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Prescription of Actions

THIRD DIVISION

G.R. No. 227894, JULY 5, 2017

JOSE S. OCAMPO, Petitioner, v.RICARDO S. OCAMPO, SR.,, Respondent.

DECISION

FACTS:

A complaint was filed by respondent Ricardo S. Ocampo against petitioner Jose S.


Ocampo who are full-blooded brothers for being sons of late Basilio Ocampo and
Juliana Sunglao. The case arose from a complaint for partition and annulment of
Transfer Certificate of Title (TCT) No. 108822, consisting of a 150-square meter lot and
improvements located at 2227 Romblon Street. G. Tuazon, Sampaloc Manila. The
respondent allege that he and petitioner are co-owners of said property which is a
conjugal property left by their parents. Respondent also claims that the petitioner and
his wife, Andrea Mejia Ocampo conspired and falsified his signature on a Notarized
Extra-Judicial Settlement with Waiver effecting the transfer of the property in the name
of the petitioner and at the same time secretly mortgage the same for Php 200,000.00.

Petitioner and his wife argued that said property was donated to them in favor of their
marriage with a promise to demolish the old house and replace it with a new two-storey
house which they did and allowed the respondent to stay at the second floor. To build
the house, they also obtained a loan from Development Bank of the Philippines (DBP)
in the amount of Php 10,000.00 wherein the petitioners and his parents are the named
borrowers. He further argued that DBP loan was paid through a loan secured from
Social Security System (SSS) with the consent of his father and that the ESW executed
by their father was able to secure the signature of the respondent which led to the
cancellation of TCT No. 36869.. He further argued that TCT No. 102822 became
indefeasible and cannot be annulled due to prescription since the action was only filed
on June 29, 1992, 21 years and 7 months from its issuance.

On January 21, 1994, the RTC issued an Order dismissing the complaint on the ground
of prescription which was annulled and set aside by the Court of Appeals. Petitioner
filed a motion for extension of time to file a petition for review on certiorari which was
also denied in a minute resolution.

A motion for writ of execution was filed before the RTC which was denied on the ground
that there is nothing to execute and the case should be tried on the merits, thus, the
case was set for pre-trial.
On September 30, 2011, the RTC issued a Decision in favor of the respondent ordering
the partition of the subject property, annulling TCT No. 102822 and ordering the
Registry of Deeds of the City of Manila to cancel the transfer certificate of Title No.
102822 issued in the name of the defendant being null and void and ordering the
defendant to pay the costs of the suit. The case was then elevated to the Court of
Appeals which affirmed the RTC’s Decision in a decision dated June 20, 2016.

Issue:

Whether or not prescription has set in and the Court of Appeals committed an error in
ruling that the action to declare the nullity of ESW is not barred by laches considering
the unreasonable delay on the respondent’s part to assert his rights.

HELD:

The Court held that considering both petitioner and respondent were residing at the
subject property and there was a qualified admission by the petitioner since no denial
was interposed in his Amended Answer, actual possession of the disputed land at the
time of filing of the complaint may be treated as an action for quieting of title which is
imprescriptible. The wrongful registration gives occasion to the creation of implied or
constructive trust under Article 1456 of the New Civil Code. An Action for reconveyance
based on an implied trust generally prescribes in ten (10) years, however, since the
plaintiff remains in possession of the property, the prescriptive period to recover title of
possession does not run against him.

Quieting of title is a common law remedy for the removal of cloud, doubt, or uncertainty
affecting title to real property and since it was already established that respondent’s
signature on the ESW was forged. The trial court’s order to cancel TCT No. 102822 and
uphold the parties’ co-ownership was proper.

The court also held that petitioner’s argument that the case is barred by laches has no
merit. Based on the facts presented, respondent proved that he did not sleep on his
rights considering that he filed several cases to assert his rights over the property.

Finally, the court denied the petition and affirmed the RTC Decision dated September
30, 2011 and CA’s Decision dated June 28, 2016.

FIRST DIVISION
G.R. No. 211845, AUGUST 9, 2017

PEN DEVELOPMENT CORPORATION AND LAS BRISAS RESORT


CORPORATION, Petitioners, v. MARTINEZ LEYBA, INC, Respondent.

DECISION

DEL CASTILLO, J.

Nature of Action: Obligations: Prescription

Facts:

In 1968, Respondent Martinez, who is the owner of the lands adjacent to that of petitioner Las
Brisas noticed that the construction of the latter’s fence seemed to encroach on his land.
Respondent then sent two (2) letters to Las Bisas informing them of the encroachment of its
structures and improvements over his titled and which was left not responded. Upon verification
by the surveyors, respondent was informed that the fence of Las Brisas overlaps its property.

On March 24, 1997, respondent filed a complaint for Quieting of Title, Cancellation of Title and
Recovery of Ownership with Damages against Las Brisas. It argued that Las Brisas constructed a
riprapping on a northern portion of Lot 29, a building straddling Lot 30 and 31 and are now
constructing a new building on Lot 31 which acts constitute an encroachment on lands covered
by respondent titles.

Las Brisas in its Answer denied that it encroached on Respondent’s land and that it constructed
the Las Brisas Resort Complex. It countered that it brought the land from the Republic Bank and
took possession thereof in good faith and it was actually Martinez that was encroaching upon its
land. It also argued that respondent may be held accountable for laches in filing only after the
lapse of thirty years.

The Regional Trial Court (RTC) rendered a Decision in favor of plaintiff and against the
defendant. The case was then elevated to the Court of Appeals (CA) which rendered a Decision
affirming the Decision of the RTC with modifications. Petitioners then sought to reconsider the
court’s Decision and elevated the case to the Supreme Court.

Issue:

Whether or not the CA seriously erred in failing to rule that respondents incurred laches in
enforcing its putative rights?

Held:
The CA correctly held that as the owners of the subject property, respondents has the
imprescriptible right to recover possession thereof from any person illegally occupying its lands.
Even if petitioners have been occupying these lands for a significant period of time, respondent
ash the registered and lawful owner has the right to demand the return thereof at any time.

Jurisprudence consistently holds that “prescription and laches cannot apply to registered land and
covered by the Torrens system because under the Property Registration Decree, no title to
registered land in derogation to that of the registered owner shall be acquired by prescription or
adverse possession. The court then denied the Petition and affirmed the Resolution of the CA.

DIVISION
[ GR No. 208450, Jun 05, 2017 ]
SPS. ROBERTO ABOITIZ AND MARIA CRISTINA CABARRUS v. SPS. PETER L. PO
AND VICTORIA L. PO +
DECISION
LEONEN, J:

Topic: Obligations: Prescription of Action

Facts:
On July 31, 1973, Mariano Seno executed a Deed of Absolute Sale of his land located in
Cebu, in favor of his son, Ciriaco Seno. The latter sold the two (2) lots to Victoria Po (Victoria).
The parties executed a Deed of Absolute Sale.

In 1990, Peter Po discovered that Ciriaco had executed a quitclaim renouncing his
interest over a Lot in favor of petitioner Roberto. The Spouses Po confronted Ciriaco by remedy,
and executed a Memorandum of Agreement in which Ciriaco agreed to pay Peter the difference
between the amount paid by the Spouses Po as consideration for the entire property and the value
of the land the Spouses Po were left with after the quitclaim.

However, also in 1990, Lot No. 2835 was also sold to Roberto. The Mariano Heirs, including
Ciriaco, executed separate deeds of absolute sale in favor of Roberto. Thereafter, said lot was
immediately developed as a subdivision called North Town Homes. Spouses Po and Roberto
both declared lot no. 2835 for taxation purposes and were issued tax declaration nos. 0634-A and
1100 respectively. Roberto filed an application for original registration of Lot No. 2835 with the
Mandaue City Regional Trial Court which was granted with the issuance of Original Certificate
of Tilte No. 0-887 in his name.

On November 19, 1996, Spouses Po filed a complaint to recover the land and to declare nullity
of title with damages.

On November 23, 2009, the trial court ruled in favor of the Spouses. The Spouses Aboitiz
appealed to the Court of Appeals. The Court of Appeals, in its Decision, partially affirmed the
trial court decision, declaring the Spouses Po as the rightful owner of the land.
The Court of Appeals discussed the inapplicability of the rules on double sale and the doctrine of
buyer in good faith since the land was not yet registered when it was sold to the Spouses Po.
However, it ruled in favor of the Spouses Po on the premise that registered property may be
reconveyed to the "rightful or legal owner or to the one with a better right if the title was
wrongfully or erroneously registered in another person's name. The Court of Appeals held that
the Mariano Heirs were no longer the owners of the lot at the time they sold it to Roberto in 1990
because Mariano, during his lifetime, already sold this to Ciriaco in 1973.

Issue:

Whether the respondents Jose Maria Moraza, Ernesto Aboitiz, and Isabel Aboitiz are innocent
purchasers in good faith and that the action for reconveyance of title has prescribed.

Held:

Despite these findings, the Spouses Po cannot recover the property. Respondents Jose, Ernesto
and Isabel are innocent purchasers Ernesto and Isabel are innocent purchasers for value.

An innocent purchaser for value refers to the buyer of the property who pays for its full and fair
price without or before notice of another person's right or interest in it. He or she buys the
property believing that "the seller is the owner and could transfer the title to the property.

The real purpose of the Torrens system of registration is to quiet title to land and to put a stop to
any question of legality of the title except claims which have been recorded in the certificate of
title at the time of registration or which may arise subsequent thereto. Every registered owner
and every subsequent purchaser for value in good faith holds the title to the property free from
all encumbrances except those noted in the certificate. Hence, a purchaser is not required to
explore further what the Torrens title on its face indicates in quest for any hidden defect or
inchoate right that may subsequently defeat his right thereto.

Thus, respondents were not obliged to look beyond the title before they purchased the property.
They may rely solely on the face of the title. The only exception to the rule is when the purchaser
has actual knowledge of any defect or other circumstance that would cause "a reasonably
cautious man" to inquire into the title of the seller. If there is anything which arouses suspicion,
the vendee is obliged to investigate beyond the face of the title. Otherwise, the vendee cannot be
deemed a purchaser in good faith entitled to protection under the law.

In this case, there is no showing that respondents Jose, Ernesto, and Isabel had any knowledge of
the defect in the title and considering that the annotation that the Spouses Po are invoking is
found in the tax declaration and not in the title of the property, respondents Jose, Ernesto, and
Isabel cannot be deemed purchasers in bad faith.

An action for reconveyance and annulment of title does not seek to question the contract which
allowed the adverse party to obtain the title to the property. What is put on issue in an action for
reconveyance and cancellation of title is the ownership of the property and its registration. It
does not question the fraudulent contract. Should that be the case, the applicable provisions are
Articles 1390 and 1391 of the Civil Code.
Thus, an action for reconveyance and cancellation of title prescribes in 10 years from the time of
the issuance of the Torrens title over the property.

Considering that the Spouses Po’s complaint was filed on November 19, 1996, less that three (3)
years from the issuance of the Torrens title over the property on April 6, 1994, it is well within
the 10-year prescriptive period imposed on an action for reconveyance.

The court held that the law created an implied trust in the property’s true owner. The prescriptive
period to enforce this trust is 10 years from the time the right of action accrues. Article 1144 of
the Civil Code provides:

Article 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.

In the case at bar, respondent’s action which is reconveyance and cancellation of Title is based
on an implied trust under Art. 1456 of the Civil Code sine he averred in his complaint that
through fraud petitioners were able to obtain Certificate of Title over the property. He does not
seek the annulment of the voidable contract whereby Articles 1930 and 1931 of the Civil Code
would find application such that the cause of action would prescribe in four years. Therefore, the
action has not prescribed.

SECOND DIVISION
G.R. No. 226345, August 2, 2017
PIONEER INSURANCE AND SURETY CORPORATION, Petitioner, v. PHOENIX APL
CO. PTE LTD., Respondent.

DECISION
MENDOZA, J.

Nature of the Action: Obligation: Prescription – Obligation created by Law

Facts:
On January 13, 2012, Chillies Export House Limited, turned over to respondent APL Co. Pte Ltd
250 bags of chili pepper for transport from the port of Chennai, India to Manila. BSFIL
Technologies as consignee, insured the cargo with petitioner Pioneer Insurance and Surety
Corporation.

The shipment arrived at the port of Manila which was temporarily stored at North Harbor and
thereafter were withdrawn and delivered to BSFIL. Upon receipt, it was discovered that the 76
bags were wet and heavily infested with molds and were declared unfit for human consumption
and was declared as a total loss.
Thereafter, BSFIL made a formal claim against APL and Pioneer Insurance. Pioneer Insurance
paid BFIL. Having been subrogated to all the rights and cause of action of BSFIL, Pioneer
Insurance sought payment from APL which was refused. This prompted Pioneer Insurance to file
a complaint for sum of money against APL.

The MTC granted the complaint and ordered APL to pay Pioneer Insurance the amount claimed
plus six percent (6%) interest per annum from the filing of the complaint until fully paid. The
case was then elevated to the Regional Trial Court (RTC).

The RTC stated that under the Carriage of Goods by Sea, lack of written notice shall prejudice
the right of the shipper to bring the suit within one year after the delivery of the goods and stated
that the shorter prescriptive period set the Bill of Lading could not apply because it is contrary to
the provisions of the COGSA.

The Court of Appeals (CA) reversed the decisions of the trial courts and ruled that the present
action was barred by prescription.

Issue:

Whether or not Petitioners claim against the respondent is already barred by prescription?

Held:

The present case involves lost or managed cargo. It has long been settled that in the case of loss
or damage cargoes, the one year prescriptive period under the COGSA applies. It is this juncture
where the parties are at odds, with the Pioneer Insurance claiming that the one year prescriptive
period under the COGSA governs; whereas the APL insists that the nine-month prescriptive
period under the Bill of Lading applies.

A reading of the Bill of Lading between the parties reveals that the nine-month period is not
applicable in all actions or claims. As an exception, the nine-month period is applicable when
there is a different period provided by a law for a particular claim or action – unlike in the
Philippine American where the Bill of Lading became operative because there was a compulsory
law applicable which provides for a different prescriptive period. Hence, strictly applying the
terms of the Bill of Lading, the one year prescriptive period under the COGSA should govern
because the present case involves loss of goods or cargo. In finding so, the Court does not
construe the Bill of Lading any further but merely applies its terms according to its plan and
literal meaning.

The court then granted the Petition and reinstated the Decision of the Regional Trial Court.

EN BANC
AUGUST 8, 2017
G.R. No. 190004
LAND BANK OF THE PHLIPPINES, Petitioner
vs
EUGENIO DALAUTA, Respondent
DECISION
MENDOZA, J.:

Nature of the Action: Obligation: Prescription – Obligation created by Law

Facts:

Respondent Dalauta is the owner of an agricultural land in Florida, Butuan City which was
placed by the Department of Agrarian Reform (DAR) under compulsory acquisition of the
Comprehensive Agrarian Reform Program. Petitioner Land Bank of the Philippines offered
P192,782.59 as compensation for the land but was rejected by Dalauta for the reason that it is too
low.

An administrative proceeding was conducted to determine the appropriate just compensation for
the subject property and on December 4,1995, the Provincial Agrarian Reform Adjudicator
affirmed the valuation made by LBP.

On February 28, 2000 Dalauta filed a petition for the determination of just compensation with
the Regional Trial Court (RTC) sitting as SAC.

The Land Bank of the Philippines argues that the PARAD resolution already attained finality
when Dalauta filed the petition for the determination of just compensation before the RTC sitting
as SAC. The petition was filed beyond the 15 day prescriptive period or specifically more than 5
years after the issuance of the PARAD Resolution.

Issue:

Whether or not respondent’s petition was filed beyond the prescriptive period or more than 5
years after the issuance of the PARAD Resolution?

Held:

While RA. No 6657 itself does not provide for the period within which a landowner can file for
the determination of just compensation before the SAC, it cannot be imprescriptible because the
parties cannot be placed in limbo indefinitely. The Civil Code settles such conundrum.
Considering that the payment of just compensation is an obligation created by law, is should only
be ten years from the time the landowner received the notice coverage. The Constitution itself
provides for the payment of just compensation in the eminent domain cases. Under Article 1144,
such actions must be brought within ten years from the time the right of action accrues. Article
1144 reads: The following actions must be brought within ten years from the time the right of
action accrues; (1) upon written contract (2) Upon an obligation created by law (3) Upon the
judgment.
Nevertheless, any interruption or delay caused by the government like proceedings in the DAR
should toll the running of the prescriptive period. The statute of limitations has been devised to
operate against those who slept on their rights, but not against those desirous to act but cannot to
do for causes beyond their control.

In the case at bar, Dalauta received the Notice of Coverage on February 7, 1994 and filed a
petition for determination of just compensation on February 28, 2000. Based on the
circumstances, the filing date was well within the ten (10) year prescriptive period under Article
1141 of the Civil Code.

B. Sources of Obligation

A. Solution indebiti
FIRST DIVISION
March 20, 2017
G.R. No. 198799
BANK OF THE PHILIPPINE ISLANDS, Petitioner
vs
AMADO M. MENDOZA and MARIA MARCOS VDA. DE MENDOZA, Respondents
DECISION
PERLAS-BERNABE, J.:

TOPIC: Obligation : Solutio Indebiti

Facts:

Bank of the Philippine Islands (BPI) filed a complaint for Sum of Money with application for
Writ of Attachment alleging that respondents opened a foreign currency savings account at BPI-
Gapan Branch and deposited therein the total amount of US$l6,264.00 and placed the amount of
US$2,000.00 in a time deposit account. After the lapse of the thirty (30) day clearing period,
respondents withdrew the amount of US$16,244.00 from the US savings account, leaving only
US$20.00 for bank charges. However, on June 26, 1997, BPI received a notice from its
correspondent bank, Bankers Trust Company New York, that the subject check was dishonored
due to "amount altered".

BPI informed the respondents of such dishonor and to demand reimbursement. BPI then claimed
respondents allowed BPI to apply the proceeds of their time deposit account in the amount of US
$2,015.00 to their outstanding obligation, upon the exhaustion of the said time deposit account,
Amado gave a promissory note containing his promise to pay BPI-Gapan Branch the amount of
₱l,000.00 monthly. Respondents failed to fulfill their obligation despite repeated demands, BPI
was then constrained to give a final demand letter to respondents.

Respondents admitted the withdrawals and exchanged the same with BPI at the rate of ₱26.l59
per dollar, but they did not receive the amount of ₱582,140.00 from the proceeds. Respondents
further alleged that Amado only affixed his signature in the letter in order to acknowledge its
receipt, but not to give his consent to the application of the proceeds of their time deposit account
to their purported obligations to BPI. According to Amado, he is willing to pay BPI if it was able
to present an authenticated proof of the dishonor of the subject check, which BPI failed to secure,
therefore, Amado further argued that BPI had no cause of action against him and his mother,
Maria.

Issue:

Whether or not respondent Amado is obliged to return the money paid by BPI over the subject
check?

Held:

To recount, respondents were ordered by the RTC to pay BPI the amount of ₱369,600.51
representing the peso equivalent of the amounts withdrawn by respondents less the amounts
already recovered by BPI, plus legal interest of twelve percent (12%) per annum reckoned from
the time the money was withdrawn, thus, implying that such amount was a loan or a forbearance
of money. However, records reveal that BPI's payment of the proceeds of the subject check was
due to a mistaken notion that such check was cleared, when in fact, it was dishonored due to an
alteration in the amount indicated therein. Such payment on the part of BPI to respondents was
clearly made by mistake, giving rise to the quasi-contractual obligation of solutio indebiti under
Article 215446 in relation to Article 216347 of the Civil Code. Not being a loan or forbearance of
money, an interest of six percent (6%) per annum should be imposed on the amount to be
refunded and on the damages and attorney's fees awarded, if any, computed from the time of
demand until its satisfaction. Consequently, respondents must return to BPI the aforesaid
amount, with legal interest at the rate of six percent (6%) per annum from the date of
extrajudicial demand - or on June 27, 1997, the date when BPI informed respondents of the
dishonor of the subject check and demanded the return of its proceeds - until fully paid.

The Court then granted the Petition and reinstated the RTC Decision ordering the respondents
the peso equivalent of amounts withdrawn by the respondents less amounts already received by
BPI, plus legal interest of 12% per annum reckoned from the time the money was withdrawn and
10% of the aforesaid monetary award representing attorney’s fees.

B. Quasi Delict

FIRST DIVISION

AUGUST 2, 2017
G.R. No. 206468
JUDITH D. DARINES AND JOYCE D. DARINES, Petitioners,
vs.
EDUARDO QUINONES AND ROLANDO QUITAN, Respondents.
DECISION
DEL CASTILLO, J.

Topic: Sources of Civil Obligations: Quasi- Delict :

Facts:

Petitioners Judith Darines and her daughter Joyce Darines boarded a bus going to Benguet along
Kennon Road and Rolando M. Quitan (Quitan) was the driver at that time. While the bus was on
transit, it crashed into a truck parked along Kenon Road. As a result, both the vehicles were
damaged; two passengers of the bus died; and the other passengers, including the petitioners
were injured.

Petitioners argued that Quitan and respondent Eduardo Quinones, the operator of Amianan Bus
Line breached their contract of carriage as they failed to bring them safely to their destination.
They also contended that Quitan’s reckless and negligent driving caused the collision.
During the trial, Judith alleged that Quitan was driving at a very fast pace resulting in a collision
with the truck parked at the shoulder at the shoulder of the road. Consequently, the bone holding
her right eye was fractured and had to be operated resulting to her failure to report for work for
two months.

Issue:

Whether or not the carrier was guilty of fraud and bad faith even if death does not result and that
neither of these circumstances were present in the case at bar?

Held:

To stress, this case is one for breach of contract of carriage (culpa contractual) where it is
necessary to show the existence of the contract between the parties and the failure of the
common carrier to transport its passenger safely to his or her destination. An action for breach of
contract differs from quasi delicts as the latter emanate from the negligence of the tort feasor
including such instance where a person is injured in a vehicular accident by the party other than
the carrier where he is a passenger.

The principle that, in an action for breach of contract of carriage, moral damages may be
awarded only in case (1) accident results in the death of a passenger or (2) the carrier is guilty of
fraud or bad faith is pursuant to Article 1764, in relation to Article 2206 (3) of the Civil Code
and Article 2220 thereof.

The aforesaid concepts of fraud or bad faith and negligence are basic as they are distinctly
differentiated by law. Specifically, fraud of bad faith connotes deliberate or wanton wrong doing,
or such deliberate disregard of contractual obligations while the negligence amounts to sheer
carelessness.
Here, petitioners impute negligence on the part of respondents when, as paying passengers, they
sustained injuries when the bus owned and operated by respondent Quifiones, and driven by
respondent Quitan, collided with another vehicle. Petitioners propounded on the negligence of
respondents, but did not discuss or impute fraud or bad faith, or such gross negligence which
would amount to bad faith, against respondents. There being neither allegation nor proof that
respondents acted in fraud or in bad faith in performing their duties arising from their contract of
carriage, they are then not liable for moral damages.

In the case at bar, considering that fraud or bad faith arising from contract of carriage was not
proven nor alleged, moral damages cannot be granted on the petitioners.

C. Kinds of Obligations

1. As to perfection

a. pure

b. conditional

c. with a term or period


SECOND DIVISION
G.R. No. 193068, February 01, 2017
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. STA. INES MELALE
FOREST PRODUCTS CORPORATION, RODOLFO CUENCA, MANUEL TINIO,
CUENCA INVESTMENT CORPORATION AND UNIVERSAL HOLDINGS
CORPORATION, Respondents.

G.R. No. 193099, February 1, 2017

NATIONAL DEVELOPMENT CORPORATION, Petitioner, v. STA. INES MELALE


FOREST PRODUCTS CORPORATION, RODOLFO M. CUENCA, MANUEL I. TINIO,
CUENCA INVESTMENT CORPORATION AND UNIVERSAL HOLDINGS
CORPORATION, Respondents.
DECISION
LEONEN, J.

TOPIC: OBLIGATIONS with a Period

Facts:

Galleon and its stockholders Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and
Tinio, executed a Deed of Undertaking and obligated themselves to guarantee DBP's potential
liabilities to secure DBP’s as guarantor for their foreign loans from different financial institutions
due to financial difficulties. To secure DBP's guarantee, Galleon undertook to secure a first
mortgage on its five new vessels and two second-hand vessels. However, despite the loans
extended to it, their financial condition did not improve.

On July 21, 1981, a Letter of Instructions (LOI) No. 1155 was issued addressed to the NDC,
DBP, and the Maritime Industry Authority directing a rehabilitation plan for Galleon Shipping
Corporation where NDC shall acquire 100% of the shareholdings of Galleon Shipping
Corporation from its present owners payable after five years with no interest cost. Pursuant to
LOI No. 155, Galleon's stockholders entered into a Memorandum of Agreement, where NDC
and Galleon undertook to prepare and sign a share purchase agreement covering 100% of
Galleon's equity payable after five years from the execution of the share purchase agreement
which also provided for the release of Sta. Ines, Cuenca, Tinio and Construction Development
Corporation of the Philippines from the personal counter-guarantees they issued in DBP's favor
under the Deed of Undertaking.

DBP, as guarantor, paid off Galleon's debts to its foreign bank creditor and Galleon executed a
mortgage contract over seven of its vessels in favor of DBP. NDC took over Galleon's operations
even prior to the signing of a share purchase agreement, however, despite NDC's takeover, the
share purchase agreement was never formally executed.

Subsequently, on February 10, 1982, President Marcos issued LOI No. 1195 directing DBP and
NDC to take immediate steps to foreclose the Galleon vessels and other assets and NDC to
discharge such maritime liens as it may deem necessary to allow the foreclosed vessels to engage
in international shipping business.

On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment and Universal
Holdings filed a Complaint with Application for the Issuance of a Temporary Restraining Order
or Writ of Preliminary Injunction. Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal
Holdings claimed that "DBP can no longer go after them for any deficiency judgment since NDC
had been subrogated in their place as borrowers hence the Deed of Undertaking between Sta.
Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP had been
extinguished and novated.

Issue:

Whether or not the Memorandum of Agreement obligates NDC to purchase Galleon's shares of
stocks and pay the advances made by respondents in Galleon's favor?

Whether the Memorandum of Agreement novated the Deed of Undertaking executed between
DBP and respondents?

Held:

We uphold the Court of Appeals' finding that the failure to execute the share purchase agreement
was brought about by NDC's delay in reviewing the financial accounts submitted by Galleon's
stockholders. The Memorandum of Agreement was executed on August 10, 1981, giving the
parties no more than sixty days or up to October 9, 1981, to prepare and sign the share purchase
agreement. However, it was only on April 26, 1982, or more than eight months after the
Memorandum of Agreement was signed, did NDC's General Director submit his
recommendation on Galleon's outstanding account. Even then, there was no clear intention to
execute a share purchase agreement as compliance with the Memorandum of Agreement. Article
1186 of the Civil Code is categorical that a "condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment." Considering NDC's delay, the execution of the share
purchase agreement should be considered fulfilled with NDC as the new owner of 100% of
Galleon's shares of stocks.

The due execution of the share purchase agreement is further bolstered by Article 1198(4) of the
Civil Code, which states that the debtor loses the right to make use of the period when a
condition is violated, making the obligation immediately demandable

Novation is a mode of extinguishing an obligation by "[c]hanging [its] object or principal


conditions[,] [substituting the person of the debtor [or] [s]ubrogating a third person in the rights
of the creditor." While 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, [it must
be with] the consent of the creditor.
Novation is never presumed. The animus novandi, whether partial or total, "must appear by
express agreement of the parties, or by their acts which are too clear and unequivocal to be
mistaken."

There was no such animus novandi in the case at bar between DBP and respondents, thus,
respondents have not been discharged as Galleon's co-guarantors under the Deed of Undertaking
and they remain liable to DBP.

As to rights and obligations

Solidary
FIRST DIVISION
G.R. No. 206390, January 30, 2017
JACK C. VALENCLA, Petitioner, v. CLASSIQUE VINYL PRODUCTS CORPORATION,
JOHNNY CHANG (OWNER) AND/OR CANTINGAS MANPOWER
SERVICES, Respondent.
DECISION
DEL CASTILLO, J.

TOPIC: Obligations – Solidary Liability

Facts:

On March 24, 2010, Valencia filed a Complaint for illegal dismissal against respondents
Classique Vinyl Products Corporation (Classique Vinyl) and its owner Johnny Chang (Chang)
and/or respondent Cantingas Manpower Services (CMS) alleging that by operation of law, he
had already attained the status of a regular employee of his true employer, Classique Vinyl. He
also alleged that CMS is merely labor only contractor. Valencia on the other hand, argued that
Classique Vinyl should be held guilty for illegal dismissal for failing to comply with the twin-
notice requirement and should be held liable for monetary claims.

Classique Vinyl asserted that there was no employer-employee relationship existed between it
and Valencia and that Valencia was only deployed for specific task or temporary work, hence, it
could not have illegally dismissed the latter nor can it be held liable for Valencia's monetary
claims. Even assuming that Valencia is entitled to monetary benefits, Classique Vinyl averred
that it cannot be made to pay the same since it is an establishment regularly employing less than
10 workers. As such, it is exempted from paying the prescribed wage orders in its area and other
benefits under the Labor Code.

CMS also denies the existence of employer-employee relationship between it and Valencia
alleging that after it deployed Valencia to Classique Vinyl, it was already the latter who exercises
full control and supervision over him. Also, Valencia's wages were paid by Classique Vinyl only
that it was CMS which physically handed the same to Valencia.

Issue:

Whether or not Cantingas Manpower Services (CMS) and Classique Vinyl are solidary liable for
illegal dismissal?

Held:

Clearly, therefore, no error can be attributed on the part of the labor tribunals and the CA in
ruling out the existence of employer-employee relationship between Valencia and Classique
Vinyl.

Further, the Court finds untenable Valencia's argument that neither Classique Vinyl nor CMS
was able to present proof that the latter is a legitimate independent contractor and therefore
unable to rebut the presumption that a contractor is presumed to be a labor-only contractor.
"Generally, the presumption is that the contractor is a labor-only [contractor] unless such
contractor overcomes the burden of proving that it has the substantial capital, investment, tools
and the like. Here, to prove that CMS was a legitimate contractor, Classique Vinyl presented the
former's Certificate of Registration with the Department of Trade and Industry and, License as
private recruitment and placement agency from the Department of Labor and Employment.
Indeed, these documents are not conclusive evidence of the status of CMS as a contractor.

However, such fact of registration of CMS prevented the legal presumption of it being a mere
labor-only contractor from arising. In any event, it must be stressed that "in labor-only
contracting, the statute creates an employer-employee relationship for a comprehensive purpose:
to prevent a circumvention of labor laws. The contractor is considered merely an agent of the
principal employer and the latter is responsible to the employees of the labor-only contractor as
if such employees had been directly employed by the principal employer.
The principal employer therefore becomes solidarity liable with the labor-only contractor for all
the rightful claims of the employees." The facts of this case, however, failed to establish that
there is any circumvention of labor laws as to call for the creation by the statute of an employer-
employee relationship between Classique Vinyl and Valencia. In fact, even as against CMS,
Valencia's money claims has been debunked by the labor tribunals and the CA. Again, the Court
is not inclined to disturb the same.

In view of the above disquisition, the Court finds no necessity to dwell on the issue of whether
Valencia was illegally dismissed by Classique Vinyl and whether the latter is liable for
Valencia's money claims.

FIRST DIVISION
G.R. No. 188269*
SUMIFRU (PHILIPPINES) CORPORATION (surviving entity in a merger with Davao
Fruits Corporation and other Companies), Petitioner
versus
BERNABE BAYA, Respondent
PRESENT: SERENO, C J, CHAIRPERSON; LEONARDO-DE CASTRO; DEL CASTILLO;
PERLAS-BERNABE AND CAGUIOA, JJ
Promulgated: APR 17, 2017

DECISION
PERLAS-BERNABE, J:

TOPIC: Obligations; Solidarily liable

Facts:

AMS Farming Corporation (AMSFC) employed Baya into supervisory rank. As a supervisor,
Baya joined the basic agrarian reform organization of the regular employees of AMSFC known
as AMS Kapalong Agrarian Reform Beneficiaries Multipurpose Cooperative
(AMSKARBEMCO). Baya was then reassigned to a series of supervisory positions in AMSFC’s
sister company, Davao Fruits Corporation (DFC), where he also became a member of the latter’s
supervisory union while at the same time, remaining active at AMSKARBEMCO.

Upon AMSKARBEMCO’s petition before the Department of Agrarian Reform (DAR), some
220 hectares of AMSFC’s 513-hectare banana plantation were covered by the Comprehensive
Agrarian Reform Law and was transferred to AMSFC’s regular employees as Agrarian Reform
Beneficiaries (ARBs), including Baya. The ARBs explored a possible agribusiness venture
agreement with AMSFC, but the talks broke down, prompting the Provincial Agrarian Reform
Officer to terminate negotiations and gave AMSKARBEMCO freedom to enter into similar
agreement with other parties.

Thereafter, AMSFC learned that AMSKARBEMCO entered an export agreement with another
company, it summoned AMSKARBEMCO officers, including Baya, to lash out at them and
even threatened them that the ARBs’ takeover of the lands would not push through. Thus, when
Baya returned to AMSFC, he was informed that there were no supervisory positions available;
thus, he was assigned to different rank-and-file positions instead. He sent written requests to be
restored to a supervisory position which was denied and that prompted him to file the instant
complaint for constructive dismissal.

Issue:

Whether or not SUMIFRU (DFC) and AMSFC are solidarily liable to Baya for monetary awards
in virtue of merger?

Held:

In this case, it is worthy to stress that both AMSFC and DFC are guilty of acts of constructive
dismissal performed against Baya. As such, they should be deemed as solidarily liable for the
monetary awards in favor of Baya. Meanwhile, Sumifru, as the surviving entity in its merger
with DFC, must be held answerable for the latter’s liabilities, including its solidary liability with
AMSFC arising herein. Verily, jurisprudence states that “in the merger of two existing
corporations, one of the corporations survives and continues the business, while the other is
dissolved and all its rights, properties and liabilities are acquired by the surviving corporation,”
as in this case.

Obligation with a Penal Clause


THIRD DIVISION
AUGUST 9, 2017
G.R. No. 188027
SWIRE REALTY DEVELOPEMNT CORPORATION., Petitioner
vs.
SPECIALTY CONTRACTS GENERAL AND CONSTRUCTION SERVICES, INC AND
JOSE JAVELLANA, Respondents
DECISION
REYES, JR J.:

Topic: Obligation ; Obligation with Penal Clause

Facts:

Petitioner Swire Realty Development Corporation filed complaint for Sum of Money and
Damages against Respondent Specialty Contracts General and Construction Services, Inc
alleging breach of the Agreement to undertake Waterproofing Works on the petitioner’s
condominium project for a period of 100 calendar days from the execution of the Agreement or
until April 6, 1997. The amount agreed upon is to be paid to the respondents as follows: 20% as
down payment, and the balance of 80% payable through monthly progress billings based on
accomplished work, subject to a 10% withholding tax. The Agreement likewise provided that the
parties are liable for penalty in case of delay in the performance of their respective obligations
and that the retention fee shall be released to respondents within 90 days from the turnover and
acceptance by the petitioner of the completed work.

The Regional Trial Court (RTC) rendered a Decision in favor of the petitioner and ordered the
respondents to pay damages and the amount of unfinished works and attorney’s fees.
When the case was elevated to the Court of Appeals (CA), it reversed and set aside the RTC
Decision on the basis that additional works were performed by the respondent. The case was then
elevated to the Supreme Court (SC).

Issue:

Whether or not the waterproofing of the swimming pool is part of the obligation of the
respondent, therefore is not subject to additional payment.
Held:

The court held that evident from the foregoing facts, there being a clear breach of contract on the
part of the respondents when they failed to fully comply with their obligation under the contract,
having accomplished only 90% of the waterproofing works within the time agreed upon, and
failing to perform necessary repairs, they are liable for damages and are bound to refund the
excess payment made by the petitioner.

With respect to the penalty, the CA and the RTC both recognized that under the attendant
circumstances, the petitioner is entitled to damages on account of the respondent’s delay in the
performance of their obligation. The amount of penalty is governed by Article V of the
Agreement.

Pursuant to settled jurisprudence and Article 1229 in relation to Article 2227 of the New Civil
Code, the Court deems it proper to reduce the penalty involved.

The respondent obligated under the Agreement to complete the waterproofing works on April 6,
1997 but failed. The remaining work to be done have to be performed by Esicor, who
accomplished the same on April 5, 1998. In the light of these, the respondents are then liable for
delay for the period of 365 days, which corresponds to the amount of P3,650,000.00 as penalty
under Agreement. Without doubt, taking into consideration that the respondents have completed
90% of the project and the absence of any showing of bad faith on their part, as well as the fact
that the waterproofing works have already been completed at the respondents expense, the
amount of P3,650,000.00 as penalty is exorbitant under the premises. Therefore, the Court
reduces the same and imposes the amount of P200,000.00 as liquidated damages, by way of
penalty.

e. Breach of Obligations
1. fraud
SECOND DIVISION

January 30, 2017

G.R. No. 219345

SECURITY BANK CORPORATION, Petitioner


vs.
GREAT WALL COMMERCIAL PRESS COMPANY, INC., ALFREDO BURIEL
ATIENZA, FREDINO CHENG ATIENZA and SPS. FREDERICK CHENG ATIENZA
and MONICA CU ATIENZA, Respondents

DECISION

mendoza, J.:

TOPIC: FRAUD

FACTS:

On May 15, 2013, Security Bank filed a Complaint for Sum of Money to recover the unpaid
obligations from the under a credit facility against respondents Great Wall Commercial Press
Company, Inc. (Great Wall) and its sureties, Alfredo Buriel Atienza, Fredino Cheng Atienza, and
Spouses Frederick Cheng Atienza and Monica Cu Atienza (respondents). Petitioner further
argued that in spite of the lapse of the maturity date, respondents failed to pay their obligations.
The total principal amount sought was ₱10,000,000.00. The Regional Trial Court (RTC) granted
the application for a writ of preliminary attachment of Security Bank, which then posted a bond
in the amount of ₱10,000,000.00.

RTC denied respondents' motion to lift, explaining that the Credit Agreement and the
Continuing Suretyship Agreement contained provisions on representations and warranties and
that respondents executed various trust receipt agreements but did not pay or return the goods
covered by the trust receipts in violation thereof it was clear that respondents committed fraud in
the performance of the obligation.

However, the Court of Appeals lifted the writ of preliminary attachment and explained
that the allegations of the petitioner were insufficient to warrant the provisional remedy of
preliminary attachment and that fraud must be present at the time of contracting the obligation,
not thereafter, and that the rules on the issuance of a writ of attachment must be construed strictly
against the applicant.

ISSUE
Whether or not fraud was employed by the respondents the performance of their obligation to
petitioner?

RULING:

The Court finds merit in the petition. While fraud cannot be presumed, it need not be proved by
direct evidence and can well be inferred from attendant circumstances. Fraud by its nature is not
a thing susceptible of ocular observation or readily demonstrable physically; it must of necessity
be proved in many cases by inferences from circumstances shown to have been involved in the
transaction in question.

After a judicious study of the records, the Court finds that Security Bank was able to substantiate
its factual allegation of fraud, particularly, the violation of the trust receipt agreements, to
warrant the issuance of the writ of preliminary attachment.

While the Court agrees that mere violations of the warranties and representations contained in
the credit agreement and the continuing suretyship agreement do not constitute fraud under
Section 1(d) of Rule 57 of the Rules of Court, the same cannot be said with respect to the
violation of the trust receipts agreements.

The Court is of the view that Security Bank's allegations of violation of the trust receipts in its
complaint was specific and sufficient to assert fraud on the part of respondents. These allegations
were duly substantiated by the attachments thereto and the testimony of Security Bank's witness.

The CA stated in the assailed decision that under Section 1 (d) of Rule 57, fraud must only be
present at the time of contracting the obligation, and not thereafter. Hence, the CA did not
consider the allegation of fraud - that respondents offered a repayment proposal but questionably
failed to attend the meeting with Security Bank regarding the said proposal - because these acts
were done after contracting the obligation.

Accordingly, the alleged fraud committed by respondents in the performance of their obligation
should have been considered by the CA. Security Bank detailed in its complaint that respondents,
knowing fully well that they were in default, submitted a Repayment Proposal. Then, they
requested for a meeting with the bank to discuss their proposal. For unknown reasons, they did
not meet the representatives of the Security Bank.

Respondents even attached to its Motion to Lift Writ of Preliminary Attachment Ad Cautelam
the correspondence they had with Security Bank, which revealed that they did not meet the
representatives of the latter despite providing a specific date to discuss the proposed repayment
scheme. Respondents merely offered lame excuses to justify their absence in the arranged
meeting and, ultimately, they failed to clarify the non-compliance with their commitments. Such
acts bared that respondents were not sincere in paying their obligation despite their maturity,
substantiating the allegations of fraud in the performance thereof.
These circumstances of the fraud committed by respondents in the performance of their
obligation undoubtedly support the issuance of a writ of preliminary attachment in favor of
Security Bank.

4. Delay

FIRST DIVISION
January 11, 2017
G.R. No. 215290
HEIRS OF PABLO FELICIANO, JR., namely: LOURDES FELICIANO TUDLA,
GLORIA FELICIANO CAUDAL, GABRIELA FELICIANO BAUTISTA, ANGELA
FELICIANO LUCAS, DONNA CELESTE FELICIANO-GATMAITAN, CYNTHIA
CELESTE FELICIANO, and HECTOR REUBEN FELICIANO, represented by its
assignee, VICTORIA ALDA REYES ESPIRITU,, Petitioners,
vs.
LAND BANK OF THE PHILIPPINES, Respondent.
DECISION
PERLAS-BERNABE, J.:

Facts:

Petitioners heirs of Pablo Feliciano, Jr. are co-owners of a 300 hectare (ha.) parcel of agricultural
land situated at F. Simeon, Ragay, Camarines Sur. Said portion of land was classified as un-
irrigated Riceland by virtue of Presidential Decree 27.5. In 1973, the Certificates of Land
Transfer were distributed to the 84 tenant-beneficiaries and were issued an Emancipation Patents
in 1989. The claim folder covering the subject land was received by the LBP from the
Department of Agrarian Reform (DAR). The DAR valued the subject land at ₱1,301,498.09,
inclusive of interests, but the Feliciano heirs rejected the said valuation, which prompted LBP to
deposit the said amount in the latter's name and the said amount was released to them.

A summary administrative proceeding was held for the determination of just compensation. O
September 28, 2001, the Office of the Provincial Agrarian Reform Adjudicator of Camarines Sur
rendered a Decision fixing the value of the subject land at ₱4,64l ,080.465 or an average of
₱34,302.375/ha.

On November 22, 2001, the LBP filed a petition for the determination of just compensation
before the Regional Trial Court of Naga City which was initially dismissed, but eventually
reinstated. In the interim, the Feliciano heirs assigned their rights over the just compensation
claims to Espiritu.

On May 4, 2011, RTC rendered a Decision directing the LBP to revalue the subject land and in
compliance, the LBP revalued the land at ₱7,725,904.05. Espiritu accepted the said amount but
insisted on petitioners' entitlement to twelve percent (12%) interest p.a. on the revalued amount
on the ground of unreasonable delay in the payment thereof.
Issue:

Whether or not the Court may grant legal interest in expropriation cases where there is delay in
the payment?

Held:
The court held that interest may be awarded as may be warranted by the circumstances of the
case and based on prevailing jurisprudence. In previous cases, the Court has allowed the grant of
legal interest in expropriation cases where there is delay in the payment since the just
compensation due to the landowners was deemed to be an effective forbearance on the part of the
State. Legal interest on the unpaid balance shall be pegged at the rate of 12% p.a. from the time
of taking in 1989 when Emancipation Patents were issued, until June 30, 2013 only. Thereafter,
or beginning July 1, 2013, until fully paid, the just compensation due the landowners shall earn
interest at the new legal rate of 6% p.a. in line with the amendment introduced by Bangko
Sentral ng Pilipinas-Monetary BoardCircular No. 799, Series of 2013.

Supreme Court, Baguio City


THIRD DIVISION
G.R. No. 211287
LAND BANK OF THE PHILIPPINES … Petitioner
versus
WEST BAY COLLEGES, INC., PBR MANAGEMENT AND DEVELOPMENT
CORPORATION and BCP TRADING CO., INC … Respondents
PRESENT: VELASCO, JR, J, CHAIRPERSON; BERSAMIN; REYES; JARDELEZA AND
TIJAM, JJ
Promulgated: April 17, 2017

RESOLUTION
REYES, J:

TOPIC: Breach of Obligation : Delay

Facts:

In June 1996, West Bay applied for an interim financing with Land Bank for the construction of
a school building, which was approved in the amount of P125 Million. On December 22, 1997,
PBR Management and Development Corporation (PBR) availed of a P100-Million Term Loan
from Land Bank for the construction of condominium buildings and West Bay, as an
accommodation mortgagor, executed a Real and Chattel Mortgage over its training vessel to
secure the loan of PBR with Land Bank. The vessel was insured with First Lepanto Taisho
Insurance Corporation in the amount of P26 Million, representing the mortgagee Land Bank’s
insurable interest in the vessel.

Subsequently, the mortgaged vessel sank during the typhoon Seniang. By agreement of the
parties, insurance proceeds in the amount of P21,980,000.00 net of shared expenses were
released to Land Bank on account of PBR’s loan. West Bay proposed a restructuring of its debts
with Land Bank to resolve its financial difficulties. It was provided therein that Land Bank will
reimburse West Bay with the insurance proceeds that it had previously received and executed
their respective Restructuring Agreements with Land Bank.

Meanwhile, Respondents’ petition for corporate rehabilitation with a prayer for suspension of
payments was approved and the rehabilitation plan was amended transferring the application of
the insurance proceeds from West Bay to PBR and BCP’s obligations. While the rehabilitation
proceedings were pending, Land Bank filed a motion to be substituted by Philippine Distressed
Asset Asia Pacific (PDAAP) which was granted by the RTC.

In November 2011, the respondents filed an Amended Rehabilitation Plan, indicating that
PDAAP did not agree to the application of P21,980,000.00 insurance proceeds to the outstanding
obligations of PBR.

West Bay filed an Urgent Motion directing Land Bank to reimburse to it the amount of
P21,980,000.00 representing the insurance proceeds alleging that although the RTC approved the
rehabilitation plans authorizing the application of the insurance proceeds to the obligations of
West Bay, it was never implemented.

Land Bank averred that it was prompted to apply the insurance proceeds to West Bay’s and
PBR’s outstanding loans due to West Bay’s failure to comply with the terms and conditions of
the Restructuring Agreement and further alleged that Land Bank claimed that it sold all its rights,
credits and receivables relative to the West Bay and PBR accounts to PDAAP, net of the
insurance proceeds.

Issue:

Whether or not the obligation of Land Bank to reimburse the amount of insurance proceeds
constitute a forbearance of money?

Held:

The Court finds that there is no reversible error on the part of the CA in ordering the
reimbursement of P21,980,000.00 which is the amount of the insurance proceeds previously
received by Land Bank.

The Court is inclined to uphold this finding - for if Land Bank had in fact deducted the amount
of the insurance proceeds from the loan obligations of either West Bay or PBR and BCP, this
information would have reflected on the rehabilitation plans of the CGC. In other words, if the
insurance proceeds were indeed applied to West Bay’s and PBR’s account in January and June
2002 as Land Bank espoused, then P21,980,000.00 should have been subtracted from the
obligations of the said companies. Verily, Land Bank negated its own claim when it failed to
present evidence of reduction in the outstanding balances of the respondents, whether singly or
collectively.
Since the obligation of Land Bank to reimburse the amount of insurance proceeds does not
constitute a forbearance of money, the interest rate of six percent (6%) is applicable. The
pronouncement of the Court in Sunga-Chan, et al. v. CA, et al. on this matter is enlightening: For
transactions involving payment of indemnities in the concept of damages arising from default in
the performance of obligations in general and/or for money judgment not involving a loan or
forbearance of money, goods, or credit, the governing provision is Article 2209 of the Civil Code
prescribing a yearly six percent (6%) interest.

As to the reckoning period for the commencement of the running of the legal interest, it shall be
subject to the condition “that the courts are vested with discretion, depending on the equities of
each case, on the award of interest.”45 Applying the guidelines in Nacar, another six percent
(6%) interest shall be imposed from the finality of this Resolution until its satisfaction as the
interim period is considered to be, by then, equivalent to a forbearance of credit.

SECOND DIVISION
G.R. No. 212038, February 08, 2017
SPOUSES JESUS FERNANDO AND ELIZABETH S.
FERNANDO, Petitioners, v. NORTHWEST AIRLINES, INC., Respondent.

G.R. No. 212043

NORTHWEST AIRLINES, INC., Petitioner, v. SPOUSES JESUS FERNANDO AND


ELIZABETH S. FERNANDO, Respondent.
DECISION
PERALTA, J.

TOPIC: BREACH of Obligations

Facts:

The spouses Jesus and Elizabeth S. Fernando (Fernandos) initiated the filing of the instant case
which arose from two (2) separate incidents: first, when Jesus Fernando arrived at Los Angeles
(LA) Airport on December 20, 2001; second, when the Fernandos were to depart from the LA
Airport on January 29, 2002. The Fernandos are frequent flyers of Northwest Airlines, Inc. and
are holders of Elite Platinum World Perks Card, the highest category given to frequent flyers of
the carrier. The Fernandos also alleged that due to personal misconduct, gross negligence and the
rude and abusive attitude of Northwest employees Linda Puntawongdaycha who had not taken
time to verify the validity of the ticket in the computer, she would have not given the wrong
information to the Immigration Officer because the August 2001 return ticket remained unused
and valid for a period of one (1) year, or until August 2002.

On the second incident, the Fernandos belied the accusation of Northwest that they did not
present any tickets. They alleged that they presented their electronic tickets which were attached
to their boarding passes and that the personnel at the check-in counter would have not issued
them their boarding passes and baggage claim stubs if they have no tickets.
Linda Puntawongdaycha in her petition, alleged that she tried her best to help Jesus Fernando get
through the US Immigration and that she was not able to find any relevant information on Jesus
Fernando's return ticket and even went an extra mile by printing the PNR of Jesus Fernando and
handling the same personally to the Immigration Officer. She alleged that the Immigration
Officer "noticed in the ticket that it was dated sometime August 20 or 21, 2001, although it was
already December 2001."

Linda Tang alleged that she was only following Northwest standard boarding procedures when
she asked the Fernandos for their tickets even if they had boarding passes and further alleged that
the dates indicated on the tickets did not match the booking. Elizabeth Fernando was using an
electronic ticket dated August 21, 2001, while the electronic ticket of Jesus Fernando was dated
January 26, 2002. According to Northwest, even if the Fernandos had electronic tickets, the same
did not discount the fact that, on the face of the tickets, they were for travel on past dates. Also,
the electronic tickets did not contain the ticket number or any information regarding the
reservation. Therefore, the negligence of the Fernandos is the cause of the eventual failure to
take their flight.

Issue:

Whether or not Northwest committed a breach of contract of carriage when the Fernandos failed
to take their flight.

Held:

We find merit in the petition of the Spouses Jesus and Elizabeth Fernando. The Fernandos' cause
of action against Northwest stemmed from a breach of contract of carriage.
Undoubtedly, a contract of carriage existed between Northwest and the Fernandos. They
voluntarily and freely gave their consent to an agreement whose object was the transportation of
the Fernandos from LA to Manila, and whose cause or consideration was the fare paid by the
Fernandos to Northwest.

When Northwest confirmed the reservations of the Fernandos, it bound itself to transport the
Fernandos on their flight on 29 January 2002. We note that the witness of Northwest admitted on
cross-examination that based on the documents submitted by the Fernandos, they were
confirmed passengers on the January 29, 2002 flight.

In an action based on a breach of contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent. All that he has to prove is the existence of
the contract and the fact of its non-performance by the carrier. As the aggrieved party, the
Fernandos only had to prove the existence of the contract and the fact of its non-performance by
Northwest, as carrier, in order to be awarded compensatory and actual damages.

Therefore, having proven the existence of a contract of carriage between Northwest and the
Fernandos, and the fact of non-performance by Northwest of its obligation as a common carrier,
it is clear that Northwest breached its contract of carriage with the Fernandos. Thus, Northwest
opened itself to claims for compensatory, actual, moral and exemplary damages, attorney's fees
and costs of suit.

We, thus, sustain the findings of the CA and the RTC that Northwest committed a breach of
contract "in failing to provide the spouses with the proper assistance to avoid any inconvenience"
and that the actuations of Northwest in both subject incidents "fall short of the utmost diligence
of a very cautious person expected of it". Both ruled that considering that the Fernandos are not
just ordinary passengers but, in fact, frequent flyers of Northwest, the latter should have been
more courteous and accommodating to their needs so that the delay and inconveniences they
suffered could have been avoided. Northwest was remiss in its duty to provide the proper and
adequate assistance to them.

G. Modes of Extinguishment of Obligations


1. Payment or performance

SECOND DIVISION

March 1, 2017

G.R. No. 205578

GEORGIA OSMEÑA-JALANDONI, Petitioner


vs
CARMEN A. ENCOMIENDA, Respondent

DECISION

PERALTA, J.:

TOPIC: Obligation – Extinguishment of Obligations: Article 1236 The principle of unjust


enrichment essentially contemplates payment when there is no duty to pay, and the person who
receives the payment has no right to receive

Facts:

On October 24, 1995, while Encomienda was purchasing a condominium unit met
Georgia Osmeña-Jalandoni, a real estate broker in Cebu. They became close friends to the point
that Jalandoni called Encomienda to ask if she could borrow money for several purposes and
promise to pay the same.

Jalandoni never informed Encomienda that she returned to Cebu. Encomienda then later gave
Jalandoni six (6) weeks to settle her debts but despite several demands, no payment was made.
Jalandoni insisted that the amounts given were not in the form of loans. They appeared before
the Barangay for conciliation, however, no settlement was reached, but a member of the Lupong
Tagapamayapa of Barangay Kasambagan, Laureano Rogero, attested that Jalandoni admitted
having borrowed money from Encomienda and that she was willing to return the same. Jalandoni
said she would talk to her lawyer first, but she never came back. Hence, Encomienda was
constrained to file a complaint.

Jalandoni claimed that there was never a discussion or even just an allusion about a loan. On
January 9, 2006, the Regional Trial Court of Cebu City dismissed Encomienda's complaint.

The case was elevated to the Court of Appeals (CA) which granted the appeal and reversed the
RTC Decision rendering a Decision in favor of Encomienda.

Issue:

Whether or not Encomienda is entitled to be reimbursed for the amounts she defrayed for
Jalandoni?

Held:

It must be stressed, however, that the trial court merely found that no documentary evidence was
offered showing Jalandoni's authorization or undertaking to pay the expenses. But the second
paragraph of Article 1236 of the Civil Code provides:

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.

Clearly, Jalandoni greatly benefited from the purportedly unauthorized payments. Thus, even if
she asseverates that Encomienda's payment of her household bills was without her knowledge or
against her will, she cannot deny the fact that the same still inured to her benefit and Encomienda
must therefore be consequently reimbursed for it. Also, when Jalandoni learned about the
payments, she did nothing to express her objection to or repudiation of the same, within a
reasonable time. Even when she claimed that she was prepared with her own money, she still
accepted the financial assistance and actually made use of it. While she asserts to have been
upset because of Encomienda's supposedly intrusive actions, she failed to protest and, in fact,
repeatedly accepted money from her and further allowed her to pay her driver, security guard,
househelp, and bills for her cellular phone, cable television, pager, gasoline, food, and other
utilities. She cannot, therefore, deny the benefits she reaped from said acts now that the time for
restitution has come. The debtor who knows that another has paid his obligation for him and who
does not repudiate it at any time, must corollarily pay the amount advanced by such third person.

Truly, Jalandoni herself admitted that she received the aforementioned amounts from
Encomienda and is merely using her lack of authorization over the payments as her defence. In
fact, Lupong Tagapamayapa member Rogero, a disinterested third party, confirmed this, saying
that during the barangay conciliation, Jalandoni indeed admitted having borrowed money from
Encomienda and that she would return it. Jalandoni, however, reneged on said promise.
The principle of unjust enrichment finds application in this case. Unjust enrichment exists
when a person unfairly retains a benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity, and good conscience.
There is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages to another. The
principle of unjust enrichment essentially contemplates payment when there is no duty to pay,
and the person who receives the payment has no right to receive it. The CA is then correct when
it ruled that allowing Jalandoni to keep the amounts received from Encomienda will certainly
cause an unjust enrichment on Jalandoni' s part and to Encomienda's damage and prejudice.

THIRD DIVISION
G.R. No. 187543, February 08, 2017
WERR CORPORATION INTERNATIONAL, Petitioner, v. HIGHLANDS PRIME,
INC., Respondent.

G.R. No. 187580

HIGHLANDS PRIME, INC., Petitioner, v. WERR CORPORATION


INTERNATIONAL, Respondent.
DECISION
JARDELEZA, J.:

TOPIC: Obligations – Payment

Facts:

On July 22, 2005, Highlands Prime, Inc. (HPI), issued a Notice of Award/Notice to
Proceed to its chosen contractor, Werr Corporation International (Werr) for the construction of
54 residential units contained in three clusters of five-storey condominium structures, known as
"The Horizon-Westridge Project," in Tagaytay Midlands Complex, Talisay, Batangas, owner,
Thereafter, on November 17, 2005 the parties executed a General Building Agreement.

Werr obliged itself to complete the project within 210 calendar days from receipt of the
Notice of Award/Notice to Proceed on July 22, 2005, or until February 19, 2006 and HPI
undertook to pay Werr a lump sum contract price inclusive of applicable taxes, supply and
transportation of materials, and labor. One of the provisions under the agreement that HPI has
the right to liquidated damages in the event of delay in the construction of the project equivalent
to 1/10 of 1% of the contract price for every day of delay.

However, the project was not completed on the last extension given, thus, HPI terminated
its contract with Werr. The latter demanded from HPI payment of the balance of the contract
price and filed complaint for arbitration against HPI before the CIAC to recover the balance
representing of its retention money.
HPI countered in its Aswer that it does not owe Werr because the balance of the retention
money answered for the payments made to suppliers and for the additional costs and expenses
incurred after termination of the contract.
Issue:
Whether or not the payments made to suppliers and contractors after the termination of the
contract are chargeable against the retention money?

Held:

In this case, the issues of whether HPI was able to prove that payments made to suppliers and to
third party contractors are prior incurred obligations that should be charged against the retention
money, and whether HPI incurred expenses above the retention money that warrants actual
damages, are issues of facts beyond the review of the Court under Rule 45.

Moreover, even if we consider such factual issues, we are bound by the findings of fact of the
CIAC especially when affirmed by the CA. Factual findings by a quasi-judicial body like the
CIAC, which has acquired expertise because its jurisdiction is confined to specific matters, are
accorded not only with respect but even finality if they are supported by substantial evidence.
We recognize that certain cases require the expertise, specialized skills, and knowledge of the
proper administrative bodies because technical matters or intricate questions of facts are
involved.

Thus, we affirm the CIAC and CA's findings that direct payments charged by HPI in 2007 and
2008 were for materials supplied after the termination of the project and did not correspond to
the list of suppliers submitted; that the waterproofing works done by Dubbel Philippines in the
amount of P629,702.24 were for works done after the termination of the contract that were for
the account of the new contractor; and that the rectification works performed after the
termination of the contract worth P3,040,000.00 were not proven to have been paid, that it was
for rectification works only, and that prior notice of such defective works as required under the
Agreement was not proven. Accordingly, we affirm that the balance of the retention money is
P10,955,899.79.

2. Loss of the thing due or impossibility of performance

G.R. No. 190702, February 27, 2017


JAIME T. GAISANO, Petitioner, v. DEVELOPMENT INSURANCE AND SURETY
CORPORATION, Respondent.
DECISION
JARDELEZA, J.

TOPIC: Extinguishment of Obligation : Loss of the thing Due

Facts:
On September 27, 1996, Development Insurance and Surety Corporation (respondent), issued a
comprehensive commercial vehicle policy in favor of Jaime Gaisano (petitioner) for a period of
one year and also issued two other commercial vehicle policies to petitioner covering two other
motor vehicles for the same period.

On September 27, petitioner's company, Noah's Ark Merchandising immediately processed the
payments and issued a Far East Bank check payable to Trans-Pacific when the latter issued the
statement of account. On that day, nobody from Trans-Pacific picked up the check and informed
Noah's Ark that its messenger would get the check the next day.

On the same day in the evening, the vehicle was stolen in the vicinity of SM Megamall at
Ortigas, Mandaluyong City while it was under the official custody of Noah's Ark marketing
manager Achilles Pacquing (Pacquing). Pacquing immediately reported the loss to the Philippine
National Police Traffic Management Command.

On September 28, when Trans-Pacific picked up the check, official receipt numbered 124713
dated September 28, 1996 was issued acknowledging the receipt of P55,620.60 for the premium
and other charges over the vehicle. The check issued to Trans--Pacific for P140,893.50 was
deposited with Metrobank for encashment on October 1, 1996.
Respondent denied petitioner's claim for insurance alleging that the non-payment of the premium
rendered the policy ineffective, which prompted the petitioner to file a complaint for collection
of sum of money and damages with the Regional Trial Court (RTC). The premium was received
by the respondent only on October 2, 1996, and there was no known loss covered by the policy
to which the payment could be applied.

The RTC ruled in favor of petitioner. Respondent filed motion for reconsideration, however,
when the case was elevated to the Court of Appeals, it granted the respondent's appeal upholding
the respondent's position that an insurance contract becomes valid and binding only after the
premium is paid pursuant to Section 77 of the Insurance Code (Presidential Decree No. 612, as
amended by Republic Act No. 10607). It found that the premium was not yet paid at the time of
the loss on September 27, but only a day after or on September 28, 1996, when the check was
picked up by Trans-Pacific. The petitioner further argued that the parties intended the contract of
insurance to be immediately effective upon issuance, despite non-payment of the premium,
because respondent trusted petitioner. He adds that respondent waived its right to a pre-payment
in full of the terms of the policy, and is in estoppel.

Issue:

Whether or not parties intended the contract of insurance to be immediately effective upon
issuance, despite non-payment of the premium and placed the respondent in estoppel?

Held:

The court denied the petition.


Insurance is a contract whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. Just like any other
contract, it requires a cause or consideration. The consideration is the premium, which must be
paid at the time and in the way and manner specified in the policy. If not so paid, the policy will
lapse and be forfeited by its own terms.

The law, however, limits the parties' autonomy as to when payment of premium may be
made for the contract to take effect. The general rule in insurance laws is that unless the
premium is paid, the insurance policy is not valid and binding. Section 77 of the Insurance Code,
applicable at the time of the issuance of the policy, provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed
to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract
of insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy whenever the grace
Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the
time of the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific
was informed that the check was ready for pick-up on September 27, 1996, the notice of the
availability of the check, by itself, does not produce the effect of payment of the premium.
Trans-Pacific could not be considered in delay in accepting the check because when it informed
petitioner that it will only be able to pick-up the check the next day, petitioner did not protest to
this, but instead allowed Trans-Pacific to do so. Thus, at the time of loss, there was no payment
of premium yet to make the insurance policy effective.

The court further held that even if there is a waiver of pre-payment of premiums that in itself
does not become an exception to Section 77, unless the insured clearly gave a credit term or
extension. This is the clear import of the fourth exception in the UCPB General Insurance Co.,
Inc. To rule otherwise would render nugatory the requirement in Section 77 that
"[n]otwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid.

3. Subrogation

SECOND DIVISION
G.R. No. 223592, August 7, 2017
EQUITABLE INSURANCE CORPORATION, Petitioner, v. TRANSMODAL
INTERNATIONAL INC., Respondent.

DECISION
PERALTA, J.

Nature of the Action: Obligation – Subrogation

Facts:
Respondent Transmodal International, Inc. was hired by Sytengco Enterprise Corporation
(Sytengco) to clear the customs and withdraw, transport and deliver to its warehouse, cargoes
consisting of 200 of gum Arabic. The said cargoes arrived in Manila and were brought to Ocean
Links Container Terminal Center, Inc. Respondent Transmodal withdrew the same cargoes and
delivered them to Sytengco’s warehouse and upon receipt, it was noted that all the containers
were wet.

A survey was conducted and it was found that some of the cargoes were hardened and some have
marks of previous wetting. Sytengco demanded from respondent Transmodal payment as
compensation for total loss of shipment. On that same date, petitioner Equitable Insurance as
insurer of the cargoes paid Sytengco’s claim which the latter signed a subrogation receipt and
loss receipt in favor of petitioner Equitable Insurance. As such, petitioner Equitable Insurance
demanded from respondent Transmodal reimbursement of the payment given to Sytengco.

Petitioner Equitable Insurance filed a complaint for damages invoking its right as subrogee after
paying Sytengco’s insurance claim and averred that respondent Transmodal’s fault and gross
negligence were the causes of the damages sustained by Sytengco’s shipment. The respondent
however, denied knowledge of an insurance policy and alleged that the petitioner has no cause of
action against it.
The Regional Trial Court (RTC) rendered a Decision in favor of the petitioner on the ground that
it was able to prove its claim by showing substantial evidence to assert its right to institute the
action, however, the Court of Appeals (CA) reversed and set aside the RTc’s Decision for failure
to prove cause of action. The case was then elevated to the Supreme Court.

Issue:

Whether or not petitioner Equitable Insurance stepped into the shoes of the insured who has
direct cause of action against respondent Transmodal on the account of the damage sustained by
the cargoes?
Held:

He court held that it is was well established that petitioner has the right to step into the shoes of
the insured who has direct cause of action against herein respondent on account of the damages
sustained by the cargoes. “Subrogation is the substitution of one person in the place of another
with reference to lawful claim or right, so that he who is substituted succeeds to the rights of the
other relation to a debt or claim, including its remedies or securities. The right of subrogation
springs from Article 2207 of the Civil Code which states that:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrong-doer of the person who has violate the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss injury.
The records further show that petitioner was able to accomplish its obligations under the
insurance policy as it has paid the assured of its insurance claim in the amount of P 728,712.00
as evidenced by among others, the Subrogation Receipt, Loss Receipt, Check Voucher and
Equitable PCI Bank Check No. 0000013925. The payment by the insurer to the insured operates
as an equitable assignment to the insurer of all the remedies which the insured may have against
the third party whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance
company of the insurance claim. It accrues simply upon the payment by the insurance company
of the insurance claim.

5. Consignation

FIRST DIVISION
G.R. No. 224022
TEODORICO A. ZARAGOZA … Petitioner
versus
ILOILO SANTOS TRUCKERS, INC … Respondent
PRESENT: SERENO, CJ, CHAIRPERSON; LEONARDO-DE CASTRO; DEL CASTILLO;
PERLAS-BERNABE AND CAGUIOA, JJ
Promulgated: JUNE 28, 2017

TOPIC: Obligations – Extinguishment of Obligation: Is there Valid Consignation

Facts:

On June 26, 2003, petitioner Teodorico A. Zaragoza bought a parcel of land located at
Cabatuan, Ilolo, from his parents, Florentino and Erlinda Zaragoza and had the same registered
under his name. Petitioner alleged that without his knowledge, 1000 sqm portion of said lot was
leased by his father, Florentino, to respondent Iloilo Santos Truckers, Inc for a period of eight (8)
years and renewable for another eight (8) years at the sole option of the respondent. This
notwithstanding, petitioner allowed the lease to subsist and respondent had been diligent in
paying its monthly rent.

When the petitioner’s father died, he alleged that the respondent stopped paying rent. On the
other hand, respondent claimed that he was willing to pay rent, however he uncertain as to whom
payment should be made as it received separate demands from Florentine’s heirs, including
petitioner.

The respondent then filed an interpleader case before the Regional Trial Court (RTC) of Iloilo
City, however, the court dismissed the action but stated that he may avail of the remedy of
consignation and consign the rental amounts with it in order to do away with unnecessary
expenses and delay. Pursuant thereto, respondent send informing petitioner that it had consigned
the aggregate amount of P521,396.8917 before RTC-Br. 24.

The petitioner still sent a letter stating that granting without conceding the propriety of
consignation, the same did not extinguish the latter’s obligation to pay rent because the amount
consigned was insufficient to cover the unpaid rentals plus interests. In its defense, respondent
maintained that its consignation of rental amounts with RTC-Br. 24 constituted compliance with
the provisions of the lease contract concerning the monthly rental payments. Thus, petitioner
filed an action for unlawful detainer against the respondent before the Municipal Trial Court in
Cities (MTCC), Iloilo City

The MTCC rendered a Decision in favor of the petitioner on the ground that there was no valid
consignation and that the respondent is liable to pay unpaid rentals with interest and to vacate the
subject land. The case was then elevated to the Regional Trial Court (RTC) which revered and
set aside the ruling of the MTCC which was then affirmed by the Court of Appeals.
Undaunted, petitioner moved for reconsideration.
Issue:

Whether or not there was a valid consignation which shall relase the respondent from his
obligation to pay the monthly rental and that he has not violated the lease contract.

Held:

To recapitulate, in its letter dated May 24, 2011, petitioner demanded payment for, among
others, monthly rentals for the period of February 2007 to May 2011. In response thereto,
respondent claimed that it had already complied with its obligation to pay monthly rentals via
consignation with RTC-Br. 24, as evidenced by the Manifestation and Notice dated May 30,
2011 it filed before said court. However, a closer reading of such letter-reply and Manifestation
and Notice reveals that the amount consigned with RTC-Br. 24 represents monthly rentals only
for the period of February 2007 to March 2011, which is two (2) whole months short of what
was being demanded by petitioner. In fact, petitioner pointed out such fact in his letter dated June
9, 2011 to respondent, but the latter still refused to make any additional payments, by either
making further consignations with RTC-Br. 24 or directly paying petitioner.

From the foregoing, it appears that even assuming arguendo that respondent’s consignation of its
monthly rentals with RTC-Br. 24 was made in accordance with law, it still failed to comply with
its obligation under the lease contract to pay monthly rentals. It is apparent that at the time
petitioner filed the unlawful detainer suit on June 21, 2011, respondent was not updated in its
monthly rental payments, as there is no evidence of such payment for the months of April, May,
and even June 2011. Irrefragably, said omission constitutes a violation of the lease contract on
the part of respondent.

Considering that all the requisites of a suit for unlawful detainer have been complied with,
petitioner is justified in ejecting respondent from the subject land. Thus, the rulings of the RTC-
Br. 23 and the CA must be reversed and set aside, and accordingly, the MTCC ruling must be
reinstated. However, in light of prevailing jurisprudence, the rental arrearages due to petitioner
shall earn legal interest of twelve percent (12%) per annum, computed from first demand on May
24, 2011 to June 30, 2013, and six percent (6%) per annum from July 1, 2013 until fully paid.
The other amounts awarded by the MTCC, i.e., P20,000.00 as attorney’s fees, P50,000.00 as
litigation expenses, and the costs of suit) shall likewise earn legal interest of six percent (6%) per
annum from finality of the Decision until fully paid.

FIRST DIVISION
March 13, 2017
G.R. No. 206037
PHILIPPINE NATIONAL BANK, Petitioner
vs
LILIBETH S. CHAN, Respondent
DECISION
DEL CASTILLO, J.:

Facts:

On May 10, 2000, respondent Lilibeth S. Chan leased here commercial building to petitioner
Philippine National Bank (PNB) for a period of five (5) years. When the lease expired, PNB
continued to occupy the property on a month-to-month basis and vacated the premises on March
23, 2006.

Meanwhile, on January 22, 2002, respondent obtained a ₱l,500,000.00 loan from PNB which
was secured by a Real Estate Mortgage constituted over the leased property and executed a Deed
of Assignment over the rental payments in favor of PNB.

The amount of the respondent's loan was subsequently increased, thereafter, PNB and the
respondent executed an "Amendment to the Real Estate Mortgage by Substitution of Collateral",
where the mortgage over the leased property was released and substituted by a mortgage over a
parcel of land located in Paco, Manila.

When PNB failed to pay its monthly rental, respondent filed a complaint for Unlawful Detainer
and as a defense, PNB claimed that it applied the rental proceeds from October 2004 to January
15, 2005 as payment for respondent's outstanding loan which became due and demandable in
October 2004 and the monthly rentals from January 16, 2005 to February 2006, PNB deposited
the rentals in a separate non-drawing savings account for the benefit of the rightful party since
they received a demand letter from a certain Lamberto Chua (Chua) claiming to be the new
owner of the leased property.

The MeTC rendered a Decision ordering PNB to pay respondent the amount of P 1,348,643.92
with interest from January 16, 2005 up to March 23, 2006 when PNB finally vacated the leased
property. The case was elevated to thr Regional Trial Court (RTC) which affirmed the MeTC’s
Decision.
According to the Sheriff's Report of Execution, the amount of ₱l,348,643.92, representing the
monthly rentals from January 16, 2005 up to March 23, 2006, was turned over to the respondent
on December 20, 2006, however the Court of Appeals pointed out that PNB merely opened a
non-drawing savings account and is not considered consignation as contemplated by law, thus
PNB is liable to pay legal interest. The case was then elevated to the Supreme Court.

Issue:

Whether or not PNB dis not incur delay and properly consigned the disputed rental payments in
the amount of ₱l,348,643.92?

Held:

In the present case, the records show that: first, PNB had the obligation to pay respondent a
monthly rental of ₱l16,788.44, amounting to ₱l,348,643.92, from January 16, 2005 to March 23,
2006; second, PNB had the option to pay the monthly rentals to respondent or to apply the same
as payment for respondent's loan with the bank, but PNB did neither; third, PNB instead opened
a non-drawing savings account at its Paco Branch under Account No. 202- 565327-3, where it
deposited the subject monthly rentals, due to the claim of Chua of the same right to collect the
rent; and fourth, PNB consigned the amount of Pl,348,643.92 with the Office of the Clerk of
Court of the MeTC of Manila on May 31, 2006.

Note that PNB's deposit of the subject monthly rentals in a non-drawing savings account is not
the consignation contemplated by law, precisely because it does not place the same at the
disposal of the court. Consignation is necessarily judicial; it is not allowed in venues other than
the courts.52 Consequently, PNB's obligation to pay rent for the period of January 16, 2005 up to
March 23, 2006 remained subsisting, as the deposit of the rentals cannot be considered to have
the effect of payment.

It is important to point out that PNB's obligation to pay the subject monthly rentals had already
fallen due and demandable before PNB consigned the rental proceeds with the MeTC on May
31, 2006. Although it is true that consignment has a retroactive effect, such payment is deemed
to have been made only at the time of the deposit of the thing in court or when it was placed at
the disposal of the judicial authority. Based on these premises, PNB's payment of the monthly
rentals can only be considered to have been made not earlier than May 31, 2006.

Given its belated consignment of the rental proceeds in court, PNB clearly defaulted in the
payment of monthly rentals to the respondent for the period January 16, 2005 up to March 23,
2006, when it finally vacated the leased property, As such, it is liable to pay interest in
accordance with Article 2209 of the Civil Code.
Article 2209 provides that if the debtor incurs delay in the performance of an obligation
consisting of the payment of a sum of money, he shall be liable to pay the interest agreed upon,
and in the absence of stipulation, the legal interest at 6% per annum. There being no stipulated
interest in this case, PNB is liable to pay legal interest at 6% per annum, from January 16, 2005
up to May 30, 2006.

THIRD DIVISION
G.R. No. 191174
PARADIGM DEVELOPMENT CORPORATION OF THE PHILIPPINES … Petitioner
versus
BANK OF THE PHILIPPINE ISLANDS … Respondent
PRESENT: VELASCO, JR, J, CHAIRPERSON; BERSAMIN; REYES; CAGUIOA* AND
TIJAM, JJ
Promulgated: June 7, 2017

DECISION
REYES, J:

TOPIC: Extinguishment of Obligations : Novation

Facts:
Two credit facility was obtained by Sengkon Trading (Sengkon), a sole proprietorship owned by
Anita Go, obtained a loan from Far East Bank and Trust Company (FEBTC) under a credit
facility denominated as Omnibus Line On April 19, 1996, FEBTC and as Credit Line, in the
amount of P60 Million as contained in the “Agreement for Credit Line.” Two real estate
mortgage (REM) contracts were executed by Paradigm Development Corporation of the
Philippines (PDCP) President, Anthony L. Go (Go), to partially secure Sengkon’s obligations
under this Credit Line.

Sengkon defaulted in the payment of its loan obligations thus FEBTC demanded payment from
PDCP of alleged Credit Line and Trust Receipt availments. PDCP responded by requesting for
segregation of Sengkon’s obligations under the Credit Line.

Negotiations were then held and PDCP proposed to pay the alleged corresponding obligations
secured by its property, for the release of its properties, however, FEBTC pressed for a
comprehensive repayment scheme for the entirety of Sengkon’s obligations.

Negotiations were put on hold since BPI acquired FEBTC and assumed the rights and
obligations of the latter. Thereafter, when the negotiation failed, FEBTC initiated the foreclosure
proceedings against the mortgaged properties of PDCP before the Regional Trial Court (RTC).
PDCP filed a Complaint for Annulment of Mortgage, Foreclosure, Certificate of Sale and
Damages against BPI, successor-in-interest of FEBTC, alleging that the REMs and their
foreclosure were null and void.

In asking for the nullity of the REMs and the foreclosure proceeding, PDCP alleged that without
the knowledge and consent of PDCP, obligation of SENGKON has been transferred to STI a
juridical personality separate and distinct from SENGKON, a single proprietorship. This
substitution of SENGKON as debtor by STI effectively novated the obligation of PDCP to
FEBTC.

The Regional Trial Court (RTC) rendered a Decision nullifying the REMs, foreclosure,
Certificate of sale and ordered the Registrar of Deeds to cancel the annotation of the REMs and
Certificate of sale on the subject property. The RTC likewise ordered PDCP to return the
owner’s duplicate and ordered BPI to pay litigation expenses and attorney’s fees.

When the case was elevated to the Court of Appeals (CA), it reversed the RTC Decision and
pointed out that novation could not have taken place from FEBTC's mere act of approving
Sengkon's request to change account name from Sengkon to STI.

ISSUE:

Whether or not the CA’s decision in rejecting of PDCP’s novation theory based on the absence
of an express release of the old debtor and the substitution in its place of a new debtor is
misplaced and erroneous?

Held:

The court held that no novation has taken place.

The Court likewise agrees with the CA that no novation took place in the present case. Novation
is a mode of extinguishing an obligation by changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of
the creditor. Article 1293 of the Civil Code defines novation as “consists in substituting a new
debtor in the place of the original one, [which] may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor.” However, while the
consent of the creditor need not be expressed but may be inferred from the creditor’s clear and
unmistakable acts, to change the person of the 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 relation.

In the present case, PDCP failed to prove by preponderance of evidence that Sengkon was
already expressly released from the obligation and that STI assumed the former’s obligation.
Again, as correctly pointed out by the CA, the Deed of Assumption of Line/ Loan with Mortgage
(Deed of Assumption) which was supposed to embody STI’s assumption of all the obligations of
Sengkon under the line, including but not necessarily limited to the repayment of all the
outstanding availments thereon, as well as all applicable interests and other charges, was not
signed by the parties.

Contrary to PDCP’s claim, the CA’s rejection of its claim of novation is not based on the
absence of the mortgagor’s conformity to the Deed of Assumption. The CA’s rejection is based
on the fact that the non-execution of the Deed of Assumption by Sengkon, STI and FEBTC
rendered the existence of novation doubtful because of lack of clear proof that Sengkon is being
expressly released from its obligation; that STI was already assuming Sengkon’s former place in
the contractual relation; and that FEBTC is giving its conformity to this arrangement. While
FEBTC indeed approved Sengkon’s request for the “change in account name” from Sengkon to
STI, such mere change in account name alone does not meet the required degree of certainty to
establish novation absent any other circumstance to bolster said conclusion.

CONTRACTS

Contract of Adhesion
SECOND DIVISION
G.R. No. 225402, September 4, 2017
ENCARNCION CONSTRUCTION & INDUSTRIAL
CORPORATION, Petitioner, v. PHOENIX READY MIX CONCRETE DEVELOPMENT
& CONSTRUCTION, INC., Respondent.

DECISION
PERLAS-BERNABE, J.

TOPIC: Contract – Consensuality - Contract of Adhesion

Facts:

Phoenix entered into two (2) separate Contract of Proposals and Agreement with Encarnacion
Construction & Industrial Corporation (ECIC) for the delivery of various quantities of ready-mix
concrete in connection with the construction of Valenzuela National High School (VNHS)
Marulas Building.

Delivery has been performed in due course, however, despite repeated demands, ECIC refused to
pay. ECIC claimed that its suspension of payment was due to substandard ready-mix concrete
delivered and that due to its condition, dismantling and reconstruction needs to be done incurring
additional expenses. Phoenix was then constrained to file a complaint for sum of money against
ECIC.

The court rendered a Decision ordering CIC to pay Phoenix with twelve percent (12%) interest
per annum. The court pointed out that Phoenix have fully complied with its obligation which was
then affirmed by the Court of Appeals. The case was then elevated to the Supreme Court.

Issue:

Whether or not the contract agreed upon by ECIC and Phoenix is void for being contract of
adhesion?

Held:
In the present petition, ECIC maintains that it is entitled to its counterclaim because the
Agreement is signed with Phoenix, particularly paragraph 15 thereof, is void for being a contract
of adhesion; and the ready mix concrete Phoenix delivered for the 3rd floor slab of the VNHS
building was substandard causing it to incur additional expenses to reconstruct the building’s 3rd
floor.

A contract of adhesion is one wherein is one party imposes a ready- made form of contract on the
other. It is a contract whereby almost all of its provisions are drafted by one party, with the
participation of the other party being limited to affixing his or her signature or adhesion to the
contract. However, contracts of adhesion are not invalid per se as they are binding as ordinary
contracts. While the Court has occasionally struck down contracts of adhesion as void, it is so
when the weaker party has been imposed upon the dealing with the dominant bargaining party
and reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to
bargain on equal footing. Thus, the validity or enforceability of the impugned contracts will have
to be determined by the peculiar circumstances obtained in each and the situation of the parties
concerned.

In this case, there is no proof that ECIC was disadvantaged or utterly inexperienced in dealing
with the Phoenix. There were likewise no allegations and proof that its representative Ramon
Encarnacion was uneducated, or under duress or force when he signed the businessman who
signed Agreement with full knowledge of its import. Case laws states that the natural
presumption is that one does not sign a document without first informing himself of its contents
and consequences. This presumption has not been debunked.

Further, the Court finds that the terms and conditions of the parties Agreement are plain, clear,
and unambiguous and thus could not have caused any confusion.

Based on these terms, it is apparent that any claim that ECIC may have had as regards the quality
or strength of the delivered ready mix concrete should have been made at the time of delivery.
However, it failed to make a claim on the quality of the delivered concrete at the stipulated time,
and thus, said claim is deemed to have been waived.

Autonomy of contract
G.R. No. 225562, March 08, 2017
WILLIAM C. LOUH, JR. AND IRENE L. LOUH, Petitioners, v. BANK OF THE
PHILIPPINE ISLANDS, Respondent.
RESOLUTION
REYES, J.

TOPIC: Contract: AUTONOMY OF CONTRACT: penalty may also be reduced by the courts if
it is iniquitous or unconscionable.

Facts:
A credit card in William's name was issued by Bank of the Philippine Islands (BPI) with an
extension card holder in the name of Irene. The terms and conditions of the cards' issuance shall
be 3.5% finance charge and 6% late payment charge to be imposed upon monthly unpaid credit
availments.

The Spouses Louh made purchases from the use of the credit cards and paid regularly, however,
they failed to pay starting October 14, 2009. On August 15, 2010, the account remained unpaid
which prompted BPI to send demand letters and eventually file a complaint for collection for
sum of money before the Regional Trial Court (RTC).

RTC rendered a Decision, ordering the Spouses Louh to solidarily pay BPI. The RTC likewise
finds the late payment monthly charges imposed as iniquitous and unconscionable. Hence, both
charges were reduced to 1% monthly. Anent the award of attorney's fees equivalent to 25% of
the amount due. The RTC Decision was likewise affirmed by the Court of Appeals. The case was
then appealed by the spouses before the Supreme Court.

Issue:

Whether or not the court may reduce the charges imposed by BPI?

Held:

This is not the first time that this Court has considered the interest rate of 36% per annum as
excessive and unconscionable. We held in Chua vs. Timan that the stipulated interest rates of 7%
and 5% per month imposed on respondents' loans must be equitably reduced to 1% per month or
12% per annum. Since the stipulation on the interest rate is void, it is as if there was no express
contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.

The same is true with respect to the penalty charge. Pertinently, Article 1229 of the Civil Code
states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no perfom1ance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.

In the case at bench, BPI imposed a cumulative annual interest of 114%, plus 25% of the amount
due as attorney's fees. Inevitably, the RTC and the CA aptly reduced the charges imposed by BPI
upon the Spouses Louh. Note that incorporated in the amount of P533,836.27 demanded by BPI
as the Spouses Louh's obligation as of August 7, 2010 were the higher rates of finance and late
payment charges, which the courts a quo had properly directed to be reduced.