Anda di halaman 1dari 117

OBLIGATIONS

AND
CONTRACTS
Compilation of Case Digest of
Supreme Courts Decision from
March 2016 to January 2017

Acuyong Alcantara Alvarez Barroso Contreras Cruz Hosaka Lopez


Paras Resurreccion

Ateneo de Manila University


School of Law
TABLE OF CONTENTS

March 2016 Cases


Joey R. Pea vs. Jesus Delos Santos 4
Spouses De Guzman, Jr. Lydia S. De Guzman vs. Court of Appeals 5
Industrial Personnel & Management Services vs. Jose G. De Vera 7
Caltex, Inc., et al. vs. Ma. Flora A. Singzon Aguirre 8

April 2016 Cases


Sps. Florante E. Jonsay, et al. vs. Solidbank Corporation 11
Sps. Primo Inalvez and Juliana Inalvez vs. Bayang Nool, et al 13

June 2016 Cases


Mactan-Cebu International Airport Authority vs. Richard E. Unchuan 17
Interport Resources Corporation vs. Securities Specialist, Inc. 19
Spouses Jaime and Matilde Poon vs. Prime Savings Bank 21
Heirs of Jose Extremadura vs. Manuel Extremadura 23
Vil-Rey Planners and Builders vs. Lexber, Inc. 25
Florita Liam vs. United Coconut Planters Bank 27
Republic of the Philippines vs. Alberto Looyuko 29
Republic of the Philippines vs. Mega Pacific eSolutions Inc. 31
Nympha Odiamar vs. Linda Odiamar Valencia 33
Jennefer Figuera vs. Maria Remedios Ang 34
Trifonia D. Gabutan, et al. vs. Dante D. Nacalaban, et al 37

July 2016 Cases


Century Properties, Inc. vs. Edwin J. Babiano and Emma B. Concepcion 40
Phil-Nippon Kyoei, Corp. vs. Rosalia T. Gudelosao, et al 42

August 2016 Cases


Bonifacio Dana vs. Spouses Gregorio Serrano and Adelaida Reyes 45
Ever Electrical Manufacturing, Inc. vs. Philippine Bank of Communications (PBCOM) 47
Teresita I. Buenaventura vs. Metropolitan Bank and Trust Company 48
Development Bank of the Philippines vs. Clarges Realty Corporation 49
AFP Retirement and Separation Benefits System (AFPRSBS) vs. Eduardo Sanvictores 51
Spouses Juan Chuy Tan and Mary Tan vs. China Banking Corporation 53
Sta. Fe Realty, Inc. and Victoria Sandejas Fabregas vs. Jesus M. Sison 55

September 2016 Cases


Edgardo A. Quilo and Adnaloy Villahermosa vs. Teodula Bajao 58
Doroteo C. Gaerlan vs. Philippine National Bank 59
Philippine Science High School - Cagayan vs. Pirra Construction Enterprises 61
Marphil Export Corporation and Ireneo Lim vs. Allied Banking Corporation 64

1
Rizal Commercial Banking Corporation vs. Teodoro G. Bernardino 65
Philippine Economic Zone Authority vs. Pilhino Sales Corporation 67

October 2016 Cases


Dr. Restituto C. Buenviaje vs. Spouses Jovito R. and Lydia B. Salonga 70
Sergio Osmea III vs. Power Sector Assets and Liabilities Management Corporation 73
Republic of the Philippines and HUDCC vs. Gonzalo Roque Jr. 75
PNB vs. Heirs of Benedicto and Azucena Alonday 77
People of the Philippines vs. Ariel Layag 79
Norma c. Magsano, et al. vs. Pangasinan Savings and Loan Bank, inc., et al 80

November 2016 Cases


Universal International Investment (BVI) Limited vs. Ray Burton Development Corp 83
UCPB General Insurance Company, Inc. Vs. Hughes Electronics Corporation 85
Spouses Domingo v Spouses Tita Manzano 87
Fruehauf Electronics Philippines Corporation v Technology Electronics 89
White Marketing Development Corporation vs. Grandwood Furniture & Woodwork 91
Nestor Cabrera vs. Arnel Clarin 92

December 2016 Cases


Sps. Luisito Pontigon and Leodegaria Sanchez-Pontigon vs. Heirs of Meliton Sanchez 94
Philippine Stock Exchange, Inc. vs. Antonio K. Litonjua and Aurelio K. Litonjua, Jr 97
Pryce Properties Corporation vs. Sps. Sotero Octobre, Jr., et al. 99
B.F. Corporation and Honorio Pineda vs. Form-Eze Systems, Inc. 101

January 2017 Cases


Iloilo Jar Corporation vs. Comglasco Corporation/Aguila Glass 104
Rutcher T. Dagasdas vs. Grand Placement and General Services Corporation 106
Kabisig Real Wealth Dev., Inc. and Fernando C. Tio vs. Young Builders Corp 108
Madag Buisan, et al. vs. Commission of Audit and DPWH 110

Index 112

Contributors 116

2
MARCH 2016
March 2, 2016
Joey R. Pea vs. Jesus Delos Santos and The Heirs of Rosita Delos Santos Flores
G.R. No. 202223

Spouses Virgilio De Guzman, Jr. Lydia S. De Guzman vs. Court of Appeals, Mindanao
Station, Lamberto Bajao, Heir of Spouses Leoncio Bajao and Anastacia Z. Bajao
G.R. No. 185757

March 7, 2016
Industrial Personnel & Management Services, Inc. (IPAMS), et al. vs. Jose G. De Vera
and Alberto B. Arriola
G.R. No. 205703

March 9, 2016
Caltex, Inc., et al. vs. Ma. Flora A. Singzon Aguirre, et al.
G.R. Nos. 170746-47

3
March 2016
Joey R. Pea vs. Jesus Delos Santos and The Heirs of Rosita Delos Santos Flores
G.R. No. 202223
March 2, 2016

Topic: Estoppel

Facts: Jesus Delos Santos (Jesus) and Rosita Delos Santos Flores (Rosita) were the judgment
awardees of the two-thirds portion or 9,915 square meters of four adjoining lots measuring
14,771 sq m, located in Boracay Island, Malay, Aldan. The losing parties in the case, Vicente
Delos Santos, et al. (plaintiffs) and Spouses Fred and Joan Elizalde (appellants), appealed the
foregoing judgment to the CA. Both appeals were dismissed and considered withdrawn in the
CA Resolution dated May 11, 1999 upon the appellants' motion to withdraw appeal. In the
subsequent CA Resolution dated January 31, 2000, the motion for reconsideration and motion to
reinstate appeal filed by the plaintiffs were denied for being time-barred as it was filed nine days
late. The plaintiffs sought recourse with the Court via a petition for review on certiorari. In a
Decision dated February 2, 2007, the Court denied the petition on the ground that the plaintiffs
already lost their right of appeal to the CA when they failed to file an appellant's brief during the
more than 180-day extension. An Entry of Judgment in the case was forthwith issued. The case
was then remanded to the RTC of Kalibo, Aklan for the execution proceedings during which a
Motion for Substitution with a Motion for a Writ of Execution and Demolition dated March 14,
2008 was filed by Pea. Pea averred that he is the transferee of Jesus and Rosita's adjudged
allotments over the subject lots. He claimed that he bought the same from Atty. Romeo Robiso
(Atty. Robiso) who in turn, acquired the properties from Jesus and Rosita through assignment
and sale. The plaintiffs opposed Pea's motion claiming that the conveyance made by Jesus and
Rosita in favor of Atty. Robiso was null and void for being a prohibited transaction because the
latter was their counsel in the case. RTC ruled in favor of Pea while CA reversed it.

Issue: Whether or not Pea has right to the said lands on the ground of estoppel despite the fact
that Atty. Robiso procured the property via a prohibited transaction?

Held: NO. Pea cannot rely on Article 1437 by claiming that Jesus and Rosita are already
estopped from questioning the validity of their deeds of conveyance with Atty. Robiso. Estoppel
is a principle in equity and pursuant to Article 1432 it is adopted insofar as it is not in conflict
with the provisions of the Civil Code and other laws. Otherwise speaking, estoppel cannot
supplant and contravene the provision of law clearly applicable to a case. Conversely, it cannot
give validity to an act that is prohibited by law or one that is against public policy. The rationale
advanced for the prohibition in Article 1491(5) is that public policy disallows the transactions in
view of the fiduciary relationship involved, i.e., the relation of trust and confidence and the
peculiar control exercised by these persons. It is founded on public policy because, by virtue of
his office, an attorney may easily take advantage of the credulity and ignorance of his client and
unduly enrich himself at the expense of his client. The principle of estoppel runs counter to this
policy and to apply it in this case will be tantamount to sanctioning a prohibited and void
transaction.

4
Spouses Virgilio De Guzman, Jr. Lydia S. De Guzman vs. Court of Appeals, Mindanao
Station, Lamberto Bajao, Heir of Spouses Leoncio Bajao and Anastacia Z. Bajao
G.R. No. 185757
March 2, 2016

Topic: Prescription; Trust

Facts: The property subject of this case is a 480-square meter lot that formed part of Lot No. 532
located at North Poblacion, Medina, Misamis Oriental. On May 24, 1969, Spouses Bajao sold
200 square meters of Lot No. 532 to Spouses de Guzman for P1,000.9 On June 18, 1970,
Spouses Bajao sold another 280 square meters of Lot No. 532 to petitioners for P1,400. Both
transactions were evidenced by separate Deeds of Absolute Sale. Spouses Bajao allegedly
promised to segregate the property from the remaining area of Lot No. 532 and to deliver a
separate title to petitioners covering it. However, because the promise was not forthcoming,
petitioner Lydia S. de Guzman executed an Affidavit of Adverse Claim on April 21, 1980
covering the property. This was annotated on the title covering Lot No. 532, Original Certificate
of Title (OCT), on April 25, 1980. On December 16, 1980, respondent caused the cancellation of
petitioner's' annotated adverse claim over the property and later obtained Transfer Certificate of
Title. Petitioners thereafter requested respondent to deliver TCT No. T-7133 so they could
present it to the Register of Deeds, together with the two Deeds of Absolute Sale, for proper
annotation. Respondent, however, refused to heed their request. Thus, on January 21, 2000,
petitioners filed a Complaint for Reconveyance with Writ of Preliminary Mandatory Injunction
and Damages. They alleged that they were innocent purchasers for value who took possession of
the property after the sale and religiously paid its real property taxes. Petitioners also alleged that
respondent was in bad faith since he knew about the sale of the property between them and his
parents, and the existing survey and segregation over the area, yet he fraudulently included the
same in his share upon the issuance of TCT No. T-7133. In his Answer with Defenses and
Counterclaims, respondent argued that the action is time barred and there is no more trust to
speak of. He pointed out that more than 10 years have lapsed from the date of the registration of
the Extrajudicial Settlement on December 10, 1980 and the registration of TCT No. T-7133 on
February and October 1981, to the date of filing of the Complaint. Respondent also countered
that there was no mistake or fraud in including the property in TCT No. T-7133 since his rights
arose from the Extrajudicial Settlement.

Issue: 1) Whether or not Spouses de Guzman are barred by prescription and laches from
instituting the action against Spouses Bajao?
2) Whether or not Spouses de Guzman can avail of the exception to the ten-year rule on
prescription?

Held: 1) YES. Petitioners allege that respondent fraudulently included the property in TCT No.
T-7133, which was issued on February 13 and October 2, 1981. Article 1456 of the Civil Code
provides that a person acquiring property through mistake or fraud becomes, by operation of law,
a trustee of an implied trust for the benefit of the real owner of the property. An action for
reconveyance based on an implied trust generally prescribes in 10 years, the reckoning point of
which is the date of registration of the deed or the date of issuance of the certificate of title over
the property. Thus, petitioners had 10 years from 1981 or until 1991 to file their complaint for

5
reconveyance of property. The Complaint, however, was filed only on January 21, 2000, or more
than 10 years from the issuance of TCT No. T-7133. Hence, the action is already barred by
prescription.

2) NO. The exception to the ten-year rule on prescription is when the plaintiff is in possession of
the land to be reconveyed. In such case, the action becomes one for quieting of title, which is
imprescriptible. Here, petitioners allege that they were in juridical possession of the property
from the time they put up a fence on it until the filing of the Complaint. Respondent disputes this
claim, countering that petitioners are not in actual and material possession of the property.
Whether petitioners have actual possession of the lot is a question of fact. We have repeatedly
ruled that a petition for review on certiorari under Rule 45 of the Rules of Court shall raise only
questions of law and not questions of facts. When supported by substantial evidence, the findings
of fact of the CA are conclusive and binding on the parties and are not reviewable by us, unless
the case falls under any of the recognized exceptions. Petitioners never raised any of these
exceptions. Assuming they did, none of the exceptions would apply. We affirm the CA's finding
that petitioners were not able to establish their actual possession of the lot except by bare
allegations not substantiated by evidence.

6
Industrial Personnel & Management Services, Inc. (IPAMS), et al. vs. Jose G. De Vera and
Alberto B. Arriola G.R.
No. 205703
March 7, 2016

Topic: General Provisions on Contracts

Facts: Arriola was hired by SNC-Lavalin and his overseas employment contract was processed
with the Philippine Overseas Employment Agency (POEA). SNC-Lavalin confirmed Arriola's
assignment in the Ambatovy Project. On June 9, 2008, Arriola started working in Madagascar.
After three months, Arriola received a notice of pre-termination of employment from SNC-
Lavalin. It stated that his employment would be pre-terminated effective September 11, 2009 due
to diminishing workload in the area of his expertise and the unavailability of alternative
assignments. Consequently, on September 15, 2009, Arriola was repatriated. SNC-Lavalin
deposited in Arriola's bank account his pay amounting to CA$2,636.80, based on Canadian labor
law. Aggrieved, Arriola filed a complaint against the petitioners for illegal dismissal and non-
payment of overtime pay, vacation leave and sick leave pay before the Labor Arbiter (LA). He
claimed that SNC-Lavalin still owed him unpaid salaries equivalent to the three-month unexpired
portion of his contract, amounting to, more or less, P1,062,936.00. He asserted that SNC-Lavalin
never offered any valid reason for his early termination and that he was not given sufficient
notice regarding the same. Arriola also insisted that the petitioners must prove the applicability
of Canadian law before the same could be applied to his employment contract.

Issue: Whether or not the foreign law stipulated for the employment contract is contrary to law,
morals, good customs, public order or public policy, thus making the Philippine laws govern?

Held: YES. Granting arguendo that the labor contract expressly stipulated the applicability of
Canadian law, still, Arriola's employment cannot be governed by such foreign law because
Article 1306 of the Civil Code, which states that the stipulations, clauses, terms and conditions in
a contract must not be contrary to law, morals, good customs, public order, or public policy, is
not satisfied. A perusal of the ESA will show that some of its provisions are contrary to the
Constitution and the labor laws of the Philippines. First, the ESA does not require any ground for
the early termination of employment. At its own pleasure, the foreign employer is endowed with
the absolute power to end the employment of an employee even on the most whimsical grounds.
Second, the ESA allows the employer to dispense with the prior notice of termination to an
employee. The employee under the ESA could be immediately dismissed without giving him the
opportunity to explain and defend himself. The provisions of the ESA are patently inconsistent
with the right to security of tenure. Both the Constitution and the Labor Code provide that this
right is available to any employee. In a host of cases, the Court has upheld the employee's right
to security of tenure in the face of oppressive management behavior and management
prerogative. Security of tenure is a right which cannot be denied on mere speculation of any
unclear and nebulous basis. Not only do these provisions collide with the right to security of
tenure, but they also deprive the employee of his constitutional right to due process by denying
him of any notice of termination and the opportunity to be heard. Thus, the Court concurs with
the CA that the ESA is not applicable in this case as it is against our fundamental and statutory
laws.

7
Caltex, Inc., et al. vs. Ma. Flora A. Singzon Aguirre, et al.
G.R. Nos. 170746-47
March 9, 2016

Topic: Prescription

Facts: Dubbed as the Asia's Titanic,1 the M/V Dofia Paz was an inter-island passenger vessel
owned and operated by Sulpicio Lines, Inc. (Sulpicio) traversing its Leyte to Manila route on the
night of December 20, 1987, when it collided with MIT Vector, a commercial tanker owned and
operated by Vector Shipping Corporation, Inc., (Vector Shipping). On that particular voyage,
MIT Vector was chartered by Caltex (Philippines) Inc., et al. 2 (petitioners) to transport
petroleum products. The collision brought forth an inferno at sea with an estimate of about 4,000
casualties, and was described as the "world's worst peace time maritime disaster." The heirs of
the victims of the tragedy (respondents), composed of 1,689 claimants, filed on March 6, 2001 a
civil action for damages for breach of contract of carriage and quasi-delict with the Regional
Trial Court (RTC) of Catbalogan, Samar, Branch 28 (RTC of Catbalogan), against the herein
petitioners, Sulpicio, Vector Shipping, and Steamship Mutual Underwriting Association,
Bermuda Limited (Steamship). The RTC of Catbalogan, motu proprio dismissed the complaint
pursuant to Section 1, Rule 9 of the 1997 Rules of Civil Procedure as the respondents cause of
action had already prescribed. In an unusual turn of events however, the petitioners as defendants
therein, who were not served with summons, filed a motion for reconsideration, alleging that
they are waiving their defense of prescription, among others. On July 2, 2002, the RTC of
Manila issued its Order denying the respondents motion to intervene for lack of merit. The RTC
of Manila ruled that the RTC of Catbalogan had already dismissed the case with finality; that a
final and executory prior judgment is a bar to the filing of the complaint in intervention of the
respondents; and that the waivers of the defense of prescription made by the petitioners, Sulpicio
and Steamship are of no moment.

Issue: Whether or not Caltex have rightly waived their defense of prescription?

Held: NO. The petitioners cannot be permitted to assert their right to waive the defense of
prescription when they had foregone the same through their own omission. The rationale behind
the prescription of actions is to suppress fraudulent and stale claims from springing up at great
distances of time when all the proper vouchers and evidence are lost or the facts have become
obscure from the lapse of time or defective memory or death or removal of witnesses. There is
no dispute that the respondents cause of action against the petitioners has prescribed under the
Civil Code. The respondents brought their claim before a Philippine court only on March 6,
2001, more than 13 years after the collision occurred. Article 1139 of the Civil Code states that
actions prescribed by the mere lapse of time fixed by law. Accordingly, the RTC of Catbalogan
cannot be faulted for the motu proprio dismissal of the complaint filed before it. It is settled that
prescription may be considered by the courts motu proprio if the facts supporting the ground are
apparent from the pleadings or the evidence on record. The peculiarity in this case is that the
petitioners, who were the defendants in the antecedent cases before the RTCs of Catbalogan and
Manila, are most adamant in invoking their waiver of the defense of prescription while the
respondents, to whom the cause of action belong, have acceded to the dismissal of their
complaint. In the instant case, not only once did the petitioners expressly renounce their defense

8
of prescription. Nonetheless, the Court cannot consider such waiver as basis in order to reverse
the rulings of the courts below as the dismissal of the complaint had become final and binding on
both the petitioners and the respondents. Not having been served with summons, the petitioners
were not initially considered as under the jurisdiction of the court. However, the petitioners
voluntarily submitted themselves under the jurisdiction of the RTC of Catbalogan by filing their
motion for reconsideration. Thus, although the order was already final and executory with regard
to the respondents; it was not yet, on the part of the petitioners. Consequently, it was only after
the petitioners failure to appeal or seek any other legal remedy to challenge the subsequent
Order dated September 4, 2001, that the dismissal became final on their part. It was from the date
of the petitioners receipt of this particular order that the reglementary period under the Rules of
Court to assail it commenced to run for the petitioners. But neither the petitioners nor the
respondents resorted to any action to overturn the orders of the RTC of Catbalogan, which
ultimately led to their finality. Since the dismissal of the complaint was already final and
executory, the RTC of Manila can no longer entertain a similar action from the same parties. The
bone of contention is not regarding the petitioners execution of waivers of the defense of
prescription, but the effect of finality of an order or judgment on both parties. The petitioners
offered no other acceptable excuse on why they did not raise their oppositions against the orders
of the RTC of Catbalogan when they had the opportunity to do so. Thus, the only logical
conclusion is that the petitioners abandoned their right to waive the defense of prescription.

9
APRIL 2016
April 6, 2016
Sps. Florante E. Jonsay, et al. vs. Solidbank Corporation
G.R. No. 206459

April 18, 2016


Sps. Primo Inalvez and Juliana Inalvez vs. Bayang Nool, et al.
G.R. No. 188145

10
April 2016
Sps. Florante E. Jonsay, et al. vs. Solidbank Corporation
G.R. No. 206459
April 6, 2016

Topic: Payment or Performance; General Provisions on Contracts

Facts: Momarco, controlled and owned by the Spouses Jonsay, is an importer, manufacturer and
distributor of animal health and feedmill products catering to cattle, hog and poultry producers.
Momarco obtained loans from Solidbank for which the Spouses Jonsay executed a blanket
mortgage over three parcels of land they owned in Calamba City, Laguna. the loans were
consolidated under one promissory note7 for the combined amount of P60,000,000.00, signed by
Florante as President of Momarco, with his wife Luzviminda also signing as co-maker. The
stipulated rate of interest was 18.75% per annum, along with an escalation clause tied to
increases in pertinent Central Bank-declared interest rates, by which Solidbank was eventually
able to unilaterally increase the interest charges up to 3 0% per annum. Claiming business
reverses brought on by the 1997 Asian financial crisis, Momarco tried unsuccessfully to
negotiate a moratorium or suspension in its interest payments. Due to persistent demands by
Solidbank, Momarco made its next, and its last, monthly interest payment in April 1998 in the
amount of Pl,000,000.00. Momarco sought a loan from Landbank of the Philippines to pay off its
aforesaid debt but its application fell through. Solidbank proceeded to extrajudicially foreclose
on the mortgage, and at the auction sale held on March 5, 1999, it submitted the winning bid of
P82,327,249.54, 12 representing Momarco's outstanding loans, interests and penalties.

Issue: 1) Whether or not Solidbank can refuse the Spouses proposal of extinguishing their
obligation via a dacion en pago?
2) Whether or not the escalation clause was valid?

Held: 1) YES. On the question of the petitioners' failed proposal to extinguish their loan
obligations by way of dacion en pago, no bad faith can be imputed to Solidbank for refusing the
offered settlement as to render itself liable for moral and exemplary damages after opting to
extrajudicially foreclose on the mortgage. Dacion en pago is a special mode of payment whereby
the debtor offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding obligation. The undertaking is really one of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for which is to be charged against the debtor's debt.
As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. It is only when the thing offered as an equivalent is accepted by
the creditor that novation takes place, thereby, totally extinguishing the debt.

2) NO. The "unilateral determination and imposition" of increased rates is violative of the
principle of mutuality of contracts ordained in Article 1308 of the Civil Code. One-sided
impositions do not have the force of law between the parties, because such impositions are not
based on the parties' essential equality. Although escalation clauses are valid in maintaining
fiscal stability and retaining the value of money on long-term contracts, giving respondent an
unbridled right to adjust the interest independently and upwardly would completely take away

11
from petitioners the "right to assent to an important modification in their agreement" and would
also negate the element of mutuality in their contracts. The clause cited earlier made the
fulfillment of the contracts "dependent exclusively upon the uncontrolled will" of respondent and
was therefore void.After annulling the foreclosure of mortgage, the RTC reduced the interest
imposable on the petitioners' loans to 12%, the legal interest allowed for a loan or forbearance of
credit, citing Medel v. CA. In effect, the RTC voided not just the unilateral increases in the
monthly interest, but also the contracted interest of 18.75%. The implication is to allow the
petitioners to recover what they may have paid in excess of what was validly due to Solidbank, if
any. Thus, the Court disregarded the unilaterally escalated interest rates and imposed the
mutually stipulated rates, which it applied up to the maturity of the loans. Thereafter, the Court
imposed the legal rate of 12% per annum on the outstanding loans, or 6% per annum legal rate
on the excess of the borrower's payments.

12
Sps. Primo Inalvez and Juliana Inalvez vs. Bayang Nool, et al.
G.R. No. 188145
April 18, 2016

Topic: Trust

Facts: The records showed that the subject property was originally covered by TCT No. 583986
originally registered in the names of Spouses Nicolas and Francisca Nool and Spouses Cornelio
and Bayang, with an area of 15.1441 ha. On May 3, 1965, Spouses Cornelio and Bayang sold a
large portion of their one-half share of the landholding to the petitioners and Maria Zamora
(Zamora). Then, on April 16, 1980, the new set of owners, namely, Spouses Macayanan,
Zamora, Spouses Cornelio and Bayang, and the petitioners executed a Real Estate Mortgage
(REM) over the whole property in favor of Tarlac Development Bank (TDB) to secure a loan of
Pl0,000.00. Unfortunately, the mortgage was foreclosed, and the title to the subject property was
consolidated with TDB, together with the corresponding issuance of TCT No. 188251.13 On
April 17, 1985, TDB sold the parcel of land to the petitioners and Spouses Jim and Liberty
Baluyot (Spouses Baluyot). Hence, TCT No. 188251 was cancelled and TCT No. 1882521 was
issued in the names of the petitioners and Spouses Baluyot. Meanwhile, the respondents
continued possession of the subject lot. On June 16, 2000, the petitioners instituted a complaint
for ejectment, collection of shares and damages, against the respondents alleging that since
Bayang is Juliana's sister, they allowed the respondents to cultivate 2-ha portion of the subject
property with the obligation to share the landowners 25% of the harvest proceeds thereof. The
respondents' cultivation thereof was purportedly conditioned upon the payment to the petitioners
of a rightful share in the produce. Thus, when the respondents failed to fulfil their undertaking,
the petitioners instituted an ejectment complaint against them. For her part, Bayang averred that
she and her late husband were the actual and registered co-owners of the subject property, which
they inherited from her father, together with the petitioners. Bayang denied having sold portions
of their property to the petitioners and Zamora.

Issue: Whether or not the Bayang is a co-owner since she inherited the land from her father and
thus made the petitioners a trustee of the land as co-owners?

Held: YES. Records show that the subject property was originally owned by Juliana and
Bayang's father, Cleto Macayanan under Original Certificate of Title No. 1665. "Pursuant to
Article 1451 of the Civil Code, when land passes by succession to any person and he causes the
legal title to be put in the name of another, a trust is established by implication of law for the
benefit of the true owner." Bayang, being an heir and a co-owner, is thus entitled to the
possession of the subject property. This was confirmed by the issuance of TCT No. 58439 in the
names of Spouses Nicolas and Francisca for one-half share, Spouses Cornelio and Bayang for
one-eighth share, Zamora for one-fourth share, and the petitioners for one-eighth share.
Evidently, a co-ownership existed between the parties prior to the foreclosure and consolidation
of title in favor of TDB and the subsequent re-acquisition thereof by the petitioners. Co-
ownership is a form of trust and every co-owner is a trustee for the others.Before the partition of
a land or thing held in common, no individual or co-owner can claim title to any definite portion
thereof. All that the co-owner has is an ideal or abstract quota proportionate share in the entire
land or thing. Should a co-owner alienate or mortgage the co-owned property itself, the

13
alienation or mortgage shall remain valid but only to the extent of the portion which may be
allotted to him in the division upon the termination of the co-ownership. In case of foreclosure, a
sale would result in the transmission only of whatever rights the seller had over of the thing sold.
Indeed, a co-owner does not lose his part ownership of a co-owned property when his share is
mortgaged by another co-owner without the farmer's knowledge and consent as in the case at bar.
The mortgage of the inherited property is not binding against co-heirs who never benefited. As
correctly emphasized by the CA, the petitioners' right in the subject property is limited only to
their share in the co-owned property. When the subject property was sold to and consolidated in
the name of TDB, the latter merely held the subject property in trust for the respondents. the
rights of the respondents as co-owners of the subject property were never alienated despite
TDB's consolidation of ownership over the subject property.

14
JUNE 2016
June 1, 2016
Mactan-Cebu International Airport Authority vs. Richard E. Unchuan
G.R. No. 182537

June 6, 2016
Interport Resources Corporation vs. Securities Specialist, Inc. and R.C. Lee Securities,
Inc..
G.R. No. 154069

June 13, 2016


Spouses Jaime and Matilde Poon vs. Prime Savings Bank represent by the Philippine
Deposit Insurance Corporation as Statutory Liquidator
G.R. No. 183794

June 15, 2016


Heirs of Jose Extremadura, represented by Elena H. Extremadura vs. Manuel
Extremadura and Marlon Extremadura
G.R. No. 211065

Vil-Rey Planners and Builders vs. Lexber, Inc./Stronghold Insurance Company, Inc. vs.
Lexber, Inc.
G.R. No. 189401

Florita Liam vs. United Coconut Planters Bank


G.R. No. 194664

June 22, 2016


Republic of the Philippines represented by the Department of Agriculture vs. Alberto
Looyuko, doing business under the name and style of Noah's Ark Sugar Holdings and
Wilson T. Go
G.R. No. 170966

June 27, 2016


Republic of the Philippines vs. Mega Pacific eSolutions Inc,
G.R. No. 184666

June 28, 2016


Nympha Odiamar vs. Linda Odiamar Valencia
G.R. No. 213582

15
June 29, 2016
Jennefer Figuera vs. Maria Remedios Ang
G.R. No. 204264

Trifonia D. Gabutan, et al. Vs. Dante D. Nacalaban, et al./Dante D. Nacalaban, et al. Vs.
Trifonia D. Gabutan, et al.
G.R. NOS. 185857-58/G.R. NOS. 194314-15

16
June 2016
Mactan-Cebu International Airport Authority vs. Richard E. Unchuan
G.R. No. 182537
June 1, 2016

Topic: General Provisions on Contracts, Meeting of the Minds

Facts: On March 5, 2004, respondent Richard Unchuanfiled a complaint for Partial Declaration
of Nullity of the Deed of Absolute Sale with Plea for Partition, Damages and Attorney's Fees
before the RTC against MCIAA. In his complaint, Unchuan alleged, among others, that he was
the legal and rightful owner of several lots.

Unchuan further alleged that he came to know that Atanacio Godinez, the supposed attorney-in-
fact of all the registered owners and their heirs, already sold both lots to Civil Aeronautics
Administration (CAA), the predecessor of MCIAA; that the sale covered by the Deed of Absolute
Sale, dated April 3, 1958, was null and void because the registered owners and their heirs did not
authorize Atanacio to sell their undivided shares in the subject lots in favor of CAA; that no
actual consideration was paid to the said registered owners or their heirs, despite promises that
they would be paid; that the deed of absolute sale did not bear the signature of the CAA
representative; that there was no proof that the Secretary of the Department of Public Works and
Highways approved the sale; and that his predecessors-in-interest merely tolerated the possession
by CAA and, later, by MCIAA.

MCIAA moved for the dismissal of the said complaint citing prescription, laches and estoppel as
its grounds. The RTC, however, denied the motion

CA affirmed the RTC decision. The CA explained that Atanacio had no authority to act as an
agent for the other registered owners and their heirs absent the special power of attorney
specifically executed for such purpose. Also, no evidence was adduced to show that the purchase
price for the said lots was paid. For being a void contract, the heirs' deed of partition
acknowledging the purported sale in favor of CAA was found by the CA to have produced no
legal effects and not susceptible of ratification. It was of the view that prescription, estoppel or
laches did not set in because a void contract could be questioned anytime and an action or
defense for the declaration of its inexistence or absolute nullity was imprescriptible. It also noted
that the deed of absolute sale was not signed by the then CAA authorized representative.

Issue: Whether or not the contract was void or not?

Held: It is void.

The Court finds that the sale transaction executed between Atanacio, acting as an agent of his
fellow registered owners, and the CAA was indeed void insofar as the other registered owners
were concerned. They were represented without a written authority from them clearly in
violation of the requirement under Articles 1874 and 1878 of the Civil Code. Without a special

17
power of attorney specifying his authority to dispose of an immovable, Atanacio could not be
legally considered as the representative of the other registered co-owners of the properties in
question. Atanacio's act of conveying the lots cannot be a valid source of obligation to bind all
the other registered co-owners and their heirs because he was not clothed with any authority to
enter into a contract with CAA. The other heirs could not have given their consent as required
under Article 1475 of the New Civil Code because there was no meeting of the minds among the
other registered co-owners who gave no written authority to Atanacio to transact on their behalf.
Therefore, no contract was perfected insofar as the portions or shares of the other registered co-
owners or their heirs were concerned.

The rule is that a void contract produces no effect either against or in favor of anyone and cannot
be ratified. Similarly, laches will not set in against a void transaction, as in this case, where the
agent did not have a special power of attorney to dispose of the lots co-owned by the other
registered owners. In fact, Article 1410 of the Civil Code specifically provides that an action to
declare the inexistence of a void contract does not prescribe.

18
Interport Resources Corporation vs. Securities Specialist, Inc. and R.C. Lee Securities, Inc.
G.R. No. 154069
June 6, 2016

Topic: Extinguishment of Obligations, Novation

Facts: In January 1977, Oceanic Oil & Mineral Resources, Inc. entered into a subscription
agreement with R.C. Lee, a domestic corporation engaged in the trading of stocks and other
securities. Thereupon, R.C. Lee paid 25% of the subscription, leaving 75% unpaid.

On July 28, 1978, Oceanic merged with Interport, with the latter as the surviving corporation.
Under the terms of the merger, each share of Oceanic was exchanged for a share of Interport.

SSI, a domestic corporation registered as a dealer in securities, received in the ordinary course of
business Oceanic Subscription Agreements all outstanding in the name of R.C. Lee, and Oceanic
official receipts showing that 25% of the subscriptions had been paid. The Oceanic subscription
agreements were duly delivered to SSI through stock assignments indorsed in blank by R.C. Lee.

On February 8, 1989, Interport issued a call for the full payment of subscription receivables,
setting March 15, 1989 as the deadline. SSI tendered payment prior to the deadline however,
Interport refused to honor the Oceanic subscriptions. Interport originally rejected the tender of
payment for all unpaid subscriptions on the ground that the Oceanic subscription agreements
should have been previously converted to shares in Interport. However, Interport failed to show
any proof of any notice requiring the conversion of shares and SEC also confirmed having no
record of a board resolution requiring said conversion. Despite that, Interport still rejected SSI's
tender of payment for the 5,000,000 shares.

SSI learned that Interport had issued the 5,000,000 shares to R.C. Lee, relying on the latter's
registration as the owner of the subscription agreements in the books of the former, and on the
affidavit executed by the President of R.C. Lee stating that no transfers or encumbrances of the
shares had ever been made. Thus, on April 27, 1989, SSI wrote R.C. Lee demanding the delivery
of the 5,000,000 Interport shares on the basis of a purported assignment of the subscription
agreements covering the shares made in 1979. R.C. Lee failed to return the subject shares
inasmuch as it had already sold the same to other parties.

SSI commenced this case in the SEC to compel the respondents to deliver the 5,000,000 shares
and to pay damages. It alleged fraud and collusion between Interport and R.C. Lee in rejecting
the tendered payment and the transfer of the shares covered by the subscription agreements.

Issues: Whether or not Interport was liable to deliver to SSI the Oceanic Shares of stock?

19
Held: Yes Interport is liable.

The SEC correctly categorized the assignment of the subscription agreements as a form of
novation by substitution of a new debtor and which required the consent of or notice to the
creditor. We agree. Under the Civil Code, obligations may be modified by: (1) changing their
object or principal conditions; or (2) substituting the person of the debtor; or (3) subrogating a
third person in the rights of the creditor. Novation, which consists in substituting a new debtor in
the place of the original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. In this case, the change of debtor took place
when R.C. Lee assigned the Oceanic shares to SSI so that the latter became obliged to settle the
75% unpaid balance on the subscription.

The SEC likewise did not err in appreciating the fact that Interport was duly notified of the
assignment when SSI tendered its payment for the 75% unpaid balance, and that it could not
anymore refuse to recognize the transfer of the subscription that SSI sufficiently established by
documentary evidence.

Yet, Interport claims that SSI waived its rights over the 5,000,000 shares due to its failure to
register the assignment in the books of Interport; and that SSI was estopped from claiming the
assigned shares, inasmuch as the assignor, R.C. Lee, had already transferred the same to third
parties.

Interport's claim cannot be upheld. It should be stressed that novation extinguished an obligation
between two parties. Clearly, the effect of the assignment of the subscription agreements to SSI
was to extinguish the obligation of R.C. Lee to Oceanic, now Interport, to settle the unpaid
balance on the subscription. As a result of the assignment, Interport was no longer obliged to
accept any payment from R.C. Lee because the latter had ceased to be privy to Subscription
Agreements for having been extinguished insofar as it was concerned. On the other hand,
Interport was legally bound to accept SSI's tender of payment for the 75% balance on the
subscription price because SSI had become the new debtor under Subscription Agreements.

20
Spouses Jaime and Matilde Poon vs. Prime Savings Bank represent by the Philippine
Deposit Insurance Corporation as Statutory Liquidator
G.R. No. 183794
June 13, 2016

Topic: Forfeiture of Contract, Fortuitous and Unforeseen Event, Penal Clause

Facts: Petitioners owned a commercial building in Naga City. On November 3, 2006, Matilde
Poon and Respondent executed a 10-year Contract of Lease over the building for the latters use
as its branch office in Naga City. They agreed to a fixed monthly rental of 60,000 pesos, with
advanced payment of rentals for the first 100 months, in the amount of 6,000,000, to be applied
immediately. Paragraph 24 of the Contract provides that should the leased premises be closed,
deserted, or vacated by lessee, the lessor shall have the right to terminate the lease without
necessity of serving a court order and to immediately repossess the leased premises. The lessor
shall thereupon have the right to enter into a new contract with another party and all advanced
rentals shall be forfeited in favor of the lessor.

Three years later, BSP placed respondent under the receivership of Philippine Deposit Insurance
Corporation. The BSP eventually ordered respondents liquidation. Respondent vacated the
leased premises on May 12, 2000. PDIC then issued petitioners a demand later asking for the
return of the unused advance rentals amounting to 3,480,000 pesos on the ground that the lease
agreement had become inoperative because of respondents closure, which constitutes force
majeure. The petitioners refused the PDICs demand and maintained that they were entitled to
retain the reminder of the advance rentals following Paragraph 24 of their Contract.

Issues:
1. Whether respondent may be released from its contractual obligations on grounds of fortuitous
event under Article 1174 of the Civil Code and unforeseen event under Article 1267 of the Civil
Code?
2. Whether Paragraph 24 in the contract was a penal clause?

Held:
1. The closure of respondents business was neither a fortuitous nor an unforeseen event that
rendered the leased agreement functus officio. Respondent cites the case of Provident Savings
Bank wherein the closure of its business upon BSPs order constituted a fortuitous event.
However, the context of that case is different form the case at bar. The Court ruled in that case
that the Monetary Board had acted arbitrarily and in in bad faith in ordering the closure of
Provident Savings Bank. In this case, there is no indication or allegation that the BSPs action
was tainted with arbitrariness or bad faith. It was made pursuant to R.A. No. 7653. Respondent
was also partly accountable for the closure of its business. The legal effect is analogous to that

21
created by contributory negligence in quasi-delict actions. Therefore, the period during which the
bank cannot do business due to insolvency is not a fortuitous event.

Respondent lessee invokes the doctrine of unforeseen event under Article 1267 of the Civil Code
as an alternative justification for its premature termination of the contract. Article 1267 provides
that when the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in whole or in part. However, Article 1267
cannot be applied in all cases; otherwise, it would endanger the security of contractual relations.
Parties to a contract are presumed to have assumed the risk of unfavorable developments. It is
only in exceptional changes of circumstance that equity demands assistance for the debtor. The
difficulty of the performance should be such that the party seeking to be released from the
contractual obligation would be placed at a disadvantage by the unforeseen event. Mere
inconvenience, unexpected impediments, increased expenses, or even pecuniary inability to fulfil
an engagement, will not relieve the obligor from an undertaking that it has knowingly and freely
contracted. The closure of respondents business was not an unforeseen event. As the lease was
long-term, it was not lost on the parties that such an eventuality might occur.

2. Petitioner claims that paragraph 24 was not intended as a penal clause and that respondent has
not even presented any proof of the intent. It is settled that a provision is a penal clause if it calls
for the forfeiture of any remaining deposit still in the possession of the lessor in the event of the
termination or cancellation of agreement by reason of the lessees violation of any terms and
conditions thereof. This kind of agreement may be validly entered into by the parties. Paragraph
24 is a penal clause in the sense that it provides for liquidated damages when it stipulated the
forfeiture of advance rentals.

22
Heirs of Jose Extremadura, represented by Elena H. Extremadura vs. Manuel
Extremadura and Marlon Extremadura
G.R. No. 211065
June 15, 2016.

Topic: Delivery

Facts: Jose, now deceased filed for quieting of title with recovery of possession, rendition of
accounting, and damages against his brother, Manuel, and his nephew, Marlon, claiming that he
(Jose) purchased three (3) parcels of agricultural land located in Sitio Ponong, Barrio Rizal,
Casiguran, Sorsogon from his aunt, Corazon S. Extremadura (Corazon), the widow of his uncle,
Alfredo H. Extremadura (Alfredo), through a Deed of Absolute Sale dated December 18, 1984.
Since Jose resided in Manila, he placed one parcel in Manuel's care, in exchange for which, the
latter and his son, Marlon, religiously delivered the produce of said land from 1984 until 1995.
Unfortunately, respondents (Manuel and Marlon) continuously refused to deliver the produce of
the land or vacate the same despite his repeated demands; hence the complaint.

Respondents averred that they have been in open, continuous, peaceful, adverse, and
uninterrupted possession of the subject land, where their residential house stands, and in the
concept of owner for almost fifty (50) years; thus, Jose's action was already barred by
prescription or laches. Also, they argued that the deed of absolute sale presented by Jose is not
the legal or beneficial title contemplated by Article 476 of the civil code

RTC held that Jose is owner of the land and has better right to it as proven by deed of absolute
sale, which was notarized in his favor and thus enjoys a presumption of regularity.

CA granted respondents appeal. It held that Jose failed to establish legal and equitable title over
the subject land, observing that the notarized deed of sale executed in Jose's favor did not
transfer the land's ownership to him given that he was never placed in possession and control
thereof. Moreover, having found that the subject land was not in the possession of the alleged
vendor, Corazon, the C A debunked Jose's claim that he is a buyer in good faith, charging him of
failing to probe the rights of the actual possessors of the land and to clarify the true nature of the
latter's possession before purchasing the same.

Issue: Whether or not CA was right in dismissing the case?

Held: The CA was mistaken. Article 1477 of the Civil Code recognizes that the "ownership of
the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof."
Related to this article is Article 1497 of the same Code which provides that "[t]he thing sold shall
be understood as delivered, when it is placed in the control and possession of the vendee."

23
Article 1498 of the Civil Code lays down the general rule that the execution of a public
instrument "shall be equivalent to the delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot clearly be inferred." However, the
execution of a public instrument gives rise only to a prima facie presumption of delivery, which
is negated by the failure of the vendee to take actual possession of the land sold. A person who
does not have actual possession of the thing sold cannot transfer constructive possession by the
execution and delivery of a public instrument.

In this case, the prima facie presumption of constructive delivery to Jose was not successfully
negated by proof that the subject land was not actually placed in the latter's control and
possession. Primarily, it should be stressed that "[possession is acquired by the material
occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of our
will, or by the proper acts and legal formalities established for acquiring such right." Jose
exercised possession of the subject land through Manuel (and eventually, his son, Marlon) whom
he allowed to stay and care for the land in exchange for the delivery of the produce thereof.
Possession may be exercised in the name of another according to article 524 of the Civil Code.

24
Vil-Rey Planners and Builders Vs. Lexber, Inc. Stronghold Insurance Company, Inc. Vs.
Lexber, Inc.
G.R. No. 189401
June 15, 2016

Topic: General Provisions on Obligations, Reciprocal obligations

Facts: Vil-Rey and Lexber entered into several Construction Contracts whereby the former
undertook to work on the compacted backfill of the latters property in Cabanatuan City. Two of
its contracts, 1st and 3rd, were secured by security bonds issued by Stronghold. Vil-Rey agreed to
indemnify stronghold for whatever the latter might be adjuged to pay Lexber. It is important to
note that under the first contract, Vil-Rey shall complete the project in 60 days for a
consideration of P5,100,000 and that Lexber released to Vil-Rey a mobilization downpayment of
P500,000 secured by Surety Bond issued by stronghold. Under the third contract a consideration
of P1,168,728.37 shall be paid on the following basis: 50% downpayment to be secured by a
surety bond in the same amount issued by Stronghold upon approval of the work order and 50%
balance upon completion of the works.

Vil-Rey requested the extension of the contract period. Lexber granted the request for extension.
However, Vil-Rey failed to complete the works by the end of the extended period, or even after
Lexber gave it another five days to finish the works. Lexber then wrote Stronghold seeking to
collect on the two surety bonds issued in favor of the former. Vil-Rey denied that it was guilty of
breach of contract and insisted that it was Lexber that owed the amount of P1,960,558.40 to the
former. Vil-Rey alleged that under the first contract, it was able to finish 75.33% of the works,
but that Lexber paid an amount equivalent to only 50% of the contract, thereby leaving a balance
of PI,291,830 in Vil-Rey's favor. Furthermore, considering that almost 100% of the works were
finished under the third contract, Vil-Rey had receivables of P668/728.40 representing the
contract amount of P1,168,728.37 less the downpayment of P500,000. It also prayed for the
payment of moral damages and attorney's fees.

RTC ruled that they were liable. CA also ruled that they were liable but lowered the amount
rewarded.

Issue: Whether or not Villa-Rey violated the contract?

Held: Yes they did. The parties clearly took on reciprocal obligations. These are obligations that
arise from the same cause, such that the obligation of one is dependent upon that of the other.

The reciprocal obligation in this case was Lexber's payment of the 50% balance upon Vil-Rey's
completion of the works on or before 15 January 1997. However, despite the grant of extension
until 31 January 1997, and even after the lapse of another five-day grace period, Vil-Rey failed
to finish the works under the third contract. The law, according to civil code article 1167,
provides that the obligation of a person who fails to fulfill it shall be executed at that person's
cost.

25
Note that, under the third contract, Vil-Rey shall acquire a surety bond from Stronghold
equivalent to 50% of the contract price of P1,168,728.37 upon Lexber's downpayment of the
same amount. Accordingly, on 24 December 1996, Vil-Rey secured the second surety bond in
the amount of P584,364.19. On the same day, Lexber made a downpayment of only P500,000.
Lexber did not pay the full 50% of the contract price for downpayment. Under article 1169 of
the Civil Code provides that in reciprocal obligations, delay by one of the parties begins from the
moment the other fulfills the obligation. In this case, Lexber is guilty of delay with regard to the
amount of P84,364.19, which should be paid. The parties shall be allowed to compensate the
amounts due them to the extent of their respective obligations.

26
Florita Liam vs. United Coconut Planters Bank
G.R. No. 194664
June 15, 2016
Topic: Interpretation of Contracts

Facts: On April 11, 1996, Liam entered into a contract to sell with Primetown Property Group,
Inc. (PPGI) for the purchase of a condominium unit of the latters Makati Prime City
condominium project. The parties stipulated that the unit will be delivered not later than 35
months from the date of actual construction. PPGI obtained a loan from UCPB to finance the
construction and thereafter transferred to UCPB its right to collect all receivables form
condominium buyers, executed under a Memorandum of Agreement. PPGI notified Liam of the
sale of its receivables to UCPB and directed her to remit any remaining balance to UCPB. PPGI
further stated that the payment arrangement shall in no way cause any amendment nor the
cancellation of the Contract to Sell. Liam wrote UCPB asking for the deferment of her
amortization payments until the time of the delivery of the unit, which was delayed. Her requests
were left unanswered. Thus, Liam demanded for the refund of all payments she made for PPGIs
failure to deliver the unit on the stipulated date. UCPB proposed a financing package to Liam for
the full settlement of the balance of the purchase price. However, Liam saw UCPBs
advertisement offering to the public the sale of ready for occupancy units in Palm Tower of
MPC condominium project at a much lower price. Liam requested UCPB to suspend the
restructuring of her loan and instead asked for downgrading of her purchased unit to another unit
equivalent in value to the total payments she already made. However, her requests remained
unheeded. Liam filed a complaint for specific performance.

PPGI denied receiving any demand from Liam and averred that she is already estopped from
making any claims against PPGI because she agreed to the substitution of PPGI by UCPB.
UCPB averred that it had no legal obligation to deliver the unit to Liam because it is not the
developer of the project and is only a mere creditor of PPGI. It maintained that it only acquired
PPGIs right to collect its receivables from Liam and other condominium buyers. UCPB
contends that the newspaper advertisement pertained to the units it acquired from PPGI as
payment from the latters loan and did not have any connection with the contract to sell between
Liam and PPGI.

Issue: Whether or not the transaction between UCPB and PPGI was an assignment of credit?

Held: The transaction between UCPB and PPGI was an assignment of credit and not
subrogation. An assignment of credit is an agreement by virtue of which the owner of credit, by a
legal cause, and without the consent of the debtor, transfers his credit and accessory rights to
another who acquires the power to enforce it to the same extent as the assignor could enforce it
against the debtor. It may at times be in the form of dation in payment, such as when a debtor, in

27
order to obtain a release form his debt, assigns to his creditor a credit he has against a third
person. The crucial distinction between assignment and subrogation deals with the necessity of
the consent of the debtor in the original transaction. In assignment of credit, mere notice of the
assignment and not consent is required. Meanwhile, in subrogation, agreement among the three
parties concerned the original creditor, the debtor, and the new creditor is required. It is a
new contractual relations based on the mutual agreement among all necessary parties. The terms
of the MOA and Deed of Assignment show that the parties intended an assignment of PPGIs
credit in favor of UCPB.

Article 1370 of the Civil Code provides that the primary consideration in determining the true
nature of a contract is the intention of the parties. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of tis stipulation shall
control. The provisions of the agreement between PPGI and UCPB are clear, explicit and
unambiguous as to leave no doubt about their objective of executing an assignment of credit
instead of subrogation. Therefore, UCPB should not be held liable for the obligation and
liabilities of PPGI under its contract to sell with Liam, considering that the bank is a mere
assignee of the rights and receivables under the agreement it executed with PPGI.

28
Republic of the Philippines represented by the Department of Agriculture vs. Alberto
Looyuko, doing business under the name and style of Noah's Ark Sugar Holdings and
Wilson T. Go
G.R. No. 170966
June 22, 2016

Topic Under: Compensation (under extinguishment of obligation)

Facts: Due to the sugar crisis in 1985, President Ramos authorized the emergency importation of
100,000 metric tons of raw sugar from Thailand and Guatemala. National Sugar Refineries
Corporation (Nasurefco) was tasked by the government through Department of Agriculture to
handle the importation. Noahs Ark Holding, along with two other refineries, were given
allocations to process and refine raw sugar. Nasurefco contracted the services of Maubeni to
source the raw sugar and deliver it to said refineries with the stipulation that in case of non-
delivery, short-delivery or loss of raw sugar, the latter would be liable therefor. Noahs Ark,
represented by Wilson Go, executed a Refining Contract with Nasurefco. The delivery of Noahs
Arks allocation of raw sugar was never completed. Petitioner adduced evidence to the effect that
there was a discrepancy between the registered weight at the port at the weighing scale at Noahs
Ark prompting Marubeni to suspend delivery. Nasurefco notified Noahs Ark to recalibrate its
weighing scale, which was done on December 1995. The recalibration was questioned by Noahs
Ark. Marubeni resumed delivery on January 1996 but respondents refused to accept the raw
sugar. Petitioner demands delivery of the refined sugar withheld by respondents or payment of
the peso value thereof plus damages. Respondents, on the other hand, take exception to any
blame for the delay in the calibration of the weighing scale. They contend that it only took one
day to recalibrate the same and petitioner had no justification to delay the delivery of the raw
sugar. Respondents refused the delivery because of the inferior quality of the raw sugar due to
the undue delay in delivery. Respondent demanded payment for damages

Issue: Whether or not petitioner and respondents are entitled to actual or compensatory
damages?

Held: Petitioner obviously incurred delay in the performance of its obligation under the Refining
Contract when it failed to complete its delivery of raw sugar to respondents in time for the
scheduled withdrawal by petitioner of the refined sugar. It must be emphasized that it was
petitioner who gave respondents a timetable within which the processed sugar was to be
withdrawn, which was to start around the first week of December 1995. Evidently, petitioner
should have completed its delivery of raw sugar to respondents before this date. The records of
this case clearly show, however, that the delivery of raw sugar to respondents ended on February
14, 1996 without petitioner having delivered the entire sugar allocations due respondents under
the Refining Contract.

29
Both parties failed to present any persuasive proof that they are entitled to actual or
compensatory damages. Their claims remain unsubstantiated and unproven. It is a fundamental
principle of the law on damages that, while one injured by a breach of contract shall be awarded
fair and just compensation commensurate with the loss sustained as a consequence of the
defendants acts or omission, a party is entitled only to such compensation for the pecuniary loss
that he has duly proven. Actual damages cannot be presumed and cannot be based on flimsy,
remote, speculative and non-substantial proof. Neither petitioner nor respondent is thus entitled
to actual or compensatory damages in this case. It is significant to note that the Refining Contract
between petitioner and respondent did not state the amount of the contract which may be a basis
for an award of actual damages.

Considering the incomes to have been lost in the case at bar (80,000,000 pesos for petitioner and
52,000,000 for respondents), the Court deems the amount of 4,000,000 as temperate damages for
each party reasonable under the circumstance. Article 1283 of the Civil Code provides that if one
of the parties to a suit over an obligation has a claim for damages against the other, the former
may set it off by proving his right to said damages and the amount thereof.

30
Republic of the Philippines vs. Mega Pacific eSolutions Inc.
G.R. No. 184666
June 27, 2016

Topic: Void Contracts; Fraud

Facts: The COMELEC attempted to implement the automated election system for the 2004
elections. Respondent MPEI formed a joint venture with We Solv, SK C & C, ePLDT,
Election.com, and Oracle known as the Mega Pacific Consortium (MPC). MPEI, on behalf of
MPC, submitted its bid proposal for the procurement of supplies, equipment, and services for the
automated election to COMELEC. After assessment and evaluation, the Bids and Awards
Committee (BAC) recommended that the project be awarded to MPC, which the COMELEC
favorably acted upon. Despite the award to MPC, COMELEC and MPEI executed the
Automated Counting and Canvassing Project Contract where MPEI agreed to supply such
equipment and materials necessary for the automated elections. The automation contract was not
fully implemented because the Court, in its 2004 decision, declared the contract null and void.
The Court held that the COMELEC committed grave abuse of discretion when it awarded the
project to MPC, who did not participate in the bidding, and entered into the actual contract with
MPEI, a company who joined the bidding process but did not meet the eligibility requirements.
The Court also said that the essence of public bidding is violated when the COMELEC required
the accuracy requirement of 99.9994 percent, an unrealistic specification that could not be met.
Such scheme, which discourages the entry of bona fide bidders, is a sure indication of fraud in
the bidding designed to eliminate fair competition. It was categorically ruled by the Court that
the whole bidding process was void and fraudulent.
Respondent MPEI filed a complaint for damages before the RTC Makati, claiming that
COMELEC was still bound to pay the amount corresponding to the ACMs it delivered but
remains unpaid notwithstanding the nullification of the automation contract. Petitioner argued
that the unpaid balance from the void contract could no longer be recovered since the payments
made were illegal disbursements of public funds. It contended that a null and void contract vests
no rights and creates no obligations, and thus produces no legal effects at all. Petitioner prayed
for the issuance of a writ of preliminary attachment to cause the attachment of the properties
owned by MPEI in order to secure the petitioners interest and to ensure recovery of the
payments it made to respondents for the invalidated automation contract.

Issue: Whether or not the petitioner has sufficiently established fraud on the part of respondents
to justify the issuance of a writ of preliminary attachment in its favor?

Held: A writ of preliminary attachment should issue in favor of petitioner over the properties of
respondents. Fraud on the part of Respondents has been established. The provisional remedy of
attachment is available in order that the defendant may not dispose of the property attached, and
thus prevent the satisfaction of any judgment that may be secured by the plaintiff from the
former. Section 1 (d), Rule 57 of the Rules of Court provides attachment may issue there is fraud
in contracting the debt or in the performance thereof. The fraud must relate to the execution of
the agreement and must have been the reason which induced the other party into giving consent
which he would not have otherwise given. In the case at bar, the petitioner has sufficiently
discharged the burden of demonstrating the commission of fraud by respondent in the execution

31
of automation contract in two ways: (a) respondent MPEI had perpetrated a scheme against
petitioner to secure the automation contract by using MPC as supposed bidder and eventually
succeeding in signing the automation contract as MPEI alone, and entity which was ineligible to
bid in the first place and; (b) fraud on the part of respondent MPEI was further shown by the fact
that despite the failure of its ACMs to past the tests conducted by the DOSY, respondent still
acceded to being awarded the automation contract. These circumstances reveal respondents ploy
to gain undue advantage over other bidders in general, even to the extent of cheating the
government.

32
Nympha Odiamar vs Linda Odiamar Valencia
G.R. No. 213582
June 28, 2016

Topic: Extinguishment of Contracts; Novation

Facts: On August 20, 2003, respondent filed a complaint for sum of money and damages against
petitioner, alleging that the latter owed her P2,100,000.00. Petitioner purportedly issued a Check
for the said amount to guarantee the payment of the debt, but upon presentment, the same was
dishonored.

For her part, petitioner sought the dismissal of the complaint on the ground that it was her
deceased parents who owed respondent money. Accordingly, respondent's claim should be filed
in the proceedings for the settlement of their estates. Petitioner averred that respondent had, in
fact, participated in the settlement proceedings and had issued a certification stating that it was
petitioner's deceased parents who were indebted to respondent for P2,000,000.00.

Respondent countered that petitioner personally borrowed almost half of the P2,100,000.00
from her, as evidenced by the check which she issued after agreeing to settle the same in
installments. While respondent conceded that petitioner made several installment payments from
December 29, 2000 until May 31, 2003, she pointed out that the latter failed to make any
succeeding payments. She also denied participating in settlement proceedings and making said
certification.

RTC and CA ruled that petitioner was liable in view of her admission that she borrowed money
from the respondent several times. RTC even ruled that a novation took place in view of her
assuming the liability of her deceased parents and agreeing to pay their debt in installments -
which she in fact paid from December 29, 2000 to May 31, 2003. CA concurred with the RTC
that novation took place insofar as petitioner was substituted in place of petitioner's late parents,
considering that petitioner undertook to pay her deceased parents' debt. However, the CA opined
that there was no novation with respect to the object of the contract, following the rule that an
obligation is not novated by an instrument which expressly recognizes the old obligation and
changes only the terms of paying the same, as in this case where the parties merely modified the
terms of payment of the P2,100,000.00

Issue: Whether or not respondent should be liable for the whole debt amounting to 2.1 Million
PHP because novation took place?

Held: No she is not and novation did not take place.

At the outset, it must be emphasized that the fact of petitioner's liability to respondent is well-
established. As correctly pointed out by the RTC and the CA, while respondent acknowledged
that petitioner's deceased parents owed her money, petitioner also admitted obtaining loans from
respondent. However, based on the records of this case, respondent, for her part, admitted that
petitioner's deceased parents owed her P700,000.00 of the P2,100,000.00 debt and that petitioner
owed her P1,400,000.00 only. Thus she is liable for her part only.

33
At this juncture, the Court finds it apt to correct the mistaken notions that: (a) novation by
substitution of the debtor took place so as to release the estates of the petitioner's deceased
parents from their obligation, which, thus, rendered petitioner solely liable for the entire
P2,100,000.00 debt; and (b) the P100,000.00 of the P2,100,000,00 debt was in the nature of
accrued monetary interests. The Court held that to constitute novation by substitution of debtor,
the former debtor must be expressly released from the obligation and the third person or new
debtor must assume the former's place in the contractual relations. Moreover, the Court ruled that
the "fact that the creditor accepts payments from a third person, who has assumed the obligation,
will result merely in the addition of debtors and not novation. At its core, 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.

Here, the intent to novate was not satisfactorily proven by respondent. At best, petitioner only
manifested her desire to shoulder the debt of her parents, which, as above-discussed, does not
amount to novation. Thus, the courts a quo erred in holding petitioner liable for the debts
obtained by her deceased parents on account of novation by substitution of the debtor.

34
Jennefer Figuera vs. Maria Remedios Ang
G.R. No. 204264
June 29, 2016

Topic: Tender of Payment and Consignation; Novation

Facts: Maria Remedios Ang (Ang) is the registered owner of a single proprietorship business
named "Enhance Immigration and Documentation Consultants" (EIDC). On December 16, 2004,
Ang executed a "Deed of Assignment of Business Rights" (Deed) transferring all of her business
rights over the EIDC to Figuera for One Hundred Fifty Thousand Pesos (P150,000.00). In
addition to the assignment of rights, the parties also agreed that Ang shall pay the bills for
electricity, telephone, office rentals, and the employees' salaries up to the month of December
2004. Without Ang's consent, Figuera paid all the utility bills amounting to P107,903.21 as of
December 2004. On January 17, 2005, Figuera tendered only the amount of P42,096.79 to Ang,
after deducting the amount paid for the utility bills from the P150,000.00 consideration of the
Deed. Ang refused to accept Figuera's payment. Figuera mailed the Formal Tender of Payment
and gave Ang five (5) days to accept the amount. Despite the lapse of the 5-day period, however,
Ang still refused to accept the payment. Thus, Figuera filed a complaint for specific performance
before the Regional Trial Court (RTC), Branch 9 of Cebu City against Ang. Figuera consigned
the amount of P42,096.79 to the RTC. In her answer, Ang maintained that the amount due
pursuant to the Deed is P150,000.00 and not just P42,096.79. She argued that she cannot be
compelled to accept the amount because it is not what was agreed upon.

Issue: Whether or not there was a valid tender of payment and consignation?

Held: YES. Article 1291 of the New Civil Code provides that the subrogation of a third person
to the rights of the creditor is one of the means to modify obligations. Subrogation, sometimes
referred to as substitution, is "an arm of equity that may guide or even force one to pay a debt for
which an obligation was incurred but which was in whole or in part paid by another." It transfers
to the person subrogated the credit, with all the rights appertaining thereto, either against the
debtor or against third persons. Subrogation of a third person in the rights of a creditor may
either be legal or conventional. There is legal subrogation when: (a) a creditor pays another
preferred creditor, even without the debtor's knowledge; (b) a third person who is not interested
in the obligation pays with the express or tacit approval of the debtor; and (c) a person interested
in the fulfilment of the obligation pays, even without the knowledge of the debtor. In the present
case, Figuera based her claim on the third type of subrogation. She claims that as the EIDC's new
owner, she is interested in fulfilling Ang's obligation to pay the utility bills. Since the payment of
the bills was long overdue prior to the assignment of business rights to Figuera, the failure to
settle the bills would eventually result in "the disconnection of the electricity and telephone
services, ejectment from the office premises, and resignation by some, if not all, of the
company's employees with the possibility of subsequent labor claims for sums of money." These
utilities are obviously necessary for the continuation of Figuera's business transactions. A person
interested in the fulfilment of the obligation is one who stands to be benefited or injured in the
enforcement of the obligation. The Court agrees with Figuera that it became absolutely necessary
for her to pay the bills since Ang did not do so when the obligation became due. Moreover, the
consent or approval of the debtor is required only if a third person who is not interested in the

35
fulfillment of the obligation pays such. On the other hand, no such requirement exists in cases of
payment by a creditor to another creditor who is preferred, and by a person interested in the
fulfillment of the obligation. Notably, Article 1302 (1) and (3) does not require the debtor's
knowledge. Therefore, legal subrogation took place despite the absence of Ang's consent to
Figuera's payment of the EIDC bills. Figuera is now deemed as Ang's creditor by operation of
law. Thus, Figuera's tender of the remaining amount to Ang is valid and Ang offered no valid
justification in refusing to accept the tender of payment. Due to the creditor's refusal, without any
just cause, to the valid tender of payment, the debtor is released from her obligation by the
consignation of the thing or sum due.

36
Trifonia D. Gabutan, et al. Vs. Dante D. Nacalaban, et al./Dante D. Nacalaban, et al. Vs.
Trifonia D. Gabutan, et al.
G.R. NOS. 185857-58/G.R. NOS. 194314-15
June 29, 2016

Topic: General Provisions on Contracts; Implied trusts

Facts: On January 25, 1957, Godofredo Nacalaban (Godofredo) purchased an 800-square meter
parcel of prime land (property) in Poblacion, Cagayan de Oro City. Pursuant to the sale, Transfer
Certificate of Title (TCT) No. T-2259covering the property was issued in the name of
Godofredo. He thereafter built a house on it.

Godofredo died on January 7, 1974. He was survived by his wife, Baldomera, and their children,
Dante, Helen, and Susan. On March 19, 1979, Baldomera issued a Certification in favor of her
mother, Melecia. It provided, in effect, that Baldomera was allowing her mother to build and
occupy a house on the portion of the property. Accordingly, the house was declared for taxation
purposes. The tax declaration presented in evidence showed that Melecia owned the building on
the land owned by Godofredo.

Baldomera died on September 11, 1994. On July 3, 1996, her children executed an Extrajudicial
Settlement with Sale where they adjudicated unto themselves the property and sold it to Cagayan
Capital College. On August 22, 1996, TCT No. T-2259 was cancelled and TCT No. T-111846
covering the property was issued in the name of the College.

Melecia died and was survived by her children who continued living in the house, Gabutan was
one of these children. College demanded that said heirs vacate the premises.

On July 7, 1997, Gabutan, et al. filed a Complaint for Reconveyance of Real Property,
Declaration of Nullity of Contracts, Partition and Damages with Writ of Preliminary Attachment
and Injunction against Nacalaban, et al. and the College. They alleged that: (1) Melecia bought
the property using her own money but Godofredo had the Deed of Absolute Sale executed in his
name instead of his mother-in-law;(2) Godofredo and Baldomera were only trustees of the
property in favor of the real owner and beneficiary, Melecia;(3) they only knew about the
Extrajudicial Settlement with Sale upon verification with the Registry of Deeds;and (4) the
College was a buyer in bad faith, being aware they were co-owners of the property.

Issues:

1. Whether or not the action for reconveyance is proper?


2. Whether or not the college is a buyer in good faith?

Held:

1. Gabutan, et al., through the testimonies of Felisia, Crisanta, and Trifonia, established that
Melecia's money was used in buying the property, but its title was placed in Godofredo's name.

37
She purchased the property because Felisia wanted to build a pharmacy on it. On one occasion in
Melecia's house, and when the entire family was present, Melecia gave Godofredo the money to
purchase the property. Melecia entrusted the money to Godofredo because he was in Cagayan de
Oro, and per Melecia's instruction, the deed of sale covering the property was placed in his name.
It was allegedly her practice to buy properties and place them in her children's name, but it was
understood that she and her children co-own the properties. Melecia built a residential building
on the property, where her daughter Crisanta and some of her grandchildren resided. Godofredo
also thereafter built a house on the property. Twice, he also mortgaged the property to secure
loans. Melecia allowed him to do so because she trusted him. After Godofredo's death, and when
Baldomera fell ill, there were family discussions to transfer the title in Melecia's name so
Melecia's children can divide it together with the rest of Melecia's properties. The plans,
however, always fell through.

Article 1448 of the Civil Code provides in part that there is an implied trust when property is
sold, and the legal estate is granted to one party but the price is paid by another for the purpose
of having the beneficial interest of the property. The former is the trustee, while the latter is the
beneficiary. The trust created here, which is also referred to as a purchase money resulting trust,
occurs when there is (1) an actual payment of money, property or services, or an equivalent,
constituting valuable consideration; (2) and such consideration must be furnished by the alleged
beneficiary of a resulting trust. These two elements are present here.

Having established the creation of an implied resulting trust, the action for reconveyance filed by
Gabutan, et al., the heirs of Melecia in whose benefit the trust was created, is proper. An action
for reconveyance is a legal and equitable remedy granted to the rightful landowner, whose land
was wrongfully or erroneously registered in the name of another, to compel the registered owner
to transfer or reconvey the land to him.

2. College is not a buyer in good faith. To prove good faith, a buyer of registered and titled land
need only show that he relied on the face of the title to the property. He need not prove that he
made further inquiry for he is not obliged to explore beyond the four corners of the title. Such
degree of proof of good faith, however, is sufficient only when the following conditions concur:
first, the seller is the registered owner of the land; second, the latter is in possession thereof; and
third, at the time of the sale, the buyer was not aware of any claim or interest of some other
person in the property, or of any defect or restriction in the title of the seller or in his capacity to
convey title to the property. Thus, the College, which has the burden to prove the status of being
a purchaser in good faith, is required to prove the concurrence of the above conditions. This onus
probandi cannot be discharged by mere invocation of the legal presumption of good faith.We
find that the College failed to discharge this burden. They knew that the heirs of Melecia lived on
the property yet did not conduct a proper inquiry into it. The "honesty of intention" which
constitutes good faith implies a freedom from knowledge of circumstances which ought to put a
person on inquiry. If the land purchased is in the possession of a person other than the vendor,
the purchaser must be wary and must investigate the rights of the actual possessor. Without such
inquiry, the purchaser cannot be said to be in good faith and cannot have any right over the
property.

38
JULY 2016
July 5, 2016
Century Properties, Inc. vs. Edwin J. Babiano and Emma B. Concepcion
G.R. No. 220978

July 13, 2016


Phil-Nippon Kyoei, Corp. vs. Rosalia T. Gudelosao, et al.
G.R. No. 181375

39
JULY 2016
Century Properties, Inc. v. Edwin J. Babiano
G.R. No. 220978
July 5, 2016

Topic: Interpretation of Contracts

Facts: Babiano was hired by CPI as Director of Sales, and was eventually appointed as Vice
President for Sales. His employment contract also contained a Confidentiality of Documents
and Non-Compete Clause which, among others, barred him from disclosing confidential
information and from working in any business enterprise that is in direct competition with CPI
while he is employed and for a period of one year from date of his resignation or termination
from CPI. Should he breach any of the terms thereof, his forms of compensation, including
commissions and incentives will be forfeited.

After receiving reports that Babiano provided a competitor with information regarding CPI's
marketing strategies, spread false information regarding CPI and its projects, recruited CPI's
personnel to join the competitor, and for being AWOL for five days, CPI sent Babiano a Notice
to Explain directing him to explain why he should not be charged with disloyalty, conflict of
interest, and breach of trust and confidence for his actuations. Babiano tendered his resignation
and revealed that he had been accepted as Vice President of First Global, a competitor of CPI.

On March 3, 2009, Babiano was served a Notice of Termination for: (a) incurring AWOL; (b)
violating the "Confidentiality of Documents and Non-Compete Clause" and (c) recruiting CPI
personnel to join a competitor. On the other hand, Concepcion resigned as CPI's Project Director.
Respondents filed a complaint for non-payment of commissions and damages against CPI before
the NLRC. For its part, CPI maintained to have validly withheld Babiano's commissions,
considering that they were deemed forfeited for violating the "Confidentiality of Documents and
Non-Compete Clause."

Issue: Whether or not CA erred in holding petitioner liable for the unpaid commissions of
respondent?

Held: Petitioner is not liable for the unpaid commissions of respondent. Article 1370 of the Civil
Code provides that "if the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control." Thus, in the
interpretation of contracts, the Court must first determine whether a provision or stipulation
therein is ambiguous. Absent any ambiguity, the provision on its face will be read as it is written
and treated as the binding law of the parties to the contract. In the case at bar, CPI primarily
invoked the "Confidentiality of Documents and Non-Compete Clause" found in Babiano's
employment contract to justify the forfeiture of his commissions

The foregoing clause is not only clear and unambiguous in stating that Babiano is barred to work
for whatsoever capacity with any person whose business is in direct competition with CPI while
employed and for a period of one year from date of resignation or termination from the company,

40
it also expressly provided in no uncertain terms that should Babiano breach any term of the
employment contract, forms of compensation including commissions and incentives will be
forfeited. Indubitably, obligations arising from contracts, including employment contracts, have
the force of law between the contracting parties and should be complied with in good faith.
Corollary thereto, parties are bound by the stipulations, clauses, terms, and conditions they have
agreed to, provided that these stipulations, clauses, terms, and conditions are not contrary to law,
morals, public order or public policy, as in this case.

A judicious review of the records reveals that in his resignation, Babiano categorically admitted
to CPI Chairman Jose Antonio that on February 12, 2009, he sought employment from First
Global, and five days later, was admitted thereto as vice president. From the foregoing, it is
evidently clear that when he sought and eventually accepted the said position with First Global,
he was still employed by CPI as he has not formally resigned at that time. This is a glaring
violation of the "Confidentiality of Documents and Non-Compete Clause" in his employment
contract with CPI, thus, justifying the forfeiture of his unpaid commissions.

41
Phil-Nippon Kyoei, Corp. Vs. Rosalia T. Gudelosao, et al.
G.R. No. 181375
July 13, 2016

Topic Under: Solidary Obligation

Facts: Petitioner, a domestic shipping corporation, purchased passenger/cargo vessel MV Mahlia


in Japan. Petitioner, as local principal, and TMCL, as foreign principal, hired respondents as
crew members for the vessels on month conduction voyage from Japan to the Philippines. They
were hired through the local manning agency of TMCL, TEMMPC. The crew members signed
separate contracts of employment. Petitioner secured a Marine Insurance Policy from SSSICI
over the vessel for 10,800,000 against loss, damage, and third part liability or expense arising
from occurrence of perils of the sea during the voyage. The insurance policy included Personal
Accident Policies for the eight members for 3,240,000 each in case of accidental death or injury.
While still within Japanese waters, the vessel sank due to bad weather condition. Only the chief
engineer survived the incident. The heirs of the crew members filed separate complaints for
death benefits and other damages. The Labor Arbiter found solidary liability among petitioner,
TEMMPC, TMCL, and Capt. Orbeta. The LA also found SSSICI liable to the respondents for
the proceeds of the Personal Accident Policies and attorneys fees. The LA ruled that the
liabilities of petitioner shall be extinguished only upon SSSICIs payment of insurance proceeds.
The NLRC modified the ruling of LA. It absolved petitioner, TEMMPC, TMCL, and Capt.
Orbeta from any liability while it affirmed SSSICIs liability after finding that the Personal
Accident Policies answer for the death benefit claims under the POEA Standard Employment
Contract. CA reinstated the LAs ruling. The CA also granted the motion to dismiss filed by
TEMMPC and TMCL based on the execution of the Release of All Rights and Full Satisfaction
Claim (Release and Quitclaim) on December 14, 2007 between respondents and TEMMPC,
TMCL, and Capt. Orbeta.

Issue: Whether petitioner is solidarily liable with TEMMPC and TMCL?

Held: Petitioner is solidarily liable with TEMMPC and TMCL for the death benefits under the
POEA-SEC. The basis of the solidary liability of the principal with the local manning agent is
found in the second paragraph of Section 10 of the Migrant Workers and Overseas Filipino Act
of 1995, which, in part, provides: "the liability of the principal/employer and the
recruitment/placement agency for any and all claims under this section shall be joint and
several." This provision, is in turn, implemented by Section 1 ( e )(8), Rule 2, Part II of the
POEA Rules and Regulations Governing the Recruitment and Employment of Seafarers, which
requires the undertaking of the manning agency to "assume joint and solidary liability with the
employer for all claims and liabilities which may arise in connection with the implementation of
the employment contract." The Civil Code provisions on solidary obligations, specifically
Articles 121756 and 1222, has been consistently applied to labor cases.

The Court explained the nature of the solidary liability in labor cases in Varorient Shipping Co.,
Inc. v. NLRC:
Each of the solidary debtors, insofar as the creditors are concerned, is the debtor of the
entire amount; it is only with respect to his co-debtors that he/she is liable to the extent of

42
his/her share in the obligation. Such being the case, the Civil Code allows each solidary
debtor, in actions filed by the creditor/s, to avail himself of all defenses which are derived
from the nature of the obligation and of those which are personal to him, or pertaining to
his share.

Thus, the rule is that the release of one solidary debtor redounds to the benefit of the others.
Considering that petitioner is solidarily liable with TEMMPC and TMCL, the Release and
Quitclaim executed by respondents in favor of TEMMPC and TMCL redounded to petitioner's
benefit. Accordingly, the liabilities of petitioner under Section 20(A)(l) and (4)(c) of the POEA-
SEC to respondents are now deemed extinguished. However, this pronouncement does not
foreclose the right of reimbursement of the solidary debtors who paid (i.e., TEMMPC and
TMCL) from petitioner as their co-debtor.

43
AUGUST 2016
August 1, 2016
Bonifacio Dana vs. Spouses Gregorio Serrano and Adelaida Reyes
G.R. No. 195072

August 3, 2016
Ever Electrical Manufacturing, Inc. Vicente C. Go and George C. Go vs. Philippine Bank
of Communications (PBCOM)
G.R. Nos. 187822-23

Teresita I. Buenaventura vs. Metropolitan Bank and Trust Company


G.R. No. 167082

August 17, 2016


Development Bank of the Philippines vs. Clarges Realty Corporation
G.R. No. 170060

AFP Retirement and Separation Benefits System (AFPRSBS) vs. Eduardo Sanvictores
G.R. No. 207586

Spouses Juan Chuy Tan and Mary Tan Susbtituted by Surviving Heirs Joel Tan and Eric
Tan vs. China Banking Corporation
G.R. No. 200299

August 31, 2016

Sta. Fe Realty, Inc. and Victoria Sandejas Fabregas vs. Jesus M. Sison
G.R. No. 199431

44
Bonifacio Dana vs. Spouses Gregorio Serrano and Adelaida Reyes
G.R. No. 195072
August 1, 2016

Topic: Rescissible Contracts

Facts: Respondents Gregorio Serrano and Adelaida Reyes (Spouses Serrano) are the registered
owners of a parcel of land. Sometime in the years 1940 and 1950, when the property was still co-
owned by respondent Gregorio and his siblings, Gregorio's sisters, Marciana and Felicidad, gave
petitioner Bonifacio Dana and a certain Artemio Vitug permission to possess 400 square meters
each of the total estate and to build their homes thereon in exchange for one cavan of palay every
year. Thereafter, in separate documents denominated as "Agreement in Receipt Form" dated
June 27, 1976, Gregorio sold to Bonifacio and Artemio their respective 400-square-meter
portions of the property. The documents of sale provide for the purchase price of P6,000 payable
in three equal payments of P2,000 with the first installment to be paid upon execution of
Conditional Deed of Sale on July 2, 1976. The succeeding installments were due on or before
June 30, 1977 and June 30, 1978. It is further agreed that in June 1978, upon the completion of
the full payment of the agreed price, the vendor will deliver to the vendee a title corresponding to
the lot or portion sold. While Bonifacio and Artemio paid the P2,000.00 upon the signing of the
Agreement, they were both unable to pay the balance of the purchase price when they fell due on
June 30, 1977 and June 30, 1978. Nevertheless, they remained in possession of their respective
Lots. On September 10, 1998, the Spouses Serrano instituted ejection proceedings against
Bonifacio and Artemio. The complaint, however, was dismissed on the ground of lack of
jurisdiction by the Municipal Trial Court. On November 3, 1998, a complaint for Specific
Performance was filed by Bonifacio and Artemio alleging that they purchased their respective
portions of land via the Agreement in Receipt Form dated June 27, 1976 and since then, stopped
paying the yearly rental of one cavan of palay. While they admitted to their failure to pay the
remaining balance of the purchase price in the amount of P4,000.00, they claimed that such was
due to the continuous absence of the Spouses Serrano. As special and administrative defenses,
the Spouses Serrano raised prescription, alleging that any right of action, if any, arising from the
agreements dated June 27, 1976, had long prescribed when the complaint was filed in 1998. The
RTC granted the Complaint of Bonifacio and Artemio and ordered the Spouses Serrano to
execute and sign the proper Deed of Sale, deliver the corresponding titles after receiving the
P4,000.00 balance. The CA, however, reversed and set aside the RTC Decision finding that the
trial court seemed to have failed to properly determine the true nature of the agreement between
the parties. This is because by the express terms of the agreement, the title was reserved and
remained with the Spouses Serrano, to be transferred only when Bonifacio and Artemio paid the
last installment of the purchase price in June 1978. The failure by Bonifacio and Artemio to pay
prevented the obligation of the Spouses Serrano to convey the title from acquiring binding force.
In the instant petition, Bonifacio argues that since he did not receive any formal demand from the

45
Spouses Serrano, he did not incur delay. In addition, Bonifacio also raises the provisions of
Republic Act (RA) No. 6552, otherwise known as the Realty Installment Buyer Protection Act,
insofar as his rights as a buyer of real property are concerned.

Issue: Whether or not the cancellation of Contract to Sell made by Spouses Serrano conforms to
the requirement prescribed under RA 6552?

Held: No. There is no showing that the Spouses Serrano complied with the requirements
prescribed by RA 6552. A cursory reading of the "Agreement in Receipt Form" would readily
reveal that the same is a contract to sell and not a contract of sale. As expressly stipulated
therein, the parties "agreed that in June 1978, upon the completion of the full payment of the
agreed price, the herein vendor will deliver to the vendee a title corresponding to the lot or
portion sold." Clearly, the title to the property was to remain with the Spouses Serrano, to pass
only to Bonifacio until his full payment of the purchase price. It is imperative to note, however,
that in view of the nature of the agreement herein, a contract to sell real property on installment
basis, the provisions of RA No. 6552 must be taken into account insofar as the rights of the
parties in cases of default are concerned.

46
Ever Electrical Manufacturing, Inc. Vicente C. Go and George C. Go vs. Philippine Bank
of Communications (PBCOM)
G.R. Nos. 187822-23
August 3, 2016

Topic: Novation

Facts: On December 13, 2002, Ever, represented by Vicente, took out a loan from PBCom in the
amount of P65,000,000.00 for its working capital. As security, Ever mortgaged two parcels of
land. On February 14, 2003, the parties entered into a compromise agreement whereby Vicente
voluntarily undertook to pay for Ever's loan with PBCom. Under the terms of the compromise
agreement, Vicente would make partial payments as stated in the promissory note with a caveat
that any failure on his part to pay the installment due would make the whole amount immediately
demandable. However, Vicente was not able to make the necessary payments as stipulated in the
compromise agreement. PBCom, thus, filed with the RTC a motion for execution. PBCom
alleged that Vicente violated the terms of the compromise agreement for non-payment of
installments from September to December 2003 and the first quarter of 2004. It prayed that a
writ of execution be issued per the terms of the compromise agreement.

Issue: Whether or not there was novation of the Partial Judgment dated July 23, 2001?

Held: Novation is never presumed. It must be established that the old and new contracts are
incompatible on all points, or that the will to novate appear by express agreement of the parties
or acts of equivalent import. In the absence of an express provision, a contract may still be
considered novated impliedly if it passes the test of incompatibility, that is, whether the contracts
can stand together, each one having an independent existence. In the early case of Santos v.
Reyes, et al., the Court held that there was no novation where under the original contract
consisting of a principal debtor and a surety, the latter subsequently made an agreement with the
creditor to be bound as a principal for the same obligation. There, the Court stated that there can
be no effective novation if the contract was not extinguished by an instrument subsequently
executed therefor.

47
Teresita I. Buenaventura vs. Metropolitan Bank and Trust Company
G.R. No. 167082
August 3, 2016

Topic: General Provisions on Contracts

Facts: On January 20, 1997 and April 17, 1997, Teresita Buenaventura executed Promissory
Notes in the amount of P1,500,000.00 and payable to Metropolitan Bank and Trust Company .
Both PNs provide for penalty of 18% per annum on the unpaid principal from date of default
until full payment of the obligation. Despite demands, there remained unpaid amounts of
P2,061,208.08 and PI,492,236.37. Consequently, appellee filed an action against appellant for
recovery of said amounts, interest, penalty and attorney's fees. In answer, appellant averred that
in 1997, she received from her nephew, Rene Imperial three postdated checks drawn against
appellee in the amount of PI,200,000.00, Check No. 1270482455PA dated March 31, 1998 in the
amount of PI,197,000.00 and Check No. TA1270482451PA dated March 31, 1998 in the amount
of P500,000.00 as partial payments for the purchase of her properties; that she rediscounted the
subject checks with appellee (Timog Branch), for which she was required to execute the PNs to
secure payment thereof; and that she is a mere guarantor and cannot be compelled to pay unless
and until appellee shall have exhausted all the properties of Imperial.

Issue: Whether or not petitioner is liable under the promissory notes?

Held: As a rule, indeed, the contract of adhesion is no different from any other contract. Its
interpretation still aligns with the literal meaning of its terms and conditions absent any
ambiguity, or with the intention of the parties. The terms and conditions of the promissory notes
involved herein, being clear and beyond doubt, should then be enforced accordingly.
Accordingly, no court, even this Court, can "make new contracts for the parties or ignore those
already made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of
liberal construction justifies the creation of a contract for the parties which they did not make
themselves or the imposition upon one party to a contract of an obligation not assumed. The CA
was correct. A contract of guaranty is one where a person, the guarantor, binds himself or herself
to another, the creditor, to fulfill the obligation of the principal debtor in case of failure of the
latter to do so. It cannot be presumed, but must be express and in writing to be enforceable,
especially as it is considered a special promise to answer for the debt, default or miscarriage of
another. It being clear that the promissory notes were entirely silent about the supposed guaranty
in favor of Imperial, we must read the promissory notes literally due to the absence of any
ambiguities about their language and meaning. In other words, the petitioner could not validly
insist on the guaranty. Under such established circumstances, she was directly and personally
liable for the obligations under the promissory notes.

48
Development Bank of the Philippines v. Clarges Realty Corporation
G.R. No. 170060
August 17, 2016

Topic: Extinguishment of Obligations; Loss of the Thing Due

Facts: Marinduque Mining and Industrial Corporation mortgaged a Makati City property to
Caltex Philippines, Inc. to secure a loan. A second mortgage was constituted over the property,
this time in favor of the Development Bank of the Philippines (DBP) and the Philippine National
Bank (PNB). When Marinduque Mining and Industrial Corporation failed to pay its loan
obligations, the DBP and the PNB jointly instituted extrajudicial foreclosure proceedings over
the property. The mortgagee banks emerged as the highest bidders during the public sale but
were unable to redeem the property because of Caltex Philippines, Inc.s first mortgage. First
mortgagee Caltex then foreclosed its mortgage on the property. As second mortgagee, the DBP
redeemed the property from Caltex and such property formed part of DBPs physical assets. The
DBP offered the property for public sale, where Clarges Realty Corporation emerged as the
highest bidder. Clarges offered P24,070,000.00 as payment for the property. The DBP, as
vendor, and Clarges, as vendee, executed a Deed of Absolute Sale. The DBP bound itself under
Clause 6 of the Deed of Absolute Sale to deliver a title to the property free from any and all
liens and encumbrances on or before December 15, 1987. The DBP succeeded in having the
property registered under its name, however the title contained annotations, specifically the
mortgage lien of the PNB and a tax lien for unpaid taxes incurred by Marinduque Mining and
Industrial Corporation. The DBP delivered to Clarges the owners duplicate TCT with the
mortgage and tax liens still annotated on it. Clarges demanded a clean title but the DBP failed to
deliver it. Clarges then filed before the RTC of Makati a complaint for specific performance and
damages, praying that the DBP be ordered to deliver a title to the property free of liens and
encumbrances as agreed upon in Clause 6 of the Deed of Absolute Sale. The DBP answered,
contending that Clarges had no cause of action. Clarges allegedly knew that the payment of the
tax liability and the corresponding cancellation of the tax lien had devolved to the Asset
Privatization Trust (APT) after the latter acquired the assets of the Marinduque Mining and
Industrial Corporation under Proclamation No. 50. Trial on the merits ensues. Clarges had the
mortgage lien cancelled. DBP and the APT had the tax lien partially cancelled, with the tax
liability reduced. A new TCT was issued under the name of Clarges but there was still an
annotation of the reduced tax lien. DBP moved for leave of court to file a third-party complaint
against the APT as it maintained that the latter had assumed direct and personal obligation to pay
for Marinduque Mining and Industrial Corporations tax liability and to have the partially
reduced tax lien cancelled. The trial court denied the Motion for Leave. The RTC ruled in favor
of Clarges and granted the complaint for specific performance and damages. It found that the
DBP breached Clause 6 of the Deed of Absolute Sale. Regardless of whether the APT undertook
to have the tax lien cancelled, the RTC held that Clarges could only demand the delivery of a
clean title from the DBP under the principle of relativity of contracts. The DBP elevated the case
to the Court of Appeals, but the CA only affirmed with modification the trial courts decision.
The CA held that compliance with Clause 6 cannot be made to depend on the willingness - or
lack thereof - of the APT to assume the obligation of having the tax lien cancelled, the APT
being a non-party to the contract of sale. The DBP then filed before the Supreme Court this

49
petition. The DBP insists that the APT acquired the assets of the now defunct Marinduque
Mining and Industrial Corporation and by operation of law, the APT assumed the obligations and
liabilities attached to these assets. Thus, it became legally and physically impossible for
petitioner to deliver a clean title to respondent since the obligation had devolved to the APT.

Issue: Whether or not the DBP should be held liable for breach of Clause 6 of the Deed of
Absolute Sale, notwithstanding APTs acquisition of liabilities attached to the assets of
Marinduque Mining and Industrial Corporation?

Held: Yes. While the Asset Privatization Trust would have been a valid third-party defendant as
it acquired the liabilities attached to the assets of Marinduque Mining and Industrial Corporation,
the DBP may not escape its obligation to deliver a clean title to the property to Clarges.
Petitioner may ask the APT for contribution for the payment of the unpaid tax, but it need not
wait for such contribution to fulfill its existing obligation. The DBP, as mortgagee of the
property, can very well pay the tax liability and cause the cancellation of the tax lien. There was
no legal impossibility to speak of. The DBP cannot invoke Articles 1266 and 1267 of the Civil
Code. These provisions - which release debtors from their obligations if they become legally or
physically impossible or so difficult to be manifestly beyond the contemplation of the parties -
only apply to obligations to do. They do not apply to obligations to give as when a party is
obliged to deliver a thing which, in this case, is a certificate of title to a real property free from
liens and encumbrances. Interestingly, petitioner contends that it would have been liable for
violating the Anti-Graft and Corrupt Practices Act if it paid the tax liability of Marinduque
Mining and Industrial Corporation to cancel the tax lien on the property. Such argument is
untenable as a lien is a legal claim or charge on property, either real or personal, as a collateral or
security for the payment of some debt or obligation. A lien, until discharged, follows the
property. When the DBP acquired the property, it also acquired the liabilities attached to it,
among them the tax liability to the BIR. Thus, should petitioner pay the remaining tax liability on
the property, it would not be paying the taxes of a private corporation but it would be paying the
liability attached to its own property. The DBP cannot escape liability in this case.

50
AFP Retirement and Separation Benefits System (AFPRSBS) v. Eduardo Sanvictores
G.R. No. 207586
August 17, 2016

Topic: Different Kinds of Obligations; Joint and Solidary Obligations

Facts: Sometime in 1994, PEPI, formerly Antipolo Properties, Inc., offered to Eduardo
Sanvictores for sale on installment basis a parcel of land in Village East Executive Homes
designated as Lot 5, Block 64, Phase II, situated in Tayuman, Pantok, Binangonan, Rizal.
Sanvictores paid the required downpayment. A Contract to Sell was executed by and between
PEPI and AFP Retirement and Separation Benefits System (AFPRSBS), as the seller, and
Sanvictores, as the buyer. In 1999, Sanvictores paid the full purchase price. Despite full
payment, PEPI and AFPRSBS failed to execute the corresponding deed of absolute sale on the
subject property and deliver the corresponding title thereto. In 2000, Sanvictores demanded from
PEPI the execution of the deed of sale and the delivery of the transfer certificate of title. PEPI
claimed that the title was still with the Philippine National Bank (PNB) and could not be released
due to economic crisis. Sanvictores followed up with PEPI but the latter did not communicate
with Sanvictores for a period of 4 years. Sanvictores then filed a complaint for rescission of the
contract to sell, refund of payment, damages, and attorneys fees against PEPI and AFPRSBS
before the HLURB. AFPRSBS countered that it was not the owner and developer of Village East
Executive Homes but PEPI, that PEPI alone was the seller, and that the signatory to the contract,
Norma Espina, was neither the treasurer nor the authorized representative of AFPRSBS but the
Treasurer of PEPI. The HLURB Arbiter rendered a decision in favor of Sanvictores and ordered
PEPI and AFPRSBS to pay jointly and severally the complainant. On appeal of PEPI and
AFPRSBS, the HLURB Board affirmed the decision of the Arbiter. The OP upheld the decision
of the HLURB Board, holding that PEPI and AFPRSBS should indeed be jointly and severally
liable because PEPI and AFPRSBS were referred to singly as the seller in the contract and there
were no delineations whatsoever as to their rights and obligations. AFPRSBS filed a petition for
review before the CA. The appellate court merely affirmed the decision of the OP and echoed the
view that the two liable entities ought to be jointly and severally liable as they came to the
contracting table with the intention to be bound jointly and severally. The CA concluded that the
nature of the obligation of PEPI and AFPRSBS under the subject contract was solidary pursuant
to Article 1207 of the Civil Code.

Issue: Whether or not petitioner AFPRSBS is jointly and severally liable with PEPI to
Sanvictores?

Held: Yes. In Spouses Berot v. Siapno, the Court defined solidary obligation as one in which
each of the debtors is liable for the entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any or all of the debtors. On the other hand,
a joint obligation is one in which each debtor is liable only for a proportionate part of the debt,
and the creditor is entitled to demand only a proportionate part of the credit from each debtor.
The well-entrenched rule is that solidary obligations cannot be inferred lightly. They must be
positively and clearly expressed. Article 1207 of the Civil Code does not presume solidary
liability unless the obligation expressly so states or the law or the nature of the obligation

51
requires solidarity. In the case at bar, there is no doubt that the nature of the obligation of PEPI
and AFPRSBS under the subject contract to sell was solidary. In the said contract, PEPI and
AFPRSBS were expressly referred to as the seller while Sanvictores was referred to as the buyer.
The contract to sell did not state sellers but seller. This could only mean that PEPI and
AFPRSBS were considered as one seller in the contract. There was no delineation as to their
rights and obligations. Also, the signatories were Espina, representing PEPI, and Mena,
representing AFPRSBS. The signatures of Espina and Mena were affixed again in the last
portion of the Deed of Restrictions under the word owner. AFPRSBS repeatedly argues that the
contract was not signed by any of its authorized representative. Conveniently, however, it
remained silent as to Mena. It never denied that Mena was its representative. AFPRSBS is
estopped from denying Menas authority to represent it. It is quite obvious that AFPRSBS
clothed Mena with apparent authority to act on its behalf in the execution of the contract to sell.
There is estoppel when the principal has clothed the agent with indicia of authority as to lead a
reasonably prudent person to believe that the agent actually has such authority. A corporation
may be held in estoppel from denying as against innocent third persons the authority of its
officers or agents who have been clothed by it with ostensible or apparent authority.

52
Spouses Juan Chuy Tan and Mary Tan (Deceased) Substituted by the Surviving Heirs,
Joel Tan and Eric Tan v. China Banking Corporation
G.R. No. 200299
August 17, 2016

Topic: Extinguishment of Obligations; Payment or Performance

Facts: Lorenze Realty and Development Corporation is a domestic corporation engaged in real
estate business. On several occasions in 1997, Lorenze Realty obtained from China Bank various
amounts of loans and credit accommodations. It was expressly stipulated in the Promissory
Notes that Lorenze Realty agreed to pay the additional amount of 1/10 of 1% per day of the total
amount of obligation due as penalty to be computed from the day default was incurred up to the
time that the loan obligations are fully paid. Lorenze Realty also undertook to pay an additional
10% of the total amount due including interests, surcharges and penalties as attorneys fees. As
security for the said obligations, Lorenze Realty executed real estate mortgages over 11 parcels
of land. Subsequently, Lorenze Realty incurred in default in the payment of its amortization
prompting China Bank to cause the extrajudicial foreclosure of the mortgage constituted on the
securities after Lorenze Realty failed to heed to the demand to settle the obligation. China Bank
emerged as the highest bidder at the public auction, evidenced by a certificate of sale. As shown
by the Statement of Account, the indebtedness of Lorenze Realty already reached the amount of
P114,258,179.81 inclusive of the principal, interest, penalties, registration expenses, filing fee,
publication fee, sheriffs fee, and posting fee. After deducting the total amount of loan obligation
the proceeds of the public sale, there remained a balance in the amount of P29,258,179.81. China
Bank then demanded Lorenze Realty for payment of the remaining loan but such demand just
went to naught. China Bank initiated an action for the collection of sum of money against
Lorenze Realty and its officers, including spouses Juan Chuy Tan and Mary Tan now substituted
by their heirs in this action. While conceding that they have voluntarily signed the promissory
notes, defendants in the action disclaimed liability by alleging that the surety agreements did not
express the true intention of the parties. The officers of Lorenze Realty claimed that they just
signed the surety contracts without reading the fine terms as they were made to believe by the
bank manager that the collaterals they offered to obtain the loans were already sufficient to cover
the entire obligation should they incur in default. They averred that the penalty in the amount of
1/10 of 1% per day of the total amount due is usurious and shocking to the conscience and
should be nullified. They also prayed that the RTC declare the obligation fully settled on account
of the sale of securities. The RTC found for China Bank and declared defendants jointly and
severally liable for the amount of the deficiency judgment. The CA affirmed with modification
the judgment of the RTC by reducing the rate of the penalty surcharge.

Issue: Whether Lorenze Realtys obligation is fully settled when the real properties constituted
as securities for the loan were sold at the public auction for P85,000,000.00?

Held: No. Obligations are extinguished, among others, by payment or performance. Under
Article 1232 of the Civil Code, payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. Article 1233 of the Civil Code states that a
debt shall not be understood to have been paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the case may be. In contracts of loan, the

53
debtor is expected to deliver the sum of money due the creditor. These provisions must be read in
relation with other rules on payment under the Civil Code, such as the application of payment.
Article 1252 provides that he who has various debts of the same kind in favor of one and the
same creditor may declare at the time of making the payment, to which of them the same must be
applied. Unless the parties so stipulate, or when the application of payment is made by the party
for whose benefit the term has been constituted, application shall not be made as to debts which
are not yet due. If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a cause for invalidating
the contract. In Premiere Development Bank v. Central Surety & Insurance Company Inc., the
Court held that the right of the debtor to apply payment is merely directory in nature and must be
promptly exercised, lest, such right passes to the creditor. It is noteworthy that after the sale of
the foreclosed properties at the public auction, Lorenze Realty failed to manifest its preference as
to which among the obligations that were all due the proceeds of the sale should be applied. Its
silence can be construed as acquiescence to China Banks application of the payment first to the
interest and penalties and the remainder to the principal which is sanctioned by Article 1253 of
the Civil Code, which provides that if the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been covered.

54
Sta. Fe Realty, Inc. and Victoria Sandejas Fabregas v. Jesus M. Sison
G.R. No. 199431
August 31, 2016

Topic: General Provisions on Contracts; Different Kinds of Obligations; Pure and Conditional
Obligations; Rescission

Facts: Sta. Fe Realty Inc. (SFRI) agreed to sell to Jesus Sison a portion of land. SFRI executed a
Deed of Sale over the subject property to Victoria Fabregas. Fabregas then executed another
deed of sale in favor of Sison for the same amount. Sison caused the segregation of the
corresponding lot from the whole land and this was designated as Lot 1-B-1 in the subdivision
plan. Sison took possession of the subject property and introduced improvements thereon such as
fencing the property, putting a no trespassing sign, barbed wires, and hedges of big trees. He also
constructed a fishpond and a resort on the subject property. Sison however was not able to
register the sale and secure a title in his name because petitioners herein refused to pay realty
taxes and capital gains tax, as well as to turn over the owners copy of transfer certificate of title
and the subdivision plan. Sison was constrained to pay the said taxes to protect his interest.
Nevertheless, petitioners herein still refused to surrender the mother title and all pertinent
documents necessary for the transfer of title in Sisons name. Meanwhile, SFRI caused the
subdivision of the entire property. SFRI sold Lot 1-B-3-C to Orosa. Orosa was able to transfer
the property in his name. Sison claimed that this Lot 1-B-3-C is practically the same as his Lot 1-
B-1 except for the excess of 402 sq. m. Sison tried to settle amicably with the other concerned
parties but no agreement was reached. He then instituted an action for reconveyance of property.
Petitioners herein denied that they agreed to sell the property to Sison. They averred that Sison
persuaded Fabregas to sell to him a portion of Lot 1-B in exchange of P700,000.00 and Sison
will be the one to shoulder the capital gains tax. They contended that they merely accommodated
Sisons request to sign another set of deeds over the subject property with a reduced price of
P10,918.00 so that the capital gains tax would be reduced. They also asserted that Sison did not
pay the consideration agreed upon thus Fabregas rescinded the sale by sending a notice to Sison
who did not contest the rescission of the sale. Orosa claimed that he is a buyer in good faith as
there was nothing annotated in the title which would warn him of any lien or encumbrance or
adverse claim on the property. The RTC ruled in favor of Sison. On appeal, the CA affirmed the
findings of the RTC but reduced the award of moral damages and attorneys fees.

Issue: Whether the deed of absolute sale by and between SFRI and Fabregas, as well as the deed
of absolute sale between Fabregas and Sison are valid and enforceable, thus entitling Sison to
reconveyance?

Held: Yes. The deeds are valid and enforceable and Sison is entitled to reconveyance. Sison
anchors his cause of action upon the two deeds of sale and his possession and occupation of the
subject property. Petitioners however counter that (1) the deeds of sale were simulated; (2)
Fabregas had unilaterally rescinded the sale; and (3) the subject property is now registered in the
hands of an innocent purchaser for value.

Petitioners argue that the deeds were simulated because of its alleged failure to reflect the
true purchase price of the sale which is P700,000. They contend that there is an apparent gross

55
disproportion between the stipulated price and the value of the subject property which
demonstrates that the deeds stated false consideration. The Court finds that the deeds of sale
were executed freely and voluntarily. All the elements for a contract to be valid are present. A
perfected contract of absolute sale exists between SFRI and Fabregas and then Fabregas and
Sison. There was meeting of the minds between the parties when they agreed on the sale of a
determinate subject matter and the price is certain. Gross inadequacy of price does not affect the
validity of a contract of sale unless it signifies a defect in the consent or that the parties actually
intended a donation or some other contract. Inadequacy of cause will not invalidate a contract
unless there has been fraud, mistake, or undue influence.

Fabregas failed to judicially rescind the contract. The Court had already ruled that in the absence
of a stipulation, a party cannot unilaterally and extrajudicially rescind a contract. A judicial or
notarial act is necessary before a valid rescission can take place. The party entitled to rescind
should apply to the court for a decree of rescission. The right cannot be exercised solely on a
partys own judgment that the other committed a breach of the obligation. The operative act
which produces the resolution of the contract is the decree of the court and not the mere act of
the vendor. The alleged notice of rescission that Fabregas sent to Sison declaring her intention to
rescind the sale did not operate to validly rescind the contract because there is absolutely no
stipulation giving Fabregas the right to unilaterally rescind the contract in case of non-payment.

Orosa cannot be considered a buyer in good faith considering that Sison introduced
improvements on the property such as fencing it, putting a no trespassing sign, barbed wires, and
hedges of big trees. He also constructed a fishpond and a resort on the subject property. Presence
of these structures should have alerted Orosa to the possible flaw in the title of SFRI.

56
SEPTEMBER 2016
September 7, 2016
Edgardo A. Quilo and Adnaloy Villahermosa vs. Teodula Bajao
G.R. No. 186199

Doroteo C. Gaerlan vs. Philippine National Bank


G.R. No. 217356

September 14, 2016


Philippine Science High School - Cagayan Valley Campus vs. Pirra Construction
Enterprises
G.R. No. 204423

September 21, 2016


Marphil Export Corporation and Ireneo Lim vs. Allied Banking Corporation substituted
by Philippine National Bank
G.R. No. 187922

Rizal Commercial Banking Corporation vs. Teodoro G. Bernardino


G.R. No. 183947

September 28, 2016


Philippine Economic Zone Authority vs. Pilhino Sales Corporation
G.R. No. 185765

57
Edgardo A. Quilo and Adnaloy Villahermosa v. Teodula Bajao
G.R. No. 186199
September 7, 2016

Topic: Prescription

Facts: Bajao filed an ejectment complain against Saclag. On 20 November 1998, MeTC ruled in
favor of Bajao. RTC affirmed the MeTC. SC issued an entry of judgment declaring that the
resolution has become final and executory on 28 July 2000. Bajao filed a motion for execution
on 8 August 2000. 7 years thereafter, RTC ordered the remand of the records of the case to the
MeTC. MeTC issued a writ of execution. Quilo received a notice to pay / vacate and demolish
premises, directing the to vacate the property and remove their houses. Quilo filed a motion to
quash claiming that the writ of execution was issued beyond the lapse of the 5-year period within
which to execute a judgment.

Issue: Whether the issuance of the writ of execution on 28 November 2007 to implement the
decision rendered on 20 November 1998 is beyond the period to implement judgment?

Held: As the Decision became final and executory on 28 July 2000, Bajao has 5 years within
which to move for its execution. Indeed, Bajao, in compliance with Rule 39, timely moved for
the execution of the Decision when he filed a Motion for Execution on 8 August 2000. However,
as mandated by Section 6, Rule 39, if the prevailing party fails to have the decision enforced by a
motion after the lapse of 5 years, the said judgment is reduced to a right of action which must be
enforced by the institution of a complaint in a regular court within 10 years from the time the
judgment becomes final. In the case at bar, the Decision, despite the timely motion to
execute the same, was not implemented by the court. The failure to implement the Decision
impelled Bajao to again file another motion to execute. However, Bajao's course of action to
execute the Decision is not in accordance with Section 6, Rule 39; Bajao merely filed a motion.
The correct remedy is to file a complaint for revival of judgment in a regular court within ten 10
years from the time the judgment becomes final. Actions for revival of judgment are governed by
Article 1144 (3), Article 1152 of the Civil Code and Section 6, Rule 39 of the Rules of Court.
Thus: Art. 1144. The following actions must be brought within ten years from the time the right
of action accrues: xxx (3) Upon a judgment.

Art. 1152. The period for prescription of actions to demand the fulfillment of obligation declared
by a judgment commences from the time the judgment became final.

Clearly, the proper remedy is to file a complaint for revival of judgment, which Bajao did not
avail of. Application of the aforesaid rules would dictate that this Court must rule in favor of the
petitioners and grant the petition on the ground of failure to comply with Section 6, Rule 39.
However, the circumstances of the present case are replete with peculiarities which impel this
Court to exercise its equity jurisdiction. This case has been raised to this Court for the second
time, and there is nothing more imperative than for the Court to finally settle all controversies
and dispose of a protracted and long dragging case. In pursuit of equity justice this Court
considers Bajao's second Motion for Execution as a complaint for revival of judgment. The
action, therefore, was filed well-within the ten-year period in accordance with the rules.

58
Doroteo C. Gaerlan v. Philippine National Bank
G.R. No. 217356
September 7, 2016

Topic Under: Different Kinds of Obligations; Joint and Solidary Obligations

Facts: Supreme Marine Company (SMCI) and MCG Marine Services (MCG) obtained from
PNB a 5 year Foreign Currency Deposit Unit (FCDU) term loan of not exceeding $4M and a
domestic bills purchase line (DBP line) not exceeding P10M. This agreement was signed by
Robert Jaworski (president of SMCI) and Doroteo Gaerlan (president of MCG) as borrowers and
Inocencio Deza Jr (EVP of PNB) as lender. The loan had an annual interest rate equivalent to 90-
day London inter-bank offered rate plus spread of 2.5% from initial drawdown until its full
payment.

To secure the loan, Gaerlan and Jaworski executed the Chattel Mortgage with Power of Attomey
over the an oil tanker and, as additional security and by way of payment to the loan, Gaerlan, as
president of MGG, executed the Deed of Assignment in favor of PNB, pertaining to its monthly
income of at least P6,000,000.00 arising from the proceeds of the Consecutive Voyage Charter
Party between Petron Corporation (Petron) and MGG. To personally guarantee the loan,
Jaworski and his wife, Evelyn (Spouses Jaworski), together with Gaerlan and his wife Marilen
(Spouses Gaerlan), executed the Joint and Solidary Agreement (JSA), whereby the parties
absolutely, unconditionally and irrevocably bound themselves, jointly and severally, to pay PNB
in case the principal debtors defaulted in the payment of the loan.

When SMCI and PCG defaulted in the payment of their loan obligation, PNB sent a demand
letter but it was unheeded.

To protect its interest, PNB instituted a petition for the extrajudicial foreclosure sale of Spouses
Gaerlans real property.

Gaerlan filed a complaint before the RTC-QC for the nullification of contracts of loan, real estate
mortgage and extrajudicial foreclosure sale. Gaerlan alleged that the stipulated interests and
penalties were must higher than 12% per annum and that all loans secured by the promissory
notes and real estate mortgage was null and void as they violated the Usury Law and in view of
the nullity of the contracts of loan and the promissory notes, the real estate mortgage and the
extrajudicial foreclosure sale were likewise null and void.

Meanwhile, Spouses Jaworski filed an action for declaratory relief before the RTC-Manila
contending that Jaworski and Gaerlan had executed a Memorandum of Agreement whereby the
parties had entered into a business divorce and agreed that the ownership of the oil tanker would
be transferred to Gaerlan in favor of the latters assumption of all the loans extended by PNB.
RTC-Manila granted the action and released the spouses from their duties and responsibilities
under the Joint and Solidary Agreement.

Finally, RTC-QC declared the contracts of loan and extrajudicial foreclosure sale null and void
and releasing Gaerlan from liability. The RTC-QC stated that because the JSA was declared void

59
in the January 13, 2004 Order of the RTC-Manila, the principal obligation, guaranteed by the
said agreement, and the real estate mortgage were likewise void pursuant to the principle of res
judicata in the concept of conclusiveness of judgment.

Issue: Whether the decision of the RTC-Manila, which released Spouses Jaworski from liability
constitutes res judicata redounding to the benefit of petitioner?

Held: NO. The DOCTRINE OF RES JUDICATA provides that a final judgment or decree on
the merits by a court of competent jurisdiction is conclusive of the rights of the parties or their
privies in all later suits on points and matters determined in the former suit.

In the present case, neither of the two concepts of res judicata finds relevant application. There is
no identity of subject matter and cause of action. The case filed in RTC-Manila was a complaint
for declaratory relief filed by Spouses Jaworski for the extinguishment of their liability under the
JSA on the basis of the MOA stating their business divorce; whereas the present case stemmed
from a complaint for nullification of loan contracts, real estate mortgage and extrajudicial
foreclosure sale questioning the alleged usurious interest imposed by PNB and the latters non-
compliance with the requirements of publication and posting of notices.

Furthermore, nowhere in the said order did it pronounce the entire Joint and Solidary Agreement
invalid as to render it without force and effect. As surety to the contract of loan, Gaerlans
liability subsists. It must be emphasized that a surety is bound equally and absolutely with the
principal and his liability is immediate and direct. The Court has no alternative but to enforce the
contractual stipulations in the manner they have been agreed upon and written. It could not
relieve the parties from obligations voluntarily assumed simply because their contract turned out
to be disastrous or unwise investments. Hence, in view of the principal borrowers' failure to pay
their outstanding obligation upon demand, it was proper for PNB to exercise its right to foreclose
on the mortgaged property. This right of PNB to extrajudicially foreclose on the real estate
mortgage is provided under the various contracts ofthe parties.

With respect to the claim of petitioner that the stipulated interest on the contract of loan was
usurious, the Court finds the same untenable. The law and jurisprudence empowers the courts to
temper interest rates and penalty charges that are iniquitous, unconscionable and exorbitant. In
exercising this vested power, however, the Court must consider the circumstances of the case for
what may be iniquitous and unconscionable in one may be totally just and equitable in
another.In the present case, petitioner failed to show that the stipulated rate of interest was
indeed exorbitant. He did not present the Omnibus Agreement after the loan contract was
restructured or any other evidence to support his claim.

60
Philippine Science High School - Cagayan Valley Campus v. Pirra Construction
Enterprises
G.R. No. 204423
September 14, 2016

Topic under: Extinguishment of Obligations; Payment or Performance

Facts: Pirra Construction Enterprises filed with the Construction Industry Arbitration
Commission (CIAC) a Complaint for Damages against Philippine Science High School (PSHS)
relative to the construction contracts for PSHS Project A (consisting of a few phases of
Academic Building I and Girls Dormitory Building I) and Project C (consisting of a few phases
of Academic Building II, Boys Dormitory Building, and School Canteen).

Project A: Pirra participated in and won the bidding for Project A. Pirra and PSHS then entered
into a Contract Agreement. The duration of Project A was for 180 days from December 20,
2008, with approved 65-day extension until August 22, 2009. PSHS paid Pirra 15% of the
contract price and an amount of P23,194,020.95 for Partial Billing Nos. 1 to 4. Subsequently,
Pirra requested payment for Partial Billing No. 5. It sent PSHS a letter requesting for substantial
acceptance and completion of Project A and submitted its Summary of Accomplishment Report
stating that completion of Project A was already at 94.09%. PSHS reminded Pirra that the due
date of the contract as a month later but the power distribution activities had not yet been
installed. PSHS created an Inspectorate Team which conducted punch listing on Project A. PSHS
then replied to Pirras request for substantial acceptance and completion and for payment of PB
No. 5. It however stated that the payment could not yet be made pending correction of the noted
defects and remaining work activities, the final inspection of concerned agencies, among other
reasons. PSHS also declared that it considered PB No. 5 as Pirras final billing so it had to
account Pirras liabilities relating to the project. To validate Pirras accomplishment, the COA
proceeded to inspect the project. Pirra failed to attend because it allegedly received the notice
late. PSHS informed Pirra that its PB No. 5 could not be processed yet as it was awaiting the
COA Report. Pirra and PSHS entered into a Joint Inspection Agreement and agreed to jointly
request the COA for a re-inspection of a portion of Project A. PSHS informed Pirra that it would
take over Project A in the interest of the government and to prepare for its occupancy for School
Year 2010-2011. It also stated that it would implement the repair of the identified defects
through a third party, the expenses of which would be deducted from Pirras final billing. Pirra
questioned PSHS takeover of the project and claimed that such takeover is violative of its rights
as the winning contractor.

Project C: Pirra participated in and won the bidding for Project C. The parties entered into a
Contract Agreement. The project duration was 150 days. PSHS paid Pirra 15% of the contract
price as mobilization fee. Pirra requested a time suspension on Project C because of affected
footings, columns, and footing tie beams. PSHS informed Pirra that suspension was not the
solution, there being no changes in the structural design. Instead, it directed Pirra to file a
variation order (VO) with time extension. The parties agreed that Pirra shall submit to the
Consultant the shop drawing for the foundation and the Consultant shall submit the cross-
sections of the foundation and evaluate Pirras claim. Pirra sent a letter to PSHS stating that
delay was incurred on Project C because it received no response from PSHS or from the

61
Consultant on its request for time suspension. PSHS, in its reply, alleged that it found out that
Pirra suspended work on Project C without its approval. PSHS informed Pirra that it was
terminating the Project C contract because of Pirras delay, default, and abandonment. PSHS
then issued an Order of Termination against Pirra. Pirra contended that the termination is
unjustified as PSHS failed to give it the intended revisions of the building plan as well as the
necessary documents to secure a building permit, thus as a result, Project C was stopped and
Pirra incurred a slippage of 75.99%.

Ruling of the CIAC: The tribunal ruled in favor of Pirra. PSHS is held liable for delay in paying
PB No. 5 and in taking over Project A without any legal basis. It is also held liable for delay in
submitting the revised drawings and extra work order to Pirra. CIAC held that PSHS breached its
obligations and invalidly terminated the contract for Project C.

Ruling of the CA: As regards Project A, the CA ruled that when PSHS created an Inspectorate
Team, it treated Project A substantially completed, thus PSHS should be held liable for PB No. 5
less the defective works. Anent Project C, the CA held that PSHS validly terminated the contract.
There was no showing that the affected work fell on critical path so there was no reason for
suspension of work. Nevertheless, PSHS is liable for the value of the work done on Project C
because otherwise there would be unjust enrichment on the part of PSHS.

Issues: 1) Whether PSHS treated Project A as substantially completed such that it is liable for
the residual value of PB No. 5?
2) Whether PSHS validly terminated the contract for Project C?

Held:

1. PSHS accepted and treated Project A as a substantially completed project. When Pirra
requested substantial acceptance and completion of Project A, PSHS did not object to
such request. It acted upon it and even created an Inspectorate Team for punch listing.
PSHS also repeatedly referred to PB No. 5 as the final billing for Project A. In fact, PSHS
initially expressed its willingness to pay only to put it on hold because of the COA
Report. Nonetheless, such report cannot affect PSHS obligation to pay Pirra because the
existence of the defective or undelivered items was not an excuse to avoid payment of the
progress billing, as the payment was due on the performed items that were completed or
were otherwise performed, save for the defects. As provided for under Article 1234 of the
Civil Code, if the obligation had been substantially performed in good faith, the obligor,
in this case Pirra, may recover as if it had strictly and completely fulfilled its obligation,
less the damages suffered by the obligee or in this instance, PSHS. PSHS is thus liable to
pay Pirra the residual value of PB No. 5.

2. The Court agrees with the CA that the contract for Project C was validly terminated. The
parties agreed on how to proceed with the contract for Project C in November 20, 2009.
While records reveal that PSHS failed to submit the revised drawing for the preparation
of a variation order, Pirra is not entirely faultless. After the November 20, 2009
agreement, Pirra no longer coordinated with PSHS. Neither did it explain why it did not
demand from PSHS the submission of the needed drawing. Both parties here failed to

62
abide by the November 20, 2009 agreement. The suspension of work made by Pirra on
Project C without PSHS approval cannot be ignored. Pursuant to the General Conditions
of Contract, PSHS may terminate the contract if Pirra incurs delay, abandons the project,
causes stoppage of work without the authority of PSHS, among other grounds. Indeed, by
reason of Pirras delay, suspension of work without any approval from PSHS, and
abandonment of the project, PSHS has sufficient basis to terminate the contract for
Project C. Nonetheless, Pirra is entitled to the value of the work done on Project C
pursuant to the principle of quantum meruit (in an action for work and labor, payment
shall be made in such amount as the plaintiff reasonably deserves) and to avoid unjust
enrichment.

63
Marphil Export Corporation and Ireneo Lim v. Allied Banking Corporation substituted by
Philippine National Bank
G.R. No. 187922
September 21, 2016

Topic: Legal Compensation

Facts: Marphil Export Corporation (Marphil) is engaged in the exportation of cuttlefish, cashew
nuts and similar agricultural products. To finance its purchase and export of these products,
Allied Bank granted a credit line from which it availed of several loans evidenced by promissory
notes. Upon negotiations of export bills/drafts that Allied Bank purchases from Marphil, the
amount of the face value of the letters of credit is credited in favor of the latter. Marphil exported
cashew nuts to Intan Tading Ltd. Hongkong (Intan). Intan applied for and opened Letter of
Credit No. 21970 with Nanyang Bank in China for $185,000.00, with Marphil as beneficiary and
Allied Bank as correspondent bank. After receiving the export documents, Allied Bank credited
Marphil in the amount of Php1,913,763.45. However, Allied Bank received a cable from
Nanyang Bank noting discrepancies in the shipping documents and that Intan refused to accept
the discrepancies. Nanyang Bank refused to reimburse Allied Bank. The latter informed Marphil
of the dishonor of L/C No. 21970 and that it was reversing its earlier credit of entry. Both the
RTC and the CA held Marphil liable for the amount of Php1,913,763.45, the amount equal to the
face value of L/C No. 21970.

Issue: Whether or not Allied Bank may unilaterally debit the amount it credited to Marphils
account?

Held: Allied bank, the collecting bank, has a right to debit Marphils account for the value of a
dishonored check it previously credited by virtue of the principle of legal compensation. Since
the relationship between banks and depositors is that of creditor and debtor in a simple loan,
legal compensation may take place when the conditions in Article 1279 of the Civil Code are
present: (1) that each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other; (2) that both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same quality if the latter has been
stated; (3) that the two debts be due; (4) that they be liquidated and demandable; and (5) that
over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. When Allied Bank credited Marphil's account, it
became the debtor of Marphil. However, once Nanyang Bank dishonored the export documents,
Marphil became the debtor of Allied Bank for the amount by virtue of its obligation to reimburse
the bank under the Letter Agreement. This obligation consisting of sum of money became
demandable upon notice of the dishonor by Nanyang Bank. Thus, legal compensation may take
place between the two debts. Allied Bank properly exercised its right to set off. Firstly, having
signed the Letter Agreement, Marphil expressly undertook that in case of dishonor of the draft
for the letter of the credit, it will refund to Allied Bank whatever the latter has credited in its
favor. Secondly, prior to debiting the amount, Allied Bank informed Marphil twice of Nanyang
Bank's refusal to honor. Thirdly, it immediately informed Marphil that it was debiting the
amount of the dishonored draft from the credit line.

64
Rizal Commercial Banking Corporation v. Teodoro G. Bernardino
G.R. No. 183947
September 21, 2016

Topic Under: Extinguishment of an Obligation; Novation

Facts: Marcopper Mining Corporation (MMC) obtained an unsecured bridge loan from RCBC.
Payment of the bridge loan was supposed to be sourced from the proceeds of a long term loan
MMC was seeking from Export-Import Bank (EXIM Bank). EXIM Bank, however, failed to
approve the long term loan due to a tailing spill in MMCs mining area in Marinduque which
caused the stoppage of MMCs operations.

Concerned that the short term loan it extended to MMC was unsecured, RCBC negotiated with
MMC to provide collateral or security and so MMC decided to mortgage their equipment.
Additionally, MMC pledged shares of stocks covered by Deeds of Pledge. RCBC later expressed
interest in substituting these collaterals with MMCs residential property in Forbes Park which
was mortgaged with ADB.

After a year, MMC proposed 2 options for the payment of its loan to RCBC: foreclose the
mortgaged assets or a repayment plan wherein they would assign the Forbes property to RCBC
and pay the rest cash. RCBC agreed to the 2nd option.

MMC sent RCBC the surety agreement duly executed by Bernardino, together with 2 PNs
covering the remaining obligation of MMC after effecting partial payment through the
assignment of the Forbes Park property to RCBC.

MMC failed to settle its obligations and so a final demand was sent declaring the whole
obligation under the PN due and payable. Demand was also made on Bernardino, as surety for
MMC, to pay the amount plus penalty.

Bernardino instituted a complaint for specific performance and for the declaration of nullity or
unenforceability of surety agreements against RCBC. RCBC alleged that contrary to
Bernardinos assertion, the parties did not agree to execute an agreement on Bernardinos
subrogation rights and a release of mortgage and pledge over MMCs properties. RCBC prayed
that Bernardino be declared jointly and severally liable with MMC to pay RCBC the principal
amount due under the PN.

Issue: Whether there was a condition precedent, a subrogation agreement, to the surety
agreements Bernardino executed in favor of RCBC?

Ruling: NO. Bernardino failed to establish the existence of a subrogation agreement that
operates as a condition precedent to the surety agreement.

Atty. Dueas' testimony shows that in a series of meetings, the parties discussed a possible
"arrangement on the transfer of the collateral" once Bernardino is called to pay the obligation
Atty. Dueas testified that Bernardino proposed "that collateral be given him." While this may
pertain to the subrogation agreement Bernardino is claiming, what is glaringly absent from the

65
discussions is the final agreement reached by the parties. For an offer to be binding, the
acceptance must be absolute and must not qualify the terms of the offer. Where there is only a
proposal and a counter-proposal that did not add up to a final arrangement, there is no meeting of
the minds between the parties. Thus, the surety agreements remain unconditional and their
validity stands.

The surety agreements do not include or refer to the execution of a subrogation agreement as a
condition precedent before Bernardino could be held liable. Bernardino cannot now come to
court asking for the enforcement of an agreement which clearly does not appear in the written
contract between him and RCBC.

As surety, Bernardino is principally and solidarily liable for the obligations arising from the PN.

Suretyship is a contractual relation resulting from an agreement whereby one person, the surety,
engages to be answerable for the debt, default or miscarriage of another, known as the principal.
The surety's obligation is not an original and direct one for the performance of his own act, but
merely accessory or collateral to the obligation contracted by the principal. Nevertheless,
although the contract of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor or promisee of the principal is said to be direct, primary and absolute, in
other words, he is directly and equally bound with the principal. The surety therefore becomes
liable for the debt or duty of another although he possesses no direct or personal interest over the
obligations nor does he receive any benefit therefrom.

Bernardino cannot now renege on his obligation to pay the promissory notes under the claim that
there was a previous agreement between the parties for RCBC to execute a subrogation
agreement before Bernardino could be held liable under the surety agreements. We stress that the
right to subrogation of a paying surety is by operation of law. Article 2067 of the Civil Code
provides in part that the guarantor who pays is subrogated to all the rights which the creditor had
against the debtor. Although Article 2067 explicitly pertains to guarantors, the right to
subrogation extends as well to sureties.

Similarly, under Article 2701 of the Civil Code, a remedy available to a guarantor (or surety),
even before having paid, is to demand a security from the principal debtor that shall protect the
guarantor (or surety) from any proceedings by the creditor and the danger of insolvency of the
debtor in certain cases.

It is clear, therefore, that whatever right to security Bernardino may have can only be demanded
from MMC and not from RCBC.

66
Philippine Economic Zone Authority v. Pilhino Sales Corporation
G.R. No. 185765
September 28, 2016

Topic: Rescission

Facts: PEZA published an invitation to bid for its acquisition of 2 brand new fire truck units.
Philno secured the contract, which stipulated that it was to deliver 2 FF3HP brand fire trucks
within 45 days of receipt of a purchase order. A further stipulation stated that "in case of failure
to deliver the . . . good on the date specified . . . , the Supplier agrees to pay penalty at the rate of
1/10 of 1% of the total contract price for each days commencing on the first day after the date
stipulated above." Philno failed to deliver. PEZA filed a complain for rescission of contract and
damages. Philno claimed there was no starting date from which its obligation to deliver could be
reckoned, considering that the complaint supposedly failed to allege acceptance by Pilhino of the
purchase order and that there was not even a meeting of minds. The RTC and CA held the
contract rescinded and awarded liquidated damages in favor of PEZA.

Issue: Whether or not liquidated damages may be awarded notwithstanding the rescission of the
contract stipulating it?

Held: A contract of sale entails reciprocal obligations, the seller obligates itself to transfer the
ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain in
money or its equivalent." Rescission on account of breach of reciprocal obligations is provided
for in Article 1191 of the Civil Code:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

Rescission under Article 1911 results in mutual restitution. Restoration of the contracting parties
to their original state is the very essence of rescission. This is however not a license for the
negation of contractually stipulated liquidated damages.

Article 1191 itself clearly states that the options of rescission and specific performance come
with "with the payment of damages in either case." The very same breach or delay in
performance that triggers rescission is what makes damages due.

67
When the contracting parties, by their own free acts of will, agreed on what these damages ought
to be, they established the law between themselves. Their contemplation of the consequences
proper in the event of a breach has been articulated. When courts are, thereafter, confronted with
the need to award damages in tandem with rescission, courts must not lose sight of how the
parties have explicitly stated, in their own language, these consequences.

While petitioners are indeed obliged to return the said amount to respondent under Article 1385,
assuming said figure is correct, respondent is at the same time liable to petitioners in the same
amount as liquidated damages by virtue of the forfeiture/penalty clause as freely stipulated upon
by the parties.

68
OCTOBER 2016
October 5, 2016

Dr. Restituto C. Buenviaje v. Spouses Jovito R. and Lydia B. Salonga, Jebson Holdings
Corporation and Ferdinand Juat Baez
G.R. No. 216023

Sergio Osmea III v. Power Sector Assets and Liabilities Management Corporation,
Emmanuel R. Ledesma Jr., SPC Power Corporation and Therma Power Visayas Inc.
G.R. No. 212686

October 10, 2016

Republic of the Philippines and Housing and Urban Development Coordinating Council
v. Gonzalo Roque Jr., Eduvigus A. Paredes, Michael A. Paredes, Purification Almeda,
Jose A. Almeda, Michelle A. Almeda, Michael A. Almeda, Alberto Delura and Theresa
Almeda
G.R. No. 203610

October 12, 2016


PNB v. Heirs of Benedicto and Azucena Alonday
G.R. No. 171865

October 17, 2016

People of the Philippines vs. Ariel Layag


G.R. No. 214875

Norma c. Magsano, et al. Vs. Pangasinan Savings and Loan Bank, inc., et al.
G.R. No. 215038

69
Dr. Restituto C. Buenviaje v. Spouses Jovito R. and Lydia B. Salonga, Jebson Holdings
Corporation and Ferdinand Juat Baez
G.R. No. 216023
October 5, 2016

Topic: Pure and Conditional Obligations; Rescissible Contracts

Facts: Jebson, an entity engaged in the real estate business, through its EVP Baez, entered into
a JVA with Spouses Salonga. Under the JVA, the spouses who owned the land would allow
Jebson to construct on the land 10 high-end single detached residential villas. They would
subdivide the property into individual titles and Jebson shall assume the liability to pay their
mortgage loan with Metrobank. Jebson would also be liable to secure the buildings and
development permits and the license to sell from the HLURB.

Out of the 10 units, 7 will belong to Jebson with the remaining 3 belonging to the spouses.
Jebson was allowed to sell its allocated units under such terms as it may deem fit, subject to the
condition that the price agreed upon was with the conformity of the spouses.

Eventually Jebson entered into a Contract to Sell with Buenvaje over one unit without the
consideration of the spouses. Out of the purchase price, a part of it was paid through a swapping
arrangement whereby Beunviaje conveyed to Jebson a house and lot, clubhouse membership
shares and more.

However, despite fill payment, Jebson was unable to complete the construction in violation of
the contractual stipulation to finish the same within 12 months from the issuance of the building
permit. Thus, Buenviaje formally demanded the immediate completion and delivery of his unit.
To no avail, Buenviaje filed before the HLURB a complaint for specific performance.

HLURB-RIV rescinded the respective contracts to sell entered into by Jebson and found the
respondents were not legally authorized to sell the units as they have not secured the necessary
Registration Certificate and License to Sell. Furthermore, Jebson failed to complete the
construction of the units as well as to deliver the units to the Buenviaje entitling him to the
refund of their payments. HLURB further found the spouses to be solidarily liable with Jebson
and Baez as joint venture partners liable to the general buying public.

Upon appeal, HLURB-BOC reversed and set aside the HLURB-RIVs ruling. HLURB-BOC
held that there was no substantial breach but only a slight or casual one, which did not justify a
rescission of the contracts to sell, especially in view of the fact that the residential units covered
by the said contracts were already at their finishing stages. The proper remedy, therefore, was to
fix the period for completion of the concerned units. Nonetheless, the HLURB-BOC also
invalidated the swapping arrangements and found no basis to hold the spouses solidarily liable
with Jebson and Baez considering that the JVA does not provide for solidarity for any act or
omission of either party and, in fact, expressly provides that the Spouses shall be free from any
liability from any 3rd party. OP and CA affirmed by finding that the OP correctly sustained the
HLURB Decision holding the recission of the contracts to sell to be impractical.

70
Issues:
1. Whether or not the grant of the remedy of specific performance in Buenviajes favor was
proper under the prevailing circumstances of the case?
2. Whether or not spouses Salonga are not solidarily liable with Jebson and Baez to Buenviaje
for completion for the completion of the construction and delivery of the unit?
3. Whether or not the swapping arrangment was invalid?

Held:

1. YES. The grant of the remedy of specific performance in Buenviajes favor was proper.

Specific Performance is defined as the remedy of requiring exact performance of a contract in


the specific form in which it was made, or according to the precise terms agreed upon. It pertains
to the actual accomplishment of a contract by a party bound to fulfill it.

On the other hand, resolution is defined as the unmaking of a contract for a legally sufficient
reason. Resolution does not merely terminate the contract and release the parties from further
obligations to each other, but abrogates the contract from its inception and restores the parties to
their original positions as if no contract has been made. Consequently, mutual restitution, which
entails the returm of the benefits that each party may have received as a result of the contract, is
thus required. Notably, resolution under Article 1191 of the Civl Code will not be permitted for a
slight or casual breach, but only for such substantial and fundamental violations as would defeat
the very object of the parties in making the agreement.

In this case, the HLURB-BOC, OP, and the CA all pointed out that Buenviaje primarily prayed
for the remedy of specific performance and only prayed for the remedy of rescission as an
alternative remedy. Thus, it remains apparent that as between the two remedies made available to
him, Buenviaje, had, in fact, chosen the remedy of specific performance and therefore, ought to
be bound by the choice he had made. To add, the fundamental rule is that reliefs granted a
litigant are limited to those specifically prayed for in the complaint; other reliefs prayed for may
be granted only when related to the specific prayers in the pleadings and supported by the
evidence on record. Hence, based on this postulate, the lower tribunals could hardly be faulted
for granting the proper relief in accordance with what Buenviaje himself had claimed.

Relatedly, it is observed that Buenviaje's alternative prayer for resolution is textually consistent
with that portion of Article 1191 of the Civil Code which states that an injured party "may also
seek rescission, even after he has chosen fulfillment, if the latter should become impossible."
Nevertheless, the impossibility of fulfillment was not sufficiently demonstrated in the
proceedings conducted in this case. As the HLURB- BOC pointed out, "[t]here is no finding that
specific performance has become impossible or that there are insuperable legal obstacles to the
completion of the constructed units so as to justify [resolution]."

2. NO. Buenviajes claim to be restituted the alleged purchase price of the unit for which the
spouses were claimed to be solidarily liable this, holds NO BASIS.

71
Mutual restitution is the proper consequence of the remedy of resolution. It cannot arise as it is,
in fact, theoratically incompatible with the remedy of specific performance, which is the relief
prayed for and consequently, granted to the injured party.

In this case, it is undisputed that Spouses Salonga were not parties to the contract. between
Jebson and Buenviaje. Under Article 1311 of the Civil Code, it is a basic principle in civil law on
relativity of contracts, that contracts can only bind the parties who had entered into it and it
cannot favor or prejudice 3 persons. Contracts take effect only between the parties, their
successors in interest, heirs and assigns. Thus, absent and privity of contract as to them, there is
no basis to hold Spouses Salonga liable for any of the obligations stated under the said contract.

3. NO. The court finds no basis to rescind the aforesaid swapping arrangement.

Creditors are given remedies whenever their debtors perform acts or omissions or enter into
contracts that tend to defraud the creditor of what is due to them. Such remedy comes in the form
of rescission under Articles 1381(3) in relation to Articles 1383 and 1384 of the Civil Code.
Rescission is a remedy granted by law to the contracting parties and even to 3 rd persons, to
secure the reparation of damages caused to them by a contract, even if this should be valid, by
restoration of things to their condition at the moment prior to the celebration of the contract. It
implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to
someone. In the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison detre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused, the
action cannot be maintained or continued.

The records do not support the HLURB-BOCs finding that this separate arrangement was
entered into in order to defraud Jebsons creditors under the JVA. The act of Jebson in accepting
non-cash assets as suitable payments was a business decision made by it. While such may have
been the cause of Jebson's inability to timely complete the project (possibly due to the lack of
immediate access to liquid capital at that time), the soundness or unsoundness of that business
decision is not enough for the Court to conclude that the said swaps were entered into to defraud
Spouses. Salonga, notwithstanding the resulting "economic prejudice" to them. As the records
show, Jebson was, in fact, able to receive both cash and non-cash asset payments made by
Buenviaje, and hence, could have properly managed the same to meet its obligations in light of
its financial position.

72
Sergio Osmea III v. Power Sector Assets and Liabilities Management Corporation,
Emmanuel R. Ledesma Jr., SPC Power Corporation and Therma Power Visayas Inc.
G.R. No. 212686
October 5, 2106

Topic: Pure and Conditional Obligations

Facts: The Board of Directors of the Power Sector Assets and Liabilities Management
Corporation (PSALM) approved the commencement of the 3 rd round of bidding for the sale of
the 153.1 MW Naga Power Plant Complex (NPPC). In due course, PSLALM issued a Notice of
Award in favor of Therma Power Visayas Inc. (TPVI), declaring the latter as the Winning
Bidder. The execution of a Land Lease Agreement (LLA) and Assets Purchase Agreement
(APA) in favor of TPVI, however, was subject to SPCs non-exercise of its Right to Top.

On the assumption that SPC Power Corporation (SPC) validly exercised its Right to Top,
PSALM executed the NPPC-APA and NPPC-LLA in SPCs favor, cancelling TPVIs Notice of
Award in the process. The Right to Top and the resultant agreement from its exercise, however,
were subsequently nullified by the Court.

Issue: Whether or not the nullity of TPVIs Notice of Award was valid?

Held: NO. The Bidding Procedures contain a severability clause that allows the award in favor
of TPVI to survive.

Contrary to the postulations of respondents PSALM and SPC, the nullification of the Right to
Top did not change the complexion of the bidding. By no means should this be considered an
alteration of the terms of the public bidding, let alone a material one, for it was clearly a
contingency expressly covered by the provisions of the Bidding Procedure as evidenced by the
severability clause.

The afore-quoted severability clause conveys the clear intention to isolate and detach any invalid
provision from the rest so that the latter may continue to be in force and effect. It operates to
salvage the surviving provisions of the Bidding Procedures as valid, legal, and enforceable,
despite the nullity of a component part.

Our Decision nullifying SPCs Right to Top ought not then be construed as the nullification of
the entire third round of the public bidding. It merely called for the application of the severability
clause to prevent PSALM, as much as possible, from having to repeat the process for the fourth
time. Consistently, the Court never expressly declared the third round of bidding as invalid.
Clear from the language of the dispositive portion of the Courts Decision is that the nullification
was limited only to SPCs Right to Top and the NPPC-LLA and NPPC-APA in its favor, nothing
more.

Articles 1181 and 1185 of the Civil Code find application in this case. In the case at bar,
PSALMs obligation to award the contract in TPVIs favor was dependent on the non-occurrence
of an event: SPCs legal and valid exercise of its Right to Top. As phrased by PSALM: the

73
approval of the sale to TPVI was a conditional one, the consummation of which is dependent on
the non-exercise by SPC of its right to top. It has become apparent, however, that such event
will never occur. SPC can never legally and validly invoke its Right to Top in view of its nullity.
The condition, therefore, is deemed complied with by operation of law, and the obligation to
execute the purchase contracts in favor of TPVI, due and demandable.

SPC did not legally and validly exercise its Right to Top.

Regardless of whether or not the Right to Top was nullified, however, the award of the purchase
contracts to TPVI would still be in order, for it appears that SPC did not validly exercise its
erstwhile advantage.
The exercise of the Right to Top is no different from the manner of perfecting any other sales
contract. It is perfected by mere consent, upon a meeting of the minds on the offer and the
acceptance thereof based on subject matter, price and terms of payment.

It is clear from the tenor of SPCs letter that its acceptance of PSALMs offer can never be
categorized as unqualified. Instead, what SPC communicated was its counter-offer for a longer
lease period. This is further made evident by our pronouncement in Development Bank of the
Philippines v. Medrano (Medrano), to wit:

a contract is perfected by mere consent, that is, from the moment that there is a
meeting of the offer and the acceptance upon the thing and the cause that constitute the
contract. The law requires that the offer must be certain and the acceptance absolute and
unqualified. To be considered certain, must be definite, while an acceptance is considered
absolute and unqualified when it is identical in all respects with that of the offer so as to
produce consent or a meeting of the minds.

It can readily be seen that there is no identity between what was offered and what was accepted.
There is a glaring difference not only in the term of the lease but also in its reckoning period. It
cannot then meet the criteria of an unqualified acceptance as discussed in the Medrano case.

When the 30-day period to exercise the Right to Top was about to lapse, the standing offer to
SPC was for a lease expiring on January 29, 2020. Without SPC communicating its unqualified
acceptance of such offer before the Right to Top expired, the award of the purchase contracts to
TPVI became due.

It was incumbent upon SPC to seek judicial intervention to toll the running of the 30-day period
pending the resolution of the issue. No recourse, however, was interposed by SPC.

74
Republic of the Philippines and Housing and Urban Development Coordinating Council v.
Gonzalo Roque Jr., Eduvigus A. Paredes, Michael A. Paredes, Purification Almeda, Jose A.
Almeda, Michelle A. Almeda, Michael A. Almeda, Alberto Delura and Theresa Almeda
G.R. No. 203610
October 10, 2016

Topic: Prescription of Actions

Facts: Gonzalo Roque Jr., Manuela Almeda-Roque, Eduvigis A. Paredes, Michael A. Paredes,
Purificacion Almeda, Jose A. Almeda, Michelle A. Almeda, Michael A. Almeda, Alberto
Delura, and Theresa Almeda, owned several parcels of land which they sold to the Republic in
1978, through DPWH. According to the petitioners, the republic approached them and asked
them to sell a portion of the land at government-dictated prices lower than market value. The
republic was suppose to use the land for President Marcos National Government Center Project.
The republic assured the respondents that, in the remote possibility that it abandons the project,
they will have the right to buy back the land.

The republic did not immediately take possession of all the land it had bought from the
respondents, thus, the respondents continued to occupy portions of the sold properties. After
several years, the respondents felt that the Republic was never going to takeover the land so
Gonzalo sent letters to then DPWH Secretary offering to buy back the properties. Gonzalo
received no response.

The respondents' suspicion was confirmed in December 2003. Armando A. De Castro (De
Castro), then undersecretary of the Housing and Urban Development Coordinating Council
(HUDCC), wrote a letter to the
respondents, requesting them to vacate all portions ofthe sold land that they were still occupying,
because the government would use the properties for socialized housing pursuant to Republic
Act (R.A.) No. 9207.

Realizing that the republic had completely abandoned its initial plan to use the land for the
National Government Center project, the respondents in 2005 filed a complaint for the
annulment of the sale of the properties.

In their answer, the republic argues that the respondents action for the annulment of sale is
barred by prescription.

Issues:
1. Whether the republic is immune from suit?
2. Whether the action is barred by prescription or laches?

Held:
1. NO. We rule that the republic is not immune from suit in the present case.

A suit against the state is allowed when the state gives its consent either expressly or impliedly.
Express consent is given through a statute while implied consent is given when the state enters

75
into a contract or commences litigation. Although not all contracts entered into by the
government operates as a waiver of its non-suitability, the Court held in previous cases that the
state effectively gave its consent when it entered into contracts and committed breach.

The State's failure to abide by the conditions of the contract constitutes the State's implied waiver
of its immunity. We reiterate that the doctrine of state immunity from suit cannot serve to
perpetrate an injustice on a citizen. If we rule otherwise, we will be tolerating unfair dealing in
contract negotiation.

2. NO. Prescription can either be a question of law or fact. It is a question of fact when there is a
need to determine the veracity of factual matters. Laches is also evidentiary in nature.

Resolving the issues of prescription and laches in the present case requires a factual review,
specifically whether the presidential proclamations that reduced the land allotted for the NGC
Project covered the subject properties and when the prescription period should start to run under
the circumstances. These are questions of fact that this Court need not delve into.

Nevertheless, the RTC found and concluded, with the CA affirming, that the respondents action
to annul the sale is not barred either by prescriptions or laches. Both court ruled that the
enactment of RA 9207 was the earliest time that the respondents could have known about the
government's plans to officially use the land for socialized housing. Thus, the respondents were
not barred by prescription when they filed their complaint in 2005, within four (4) years from the
enactment of RA 9207.

As to laches, both the RTC and the CA found that the respondents' letters to the DP\VH showed
that they were vigilant in asserting their alleged right to repurchase the properties from the
Republic. This vigilance negates the Republic's claim of laches.

We are bound and accordingly adopt these findings and conclusions by the lower courts.

HOWEVER, we grant the republics petition and reverse the CAs ruling annulling the sale
contract between the parties. The parties entered into a negotiated sale transaction; thus, the
republic did not acquire the property through expropriation.

In expropriation, the Republic's acquisition of the expropriated property is subject to the


condition that the Republic will return the property should the public purpose for which the
expropriation was done did not materialize. On the other hand, a sale contract between the
Republic and private persons is not subject to this same condition unless the parties stipulate it.

The respondents in this case failed to prove that the sale was attended by a similar condition.
Hence, the parties are bound by their sale contract transferring the property without the condition
applicable in expropriation cases.

76
PNB v. Heirs of Benedicto and Azucena Alonday
G.R. No. 171865
October 12, 2016

Topic: General Provisions on Contracts

Facts: Spouses Benedicto and Azucena Alonday (Spouses Alonday) obtained an agricultural
loan of P28,000.00 from the petitioner at its Digos, Davao del Sur Branch, and secured the
obligation by constituting a real estate mortgage on their parcel of land.

After several years, they also obtained a commercial loan for Pl6,700.00 from the petitioner's
Davao City Branch, and constituted a real estate mortgage over their 598 square meter residential
lot. The spouses made partial payments on the commercial loan which they renewed on
December 23, 1983 and was fully paid on July 5, 1984.

Eventually, their children demanded the release of the mortgage over the property covered in the
commercial loan. However, PNB informed them that the mortgage could not be released because
the agricultural loan had not yet been fully paid and that as a consequence of the failure to pay, it
had foreclosed the mortgage over the property.

According to PNB, the deed of mortgage relating to the property covered by the agricultural loan
included an "all-embracing clause" whereby the mortgage secured not only the commercial loan
contracted with its Davao City Branch but also the earlier agricultural loan contracted with its
Digos Branch.

Issue: Whether the all-embracing or dragnet clause contained in the first mortgage contract
executed between the parties for the security of the first loan could authorize the foreclosure of
the property under the mortgage to secure a second loan despite the full payment of the second
loan?

Held: NO. There is no question, indeed, that all-embracing or dragnet clauses have been
recognized as valid means to secure debts of both future and past origins. Even so, we have
likewise emphasized that such clauses were an exceptional mode of securing obligations, and
have held that obligations could only be deemed secured by the mortgage if they came fairly
within the terms of the mortgage contract. For the all-embracing or dragnet clauses to secure
future loans, therefore, such loans must be sufficiently described in the mortgage contract.

The mere fact that the mortgage constituted on the property covered by TCT No. T- 66139 made
no mention of the pre-existing loan could only strongly indicate that each of the loans of the
Spouses Alonday had been treated separately by the parties themselves, and this sufficiently
explained why the loans had been secured by different mortgages.

Another indication that the second mortgage did not extend to the agricultural loan was the fact
that the second mortgage was entered into in connection only with the commercial loan.

77
We further concur in their holding that the mortgage contracts executed by the Spouses Alonday
were contracts of adhesion exclusively prepared by the petitioner.

Under Article 1306 of the Civil Code, the contracting parties "may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order or public policy." This is an express recognition by the
law of the right of the people to enter into all manner of lawful conventions as part of their
safeguarded liberties.

The objection against a contract of adhesion lies most often in its negation of the autonomy of
the will of the parties in contracts. A contract of adhesion, albeit valid, becomes objectionable
only when it takes undue advantage of one of the parties - the weaker party - by having such
party just adhere to the terms of the contract. In such situation, the courts go to the succor of the
weaker party by construing any obscurity in the contract against the party who prepared the
contract, the latter being presumed as the stronger party to the agreement, and as the party who
caused the obscurity.

78
People of the Philippines v Ariel Layag
GR 214875
October 17, 2016

Topic: Extinguishment of Civil Liabilities; Sources of Obligations

Facts: On August 3, 2015, the Court of Appeals found Ariel Layag guilty beyond reasonable
doubt of 1 count of Qualified Rape by Sexual Intercourse, 2 counts of Qualified Rape by Sexual
Assault, and 1 count of Acts of Lasciviousness. The dispositive portion of his civil liabilities
which reads:
as to the award of damages, sentencing him to suffer the following penalties: (a)
in Crim. Case No. 2007-9591-MK for Qualified Rape by Sexual Intercourse, he is sentenced to
suffer the penalty of reclusion perpetua without eligibility for parole, and ordered to pay the
amounts of Pl00,000.00 as civil indemnity, Pl00,000.00 as moral damages, and Pl00,000.00 as
exemplary damages; (b) in Crim. Case Nos. 2007-9592-MK and 2007-9593-MK for Qualified
Rape by Sexual Assault, he is sentenced to suffer the penalty of imprisonment for the
indeterminate period of eight (8) years and one (1) day of prision mayor, as minimum, to
seventeen (17) years of reclusion temporal, as maximum, and ordered to pay the amounts of
P30,000.00 as civil indemnity, P30,000.00 as moral damages, and P30,000.00 as exemplary
damages, for each count; and (c) in Crim. Case No. 2007-9594-MK for Acts of Lasciviousness,
he is sentenced to suffer the penalty of imprisonment for the indeterminate period of six (6)
months of arresto mayor, as minimum, to four (4) years and two (2) months of prision
correccional, as maximum, and ordered to pay the amounts of P20,000.00 as civil indemnity,
P30,000.00 as moral damages, and P30,000.00 as exemplary damages. In addition, all monetary
awards shall earn legal interest of six percent ( 6%) per annum, to be reckoned from the date of
finality of this Resolution until full payment.

The Court of Appeals declared the aforesaid resolution had become final and executory.
However, the CA received a letter from the Bureau of Corrections that the accused-appellant had
passed away on July 30, 2015, days before the promulgation of the CA decision.
The Supreme Court affirmed that based on Article 89 of the Revised Penal Code, criminal
liability is totally extinguished by the death of the accused. That being said, the issue in this case
is civil liability of the deceased accused-appellant.

Issue: Whether or not death of the accused-appellant extinguish civil liability?

Held: Yes. Article 1157 of the Civil Code enumerates these other sources of obligation from
which the civil liability may arise as a result of the same act or omission: xxx d) Delicts

That being said, the civil action instituted therein for the recovery of the civil liability ex delicto
is ipso facto extinguished, grounded as it is on the criminal action. When the criminal liability
was extinguished because of the death of the accused-appellant, his civil liabilities arising from
the criminal action is also extinguished. However, this does not bar the victim from filing a
separate civil action against the estate of the deceased accused-appellant based on sources other
than delicts.

79
Norma C. Magsano, et al. v Pangasinan Savings and Loan Bank, Inc.
GR 215038
October 17, 2016

Topic: Prescription and estoppel

Facts: On July 1, 1991, spouses Roque Magsano and Susana Capelo, parents of herein
petitioners, executed a Real Estate Mortgage in favor of herein respondent bank over a 418
square-meter parcel of land in Dagupan City, as a security of the Php 35,000.00 loan.

The mortgagors then defaulted on their loan obligation when it was then due. The respondent
bank then extra-judicially foreclosed the mortgaged property. A public auction was held on
March 21, 1994, and the respondent bank won as the highest bidder, with a bid price of Php
65.826.69. The TCT No. 48754 of Roque and Susana was then cancelled and was replaced with
TCT No. 65394 in the name of respondent bank. The bank then sold the property to the Sps.
Manuel and were issued TCT No. 67491.
Despite repeated demands from the bank, the family of the mortgagors refused to vacate the
premises, hence the bank applied and was granted a writ of possession over the subject property.

The petitioners, on September 6, 2004, filed a complaint for the annulment of the Real Estate
Mortgage, the Certificate of Sale, the Sheriff's Final Sale, the Deed of Sale and TCT No. 48754,
against the bank and the Sps. Manuel. The petitioners claimed that the Real Estate Mortgage was
null and void because Roque passed away on April 17, 1991, while the Mortgage Contract was
executed on July 1, 1991. The petitioners likewise asserted that Sps. Manuel were aware of such
infirmities regarding the original Real Estate Mortgage contract.

In response, the respondents stated that they had no knowledge of the death of Roque. Also,
assuming arguendo that the petitioners did have a cause of action, the same had prescribed
pursuant to Articles 1144, 1149, and 1150 of the Civil Code.

Art. 1144. The following actions must be brought within ten years
from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
Art. 1149. All other actions whose periods are not fixed in this
Code or in other laws must be brought within five years from the
time the right of action accrues. (n)
Art. 1150. The time for prescription for all kinds of actions, when
there is no special provision which ordains otherwise, shall be
counted from the day they may be brought. (1969)

The respondents further argued that the petitioners are estopped from questioning the validity of
the Real Estate Mortgage, considering that they: (a) are bound by the acts of their mother,
Susana, who signed the same, and is presumed to be the author of the

80
misrepresentation/falsification, and benefited from the proceeds of the loan; and (b) participated
in the proceedings for the issuance of the writ of possession.

The Sps. Manuel also argued that the were buyers in good faith.

Issues:

1) Whether or not the petitioners are barred from questioning the validity of the Real Estate
Mortgage?
2) Whether or not the Spouses Manuel were purchasers in good faith?

Held:

1) No. The Real Estate Mortgage contract was declared void, hence the petitioners' right to
action has yet to prescribe. However, only the part of the property that Susana did not have the
right to dispose of is void. When Roque passed away, the subject land was, by operation of law,
co-owned by his children and his wife. That being said, Susana had the right to mortgage her part
of the property, granted that there was already a proper partition of the estate of the deceased.

2) No. On the second issue, Spouses Manuel cannot claim to be a buyer in good faith. Sps.
Manuel did not show proof that they did their due diligence in checking the status of the land in
dispute. However, Spouses Manuel merely stepped into the shoes of respondent bank and
acquired only the rights and obligations appertaining thereto. As such, the Real Estate Mortgage
Contract is void as regards to the portion of Roque. The case is remanded to the RTC to
determine the shares of each party involved.

81
NOVEMBER 2016
November 14, 2016
Universal International Investment (BVI) Limited Vs. Ray Burton Development
Corporation/Universal International Investment (BVI) Limited Vs. Ray Burton
Development Corporation
G.R. No. 182201/G.R. No. 185815

November 16, 2016


UCPB General Insurance Company, Inc. Vs. Hughes Electronics Corporation
G.R. No. 190385

Spouses Desiderio and Teresa Domingo v Spouses Tita Manzano, Franklin Estabillo and
Carmelita Aquino
GR No. 201883

November 23, 2016


Fruehauf Electronics Philippines Corporation v Technology Electronics Assembly and
Management Pacific Corporation
GR No. 204197

White Marketing Development Corporation vs. Grandwood Furniture & Woodwork


G.R. No. 222407

November 28, 2016


Nestor Cabrera vs. Arnel Clarin
GR No. 215640

82
Universal International Investment (BVI) Limited vs. Ray Burton Development Corp.
G.R. No. 182201
November 14, 2016

Topic: Breach of Contract

Facts: Ray Burton Development Corp (RBDC) owned and developed Elizabeth Place, a
condominium located at Salcedo Village, Makati City. Universal International Investment
(Universal) and RBDC entered into separate Contracts to Sell covering the purchase of ten
condominium units and ten parking slots. Universal paid RBDC the full purchase price of the
properties amounting to 52,836,781.50. Universal demanded RBDC the cancellation of the sale
after RBDC failed to deliver possession of the properties and reneged on its obligation to transfer
the Condominium Certificates of Title (CCT) to Universals name. Universal subsequently
discovered that the mother title to the lot of Elizabeth Place is mortgaged to China Banking
Corporation (China Bank). The securities were foreclosed by China Bank.
Universal filed a Complaint for Specific Performance or Rescission of Contract and Damages
with the Expanded National Capital Region Field Office (ENCRFO) of the HLURB. The
ENCRFO rendered a decision in favor of Universal. When the case reached the Court of Appeals
(CA), Universal manifested that China Bank had released the subject properties and Universal
had already obtained their CCTs. When RBDC moved for dismissal of the case, Universal
claimed that it is RBDC is still liable for damages and compensation for property losses
supposedly to cover the depreciation costs and expenses it had incurred for the release of the
properties from China Bank under Section 6 of the Contract to Sell. Section 6 reads:
SECTION 6. BREACH AND/OR VIOLATIONS OF THE
CONTRACT.
This agreement shall be deemed cancelled, at the option of the
BUYER, in the event that SELLER, for the reasons of force
majeure, decide not to continue with the Project or the Project has
been substantially delayed. In such a case, the BUYER shall be
entitled to refund all the payments made with interest at one-and-a-
half (1) percent per month on the amount paid computed from
the date of cancellation until the payments have been fully
refunded. Substantial delay is defined as six (6) months from date
of estimated date of completion. The parties agree that the
estimated date of completion shall be December 31, 1998.

CA denied Universals claim for damages.


Issue: Whether or not RBDC committed a breach of contract?

Held: RBDC committed breach of contract. Both parties entered into a contract to sell, not a
contract of sale. In a contract to sell, ownership is reserved by the vendor. The obligation of the
seller becomes demandable only upon the happening of the suspensive condition which is the
full payment of the purchase price. Such full payment gives rise to the right to demand the
execution of the contract of sale. It is only upon the existence of the contract of sale that the

83
seller becomes obligated to transfer the ownership of the thing sold to the buyer. Under the
contract to sell, RBDC only has two obligations: (1) to deliver deeds of absolute sale; and (2) to
deliver the corresponding CCTs. RBDC did not have any contractual obligation to surrender
possession of the properties. Neither did RBDC have to cause the transfer of the CCT to
Universals name.

However, RBDC did fail to deliver the deeds of absolute sale and to give the corresponding
CCTs. RBDC invokes as an excuse Section 5(a) of the contract where Universal is obliged to
pay the transfer charges. RBDCs excuse fails. In order that the debtor may be held to be in
default, the following conditions must be present: (1) obligation is demandable and already
liquidated; (2) the debtor delays performance of the obligation; and (3) the creditor requires the
performance judicially or extrajudicially. RBDC did not make any demand to Universal to tender
any payment for the expenses connected with the execution of the Deed of Absolute Sale or
transfer of title. Universal cannot be considered to have defaulted on the payment of transfer
charges. Under the aforementioned provision of the contract, Universal cannot be obliged to pay
the transfer charges when RBDC did not aver to undertake the responsibility of transferring the
title of the properties. RBDC is left with no just reason not to perform its obligations to
Universal.

84
UCPB General Insurance vs. Hughes Electronics Corporation
G.R. No. 190385
November 16, 2016

Topic: Interpretation of Contracts

Facts: Philippine Charity Sweepstakes Office issued a resolution approving the use in its lottery
operations a facility called a Very Small Aperture Terminal lines (VSAT lines) being offered by
One Virtual Corporation (OVC). When Hughes Electronics found out about this, it offered OVC
its VSAT equipment and services. Hughes and OVC entered into a contract whereby Hughes
agreed to provide OVC the necessary equipment and services set forth in the technical
specifications in the contract. The contract contained an arbitration clause wherein parties must
undergo an arbitration in accordance with the International Arbitration Rules of the International
Chamber of Commerce before filing a suit in court in case of resolving a dispute or breach of the
contract.

Hughes Electronics and OVC agreed that the consideration will be US$743,457.95 secured by
OVCs letter of credit issued in favor of Hughes Electronics. The terms of payment were
modified upon issuance of a surety bond with OVC as principal and UCPB Insurance as surety in
favor of Hughes Electronics. The chairman and CEO of OVC, Mel Velarde, executed an
agreement of Counter-Guaranty in his personal capacity in favor of UCPB where he and OVC
solidarily undertook to indemnify UCPB for any damages and expenses of whatever kind and
nature it may sustain or incur as a consequence of the surety bond executed. OVC paid Hughes
Electronics the amount of US$60,000 but failed to comply with subsequent schedules of
payment. It was also discovered by OVC that Hughes Electronics failed to provide the
functioning equipment and components needed to conform to the system or protocol required by
the PCSO. Due to OVCs failure to pay, Hughes Electronics went after UCPB based on the
surety bond. UCPB failed to heed the demand.

Hughes Electronics filed a Complaint for Sum of Money with Damages against OVC as
principal and UCPB Insurance as surety. UCPB and OVC sought the dismissal of the complaint
due to non-compliance with the arbitration clause. They claimed that Hughes Electronics
disregarded a stipulated agreement to submit all disputes arising from the contract to arbitration.
The trial court denied the dismissal of the case. It also rendered a decision in favor of Hughes
Electronics. The Court of Appeals (CA) affirmed in toto the decision of the trial court. The CA
ruled that the arbitration clause is permissive in character.

Issue: Whether or not in interpreting the contract, the arbitration clause is mandatory before a
suit can be filed in court?

Held: In interpreting a contract, its provisions should not be read in isolation but in relation to
each other and in their entirety so as to render them effective, having in mind the intention of the
parties and the purpose to be achieved. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken
jointly.

85
Article 1370 of the Civil Code states that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall control.
However, it is clearly added that if the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former. Furthermore, Article 1374 states that the various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. The important task in contract interpretation is
always the ascertainment of the intention of the contracting parties and that task is to be
discharged by looking to the words they used to project that intention in their contract, all the
words not just a particular word or two, and words in context not words standing alone.

In interpreting the contract between Hughes Electronics and OVC, it can be concluded that the
arbitration clause is mandatory in character. The Court found that Hughes Electronics failed to
exercise good faith in resolving its dispute with OVC over the latters complaint for wrongful
installation of the contracted system and its subsequent failure to comply with the schedule of
payment. Hughes Electronics should have followed the letter of the contract and should have
made efforts to settle the dispute with OVC amicably instead of directly resorting to judicial
action.

Also, while the word may implies that it is discretionary and not mandatory, the intent of the
parties in crafting the stipulations of the contract must also be recognized. This is especially true
when one part on dispute resolution provides for a cordial out-of-court settlement couched in
mandatory language and the other part implies a permissive referral to arbitration.

Thus, upon meticulous review of the entire stipulations on dispute resolution in the contract and
taking into consideration the intention of the parties, it is necessary that arbitration proceedings
be complied before resorting to court action. This is especially true since arbitration is essential
in settlement of commercial disputes involving issues technical in nature.

86
Spouses Desiderio and Teresa Domingo v Spouses Tita Manzano, Franklin Estabillo and
Carmelita Aquino
GR 201883
November 16, 2016

Topic: Contract to sell vs Contract of sale

Facts: On June 1, 2001, the Manzanos, through their duly appointed attorney-infact and herein
co-respondent Franklin Estabillo (Estabillo), executed a notarized agreement with petitioners
Desiderio and Teresa Domingo which provided, among others, that

Ako, si Desiderio Domingo na nakatira sa 188 Gen. Mascardo St.


Bagong Barrio Kalookan City. Na bibilhin ko ang lupa at bahay ni
Tita Manzano sa 168 Gen. Mascardo St. Bagong Barrio Kalookan
City. Na ang may Special Power of Attorney si Franklin Estabillo
sa halagang (P900,000.00) nine hundred thousand pesos. Sa aming
napagkasunduan ako ay magbibigay ng halagang (P100,000.00)
one hundred thousand pesos para sa Reservision [sic] Fee.
Ayon sa aming napagkasunduan ililipat lamang ang Titulo ng lupa
na may no. 160752 at bahay pag nabayaran ko ng lahat ang
(P900,000.00) Nine Hundred Thousand Pesos hanggang Marso ng
2001. Kami ay maghahati sa Gain Tax at documentary stamps na
babayaran sa B.I.R. ayon sa aming napagkasunduan.
Kalakip nito ang xerox title ng titulo ng lupa at bahay.

The petitioners the paid the 100,000 reservation fee, the another 160,000 sometime later.
However, when the March 2001 deadline came, the petitioners were not able to pay the full
amount of the remaining balance. Be that as it may the petitioner still paid 85,000, bringing their
total payment to Php345,500.00.

In December 2001, the petitioners offered to pay the remaining balance in full, but the
respondents refused to accept such offer. Respondent Tita then said that the property was no
longer for sale and she was forfeiting petitioners' payments.

It was then discovered that respondent Aquino bought the subject land property on May 7, 2002,
and a new title was issued and the adverse claim was carried over to Aquino's new title.

Issue: Whether or not Article 1544 of the Civil Code is applicable in this case?

Held: It has been previously held that in a contract to sell, payment of the price is a positive
suspensive condition, failure of which is not a breach of contract warranting rescission but rather
just an event that prevents the prospective buyer from compelling the prospective seller to
convey the title. The non-fulfillment of the condition of full payment renders the contract to sell
ineffective and without force and effect.

87
It is clear from the conditions set in the contract between Domingo and Manzano that it is a
contract to sell. That said, Art. 1544 cannot apply in this case because there was no double sale.
The first contract of Domingo and Manzano, being a contract to sell, the sale was not perfected
because of the non-payment of the Domingo of the full amount. Aquino on the other hand, paid
the amount due and was able to transfer the title in her name. As far as the court is concerned
that is the only valid sale.

88
Fruehauf Electronics Philippines Corporation vs Technology Electronics Assembly and
Management Pacific Corporation
GR 204197
November 23, 2017

Topic: Consequences and Obligation under a perfected contract

Facts: In 1978, Fruehauf leased several parcels of land in Pasig City to Signetics for a period of
25 years. In 1983, ceased its operations and in 1986 was bought be Team Holdings. In March
1987, Fruehauf filed an unlawful detainer case against TEAM. To settle the dispute, both parties
signed a MOA in June 9, 1988. Under said MOA, TEAM was to pay Fruehaur Php 14.7 million
as unpaid rent from December 1986 to June 1988.

Both parties also entered in a 15-year lease contract expiring on June 9, 2003, that was renewable
for another 25 years. Said contract included an arbitration agreement which states:
17. ARBITRATION
In the event of any dispute or disagreement between the parties
hereto involving the interpretation or implementation of any
provision of this Contract of Lease, the dispute or disagreement
shall be referred to arbitration by a three (3) member arbitration
committee, one member to be appointed by the LESSOR, another
member to be appointed by the LESSEE, and the third member to
be appointed by these two members. The arbitration shall be
conducted in accordance with the Arbitration Law (R.A. No. 876).

TEAM then subleases the property to Capitol Publishing House on 1996. In 2003, TEAM
decided not to renew the lease agreement, in effect also ending the sublease between TEAM and
Capitol. However, Capitol only vacated the property on 2005 and left the property with
substantial damage.

On March 9, 2004, Fruehauf instituted SP Proc. No. 11449 before the I Regional Trial Court
(RTC) for "Submission of an Existing Controversy for Arbitration." Pursuant to the arbitration
agreement, the dispute was referred to a three-member arbitration tribunal. The tribunal then
awarded 8.2 million pesos in back rentals and 46.8 million pesos as damages to Fruehauf.

TEAM the elevated the matter to the RTC, in which the RTC refused to decide, stating that it
was not the proper body for appeal. TEAM then elevated the matter to the Court of Appeals, and
the CA reversed the RTC decision and arbitrators' decision. Hence the present issue at the
Supreme Court.

Issue: Whether or not the Arbitration is a quasi-judicial function?

Held: (For contracts) No. Alternative dispute resolution is outside the regular court system. It is
the voluntary process in which one or more arbitrators resolve a dispute. It requires consent from
all parties in the form of an arbitration clause the pre-existed the controversy.

89
Quasi-judicial or administrative adjudicatory power is the power to hear and determine questions
of fact to which legislative policy is to apply and to decide in accordance with the standards laid
down by the law itself in enforcing and administering the same law.

In the case at bar, the arbitral tribunal acquires jurisdiction over the parties and the subject matter
through stipulation. Once the rendition of the award, the tribunal becomes functus officio, and
ceases to have any further jurisdiction over the dispute. The tribunal's power and very existence
stem from the obligatory force of the arbitration agreement and its ancillary stipulations. Article
1315 of the Civil Code provides that:
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.

90
White Marketing Development Corporation vs. Grandwood Furniture & Woodwork
G.R. 222407
November 23, 2016

Topic: Assignment of credit/subrogation

Facts: Grandwood Furniture & Woodwork (Grandwood) obtained a loan in the amount of 40
Million from Metropolitan Bank and Trust Company (Metrobank). The loan was secured by a
real estate mortgage. Metrobank sold its rights and interests over the loan and mortgage contract
to Asia Recovery Corporation (ARC). The loan was subsequently assigned to Cameron Granville
3 Asset Management (CGAM3). CGAM3 extrajudicially foreclosed the real estate mortgage
with White Marketing Development (White Marketing) as the highest bidder. White Marketing
was informed that Grandwood wanted to redeem the property. White Marketing replied that
Grandwood no longer had the right to redeem. Grandwood wrote a letter to the clerk of court that
the clerk has the ministerial duty to recognize the right to redemption, accept the tender of
payment and issue a certificate of redemption. The clerk of court of the trial court refused to
accept the tender of payment because of the conflicting applicable laws on the matter of
redemption period.

Grandwood filed a petition for consignation, mandamus, and damages before the RTC claiming
its right to redeem the property. The trial court dismissed the petition and ruled that White
Marketing acquired all the rights of Metrobank in the mortgage contract assigned to CGAM3.
The case was appealed to the Court of Appeals (CA). The CA reversed the RTC and remanded
the case back to the RTC for the determination of the redemption price. The CA ruled that the
clerk of court should have accepted the consigned amount for the redemption of the property.
Since White Marketing was not privy to the contract between

Issue: Whether or not White Marketing was subrogated to Metrobank and therefore entitled to a
shorter redemption period under the General Banking Law?

Held: White Marketing stepped into the shoes of Metrobank by virtue of the assignment of
credit. A contracting party's assignees, although seemingly a third party to the transaction,
remain bound by the original party's transaction under the relativity principle because of the
concept of subrogation, which inheres in assignment. Jurisprudence states that when a person
assigns his credit to another person, the latter is deemed subrogated to the rights as well as to the
obligations of the former. By virtue of the Deed of Assignment, the assignee is bound by exactly
the same conditions as those which bound the assignor. Accordingly, an assignee cannot acquire
greater rights than those pertaining to the assignor and simply stands into the shoes of the latter.
In an assignment of credit, the assignee acquires the power to enforce it to the same extent as the
assignor could have enforced it against the debtor. Through the assignment of credit, the new
creditor is entitled to the rights and remedies available to the previous creditor, and includes
accessory rights such as mortgage or pledge. Consequently, ARC acquired all the rights,
benefits and obligations of Metrobank under its mortgage contract with Grandwood. The same
could be said for subsequent assignees or successors-in-interest after ARC like White Marketing.
And due to the subrogation of White Marketing to the rights of Metrobank, White Marketing is
entitled to the shorter redemption period under Section 47 of the General Banking Law.

91
Nestor Cabrera vs. Arnel Clarin
GR 215640
November 28, 2016

Topic: Estoppel

Facts: The petition originated from a Complaint for accion publiciana with damages file before
the RTC by Cabrera against respondents Clarin, Barrios, Serafin, and Moreno. Petitioner is the
lawful and registered owner of a parcel of agricultural land in Calumpit Bulacan with a total area
of 60,000 square meters covered by TCT T-4439. He was in actual and physical possession of
the land until he discovered the encroachment of the respondents sometime in December 2005.
They failed to settle amicable when the case was brought before the barangay.

The respondents claimed that the complaint failed to state the assessed value of the property
which is needed in determining the docket fees. The respondents also claim that he petitioner did
not submit a government approved technical survey of actual encroachment on their part.

The RTC denied the respondent motion and directed them to file an answer. The respondent
failed to file an answer on time and the RTC declared them in default, and allowed the petitioner
to present his evidence ex parte. The RTC then ruled in favor of the petitioner.

The respondents elevated the matter to the court of appeals which then reversed and set aside the
decision of the RTC.

Issue: Whether or not estoppel bars respondents from raising the issue of lack of jurisdiction?

Held: Cabrera alleges that the CA erred in concluding the RTC did not have jurisdiction over
the action for this is contrary to the doctrine of estoppel. Estoppel sets in when the respondents
participated in all stages of the case and voluntarily submitting to its jurisdiction seeking
affirmative relief in addition to their motion to dismiss due to lack of jurisdiction.

This assumption lacks merit. A court's jurisdiction may be raised at any point of the proceeding,
even on appeal for the same conferred by law, and lack of it affects the very authority of the
court to take cognizance of and to render judgement on the actions. It applies even if the issue on
jurisdiction was raised for the first time on appeal or even after final judgment.

The general rule is that the lack of a court's jurisdiction is a non-waivable defense that a party
can raise at any stage of the proceedings in a case, even on appeal; the doctrine of estoppel, being
the exception to such non-waivable defense, must be applied with great care and the equity must
be strong in its favor.

92
DECEMBER 2016
December 5, 2016
Sps. Luisito Pontigon and Leodegaria Sanchez-Pontigon vs. Heirs of Meliton Sanchez, et
al.
G.R. No. 221513

Philippine Stock Exchange, Inc. vs. Antonio K. Litonjua and Aurelio K. Litonjua, Jr
G.R. No. 204014

December 7, 2016
Pryce Properties Corporation vs. Sps. Sotero Octobre, Jr., et al.
G.R. No. 186976

B.F. Corporation and Honorio Pineda vs. Form-Eze Systems, Inc.


G.R. No. 192948

93
Spouses Luisito Pontigon and Leodegaria Sanchez-Pontigon vs. Heirs of Meliton Sanchez
G.R. No. 221513
December 5, 2016

Topic: Prescription; Private documents; Relativity of Contracts; Voidable Contracts

Facts: Meliton Sanchez (Meliton) owned a 24-hectare parcel of land in Floridablanca, Pampanga
covered by OCT 207 registered in his name. Meliton died intestate leaving the subject property
to his three children: Apolonio, Flaviana, and Juan. Petitioner Leodegaria is the daughter of Juan
and Luisito is her husband. The respondents are Melitons grandchildren with Flaviana. The
respondents filed a Complaint for Declaration of Nullity of Title and Real Estate Mortgage with
Damages against petitioners.
The subject property had never been partitioned among the heirs of Meliton but upon verification
with the Register of Deeds (RD), OCT 207 is nowhere to be found and only an owners copy of
OCT 207 free from any annotation of cancellation or description of a document justifying the
transfer of the property is in the RD. Despite this, the petitioners transferred the title to their
names even without a document of conveyance. Respondents argue the transfer of title to
petitioners was fraudulent and invalid and that petitioners merely hold the title over the property
in trust for the Melitons heirs.
Petitioners countered that the conveyance in their favor is evidenced by an Extrajudicial
Settlement of Estate of Meliton Sanchez and Casimira Baluyut with Absolute Sale (extrajudicial
settlement) of the Melitons estate. They also claimed that there is already a 1979 trial court
decision that approved an extrajudicial settlement filed by the children of Meliton. Petitioners
also filed a motion to dismiss on the ground that the action of the respondents is already barred
by prescription.

There were circumstances asserted by the respondents to question the validity of the extrajudicial
settlement. First, when the document was executed, Flaviana was 69 years old and therefore, was
in her advanced age and already senile. There could have been no valid consent to the sale of the
property. The respondents admit that there is no document to prove the status of the Flavianas
mental condition. Second, it was alleged that Flaviana refused to affix her signature and was only
coerced to sign the extrajudicial settlement.

RTC denied the motion to dismiss and ruled that the action of the respondent has not prescribed.
The RTC ruled in favor of the respondents and declared the title of the petitioners null and void.
The RTC ratiocinated the fraudulent acquisition of the title resulted to a creation of a trust
relation and because of this, the action based on the trust relation is imprescriptible. The RTC
also found irregularities in the notarization of the extrajudicial settlement. The Court of Appeals
(CA) affirmed the ruling of the trial court. The CA also ruled that the extrajudicial settlement
cannot be considered a public document because it was not properly notarized. It cannot bind
third persons including the respondents. The document is also bereft of any probative value for
failure on the part of the petitioners to comply with the rules on the admissibility of private
documents as proof. Due to the irregularities of the extrajudicial settlement, it could not have
conveyed title to the petitioners.

94
Issues:
1. Whether or not the action is barred by prescription?
2. Whether or not the extrajudicial settlement is a private document binding on the respondents?
3. Whether or not extrajudicial settlement is void?

Held:
1. The respondents action is barred by prescription. The Court held that the action of
respondents is an action for reconveyance based on an implied or constructive trust. Such action
is not imprescriptible. An action for reconveyance of a parcel of land based on implied or
constructive trust prescribes in ten (10) years, the point of reference being the date of registration
of the deed or the date of issuance of the certificate of title over the property. An action for
reconveyance may only be permitted to be filed beyond the ten-year period when the plaintiff is
in actual possession of the disputed land, converting the action from reconveyance into a
quieting of title. Imprescriptibility is accorded to cases for quieting of title since the plaintiff has
the right to wait until his possession is disturbed or his title is questioned before initiating an
action to vindicate his right.

2. The extrajudicial settlement is a private document that is binding on the respondents.


The document is binding to the respondents because of the principle of relativity of
contracts provided in Article 1311 of the Civil Code. The extrajudicial settlement is a private
document because it was not properly notarized due to the absence of Flavianas residence
certificate number and the lack of identification presented by Flaviana. However, the irregularity
is not fatal to the validity of the extrajudicial settlement. The defect renders the written contract
as a private instrument rather than a public one. While Article 1358 of the Civil Code seemingly
requires transmission and extinguishment of real rights over immovable property should be in a
public document, it is hornbook doctrine that the embodiment of certain contracts in a public
instrument is only for convenience. Non-observance of the prescribed formalities does not
necessarily excuse the contracting parties from complying with their respective obligations under
their covenant and merely grants them the right to compel each other to execute the proper deed.
A contract of sale has the force of law between parties who are expected to abide in good faith
by their contractual commitments notwithstanding the failure to comply with Article 1358.

The principle of relativity of contracts dictates that contractual agreement can only bind the
parties who entered into them and cannot favor or prejudice third persons, even if he is aware
such contract and has acted with knowledge thereof. This doctrine finds basis in Article 1311 of
the Civil Code. The law is categorical in declaring that as a general rule, the heirs of the
contracting parties are precluded from denying the binding effect of the valid agreement entered
into by their predecessors-in-interest. The heirs are not deemed third persons to the contract.
The provision also does not make a distinction on whether the contract adverted to is oral or
written, and even more so whether it is embodied in a public or private instrument. It is then
immaterial that the Extrajudicial Settlement executed by Flaviana is properly notarized for the
said document to be binding on her heirs, the respondents in this case.

3. The extrajudicial settlement is only voidable, not void. On the allegations of the
respondents of the coercion of Flaviana into signing the extrajudicial settlement, such
circumstance renders the extrajudicial settlement voidable. A voidable contract retains the

95
binding effect of a valid one unless otherwise annulled. The action for annulment shall be
brought within four (4) years in cases of intimidation, violence, or undue influence, from the
time the defect of the consent ceases. The prescriptive period for annulment had long since
expired before they filed their complaint. They cannot be permitted to circumvent the law by
belatedly attacking collaterally the voidable document in the present action for declaration of
nullity of title. The extrajudicial settlement had been ratified by the inaction of the respondents
and is therefore binding upon them despite the irregularities of the petition for approval of the
extrajudicial settlement.

96
Philippine Stock Exchange vs. Antonio Litonjua and Aurelio Litonjua
G.R. No. 204014
December 5, 2016

Topic: Consent; Estoppel; Payment

Facts: Trendline, as a member of the Philippine Stock Exchange (PSE), owns a trading seat with
a right to conduct trading activities in the PSE. Trendline violated some PSE rules and failed to
pay its cash settlement payables to the Securities Clearing Corporation of the Philippines. PSE
was compelled to assume Trendlines obligation. PSE suspended Trendlines trading privileges.

The Litonjua Group and Trendline entered into an agreement where the Litonjua Group acquired
85% majority equity of Trendlines membership in PSE. In exchange of the Trendlines
membership seat in the PSE, the Litonjua Group undertook to pay Trendlines outstanding
liability to PSE in the amount of 18,547,643.81 and upon payment, Trendlines membership
suspension will be lifted and its resumption to normal trading operation. Litonjua claimed the
Business Conduct and Ethics Committee of PSE has resolved to accept the amount of 19
Million as full and final settlement of Trendlines outstanding obligation. Litonjua delivered to
PSE three check payments payable to PSE amounting to 19 Million. PSE received the checks
as an advance payment for full settlement of Trendlines outstanding obligation to PSE. The
payor indicated in the checks was Trendline, not the Litonjua Group. Despite such payment and
exchange of letters of conformity, PSE failed to lift the suspension imposed on Trendlines seat.
Thereafter, Litonjua requested PSE to reimburse the 19 Million it had paid. PSE refused to
refund said amount.

Litonjua filed a complaint for collection of sum of money with damages against PSE before the
RTC. The trial court rendered a decision in favor of the Litonjua Group. The trial court ruled
that the Litonjua group is entitled to a refund from PSE based on solutio indebiti. The Court of
Appeals (CA) affirmed the decision of the trial court relied on the principle of constructive trust
instead of solutio indebiti. The CA ruled Article 1236 of the Civil Code is inapplicable in this
case. It ruled that the acts of PSE subsequent to the agreement between the Litonjua Group and
Trendline were tantamount to consent.

Issues:
1) Whether or not the PSE is a party to the agreement between the Litonjua Group and Trendline
absent its consent manifested through a board resolution?
2) If PSE is not a party, whether or not PSE is still liable to return the money it received?
3) Whether or not Article 1236 of the Civil Code is applicable?

Held:
1. PSE is not a party to the agreement between the Litonjua Group and Trendline absent
its consent manifested through a board resolution. The Supreme Court, citing Article 1305 of
the Civil Code, held that for a contract to be binding, there must be consent of the contracting
parties. Consent, as a requisite to have a valid contract, 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. In corporations, consent is manifested through a

97
board resolution since powers are exercised through the board of directors under the Corporation
Code. As a general rule, in the absence of the authority from the board of directors, no person,
not even its officers, can validly bind a corporation. Since there is no board resolution was issued
to authorize PSE to become a party to the agreement or to bind itself to the said obligations or to
lift the suspension over Trendlines PSE seat, PSE is not considered as a party to the agreement
of the Litonjua Group and Trendline.

2. PSE is still liable to return the money to Litonjua on the basis of unjust enrichment and
estoppel. It is only rightful to return the money received since PSE has no intention from the
beginning to be a party to the agreement. The principle of unjust enrichment requires PSE to
return the money it had received at the expense of another without just cause or consideration. In
addition, the principle of estoppel finds merit. Estoppel has its roots in equity. It is a response to
the demands of moral right and natural justice. Its purpose is to forbid one to speak against its
own act, representations or commitment to the injury of one to whom they were directed and
who reasonably relied thereon. The Litonjua Group was led to believe the payment of 19
Million will be the full settlement of all the obligations due in order to lift of the suspension of
the seat. By accepting Litonjuas payment, PSE is now estopped from claims that Trendline still
has a penalty obligation that must be settled before the transfer of the seat. Since it has been
made clear PSE is not a party due to the lack of consent, it is now estopped from claiming the
right to be paid.

3. Article 1236 of the Civil Code is inapplicable. PSE was arguing that the Litonjua Group
should demand reimbursement to Trendline under Article 1236. The Supreme Court held that
contrary to PSEs argument, Article 1236 is inapplicable in this case. Under Article 1236 of the
Civil Code, the creditor is not bound to accept the payment or performance by a third person who
has no interest in the fulfillment of obligation. Whoever pays for another may demand from the
debtor what he has paid, except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the debtor. PSE is not
bound to accept the payment of a third person who has no interest in the fulfillment of the
obligation. However, the Litonjua Group is an interested party. There was a clear understanding
that the Litonjua Group has the intention settle the outstanding obligation of Trendline in
consideration of its acquisition of 85% seat ownership and PSEs lifting of suspension of the
trading seat.

98
Pryce Properties Corporation vs. Spouses Octobre and China Banking Corporation
G.R. No. 186976
December 7, 2016

Topic: Breach of Contract

Facts: Spouses Octobre and Pryce Properties (Pryce) executed a Contract to Sell for purchase of
two lots with a total of 742 square meters located in Puerto Heights Village, Puerto Heights,
Cagayan de Oro City for the price of 2,897,510.00

Pryce certified that Spouses Octobre fully settled all the payments in relation to the property,
amounting to a total of 4,292,297.92. Spouses Octobre formally demanded Pryce the delivery
of the certificates of title but Pryce failed to comply. This prompted Spouses Octobre to file a
complaint for specific performance, revocation of certification, refund of payments, damages and
attorneys fees before the HLURB. The reason behind Pryces non-compliance is a Deed of
Assignment Pryce executed with China Bank. Under the Deed of Assignment, Pryce assigned
and transferred its accounts receivable in form of contracts to sell as security and deliver the
corresponding owners duplicate copies of the TCTs relating to the Puerto Heights development
project. In exchange, China Bank extended a 200 Million credit facility to Pryce. Pryce
defaulted in its loan obligation to China Bank which led to China Bank refusing to return the
titles to Pryce.

The HLURB Arbiter rendered a decision rescinding the contract between Pryce and the Spouses
Octobre and ordered Pryce to refund the payments made by the spouses and also to pay
compensatory damages. On appeal, the HLURB Board of Commissioner modified the decision
and ordered Pryce to pay the redemption value to China Bank so that the bank may release the
titles covering the lots purchased by the Spouses Octobre. In default thereof, Pryce shall refund
the payments with legal interest. The HLURB Board upheld the grant of compensatory
damages.The Office of President (OP) affirmed in full the HLURB Boards decision. Likewise,
the Court of Appeals (CA) affirmed the decision of the OP. The CA found that Pryce acted in
bad faith for not disclosing the titles were in custody of China Bank. The CA held Pryces
contractual breach justified the award of compensatory damages in the amount of 30,000.

Issue: Whether or not a breach of contract automatically triggers the award of actual or
compensatory damages?

Held: No. To be entitled to compensatory damages, the amount of loss must be capable of proof
and must be actually proven with a reasonable degree of certainty, premised upon competent
proof or the best evidence obtainable. Its award must be based on evidence presented, not on the
personal knowledge of the court; and certainly, not on flimsy, remote, speculative and non-
substantial proof. The amount paid by Spouses Octobre as purchase price for the lots has been
adequately proved. Therefore, Spouses Octobre are entitled to such amount.

However, the compensatory damages in the amount of 30,000 is bereft of any evidentiary basis.
In absence of adequate proof, compensatory damages should not have been awarded.
Nonetheless, nominal damages, in lieu of compensatory damages, are proper in this case.

99
Nominal damages are recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss of any kind. It could also
be awarded where there has been a breach of contract and no substantial injury or actual damages
whatsoever have been or can be shown. So long as there is a violation of the right of the plaintiff
whether based on law, contract or other sources of obligation an award of nominal damages
is proper. Proof of bad faith is not required. The HLURB Arbiter and the CA appear to have
confused nominal damages with compensatory damages.

Contractual breach is sufficient to justify an award for nominal damages but not compensatory
damages.

100
B.F. Corporation & Honorio Pineda v Form-Eze Systems, Inc
GR 192948
December 7, 2016

Topic: Reformation

Facts: Petitioner B.F. Corporation (BFC) is a corporation engaged in general engineering and
civil works construction. Petitioner Honorio H. Pineda (Pineda) is the President of BFC.
Respondent Form-Eze Systems Inc. (Form-Eze) is a corporation engaged in highway and street
construction.

On 29 August 2006, SM Prime Holdings, Inc. awarded the contract for general construction of
the SM City-Marikina mall (the Project) to BFC whereby the latter undertook to supply
materials, labor, tools, equipment and supervision for the complete construction of the Project. 3
In turn, BFC engaged Form-Eze for the lease of formwork system and related equipment for and
needed by the Project. Accordingly, five (5) contracts and two (2) letter-agreements were
executed by the BFC.

The contracts:

CONTRACT NO. 1: Contract for the Lease of the Equipment for the Beam and Slab Hardware
for the Formwork on SM Marikina Mall Project dated 20 December 2006
CONTRACT NO. 2: Contract for Stripping and Moving Form-Eze Systems Inc. Equipment from
Location to Location on SM Marikina Mall Project dated 20 December 2006
CONTRACT NO. 3: Contract for Column Formwork on the SM Marikina Mall Project dated 20
December 2006
CONTRACT NO. 4: Contract for the Lease of the Heavy Duty Galvanized Scaffold Frames and
Related Accessories on SM Marikina Mall Project dated 29 January 2007
CONTRACT NO. 5: Contract for the Purchase and Lease of the Heavy Duty Galvanized X-
Bracing on SM Marikina Mall Project dated 29 January 2007

On 2007, Form-Eze filed a Request for Arbitration11 before the CIAC. In its Complaint, Form-
Eze alleged that BFC has an unpaid obligation amounting to P9,189,024.58; that BFC wanted to
re-negotiate the equipment leases; and that it was not complying with the contractual and
supplemental agreements in effect

In its answer, BFC sought for reformation of Contract #1 to incorporate a provision that BFC
shall deduct from said billing the cost of labor supplied by it for the fabrication and assembly of
the forming system and for the stripping, cleaning, resetting thereof at the rate of P60.00 per
man-hour. BFC also demanded the refund ofn as expenses for the manufacture of additional
hardware to complete the 7,000 square meters of formwork required in Contract #1.

CIAC rendered an award in favor of Form-Eze. BFC filed a petition for review before the CA.
CA denied the petition for lack of merit.

101
Issues:
1. Whether or not Contract 1 can be reformed?
2. Whether or not the contract expressed their true intention; and, if not, whether it was due to
mistake, fraud, inequitable conduct or accident?

Held:

1. Yes, the Contract 1 may be reformed. An action for reform a contract is grounded on Article
1359 of the New Civil Code which provides:

ARTICLE 1359. When, there having been a meeting of the minds of the parties to a contract,
their true intention is not expressed in the instrument purporting to embody the agreement, by
reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be expressed.

Reformation is a remedy in equity, whereby a written instrument is made or construed so as to


express or conform to the real intention of the parties, where some error or mistake has been
committed. In granting reformation, the remedy in equity is not making a new contract for the
parties, but establishing and perpetuating the real contract between the parties which, under the
technical rules of law, could not be enforced but for such reformation. In order that an action for
reformation of instrument may prosper, the following requisites must concur: (1) there must have
been a meeting of the minds of the parties to the contract; (2) the instrument does not express the
true intention of the parties; and (3) the failure of the instrument to express the true intention of
the parties is due to mistake, fraud, inequitable conduct or accident

BFC relies on the Form-Eze Proposed SM Marikina Mall Project Elevated Beam and Slab
Formwork dated 7 December 2006 to support its contention that Contract No. 1 should have a
provision on the cost of labor. Indeed, in the aforementioned proposal, BFC has agreed "to
furnish the labor required for fabrication and assembly of the forming equipment" and that "BFC
will deduct from the total contract amount 50.00 per man-hour each carpenter or laborer supplied
to Form-Eze." Notably, Contracts No. 2 and 3 contain labor-guarantee provisions considering
that BFC has committed to provide the necessary labor for both contracts. As a matter of fact,
Mr. James Franklin, the President of Form-Eze conceded that Contract No. 1 should be modified
to include a labor-guarantee provision.

2. This admission by Form-Eze bolsters the conclusion that the parties intended to include a
labor-guarantee provision in Contract No. 1. Both Contracts No. 2 and 3 set the labor rate at
P60.00 per carpenter man-hour. BFC fixed the cost of labor at P453,294.50. Considering that
both parties admitted that there should be a labor- guarantee clause in Contract No. 1, it can be
reasonably inferred that the failure to include said provision was due to mistake. A reformation is
in order to include a cost of labor provision in Contract No. 1.

102
JANUARY 2017

January 18, 2017


Iloilo Jar Corporation vs. Comglasco Corporation/Aguila Glass
G.R. No. 219509

Rutcher T. Dagasdas vs. Grand Placement and General Services Corporation


G.R. No. 205727

January 25, 2016


Kabisig Real Wealth Dev., Inc. and Fernando C. Tio vs. Young Builders Corporation
G.R. No. 212375

January 31, 2016


Madag Buisan, et al. vs. Commission of Audit and Department of Public Works and
Highways
G.R. No. 212376

103
Iloilo Jar Corporation vs. Comglasco Corporation/Aguila Glass
G.R. No. 219509
January 18, 2017

Topic: Rebus Sic Stantibus; Kinds of Prestation

Facts: In August 2000, Iloilo Jar (lessor), and Comglasco (lessee) entered into a lease contract
over a portion of a warehouse building. The term of the lease was for a period of 3 years or until
August 2003.

On December 2001, Comglasco requested for the pre-termination of the lease effective on the
same date. Iloilo Jar rejected the request on the ground that the pre-termination of the lease
contract was not stipulated. Despite the denial of the request for pre-termination, Comglasco still
removed all its stock, merchandise and equipment from the leased premises on January 15, 2002.
From the time of the withdrawal of the equipment, and despite several demand letters,
Comglasco no longer paid all rentals accruing from the said date.

Iloilo Jar sent a final demand letter to Comglasco, but it was again ignored. Consequently, Iloilo
Jar filed a civil action for breach of contract and damages before the RTC

Comglasco argued that by virtue of Article 1267 of the Civil Code, it was released from its
obligation from the lease contract. It explained that the consideration had become so difficult due
to the global and regional economic crisis that had plagued the economy. It admitted that it had
removed its stocks and merchandise but it did not refuse to pay the rentals because the lease
contract was already deemed terminated.

RTC rendered a decision for Iloilo Jar. Comglasco moved for reconsideration to the CA, who
reversed the order of the RTC. Iloilo Jar filed a MR but was denied.

Issue: Whether or not there was a valid termination of contract?

Held: No, there was no valid termination.

To evade responsibility, Comglasco explained that by virtue of Article 1267, it was released
from the lease contract. It cited the existing global and regional economic crisis for its inability
to comply with its obligation.

Comglasco's position fails to impress because Article 1267 applies only to obligations to do and
not to obligations to give.

An obligation "to do" includes all kinds of work or service; while an obligation "to give" is a
prestation which consists in the delivery of a movable or an immovable thing in order to create a
real right, or for the use of the recipient, or for its simple possession, or in order to return it to its
owner. The obligation to pay rentals or deliver the thing in a contract of lease falls within the
prestation "to give".

104
The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory,
the parties stipulate in the light of certain prevailing conditions, and once these conditions cease
to exist, the contract also ceases to exist.

This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of
contractual relations. The parties to the contract must be presumed to have assumed the risks of
unfavorable developments. It is therefore only in absolutely exceptional changes of
circumstances that equity demands assistance for the debtor.

Considering that Comglasco's obligation of paying rent is not an obligation to do, it could not
rightfully invoke Article 1267 of the Civil Code. Even so, its position is still without merit as
financial struggles due to an economic crisis is not enough reason for the courts to grant reprieve
from contractual obligations.

In COMGLASCO Corporation/Aguila Glass v. Santos Car Check Center Corporation, the Court
ruled that the economic crisis which may have caused therein petitioner's financial problems is
not an absolute exceptional change of circumstances that equity demands assistance for the
debtor. It is noteworthy that Comglasco was also the petitioner in the above-mentioned case,
where it also involved Article 1267 to pre-terminate the lease contract.

Thus, the RTC was correct in ordering Comglasco to pay the unpaid rentals because the
affirmative defense raised by it was insufficient to free it from its obligations under the lease
contract.

105
Rutcher T. Dagasdas vs. Grand Placement and General Services Corporation
G.R. No. 205727
January 18, 2017

Topic: Parties may stipulate terms and agreements in their contract

Facts: Grand Placement and General Services Corp (GPGS) is a licensed recruitment or
placement agency in the Philippines while Saudi Aramco (Aramco) is its counterpart in Saudi
Arabia. On the other hand, Industrial & Management Technology Methods Co. Ltd. (ITM) is the
principal of GPGS, a company existing in Saudi Arabia.

In November 2007, GPGS, on behalf of ITM, employed Dagasdas as Network Technician. He


was to be deployed in Saudi Arabia under a one-year contract. Before leaving the Philippines,
Dagasdas underwent skill training and pre-departure orientation as Network Technician.
Nonetheless, his Job Offer indicated that he was accepted by Aramco and ITM for the position of
Supt.

Dagasdas contended that although his position under his contract was as a Network Technician,
he actually applied for and was engaged as a Civil Engineer. Purportedly, the position of
Network Technician was only for the purpose of securing a visa for Saudi Arabia because ITM
could not support visa application for Civil Engineers. Dagasdas arrived in Saudi and signed a
new contract with ITM who contracted him as Superintendent. Under this contract, Dagasdas
shall be placed under a three-month probationary period; and, this new contract shall cancel all
contracts prior to its date from any source.

He was allegedly given tasks suited for a Mechanical Engineer. Seeing that he would not be able
to perform well in his work, Dagasdas raised his concern to his Supervisor. Consequently, he
was transferred to the Civil Engineering Department. However, before Dagasdas case was
investigated, Siddiqui, Site Coordinator Manager,had severed his employment with ITM.
Later on, ITM gave him a termination notice indicating that his last day of work was on April 30,
2008, and he was dismissed pursuant to clause 17.4.3 of his contract, which provided that ITM
reserved the right to terminate any employee within the three-month probationary period without
need of any notice to the employee.

Dagasdas signed a Statement of Quitclaim with Final Settlement23 stating that ITM paid him all
the salaries and benefits for his services from February 11, 2008 to April 30, 2008 and ITM was
relieved from all financial obligations due to Dagasdas.

Upon returning to the PH, he filed an illegal dismissal case against GPGS, ITM and Amarco.

The Labor Arbiter dismissed the case for lack of merit. It was pointed out that Dagasdas signed a
new contract which was more advantageous for him, making the contract not prohibited by law.

Dagasdas appealed to the NLRC which found that his dismissal was illegal. They stated that
GPGS erroneously recruited Dagasdas.

106
GPGS filed a Petitioner for Certiorari. CA reversed the NLRC decision and reinstated the LA
decision

Issue: Whether or not the new contract is valid?

Held: NO, the new contract signed in Saudi is not valid.

It is well-settled that employers have the prerogative to impose standards on the work quantity
and quality of their employees and provide measures to ensure compliance. Non-compliance
with work standards may thus be a valid cause for dismissing an employee. Nonetheless, to
ensure that employers will not abuse their prerogatives, the same is tempered by security of
tenure whereby the employees are guaranteed substantive and procedural due process before they
are dismissed from work.

Since the employment contracts of OFWs are perfected in the Philippines, and following the
principle of lex loci contractus (the law of the place where the contract is made), these contracts
are governed by our laws, primarily the Labor Code. Our laws generally apply even to
employment contracts of OFWs as our Constitution explicitly provides that the State shall afford
full protection to labor, whether local or overseas. Even if a Filipino is employed abroad, he or
she is entitled to security of tenure, among other constitutional rights.

In this case, prior to his deployment and while still in the Philippines, Dagasdas was made to
sign a POEA-approved contract with GPGS, on behalf of ITM, and, upon arrival in Saudi
Arabia, ITM made him sign a new employment contract. Nonetheless, this new contract, which
was used as basis for dismissing Dagasdas, is void

ITM terminated him for violating clause 17.4.3 of his new contract
17.4 The Company reserves the right to terminate this agreement without serving any
notice to the Consultant in the following cases:
17.4.3 If the Consultant is terminated by company or its client within the probation
period of 3 months
Dagasdas new contract is in clear violation of his right to security of tenure. There is no clear
justification for the dismissal of Dagasdas other than the exercise of ITM's right to terminate him
within the probationary period While our Civil Code recognizes that parties may stipulate in their
contracts such terms and conditions as they may deem convenient, these terms and conditions
must not be contrary to law, morals, good customs, public order or policy. The contract is
contrary to law because as discussed, our Constitution guarantees that employees, local or
overseas, are entitled to security of tenure. To allow employers to reserve a right to terminate
employees without cause is violative of this guarantee of security of tenure.

107
Kabisig Real Wealth Dev. Inc & Fernando Tito vs. Young Corporation Builders
G.R. No. 212375
January 25, 2017

Topic: Requisites of a Valid Contract


Facts: In April 2001, Kabisig Real, through Ferdinand Tito, contracted the services of Young
Builders Corporation (Young Builders) to supply labor, tools, equipment, and materials for the
renovation of its building in Cebu City. Young Builders then finished the work in September
2001 and billed Kabisig for P4,123,320.95. However, despite numerous demands, Kabisig failed
to pay. The parties did not enter into a written contract, and there was no estimate as to the cost
of the renovation.
Young Builders filed a collection of sum of money suit against kabisig. RTC-Cebu rendered a
decision ordering Kabisig to pay Young Builders. Kabisig elevated the case to the CA, who
affirmed the decision of the RTC.
Young Builders and Kabisig moved for reconsideration but were denied. Kabisig filed the
current petition.
Issue: Whether or not Kabisig is liable to Young Builders for the damages claimed?
Held: Yes, Kabisig is liable to Young Builders.
Under the Civil Code, a contract is a meeting of minds, with respect to the other, to give
something or to render some service. Article 1318 reads:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;


(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.
Accordingly, for a contract to be valid, it must have the following essential elements: (1) consent
of the contracting parties; (2) object certain, which is the subject matter of the contract; and (3)
cause of the obligation which is established.
Consent must exist, otherwise, the contract is non-existent. Consent is manifested by the meeting
of the offer and the acceptance of the thing and the cause, which are to constitute the contract. By
law, a contract of sale, is perfected at the moment there is a meeting of the minds upon the thing
that is the object of the contract and upon the price. Indeed, it is a consensual contract which is
perfected by mere consent.
Kabisig's claim as to the absence of a written contract between it and Young Builders simply
does not hold water. It is settled that once perfected, a contract is generally binding in whatever
form, whether written or oral, it may have been entered into, provided the aforementioned
essential requisites for its validity are present. Article 1356 of the Civil Code provides:

108
Art. 1356. Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.
There is nothing in the law that requires a written contract for the agreement in question to be
valid and enforceable. Also, the Court notes that neither Kabisig nor Tio had objected to the
renovation work, until it was already time to settle the bill.
To determine the compensation due and to avoid unjust enrichment from resulting out of a
fulfilled contract, the principle of quantum meruit may be used. Under this principle, a contractor
is allowed to recover the reasonable value of the services rendered despite the lack of a written
contract. The measure of recovery under the principle should relate to the reasonable value of the
services performed. The principle prevents undue enrichment based on the equitable postulate
that it is unjust for a person to retain any benefit without paying for it. Being predicated on
equity, said principle should only be applied if no express contract was entered into, and no
specific statutory provision was applicable.11
The principle of quantum meruit justifies the payment of the reasonable value of the services
rendered and should apply in the absence of an express agreement on the fees. Considering the
absence of an agreement, and in view of the completion of the renovation, the Court has to apply
the principle of quantum meruit in determining how much is due to Young Builders.
Under the established circumstances, the total amount of P2,400,000.00 which the CA awarded
is deemed to be a reasonable compensation under the principle of quantum meruit since the
renovation of Kabisig's building had already been completed in 2001.

109
Madag Buisan, et al vs. Commission on Audit and Department of Public Works and
Highways
G.R. No. 212376
January 31, 2017

Topic: Laches

Facts: In 1989, the DPWH undertook the construction of the Liguasan Cut-off Channel (Project)
in Tunggol, Pagalungan, Maguindanao, to minimize the perennial problem of flooding in the
area. In 2001, the DPWH received various claims from land owners for damages allegedly
caused to their properties, crops and improvements by the premature opening of the Project.
In 2004, DPWH Regional Office recommended to pay just compensation to the claimants.
However since the event occurred in 1989, it could not account physically the actual quantity of
damaged crops and property. DPWH did not have a final resolution and the claims was
forwarded to COA.
The Petitioners, represented by Mayor Bai Anne Montawal, filed a petitioner with COA, praying
that DPWH pay compensation for the damaged crops, and properties. Later on, Buisan filed a
Motion to Dismiss the Petition alleging that Montawal was not authorized to represent them. In
fact, Buisan and the other claimants filed a separate petition with the COA based on that same
money claim
COA denied the money claims of the petitioners. It held that they are barred by laches for failure
to file the money claims within reasonable time.
Issue: Whether or not COA gravely abused its discretion in finding that the petitioners claim
was barred by laches and prescription?
Held: Yes, petitioners cause of action has been barred by laches.
COA denied the petition primarily on the ground that the petitioners filed their money claims
only on 2014, or 15 years after their cause of action arose in 1989. The petitioners statement that
there were already heavy rains since 1989 that caused flooding in the area negates their previous
claim that the cause of action arose in 1992. If in fact there were already heavy rains since 1989,
then it can also be argued that prior to 1992, their properties were already damaged by the floods
and that would be the reckoning point of their cause of action. This further establishes that their
cause of action has already prescribed.
While it may be argued that the petitioners have a cause of action against the DPWH, the same
has already prescribed in view of Article 1146 of the Civil Code; viz.:
ART. 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict.
Undeniably, the petitioners money claims which were only filed with the DPWH in 2004 or
even in 2001 had already prescribed. As correctly pointed out by the Office of the Solicitor

110
General, it will be the height of injustice for respondent DPWH to be confronted with stale
claims, where verification on the plausibility of the allegations remains difficult, either because
the condition of the alleged inundation of crops has changed, or the physical impossibility of
accounting for the lost and damaged crops due to the considerable lapse of time
On the other hand, laches has been defined as the failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence could or should have
been done earlier
In the case at bar, laches has set in as the elements are present. Firstly, the premature opening by
the DPWH of the Project allegedly causing flash floods, and damaging the petitioners properties
took place in 1989 or even in 1992. Secondly, the petitioners took 15 years to assert their rights
when they formally filed a complaint in 2004 against the DPWH. Thirdly, as the petitioners
failed to file a formal suit for their claims before the COA, there is an apparent lack of notice that
would give the DPWH the opportunity to defend itself.

111
INDEX

Assignment of Credit/Subrogation
White Marketing Development Corporation vs. Grandwood Furniture & Woodwork 91

Breach of Contract
Universal International Investment (BVI) Limited vs. Ray Burton Development Corp. 83
Pryce Properties Corporation vs. Spouses Octobre and China Banking Corporation 99

Compensation
Republic of the Philippines vs. Alberto Looyuko 29
Marphil Export Corporation and Ireneo Lim v. Allied Banking Corporation 64

Consignation
Jennefer Figuera vs. Maria Remedios Ang 35

Contract to Sell vs Contract of Sale


Spouses Desiderio and Teresa Domingo v Spouses Tita Manzano 87

Delivery
Heirs of Jose Extremadura vs. Manuel Extremadura and Marlon Extremadura 23

Estoppell
Joey R. Pea vs. Jesus Delos Santos and The Heirs of Rosita Delos Santos Flores 4
Norma C. Magsano, et al. v Pangasinan Savings and Loan Bank, Inc. 80
Nestor Cabrera vs. Arnel Clarin 92
Philippine Stock Exchange vs. Antonio Litonjua and Aurelio Litonjua 97

Extinguishment of Obligations
Interport Resources Corporation vs. Securities Specialist, Inc. 19
Republic of the Philippines vs. Alberto Looyuko 29
Nympha Odiamar vs Linda Odiamar Valencia 33
Development Bank of the Philippines v. Clarges Realty Corporation 49
Spouses Juan Chuy Tan and Mary Tan (Deceased) vs. China Banking Corporation 53
Philippine Science High School - Cagayan Valley Campus v. Pirra Construction 61
Rizal Commercial Banking Corporation v. Teodoro G. Bernardino 65
People of the Philippines v Ariel Layag 79

112
Fortuitous and Unforeseen Event
Spouses Jaime and Matilde Poon vs. Prime Savings Bank 21

Fraud
Republic of the Philippines vs. Mega Pacific eSolutions Inc. 31

General Provisions on Contracts


Industrial Personnel & Management Services, Inc. et al. vs. Jose G. De Vera 7
Sps. Florante E. Jonsay, et al. vs. Solidbank Corporation 11
Mactan-Cebu International Airport Authority vs. Richard E. Unchuan 17
Vil-Rey Planners and Builders vs. Lexber, Inc. Stronghold Insurance Company 25
Trifonia D. Gabutan, et al. vs. Dante D. Nacalaban, et al. 37
Teresita I. Buenaventura vs. Metropolitan Bank and Trust Company 48
Sta. Fe Realty, Inc. and Victoria Sandejas Fabregas v. Jesus M. Sison 55
PNB v. Heirs of Benedicto and Azucena Alonday 77
Fruehauf Electronics Philippines Corp vs Technology Electronics 89
Rutcher T. Dagasdas vs. Grand Placement and General Services Corporation 106
Kabisig Real Wealth Dev. Inc & Fernando Tito vs. Young Corporation Builders 108

Interpretation of Contracts
Florita Liam vs. United Coconut Planters Bank 27
Century Properties, Inc. v. Edwin J. Babiano 40
UCPB General Insurance vs. Hughes Electronics Corporation 85

Laches
Madag Buisan, et al vs. Commission on Audit and DPWH 110

Loss of the Thing Due


Development Bank of the Philippines v. Clarges Realty Corporation 49

Novation
Interport Resources Corporation vs. Securities Specialist, Inc. 19
Nympha Odiamar vs Linda Odiamar Valencia 33
Jennefer Figuera vs. Maria Remedios Ang 35
Ever Electrical Manufacturing, Inc. vs. Philippine Bank of Communications 47
Rizal Commercial Banking Corporation v. Teodoro G. Bernardino 65

Payment
Sps. Florante E. Jonsay, et al. vs. Solidbank Corporation 11
Jennefer Figuera vs. Maria Remedios Ang 35
Spouses Juan Chuy Tan and Mary Tan (Deceased) vs. China Banking Corporation 53

113
Philippine Science High School - Cagayan Valley Campus v. Pirra Construction 61
Philippine Stock Exchange vs. Antonio Litonjua and Aurelio Litonjua 97

Penal Clause
Spouses Jaime and Matilde Poon vs. Prime Savings Bank 21

Prescription
Spouses De Guzman vs. Court of Appeals, Mindanao 5
Caltex, Inc., et al. vs. Ma. Flora A. Singzon Aguirre, et al. 8
Edgardo A. Quilo and Adnaloy Villahermosa v. Teodula Bajao 58
Republic of the Philippines v. Gonzalo Roque Jr. 75
Norma C. Magsano, et al. v Pangasinan Savings and Loan Bank, Inc. 80
Spouses Luisito Pontigon & Leodegaria Sanchez-Pontigon vs. Heirs of Meliton Sanchez 94

Prestation
Iloilo Jar Corporation vs. Comglasco Corporation/Aguila Glass 104

Pure and Conditional Obligations


Sta. Fe Realty, Inc. and Victoria Sandejas Fabregas v. Jesus M. Sison 55
Dr. Restituto C. Buenviaje v. Spouses Jovito R. and Lydia B. Salonga 70
Sergio Osmea III v. Power Sector Assets and Liabilities Management Corp. 73

Reciprocal Obligations
Vil-Rey Planners and Builders vs. Lexber, Inc. Stronghold Insurance Company 25

Reformation
B.F. Corporation & Honorio Pineda v Form-Eze Systems, Inc 101

Rescission
Bonifacio Dana vs. Spouses Gregorio Serrano and Adelaida Reyes 45
Sta. Fe Realty, Inc. and Victoria Sandejas Fabregas v. Jesus M. Sison 55
Philippine Economic Zone Authority v. Pilhino Sales Corporation 67
Dr. Restituto C. Buenviaje v. Spouses Jovito R. and Lydia B. Salonga 70

Solidary Obligations
Phil-Nippon Kyoei, Corp. Vs. Rosalia T. Gudelosao, et al. 42
AFP Retirement and Separation Benefits System (AFPRSBS) v. Eduardo Sanvictores 51
Doroteo C. Gaerlan v. Philippine National Bank 59

114
Sources of Obligations
People of the Philippines v Ariel Layag 79

Trust
Spouses De Guzman vs. Court of Appeals, Mindanao 5
Sps. Primo Inalvez and Juliana Inalvez vs. Bayang Nool, et al. 13
Trifonia D. Gabutan, et al. vs. Dante D. Nacalaban, et al. 37

Void Contracts
Republic of the Philippines vs. Mega Pacific eSolutions Inc. 31

115
CONTRIBUTORS:
1. Acuyong, Sidharta
2. Alcantara, Katrine
3. Alvarez, Alexandra Czarina Louise
4. Barroso, Frances Angelie
5. Contreras, Cesar Clarence
6. Cruz, Mary Abigail
7. Hosaka, Orlino Enrique
8. Lopez, Robynne
9. Paras, Erika Bianca
10. Resurreccion, Leandro IV

116