. The TICs
in the hands of respondent is a proof of indebtedness and a
prima facie evidence that they have not been paid. Petitioner
Bank could have easily presented documentary evidence to
dispute the claim, but it did not. In its omission, it may be
reasonably deduced that no evidence to that effect really exist.
Worse, the testimonies of petitioner Bank's own witnesses,
reinforce, rather than belie, respondent's allegations of non-
payment.
12. Sps. Cacayorin vs. AFPMBAI. GR 171298, April 15,
2013
By: Cristobal, Ma. Corazon M.
Doctrine: Tender of payment is not necessary in consignation
cases where the ground for consignation is that the creditor is
unknown, or does not appear at the place of payment; or is
incapacitated to receive payment at the time it is due; or when,
without just cause, he refuses to give a receipt; or when two or
more persons claim the same right to collect; or when the title
of the obligation has been lost.
Furthermore, consignation must be done before the regular
courts.
Facts: Sps. Cacayorin and the Rural Bank of San Teodoro
executed a Loan and Mortgage Agreement with the former as
borrowers and the Rural bank as lender.
The Rural bank issued a letter of guaranty informing
AFPMBAI that the proceeds of petitioners approved loan shall
be released to AFPMBAI after title to the property is transferred
in petitioner’s name and after the registration and annotation of
the parties’ mortgage agreement.
On the basis of the Rural Bank’s letter of guaranty,
AFPMBAI executed in petiitoner’s favor a Deed of Absolute
Sale, and a new title was issued.
Unfortunately, the PAG-IBIG loan facility did not push
through and the Rural Bank closed and was placed under
Receivership by the PDIC. Meanwhile, AFPMBAI was able to
take possession of petitioner’s loan documents while
petitioners were unable to pay the loan/consideration for the
property.
Petitioners filed a Complaint for consignation of loan
payment, recovery of title and cancellation of mortgage
annotation against AFPMBAI. Petitioners alleged in their
Complaint that as a result of the Rural Bank’s closure, they
were left in a quandary as to where they should tender full
payment of the loan and how to secure cancellation of the
mortgage annotation.
AFPMBAI filed a Motion to Dismiss claiming that
petitioners’ Complaint falls within the jurisdiction of HLURB and
not RTC, as it was filed by petitioners in their capacity as
buyers of a subdivision and they also alleged that since no
prior valid tender of payment was made by petitioners, the
consignation case was fatally defective and susceptible to
dismissal.
Issues:
1) Whether the absence of valid tender of payment is
fatal to consignation case?
2) Does the complaint fall within the exclusive
jurisdiction of HLURB?
Ruling:
Issue 1
No.
The lack of prior tender of payment by the petitioners is
not fatal to their consignation case. They filed the case for the
exact reason that they were at a loss as to which between the
two – the Rural Bank or AFPMBAI – was entitled to such a
tender of payment. Article 1256 authorizes consignation alone,
without need of prior tender of payment, where the ground for
consignation is that the creditor is unknown, or does not
appear at the place of payment; or is incapacitated to receive
payment at the time it is due; or when, without just cause, he
refuses to give a receipt; or when two or more persons claim
the same right to collect; or when the title of the obligation has
been lost.
Issue 2
NO.
Article 1258 – Consignation shall be made by
depositing the things due at the disposal of judicial authority,
before whom the tender of payment shall be proved, in a
proper case, and the announcement of the consignation in
other cases.
The above provision clearly precludes consignation in
venues other than the courts. Elsewhere, what may be made is
a valid tender of payment, but not consignation.
While it may be true that petitioners’ claim relates to the
terms and conditions of the sale of AFPMBAI’s subdivision lot,
this is overshadowed by the fact that since the Complaint
pleads for consignation, the HLURB is without jurisdiction to try
it, as such may only be tried by the regular courts.
13. S P O U S E S M A N U E L a n d J O C E LY N
BARREDO, petitioners, vs. SPOUSES EUSTAQUIO
and EMILDA LEAO, respondents.
DOCTRINE: Rescission of a contract will not be permitted for a
slight or casual breach, but only such substantial and
fundamental breach as would defeat the very object of the
parties in making the agreement.
FACTS: Petitioners spouses Manuel and Jocelyn Barredo
(Barredo Spouses) bought a house and lot located along Lilac
Road, Pilar Village, Las Pinas, Metro Manila, with the proceeds
of a P50,000.00 loan from the Social Security System (SSS)
which was payable in 25 years and an P88,400.00 loan from
the Apex Mortgage and Loans Corporation (Apex) which was
payable in 20 years. To secure the twin loans, they executed a
first mortgage over the house and lot in favor of SSS and a
second one in favor of Apex.
On 1987, the Barredo Spouses sold their house and lot to
respondents Eustaquio and Emilda Leao (Leao Spouses) by
way of a Conditional Deed of Sale with Assumption of
Mortgage. The Leao Spouses would pay the Barredo
Spouses P200,000.00, P100,000.00, while the balance
of P100,000.00 would be paid in ten (10) equal monthly
installments after the signing of the contract. The Leao
Spouses would also assume the first and second mortgages
and pay the monthly amortizations to SSS and Apex beginning
July 1987 until both obligations are fully paid.
In accordance with the agreement, the purchase price
of P200,000.00 was paid to the Barredo Spouses who turned
over the possession of the house and lot in favor of the Leao
Spouses.
Two (2) years later, the Barredo Spouses initiated a
complaint before the Regional Trial Court of Las Pias seeking
the rescission of the contract on the ground that the Leao
Spouses despite repeated demands failed to pay the mortgage
amortizations to the SSS and Apex causing the Barredo
Spouses great and irreparable damage.
The Leao Spouses, however, denied their claim and stated
that they were paying their obligations to Apex but were not
able to pay the SSS amortizations because their payments
were refused upon the instructions of the Barredo Spouses.
Meanwhile, to save their credit standing, spouses Barredo
paid mortgage loans and paid to the SSS.
Petitioner’s contention (Barredo Spouses) - the terms of the
agreement called for the strict compliance of two (2) equally
essential and material obligations on the part of the Leao
Spouses, namely, the payment of the P200,000.00 to them and
the payment of the mortgage amortizations to the SSS and
Apex. And, the Barredo Spouses undertook to execute the
corresponding Deed of Absolute Sale only upon the faithful
compliance by the Leao Spouses of the conditions set forth in
their agreement.
Respondent’s Contention (Leao Spouses) - they were only
obliged to assume the amortization payments of the Barredo
Spouses with the SSS and Apex, which they did upon signing
the agreement. The contract does not stipulate as a condition
the full payment of the SSS and Apex mortgages. Granting for
arguments sake that their failure to pay in full the mortgage
was not a full compliance of their obligation, they could not be
faulted because their payments were not accepted by the SSS
since the Barredo Spouses failed to notify the SSS of the
assignment of their debt. As such, rescission should not obtain.
RTC – ruled in favor of the Barredo Spouses. The
assumption of mortgage debts of the Barredo Spouses by the
Leao Spouses is a very substantial condition x x x x The credit
standing of the (Barredo Spouses) will be greatly prejudiced
should they appear delinquent or not paying at all.
CA – reversed the decision of the RTC.
ISSUE: Whether or not there can be a rescission of the
contract between the petitioner and the respondent.
RULING: NO. A careful reading of the pertinent provisions of
the agreement readily shows that the principal object of the
contract was the sale of the Barredo house and lot, for which
the Leao Spouses gave a down payment of P100,000.00 as
provided for in par. 1 of the contract, and thereafter ten (10)
equal monthly installments amounting to another P100,000.00,
as stipulated in par. 2 of the same agreement. The assumption
of the mortgages by the Leao Spouses over the mortgaged
property and their payment of amortizations are just collateral
matters which are natural consequences of the sale of the said
mortgaged property.
Thus, par. 3 of the agreement provides that the Leao
Spouses bind themselves to assume as they hereby assume
beginning on July 1, 1987, the payment of the unpaid balance
x x x x Hence, the Leao Spouses merely bound themselves to
assume, which they actually did upon the signing of the
agreement, the obligations of the Barredo Spouses with the
SSS and Apex. Nowhere in the agreement was it stipulated
that the sale was conditioned upon their full payment of the
loans with SSS and Apex.
When the language of the contract is clear, it requires no
interpretation, and its terms should not be disturbed. The
primary and elementary rule of construction of documents is
that when the words or language thereof is clear and plain or
readily understandable by any ordinary reader thereof, there is
absolutely no room for interpretation or construction
anymore and the literal meaning of its stipulations shall control.
To include the full payment of the obligations with the SSS
and Apex as a condition would be to unnecessarily stretch and
put a new meaning to the provisions of the agreement. For, as
a general rule, when the terms of an agreement have been
reduced to writing, such written agreement is deemed to
contain all the terms agreed upon and there can be, between
the parties and their successors-in-interest, no evidence of
such terms other than the contents of the written
agreement. And, it is a familiar doctrine in obligations and
contracts that the parties are bound by the stipulations,
clauses, terms and conditions they have agreed to, which is
the law between them, the only limitation being that these
stipulations, clauses, terms and conditions are not contrary to
law, morals, public order or public policy. Not being repugnant
to any legal proscription, the agreement entered into by the
parties must be respected and each is bound to fulfill what has
been expressly stipulated therein.
If the Barredo Spouses were really protective of their
reputation and credit standing, they should have sought the
consent, or at least notified the SSS and Apex of the
assumption by the Leao Spouses of their
indebtedness. Besides, in ordering rescission, the trial court
should have likewise ordered the Barredo Spouses to return
the P200,000.00 they received as purchase price plus
interests. Art. 1385 of the Civil Code provides that [r]escission
creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price
with its interest. The vendor is therefore obliged to return the
purchase price paid to him by the buyer if the latter rescinds
the sale. Thus, where a contract is rescinded, it is the duty of
the court to require both parties to surrender that which they
have respectively received and place each other as far as
practicable in his original situation.
14. BPI VS CA, GR 116792, March 29, 2009
By: Evangelista -Javier, Judith A.
DOCTRINE: Legal compensation operates even against the
will of the interested parties and even without the consent of
them
FACTS: Private respondent Edvin F. Reyes has a joint AND/
OR Savings Account with his wife Sonia S. Reyes and also a
joint account with his grandmother Emerita Fernandez at
petitioner Bank of the Philippine Islands. He regularly
deposited in his account with her grandmother the U.S.
Treasury Warrants payable to the order of Emeteria M.
Fernandez as her monthly pension.
Emeteria died without the knowledge of the U.S. Treasury
Department. She was still sent U.S. Treasury Warrant in the
amount of P10,556.00. Private respondent closed the joint
account with his grandmother and transferred the savings to
his joint account with his wife.
The U.S. Treasury Warrant was dishonored as it was
discovered that Fernandez died three (3) days prior to its
issuance. The U.S. Department of Treasury requested
petitioner bank for a refund. For the first time petitioner bank
came to know of the death of Fernandez.
Petitioner bank debited the amount from his joint account
with his wife based on the verbal instruction he gave over the
phone. Private respondent demanded from petitioner bank
restitution of the debited amount. He claimed that because of
the debit, he failed to withdraw his money when he needed
them. He then filed a suit for Damages against petitioners.
The trial court dismissed the complaint of private
respondent for lack of cause of action. Court of Appeals.
reversed the impugned decision.
ISSUE : Issue won legal compensation is proper.
HELD: YES COMPENSATION IS PROPER
 Compensation shall take place when two persons, in
their own right, are creditors and debtors of each other. Article
1290 of the Civil Code provides that when all the requisites
mentioned in Article 1279 are present, compensation takes
effect by operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors and
debtors are not aware of the compensation. Legal
compensation operates even against the will of the interested
parties and even without the consent of them. Since this
compensation takes place ipso jure, its effects arise on the
very day on which all its requisites concur. When used as a
defense, it retroacts to the date when its requisites are fulfilled.
The elements of legal compensation are all present in the case
at bar. The obligors bound principally are at the same time
creditors of each other. Petitioner bank stands as a debtor of
the private respondent, a depositor. At the same time, said
bank is the creditor of the private respondent with respect to
the dishonored U.S. Treasury Warrant which the latter illegally
transferred to his joint account. The debts involved consist of a
s u m o f m o n e y. T h e y a r e d u e , l i q u i d a t e d , a n d
demandable. They are not claimed by a third person.
15. Spouses Go Cinco vs. CA, Ester Servacio and MTLC,
G.R. No. 151903, October 9, 2009
 collateral for the PNB loan, Ester refused to sign the deed and
By: Ferrer, Marrion Jade
Doctrine: Payment means not only the delivery of money but
also the performance, in any other manner, of an obligation. A
debt shall not be understood to have been paid unless the
thing or service in which the obligation consists have been
completely delivered or tendered, as the case may be. If the
creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thing or sum
due.
Facts: Manuel Go Cinco obtained a commercial loan of
P700,000 from respondent Maasin Traders Lending Corp
(MTLC) evidenced by a PN and secured by a REM over the
Spouses Go Cinco’s land and 4-storey building located in
Maasin, Southern Leyte. The terms of the PN are: (1) Principal
= P700,000; (2) monthly interest rate of 3% or 36% per annum;
(3) payable within 6 months, renewable for another 6 months.
After 7 months, the outstanding obligation amounted to
P1,071,256, including interest and penalties. To pay the loan,
the Spouses applied for a loan with PNB Maasin Branch, and
offered the same property previously mortgaged to MTLC as
collateral. PNB approved the P1.3M loan but the release of the
amount was conditioned on the cancellation of the mortgage in
favour of MTLC. Manuel went to Ester Servacio (MTLC’s
President) to inform the latter that there was money with the
PNB for the payment of their loan with MTLC. Ester then went
to PNB to verify the information, but later claimed that the
bank’s officers informed her that Manuel had no pending loan
application with them. Manuel then later executed a SPA
authorizing Ester to collect the proceeds of his PNB loan. Ester
then again went to PNB, this time, the bank’s officers
confirmed the existence of the P1.3M loan, but required Ester
to first sign a deed of release / cancellation of mortgage before
they could release the proceeds of the loan to her. Outraged
being not informed about using the same properties as
did not collect the P1.3M loan proceeds. As the MTLC loan
was already due, Ester instituted foreclosure proceedings. To
prevent this, Spouses Go Cinco filed an action for specific
performance, damages, and preliminary injuction with RTC
Maasin, alleging that foreclosure was no longer proper as there
had already been settlement of Go Cinco’s obligation in favour
of MTLC, and claimed that the assignment of the proceeds of
the PNB loan amounted to payment, and that Ester’s refusal to
sign the deed of release/cancellation of mortgage and to
collect the proceeds of the PNB loan were completely
unjustified and entitled them to the payment of damages..
Ester countered these by claiming that she had not been
previously informed of the Spouses plan to obtain a loan from
PNB and to use the loan proceeds to settle Manuel’s loan with
MTLC. She claimed that she had no explicit agreement with
Manuel authorizing her to apply the proceeds of the PNB loan
to Manuel’s loan with MTLC; the SPA merely authorized her to
collect the proceeds of the loan.
Issue/s: WON Ester’s unjust refusal to accept payment
amounted to the payment of the obligation.
Ruling: NO. Unjust refusal cannot be equated to payment.
While Ester’s refusal was unjustified and unreasonable,
the Court did not agree with Go Cinco’s position that this
refusal had the effect of payment that extinguished his
obligation to MTLC. Under Article 1256, if the creditor to whom
tender of payment has been made refuses without just cause
to accept it, the debtor shall be released from responsibility by
the consignation of the thing or sum due. In short, a refusal
without just cause is not equivalent to payment; to have the
effect of payment and the consequent extinguishment of the
obligation to pay, the law requires the companion acts of
tender of payment and consignation. Tender of payment, as
defined in Far East Bank and Trust Company v. Diaz Realty,
Inc., is the definitive act of offering the creditor what is due him
or her, together with the demand that the creditor accept the
same. When a creditor refuses the debtor’s tender of payment,
the law allows the consignation of the thing or the sum due.
Tender and consignation have the effect of payment, as by
consignation, the thing due is deposited and placed at the
disposal of the judicial authorities for the creditor to collect.
A sad twist in this case for Manuel was that he could
not avail of consignation to extinguish his obligation to MTLC,
as PNB would not release the proceeds of the loan unless and
until Ester had signed the deed of release/cancellation of
mortgage, which she unjustly refused to do. Hence, to compel
Ester to accept the loan proceeds and to prevent their
mortgaged properties from being foreclosed, the spouses Go
Cinco found it necessary to institute the present case for
specific performance and damages. Under these
circumstances, the Court held that while no completed tender
of payment and consignation took place sufficient to constitute
payment, the spouses Go Cinco duly established that they
have legitimately secured a means of paying off their loan with
MTLC; they were only prevented from doing so by the unjust
refusal of Ester to accept the proceeds of the PNB loan
through her refusal to execute the release of the mortgage on
the properties mortgaged to MTLC. In other words, MTLC and
Ester in fact prevented the spouses Go Cinco from the
exercise of their right to secure payment of their loan. No
reason exists under this legal situation why the Court cannot
compel MTLC and Ester: (1) to release the mortgage to MTLC
as a condition to the release of the proceeds of the PNB loan,
upon PNB’s acknowledgment that the proceeds of the loan are
ready and shall forthwith be released; and (2) to accept the
proceeds, sufficient to cover the total amount of the loan to
MTLC, as payment for Manuel’s loan with MTLC. The Court
also found that under the circumstances, the spouses Go
Cinco have undertaken, at the very least, the equivalent of a
tender of payment that cannot but have legal effect. Since
payment was available and was unjustifiably refused, justice
and equity demand that the spouses Go Cinco be freed from
the obligation to pay interest on the outstanding amount from
the time the unjust refusal took place; they would not have
been liable for any interest from the time tender of payment
was made if the payment had only been accepted. Under
Article 19 of the Civil Code, they should likewise be entitled to
damages, as the unjust refusal was effectively an abusive act
contrary to the duty to act with honesty and good faith in the
exercise of rights and the fulfillment of duty.
Hence, Ester’s unjust refusal to accept payment did not
amounted to the payment of the obligation.
16. DALTON vs. FGR REALTY & DEV. CORP., GR 172577,
Jan. 19, 2011
By: Ferreras, Marjorie
Doctrine: Compliance with the requisites of a valid
consignation is mandatory. Failure to comply strictly with any of
the requisites will render the consignation void. Substantial
compliance is not enough.

Facts: Flora Dayrit owned a land in Cebu City. Petitioner
Soledad Dalton and Sasam et al. leased portions of the said
property. In June 1985, Dayrit sold the property to respondent
FGR Realty and Development Corporation (FGR). In August
1985, Dayrit and FGR stopped accepting rental payments
because they wanted to terminate the lease agreements with
Dalton and Sasam, et al.
In a complaint, Dalton and Sasam, et al. consigned the rental
payments with the RTC. They failed to notify Dayrit and FGR
about the consignation. In their motions Dayrit and FGR
withdrew the rental payments, and reserved the right to
question the validity of the consignation. Dayrit, FGR and
Sasam, et al. entered into compromise agreements, while
Dalton did not.
RTC ordered Dalton to vacate and held that there was no valid
consignation. The requisites of consignation are as follows:
1.The existence of a valid debt; 2. Valid prior tender, unless
tender is excuse; 3. Prior notice of consignation (before
deposit); 4. Actual consignation (deposit); 5. Subsequent notice
of consignation. Nos. 3 and 5 are absent or were not complied
with. It is very clear that there were no prior notices of
consignation (before deposit) and subsequent notices of
consignation (after deposit).
CA affirmed. Consignation is made by depositing the proper
amount to the judicial authority, before whom the tender of
payment and the announcement of the consignation shall be
proved. All interested parties are to be notified of the
consignation. It had been consistently held that compliance
with these requisites is mandatory.
Issue: WON there was a valid consignation.
Ruling: None. First, in withdrawing the amounts consigned,
Dayrit and FGR expressly reserved the right to question the
validity of the consignation. It means when the creditors
acceptance of the money consigned is conditional and with
reservations, he is not deemed to have waived the claims he
reserved against his debtor.
Second, compliance with the requisites of a valid consignation
is mandatory. Failure to comply strictly with any of the
requisites will render the consignation void. Substantial
compliance is not enough. The giving of notice to the persons
interested in the performance of the obligation is mandatory.
Failure to notify the persons interested in the performance of
the obligation will render the consignation void. The Civil Code
Articles expressly and explicitly direct what must be essentially
done in order that consignation shall be valid and effectual.
17. Land Bank of the Phil. vs. Alfredo Ong, G.R. 190755,
Nov. 24, 2010
By: Roselle A. Gabriel
Doctrine: Novation which consists in substituting a new debtor
in the place of original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor.
Facts: Spouses Sy secured a loan from Landbank Legazpi
City in the amount of Php16M secured by 3 residential lots, 5
cargo trucks, and a warehouse. When the Spouses Sy could
no longer pay the obligation, they executed a Deed of Sale
with Assumption of Mortgage with Spouses Ong (thru
respondent Alfredo). Alfredo went to the bank to inform the
latter on the assumption of mortgage. The bank required
Alfredo to pay part of the principal (Alfredo paid 750,000 2
weeks later) and to update due or accrued interests on the
PN, as requirements for the approval of the Assumption of
Mortgage. However, this did not materialize having been
disapproved by a credit investigation report. The properties
were later foreclosed. Alfredo filed a complaint for sum of
money to recover the amount paid alleged for the approval of
the Assumption of Mortgage. The bank contends that the
amount paid was applied to the principal and accrued interests
of the loan obligation of Spouses Sy with the bank and that a
substitution of debtors (Spouses Ong) was made without its
consent; thus, it was not bound to recognize the substitution
under the rules on novation.
Issue: Whether the contract between Spouses Ong and the
bank is perfectly novated by the payment of Alfredo
Ruling: There was no novation in the contract between
Spouses Ong and the bank. Whether or not Alfredo has an
interest in the obligation and payment was made with the
knowledge or consent of spouses Sy, he may still pay the
obligation for the reason that even before paid the amount of
P750,000, the substitution of debtors was already perfected by
and between Spouses Sy and Spouses Ong as evidenced by
a Deed of Sale with Assumption of Mortgage. And since the
substitution of debtors was made without the consent of the
bank, a requirement which is indispensable in order to effect a
novation on the obligation, it is therefore not bound to
recognize the substitution of debtors. The bank did not
intervene in the contract between Spouses Sy and Spouses
One and did not expressly give its consent to the substitution.
Article 1293 of the Civil Code states: Novation which consists
in substituting a new debtor in the place of original one, may be
made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by
the new debtor gives him rights mentioned in Article 1236 and
1237.
18.Spouses Reyes v. BPI (FSB), G.R. No. 149840/41, March
31, 2006
By: Javier, Elojra Carmiel
DOCTRINE: Novation is defined as the extinguishment of an
obligation by the substitution or change of the obligation by a
subsequent one which terminates the first, either by changing
the object or principal conditions, or by substituting the person
of the debtor, or subrogating a third person in the rights of the
creditor
FACTS: On March 24, 1995, the Spouses Reyes executed a
real estate mortgage on their property in Ilolio City in favor of
respondent BPI-Family Savings Bank to secure a Php
15,000,000 loan of Transbuilder Resources and Development
Corp. Transbuilders failed to pay the Php 15 million loan within
the stipulated period of one year, the bank restructed the loan
through a promissory note executed by Transbuilder in its
favor.
The petitioners learned about the restructuring of the loan and
requested the cancellation of their REM and return of their
certificate of title. The petitioners claim that the new loan
novated the first loan agreement and such was made without
their knowledge and request. BPI-FSB refused to cancel
mortgage and instituted extrajudicial foreclosure on the
properties of the petitioners after Transbuilders defaulted in
their payment.
ISSUE/S: Whether there was a novation of the mortgage loan
contract between petitioners and BPI-FSB that would result in
the extinguishment of petitioners liability to the bank.
RULING: No, the new loan agreement is not considered as a
novation of the first loan agreement. The obligation is not
novated by an instrument that expressly recognizes the old,
changes only the terms of payment, adds other obligations not
incompatible with the old ones, or the new contract merely
supplements the old one.
There are four essential requisites in every novation 1) a
previous valid obligation, 2) the agreement of all the parties to
the new contract, 3) the extinguishment of the old contract; and
4) validity of the new contract.
The intention of the new agreement was to revive the old
obligation after the original period expired and loan remained
unpaid. BPI-FSB and Transbuilders only extended the
repayment term of the loan from one year to twenty quarterly
installments at 18% interest per annum. The novation of a
contract cannot be presumed. In the absence of an express
agreement, novation takes place only when the old and new
obligations are incompatible on every point.
19. ODYSSEY PARK, INC. vs. HONORABLE COURT OF
APPEALS and UNION BANK OF THE PHILIPPINES, G.R.
No. 107992. October 8, 1997
By: Marianne M. Jalotjot
Doctrine: It is a familiar doctrine in the law on contracts that
the parties are bound by the stipulations, clauses, terms and
conditions they have agreed to, the only limitation being that
these stipulations, clauses, terms and conditions are not
contrary to law, morals, public order or public policy. Not being
repugnant to any legal proscription, the agreement entered into
by the parties herein involved must be respected and held to
be the law between them.
Facts: Petitioner Odyssey Park Inc. (Buyer) entered into a
Contract to Sell with Bancom Development Corporation (seller)
which later transferred its right in favor of Defendant Union
Bank all its rights and interest. The subject property involves a
parcel of land located in Baguio City with a structure known as
the Europa Clubhouse.
The contract to sell stipulated that the contract price shall be
paid in installments and in case that any portion of the
purchase price falls due or in case of failure to comply with or
violate any provision of the contract by Odyssey, Bancom
(Union Bank) may at its absolute discretion cancel and rescind
this Contract and declare the same as null and void.
On December 1981, the President of Europa Condominium
wrote Union Bank a letter questioning the propriety of the
contract to sell, thus, Petitioner Odyssey wrote Bancom that it
acknowledges the letter of Europa and in the meantime that
there is a question on the propriety of the sale, they will stop/
withhold the payments of the amortization.
On March 29, 1983, defendant-appellee Union Bank wrote
plaintiff-appellant Odyssey Park, Inc., a letter demanding
payment of the overdue account of P2,193,720.91, inclusive of
interest and service charges, otherwise the contract to sell
would be cancelled and rescinded.
Thereafter, a proposal letter re: manner of settlement was
made by the Petitioner Odyssey to Union Bank. However,
Union Bank asked for more details and the memorandum of
agreement that they supposed to enter failed to materialized.
On January 6, 1984, defendant-appellee Union Bank, through
counsel, wrote plaintiff-appellant Odyssey Park, Inc., a letter
formally rescinding and/or cancelling the contract to sell. Then
Union Bank filed a case with the RTC for the `Declaration of
the Nullity of the Rescission of the Contract to Sell With
Damages.’
RTC: granted the Petition
CA: Affirmed
Petitioner insists that rescission of the contract to sell by
private respondent does not accord with the requirements of
Republic Act (R.A.) No. 6552, also known as An Act to Protect
Buyers of Real Estate on Installment Payments which requires
a cancellation or rescission of the contract by means of a
notarial act. A mere letter (dated 06 January 1984), or short of
such a notarial act, according to petitioner, would be utterly
deficient.
Issue: Whether the contract to sell entered into between
petitioner and private respondent have been validly rescinded
Ruling: YES. The invocation of Republic Act No. 6552 is
misplaced. This law, which normally applies to the sale or
financing of real estate on installment payments, excludes
industrial lots, commercial buildings, and sales to tenants
under R.A. No. 3844.
What must instead be held to rule in the case at bar is the
agreement of the parties themselves.
Section 5 of their contract to sell reads:
Section 5: In the event Odyssey fails to pay any portion of the
purchase price of the Property or the interest and service
charge thereon as and when it falls due, or otherwise fails to
comply with or violate any of the provisions of this Contract,
Bancom may at its absolute discretion cancel and rescind this
Contract and declare the same as null, void and no further
force and effect by serving on Odyssey a written notice of
cancellation and rescission thirty (30) days in advance.
It is a familiar doctrine in the law on contracts that the parties
are bound by the stipulations, clauses, terms and conditions
they have agreed to, the only limitation being that these
stipulations, clauses, terms and conditions are not contrary to
law, morals, public order or public policy. Not being repugnant
to any legal proscription, the agreement entered into by the
parties herein involved must be respected and held to be the
law between them.
20.SM Investments Corp. (SMIC) vs. Posadas, et. al., GR
200901, Dec. 7, 2015
By: Laqui, Xela Leona D.
Doctrine: Contracts are perfected by mere consent and from
that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law.
Facts: Estela Marfori Posadas, Maria Elena Posadas and Aida
Macaraig Posadas are the owners of several parcels of land
which is the subject of the dispute. SMIC, sent the Posadas a
written offer for a joint venture for the development of the
property dividing a 60/40 share over the property and SMC
offering to pay P70,000,000.00 as goodwill money.The
Posadas sent SMIC a written counterproposal asking for
P80,000,000 instead. SMIC sent another letter containing its
acceptance of the counter-offer of the Posadas. SMIC, in
compliance with what it considered as a perfected contract for
the joint venture, sent the Posadas four (4) drawings of the
proposed mall and its location within the Subject Property.
However, after receiving the drawings, the Posadas sent SMIC
a letter informing it that they had received several other offers
for the Subject Property, and demanding that SMIC better the
said offers, before they submit their comments on the
drawings. SMIC sent the Posadas a letter, reiterating the offer
of 60/40 but now offering P140,000,000.00. SMIC, sent them a
letter reminding them to respect the joint venture agreement for
the development of the Subject Property. Appearing that the
Posadas were not willing to honor the joint venture agreement,
SMIC,a case for Specific Performance and Damages with
Prayer for TRO and PI against The Posadas. The Trial Court
favored SMIC. The CA favored the Posadas.
Issue: Whether there was a perfected contract between SMIC
and the Posadas?
Ruling: Yes, There was a perfected contract of Joint Venture
between the parties.
It is basic in this jurisdiction that a contract is perfected by
mere consent of the parties. Article 1315 of the Civil Code
provides, Contracts are perfected by mere consent and from
that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law. Articles 1318 to 1320
of the Civil Code states the necessary requisites of a contract,
i.e., 1.Consent of the contracting parties; 2.Object certain
which is the subject matter of the contract; 3.Cause of the
obligation which is established. Consent is manifested by the
meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer. Acceptance made by letter or
telegram does not bind the offeror except from the time it came
to his knowledge. The contract, in such a case, is presumed to
have been entered in the place where the offer was made.
Here, The first letter embodies a complete offer on the part of
SMIC in that it contained an object certain, which is the joint
venture for the development of the property, and a specific
cause and/or consideration therefor, which are the goodwill
money in the amount of P70 Million, plus a 60/40 sharing, in
favor of rthe Posadas of the development. The second letter in
return embodies a complete counter-offer on the part of
respondents in that they conveyed their acceptance of the joint
venture subject only to the counter-proposal to increase the
goodwill money from P70 Million to P80 Million. The Third
Letter contains an unqualified, acceptance on the part of SMIC
of the counter-proposal of The Posadas, again on the aspect of
the goodwill money alone. Therefore, there is a perfected joint
venture agreement between the parties for the development of
the Subject Property.
The first and second stage of the contract had been fulfilled.
Negotiations took place when the parties made their exchange
of correspondences first letter. The perfection of the contract
came thereafter, when SMIC, through the second letter,
accepted the counter-offer of respondents in the third letter.
Therefore, There was a perfected contract of Joint Venture.
21. Boston Bank of the Phil. vs. Manalo, GR 158149, Feb.
9, 2006
By: Lesava, Anna
Doctrine: For a perfected contract of sale or contract to sell to
exist in law, there must be an agreement of the parties, not
only on the price of the property sold, but also on the manner
the price is to be paid by the vendee.
A definite agreement as to the price is an essential element of
a binding agreement to sell personal or real property because
it seriously affects the rights and obligations of the parties.
Price is an essential element in the formation of a binding and
enforceable contract of sale. The fixing of the price can never
be left to the decision of one of the contracting parties. But a
price fixed by one of the contracting parties, if accepted by the
other, gives rise to a perfected sale.
It is not enough for the parties to agree on the price of the
property. The parties must also agree on the manner of
payment of the price of the property to give rise to a binding
and enforceable contract of sale or contract to sell. This is so
because the agreement as to the manner of payment goes into
the price, such that a disagreement on the manner of payment
is tantamount to a failure to agree on the price.
Facts: Xavierville Estate, Inc. (XEI) owned a property in QC
which it converted into residential lots later known as
Xavierville Estate Subdivision. XEI, through its Gen. Mgr.
Antonio Ramos, as vendor, executed with Oversees Bank of
Manila (OBM) as vendee, a “Deed of Sale of Real Estate” over
some residential lots in the subdivision including Lot 1 and and
Lot 2 of Block 2.
XEI President, Emerito Ramos, Jr., contracted the services of
Engr. Carlos Manalo, Jr. who was in the business of drilling
deep water wells and installing pumps under the business
name Hurricane Commercial Inc. Manalo, Jr. proposed to
purchase a lot in Xaviervilled subdivision and offered as part of
downpayment, Php 34,887.66 an amount owed by Emerito
Ramos, Jr. to him. XEI, through Emerito, agreed. Carlos
informed XEI that he and his wife had chosen Lots 1 and 2 of
Block 2.
In a letter dated August 22, 1972 to Perla Manalo, Ramos
confirmed the reservation of the lots. He also pegged the price
of the lots at ₱200.00 per square meter, or a total of
₱348,060.00, with a 20% down payment of the purchase price
amounting to ₱69,612.00 less the ₱34,887.66 owing from
Ramos, payable on or before December 31, 1972; the
corresponding Contract of Conditional Sale would then be
signed on or before the same date, but if the selling operations
of XEI resumed after December 31, 1972, the balance of the
downpayment would fall due then, and the spouses would sign
the aforesaid contract within five (5) days from receipt of the
notice of resumption of such selling operations. It was also
stated in the letter that, in the meantime, the spouses may
introduce improvements thereon subject to the rules and
regulations imposed by XEI in the subdivision. Perla Manalo
conformed to the letter agreement.
Manalo Sps. failed to pay the balance of the downpayment on
the lots because Emerito failed to prepare a contract of
conditional sale and transmit the same to Manalo for their
signature.
Subsequently, XEI turned over its selling operations to OBM,
including the receivables for lots already contracted and those
yet to be sold. On Dec. 5, 1979, the Register of Deeds issues
TCT over Lot 1 and Lot 2, Block 2 in favor of OBM.
Subsequently, OBM sold Xavierville Estate to Commercial
Bank of Manila (CBM).
A disagreement ensued between CBM and Sps. Manalo
regarding the putting up of a business sign inside the
subdivision. CBM later filed a complaint for unlawful detainer
against Sps. Manalo claiming that the spouses had been
unlawfully occupying the property without its consent and that
despite its demands, they refused to vacate the property. Sps.
Manalo alleged that they, as vendors, and XEI, as vendee, had
a contract of sale over the lots which had not yet been
rescinded.
CBM was later renamed Boston Bank of the Philippines.
RTC: rendered decision in favor of Sps. Manalo
CA: Sustained ruling of RTC.
In Boston Bank’s MR with the CA it claimed that there was no
perfected contract to sell the two lots, as there was no
agreement between XEI and the respondents on the manner of
payment as well as the other terms and conditions of the sale.
Issue: WON there was a perfected contract to sell between
XEI and Sps. Manalo?
Ruling: NO, the contract to sell was not perfected. The terms
of payment had yet to be agreed upon when the parties signed
the contract of conditional sale.
There is no evidence on record to prove that XEI or OBM and
the respondents had agreed, after December 31, 1972, on the
terms of payment of the balance of the purchase price of the
property and the other substantial terms and conditions relative
to the sale.
So long as an essential element entering into the proposed
obligation of either of the parties remains to be determined by
an agreement which they are to make, the contract is
incomplete and unenforceable. The reason is that such a
contract is lacking in the necessary qualities of definiteness,
certainty and mutuality.
Even under Art. 1469, NCC where the price of property sold
may be considered certain if it be so with reference to another
thing certain, the August 22, 1972 letter agreement of the
parties and find no direct or implied reference to the manner
and schedule of payment of the balance of the purchase price
of the lots covered by the deeds of conditional sale executed
by XEI and that of the other lot buyers as basis for or mode of
determination of the schedule of the payment by the
respondents of the ₱278,448.00.
The Respondent Manalos failed and refused to pay the
balance of the downpayment and of the purchase price of the
property amounting to ₱278,448.00 despite notice to them of
the resumption by XEI of its selling operations. The
Respondent Manalos enjoyed possession of the property
without paying a centavo. On the other hand, XEI and OBM
failed and refused to transmit a contract of conditional sale to
the Respondents. The respondents could have at least
consigned the balance of the downpayment after notice of the
resumption of the selling operations of XEI and filed an action
to compel XEI or OBM to transmit to them the said contract;
however, they failed to do so.
As a consequence, respondents and XEI (or OBM for that
matter) failed to forge a perfected contract to sell the two lots;
hence, respondents have no cause of action for specific
performance against petitioner.
22. Jason and Aida Yason vs. Faustino Arciaga, GR
145017, Jan. 28, 2005
By: Luzano, Gabriel Ray L.
Doctrine: A person is not incapacitated to enter into a contract
merely because of advanced years or by reason of physical
infirmities, unless such age and infirmities impair his mental
faculties to the extent that he is unable to properly, intelligently,
and fairly understand the provisions of the contract. The
signature may be made by a person’s cross or mark even
though he is able to read and write and is valid if the deed is in
all other respects a valid one.
Facts: Spouses Emilio and Claudia Arciaga were the owners
of Lot 303-B in Barangay Putatan, Muntinlupa. They executed
a Deed of Conditional Sale where they sold it for 265,000 to
the Spouses Dr. Jose and Aida Yason. Deed of Absolute Sale
was executed on Apr. 19, 1983 which is also the same day that
Claudia died. The petitioners then had the Deed of Absolute
Sale registered in the Registry of Deeds of Makati City through
Jesus Medina who they also gave 15,000 for capital gains tax.
Without their knowledge, Medina falsified the Deed of Absolute
Sale and had it registered for a lower price of 25,000.
Arciaga’s children learned of the falsified document of
sale and now seeks to annul the land titles connected to it.
They claim that at the time the Deed of Absolute Sale was
executed, Claudia did not really give her consent because she
was already seriously ill, weak, and unable to talk. The RTC
dismissed the complaint. The CA initially affirmed the RTC but
reversed in the Motion for Reconsideration. The CA made the
basis the fact that only a thumbmark and not a signature of
Claudia was affixed on the supposed deeds, when in fact she
could definitely read and write.
Issue: Whether or not Claudia Arciaga voluntarily affixed her
thumbmark on the documents of sale.
Ruling: Yes. Claudia Arciaga voluntarily affixed her thumbmark
on the documents of sale. While it is true that she was sick and
bedridden, the respondents failed to prove that she could no
longer understand the terms of the contract and that she did
not affix her thumbmark thereon. Unfortunately, they did not
present the doctor or nurse who tended to her to confirm that
indeed she was mentally and physically incapable of entering
into a contract.
Mere weakness of mind alone, without imposition of
fraud, is not a ground for vacating a contract. Only if there is
unfairness in the transaction, such as gross inadequacy of
consideration, the low degree of intellectual capacity of the
party, may be taken into consideration for the purpose of
showing such fraud as will afford a ground for annulling a
contract.
A person is not incapacitated to enter into a contract
merely because of advanced years or by reason of physical
infirmities, unless such age and infirmities impair his mental
faculties to the extent that he is unable to properly, intelligently,
and fairly understand the provisions of the contract. The
signature may be made by a person’s cross or mark even
though he is able to read and write and is valid if the deed is in
all other respects a valid one.
23. Mandarin Villa vs. CA, GR 119850, June 20, 1996
By: Manguera, Triccie Coleen A.
DOCTRINE: The cardholder’s offer to pay by means of his
credit card constitutes not only an acceptance of the said
stipulation but also an explicit communication of his
acceptance to the obligor.
FACTS: Private respondent, Clodualdo de Jesus, a practicing
lawyer and businessman, hosted a dinner for his friends at the
petitioner's restaurant, the Mandarin Villa Seafoods Village,
Greenhills, Mandaluyong City. After dinner, the waiter handed
to him the bill in the amount of P2,658.50 to which private
respondent offered credit card (BANKARD) as payment. This
was accepted by the waiter who immediately proceeded to the
restaurant's cashier for card verification but, few minutes later,
the waiter returned and audibly informed private respondent
that his credit card had expired.
Private respondent remonstrated that said credit card had yet
to expire on September 1990, as embossed on its face, thus,
he and two of his guests approached the restaurant's cashier
who again passed the credit card over the verification
computer. The same information was produced, i.e., CARD
EXPIRED.
They returned to their table and at this juncture, Professor
Lirag, another guest, uttered the following remarks: "Clody
[referring to Clodualdo de Jesus], may problema ba? Baka
kailangang maghugas na kami ng pinggan?" Thereupon,
private respondent left the restaurant and got his BPI Express
Credit Card from his car and offered it to pay their bill. This was
accepted and honored by the cashier after verification.
This incident triggered the filing of a suit for damages by
private respondent.
RTC: Directed the petitioner and BANKARD to pay jointly and
severally the private respondent: (a) moral damages in the
amount of P250,000.00; (b) exemplary damages in the amount
of P100,000.00; and (c) attorney's fees and litigation expenses
in the amount of P50,000.00.
CA: Found the appellant MANDARIN solely responsible for
damages in favor of appellee; absolved appellant BANKARD of
any responsibility for damages and reduced moral and
exemplary damages
ISSUE: Whether or not petitioner is bound to accept payment
by means of credit card.
HELD: YES. The Court notes that Mandarin Villa Seafood
Village is affiliated with BANKARD. In fact, an "Agreement"
entered into by petitioner and BANKARD dated June 23, 1989,
provides inter alia:
"The MERCHANT shall honor validly issued PCCCI credit
cards presented by their corresponding holders in the
purchase of goods and/or services supplied by it provided that
the card expiration date has not elapsed and the card number
does not appear on the latest cancellation bulletin of lost,
suspended and cancelled PCCCI credit cards and, no signs of
tampering, alterations or irregularities appear on the face of the
credit card."
While private respondent may not be a party to the said
agreement, the above-quoted stipulation conferred a favor
upon the private respondent, a holder of credit card validly
issued by BANKARD. This stipulation is a stipulation pour autri
and under Article 1311 of the Civil Code private respondent
may demand its fulfillment provided he communicated his
acceptance to the petitioner before its revocation.
In this case, private respondent's offer to pay by means of his
BANKARD credit card constitutes not only an acceptance of
the said stipulation but also an explicit communication of his
acceptance to the obligor.
In addition, the record shows that petitioner posted a logo
inside Mandarin Villa Seafood Village stating that "Bankard is
accepted here." This representation is conclusive upon the
petitioner which it cannot deny or disprove as against the
private respondent, the party relying thereon. Petitioner,
therefore, cannot disclaim its obligation to accept private
respondent's BANKARD credit card without violating the
equitable principle of estoppels.
24. BPI Express Card Corp., v. Armovit, G.R. No. 163654,
Oct. 8, 2014.
By. Morales, Carol Ann S.
DOCTRINE: The relationship between the credit card issuer
and the credit card holder is a contractual one that is governed
by the terms and conditions found in the card membership
agreement. Such terms and conditions constitute the law
between the parties. In case of their breach, moral damages
may be recovered where the defendant is shown to have acted
fraudulently or in bad faith.
FACTS: Armovit, then a depositor of the Bank of the Philippine
Islands at its Cubao Branch, was issued by BPI Express Credit
a pre-approved BPI Express Credit Card (credit card) in 1989
with a credit limit of ₱20,000.00 that was to expire at the end of
March 1993. She treated her friends from Hong Kong to lunch
in Marios restaurant, and as a host, she handed to the waiter
her credit card. It was returned by the waiter and inform her
that the card was cancelled upon verification with BPI and it
was not honored. Relying to the credit card, she had no
enough cash and felt embarrassed when her friend shared on
the bill.
Armovit called BPI Express Credit to verify the status of her
credit card. She learned that her credit card had been
summarily cancelled for failure to pay her outstanding
obligations. She denied that she defaulted paying her
obligation, also, she demanded compensation for the shame
and embarrassment and humiliation she suffered. BPI Express
Credit claimed that it had sent Armovit a telegraphic message
on March 19, 1992 requesting her to pay her arrears for three
consecutive months, and that she did not comply with the
request, causing it to temporarily suspend her credit card
effective March 31, 1992. She failed to submit the required
application form in order to reactivate her credit card privileges.
Armovit received a telegraphic message from BPI Express
Credit apologizing for its error. Armovit sued BPI Express
Credit for damages in the RTC, insisting that she had been a
credit card holder in good standing, and that she did not have
any unpaid bills at the time of the incident.
ISSUE: Whether or not the CA erred in sustaining the award of
moral and exemplary damages in favor of Armovit.
RULING: NO. The relationship between the credit card issuer
and the credit card holder is a contractual one that is governed
by the terms and conditions found in the card membership
agreement. Such terms and conditions constitute the law
between the parties. In case of their breach, moral damages
may be recovered where the defendant is shown to have acted
fraudulently or in bad faith. Considering that the terms and
conditions nowhere stated that the card holder must submit the
new application form in order to reactivate her credit card, to
allow BPI Express Credit to impose the duty to submit the new
application form in order to enable Armovit to reactivate the
credit card would contravene the Parol Evidence Rule.
Indeed, there was no agreement between the parties to add
the submission of the new application form as the means to
reactivate the credit card. When she did not promptly settle her
outstanding balance, BPI Express Credit sent a message on
March 19, 1992 demanding payment with the warning that her
failure to pay would force it to temporarily suspend her credit
card effective March 31, 1992.
The letter of BPI Express Credit dated April 8, 1992 did not
clearly and categorically inform Armovit that the submission of
the new application form was the pre-condition for the
reactivation of her credit card. Bereft of the clear basis to
continue with the suspension of the credit card privileges of
Armovit, BPI Express Credit acted in wanton disregard of its
contractual obligations with her. We concur with the apt
observation by the CA that BPI Express Credits negligence
was even confirmed by the telegraphic message it had
addressed and sent to Armovit apologizing for the
inconvenience caused in inadvertently including her credit card
in the caution list.
25. ECE Realty & Dev. Inc. v. Mandap, G.R. 196182, Sept. 1,
2014
By: Morales, Edilyn T.
Doctrine: In order to constitute fraud that provides basis to
annul contracts it must fulfill two conditions: first, it must be
dolo causante, and second, it must be proven by clear and
convincing evidence and not merely by preponderance thereof.
Facts: Petitioner is a corporation engaged in the building and
development of condominium units. Sometime in 1995, it
started the construction of a condominium project called
Central Park Condominium Building located in Pasay City.
However, printed advertisements were made indicating that the
said project was to be built in Makati City. Respondent agreed
to buy a unit by paying a reservation fee and thereafter, down
payment and monthly installments. The parties executed a
Contract to Sell where it was indicated that the condominium
project is in Pasay City. More than two years thereafter the
execution of the Contract, respondent, thru counsel, wrote a
letter to petitioner demanding the return of the payments she
made on the ground that she subsequently discovered that the
condominium project was being built in Pasay City, and not in
Makati City as indicated in its printed advertisements.
Respondent then filed a complaint with the ENCRFO of the
HLURB seeking the annulment of her contract with petitioner.
However, the ENCRFO dismissed the complaint. This was
affirmed by the HLURB Board of Commissioners and later by
the Office of the President upon appeal. Upon appeal, CA
reversed and held that petitioner employed fraud and
machinations to induce respondent to enter into a contract with
it.
Issue: Whether there was fraud in the execution of the subject
contract to sell and declaring the same annulled
Ruling: NO. First, the fraud must be dolo causante or it must
be fraud in obtaining the consent of the party. This is referred
to as causal fraud. The deceit must be serious. The fraud is
serious when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent
person cannot be a ground for nullity. The circumstances of
each case should be considered, taking into account the
personal conditions of the victim.
Second, the fraud must be proven by clear and convincing
evidence and not merely by preponderance thereof. In the
present case, the Supreme Court finds that petitioner is guilty
of false representation of a fact. This is evidenced by its printed
advertisements indicating that its subject condominium project
is located in Makati City when, in fact, it is in Pasay City.
However, insofar as the present case is concerned, the Court
agrees that the misrepresentation made by petitioner in its
advertisements does not constitute causal fraud which would
have been a valid basis in annulling the Contract to Sell
between petitioner and respondent. Being a notarized
document, it had in its favor the presumption of regularity, and
to overcome the same, there must be evidence that is clear,
convincing and more than merely preponderant; otherwise, the
document should be upheld. Mandap failed to overcome this
presumption. In any case, even assuming that petitioner’s
misrepresentation consists of fraud which could be a ground
for annulling their Contract to Sell, respondent's act of affixing
her signature to the said Contract, after having acquired
knowledge of the property's actual location, can be construed
as an implied ratification thereof.
26. The Insular Life Assurance Company Ltd. vs. Asset
Builders Corp.
By: Morales, I
Doctrine: It is elementary that, being consensual, a contract is
perfected by mere consent. From the moment of a meeting of
the offer and the acceptance upon the object and the cause
that would constitute the contract, consent arises. However,
the offer must be certain and the acceptance seasonable and
absolute; if qualified,[ the acceptance would merely constitute
a counter-offer.
Facts: Petitioner invited companies/corporations engaged in
the building construction business to participate in the bidding
of [petitioners] proposed Insular Life building in Lucena
City. Respondent with 4 other bidders; to which respondent
bound and obliged itself to enter into a Contract with the
petitioner within 10 days from notice of the award, with good
and sufficient securities for the faithful compliance thereof. On
February 24, 1994, a conference was held by and among the
representatives of the parties. Petitioner proposed that
Respondent adjust its bid from P12,961,845.54
to P13,000,000.00 to accommodate the wage increase brought
about by Wage Order No. 03. However, its representatives
were noncommittal, declaring that they had to report to the
management the proposal for its consideration and
approval. Subsequently, it agreed to the readjustment of the
amount of its bid as proposed by the Petitioner. However,
Respondent did not affix its conformity to any Notice of Award,
much less commence its construction of the project. Neither
did it execute any Construction Agreement. By way of riposte,
it sent a letter averring that: (a) it never received any
written Notice of Award and] (b) since its bid offer had a
lifetime of 60 days from November 9, 1993 or until January 8,
1993, its offer was automatically withdrawn after said date,
since there is no request for extension thereof.
Issue: WON there exists a valid contract for the construction of
the building project between IL and ABC?
Ruling: No. It is to be noted that there are three distinct stages
of a contract -- its preparation or negotiation, its perfection, and
finally, its consummation. Negotiation begins when the
prospective contracting parties manifest their interest in the
contract and ends at the moment of their agreement. The
perfection or birth of the contract occurs when they agree upon
the essential elements thereof. The last stage is its
consummation, wherein they fulfill or perform the terms agreed
upon in the contract, culminating in the extinguishment thereof.
In the case at bar, the parties did not get past the negotiation
stage. The events that transpired between them were indeed
initiated by a formal offer, but this policitacin was merely an
imperfect promise that could not be considered a binding
commitment. At any time, either of the prospective contracting
parties may stop the negotiation and withdraw the offer.
In the present case, in fact, there was only an offer and a
counteroffer that did not sum up to any final arrangement
containing the elements of a contract. Clearly, no meeting of
minds was established. First, only after the bid bond had
lapsed were post-qualification proceedings, inspections, and
credit investigations conducted. Second, the inter-office
memoranda issued by petitioner, as well as other memoranda
between it and its own project manager, were simply
documents to which respondent was not privy. Third, petitioner
proposed a counteroffer to adjust respondents bid to
accommodate the wage increase of December 3, 1993.
27. FEDERICO SERRA vs. COURT OF APPEALS
G.R. No. 103338. January 4, 1994
Doctrine: A contract of adhesion is one wherein a party,
usually a corporation, prepares the stipulations in the contract,
while the other party merely affixes his signature or his
"adhesion" thereto. These types of contracts are as binding as
ordinary contracts. Because in reality, the party who adheres to
the contract is free to reject it entirely. Although, the SC will not
hesitate to rule out blind adherence to terms where facts and
circumstances will show that it is basically one-sided.
Facts: Serra is the owner of a 374 square meter parcel of land
located at Quezon St., Masbate, Masbate. In 1975, RCBC, in
its desire to put up a branch in Masbate, Masbate, negotiated
with Serra for the purchase of the then unregistered property.
On May 20, 1975, a contract of LEASE WITH OPTION TO
BUY was instead forged by the parties. The contract provides
that:
RCBC shall occupy the land for 25 years from June 1, 1975 to
June 1, 2000.
RCBC shall have the option to purchase said parcel of land
within a period of 10 years from the date of the signing of the
contract at a price not greater than P210.00 per square meter.
For this purpose, Serra should, within such ten-year period,
register said parcel of land under the TORRENS SYSTEM and
all expenses appurtenant thereto shall be for his sole account.
If, for any reason, the land is not registered under the
TORRENS SYSTEM within the ten-year period, RCBC shall
have the right, upon termination of the lease to be paid by
Serra the market value of the building and improvements
constructed on the land.
- RCBC shall pay Serra a monthly rental of P700.00.
- RCBC is authorized to construct at its sole expense a
building and such other improvements on the land,
which it may need in the pursuance of its business and/
or operations; but if RCBC shall fail to exercise its
option in case the parcel of land is registered under the
TORRENS SYSTEM within the ten-year period
mentioned therein, said building and/or improvements,
shall become the property of Serra after the expiration
of the 25-year lease period without right of
reimbursement on the part of the RCBC.
Pursuant to said contract, a building and other
improvements were constructed on the land which housed the
branch office of RCBC in Masbate, Masbate. Within three
years from the signing of the contract, Serra complied with his
part of the agreement by having the property registered and
placed under the TORRENS SYSTEM.
Serra alleges that as soon as he had the property
registered, he kept on pursuing the manager of the branch to
effect the sale of the lot as per their agreement. It was not until
September 4, 1984, however, when the RCBC decided to
exercise its option and informed Serra, through a letter, of its
intention to buy the property at the agreed price of not greater
than P210 per square meter or a total of P78,430. But much to
the surprise of RCBC, Serra replied that he is no longer selling
the property. A complaint for specific performance and
damages was filed by RCBC against Serra. Serra contended
that: (1) RCBC took undue advantage on him when it set in
lopsided terms on the contract which was prepared & drawn by
RCBC,(2) the option was not supported by any consideration
distinct from the price and hence not binding upon him, (3) as a
condition for the validity and/or efficacy of the option, it should
have been exercised within the reasonable time after the
registration of the land under the Torrens System and its
delayed action on the option has forfeited whatever its claim to
the same, and (4) extraordinary inflation supervened resulting
in the unusual decrease in the purchasing power of the
currency rendering the terms of the contract unenforceable,
inequitable and to the undue enrichment of RCBC. He also
alleges that the rental of P700 has become unrealistic and
unreasonable, that justice and equity will require its
adjustment.
Initially, the trial court dismissed the complaint.
Although it found the contract to be valid, the court ruled that
the option to buy is unenforceable because it lacked a
consideration distinct from the price and that RCBC did not
exercise its option within reasonable time. But upon motion for
reconsideration of RCBC, the court reversed its decision and
ordered Serra to transfer the ownership of the property to
RCBC. The Court of Appeals affirmed the trial court’s decision
and held that: the contract is valid; the option is supported by a
distinct and separate consideration as embodied in the
agreement; and there is no basis in granting an adjustment in
rental.
Issues & Ruling:
(1) Is the contract of lease with option to buy among the parties
is valid? Or is the disputed contract a contract of adhesion?
(2) Whether there was no consideration to support the option,
distinct from the price, hence the option cannot be exercised.
(3) Whether extraordinary inflation supervened resulting in the
unusual decrease in the purchasing power of the currency
making the rental of P700 unrealistic and unreasonable, that
justice and equity will require its adjustment.
1. There is no dispute that the contract is valid and existing
between the parties, as found by both the trial court and the
appellate court.
A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the
other party merely affixes his signature or his "adhesion"
thereto. These types of contracts are as binding as ordinary
contracts. Because in reality, the party who adheres to the
contract is free to reject it entirely. Although, the SC will not
hesitate to rule out blind adherence to terms where facts and
circumstances will show that it is basically one-sided.
The SC did not find the situation in the present case to be
inequitable. Serra is a highly educated man, who, at the time of
the trial was already a CPA-Lawyer, and when he entered into
the contract, was already a CPA, holding a respectable
position with the Metropolitan Manila Commission. It is evident
that a man of his stature should have been more cautious in
transactions he enters into, particularly where it concerns
valuable properties.
2. Jurisprudence has taught us that an optional contract is a
privilege existing only in one party — the buyer. For a
separate consideration paid, he is given the right to decide to
purchase or not, a certain merchandise or property, at any time
within the agreed period, at a fixed price. This being his
prerogative, he may not be compelled to exercise the option to
buy before the time expires.
On the other hand, what may be regarded as a
consideration separate from the price is discussed in the case
of Vda. de Quirino v. Palarca wherein the facts are almost on
all fours with the case at bar. The said case also involved a
lease contract with option to buy where we had occasion to say
that "the consideration for the lessor's obligation to sell the
leased premises to the lessee, should he choose to exercise
his option to purchase the same, is the obligation of the lessee
to sell to the lessor the building and/or improvements
constructed and/or made by the former, if he fails to exercise
his option to buy said premises."
In the present case, the consideration is even more
onerous on the part of the lessee since it entails transferring of
the building and/or improvements on the property to petitioner,
should respondent bank fail to exercise its option within the
period stipulated.
3. There is no basis, legal or factual, in adjusting the amount
of the rent. The contract is the law between the parties and if
there is indeed reason to adjust the rent, the parties could by
themselves negotiate for the amendment of the contract.
Neither could we consider the decline of the purchasing power
of the Philippine peso from 1983 to the time of the
commencement of the present case in 1985, to be so great as
to result in an extraordinary inflation. Extraordinary inflation
exists when there is an unimaginable increase or decrease of
the purchasing power of the Philippine currency, or fluctuation
in the value of pesos manifestly beyond the contemplation of
the parties at the time of the establishment of the obligation.
Premises considered, the SC finds that the contract of "LEASE
WITH OPTION TO BUY" between petitioner and respondent
bank is valid, effective and enforceable, the price being certain
and that there was consideration distinct from the price to
support the option given to the lessee.
WHEREFORE, the petition was DISMISSED, and the decision
of the appellate court was AFFIRMED.

28. Spouses Santiago vs. CA, GR 103959
DOCTRINE:The failure of petitioners to take exclusive
possession of the property allegedly sold to them, or in the
alternative, to collect rentals from the alleged vendee Paula
Arcega, is contrary to the principle of ownership and a clear
badge of simulation that renders the whole transaction void
and without force and effect.
FACTS: Paula Arcega was the registered owner of the subject
parcel of land. Her residential house stood there until 1970
when it was destroyed by a strong typhoon.
Paula Arcega executed what purported to be a deed of
conditional sale over the land in favor of Josefina Arcega and
the spouses Regalado Santiago and Rosita Palabyab,
petitioners, for P20,000.00. The vendees were supposed to
pay P7,000.00 as down payment. Arcega was supposed to
execute and deliver to them the absolute deed of sale upon full
payment of the unpaid balance of the purchase price.
Supposedly upon payment of the remaining balance, Paula
Arcega executed a deed of absolute sale of the same parcel of
land in favor of petitioners and a new TCT was issued in the
petitioners’ name.
Paula Arcega died single and without issue, leaving as heirs
her two brothers, Narciso Arcega and private respondent
Quirico Arcega.
Before Paula Arcega died, a 4-bedroom house was built over
the parcel of land and was occupied by Arcega until her death
despite the execution of the alleged deed of absolute sale. The
three other bedrooms, smaller than the master's bedroom,
were occupied by the petitioners who were the supposed
vendees in the sale.
Private respondent Quirico Arcega, as heir of his deceased
sister, sought to declare null and void the deed of sale
executed by his sister during her lifetime in favor of the
petitioners on the ground that said deed was fictitious since the
P20,000.00 was not actually paid by the vendees to his sister.
Petitioner spouses averred that private respondent's cause of
action was already barred by the statute of limitations
considering that the disputed deed of absolute sale was
executed in their favor on more than fourteen (14) years from
the time the cause of action accrued (June 1971 – October
1985). Petitioners also deny that the sale was fictitious. They
maintain that the purchase price was actually paid to Paula
Arcega and that said amount was spent by the deceased in the
construction of her three-door apartment on the parcel of land
in question.
RTC declared the title null and void.
CA agreed with RTC and found that the Arcega siblings tried to
reconstruct the house that was destroyed by the typhoon and
sold properties which they inherited in order to fund the
construction. In order to augment the cost in constructing the
house, they planned to mortgage the subject lot to SSS. Only
the Petitioner Spouses were members of SSS. Since the SSS
requires the collateral to be in the name of the mortgagors,
Paula Arcega executed a simulated deed of sale (Kasulatan ng
Bilihang Tuluyan ng Lupa) for P20,000 in favor of the
defendants and the same was notarized by Atty. Luis Cuvin
who emphatically claimed that no money was involved in the
transaction as the parties have other agreement.
ISSUE: Whether the Lower Courts were correct in voiding the
TCT and Absolute Deed of Sale
HELD: YES. While petitioners were able to occupy the
property in question, they were relegated to a small bedroom
without bath and toilet, while Paula Arcega remained virtually in
full possession of the completed house and lot using the big
master's bedroom with bath and toilet up to the time of her
death.
If, indeed, the transaction entered into by the petitioner's and
the late Paula Arcega on July 18, 1971 was a veritable deed of
absolute sale, as it was purported to be, then Ms. Arcega had
no business whatsoever remaining in the property and, worse,
to still occupy the big master's bedroom with all its amenities
until her death on April 10, 1985. Definitely, any legitimate
vendee of real property who paid for the property with good
money wil not accede to an arrangement whereby the vendor
continues occupying the most favored room in the house while
he or she, as new owner, endures the disgrace and absurdity
of having to sleep in a small bedroom without bath and toilet as
if he or she is a guest or a tenant in the house.
In any case, if petitioners really stood as legitimate owners of
the property, they would have collected rentals from Paula
Arcega for the use and occupation of the master's bedroom as
she would then be a mere lessee of the property in question.
However, not a single piece of evidence was presented to
show that this was the case. All told, the failure of petitioners to
take exclusive possession of the property allegedly sold to
them, or in the alternative, to collect rentals from the alleged
vendee Paula Arcega, is contrary to the principle of ownership
and a clear badge of simulation that renders the whole
transaction void and without force and effect.
To be considered with great significance is the fact that Atty.
Luis Cuvin who notarized the deed disclaimed the truthfulness
of the document when he testified that "NO MONEY WAS
INVOLVED IN THE TRANSACTION.
The fact that petitioners were able to secure a title in their
names, TCT No. 148989, did not operate to vest upon
petitioners ownership over Paula Arcega's property. That act
has never been recognized as a mode of acquiring ownership.
As a matter of fact, even the original registration of immovable
property does not vest title thereto. The Torrens system does
not create or vest title. It only confirms and records title already
existing and vested. It does not protect a usurper from the true
owner. It cannot be a shield for the commission of fraud. It
does not permit one to enrich himself at the expense of
another. Where one does not have any rightful claim over a
real property, the Torrens system of registration can confirm or
record nothing.
29.Reyes vs. Asuncion, GR 196083, Nov. 11, 2015
By: Regalado, Mica
FACTS: Milagros Reyes (Milagros) claims that she owns a
land in Tarlac (more or less 3.5ha), which is also a sugarcane
plantation. She hired Felix Asuncion (Felix) as the caretaker of
the subject land. The Bases Conversion and Development
Authority launched a resettlement program for the victims of
Mt. Pinatubo eruption and the subject lot was among those
considered as possible resettlement sites. In order to prevent
the conversion of the property, Milagros and Felix executed a
contract (“Paglilipat ng Karapatan sa Lupa”) transferring
Milagros’ rights over the subject land to Felix.
Milagros claims to have remained the absolute owner and
possessor of the subject lot and presently occupies the same.
She filed a complaint against Felix for the declaration of nullity
of the subject contract. The RTC ruled that there was no legal
basis to nullify the contract. The CA dismissed Milagros’
appeal, and denied her motion for reconsideration.
ISSUE: Whether the contract Milagros and Felix executed
was simulated – NO
RULING: NO. Milagros gave no other evidence to support her
allegations except for her self-serving averments. There is
insufficiency of evidence to prove that there was indeed a
simulation of contract.
The burden of proving the alleged simulation of a contract falls
on those who impugn its regularity and validity. A failure to
discharge this duty will result in the upholding of the contract.
The primary consideration in determining whether a contract is
simulated is the intention of the parties as manifested by the
express terms of the agreement itself, as well as the
contemporaneous and subsequent actions of the parties. The
most striking index of simulation is not the filial relationship
between the purported seller and buyer, but the complete
absence of any attempt in any manner on the part of the latter
to assert rights of dominion over the disputed property.
Discussion re: Absolute Simulation vs. Relative Simulation
In absolute simulation, there is a colorable contract but it has
no substance as the parties have no intention to be bound by
it. The main characteristic of an absolute simulation is that the
apparent contract is not really desired or intended to produce
legal effect or in any way alter the juridical situation of the
parties. As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other
what they may have given under the contract. However, if the
parties state a false cause in the contract to conceal their real
agreement, the contract is relatively simulated and the parties
are still bound by their real agreement. Hence, where the
essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract,
the agreement is absolutely binding and enforceable between
the parties and their successors-in-interest.
30. Lim vs. Court of Appeals, GR 196083, Feb. 28, 1996
By: Samantha Reyes
Doctrine: A contract of agency to sell on commission
basis does not belong to any of these three categories,
hence it is valid and enforceable in whatever form it may
be entered into.
Facts: Rosa Lim who had come from Cebu received from
Suarez: (1) 3.35 carat diamond ring worth P169,000.00 and (2)
bracelet worth P170,000.00, to be sold on commission basis.
The agreement was reflected in a receipt (stating that Lim
received the jewelry, that she will sell in cash within x days,
and to keep commissions which is the over-value of the price,
or to return it if unsold).
Lim returned the bracelet to Vicky Suarez, but failed to return
the diamond ring or to turn over the proceeds thereof if sold. As
a result, Suarez made a demand letter and verbal demands,
and subsequently filed a complaint for estafa.
Issue: Was the transaction between Lim and Suarez as
evidenced by the receipt— a contract of agency to sell on
commission basis or a sale on credit?
Ruling: Contract of agency. Rosa Lims signature indeed
appears on the upper portion of the receipt immediately below
the description of the items taken. We find that this fact does
not have the effect of altering the terms of the transaction from
a contract of agency to sell on commission basis to a contract
of sale. Neither does it indicate absence or vitiation of consent
thereto on the part of Rosa Lim which would make the contract
void or voidable. The moment she affixed her signature
thereon, petitioner became bound by all the terms stipulated in
the receipt. She, thus, opened herself to all the legal
obligations that may arise from their breach. This is clear from
Article 1356 of the New Civil Code which provides: Contracts
shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their
validity are present.
However, there are some provisions of the law which require
certain formalities for particular contracts. The first is when the
form is required for the validity of the contract; the second is
when it is required to make the contract effective as against
third parties such as those mentioned in Articles 1357 and
1358; and the third is when the form is required for the purpose
of proving the existence of the contract, such as those
provided in the Statute of Frauds in Article 1403. Furthermore,
there is only one type of legal instrument where the law strictly
prescribes the location of the signature of the parties thereto.
This is in the case of notarial wills found in Article 805 of the
Civil Code.
A contract of agency to sell on commission basis does not
belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into.
31. GUZMAN, BOCALING & CO.v. RAOUL S.V. BONNEVIE
G.R. No. 86150. March 2, 1992.
By: Salto, Dianne D.
Doctrine: Under Article 1380 to 1381 (3) of the Civil Code, a
contract otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons, like creditors.
Rescission is a remedy granted by law to the contracting
parties and even to third persons, to secure reparation for
damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition at
the moment prior to the celebration of said contract.
It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and
preferential right created by the contract.
Recission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that
justifies its invalidation for reasons of equity.
Facts: The subject of the controversy is a parcel of land
measuring six hundred (600) square meters, more or less, with
two buildings constructed thereon, belonging to the Intestate
Estate of Jose L. Reynoso.
 Agreement, which provided the defendant Raoul S.V. Bonnevie


This property was leased to Raoul S. Bonnevie and
Christopher Bonnevie by the administratrix, Africa Valdez de
Reynoso, for a period of one year beginning August 8, 1976, at
a monthly rental of P4,000.00.
The Contract of lease states that in case the LESSOR desires
or decides to sell the leased property, the LESSEES shall be
given a first priority to purchase the same, all things and
considerations being equal.
Reynoso, she notified the private respondents by registered
mail that she was selling the leased premises for P600,000.00
less a mortgage loan of P100,000.00, and was giving them 30
days from receipt of the letter within which to exercise their
right of first priority to purchase the subject property. She said
that in the event that they did not exercise the said right, she
would expect them to vacate the property not later than March,
1977.
On January 20, 1977, Reynoso sent another letter to private
respondents advising them that in view of their failure to
exercise their right of first priority, she had already sold the
property.
Private respondents then wrote Reynoso informing that neither
of them had received her letter. However, on March 7, 1977,
the leased premises were formally sold to petitioner Guzman,
Bocaling & Co. The Contract of Sale provided for immediate
payment of P137,500.00 on the purchase price, the balance of
P262,500.00 to be paid only when the premises were vacated.
Thereafter, Reynoso wrote a letter to the private respondents
demanding that they vacate the premises within 15 days for
their failure to pay the rentals for four months. When they
refuse, Reynoso filed a complaint for ejectment against them.
On September 25, 1979, the parties submitted a Compromise
shall vacate the premises subject of the Lease Contract,
Voluntarily and Peacefully not later than October 31, 1979.
However, as the private respondents failed to comply with the
above-qouted stipulation, Reynoso filed a motion for execution
of the judgment by compromise, which was granted on
November 8, 1979. On November 12, 1979, private
respondent Raoul S. Bonnevie filed a motion to set aside the
decision of the City Court as well as the Compromise
Agreement. The motion was denied and the case was elevated
to the then CFI which remanded the case to the City Court of
Manila for trial on the merits. While the ejectment case was
pending in the City Court, the private respondents filed an
action for annulment of the sale between Reynoso and
petitioner Guzman, Bocaling & Co. and cancellation of the
transfer certificate of title in the name of the latter. They also
asked that Reynoso be required to sell the property to them
under the same terms ands conditions agreed upon in the
Contract of Sale which was docketed as civil case no 131461.
On May 5, 1980, the City Court on the ejectment case ordered
defendants to vacate the premises and to deliver possession
thereof to the plaintiff, and to pay to the latter a sum of money
as reasonable compensation for the continued unlawful use
and occupation of said premises. Decision was appealed to the
CFI and consolidated with civil case no 131461.
CFI: Ordered defendants Bonnevie to vacate the premises and
the deed of sale between Reynoso and Guzman Bocaling null
and void.
CA: Affirmed CFI ruling but reduced damages.
Issue/s: Whether or not the contract of sale was rescissible.
Ruling: YES. The respondent court correctly held that the
Contract of Sale was not voidable but rescissible. Under Article
1380 to 1381 (3) of the Civil Code, a contract otherwise valid
may nonetheless be subsequently rescinded by reason of
injury to third persons, like creditors. The status of creditors
could be validly accorded the Bonnevies for they had
substantial interests that were prejudiced by the sale of the
subject property to the petitioner without recognizing their right
of first priority under the Contract of Lease. According to
Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure
reparation for damages caused to them by a contract, even if
this should be valid, by means of the restoration of things to
their condition at the moment prior to the celebration of said
contract. It is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause, or to protect some
incompatible and preferent right created by the contract.
Recission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that
justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not
act in bad faith. However, this rule is not applicable in the case
before us because the petitioner is not considered a third party
in relation to the Contract of Sale nor may its possession of the
subject property be regarded as acquired lawfully and in good
faith. The petitioner cannot be deemed a purchaser in good
faith for the record shows that it categorically admitted it was
aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it.
Although the Contract of Lease was not annotated on the
transfer certificate of title in the name of the late Jose Reynoso
and Africa Reynoso, the petitioner cannot deny actual
knowledge of such lease which was equivalent to and indeed
more binding than presumed notice by registration. The
petitioner’s contention that it was not aware of the right of first
priority granted by the Contract of Lease is also unmeritorious
since having known that the property it was buying was under
lease, it behooved it as a prudent person to have required
Reynoso or the broker to show to it the Contract of Lease in
which Par. 20 is contained.
32. Jovan Land vs. CA, GR No. 125531, Feb. 12, 1997
By: Sanchez, Precious Loren
Doctrine: It is a fundamental principle that before a contract of
sale can be valid, the following elements must be present: (a)
consent or meeting of the minds; (b) determinate subject
matter; (c) price certain in money or its equivalent. Until the
contract of sale is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation
between the parties.
Facts: Petitioner Jovan Land Inc. is a corporation engaged in
the real estate business. Private respondent Eugenio Quesada
is the owner of the Q building located at Mayhaligue, Sta. Cruz,
Manila. Petitioner learned that private respondent was selling
the Mayhaligue property. Thus, petitioner through Joseph Sy
(President and Chairman of the Board of Directors of Jovan
Land Inc.), made a written offer to purchase the Mayhaligue
property. The first and second offers were clearly not accepted
by Quesada. For the third written offer, it is for 12 million pesos
with a similar check for 1 million pesos as earnest money.
Annotated on this third letter-offer was the phrase “received
original, 9-4-89” beside which appears the signature of
Quesada. On the basis of this annotation which petitioner
insists is the proof that there already exists a valid, perfected
agreement to sell the Mayhaligue property, petitioner filed with
the trial court, a complaint for specific performance and
collection of sum of money with damages.
RTC: dismissed the complaint, stating that the business
encounters between Sy and Quesada had not passed the
negotiation stage relating to the intended sale. As the court
finds, there is nothing in the record to point that a contract was
ever perfected.
CA: affirmed RTC’s ruling.
Issue: Whether or not there already exists a valid, perfected
agreement between Sy and Quesada?
Ruling: No. Under the law, a contract is a meeting of minds
between two persons whereby one binds himself, with respect
to the other, to give something or to render some service. A
contract undergoes various stages that include its negotiation
or preparation, its perfection and, finally, its consummation.
Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time
the contract is concluded. The perfection of the contract takes
place upon the concurrence of the essential elements thereof.
Moreover, it is a fundamental principle that before a contract of
sale can be valid, the following elements must be present: (a)
consent or meeting of the minds; (b) determinate subject
matter; (c) price certain in money or its equivalent.
Until the contract of sale is perfected, it cannot, as an
independent source of obligation, serve as a binding juridical
relation between the parties.
In this case, petitioner, anchors its main argument on the
annotation on its third-letter offer of the phrase “received
original, 9-4-89.” It also contends that the said annotation is
evidence to show that there was already a perfected
agreement to sell as respondent can be said to have accepted
petitioner’s payment in the form of a check which was enclosed
in the third letter.
However, as correctly elucidated by the CA: there is nothing
written or documentary to show that the offer was accepted by
Quesada. The court cannot believe that this notation would
signify the acceptance of the offer.
The requisites of a valid contract of sale are lacking, therefore
the “sale” is neither valid nor enforceable.
33. Ching vs. Goyanko Jr., GR 165879, Nov. 10, 2006
By: Umangay, Karen Abigail
Doctrine: The proscription against sale of property between
spouses applies even to common law relationships.
Facts: Joseph Goyanko and Epifania dela Cruz were married.
Their children came that in 1961, their parents acquired a
property in Cebu but that as they were Chinese citizens at the
time, the property was registered in the name of their aunt
Sulpicia Ventura. In 1993, Sulpicia executed a deed of sale in
favor of Goyanko Sr. In turn, Goyanko Sr. executed a deed of
sale in favor of his common-law-wife Maria Ching.
After Goyanko’s death, respondents discovered that the
property had been transferred in the name of Ching.
Respondents had the purported signature of their father in the
deed of sale verified by the PNP Crime Laboratory which found
the same to be a forgery.
Respondents filed with the RTC a complaint for recovery of
property and damages against Ching praying for the
nullification of the deed and of the TCT and the issuance of a
new one in favor of Goyanko.
Petitioner claimed that she is the actual owner of the property
as it was she who provided its purchase price.
RTC dismissed the complaint against Ching. here is no valid
and sufficient ground to declare the sale as null and void,
fictitious and simulated. The signature on the questioned Deed
of Sale is genuine. Testimony of notary is more reliable than
document examiners.
CA reversed and declared null and void the deed of sale.
Issue/s: Is the sale between Goyanko and Ching valid?
Ruling: No. The proscription against sale of property between
spouses applies even to common law relationships. Hence, the
sale made by Goyanko in favor of his concubine is null and
void for being contrary to morals and public policy.
Article 1490 provides that “the husband and wife cannot sell
property to each other, except when a separation of property...”
Article 1352 provides that “Contracts without cause, or with
unlawful cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good customs, public
order or public policy.” These are void from the beginning.
The law emphatically prohibits the spouses from selling
property to each other subject to certain exceptions. Similarly,
donations between spouses during marriage are prohibited.
And this is so because if transfers or conveyances between
spouses were allowed during marriage, that would destroy the
system of conjugal partnership, a basic policy in civil law. It
was also designed to prevent the exercise of undue influence
by one spouse over the other, as well as to protect the
institution of marriage, which is the cornerstone of family law.
The prohibitions apply to a couple living as husband and wife
without benefit of marriage, otherwise, "the condition of those
who incurred guilt would turn out to be better than those in
legal union."
34. Sacobia Hills Dev. Corp. vs. Ty, GR 165889, Sept. 20,
2005
By: Uson, Nichole John O.
Doctrine: In a Contract to Sell, the payment of the purchase
price is a positive suspensive condition, the failure of which is
not a breach, casual or serious, but a situation that prevents
the obligation of the vendor to convey title from acquiring an
obligatory force. It is one where the happening of the event
gives rise to an obligation. Thus, for its non-fulfillment there will
be no contract to speak of, the obligor having failed to perform
the suspensive condition which enforces a juridical relation. In
fact with this circumstance, there can be no rescission of an
obligation that is still non-existent, the suspensive condition not
having occurred as yet.
Facts: Sacobia Hills Development Corporation (Sacobia) is the
developer of True North Golf and Country Club (True North)
located inside the Clark Special Economic Zone. Allan U. Ty
wrote to Sacobia a letter expressing his intention to acquire
one (1) Class A share of True North and accordingly paid the
reservation fee of P180,000.00. Sacobia approved the
purchase application and membership of respondent for
P600,000.00, subject to certain terms and conditions to wit;
Approval of an application to purchase golf/country club shares
is subjected to the full payment of the total purchase price,
Reserved share shall be considered withdrawn and may be
deemed cancelled should you fail to settle obligation.
Ty sent Sacobia a letter formally rescinding the contract and
demanding for the refund of the P409,090.92 thus far paid by
him due to the failure to complete the project on time as
represented. Sacobia informed respondent that it had a no-
refund policy, and that it had endorsed respondent to Century
Properties, Inc. for assistance on the resale of his share to
third persons. Ty filed a complaint for rescission and damages
before the SEC but the case was eventually transferred to the
RTC Manila. RTC ruled in favor of Sacobia however CA
reversed and ruled in favor of Ty.
Issue: Whether or not the contract entered into by the parties
may be validly rescinded under Article 1191 of the Civil Code?
Ruling: NO, the contract entered into by the parties may not
be validly rescinded under Article 1191 of the Civil Code
because the obligation to sell is inexistent due to the
nonfulfillment of the suspensive condition which is the payment
of the full purchase price.
In the notice of approval, which embodies the terms and
conditions of the agreement, Sacobia signified its intent to
retain the ownership of the property until such time that the
respondent has fully paid the purchase price. This condition
precedent is characteristic of a contract to sell. Since the
agreement between Sacobia and Ty is a contract to sell, the
full payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to
sell from arising and ownership is retained by the seller without
further remedies by the buyer.
In a Contract to Sell, the payment of the purchase price is a
positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force. It is one where the happening of the event
gives rise to an obligation. Thus, for its non-fulfillment there will
be no contract to speak of, the obligor having failed to perform
the suspensive condition which enforces a juridical relation. In
fact with this circumstance, there can be no rescission of an
obligation that is still non-existent, the suspensive condition not
having occurred as yet. Emphasis should be made that the
breach contemplated in Article 1191 of the New Civil Code is
the obligors failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation. In a
contract to sell, the prospective seller does not consent to
transfer ownership of the property to the buyer until the
happening of an event, which for present purposes, is the full
payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill his promise to sell the subject
property when the entire amount of the purchase price is
delivered to him. Upon the fulfillment of the suspensive
condition, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to
him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
According to True North Payment Schedule, respondents
checks dated from October 12, 1997 until January 12, 1998
were marked as stale. His failure to cover the value of the
checks and by issuing a stop payment order effectively abated
the perfection of the contract. For it is understood that when a
sale is made subject to a suspensive condition, perfection is
had only from the moment the condition is fulfilled.As shown,
Ty did not pay the full purchase price which is his obligation
under the contract to sell, therefore, it cannot be said that
Sacobia breached its obligation. No obligations arose on its
part because respondents non-fulfillment of the suspensive
condition rendered the contract to sell ineffective and
unperfected. Indeed, there can be no rescission under Article
1191 of the Civil Code because until the happening of the
condition, i.e. full payment of the contract price, Sacobias
obligation to deliver the title and object of the sale is not yet
extant. A non-existent obligation cannot be subject of
rescission. Article 1191 speaks of obligations already existing,
which may be rescinded in case one of the obligors fails to
comply with what is incumbent upon him. As earlier discussed,
the payment by Ty of the reservation fee as well as the
issuance of the postdated checks is subject to the condition
that Sacobia was reserving title until full payment, which is the
essence of a contract to sell. The perfection of this kind of
contract would give rise to two distinct obligations, namely, 1)
the buyers obligation to fulfill the suspensive condition, i.e. the
full payment of the contract price as in the instant case, and, 2)
the correlative obligation of the seller to convey ownership
upon compliance of the suspensive condition.
35. ACE FOODS, INC. vs. MICRO PACIFIC TECHNOLOGIES
CO., LTD., G.R. No. 200602, December 11, 2013
By: VARGAS, Rose Shahanna G.
Doctrine: A contract of sale is classified as a consensual
contract, which means that the sale is perfected by mere
consent. No particular form is required for its validity. Upon
perfection of the contract, the parties may reciprocally demand
performance, i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require
the vendee to pay the thing sold.
In contrast, a contract to sell is defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the property despite delivery thereof to the
prospective buyer, binds himself to sell the property exclusively
to the prospective buyer upon fulfillment of the condition
agreed upon, i.e., the full payment of the purchase price.
Facts: ACE Foods is a domestic corporation engaged in the
trading and distribution of consumer goods in wholesale and
retail bases, while MTCL is one engaged in the supply of
computer hardware and equipment.
On September 26, 2001, MTCL sent a letter-proposal
for the delivery and sale of the subject products to be installed
at various offices of ACE Foods. The said proposal further
provides for the following terms, viz.:
TERMS : Thirty (30) days upon delivery
VALIDITY : Prices are based on current
dollar rate and subject to changes
without prior notice.
DELIVERY : Immediate delivery for items on
stock, otherwise thirty (30) to forty-five
days upon receipt of [Purchase Order]
WARRANTY : One (1) year on parts and
services. Accessories not included in
warranty.
On October 29, 2001, ACE Foods accepted MTCL’s
proposal and accordingly issued purchase order amounting to
₱646,464.00 (purchase price).
On March 4, 2002, MTCL delivered the said products to
ACE Foods as reflected in an invoice receipt. The fine print of
the invoice states that "title to sold property is reserved in
MICROPACIFIC TECHNOLOGIES CO., LTD. until full
compliance of the terms and conditions of above and
payment of the price” (title reservation stipulation).
After delivery, the subject products were then installed
and configured in ACE Foods’s premises. However, MTCL’s
demands against ACE Foods to pay the purchase price
remained unheeded. Instead of paying the purchase price,
ACE Foods sent MTCL a Letter dated September 19, 2002,
stating that it "has been returning the subject products to MTCL
thru its sales representative, Mr. Mark Anteola, who has agreed
to pull out the said products but had failed to do so up to now."
 On October 16, 2002, ACE Foods lodged a Complaint
against MTCL before the RTC, praying that the latter pull out
from its premises the subject products since MTCL breached
its "after delivery services" obligations to it, particularly, to: (a)
install and configure the subject products; (b) submit a cost
benefit study to justify the purchase of the subject products;
and (c) train ACE Foods’s technicians on how to use and
maintain the subject products. ACE Foods likewise claimed
that the subject products MTCL delivered are defective and not
working.
MTCL, however, maintained that it had duly complied
with its obligations to ACE Foods and that the subject products
were in good working condition when they were delivered,
installed and configured in ACE Foods’s premises. Thereafter,
MTCL even conducted a training course for ACE Foods’s
representatives/employees; MTCL, however, alleged that there
was actually no agreement as to the purported "after delivery
services." Further, MTCL posited that ACE Foods refused and
failed to pay the purchase price for the subject products
despite the latter’s use of the same for a period of nine (9)
months. As such, MTCL prayed that ACE Foods be compelled
to pay the purchase price, as well as damages related to the
transaction.
RTC: directed MTCL to remove the subject products
from ACE Foods’s premises and pay actual damages and
attorney fees. It observed that the agreement between ACE
Foods and MTCL is in the nature of a contract to sell. Its
conclusion was based on the fine print of the Invoice Receipt. It
noted that the full payment of the price is a positive suspensive
condition, the non-payment of which prevents the obligation to
sell on the part of the seller/vendor from materializing at all.
Since title remained with MTCL, the RTC, therefore, directed it
to withdraw the subject products from ACE Foods’s premises.
CA: reversed and set aside the RTC’s ruling, and
ordered ACE Foods to pay MTCL plus legal interest. It found
that the agreement between the parties is in the nature of a
contract of sale, observing that the said contract had been
perfected from the time ACE Foods sent the Purchase Order to
MTCL which, in turn, delivered the subject products covered by
the Invoice Receipt and subsequently installed and configured
them in ACE Foods’s premises. It concluded that it was
erroneous for ACE Foods not to pay the purchase price
therefor, despite its receipt of the subject products, because its
refusal to pay disregards the very essence of reciprocity in a
contract of sale.
Issue: Whether ACE Foods should pay MTCL the purchase
price for the subject products.
Ruling: YES. The Supreme Court ruled that the the parties
have agreed to a contract of sale and not to a contract to sell.
Article 1458 of the Civil Code provides that “by the
contract of sale one of the contracting parties obligates himself
to transfer the ownership and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its
equivalent.” The very essence of a contract of sale is the
transfer of ownership in exchange for a price paid or promised.
A contract of sale may be absolute or conditional. A
contract of sale is classified as a consensual contract,
which means that the sale is perfected by mere consent. No
particular form is required for its validity. Upon perfection of the
contract, the parties may reciprocally demand performance,
i.e., the vendee may compel transfer of ownership of the object
of the sale, and the vendor may require the vendee to pay the
thing sold.
In contrast, a contract to sell is defined as a bilateral
contract whereby the prospective seller, while expressly
reserving the ownership of the property despite delivery thereof
to the prospective buyer, binds himself to sell the property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, i.e., the full payment of the purchase
price. A contract to sell may not even be considered as a
conditional contract of sale where the seller may likewise
reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent
event which may or may not occur.
In this case, bearing in mind its consensual nature, a
contract of sale had been perfected at the precise moment
ACE Foods, as evinced by its act of sending MTCL the
Purchase Order, accepted the latter’s proposal to sell the
subject products in consideration of their agreed purchase
price. At that point, the reciprocal obligations of the parties –
i.e., on the one hand, of MTCL to deliver the said products to
ACE Foods, and, on the other hand, of ACE Foods to pay the
purchase price therefor within thirty (30) days from delivery –
already arose and consequently may be demanded.
The Court further ruled that the title reservation
stipulation did not change the transaction from a contract of
sale into a contract to sell. Records did not show that the said
stipulation novated the contract of sale between the parties
which, to repeat, already existed at the precise moment ACE
Foods accepted MTCL’s proposal.
To be sure, novation, in its broad concept, may either
be extinctive or modificatory. It is extinctive when an old
obligation is terminated by the creation of a new obligation that
takes the place of the former; it is merely modificatory when
the old obligation subsists to the extent it remains compatible
with the amendatory agreement. In either case, however,
novation is never presumed, and the animus novandi, whether
totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be
mistaken.
In the present case, it was not shown that the title
reservation stipulation appearing in the Invoice Receipt had
been included or had subsequently modified or superseded the
original agreement of the parties. The fact that the Invoice
Receipt was signed by a representative of ACE Foods did not,
by and of itself, prove animus novandi since: (a) it was not
shown that the signatory was authorized by ACE Foods (the
actual party to the transaction) to novate the original
agreement; (b) the signature only proves that the Invoice
Receipt was received by a representative of ACE Foods to
show the fact of delivery; and (c) as matter of judicial notice,
invoices are generally issued at the consummation stage of the
contract and not its perfection, and have been even treated as
documents which are not actionable per se, although they may
prove sufficient delivery. Thus, absent any clear indication that
the title reservation stipulation was actually agreed upon, the
Court must deem the same to be a mere unilateral imposition
on the part of MTCL which has no effect on the nature of the
parties’ original agreement as a contract of sale. Perforce, the
obligations arising thereto, among others, ACE Foods’s
obligation to pay the purchase price as well as to accept the
delivery of the goods, remain enforceable and subsisting.
36. The Heirs of Victorino Sarili vs. Pedro F. Lagrosa, G.R.
No. 193517, January 15, 2014
By: Villaranda, Charise
DOCTRINE: The general rule is that every person dealing with
registered land may safely rely on the correctness of the
certificate of title issued therefore and the law will in no way
oblige him to go beyond the certificate to determine the
condition of the property. However, a higher degree of
prudence is required from one who buys from a person who is
not the registered owner, although the land object of the
transaction is registered. In such a case, the buyer is expected
to examine not only the certificate of title but all factual
circumstances necessary for him to determine if there are any
flaws in the title of the transferor. The buyer also has the duty
to ascertain the identity of the person with whom he is dealing
with and the latter’s legal authority to convey the property.
FACTS: Lagrosa filed a complaint against Sps. Sarili alleging
that he is the owner of a certain parcel of land situated in
Caloocan City covered by TCT No. 55979 and has been
religiously paying the real estate taxes therefore since
November 29, 1974. He and his wife had immigrated to the
USA since 1968 and is now a resident of California, USA and
he only discovered that a new certificate of title to the subject
property was issued by the register of deeds in the name of
Victorino, married to Isabel Amparo, during his vacation in the
Philippines.
He further alleged that it was due to a falsified Deed of
Absolute Sale purportedly executed by him and his wife, dated
February 16, 1978, which was a result of the fraudulent, illegal
and malicious acts committed by Sps. Sarili and the Register of
Deeds in order to acquire the subject property.
Sps. Sarili, on the other hand, maintained that they are
innocent purchasers for value, having purchased the subject
property from one Ramon Rodriguez, who possessed and
presented a Special Power of Attorney to sell/dispose of the
same, and, in such capacity, executed a Deed of Absolute sale
dated November 20, 1992 conveying the said property in their
favor.
ISSUE: Whether there was a valid conveyance of the subject
property to Sps. Sarili
HELD: There was no valid conveyance of the subject
property to Sps. Sarili.
The strength of the buyer’s inquiry on the seller’s capacity or
legal authority to sell depends on the proof of capacity of the
seller. If the proof of capacity consists of a special power of
attorney duly notarized, mere inspection of the face of such
public document already constitutes sufficient inquiry. If no
such special power of attorney is provided or there is one but
there appears to be flaws in its notarial acknowledgment, mere
inspection of the document will not do; the buyer must show
that his investigation went beyond the document and into the
circumstances of its execution.
In the present case, it is undisputed that Sps. Sarili purchased
the subject property from Ramos on the strength of the latter’s
ostensible authority to sell under the subject SPA. The said
document, however, readily indicates flaws in its notarial
acknowledgment since the respondent’s community tax
certificate (CTC) number was not indicated thereon; which is
required under the governing rule on notarial
acknowledgements at that time. Despite this irregularity,
however, Sps. Sarili failed to show that they conducted an
investigation beyond the subject SPA and into the
circumstances of its execution as required by prevailing
jurisprudence. Hence, Sps. Sarili cannot be considered as
innocent purchasers for value.
Article 1874 of the Civil Code provides that "[w]hen a sale of a
piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale
shall be void." In other words, if the subject SPA was not
proven to be duly executed and authentic, then it cannot be
said that the foregoing requirement had been complied with;
hence, the sale would be void.
The Court also holds that the due execution and authenticity of
the subject SPA were not sufficiently established under Section
20, Rule 132 of the Rules of Court as above-cited.
Since Sps. Sarili’s claim over the subject property is based on
forged documents, no valid title had been transferred to them
(and, in turn, to petitioners). Verily, when the instrument
presented is forged, even if accompanied by the owner’s
duplicate certificate of title, the registered owner does not
thereby lose his title, and neither does the assignee in the
forged deed acquire any right or title to the property.
37. Spouses Suntay vs. Keyser Mercantile, Inc., GR
208462, Dec. 10, 2014
By: Abueg, Raponcel
Doctrine: A levy on execution duly registered takes preference
over a prior unregistered sale. Levy on execution is superior to
the subsequent registration of the deed of absolute sale.
Primus tempore, potior jure (first in time, stronger in right).
Facts: Bayfront and Keyser entered into a Contract to Sell.
The property involved is a condominium Unit G with 2 parking
slots in Bayfront Tower Condominium covered by CCT No.
15802. It has been fully paid by Keyser but the sale was not
duly registered with the Registry of Deeds, hence the title over
the property remained with Bayfront. It is a clean title.
Spouses Suntay also purchased several condominium units
from Bayfront. Despite payment of the full purchase price,
Bayfront failed to deliver the condominium units. When
Bayfront failed to reimburse the full purchase price, Spouses
Suntay filed an action against it for rescission of contract, sum
of money, and damages before the HLURB. HLURB rescinded
the Contract to Sell and ordered Bayfront to pay Spouses
Suntay the full purchase price with interest. Upon the
application of Spouses Suntay, the Sheriffs of Manila RTC
levied Bayfront’s titled properties, including the subject
condominium Unit G and the two parking slots.
Considering that CCT No. 15802 was still registered under
Bayfront with a clean title, the sheriffs deemed it proper to be
levied. The levy on execution was duly recorded in the
Register of Deeds of Manila. An auction sale proceeded and
the highest/winning bidders were the Sps. Suntay. The
Certificate of Sale in favor of Spouses Suntay was issued. This
was duly annotated at the back of CCT No. 15802.
Keyser filed a complaint for annulment of auction sale, writ of
execution, declaration of nullity of title, and reconveyance of
property with damages against Spouses Suntay.
Issue/s: Whether or not the latter duly recorded levy on
execution takes preference over the prior unregistered contract
to sell
Ruling: YES. The doctrine is well settled that a levy on
execution duly registered takes preference over a prior
unregistered sale.
In this case, the contract to sell between Keyser and Bayfront
was executed on October 20, 1989, but the deed of absolute
sale was only made on November 9, 1995 and registered on
March 12, 1996.
The Notice of Levy in favor of Spouses Suntay was registered
on January 18, 1995, while the Certificate of Sale on April 7,
1995, both dates clearly ahead of Keyser’s registration of its
Deed of Absolute Sale. Evidently, applying the doctrine of
primus tempore, potior jure (first in time, stronger in right),
Spouses Suntay have a better right than Keyser.
38. Leong, et. al. vs. Edna See, GR 194077, Dec. 3, 2014

By: Alegre, Kristine Joyce
Doctrine: An innocent purchaser for value refers to someone
who "buys the property of another without notice that some
other person has a right to or interest in it, and who pays a full
and fair price at the time of the purchase or before receiving
any notice of another person’s claim."
One claiming to be an innocent purchaser for value has the
burden of proving such status.
Facts: Spouses Florentino and Carmelita Leong (SPS Leong)
owned property in Quiapo, Manila. (Quiapo Property)
Petitioner Elena was Florentino’s sister in law, she stayed on
the property rental free for over 2 decades till the building was
burned. After, she still continued to live on the property rent-
free. Sps Leong then immigrated to the US and were divorced
in Illinois. In their settlement, it was indicatedthat "Florentino
shall convey and quitclaim all of his right, title and interest in
the Quiapo Property to Carmelita.
Carmelita then sold the land to Respondent, Edna See (Edna).
In lieu of Florentino’s signature of conformity, Carmelita
presented a notarized waiver of interest in Illinois. In this
waiver, Florentino reiterated his quitclaim over his right, title,
and interest to the land. Consequently, the land’s title, covered
by TCT No. 231105, was transferred to Edna's name. Even
after such sale, petitioner Elena and other Leong relatives still
lived in the Quiapo property. Demands for them to vacate went
unheeded.
Subsequently, Edna filed a complaint for recovery of
possession against Elena and other relatives of the SPS
Leong.
RTC: Ruled in favor of Edna, and granted her possession
and ownership
CA: Affirmed RTC decision
Hence, this petition. Petitioners argue that Edna was a buyer in
bad faith. As such, respondent should bear the loss of her
negligence in purchasing the property without Florentino’s
consent. Further, they state that the lower courts were wrong
in ruling that respondents was entitled to possession of the
property.
Issue/s: Was Edna C. See a buyer in good faith and for value?
Ruling: YES. The SC ruled that the lower courts correctly
found that respondent is a purchaser in good faith for value
who exercised the necessary diligence in purchasing the
property.
An innocent purchaser for value refers to someone who "buys
the property of another without notice that some other person
has a right to or interest in it, and who paysa full and fair price
at the time of the purchase or before receiving any notice of
another person’s claim."
One claiming to be an innocent purchaser for value has the
burden of proving such status. Here, Edna did not rely on the
clean title alone because of the possession by third parties,
she also relied on Florentino’s waiver of interest. Additionally,
she verified the authenticity of thte title at the Manila Register
of Deeds with her father and Carmelita.
Lastly, respondent, an innocent purchaser in good faith and for
value with title in her name, has a better right to the property
than Elena. Elena’s possession was neither adverse to nor in
the concept of owner. Thus, respondent had every right to
pursue her claims as she did.
39. Gatchalian Realty Inc. vs. Angeles, G.R. No. 202358,
Nov. 27, 2013
Doctrine:
Maceda Law; Realty Installment Buyer Protection Act
(R.A. No. 6552); Republic Act No. 6552, also known as the
Maceda Law, or the Realty Installment Buyer Protection Act,
has the declared public policy of “protecting buyers of real
estate on installment payments against onerous and
oppressive conditions.” The buyer’s failure to pay the
installments due at the expiration of the grace period allows the
seller to cancel the contract after 30 days from the buyer’s
receipt of the notice of cancellation or demand for rescission of
the contract by a notarial act. Paragraph 6(a) of the contract
gave Angeles the same rights. This Court has been consistent
in ruling that a valid and effective cancellation under R.A. 6552
must comply with the mandatory twin requirements of (a) a
notarized notice of cancellation and (b) a refund of the cash
surrender value.
Facts:
 On Dec. 28, 1994, Respondent Angeles purchased a
house (Contract to Sell No. 2271) and lot (Contract to Sell No.
2272) from Petitioner Gatchalian (GRI) valued P750,000.00 for
a period of ten years. The house and lot were delivered to
Respondent Angeles in 1995, nonetheless under the contracts
to sell between the parties, GRI retained ownership of the
property until full payment of the purchase price.
After sometime, Angeles failed to satisfy her monthly
installments with GRI. Angeles was only able to pay thirty-five
(35) installments for Contract to Sell No. 2271 and forty-eight
(48) installments for Contract to Sell No. 2272. According to
GRI, Angeles was given at least twelve (12) notices for
payment in a span of three (3) years but she still failed to settle
her account despite receipt of said notices and without any
valid reason. Angeles was again given more time to pay her
dues and likewise furnished with three (3) notices reminding
her to pay her outstanding balance with warning of impending
legal action and/or rescission of the contracts, but to no avail.
After giving a total of fifty-one (51) months grace period for
both contracts and in consideration of the continued disregard
of the demands of GRI, Angeles was served with a notice of
notarial rescission dated 11 September 2003 by registered mail
which she allegedly received on 19 September 2003 as
evidenced by a registry return receipt.
Allegedly, [Angeles] subsequently sent postal money
orders through registered mail to GRI. In a letter dated 27
January 2004 Angeles was notified by GRI of its receipt of a
postal money order sent by Angeles. More so, she was
requested to notify GRI of the purpose of the payment. Angeles
was informed that if the postal money order was for her
monthly amortization, the same will not be accepted and she
was likewise requested to pick it up from GRI’s office. On 29
January 2004, another mail with a postal money order was
sent by Angeles to GRI. In her 6 February 2004 letter, GRI was
informed that the postal money orders were supposed to be
payments for her monthly amortization. Again, in its 8 February
2004 letter, it was reiterated by GRI that the postal money
orders will only be accepted if the same will serve as payment
of her outstanding rentals and not as monthly amortization.
Four (4) more postal money orders were sent by Angeles by
registered mail to GRI.
For her continued failure to satisfy her obligations with
GRI and her refusal to vacate the house and lot, GRI filed a
complaint for unlawful detainer against Angeles on 11
November 2003
MTC ruled in favor of GRI. Angeles appeal before RTC
of Las Pinas initially produced a result favorable to her. The
RTC found that the case was one for ejectment. As an
ejectment court, the MeTC’s jurisdiction is limited only to the
issue of possession and does not include the title or ownership
of the properties in question.
The RTC pointed out that Republic Act No. 6552 (R.A.
6552) provides that the non-payment by the buyer of an
installment prevents the obligation of the seller to convey title
from acquiring binding force. Moreover, cancellation of the
contract to sell may be done outside the court when the buyer
agrees to the cancellation. In the present case, Angeles denied
knowledge of GRI’s notice of cancellation. Cancellation of the
contract must be done in accordance with Section 3 of R.A.
6552, which requires a notarial act of rescission and refund to
the buyer of the cash surrender value of the payments on the
properties. Thus, GRI cannot insist on compliance with Section
3(b) of R.A. 6552 by applying Angeles’ cash surrender value to
the rentals of the properties after Angeles failed to pay the
installments due.
Issue/s:
1.Was there refund of the cash surrender value to
RESPONDENT pursuant to R.A. No. 6552? NO.
2.Did the actual cancellation of the contract between the
parties take place? NO.
Ruling: Republic Act No. 6552, also known as the Maceda
Law, or the Realty Installment Buyer Protection Act, has the
declared public policy of "protecting buyers of real estate on
installment payments against onerous and oppressive
conditions." Section 3 of R.A. 6552 provides for the rights of a
buyer who has paid at least two years of installments but
defaults in the payment of succeeding installments. The Court
examine GRI’s compliance with the requirements of R.A. 6552,
as it insists that it extended to Angeles considerations that are
beyond what the law provides.
Grace Period
It should be noted that Section 3 of R.A. 6552 and
paragraph six of Contract Nos. 2271 and 2272, speak of "two
years of installments." The basis for computation of the term
refers to the installments that correspond to the number of
months of payments, and not to the number of months that the
contract is in effect as well as any grace period that has been
given. Both the law and the contracts thus prevent any buyer
who has not been diligent in paying his monthly installments
from unduly claiming the rights provided in Section 3 of R.A.
6552.
Section 3(a) of R.A. 6552 provides that the total grace
period corresponds to one month for every one year of
installment payments made, provided that the buyer may
exercise this right only once in every five years of the life of the
contract and its extensions. The buyer’s failure to pay the
installments due at the expiration of the grace period allows the
seller to cancel the contract after 30 days from the buyer’s
receipt of the notice of cancellation or demand for rescission of
the contract by a notarial act. Paragraph 6(a) of the contract
gave Angeles the same rights.
Both the RTC and the CA found that GRI gave Angeles an
accumulated grace period of 51 months. This extension went
beyond what was provided in R.A. 6552 and in their contracts.
Receipt of the Notice of Notarial Rescission
The registry return of the registered mail is prima facie
proof of the facts indicated therein. Angeles failed to present
contrary evidence to rebut this presumption with competent
and proper evidence. To establish its claim of service of the
notarial rescission upon Angeles, GRI presented the affidavit of
its liaison officer Fortunato Gumahad, the registry receipt from
the Greenhills Post Office, and the registry return receipt. We
affirm the CA’s ruling that GRI was able to substantiate its
claim that it served Angeles the notarial rescission sent through
registered mail in accordance with the requirements of R.A.
6552.
Actual Cancellation of the Contracts –
There was no actual cancellation of the contracts
because of GRI’s failure to actually refund the cash surrender
value to Angeles.
Mandatory Twin Requirements: Notarized Notice of
Cancellation & Refund of Cash Surrender Value
This Court has been consistent in ruling that a valid and
effective cancellation under R.A. 6552 must comply with the
mandatory twin requirements. In view of the absence of a valid
cancellation, the Contract to Sell between GRI and Angeles
remains valid and subsisting.
Remedies of the Buyer in the Absence of a Valid Cancellation
of a Contract to Sell –
Considering that GRI did not validly rescind the
Contracts to Sell, Angeles has 2 options: a) The option to pay
the unpaid balance of the full value of the purchase price of the
subject properties plus interest and b) the option to accept the
cash surrender value of the subject properties, with interest.
Should Evelyn M. Angeles choose to pay the unpaid
balance, she shall pay, within 60 days from the MeTC’s
determination of the proper amounts, the unpaid balance of the
full value of the purchase price of the subject properties plus
interest at 6% per annum from 11 November 2003, the date of
filing of the complaint, up to the finality of this Decision, and
thereafter, at the rate of 6% per annum. Upon payment of the
full amount, GRI shall immediately execute Deeds of Absolute
Sale over the subject properties and deliver the corresponding
transfer certificate of title to Angeles.
In the event that the subject properties are no longer
available, GRI should offer substitute properties of equal value.
Should Angeles refuse the substitute properties, GRI shall
refund to Angeles the actual value of the subject properties
with 6 interest per annum computed from November 2003, the
date of the filing of the complaint, until fully paid. Should Evelyn
M. Angeles choose to accept payment of the cash surrender
value, she shall receive from GRI ₱574,148.40 with interest at
6 per annum computed from November 2003, the date of the
filing of the complaint, until fully paid. Contracts to Sell Nos.
2271 and 2272 shall be deemed cancelled 30 days after
Angeles' receipt of GRI's full payment of the cash surrender
value. No rent is further charged upon Evelyn M. Angeles.
40. Alfaro et.al vs Sps. Dumalagan, et. al. G.R. No. 186622
January 22, 2014
By: Aricheta, Paula
Doctrine: Article 1544 clearly states that the rule on double or
multiple sales applies only when all the purchasers are in good
faith. In detail Art. 1544 requires that before the second buyer
can obtain priority over the first, he must show that he acted in
good faith throughout, i.e., in ignorance of the first sale and of
the firstbuye’1s rights, from the time of acquisition until the title
is transferred to him by registration or failing registration, by
delivery of possession.
Facts:
Sps. Prosperous and Peblia Alfaro bought a lot from Sps.
Bagano through a Deed of absolute Sale on June 1995. The
subject property was presently occupied by Sps. Dumalagan.
Due to such circumstance and to allegedly protect their right,
the Sps. Alfaro filed a petition. Spouses Dumalagan presented
the notarized Deed of Absolute Sale dated December 6, 1993
and certificate, they are the real owner of a portion of the
subject property, based on a notarized Deed of Absolute Sale
dated December 6, 1993 and certificate of completion and a
certificate of occupancy, both dated August 10,1993. Spouses
Bagano filed a complaint for Declaration of nullity of Sale with
Damages and Preliminary injunction against petitioners. In said
case, this court sustained the validity of the Deed of Absolute
Sale between petitioners and Spouses Bagano, which the
appellate court reversed and set aside. According to the
Appellate court, petitioners cannot claim good faith by referring
to the annotations written at the back of Bagano’s title. It stated
that regardless if the petitioners name was not stated in the
annotated adverse claims it still have the effect of constructive
notice of the defect in the seller’s title that made them as
subsequent buyers. Such fact can be considered as an
evidence that Sps. Alfaro had prior notice that the property they
bought had prior owners.
Issue: Whether or not the petitioners are considered as buyer
in good faith?
Ruling: No, a purchaser in good faith is one who buys the
property of another without notice that some other person has
a right to, or an interest in such property, and pays a full and
fair price for the same at the time of such purchase, or before
he has notice of some other person’s claim or interest in the
property.
The petitioners are not such purchaser. Petitioners , based on
evidence presented, had admitted that they have prior
knowledge of the previous sales by installment of portions of
the property to several purchasers based on the annotation in
the title. Moreover, petitioners had prior knowledge of
respondents’ possession over the subject property.
Hence, the rule on double sale is inapplicable in the case at
bar. As correctly held by the appellate court. Petitioner’s prior
registration with prior knowledge of respondents’ claim of
ownership and possession, cannot confer ownership or better
right over the subject property.
41. SPS. FELIPE SOLITARIOS and JULIA TORDA V SPS.
GASTON JAQUE and LILIA JAQUE
G.R. No. 199852; November 12, 2014
DOCTRINE: “A purported contract of sale where the vendor
remains in physical possession of the land, as lessee or
otherwise, is an indicium of an equitable mortgage.”
FACTS: Sps. Gaston Jaque and Lilia Jaque initiated a
Complaint for Ownership and Recovery of Possession against
Sps. Felipe Solitarios and Julia Torda.
Spouses Jacque alleged that they purchased Lot 4089
from the spouses Solitarios in stages. According to spouses
Jacque, they initially bought one-half of Lot No. 4089 for
7,000.00. This sale is allegedly evidenced by a notarized Deed
of Sale dated May 8, 1981. Two months later, the spouses
Solitarios supposedly mortgaged the remaining half of Lot
4089 to the Jaques via a Real Estate Mortgage (REM) dated
July 15, 1981, to secure a loan amounting to 3,000.00. After
almost two (2) years, the spouses Solitarios finally agreed to
sell the mortgaged half. However, instead of executing a
separate deed of sale for the second half, they executed a
Deed of Sale dated April 26, 1983 for the whole lot to save on
taxes, by making it appear that the consideration for the sale of
the entire lot was only 12,000.00 when the Jaques actually
paid 19,000.00 in cash and condoned the spouses Solitarios’
3,000.00 loan. As a result, the title was transferred and
registered from spouses Solitarios to spouses Jaque.
In spite of the sale, the Jaques, supposedly out of pity
for the spouses Solitarios, allowed the latter to retain
possession of Lot 4089, subject only to the condition that the
spouses Solitarios will regularly deliver a portion of the
property’s produce. In an alleged breach of their agreement,
however, the spouses Solitarios stopped delivering any
produce sometime in 2000. Worse, the spouses Solitarios
even claimed ownership over Lot 4089. Thus, the Jaques filed
the complaint with the RTC.
For their defense, defendants spouses Solitarios
“denied selling Lot 4089 and explained that they merely
mortgaged the same to the Jaques after the latter helped them
redeem the land from the Philippine National Bank (PNB).
Issue: WON the parties entered into a contract of absolute
sale or an equitable mortgage.
Ruling: The Supreme Court declared that the transaction
between the parties is actually one of equitable mortgage
pursuant to the foregoing provisions of the Civil Code.
It has never denied by respondents that the petitioners,
the spouses Solitarios, have remained in possession of the
subject property and exercised acts of ownership over the said
lot even after the purported absolute sale of Lot 4089. This fact
is immediately apparent from the testimonies of the parties and
the evidence extant on record, showing that the real intention
of the parties was for the transaction to secure the payment of
a debt.
The Court had held that a purported contract of sale
where the vendor remains in physical possession of the land,
as lessee or otherwise, is an indicium of an equitable
mortgage. During the period material to the present
controversy, the petitioners, spouses Solitarios, retained actual
possession of the property. This was never disputed. If the
transaction had really been one of sale, as the Jaques claim,
they should have asserted their rights for the immediate
delivery and possession of the lot instead of allowing the
spouses Solitarios to freely stay in the premises for almost
seventeen (17) years from the time of the purported sale until
their filing of the complaint. Human conduct and experience
reveal that an actual owner of a productive land will not allow
the passage of a long period of time, as in this case, without
asserting his rights of ownership.
 As provided for in Article 1602(6) of the Civil Code, a
transaction is presumed to be an equitable mortgage “where it
may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the
performance of any other obligation.” This provision finds
application in this case. “First, the very testimony of Gaston
Jaque and the documents he presented establish the
existence of two loans, which the Jaques extended to the
spouses Solitarios, that were secured by the subject property;
and, second, the testimonies of the parties reveal that they
came to an agreement as to how these loans would be paid.”
42. Lopez vs. Fajardo, GR 157971, Aug. 31, 2005
By: Bautista, Kresnie Anne F.
Doctrine: A month-to-month lease under Article 1687 is a
lease with a definite period and expires after the last day of any
given thirty-day period, upon proper demand and notice by the
lessor to vacate. (ART 1687)
Facts: The Sobrepenas were the owners of a 2-door
apartment at Sta. Cruz, Manila. One of the apartments has for
so many years been occupied under a verbal contract of lease
by Fajardo. The Sobrepenas sold such property to the Lopez
sisters.
The Lopez sisters filed before the Metropolitan Trial Court of
Manila (MeTC) a complaint for ejectment with damages,
against Fajardo on the ground of failure to pay her monthly
rentals from May 1999 to February 2000. This was settled after
Fajardo paid P35,000.00 representing rental in arrears and
current rental for June 2000.
Fajardo again failed and refused to pay her July and August
2000 rentals, prompting Lopez, et al. to send her a letter
informing her that they have decided to terminate their monthly
lease contract effective midnight of August 31, 2000, the very
time their oral lease contract shall expire and they are giving
her a grace period of one (1) month within which to vacate the
premises. Fajardo then remitted to Lopez, et al. a check in the
amount of P30,000 representing payment of the rentals in
arrears for July 2000, August 2000 and September 2000, and
advance rentals for October 2000 up to July 2001 but it was
not accepted by Lopez, et al.
Having no settlement, Lopez, et al. filed a new complaint for
ejectment and damages against Fajardo before the MeTC
wherein it held that Lopez, et al. had sufficiently established
their cause of action arising from the expiration of the lease
contract, the lease being terminable at the end of any month
after due notice, and failure of Fajardo to pay the stipulated
rental which are the grounds for ejectment under Article 1673
of the Civil Code. Such was appealed by Fajardo to the RTC
Manila which affirmed in toto the decision of MeTC.
Fajardo appealed to the Court of Appeals which held that a
minimum of 3-month arrearages is required to justify a lessor
to eject a lessee and held that Fajardo had incurred back
rentals of only 2 months when Lopez, et al. sent her the letter
of demand hence, ―the filing of the ejectment case was
premature.
ISSUE: Whether or not Lopez, et al. has a valid ground for the
ejectment of Fajardo
Ruling: YES. A month-to-month lease under Article 1687 is a
lease with a definite period and expires after the last day of any
given thirty-day period, upon proper demand and notice by the
lessor to vacate.
Under the Rent Control Law, the prohibition against the
ejectment of a lessee by his lessor is not absolute. There are
exceptions expressly provided by law, which include the
expiration of a lease for a definite period. In the instant case, it
was noted that the rentals were paid on a month-to-month
basis. Thus, the lease could be validly terminated at the end of
any given month upon prior notice to that effect on the lessee.
After all, when the rentals are paid monthly, the lease is
deemed to be for a definite period, i.e., it expires at the end of
every month.
When Lopez, et al. then sent the August 18, 2000 letter to
respondent informing her that the lease would be terminated
effective at the end of the same month, it was well within his
rights.
In fine, it was error for the appellate court to ignore the fact that
by the earlier-quoted August 18, 2000 letter of which was
annexed as Annex “F” to the complaint, they had notified
Fajardo of the expiration of the lease contract, another legal
ground for judicial ejectment.
SC: Court of Appeals ruling reversed.
43. Malayan Realty Inc. vs. Uy Han Yong, GR
163763, Nov. 10, 2006
By: Bernardez, Ivy Clarize
Doctrine: Article 1687, Civil Code: The Courts are
given discretion to fix periods for extension or
shortening of a contract of lease, as well as
reasonable value for use thereof.
Facts: Malayan Realty Inc. is the owner of apartment
unit 3013 Interior No. 90, located at Nagtahan Street,
Sampaloc, Manila. In 1958, Malayan entered into a
verbal lease contract with Uy over the property at a
monthly rental of P262.00, which increased yearly
starting 1989, and by 2001 was at P4,671.65. On July
17, 2001, Malayan sent Uy a written notice informing
him that the lease contract would no longer be
renewed or extended upon its expiration on August 31,
2001, and asked him to vacate and turn over the
possession. On July 18, 2001, despite receipt of the
notice, Uy refused to vacate the property. Thus,
Malayan filed for ejectment.
Issue: Whether or not there is a valid ground for
extending the lease (or in the case of the respondent,
shortening it from 5 years as adjudged by the RTC to
1 year only)
Ruling: No. The period wherein respondent held the
property during the pendency of this case is sufficient
extension.
The lease contract is adjudged to be from month to
month since the parties did not agree on a period, and
the rent was paid monthly. In the case at bar, the lease
period was not agreed upon by the parties. Rental was
paid monthly, and respondent has been occupying the
premises since 1958. As respondent was notified in
writing of the expiration of the lease, effectively his
right to stay in the premises had come to an end on
August 31, 2001.
The 2nd paragraph of Article 1687 provides, however,
that in the event that the lessee has occupied the
leased premises for over a year, the courts may fix a
longer term for the lease.
In De Vera v. Court of Appeals, this Court found that
the lessee’s continued possession of the property for
more than five years from the supposed expiration of
the lease sufficed as an extension of the period.
In this case, respondent possessed the property from
the time the complaint for ejectment was filed on
September 18, 2001. Respondent’s lease has been
extended for more than five years, which time is,
under the circumstances, deemed sufficient as an
extension and for him to find another place to stay.
44. Heirs of Jose Lim v. Lim G.R. No. 172690
March 3, 2010
Doctrine: A partnership exists when two or more persons
agree to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there shall
be a proportionate sharing of the profits and losses among
them. The best evidence would have been the contract of
partnership or the articles of partnership.
Facts: Petitioners are the heirs of the late Jose Lim (Jose).
They filed a Complaint for Partition, Accounting and Damages
against respondent Juliet Villa Lim (respondent), widow of the
late Elfledo Lim(Elfledo), who was the eldest son of Jose and
Cresencia. Petitioners alleged that Jose was the liaison officer
of Interwood Sawmill in Cagsiay, Mauban, and Quezon.
Sometime in 1980, Jose, together with his friends Jimmy and
Norberto Uy, formed a partnership to engage in the trucking
business. Initially, with a contribution of P50, 000.00 each, they
purchased a truck to be used in the hauling and transport of
lumber of the saw mill. Jose managed the operations of this
trucking business until his death.
Thereafter, Jose's heirs, including Elfledo, and partners agreed
to continue the business under the management of Elfledo.
The shares in the partnership profits and income that formed
part of the estate of Jose were held in trust by Elfledo, with
petitioners' authority for Elfledo to use, purchase or acquire
properties using said funds. Petitioners alleged that Elfledo
was never a partner or an investor in the business and merely
supervised the purchase of additional trucks using the income
from the trucking business of the partners. When Elfledo died,
he left respondent as his sole surviving heir.
Petitioners claimed that respondent took over the
administration of the aforementioned properties, which
belonged to the estate of Jose, without their consent and
approval. Claiming that they are co-owners of the properties,
petitioners required respondent to submit an accounting of all
income, profits and rentals received from the estate of Elfledo,
and to surrender the administration thereof. Respondent
refused; thus, the filing of this case. Respondent traversed
petitioners' allegations and claimed that Elfledo was himself
a partner of Norberto and Jimmy. Respondent also alleged that
when Jose died in 1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased upon his demise.
Respondent also stressed that Jose left no properties that
Elfledo could have held in trust. Respondent maintained that all
the properties involved in this case were purchased and
acquired through her and her husband‘s joint efforts and hard
work, and without any participation or contribution from
petitioners or from Jose.
Issue: WON a partnership exist, and who between Elfledo and
Jose is the partner.
Ruling: YES. A partnership exists when two or more persons
agree to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there shall
be a proportionate sharing of the profits and losses among
them. A contract of partnership is defined by the Civil Code as
one where two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
The following circumstances tend to prove that Elfledo was
himself the partner of Jimmy and Norberto: 1) Cresencia
testified that Jose gave Elfledo P50,000.00, as share in
the partnership, on a date that coincided with the payment of
the initial capital in the partnership; (2) Elfledo ran the affairs of
the partnership, wielding absolute control, power and authority,
without any intervention or opposition whatsoever from any
of petitioners herein; (3) all of the properties were registered in
the name of Elfledo;(4) Jimmy testified that Elfledo did not
receive wages or salaries from the partnership, indicating that
what he actually received were shares of the profits of the
business; and (5) none of the petitioners, as heirs of Jose, the
alleged partner, demanded periodic accounting from Elfledo
during his lifetime.
As stated in Heirs of Tan Eng Kee case, a demand for periodic
account is evidence of a partnership.
45. Tacao and Belo vs CA, G.R. No. 127405, October 4,
2000
By: Bustamante, Anne Murphy
Doctrine: To be considered a juridical personality, a
partnership must fulfill these requisites: (1) two or more
persons bind themselves to contribute money, property or
industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves. It may be
constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed
thereto. This implies that since a contract of partnership is
consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are
involved, what matters is that the parties have complied with
the requisites of a partnership.
Facts: Fresh from her stint as marketing adviser of Technolux
in Bangkok, Thailand, private respondent Nenita A. Anay met
petitioner William T. Belo, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie Tocao,
who conveyed her desire to enter into a joint venture with her
for the importation and local distribution of kitchen cookwares.
Belo volunteered to finance the joint venture and assigned to
Anay the job of marketing the product considering her
experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin,
U.S.A. Under the joint venture, Belo acted as capitalist, Tocao
as president and general manager, and Anay as head of the
marketing department and later, vice-president for sales. Anay
organized the administrative staff and sales force while Tocao
hired and fired employees, determined commissions and/or
salaries of the employees, and assigned them to different
branches.
The parties agreed that Belo’s name should not appear in any
documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anay’s name in securing
distributorship of cookware from that company. The parties
agreed further that Anay would be entitled to: (1) ten percent
(10%) of the annual net profits of the business; (2) overriding
commission of six percent (6%) of the overall weekly
production; (3) thirty percent (30%) of the sales she would
make; and (4) two percent (2%) for her demonstration
services. The agreement was not reduced to writing on the
strength of Belo’s assurances that he was sincere, dependable
and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products
from the West Bend Company and organized the
administrative staff and the sales force, the cookware business
took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in
Marjorie Tocaos name, with office at 712 Rufino Building, Ayala
Avenue, Makati City. Belo made good his monetary
commitments to Anay.
On October 9, 1987, Anay learned that Marjorie Tocao had
signed a letter addressed to the Cubao sales office to the effect
that she was no longer the vice-president of Geminesse
Enterprise. The following day, she received a note from Lina T.
Cruz, marketing manager, that Marjorie Tocao had barred her
from holding office and conducting demonstrations in both
Makati and Cubao offices. Anay attempted to contact Belo.
She wrote him twice to demand her overriding commission for
the period of January 8, 1988 to February 5, 1988 and the
audit of the company to determine her share in the net profits.
When her letters were not answered, Anay consulted her
lawyer, who, in turn, wrote Belo a letter. Still, that letter was not
answered.
Anay still received her five percent (5%) overriding commission
up to December 1987. The following year, 1988, she did not
receive the same commission.
Nenita A. Anay filed a complaint for sum of money with
damages against Marjorie D. Tocao and William Belo before
the Regional Trial Court of Makati.
In her complaint, Anay prayed that defendants be ordered to
pay her, jointly and severally, the following: (1) P32,00.00 as
unpaid overriding commission from January 8, 1988 to
February 5, 1988; (2) P100,000.00 as moral damages, and (3)
P100,000.00 as exemplary damages. The plaintiff also prayed
for an audit of the finances of Geminesse Enterprise from the
inception of its business operation until she was illegally
dismissed to determine her ten percent (10%) share in the net
profits.
She further prayed that she be paid the five percent (5%)
overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.
In their answer, Marjorie Tocao and Belo asserted that the
alleged agreement with Anay that was neither reduced in
writing, nor ratified, was either unenforceable or void or
inexistent. As far as Belo was concerned, his only role was to
introduce Anay to Marjorie Tocao. There could not have been a
partnership because, as Anay herself admitted, Geminesse
Enterprise was the sole proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of
Geminesse Enterprise for an agreed remuneration, and her
complaint referred to either her compensation or dismissal,
such complaint should have been lodged with the Department
of Labor and not with the regular court.
RTC held there was indeed an oral partnership agreement
between the plaintiff and the defendants, based on the
following: (a) there was an intention to create a partnership; (b)
a common fund was established through contributions
consisting of money and industry, and (c) there was a joint
interest in the profits. The trial court further held that the
payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in
business circles as an impetus to bigger sales volume. It did
not matter that the agreement was not in writing because
Article 1771 of the Civil Code provides that a partnership may
be constituted in any form. The fact that Geminesse Enterprise
was registered in Marjorie Tocaos name is not determinative of
whether or not the business was managed and operated by a
sole proprietor or a partnership. What was registered with the
Bureau of Domestic Trade was merely the business name or
style of Geminesse Enterprise. The trial court finally held that a
partner who is excluded wrongfully from a partnership is an
innocent partner. Hence, the guilty partner must give him his
due upon the dissolution of the partnership as well as damages
or share in the profits realized from the appropriation of the
partnership business and goodwill. An innocent partner thus
possesses pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership
and assets at the time he was wrongfully expelled.
Petitioners’ appeal to the CA was dismissed.
Issue/s: Whether a partnership existed between the petitioners
and private respondent Anay.
Ruling: Yes. The issue of whether or not a partnership exists is
a factual matter which are within the exclusive domain of both
the trial and appellate courts. In this case, both the trial court
and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This
Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must
fulfill these requisites: (1) two or more persons bind themselves
to contribute money, property or industry to a common fund;
and (2) intention on the part of the partners to divide the profits
among themselves. It may be constituted in any form; a public
instrument is necessary only where immovable property or real
rights are contributed thereto. This implies that since a contract
of partnership is consensual, an oral contract of partnership is
as good as a written one. Where no immovable property or real
rights are involved, what matters is that the parties have
complied with the requisites of a partnership. The fact that
there appears to be no record in the Securities and Exchange
Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code did not
cause the nullification of the partnership. The pertinent
provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate
and distinct from that of each of the partners, even in case of
failure to comply with the requirements of article 1772, first
paragraph.
Petitioners admit that private respondent had the expertise to
engage in the business of distributorship of cookware. Private
respondent contributed such expertise to the partnership and
hence, under the law, she was the industrial or managing
partner. It was through her reputation with the West Bend
Company that the partnership was able to open the business
of distributorship of that company’s cookware products; it was
through the same efforts that the business was propelled to
financial success. Petitioner Tocao herself admitted private
respondents indispensable role in putting up the business
when, upon being asked if private respondent held the
positions of marketing manager and vice-president for sales.
By the set-up of the business, third persons were made to
believe that a partnership had indeed been forged between
petitioners and private respondents.
The business venture operated under Geminesse Enterprise
did not result in an employer-employee relationship between
petitioners and private respondent. While it is true that the
receipt of a percentage of net profits constitutes only prima
facie evidence that the recipient is a partner in the business,
the evidence in the case at bar controverts an employer-
employee relationship between the parties. In the first place,
private respondent had a voice in the management of the
affairs of the cookware distributorship, including selection of
people who would constitute the administrative staff and the
sales force. Secondly, petitioner Tocaos admissions militate
against an employer-employee relationship. She admitted that,
like her who owned Geminesse Enterprise, private respondent
received only commissions and transportation and
representation allowances and not a fixed salary.
Undoubtedly, petitioner Tocao unilaterally excluded private
respondent from the partnership to reap for herself and/or for
petitioner Belo financial gains resulting from private
respondents efforts to make the business venture a success.
Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she
would even shout at private respondent in front of other
people. Her instruction to Lina Torda Cruz, marketing manager,
not to allow private respondent to hold office in both the Makati
and Cubao sales offices concretely spoke of her perception
that private respondent was no longer necessary in the
business operation, and resulted in a falling out between the
two. However, a mere falling out or misunderstanding between
partners does not convert the partnership into a sham
organization. The partnership exists until dissolved under the
law. Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at
will predicated on their mutual desire and consent, it may be
dissolved by the will of a partner. Thus:

x x x. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on
the constancy of that mutual resolve, along with each partners
capability to give it, and the absence of cause for dissolution
provided by the law itself. Verily, any one of the partners may,
at his sole pleasure, dictate a dissolution of the partnership at
will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages.
An unjustified dissolution by a partner can subject him to action
for damages because by the mutual agency that arises in a
partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right
to dissolve the partnership.
In this case, petitioner Tocaos unilateral exclusion of private
respondent from the partnership is shown by her memo to the
Cubao office plainly stating that private respondent was, as of
October 9, 1987, no longer the vice-president for sales of
Geminesse Enterprise.[43] By that memo, petitioner Tocao
effected her own withdrawal from the partnership and
considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless,
the partnership was not terminated thereby; it continues until
the winding up of the business.
46. HEIRS OF TAN ENG KEE VS. COURT OF APPEALS,
341 SCRA 740. October 3, 2000
Doctrine: A contract of partnership is defined by law as one
where: x x x two or more persons bind themselves to
contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves. Two or
more persons may also form a partnership for the exercise of a
profession. Thus, in order to constitute a partnership, it must
be established that
(1) two or more persons bound themselves to
contribute money, property, or industry to a common
fund, and
(2) they intend to divide the profits among themselves.
The agreement need not be formally reduced into writing, since
statute allows the oral constitution of a partnership, save in two
instances: (1) when immovable property or real rights are
contributed, and (2) when the partnership has a capital of three
thousand pesos or more. In both cases, a public instrument is
required. An inventory to be signed by the parties and attached
to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to
the partnership.
By: Norhaisah A. Calbe
FACTS:
•After the Second World War, Tan Eng Kee and Tan Eng Lay,
pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and
hardware and construction supplies and named their
enterprise "Benguet Lumber" which they jointly managed
until Tan Eng Kee's death.
•They claimed, however, that in 1981, Tan Eng Lay and his
children caused the conversion of the partnership "Benguet
Lumber" into a corporation called "Benguet Lumber
Company." The incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their rightful
participation in the profits of the business.
•Petitioners prayed for accounting of the partnership assets,
and the dissolution, winding up and liquidation thereof, and
the equal division of the net assets of Benguet Lumber.
•The RTC ruled in favor of the petitioner.
•Tan Eng Lay filed a petition in the CA claiming that
 o there was no partnership between him and his
brother as there was no certificate of partnership,
agreements, or other evidence of the partnership's
existence.
o Tan Eng Kee was merely an employee of Benguet
Lumber as shown in copies of his payroll and SSS, which
states that he was an employee of the same.
•The heirs of Tan Eng Kee then filed a criminal case against
Tan Eng Lay on the ground of fabricating the said evidence
presented as they contradictory. The criminal case was
dismissed for lack of merit.
ISSUE: Whether the two brothers were partners in Benguet
Lumber Co.
RULING: No, Tan Eng Kee was not a partner to Benguet
Lumber was merely an employee of the same. There being no
partnership, there is no dissolution, winding up or liquidation.
Under Article 1767 of the Civil Code, by contract of partnership
two or more persons bind themselves to contribute money,
property, or industry to a common fund with the intention of
diving the profits among themselves.
In the case present, there was no evidence to show that the
brothers had an agreement of sharing profits or any
contribution of money, property and industry. As further stated
in Article 1769 paragraph 4, The receipt by a person of a share
of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.
Tan Eng Kee, in his lifetime never executed any acts which
would indicate that he was a partner.
a.He never demanded for periodic accountings of the
common fund, which would be expected of a real partner;
b.He never received any shares in the profits of Benguet
Lumber, he only received salary as evidenced by the
payroll documents presented by Tan Eng Lay;
c.The Heirs were unable to prove that the brothers
intended to divide the profits of the business between
themselves.
Even if Tan Eng Kee was granted certain privileges not given
to regular employees, (such as being allowed to live with his
family on the grounds of the Lumber Compound, and having
supervisory powers over the regular employees) the Court
found that these privileges were a result of being related to the
owner of the company and not because he was a partner.
Tan Eng Kee never represented himself as a partner to any
third person his actions, when he was alive, taken together
with how his brother treated him, strongly indicate that he was
NOT a partner.
Article 1825 is meant to protect third persons who were misled
by a person acting as a partner even if he really isn’t. Since
Tan Eng Kee never represented himself as a partner, and there
is no evidence or documentation of him being a partner, then
he is not a partner.
48. Cosmic Lumber Corp. vs. CA, GR No. 114311, Nov. 29,
2996
By: Cristobal, Ma. Corazon M.
Doctrine: Where the agent is committing fraud, it would be
contrary to assume or expect that he would communicate the
facts to the principal. When an agent is engaged in the
perpetuation of a fraud upon his principal for his own exclusive
benefit, he is not really acting for the principal but is really
acting for himself, entirely outside the scope of his agency.
FACTS: Cosmic Lumber Corporation through its General
Manager executed a Special Power of Attorney appointing Paz
Estrada (AGENT) as attorney-in-fact to initiate, institute and file
any court action for ejectment of third persons and/or squatters
and vacate the premises in order that the corporation may take
material possession of the lot, and to enter into compromise
agreement so far as it shall protect the rights and interest of
the corporation in the subject lot.
Paz Estrada (AGENT) entered into a Compromise Agreement
with respondent Perez. The contents of the Compromise
Agreement was approved by the trial court and judgment was
rendered in accordance therewith.
Petitioner sought annulment of the decision of the trial
court before the CA in the ground that the compromise
agreement was void because: a) the attorney-in-fact did not
have the authority to dispose of, sell, encumber or divest the
plaintiff of its ownership over its real property or any portion
thereof; b) the authority of the attorney-in-fact was confined to
the institution and filing an ejectment case against third
persons/squatters on the property and cause eviction
therefrom; c) while the special power of attorney made mention
of an authority to enter a compromise agreement, such
authority is in connection and limited to eviction of third
persons, in order that the corporation may take material
possession of the entire lot and d) the private defendant acted
in bad faith in the execution of the said agreement knowing
fully well the want of authority of the attorney-in-fact to sell,
encumber or dispose of the real property of the plaintiff.
ISSUE: Whether the compromise agreement entered into by
an attorney without specific authority from the client is void?
RULING: Yes. Paz Estrada (agent) who signed the
compromise agreement may have been the attorney-in-fact but
she could not legally bind petitioner thereto as she was not
entrusted with a special authority to sell the land, as required in
Art. 1878, Par. (5) of the Civil Code.
It may argued that petitioner knew of the compromise
agreement since the principal is chargeable with and bound by
knowledge of or notice to his agent received while the agent
was acting as such. But the general rule is intended to protect
those who exercise good faith and not as a shield for unfair
dealing. There is established exception that where the conduct
and dealings of the agent are such as to raise a clear
presumption that he will not communicate to the principal the
facts of the controversy. The reason for the said exception is
that where the agent is committing fraud, it would be contrary
to assume or expect that he would communicate the facts to
the principal. When an agent is engaged in the perpetuation of
a fraud upon his principal for his own exclusive benefit, he is
not really acting for the principal but is really acting for himself,
entirely outside the scope of his agency. Indeed, the basic
tenets of agency rest on the highest considerations of justice,
equity and fair play, and an agent will not be permitted to
pervert his authority to his own personal advantage, and his
act in secret hostility to the interests of his principal transcends
the power afforded him.
49. GENEVIEVE LIM v. FLORENCIO SABAN
FACTS: The late Eduardo Ybaez (Ybaez), the owner of a
1,000-square meter lot in Cebu City (the lot), entered into
an Agreement and Authority to Negotiate and Sell (Agency
Agreement) with respondent Florencio Saban (Saban). Under
the Agency Agreement, Ybaez authorized Saban to look for a
buyer of the lot for Two Hundred Thousand Pesos
(P200,000.00) and to mark up the selling price to include the
amounts needed for payment of taxes, transfer of title and
other expenses incident to the sale, as well as Sabans
commission for the sale. Through Sabans efforts, Ybaez and
his wife were able to sell the lot to the petitioner Genevieve Lim
(Lim) and the spouses Benjamin and Lourdes Lim (the
Spouses Lim). The price of the lot as indicated in the Deed of
A b s o l u t e S a l e i s Tw o H u n d r e d T h o u s a n d P e s o s
(P200,000.00).
It appears, however, that the vendees agreed to purchase the
lot at the price of Six Hundred Thousand Pesos (P600,000.00),
inclusive of taxes and other incidental expenses of the sale.
After the sale, Lim remitted to Saban the amounts of One
Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos
(P113,257.00) for payment of taxes due on the transaction as
well as Fifty Thousand Pesos (P50,000.00) as brokers
commission. Lim also issued in the name of Saban four
postdated checks in the aggregate amount of Two Hundred
Thirty Six Thousand Seven Hundred Forty Three Pesos
(P236,743.00).
Subsequently, Ybaez sent a letter dated June 10, 1994
addressed to Lim. In the letter Ybaez asked Lim to cancel all
the checks issued by her in Sabans favor and to extend
another partial payment for the lot in his (Ybaezs) favor. After
the four checks in his favor were dishonored upon
presentment, Saban filed a Complaint for collection of sum of
money and damages against Ybaez and Lim with the Regional
Trial Court (RTC) of Cebu City.
Respondent’s Contention (Saban) - alleged that Ybaez told
Lim that he (Saban) was not entitled to any commission for the
sale since he concealed the actual selling price of the lot from
Ybaez and because he was not a licensed real estate broker.
Ybaez was able to convince Lim to cancel all four checks.
Saban further averred that Ybaez and Lim connived to deprive
him of his sales commission by withholding payment of the first
three checks. He also claimed that Lim failed to make good the
fourth check which was dishonored because the account
against which it was drawn was closed.
Petitioner’s Contention (Lim) - Ybaez claimed that Saban
was not entitled to any commission because he concealed the
actual selling price from him and because he was not a
licensed real estate broker. Lim, for her part, argued that she
was not privy to the agreement between Ybaez and Saban,
and that she issued stop payment orders for the three checks
because Ybaez requested her to pay the purchase price
directly to him, instead of coursing it through Saban. She also
alleged that she agreed with Ybaez that the purchase price of
the lot was only P200,000.00.
ISSUE: Whether Saban is entitled to receive his commission
from the sale based on their Contract of Agency.
RULING: YES. The Court affirms the appellate courts finding
that the agency was not revoked since Ybaez requested that
Lim make stop payment orders for the checks payable to
Saban only after the consummation of the sale on March 10,
1994. At that time, Saban had already performed his obligation
as Ybaezs agent when, through his (Sabans) efforts, Ybaez
executed the Deed of Absolute Sale of the lot with Lim and the
Spouses Lim.
To deprive Saban of his commission subsequent to the sale
which was consummated through his efforts would be a breach
of his contract of agency with Ybaez which expressly states
that Saban would be entitled to any excess in the purchase
price after deducting the P200,000.00 due to Ybaez and the
transfer taxes and other incidental expenses of the sale.
Moreover, the contract of agency very clearly states that Saban
is entitled to the excess of the mark-up of the price of the lot
after deducting Ybaezs share of P200,000.00 and the taxes
and other incidental expenses of the sale.
As regards the issue of Saban’s agency with interest
However, the Court does not agree with the appellate courts
pronouncement that Sabans agency was one coupled with an
interest. Under Article 1927 of the Civil Code, an agency
cannot be revoked if a bilateral contract depends upon it, or if it
is the means of fulfilling an obligation already contracted, or if a
partner is appointed manager of a partnership in the contract of
partnership and his removal from the management is
unjustifiable. Stated differently, an agency is deemed as one
coupled with an interest where it is established for the mutual
benefit of the principal and of the agent, or for the interest of
the principal and of third persons, and it cannot be revoked by
the principal so long as the interest of the agent or of a third
person subsists. In an agency coupled with an interest, the
agents interest must be in the subject matter of the power
conferred and not merely an interest in the exercise of the
power because it entitles him to compensation. When an
agents interest is confined to earning his agreed
compensation, the agency is not one coupled with an interest,
since an agents interest in obtaining his compensation as such
agent is an ordinary incident of the agency relationship.
50. MANILA MEMORIAL PARK CEM. INC. VS LINSANGAN,
GR 15139,NOV 22, 2004
FACTS: Florencia Baluyot offered Atty. Pedro L. Linsangan a
lot called Garden State at the Holy Cross Memorial Park
owned by petitioner (MMPCI). According to Baluyot, a former
owner of a memorial lot was no longer interested in acquiring
the lot and had opted to sell his rights subject to
reimbursement of the amounts he already paid. Linsangan
agreed to buy the lot and issued checks to Baluyot.
Baluyot verbally advised Atty. Linsangan that Contract No.
28660 was cancelled for reasons the latter could not explain,
and presented to him another proposal for the purchase of an
equivalent property. He refused the new proposal and insisted
that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to
their agreement, Atty. Linsangan filed a Complaint for Breach of
Contract and Damages against the former.
MMPCI alleged that Baluyot was not an agent but an
independent contractor, and as such was not authorized to
represent MMPCI or to use its name except as to the extent
expressly stated in the Agency Manager Agreement.
ISSUE: 1. Whether or not there is a contract of agency
between Baluyot and the petitioner. 2. Whether or not the
petitioner is bound by the act of the agent.
HELD: 1. YES, Baluyot was an agent of MMPCI, having
represented the interest of the latter, and having been allowed
by MMPCI to represent it in her dealings with its clients/
prospective buyers. 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. Thus, the elements of agency are (i)
consent, express or implied, of the parties to establish the
relationship; (ii) the object is the execution of a juridical act in
relation to a third person; (iii) the agent acts as a
representative and not for himself; and (iv) the agent acts
within the scope of his authority.
2. NO, the petitioner is not bound by the act of his agent. Thus,
the acts of an agent beyond the scope of his authority do not
bind the principal, unless he ratifies them, expressly or
impliedly. Only the principal can ratify; the agent cannot ratify
his own unauthorized acts. Moreover, the principal must have
knowledge of the acts he is to ratify.
Ratification in agency is the adoption or confirmation by one
person of an act performed on his behalf by another without
authority. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority.
Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating
to the unauthorized act of the person who assumed to act as
agent. Thus, if material facts were suppressed or unknown,
there can be no valid ratification and this regardless of the
purpose or lack thereof in concealing such facts and
regardless of the parties between whom the question of
ratification may arise.
51. Spouses Chua vs. Msgr. Soriano, G.R. No. 150066,
April 13, 2007

By: Ferrer, Marrion Jade

Doctrine: Documents acknowledged before a notary public
have the evidentiary weight with respect to their due execution
and regularity.
Facts: Msgr. Virgilio C. Soriano (Soriano) owned a 1,600
square meter parcel of land located in Barangay Banlat,
Quezon City, covered by Transfer Certificate of Title No.
363471 of the Registry of Deeds, Quezon City. Sometime in
the early months of 1988, Soriano’s first cousin and godson,
Emmanuel C. Celestino, Sr. (Celestino) asked Soriano to lend
him the TCT as a security for a loan to be used in the business
operation of Celestino’s company, Digital Philippines,
Inc. Acceding to Celestino’s request, Soriano executed a
Special Power of Attorney (SPA) authorizing Celestino to
mortgage said property. Then came the June 11, 1988 fire that
gutted a portion of the Quezon City Hall and destroyed in the
process the original copy of TCT on file with the Registry of
Deeds of Quezon City. Soriano executed a SPA authorizing
Celestino and one Carlito Castro to initiate administrative
reconstitution proceedings of TCT No. 363471. Thereafter, a
reconstituted title, TCT No. RT-3611 (363471) PR 1686, was
issued.
During the pendency of the administrative reconstitution
proceedings, Soriano asked Celestino whether there was any
truth to the spreading rumor that he had already sold the
subject property. Celestino denied the rumor but informed
Soriano that the subject property was mortgaged with a foreign
bank. Dissatisfied with Celestino's explanation, Soriano made
inquiries with the Registry of Deeds of Quezon City and
discovered, to his dismay, that the TCT had been canceled by
TCT No. 14514 in the name of spouses Emmanuel and Edna
Chua and spouses Manuel and Maria Chua (Chuas). By virtue
of a SPA dated March 9, 1989 with Soriano's purported
signature, Celestino sold to the Chuas the property in an
Absolute Deed of Sale dated July 4, 1989 for ₱500,000.00.
Claiming that his signature in the SPA is a forgery, Soriano filed
a complaint against Celestino and the Chuas for annulment of
deed of sale and special power of attorney, cancellation of title
and reconveyance with damages. The defense of Celestino is
that he was duly authorized to sell the property while the
Chuas contend that they are purchasers in good faith since
they bought the property from Celestino by virtue of a SPA
which was duly inscribed and annotated on the owner's
duplicate of the TCT and the tax declaration and that they have
duly inspected the property before purchasing it. Soriano died
during the pendency of the trial. He was substituted by his
sister, Florencia Celestino Soriano, also known as Sister Mary
Virgilia Celestino Soriano (Sis. Soriano).
Issue/s: WON based on the SPA, Celestino was duly
authorized to sell the property, thus making the Chuas
purchasers in good faith?
Ruling: YES. Celestino was duly authorized.
When the document under scrutiny is a special power
of attorney that is duly notarized, we know it to be a public
document where the notarial acknowledgment is prima
facie evidence of the fact of its due execution. A purchaser
presented with such a document would have no choice
between knowing and finding out whether a forger lurks
beneath the signature on it. The notarial acknowledgment has
removed the choice from him and replaced it with a
presumption sanctioned by law that the affiant appeared before
the notary public and acknowledged that he executed the
document, understood its import and signed it. In reality, he is
deprived of such choice not because he is incapable of
knowing and finding out but because, under our notarial
system, he has been given the luxury of merely relying on the
presumption of regularity of a duly notarized SPA. And he
cannot be faulted for that because it is precisely that fiction of
regularity which holds together commercial transactions across
borders and time. (Bautista vs. Silva)
An examination of the assailed SPA shows that it is
valid and regular on its face. It contains a notarial seal. A
notarial seal is a mark, image or impression on a document
which would indicate that the notary public has officially signed
it. The long-standing rule is that documents acknowledged
before a notary public have the evidentiary weight with respect
to their due execution and regularity. The assailed SPA is a
notarized document and therefore, presumed to be valid and
duly executed.
Thus, the reliance by the Chuas on the notarial
acknowledgment found in the duly notarized SPA presented by
Celestino is sufficient evidence of good faith. The Chuas need
not prove anything more for it is already the function of the
notarial acknowledgment to establish the appearance of the
parties to the document, its due execution and authenticity.
Moreover, the SPA was accepted by the Register of Deeds. It
was registered with the Registry of Deeds of Quezon City and
inscribed and annotated in the owner's duplicate title, further
bolstering the appearance of due execution and regularity. The
fact that Soriano's purported signature in the SPA dated March
9, 1989 was declared to be a forgery does not alter the Chuas’
status as purchasers in good faith.
52. PATRIMONIO vs. GUTIERREZ, et al., GR 187769, June
4, 2014
By: Ferreras, Marjorie
Doctrine: Article 1868 of the Civil Code defines a contract of
agency as a contract whereby 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."
Facts: The petitioner and the respondent Napoleon Gutierrez
(Gutierrez) entered into a business venture under the name of
Slam Dunk Corporation (Slum Dunk). In the course of their
business, the petitioner pre-signed several checks to answer
for the expenses of Slam Dunk. Although signed, these checks
had no payee’s name, date or amount. The blank checks were
entrusted to Gutierrez with the specific instruction not to fill
them out without previous notification to and approval by the
petitioner. According to petitioner, the arrangement was made
so that he could verify the validity of the payment and make the
proper arrangements to fund the account.
Without the petitioner’s knowledge and consent, Gutierrez
went to Marasigan (the petitioner’s former teammate), to
secure a loan in the amount of ₱200,000.00 on the excuse that
the petitioner needed the money for the construction of his
house, with an interest of 5% per month. Marasigan acceded
to Gutierrez’ request. When Marasigan deposited the check but
it was dishonored for the reason "ACCOUNT CLOSED."
Marasigan sought recovery from Gutierrez, to no avail. He
thereafter sent several demand letters to the petitioner, but his
demands likewise went unheeded. Consequently, he filed a
criminal case for violation of B.P. 22 against the petitioner. RTC
ruled in favor of Marasigan. It found that the petitioner, in
issuing the pre-signed blank checks, had the intention of
issuing a negotiable instrument, albeit with specific instructions
to Gutierrez not to negotiate or issue the check without his
approval. CA affirmed the RTC ruling, although premised on
different factual findings. CA held that Marasigan is not a
holder in due course as he did not receive the check in good
faith.
Issue: WON petitioner should be liable to the contract of loan.
Ruling: No. There is no contract of agency between petitioner
and Gutierrez. Contracts of Agency May be Oral Unless The
Law Requires a Specific Form. 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. As a
general rule, a contract of agency may be oral. However, it
must be written when the law requires a specific form, for
example, in a sale of a piece of land or any interest therein
through an agent.
The Contract of Loan Entered Into by Gutierrez in Behalf of the
Petitioner Should be Nullified for Being Void; Petitioner is Not
Bound by the Contract of Loan. Here, Gutierrez did not have
any authority to borrow money in behalf of the petitioner.
Records do not show that the petitioner executed any special
power of attorney (SPA) in favor of Gutierrez.
54. Sun Life of Canada (Phils) Inc. v. Sandra Tan Kit, et.al,
G.R. No. 183272, October 15, 2004
By: Javier, Elojra Carmiel D.
DOCTRINE: Compensatory interest is defined as penalty or
indemnity for damages imposed by law or by the courts under
the Article 2209 and 2212 of the Civil Code and is due only if
the obligor is proven to have failed to comply with his
obligation.
FACTS: Respondent Tan Kit is the widow and designated
beneficiary of Norberto Tan Kit, whose application for a life
insurance policy with a face value of Php 300,000 was granted
by the Petitioner Sun Life on October 28, 1999. On February
19, 2001, or within the constestability period, Norberto died of
cancer and the respondent filed a claim under the subject
policy.
However the petitioner denied the claim on the account of
Norberto's failure to fully and faithfully disclose in his insurance
application certain material and relevant information about his
health and smoking history as Norberto answered no regarding
smoking for the last 12 months. The petitioner opined that its
liability is limited to the refund of all premiums paid and issued
a check worth Php 13,080.93 representing the premium
refund. Respondent Tan Kit refused to accept the check and
insisted on the payment of the insurance proceeds.
The RTC ruled in favor of the respondent and ordered the
payment of the face value of Php 300,000 however the CA
reversed the said ruling and ordered the reimbursement of the
premium refund worth Php 13,080.93 with an interest of 12%
per annum from the time of the death of the insured until fully
paid.
ISSUE/S: Whether or not the petitioner is liable to pay interest
on the premium to be refunded to the respondents?
RULING: No, the petitioner is not liable to pay compensatory
interest to the respondent Tan Kit. The petitioner did not
unreasonably deny or withhold the insurance proceeds as it
was satisfactorily established that Norberto was guilty of
concealment.
The court defines compensatory interest as penalty or
indemnity for damages imposed by law or by the courts under
the Article 2209 and 2212 of the Civil Code and is due only if
the obligor is proven to have failed to comply with his
obligation. In this case, the CA incorrectly imposed
compensatory interest on the premium refund reckoned from
the time of death of the insured until fully paid. The
respondents were given notice that the subject policy was
rescinded due to concealment and the petitioner tendered the
refund of premium by attaching a check representing the
refund. However, the respondent refused to accept the same
as they were seeking for the release of the proceeds of the
policy.The court finds that the petitioner did not incur delay or
unjustifiably deny the claim hence should not be made liable to
pay compensatory interest.
55. CA AGRO INDUSTRIAL DEVELOPMENT CORP. VS CA,
GR. 90027
By: Marianne Jalotjot
Doctrine: The Contract for the rent of the safety deposit is a
special kind of deposit. It cannot be characterized as an
ordinary contract of lease under Article 1643 because the full
and absolute possession and control of the safety deposit box
was not given to the joint renters.
Facts: Petitioner CA and Spouses Pugao entered into an
agreement whereby the former will purchased from the latter
two (2) parcels of land. Among the terms and conditions of the
agreement embodied in a Memorandum were that the titles to
the lots shall be transferred to the petitioner upon full payment
of the purchase price and that the owner's copies of the
certificates of titles shall be deposited in a safety deposit box of
any bank. The same could be withdrawn only upon the joint
signatures of a representative of the petitioner and the Pugaos
upon full payment of the purchase price.
Petitioner and the Pugaos then rented Safety Deposit Box No.
1448 of private respondent Security Bank and Trust Company.
For this purpose, both signed a contract of lease which
contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and
it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents,
except herein expressly provided, and it assumes absolutely
no liability in connection therewith.
After the execution of the contract, two (2) renter's keys were
given to the renters — one to Aguirre (for the petitioner) and
the other to the Pugaos. A guard key remained in the
possession of the respondent Bank. The safety deposit box
has two (2) keyholes, one for the guard key and the other for
the renter's key, and can be opened only with the use of both
keys. Petitioner claims that the certificates of title were placed
inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from
the petitioner the two (2) lots which will translates to a huge
profit. Mrs. Ramos demanded the execution of a deed of sale
which necessarily entailed the production of the certificates of
title. In view thereof, Aguirre, accompanied by the Pugaos,
then proceeded to the respondent Bank on 4 October 1979 to
open the safety deposit box and get the certificates of title.
However, when opened in the presence of the Bank's
representative, the box yielded no such certificates. Because
of the delay in the reconstitution of the title, Mrs. Ramos
withdrew her earlier offer to purchase the lots; as a
consequence thereof, the petitioner allegedly failed to realize
the expected profit. Hence, the latter filed on 1 September
1980 a complaint for damages against the respondent Bank
with the RTC.
In its Answer with Counterclaim, respondent Bank alleged that
the petitioner has no cause of action because of paragraphs 13
and 14 of the contract of lease corollarily, loss of any of the
items or articles contained in the box could not give rise to an
action against it.
The RTC dismissed the Petition and concluded that under
paragraphs 13 and 14 of the contract of lease, the Bank has no
liability for the loss of the certificates of title. The court declared
that the said provisions are binding on the parties.
CA affirmed the appealed decision principally on the theory
that the contract executed by the petitioner and respondent
Bank is in the nature of a contract of lease by virtue of which
the petitioner and its co-renter were given control over the
safety deposit box and its contents while the Bank retained no
right to open the said box because it had neither the
possession nor control over it and its contents. Also, it
invoked Tolentino vs. Gonzales — which held that the owner
of the property loses his control over the property leased
during the period of the contract .
Petitioner maintains that regardless of nomenclature, the
contract for the rent of the safety deposit box is actually a
contract of deposit. Accordingly, it is claimed that the
respondent Bank is liable for the loss of the certificates of title
pursuant to Article 1972.
Petitioner further argues that conditions 13 and 14 of the
questioned contract are contrary to law and public policy and
should be declared null and void. In support thereof, it cites
Article 1306 of the Civil Code.
Issue: Whether the contract for the rent of the safety deposit
box is an ordinary contract of lease
Ruling: NO.
We agree with the petitioner's contention that the contract for
the rent of the safety deposit box is not an ordinary contract of
lease as defined in Article 1643 of the Civil Code. However, We
do not fully subscribe to its view that the same is a contract of
deposit that is to be strictly governed by the provisions in the
Civil Code on deposit; the contract in the case at bar is a
special kind of deposit. It cannot be characterized as an
ordinary contract of lease under Article 1643 because the full
and absolute possession and control of the safety deposit box
was not given to the joint renters — the petitioner and the
Pugaos. The guard key of the box remained with the
respondent Bank; without this key, neither of the renters could
open the box. On the other hand, the respondent Bank could
not likewise open the box without the renter's key. In this case,
the said key had a duplicate which was made so that both
renters could have access to the box.
We agree with the petitioner that under the latter, the prevailing
rule is that the relation between a bank renting out safe-deposit
boxes and its customer with respect to the contents of the box
is that of a bail or and bailee, the bailment being for hire and
mutual benefit.
Note that the primary function is still found within the
parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this
principal function. A contract of deposit may be entered into
orally or in writing and, pursuant to Article 1306 of the Civil
Code, the parties thereto may establish such stipulations,
clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs,
public order or public policy. The depositary's responsibility for
the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in performing its
obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. In the absence of
any stipulation prescribing the degree of diligence required,
that of a good father of a family is to be observed. Hence, any
stipulation exempting the depositary from any liability arising
from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law and
public policy. Also, said provisions are inconsistent with the
respondent Bank's responsibility as a depositary under Section
72(a) of the General Banking Act.
56.YHT Realty Corp. vs. CA, GR 126780, Feb. 17, 2005
By: Laqui, Xela Leona D.
Doctrine: The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not
liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to 2001
is suppressed or diminished shall be void.
Facts: McLoughlin, used to stay at Sheraton Hotel during his
trips to the Philippines. Tan befriended McLoughlin. Tan
convinced McLoughlin to transfer from Sheraton Hotel to
Tropicana where Lainez, Payam and Danilo Lopez were
employed. Lopez served as manager of the hotel while Lainez
and Payam had custody of the keys for the safety deposit
boxes of Tropicana. Tan took care of McLoughlins booking at
the Tropicana where he started staying during his trips to the
Philippines. McLoughlin arrived from Australia and registered
with Tropicana. He rented a safety deposit box as it was his
practice to rent a safety deposit box every time he registered at
Tropicana in previous trips. McLoughlin was aware of the
procedure observed by Tropicana relative to its safety deposit
boxes. The safety deposit box could only be opened through
the use of two keys.
McLoughlin allegedly placed personal belongings to the safety
deposit box. Before leaving for a brief trip to Hongkong,
McLoughlin opened his safety deposit box with his key and
with the key of the management and took therefrom the
envelope containing US$5,000.00, the envelope containing
AUS$10,000.00, his passports and his credit card. McLoughlin
left the other items in the box as he did not check out of his
room at the Tropicana during his short visit to Hongkong. When
he arrived in Hongkong, he opened the envelope and
discovered upon counting that only US$3,000.00 were
enclosed therein. He thought that it was just a result of bad
accounting since he did not spend anything from that
envelope.
After returning to Manila, he checked out of Tropicana and left
for Australia. When he arrived in Australia, he discovered that
the envelope with US$10,000.00 was short of US$5,000. He
also noticed that the jewelry which he bought in Hongkong and
stored in the safety deposit box upon his return to Tropicana
was likewise missing, except for a diamond bracelet. When
McLoughlin came back to the Philippines, he asked Lainez if
some money and/or jewelry which he had lost were found and
returned to her or to the management. However, Lainez told
him that no one in the hotel found such things and none were
turned over to the management. He again registered at
Tropicana and rented a safety deposit box.
When McLoughlin discovered the loss, he immediately
confronted Lainez and Payam who admitted that Tan opened
the safety deposit box with the key assigned to him. Tan
admitted that she had stolen McLoughlins key and was able to
open the safety deposit box with the assistance of Lopez,
Payam and Lainez. Lopez also told McLoughlin that Tan stole
the key assigned to McLoughlin while the latter was asleep.
McLoughlin requested the management for an investigation of
the incident. Lopez got in touch with Tan and arranged for a
meeting with the police and McLoughlin. When the police did
not arrive, Lopez and Tan went to the room of McLoughlin at
Tropicana and thereat, Lopez wrote on a piece of paper a
promissory note. Lopez requested Tan to sign the promissory
note which the latter did and Lopez also signed as a witness.
Despite the execution of promissory note by Tan, McLoughlin
insisted that it must be the hotel who must assume
responsibility for the loss he suffered.
However, Lopez refused to accept the responsibility relying on
the conditions for renting the safety deposit box entitled
Undertaking For the Use Of Safety Deposit Box, specifically
paragraphs (2) and (4) thereof. McLoughlin went back to
Australia and he consulted his lawyers as to the validity of the
abovementioned stipulations. They opined that the stipulations
are void for being violative of universal hotel practices and
customs. He eventually filed a complaint against against YHT
Realty Corporation, Lopez, Lainez, Payam and Tan. RTC ruled
in favor of McLoughlin. The CA affirmed.
Issue: Whether the Undertaking For The Use of Safety
Deposit Box admittedly executed is null and void?
Ruling: Yes, the Undertaking For The Use of Safety Deposit
Box admittedly executed is null and void. Article 2003 of the
CC provides that The hotel-keeper cannot free himself from
responsibility by posting notices to the effect that he is not
liable for the articles brought by the guest. Any stipulation
between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to 2001
is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an
expression of public policy precisely to apply to situations such
as that presented in this case. The hotel business like the
common carriers business is imbued with public interest.
Catering to the public, hotelkeepers are bound to provide not
only lodging for hotel guests and security to their persons and
belongings. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the public
to be negated or diluted by any contrary stipulation in so-called
undertakings that ordinarily appear in prepared forms imposed
by hotel keepers on guests for their signature.
Paragraphs (2) and (4) of the undertaking manifestly
contravene Article 2003 of the New Civil Code for they allow
Tropicana to be released from liability arising from any loss in
the contents and/or use of the safety deposit box for any cause
whatsoever. Evidently, the undertaking was intended to bar any
claim against Tropicana for any loss of the contents of the
safety deposit box whether or not negligence was incurred by
Tropicana or its employees. The New Civil Code is explicit that
the responsibility of the hotel-keeper shall extend to loss of, or
injury to, the personal property of the guests even if caused by
servants or employees of the keepers of hotels or inns as well
as by strangers, except as it may proceed from any force
majeure. It is the loss through force majeure that may spare
the hotel-keeper from liability. In the case at bar, there is no
showing that the act of the thief or robber was done with the
use of arms or through an irresistible force to qualify the same
as force majeure. In the case at bar, the responsibility of
securing the safety deposit box was shared not only by the
guest himself but also by the management since two keys are
necessary to open the safety deposit box. Without the
assistance of hotel employees, the loss would not have
occurred.
Thus, Tropicana was guilty of concurrent negligence in
allowing Tan, who was not the registered guest, to open the
safety deposit box of McLoughlin, even assuming that the latter
was also guilty of negligence in allowing another person to use
his key. To rule otherwise would result in undermining the
safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person,
under the pretense of being a family member or a visitor of the
guest, to have access to the safety deposit box without fear of
any liability that will attach thereafter in case such person turns
out to be a complete stranger. This will allow the hotel to evade
responsibility for any liability incurred by its employees in
conspiracy with the guests relatives and visitors.
57. Agra vs. PNB, GR 133317, June 29, 1999
By: Lesava, Anna
Doctrine: An action to annul a contract vitiated by intimidation,
violence or undue influence shall be filed within four years from
the cessation of such defects.
Facts: An Action for Collection of a Sum of Money was filed by
the Philippine National Bank (PNB, for brevity) against Fil-
Eastern Wood Industries, Inc. (Fil-Eastern, for short) in its
capacity as principal debtor and against Cayetano Ferreria,
Pedro Atienza, Vicente O. Novales, Antonio R. Agra, and
Napoleon M. Gamo in their capacity as sureties.
Details of the Loan: PNB granted Fil-Easter Php2.5M
loan with interest at 12%/annum. As security, Fil-
Eastern as principal and sureties Ferreria, Atienza,
Novales, Agra, and Gamo executed a Surety
Agreement whereby the sureties, jointly and severally
with the principal, guaranteed and warranted to PNB, its
successors or assigns, prompt payment of subject
obligation including notes, drafts, bills of exchange,
overdrafts and other obligations of every kind, on which
Fil-Eastern was indebted or may thereafter become
indebted to PNB.
Defendants-Sureties filed separate answers stating them same
thing: that they thought the Surety Agreement was a mere
formality and that they did not in any way or manner receive a
single cent from the proceeds of said loan and/or derive any
profit therefrom. Neither did they receive any consideration
valuable or otherwise, from defendant Fil-Eastern. They further
claim that the loan in question was negotiated and approved
under highly irregular, anomalous and suspicious
circumstances to the point that the Surety Agreement executed
thereafter is invalid, null and void and from the beginning due
to a defect in the consent of the defendants and that their
liabilities under the Surety Agreement, if any, has been
extinguished by novation.
RTC: ruled against the Sureties.
CA: affirmed RTC decision, rejecting Sureties’ defense of
laches.
The Sureties claim that they should not be held liable as
they were merely coerced by their employer into signing
the deed.
Issue: WON Petitioners, as sureties, are liable?
Ruling: Yes, Petitioners are liable for they bound themselves
solidarily for the obligation of Fil-Eastern to PNB. Although
petitioners tried to defend themselves by claiming that they
signed the Surety Agreement, but they challenge their liability
thereon on the ground that they were allegedly coerced by
their employer into signing the deed, the same was challenged
beyond the prescriptive period. Article 1391 of the Civil Code
provides that the action to annul a contract vitiated by
intimidation, violence or undue influence shall be filed within
four years from the cessation of such defects. In this case,
Petitioners Agra, Gamo and Novales resigned from Fil-Eastern
in 1967, 1968 and 1969, respectively. It was only in 1976,
when PNB sought to enforce the contract, that they alleged a
defect in their consent. By their inaction, their alleged cause of
action based on vitiated consent had precribed. There was no
question that petitioners, in their capacity as sureties, were
answerable for the obligations of Fil-Eastern to PNB.
58. JN Development Corp. vs. Phil. Export and Foreign
Loan Guarantee Corp., GR 151060, Aug. 31, 2005
By: Luzano, Gabriel Ray L.
Doctrine: That payment was actually made after the term of
the guarantee is not material—what is controlling is that default
and demand on the guarantor had taken place while the
guarantee was still in force.
Facts: JN Development Corporation (“JN”) and Traders Royal
Bank (TRB) entered into an agreement whereby TRB would
extend to JN an Export Packing Credit Line for 2,000,000.00.
The loan was covered by several securities, including a real
estate mortgage and a letter of guarantee from respondent
Philippine Export and Foreign Loan Guarantee Corporation
(“PhilGuarantee). JN failed to pay the loan to TRB upon its
maturity. TRB requested PhilGuarantee to pay its guarantee.
Having received no response from JN, PhilGuarantee paid
TRB 934,824.34. PhilGuarantee made several demands on
JN, but the latter failed to pay. PhilGuarantee filed a Complaint
for collection of money and damages. RTC dismissed but CA
reversed the RTC.
JN claims that the CA erred when it held that petitioners
are liable to PhilGuarantee despite its payment after the
expiration of its contract of guarantee. PhilGuarantee maintains
that the date of default, not the actual date of payment,
determines the liability of the guarantor and that having paid
TRB when the loan became due, it should be indemnified by
petitioners.
Issue: Which view is correct, JN or PhilGuarantee?
Ruling: PhilGuarantee. Under a contract of guarantee, the
guarantor binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so. The
guarantor who pays for a debtor, in turn, must be indemnified
by the latter. However, the guarantor cannot be compelled to
pay the creditor unless the latter has exhausted all the property
of the debtor and resorted to all the legal remedies against the
debtor. This is what is otherwise known as the benefit of
excussion. Excussion may only be invoked after legal
remedies against the principal debtor have been expanded.
Thus, in order that the guarantor may make use of the benefit
of excussion, he must set it up against the creditor upon the
latter’s demand for payment and point out to the creditor
available property of the debtor within the Philippines sufficient
to cover the amount of the debt. While a guarantor enjoys the
benefit of excussion, nothing prevents him from paying the
obligation once demand is made on him. Excussion is a right
granted to him by law and as such he may opt to make use of
it or waive it. PhilGuarantee’s waiver of the right of excussion
cannot prevent it from demanding reimbursement from
petitioners. The law clearly requires the debtor to indemnify the
guarantor what the latter has paid.
The guarantee was only up to 17 December 1980. JN’s
obligation with TRB fell due on 30 June 1980, and demand on
PhilGuarantee was made by TRB on 08 October 1980. That
payment was actually made only on 10 March 1981 does not
take it out of the terms of the guarantee. What is controlling is
that default and demand on PhilGuarantee had taken place
while the guarantee was still in force.
59. Trade Investment Dev. Corp. of the Phil., et. al. vs. Asia
Paces Corp., et. al., GR 187403, February 12, 2014
By: Manguera, Triccie Coleen A.
DOCTRINE: Payment extension granted by the creditor to the
principal debtor without the consent of the guarantor or surety
does not have the effect of extinguishing the bonding
companies’ obligations.
FACTS: Respondents Asia Paces Corporation (ASPAC) and
Paces Industrial Corporation (PICO) entered into a sub-
contracting agreement denominated as "200 KV Transmission
Lines Contract No. 20-/80-II Civil Works & Electrical Erection,"
with the Electrical Projects Company of Libya (ELPCO) for the
construction and erection of a double circuit bundle phase
conductor transmission line in the country of Libya. To finance
its working capital requirements, ASPAC obtained loans from
foreign banks Banque Indosuez and PCI Capital (Hong Kong)
Limited (PCI Capital) which were secured by several Letters of
Guarantee issued by Trade and Investment Development
Corporation of the Philippines (TIDCORP),
then Philippine Export and Foreign Loan Guarantee Corp.
Under the Letters of Guarantee, TIDCORP irrevocably and
unconditionally guaranteed full payment of ASPAC’s loan
obligations to Banque Indosuez and PCI Capital in the event of
default by the latter.
As a condition precedent to the issuance by TIDCORP of the
Letters of Guarantee, ASPAC, PICO, and ASPAC’s President,
Nicolas C. Balderrama (Balderrama) had to execute several
Deeds of Undertaking, binding themselves to jointly and
severally pay TIDCORP for whatever damages or liabilities it
may incur under the aforementioned letters. In the same light,
ASPAC, as principal debtor, entered into surety agreements
(Surety Bonds) with Paramount, Phoenix, Mega Pacific and
Fortune (bonding companies), as sureties, also holding
themselves solidarily liable to TIDCORP, as creditor, for
whatever damages or liabilities the latter may incur under the
Letters of Guarantee.
ASPAC eventually defaulted on its loan obligations to Banque
Indosuez and PCI Capital. Demand letters to the bonding
companies were sent but to no avail. Taking into account the
moratorium request issued by the Minister of Finance of the
Republic of the Philippines, TIDCORP and its various creditor
banks, such as Banque Indosuez and PCI Capital, forged a
Restructuring Agreement extending the maturity dates of the
Letters of Guarantee. The bonding companies were not privy
to the Restructuring Agreement and, hence, did not give their
consent to the payment extensions. Nevertheless, following
new payment schedules, TIDCORP fully settled its obligations.
Seeking payment for the damages and liabilities it had incurred
under the Letters of Guarantee and with its previous demands
therefor left unheeded, TIIDCORP filed a collection case
against: (a) ASPAC, PICO, and Balderrama on account of their
obligations under the deeds of undertaking; and (b) the
bonding companies on account of their obligations under the
Surety Bonds.
RTC: Partially granted TIDCORP’s complaint and thereby
found ASPAC, PICO, and Balderrama jointly and severally
liable to TIDCORP but absolved the bonding companies
from liability on the ground that the moratorium request and the
consequent payment extensions granted by Banque Indosuez
and PCI Capital in TIDCORP’s favor without their consent
extinguished their obligations under the Surety Bonds.
CA: Upheld the ruling of RTC that the moratorium request "had
the effect of an extension granted to a debtor, which extension
was without the consent of the guarantor, and thus released
the surety companies from their respective liabilities under the
issued surety bonds" pursuant to Article 2079 of the Civil Code.
Hence, this appeal filed by TIDCORP.
ISSUE: Whether or not the bonding companies’ liabilities to
TIDCORP under the Surety Bonds have been extinguished by
the payment extensions granted by Banque Indosuez and PCI
Capital to TIDCORP under the Restructuring Agreement.
HELD: NO. A surety is considered in law as being the same
party as the debtor in relation to whatever is adjudged touching
the obligation of the latter, and their liabilities are interwoven as
to be inseparable. Although the contract of a surety is in
essence secondary only to a valid principal obligation, his
liability to the creditor is direct, primary and absolute; he
becomes liable for the debt and duty of another although he
possesses no direct or personal interest over the obligations
nor does he receive any benefit therefrom. The fundamental
reason therefor is that a contract of suretyship effectively binds
the surety as a solidary debtor.
The Court finds that the payment extensions granted by
Banque Indosuez and PCI Capital to TIDCORP under the
Restructuring Agreement did not have the effect of
extinguishing the bonding companies’ obligations to TIDCORP
under the Surety Bonds, notwithstanding the fact that said
extensions were made without their consent. This is because
Article 2079 of the Civil Code refers to a payment extension
granted by the creditor to the principal debtor without the
consent of the guarantor or surety. In this case, the Surety
Bonds are suretyship contracts which secure the debt of
ASPAC, the principal debtor, under the Deeds of Undertaking
to pay TIDCORP, the creditor, the damages and liabilities it
may incur under the Letters of Guarantee, within the bounds of
the bonds’ respective coverage periods and amounts. No
payment extension was, however, granted by TIDCORP in
favor of ASPAC in this regard; hence, Article 2079 of the Civil
Code should not be applied with respect to the bonding
companies’ liabilities to TIDCORP under the Surety Bonds.
The payment extensions granted by Banque Indosuez and PCI
Capital pertain to TIDCORP’s own debt under the Letters of
Guarantee wherein it (TIDCORP) irrevocably and
unconditionally guaranteed full payment of ASPAC’s loan
obligations to the banks in the event of its (ASPAC) default. In
other words, the Letters of Guarantee secured ASPAC’s loan
agreements to the banks. Under this arrangement, TIDCORP
therefore acted as a guarantor, with ASPAC as the principal
debtor, and the banks as creditors.
Proceeding from the foregoing discussion, it is quite clear that
there are two sets of transactions that should be treated
separately and distinctly from one another following the civil
law principle of relativity of contracts "which provides that
contracts can only bind the parties who entered into it, and it
cannot favor or prejudice a third person, even if he is aware of
such contract and has acted with knowledge thereof." Verily, as
the Surety Bonds concern ASPAC’s debt to TIDCORP and not
TIDCORP’s debt to the banks, the payments extensions would
not deprive the bonding companies of their right to pay their
creditor (TIDCORP) and to be immediately subrogated to the
latter’s remedies against the principal debtor (ASPAC) upon
the maturity date. It must be stressed that these payment
extensions did not modify the terms of the Letters of Guarantee
but only provided for a new payment scheme covering
TIDCORP’s liability to the banks. In fine, considering the
inoperability of Article 2079 of the Civil Code in this case, the
bonding companies’ liabilities to TIDCORP under the Surety
Bonds – except those issued by Paramount and covered by its
Compromise Agreement with TIDCORP – have not been
extinguished.
60.) Spouses Paray v. Dra. Rodriguez, G.R. No. 132287,
Jan. 24, 2006.
By. Morales, Carol Ann S.
DOCTRINE: Obviously, since there is no right to redeem
personal property, the rights of ownership vested unto the
purchaser at the foreclosure sale are not entangled in any
suspensive condition that is implicit in a redemptive period.
FACTS: Respondents were the owners, in their respective
personal capacities, of shares of stock in a corporation known
as the Quirino-Leonor-Rodriguez Realty Inc. Sometime during
the years 1979 to 1980, respondents secured by way of pledge
of some of their shares of stock to petitioners Bonifacio and
Faustina Paray (Parays) the payment of certain loan
obligations.
When the Parays attempted to foreclose the pledges on
account of respondents failure to pay their loans, respondents
filed complaints with the Regional Trial Court (RTC) of Cebu
City. RTC, in its decision dated 14 October 1988, dismissed the
complaint and gave due course to the foreclosure and sale at
public auction of the various pledges subject of these two
cases.
Respondents then received Notices of Sale which indicated
that the pledged shares were to be sold at public auction on 4
November 1991.
However, before the scheduled date of auction, all of
respondents caused the consignation with the RTC Clerk of
Court of various amounts. It was claimed that respondents had
attempted to tender these payments to the Parays, but had
been rebuffed. Notwithstanding the consignations, the public
auction took place as scheduled, with petitioner Vidal Espeleta
successfully bidding the amount of P6,200,000.00 for all of the
pledged shares. Respondents instead filed on 13 November
1991 a complaint seeking the declaration of nullity of the
concluded public auction. Respondents argued that their
tender of payment and subsequent consignations served to
extinguish their loan obligations and discharged the pledge
contracts.
ISSUE: Whether or not the consignation extinguished the
principal obligation and therefore invalidating the auction sale.
RULING: NO. The Court of Appeals made three crucial
conclusions favorable to respondents: that their act of
consigning the payments with the RTC should be deemed
done in the exercise of their right of redemption; that the buyer
at public auction does not ipso facto become the owner of the
pledged shares pending the lapse of the one-year redemptive
period; and that the collective sale of the shares of stock
belonging to several individual owners without specification of
the apportionment in the applications of payment deprives the
individual owners of the opportunity to know of the price they
would have to pay for the purpose of exercising the right of
redemption. The proper focus of the Court of Appeals should
have been whether the consignations made by respondents
sufficiently acquitted them of their principal obligations. A
pledge contract is an accessory contract, and is necessarily
discharged if the principal obligation is extinguished.
Indeed, as affirmed by the Civil Code, the decision to proceed
with the sale by public auction remains in the sole discretion of
the Parays, who could very well choose not to hold the sale
without violating the final judgments in the aforementioned civil
cases. The right to redeem property sold as security for the
satisfaction of an unpaid obligation does not exist
preternaturally. Neither is it predicated on proprietary right,
which, after the sale of property on execution, leaves the
judgment debtor and vests in the purchaser. Instead, it is a
bare statutory privilege to be exercised only by the persons
named in the statute. Since the pledged shares in this case are
not subject to redemption, the Court of Appeals had no
business invoking and applying the inexistent right of
redemption. We cannot thus agree that the consigned
payments should be treated with liberality, or somehow
construed as having been made in the exercise of the right of
redemption. We also must reject the appellate courts
declaration that the buyer of at the public auction is not ipso
facto rendered the owner of the auctioned shares, since the
debtor enjoys the one-year redemptive period to redeem the
property. Obviously, since there is no right to redeem personal
property, the rights of ownership vested unto the purchaser at
the foreclosure sale are not entangled in any suspensive
condition that is implicit in a redemptive period.
61. Villanueva v. Salvador, G.R. 139436, Jan. 25, 2006
By: Morales, Edilyn T.
Doctrine: Section 13 of Presidential Decree (P.D.) 114,
otherwise known as the Pawnshop Regulation Act, and even
the terms and conditions of the pledge itself, accord the
pawner a 90-day grace period from the date of maturity of the
loan obligation within which to redeem the pawn.
Facts: Respondent Spouses Salvador secured a loan of
P7,650 from petitioner Ever Pawnshop owned and managed
by co-petitioner Villanueva. The Spouses took out another loan
of P5,400 and pledging, just like the first transaction, jewelry
items. The separate redemption periods came and went but
the spouses failed to redeem the pawned jewelries. Their son
paid Ever Pawnshop P7,000, the amount to be paid against
the first loan of P7,650. On the second loan, the Pawnshop
agreed to the extension of the maturity date provided the
spouses pat 20%of their second loan, failing which the
securing items shall be auctioned as scheduled. Unlike in the
first loan, however, a new pan ticket was not issued for the
second loan. In the meantime, the Pawnshop issued a notice
announcing the public auction sale of all unredeemed pledges.
The notice appeared in the Classified Ads Section of the
Manila Bulletin on the very day of the auction itself.
The spouses repaired to the pawnshop in a bid to renew the
second loan by tendering the 20% of the amount due thereon,
only to be informed that the pledged jewelries had already
been auctioned. CA, however, found that the jewelries were
still in the shop. A month after, Mrs. Salvador attempted to
redeem the jewelries but all she got in response were unclear
information as their whereabouts. Mr. Salvador tendered
payment of the amount but the Pawnshop refused. The
spouses filed a complaint for damages against Villanueva and
Ever Pawnshop which was resolved in their favor. CA affirmed
this decision.
Issue: Whether valid notice of the sale of the pledged jewelry
was effected
Ruling: NO. Section 13 of Presidential Decree (P.D.) 114,
otherwise known as the Pawnshop Regulation Act, and even
the terms and conditions of the pledge itself, accord the
pawner a 90-day grace period from the date of maturity of the
loan obligation within which to redeem the pawn. But even
before the lapse of the 90-day period, the same Decree
requires the pawnbroker to notify the defaulting debtor of the
proposed auction sale. However, over and above the foregoing
prescription is the mandatory requirement for the publication of
such notice once in at least two daily newspapers during the
week preceding the date of the auction sale. Petitioner Ever
Pawnshop, as determined by the CA, only caused publication
of the auction in one newspaper, i.e., the Manila Bulletin, and
on the very day of the scheduled auction sale itself, instead of
a week preceding the sale as prescribed by Section 15 of P.D.
114. Verily, a notice of an auction sale made on the very
scheduled auction day itself defeats the purpose of the notice,
which is to inform a pawner beforehand that a sale is to occur
so that he may have that last chance to redeem his pawned
items.
62. UNION BANK OF THE PHIL. V. JUNIAT ET. AL.
By: Morales, I
DOCTRINE: Article 2096 of the Civil Code, [a] pledge shall not take
effect against third persons if a description of the thing pledged and the
date of the pledge do not appear in a public instrument. Hence, just
like the chattel mortgage executed in favor of petitioner, the pledge
executed by Juniat in favor of Nonwoven cannot bind petitioner.
FACTS: Petitioner filed with RTC Makati a Complaint with prayer for
the issuance of ex-parte writs of preliminary attachment and replevin
against Juniat, Winwood, Wingyan, and the person in possession of
the mortgaged motorized sewing machines and equipment. Petitioner
alleged that Juniat, acting for and in behalf of Winwood and Wingyan,
executed a promissory note dated April 11, 1992 and a Chattel
Mortgage over several motorized sewing machines and other allied
equipment to secure their obligation arising from export bills
transactions to petitioner in the amount of P1,131,134.35; that as
additional security for the obligation, Juniat executed a Continuing
Surety Agreement dated April 11, 1992 in favor of petitioner; that the
loan remains unpaid; and that the mortgaged motorized sewing
machines are insufficient to answer for the obligation.
RTC - issued writs of preliminary attachment and replevin in favor of
petitioner The writs were served by the Sheriff upon Nonwoven as it
was in possession of the motorized sewing machines and equipment.
Nonwoven filed an Answer, contending that the unnotarized Chattel
Mortgage executed in favor of petitioner has no binding effect on
Nonwoven and that it has a better title over the motorized sewing
machines and equipment because these were assigned to it by Juniat
pursuant to their Agreement dated May 9, 1992.
ISSUE: WON a contract of pledge must appear in a public
instrument to bind third parties?
RULING: Yes. It must be pointed out that petitioners primary cause of
action is for a sum of money with prayer for the issuance of ex-parte
writs of attachment and replevin against Juniat, Winwood, Wingyan,
and the person in possession of the motorized sewing machines and
equipment. Thus, the fact that the Chattel Mortgage executed in favor
of petitioner was not notarized does not affect petitioners cause of
action. Petitioner only needed to show that the loan of Juniat, Wingyan
and Winwood remains unpaid and that it is entitled to the issuance of
the writs prayed for. Considering that writs of attachment and replevin
were issued by the RTC, Nonwoven had to prove that it has a better
right of possession or ownership over the attached properties. This it
failed to do. A perusal of the Agreement dated May 9, 1992 clearly
shows that the sewing machines, snap machines and boilers were
pledged to Nonwoven by Juniat to guarantee his obligation. However,
under Article 2096 of the Civil Code, [a] pledge shall not take effect
against third persons if a description of the thing pledged and the date
of the pledge do not appear in a public instrument. Hence, just like the
chattel mortgage executed in favor of petitioner, the pledge executed
by Juniat in favor of Nonwoven cannot bind petitioner. Neither can we
sustain the finding of the CA that: The machineries were ceded to
THIRD PARTY NONWOVEN by way of dacion en pago, a contract
later entered into by WINWOOD/WINGYAN and THIRD PARTY
NONWOVEN. As aptly pointed out by petitioner, no evidence was
presented by Nonwoven to show that the attached properties were
subsequently sold to it by way of a dacion en pago. Also, there is
nothing in the Agreement dated May 9, 1992 to indicate that the
motorized sewing machines, snap machines and boilers were ceded
to Nonwoven as payment for the Wingyans and Winwoods
obligation. It bears stressing that there can be no transfer of ownership
if the delivery of the property to the creditor is by way of security. In
fact, in case of doubt as to whether a transaction is one of pledge
or dacion en pago, the presumption is that it is a pledge as this
involves a lesser transmission of rights and interests.
63. BPI VS. ELIZABETH SARMIENTO
(GR NO. 146021, March 10, 2006)
By: Nitro, Dustin P.
DOCTRINE: If something is received when there is no right to
demand it, and it was unduly delivered through mistake, the
obligation to return it arises.
FACTS: Elizabeth Sarmiento was the assistant manager of
BPI Espana Branch. Sometime in 1987, the España Branch
was investigated for several alleged anomalous transactions
involving time deposits. Among the suspects in the alleged
scam was appellee Sarmiento.
From October 10, 1987 to June 30, 1988, Sarmiento did not
regularly report for work. She however received her full salary.
Sarmiento received a demand from BPI to return said amount
but she refused to do so.
BPI asserted that since Sarmiento did not actually work during
the period adverted to, she was not entitled to receive any
salary.
According to Sarmiento, she was verbally directed to stop
working while the investigation was going on. The RTC
dismissed the complaint. The principle of solutio indebiti upon
which the petitioner based its complaint. CA affirmed the
decision.
ISSUE: WON there is Solutio Indebiti?
HELD: NO. The Supreme Court ruled in favor of Sarmiento.
The two requisites of Solutio Indebiti are present; (1) there is
no right to collect these excess sums; as (2) the amounts have
been paid through mistake by defendants.
During the period in question, there still existed an
employer-employee relationship between the petitioner and
the respondent. The Court likewise agrees with the CA that
respondent could not be faulted for not reporting for work
because she merely complied with the verbal instruction of
AVP Kimseng not to report for work when the latter was
conducting the investigation of the branch for
anomalies.There can be no mistaken payment in this case.
It has been shown that the payment of respondent’s salary
was with the knowledge and approval of respondent’s
immediate superior officers.
64. Capili vs. Spouses Cardaña, GR 157906
By: Quising, Josiah
DOCTRINE:
A negligent act is an inadvertent act; it may be merely
carelessly done from a lack of ordinary prudence and
may be one which creates a situation involving an
unreasonable risk to another because of the expectable
action of the other, a third person, an animal, or a force of
nature. A negligent act is one from which an ordinary
prudent person in the actor's position, in the same or
similar circumstances, would foresee such an appreciable
risk of harm to others as to cause him not to do the act or
to do it in a more careful manner.
FACTS:
A branch of caimito tree fell on Jasmin Cardaña was
walking along San Roque Elementary School causing her
death. Spouses Cardana alleged that Lerios, a resident,
already reported the possible danger of the rotten tree but
petitioner Capili, the school’s principal, denied it and said
that they only talked about the sale of the tree.
RTC denied the petition for failure to establish
negligence. CA reversed.
Capili argues that moral damages should not be granted
against her because there was no fraud or bad faith and
that she didn’t know that the tree was rotting and that he
assigned another teacher to dispose of the tree.. Cardana
argues that she did not exercise reasonable care and
caution which an ordinary prudent person would have
done in the same situation.
ISSUE:
Whether petitioner is negligent and liable for moral
damages for the death of Jasmin Cardaña
HELD:
Yes. Petitioner is negligent. No she is not liable for moral
damages.
A negligent act is an inadvertent act; it may be merely
carelessly done from a lack of ordinary prudence and may be
one which creates a situation involving an unreasonable risk to
another because of the expectable action of the other, a third
person, an animal, or a force of nature. A negligent act is one
from which an ordinary prudent person in the actor's position,
in the same or similar circumstances, would foresee such an
appreciable risk of harm to others as to cause him not to do the
act or to do it in a more careful manner.
The probability that the branches of a dead and rotting tree
could fall and harm someone is clearly a danger that is
foreseeable.
In every tort case filed under Article 2176 of the Civil Code,
plaintiff has to prove by a preponderance of evidence: (1) the
damages suffered by the plaintiff; (2) the fault or negligence of
the defendant or some other person for whose act he must
respond; and (3) the connection of cause and effect between
the fault or negligence and the damages incurred.
The fact, however, that respondents' daughter, Jasmin, died as
a result of the dead and rotting tree within the school's
premises shows that the tree was indeed an obvious danger to
anyone passing by and calls for application of the principle of
res ipsa loquitur.
The doctrine of res ipsa loquitur applies where (1) the accident
was of such character as to warrant an inference that it would
not have happened except for the defendant's negligence; (2)
the accident must have been caused by an agency or
instrumentality within the exclusive management or control of
the person charged with the negligence complained of; and (3)
the accident must not have been due to any voluntary action or
contribution on the part of the person injured.
The effect of the doctrine of res ipsa loquitur is to warrant a
presumption or inference that the mere falling of the branch of
the dead and rotting tree which caused the death of
respondents' daughter was a result of petitioner's negligence,
being in charge of the school.
Capili’s explanation is not enough. The fact that she failed to
see the immediate danger posed by the dead and rotting tree
shows she failed to exercise the responsibility demanded by
her position. She also exercises supervision over the teacher
she assigned to dispose the tree.
However, the person claiming moral damages must prove the
existence of bad faith by clear and convincing evidence for the
law always presumes good faith. It is not enough that one
merely suffered sleepless nights, mental anguish, and serious
anxiety as the result of the actuations of the other party.
Invariably, such action must be shown to have been willfully
done in bad faith or with ill motive. Under the circumstances,
we have to concede that petitioner was not motivated by bad
faith or ill motive vis-á-vis respondents' daughter's death. The
award of moral damages is therefore not proper.
65.Orix Metro Leasing & Finance Corp. vs. Dizon et. al., GR
174089, Jan. 25, 2012
By: Regalado, Mica
FACTS: A multiple-vehicle (3 vehicles) collision in North Luzon
Expressway (NLEX) resulting in the death of all the
passengers in one vehicle, including the parents and a sibling
of the surviving orphaned minor heirs, compelled the latter to
file an action for damages against the registered owners and
drivers of the two 10-wheeler trucks (Fuso and Isuzu) that
collided with their parents’ Nissan Pathfinder (Pathfinder).
The RTC found Sonny (registered owner of Isuzu truck),
Antonio (driver), Loreto (driver) and Orix (registered owner of
Fuso truck) liable for actual, moral, and exemplary damages,
and attorney’s fees. It found recklessness on the part of both
drivers. The CA modified the award of damages (P150k
indemnity, P2M for loss of earning capacity, P64.3k funeral
expenses, P1M moral damages, P1M exemplary damages,
and P400k attorney’s fees).
ISSUE: Whether the award of damages is proper
RULING: Yes, with modification as to their amounts.
The finding of negligence of petitioners as found by the lower
courts is binding. Orix as the operator on record of the Fuso
truck is liable to the heirs of the victims of the mishap.
FUNERAL EXP. With regard to actual damages, one is entitled
to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. (increase funeral
expenses to P107k).
LOSS OF EARNING CAP (TEMPERATE). In addition to
P150,000.00 indemnity for the death of the spouses
Mangalinao and their daughter Marianne as a result of quasi-
delict, actual damages shall likewise include the loss ofthe
earning capacity of the deceased. What the CA awarded is in
actuality a form of temperate damages. Such form of damages
under Article 2224 of the Civil Code is given in the absence of
competent proof on the actual damages suffered.“In the past,
we awarded temperate damages in lieu of actual damages for
loss of earning capacity where earning capacity is plainly
established but no evidence was presented to support the
allegation of the injured party’s actual income.” In this case,
Roberto Mangalinao, the breadwinner of the family, was a
businessman engaged in buying and selling palay and
agricultural supplies that required high capital in its operations
and was only 37 at the time of his death. Moreover, the
Pathfinder which the Mangalinaos own, became a total wreck.
Under the circumstances, we find the award of P500,000.00
as temperate damages as reasonable.
MORAL DAMAGES. Reduce to P500k. ATTORNEY’S FEE.
Reduce to P50k
66. Jarco Marketing Corp. vs. Court of Appeals, GR
129792, Dec. 21, 1999
By: Samantha Reyes
Doctrine: Accident and negligence are intrinsically
contradictory; one cannot exist with the other. Negligence is
the failure to observe, for the protection of the interest of
another person, that degree of care, precaution and vigilance
which the circumstances justly demand, whereby such other
person suffers injury.
Facts: Jarco Marketing Corporation is the owner of Syvels
Department Store, Makati City. Criselda (mother) and Zheineth
(6 year-old daughter) were at the 2nd floor of Syvels. While
Criselda was signing her credit card slip at the payment and
verification counter, she felt a sudden gust of wind and heard a
loud thud. She looked behind her and saw Zhieneth on the
floor pinned by the store’s gift-wrapping counter/structure. She
was rushed to the Makati Medical Center where she died 14
days after.
Issues:
a.Whether the death was accidental or attributable to
negligence; and,
b.In case of negligence, to whom was it attributable?
Ruling:
a.Negligence. An accident pertains to an unforeseen event in
which no fault or negligence attaches to the defendant. It is
 a fortuitous circumstance, event or happening; an event
happening without any human agency, or if happening
wholly or partly through human agency, an event which
under the circumstances is unusual or unexpected by the
person to whom it happens. Accident occurs when the
person concerned is exercising ordinary care, which is not
caused by fault of any person and which could not have
been prevented by any means suggested by common
prudence. On the other hand, negligence is the failure to
observe, for the protection of the interest of another
person, that degree of care, precaution and vigilance which
the circumstances justly demand, whereby such other
person suffers injury. Accident and negligence are
intrinsically contradictory; one cannot exist with the other.
In this case, the store supervisors (witnesses) were
personally informed of the danger posed by the unstable
counter (not nailed to the floor). Yet, neither initiated any
concrete action to remedy the situation nor ensure the
safety of the stores’ employees and patrons as a
reasonable and ordinary prudent man would have done.
Thus, as confronted by the situation petitioners miserably
failed to discharge the due diligence required of a good
father of a family.
a.It was attributable to Jarco. No contributory negligence by:
(1) Criselda – it was reasonable to let go of her daughter
momentarily to sign payment; (2) Zheineth – as there is a
conclusive presumption that favors children below nine (9)
years old that they are incapable of contributory negligence
as a matter of law.
CASTILEX INDUSTRIAL CORPORATION vs. VICENTE
VASQUEZ, JR. and LUISA SO VASQUEZ, and CEBU
DOCTORS' HOSPITAL, INC. G.R. NO. 132266 December 21,
1999.
DOCTRINE: Whether or not engaged in any business or
industry, an employer is liable for the torts committed by
employees within the scope of his assigned tasks. But it is
necessary to establish the employer-employee relationship;
once this is done, the plaintiff must show, to hold the employer
liable, that the employee was acting within the scope of his
assigned task when the tort complained of was committed. It is
only then that the employer may find it necessary to interpose
the defense of due diligence in the selection and supervision of
the employee.
FACTS:
At around 1:30 to 2:00 in the morning, Romeo So Vasquez
(son of respondents Vicente and Luisa Vasquez), was driving a
Honda motorcycle around Fuente Osmeña Rotunda. He was
traveling counter-clockwise, (the normal flow of traffic in a
rotunda) but without any protective helmet or goggles. He was
also only carrying a Student's Permit to Drive at the time.
Benjamin ABAD was a manager of petitioner CASTILEX
Industrial Corporation, registered owner of a Toyota Hi-Lux
Pick-up with plate no. GBW-794. ABAD drove the said
company car out of a parking lot but instead of going around
the Osmeña rotunda he made a short cut against [the] flow of
the traffic in proceeding to his route to General Maxilom St.
In the process, the motorcycle of Vasquez and the pick-up of
ABAD collided with each other causing severe injuries to the
former. ABAD brought Vasquez to CEBU DOCTORS'
HOSPITAL where he died.
A Criminal Case was filed against ABAD but which was
subsequently dismissed for failure to prosecute. An action for
damages was then commenced by respondents against ABAD
and petitioner CASTILEX
 negligent acts of employees, whether
Trial court ruled in favor of private respondents and ordered or not the employer is engaged in a
business or industry, are covered so
ABAD and to pay jointly and solidarily respondents long as they were acting within the
scope of their assigned task, even
Petitioner CASTILEX and ABAD separately appealed the though committed neither in the
decision. service of the branches nor on the
occasion of their functions.
Court of Appeals affirmed the ruling of the trial court holding
ABAD and petitioner CASTILEX liable but held that the liability Whether or not engaged in any business or industry, an
of the latter is "only vicarious and not solidary" with the former. employer is liable for the torts committed by employees within
the scope of his assigned tasks. But it is necessary to establish
Hence, CASTILEX filed the instant petition. the employer-employee relationship; once this is done, the
plaintiff must show, to hold the employer liable, that the
ISSUE/S: employee was acting within the scope of his assigned task
when the tort complained of was committed. It is only then that
a.Whether or not Castilex is vicariously liable with Abad the employer may find it necessary to interpose the defense of
b.Whether or not was performing acts within the range of his due diligence in the selection and supervision of the employee.
employment
2. NO
RULING:
YES There is no absolutely hard and fast rule can be stated which
The phrase “even though the former are not engaged in any will furnish the complete answer to the problem of whether at a
business or industry” found in the 5th paragraph of Article 2180 given moment, an employee is engaged in his employer's
should be interpreted to mean that it is not necessary for the business in the operation of a motor vehicle, so as to fix liability
employer to be engaged in any business or industry to be upon the employer because of the employee's action or
liable for the negligence of his employee who is acting within inaction; but rather, the result varies with each state of facts.
the scope of his assigned task.
In Filamer Christian vs. IAC, the SC held that:
Distinctions between paragraph 4 and 5:
Acts done within the scope of the employee's assigned tasks
Paragraph 4 Paragraph 5 includes "any act done by an employee in furtherance of the
interests of the employer or for the account of the employer at
owners and managers of an employers in general, whether or not the time of the infliction of the injury or damages.”
establishment or enterprise engaged in any business or industry
covers negligent acts of employees encompasses negligent acts of
committed either in the service of the employees acting within the scope of
The mere fact that Abad was using a service vehicle at the
branches or on the occasion of their their assigned task time of the injurious incident is not of itself sufficient to charge
functions petitioner with liability for the negligent operation of said vehicle
expansion of paragraph 4 in both unless it appears that he was operating the vehicle within the
employer coverage and acts included. course or scope of his employment.
 employer is not liable,
Operation of Operation of Use of Employer’s even if the employee is
Employer’s Motor Employer’s Vehicle in Vehicle Outside deemed to be acting
Vehicle in Going to or Going to or From Regular Working within the scope of his
From Meals Work Hours employment, when the
employee is not traveling to and from the employer is not employee has left the
ordinarily acting within place of work is generally liable for the direct route of his work
the scope of his ordinarily a personal employee's negligent or back home and is
employment in the problem or concern of operation of the vehicle pursuing a personal
absence of evidence of the employee, and not a during the period of errand of his own
some special business part of his services to permissive use, even Although the aforementioned principles of American common
benefit to the employer his employer where the employer law are based on the doctrine of respondeat superior, they are
contemplates that a still applicable in this jurisdiction.
regularly assigned
motor vehicle will be
used by the employee Before the collision occurred, Abad had snacks and a chat with
for personal as well as his friends at Goldie’s Restaurant, which is 7 km away from
business purposes and Castilex. Fuente Osmeña is known as a lively place where
there is some incidental prostitutes, pimps and drug addicts littered.
benefit to the employer
evidence that by using in the absence of some
the employer's vehicle special benefit to the At the time of the vehicular accident, Abad was with a woman
to go to and from meals, employer other than the in his car who shouted: “Daddy, Daddy!”.
an employee is enabled mere performance of
to reduce his time-off the services available at Abad was engaged in affairs of his own or was carrying out a
and so devote more the place where he is
time to the performance needed, the employee
personal purpose not in line with his duties at the time he
of his duties supports is not acting within the figured in a vehicular accident. It was then about 2:00 a.m. of
the finding that an scope of his 28 August 1988, way beyond the normal working hours.
employee is acting employment even
within the scope of his though he uses his Hence, Castilex has no duty to show that it exercised the
employment while so employer's motor
driving the vehicle vehicle
diligence of a good father of the family in providing Abad with a
special errand or service vehicle.
roving commission
employee continues in Petition is granted. CA decision and resolution is affirmed with
the service of his modification that Castilex is absolved from liability.
employer until he
actually reaches home
68. Professional Services Inc. vs. Agana, GR No. 126297,
Jan. 31, 2007
By: Sanchez, Precious Loren

Doctrine: Private hospitals, hire, fire and exercise real control

over their attending and visiting ‘consultant’ staff. While
‘consultants’ are not, technically employees, x x x, the control
exercised, the hiring, and the right to terminate consultants all
fulfill the important hallmarks of an employer-employee
relationship, with the exception of the payment of wages. In
assessing whether such a relationship in fact exists, the control
test is determining. Accordingly, on the basis of the foregoing,
we rule that for the purpose of allocating responsibility in
medical negligence cases, an employer-employee relationship
in effect exists between hospitals and their attending and
visiting physicians.
Facts: Enrique Agana and Natividad Agana (now deceased)
filed a complaint for damages against PSI, Dr. Ampil, and Dr.
Fuentes for the injuries suffered by Natividad when Dr. Ampil
and Dr. Fuentes neglected to remove from her body two
gauzes which were used in the surgery they performed on her
at the Medical City General Hospital. PSI was impleaded as
owner, operator and manager of the hospital.
The lower courts held Dr. Ampil liable for negligence and
malpractice because an operation requiring the placing of
sponges in the incision is not complete until the sponges are
properly removed, and it is settled that the leaving of sponges
after the incision has been closed is at least prima facie
negligence by the operating surgeon. And it was Dr. Ampil, in
this case, who closed the incision.
Dr. Fuentes was not held liable by the lower courts since Dr.
Ampil was the lead surgeon and only asked the assistance of
Dr. Fuentes to perform hysterectomy, and it is still Dr. Ampil
who examined the works of Dr. Fuentes.
Issue: Whether or not PSI should be held liable?
Ruling: Yes. In this jurisdiction, the statute governing liability
for negligent acts is Article 2176 of the Civil Code, which reads:
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for
the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule governing
vicarious liability under the doctrine of respondeat superior,
thus: ART. 2180. The obligation imposed by Article 2176 is
demandable not only for one’s own acts or omissions, but also
for those of persons for whom one is responsible. x x x The
owners and managers of an establishment or enterprise are
likewise responsible for damages caused by their employees in
the service of the branches in which the latter are employed or
on the occasion of their functions. 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.
x x x 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.
The nature of the relationship between the hospital and the
physicians is rendered inconsequential in view of our
categorical pronouncement in Ramos v. Court of Appeals that
for purposes of apportioning responsibility in medical
negligence cases, an employer-employee relationship in effect
exists between hospitals and their attending and visiting
physicians. This Court held:
In the first place, hospitals exercise significant control in the
hiring and firing of consultants and in the conduct of their work
within the hospital premises. Doctors who apply for ‘consultant’
slots, visiting or attending, are required to submit proof of
completion of residency, their educational qualifications,
generally, evidence of accreditation by the appropriate board
(diplomate), evidence of fellowship in most cases, and
references. These requirements are carefully scrutinized by
members of the hospital administration or by a review
committee set up by the hospital who either accept or reject
the application.
In other words, private hospitals, hire, fire and exercise real
control over their attending and visiting ‘consultant’ staff. While
‘consultants’ are not, technically employees, x x x, the control
exercised, the hiring, and the right to terminate consultants all
fulfill the important hallmarks of an employer-employee
relationship, with the exception of the payment of wages. In
assessing whether such a relationship in fact exists, the control
test is determining. Accordingly, on the basis of the foregoing,
we rule that for the purpose of allocating responsibility in
medical negligence cases, an employer-employee relationship
in effect exists between hospitals and their attending and
visiting physicians.
69. Mercury Drug vs. Spouses Henry Huang, GR 172122,
June 22, 2007
By: Umangay, Karen Abigail
Doctrine: The employer, to relieve himself from liability under
Art. 2180, should show that it exercised the diligence of a good
father of a family, both in the selection of the employee and in
the supervision of the performance of his duties.
Facts: Mercury Drug is the registered owner of a six-wheeler
truck driven by Rolando del Rosario. Richard and Carmen
Huang are the parents of Stephen Huang and own a red 1991
Toyota Corolla Sedan. The two vehicles figured an accident.
Both were traversing C5 Highway, north bound, coming from
the general direction of Alabang going to Pasig City. The car
was on the left innermost lane while the truck was on the next
lane to its right, when the truck suddenly swerved to its left and
slammed into the front right side of the car.
Del Rosario only had a Traffic Violation Receipt (TVR). His
driver’s license had been confiscated because he had been
previously apprehended for reckless driving.
The car was a total wreck. Stephen Huang is paralyzed for life
from his chest down and requires continuous medical and
rehabilitation treatment.
Respondents fault petitioner Del Rosario for committing gross
negligence and reckless imprudence while driving, and
petitioner Mercury Drug for failing to exercise the diligence of a
good father of a family in the selection and supervision of its
driver.
RTC found Mercury Drug and Del Rosario jointly and severally
liable. CA affirmed.
Issue/s: Whether Mercury Drug is liable?
Ruling: Yes, it failed to discharge its burden of proving that it
exercised due diligence in the selection and supervision of its
employee.
The applicants of Mercury Drug are required to take theoretical
and actual driving tests and psychological examination. Del
Rosario took the driving tests and psychological test when he
applied for the position of Delivery Man not as a Truck Man.
That during the tests, Del Rosario used a Gallant and not a
truck. Further, no tests were conducted on the motor skills
development, perceptual speed, visual attention, depth
visualization, eye and hand coordination and steadiness of
petitioner Del Rosario. No NBI and police clearances were also
presented. Lastly, petitioner Del Rosario attended only three
driving seminars. Mercury Drug does not also provide for a
back-up driver for long trips. At the time of the accident,
petitioner Del Rosario has been out on the road for more than
thirteen hours.
Mercury Drug likewise failed to show that it exercised due
diligence on the supervision and discipline over its employees.
In fact, on the day of the accident, Del Rosario was driving
without a license. He was holding a TVR for reckless driving.
He testified that he reported the incident to his superior, but
nothing was done about it. He was not suspended or
reprimanded.
70. Dr. Filoteo Alana vs. Zenaida Magud-Logmao, G.R.
175540, April 7, 2014
By: Uson, Nichole John O.
Doctrine: In civil cases, it is a basic rule that the party making
allegations has the burden of proving them by a
preponderance of evidence. The parties must rely on the
strength of their own evidence and not upon the weakness of
the defense offered by their opponent.
Facts: Plaintiff-appellee Zenaida Magud-Logmao is the mother
of deceased Arnelito Logmao. Defendant-appellant Dr. Filoteo
Alano is the Executive Director of the National Kidney Institute
(NKI). Arnelito Logmao was brought to the East Avenue
Medical Center (EAMC) in Quezon City by two sidewalk
vendors, who allegedly saw the former fall from the overpass
near the Farmers’ Market in Cubao, Quezon City. The patient’s
data sheet identified the patient as Angelito Lugmoso of Boni
Avenue, Mandaluyong. However, the clinical abstract prepared
by Dr. Cabrera, the surgical resident on-duty at the Emergency
Room of EAMC, stated that the patient is Angelito [Logmao].
Logmao was transferred to NKI. At the NKI, Logmao was
recorded as Angelito Lugmoso. As Lugmoso had no relatives
around, Jennifer B. Misa, Transplant Coordinator, was asked to
locate his family by enlisting police and media assistance. Dr.
Ona, Chairman of the Department of Surgery, observed that
the severity of the brain injury of Lugmoso manifested
symptoms of brain death. He requested the Laboratory Section
to conduct a tissue typing and tissue cross-matching
examination, so that should Lugmoso expire despite the
necessary medical care and management and he would be
found to be a suitable organ donor and his family would
consent to organ donation, the organs thus donated could be
detached and transplanted promptly to any compatible
beneficiary.
Jennifer Misa contacted several radio and television stations to
request for air time for the purpose of locating the family of
Angelito, as well as Police Station No. 5, Eastern Police
District. Certifications were issued by Channel 4, ABS-CBN
and GMA attesting that the request made by the NKI was
accommodated.
Dr. Ona was informed that Lugmoso had been pronounced
brain dead by Dr. Aquino, a neurologist, and by Dr. Rafael, a
neurosurgeon and attending physician of Lugmoso. Dr. Ona
requested Dr. Alano, Executive Director of NKI, to authorize the
removal of specific organs from the body of Lugmoso for
transplantation purposes. Dr. Alano issued to Dr. Ona a
Memorandum stating that Dr. Ona should to make certain that
the Department has exerted all reasonable efforts to locate the
relatives or next of kin of the said deceased patient and if all
the above has been complied with, in accordance with the
provisions of Republic Act No. 349 as amended and P.D. 856,
permission and/or authority is hereby given. A medical team
removed the heart, kidneys, pancreas, liver and spleen of
Lugmoso. They transplanted a kidney and the pancreas of
Lugmoso to Lee Tan Hoc and the other kidney of Lugmoso to
Alexis Ambustan. The transplant operation was completed The
remains of Lugmoso was delivered to La Funeraria Oro in
Quezon City.
Aida Doromal, a cousin of plaintiff, heard the news aired on
television that the donor was an eighteen (18) year old boy
whose remains were at La Funeraria Oro in Quezon City. Upon
receiving the news from Aida, plaintiff and her other children
went to La Funeraria Oro, where they saw Arnelito inside a
cheap casket. Plaintiff filed with the court a quo a complaint for
damages against the medical team composed of Doctors and
Dr. Alano in connection with the death of her son Arnelito.
Issue: Whether or not Dr. Alano is liable for damages?
Ruling: NO, Dr. Alano is not liable for damages.
A careful reading of the above shows that petitioner instructed
his subordinates to "make certain" that "all reasonable efforts"
are exerted to locate the patient's next of kin, even
enumerating ways in which to ensure that notices of the death
of the patient would reach said relatives. It also clearly stated
that permission or authorization to retrieve and remove the
internal organs of the deceased was being given ONLY IF the
provisions of the applicable law had been complied with. Such
instructions reveal that petitioner acted prudently by directing
his subordinates to exhaust all reasonable means of locating
the relatives of the deceased. He could not have made his
directives any clearer. He even specifically mentioned that
permission is only being granted IF the Department of Surgery
has complied with all the requirements of the law. Verily,
petitioner could not have been faulted for having full
confidence in the ability of the doctors in the Department of
Surgery to comprehend the instructions, obeying all his
directives, and acting only in accordance with the requirements
of the law.
Furthermore, as found by the lower courts from the records of
the case, the doctors and personnel of NKI disseminated
notices of the death of respondent's son to the media and
sought the assistance of the appropriate police authorities as
early as March 2, 1988, even before petitioner issued the
Memorandum. Prior to performing the procedure for retrieval of
the deceased's internal organs, the doctors concerned also the
sought the opinion and approval of the Medico-Legal Officer of
the NBI.
Thus, there can be no cavil that petitioner employed
reasonable means to disseminate notifications intended to
reach the relatives of the deceased. The only question that
remains pertains to the sufficiency of time allowed for notices
to reach the relatives of the deceased.
If respondent failed to immediately receive notice of her son's
death because the notices did not properly state the name or
identity of the deceased, fault cannot be laid at petitioner's
door. The trial and appellate courts found that it was the
EAMC, who had the opportunity to ascertain the name of the
deceased, who recorded the wrong information regarding the
deceased's identity to NKI. The NKI could not have obtained
the information about his name from the patient, because as
found by the lower courts, the deceased was already
unconscious by the time he was brought to the NKI.
Ultimately, it is respondent's failure to adduce adequate
evidence that doomed this case. As stated in Otero v. Tan,"[i]n
civil cases, it is a basic rule that the party making allegations
has the burden of proving them by a preponderance of
evidence. The parties must rely on the strength of their own
evidence and not upon the weakness of the defense offered by
their opponent." Here, there is to proof that, indeed, the period
of around 24 hours from the time notices were disseminated,
cannot be considered as reasonable under the circumstances.
They failed to present any expert witness to prove that given
the medical technology and knowledge at that time in the
1980's, the doctors could or should have waited longer before
harvesting the internal organs for transplantation.
Verily, the Court cannot, in conscience, agree with the lower
court. Finding petitioner liable for damages is improper. It
should be emphasized that the internal organs of the deceased
were removed only after he had been declared brain dead;
thus, the emotional pain suffered by respondent due to the
death of her son cannot in any way be attributed to petitioner.
Neither can the Court find evidence on record to show that
respondent's emotional suffering at the sight of the pitiful state
in which she found her son's lifeless body be categorically
attributed to petitioner's conduct.