2011 Recent Jurisprudence in Civil Law

RECENT JURISPRUDENCE IN CIVIL LAW(As of 2011) Compiled by: ATTY. MARIA LULU G. REYES I. PERSONS AN FAMILY RELATIONS EFFECTS OF LAWS Laws; retroactive application. A perusal of RA 9302 shows that nothing indeed therein authorizes its retroactive application. In fact, its effectivity clause indicates a clear legislative intent to the contrary: ―Section 28. Effectivity Clause. – This Act shall take effect fifteen (15) days following the completion of its publication in the Official Gazette or in two (2) newspapers of general circulation.‖ Statutes are prospective and not retroactive in their operation, they being the formulation of rules for the future, not the past. Hence, the legal maxim lex de futuro, judex de praeterito — the law provides for the future, the judge for the past, which is articulated in Article 4 of the Civil Code: ―Laws shall have no retroactive effect, unless the contrary is provided.‖ The reason for the rule is the tendency of retroactive legislation to be unjust and oppressive on account of its liability to unsettle vested rights or disturb the legal effect of prior transactions. In Re: Petition for Assistance in the Liquidation of Intercity Savings and Loan Bank, Inc., Philippine Deposit Insurance Corporation vs. Stockholders of Intercity Savings and Loan Bank, Inc., G.R. No. 181556, December 14, 2009. HUMAN RELATIONS Persons; human relations. Firmly established in our civil law is the doctrine that: ―Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.‖ When a right is exercised in a manner that does not conform with such norms and results in damages to another, a legal wrong is thereby committed for which the wrong doer must be held responsible. Similarly, any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damages caused. It is patent in this case that petitioners‘ alleged acts fall short of these established civil law standards. Patronica Ravina and Wilfredo Ravina vs. Mary Ann P. Villa Abrille, for behalf of Ingrid D’Lyn P. Villa Abrille, et al., G.R. No. 160708, October 16, 2009. DIVORCE P.D. No. 1083; Muslim personal laws. If both parties are Muslims, there is a presumption that the Muslim Code or Muslim law is complied with. If together with it or in addition to it, the marriage is likewise solemnized in accordance with the Civil Code of the Philippines, in a so-called combined Muslim-Civil marriage rites whichever comes first is the validating rite and the second rite is merely ceremonial one. But, in this case, as long as both parties are Muslims, this Muslim Code will apply. In effect, two situations will arise, in the application of this Muslim Code or Muslim law, that is, when both parties are Muslims and when the male party is a Muslim and the marriage is solemnized in accordance with Muslim Code or Muslim law. A third situation occur[s] when the Civil Code of the Philippines will govern the marriage and divorce of the parties, if the male party is a Muslim and the marriage is solemnized in accordance with the Civil Code. Moreover, the two experts, in the same book, unequivocally state that one of the effects of irrevocable talaq, as well as other kinds of divorce, refers to severance of matrimonial bond, entitling one to remarry. P a g e | 2 It stands to reason therefore that Zamoranos‘ divorce from De Guzman, as confirmed by an Ustadz and Judge Jainul of the Shari‘a Circuit Court, and attested to by Judge Usman, was valid, and, thus, entitled her to remarry Pacasum in 1989. Consequently, the RTC, Branch 6, Iligan City, is without jurisdiction to try Zamoranos for the crime of Bigamy. Atty. Marietta D. Zamoranos v. People of the Philippines and Samson R. Pacasum, Sr./Atty. Marietta D. Zamoranos v. Samson R. Pacasum, Sr./Samson R. Pacasum, Sr. v. Atty. Marietta D. Zamoranos, G.R. No. 193902/G.R. No. 193908 and G.R. No. 194075. June 1, 2011 Family relations; impact of foreign divorce. In seeking the enforceability of a joint custody agreement, the petitioner cannot prevent the application of Article 213 of the Family Code (to the matter of custody of a child of separated parents) by relying on the alleged invalidity of the divorce that the parents had obtained. The argument that foreigners in this jurisdiction are not bound by foreign divorce decrees is hardly novel. Van Dorn v. Romillo settled the matter by holding that an alien spouse of a Filipino is bound by a divorce decree obtained abroad. There, we dismissed the alien divorcee‘s Philippine suit for accounting of alleged post-divorce conjugal property and rejected his submission that the foreign divorce (obtained by the Filipino spouse) is not valid in this jurisdiction. In that case the court ruled that there can be no question as to the validity of that Nevada divorce in any of the States of the United States. The decree is binding on private respondent as an American citizen. It is true that owing to the nationality principle embodied in Article 15 of the Civil Code, only Philippine nationals are covered by the policy against absolute divorces the same being considered contrary to our concept of public policy and morality. However, aliens may obtain divorces abroad, which may be recognized in the Philippines, provided they are valid according to their national law. In this case, the divorce in Nevada released private respondent from the marriage from the standards of American law, under which divorce dissolves the marriage. Thus, pursuant to his national law, private respondent is no longer the husband of petitioner. He would have no standing to sue in the case below as petitioner‘s husband entitled to exercise control over conjugal assets. As he is bound by the Decision of his own country‘s Court, which validly exercised jurisdiction over him, and whose decision he does not repudiate, he is estopped by his own representation before said Court from asserting his right over the alleged conjugal property. We reiterated Van Dorn in Pilapil v. Ibay-Somera to dismiss criminal complaints for adultery filed by the alien divorcee (who obtained the foreign divorce decree) against his former Filipino spouse because he no longer qualified as ―offended spouse‖ entitled to file the complaints under Philippine procedural rules. Thus, it should be clear by now that a foreign divorce decree carries as much validity against the alien divorcee in this jurisdiction as it does in the jurisdiction of the alien‘s nationality, irrespective of who obtained the divorce. Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5, 2010. VOID MARRIAGE Family Code; Application of Family Code. In the Decision dated September 29, 2009, the Court affirmed petitioner‘s conviction for bigamy. Petitioner moved for reconsideration of the Decision, arguing that since petitioner‘s marriages were entered into before the effectivity of the Family Code, then the applicable law is Section 29 of the Marriage Law (Act 3613), instead of Article 40 of the Family Code, which requires a final judgment declaring the previous marriage void before a person may contract a subsequent marriage. Petitioner‘s argument lacks merit. As far back as 1995, in Atienza v. Brillantes, Jr., the Court already made the declaration that Article 40, which is a rule of procedure, should be applied retroactively because Article 256 of the Family Code itself provides that said ―Code shall have retroactive effect insofar as it does not prejudice or impair vested or acquired rights.‖ The fact that procedural statutes may somehow affect the litigants‘ rights may not preclude their retroactive application to pending actions. The retroactive application of procedural laws is not violative of any right of a person who may feel that he is adversely affected. The reason is that as a general rule, no vested right may attach to, nor arise from, procedural laws. Victoria S. Jarillo vs. People of the Philippines, G.R. No. 164435, June 29, 2010 . Family Code; presumption of death; summary judicial proceedings under the Family Code. Under Article 41 of the Family Code, the losing party in a summary proceeding for the declaration of presumptive death may file a petition for certiorari with the CA on the ground that, in rendering judgment thereon, the trial court committed grave abuse of discretion amounting to lack of jurisdiction. From the decision of the CA, the aggrieved party may elevate the matter to this Court via a petition for review on certiorari under Rule 45 of the Rules of Court. Republic of the Philippines vs. Yolanda Cadacio Granada; G.R. No. 187512, June 13, 2012. Marriage; presumption of death. A petition for judicial declaration that petitioner‘s husband is presumed to be dead cannot be entertained because it is not authorized by law. Under the Civil Code, the presumption of death is established by law and no court declaration is needed for the presumption to arise. Since death is presumed to have taken place by the seventh year of absence, Sofio is to be presumed dead starting October 1982. Consequently, at the time of petitioner‘s marriage to Virgilio, there existed no impediment to petitioner‘s capacity to marry, and the marriage is valid under paragraph 2 of Article 83 of the Civil Code. Further, considering that it is the Civil Code that applies, proof of ―well-founded belief‖ is not required. Petitioner could not have been expected to comply with this requirement since the Family Code was not yet in effect at the time of her marriage to Virgilio. The enactment of the Family Code in 1988 does not change this conclusion. Angelita Valdez vs. Republic of the Philippines, G.R. No. 180863, September 8, 2009. P a g e | 3 Marriage; annulment by reason of psychological incapacity. The Court held that the lower court did not commit grave abuse when it dismissed the petition for annulment of marriage, so the case really turned on a procedural issue. Danilo A. Aurelio vs. Vida Ma. Corazon P. Aurelio, G.R. No. 175367. June 6, 2011 Marriage; annulment; psychological incapacity. Quarrels, financial difficulties, womanizing of petitioner – sorry, no psychological incapacity. The Supreme Court found the testimony of the psychiatrist to be general, not in-depth, does not establish link between actions of party and his supposed psychological incapacity. No matter that the OSG did not present its own expert; it does not have the burden of proof in an annulment case. Rosalino L. Marable vs. Myrna F. Marable; G.R. No. 178741, January 17, 2011. Marriage; annulment; psychological incapacity. The Supreme Court reiterates its Santos and Molina rulings, backtracks on the Te case, and finds that persistent sexual infidelity (the wife cuckolds a military officer) and abandonment are not badges of psychological incapacity particularly in absence of proof that these can be traced to roots prior to the marriage. Read it for the treatment of the key cases of Santos, Molina and Te, and to see how another psychiatrist‘s testimony bites the dust. Jose Reynaldo B. Ochosa vs. Bona J. Alano and Republic of the Philippines; G.R. No. 167459, January 26, 2011. Marriage; annulment; psychological incapacity. For psychological incapacity of a spouse to serve as ground for annulling a marriage, the incapacity must consist of the following: (a) a true inability to commit oneself to the essentials of marriage; (b) this inability to commit oneself must refer to the essential obligations of marriage: the conjugal act, the community of life and love, the rendering of mutual help, the procreation and education of offspring; and (c) the inability must be tantamount to a psychological abnormality. It is not enough to prove that a spouse failed to meet his responsibility and duty as a married person; it is essential that he must be shown to be incapable of doing so due to some psychological illness. That respondent, according to petitioner, ―lack[ed] effective sense of rational judgment and responsibility‖ does not mean he is incapable to meet his marital obligations. His refusal to help care for the children, his neglect for his business ventures, and his alleged unbearable jealousy may indicate some emotional turmoil or mental difficulty, but none have been shown to amount to a psychological abnormality. Moreover, even assuming that respondent‘s faults amount to psychological incapacity, it has not been established that the same existed at the time of the celebration of the marriage. In his psychological report, the psychologist merely said, ―[b]ecause one‘s personality or character is formed early in life, it has a clear ANTECEDENT and it has an enduring pattern of inner experience that deviates from the expectations of the individual‘s culture,‖ without explaining this antecedent. Even petitioner, in her allegations, never explained how the alleged psychological incapacity manifested itself prior to or at the time of the celebration of their marriage. Likewise militating against petitioner‘s cause is the finding of the trial court, and the same was affirmed by the CA, that respondent never committed infidelity or physically abused petitioner or their children. In fact, considering that the children lived with both parents, it is safe to assume that both made an impact in the children‘s upbringing. And still, as found by the RTC and the CA, the parties were able to raise three children into adulthood ―without any major parenting problems.‖ Such fact could hardly support a proposition that the parties‘ marriage is a nullity. Cynthia E. Yambao vs. Republic of the Philippines and Patricio E. Yambao; G.R. No. 184063, January 24, 2011. Marriage; annulment; psychological incapacity. This case reiterates the previous rulings of Santos and Molina, and presents another example of the Supreme Court‘s not being too taken with the testimony of the psychiatrist or therapist retained to prove the psychological incapacity of one of the parties. Lawyers representing a spouse in a potential annulment case should study the issues which have been raised by the court in respect of such testimonies. In this case, the Supreme Court observed that what should not be lost in reading and applying its established rulings is the intent of the law to confine the application of Article 36 of the Family Code to the most serious cases of personality disorders — these are the disorders that result in the utter insensitivity or inability of the afflicted party to give meaning and significance to the marriage he or she contracted. Furthermore, the psychological illness and its root cause must have been there from the inception of the marriage. From these requirements arise the concept that Article 36 of the Family Code does not really dissolve a marriage; it simply recognizes that there never was any marriage in the first place because the affliction – already then existing – was so grave and permanent as to deprive the afflicted party of awareness of the duties and responsibilities of the matrimonial bond he or she was to assume or had assumed. In this regard, the court noted that mere ―difficulty,‖ ―refusal, or ―neglect‖ in the performance of marital obligations or ―ill will‖ on the part of the spouse is different from ―incapacity‖ rooted on some debilitating psychological condition or illness, and in this case ruled that the following is not a reason to set aside the marital bonds : P a g e | 4 - Failure to manage the family‘s finances resulting in the loss of the house and lot intended to be their family residence? According to the Supreme Court: this merely constituted difficulty, refusal or neglect, during the marriage, in the handling of funds intended for the family‘s financial support. - Infidelity? According to the Supreme Court: for sexual infidelity to constitute as psychological incapacity, the respondent‘s unfaithfulness must be established as a manifestation of a disordered personality, completely preventing the respondent from discharging the essential obligations of the marital state; there must be proof of a natal or supervening disabling factor that effectively incapacitated spouse from complying with the obligation to be faithful to his or her spouse. Here are what may be considered guidelines on the kind of evidence or testimony that should be presented, based on this case: (i) In So v. Valera, the Court considered the psychologist‘s testimony and conclusions to be insufficiently in-depth and comprehensive to warrant the finding of respondent‘s psychological incapacity because the facts, on which the conclusions were based, were all derived from the petitioner‘s statements whose bias in favor of his cause cannot be discounted. (ii) In another case, Padilla-Rumbaua v. Rumbaua, the Court declared that while the various tests administered on the petitioner-wife could have been used as a fair gauge to assess her own psychological condition, this same statement could not be made with respect to the respondent-husband‘s psychological condition. Conclusions and generalizations about a spouse‘s psychological condition, based solely on information fed by the other spouse, are not any different in kind from admitting hearsay evidence as proof of the truthfulness of the content of such evidence. (iii) To be sure, the law does not require that the allegedly incapacitated spouse be personally examined by a physician or by a psychologist as a condition sine qua non for the declaration of nullity of marriage under Article 36 of the Family Code. This recognition, however, does not signify that the evidence should be any less than the evidence that an Article 36 case, by its nature, requires. (iv) It is still essential – although from sources other than the respondent spouse – to show his or her personality profile, or its approximation, at the time of marriage; the root cause of the inability to appreciate the essential obligations of marriage; and the gravity, permanence and incurability of the condition. Other than from the spouses, such evidence can come from persons intimately related to them, such as relatives, close friends or even family doctors or lawyers who could testify on the allegedly incapacitated spouse‘s condition at or about the time of marriage, or to subsequent occurring events that trace their roots to the incapacity already present at the time of marriage. (In the present case, the only other party outside of the spouses who was ever asked to give statements for purposes of the spouse‘s psychological evaluation was the spouses‘ eldest son who would not have been very reliable as a witness in an Article 36 case because he could not have been there when the spouses were married and could not have been expected to know what was happening between his parents until long after his birth.) (v) The Supreme Court did not consider isolated instances of the spouses fighting over the foreclosure of their house, the husband‘s alleged womanizing, and their differences in religion, as indicative of any basic psychological disorder existing at the time of marriage. For one, these points of dispute are not uncommon in a marriage and relate essentially to the usual roots of marital problems – finances, fidelity and religion. (vi) If a psychologist‘s testimony will be submitted, the psychological evaluation should fully explain the details – i.e., the what, how, when, where and since when – of the spouse‘s alleged personality disorder. It should also explain the incapacitating nature of the disorder, how it related to the essential marital obligations that the spouse failed to assume, and how grave and incurable it was. Ricardo P. Toring vs. Teresita M. Toring and Republic of the Philippines, G.R. No. 165321, August 3, 2010. Marriage; annulment; psychological incapacity; Here, testimonies of two clinical psychologists and a psychiatrist had been presented to show the incapacity of the husband. The Court of Appeals in reversing the RTC decision to annul the marriage, ―rejected, wholesale, the testimonies of Doctors Magno and Villegas for being hearsay since they never personally examined and interviewed the respondent.‖ The Supreme Court disagreed with the CA observing that the lack of personal examination and interview of the respondent, or any other person diagnosed with personality disorder, does not per se invalidate the testimonies of the doctors. Neither do their findings automatically constitute hearsay that would result in their exclusion as evidence. For one, marriage, by its very definition, necessarily involves only two persons. The totality of the behavior of one spouse during the cohabitation and marriage is generally and genuinely witnessed mainly by the other. In this case, the experts testified on their individual assessment of the present state of the parties‘ marriage from the perception of one of the parties, herein petitioner. Certainly, petitioner, during their marriage, had occasion to interact with, and experience, respondent‘s pattern of behavior which she could then validly relay to the clinical psychologists and the psychiatrist. P a g e | 5 For another, the clinical psychologists‘ and psychiatrist‘s assessment were not based solely on the narration or personal interview of the petitioner. Other informants such as respondent‘s own son, siblings and in-laws, and sister-in-law (sister of petitioner), testified on their own observations of respondent‘s behavior and interactions with them, spanning the period of time they knew him. These were also used as the basis of the doctors‘ assessments. The court went on to cite the recent case of Lim v. Sta. Cruz-Lim, citing The Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition (DSM IV), which sets out the general diagnostic criteria for personality disorders. Please check this or that case to get the guidelines. Within their acknowledged field of expertise, doctors can diagnose the psychological make up of a person based on a number of factors culled from various sources. A person afflicted with a personality disorder will not necessarily have personal knowledge thereof. In this case, considering that a personality disorder is manifested in a pattern of behavior, self-diagnosis by the respondent consisting only in his bare denial of the doctors‘ separate diagnoses, does not necessarily evoke credence and cannot trump the clinical findings of experts. The Supreme Court also rejected the CA‘s view that because one of the psychologists had recommended therapy, she believe the illness was curable. A recommendation for therapy does not automatically imply curability. In general, recommendations for therapy are given by clinical psychologists, or even psychiatrists, to manage behavior. In Kaplan and Saddock‘s textbook entitled Synopsis of Psychiatry, treatment, ranging from psychotherapy to pharmacotherapy, for all the listed kinds of personality disorders are recommended. In short, the recommendation that respondent should undergo therapy does not necessarily negate the finding that respondent‘s psychological incapacity is incurable. Moreover, the psycholigist in question, during her testimony, categorically declared that respondent is psychologically incapacitated to perform the essential marital obligations. As aptly stated by Justice Romero in her separate opinion in the ubiquitously cited case of Republic v. Court of Appeals & Molina: [T]he professional opinion of a psychological expert became increasingly important in such cases. Data about the person’s entire life, both before and after the ceremony, were presented to these experts and they were asked to give professional opinions about a party’s mental capacity at the time of the wedding. These opinions were rarely challenged and tended to be accepted as decisive evidence of lack of valid consent. … [Because] of advances made in psychology during the past decades. There was now the expertise to provide the all-important connecting link between a marriage breakdown and premarital causes. At this point, the Supreme Court noted how it had, on many, many occasions essentially pshawed at the testimonies of various therapists and psychiatrists: ―It is true that a clinical psychologist‘s or psychiatrist‘s diagnoses that a person has personality disorder is not automatically believed by the courts in cases of declaration of nullity of marriages. Indeed, a clinical psychologist‘s or psychiatrist‘s finding of a personality disorder does not exclude a finding that a marriage is valid and subsisting, and not beset by one of the parties‘ or both parties‘ psychological incapacity. On more than one occasion, we have rejected an expert‘s opinion concerning the supposed psychological incapacity of a party… In the case at bar, however, even without the experts‘ conclusions, the factual antecedents (narrative of events) alleged in the petition and established during trial, all point to the inevitable conclusion that respondent is psychologically incapacitated to perform the essential marital obligations. Article 68 of the Family Code provides: Art. 68. The husband and wife are obliged to live together, observe mutual love, respect and fidelity, and render mutual help and support. In this connection, it is well to note that persons with antisocial personality disorder exhibit the following clinical features: Patients with antisocial personality disorder can often seem to be normal and even charming and ingratiating. Their histories, however, reveal many areas of disordered life functioning. Lying, truancy, running away from home, thefts, fights, substance abuse, and illegal activities are typical experiences that patients report as beginning in childhood. x x x Their own explanations of their antisocial behavior make it seem mindless, but their mental content reveals the complete absence of delusions and other signs of irrational thinking. In fact, they frequently have a heightened sense of reality testing and often impress observers as having good verbal intelligence. x x x Those with this disorder do not tell the truth and cannot be trusted to carry out any task or adhere to any conventional standard of morality. x x x A notable finding is a lack of remorse for these actions; that is, they appear to lack a conscience. P a g e | 6 In the instant case, respondent‘s pattern of behavior manifests an inability, nay, a psychological incapacity to perform the essential marital obligations as shown by his: (1) sporadic financial support; (2) extra-marital affairs; (3) substance abuse; (4) failed business attempts; (5) unpaid money obligations; (6) inability to keep a job that is not connected with the family businesses; and (7) criminal charges of estafa…. In fine, given the factual milieu of the present case and in light of the foregoing disquisition, we find ample basis to conclude that respondent was psychologically incapacitated to perform the essential marital obligations at the time of his marriage to the petitioner. Ma. Socorro Camacho-Reyes vs. Ramon Reyes, G.R. No. 185286, August 18, 2010. Family relations; annulment of marriage; psychological incapacity. This is a petition for certiorari under Rule 65, questioning a Court of Appeals decision that ruled that private respondent‘s alleged sexual infidelity, emotional immaturity and irresponsibility do not constitute psychological incapacity within the contemplation of the Family Code and that the psychologist failed to identify and prove the root cause thereof or that the incapacity was medically or clinically permanent or incurable. In this case at bench, the Court finds no commission of a grave abuse of discretion in the rendition of the assailed CA decision dismissing petitioner‘s complaint for declaration of nullity of marriage under Article 36 of the Family Code. A petition for declaration of nullity of marriage is anchored on Article 36 of the Family Code. Psychological incapacity required by Art. 36 must be characterized by (a) gravity, (b) juridical antecedence and (c) incurability. The incapacity must be grave or serious such that the party would be incapable of carrying out the ordinary duties required in marriage. It must be rooted in the history of the party antedating the marriage, although the overt manifestations may emerge only after the marriage. It must be incurable or, even if it were otherwise, the cure would be beyond the means of the party involved. The Court likewise laid down the guidelines in resolving petitions for declaration of nullity of marriage, based on Article 36 of the Family Code, in Republic v. Court of Appeals. Relevant to this petition are the following: (1) The burden of proof to show the nullity of the marriage belongs to the plaintiff; (2) the root cause of the psychological incapacity must be medically or clinically identified, alleged in the complaint, sufficiently proven by experts and clearly explained in the decision; (3) the incapacity must be proven to be existing at the ―time of the celebration‖ of the marriage; (4) such incapacity must also be shown to be medically or clinically permanent or incurable; and (5) such illness must be grave enough to bring about the disability of the party to assume the essential obligations of marriage. Guided by these pronouncements, it is the Court‘s considered view that petitioner‘s evidence failed to establish respondent‘s psychological incapacity. Petitioner‘s testimony did not prove the root cause, gravity and incurability of private respondent‘s condition. Even the psychologist failed to show the root cause of her psychological incapacity. The root cause of the psychological incapacity must be identified as a psychological illness, its incapacitating nature fully explained and established by the totality of the evidence presented during trial. More importantly, the acts of private respondent do not even rise to the level of the ―psychological incapacity‖ that the law requires. Private respondent‘s act of living an adulterous life (wife came home late and had lovers) did not come cannot automatically be equated with a psychological disorder, especially when no specific evidence was shown that promiscuity was a trait already existing at the inception of marriage. Petitioner must be able to establish that respondent‘s unfaithfulness is a manifestation of a disordered personality, which makes her completely unable to discharge the essential obligations of the marital state. Doubtless, the private respondent was far from being a perfect wife and a good mother. She certainly had some character flaws. But these imperfections do not warrant a conclusion that she had a psychological malady at the time of the marriage that rendered her incapable of fulfilling her marital and family duties and obligations. Silvino A. Ligeralde vs. May Ascension A. Patalinghug, et al., G.R. No. 168796, April 15, 2010. Marriage; grounds for annulment; psychological incapacity. The court found the evidence presented by the wife, Jocelyn, as insufficient to establish the psychological incapacity of her husband. The expert opinion was not considered so expert since the psychologist derived all her conclusions from information provided by Jocelyn whose bias ―cannot of course be doubted‖ (so essentially the court assumed without possibility of error, and without evidence as well, that Jocelyn was a liar). The court clarified that it was not suggesting ―that a personal examination of the party alleged to be psychologically incapacitated is mandatory; jurisprudence holds that this type of examination is not a mandatory requirement. While such examination is desirable, we recognize that it may not be practical in all instances given the oftentimes estranged relations between the parties. For a determination though of a party‘s complete personality profile, information coming from persons intimately related to him (such as the party‘s close relatives and friends) may be helpful. This is an approach in the application of Article 36 that allows flexibility, at the same time that it avoids, if not totally obliterate, the credibility gaps spawned by supposedly expert opinion based entirely on doubtful sources of information. From these perspectives, we conclude that the psychologist, using meager information coming from a directly interested party, could not have secured a complete personality profile and could not have conclusively formed an objective opinion or diagnosis of Angelito‘s psychological condition. While the report or evaluation may be conclusive with respect to Jocelyn‘s psychological condition, this is not true for Angelito‘s… Other than this credibility or reliability gap, both the psychologist‘s report and testimony simply provided a general description of Angelito‘s purported anti-social personality disorder, supported by the characterization of this disorder as chronic, grave and incurable. The psychologist was conspicuously silent, however, on the bases for her conclusion or the particulars that gave rise to the characterization she gave. These particulars are simply not in the report, and neither can they be found in her P a g e | 7 testimony. The inadequacy and/or lack of probative value of the psychological report and the psychologist‘s testimony impel us to proceed to the evaluation of Jocelyn‘s testimony, to find out whether she provided the court with sufficient facts to support a finding of Angelito‘s psychological incapacity. Unfortunately, we find Jocelyn‘s testimony to be insufficient. Jocelyn merely testified on Angelito‘s habitual drunkenness, gambling, refusal to seek employment and the physical beatings she received from him – all of which occurred after the marriage. Significantly, she declared in her testimony that Angelito showed no signs of violent behavior, assuming this to be indicative of a personality disorder, during the courtship stage or at the earliest stages of her relationship with him. She testified on the alleged physical beatings after the marriage, not before or at the time of the celebration of the marriage. She did not clarify when these beatings exactly took place – whether it was near or at the time of celebration of the marriage or months or years after. This is a clear evidentiary gap that materially affects her cause, as the law and its related jurisprudence require that the psychological incapacity must exist at the time of the celebration of the marriage. Habitual drunkenness, gambling and refusal to find a job, while indicative of psychological incapacity, do not, by themselves, show psychological incapacity. All these simply indicate difficulty, neglect or mere refusal to perform marital obligations that, as the cited jurisprudence holds, cannot be considered to be constitutive of psychological incapacity in the absence of proof that these are manifestations of an incapacity rooted in some debilitating psychological condition or illness. The physical violence allegedly inflicted on Jocelyn deserves a different treatment. While we may concede that physical violence on women indicates abnormal behavioral or personality patterns, such violence, standing alone, does not constitute psychological incapacity. Jurisprudence holds that there must be evidence showing a link, medical or the like, between the acts that manifest psychological incapacity and the psychological disorder itself. The evidence of this nexus is irretrievably lost in the present case under our finding that the opinion of the psychologist cannot be relied upon. Even assuming, therefore, that Jocelyn‘s account of the physical beatings she received from Angelito were true, this evidence does not satisfy the requirement of Article 36 and its related jurisprudence, specifically the Santos requisites.‖ [Digester‘s note: This case is useful in that it mentions important previous cases -- the jurisprudential touchstones -- on psychological incapacity. But it is also pretty amazing in its complete lack of emphathy or sense that the law is not some separate, cold human construct, but is there to help us live our lives with dignity and a chance at happiness. The court seems to allow for the possibility that Angelito is not only a deadbeat but a wife beater – someone who they would not wish on a daughter or sister and who they would probably threaten with a slow painful death if they tried to come near a loved one – except that since all the drunkenness and good-for-nothingness and violence took place after the wedding, Jocelyn is stuck. Oops, sorry. Here, the court, quite calmly states that ―such violence, standing alone, does not constitute psychological incapacity.‖ One does not have to have a degree in psychology, I think, to see that violence – the ability to injure even a loved one on a repeated basis – does not develop overnight and would have begun germination even before the first blow is struck. In a way, very similar to the GG Sportwear case – unhappiness is a state of mind but not a ground for rescission.] Jocelyn M. Suazo vs. Angelito Suazo and Republic of the Philippines, G.R. No. 164493, March 12, 2010. Family relations; annulment of marriage; psychological incapacity. In Santos v. Court of Appeals, the court first declared that psychological incapacity must be characterized by (a) gravity, (b) judicial antecedence, and (c) incurability. It must be confined ―to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage.‖ In Dimayuga-Laurena v. Court of Appeals, the court explained these elements: (a) gravity – it must be grave and serious such that the party would be incapable of carrying out the ordinary duties required in a marriage; (b) judicial antecedence – it must be rooted in the history of the party antedating the marriage, although the overt manifestations may emerge only after the marriage; and (c) incurability – It must be incurable, or even if it were otherwise, the cure would be beyond the means of the party involved. The testimony of the psychologist that one of the parties was suffering from ―borderline personality disorder‖ as manifested by his being a ―Mama‘s Boy‖ did not constitute sufficient evidence of that party‘s condition. The diagnosis was only based on the interviews with the petitioning spouse and the transcript of that spouse‘s testimony in court. The psychologist did not actually hear, see and evaluate the respondent. Her testimony constituted hearsay. The presentation of expert proof presupposes a thorough and in-dept assessment of the parties by the psychologist or expert, for a conclusive diagnosis of a grave, severe and incurable presence of psychological incapacity. Furthermore, the psychologist did not particularly describe the ―pattern of behavior‖ which showed that Jordan indeed suffers from Borderline Personality Disorder. Gates also failed to explain how such a personality disorder made Jordan psychologically incapacitated to perform his obligations as a husband. In any case, the alleged psychological capacity of the respondent was not shown to be so grave and so permanent as to deprive him of the awareness of the duties and responsibilities of the matrimonial bond. At worst [Digester’s Note: The decision as set out in the link says, “at best”, but that’s obviously a mistake], the allegations show the respondent to be irresponsible, insensitive or emotionally immature. What the law requires is downright incapacity, not refusal or neglect or difficulty, much less ill will. The mere showing of ―irreconcilable differences‖ and ―conflicting personalities‖ does not constitute psychological incapacity. Nor was there any evidence that any condition was incurable. Jordan Chan Paz vs. Jeanice Pavon-Paz, G.R. No. 166579, February 18, 2010. Family relations; annulment of marriage; psychological incapacity. In this case, the court disregarded the testimony of a psychologist on both parties‘ personality disorders (given to support the claim of psychological incapacity as ground for annulment of marriage), observing that the witness‘ ―global conclusion‖ was not supported by psychological tests properly administered by clinical psychologists specifically trained in the tests‘ use and interpretation. The supposed personality P a g e | 8 disorders of the parties, considering that such diagnoses were made, could have been fully established by psychometric and neurological tests which are designed to measure specific aspects of people‘s intelligence, thinking, or personality. [Digester’s Note: The Supreme Court saw fit to cite material on psychological testing to show that parties had not provided adequate basis for the claim of psychological incapacity and then goes on to say…] Concededly, a copy of DSM IV, or any of the psychology textbooks, does not transform a lawyer or a judge into a professional psychologist. A judge should not substitute his own psychological assessment of the parties for that of the psychologist or the psychiatrist. However, a judge has the bounden duty to rule on what the law is, as applied to a certain set of facts. Certainly, as in all other litigations involving technical or special knowledge, a judge must first and foremost resolve the legal question based on law and jurisprudence. The expert opinion of a psychiatrist arrived at after a maximum of seven hours of interview, and unsupported by separate psychological tests, cannot tie the hands of the trial court and prevent it from making its own factual finding on what happened in this case. The probative force of the testimony of an expert does not lie in a mere statement of his theory or opinion, but rather in the assistance that he can render to the courts in showing the facts that serve as a basis for his criterion and the reasons upon which the logic of his conclusion is founded. Edward N. Lim vs. Ma. Cheryl Sta. Cruz-Lim, G.R. No. 176464, February 4, 2010. Persons; psychological incapacity. In Santos v. Court of Appeals, the Court declared that ―psychological incapacity‖ under Article 36 of the Family Code is not meant to comprehend all possible cases of psychoses. It should refer, rather, to no less than a mental (not physical) incapacity that causes a party to be trulyincognitive of the basic marital covenants that concomitantly must be assumed and discharged by the parties to the marriage. Psychological incapacity must be characterized by (a) gravity, (b) juridical antecedence, and (c)incurability. Veronica Cabacungan Alcazar vs. Rey C. Alcazar, G.R. No. 174451, October 13, 2009. Persons; psychological incapacity. It must be stressed that psychological incapacity must be more than just a ―difficulty,‖ ―refusal‖ or ―neglect‖ in the performance of some marital obligations. The intention of the law is to confine the meaning of ―psychological incapacity‖ to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage. Noteworthy, as aptly pointed out by the appellate court, Rodolfo and Aurora initially had a blissful marital union for several years. They married in 1982, and later affirmed the ceremony in church rites in 1983, showing love and contentment with one another after a year of marriage. The letter of petitioner dated April 1, 1990addressed to respondent revealed the harmonious relationship of the couple continued during their marriage for about eight years from the time they married each other. From this, it can be inferred that they were able to faithfully comply with their obligations to each other and to their children. Aurora was shown to have taken care of her children and remained faithful to her husband while he was away. She even joined sales activities to augment the family income. She appeared to be a very capable woman who traveled a lot and pursued studies here and abroad. It was only when Rodolfo‘s acts of infidelity were discovered that the marriage started to fail. Rodolfo A. Aspillaga vs. Aurora A. Aspillaga, G.R. No. 170925, October 26, 2009. Persons; psychological incapacity. The Supreme Court laid down in Republic of the Philippines v. Court of Appeals and Molina stringent guidelines in the interpretation and application of Article 36 of the Family Code, to wit: (1) The burden of proof to show the nullity of the marriage belongs to the plaintiff. Any doubt should be resolved in favor of the existence and continuation of the marriage and against its dissolution and nullity. This is rooted in the fact that both our Constitution and our laws cherish the validity of marriage and unity of the family. Thus, our Constitution devotes an entire Article on the Family, recognizing it ―as the foundation of the nation.‖ It decrees marriage as legally ―inviolable,‖ thereby protecting it from dissolution at the whim of the parties. Both the family and marriage are to be ―protected‖ by the state. The Family Code echoes this constitutional edict on marriage and the family and emphasizes their permanence, inviolability and solidarity. (2) The root cause of the psychological incapacity must be: (a) medically or clinically identified, (b) alleged in the complaint, (c) sufficiently proven by experts and (d) clearly explained in the decision. Article 36 of the Family Code requires that the incapacity must be psychological – not physical, although its manifestations and/or symptoms may be physical. The evidence must convince the court that the parties, or one of them, was mentally or psychically ill to such an extent that the person could not have known the obligations he was assuming, or knowing them, could not have given valid assumption thereof. Although no example of such incapacity need be given here so as not to limit the application of the provision under the principle of ejusdem generis (Salita v. Magtolis, 233 SCRA 100, 108), nevertheless such root cause must be identified as a psychological illness and its incapacitating nature fully explained. Expert evidence may be given by qualified psychiatrists and clinical psychologists. (3) The incapacity must be proven to be existing at ―the time of the celebration‖ of the marriage. The evidence must show that the illness was existing when the parties exchanged their ―I do‘s.‖ The manifestation of the illness need not be perceivable at such time, but the illness itself must have attached at such moment, or prior thereto. P a g e | 9 (4) Such incapacity must also be shown to be medically or clinically permanent or incurable. Such incurability may be absolute or even relative only in regard to the other spouse, not necessarily absolutely against everyone of the same sex. Furthermore, such incapacity must be relevant to the assumption of marriage obligations, not necessarily to those not related to marriage, like the exercise of a profession or employment in a job. Hence, a pediatrician may be effective in diagnosing illnesses of children and prescribing medicine to cure them but may not be psychologically capacitated to procreate, bear and raise his/her own children as an essential obligation of marriage. (5) Such illness must be grave enough to bring about the disability of the party to assume the essential obligations of marriage. Thus, ―mild characteriological peculiarities, mood changes, occasional emotional outbursts‖ cannot be accepted as root causes. The illness must be shown as downright incapacity or inability, not a refusal, neglect or difficulty, much less ill will. In other words, there is a natal or supervening disabling factor in the person, an adverse integral element in the personality structure that effectively incapacitates the person from really accepting and thereby complying with the obligations essential to marriage. (6) The essential marital obligations must be those embraced by Articles 68 up to 71 of the Family Code as regards the husband and wife as well as Articles 220, 221 and 225 of the same Code in regard to parents and their children. Such non- complied marital obligation(s) must also be stated in the petition, proven by evidence and included in the text of the decision. (7) Interpretations given by the National Appellate Matrimonial Tribunal of the Catholic Church in the Philippines, while not controlling or decisive, should be given great respect by our courts. In Santos v. Court of Appeals, the Court declared that psychological incapacity must be characterized by (a) gravity, (b) juridical antecedence, and (c) incurability. It should refer to ―no less than a mental, not physical, incapacity that causes a party to be truly incognitive of the basic marital covenants that concomitantly must be assumed and discharged by the parties to the marriage.‖ The intendment of the law has been to confine the meaning of ―psychological incapacity‖ to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage. However, in more recent jurisprudence, the Supreme Court observed that notwithstanding the guidelines laid down in Molina, there is a need to emphasize other perspectives as well which should govern the disposition of petitions for declaration of nullity under Article 36. Each case must be judged, not on the basis of a priori assumptions, predilections or generalizations but according to its own facts. In regard to psychological incapacity as a ground for annulment of marriage, it is trite to say that no case is on ―all fours‖ with another case. The trial judge must take pains in examining the factual milieu and the appellate court must, as much as possible, avoid substituting its own judgment for that of the trial court. With the advent of Te v. Te, the Supreme Court encourages a reexamination of jurisprudential trends on the interpretation of Article 36 although there has been no major deviation or paradigm shift from the Molina doctrine. Marietta C. Azcueta vs. Republic of the Philippines and the CA, G.R. No. 180668, May 26, 2009. Marriage; annulment. Psychological incapacity must be characterized by (1) gravity (2) juridical antecedence, and (3) incurability. The foregoing guidelines do not require that a physician examine the person to be declared psychologically incapacitated. In fact, the root cause may be ―medically or clinically identified.‖ What is important is the presence of evidence that can adequately establish the party‘s psychological condition. For indeed, if the totality of evidence presented is enough to sustain a finding of psychological incapacity, then actual medical examination of the person concerned need not be resorted to. In this case, the Supreme Court agreed with the Court of Appeals that the totality of the evidence submitted by petitioner failed to satisfactorily prove that respondent was psychologically incapacitated to comply with the essential obligations of marriage. The root cause of respondent‘s alleged psychological incapacity was not sufficiently proven by experts or shown to be medically or clinically permanent or incurable. Digna A. Najera vs. Eduardo J. Najera, G.R. No. 164817, July 3, 2009. Marriage; psychological incapacity. It has been sufficiently established that petitioner had a psychological condition that was grave and incurable and had a deeply rooted cause. This Court, in the same Te case, recognized that individuals with diagnosable personality disorders usually have long-term concerns, and thus therapy may be long-term.Particularly, personality disorders are ―long-standing, inflexible ways of behaving that are not so much severe mental disorders as dysfunctional styles of living. These disorders affect all areas of functioning and, beginning in childhood or adolescence, create problems for those who display them and for others.‖ From the foregoing, it has been shown that petitioner is indeed suffering from psychological incapacity that effectively renders him unable to perform the essential obligations of marriage. Accordingly, the marriage between petitioner and respondent is declared null and void. Lester Benjamin S. Halili Vs. Chona M. Santos-Halili and the Republic of the Philippines, G.R. No. 165424, June 9, 2009. P a g e | 10 Marriage; psychological incapacity. The psychologist‘s testimony and conclusions leads us to conclude that they are not sufficiently in-depth and comprehensive to warrant the conclusion that a psychological incapacity existed that prevented the respondent from complying with the essential marital obligations of marriage. Renato Reyes So vs. Lorna Valera, G.R. No. 150677, June 5, 2009, Marriage; governing law, depends on when celebrated; impact on who can file for petition of nullity. A valid marriage is essential in order to create the relation of husband and wife and to give rise to the mutual rights, duties, and liabilities arising out of such relation. The law prescribes the requisites of a valid marriage. Hence, the validity of a marriage is tested according to the law in force at the time the marriage is contracted. As a general rule, the nature of the marriage already celebrated cannot be changed by a subsequent amendment of the governing law. To illustrate, a marriage between a stepbrother and a stepsister was void under the Civil Code, but is not anymore prohibited under the Family Code; yet, the intervening effectivity of the Family Code does not affect the void nature of a marriage between a stepbrother and a stepsister solemnized under the regime of the Civil Code. The Civil Code marriage remains void, considering that the validity of a marriage is governed by the law in force at the time of the marriage ceremony. Before anything more, the Court has to clarify the impact to the issue posed herein of Administrative Matter (A.M.) No. 02-11- 10-SC (Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages), which took effect on March 15, 2003. Section 2, paragraph (a), of A.M. No. 02-11-10-SC explicitly provides the limitation that a petition for declaration of absolute nullity of void marriage may be filed solely by the husband or wife. Such limitation demarcates a line to distinguish between marriages covered by the Family Code and those solemnized under the regime of the Civil Code. Specifically, A.M. No. 02-11-10- SC extends only to marriages covered by the Family Code, which took effect on August 3, 1988, but, being a procedural rule that is prospective in application, is confined only to proceedings commenced after March 15, 2003. Based on Carlos v. Sandoval, the following actions for declaration of absolute nullity of a marriage are excepted from the limitation, to wit: 1. Those commenced before March 15, 2003, the effectivity date of A.M. No. 02-11-10-SC; and 2. Those filed vis-à-vis marriages celebrated during the effectivity of the Civil Code and, 3. Those celebrated under the regime of the Family Code prior to March 15, 2003. Considering that the marriage between Cresenciano and Leonila was contracted on December 26, 1949, the applicable law was the old Civil Code, the law in effect at the time of the celebration of the marriage. Hence, the rule on the exclusivity of the parties to the marriage as having the right to initiate the action for declaration of nullity of the marriage under A.M. No. 02-11- 10-SC had absolutely no application to the petitioner. The old and new Civil Codes contain no provision on who can file a petition to declare the nullity of a marriage, and when. Accordingly, in Niñal v. Bayadog, the children were allowed to file after the death of their father a petition for the declaration of the nullity of their father‘s marriage to their stepmother contracted on December 11, 1986 due to lack of a marriage license. It is clarified, however, that the absence of a provision in the old and new Civil Codes cannot be construed as giving a license to just any person to bring an action to declare the absolute nullity of a marriage. According to Carlos v. Sandoval, the plaintiff must still be the party who stands to be benefited by the suit, or the party entitled to the avails of the suit, for it is basic in procedural law that every action must be prosecuted and defended in the name of the real party in interest. Thus, only the party who can demonstrate a ―proper interest‖ can file the action. Interest within the meaning of the rule means material interest, or an interest in issue to be affected by the decree or judgment of the case, as distinguished from mere curiosity about the question involved or a mere incidental interest. One having no material interest to protect cannot invoke the jurisdiction of the court as plaintiff in an action. When the plaintiff is not the real party in interest, the case is dismissible on the ground of lack of cause of action. Here, the petitioner alleged himself to be the late Cresenciano‘s brother and surviving heir. Assuming that the petitioner was as he claimed himself to be, then he has a material interest in the estate of Cresenciano that will be adversely affected by any judgment in the suit. Indeed, a brother like the petitioner, albeit not a compulsory heir under the laws of succession, has the right to succeed to the estate of a deceased brother under the conditions stated in Article 1001 and Article 1003 of the Civil Code. Isidro Ablaza vs. Republic of the Philippines, G.R. No. 158298, August 11, 2010. P a g e | 11 Marriage; liquidation of property not necessary before declaration of nullity. For Article 147 of the Family Code to apply, the following elements must be present: 1. The man and the woman must be capacitated to marry each other; 2. They live exclusively with each other as husband and wife; and 3. Their union is without the benefit of marriage, or their marriage is void. All these elements are present in this case and there is no question that Article 147 of the Family Code applies to the property relations between petitioner and respondent. We agree with petitioner that the trial court erred in ordering that a decree of absolute nullity of marriage shall be issued only after liquidation, partition and distribution of the parties‘ properties under Article 147 of the Family Code. The ruling has no basis because Section 19(1) of the Rule does not apply to cases governed under Articles 147 and 148 of the Family Code. It is clear from Article 50 of the Family Code that Section 19(1) of the Rule applies only to marriages which are declared void ab initio or annulled by final judgment under Articles 40 and 45 of the Family Code. In short, Article 50 of the Family Code does not apply to marriages which are declared void ab initio under Article 36 of the Family Code, which should be declared void without waiting for the liquidation of the properties of the parties. Alain M. Diño vs. Ma. Caridad L. Diño; G.R. No. 178044, January 19, 2011. VOIDABLE MARRIAGE Persons; annulment of marriage. Article 45(5) of the Family Code refers to lack of power to copulate. Incapacity to consummate denotes the permanent inability on the part of the spouses to perform the complete act of sexual intercourse. Non-consummation of a marriage may be on the part of the husband or of the wife and may be caused by a physical or structural defect in the anatomy of one of the parties or it may be due to chronic illness and inhibitions or fears arising i n whole or in part frompsychophysical conditions. It may be caused by psychogenic causes, where such mental block or disturbance has the result of making the spouse physically incapable of performing the marriage act. No evidence was presented in the case at bar to establish that respondent was in any way physically incapable to consummate his marriage with petitioner. Petitioner even admitted during her cross-examination that she and respondent had sexual intercourse after their wedding and before respondent left for abroad. There obviously being no physical incapacity on respondent‘s part, then, there is no ground for annulling petitioner‘s marriage to respondent. Petitioner‘s Complaint was, therefore, rightfully dismissed. Veronica Cabacungan Alcazar vs. Rey C. Alcazar, G.R. No. 174451, October 13, 2009. PROPERTY RELATIONS BETWEEN HUSBAND AND WIFE Conjugal partnership property; mortgage; consent of spouse. The husband cannot alienate or encumber any conjugal real property without the consent, express or implied, of the wife. Should the husband do so, then the contract is voidable. Article 173 of the Civil Code allows Aguete to question Ros‘ encumbrance of the subject property. However, the same article does not guarantee that the courts will declare the annulment of the contract. Annulment will be declared only upon a finding that the wife did not give her consent. In the present case, we follow the conclusion of the appellate court and rule that Aguete gave her consent to Ros‘ encumbrance of the subject property. The application for loan shows that the loan would be used exclusively ―for additional working [capital] of buy & sell of garlic & virginia tobacco.‖ In her testimony, Aguete confirmed that Ros engaged in such business, but claimed to be unaware whether it prospered. Aguete was also aware of loans contracted by Ros, but did not know where he ―wasted the money.‖ Debts contracted by the husband for and in the exercise of the industry or profession by which he contributes to the support of the family cannot be deemed to be his exclusive and private debts. Joe A. Ros and Estrella Aguete v. Philippine National Bank, Laoag Branch, G.R. No. 170166. April 6, 2011. Property of the marriage; presumed conjugal. All property of the marriage is presumed to be conjugal. However, for this presumption to apply, the party who invokes it must first prove that the property was acquired during the marriage. Proof of acquisition during the coverture is a condition sine qua non to the operation of the presumption in favor of the conjugal partnership. Thus, the time when the property was acquired is material. Evangeline D. Imani vs. Metropolitan Bank and Trust Company, G.R. No. 187023, November 17, 2010. Conjugal property and sale thereof; various rules. (1) What law applies to a sale or purported sale of a conjugal property entered into after the Family Code‘s effectivity? The Family Code, even if the couple owning the conjugal property were married before the Family Code took effect. (2) Under the Family Code, conjugal property can only be sold with the consent of both spouses. (3) For a buyer of conjugal property to be considered a purchaser in good faith, he must observe two kinds of P a g e | 12 requisite diligence, namely: (a) the diligence in verifying the validity of the title covering the property; and (b) the diligence in inquiring into the authority of the transacting spouse to sell conjugal property in behalf of the other spouse. Sps. Rex and Concepcion Aggabao vs. Dionisio Z. Parulan, Jr. and Ma. Elena Parulan, G.R. No. 165803, September 1, 2010. Family relations; sale of conjugal property. The law that applies to this case is the Family Code, not the Civil Code. Although Tarciano and Rosario got married in 1950, Tarciano sold the conjugal property to the Fuentes spouses on January 11, 1989, a few months after the Family Code took effect on August 3, 1988. When Tarciano married Rosario, the Civil Code put in place the system of conjugal partnership of gains on their property relations. While its Article 165 made Tarciano the sole administrator of the conjugal partnership, Article 166 prohibited him from selling commonly owned real property without his wife‘s consent. Still, if he sold the same without his wife‘s consent, the sale is not void but merely voidable. Article 173 gave Rosario the right to have the sale annulled during the marriage within ten years from the date of the sale. Failing in that, she or her heirs may demand, after dissolution of the marriage, only the value of the property that Tarciano fraudulently sold. But, as already stated, the Family Code took effect on August 3, 1988. Its Chapter 4 on Conjugal Partnership of Gains expressly superseded Title VI, Book I of the Civil Code on Property Relations Between Husband and Wife. Further, the Family Code provisions were also made to apply to already existing conjugal partnerships without prejudice to vested rights. Thus: ―Art. 105. x x x The provisions of this Chapter shall also apply to conjugal partnerships of gains already established between spouses before the effectivity of this Code, without prejudice to vested rights already acquired in accordance with the Civil Code or other laws, as provided in Article 256. (n)‖ Consequently, when Tarciano sold the conjugal lot to the Fuentes spouses on January 11, 1989, the law that governed the disposal of that lot was already the Family Code. In contrast to Article 173 of the Civil Code, Article 124 of the Family Code does not provide a period within which the wife who gave no consent may assail her husband‘s sale of the real property. It simply provides that without the other spouse‘s written consent or a court order allowing the sale, the same would be void. Under the provisions of the Civil Code governing contracts, a void or inexistent contract has no force and effect from the very beginning. And this rule applies to contracts that are declared void by positive provision of law, as in the case of a sale of conjugal property without the other spouse‘s written consent. A void contract is equivalent to nothing and is absolutely wanting in civil effects. It cannot be validated either by ratification or prescription. But, although a void contract has no legal effects even if no action is taken to set it aside, when any of its terms have been performed, an action to declare its inexistence is necessary to allow restitution of what has been given under it. This action, according to Article 1410 of the Civil Code does not prescribe. Here, the Rocas filed an action against the Fuentes spouses in 1997 for annulment of sale and reconveyance of the real property that Tarciano sold without their mother‘s (his wife‘s) written consent. The passage of time did not erode the right to bring such an action. Besides, even assuming that it is the Civil Code that applies to the transaction, Article 173 provides that the wife may bring an action for annulment of sale on the ground of lack of spousal consent during the marriage within 10 years from the transaction. Consequently, the action that the Rocas, her heirs, brought in 1997 fell within 10 years of the January 11, 1989 sale. It did not yet prescribe. The Fuentes spouses point out that it was to Rosario, whose consent was not obtained, that the law gave the right to bring an action to declare void her husband‘s sale of conjugal land. But here, Rosario died in 1990, the year after the sale. Does this mean that the right to have the sale declared void is forever lost? The answer is no. As stated above, that sale was void from the beginning. Consequently, the land remained the property of Tarciano and Rosario despite that sale. When the two died, they passed on the ownership of the property to their heirs, namely, the Rocas. As lawful owners, the Rocas had the right, under Article 429 of the Civil Code, to exclude any person from its enjoyment and disposal. In fairness to the Fuentes spouses, however, they should be entitled, among other things, to recover from Tarciano‘s heirs, the Rocas, the P200,000.00 that they paid him, with legal interest until fully paid, chargeable against his estate. Further, the Fuentes spouses appear to have acted in good faith in entering the land and building improvements on it. Atty. Plagata, whom the parties mutually entrusted with closing and documenting the transaction, represented that he got Rosario‘s signature on the affidavit of consent. The Fuentes spouses had no reason to believe that the lawyer had violated his commission and his oath. They had no way of knowing that Rosario did not come to Zamboanga to give her consent. There is no evidence that they had a premonition that the requirement of consent presented some difficulty. Indeed, they willingly made a 30 percent down payment on the selling price months earlier on the assurance that it was forthcoming. Further, the notarized document appears to have comforted the Fuentes spouses that everything was already in order when Tarciano executed a deed of absolute sale in their favor on January 11, 1989. In fact, they paid the balance due him. And, acting on the documents submitted to it, the Register of Deeds of Zamboanga City issued a new title in the names of the Fuentes spouses. It was only after all these had passed that the spouses entered the property and built on it. He is deemed a possessor in good faith, said Article 526 of the Civil Code, who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. As possessor in good faith, the Fuentes spouses were under no obligation to pay for their stay on the property prior to its legal interruption by a final judgment against them. What is more, they are entitled under Article 448 to indemnity for the improvements they introduced into the property with a right of retention until the reimbursement is made. The Rocas shall of course have the option, pursuant to Article 546 of the Civil Code, of indemnifying the Fuentes spouses for the costs of the improvements or paying the increase in value which the property may have acquired by reason of such improvements. Manuel O. Fuentes, et al. vs. Conrado G. Roca, et al., G.R. No. 178902, April 21, 2010. P a g e | 13 Marriage; conjugal property. Marital consent is required for the sale by a husband of property he purchased under a conditional contract to sell executed while he was still single but title of which was transferred when he was already married. Sps. Lita De Leon, et al. vs. Anita B. De Leon, et al., G.R. No. 185063, July 23, 2009. Conjugal partnership; effects of legal separation; forfeiture of share in profits. Among the effects of the decree of legal separation is that the conjugal partnership is dissolved and liquidated and the offending spouse would have no right to any share of the net profits earned by the conjugal partnership. Thus it is only the offending spouse‘s share in the net profits, and not the share in the property, which is forfeited. Article 102(4) of the Family Code provides that ―[f]or purposes of computing the net profits subject to forfeiture in accordance with Article 43, No. (2) and 63, No. (2), the said profits shall be the increase in value between the market value of the community property at the time of the celebration of the marriage and the market value at the time of its dissolution.‖ Mario Siochi vs. Alfredo Gozon, et al./Inter-Dimensional Realty, Inc. Vs. Mario Siochi, et al., G.R. No. 169900/G.R. No. 169977, March 18, 2010 Conjugal partnership; presumption of conjugal nature; need for marital consent. The Civil Code of the Philippines, the law in force at the time of the celebration of the marriage between Martha and Manuel in 1957, provides all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife. This includes property which is acquired by onerous title during the marriage at the expense of the common fund, whether the acquisition be for the partnership, or for only one of the spouses. The court is not persuaded by Titan‘s arguments that the property was Martha‘s exclusive property because Manuel failed to present before the RTC any proof of his income in 1970, hence he could not have had the financial capacity to contribute to the purchase of the property in 1970; and that Manuel admitted that it was Martha who concluded the original purchase of the property. In consonance with its ruling in Spouses Castro v. Miat, Manuel was not required to prove that the property was acquired with funds of the partnership. Rather, the presumption applies even when the manner in which the property was acquired does not appear. Here, we find that Titan failed to overturn the presumption that the property, purchased during the spouses‘ marriage, was part of the conjugal partnership. Since the property was undoubtedly part of the conjugal partnership, the sale to Titan required the consent of both spouses. Article 165 of the Civil Code expressly provides that ―the husband is the administrator of the conjugal partnership‖. Likewise, Article 172 of the Civil Code ordains that ―(t)he wife cannot bind the conjugal partnership without the husband‘s consent, except in cases provided by law‖. Titan Construction Corporation Vs. Manuel A. David, Sr. and Martha S. David, G.R. No. 169548, March 15, 2010. Conjugal partnership; sole administration. In this case, Alfredo was the sole administrator of the property because Elvira, with whom Alfredo was separated in fact, was unable to participate in the administration of the conjugal property. However, as sole administrator of the property, Alfredo still cannot sell the property without the written consent of Elvira or the authority of the court. Without such consent or authority, the sale is void. The absence of the consent of one of the spouse renders the entire sale void, including the portion of the conjugal property pertaining to the spouse who contracted the sale. Even if the other spouse actively participated in negotiating for the sale of the property, that other spouse‘s written consent to the sale is still required by law for its validity. The Agreement entered into by Alfredo and Mario was without the written consent of Elvira. Thus, the Agreement is entirely void. As regards Mario‘s contention that the Agreement is a continuing offer which may be perfected by Elvira‘s acceptance before the offer is withdrawn, the fact that the property was subsequently donated by Alfredo to Winifred and then sold to IDRI clearly indicates that the offer was already withdrawn. Mario Siochi vs. Alfredo Gozon, et al./Inter-Dimensional Realty, Inc. Vs. Mario Siochi, et al., G.R. No. 169900/G.R. No. 169977, March 18, 2010 Marriage; disposition of conjugal property. The husband‘s first act of disposition of the subject property occurred in 1963 when he executed the SPA and the Deed of Transfer of Rights in favor of Dolores Camisura. Thus, the right of action of the petitioners accrued in 1963, as Article 173 of the Civil Code provides that the wife may file for annulment of a contract entered into by the husband without her consent within ten (10) years from the transaction questioned. Petitioners filed the action for reconveyance in 1995. Even if we were to consider that their right of action arose when they learned of the cancellation of TCT No. 107534 and the issuance of TCT No. 290121 in Melanie Mingoa‘s name in 1993, still, twelve (12) years have lapsed since such discovery, and they filed the petition beyond the period allowed by law. Moreover, when Sergia Hernandez, together with her children, filed the action for reconveyance, the conjugal partnership of property with Hernandez, Sr. had already been terminated by virtue of the latter‘s death on April 16, 1983. Clearly, therefore, petitioners‘ action has prescribed. The failure of Sergia Hernandez to file with the courts an action for annulment of the contract during the marriage and within ten (10) years from the transaction necessarily barred her from questioning the sale of the subject property to third persons. Heirs of Domingo Hernandez Sr., et al. vs. Plaridel Mingoa, Sr., et al., G.R. No. 146548, December 18, 2009. Marriage; conjugal property. The registration of the trade name in the name of one person – a woman – does not necessarily lead to the conclusion that the trade name as a property is hers alone, particularly when the woman is married. By law, all property acquired during the marriage, whether the acquisition appears to have been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is proved. Our examination of the records of the P a g e | 14 case does not show any proof that Kargo Enterprises and the properties or contracts in its name are conjugal. If at all, only the bare allegation of Navarro to this effect exists in the records of the case. Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a sole proprietorship is conjugal or paraphernal property, we hold that it is conjugal property. Roger V. Navarro Vs. Hon. Jose L. Escobido, Presiding Judge, RTC, Branch 37, Cagayan de Oro City, and Karen T. Go, doing business under the name Kargo Enterprises, G.R. No. 153788, November 27, 2009. Marriage; conjugal propety. Artilce 124 od the Family Code, by its terms, allows either Karen or Glenn Go to speak and act with authority in managing their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain the consent of the other before performing an act of administration or any act that does not dispose of or encumber their conjugal property. Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the contract of partnership in all that is not in conflict with what is expressly determined in this Chapter or by the spouses in their marriage settlements. In other words, the property relations of the husband and wife shall be governed primarily by Chapter 4 on Conjugal Partnership of Gains of the Family Code and, suppletorily, by the spouses‘ marriage settlement and by the rules on partnership under the Civil Code. In the absence of any evidence of a marriage settlement between the spouses Go, we look at the Civil Code provision on partnership for guidance. Under Article 1181 of the Civil Code, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the properties registered under this name; hence, both have an equal right to seek possession of these properties. Applying Article 484 of the Civil Code, which states that ―in default of contracts, or special provisions, co-ownership shall be governed by the provisions of this Title,‖ we find further support in Article 487 of the Civil Code that allows any of the co-owners to bring an action in ejectment with respect to the co-owned property. Roger V. Navarro Vs. Hon. Jose L. Escobido, Presiding Judge, RTC, Branch 37, Cagayan de Oro City, and Karen T. Go, doing business under the name Kargo Enterprises, G.R. No. 153788, November 27, 2009. Persons; conjugal property. Article 160 of the New Civil Code provides, ―All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.‖ There is no issue with regard to the lot covered by TCT No. T-26471, which was an exclusive property of Pedro, having been acquired by him before his marriage to Mary Ann. However, the lot covered byTCT No. T-88674 was acquired in 1982 during the marriage of Pedro and Mary Ann. No evidence was adduced to show that the subject property was acquired through exchange or barter. The presumption of the conjugal nature of the property subsists in the absence of clear, satisfactory and convincing evidence to overcome said presumption or to prove that the subject property is exclusively owned by Pedro. Petitioners‘ bare assertion would not suffice to overcome the presumption thatTCT No. T-88674, acquired during the marriage of Pedro and Mary Ann, is conjugal. Likewise, the house built thereon is conjugal property, having been constructed through the joint efforts of the spouses, who had even obtained a loan fromDBP to construct the house. Significantly, a sale or encumbrance of conjugal property concluded after the effectivity of the Family Code on August 3, 1988, is governed by Article 124 of the same Code that now treats such a disposition to be void if done (a) without the consent of both the husband and the wife, or (b) in case of one spouse‘s inability, the authority of the court. Patronica Ravina and Wilfredo Ravina Vs. Mary Ann P. Villa Abrille, for behalf of Ingrid D’Lyn P. Villa Abrille, et al., G.R. No. 160708, October 16, 2009. Marriage; conjugal property. The registration of the trade name in the name of one person – a woman – does not necessarily lead to the conclusion that the trade name as a property is hers alone, particularly when the woman is married. By law, all property acquired during the marriage, whether the acquisition appears to have been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is proved. Our examination of the records of the case does not show any proof that Kargo Enterprises and the properties or contracts in its name are conjugal. If at all, only the bare allegation of Navarro to this effect exists in the records of the case. Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a sole proprietorship is conjugal or paraphernal property, we hold that it is conjugal property. Roger V. Navarro Vs. Hon. Jose L. Escobido, Presiding Judge, RTC, Branch 37, Cagayan de Oro City, and Karen T. Go, doing business under the name Kargo Enterprises, G.R. No. 153788, November 27, 2009. Marriage; conjugal propety. Artilce 124 od the Family Code, by its terms, allows either Karen or Glenn Go to speak and act with authority in managing their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain the consent of the other before performing an act of administration or any act that does not dispose of or encumber their conjugal property. P a g e | 15 Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the contract of partnership in all that is not in conflict with what is expressly determined in this Chapter or by the spouses in their marriage settlements. In other words, the property relations of the husband and wife shall be governed primarily by Chapter 4 on Conjugal Partnership of Gains of the Family Code and, suppletorily, by the spouses‘ marriage settlement and by the rules on partnership under the Civil Code. In the absence of any evidence of a marriage settlement between the spouses Go, we look at the Civil Code provision on partnership for guidance. Under Article 1181 of the Civil Code, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the properties registered under this name; hence, both have an equal right to seek possession of these properties. Applying Article 484 of the Civil Code, which states that ―in default of contracts, or special provisions, co-ownership shall be governed by the provisions of this Title,‖ we find further support in Article 487 of the Civil Code that allows any of the co-owners to bring an action in ejectment with respect to the co-owned property. Roger V. Navarro Vs. Hon. Jose L. Escobido, Presiding Judge, RTC, Branch 37, Cagayan de Oro City, and Karen T. Go, doing business under the name Kargo Enterprises, G.R. No. 153788, November 27, 2009. FAMILY HOME Family Code; family home; exemption from foreclosure. We note that the claim of exemption under Article 153 of the Family Code, thereby raising issue on the mortgaged condominium unit being a family home and not corporate property, is entirely inconsistent with the clear contractual agreement of the REM. Assuming arguendo that the mortgaged condominium unit constitutes respondents‘ family home, the same will not exempt it from foreclosure as Article 155 (3) of the same Code allows the execution or forced sale of a family home ―for debts secured by mortgages on the premises before or after such constitution.‖ Equitable PCI Bank, Inc. vs. OJ-Mark Trading, Inc. and Spouses Oscar and Evangeline Martinez, G.R. No. 165950, August 11, 2010. Family home; how to constitute; levy and execution. The general rule is that the family home is a real right which is gratuitous, inalienable and free from attachment, constituted over the dwelling place and the land on which it is situated, which confers upon a particular family the right to enjoy such properties, which must remain with the person constituting it and his heirs. It cannot be seized by creditors except in certain special cases. The case of Kelley, Jr. v. Planters Products, Inc. lays down the rules relative to the levy on execution over the family home, viz: (i) a family home is generally exempt from execution provided it was duly constituted as such; (ii) there must be proof that the alleged family home was constituted jointly by the husband and wife or by an unmarried head of a family; (iii) it must be the house where they and their family actually reside and the lot on which it is situated, (iv) the family home must be part of the properties of the absolute community or the conjugal partnership, or of the exclusive properties of either spouse with the latter‘s consent, or on the property of the unmarried head of the family; and (v) the actual value of the family home shall not exceed, at the time of its constitution, the amount of P300,000 in urban areas and P200,000 in rural areas. With regard to the need for constituting a residence as a family home in order for the property to be exempt from execution, distinction must be made as to what law applies based on when it was constituted and what requirements must be complied with by the judgment debtor or his successors claiming such privilege. Hence, two sets of rules are applicable. If the family home was constructed before the effectivity of the Family Code or before August 3, 1988, then it must have been constituted either judicially or extra-judicially as provided under Articles 225, 229-231 and 233 of the Civil Code. Judicial constitution of the family home requires the filing of a verified petition before the courts and the registration of the court‘s order with the Registry of Deeds of the area where the property is located. Meanwhile, extrajudicial constitution is governed by Articles 240 to 242 of the Civil Code and involves the execution of a public instrument which must also be registered with the Registry of Property. Failure to comply with either one of these two modes of constitution will bar a judgment debtor from availing of the privilege. On the other hand, for family homes constructed after the effectivity of the Family Code on August 3, 1988, there is no need to constitute extrajudicially or judicially. All family homes constructed after the effectivity of the Family Code (August 3, 1988) are constituted as such by operation of law. All existing family residences as of August 3, 1988 are considered family homes and are prospectively entitled to the benefits accorded to a family home under the Family Code. The exemption is effective from the time it was constituted and lasts as long as any of its beneficiaries under Article 154 actually resides therein. Moreover, the family home should belong to the absolute community or conjugal partnership, or if exclusively by one spouse, its constitution must have been with consent of the other, and its value must not exceed certain amounts depending upon the area where it is located. Further, the debts incurred for which the exemption does not apply as provided under Article 155 for which the family home is made answerable must have been incurred after August 3, 1988. In both cases, whether under the Civil Code or the Family Code, it is not sufficient that the person claiming exemption merely alleges that such property is a family home. This claim for exemption must be set up and proved. P a g e | 16 In the present case, since petitioners claim that the family home was constituted prior to August 3, 1988, or as early as 1944, they must comply with the procedure mandated by the Civil Code. There being absolutely no proof that the Pandacan property was judicially or extra-judicially constituted as the Ramos‘ family home, the law‘s protective mantle cannot be availed of by petitioners. Parenthetically, the records show that the sheriff exhausted all means to execute the judgment but failed because Ramos‘ bank accounts were already closed while other properties in his or the company‘s name had already been transferred, and the only property left was the Pandacan property. Juanita Trinidad Ramos, et al. vs. Danilo Pangilinan et al., G.R. No. 185920, July 20, 2010. Family home. A family home is generally exempt from execution, provided it was duly constituted as such. It is likewise a given that the family home must be constituted on property owned by the persons constituting it. As pointed out in Kelley, Jr. v. Planters Products, Inc.: ‖[T]he family home must be part of the properties of the absolute community or the conjugal partnership, or of the exclusive properties of either spouse with the latter‘s consent, or on the property of the unmarried head of the family.‖ In other words, the family home must be established on the properties of (a) the absolute community, or (b) the conjugal partnership, or (c) the exclusive property of either spouse with the consent of the other. It cannot be established on property held in co-ownership with third persons. However, it can be established partly on community property, or conjugal property and partly on the exclusive property of either spouse with the consent of the latter. If constituted by an unmarried head of a family, where there is no communal or conjugal property existing, it can be constituted only on his or her own property. Therein lies the fatal flaw in the postulate of petitioners. For all their arguments to the contrary, the stark and immutable fact is that the property on which their alleged family home stands is owned by respondents and the question of ownership had been long laid to rest with the finality of the appellate court‘s judgment in CA-G.R. CV No. 55207. Thus, petitioners‘ continued stay on the subject land is only by mere tolerance of respondents. Simeon Cabang, et al. vs. Mr. & Mrs. Guillermo Basay, G.R. No. 180587, March 20, 2009. PATERNITY AND FILIATION Filiation; cannot be collaterally attacked. It is settled law that filiation cannot be collaterally attacked. Well-known civilista Dr. Arturo M. Tolentino, in his book ―Civil Code of the Philippines, Commentaries and Jurisprudence,‖ noted that the aforecited doctrine is rooted from the provisions of the Civil Code of the Philippines. He explained thus: The legitimacy of the child cannot be contested by way of defense or as a collateral issue in another action for a different purpose. The necessity of an independent action directly impugning the legitimacy is more clearly expressed in the Mexican code (article 335) which provides: ―The contest of the legitimacy of a child by the husband or his heirs must be made by proper complaint before the competent court; any contest made in any other way is void.‖ This principle applies under our Family Code. Articles 170 and 171 of the code confirm this view, because they refer to ―the action to impugn the legitimacy.‖ This action can be brought only by the husband or his heirs and within the periods fixed in the present articles. Eugenio R. Reyes, joined by Timothy Joseph M. Reyes, et al. vs. Librada F. Maurico and Leonida F. Mauricio, G.R. No. 175080, November 24, 2010 Family relations; child support; filiation. Arhbencel‘s demand for support, being based on her claim of filiation to petitioner as his illegitimate daughter, falls under Article 195(4). As such, her entitlement to support from petitioner is dependent on the determination of her filiation. In the present case, Arhbencel relies, in the main, on the handwritten note executed by petitioner which reads: ―I, Ben-Hur C. Nepomuceno, hereby undertake to give and provide financial support in the amount of P1,500.00 every fifteen and thirtieth day of each month for a total of P3,000.00 a month starting Aug. 15, 1999, to Ahrbencel Ann Lopez, presently in the custody of her mother Araceli Lopez without the necessity of demand, subject to adjustment later depending on the needs of the child and my income.‖ The note does not contain any statement whatsoever about Arhbencel‘s filiation to petitioner. It is, therefore, not within the ambit of Article 172(2) vis-à-vis Article 175 of the Family Code which admits as competent evidence of illegitimate filiation an admission of filiation in a private handwritten instrument signed by the parent concerned. The note cannot also be accorded the same weight as the notarial agreement to support the child referred to in Herrera. For it is not even notarized. And Herrera instructs that the notarial agreement must be accompanied by the putative father‘s admission of filiation to be an acceptable evidence of filiation. Here, however, not only has petitioner not admitted filiation through contemporaneous actions. He has consistently denied it. The only other documentary evidence submitted by Arhbencel, a copy of her Certificate of Birth, has no probative value to establish filiation to petitioner, the latter not having signed the same. At bottom, all that Arhbencel really has is petitioner‘s handwritten undertaking to provide financial support to her which, without more, fails to establish her claim of filiation. The Court is mindful that the best interests of the child in cases involving paternity and filiation should be advanced. It is, however, just as mindful of the disturbance that unfounded paternity suits cause to the privacy and peace of the putative father‘s legitimate family. Ben-Hur Nepomuceno vs. Archbencel Ann Lopez, represented by her mother Araceli Lopez, G.R. No. 181258, March 18, 2010 Compromise agreement; status of child. It is settled in law and jurisprudence, that the status and filiation of a child cannot be compromised. Public policy demands that there be no compromise on the status and filiation of a child. Paternity and filiation P a g e | 17 or the lack of the same, is a relationship that must be judicially established, and it is for the court to declare its existence or absence. It cannot be left to the will or agreement of the parties. Being contrary to law and public policy, the Compromise Agreement dated 18 February 2000 between petitioner and respondent is void ab initio and vests no rights and creates no obligations. It produces no legal effect at all. The void agreement cannot be rendered operative even by the parties‘ alleged performance (partial or full) of their respective prestations. Joanie Surposa Uy vs. Jose Ngo Chua, G.R. No. 183965, September 18, 2009. SUPPORT Persons; support. Petitioners‘ partial concurrent obligation extends only to their descendants as this word is commonly understood to refer to relatives, by blood of lower degree. As petitioners‘ grandchildren by blood, only respondents Lester Edward, Candice Grace and Mariano III belong to this category. Indeed, Cheryl‘s right to receive support from theLim family extends only to her husband Edward, arising from their marital bond. Spouses Prudencio and Filomena Lim vs. Ma. Cheryl S. Lim, for herself and on behalf of her minor children Lester Edward S. Lim, Candice Grace S. Lim, and Mariano S. Lim, III, G.R. No. 163209, October 30, 2009. PARENTAL AUTHORITY AND CUSTODY Property; ability of mother to dispose of property of minor children. The minor children of Conrado inherited by representation in the properties of their grandparents Remigia and Januario. These children, not their mother Victorina, were the co-owners of the inherited properties. Victorina had no authority or had acted beyond her powers in conveying, if she did indeed convey, to the petitioner‘s mother the undivided share of her minor children in the property involved in this case. ―The powers given to her by the laws as the natural guardian covers only matters of administration and cannot include the power of disposition. She should have first secured the permission of the court before she alienated that portion of the property in question belonging to her minor children.‖ In a number of cases, where the guardians, mothers or grandmothers, did not seek court approval of the sale of properties of their wards, minor children, the Court declared the sales void. Amelia B. Hebron vs. Franco L. Loyola, et al., G.R. No. 168960, July 5, 2010. Family Code; child custody; application of Article 213 on all custody agreements. It will not do to argue that the second paragraph of Article 213 of the Family Code applies only to judicial custodial agreements based on its text that ―No child under seven years of age shall be separated from the mother, unless the court finds compelling reasons to order otherwise.‖ To limit this provision‘s enforceability to court sanctioned agreements while placing private agreements beyond its reach is to sanction a double standard in custody regulation of children under seven years old of separated parents. This effectively empowers separated parents, by the simple expedient of avoiding the courts, to subvert a legislative policy vesting to the separated mother sole custody of her children under seven years of age ―to avoid a tragedy where a mother has seen her baby torn away from her.‖ This ignores the legislative basis that ―[n]o man can sound the deep sorrows of a mother who is deprived of her child of tender age.‖ Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5, 2010. Family relations; child custody; agreements between separated parents. At the time the parties executed the Agreement on 28 January 2002, two facts are undisputed: (1) Stephanie was under seven years old; and (2) petitioner and respondent were no longer married under the laws of the United States because of the divorce decree. The relevant Philippine law on child custody for spouses separated in fact or in law (under the second paragraph of Article 213 of the Family Code) is also undisputed: ―no child under seven years of age shall be separated from the mother x x x.‖ (This statutory awarding of sole parental custody to the mother is mandatory, grounded on sound policy consideration, subject only to a narrow exception not alleged to obtain here.) Clearly then, the Agreement‘s object to establish a post-divorce joint custody regime between respondent and petitioner over their child under seven years old contravenes Philippine law. Thus the joint custody agreement between the parents is void ab initio for being contrary to law. Also, it has also been repudiated by the mother when she refused to allow joint custody by the father. The agreement would be valid if the spouses have not divorced or separated because the law provides for joint parental authority when spouses live together. However, upon separation of the spouses, the mother takes sole custody under the law if the child is below seven years old and any agreement to the contrary is void. The separated parents cannot contract away the provision in the Family Code on the maternal custody of children below seven years. Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5, 2010 SPECIAL PARENTAL AUTHORITY Negligence; Proximate Cause. In this case, petitioners failed to show that the negligence of the student was the proximate cause of the latter‘s injury. We find that the immediate cause of the accident was not the negligence of the student when he curiously looked into the test tube when the chemicals suddenly exploded which caused his injury, but the sudden and unexpected explosion of the chemicals independent of any intervening cause. Petitioners could have prevented the mishap if they exercised a higher degree of care, caution and foresight. The mishap that happened during the science experiment was P a g e | 18 foreseeable by the school, its officials and teachers. This neglect in preventing a foreseeable injury and damage equates to neglect in exercising the utmost degree of diligence required of schools, its administrators and teachers, and, ultimately, was the proximate cause of the damage and injury to the student. For a party to be liable, there must be a finding that the act or omission considered as negligent was the proximate cause of the injury caused because the negligence must have a causal connection to the accident. St. Joseph’s College, Sr., Josephini Ambatali, SFIC, and Rosalinda Tabugo vs. Jayson Miranda, represented by his father, Rodolfo S. Miranda, G.R. No. 182353, June 29, 2010 . Negligence; Standard of Diligence for Schools; In Loco Parentis. The proximate cause of the student‘s injury was the concurrent failure of petitioners to prevent the foreseeable mishap that occurred during the conduct of the science experiment. Petitioners were negligent by failing to exercise the higher degree of care, caution and foresight incumbent upon the school, its administrators and teachers. Article 218 of the Family Code, in relation to Article 2180 of the Civil Code, bestows special parental authority on a school, its administrators and teachers, or the individual, entity or institution engaged in child care, and these persons have responsibility over the minor child while under their supervision, instruction or custody. Authority and responsibility shall apply to all authorized activities whether inside or outside the premises of the school, entity or institution. Teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody. In this case, the petitioners‘ negligence and failure to exercise the requisite degree of care and caution was demonstrated by the following: (i) petitioner school did not take affirmative steps to avert damage and injury to its students although it had full information on the nature of dangerous science experiments conducted by the students during class; (ii) petitioner school did not install safety measures to protect the students who conduct experiments in class; (iii) petitioner school did not provide protective gears and devices, specifically goggles, to shield students from expected risks and dangers; and (iv) petitioner Tabugo (the teacher) was not inside the classroom the whole time her class conducted the experiment, specifically, when the accident involving the student occurred. In any event, the size of the class—fifty (50) students— conducting the experiment is difficult to monitor. Moreover, petitioners cannot simply deflect their negligence and liability by insisting that petitioner Tabugo gave specific instructions to her science class not to look directly into the heated compound. St. Joseph’s College, Sr., Josephini Ambatali, SFIC, and Rosalinda Tabugo vs. Jayson Miranda, represented by his father, Rodolfo S. Miranda, G.R. No. 182353, June 29, 2010 . ADOPTION Persons; adoption. As a rule, the husband and the wife must jointly adopt. Mere consent of the husband to the wife‘ s petition to adopt it not sufficient. Petitioner, being married at the time the petitions for adoption were filed, should have jointly filed the petitions with her husband. The filing of a case for dissolution of the marriage between petitioner and her husband is of no moment. It is not equivalent to a decree of dissolution of marriage. Until and unless there is a judicial decree for the dissolution of the marriage between petitioner and her husband, the marriage still subsists. That being the case, joint adoption by the husband and the wife is required. The Supreme Court reiterated its ruling that since, at the time the petitions for adoption were filed, petitioner was married, joint adoption is mandatory. In Re: Petition for adoption of Michelle P. Lim, Monina P. Lim / In Re: Petition for adoption of Michael Jude P. Lim, Monina P. Lim, G.R. Nos. 168992-93, May 21, 2009. Persons; effects of adoption. Adoption has the following effects: (1) sever all legal ties between the biological parent(s) and the adoptee, except when the biological parent is the spouse of the adopter; (2) deem the adoptee as a legitimate child of the adopter; and (3) give adopter and adoptee reciprocal rights and obligations arising from the relationship of parent and child, including but not limited to: (i) the right of the adopter to choose the name the child is to be known; and (ii) the right of the adopter and adoptee to be legal and compulsory heirs of each other. Therefore, even if emancipation terminates parental authority, the adoptee is still considered a legitimate child of the adopter with all the rights of a legitimate child such as: (1) to bear the surname of the father and the mother; (2) to receive support from their parents; and (3) to be entitled to the legitime and other successional rights. Conversely, the adoptive parents shall, with respect to the adopted child, enjoy all the benefits to which biological parents are entitled such as support and successional rights. In Re: Petition for adoption of Michelle P. Lim, Monina P. Lim / In Re: Petition for adoption of Michael Jude P. Lim, Monina P. Lim, G.R. Nos. 168992-93, May 21, 2009. CIVIL REGISTER Legitimacy; change in status cannot be done through change of name. The present petition must be differentiated from Alfon v. Republic of the Philippines. In Alfon, the Court allowed the therein petitioner, Estrella Alfon, to use the name that she had been P a g e | 19 known since childhood in order to avoid confusion. Alfon did not deny her legitimacy, however. She merely sought to use the surname of her mother which she had been using since childhood. Ruling in her favor, the Court held that she was lawfully entitled to use her mother‘s surname, adding that the avoidance of confusion was justification enough to allow her to do so. In the present case, however, respondent denies his legitimacy. The change being sought in respondent‘s petition goes so far as to affect his legal status in relation to his parents. It seeks to change his legitimacy to that of illegitimacy. Rule 103 then would not suffice to grant respondent‘s supplication. Labayo-Rowe v. Republic categorically holds that ―changes which may affect the civil status from legitimate to illegitimate . . . are substantial and controversial alterations which can only be allowed after appropriate adversary proceedings . . .‖ Republic of the Philippines v. Julian Edward Emerson Coseteng-Magpayo; G.R. No. 189476. February 2, 2011. Late registration of birth; Presidential Decree No. 651, otherwise known as An Act Requiring the Registration of Births and Deaths in the Philippines which Occurred from 1 January 1974 and Thereafter, provides: Sec. 1. Registration of births. All babies born in hospitals, maternity clinics, private homes, or elsewhere within the period starting from January 1, 1974 up to the date when this decree becomes effective, irrespective of the nationality, race, culture, religion or belief of their parents, whether the mother is a permanent resident or transient in the Philippines, and whose births have not yet been registered must be reported for registration in the office of the local civil registrar of the place of birth by the physician, nurse, midwife, hilot, or hospital or clinic administrator who attended the birth or in default thereof, by either parent or a responsible member of the family or a relative, or any person who has knowledge of the birth of the individual child. The report referred to above shall be accompanied with an affidavit describing the circumstances surrounding the delayed registration. (Emphasis supplied) Sec. 2. Period of registration of births. The registration of the birth of babies referred to in the preceding section must be done within sixty (60) days from the date of effectivity of this decree without fine or fee of any kind. Babies born after the effectivity of this decree must be registered in the office of the local civil registrar of the place of birth within thirty (30) days after birth, by the attending physician, nurse, midwife, hilot or hospitals or clinic administrator or, in default of the same, by either parent or a responsible member of the family or any person who has knowledge of the birth. The parents or the responsible member of the family and the attendant at birth or the hospital or clinic administrator referred to above shall be jointly liable in case they fail to register the new born child. If there was no attendant at birth, or if the child was not born in a hospital or maternity clinic, then the parents or the responsible member of the family alone shall be primarily liable in case of failure to register the new born child. (Emphasis supplied) Presidential Decree No. 766 amended P.D. No. 651 by extending the period of registration up to 31 December 1975. P.D. No. 651, as amended, provided for special registration within a specified period to address the problem of under-registration of births as well as deaths. It allowed, without fine or fee of any kind, the late registration of births and deaths occurring within the period starting from 1 January 1974 up to the date when the decree became effective. Since Reynaldo was born on 30 October 1948, the late registration of his birth is outside of the coverage of P.D. No. 651, as amended. The late registration of Reynaldo‘s birth falls under Act No. 3753, otherwise known as the Civil Registry Law, which took effect on 27 February 1931. As a general law, Act No. 3753 applies to the registration of all births, not otherwise covered by P.D. No. 651, as amended, occurring from 27 February 1931 onwards. Considering that the late registration of Reynaldo‘s birth took place in 1985, National Census Statistics Office (NCSO) Administrative Order No. 1, Series of 1983 governs the implementation of Act No. 3753 in this case. Under NCSO A.O. No. 1-83, the birth of a child shall be registered in the office of the local civil registrar within 30 days from the time of birth. Any report of birth made beyond the reglementary period is considered delayed. The local civil registrar, upon receiving an application for delayed registration of birth, is required to publicly post for at least ten days a notice of the pending application for delayed registration. If after ten days no one opposes the registration and the local civil registrar is convinced beyond doubt that the birth should be registered, he should register the same. Reynaldo‘s certificate of live birth, as a duly registered public document, is presumed to have gone through the process prescribed by law for late registration of birth. It was only on 8 March 1995, after the lapse of ten long years from the approval on 11 February 1985 of the application for delayed registration of Reynaldo‘s birth, that Nieves registered her opposition. She should have done so within the ten-day period prescribed by law. Records show that no less than Nieves herself informed the local civil registrar of the birth of Reynaldo. At the time of her application for delayed registration of birth, Nieves claimed that P a g e | 20 Reynaldo was her son. Between the facts stated in a duly registered public document and the flip-flopping statements of Nieves, we are more inclined to stand by the former. Applications for delayed registration of birth go through a rigorous process. The books making up the civil register are considered public documents and are prima facie evidence of the truth of the facts stated there. As a public document, a registered certificate of live birth enjoys the presumption of validity. It is not for Reynaldo to prove the facts stated in his certificate of live birth, but for petitioners who are assailing the certificate to prove its alleged falsity. Petitioners miserably failed to do so. Thus, the trial court and the Court of Appeals correctly denied for lack of merit the petition to cancel the late registration of Reynaldo‘s birth. Nieves Estares Baldos, substituted by Francisco Baldos and Martin Baldos vs. Court of Appeals and Reynaldo Pillazar a.k.a. Reynaldo Estares Baldos, G.R. No. 170645, July 9, 2010. Family relations; use of maiden name by married woman; in a passport. In the present case, petitioner, whose marriage is still subsisting and who opted to use her husband‘s surname in her old passport, requested to resume her maiden name in the replacement passport arguing that no law prohibits her from using her maiden name. Petitioner cites Yasin as the applicable precedent. However, Yasin is not squarely in point with this case. Unlike in Yasin, which involved a Muslim divorcee whose former husband is already married to another woman, petitioner‘s marriage remains subsisting. Another point, Yasin did not involve a request to resume one‘s maiden name in a replacement passport, but a petition to resume one‘s maiden name in view of the dissolution of one‘s marriage. The law governing passport issuance is RA 8239 and the applicable provision in this case is Section 5(d) which sets out when a married woman may revert to her maiden name in her passport. None of these instances are present. Petitioner, however, argues that RA 8239 effectively conflicts with and, thus, operates as an implied repeal of Article 370 of the Civil Code. Petitioner is mistaken. RA 8239 does not prohibit a married woman from using her maiden name in her passport. In fact, in recognition of this right, the DFA allows a married woman who applies for a passport for the first time to use her maiden name. Such an applicant is not required to adopt her husband‘s surname. In the case of renewal of passport, a married woman may either adopt her husband‘s surname or continuously use her maiden name. If she chooses to adopt her husband‘s surname in her new passport, the DFA additionally requires the submission of an authenticated copy of the marriage certificate. Otherwise, if she prefers to continue using her maiden name, she may still do so. The DFA will not prohibit her from continuously using her maiden name. However, once a married woman adopt‘s her husband‘s surname in her passport, she may not revet to the use of her maiden name, except in the cases enumerated in Section 5(d) of RA 8239. These cases are (1) death of husband, (2) divorce, (3) annulment, (4) nullity of marriage. Ma. Virginia V. Remo vs. The Honorable Secretary of Foreign Affairs, G.R. No. 169202. March 5, 2010. II. PROPERTY OWNERSHIP Property; public property. Plaza Rizal partakes of the nature of a public park or promenade. As such, Plaza Rizal is classified as a property for public use. In Municipality of San Carlos, Pangasinan v. Morfe, the Court recognized that a public plaza is a public land belonging to, and, subject to the administration and control of, the Republic of the Philippines. Absent an express grant by the Spanish Government or that of the Philippines, the local government unit where the plaza was situated, which in that case was the Municipality of San Carlos, had no right to claim it as its patrimonial property. The Court further held that whatever right of administration the Municipality of San Carlos may have exercised over said plaza was not proprietary, but governmental in nature. The same did not exclude the national government. On the contrary, it was possessed on behalf and in representation thereof, the municipal government of San Carlos being — in the performance of its political functions — a mere agency of the Republic, acting for its benefit. Applying the above pronouncements to the instant case, Camarines Sur had the right to administer and possess Plaza Rizal prior to the conversion of the then Municipality of Naga into the independent City of Naga, as the plaza was then part of the territorial jurisdiction of the said province. Said right of administration by Camarines Sur was governmental in nature, and its possession was on behalf of and in representation of the Republic of the Philippines, in the performance of its political functions. Thereafter, by virtue of the enactment of Republic Act No. 305 and as specified in Section 2, Article I thereof, the City of Naga was created out of the territory of the old Municipality of Naga. Plaza Rizal, which was located in the said municipality, P a g e | 21 thereby ceased to be part of the territorial jurisdiction of Camarines Sur and was, instead transferred to the territorial jurisdiction of the City of Naga. Theretofore, the local government unit that is the proper agent of the Republic of the Philippines that should administer and possess Plaza Rizal is the City of Naga. Camarines Sur cannot claim that Plaza Rizal is part of its patrimonial property. The basis for the claim of ownership of Camarines Sur, i.e., the tax declaration covering Plaza Rizal in the name of the province, hardly convinces this Court. Well- settled is the rule that a tax declaration is not conclusive evidence of ownership or of the right to possess land, when not supported by any other evidence. The same is merely an indicia of a claim of ownership.[40] In the same manner, the Certification dated 14 June 1996 issued by the Department of Environment and Natural Resources–Community Environment and Natural Resources Office (DENR-CENRO) in favor of Camarines Sur, merely stating that the parcel of land described therein, purportedly Plaza Rizal, was being claimed solely by Camarines Sur, hardly constitutes categorical proof of the alleged ownership of the said property by the province. Thus, being a property for public use within the territorial jurisdiction of the City of Naga, Plaza Rizal should be under the administrative control and supervision of the said city. Province of Camarines Sur, represented by Governor Luis Raymund F. Villafuerte, Jr. vs. Hon. Court of Appeals and City of Naga, represented by Mayor Jesse M. Robredo, G.R. No. 175064, September 18, 2009 Deed of restriction; binding effect. In this case the Supreme Court enjoined the owners of property in Ayala Alabang Village from operating a grade school and high school on the property, in light of a deed of restrictions on the use (annotated on the title), allowing only the operation of a preparatory school. This was in spite of the issuance of a municipal ordinance classifying the area as institutional. Here the owners cited previous Supreme Court cases where reclassification made by government trumped deeds of restriction imposed by the land developer, on the ground that they were valid exercises of police power. However, in this case, the court refused to apply those rulings, stating that in those cases, the conditions of the area that had been reclassified truly reflected the new use being permitted by the local government. Thus, in one case involving Ortigas & Co., the Supreme Court took judicial notice of the fact that the area covered by the restriction requiring residential use only, was already in a commercial sector with a great deal of traffic in the vicinity. Thus, ―since it is now unprofitable, nay a hazard to the health and comfort, to use Lots Nos. 5 and 6 for strictly residential purposes, defendants-appellees should be permitted, on the strength of the resolution promulgated under the police power of the municipality, to use the same for commercial purposes.‖ But in the case of Ayala Alabang, the court noted that the area surrounding the school was still largely surrounded by residential lots and remained purely residential. Furthermore, the local government, in explaining the reason why it had reclassified the area as ―institutional‖ stated that it was simply adopting the classification used in a zoning map purportedly submitted by the land developer itself. In other words, the municipality was not asserting any interest or zoning purpose contrary to that of the subdivision developer in declaring the subject property as institutional. The Learning Child, Inc. and Sps. Felipe and Mary Anne Alfonso Vs. Ayala Alabang Village Association, Spouses Ernest and Alma Arzaga, et al./Jose Marie V. Aquino, minor and represented by his parents Dr. Errol Aquino and Atty. Marilyn Aquino, et al. Vs. Ayala Alabang Village Association, Spouses Ernesto and Alma Arzaga, et al./Ayala Alabang Village Association, Spouses Ernesto and Alma Arzaga, et al. Vs.Municipality of Muntinlupa, et al., G.R. No. 134269/G.R. No. 134440/G.R. No. 144518, July 7, 2010. Accretion. Article 457 of the Civil Code requires the concurrence of the following requisites for accretion: (1) that the deposition of soil or sediment be gradual and imperceptible; (2) that it be the result of the action of the waters of the river; and (3) that the land where accretion takes place is adjacent to the banks of rivers. Thus, it is not enough to be a riparian owner in order to enjoy the benefits of accretion. One who claims the right of accretion must show by preponderant evidence that he has met all the conditions provided by law. New Regent Sources, Inc. vs. Teofilo Victor Tanjuatco, Jr. and Vicente Cuevas, G.R. No. 168800, April 16, 2009. Property; Ownership; Alluvial Deposits. In case you ever wondered who owns land formed by alluvial deposits, wonder no more. The ownership of such land is governed by Article 84 of the Spanish Law of Waters of 1866, which remains in effect, in relation to Article 457 of the Civil Code. Article 84 of the Spanish Law of Waters of 1866 specifically covers ownership over alluvial deposits along the banks of a creek. According to this article, accretions deposited gradually upon lands contiguous to creeks, streams, rivers, and lakes, by accessions or sediments from the waters thereof, belong to the owners of such lands. In this regard, Article 457 of the Civil Code states that ―[T] o the owners of lands adjoining the banks of rivers belong the accretion which they gradually receive from the effects of the current of the waters. It is therefore explicit from the foregoing provisions that alluvial deposits along the banks of a creek do not form part of the public domain as the alluvial property automatically belongs to the owner of the estate to which it may have been added. The only restriction provided for by law is that the owner of the adjoining property must register the same under the Torrens system; otherwise, the alluvial property may be subject to acquisition through prescription by third persons. Office of the City Mayor of Parañaque City, et al. vs. Mario D. Ebio and His Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411. June 23, 2010 Property; builder in good faith. It is not disputed that the construction of Antonio‘s house was undertaken long before the sale in favor of Filomena; that when Filomena bought the property from Maria, Antonio‘s house which he used as residence had P a g e | 22 already been erected on the property. As explained by the CA: ―[Antonio] claims not being aware of any flaw in his title. He believed being the owner of the subject premises on account of the Deed of Sale thereof in his favor despite his inability to register the same. The improvement was, in fact, introduced by Antonio prior to Filomena‘s purchase of the land. x x x.‖ Thus, Antonio is a builder in good faith. Under Article 448, a landowner is given the option to either appropriate the improvement as his own upon payment of the proper amount of indemnity, or sell the land to the possessor in good faith. Relatedly, Article 546 provides that a builder in good faith is entitled to full reimbursement for all the necessary and useful expenses incurred; it also gives him right of retention until full reimbursement is made. Filomena R. Benedicto vs. Antonio Villaflores; G.R. No. 185020. October 6, 2010. Property; builder in good faith. Article 527 of the Civil Code presumes good faith, and since no proof exists to show that the mistake was done by petitioners in bad faith, the latter should be presumed to have built the house in good faith. When a person builds in good faith on the land of another, Article 448 of the Civil Code governs. This article covers cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto. The builder in good faith can compel the landowner to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. The choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory follows the principal and not the other way around. However, even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to remove the building from the land without first exercising either option. It is only if the owner chooses to sell his land, and the builder or planter fails to purchase it where its value is not more than the value of the improvements, that the owner may remove the improvements from the land. The owner is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay for the same. Moreover, petitioners have the right to be indemnified for the necessary and useful expenses they may have made on the subject property as provided in Articles 546 and 548 of the Civil Code. Consequently, the respondent-spouses have the option to appropriate the house on the subject land after payment to petitioners of the appropriate indemnity or to oblige petitioners to pay the price of the land, unless its value is considerably more than the value of the structures, in which case petitioners shall pay reasonable rent. Luciano Briones and Nelly Briones vs. Jose Macabagdal, Fe D. Macabagdal and Vergon Realty Investments Corporation, G.R. No. 150666, August 3, 2010 Property; builder in bad faith. If a voidable contract is annulled, the restoration of what has been given is proper. The relationship between the parties in any contract even if subsequently annulled must always be characterized and punctuated by good faith and fair dealing. Hence, in consonance with justice and equity and the salutary principle of non-enrichment atanother‘s expense, we sustain the appellate court‘s order directing Pedro to return to petitioner spouses the value of the consideration for the lot covered byTCT No. T-88674 and the house thereon. However, this court rules that petitioners cannot claim reimbursements for improvements they introduced after their good faith had ceased. As correctly found by the Court of Appeals, petitionerPatrocinia Ravina made improvements and renovations on the house and lot at the time when the complaint against them was filed. Ravina continued introducing improvements during the pendency of the action. Thus, Article 449 of the New Civil Code is applicable. It provides that, ―(h)e who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity.‖ Patronica Ravina and Wilfredo Ravina vs. Mary Ann P. Villa Abrille, for behalf of Ingrid D’Lyn P. Villa Abrille, et al., G.R. No. 160708, October 16, 2009. Property; builder in bad faith. The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, ispreclusive. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land. The raison d‘etre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing. Ophelia L. Tuatis vs. Spouses Eliseo Escol and Visminda Escol, et al., G.R. No. 175399, October 27, 2009. Property; builder in good faith. When the co-ownership is terminated by a partition, and it appears that the house of an erstwhile co-owner has encroached upon a portion pertaining to another co-owner, but the encroachment was in good faith, P a g e | 23 then the provisions of Article 448 should apply to determine the respective rights of the parties. In this case, the co-ownership was terminated due to the transfer of the title of the whole property in favor of JoaquinLimense. Under the foregoing provision, petitioners have the right to appropriate said portion of the house of respondents upon payment of indemnity to respondents, as provided for in Article 546 of the Civil Code. Otherwise, petitioners may oblige respondents to pay the price of the land occupied by their house. However, if the price asked for is considerably much more than the value of the portion of the house of respondents built thereon, then the latter cannot be obliged to buy the land. Respondents shall then pay the reasonable rent to petitioners upon such terms and conditions that they may agree. In case of disagreement, the trial court shall fix the terms thereof. Of course, respondents may demolish or remove the said portion of their house, at their own expense, if they so decide. The choice belongs to the owner of the land, a rule that accords with the principle of accession that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, ispreclusive. He must choose one. He cannot, for instance, compel the owner of the building to instead remove it from the land. The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land, he can compel the landowner to make a choice between two options: (1) to appropriate the building by paying the indemnity required by law, or (2) to sell the land to the builder. Heirs of the late Joaquin Limense vs. Rita vda. De Ramos, et al., G.R. No. 152319, October 28, 2009. Sale by non-owner; possession in good faith. The Supreme Court held that the deed of sale executed by Maxima in favor of petitioners was null and void, since Maxima was not the owner of the land she sold to petitioners, and the one-half northern portion of such land was owned by respondents. Being an absolute nullity, the deed is subject to attack anytime, in accordance with Article 1410 of the Civil Code that an action to declare the inexistence of a void contract does not prescribe. When there is a showing of such illegality, the property registered is deemed to be simply held in trust for the real owner by the person in whose name it is registered, and the former then has the right to sue for the reconveyance of the property. An action for reconveyance based on a void contract is imprescriptible. As long as the land wrongfully registered under the Torrens system is still in the name of the person who caused such registration, an action in personam will lie to compel him to reconvey the property to the real owner. In this case, title to the property is in the name of petitioner Rogelia; thus, the trial court correctly ordered the reconveyance of the subject land to respondents. Petitioners contend that they are possessors in good faith, thus, the award of damages should not have been imposed. They further contend that under Article 544, a possessor in good faith is entitled to the fruits received before the possession is legally interrupted; thus, if indeed petitioners are jointly and severally liable to respondents for the produce of the subject land, the liability should be reckoned only for 1991 and not 1984. The Supreme Court found partial merit in the argument. Article 528 of the Civil Code provides that possession acquired in good faith does not lose this character, except in a case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully. Possession in good faith ceases from the moment defects in the title are made known to the possessors, by extraneous evidence or by suit for recovery of the property by the true owner. Whatever may be the cause or the fact from which it can be deduced that the possessor has knowledge of the defects of his title or mode of acquisition, it must be considered sufficient to show bad faith. Such interruption takes place upon service of summons. Article 544 of the Civil Code provides that a possessor in good faith is entitled to the fruits only so long as his possession is not legally interrupted. Records show that petitioners received a summons together with respondents‘ complaint on August 5, 1991; thus, petitioners‘ good faith ceased on the day they received the summons. Consequently, petitioners should pay respondents 10 cavans of palay per annum beginning August 5, 1991 instead of 1984. Daclag vs. Macahilig, G.R. No. 159578, February 18, 2009. CO-OWNERSHIP Ownership, co-ownership. The portions belonging to the co-owners in the co-ownership shall be presumed equal, unless the contrary is proved. Aurora L. Tecson, et al. v. Minverva, Maria, et al. all surnamed Fausto and Isabel Vda. De Fausto; G.R. No. 180683. June 1, 2011 Condominium Act; responsibility to repair common property. In a multi-occupancy dwelling such as apartments, limitations are imposed under R.A. 4726 in accordance with the common interest and safety of the occupants therein which at times may curtail the exercise of ownership. To maintain safe, harmonious and secured living conditions, certain stipulations are embodied in the duly registered deed of restrictions, in this case the Master Deed, and in house rules which the condominium corporation, like respondent, is mandated to implement. Upon acquisition of a unit, the owner not only affixes his conformity to the sale; he also binds himself to a contract with other unit owners. P a g e | 24 Unquestionably, the fuse box controls the supply of electricity into the unit. Power is sourced through jumper cables attached to the main switch which connects the unit‘s electrical line to the Apartment‘s common electrical line. It is an integral component of a power utility installation. Respondent cannot disclaim responsibility for the maintenance of the Apartments‘ electrical supply system solely because a component thereof is placed inside a unit. As earlier stated, both the law and the Master Deed refer to utility installations as forming part of the common areas, which reference is justified by practical considerations. Repairs to correct any defects in the electrical wiring should be under the control and supervision of respondent to ensure safety and compliance with the Philippine Electrical Code, not to mention security and peace of mind of the unit owners. Revelina Limson v. Wack Wack Condominium Corporation; G.R. No. 188802. February 14, 2011. Property; co-ownership; prescription. Co-heirs or co-owners cannot acquire by acquisitive prescription the share of the other co-heirs or co-owners absent a clear repudiation of the co-ownership, as expressed in Article 494 of the Civil Code which states: Art. 494. x x x No prescription shall run in favor of a co-owner or co-heir against his co-owners or co-heirs as long as he expressly or impliedly recognizes the co-ownership. Since possession of co-owners is like that of a trustee, in order that a co-owner‘s possession may be deemed adverse to the cestui que trust or other co-owners, the following requisites must concur: (1) that he has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust or other co-owners, (2) that such positive acts of repudiation have been made known to the cestui que trust or other co-owners, and (3) that the evidence thereon must be clear and convincing. Heirs of Juanita Padilla, represented by Claudio Padilla vs. Dominador Magdua, G.R. No. 176858, September 15, 2010 Ownership; co-ownership; 20-year limitation. It is clear from Basilio‘s will that he intended the house and lot in Manila to be transferred in petitioners‘ names for administration purposes only, and that the property be owned by the heirs in common, thus: e) Ang lupa‘t bahay sa Lunsod ng Maynila na nasasaysay sa itaas na 2(c) ay ililipat at ilalagay sa pangalan nila Ma. Pilar at Clemente hindi bilang pamana ko sa kanila kundi upang pamahalaan at pangalagaan lamang nila at nang ang sinoman sa aking mga anak sampu ng apo at kaapuapuhan ko sa habang panahon ay may tutuluyan kung magnanais na mag-aral sa Maynila o kalapit na mga lunsod sa medaling salita, ang bahay at lupang ito’y walang magmamay-ari bagkus ay gagamitin habang panahon ng sinomang magnanais sa aking kaapuapuhan na tumuklas ng karunungan sa paaralan sa Maynila at katabing mga lunsod x x x x (emphasis and underscoring supplied) But the condition set by the decedent on the property‘s indivisibility is subject to a statutory limitation. On this point, the Court agrees with the ruling of the appellate court, viz: For this Court to sustain without qualification, [petitioners]‘s contention, is to go against the provisions of law, particularly Articles 494, 870, and 1083 of the Civil Code, which provide that the prohibition to divide a property in a co-ownership can only last for twenty (20) years x x x x x x x x x x x x Although the Civil Code is silent as to the effect of the indivision of a property for more than twenty years, it would be contrary to public policy to sanction co-ownership beyond the period expressly mandated by the Civil Code x x x x In Re: Petition for probate of last will and testament of Basilio Santiago, et al. Vs/ Zoilo S. Santiago, et al., G.R. No. 179859, August 9, 2010. Ownership; prescription; element of possession; in an equitable mortgage. Did respondents acquire the mortgaged property through prescription? It is true that the respondent Alejandro became a co-owner of the property by right of representation upon the death of his father, Jose Sr. As a co-owner, however, his possession was like that of a trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of them. Yet, the respondents except to the general rule, asserting that Alejandro, having earlier repudiated the co-ownership, acquired ownership of the property through prescription. The Court cannot accept the respondents‘ posture. In order that a co-owner‘s possession may be deemed adverse to that of the cestui que trust or the other co-owners, the following elements must concur: P a g e | 25 1. The co-owner has performed unequivocal acts of repudiation of the co-ownership amounting to an ouster of the cestui que trust or the other co-owners; 2. Such positive acts of repudiation have been made known to the cestui que trust or the other co-owners; 3. The evidence on the repudiation is clear and conclusive; and 4. His possession is open, continuous, exclusive, and notorious. The concurrence of the foregoing elements was not established herein. For one, Alejandro did not have adverse and exclusive possession of the property, as, in fact, the other co-owners had continued to possess it, with Alejandro and his heirs occupying only a portion of it. Neither did the cancellation of the previous tax declarations in the name of Leoncia, the previous co- owner, and the issuance of a new one in Alejandro‘s name, and Alejandro‘s payment of the realty taxes constitute repudiation of the co-ownership. The sole fact of a co-owner declaring the land in question in his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation amounting to an ouster of the other co-owner and could not constitute adverse possession as basis for title by prescription. Moreover, according to Blatero v. Intermediate Appellate Court, if a sale a retro is construed as an equitable mortgage, then the execution of an affidavit of consolidation by the purported buyer to consolidate ownership of the parcel of land is of no consequence and the ―constructive possession‖ of the parcel of land will not ripen into ownership, because only possession acquired and enjoyed in the concept of owner can serve as title for acquiring dominion. In fine, the respondents did not present proof showing that Alejandro had effectively repudiated the co-ownership. Their bare claim that Alejandro had made oral demands to vacate to his co-owners was self-serving and insufficient. Alejandro‘s execution of the affidavit of consolidation of ownership on August 21, 1970 and his subsequent execution on October 17, 1970 of the joint affidavit were really equivocal and ambivalent acts that did not manifest his desire to repudiate the co-ownership. The only unequivocal act of repudiation was done by the respondents when they filed the instant action for quieting of title on September 28, 1994, nearly a year after Alejandro‘s death on September 2, 1993. However, their possession could not ripen into ownership considering that their act of repudiation was not coupled with their exclusive possession of the property. Heirs of Jose Reyes, jr. namely; Magdalena C. Reyes, et al. vs. Amanda S. Reyes, et al., G.R. No. 158377, August 13, 2010. POSSESSION Ownership; acquisitive prescription. The claim of the Heirs of Bangis that since they have been in possession of the subject land since 1972 or for 28 years reckoned from the filing of the complaint in 2000 then, the present action has prescribed is untenable. It bears to note that while Bangis indeed took possession of the land upon its alleged mortgage, the certificate of title (TCT No. 6313) remained with Adolfo and upon his demise, transferred to his heirs, thereby negating any contemplated transfer of ownership. Settled is the rule that no title in derogation of that of the registered owner can be acquired by prescription or adverse possession. Moreover, even if acquisitive prescription can be appreciated in this case, the Heirs of Bangis‘ possession being in bad faith is two years shy of the requisite 30-year uninterrupted adverse possession required under Article 1137 of the Civil Code. Consequently, the Heirs of Bangis cannot validly claim the rights of a builder in good faith as provided for under Article 449 in relation to Article 448 of the Civil Code. Thus, the order for them to surrender the possession of the disputed land together with all its improvements was properly made. Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.; G.R. No. 190875, June 13, 2012. Property; builder in bad faith. See entry under ownership; acquisitive prescription (case of Bangis v. Heirs of Adolfo). Ownership; possession. Possession is an essential attribute of ownership. Necessarily, whoever owns the property has the right to possess it. Here, between the Almerias‘ registered title of ownership and Gaitero‘s verbal claim to the same, the former‘s title is far superior. As the MCTC, the RTC, and the CA found, the disputed area forms part of the Almerias‘ registered title. Upon examination, this fact is also confirmed by the subdivision plan which partitioned Tomagan‘s original Lot 9960. The evidence shows that the Almerias bought Lot 9964, which includes the disputed area, from the Asenjo heirs in whose names the land was originally registered. Since Gaitero was unable to prove that fraud attended the titling of the disputed area, the Almerias‘ right over the same became indefeasible and incontrovertible a year from registration. The Court cannot consider Gaitero‘s claim of ownership of the disputed area, based on his alleged continuous possession of the same, without running afoul of the rule that bars collateral attacks of registered titles. Gaitero‘s action before the MCTC is P a g e | 26 one for recovery of possession of the disputed area. An adjudication of his claim of ownership over the same would be out of place in such kind of action. A registered title cannot be impugned, altered, changed, modified, enlarged, or diminished, except in a direct proceeding permitted by law. Otherwise, reliance on registered titles would be lost. Gaitero‘s action is prohibited by law and should be dismissed. Gaitero‘s theory of laches cannot vest on him the ownership of the disputed area. To begin with, laches is a consideration in equity and therefore, anyone who invokes it must come to court with clean hands, for he who has done inequity shall not have equity. Here, Gaitero‘s claim of laches against the Almerias can be hurled against him. When the lot that the Almerias acquired (Lot 9964) was registered in 1979, Gaitero had constructive, if not actual, notice that the cadastral survey included the disputed area as part of the land that Leon Asenjo claimed. Yet, neither Gaitero nor his mother complained or objected to such inclusion. Worse, when Gaitero saw the subdivision plan covering Tomagan‘s original Lot 9960 in 1993, it showed that the disputed area fell outside the boundaries of Lot 9960-A which he claimed. Still, Gaitero did nothing to correct the alleged mistake. He is by his inaction clearly estopped from claiming ownership of the disputed area. He cannot avail himself of the law of equity. Feliciano Gaitero and Nelia Gaitero vs. Generoso Almeria and Teresita Almeria, G.R. No. 181812. June 8, 2011 Possession in good faith. The ten year ordinary prescriptive period to acquire title through possession of real property in the concept of an owner requires uninterrupted possession coupled with just title and good faith. There is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. Good faith, on the other hand, consists in the reasonable belief that the person from whom the possessor received the thing was the owner thereof, and could transmit his ownership. Gonzalo Villanueva, represented by his heirs vs. Spouses Froilan and Leonila Branoco; G.R. No. 172804, January 24, 2011. Property; buyer in good faith. To prove good faith, the rule is that the buyer of registered land needs only show that he relied on the title that covers the property. But this is true only when, at the time of the sale, the buyer was unaware of any adverse claim to the property. Otherwise, the law requires the buyer to exercise a higher degree of diligence before proceeding with his purchase. He must examine not only the certificate of title, but also the seller‘s right and capacity to transfer any interest in the property. In such a situation, the buyer must show that he exercised reasonable precaution by inquiring beyond the four corners of the title. Failing in these, he may be deemed a buyer in bad faith. Filinvest Development Corporation vs. Golden Haven Memorial Park, Inc. / Golden Haven Memorial Park, Inc. vs. Filinvest Development Corporation, G.R. No. 187824 / G.R. No. 188265. November 17, 2010. Ownership; by acquisitive prescription. Assuming that the subject land may be acquired by prescription, we cannot accept petitioners‘ claim of acquisition by prescription. Petitioners admitted that they had occupied the property by tolerance of the owner thereof. Having made this admission, they cannot claim that they have acquired the property by prescription unless they can prove acts of repudiation. It is settled that possession, in order to ripen into ownership, must be in the concept of an owner, public, peaceful and uninterrupted. Possession not in the concept of owner, such as the one claimed by petitioners, cannot ripen into ownership by acquisitive prescription, unless the juridical relation is first expressly repudiated and such repudiation has been communicated to the other party. Acts of possessory character executed due to license or by mere tolerance of the owner are inadequate for purposes of acquisitive prescription. Possession by tolerance is not adverse and such possessory acts, no matter how long performed, do not start the running of the period of prescription. In the instant case, petitioners made no effort to allege much less prove any act of repudiation sufficient for the reckoning of the acquisitive prescription. At most, we can find on record the sale by petitioners Delfin and Agustin of parts of the property to petitioners Maynard and Jose; but the same was done only in 1998, shortly before respondent filed a case against them. Hence, the 30-year period necessary for the operation of acquisitve prescription had yet to be attained. Delfin Lamsis, et al. vs. Margarita Semon Dong-e; G.R. No. 173021, October 20, 2010. Ownership; by acquisitive prescription. The settled doctrine in property law is that no title to register land in derogation of that of the registered owner shall be acquired by prescription or adverse possession. Even if the possession is coupled with payment of realty taxes, we cannot apply the rule that these acts combined constitute proof of the possessor‘s claim of title. Despite Matias‘ claim of possession since 1954, Matias began paying realty taxes on the subject property only in 1974 – when B. E. San Diego filed an ejectment case against her husband/predecessor, Pedro Matias. Considering these circumstances, we find Matias‘ payment of realty taxes suspect. B.E. San Diego, Inc. vs. Court of Appeals and Jovita Matias; G.R. No. 159230, October 18, 2010. Property; purchaser in good faith. It is a well-settled doctrine that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the certificates of title. He is charged with notice only of such burdens and claims as are annotated on the certificates. P a g e | 27 In the case at bar, TCT No. 110, which represented proof of respondent Abella‘s ownership of Lot No. 382, did not contain any encumbrance or annotation that was transferred from its title of origin – TCT No. 148. It must be recalled that the plaintiffs called Abella as one of their witnesses during the trial of this case. It is Abella‘s unrebutted testimony, elicited as a hostile witness for the plaintiffs, that her predecessor-in-interest‘s (Valencia‘s) title was clean when she (Abella) purchased the property. To be sure, the burden to prove that Abella had notice of any defect in the title of her predecessor lies with the plaintiffs. Plaintiffs failed to substantiate their contention. On the contrary, their own evidence tended to prove that Abella was a purchaser in good faith of the property. Likewise, there is no cogent reason or legal compulsion for respondent Abella to inquire beyond Valencia‘s title over the property at issue since the latter had been in possession of Lot No. 382 prior to the sale. Settled is the rule that a buyer of real property in possession of persons other than the seller must be wary and should investigate the rights of those in possession, for without such inquiry the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property. As pointed out by the assailed Court of Appeals‘ Decision, Valencia had been occupying the property prior to its sale to respondent Abella. Herein petitioners were never in possession of the property from the very start, nor did they have any idea that they were entitled to the fruits of the property not until co-petitioner Meleriana Saves wrote her relatives, co- petitioners in this case, about the possibility of having a claim to the property. Neither does the plaintiffs‘ insistence that Exhibits ―G‖ and ―H‖ (the deeds of sale executed in favor of Valencia) were void support their theory that Abella is a purchaser in bad faith. To begin with, we agree with the Court of Appeals‘ ruling that the purported irregularities in Exhibits ―G‖ and ―H‖ relied upon by the trial court hardly suffice to deem the said contracts as null and void. There is no need to repeat the Court of Appeals‘ comprehensive and apt discussions on this point here. What must be highlighted, however, is the fact that Abella had no participation in the execution of Exhibits ―G‖ and ―H‖ which were signed by the parties thereto when she was very young. Like any stranger to the said transactions, it was reasonable for Abella to assume that these public documents were what they purport to be on their face in the absence of any circumstance to lead her to believe otherwise. A purchaser in good faith is one who buys property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property. Clearly, the factual circumstances surrounding respondent Abella‘s acquisition of Lot No. 382 makes her an innocent purchaser for value or a purchaser in good faith. Finally, on the issue of whether or not petitioners, in the remote possibility that they are co-owners of Lot No. 382, are barred from asserting their claims over the same because of estoppel by laches, petitioners argue that they are not guilty of unreasonable and unexplained delay in asserting their rights, considering that they filed the action within a reasonable time after their discovery of the allegedly fictitious deeds of sale, which evinced Lot No. 382‘s transfer of ownership to Valencia, in 1980. They maintain that the delay in the discovery of the simulated and fictitious deeds was due to the fact that Escolastico Saves with spouse Valencia committed the acts surreptitiously by taking advantage of the lack of education of plaintiffs‘ ascendants. The Heirs of Romana Saves, namely: Fidela Alamaida, et al. vs. The Heirs of Escolastico Saves, namely: Enriqueta chavez-Abella, et al.; G.R. No. 152866, October 6, 2010. Property; purchaser in good faith. A person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense with the need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or status of the title of the property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing on the face of said certificate. One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith; and hence does not merit the protection of the law. A forged deed can legally be the root of a valid title when an innocent purchaser for value intervenes. For a prospective buyer of a property registered under the Torrens system need not go beyond the title, especially when he has no notice of any badge of fraud or defect that would place him on guard. His rights are thus entitled to full protection, for the law considers him an innocent purchaser. Camper Realty Corp. vs. Maria Nena Pajo-Reyes, represented by her Attorney-in-fact Eliseo B. Ballao, et al.; G.R. No. 179543. October 6, 2010. Property; right of possession. The only issue in an ejectment case is the physical possession of real property ‒ possession de facto and not possession de jure. We rule upon the issue of ownership only to determine who between the parties has the better right of possession. As the law now stands, in an ejectment suit, the question of ownership may be provisionally ruled upon for the sole purpose of determining who is entitled to possession de facto. A person who occupies the land of another at the latter‘s tolerance or permission, without any contract between them, is necessarily bound by an implied promise that he will vacate upon demand, failing which a summary action for ejectment is the proper remedy against them. Whatever right of possession that the spouses Beltran may have over the subject property cannot P a g e | 28 prevail over that of Nieves for the simple reason that Nieves is the registered owner of the subject property and the alleged deed of sale, which Nieves disputes, remains unregistered. Although it is true that the spouses Beltran, and not Nieves, were in prior physical possession of the subject property, this argument cannot hold water as prior physical possession is material only in forcible entry cases. Any question regarding the validity of Nieves‘ title can only be assailed in an action expressly instituted for that purpose. A certificate of title shall not be subject to collateral attack. Our ruling in the present case shall not bar an action between the same parties for the determination of ownership of the subject property. Spouses Ida Nieves Beltran and Jose Beltran vs. Ms. Anita R. Nieves, etc.; G.R. No. 175561, October 20, 2010. Ownership; prescription; requirement of possession; compromise agreement does not constitute ―possession‖. Prescription, as a mode of acquiring ownership and other real rights over immovable property, is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted, and adverse. The party who asserts ownership by adverse possession must prove the presence of the essential elements of acquisitive prescription. Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for ten years. In extraordinary prescription, ownership and other real rights over immovable property are acquired through uninterrupted adverse possession for thirty years without need of title or of good faith. Possession ―in good faith‖ consists in the reasonable belief that the person from whom the thing is received has been the owner thereof, and could transmit his ownership. There is ―just title‖ when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. The Supreme Court found that the Court of Appeals mistakenly relied upon a compromise agreement to conclude that the respondents were possessors in good faith and with just title who acquired the property through ordinary acquisitive prescription. The main purpose of a compromise agreement is to put an end to litigation because of the uncertainty that may arise from it. Reciprocal concessions are the very heart and life of every compromise agreement. By the nature of a compromise agreement, it brings the parties to agree to something that neither of them may actually want, but for the peace it will bring them without a protracted litigation. Thus, no right can arise from the compromise agreement because the parties executed the same only to buy peace and to write finis to the controversy; it did not create or transmit ownership rights over the subject property. In executing the compromise agreement, the parties, in effect, merely reverted to their situation before the earlier civil case was filed. Neither can the respondents benefit from the contract of sale of the subject property to support their claim of possession in good faith and with just title. In the vintage case [Digester‘s Note: Use of word ―vintage‖ to describe a case, the ponente‘s, not mine] of Leung Yee v. F.L. Strong Machinery Co. and Williamson, the court had noted that ―[O]ne who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.‖ Good faith, or the want of it, can be ascertained only from the acts of the one claiming it, as it is a condition of mind that can only be judged by actual or fancied token or signs. In the present case, no dispute exists that Roberto, without Nicomedesa‘s knowledge or participation, bought the subject property on September 16, 1977 or during the pendency of Civil Case No. B-565. Roberto, therefore, had actual knowledge that Belacho‘s claim to ownership of the subject property, as Gavino‘s purported heir, was disputed because he (Roberto) and Nicomedesa were the defendants in Civil Case No. B-565. Roberto even admitted that he bought the subject property from Belacho to ―avoid any trouble.‖ He, thus, cannot claim that he acted in good faith under the belief that there was no defect or dispute in the title of the vendor, Belacho. Not being a possessor in good faith and with just title, the ten-year period required for ordinary acquisitive prescription cannot apply in Roberto‘s favor. Even the thirty-year period under extraordinary acquisitive prescription has not been met because of the respondents‘ claim to have been in possession, in the concept of owner, of the subject property for only twenty- four years, from the time the subject property was tax declared in 1974 to the time of the filing of the complaint in 1998. Rosario P. Tan vs. Artemio G. Ramirez, et al., G.R. No. 158929, August 3, 2010. Laches. Laches is defined as the failure to assert a right for an unreasonable and unexplained length of time, warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it. In the case at bar, plaintiffs, assuming that they or their predecessors-in-interest had rights over the land in question, obviously neglected to exercise these P a g e | 29 rights by failing to assert any adverse claim over the property or demand any share of its fruits for many years. Not unlike their predecessors, petitioners never interposed any challenge to Valencia‘s continued possession under title of ownership over Lot No. 382 ever since the entire property was sold to her in 1947 which led to the issuance of TCT No. 148 in her name. Likewise, petitioners and their predecessors-in-interest did not mount any opposition to the sale of Lot No. 382 by Valencia to respondent Abella in 1961 which prompted the issuance of TCT No. 110. It was not only until 1981, or 34 years from Valencia‘s acquisition of the entire lot and 20 years from the transfer of ownership over the same to respondent Abella, that petitioners decided to assert their alleged rights over the property in a proper action in court. Petitioners contend that the delay is attributable to the surreptitious manner by which Valencia acquired Lot No. 382 from their predecessors-in-interest but, on this point, petitioner‘s evidence gravely lacks credibility and weight as shown by the records. Instead, the evidence thus presented by both parties, as found by the Court of Appeals, would lean towards the conclusion that petitioners‘ inaction for the past so many years belies any present conviction on their part that they have any existing interest over the property at all. Thus, even if we grant that petitioners are co-owners of the property at issue, it is only fair and reasonable for this Court to apply the equitable principle of estoppel by laches against them in order to avoid an injustice to respondent Abella who is the innocent purchaser for value in this case. The Heirs of Romana Saves, namely: Fidela Alamaida, et al. vs. The Heirs of Escolastico Saves, namely: Enriqueta chavez-Abella, et al.; G.R. No. 152866, October 6, 2010. Prescription; real actions. A real action is one where the plaintiff seeks the recovery of real property or, as indicated in what is now Rule 4, Section 1 of the Rules of Court, a real action is an action affecting title to or recovery of possession of real property. An action for quieting of title to real property, such as Civil Case No. 4452, is indubitably a real action. Article 1141 of the Civil Code plainly provides that real actions over immovables prescribe after thirty years. Doña Demetria died in 1974, transferring by succession, her title to the two parcels of land to her only heir, Vidal. Teofilo, through Atty. Cabildo, filed a petition for reconstitution of the certificates of title covering said properties in 1978. This is the first palpable display of Teofilo‘s adverse claim to the same properties, supposedly, also as Doña Demetria‘s only heir. When Vidal and AZIMUTH instituted Civil Case No. 4452 in 1998, only 20 years had passed, and the prescriptive period for filing an action for quieting of title had not yet prescribed. Nevertheless, the Court notes that Article 1411 of the Civil Code also clearly states that the 30-year prescriptive period for real actions over immovables is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. Thus, the Court must also look into the acquisitive prescription periods of ownership and other real rights. Acquisitive prescription of dominion and real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law. In the case of ownership and other real rights over immovable property, they are acquired by ordinary prescription through possession of 10 years. LANDTRADE cannot insist on the application of the 10-year ordinary acquisitive prescription period since it cannot be considered a possessor in good faith. The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. Since the ordinary acquisitive prescription period of 10 years does not apply to LANDTRADE, then the Court turns its attention to the extraordinary acquisitive prescription period of 30 years set by Article 1137 of the Civil Code, which provides that ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith. LANDTRADE adversely possessed the subject properties no earlier than 1996, when it bought the same from Teofilo, and Civil Case No. 4452 was already instituted two years later in 1998. LANDTRADE cannot tack its adverse possession of the two parcels of land to that of Teofilo considering that there is no proof that the latter, who is already residing in the U.S.A., adversely possessed the properties at all. Republic of the Philippines Vs. Hon. Mamindiara P. Mangotara, in his capacity as Presiding Judge of the Regional Trial Court, Branch 1, Iligan City, Lanao del Norte, and Maria Cristina Fertilizer Corporation, and the Philippines National Bank/Land Trade Realty Corporation Vs. National Power Corporation and National Transmission Corporation (Transco)/National Power Corporation Vs. Hon. Court of Appeals (Special Twenty-Third Division, Cagayan de Oro City) and Land Trade Realty Corporation/National Transmission Corporation Vs. Hon. Court of Appeals (Special Twenty-Third Division, Cagayan de Oro City) and Land Trade Realty Corporation, G.R. No. 170375/G.R. No. 170505/G.R. Nos. 173355-56/G.R. No. 173401/G.R. Nos. 173563-64/G.R. No. 178779/G.R. No. 178894.,July 7, 2010 Prescription. The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered piece of residential land. Having possession of the subject lot, petitioners‘ right to the reconveyance thereof, and the annulment of the covering title, has not prescribed or is not time-barred. This is so for an action for annulment of title or reconveyance based on fraud is imprescriptible where the suitor is in possession of the property subject of the acts, the action partaking as it does of a suit for quieting of title which is imprescriptible. Such is the case in this instance. Petitioners have possession of subject lots as owners having purchased the same from Gabriel, Sr. subject only to the full payment of the agreed price. P a g e | 30 The prescriptive period for the reconveyance of fraudulently registered real property is 10 years, reckoned from the date of the issuance of the certificate of title, if the plaintiff is not in possession, but imprescriptible if he is in possession of the property. Thus, one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right.As it is, petitioners‘ action for reconveyance is imprescriptible. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010. Property; Buyer in Good Faith; Possession. Petitioner cannot be considered a buyer in good faith, because respondent was already in possession of the subject property at the time Ma. Imelda Eloisa Galvan conveyed her rights over the property to petitioner. It is settled rule that a buyer of real property that is in the possession of a person other than the seller must be wary and should investigate the rights of the person in possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a buyer in good faith. Since respondent was already in possession of the subject property at the time Ma. Imelda Eloisa Galvan transferred her rights over the property to petitioner, petitioner was obliged to investigate respondent‘s rights over the property vis-à-vis that of the seller. Petitioner cannot be considered a buyer in good faith for her failure to make such inquiry. Lirio A. Deanon, represented by Attorney-in-Fact, Jocelyn D. Asor vs. Marfelina C. Mag-abo, G.R. No. 179549, June 29, 2010 . See also entry under Sale; Innocent Purchaser for Value. Property; Buyer in Good Faith; Standard of Good Faith. See entry under Sale; Innocent Purchaser for Value. Property; Ownership; Prescription. In the case at bar, respondents assert that their predecessor-in-interest, Pedro Vitalez, had occupied and possessed the subject lot as early as 1930. In 1964, respondent Mario Ebio secured a permit from the local government of Parañaque for the construction of their family dwelling on the said lot. In 1966, Pedro executed an affidavit of possession and occupancy allowing him to declare the property in his name for taxation purposes. Curiously, it was also in 1966 when Guaranteed Homes, Inc., the registered owner of Road Lot No. 8 (―RL 8″) which adjoins the land occupied by the respondents, donated RL 8 to the local government of Parañaque. From these findings of fact by both the trial court and the Court of Appeals, only one conclusion can be made: that for more than 30 years, neither Guaranteed Homes, Inc. nor the local government of Parañaque in its corporate or private capacity sought to register the accreted portion. Undoubtedly, respondents are deemed to have acquired ownership over the subject property through prescription. Respondents can assert such right despite the fact that they have yet to register their title over the said lot. It must be remembered that the purpose of land registration is not the acquisition of lands, but only the registration of title which the applicant already possessed over the land. Registration was never intended as a means of acquiring ownership. A decree of registration merely confirms, but does not confer, ownership. Office of the City Mayor of Parañaque City, et al. vs. Mario D. Ebio and His Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411. June 23, 2010. Property; Ownership; Registration Does Not Confer Title. Undoubtedly, respondents are deemed to have acquired ownership over the subject property through prescription. Respondents can assert such right despite the fact that they have yet to register their title over the said lot. It must be remembered that the purpose of land registration is not the acquisition of lands, but only the registration of title which the applicant already possessed over the land. Registration was never intended as a means of acquiring ownership. A decree of registration merely confirms, but does not confer, ownership. Office of the City Mayor of Parañaque City, et al. vs. Mario D. Ebio and His Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411, June 23, 2010. Property; ownership of land. We hold that as between the petitioner and the respondent, it is the petitioner who has the better claim or title to the subject property. While the respondent merely relied on her tax declaration, petitioner was able to prove actual possession of the subject property coupled with his tax declaration. We have ruled in several cases that possession, when coupled with a tax declaration, is a weighty evidence of ownership. It certainly is more weighty and preponderant than a tax declaration alone. The preponderance of evidence is therefore clearly in favor of petitioner, particularly considering that, as the actual possessor under claim of ownership, he enjoys the presumption of ownership. Moreover, settled is the principle that a party seeking to recover real property must rely on the strength of her case rather than on the weakness of the defense. The burden of proof rests on the party who asserts the affirmative of an issue. For he who relies upon the existence of a fact should be called upon to prove that fact. Having failed to discharge her burden to prove her affirmative allegations, we find that the trial court rightfully dismissed respondent‘s complaint. Modesto Palali vs. Juliet Awisan, represented by her Attorney-in-fact Gregorio Awisan, G.R. No. 158385, February 12, 2010 Property; possession. Respondent‘s predecessor, Juan Mari, had declared the disputed realty for tax purposes as early as 1916. The tax declarations show that he had a two storey house on the realty. He also planted fruit bearing trees and bamboos thereon. The records also show that the 897-square meter property had a bamboo fence along its perimeter. All these circumstances clearly show that Juan Mari was in possession of subject realty in the concept of owner, publicly and peacefully since 1916 or long before petitioners entered the disputed realty sometime in 1965. P a g e | 31 Based on Article 538 of the Civil Code, the respondent is the preferred possessor because, benefiting from his father‘s tax declaration of the subject realty since 1916, he has been in possession thereof for a longer period. On the other hand, petitioners acquired joint possession only sometime in 1965. Arsenio F. Olegario, et al. vs. Pedro C. Mari, represented by Lilia C. Mari-Camba, G.R. No. 147951, December 14, 2009. Property; purchaser in good faith. A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of the claim or interest of some other person in the property. To establish his status as a buyer for value in good faith, a person dealing with land registered in the name of and occupied by the seller need only show that he relied on the face of the seller‘s certificate of title. But for a person dealing with land registered in the name of and occupied by the seller whose capacity to sell is restricted, such as by Articles 166 and 173 of the Civil Code or Article 124 of the Family Code, he must show that he inquired into thelatter‘s capacity to sell in order to establish himself as a buyer for value in good faith. Patronica Ravina and Wilfredo Ravina vs.. Mary Ann P. Villa Abrille, for behalf of Ingrid D’Lyn P. Villa Abrille, et al., G.R. No. 160708, October 16, 2009. Property; laches. Laches is defined as the failure to assert a right for an unreasonable and unexplained length of time, warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it. This equitable defense is based upon grounds of public policy, which requires the discouragement of stale claims for the peace of society. Juana sold the property to the Spouses Cereno in 1970 and since then have possessed the property peacefully and publicly without any opposition from petitioners. While petitioners claim that they knew about the sale only in 1980 yet they did not take any action to recover the same and waited until 1999 to file a suit without offering any excuse for such delay. Records do not show any justifiable reason for petitioners‘ inaction for a long time in asserting whatever rights they have over the property given the publicity of respondents‘ conduct as owners of the property. Julita V. Imuan, et al. vs. Juanito Cereno, et al., G.R. No. 167995, September 11, 2009. Property; prescription. Prescription is another mode of acquiring ownership and other real rights over immovable property. It is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted and adverse. Possession is open when it is patent, visible, apparent, notorious and not clandestine. It is continuous when uninterrupted, unbroken and not intermittent or occasional;exclusive when the adverse possessor can show exclusive dominion over the land and an appropriation of it to his own use and benefit; and notorious when it is so conspicuous that it is generally known and talked of by the public or the people in the neighborhood. The party who asserts ownership by adverse possession must prove the presence of the essential elements of acquisitive prescription. Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for ten years. In extraordinary prescription, ownership and other real rights over immovable property are acquired through uninterrupted adverse possession for thirty years without need of title or of good faith. The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. For purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. Julita V. Imuan, et al. vs. Juanito Cereno, et al., G.R. No. 167995, September 11, 2009. Prescription; express trust. Prescription and laches will run only from the time the express trust is repudiated. The Supreme Court has held that for acquisitive prescription to bar the action of the beneficiary against the trustee in an express trust for the recovery of the property held in trust it must be shown that: (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have been made known to the cestui que trust, and (c) the evidence thereon is clear and conclusive. Respondents cannot rely on the fact that the Torrens title was issued in the name of Epifanio and the other heirs of Jose. It has been held that a trustee who obtains a Torrens title over property held in trust by him for another cannot repudiate the trust by relying on the registration. The rule requires a clear repudiation of the trust duly communicated to the beneficiary. The only act that can be construed as repudiation was when respondents filed the petition for reconstitution in October 1993. And since petitioners filed their complaint in January 1995, their cause of action has not yet prescribed, laches cannot be attributed to them. It is hornbook doctrine that laches is a creation of equity and its application is controlled by equitable considerations. Lachescannot be used to defeat justice or perpetrate fraud and injustice. Neither should its application be used to prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another. The P a g e | 32 equitable remedy of laches is, therefore, unavailing in this case. Heirs of Tranquilino Labiste, et al. vs. Heirs of Jose Labiste, et al., G.R. No. 162033, May 8, 2009. EASEMENT Easement. An easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner. There are two kinds of easements according to source. An easement is established either by law or by will of the owners. The courts cannot impose or constitute any servitude where none existed. They can only declare its existence if in reality it exists by law or by the will of the owners. There are therefore no judicial easements. Article 684 of the Civil Code provides that no proprietor shall make such excavations upon his land as to deprive any adjacent land or building of sufficient lateral or subjacent support. An owner, by virtue of his surface right, may make excavations on his land, but his right is subject to the limitation that he shall not deprive any adjacent land or building of sufficient lateral or subjacent support. Between two adjacent landowners, each has an absolute property right to have his land laterally supported by the soil of his neighbor, and if either, in excavating on his own premises, he so disturbs the lateral support of his neighbor‘s land as to cause it, or, in its natural state, by the pressure of its own weight, to fall away or slide from its position, the one so excavating is liable. ] In the instant case, an easement of subjacent and lateral support exists in favor of respondent. It was established that the properties of petitioner and respondent adjoin each other. The residential house and lot of respondent is located on an elevated plateau of fifteen (15) feet above the level of petitioner‘s property. The embankment and the riprapped stones have been in existence even before petitioner became the owner of the property. It was proven that petitioner has been making excavations and diggings on the subject embankment and, unless restrained, the continued excavation of the embankment could cause the foundation of the rear portion of the house of respondent to collapse, resulting in the destruction of a huge part of the family dwelling. Margarita F. Castro v. Napoleon A. Monsod ; G.R. No. 183719. February 2, 2011. Property; easement. Article 622 of the New Civil Code provides: ―Art. 622. Continuous non-apparent easements, and discontinuous ones, whether apparent or not, may be acquired only by virtue of a title.‖ Based on the foregoing, in order for petitioner to acquire the disputed road as an easement of right-of-way, it was incumbent upon petitioner to show its right by title or by an agreement with the owners of the lands that said road traversed. Bicol Agro-Industrial Producers Cooperative, inc. (BAPCI) vs. Edmundo O. Obias, et al. G.R. No. 172077. October 9, 2009 Property; easement. Petitioner would have this Court re-examine Costabella Corporation v. Court of Appeals (Costabella) where the Court held that, ―It is already well-established that a right of way is discontinuous and, as such, cannot be acquired by prescription.‖ Petitioner contends that some recognized authorities share its view that an easement of right of way may be acquired by prescription. Be that as it may, this Court finds no reason to re-examine Costabella. This Court is guided by Bogo-Medellin Milling Co., Inc. v. Court of Appeals (Bogo-Medellin), involving the construction of a railroad track to a sugar mill. In Bogo-Medellin, this Court discussed the discontinuous nature of an easement of right of way and the rule that the same cannot be acquired by prescription. Applying Bogo-Medellin to the case at bar, the conclusion is inevitable that the road in dispute is a discontinuous easement notwithstanding that the same may be apparent. To reiterate, easements are either continuous or discontinuous according to the manner they are exercised, not according to the presence of apparent signs or physical indications of the existence of such easements. Hence, even if the road in dispute has been improved and maintained over a number of years, it will not change its discontinuous nature but simply make the same apparent. To stress, Article 622 of the New Civil Code states that discontinuous easements, whether apparent or not, may be acquired only by virtue of a title. Bicol Agro-Industrial Producers Cooperative, inc. (BAPCI) vs. Edmundo O. Obias, et al. G.R. No. 172077. October 9, 2009 Property; easement. Petitioner manifested in the RTC its desire, in the alternative, to avail of a compulsory easement of right of way as provided for under Article 649 the New Civil Code. Said relief was granted by the RTC because of the unavailability of another adequate outlet from the sugar mill to the highway. Despite the grant of a compulsory easement of right of way, petitioner, however, assails both the RTC and CA Decision with regard to the amount of indemnity due respondents. Petitioner likens the proceedings at bar to an expropriation proceeding where just compensation must be based on the value of the land at the time of taking.[ Petitioner thus maintains that the compensation due to respondents should have been computed in 1974 when the road was constructed. P a g e | 33 This Court does not agree. Under Article 649 of the Civil Code, it is clear that the law does not provide for a specific formula for the valuation of the land. Neither does the same state that the value of the land must be computed at the time of taking. The only primordial consideration is that the same should consist of the value of the land and the amount of damage caused to the servient estate. Hence, the same is a question of fact which should be left to the sound discretion of the RTC. Bicol Agro- Industrial Producers Cooperative, inc. (BAPCI) vs. Edmundo O. Obias, et al. G.R. No. 172077. October 9, 2009 Property; easement. Easements may be continuous or discontinuous, apparent or non-apparent. Continuous easements are those the use of which is or may be incessant, without the intervention of any act of man. Discontinuous easements are those which are used at intervals and depend upon the acts of man. Apparent easements are those which are made known and are continually kept in view by external signs that reveal the use and enjoyment of the same. Non-apparent easements are those which show no external indication of their existence. In the present case, the easement of right of way is discontinuous and apparent. It is discontinuous, as the use depends upon the acts of respondents and other persons passing through the property. Being an alley that shows a permanent path going to and from Beata Street, the same is apparent. Being a discontinuous and apparent easement, the same can be acquired only by virtue of a title. Heirs of the late Joaquin Limense vs. Rita vda. De Ramos, et al., G.R. No. 152319, October 28, 2009. Property; easement. An easement or servitude is ―a real right constituted on another‘s property, corporeal and immovable, by virtue of which the owner of the same has to abstain from doing or to allow somebody else to do something on his property for the benefit of another thing or person. There are two sources of easements: by law or by the will of the owners. In the present case, neither type of easement was constituted over the subject property. In its allegations, respondent claims that Caruff constituted a voluntary easement when it constructed the generating set and sump pumps over the disputed portion of the subject property for its benefit. However, it should be noted that when the appurtenances were constructed on the subject property, the lands where the condominium was being erected and the subject property where the generating set and sump pumps were constructed belonged to Caruff. Therefore, Article 613 of the Civil Code does not apply, since no true easement was constituted or existed, because both properties were owned by Caruff. Also, Article 624 of the Civil Code is controlling, as it contemplates a situation where there exists an apparent sign of easement between two estates established or maintained by the owner of both. It can be inferred that when the owner of two properties alienates one of them and an apparent sign of easement exists between the two estates, entitlement to it continues, unless there is a contrary agreement, or the indication that the easement exists is removed before the execution of the deed. Privatization Management Office vs. Legaspi Towers 300, Inc., G.R. No. 147957, July 22, 2009. Property; easement. An easement is a real right on another‘s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement. Easements are established either by law or by the will of the owner. The former are called legal, and the latter, voluntary easements. In this case, petitioner itself admitted that a voluntary easement of right of way exists in favor of respondents. Having made such an admission, petitioner cannot now claim that what exists is a legal easement and that the same should be cancelled since the dominant estate is not an enclosed estate as it has an adequate access to a public road which is Callejon Matienza Street. The opening of an adequate outlet to a highway can extinguish only legal or compulsory easements, not voluntary easements like in the case at bar. The fact that an easement by grant may have also qualified as an easement of necessity does not detract from its permanency as a property right, which survives the termination of the necessity. A voluntary easement of right of way, like any other contract, could be extinguished only by mutual agreement or by renunciation of the owner of the dominant estate. Neither can petitioner claim that the easement is personal only to Hidalgo since the annotation merely mentioned Sandico and Hidalgo without equally binding their heirs or assigns. That the heirs or assigns of the parties were not mentioned in the annotation does not mean that it is not binding on them. Again, a voluntary easement of right of way is like any other contract. As such, it is generally effective between the parties, their heirs and assigns, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. Petitioner cites City of Manila v. Entote in justifying that the easement should bind only the parties mentioned therein and exclude those not so mentioned. However, that case is inapplicable since the issue therein was whether the easement was intended not only for the benefit of the owners of the dominant estate but of the community and the public at large. In interpreting the easement, the Court ruled that the clause ―any and all other persons whomsoever‖ in the easement embraces only ―those who are privy to the P a g e | 34 owners of the dominant estate, Lots 1 and 2 Plan Pcs-2672‖ and excludes ―the indiscriminate public from the enjoyment of the right-of-way easement.‖ Although the easement does not appear in respondents‘ title over the dominant estate, the same subsists. It is settled that the registration of the dominant estate under the Torrens system without the annotation of the voluntary easement in its favor does not extinguish the easement. On the contrary, it is the registration of the servient estate as free, that is, without the annotation of the voluntary easement, which extinguishes the easement. Finally, the mere fact that respondents subdivided the property does not extinguish the easement. Article 618 of the Civil Code provides that if the dominant estate is divided between two or more persons, each of them may use the easement in its entirety, without changing the place of its use, or making it more burdensome in any other way. Unisource Commercial and Development Corporation vs. Joseph Chung, et al., G.R. No. 173252, July 17, 2009. Easement. The owner of the dominant estate cannot violate any of the following prescribed restrictions on its rights on the servient estate, to wit: (1) it can only exercise rights necessary for the use of the easement; (2) it cannot use the easement except for the benefit of the immovable originally contemplated; (3) it cannot exercise the easement in any other manner than that previously established; (4) it cannot construct anything on it which is not necessary for the use and preservation of the easement; (5) it cannot alter or make the easement more burdensome; (6) it must notify the servient estate owner of its intention to make necessary works on the servient estate; and (7) it should choose the most convenient time and manner to build said works so as to cause the least convenience to the owner of the servient estate. Any violation of the above constitutes impairment of the easement. Golderes Realty Corp. Vs. Cypress Gardens etc., G.R. No. 171072, April 7, 2009. DONATIONS Donation. It is immediately apparent that Rodrigo passed naked title to Rodriguez under a perfected donation inter vivos. First. Rodrigo stipulated that ―if the herein Donee predeceases me, the [Property] will not be reverted to the Donor, but will be inherited by the heirs of x x x Rodriguez,‖ signaling the irrevocability of the passage of title to Rodriguez‘s estate, waivi ng Rodrigo‘s right to reclaim title. This transfer of title was perfected the moment Rodrigo learned of Rodriguez‘s acceptance of the disposition which, being reflected in the Deed, took place on the day of its execution on 3 May 1965. Rodrigo‘s acceptance of the transfer underscores its essence as a gift in presenti, not in futuro, as only donations inter vivos need acceptance by the recipient. Indeed, had Rodrigo wished to retain full title over the Property, she could have easily stipulated, as the testator did in another case, that ―the donor, may transfer, sell, or encumber to any person or entity the properties here donated x x x‖ or used words to that effect. Instead, Rodrigo expressly waived title over the Property in case Rodriguez predeceases her. Gonzalo Villanueva, represented by his heirs vs. Spouses Froilan and Leonila Branoco; G.R. No. 172804, January 24, 2011. III. WILLS AND SUCCESSION Donation mortis causa. A donation mortis causa must comply with the formalities prescribed by law for the validity of wills, otherwise, the donation is void and would produce no effect. Articles 805 and 806 of the Civil Code should be applied. In this case, the purported attestation clause embodied in the Acknowledgment portion did not contain the number of pages on which the deed was written. The exception to this rule in Singson v. Florentino and Taboada v. Hon. Rosal cannot be applied to the present case, as the facts of this case are not similar with those of Singson and Taboada. In those cases, the Court found that although the attestation clause failed to state the number of pages upon which the will was written, the number of pages was stated in one portion of the will. This is not the factual situation in the present case. Even granting that the Acknowledgment embodies what the attestation clause requires, an attestation clause and an acknowledgment may not be merged in one statement. That the requirements of attestation and acknowledgment are embodied in two separate provisions of the Civil Code (Articles 805 and 806, respectively) indicates that the law contemplates two distinct acts that serve different purposes. An acknowledgment is made by one executing a deed, declaring before a competent officer or court that the deed or act is his own. On the other hand, the attestation of a will refers to the act of the instrumental witnesses themselves who certify to the execution of the instrument before them and to the manner of its execution. Although the witnesses in the present case acknowledged the execution of the Deed of Donation Mortis Causa before the notary public, this is not the avowal the law requires from the instrumental witnesses to the execution of a decedent‘s will. An P a g e | 35 attestation must state all the details the third paragraph of Article 805 requires. In the absence of the required avowal by the witnesses themselves, no attestation clause can be deemed embodied in the Acknowledgement of the Deed of Donation Mortis Causa. Manuel A. Echavez vs. Dozen Construction and Development Corp. and The Register of Deeds, Cebu City; G.R. No. 192916. October 11, 2010. Donation mortis causa vs. donation inter vivos. That a document is captioned ―Donation Mortis Causa‖ is not controlling. If a donation by its terms is inter vivos, this character is not altered by the fact that the donor styles it mortis causa. ―Irrevocability‖ is a quality absolutely incompatible with the idea of conveyances mortis causa, where ―revocability‖ is precisely the essence of the act. A donation mortis causa has the following characteristics: 1. It conveys no title or ownership to the transferee before the death of the transferor; or, what amounts to the same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive; 2. That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed; and 3. That the transfer should be void if the transferor should survive the transferee. In this case, the donors plainly said that it is ―our will that this Donation Mortis Causa shall be irrevocable and shall be respected by the surviving spouse.‖ The intent to make the donation irrevocable becomes even clearer by the proviso that a surviving donor shall respect the irrevocability of the donation. Consequently, the donation was in reality a donation inter vivos. The donors in this case of course reserved the ―right, ownership, possession, and administration of the property‖ and made the donation operative upon their death. But this Court has consistently held that such reservation (reddendum) in the context of an irrevocable donation simply means that the donors parted with their naked title, maintaining only beneficial ownership of the donated property while they lived. Notably, the three donees signed their acceptance of the donation, which acceptance the deed required. This Court has held that an acceptance clause indicates that the donation is inter vivos, since acceptance is a requirement only for such kind of donations. Donations mortis causa, being in the form of a will, need not be accepted by the donee during the donor‘s lifetime. Finally, as Justice J. B. L. Reyes said in Puig v. Peñaflorida, in case of doubt, the conveyance should be deemed a donation inter vivos rather than mortis causa, in order to avoid uncertainty as to the ownership of the property subject of the deed. Since the donation in this case was one made inter vivos, it was immediately operative and final. The reason is that such kind of donation is deemed perfected from the moment the donor learned of the donee‘s acceptance of the donation. The acceptance makes the donee the absolute owner of the property donated. Jarabini G. Del Rosario vs. Asuncion F. Ferrer, et al., G.R. No. 187056, September 20, 2010. Succession; waiver of inheritance. The basic questions to be resolved in this case are: Is a waiver of hereditary rights in favor of another executed by a future heir while the parents are still living valid? Is an adverse claim annotated on the title of a property on the basis of such waiver likewise valid and effective as to bind the subsequent owners and hold them liable to the claimant? Pursuant to the second paragraph of Article 1347 of the Civil Code, no contract may be entered into upon a future inheritance except in cases expressly authorized by law. For the inheritance to be considered ―future‖, the succession must not have been opened at the time of the contract. A contract may be classified as a contract upon future inheritance, prohibited under the second paragraph of Article 1347, where the following requisites concur: (1) the succession has not yet been opened., (2) the object of the contract forms part of the inheritance; and (3) the promissor has, with respect to the object, an expectancy of a right which is purely hereditary in nature. In this case, there is no question that at the time of execution of Comandante‘s Waiver of Hereditary Rights and Interest Over a Real Property (Still Undivided), succession to either of her parent‘s properties has not yet been opened since both of them are still living. With respect to the other two requisites, both are likewise present considering that the property subject matter of Comandante‘s waiver concededly forms part of the properties that she expect to inherit from her parents upon their death and, such expectancy of a right, as shown by the facts, is undoubtedly purely hereditary in nature. From the foregoing, it is clear that Comandante and petitioner entered into a contract involving the former‘s future inheritance as embodied in the Waiver of Hereditary Rights and Interest Over a Real Property (Still Undivided) executed by her in petitioner‘s favor. Guided by the above discussions, the court declares in this case that the Waiver of Hereditary Rights and Interest Over a Real Property (Still Undivided) executed by Comandante in P a g e | 36 favor of petitioner as not valid and that same cannot be the source of any right or create any obligation between them for being violative of the second paragraph of Article 1347 of the Civil Code. Anent the validity and effectivity of petitioner‘s adverse claim, it is provided in Section 70 of PD 1529, that it is necessary that the claimant has a right or interest in the registered land adverse to the registered owner and that it must arise subsequent to registration. Here, as no right or interest on the subject property flows from Comandante‘s invalid waiver of hereditary rights upon petitioner, the latter is thus not entitled to the registration of his adverse claim. Therefore, petitioner‘s adverse claim is without any basis and must consequently be adjudged invalid and ineffective and perforce be cancelled. Atty. Pedro M. Ferrer vs. Spouses Alfredo Diaz, et al., G.R. No. 165300, April 23, 2010. IV. LAND REGISTRATION Land titles; conflicting titles. As held in the case of Top Management Programs Corporation v. Luis Fajardo and the Register of Deeds of Las Piñas City: ―if two certificates of title purport to include the same land, whether wholly or partly, the better approach is to trace the original certificates from which the certificates of titles were derived.‖ Having, thus, traced the roots of the parties‘ respective titles supported by the records of the Register of Deeds of Malaybalay City, the courts a quo were correct in upholding the title of the Heirs of Adolfo as against TCT No. T-10567 of Bangis, notwithstanding its earlier issuance on August 18, 1976 or long before the Heirs of Adolfo secured their own titles on May 26, 1998. To paraphrase the Court‘s ruling in Mathay v. Court of Appeals: where two (2) transfer certificates of title have been issued on different dates, the one who holds the earlier title may prevail only in the absence of any anomaly or irregularity in the process of its registration, which circumstance does not obtain in this case. Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.; G.R. No. 190875, June 13, 2012. P.D. No. 1529; Torrens title; collateral attack. As for the spouses Decaleng‘s contention that Certificate of Title No. 1 does not exist, the Court fully agrees with the Court of Appeals that the same constitutes a collateral attack of Certificate of Title No. 1. It is a hornbook principle that ―a certificate of title serves as evidence of an indefeasible title to the property in favor of the person whose name appears therein.‖ In order to establish a system of registration by which recorded title becomes absolute, indefeasible, and imprescriptible, the legislature passed Act No. 496, which took effect onFebruary 1, 1903. Act No. 496 placed all registered lands in the Philippines under the Torrens system. The Torrens system requires the government to issue a certificate of title stating that the person named in the title is the owner of the property described therein, subject to liens and encumbrances annotated on the title or reserved by law. The certificate of title is indefeasible and imprescriptible and all claims to the parcel of land are quieted upon issuance of the certificate. Presidential Decree No. 1529, known as the Property Registration Decree, enacted on June 11, 1978, amended and updated Act No. 496. Section 48 of Presidential Decree No. 1529 provides: Section 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law. A Torrens title cannot be attacked collaterally, and the issue on its validity can be raised only in an action expressly instituted for that purpose. A collateral attack is made when, in another action to obtain a different relief, the certificate of title is assailed as an incident in said action. Sps. Ambrosio Decaleng [as substituted by his heirs] and Julia “Wanay” Decaleng vs. Bishop of the Missionary District of Protestant Episcopal Church in the United States of America, et al. ; G.R. No. 171209 & UDK-13672. June 27, 2012 P.D. No. 1529; Torrens title; collateral attack; indefeasibility of title vs. possession. In Soriente v. Estate of the Late Arsenio E. Concepcion, a similar allegation – possession of the property in dispute since time immemorial – was met with rebuke as such possession, for whatever length of time, cannot prevail over a Torrens title, the validity of which is presumed and immune to any collateral attack. ―The validity of respondent‘s certificate of title cannot be attacked by petitioner in this case for ejectment. Under Section 48 of Presidential Decree No. 1529, a certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled, except in a direct proceeding for that purpose in accordance with law. The issue of the validity of the title of the respondents can only be assailed in an action expressly instituted for that purpose. Whether or not petitioner has the right to claim ownership over the property is beyond the power of the trial court to determine in an action for unlawful detainer.‖ Given the foregoing, the petitioners‘ attempt to remain in possession by casting a cloud on the respondents‘ title cannot prosper. P a g e | 37 Neither will the sheer lapse of time legitimize the petitioners‘ refusal to vacate the subject area or bar the respondents from gaining possession thereof. As ruled in Spouses Ragudo v. Fabella Estate Tenants Association, Inc., laches does not operate to deprive the registered owner of a parcel of land of his right to recover possession thereof. Heirs of Jose Maligaso, Sr., etc. vs. Sps. Simon D. Encinas and Esperanza E. Encinas; G.R. No. 182716, June 20, 2012. Land registration. Section 14(1) of the Property Registration Decree has three requisites for registration of title: (a) that the property in question is alienable and disposable land of the public domain; (b) that the applicants by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation; and (c) that such possession is under a bona fide claim of ownership since June 12, 1945 or earlier. A similar right is granted under Sec. 48(b) of the Public Land Act. There are no material differences between Sec. 14(1) of the Property Registration Decree and Sec. 48(b) of the Public Land Act. Sec. 14(1) operationalizes the registration of such lands of the public domain. Here, the only reason the CA gave in reversing the decision of the MeTC is that Victoria failed to submit the November 6, 2006 Certification issued by the DENR, verifying the subject property as within the alienable and disposable land of the public domain, during the hearing before the MeTC. She belatedly submitted it on appeal. To prove that the land subject of the application for registration is alienable, an applicant must establish the existence of a positive act of the government such as a presidential proclamation or an executive order; an administrative action; investigation reports of Bureau of Lands investigators; and a legislative act or statute. The applicant may secure a certification from the government that the lands applied for are alienable and disposable, but the certification must show that the DENR Secretary had approved the land classification and released the land of the pubic domain as alienable and disposable, and that the land subject of the application for registration falls within the approved area per verification through survey by the PENRO or CENRO. The applicant must also present a copy of the original classification of the land into alienable and disposable, as declared by the DENR Secretary or as proclaimed by the President. In Llanes v. Republic, the Court allowed consideration of a CENRO Certification though it was only presented during appeal to the CA to avoid a patent unfairness. The rules of procedure being mere tools designed to facilitate the attainment of justice, the Court is empowered to suspend their application to a particular case when its rigid application tends to frustrate rather than promote the ends of justice. Denying the application for registration now on the ground of failure to present proof of the status of the land before the trial court and allowing Victoria to re-file her application would merely unnecessarily duplicate the entire process, cause additional expense and add to the number of cases that courts must resolve. It would be more prudent to recognize the DENR Certification and resolve the matter now. Besides, the record shows that the subject property was covered by a cadastral survey of Taguig conducted by the government at its expense. Such surveys are carried out precisely to encourage landowners and help them get titles to the lands covered by such survey. It does not make sense to raise an objection after such a survey that the lands covered by it are inalienable land of the public domain, like a public forest. This is the City of Taguig in the middle of the metropolis. The CA also erred in not affirming the decision of the MeTC especially since Victoria has, contrary to the Solicitor General‘ s allegation, proved that she and her predecessors-in-interest had been in possession of the subject lot continuously, uninterruptedly, openly, publicly, adversely and in the concept of owners since the early 1940s. In fact, she has submitted tax declarations covering the land way back in 1948 that appeared in her father‘s name. Natividad Sts. Ana Victoria v. Republic of the Philippines, G.R. No. 179673. June 8, 2011 R.A. No. 26; reconstitution of title. The non-compliance with the requirements prescribed in Sections 12 and 13 of R.A. No. 26 is fatal. Hence, the trial court did not acquire jurisdiction over the petition for reconstitution. The Supreme Court, as early as 1982, ruled that Republic Act No. 26 entitled ―An act providing a special procedure for the reconstitution of Torrens Certificates of Title lost or destroyed‖ approved on September 25, 1946 confers jurisdiction or authority to the Court of First Instance to hear and decide petitions for judicial reconstitution. The Act specifically provides the special requirements and mode of procedure that must be followed before the court can properly act, assume and acquire jurisdiction or authority over the petition and grant the reconstitution prayed for. These requirements and procedure are mandatory. The Petition for Reconstitution must allege certain specific jurisdictional facts; the notice of hearing must be published in the Official Gazette and posted in particular places and the same sent or notified to specified persons. Sections 12 and 13 of the Act provide specifically the mandatory requirements and procedure to be followed. These defects are not just ―technical.‖ Liberal construction of the Rules of Court does not apply to land registration cases. Indeed, to further underscore the mandatory character of these jurisdictional requirements, the Rules of Court do not apply to land registration cases. In all cases where the authority of the courts to proceed is conferred by a statute, and when the manner of obtaining jurisdiction is prescribed by a statute, the mode of proceeding is mandatory, and must be strictly complied with, P a g e | 38 or the proceeding will be utterly void When the trial court lacks jurisdiction to take cognizance of a case, it lacks authority over the whole case and all its aspects. All the proceedings before the trial court, including its order granting the petition for reconstitution, are void for lack of jurisdiction. Bienbenido Castillo vs. Republic of the Philippines, G.R. No. 182980. June 22, 2011 Land; alienable and disposable character; sufficient evidence. The Advance Plans and Consolidated Plans are hardly the competent pieces of evidence that the law requires. The notation by a geodetic engineer on the survey plans that properties are alienable and disposable does not suffice to prove these lands‘ classification. Republic v. T.A.N. Properties, Inc. directs that: [T]he applicant for registration must present a copy of the original classification approved by the DENR Secretary and certified as a true copy by the legal custodian of the official records. These facts must be established to prove that the land is alienable and disposable. Respondent failed to do so because the certifications presented by respondent do not, by themselves, prove that the land is alienable and disposable. (emphasis and underscoring supplied) Union Leaf Tobacco Corp., Rep. its Pres. Mr. Hilarion P. Uy v. Republic of the Philippines, G.R. No. 185683. March 16, 2011 P.D. No. 1529; alterations to titles. Petitioner is seeking relief under the provisions of Section 108 of PD No. 1529, otherwise known as the Property Registration Decree (formerly Section 112 of Act No. 496, otherwise known as the Land Registration Act) which provides as follows: Section 108. Amendment and alteration of certificates. No erasure, alteration, or amendment shall be made upon the registration book after the entry of a certificate of title or of a memorandum thereon and the attestation of the same by the Register of Deeds, except by order of the proper Court of First Instance. A registered owner or other person having an interest in registered property, or, in proper cases, the Register of Deeds with the approval of the Commissioner of Land Registration, may apply by petition to the court upon the ground that the registered interests of any description, whether vested, contingent, expectant or inchoate appearing on the certificate, have terminated and ceased; or that new interest not appearing upon the certificate have arisen or been created; or that an omission or error was made in entering a certificate or any memorandum thereon, or, on any duplicate certificate; or that the same or any person on the certificate has been changed; or that the registered owner has married, or, if registered as married, that the marriage has been terminated and no right or interests of heirs or creditors will thereby be affected; or that a corporation which owned registered land and has been dissolved has not convened the same within three years after its dissolution; or upon any other reasonable ground; and the court may hear and determine the petition after notice to all parties in interest, and may order the entry or cancellation of a new certificate, the entry or cancellation of a memorandum upon a certificate, or grant any other relief upon such terms and conditions, requiring security or bond if necessary, as it may consider proper; Provided, however, That this section shall not be construed to give the court authority to reopen the judgment or decree of registration, and that nothing shall be done or ordered by the court which shall impair the title or other interest of a purchaser holding a certificate for value and in good faith, or his heirs and assigns, without his or their written consent. Where the owner‘s duplicate certificate is not presented, a similar petition may be filed as provided in the preceding section. All petitions or motions filed under this Section as well as under any other provision of this Decree after original registration shall be filed and entitled in the original case in which the decree or registration was entered. While the abovequoted section, among other things, authorizes a person in interest to ask the court for any erasure, alteration, or amendment of a certificate of title or of any memorandum appearing therein, the prevailing rule is that proceedings thereunder are summary in nature, contemplating corrections or insertions of mistakes which are only clerical but certainly not controversial issues.Relief under the said legal provision can only be granted if there is unanimity among the parties, or that there is no adverse claim or serious objection on the part of any party in interest. In the present case, there is no question that there is a serious objection and an adverse claim on the part of an interested party as shown by respondent‘s opposition and motion to dismiss the petition for correction of entry filed by petitioner. The absence of unanimity among the parties is also evidenced by respondent‘s action for damages and annulment of petitioner‘s title over the subject parcel of land docketed as Civil Case No. 414-M-97. In fact, the RTC, in its decision in Civil Case No. 414-M-97, found partial merit in respondent‘s action so much so that it ordered the cancellation of the TCT covering the subject property in the name of petitioner. The RTC made a categorical finding that the subject Certificate of Sale was not registered with the Register of Deeds of Bulacan leading to the conclusion that the one-year period within which respondent may exercise his right of redemption shall begin to run only after the said Certificate of Sale has been registered. Thus, petitioner may not avail of the remedy provided for under Section 108 of P.D. No. 1529. In view of the established fact that the Certificate of Sale covering the subject property was not registered, and considering that there is nothing which prohibits petitioner from registering the said Certificate of Sale, its most logical and expedient P a g e | 39 recourse then is to register the same with the Register of Deeds of Bulacan. Philippine Veterans Bank v. Ramon Valenzuela, G.R. No. 163530, March 9, 2011. P.D. No. 1529; requisites of registration of title. Based on these legal parameters, applicants for registration of title under Section 14(1) must sufficiently establish: (1) that the subject land forms part of the disposable and alienable lands of the public domain; (2) that the applicant and his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of the same; and (3) that it is under a bona fide claim of ownership since June 12, 1945, or earlier. These the respondents must prove by no less than clear, positive and convincing evidence. Republic of the Philippines vs. Juanito Manimtim, et al., G.R. No. 169599, March 16, 2011 P.D. No. 1529; requisites for registration of title. Existing law and jurisprudence provides that an applicant for judicial confirmation of imperfect title must prove compliance with Section 14 of Presidential Decree (P.D.) No. 1529 or the Property Registration Decree. The pertinent portions of Section 14 provide: SEC. 14. Who may apply.—The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: (1) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. (2) Those who have acquired ownership of private lands by prescription under the provisions of existing laws. x x x x Under Section 14 (1), applicants for registration of title must sufficiently establish first, that the subject land forms part of the disposable and alienable lands of the public domain; second, that the applicant and his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of the same; and third, that it is under a bona fide claim of ownership since June 12, 1945, or earlier. Republic of the Philippines v. Teodoro P. Rizalvo, Jr., G.R. No. 172011, March 7, 2011. Public Land Act. Under Section 48(b) of the Public Land Act, as amended by P.D. 1073, in order that petitioners‘ application for registration of title may be granted, they must first establish the following: (1) that the subject land forms part of the disposable and alienable lands of the public domain and (2) that they have been in open, continuous, exclusive and notorious possession and occupation of the same under a bona fide claim of ownership, since June 12, 1945, or earlier. Applicants must overcome the presumption that the land they are applying for is part of the public domain and that they have an interest therein sufficient to warrant registration in their names arising from an imperfect title. Vicente Yu Chang and Soledad Yu Chang v. Republic of the Philippines; G.R. No. 171726. February 23, 2011. Reconstitution of title, Republic Act No. 26. The reconstitution of a certificate of title denotes restoration in the original form and condition of a lost or destroyed instrument attesting the title of a person to a piece of land. The purpose of the reconstitution of title is to have, after observing the procedures prescribed by law, the title reproduced in exactly the same way it has been when the loss or destruction occurred. The lost or destroyed document referred to is the one that is in the custody of the Register of Deeds. When reconstitution is ordered, this document is replaced with a new one—the reconstituted title—that basically reproduces the original. After the reconstitution, the owner is issued a duplicate copy of the reconstituted title. This is specifically provided under Section 16 of Republic Act No. 26, An Act Providing a Special Procedure for the Reconstitution of Torrens Certificates of Title Lost or Destroyed, which states: Sec. 16. After the reconstitution of a certificate of title under the provisions of this Act, the register of deeds shall issue the corresponding owner‘s duplicate and the additional copies of said certificates of title, if any had been previously issued, where such owner‘s duplicate and/or additional copies have been destroyed or lost. This fact shall be noted on the reconstituted certificate of title. Petitioner went to great lengths to convince the CA that the order for the issuance of a duplicate title to respondents was included in its appeal. We find such exercise unnecessary. The CA should not have been quick in declaring that such order had already become final and executory. It really does not matter if petitioner did not specifically question the order for the issuance of a new owner‘s duplicate title. The fact that petitioner prayed for the dismissal of the petition for reconstitution meant that it was questioning the order for reconstitution and all orders corollary thereto. The trial court‘s order for the Register of Deeds to issue a new duplicate P a g e | 40 certificate of title was only an offshoot of its having granted the petition for reconstitution of title. Without the order for reconstitution, the order to issue a new owner‘s duplicate title had no leg to stand on. More importantly, it would have been impossible for the Register of Deeds to comply with such order. The Register of Deeds cannot issue a duplicate of a document that it does not have. The original copy of the certificate of title was burned, and the Register of Deeds does not have a reconstituted title. Thus, it does not have a certificate of title that it can reproduce as the new owner‘s duplicate title. Republic of the Philippines v. Candido Vergel de Dios, et al.; G.R. No. 170459. February 9, 2011. Property registration; proof of alienable character; proof of possession. Under the Regalian doctrine, all lands of the public domain belong to the State. All lands not appearing to be clearly within private ownership are presumed to belong to the State. The burden of proof in overcoming the presumption of State ownership of the lands of the public domain is on the person applying for registration (or claiming ownership). To overcome this presumption, incontrovertible evidence must be established that the land subject of the application (or claim) is alienable or disposable. To support its contention that the land subject of the application for registration is alienable, respondents presented the survey plan with the following annotation: This survey is inside L.C. Map No. 2623 Proj. No. 27-B clasified as alienable/disposable by the Bureau of Forest Development, Quezon City on Jan. 03, 1968. The surveyor‘s annotation presented by respondents is not the kind of proof required by law to prove that the subject land falls within the alienable and disposable zone. Respondents failed to submit a certification from the proper government agency to establish that the subject land are part of the alienable and disposable portion of the public domain. In the absence of incontrovertible evidence to prove that the subject property is already classified as alienable and disposable, we must consider the same as still inalienable public domain. Anent respondents‘ possession and occupation of the subject property, a reading of the records failed to show that the respondents by themselves or through their predecessors-in-interest possessed and occupied the subject land since June 12, 1945 or earlier. The evidence submitted by respondents to prove their possession and occupation over the subject property consists of the testimonies of Jose and Amado Geronimo (Amado), the tenant of the adjacent lot. However, their testimonies failed to establish respondents‘ predecessors-in-interest‘ possession and occupation of subject property since June 12, 1945 or earlier. But Jose and Amado‘s testimonies consist merely of general statements with no specific details as to when respondents‘ predecessors-in-interest began actual occupancy of the land subject of this case. It is a rule that general statements that are mere conclusions of law and not factual proof of possession are unavailing and cannot suffice. An applicant in a land registration case cannot just harp on mere conclusions of law to embellish the application but must impress thereto the facts and circumstances evidencing the alleged ownership and possession of the land. Respondents‘ earliest evidence can be traced back to a tax declaration issued in the name of their predecessors-in-interest only in the year 1949. At best, respondents can only prove possession since said date. What is required is open, exclusive, continuous and notorious possession by respondents and their predecessors-in-interest, under a bona fide claim of ownership, since June 12, 1945 or earlier. Well settled is the rule that tax declarations and receipts are not conclusive evidence of ownership or of the right to possess land when not supported by any other evidence. Vitarich Corporation vs. Chona Locsin, G.R. No. 171631, November 15, 2010. Property; registration; ancestral lands. The application for issuance of a Certificate of Ancestral Land Title pending before the NCIP is akin to a registration proceeding. It also seeks an official recognition of one‘s claim to a particular land and is also in rem. The titling of ancestral lands is for the purpose of ―officially establishing‖ one‘s land as an ancestral land. Just like a registration proceeding, the titling of ancestral lands does not vest ownership upon the applicant but only recognizes ownership that has already vested in the applicant by virtue of his and his predecessor-in-interest‘s possession of the property since time immemorial. A registration proceeding is not a conclusive adjudication of ownership. In fact, if it is later on found in another case (where the issue of ownership is squarely adjudicated) that the registrant is not the owner of the property, the real owner can file a reconveyance case and have the title transferred to his name. Delfin Lamsis, et al. vs. Margarita Semon Dong-e;G.R. No. 173021, October 20, 2010. Property; registration requirements. Based on these legal parameters, applicants for registration of title under Section 14(1) must sufficiently establish: (1) that the subject land forms part of the disposable and alienable lands of the public domain; (2) that the applicant and his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of the same; and (3) that it is under a bona fide claim of ownership since June 12, 1945, or earlier. P a g e | 41 Thus, before an applicant can adduce evidence of open, continuous, exclusive and notorious possession and occupation of the property in question, he must first prove that the land belongs to the alienable and disposable lands of the public domain. It is doctrinal that, under the Regalian doctrine, all lands of the public domain pertain to the State and the latter is the foundation of any asserted right to ownership in land. Accordingly, the State presumably owns all lands not otherwise appearing to be clearly within private ownership. To overcome such presumption, irrefutable evidence must be shown by the applicant that the land subject of registration has been declassified and now belongs to the alienable and disposable portion of the public domain. Republic of the Philippines vs. Jose T. Ching represented by his Attorney-in-fact, Antonio V. Ching; G.R. No. 186166, October 20, 2010. Property Registration Decree; levy on execution versus subsequent registration of sale. The Supreme Court in this case ruled on the issue of whether or not a levy on execution is superior to the subsequent registration of a deed of sale. It held that a prior registration of a lien creates a preference even though the sale of the land to petitioner took place before the judgment of the trial court in favor of a party and the issuance of the writ of execution over the property in question. Failure to register the sale with the Register of Deeds negated any priority which the buyer may have acquired by virtue of the earlier sale. Elementary is the rule that it is the act of registration which gives validity to transfer or liens created upon land registered under the Torrens System. This is clear in Section 51 and Section 52 of Presidential Decree No. 1529, also known as the Property Registration Decree. Considering that the sale was not registered earlier, the right of petitioner over the land became subordinate and subject to the preference created over the earlier annotated levy in favor of Swift. The levy of execution registered and annotated on September 1, 1998 takes precedence over the sale of the land to petitioner on February 16, 1997, despite the subsequent registration on September 14, 1998 of the prior sale. Such preference in favor of the levy on execution retroacts to the date of levy for to hold otherwise will render the preference nugatory and meaningless. The Supreme Court had made a similar ruling in Valdevieso v. Damalerio. Jay Hidalgo Uy vs. Spouses Francisco Medina and Natividad Medina, et al., G.R. No. 172541, August 8, 2010. Property Registration Decree; possession of land; impact of tax declarations and tax payments. In an original registration of title under Section 14(1)] P.D. No. 1529, the applicant for registration must be able to establish by evidence that he and his predecessor-in-interest have exercised acts of dominion over the lot under a bona fide claim of ownership since June 12, 1945 or earlier. He must prove that for at least 30 years, he and his predecessor have been in open, continuous, exclusive and notorious possession and occupation of the land. From the records, it is clear that respondents‘ possession through their predecessor-in-interest dates back to as early as 1937. In that year, the subject property had already been declared for taxation by Zenaida‘s father, Sergio, jointly with a certain Toribia Miranda (Toribia). Yet, it also can be safely inferred that Sergio and Toribia had declared the land for taxation even earlier because the 1937 tax declaration shows that it offsets a previous tax number. The property was again declared in 1979, 1985 and 1994 by Sergio, Toribia and by Romualdo. Certainly, respondents could have produced more proof of this kind had it not been for the fact that, as certified by the Office of the Rizal Provincial Assessor, the relevant portions of the tax records on file with it had been burned when the assessor‘ s office was razed by fire in 1997. Of equal relevance is the fact that with these tax assessments, there came next tax payments. Respondents‘ receipts for tax expenditures on Lot Nos. 4 and 5 between 1977 and 2001 are likewise fleshed out in the records and in these documents, Sergio, Toribia and Romualdo are the named owners of the property with Zenaida being identified as the one who delivered the payment in the 1994 receipts. The foregoing evidentiary matters and muniments clearly show that Zenaida‘s testimony in this respect is no less believable. And the unbroken chain of positive acts exercised by respondents‘ predecessors, as demonstrated by these pieces of evidence, yields no other conclusion than that as early as 1937, they had already demonstrated an unmistakable claim to the property. Not only do they show that they had excluded all others in their claim but also, that such claim is in all good faith. Land registration proceedings are governed by the rule that while tax declarations and realty tax payment are not conclusive evidence of ownership, nevertheless, they are a good indication of possession in the concept of owner. These documents constitute at least proof that the holder has a claim of title over the property, for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. The voluntary declaration of a piece of property for taxation purposes manifests not only one‘s sincere and honest desire to obtain title to the property. It also announces his adverse claim against the state and all other parties who may be in conflict with his interest. More importantly, it signifies an unfeigned intention to contribute to government revenues—an act that strengthens one‘s bona fide claim of acquisition of ownership. Indeed, that respondents herein have been in possession of the land in the concept of owner—open, continuous, peaceful and without interference and opposition from the government or from any private individual—itself makes their right thereto unquestionably settled and, hence, deserving of protection under the law. Republic of the Philippines vs. Zenaida Guinto, in her own behalf and as Attorney-in-fact of Ma. Aurora Guinto-Comiso, et al., G.R. No. 175578, August 11, 2010. P a g e | 42 Property Registration Decree; title indefeasible under Torren System; right to eject cannot be barred by laches. OCT No. P- 3030 was declared valid by the trial court, and respondents do not question the title‘s validity. Under the Torrens System of registration, an OCT becomes indefeasible and incontrovertible one year after its final decree. It is a fundamental principle in land registration that the certificate of title serves as evidence of an indefeasible and incontrovertible title to a property in favor of the person whose name appears therein. The trial court‘s ruling that petitioner had a long and unexplained inaction in asserting his claim over the subject property, and hence, is barred by laches from recovering his property, is without basis. Petitioner has a valid title over his property (i.e., the land covered by OCT P-3030). As a registered owner, petitioner has a right to eject any person illegally occupying his property. This right is imprescriptible and can never be barred by laches. Gaudencio Labrador represented by Lulu Labrador Uson as Attorney-in-Fact vs. Spouses Ildefonso Perlas and Pacencia Perlas, et al., G.R. No. 173900, August 8, 2010. Property Registration Decree; title indefeasible under Torrens System; tax declaration. A decree of registration is conclusive upon all persons, including the Government of the Republic and all its branches, whether or not mentioned by name in the application for registration or its notice. Indeed, title to the land, once registered, is imprescriptible. No one may acquire it from the registered owner by adverse, open, and notorious possession. Thus, to a registered owner under the Torrens system, the right to recover possession of the registered property is equally imprescriptible since possession is a mere consequence of ownership. Here, the existence and genuineness of the Mendozas‘ title over the property has not been disputed. That the City Government of Lipa tax-declared the property and its improvements in its name cannot defeat the Mendozas‘ title. The Supreme Court has allowed tax declarations to stand as proof of ownership only in the absence of a certificate of title. Otherwise, they have little evidentiary weight as proof of ownership. Republic of the Philippines vs. Primo Mendoza and Maria Lucero, G.R. No. 185091, August 8, 2010. Property; land included in title by mistake. Settled is the rule that a person, whose certificate of title included by mistake or oversight the land owned by another, does not become the owner of such land by virtue of the certificate alone. The Torrens System is intended to guarantee the integrity and conclusiveness of the certificate of registration but is not intended to perpetrate fraud against the real owner of the land. The certificate of title cannot be used to protect a usurper from the true owner. Spouses Federico Valenzuela and Luz Buena-Valenzuela Vs. Spouses Jose Mano , Jr. and Rosanna Reyes-Mano, G.R. No. 172611, July 9, 2010. Property registration; requirements. An application for registration of title must, under Section 14(1), P.D. 1529, meet three requirements: a) that the property is alienable and disposable land of the public domain; b) that the applicants by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of the land; and c) that such possession is under a bona fide claim of ownership since June 12, 1945 or earlier. Under the Regalian doctrine, all lands of the public domain belong to the State and the latter is the source of any asserted right to ownership in land. Thus, the State presumably owns all lands not otherwise appearing to be clearly within private ownership. To overcome such presumption, incontrovertible evidence must be shown by the applicant that the land subject of registration is alienable and disposable. Respecting the third requirement, the applicant bears the burden of proving the status of the land. In this connection, the Court has held that he must present a certificate of land classification status issued by the Community Environment and Natural Resources Office (CENRO) or the Provincial Environment and Natural Resources Office (PENRO) of the DENR. He must also prove that the DENR Secretary had approved the land classification and released the land as alienable and disposable, and that it is within the approved area per verification through survey by the CENRO or PENRO. Further, the applicant must present a copy of the original classification approved by the DENR Secretary and certified as true copy by the legal custodian of the official records. These facts must be established by the applicant to prove that the land is alienable and disposable. Republic of the Philippines vs. Rosila Roche, G.R. No. 175846, July 6, 2010. Property registration; who may apply. As the law now stands, a mere showing of possession and occupation for 30 years or more is not sufficient. Therefore, since the effectivity of P.D. 1073 on January 25, 1977, it must now be shown that possession and occupation of the piece of land by the applicant, by himself or through his predecessors-in-interest, started on June 12, 1945 or earlier. This provision is in total conformity with Section 14 (1) of P.D. 1529. Thus, pursuant to the aforequoted provisions of law, applicants for registration of title must prove: (1) that the subject land forms part of the disposable and alienable lands of the public domain, and (2) that they have been in open, continuous, exclusive and notorious possession and occupation of the same under a bona fide claim of ownership since June 12, 1945, or earlier. Republic of the Philippines vs. Hanover Worldwide Trading Corporation, G.R. No. 172102, July 2, 2010. Property registration; Torrens System; inclusion of property in title by error or fraud. See entry for Spouses Federico Valenzuela and Luz Buena-Valenzuela Vs. Spouses Jose Mano , Jr. and Rosanna Reyes-Mano, G.R. No. 172611, July 9, 2010. P a g e | 43 Public Land Act. The matter and duration of the petitioners and their predecessors‘ possession are relevant in view of the petitioners‘ contention that they acquired ownership of Lot 1873 through prescription, i.e., the lapse of the requisite 30-year period provided in Article 1137 of the Civil Code. Article 1137 states: Article 1137. Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith. The petitioners‘ reliance on Article 1137 of the Civil Code is not entirely accurate. The petitioners alleged that Lot 1873 is an alienable and disposable land of the public domain. However, acquisition of ownership over alienable public lands is governed, not by the general provisions on prescription in the Civil Code, but more particularly, by Commonwealth Act No. 141 (CA 141) or the Public Land Act. Article 1137 of the Civil Code authorizes acquisition by prescription only of private lands, not of public lands even though these may have been decreed as alienable and disposable. Alienable and disposable lands of the public domain may be acquired by private persons, not by virtue of prescription but, through adverse possession, upon compliance with the requirements of Section 48(b) of CA 141. Thus, it is not the mere lapse of time that vests title over the land to the claimant; it is also necessary that the land be an alienable and disposable land of the public domain and that the claimant be in open, continuous, exclusive, and notorious possession of the land. Listed down, the acquisition through adverse possession of public lands requires the following: 1. the land applied for must be an alienable and disposable public land; and 2. the claimants, by themselves or through their predecessors-in-interest, have been in open, continuous, exclusive, and notorious possession and occupation of the land since June 12, 1945 or earlier. Heirs of Spouses Crispulo Ferrer and Engracia Puhawan, et al. vs. National Power Corporation, et al., G.R. No. 190384, July 5, 2010. Tenancy relationship. Tenancy relationship is a juridical tie which arises between a landowner and a tenant once they agree, expressly or impliedly, to undertake jointly the cultivation of a land belonging to the landowner, as a result of which relationship the tenant acquires the right to continue working on and cultivating the land. The existence of a tenancy relationship cannot be presumed and allegations that one is a tenant do not automatically give rise to security of tenure. For tenancy relationship to exist, the following essential requisites must be present: (1) the parties are the landowner and the tenant; (2) the subject matter is agricultural land; (3) there is consent between the parties; (4) the purpose is agricultural production; (5) there is personal cultivation by the tenant; and, (6) there is sharing of the harvests between the parties. All the requisites must concur in order to establish the existence of tenancy relationship, and the absence of one or more requisites is fatal. Vicente Adriano vs. Alice M. Tanco, et al., G.R. No. 168164. July 5, 2010. Sale; Double Sales; Need for Good Faith for Rules to Apply. See entry under Sale; Innocent Purchaser for Value. Sale; Innocent Purchaser for Value. It is the common defense of the respondent-purchasers that they each checked the title of the subject lot when it was his turn to acquire the same and found it clean, meaning without annotation of any encumbrance or adverse third party interest. And it is upon this postulate that each claims to be an innocent purchaser for value, or one who buys the property of another without notice that some other person has a right to or interest in it, and who pays therefor a full and fair price at the time of the purchase or before receiving such notice. The general rule is that one dealing with a parcel of land registered under the Torrens System may safely rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond the certificate. Where, in other words, the certificate of title is in the name of the seller, the innocent purchaser for value has the right to rely on what appears on the certificate, as he is charged with notice only of burdens or claims on the res as noted in the certificate. Another formulation of the rule is that (a) in the absence of anything to arouse suspicion or (b) except where the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or (c) when the purchaser has knowledge of a defect of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property, said purchaser is without obligation to look beyond the certificate and investigate the title of the seller. Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent purchasers for value or purchasers in good faith. For each knew or was at least expected to know that somebody else other than Gabriel, Jr. has a right or interest over the lot. This is borne by the fact that the initial seller, Gabriel Jr., was not in possession of subject property. With respect to Marcos and Benjamin, they knew as buyers that Bernard, the seller, was not also in possession of the same property. The same goes with Eduardo, as buyer, with respect to Marcos and Benjamin. P a g e | 44 Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other than the seller must be wary and should investigate the rights of those in possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a buyer in good faith. When a man proposes to buy or deal with realty, his duty is to read the public manuscript, i.e., to look and see who is there upon it and what his rights are. A want of caution and diligence which an honest man of ordinary prudence is accustomed to exercise in making purchases is, in contemplation of law, a want of good faith. The buyer who has failed to know or discover that the land sold to him is in adverse possession of another is a buyer in bad faith. Where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond the certificates of title and make inquiries concerning the rights of the actual possessor.And where, as in the instant case, Gabriel Jr. and the subsequent vendors were not in possession of the property, the prospective vendees are obliged to investigate the rights of the one in possession. Evidently, Bernard, Marcos and Benjamin, and Eduardo did not investigate the rights over the subject lot of the petitioners who, during the period material to this case, were in actual possession thereof. Bernard, et al. are, thus, not purchasers in good faith and, as such, cannot be accorded the protection extended by the law to such purchasers. Moreover, not being purchasers in good faith, their having registered the sale, will not, as against the petitioners, carry the day for any of them under Art. 1544 of the Civil Code prescribing rules on preference in case of double sales of immovable property. Occeña v. Esponilla laid down the following rules in the application of Art. 1544: (1) knowledge by the first buyer of the second sale cannot defeat the first buyer‘s rights except when the second buyer first register in good faith the second sale; and (2) knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010. Public Land Act; violation of five-year prohibitory period. Petitioners executed a document called a Deed of Confirmation and Quitclaim in favor of a certain Vicente Lazo whereby petitioners agreed to ―sell, cede, convey, grant, and transfer by way of QUITCLAIM‖ a parcel of land covered by an original certificate of title. The OCT had been issued pursuant to a homestead patent. Lazo then sold the property to the respondent. The latter later filed an action for ownership, quieting of title, partition and damages against petitioners, praying that he be declared as the true owner of the property. In answer, petitioners stated that they had not relinquished ownership or possession of the land to Lazo. While admitting that they executed the Deed of Confirmation and Quitclaim in favor of Lazo, petitioners claimed that they were misled into signing the same, with Lazo taking advantage of their lack of education.Without going into petitioners‘ allegation that they were unaware of the contents of the Deed of Confirmation and Quitclaim, we nonetheless hold that the deed is void for violating the five-year prohibitory period against alienation of lands acquired through homestead patent as provided under Section 118 of the Public Land Act. It bears stressing that the law was enacted to give the homesteader or patentee every chance to preserve for himself and his family the land that the State had gratuitously given to him as a reward for his labor in cleaning and cultivating it. Its basic objective, as the Court had occasion to stress, is to promote public policy, that is to provide home and decent living for destitutes, aimed at providing a class of independent small landholders which is the bulwark of peace and order. Hence, any act which would have the effect of removing the property subject of the patent from the hands of a grantee will be struck down for being violative of the law. To repeat, the conveyance of a homestead before the expiration of the five-year prohibitory period following the issuance of the homestead patent is null and void and cannot be enforced, for it is not within the competence of any citizen to barter away what public policy by law seeks to preserve. There is, therefore, no doubt that the Deed of Confirmation and Quitclaim, which was executed three years after the homestead patent was issued, is void and cannot be enforced. Julio Flores, et al. vs. Marciano Bagaoisan, G.R. No. 173365, April 15, 2010. Public Land Act; forest land. Forest lands are not registrable under CA 141. [E]ven more important, Section 48[b] of CA No. 141, as amended, applies exclusively to public agricultural land. Forest lands or area covered with forest are excluded. It is well-settled that forest land is incapable of registration; and its inclusion in a title, whether such title be one issued using the Spanish sovereignty or under the present Torrens system of registration, nullifies the title. However, it is true that forest lands may be registered when they have been reclassified as alienable by the President in a clear and categorical manner (upon the recommendation of the proper department head who has the authority to classify the lands of the public domain into alienable or disposable, timber and mineral lands) coupled with possession by the claimant as well as that of her predecessors-in- interest. Unfortunately for petitioner, she was not able to produce such evidence. Accordingly, her occupation thereof, and that of her predecessors-in-interest, could not have ripened into ownership of the subject land. This is because prior to the conversion of forest land as alienable land, any occupation or possession thereof cannot be counted in reckoning compliance with the thirty-year possession requirement under Commonwealth Act 141 (CA 141) or the Public Land Act. This was our ruling in Almeda v. CA. The rules on the confirmation of imperfect titles do not apply unless and until the land classified as forest land is released through an official proclamation to that effect. Then and only then will it form part of the disposable agricultural lands of the public domain. Florencia G. Diaz vs. Republic of the Philippines, G.R. No. 181502, February 2, 2010. Public Land Act; sale during five-year prohibition period. Section 118 of CA 141 clearly provides that lands which have been acquired under free patent or homestead shall not be encumbered or alienated within five years from the date of issuance of the patent or be liable for the satisfaction of any debt contracted prior to the expiration of the period. In the present case, the P a g e | 45 three loans were obtained on separate dates – 7 July 1979, 5 June 1981 and 3 September 1981, or several years before the free patents on the lots were issued by the government to respondent on 29 December 1982. The RTC of Manila, in a Decision dated 28 April 1983, ruled in favor of petitioner ordering the debtors, including respondent, to pay jointly and severally certain amounts of money. The public auction conducted by the sheriff on the lots owned by respondent occurred on 12 October 1984. For a period of five years or from 29 December 1982 up to 28 December 1987, Section 118 of CA 141 provides that the lots comprising the free patents shall not be made liable for the payment of any debt until the period of five years expires. In this case, the execution sale of the lots occurred less than two years after the date of the issuance of the patents. This clearly falls within the five-year prohibition period provided in the law, regardless of the dates when the loans were incurred. Metropolitan Bank and Trust Company vs. Edgardo D. Viray, G.R. No. 162218, February 25, 2010. Property registration; earliest title prevails. Indubitably, in view of the CA‘s Decision in CA-G.R. SP No. 44243, this controversy has been reduced to the sole substantive issue of which between the two titles, purporting to cover the same property, deserves priority. This is hardly a novel issue. As petitioners themselves are aware, in this jurisdiction, it is settled that the general rule is that in the case of two certificates of title, purporting to include the same land, the earlier in date prevails. In successive registrations, where more than one certificate is issued in respect of a particular estate or interest in land, the person claiming under the prior certificate is entitled to the estate or interest; and that person is deemed to hold under the prior certificate who is the holder of, or whose claim is derived directly or indirectly from the person who was the holder of the earliest certificate issued in respect thereof. In Degollacion v. Register of Deeds of Cavite, we held that ―[w]here two certificates of title purport to include the same land, whether wholly or partly, the better approach is to trace the original certificates from which the certificates of title were derived.‖ In all, we find that the CA committed no reversible error when it applied the principle ―Primus Tempore, Portior Jure‖ (First in Time, Stronger in Right) in this case and found that ALI‘s title was the valid title having been derived from the earlier OCT. Spouses Morris Carpo and Socorro Carpo vs. Ayala Land, Incorporated, G.R. No. 166577, February 3, 2010. Property registration; proof of ownership; value of tax declaration. Parenthetically, the Catarrojas did not present any tax declaration covering such vast piece of property. Although a tax declaration is not a proof of ownership, payment of realty tax is an exercise of ownership over the property and is the payer‘s unbroken chain of claim of ownership over it. Republic of the Philippines vs. Apolinario Catarroja, et al., G.R. No. 171774, February 12, 2010. Republic Act No. 26; reconstitution of title; evidence to be presented – The Supreme Court opined that the respondents had not presented ample evidence to support their petition for reconstitution of title. Section 2 of R.A. No. 26 which governs the reconstitution of lost or destroyed Torrens certificates of title, enumerates specific sources for the reconstitution of such titles. The enumeration includes in its paragraph (f) ―any other document which, in the judgment of the court, is sufficient and proper basis for reconstituting the lost or destroyed certificate of title.‖ However, the respondents were only able to present documents that are not specified in the statute, arguing that such documents are covered by Section 2(f). The court has applied the principle of ejusdem generis in interpreting Section 2(f) of R.A. 26. ―Any other document‖ refers to reliable documents of the kind described in the preceding enumerations. The documents submitted by the Catarrojas do not fall in the same class as those specifically enumerated in Section 2. None of them proves that a certificate of title had in fact been issued in the name of their parents. In Republic v. Tuastumban, the court ruled that the documents must come from official sources which recognize the ownership of the owner and his predecessors-in-interest. None of the documents presented in this case fit such description. Furthermore, the Catarrojas failed to show that they exerted efforts to look for and avail of the specific sources enumerated in Section 2 before availing themselves of the sources in Section 2 (f). The court said in Republic v. Holazo that the documents referred to in Sec. 2(f) may be resorted to only in the absence of the preceding documents in the list. Only if the petitioner for reconstitution fails to show that he had, in fact, sought to secure such documents and failed to find them, can the presentation of the ―other document‖ as evidence in substitution be allowed. Further, the following needs to be shown before the issuance of an order for reconstitution: (a) that the certificate of title had been lost or destroyed; (b) that the documents presented by petitioner are sufficient and proper to warrant reconstitution of the lost or destroyed certificate of title; (c) that the petitioner is the registered owner of the property or had an interest therein; (d) that the certificate of title was in force at the time it was lost or destroyed; and (e) that the description, area and boundaries of the property are substantially the same as those contained in the lost or destroyed certificate of title. None of the documents presented showed these preconditions. Republic of the Philippines vs. Apolinario Catarroja, et al., G.R. No. 171774, February 12, 2010. Property Registration Decree; registration of title; proof that land is alienable and disposable. While Cayetano failed to submit any certification which would formally attest to the alienable and disposable character of the land applied for, the Certification by DENR Regional Technical Director Celso V. Loriega, Jr., as annotated on the subdivision plan submitted in evidence by Paulita, constitutes substantial compliance with the legal requirement. It clearly indicates that Lot 249 had been verified as belonging to the alienable and disposable area as early as July 18, 1925. The DENR certification enjoys the presumption of regularity absent any evidence to the contrary. It bears noting that no opposition was filed or registered by the Land Registration Authority or the DENR to contest respondents‘ applications on P a g e | 46 the ground that their respective shares of the lot are inalienable. There being no substantive rights which stand to be prejudiced, the benefit of the Certification may thus be equitably extended in favor of respondents. Republic of the Philippines vs. Cayetano L. Serrano, and Heirs of Catalino M. Alaan, represented by Paulita P. Allaan, G.R. No. 183063, February 24, 2010. Property Registration Decree; registration of title; requisites. The requisites for the filing of an application for registration of title under Section 14(1) of the Property Registration Decree are: that the property is alienable and disposable land of the public domain; that the applicants by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation thereof; and that such possession is under a bona fide claim of ownership since June 12, 1945 or earlier. : Republic of the Philippines vs. Cayetano L. Serrano, and Heirs of Catalino M. Alaan, represented by Paulita P. Allaan, G.R. No. 183063, February 24, 2010. Property Registration Decree; registration of title; whether in continuous possession. As to whether respondents had open, continuous, exclusive and notorious possession and occupation, the Court has previously opined that: ―the law speaks of possession and occupation… Taken together with the words open, continuous, exclusive and notorious, the word occupation serves to highlight the fact that for an applicant to qualify, his possession must not be a mere fiction. Actual possession of a land consists in the manifestation of acts of dominion over it of such a nature as a party would naturally exercise over his own property. Leonardo clearly established the character of the possession of Cayetano and his predecessors-in-interest over the lot. Thus he declared that the lot was first owned by Lazaro Rañada who sold the same to Julian Ydulzura in 1917 who in turn sold it to his and Cayetano‘s father Simeon in 1923; that Simeon built a house thereon after its acquisition, which fact is buttressed by entries in Tax Declaration No. 18,587 in the name of Simeon for the year 1924 indicating the existence of a 40-sq. meter residential structure made of nipa and mixed materials, and of coconut trees planted thereon; and that after Simeon‘s demise in 1931, Cayetano built his own house beside the old nipa house before the war, and a bodega after the war, which claims find support in Tax Declarations made in 1948-1958. When pressed during the request for written interrogatories if Leonardo had any other pre-war tax declarations aside from Tax Declaration No. 18,587, he explained that all available records may have been destroyed or lost during the last war but that after the war, the lot was reassessed in his father‘s name. The Court finds Leonardo‘s explanation plausible and there is nothing in the records that detracts from its probative value. Finally, the official receipts of realty tax payments religiously made by Cayetano from 1948 to 1997 further serve as credible indicia that Cayetano, after his father‘s death in 1931, continued to exercise acts of dominion over the lot. The totality of the evidence thus points to the unbroken chain of acts exercised by Cayetano to demonstrate his occupation and possession of the land in the concept of owner, to the exclusion of all others. Republic of the Philippines vs. Cayetano L. Serrano, and Heirs of Catalino M. Alaan, represented by Paulita P. Allaan, G.R. No. 183063, February 24, 2010. Land registration; possession. In Director, Land Management Bureau v. Court of Appeals, we explained that – ―x x x The phrase ―adverse, continuous, open, public, peaceful and in concept of owner,‖ by which characteristics private respondent describes his possession and that of his parents, are mere conclusions of law requiring evidentiary support and substantiation. The burden of proof is on the private respondent, as applicant, to prove by clear, positive and convincing evidence that the alleged possession of his parents was of the nature and duration required by law. His bare allegations without more, do not amount to preponderant evidence that would shift the burden of proof to the oppositor.‖ Here, we find that petitioner‘s possession of the lot has not been of the character and length of time required by law Josephine Wee vs. Republic of the Philippines, G.R. No. 177384, December 8, 2009. Registered land; buyer in good faith. While every person dealing with registered land can safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the condition of the property, one will not be permitted to benefit from this general rule if there exist important facts which create suspicion to call for an investigation of the real condition of the land. One who deliberately ignores a significant fact which would naturally generate wariness is not an innocent purchaser for value. Vicente N. Luna, Jr. vs. Nario Cabales, Oscar Pabalan, et al., G.R. No. 173533, December 14, 2009. Registered land; non-owner. The registration of a property in one‘s name, whether by mistake or fraud, the real owner being another, impresses upon the title so acquired the character of a constructive trust for the real owner. The person in whose name the land is registered holds it as a mere trustee, and the real owner is entitled to file an action for reconveyance of the property. The Torrens system does not protect a usurper from the true owner. Vicente N. Luna, Jr. vs. Nario Cabales, Oscar Pabalan, et al., G.R. No. 173533, December 14, 2009. Registered owner; laches. This Court has, on several occasions, already ruled that even a registered owner of a property may be barred from recovering possession of the same by virtue of laches. Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exerting due diligence could or should have been done earlier. The law serves P a g e | 47 those who are vigilant and diligent, and not those who sleep when the law requires them to act. Alejandro B. Ty and International Realty Corporation vs. Queen’s Row Subdivision, Inc., et al., G.R. No. 173158, December 4, 2009. Torrens title; registration by non-owner. The fact that petitioners were able to secure titles in their names did not operate to vest upon them ownership over the subject properties. That act has never been recognized as a mode of acquiring ownership. The Torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. Unrecorded sale; effect. Unrecorded sales of land brought under Presidential Decree No. 1529 or the Property Registration Decree (PD 1529) are effective between and binding only upon the immediate parties. The registration required in Section 51 of PD 1529 is intended to protect innocent third persons, that is, persons who, without knowledge of the sale and in good faith, acquire rights to the property. Kings Properties Corporation, Inc. vs. Canuto A. Galido, G.R. No. 170023. November 27, 2009 Property Registration Decree; buyer in good faith. Every buyer of a registered land who takes a certificate of title for value and in good faith shall hold the same free of all encumbrances except those noted on said certificate. It has been held, however, that ―where the party has knowledge of a prior existing interest that was unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him.‖ Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage. Anindividual‘s personal good faith is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one‘s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. Good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof. Heirs of the late Joaquin Limense vs. Rita vda. De Ramos, et al., G.R. No. 152319, October 28, 2009. Property Registration Decree; emancipation patent. Petitioners argue that the Emancipation Patents and Transfer Certificates of Title issued to them which were already registered with the Register of Deeds have already become indefeasible and can no longer be cancelled. We do not adhere to petitioners‘ view. This Court has already ruled that the mere issuance of an emancipation patent does not put the ownership of the agrarian reform beneficiary beyond attack and scrutiny. Emancipation patents issued to agrarian reform beneficiaries may be corrected and cancelled for violations of agrarian laws, rules and regulations. In fact, DAR Administrative Order No. 02, series of 1994, which was issued in March 1994, enumerates the grounds for cancellation of registered Emancipation Patents or Certificates of Landownership Award. Pedro Mago (deceased), represented by his spouse Soledad Mago, et al. vs. Juana Z. Barbin, G.R. No. 173923, October 12, 2009. Property Registration Decree; registration. In any case, the Court finds no error in the findings of both the RTC and the CA that PNB is indeed an innocent mortgagee for value. When the lots were mortgaged to PNB by Lim, the titles thereto were in the latter‘s name, and they showed neither vice nor infirmity. In accepting the mortgage, PNB was not required to make any further investigation of the titles to the properties being given as security, and could rely entirely on what was stated in the aforesaid title. The public interest in upholding theindefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relies upon what appears on the face of the certificate of title. It is settled that registration in the public registry is notice to the whole world. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds of the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. Under the rule of notice, it is presumed that the purchaser has examined every instrument of record affecting the title. Such presumption may not be rebutted. He is charged with notice of every fact shown by the record and is presumed to know every fact shown by the record and to know every fact which an examination of the record would have disclosed. This presumption cannot be overcome by any claim of innocence or good faith. Otherwise, the very purpose and object of the law requiring a record would be destroyed. Such presumption cannot be defeated by proof of want of knowledge of what the record contains any more than one may be permitted to show that he was ignorant of the provisions of the law. The rule that all persons must take notice of the facts which the public record contains is a rule of law. The rule must be absolute; any variation would lead to endless confusion and useless litigation. In the present case, since the mortgage contract P a g e | 48 was registered, petitioner may not claim lack of knowledge thereof as a valid defense. The subsequent sale of the property to petitioner‘s husband cannot defeat the rights ofPNB as the mortgagee and, subsequently, the purchaser at the auction sale whose rights were derived from a prior mortgage validly registered. Eufemia vda. De Agatep vs. Roberta L. Rodriguez, et al., G.R. No. 170540, October 28, 2009. Property Registration Decree; Torrens title. A title, once registered, cannot be defeated, even by adverse, open and notorious possession. The title, once registered, is notice to the world. All persons must take notice. No one can plead ignorance of the registration. Hence, while the Picos‘ may have been in open, notorious, and continuous possession of the second lot from the time it was purchased in 1977 until the present time, such possession no matter how long could not ripen into ownership as the second lot is part of registered land. Even the Picos admit the indefeasible nature of Torrens titles; however, they argue that since the second lot was fraudulently included in the survey and registration of Catalina‘s land, they may still question the title, pursuant to Section 55 of the Land Registration Act. We note that the Picos have not shown any evidence to support their claim of fraudulent registration. Also telling is the Picos‘ inaction to correct this alleged fraudulent registration. As we observed earlier, OCT No. 5930 was issued in Catalina‘s name and transcribed in the Registration Book for the Province ofSurigao del Sur on January 13, 1969. Since then, the Picos have not filed any action to correct the alleged fraudulent inclusion of their property in the land registered in Catalina‘s name. In fact, the present case arose from the complaint filed by theSalcedos, not the Picos, to quiet their title over the second lot. Montano Pico and Rosita Pico vs. Catalina Adalim-Salcedo and Urbano Salcedo, G.R. No. 152006, October 2, 2009. Property Registration Decree; Torrens title. Under the Torrens system, registration is the operative act which gives validity to the transfer or creates a lien upon the land. Further, entrenched in our jurisdiction is the doctrine that registration in a public registry creates constructive notice to the whole world. But, there is nothing in Act No. 496, as amended by P.D. No. 1529, that imposes a period within which to register annotations of ―conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land.‖ If liens were not so registered, then it ―shall operate only as a contract between the parties and as evidence of authority to the Registry of Deeds to make registration.‖ If registered, it ―shall be the operative act to convey or affect the land insofar as third persons are concerned.‖ The mere lapse of time from the execution of the mortgage document to the moment of its registration does not affect the rights of a mortgagee. “G” Holdings, Inc. vs. National Mines and Allied Workers Union Locan 103 (NAMAWU), Sheriffs Richard H. Aprosta and Alberto Munoz, all acting sheriffs, Department of Labor and Employment, Region VI, Bacolod District Office, Bacolod City, G.R. No. 160236. October 16, 2009 Land; alienable and disposable. While the subject lots were verified to be alienable or disposable lands since March 15, 1982, there is no sufficient proof that open, continuous and adverse possession over them by petitioner and her predecessors-in- interest commenced on June 12, 1945 or earlier. Petitioner‘s applications cannot thus be granted. While a property classified as alienable and disposable public land may be converted into private property by reason of open, continuous, exclusive and notorious possession of at least 30 years, public dominion lands become patrimonial property not only with a declaration that these are alienable or disposable but also with an express government manifestation that the property is already patrimonial or no longer retained for public use, public service or the development of national wealth. And only when the property has become patrimonial can the prescriptive period for the acquisition of property of the public dominion begin to run. While the subject lots were declared alienable or disposable on March 15, 1982, there is no competent evidence that they are no longer intended for public use or for public service. The classification of the lots as alienable and disposable lands of the public domain does not change its status as properties of the public dominion. Petitioner cannot thus acquire title to them by prescription as yet. Joyce Y. Lim, represented by her attorney-in-fact Bernardo M. Nicolas/Joyce Y. Lim, represented by her attorney-in-fact Bernardo M. Nicolas, G.R. No. 158630/G.R. No. 162047, September 4, 2009. Land; registration. Any person, by himself or through his predecessor-in-interest, who has been in open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945 or earlier, may file in the proper trial court an application for registration of title to land, whether personally or through his duly authorized representative. Being the applicant for confirmation of imperfect title, petitioner bears the burden of proving that: 1) the land forms part of the alienable and disposable land of the public domain; and 2) she has been in open, continuous, exclusive, and notorious P a g e | 49 possession and occupation of the subject land under a bona fide claim of ownership from June 12, 1945 or earlier. These the petitioner must prove by no less than clear, positive and convincing evidence. Peregina Mistica vs. Republic of the Philippines, G.R. No. 165141, September 11, 2009. Land; registration. The Property Registration Decree involves original registration through ordinary registration proceedings. Under Section 14 (1) of said law, the requisites for the filing of an application for registration of title are: that the property in question is alienable and disposable land of the public domain; that the applicants by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation; and that such possession is under a bona fide claim of ownership since June 12, 1945 or earlier. Joyce Y. Lim, represented by her attorney-in-fact Bernardo M. Nicolas/Joyce Y. Lim, represented by her attorney-in-fact Bernardo M. Nicolas, G.R. No. 158630/G.R. No. 162047, September 4, 2009. Sale; non-registration. The reliance of the Dadizons on the unnotarized and unregistered deed of absolute sale of real property executed by Bernadas in their favor was misplaced and unwarranted, for the non-registration of the deed meant that the sale could not bind third parties like the respondents. The transaction affecting unregistered lands covered by an unrecorded contract, if legal, might be valid and binding on the parties themselves, but not on third parties. In the case of third parties, it was necessary for the contract to be registered. Bernadas‘ execution on March 10, 1976 of the deed of absolute sale of real property in favor of the Dadizons, standing alone, did not suffice to bind and conclude the Mocorros. Pursuant to Sec. 113, Presidential Decree No. 1529, the recording of the sale was necessary. Besides, the deed, being the unilateral act of Bernadas, did not adversely affect the Mocorros, who were not her privies. Otherwise stated, the deed was res inter alios acta as far as they were concerned. Neither would the affidavit of adjoining owners support the Dadizons‘ cause, considering that such affidavit, aside from its being self-serving and unilateral, had been executed only for the purpose of facilitating Felicidad Dadizon‘s application for the low cost housing loan from the Development Bank of the Philippines. Sps. Nestor and Felicidad Dadizon vs. Hon. Court of Appeals and Sps. Dominador and Elsa Mocorro, G.R. No. 159116, September 30, 2009. Torrens title; fraudulent title. Insofar as a person who fraudulently obtained a property is concerned, the registration of the property in said person‘s name would not be sufficient to vest in him or her the title to the property. A certificate of title merely confirms or records title already existing and vested. The indefeasibility of the Torrens title should not be used as a means to perpetrate fraud against the rightful owner of real property. Good faith must concur with registration because, otherwise, registration would be an exercise in futility. A Torrens title does not furnish a shield for fraud, notwithstanding the long-standing rule that registration is a constructive notice of title binding upon the whole world. The legal principle is that if the registration of the land is fraudulent, the person in whose name the land is registered holds it as a mere trustee. It has long been established that the sole remedy of the landowner whose property has been wrongfully or erroneously registered in another‘s name is to bring an ordinary action in an ordinary court of justice for reconveyance or, if the property has passed into the hands of an innocent purchaser for value, for damages. ―It is one thing to protect an innocent third party; it is entirely a different matter and one devoid of justification if deceit would be rewarded by allowing the perpetrator to enjoy the fruits of his nefarious deed.‖ Reconveyance is all about the transfer of the property, in this case the title thereto, which has been wrongfully or erroneously registered in another person‘s name, to its rightful and legal owner, or to one with a better right. Evidently, petitioners, being the rightful owners of the subject property, are entitled to the reconveyance of the title over the same. Emma Ver Reyes and Ramon Reyes vs. The Register of Deeds of Cavite, et al. G.R. No. 166516, September 3, 2009. Free patent. A Free Patent may be issued where the applicant is a natural-born citizen of the Philippines; is not the owner of more than twelve (12) hectares of land; has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, a tract or tracts of agricultural public land subject to disposition, for at least 30 years prior to the effectivity of Republic Act No. 6940; and has paid the real taxes thereon while the same has not been occupied by any other person. Once a patent is registered and the corresponding certificate of title is issued, the land covered thereby ceases to be part of public domain, becomes private property, and the Torrens Title issued pursuant to the patent becomes indefeasible upon the expiration of one year from the date of such issuance. However, a title emanating from a free patent which was secured through fraud does not become indefeasible, precisely because the patent from whence the title sprung is itself void and of no effect whatsoever. No actual and extrinsic fraud existed in this case; at least, no convincing proof of such fraud was adduced. Other than his bare allegations, petitioner failed to prove that there was fraud in the application, processing and grant of the Free Patent, as well as in the issuance of OCT No. P-23505. Neither was it proven that respondent actually took part in the alleged fraud. Eugenio Encinares vs. Dominga Achero, G.R. No. 161419, August 25, 2009. P a g e | 50 Torrens system; collateral attack on title. Registration of land under the Torrens system, aside from perfecting the title and rendering it indefeasible after the lapse of the period allowed by law, also renders the title immune from collateral attack. A collateral attack transpires when, in another action to obtain a different relief and as an incident of the present action, an attack is made against the judgment granting the title. This manner of attack is to be distinguished from a direct attack against a judgment granting the title, through an action whose main objective is to annul, set aside, or enjoin the enforcement of such judgment if not yet implemented, or to seek recovery if the property titled under the judgment had been disposed of. To permit a collateral attack on respondents-plaintiffs‘ title is to water down the integrity and guaranteed legal indefeasibility of a Torrens title. The petitioners-defendants‘ attack on the validity of respondents-plaintiffs‘ title, by claiming that fraud attended its acquisition, is a collateral attack on the title. It is an attack incidental to their quest to defend their possession of the properties in an ―accion publiciana,‖ not in a direct action whose main objective is to impugn the validity of the judgment granting the title. This is the attack that possession of a Torrens Title specifically guards against; hence, we cannot entertain, much less accord credit to, the petitioners-defendants‘ claim of fraud to impugn the validity of the respondents-plaintiffs‘ title to their property. Francisco Madrid and Edgardo Bernardo vs. Spouses Bonifacio Mapoy and Felicidad Martinez, G.R. No. 150887, August 14, 2009. Torrens system; registration of title. Section 14(1) of the Property Registration Decree lays down the following requisites for registration of title thereunder: (1) that the property in question is alienable and disposable land of the public domain; (2) that the applicants by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation; and (3) that such possession is under a bona fide claim of ownership since 12 June 1945 or earlier. Javier was able to comply with all these requirements. To prove that the land subject of an application for registration is alienable, an applicant must establish the existence of a positive act of the government, such as a presidential proclamation or an executive order; an administrative action; investigation reports of Bureau of Lands investigators; and a legislative act or statute. Republic of the Philippines vs. Neptuna G. Javier, G.R. No. 179905, August 19, 2009. Torrens system; Torrens title. Indubitably, a certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein. The real purpose of the Torrens System of land registration is to quiet title to land and put stop forever to any question as to the legality of the title. It is true that both trial and appellate courts actually maintained the indefeasibility of the certificate of title and desisted from annulling or modifying the same. But by declaring that the property is not located in Antipolo City, the location stated in the certificate of title, they, in effect, modified the same to the prejudice of the petitioner. Worse, they did so based on incomplete information. Notably, in Odsigue v. Court of Appeals, this Court, indeed, held that a certificate of title is conclusive evidence not only of ownership but also the location of the property. Pioneer Insurance and Surety Corporation vs. Heirs of Vicente Coronado, et al., G.R. No. 180357, August 4, 2009. Torrens system; Torrens title. As a matter of law, a Torrens Certificate of Title is evidence of indefeasible title of property in favor of the person in whose name the title appears. The title holder is entitled to all the attributes of ownership of the property, including possession, subject only to limits imposed by law. In the present case, the respondents-plaintiffs are indisputably the holders of a certificate of title against which the petitioners-defendants‘ claim of oral sale cannot prevail. As registered titleholders, they are entitled to possession of the properties. Francisco Madrid and Edgardo Bernardo vs. Spouses Bonifacio Mapoy and Felicidad Martinez, G.R. No. 150887, August 14, 2009. Property; emancipation patent. As holder of an emancipation patent, Abad is bound by the proscription against transfers of land awards to third persons, which is prohibited by law. Hence, even if Abad for a consideration had waived his rights to the property when he surrendered possession thereof to petitioner, such waiver is nevertheless ineffective and void, because it amounts to a prohibited transfer of the land award. As the Court held in Lapanday Agricultural & Development Corp. v. Estita, the waiver of rights and interests over landholdings awarded by the government is invalid for being violative of agrarian reform laws. And in Torres v. Ventura, the Court declared that the object of agrarian reform is to vest in the farmer-beneficiary, to the exclusion of others, the rights to possess, cultivate and enjoy the landholding for himself; hence, to insure his continued possession and enjoyment thereof, he is prohibited by law to make any form of transfer except only to the government or by hereditary succession. Petronila Maylem vs. Carmelita Ellano and Antonia Morciento, G.R. No. 162721, July 13, 2009. Property; Torrens sytem. A Homestead Patent, once registered under the Land Registration Act, becomes as indefeasible as a Torrens Title. P a g e | 51 The Torrens system is not a mode of acquiring titles to lands; it is merely a system of registration of titles to lands. However, justice and equity demand that the titleholder should not be made to bear the unfavorable effect of the mistake or negligence of the State‘s agents, in the absence of proof of his complicity in a fraud or of manifest damage to third persons. The real purpose of the Torrens system is to quiet title to land and put a stop forever to any question as to the legality of the title, except claims that were noted in the certificate at the time of the registration or that may arise subsequent thereto. Otherwise, the integrity of the Torrens system shall forever be sullied by the ineptitude and inefficiency of land registration official s, who are ordinarily presumed to have regularly performed their duties. The general rule that the direct result of a previous void contract cannot be valid will not apply in this case as it will directly contravene the Torrens system of registration. Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property, this Court cannot disregard such rights and order the cancellation of the certificate. The effect of such outright cancellation will be to impair public confidence in the certificate of title. The sanctity of the Torrens system must be preserved; otherwise, everyone dealing with the property registered under the system will have to inquire in every instance as to whether the title had been regularly or irregularly issued, contrary to the evident purpose of the law. Every person dealing with the registered land may safely rely on the correctness of the certificate of title issued therefor, and the law will, in no way, oblige him to go behind the certificate to determine the condition of the property. Respondent‘s transfer certificate of title, having been derived from the Homestead Patent which was registered under the Torrens system on May 27, 1966, was thus vested with the habiliments of indefeasibility. Rabaja Ranch and Development Corporation vs. AFP Retirement and Separation Benefits System, G.R. No. 177181, July 7, 2009. Land registration; free patent. As clearly provided by Sec. 44 of the Public Land Act, the requirements for the issuance of a free patent include, among others, that: (1) the applicant has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, the tract or tracts of agricultural public lands; (2) he shall have paid the real estate tax thereon; and (3) the land has not been occupied by any person. Lynn Maagad and Director of Lands vs. Juanito Maagad, G.R. No. 171762, June 5, 2009. Land registration; free patent. Petitioner Lynn Maagad committed fraud and gross misrepresentation in his free patent application. Actual or positive fraud proceeds from an intentional deception practiced by means of misrepresentation of material facts, which in this case was the conscious misrepresentation by petitioner that he was a fully qualified applicant possessing all the requirements provided by law. Moreover, failure and intentional omission of the petitioner-applicant to disclose the fact of actual physical possession by the respondent constitutes an allegation of actual fraud. It is likewise fraud to knowingly omit or conceal a fact, upon which benefit is obtained to the prejudice of a third person. Lynn Maagad and Director of Lands vs. Juanito Maagad, G.R. No. 171762, June 5, 2009. Land registration; registration of title. There are three requisites for the filing of an application for registration of title under Section 14(1) of PD 1529: (1) that the property in question is alienable and disposable land of the public domain; (2) that the applicant by himself or through his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation; and (3) that such possession is under a bona fide claim of ownership since 12 June 1945 or earlier. The right to file the application for registration derives from a bona fide claim of ownership going back to 12 June 1945 or earlier, by reason of the claimant‘s open, continuous, exclusive and notorious possession of alienable and disposable land of the public domain. In this case, respondent failed to comply with the period of possession and occupation of the subject property, as required by both PD 1529 and CA 141. We agree with the Republic that respondent‘s evidence was not enough to prove that her possession of the subject property started since 12 June 1945 or earlier because respondent‘s earliest evidence can be traced back to a tax declaration issued in the name of her predecessors-in-interest only in the year 1948. In view of the lack of sufficient showing that respondent and her predecessors-in-interest possessed the subject property under a bona fide claim of ownership since 12 June 1945 or earlier, respondent‘s application for confirmation and registration of the subject property under PD 1529 and CA 141 should be denied. Republic of the Philippines Vs. Ruby Lee Tsai, G.R. No. 168184, June 22, 2009. Land registration; registration of title. In the case at bar, the appellate court gave credence to the certified true copy of OCT No. 380 as proof of ownership of respondent‘s predecessor. Yet, it is readily apparent from a cursory reading of said copy that OCT No. 380 was supposedly signed, not by the Secretary of Agriculture and Natural Resources, as mandated by law, but by the Secretary of Agriculture and Commerce. Hence, it is plain to see that to give OCT No. 380 probative value in court would be to allow variance or an evasion or circumvention of the requirement laid down in Section 105 of Act No. 2874. We are thus warned that any title sourced from the flawed OCT No. 380 could be void. On this basis, we are justified to consider with great care any claims derived therefrom. Conrado O. Lasquite and Teodora I. Andrade vs. Victory Hills, Inc., G.R. No. 175375, June 23, 2009. P a g e | 52 Land registration; Torrens system. Under the established principles of land registration, a person dealing with registered land may generally rely on the correctness of a certificate of title and the law will in no way oblige him to go beyond it to determine the legal status of the property, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry. Applying this standard to the facts of this case, we rule that respondents exercised the required diligence in ascertaining the legal condition of the title to the subject property as to be considered innocent purchasers for value and in good faith. Mactan-Cebu International Airport Authority vs. Sps. Edito and Merian Tirol and Sps. Alejandro and Mirando Ngo, G.R. No. 171535, June 5, 2009. Land registration; Torrens system. Well-settled is the rule that registration of instruments must be done in the proper registry in order to effect and bind the land. Prior to the Property Registration Decree of 1978, Act No. 496 (or the Land Registration Act) governed the recording of transactions involving registered land, i.e., land with a Torrens title. On the other hand, Act No. 3344, as amended, provided for the system of recording of transactions over unregistered real estate without prejudice to a third party with a better right. Accordingly, if a parcel of land covered by a Torrens title is sold, but the sale is registered under Act No. 3344 and not under the Land Registration Act, the sale is not considered registered and the registration of the deed does not operate as constructive notice to the whole world. Consequently, the fact that petitioner MCIAA was able to register its Deed of Absolute Sale under Act No. 3344 is of no moment, as the property subject of the sale is indisputably registered land. Section 50 of Act No. 496 in fact categorically states that it is the act of registration that shall operate to convey and affect the land; absent any such registration, the instrument executed by the parties remains only as a contract between them and as evidence of authority to the clerk or register of deeds to make registration. Mactan-Cebu International Airport Authority vs. Sps. Edito and Merian Tirol and Sps. Alejandro and Mirando Ngo, G.R. No. 171535, June 5, 2009. Property; lis pendens. A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, serving as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over the said property. The filing of a notice of lis pendens charges all strangers with a notice of the particular litigation referred to therein and, therefore, any right they may thereafter acquire on the property is subject to the eventuality of the suit. Such announcement is founded upon public policy and necessity, the purpose of which is to keep the properties in litigation within the power of the court until the litigation is terminated and to prevent the defeat of the judgment or decree by subsequent alienation. Under Section 77 of Presidential Decree (P.D.) No. 1529,a notice of lis pendens shall be deemed cancelled only upon the registration of a certificate of the clerk of court in which the action or proceeding was pending stating the manner of disposal thereof if there was a final judgment in favor of the defendant or the action was disposed of terminating finally all rights of the plaintiff over the property in litigation. Isabelita Cunanan, Carolyn Cunanan and Carmencita F. Nemoto vs. Jumping Jap Trading Corporation, represented by Reuben M. Protacio, G.R. No. 173834, April 24, 2009. Property; possession. In connection with Section 14(1) of the Property Registration Decree, Section 48(b) of the Public Land Act recognizes and confirms that ―those who by themselves or through their predecessors in interest have been in open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition of ownership, since June 12, 1945‖ have acquired ownership of, and registrable title to, such lands based on the length and quality of their possession. (a) Since Section 48(b) merely requires possession since 12 June 1945 and does not require that the lands should have been alienable and disposable during the entire period of possession, the possessor is entitled to secure judicial confirmation of his title thereto as soon as it is declared alienable and disposable, subject to the timeframe imposed by Section 47 of the Public Land Act. (b) The right to register granted under Section 48(b) of the Public Land Act is further confirmed by Section 14(1) of the Property Registration Decree. Heirs of Malabanan vs. Republic of the Philippines, G.R. No. 179987, April 29, 2009. Reconstitution. The following must be present for an order for reconstitution to issue: (a) that the certificate of title had been lost or destroyed; (b) that the documents presented by petitioner are sufficient and proper to warrant reconstitution of the lost or destroyed certificate of title; (c) that the petitioner is the registered owner of the property or had an interest therein; (d) that the certificate of title was in force at the time it was lost and destroyed; and (e) that the description, area and boundaries of the property are substantially the same as those contained in the lost or destroyed certificate of title. Repubic of the Philippines vs. Macaria L. Tuastumban, G.R. No. 173210, April 24, 2009. Sale; Torrens title. Well-settled is the rule that every person dealing with a registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the P a g e | 53 condition of the property. Where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defects or inchoate right that may subsequently defeat his right thereto. This principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith. Spouses Juanito R. Villamil etc. et al. Vs. Lazaro Cruz-Villarosa, G.R. No. 177187, April 7, 2009. Sale; Torrens title. A forged or fraudulent document may become the root of a valid title if the property has already been transferred from the name of the owner to that of the forger. This doctrine serves to emphasize that a person who deals with registered property in good faith will acquire good title from a forger and be absolutely protected by a Torrens title. Having made the necessary inquiries and having found the title to be authentic, Villarosa need not go beyond the certificate of title. When dealing with land that is registered and titled, as in this case, buyers are not required by the law to inquire further than what the Torrens certificate of title indicates on its face. He examined the transferor‘s title, which was then under the name of Spouses Tolentino. He did not have to scrutinize each and every title and previous owners of the property preceding Tolentino. Spouses Juanito R. Villamil etc. et al. Vs. Lazaro Cruz-Villarosa, G.R. No. 177187, April 7, 2009. Sale; Torrens title. It is true that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the face of the title. He is charged with notice only of such burdens and claims as are annotated on the title. However, this principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser or mortgagee has knowledge of a defect or the lack of title in his vendor or mortgagor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. One who falls within the exception can neither be denominated an innocent purchaser or mortgagee for value nor a purchaser or mortgagee in good faith. In the present case, the fact that the orders dismissing the case and directing the cancellation of the notice of lis pendens was not yet final and executory should have impelled the Cunanans to be wary of further developments, as in fact plaintiff filed a motion for reconsideration and the RTC granted the same. In short, the Cunanans‘ knowledge of the existence of a pending litigation involving the disputed property makes them mortgagees in bad faith. Hence, respondent could still recover the property from the Cunanans. Isabelita Cunanan, Carolyn Cunanan and Carmencita F. Nemoto vs. Jumping Jap Trading Corporation, represented by Reuben M. Protacio, G.R. No. 173834, April 24, 2009. Property; acquisition by prescription; confirmation of incomplete or imperfect titles; requirements. There must be an express declaration by the State that the public dominion property is no longer intended for public service or the development of the national wealth or that the property has been converted into patrimonial. Without such express declaration, the property, even if classified as alienable or disposable, remains property of the public dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription. It is only when such alienable and disposable lands are expressly declared by the State to be no longer intended for public service or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law. For one to invoke the provisions of Section 14(2) and set up acquisitive prescription against the State, it is primordial that the status of the property as patrimonial be first established. Furthermore, the period of possession preceding the classification of the property as patrimonial cannot be considered in determining the completion of the prescriptive period. Adverse, continuous, open, public possession in the concept of an owner is a conclusion of law and the burden to prove it by clear, positive and convincing evidence is on the applicant. A claim of ownership will not proper on the basis of tax declarations if unaccompanied by proof of actual possession. The counting of the thirty (30)-year prescriptive period for purposes of acquiring ownership of a public land under Section 14(2) can only start from the issuance of DARCO Conversion Order. Before the property was declared patrimonial by virtue of such conversion order, it cannot be acquired by prescription. Jean Tan, et al. vs. Republic of the Philippines; G.R. No. 193443, April 16, 2012. V. PRESCRIPTION P a g e | 54 Prescription; revival of judgment. An action for revival of judgment is governed by Article 1144 (3), Article 1152 of the Civil Code and Section 6, Rule 39 of the Rules of Court. Article 1144(3) provides: Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: x x x x (3) Upon a judgment while Article 1152 of the Civil Code states that ―[T] he period for prescription of actions to demand the fulfillment of obligations declared by a judgment commences from the time the judgment became final. In this regard, Section 6, Rule 39 of the Rules of Court provides that ―[A] final and executory judgment or order may be executed on motion within five (5) years from the date of its entry. After the lapse of such time, and before it is barred by the statute of limitations, a judgment may be enforced by action. The revived judgment may also be enforced by motion within five (5) years from the date of its entry and thereafter by action before it is barred by the statute of limitations. (emphasis supplied)‖ The rules are clear. Once a judgment becomes final and executory, the prevailing party can have it executed as a matter of right by mere motion within five years from the date of entry of judgment. If the prevailing party fails to have the decision enforced by a motion after the lapse of five years, the said judgment is reduced to a right of action which must be enforced by the institution of a complaint in a regular court within ten years from the time the judgment becomes final. Petitioner Villeza, however, wants this Court to agree with him that the abeyance granted to him by the lower court tolled the running of the prescriptive period. He even cited cases allowing exceptions to the general rule. The cited cases are, in fact, not applicable to him. The records reveal that it was petitioner Villeza, the prevailing party himself, who moved to defer the execution of judgment. The losing party never had any hand in the delay of its execution. Neither did the parties have any agreement on that matter. After the lapse of five years from the finality of judgment, petitioner Villeza should have instead filed a complaint for its revival in accordance with Section 6, Rule 39 of the Rules of Court. He, however, filed a motion to execute the same which was a wrong course of action. On the 11 th year, he finally sought its revival but he requested the aid of the courts too late. The Court has pronounced in a plethora of cases that it is revolting to the conscience to allow someone to further avert the satisfaction of an obligation because of sheer literal adherence to technicality; that although strict compliance with the rules of procedure is desired, liberal interpretation is warranted in cases where a strict enforcement of the rules will not serve the ends of justice; and that it is a better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest wrong or injustice would result. These cases, though, remain exceptions to the general rule. The purpose of the law in prescribing time limitations for enforcing judgment by action is precisely to prevent the winning parties from sleeping on their rights. The Court cannot just set aside the statute of limitations into oblivion every time someone cries for equity and justice. Indeed, ―if eternal vigilance is the price of safety, one cannot sleep on one‘s right for more than a 10 th of a century and expect it to be preserved in pristine purity.‖ Ernesto Villeza vs. German Management and Services, Inc., et al., G.R. No. 182937, August 8, 2010. Prescription; discovery of fraud. Petitioner filed an action for damages on the ground of fraud committed against it by respondents. Under the provisions of Article 1146 of the Civil Code, actions upon an injury to the rights of the plaintiff or upon a quasi-delict must be instituted within four years from the time the cause of action accrued, which is when plaintiff discovered the alleged fraud committed by respondents. However, the Court does not agree with the CA in its ruling that the discovery of the fraud should be reckoned from the time of registration of the titles covering the subject properties. The Court notes that what has been given by respondents to petitioner as evidence of their ownership of the subject properties at the time that they mortgaged the same are not certificates of title but tax declarations, in the guise that the said properties are unregistered. On the basis of the tax declarations alone and by reason of respondent‘s misrepresentations, petitioner could not have been reasonably expected to acquire knowledge of the fact that the said properties were already titled. As a consequence, petitioner may not be charged with any knowledge of any subsequent entry of an encumbrance which may have been annotated on the said titles, much less any change of ownership of the properties covered thereby. As such, the Court agrees with petitioner that the reckoning period for prescription of petitioner‘s action should be from the time of actual discovery of the fraud in 1995. Hence, petitioner‘s suit for damages, filed on February 20, 1996, is well within the four- year prescriptive period. Insurance of the Philippine Islands Corporation v. Spouses Vidal S. Gregorio and Julita Gregorio; G.R. No. 174104. February 14, 2011. P a g e | 55 Prescription; period for suits based on written contract. Petitioner filed his complaint regarding the lessee‘s breach of the lease contract‘s assignment veto clause, nearly 22 years after the assignment of leasehold rights and almost six years after petitioner bought the property from the lessor. The lapse of more than two decades lputs this case well within the territory of the 10-year prescriptive bar to suits based upon a written contract under Article 1144 (1) of the Civil Code. Romeo D. Mariano vs. Petron Corporation, G.R. No. 169438, January 21, 2010. Prescription; action to void forged contract does not prescribe. The supposed vendor‘s signature having been proved to be a forgery, the instrument is totally void or inexistent as ―absolutely simulated or fictitious‖ under Article 1409 of the Civil Code. According to Article 1410, ―the action or defense for the declaration of the inexistence of a contract does not prescribe‖. The inexistence of a contract is permanent and incurable which cannot be cured either by ratification or by prescription. Spouses Patricio and Myrna Bernales vs. Heirs of Julian Sambaan, et al., G.R. No. 163271, January 15, 2010. VI. OBLIGATIONS AND CONTRACTS Force Majeure. Article 1174 of the Civil Code provides: ―Except in cases expressly specified by the law, or when it is otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable.‖ A perusal of the construction agreements shows that the parties never agreed to make LCDC liable even in cases of force majeure. Neither was the assumption of risk required. Thus, in the occurrence of events that could not be foreseen, or though foreseen were inevitable, neither party should be held responsible. Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation due to an ―act of God‖ or force majeure, the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. The shortage in supplies and cement may be characterized as force majeure. In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply all clearly fall under force majeure. Since LCDC could not possibly continue constructing the building under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes aforementioned. Philippine Realty and Holding Corp. vs. Ley Const. and Dev. Corp./Ley Cons. and Dev. Corp. vs. Philippine Realty and Holding Corp., G.R. No. 165548/G.R. No. 167879. June 13, 2011 Contract; damages arising from breach of contract. The Court finds that since petitioners‘ complaint arose from a contract, the doctrine of proximate cause, which is relevant only in actions for quasi-delicts, finds no application to it. What applies in the present case is Article 1170 of the Civil Code which reads: ―[T]hose who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages.‖ Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which forms the whole or part of the contract. As for petitioners‘ claim that respondent departed from its verbal agreement with petitioners, the same fails, given that the written contract which the parties entered into the day before the event, being the law between them. Spouses Luigi Guanio and Anna Guanio v. Makati Shangri- la Hotel and Resort, Inc.; G.R. No. 190601. February 7, 2011. Rescission. Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances. Mila A. Reyes v. Victoria T. Tuparan, G.R. No. 188064. June 1, 2011 Contracts; rescission. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 1191 of the Civil Code, which provides for the remedy of ―rescission‖ or P a g e | 56 more properly resolution, a principal action based on breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the provision is the obligor‘s failure to comply with an existing obligation. Thus, the power to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation. Petitioners may not justify Rhogen‘s termination of the contract upon grounds of non-payment of progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying the violations which were the basis for issuance of the stoppage order. Having breached the contractual obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations of the local authorities, Rhogen was already at fault. Respondent The Plaza, on the other hand, was justified in withholding payment on Rhogen‘s first progress billing, on account of the stoppage order and additionally due to disappearance of owner-furnished materials at the jobsite. Heirs of Ramon C. Gaite, et al. vs. The Plaza, Inc. and FGU Insurance Corporation; G.R. No. 177685, January 26, 2011. Contracts; rescission. Under Article 1191 of the Civil Code, the aggrieved party has a choice between specific performance and rescission with damages in either case. However, we have ruled that if specific performance becomes impractical or impossible, the court may order rescission with damages to the injured party. After the lapse of more than 30 years, it is now impossible to implement the loan agreement as it was written, considering the absence of evidence as to the rising costs of construction, as well as the obvious changes in market conditions on the viability of the operations of the hotel. We deem it equitable and practicable to rescind the obligation of DBP to deliver the balance of the loan proceeds to Maceda. In exchange, we order DBP to pay Maceda the value of Maceda‘s cash equity of P6,153,398.05 by way of actual damages, plus the applicable interest rate. The present ruling comes within the purview of Maceda‘s and DBP‘s prayers for ―other reliefs, just or equitable under the premises.‖ Bonifacio Sanz Maceda, Jr. vs. DBO / DBP Vs. Bonifacio Sanz Maceda, Jr., G.R. No. 174979 & G.R. No. 175010, August 11, 2010. Contracts; rescission. ALC undertook in the agreement to accomplish 43.91% of the reduced project by the end of December 1998. The agreement‘s threshold was, therefore, 39.52%. But ALC was only able to accomplish 30.80% which was only 70.14% of the schedule, well below the 90% progress required by Clause 10. And even if delay due to bad weather could be factored in, ALC would still fall below the 90% target. On this score alone rescission was still justified. The 90% progress is a requirement imposed by the parties to the agreement. As a contractual obligation, this supersedes the threshold imposed by law. Since the parties entered into the agreement primarily due to initial delays in the project, the timetable instituted in it became an integral part of the agreement, an assurance that the project would be completed on time. ALC‘s failure to keep up with the rate of progress as contractually mandated is a substantial and fundamental breach which would defeat the very purpose of the agreement. Thus, the DPWH was entitled to terminate the project and expel ALC from it. ALC industries, Inc. vs. Department of Public Works and Highways, G.R. No. 173219-20, August 11, 2010. Contracts; rescission; reciprocal obligations. The right to rescind a contract arises once the other party defaults in the performance of his obligation. In determining when default occurs, Article 1191 should be taken in conjunction with Article 1169 of the same law. In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties‘ respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance of the obligations are fixed, the default for each obligation must be determined by the rules given in the first paragraph of Article 1169, that is, the other party would incur in delay only from the moment the other party demands fulfillment of the former‘s obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. Solar Harvest Incorporated vs. Davao Corrugated Carton Corporation, G.R. No. 176686, July 26, 2010. Contracts; rescission. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances. GG Sportswear anchors its claim for rescission of a reservation agreement (the ―Agreement‖) for the purchase of units and parking slots in a condominum property being developed by World Class, on two grounds: (a) its dissatisfaction with the completion date; and (b) the lack of a Contract to Sell. However, GG Sportswear cannot claim that it did not know the time-frame for the project‘s completion when it entered into the Agreement with World Class. As World Class points out, it is absurd and unbelievable that Mr. Gidwani, the president of GG Sportswear and an experienced businessman, did not have an idea of the expected completion date of the condominium project before he bought the condominium units for P89,624,272.82. The grant, too, to World Class of a first License to Sell up to August 1998 and a second License to Sell up to December 1999, to our mind, served as a clear notice of when the project was to be completed. Moreover, the provisional Contract to Sell that accompanied the second Reservation Agreement explicitly provided that the condominium project would be ready for turnover no later than December 15, 1998, a clear expression of the project‘s completion date. P a g e | 57 Having known the date, the fact of dissatisfaction with it does not constitute a breach so substantial as to render the Agreement rescissible. GG Sportswear has never alleged that the given December 15, 1998 completion date violates the completion date previously agreed upon by the parties. In fact, nowhere does GG Sportswear allege that the parties ever agreed upon an earlier completion date. Even assuming that GG Sportswear was not aware of the exact completion date, we note that GG Sportswear signed the Agreement despite the Agreement‘s omission to expressly state a specific completion date. This directly implies that a specific completion date was not a material consideration for GG Sportswear when it executed the Agreement. Neither is the initial lack of a License to Sell a basis to cancel the Agreement and has in fact effectively been cured even if it may be considered an initial defect. We therefore find no reason for GG Sportswear to be dissatisfied [Digester‘s Note: I guess the court means ―to be dissatisfied since a breach had occurred] with the indicated completion date. Even if it had been unhappy with the completion date, this ground, standing alone, is not sufficient basis to rescind the Agreement; unhappiness is a state of mind, not a defect available in law as a basis to rescind a contract. [Digester‘s note: Last line good candidate for car sticker for IBP members.] On GG Sportwear‘s second ground, we note that the Agreement expressly provides that GG Sportswear shall be entitled to a Contract to Sell only upon its payment of at least 30% of the total contract price. Since GG Sportswear had only paid 21% of the total contract price, World Class‘s obligation to execute a Contract to Sell had not yet arisen. Accordingly, GG Sportswear had no basis to claim that World Class breached this obligation and to seek the application of Article 1191 of the Civil Code. G.G. Sportswear Mfg. Corp vs. World Class Properties, Inc., G.R. No. 182720, March 2, 2010. Contracts; rescission. Rescission is only allowed when the breach is so substantial and fundamental as to defeat the object of the parties in entering into the contract. The court found no such substantial or material breach. It is true that respondent failed to pay the 7 th and 8 th installments of the purchase price. However, considering the circumstances of the instant case, particularly the provisions of the kasunduan, respondent cannot be deemed to have committed a serious breach. In the first place, respondent was not in default as petitioner never made a demand for payment. Also, under both the kasunduan sa bilihan ng lupa and the kasunduan, petitioner undertook to cause the survey of the property in order to determine the portion excluded from the sale, as well as the portion traversed by the Napocor power line. Despite repeated demands by respondent, however, petitioner failed to perform his obligation. Thus, considering that there was a breach on the part of petitioner (and no material breach on the part of respondent), he cannot properly invoke his right to rescind the contract. Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R. No. 172279, February 11, 2010. Contract; reciprocal obligations; remedy of rescission. While no causal fraud attended the execution of the sales contract, the fraud existed in the consummation stage of the sale when the parties were in the process of performing their respective obligations under the perfected contract of sale. Indisputably, the sellers had already performed their obligation of executing the Deed of Sale, which led to the cancellation of their title in favor of the buyer. Respondent buyers, on the other hand, failed to perform their correlative obligation of paying the full amount of the contract price. Clearly, respondents committed a substantial breach of their reciprocal obligation, entitling the petitioners to the rescission of the sales contract. Under the Civil Code, an injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. Respondent‘s claims that rescission is not proper and that he should be given more time to pay for the unpaid remaining balance of the purchase price cannot be countenanced. Having acted fraudulently in performing his obligation, the respondent is not entitled to more time to pay the remaining balance, and thereby erase the default or breach that he had deliberately incurred. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by the buyers, an attitude repugnant to the stability and obligatory force of contracts. Spouses Carmen Tongson and Jose Tongson vs. Emergency Pawnshop Bula, Inc. et al., G.R. No. 167874, January 15, 2010. Contract; rescission. The remedy of ―rescission‖ is not confined to the rescissible contracts enumerated under Article 1381. Article 1191 of the Civil Code gives the injured party in reciprocal obligations, such as what contracts are about, the option to choose between fulfillment and ―rescission.‖ Arturo M. Tolentino, a well-known authority in civil law, is quick to note, however, that the equivalent of Article 1191 in the old code actually uses the term ―resolution‖ rather than the present ―rescission.‖ The calibrated meanings of these terms are distinct. ―Rescission‖ is a subsidiary action based on injury to the plaintiff‘s economic interests as described in Articles 1380 and 1381. ―Resolution,‖ the action referred to in Article 1191, on the other hand, is based on the defendant‘s breach of faith, a violation of the reciprocity between the parties. As an action based on the binding force of a written contract, therefore, rescission (resolution) under Article 1191 prescribes in 10 years. Ten years is the period of prescription of actions based on a written contract under Article 1144. The distinction makes sense. Article 1191 gives the injured party an option to choose between, first, fulfillment of the contract and, second, its rescission. An action to enforce a written contract (fulfillment) is definitely an ―action upon a written contract,‖ which prescribes in 10 years (Article 1144). It will not be logical to make the remedy of fulfillment prescribe in 10 years while the alternative remedy of rescission (or resolution) is made to prescribe after only four years as provided in Article P a g e | 58 1389 when the injury from which the two kinds of actions derive is the same. Heirs of Sofia Quirong, etc. vs. Development Bank of the Philippines, G.R. No. 173441, December 3, 2009. Loan; no period for payment. There is no date of payment in the promissory notes. Accordingly, the creditor has the right to demand immediate payment. Article 1178 of the Civil Code applies. The fact that the creditor was content with the prior monthly check-off from the debtor‘s salary is of no moment. Once the debot defaulted, the creditor could make a demand to enforce a pure obligation. Hongkong and Shanghai Banking Corp., Ltd. Staff Retirement Plan vs. Sps. Bienvenido and Editha Broqueza, G.R. No. 178610, November 17, 2010. Contracts; fulfillment of condition. Even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying respondent. In this connection, Article 1186 of the Civil Code provides: ―Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.‖ Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010 Obligations; Joint Obligation. The core issue to be resolved then is which between joint venturers Marsman Drysdale and Gotesco bears the liability to pay PGI its unpaid claims. To Marsman Drysdale, it is Gotesco since, under the joint venture agreement (JVA), construction funding for the project was to be obtained from Gotesco‘s cash contribution, as its (Marsman Drysdale‘s) participation in the venture was limited to the land. Gotesco maintains, however, that it has no liability to pay PGI since it was due to the fault of Marsman Drysdale that PGI was unable to complete its undertaking. The Court finds Marsman Drysdale and Gotesco jointly liable to PGI. PGI executed a technical service contract with the joint venture but was never a party to the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing mechanism for the project, the same cannot be used to defeat the lawful claim of PGI against the two joint venturers-partners. The Court noted Articles 1207 and 1208 of the Civil Code, which respectively read: Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestations. There is a solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity. Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (Emphasis, the Court‘s.) It stated that it could be presumed that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco. The only time that the JVA may be made to apply in the present petitions is when the liability of the joint venturers to each other would set in. Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs. Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29, 2010 . Obligations; solidary liability with a corporation. Doctrine dictates that a corporation is invested by law with a personality separate and distinct from those of the persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate director, trustee, or officer, along (although not necessarily) with the corporation, may validly attach, as a rule, only when – (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders, or other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action. Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. No. 172727. September 8, 2010 Obligations; corporations. A corporation is vested by law with a personality separate and distinct from the people comprising it. Ownership by a single or small group of stockholders of nearly all of the capital stock of the corporation is not by itself a sufficient ground to disregard the separate corporate personality. Thus, obligations incurred by corporate officers, acting as corporate agents, are direct accountabilities of the corporation they represent. P a g e | 59 In this case, none of these exceptional circumstances is present. In its decision, the trial court failed to provide a clear ground why Eugene Lim was held solidarily liable with Shrimp Specialists. The trial court merely stated that Eugene Lim signed on behalf of the Shrimp Specialists as President without explaining the need to disregard the separate corporate personality. The CA correctly ruled that the evidence to hold Eugene Lim solidarily liable should be more than just signing on behalf of the corporation because artificial entities can only act through natural persons. Thus, the CA was correct in dismissing the case against Eugene Lim. Shrimp Specialist, Inc. vs. Fuji-Triumph Agri-Industrial Corporation/Fuji-Trimph Agri-Industrial Corporation vs. Shrimp Specialist, Inc. et al., G.R. No. 168756/G.R. No. 171476, December 7, 2009. Payment; extinguishment of obligation. The RTC and the Court of Appeals correctly ruled that the petitioner‘s obligation has not been extinguished. The petitioner‘s obligation consists of payment of a sum of money. In order for petitioner‘s payment to be effective in extinguishing its obligation, it must be made to the proper person. Article 1240 of the Civil Code states: Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. In Cembrano v. City of Butuan, this Court elucidated on how payment will effectively extinguish an obligation, to wit: Payment made by the debtor to the person of the creditor or to one authorized by him or by the law to receive it extinguishes the obligation. When payment is made to the wrong party, however, the obligation is not extinguished as to the creditor who is without fault or negligence even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or through error induced by fraud of a third person. In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment. Payment made to one having apparent authority to receive the money will, as a rule, be treated as though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by law to accept it will, therefore, satisfy the debt. The respondent was able to establish that the LBP check was not received by her or by her authorized personnel. The PNP‘s own records show that it was claimed and signed for by Cruz, who is openly known as being connected to Highland Enterprises, another contractor. Hence, absent any showing that the respondent agreed to the payment of the contract price to another person, or that she authorized Cruz to claim the check on her behalf, the payment, to be effective must be made to her. Republic of the Philippines, represented by the chief, Philippine National Police vs. Thi Thu Thuy De Guzman; G.R. No. 175021. June 15, 2011 Payment; promissory note. Article 1249, paragraph 2 of the Civil Code provides ―[T] he delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.‖ [Emphasis supplied] In the case at bar, no cash payment was proved. It was neither confirmed that the checks issued by Losin were actually encashed by Vitarich. Thus, the Court cannot consider that payment, much less overpayment, made by Locsin. Vitarich Corporation vs. Chona Locsin, G.R. No. 181560, November 15, 2010. Payment; from a third person. Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 provides: The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. 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. We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land Bank was not bound to accept Alfredo‘s payment, since as far as the former was concerned, he did not have an interest in the payment of the loan of the Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with Assumption of Mortgage would be titled in his name. It is clear from the records that Land Bank required Alfredo to make payment before his assumption of mortgage would be approved. He was informed that the certificate of title would be transferred accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor. But the trial court stated: P a g e | 60 [T]he contract was not perfected or consummated because of the adverse finding in the credit investigation which led to the disapproval of the proposed assumption. There was no evidence presented that plaintiff was informed of the disapproval. What he received was a letter dated May 22, 1997 informing him that the account of spouses Sy had matured but there [were] no payments. This was sent even before the conduct of the credit investigation on June 20, 1997 which led to the disapproval of the proposed assumption of the loans of spouses Sy. Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses Sy, since his interest hinged on Land Bank‘s approval of his application, which was denied. The circumstances of the instant case show that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he cannot demand from the debtors, the Spouses Sy, what he has paid. Land Bank of the Philippines vs. Alfredo Ong, G.R. No. 190755, November 24, 2010. Contracts; payment of debt by a third party. Petitioners‘ invocation of Article 1236 of the Civil Code does not help them. They cannot deny their indebtedness to respondent on the basis of said article since the payment advanced by respondent on petitioners‘ behalf redounded to their benefit and petitioner never objected to it when she came to learn of it. It is thus immaterial that petitioner was unaware of respondent‘s action for the law ultimately allows recovery to the extent that the debtors-petitioners were benefited. Spouses Divina C. Publico and Jose T. Publico vs. Teresa Bautista, G.R. No. 174096, July 20, 2010 Dacion en pago. A dacion en pago is governed by the law of sales. Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). Luzon Development Bank vs. Angeles Catherine Enriquez / Delta Development and Management Services, Inc. vs. Angeles Catherine Enriquez, et al.; G.R. Nos. 168646 & G.R. No. 168666. January 12, 2011. Consignation. There must be full compliance with the requisites of consignation for consignation to be valid. Substantial compliance is not enough. In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc., the Court enumerated the requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the consignation was made. The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void. Soledad Dalton vs. FGR Fealty and Development Corporation, et al.; G.R. No. 172577, January 19, 2011. Rebus sic stantibus. Food Fest leased property from So. Food Fest sought to pre-terminate the lease. So sued Food Fest for ejection, payment of arrears and damages. On the matter of damages, So claims that Food Fest did not exercise care in removing the installations and fixtures, thereby causing destruction to the premises to thus entitle him to damages, as well as to damages corresponding to unrealized profits (lucrum cessans) to answer for the period during which the unit was not rented out. Unrealized profits fall under the category of actual or compensatory damages. If there exists a basis for a reasonable expectation that profits would have continued to be generated had there been no breach of contract, indemnification for damages based on such expected profits is proper. This is, however, subject to the rule that a party is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Other than the photographs evincing damage to the premises, no evidence was proffered to show So‘s entitlement to unrealized profits. That the leased unit was not subsequently leased is not solely attributable to Food Fest. As borne by the records, no renovation was undertaken by So for almost three years following Food Fest‘s vacation of the premises in 2001. The quotations issued by construction companies for purposes of renovation were issued only in 2004. However, So may seek damages pursuant to the contract. Respecting So‘s claim for renovation expenses, the same must be denied absent proof as to the actual cost of renovation. Only firm offers or quotations from construction companies are in the records. Following Article 2224 of the Civil Code, however, the appellate court‘s award of temperate damages is in order. This Court notes that the appellate court did not award liquidated damages in contravention of the contract. As for the appellate court‘s award of P20,000.00 as attorney‘s fees, the contractual stipulation should prevail. As for Food Fest‘s invocation of the principle of rebus sic stantibus as enunciated in Article 1267 of the Civil Code to render the lease contract functus officio, and consequently release it from responsibility to pay rentals, the Court is not persuaded. Article 1267 provides: ―Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part.‖ P a g e | 61 This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor. Food Fest claims that its failure to secure the necessary business permits and licenses rendered the impossibility and non-materialization of its purpose in entering into the contract of lease, in support of which it cites the earlier-quoted portion of the preliminary agreement dated July 1, 1999 of the parties. The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. A party‘s motive or particular purpose in entering into a contract does not affect the validity or existence of the contract; an exception is when the realization of such motive or particular purpose has been made a condition upon which the contract is made to depend. The exception does not apply here. It is clear that the condition set forth in the preliminary agreement pertains to the initial application of Food Fest for the permits, licenses and authority to operate. It should not be construed to apply to Food Fest‘s subsequent applications. Food Fest was able to secure the permits, licenses and authority to operate when the lease contract was executed. Its failure to renew these permits, licenses and authority for the succeeding year, does not, however, suffice to declare the lease functus officio, nor can it be construed as an unforeseen event to warrant the application of Article 1267. Contracts, once perfected, are binding between the contracting parties. Obligations arising therefrom have the force of law and should be complied with in good faith. Food Fest cannot renege from the obligations it has freely assumed when it signed the lease contract. Daniel T. So vs. Food Fest Land, Inc. / Food Fest Land, Inc. vs. Daniel T. So, G.R. Nos. 183628 & 183670, April 7, 2010. Compensation/set-off; requisites. The applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of the Philippines: Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. Based on the foregoing, in order for compensation to be valid, the five requisites mentioned in the above-quoted Article 1279 should be present, as in the case at bench. Insular Investment and Trust Corporation vs. Capital One Equities Corp. and Planters Development Bank; G.R. No. 183308, April 25, 2012 Obligation; write-off not an extinguishment of obligation. The Court rules that writing-off a loan does not equate to a condonation or release of a debt by the creditor. As an accounting strategy, the use of write-off is a task that can help a company maintain a more accurate inventory of the worth of its current assets. In general banking practice, the write-off method is used when an account is determined to be uncollectible and an uncollectible expense is recorded in the books of account. If in the future, the debt appears to be collectible, as when the debtor becomes solvent, then the books will be adjusted to reflect the amount to be collected as an asset. In turn, income will be credited by the same amount of increase in the accounts receivable. Write-off is not one of the legal grounds for extinguishing an obligation under the Civil Code. It is not a compromise of liability. Neither is it a condonation, since in condonation gratuity on the part of the obligee and acceptance by the obligor are required. In making the write-off, only the creditor takes action by removing the uncollectible account from its books even without the approval or participation of the debtor. Furthermore, write-off cannot be likened to a novation, since the obligations of both parties have not been modified. When a write-off occurs, the actual worth of the asset is reflected in the books of accounts of the creditor, but the legal relationship between the creditor and the debtor still remains the same – the debtor continues to be liable to the creditor for the full extent of the unpaid debt. Ruben Reyna, et al. v. Commission on Audit; G.R. No. 167219. February 8, 2011. P a g e | 62 Compensation. The Civil Code provides that compensation shall take place when two persons, in their own right, are creditors and debtors of each other. In order for compensation to be proper, it is necessary that: (i) each one of the obligors is bound principally and that he be at the same time a principal creditor of the other; (ii) both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (iii) the two debts are due: (iv) the debts are liquidated and demandable; and (v) over neither of them be any retention or controversy, commenced by third parties and communicated in due time to the debtor. In this case, petitioners failed to properly discharge their burden to show that the debts are liquidated and demandable. Consequently, legal compensation is inapplicable. A claim is liquidated when the amount and time of payment is fixed. If acknowledged by the debtor, although not in writing, the claim must be treated as liquidated. When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating such claim, it can be compensated against the plaintiff‘s claim from the moment it is liquidated by judgment. Selwyn F. Lao, et al. vs. Special Plans, Inc., G.R. No. 164791, June 29, 2010 . Compensation; partial set-off. Under the circumstances, fairness and reason dictate that we simply order the set-off of the petitioners‘ contractual liabilities totaling P575,922.13 against the repair cost for the defective gutter, pegged at P717,524.00, leaving the amount of P141,601.87 still due from the respondent. Support in law for this ruling for partial legal compensation proceeds from Articles 1278, 1279, 1281, and 1283 of the Civil Code. In short, both parties are creditors and debtors of each other, although in different amounts that are already due and demandable. Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.;G.R. No. 156038, October 11, 2010. Novation. A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first, either by changing the object or the principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. For a valid novation to take place, there must be, therefore: (a) a previous valid obligation; (b) an agreement of the parties to make a new contract; (c) an extinguishment of the old contract; and (d) a valid new contract. In short, the new obligation extinguishes the prior agreement only when the substitution is unequivocally declared, or the old and the new obligations are incompatible on every point. A compromise of a final judgment operates as a novation of the judgment obligation upon compliance with either of these two conditions. To be clear, novation is not presumed. This means that the parties to a contract should expressly agree to abrogate the old contract in favor of a new one. In the absence of the express agreement, the old and the new obligations must be incompatible on every point. There is incompatibility when the two obligations cannot stand together, each one having its independent existence. If the two obligations cannot stand together, the latter obligation novates the first. Changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must affect any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change is merely modificatory in nature and insufficient to extinguish the original obligation. The receipt dated February 5, 1992 was only the proof of Servando‘s payment of his obligation as confirmed by the decision of the RTC. It did not establish the novation of his agreement with the respondents. Indeed, the Court has ruled that an obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, or changes only the terms of payment, or adds other obligations not incompatible with the old ones, or the new contract merely supplements the old one. A new contract that is a mere reiteration, acknowledgment or ratification of the old contract with slight modifications or alterations as to the cause or object or principal conditions can stand together with the former one, and there can be no incompatibility between them. Moreover, a creditor‘s acceptance of payment after demand does not operate as a modification of the original contract. Lastly, the extension of the maturity date did not constitute a novation of the previous agreement. It is settled that an extension of the term or period of the maturity date does not result in novation. Heirs of Servando Franco vs. Sps. Veronica & Danilo Gonzales; G.R. No. 159709, June 27, 2012. Novation. There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. Carolina Hernandez-Nievera, et al. v. Wilfredo Hernandez, et al.; G.R. No. 171165. February 14, 2011. Subrogation. Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. P a g e | 63 Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent of the amount it paid the consignee under the marine insurance, as provided under Article 2207 of the Civil Code, which reads: 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 or the person who has violated 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 or injury. As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation and R & B Insurance Corporation; G.R. No. 179446, January 10, 2011. Legal subrogation. The present case exemplifies the circumstance contemplated under paragraph 2, of Article 1302 of the Civil Code which provides: It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor‘s knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter‘s share. Metrobank was a third party to the Central Bank-RBG agreement, had no interest except as a conduit, and was not legally answerable for the IBRD loans. Despite this, it was Metrobank‘s demand deposit account, instead of RBG‘s, which the Central Bank proceeded against, on the assumption perhaps that this was the most convenient means of recovering the cancelled loans. That Metrobank‘s payment was involuntarily made does not change the reality that it was Metrobank which effectively answered for RBG‘s obligations. Was there express or tacit approval by RBG of the payment enforced against Metrobank? After Metrobank received the Central Bank‘s debit advices in November 1978, it (Metrobank) accordingly debited the amounts it could from RBG‘s special savings account without any objection from RBG. RBG‘s President and Manager, Dr. Aquiles Abellar, even wrote Metrobank, on August 14, 1979, with proposals regarding possible means of settling the amounts debited by Central Bank from Metrobank‘s demand deposit account. These instances are all indicative of RBG‘s approval of Metrobank‘s payment of the IBRD loans. That RBG‘s tacit approval came after payment had been made does not completely negate the legal subrogation that had taken place. Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons. As the entity against which the collection was enforced, Metrobank was subrogated to the rights of Central Bank and has a cause of action to recover from RBG the amounts it paid to the Central Bank, plus 14% per annum interest. Metropolitan Bank and Trust Company vs. Rural Bank of Gerona, Inc., G.R. No. 159097, July 5, 2010. Novation. Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement. Land Bank of the Philippines vs. Alfredo Ong, G.R. No. 190755, November 24, 2010. Novation. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. It is a rule that novation by substitution of debtor must always be made with the consent of the creditor. The consent of the creditor to a novation by change of debtor is as indispensable as the creditor‘s consent in conventional subrogation in order that a novation shall legally take place. Since novation implies a waiver of the right which the creditor had before the novation, such waiver must be express. Mindanao Savings and Loan Association, Inc., etc. vs. Edward Willkom, et al.; G.R. No. 178618, October 20, 2010. Novation. In this case, respondent‘s acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to novation as there was no express agreement to establish that petitioner was already discharged from P a g e | 64 his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioner‘s recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank check. Moreover, respondent‘s acceptance of the Solid Bank check did not result to any incompatibility, since the two checks − Prudential and Solid Bank checks − were precisely for the purpose of paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was no substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner the chance to pay her obligation. Anamer Salazar vs. J.Y. Brothers Marketing Corporation; G.R. No. 171998, October 20, 2010. Novation; requirements; novation cannot be presumed. As a civil law concept, novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its objects or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation may be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is extinguished, or implied, when the new obligation is on every point incompatible with the old one. The test of incompatibility lies on whether the two obligations can stand together, each one with its own independent existence. For novation, as a mode of extinguishing or modifying an obligation, to apply, the following requisites must concur: 1) There must be a previous valid obligation. 2) The parties concerned must agree to a new contract. 3) The old contract must be extinguished. 4) There must be a valid new contract. Novatio non praesumitur, or novation is never presumed, is a well-settled principle. Consequently, that which arises from a purported modification in the terms and conditions of the obligation must be clear and express. On petitioners thus rests the onus of showing clearly and unequivocally that novation has indeed taken place. It has often been said that the minds that agree to contract can agree to novate. And the agreement or consent to novate may well be inferred from the acts of a creditor, since volition may as well be expressed by deeds as by words. In the instant case, however, the acts of EPCIB before, simultaneously to, and after its acceptance of payments from petitioners argue against the idea of its having acceded or acquiesced to petitioners‘ request for a change of the terms of payments of the secured loan. Far from it. Thus, a novation through an alleged implied consent by EPCIB, as proffered and argued by petitioners, cannot be given imprimatur by the Court. St. James College of Parañaque; Jaime T. Torres, represented by his legal representative, James Kenley M. Torres; and Myrna M. Torres vs. Equitable PCI Bank, G.R. No. 179441, August 9, 2010. Novation. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions – one to extinguish an existing obligation, the other to substitute a new one in its place – requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. The second requisite is lacking in this case. Novation presupposes not only the extinguishment or modification of an existing obligation but, more importantly, the creation of a valid new obligation. For the consequent creation of a new contractual obligation, consent of both parties is, thus, required. As a general rule, no form of words or writing is necessary to give effect to a novation. Nevertheless, where either or both parties involved are juridical entities, proof that the second contract was executed by persons with the proper authority to bind their respective principals is necessary. Violeta Tudtud Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc. and Teofilo Soon, Jr., G.R. No. 163825, July 13, 2010. P a g e | 65 Contract; novation. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. Novation may be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is extinguished; or implied, when the new obligation is on every point incompatible with the old one. The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence. In the instant case, the Court finds that the Partial Compromise Agreement entered into by petitioners and Land Bank constitutes as an implied modificatory novation or amendment to the Loan/Line Agreement. As such, any provision in the Loan/Line Agreement inconsistent with the provisions of the Partial Compromise Agreement is deemed amended or waived by the parties. In other words, by entering into the Partial Compromise Agreement and agreeing to ―suspend all actions,‖ Land Bank effectively waived all its rights regarding MPC Nos. 0002 and 0004. This necessarily includes its right to assign under the Loan/Line Agreement. Adriatico Consortium, Inc. Primary Realty Corp., and Benito Cu-Uy-Gam vs. Land Bank of the Philippines, G.R. No. 187838, December 23, 2009. Contracts; stages. Every contract has the elements of (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. A contract is perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Generally, contracts undergo three distinct stages: (1) preparation or negotiation; (2) perfection; and (3) consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract where the parties fulfill or perform the terms they agreed on, culminating in its extinguishment. International Freeport Traders, Inc. vs. Danzas Intercontinental, Inc.; G.R. No. 181833, January 26, 2011. Contracts; elements; stages. Every contract has the following essential elements: (i) consent, (ii) object certain and (iii) cause. Consent has been defined as the concurrence of the wills of the contracting parties with respect to the object and cause which shall constitute the contract. In general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth, and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract, i.e., consent, object and price. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. The birth or the perfection of the contract, which is the crux of the present controversy, refers to that moment in the life of a contract when there is finally a concurrence of the wills of the contracting parties with respect to the object and the cause of the contract. Sargasso Construction & Development Corporation / Pick & Shovel, Inc./Atlantic Erectors, Inc./ Joint Venture vs. Philippine Ports Authority, G.R. No. 170530, July 5, 2010. Contract; binding effect. A consignee, although not a signatory to the contract of carriage between the shipper and the carrier, becomes a party to the contract by reason of either (1) the relationship of agency between the consignee and the shipper/ consignor; (2) the unequivocal acceptance of the bill of lading delivered to the consignee, with full knowledge of its contents or (3) availment of the stipulation pour autrui, i.e., when the consignee, a third person, demands before the carrier the fulfillment of the stipulation made by the consignor/shipper in the consignee‘s favor, specifically the delivery of the goods/cargoes shipped. MoF Company, Inc. vs. Shin Brokerage Corporation, G.R. No. 172822, December 18, 2009. Contracts; Autonomy of Parties. Unless the terms of a contract are against the law, morals, good customs, and public policy, such contract is law between the parties and its terms bind them. In Felsan Realty & Development Corporation v. Commonwealth of Australia, the Court regarded as valid and binding a provision in the lease contract that allowed the lessee to pre-terminate the same when fire damaged the leased building, rendering it uninhabitable or unsuitable for living. In this case, paragraph VIII of the lease contract between DBS and the Martins permitted rescission by either party should the leased property become untenantable because of natural causes. The Court similarly found the following provision enforeceable and binding: `In case of damage to the leased premises or any portion thereof by reason of fault or negligence attributable to the LESSEE, its agents, employees, customers, or guests, the LESSEE shall be responsible for undertaking such repair or reconstruction. In case of damage due to fire, earthquake, lightning, typhoon, flood, or other natural causes, without fault or negligence attributable to the LESSEE, its agents, employees, customers or guests, the LESSOR shall be responsible for undertaking such repair or P a g e | 66 reconstruction. In the latter case, if the leased premises become untenantable, either party may demand for the rescission of this contract and in such case, the deposit referred to in paragraph III shall be returned to the LESSEE immediately.’ Felicidad T. Martin, et al. vs. DBS Bank Philippines, Inc., et al. G.R. No. 174632 & G.R. No. 174804, June 16, 2010. Contracts; Autonomy of Parties; Contract of Adhesion. Article 1306 of the Civil Code provides that the ―contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.‖ In the present case, the sales invoices expressly stipulated the payment of interest and attorney‘s fees in case of overdue accounts and collection suits, to wit: ―Interest at 24% per annum is to be charged to all accounts overdue plus 25% additional on unpaid invoice for attorney‘s fees aside from court cost, the parties expressly submit themselves to the venue of the courts in Rizal, in case of legal proceeding.‖ The sales invoices are in the nature of contracts of adhesion. ‖The court has repeatedly held that contracts of adhesion are as binding as ordinary contracts. Those who adhere to the contract are in reality free to reject it entirely and if they adhere, they give their consent. It is true that in some occasions the Court struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant party and is reduced to the alternative of accepting the contract or leaving it, completely deprived of the opportunity to bargain on equal footing.‖ Considering that petitioner is not a small time construction company, having such construction projects as the MRT III and the Mauban Power Plant, ―petitioner is presumed to have full knowledge and to have acted with due care or, at the very least, to have been aware of the terms and conditions of the contract. Petitioner was free to contract the services of another supplier if respondent‘s terms were not acceptable‖. By contracting with respondent for the supply of the reinforcing steel bars and not interposing any objection to the stipulations in the sales invoice, petitioner did not only bind itself to pay the stated selling price, it also bound itself to pay (1) interest of 24% per annum on overdue accounts and (2) 25% of the unpaid invoice for attorney‘s fees. Thus, the lower courts did not err in using the invoices as basis for the award of interest. Asian Construction and Development Corporation vs. Cathay Pacific Steel Corporation, G.R. No. 167942, June 29, 2010. Contracts; Offer and Acceptance. An offer is a unilateral proposition made by one party to another for the celebration of a contract. For an offer to be certain, a contract must come into existence by the mere acceptance of the offeree without any further act on the offeror‘s part. The offer must be definite, complete and intentional. In Spouses Paderes v. Court of Appeals, the Court held that, ―There is an ‗offer‘ in the context of Article 1319 only if the contract can come into existence by the mere acceptance of the offeree, without any further act on the part of the offeror. Hence, the ‗offer‘ must be definite, complete and intentional.‖ In the present case, the offer is not certain: (i) the 21 August 2001 memorandum clearly states that, ―MNLSM Management, on its discretion, is hereby offering the said early retirement program to its staff‖; (ii) applications for the ERP were forwarded to the head office for approval, and further acts on the offeror‘s part were necessary before the contract could come into existence; and (iii) the 21 August 2001 memorandum clearly states Korean Air‘s intention, which was, ―to prevent further losses.‖ (Emphasis, the Court‘s.) Korean Air could not have intended to ministerially approve all applications for the ERP. Korean Air Co., Ltd and Suk Kyoo Kim vs. Adelina A.S. Yuson, G.R. No. 170369, June 16, 2010 Contracts; government contracts; when perfected. A government or public contract has been defined as a contract entered into by state officers acting on behalf of the state, and in which the entire people of the state are directly interested. It relates wholly to matter of public concern, and affects private rights only so far as the statute confers such rights when its provisions are carried out by the officer to whom it is confided to perform. A government contract is essentially similar to a private contract contemplated under the Civil Code. The legal requisites of consent of the contracting parties, an object certain which is the subject matter, and cause or consideration of the obligation must likewise concur. Otherwise, there is no government contract to speak of. On the matter of entering into negotiated contracts by government-owned and controlled corporations, the provisions of existing laws are crystal clear in requiring the governing board‘s approval thereof. Petitioner neither disputes nor admits the application of the foregoing statutory provisions but insists, nonetheless, that the Notice of Award itself already embodies a perfected contract having passed the negotiation stage] despite the clear absence thereon of a condition requiring the prior approval of respondent‘s higher authority. Petitioner‘s argument is untenable. Contracts to which the government is a party are generally subject to the same laws and regulations which govern the validity and sufficiency of contracts between private individuals. A government contract, however, is perfected only upon approval by a competent authority, where such approval is required. Sargasso Construction & Development Corporation / Pick & Shovel, Inc./Atlantic Erectors, Inc./ Joint Venture vs. Philippine Ports Authority, G.R. No. 170530, July 5, 2010. P a g e | 67 Contract of adhesion. A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his ‗adhesion‘ thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. A contract of adhesion presupposes that the party adhering to the contract is a weaker party. That cannot be said of petitioner. He is a lawyer. He is deemed knowledgeable of the legal implications of the contract that he is signing. It must be borne in mind, however, that contracts of adhesion are not invalid per se. Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he adheres, he gives his consent. Aniceto G. Saludo, Jr. vs. Security Bank Corporation; G.R. No. 184041, October 13, 2010. Contracts; Consideration; Adequacy of Price. Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since in its own words: ―[petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate consideration.‖ The trial court‘s posture is patently flawed. For starters, they equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are different civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010. Contracts; lack of adequate consideration. A contract is presumed to be supported by cause or consideration. The presumption that a contract has sufficient consideration cannot be overthrown by a mere assertion that it has none. To overcome the presumption, the alleged lack of consideration must be shown by preponderance of evidence. The burden to prove lack of consideration rests upon whoever alleges it, which, in the present case, is respondent and respondent failed to do so. From her testimony and her assertions in the pleadings, it is clear that the promissory note was issued for a cause or consideration, which, at the very least, was petitioner‘s signature on the document. It may very well be argued that if such was the consideration, it was inadequate. Nonetheless, even if the consideration is inadequate, the contract would not be invalidated, unless there has been fraud, mistake, or undue influence. None of these grounds had been proven present in this case. Carmela Brobio Mangahas vs. Eufrocina A. Brobio; G.R. No. 183852, October 20, 2010. Contracts; insufficient consideration. The Supreme Court upheld the finding of the Court of Appeals that there was insufficient of consideration, and that while inadequacy of price does not invalidate a contract, the said rule is not without an exception. As provided in the Civil Code: Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. The Court of Appeals was clear as to its main reason for invalidating the contracts in question – there was fraud. The inadequacy of price was merely one of the circumstances upon which the Court of Appeals was able to find the existence of fraud and was not the main cause for the invalidation of the subject contracts. It must be noted that the property in question, subject of the Contract to Sell for the sum of P441,032.00, is a land with a contained area of, more or less, One Thousand Nine Hundred and One (1,901) sq. m. with a two-storey residential building located in Pasay City. In claiming that the said price of the property is not inadequate, petitioners stated that the payment of Elmer Tan to pre-terminate Hayari‘s obligation amounting to Three Million One Hundred Thirty-Four Thousand Nine Hundred Twenty-One Pesos (P3,134,921.00) as part of the consideration paid for the property should be included. However, as correctly argued by respondent Sierra Grande, the amortizations paid by Elmer Tan to Manphil was for a loan incurred by Hayari and not by respondent Sierra Grande; thus, any payment of the amortizations on the loan of Hayari cannot be considered as part of the consideration for the sale of the land owned by respondent Sierra Grande. It is then safe to declare that respondent Sierra Grande did not benefit from the loan or from its pre-termination. Moreover, the records are bereft of any evidence to support the claim of petitioners that the sum of money paid by Elmer Tan, on behalf of Hayari, was part of the consideration for the same property. What only appears is that the only consideration paid for the sale of the Roberts property was the sum contained in the Contract to Sell, which was P441,032.00 which, considering the size and location of the property, is inadequate. What prompted Elmer Tan to pay the total amount of P3,134,921.00 cannot be gleaned from the records, except that it was for the loan incurred by Hayari, which is an independent juridical entity, separate and distinct from Sierra Grande. Hence, the Court of Appeals did not commit any error in declaring that there was an insufficiency of consideration or price as the same is shown on the very face of the Contract to Sell.‖ Golden Apple Realty & Development P a g e | 68 Corporation and Rosvibon Realty Corporation vs. Sierra Grande Realty Corporation, Manphil Investment Corporation, Renan V. Santos and Patricio Mamaril, G.R. No. 119857, July 28, 2010. Contracts; law between the parties. In contractual relations, the law allows the parties leeway and considers their agreement as the law between them. Contract stipulations that are not contrary to law, morals, good customs, public order or public policy shall be binding and should be complied with in good faith. No party is permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party. Spouses Victoriano Chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R. No. 156038, October 11, 2010. Contracts; lump-sum contracts. Article 1724 of the Civil Code governs the recovery of additional costs in contracts for a stipulated price (such as fixed lump-sum contracts), and the increase in price for additional work due to change in plans and specifications. Such added cost can only be allowed upon the: (a) written authority from the developer or project owner ordering or allowing the written changes in work, and (b) written agreement of parties with regard to the increase in price or cost due to the change in work or design modification. Compliance with these two requisites is a condition precedent for the recovery. The absence of one or the other condition bars the recovery of additional costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved by any other evidence. Spouses Victoriano Chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R. No. 156038, October 11, 2010. Contract; validity of bidding rules. In joining the bid for sugar importation, the sugar corporations are deemed to have assented to the Bidding Rules, including the forfeiture provision under paragraph G.1. The Bidding Rules bind the sugar corporations. The latter cannot rely on the lame excuse that they are not aware of the forfeiture provision. At the trial, Teresita Tan testified that the Bidding Rules were duly published in a newspaper of general circulation. Vicente Cenzon, a sugar importer who participated in the bidding for the 3 rd tranche, testified that he attended the pre-bid conference where the Bidding Rules were discussed and copies of the same were distributed to all the bidders. The Bidding Rules passed through a consultative process actively participated by various government agencies and their counterpart in the private sector: the Department of Agriculture, the National Economic Development Authority, the Department of Trade and Industry, the Department of Finance, the Sugar Regulatory Administration, and a representative each from the sugar planters‘ group and the sugar millers‘ group. We find nothing in the forfeiture provision of the Bidding Rules that is contrary to law, morals, good customs, public order, or public policy. On the contrary, the forfeiture provision fully supports government efforts to aid the country‘s ailing sugar industry. Conversion fees, including those that are forfeited under paragraph G.1 of the Bidding Rules, are automatically remitted to the Bureau of Treasury and go directly to the Agricultural Competitiveness Enhancement Fund. South Pacific Sugar Corporation, et al. v. Court of Appeals and Sugar Regulatory Administration G.R. No. 180462. February 9, 2011. Contracts; quantum meruit. Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or services rendered despite the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves. To deny payment for a building almost completed and already occupied would be to permit unjust enrichment at the expense of the contractor. Heirs of Ramon C. Gaite, et al. vs. The Plaza, Inc. and FGU Insurance Corporation; G.R. No. 177685, January 26, 2011. Government contracts; obligation to pay supplier or contractor even under an illegal contract on basis of quantum meruit. In ordering the payment of the obligation due respondent on a quantum meruit basis, the Court of Appeals correctly relied on Royal Trust Corporation v. COA, Eslao v. COA, Melchor v. COA, EPG Construction Company v. Vigilar, and Department of Health v. C.V. Canchela & Associates, Architects. All these cases involved government projects undertaken in violation of the relevant laws, rules and regulations covering public bidding, budget appropriations, and release of funds for the projects. Consistently in these cases, this Court has held that the contracts were void for failing to meet the requirements mandated by law; public interest and equity, however, dictate that the contractor should be compensated for services rendered and work done. Specifically, C.V. Canchela & Associates is similar to the case at bar, in that the contracts involved in both cases failed to comply with the relevant provisions of Presidential Decree No. 1445 and the Revised Administrative Code of 1987. Nevertheless, the illegality of the subject Agreements proceeds, it bears emphasis, from an express declaration or prohibition by law, not from any intrinsic illegality. As such, the Agreements are not illegal per se, and the party claiming thereunder may recover what had been paid or delivered. Neither can petitioners escape the obligation to compensate respondent for services rendered and work done by invoking the state‘s immunity from suit. This Court has long established that the doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice to a citizen. Gregorio R. Vigilar, et al. vs. Arnulfo D. Aquino; G.R. No. 180388, January 18, 2011. P a g e | 69 Contract; determinacy of object. That the kasunduan did not specify the technical boundaries of the property did not render the sale a nullity. The requirement that a sale must have for its object a determinate thing is satisfied as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties. As portion of the kasunduan shows, there is no doubt that the object of the sale is determinate. Domingo Carabeo v. Spouses Dingco, G.R. No. 190823, April 4, 2011. Contracts; interpretation; two contracts on same matter considered a single agreement. Parties had executed two contracts (a kasunduan, and a kasunduan sa bilihan ng lupa) the import of which the lower courts had read in differing ways, depending on which document the court thought had been executed first. The Supreme Court opined that the issue of which of the two contracts was first executed by the parties is immaterial to the resolution of this case. In the first place, both contracts were executed and notarized on the same day, December 6, 1993. More importantly, both contracts, even independent of the time of their execution but, taken together, clearly spell out in full the respective rights and obligations of the parties. A reading of the kasunduan sa bilihan ng lupa and the kasunduan would readily reveal that payment of the purchase price does not depend on the survey of the property. In other words, the purchase price should be paid whether or not the property is surveyed. The survey of the property is important only insofar as the right of respondent to the reduction of the purchase price is concerned. On the other hand, the survey of the property to determine the metes and bounds of the 1,731 sq. m. portion that is excluded from the contract as well as the portions covered by the kasunduan which will be subject to reduction of the purchase price, is also not conditioned on the payment of any installment. Petitioner simply has to do it. In fact, under the kasunduan sa bilihan ng lupa, the survey should be done before the date of the last installment. Hence, the survey could have been done anytime after the execution of the agreement. The kasunduan sa bilihan ng lupa and the kasunduan should both be given effect rather than be declared conflicting, if there is a way of reconciling them. Petitioner and respondent would not have entered into either of the agreements if they did not intend to be bound or governed by them. Indeed, taken together, the two agreements actually constitute a single contract pertaining to the sale of a land to respondent by petitioner. Their stipulations must therefore be interpreted together, attributing to the doubtful ones that sense that may result from all of them taken jointly. Their proper construction must be one that gives effect to all. Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R. No. 172279, February 11, 2010 Contracts; interpretation; general versus specific terms. In this connection, the kasunduan sa bilihan ng lupa contains the general terms and conditions of the agreement of the parties. On the other hand, the kasunduan refers to a particular or specific matter, i.e., that portion of the land that is traversed by a Napocor power line. As the kasunduan pertains to a special area of the agreement, it constitutes an exception to the general provisions of the kasunduan sa bilihan ng lupa, particularly on the purchase price for that portion. Specialibus derogat generalibus Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R. No. 172279, February 11, 2010. Contract; interpretation. There is nothing in the subject Extrajudicial Settlement to indicate any express stipulation for petitioner and respondents to continue with their supposed co-ownership of the contested lot. On the contrary, a plain reading of the provisions of the Extrajudicial Settlement would not, in any way, support petitioner‘s contention that it was his and his sibling‘s intention to buy the subject property from the Bank and continue what they believed to be co-ownership thereof. It is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration. It is the duty of the courts to place a practical and realistic construction upon it, giving due consideration to the context in which it is negotiated and the purpose which it is intended to serve. Such intention is determined from the express terms of their agreement, as well as their contemporaneous and subsequent acts. Absurd and illogical interpretations should also be avoided. Petitioner‘s contention that he and his siblings intended to continue their supposed co-ownership of the subject property contradicts the provisions of the subject Extrajudicial Settlement where they clearly manifested their intention of having the subject property divided or partitioned by assigning to each of the petitioner and respondents a specific 1/3 portion of the same. Partition calls for the segregation and conveyance of a determinate portion of the property owned in common. It seeks a severance of the individual interests of each co-owner, vesting in each of them a sole estate in a specific property and giving each one a right to enjoy his estate without supervision or interference from the other. In other words, the purpose of partition is to put an end to co-ownership, an objective which negates petitioner‘s claims in the present case. Celestino Balus vs. Saturnino Balus and Leonarda Balus vda. De Calunod, G.R. No. 168970, January 15, 2010. Contract; interpretation. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. It is an agreement intended to terminate a pending suit by making reciprocal concessions. In the construction or interpretation of a compromise agreement, the Court is guided by the fundamental and cardinal rule that the intention of the parties is to be ascertained from the contract and effect should be given to that intention. Likewise, it must be construed so as to give effect to all the provisions of the contract. In essence, the contract must be read as a P a g e | 70 whole. Adriatico Consortium, Inc. Primary Realty Corp., and Benito Cu-Uy-Gam vs. Land Bank of the Philippines, G.R. No. 187838, December 23, 2009. Contracts; rescissible; presumption of fraud in sale by debtor; application to mortgage of property. The presumption of fraud established under Art. 1387 does not apply to registered lands IF ―the judgment or attachment made is not also registered.‖ In this case, prior to the annotation of the REM on February 23, 1998, SBC was able to successfully acquire a writ of preliminary attachment in its favor against the spouses Lee on January 30, 1998 in a case for a sum of money for nonpayment of its obligation. Bangkok Bank alleges that because of this, the presumption of fraud under Art. 1387 of the Civil Code applies. But while a judgment was made against the spouses Lee in favor of SBC on January 30, 1998, this, however, was not annotated on the titles of the subject properties. In fact, there is no showing that the judgment has ever been annotated on the titles of the subject properties. Considering that the earlier SBC judgment or attachment was not, and in fact never was, annotated on the titles of the subject Antipolo properties, prior to the execution of the REM, the presumption of fraud under Art. 1387 of the Code clearly cannot apply. Also, even assuming Article 1387 of the Civil Code applies, fraud is presumed only in alienations by onerous title of a person against whom a judgment or attachment has been issued. The term, alienation, connotes the ―transfer of the property and possession of lands, tenements, or other things, from one person to another.‖ This term is ―particularly applied to absolute conveyances of real property‖ and must involve a ―complete transfer from one person to another.‖ A mortgage does not contemplate a transfer or an absolute conveyance of a real property. It is ―an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt.‖ When a debtor mortgages his property, he ―merely subjects it to a lien but ownership thereof is not parted with.‖ It is merely a lien that neither creates a title nor an estate. It is, therefore, certainly not the alienation by onerous title that is contemplated in Art. 1387 where fraud is to be presumed. Finally, a careful reading of Art. 1387 of the Code vis-à-vis its Art. 1385 would plainly show that the presumption of fraud in case of alienations by onerous title only applies to the person who made such alienation, and against whom some judgment has been rendered in any instance or some writ of attachment has been issued. A third person is not and should not be automatically presumed to be in fraud or in collusion with the judgment debtor. In allowing rescission in case of an alienation by onerous title, the third person who received the property conveyed should likewise be a party to the fraud. As clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession of the property did not act in bad faith, rescission cannot take place. Thus, in all instances, as to the third person in legal possession of the questioned property, good faith is presumed. Accordingly, it is upon the person who alleges bad faith or fraud that rests the burden of proof. Asiatrust, being a third person in good faith, should not be automatically presumed to have acted fraudulently by the mere execution of the REM over the subject Antipolo properties, there being no evidence of fraud or bad faith. Samuel U. Lee, et al. v. Bangkok Bank Public Company, Limited; G.R. No. 173349. February 9, 2011. Contracts; meaning of ―badges of fraud‖; ordinary meaning versus Article 1602 meaning. Petitioners claim that the Court of Appeals misused the term badges of fraud in reaching its decision. According to them, Article 1602, upon which the term badges of fraud refers to, is not applicable, because the said article refers to a sale with a right to repurchase, whereas the subject invalidated contracts were absolute sales. They cited a case where this Court pronounced that, badges of fraud is a circumstance in Article 1602 of the Civil Code, which, if present in any given transaction, gives rise to the presumption that it is not a sale but an equitable mortgage. Thus, according to petitioners, the CA confused Article 1602 (1) with that of Article 1470, because both articles deal with sale in general and have inadequacy of price as subject matter. Either way, they argue, the inadequacy of the price does not result in the cancellation or invalidation of contracts. However, a close reading of the Court of Appeals decision would reveal that the said court used the phrase badges of fraud to refer to certain fraudulent acts that attended the execution of the Contract to Sell and the Deeds of Absolute Sale which would eventually tend to prove that the same transactions were indeed suspicious as the said contracts were antedated, simulated and fraudulent. As used by the Court of Appeals, the phrase did not refer to any particular provision of a law. Hence, the general and ordinary meaning of the phrase prevails. In the same manner, this Court, in numerous cases concerning various subjects, has used the same phrase in its rulings referring to the said phrase‘s general and ordinary meaning. Golden Apple Realty & Development Corporation and Rosvibon Realty Corporation vs. Sierra Grande Realty Corporation, Manphil Investment Corporation, Renan V. Santos and Patricio Mamaril, G.R. No. 119857, July 28, 2010. Contract; voidable. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. In determining whether consent is vitiated by any of the circumstances mentioned, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in their favor what they believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship, and the conduct of the parties at the time of the making of the contract and subsequent thereto, irrespective of whether the contract is in public or private writing. And, in order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or P a g e | 71 those conditions which have principally moved one or both parties to enter the contract. Cornelia M. Hernandez, substituted by Lourdes H. Castillo v. Cecilio F. Hernandez, G.R. No. 158576, March 9, 2011. Contracts; voidable. Contracts are voidable where consent thereto is given through mistake, violence, intimidation, undue influence, or fraud. In determining whether consent is vitiated by any of these circumstances, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what they believe actually occurred, considering the age, physical infirmity, intelligence, relationship, and conduct of the parties at the time of the execution of the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing. Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the execution of the promissory note. Still, respondent insists that she was ―forced‖ into signing the promissory note because petitioner would not sign the document required by the BIR. In one case, the Court – in characterizing a similar argument by respondents therein – held that such allegation is tantamount to saying that the other party exerted undue influence upon them. However, the Court said that the fact that respondents were ―forced‖ to sign the documents does not amount to vitiated consent. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own. Respondent may have desperately needed petitioner‘s signature on the Deed, but there is no showing that she was deprived of free agency when she signed the promissory note. Being forced into a situation does not amount to vitiated consent where it is not shown that the party is deprived of free will and choice. Respondent still had a choice: she could have refused to execute the promissory note and resorted to judicial means to obtain petitioner‘s signature. Instead, respondent chose to execute the promissory note to obtain petitioner‘s signature, thereby agreeing to pay the amount demanded by petitioner. The fact that respondent may have felt compelled, under the circumstances, to execute the promissory note will not negate the voluntariness of the act. As rightly observed by the trial court, the execution of the promissory note in the amount of P600,000.00 was, in fact, the product of a negotiation between the parties. Contrary to the CA‘s findings, the situation did not amount to intimidation that vitiated consent. There is intimidation when one of the contracting parties is compelled to give his consent by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants, or ascendants. Certainly, the payment of penalties for delayed payment of taxes would not qualify as a ―reasonable and well-grounded fear of an imminent and grave evil.‖ We join the RTC in holding that courts will not set aside contracts merely because solicitation, importunity, argument, persuasion, or appeal to affection was used to obtain the consent of the other party. Influence obtained by persuasion or argument or by appeal to affection is not prohibited either in law or morals and is not obnoxious even in courts of equity. Carmela Brobio Mangahas vs. Eufrocina A. Brobio; G.R. No. 183852, October 20, 2010. Contracts; mistake; voidable contract. For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur: 1. the mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties; and 2. the identity or qualification must have been the principal consideration for the celebration of the contract. The Roman Catholic Church vs. Pante; G.R. No. 174118, April 11, 2012. Contract; element of consent; causal fraud. In order that fraud may vitiate consent to a contract, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. Additionally, the fraud must be serious. In this case, causal fraud necessary to justify the annulment of the contract of sale between the parties was absent. It is clear from the records that petitioners agreed to sell their property to the buyers. The petitioners‘ belief that the fraud employed by the buyers was ―already operational at the time of the perfection of the contract of sale‖ is incorrect. The Buyers‘ misrepresentation — that the postdated check (covering the purchase price for the property) would not bounce on its maturity — hardly equates to dolo causante. The buyers‘ assurance that the check issued was fully funded was not the principal inducement for the petitioners to sign the Deed of Absolute Sale. Even before the buyers issued the check, the parties had already consented and agreed to the sale transaction. The petitioners were never tricked into selling their property to the buyer. On the contrary, they willingly accepted his offer to purchase the property at P3,000,000. In short, there was a meeting P a g e | 72 of the minds as to the object of the sale as well as the consideration therefor. Spouses Carmen Tongson and Jose Tongson vs. Emergency Pawnshop Bula, Inc. et al., G.R. No. 167874, January 15, 2010. Contract; voidable. Contracts where consent is given through fraud, are voidable or annullable. These are not void ab initio since voidable or anullable contracts are existent, valid, and binding, although they can be annulled because of want of capacity or the vitiated consent of one of the parties. However, before such annulment, they are considered effective and obligatory between parties. As the complaint-in-intervention substantially alleged that the contract was voidable, the four-year prescriptive period under Art. 1391 of the New Civil Code will apply. FPHC, however, contends that the four-year prescriptive period should be reckoned from 24 February 1986, the date when former President Marcos left the country, as it was only then that the threat and intimidation against the Lopezes ceased. This argument is unconvincing. Based on FPHC‘s Petition for Review and its Complaint-in-Intervention, the ground relied upon by petitioner is fraud. Here, from the time the questioned sale transaction on 24 May 1984 took place, FPHC did not deny that it had actual knowledge of the same. Simply, petitioner was fully aware of the sale of the PCIB shares to TMEE. Despite all this knowledge, petitioner did not question the said sale from its inception and some time thereafter. It was only after four years and seven months had lapsed following the knowledge or discovery of the alleged fraudulent sale that petitioner assailed the same. By then, it was too late for petitioner to beset the same transaction, since the prescriptive period had already come into play. First Philippine Holding Corporation vs. Trans Middle East (Phils.) Equities Inc., G.R. No. 179505. December 4, 2009. Statute of Frauds. Under the rule on the Statute of Frauds, as expressed in Article 1403 of the Civil Code, a contract for the sale or acquisition of real property shall be unenforceable unless the same or some note of the contract be in writing and subscribed by the party charged. Subject to defined exceptions, evidence of the agreement cannot be received without the writing, or secondary evidence of its contents. MCIAA‘s invocation of the Statute of Frauds is misplaced primarily because the statute applies only to executory and not to completed, executed, or partially consummated contracts. Analyzing the situation of the cases at bar, there can be no serious objection to the proposition that the agreement package between the government and the private lot owners was already partially performed by the government through the acquisition of the lots for the expansion of the Lahug airport. The parties, however, failed to accomplish the more important condition in the CFI decision decreeing the expropriation of the lots litigated upon: the expansion of the Lahug Airport. The project––the public purpose behind the forced property taking––was, in fact, never pursued and, as a consequence, the lots expropriated were abandoned. Be that as it may, the two groups of landowners can, in an action to compel MCIAA to make good its oral undertaking to allow repurchase, adduce parol evidence to prove the transaction. At any rate, the objection on the admissibility of evidence on the basis of the Statute of Frauds may be waived if not timely raised. Records tend to support the conclusion that MCIAA did not, as the Ouanos and the Inocians posit, object to the introduction of parol evidence to prove its commitment to allow the former landowners to repurchase their respective properties upon the occurrence of certain events. Anunciacion Vda. De Ouano, et al. v. Republic of the Philippines, et al./Mactan-Cebu International Airport [MCIAA] v. Ricardo L. Inocian, in his personal capacity and as Attorney-in-Fact of Olympia E. Esteves, et al. and Aletha Suico Magat in her personal capacity and as Attorney-in-Fact of Philip M. Suico, et al.; G.R. Nos. 168770 & 168812. February 9, 2011. Statute of Frauds. The Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code, provides that a contract for the sale of real property or of an interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his agent. However, where the verbal contract of sale has been partially executed through the partial payments made by one party duly received by the vendor, as in the present case, the contract is taken out of the scope of the Statute. The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The Statute requires certain contracts to be evidenced by some note or memorandum in order to be enforceable. The term ―Statute of Frauds‖ is descriptive of statutes that require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable. Since contracts are generally obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present, the Statute simply provides the method by which the contracts enumerated in Art. 1403 (2) may P a g e | 73 be proved but does not declare them invalid because they are not reduced to writing. In fine, the form required under the Statute is for convenience or evidentiary purposes only. There can be no serious argument about the partial execution of the sale in question. The records show that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial payments of the purchase price. Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of benefits under the contract. Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondents—successive purchasers of subject lots—could plausibly set up the Statute of Frauds to thwart petitioners‘ efforts towards establishing their lawful right over the subject lot and removing any cloud in their title. As it were, petitioners need only to pay the outstanding balance of the purchase price and that would complete the execution of the oral sale. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010. Contracts; enforceability; Statute of Frauds. The Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum. The term ―Statute of Frauds‖ is descriptive of statutes that require certain classes of contracts to be in writing; and that do not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulate the formalities of the contract necessary to render it enforceable. In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. The object is to prevent fraud and perjury in the enforcement of obligations depending, for evidence thereof, on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The effect of noncompliance with this requirement is simply that no action can be enforced under the given contracts. If an action is nevertheless filed in court, it shall warrant a dismissal under Section 1(i), Rule 16 of the Rules of Court, unless there has been, among others, total or partial performance of the obligation on the part of either party. It has been private respondent‘s consistent stand, since the inception of the instant case that she has entered into a contract with petitioners. As far as she is concerned, she has already performed her part of the obligation under the agreement by undertaking the delivery of the 21 motor vehicles contracted for by Ople in the name of petitioner municipality. This claim is well substantiated — at least for the initial purpose of setting out a valid cause of action against petitioners — by copies of the bills of lading attached to the complaint, naming petitioner municipality as consignee of the shipment. Petitioners have not at any time expressly denied this allegation and, hence, the same is binding on the trial court for the purpose of ruling on the motion to dismiss. In other words, since there exists an indication by way of allegation that there has been performance of the obligation on the part of respondent, the case is excluded from the coverage of the rule on dismissals based on unenforceability under the statute of frauds, and either party may then enforce its claims against the other. The Municipality of Hagonoy, Bulacan, represented by the Hon. Felix V. Ople, Municipal Mayor, and Felix V. Ople, in his capacity vs. Hon. Simeon P. Dumdum, Jr. in his capacity as Presiding Judge of the Regional Trial Court, Branch 7, Cebu City, et al., G.R. No. 168289, March 22, 2010 Contract; void contract; consequences. It is settled that a void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or in equal fault. This rule, however, is not absolute. Article 1412 of the Civil Code provides an exception, and permits the return of that which may have been given under a void contract. Thus: Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other‘s undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. The evidence on record established that petitioners indeed permitted an unlicensed trader and salesman, like Mendoza, to handle respondent‘s account. On the other hand, the record is bereft of proof that respondent had knowledge that the person handling his account was not a licensed trader. Respondent can, therefore, recover the amount he had given under the contract. The SEC Hearing Officer and the CA, therefore, committed no reversible error in holding that respondent is entitled to a full recovery of his investments. Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. No. 172727, September 8, 2010 P a g e | 74 Void contract. A void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or in equal fault. To this rule, however, there are exceptions that permit the return of that which may have been given under a void contract. One of the exceptions is found in Article 1412 of the Civil Code, which states: Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other‘s undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. Respondent was well aware that as mere grantee of the subject stall, he cannot sell it without the consent of the City Government of Marawi. Yet, he sold the same to petitioners. The records, however, are bereft of any allegation and proof that petitioners had actual knowledge of the status of respondent‘s ownership of the subject stall. Petitioners can, therefore, recover the amount they had given under the contract. In Cavite Development Bank v. Spouses Lim, and Castillo, et al. v. Abalayan, we held that in case of a void sale, the seller has no right whatsoever to keep the money paid by virtue thereof, and should refund it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid. Hadja Fatima Gaguil Magoyag, joined by her husband, Hadjihasan Madlawi Magoyag vs. Hadji Abubacar Maruhom, G.R. No. 179743, August 2, 2010. Contracts; invalidation on ground of notarial infirmity. Petitioners claim that, since the representatives of the corporations which executed the Deed of Absolute Sale appeared before the Notary Public, the acknowledgment was complied with, even if they admitted that the representatives did not present their residence certificates nor indicate the number, date and place of issue of the same residence certificates in the acknowledgment. As shown in the records and in the testimony of the notary, the requirement of the presentation of the residence certificate was missing. Golden Apple Realty & Development Corporation and Rosvibon Realty Corporation vs. Sierra Grande Realty Corporation, Manphil Investment Corporation, Renan V. Santos and Patricio Mamaril, G.R. No. 119857, July 28, 2010. Contract; sale; nullity because of forgery. In order that the holder of a certificate for value issued by virtue of the registration of a voluntary instrument may be considered a holder in good faith and for value, the instrument registered should not be forged. Indubitably, therefore, the questioned Deed of Absolute Sale did not convey any title to herein petitioners. Thus, we hold that with the presentation of the forged deed, even if accompanied by the owner‘s duplicate certificate of title, the registered owner did not thereby lose his title, and neither does the assignee in the forged deed acquire any right or title to the said property. Spouses Patricio and Myrna Bernales vs. Heirs of Julian Sambaan, et al., G.R. No. 163271, January 15, 2010. Contract; void contract. A contract is void if one of the essential requisites of contracts under Article 1318 of the New Civil Code is lacking. All these elements must be present to constitute a valid contract. Consent is essential to the existence of a contract; and where it is wanting, the contract is non-existent. In a contract of sale, its perfection is consummated at the moment there is a meeting of the minds upon the thing that is the object of the contract and upon the price. Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract. To enter into a valid contract of sale, the parties must have the capacity to do so. Every person is presumed to be capacitated to enter into a contract until satisfactory proof to the contrary is presented. The burden of proof is on the individual asserting a lack of capacity to contract, and this burden has been characterized as requiring for its satisfaction clear and convincing evidence. While a corporation is a juridical person, it cannot act except through its board of directors as a collective body, which is vested with the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation, subject to the articles of incorporation, by-laws, or relevant provisions of law. This grant to the board of all corporate powers is explicit under Section 23 of the Corporation Code, stating: ―All corporate powers shall be exercised, and all corporate business shall be conducted by the board of directors.‖ In the case under consideration, the dispute centers on the element of consent, which FPHC claimed to be lacking since the supposed board of directors that composed the FPHC was allegedly a ―dummy board‖ of Benjamin Romualdez, the members of which were allegedly installed after the management and control of FPHC were supposedly fraudulently wrested from its true owners. The Sandiganbayan, however, differed. It stood pat in its ruling that the consent by the board of directors, who had the legal capacity to enter into said contract with a third person, was duly obtained. This Court finds no reason to diverge P a g e | 75 from the disquisition of the anti-graft court on this matter. First Philippine Holding Corporation vs. Trans Middle East (Phils.) Equities Inc., G.R. No. 179505. December 4, 2009. Contract; void contract; prescription. The sale of subject properties to petitioners are null and void. Under Article 1410 of the Civil Code, an action or defense for the declaration of the inexistence of a contract is imprescriptible. Hence, petitioners‘ contention that respondents‘ cause of action is already barred by prescription is without legal basis. Jesus Campos and Rosemarie Campos-Bautista vs. Nenita Buevinida Pastrana, et al., G.R. No. 175994, December 8, 2009. Contract; void contract; rescission. Petitioners‘ argument that the applicable law in this case is Article 1381(3) of the Civil Code on rescissible contracts and not Article 1409 on void contracts is not a question of first impression. This issue had already been settled several decades ago when we held that ―an action to rescind is founded upon and presupposes the existence of a contract‖. A contract which is null and void is no contract at all and hence could not be the subject of rescission. In the instant case, the Deeds of Absolute Sale are fictitious and inexistent for being absolutely simulated contracts. It is true that the CA cited instances that may constitute badges of fraud under Article 1387 of the Civil Code on rescissible contracts. But there is nothing else in the appealed decision to indicate that rescission was contemplated under the said provision of the Civil Code. The aforementioned badges must have been considered merely as grounds for holding that the sale is fictitious. Consequently, we find that the CA properly applied the governing law over the matter under consideration which is Article 1409 of the Civil Code on void or inexistent contracts. Jesus Campos and Rosemarie Campos-Bautista vs. Nenita Buevinida Pastrana, et al., G.R. No. 175994, December 8, 2009. Contract; void contract; gambling. Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the Revised Penal Code, as amended. Gambling is an act beyond the pale of good morals, and is thus prohibited and punished to repress an evil that undermines the social, moral, and economic growth of the nation. Presidential Decree No. 1602 (PD 1602), which modified Articles 195-199 of the Revised Penal Code and repealed inconsistent provisions, prescribed stiffer penalties on illegal gambling. As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that stipulated under Presidential Decree No. 1869, which gave PAGCOR its franchise to maintain and operate gambling casinos. The issue then turns on whether PAGCOR can validly share its franchise with junket operators to operate gambling casinos in the country. The Junket Agreement would be valid if under Section 3(h) of PAGCOR‘s charter, PAGCOR could share its gambling franchise with another entity. In this case, PAGCOR, by taking only a percentage of the earnings of ABS Corporation from its foreign currency collection, allowed ABS Corporation to operate gaming tables in the dollar pit. The Junket Agreement is in direct violation of PAGCOR‘s charter and is therefore void. Since the Junket Agreement violates PAGCOR‘s charter, gambling between the junket player and the junket operator under such agreement is illegal and may not be enforced by the courts. Article 2014 of the Civil Code, which refers to illegal gambling, states that no action can be maintained by the winner for the collection of what he has won in a game of chance. Yun Kwan Byung vs. Philippine Amusement Gaming Corporation, G.R. No. 163553, December 11, 2009. ESTOPPEL Laches. Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances, with the question of laches addressed to the sound discretion of the court. Because laches is an equitable doctrine, its application is controlled by equitable considerations and should not be used to defeat justice or to perpetuate fraud or injustice. From the records, it appears that Macgraphics first learned of the assignment when Sime Darby sent its letter-notice dated May 3, 1996. From the letters sent by Macgraphics to Goodyear, it is apparent that Macgraphics had to study and determine both the legal and practical implications of entertaining Goodyear as a client. After review, Macgraphics found that consenting to the assignment would entail the commitment of manpower and resources that it did not foresee at the inception of the lease. It thereafter communicated its non-conformity to the assignment. To the mind of the Court, there was never a delay. Simedarby Pilipinas, Inc. vs. Goodyear Philippines, Inc., et al./Goodyear Philippines, Inc. vs. Sime Darby Pilipinas, Inc. et al.; G.R. No. 182148/G.R. No. 183210. June 8, 2011. P a g e | 76 Laches. Laches is the failure of or neglect for an unreasonable and unexplained length of time to do that which by exercising due diligence, could or should have been done earlier, or to assert a right within reasonable time, warranting a presumption that the party entitled thereto has either abandoned it or declined to assert it. Amelia B. Hebron vs. Franco L. Loyola, et al., G.R. No. 168960, July 5, 2010. Laches; elements. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. Its essential elements are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant‘s right after he had knowledge of the defendant‘s conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant. In the present case, records clearly show that respondents could have filed an action to annul the mortgage on their properties, but for unexplained reasons, they failed to do so. They only questioned the loan and mortgage transactions after the lapse of more than five years from the date of the foreclosure sale. It bears noting that the real estate mortgage was registered and annotated on the titles of respondents, and the latter were even informed of the extrajudicial foreclosure and the scheduled auction. Instead of impugning the real estate mortgage and opposing the scheduled public auction, respondents‘ lawyer wrote a letter to petitioner and merely asked that the scheduled auction be postponed to a later date. Even after five years, respondents still failed to oppose the foreclosure and the subsequent transfer of titles to petitioner when their agent, acting in behalf of the principal, sent a letter proposing to buy back the properties. It was only when the negotiations failed that respondents filed the instant case. Clearly, respondents slept on their rights. Far East Bank and Trust Company (Now Bank of the Philippine Islands) and Rolando Borja, Deputy Sherrif vs. Sps. Ernesto and Leonor C. Cayetano, G.R. No. 179909, January 25, 2010. Estoppel. Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts and representations, to the prejudice of others who have relied on them. The principle is codified in Article 1431 of the Civil Code. Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court. The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor‘s position would expect or foresee such action. F.A.T. Kee Computer Systems, Inc. v. Online Networks International, Inc.; G.R. No. 171238. February 2, 2011. Estoppel. The inequity resulting from the abrogation of the whole proceedings at the late stage when the decision subsequently rendered was adverse to the persons raising the issue of inadequacy of docket fee payment is the evil being avoided by the equitable principle of estoppel. David Lu v. Paterno Lu Ym, Sr., et al./Paterno Lu Ym, Sr., et al. v. David Lu/John Lu Ym, et al. v. The Hon. Court of Appeals of Ceby City, et al.; G.R. No. 153690/G.R. No. 157381/G.R. No. 170889. February 15, 2011. Laches. The essence of laches or ―stale demands‖ is the failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it. It is not concerned with mere lapse of time; the fact of delay, standing alone, being insufficient to constitute laches. In addition, it is a rule of equity and applied not to penalize neglect or sleeping on one‘s rights, but rather to avoid recognizing a right when to do so would result in a clearly unfair situation. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances. Ultimately, the question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations. It cannot be used to defeat justice or perpetrate fraud and injustice.It is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to be so, a manifest wrong or injustice would result. It is significant to point out at this juncture that the overriding consideration in the instant case is that petitioner was deprived of the subject properties which it should have rightly owned were it not for the fraud committed by respondents. Hence, it would be the height of injustice if respondents would be allowed to go scot-free simply because petitioner relied in good faith on the former‘s false representations. Besides, as earlier discussed, even in the exercise of due diligence, petitioner could not have been expected to immediately discover respondents‘ fraudulent scheme. Insurance of the Philippine Islands Corporation v. Spouses Vidal S. Gregorio and Julita Gregorio; G.R. No. 174104. February 14, 2011. Estoppel; by silence. In estoppel, a party creating an appearance of fact, which is false, is bound by that appearance as against another person who acted in good faith on it. Estoppel is based on public policy, fair dealing, good faith and justice. Its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one who reasonably P a g e | 77 relied thereon. It springs from equity, and is designed to aid the law in the administration of justice where without its aid injustice might result. ‗Estoppel by silence‘ arises where a person, who by force of circumstances is obliged to another to speak, refrains from doing so and thereby induces the other to believe in the existence of a state of facts in reliance on which he acts to his prejudice. Silence may support an estoppel whether the failure to speak is intentional or negligent. Both trial and appellate courts basically agree that FEBTC is estopped from claiming that the insurance premium has been unpaid. That FEBTC induced Maxilite and Marques to believe that the insurance premium has in fact been debited from Maxilite‘s account is grounded on the the following facts: (1) FEBTC represented and committed to handle Maxilite‘s financing and capital requirements, including the related transactions such as the insurance of the trust receipted merchandise; (2) prior to the subject Insurance Policy No. 1024439, the premiums for the three separate fire insurance policies had been paid through automatic debit arrangement; (3) FEBIBI sent FEBTC, not Maxilite nor Marques, written reminders dated 19 October 1994, 24 January 1995, and 6 March 1995 to debit Maxilite‘s account, establishing FEBTC‘s obligation to automatically debit Maxilite‘s account for the premium amount; (4) there was no written demand from FEBTC or Makati Insurance Company for Maxilite or Marques to pay the insurance premium; (5) the subject insurance policy was released to Maxilite on 19 August 1994; and (6) the subject insurance policy remained uncancelled despite the alleged non-payment of the premium, making it appear that the insurance policy remained in force and binding. Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and Trust Company, et al. vs. Jose Marques, et al.; G.R. No. 171379/G.R. No. 171419, January 10, 2011. Estoppel in pais. The petitioners‘ payment of Change Order Nos. 1, 16, and 17 and their non-objection to the other change orders effected by the respondent cannot give rise to estoppel in pais that would render the petitioners liable for the payment of all change orders. Estoppel in pais, or equitable estoppel, arises when one, by his acts, representations or admissions or by his silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and the other rightfully relies and acts on such beliefs so that he will be prejudiced if the former is permitted to deny the existence of such facts. The real office of the equitable norm of estoppel is limited to supplying deficiency in the law, but it should not supplant positive law. In this case, the requirement for the petitioners‘ written consent to any change or alteration in the specifications, plans, and works is explicit in Article 1724 of the Civil Code and is deemed written in the contract between the parties. The contract also expressly provides that a mere act of tolerance does not constitute approval. Thus, the petitioners did not, by accepting and paying for Change Order Nos. 1, 16, and 17, do away with the contractual term on change orders, nor with the application of Article 1724. The payments for Change Order Nos. 1, 16, and 17 are, at best, acts of tolerance on the petitioners‘ part that could not modify the contract. Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R. No. 156038, October 11, 2010. Estoppel. The principle of estoppel rests on the rule that where a party, by his or her deed or conduct, has induced another to act in particular manner, estoppel effectively bars the former from adopting an inconsistent position, attitude or course of conduct that causes loss or injury to the latter. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one whom they were directed and who reasonably relied thereon. The essential elements of estoppel as related to the party estopped are: (1) conduct which amounts to a false representation or concealment of material facts, or, at least, which calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at least expectation, that such conduct shall be acted upon by the other party; and (3) knowledge, actual or constructive, of the actual facts. Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.; G.R. No. 184036, October 13, 2010. Estoppel. We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the record, negate its application. Under the promissory note, what the petitioners agreed to was the payment of a specific sum of P40,000.00 per month for six months – not a 4% rate of interest per month for six (6) months – on a loan whose principal is P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason exists to place the petitioners in estoppel, barring them from raising their present defenses against a 4% per month interest after the six-month period of the agreement. The board resolution, on the other hand, simply authorizes Pantaleon to contract for a loan with a monthly interest of not more than 4%. This resolution merely embodies the extent of Pantaleon‘s authority to contract and does not create any right or obligation except as between Pantaleon and the board. Again, no cause exists to place the petitioners in estoppel. Prisma Construction and Development Corporation and Rogelio S. Pantaleon vs. Arthur F. Menchavez, G.R. No. 160545, March 9, 2010 Prescription; laches. According to them, since the OCT from which ALI derived its title is void for want of a duly approved survey plan, their cause of action did not prescribe. However, as discussed above, the conclusion of the trial court that OCT No. 242 is void was not sufficiently borne out by the evidence on record. Verily, the premise upon which petitioners build their theory of imprescriptibility of their action did not exist. As previously emphasized, OCT No. 242 of ALI‘s predecessor-in- P a g e | 78 interest was issued on May 7, 1950, or 45 years before plaintiffs-appellees filed their complaint on March 10, 1995. As such, it is the Court‘s firmly held view that plaintiffs-appellees‘ claim is barred not only by prescription, but also by laches. Aside from the fact that OCT No. 242 had become incontrovertible after the lapse of one year from the time a decree of registration was issued, any action for reconveyance that plaintiffs-appellees could have availed of is also barred. Although plaintiffs-appellees‘ complaint was for quieting of title, it is in essence an action for reconveyance based on an implied or constructive trust, considering that plaintiffs-appellees were alleging in said complaint that there was a serious mistake, if not fraud, in the issuance of OCT No. 242 in favor of ALI‘s predecessor-in-interest. It is now well-settled that an action for reconveyance, which is a legal remedy granted to a landowner whose property has been wrongfully or erroneously registered in another‘s name, must be filed within ten years from the issuance of the title, since such issuance operates as a constructive notice. Since ALI‘s title is traced to an OCT issued in 1950, the ten-year prescriptive period expired in 1960. As for laches, the term means the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. It does not involve mere lapse or passage of time, but is principally an impediment to the assertion or enforcement of a right, which has become under the circumstances inequitable or unfair to permit. In the instant case, plaintiffs-appellees, as well as their predecessor-in-interest, have not shown that they have taken judicial steps to nullify OCT No. 242, from which ALI‘s title was derived, for 45 years. To allow them to do so now, and if successful, would be clearly unjust and inequitable to those who relied on the validity of said OCT, the innocent purchasers for value, who are protected by the precise provisions of P.D. 1529. Spouses Morris Carpo and Socorro Carpo vs. Ayala Land, Incorporated, G.R. No. 166577, February 3, 2010. VII. SPECIAL CONTRACTS TRUST Trust; fiduciary obligation. In seeking to establish a fiduciary obliation on the part of Cojuangco, the Republic invokes the following provisions of the Civil Code: Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. Article 1456. If property is acquired through mistake or fraud, the person obtaining its by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. and the Corporation Code, as follows: Section 31. Liability of directors, trustees or officers.—Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation. Did Cojuangco breach his ―fiduciary duties‖ as an officer and member of the Board of Directors of the UCPB? Did his acquisition and holding of the contested SMC shares come under a constructive trust in favor of the Republic? The answers to these queries are in the negative. The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to purchase, or a person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require factual foundations to be first laid out in appropriate judicial proceedings. Concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable. P a g e | 79 For one, the Amended Complaint contained no clear factual allegation on which to predicate the application of Articles 1455 and 1456 of the Civil Code, and Section 31 of the Corporation Code. Although the trust relationship supposedly arose from Cojuangco‘s being an officer and member of the Board of Directors of the UCPB, the link between this alleged fact and the borrowings or advances was not established. Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc. The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication. In a contract of loan, one of the parties (creditor) delivers money or other consumable thing to another (debtor) on the condition that the same amount of the same kind and quality shall be paid. Owing to the consumable nature of the thing loaned, the resulting duty of the borrower in a contract of loan is to pay, not to return, to the creditor or lender the very thing loaned. This explains why the ownership of the thing loaned is transferred to the debtor upon perfection of the contract. Ownership of the thing loaned having transferred, the debtor enjoys all the rights conferred to an owner of property, including the right to use and enjoy (jus utendi), to consume the thing by its use (jus abutendi), and to dispose (jus disponendi), subject to such limitations as may be provided by law. Evidently, the resulting relationship between a creditor and debtor in a contract of loan cannot be characterized as fiduciary. To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by one party in another who exercises dominion and influence. Absent any special facts and circumstances proving a higher degree of responsibility, any dealings between a lender and borrower are not fiduciary in nature. This explains why, for example, a trust receipt transaction is not classified as a simple loan and is characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115) punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. Based on the foregoing, a debtor can appropriate the thing loaned without any responsibility or duty to his creditor to return the very thing that was loaned or to report how the proceeds were used. Nor can he be compelled to return the proceeds and fruits of the loan, for there is nothing under our laws that compel a debtor in a contract of loan to do so. As owner, the debtor can dispose of the thing borrowed and his act will not be considered misappropriation of the thing. The only liability on his part is to pay the loan together with the interest that is either stipulated or provided under existing laws. Republic of the Philippines v. Sandiganbayan, Eduardo M. Cojuangco, et al., G.R. No. 166859, G.R. No. 169203, G.R. No. 180702. April 12, 2011 Mortgage; implied trust. An implied trust arising from mortgage contracts is not among the trust relationships the Civil Code enumerates. The Code itself provides, however, that such listing ―does not exclude others established by the general law on trust x x x.‖ Under the general principles on trust, equity converts the holder of property right as trustee for the benefit of another if the circumstances of its acquisition makes the holder ineligible ―in x x x good conscience [to] hold and enjoy [it].‖ As implied trusts are remedies against unjust enrichment, the ―only problem of great importance in the field of constructive trusts is whether in the numerous and varying factual situations presented x x x there is a wrongful holding of property and hence, a threatened unjust enrichment of the defendant.‖ Applying these principles, this Court recognized unconventional implied trusts in contracts involving the purchase of housing units by officers of tenants‘ associations in breach of their obligations, the partitioning of realty contrary to the terms of a compromise agreement, and the execution of a sales contract indicating a buyer distinct from the provider of the purchase money. In all these cases, the formal holders of title were deemed trustees obliged to transfer title to the beneficiaries in whose favor the trusts were deemed created. We see no reason to bar the recognition of the same obligation in a mortgage contract meeting the standards for the creation of an implied trust. Richard Juan v. Gabriel Yap, Sr., G.R. No. 182177. March 30, 2011 Retirement funds; trust. RMC was a company that set up a fund for its employees called RMCPRF. Petitioner contends that RMC‘s closure in 1984 rendered the RMCPRF Board of Trustees functus officio and devoid of authority to act on behalf of RMCPRF. It thus belittles the RMCPRF Board Resolution dated June 2, 1998, authorizing the release of the Fund to several of its supposed beneficiaries. Without known claimants of the fund for 11 years since RMC closed shop, it claims that fund had ―technically reverted‖ to, and formed part of RMC‘s assets. Hence, it could be applied to satisfy RMC‘s debts to Philbank. The court disagreed with the petitioner in this case. A trust is a ―fiduciary relationship with respect to property which involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another.‖ A trust is either express or implied. Express trusts are those which the direct and positive acts of the parties create, by some writing or deed, or will, or by words evincing an intention to create a trust. Here, an express trust was created to provide retirement benefits to the regular employees of RMC. RMC retained legal title to the Fund but held the same in trust for the employees-beneficiaries. Employees‘ trusts or benefit plans are intended to provide economic assistance to employees upon the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability. They give security against certain hazards to which members of the Plan may be exposed. They P a g e | 80 are independent and additional sources of protection for the working group and established for their exclusive benefit and for no other purpose. Here, while the plan provides for a reversion of the fund to RMC, this cannot be done until all the liabilities of the plan have been paid. And when RMC ceased operations in 1984, the fund became liable for the payment not only of the benefits of qualified retirees at the time of RMC‘s closure but also of those who were separated from work as a consequence of the closure. Metropolitan Bank & trust Company, Inc. vs. The Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund, et al., G.R. No. 176959, September 8, 2010 Implied trust. Petitioners‘ submission that respondents merely hold the title to the properties in trust for their predecessor Pedro is without merit. Pedro failed to prove by clear and convincing evidence that the spouses Rosauro and Angelina managed, through fraud, to have the real properties subject of this case registered in their name. In the absence of fraud, no implied trust was established between Pedro and the spouses Rosauro and Angelina under Article 1456 of the New Civil Code. Heirs Pedro De Guzman vs. Angelina Perona and Heirs of Rosauro De Guzman, Bataan Development Bank and Republic Planters Bank, G.R. No. 152266, July 2, 2010. Trust; constructive trust. In this case, the respondents‘ property was expropriated upon petition of the Mactan-Cebu International Airport Authority for the expansion of the Lahug airport. However, that project was shelved. The respondents sought to repurchase the property on the ground that the public purpose for which the expropriation was made did not took place and government had agreed that they would have a right to buy back the property in such a case. The Supreme Court sustained the respondents observing, among others that the right of respondents to repurchase the property may be enforced based on a constructive trust constituted on the property held by the government in favor of the former. It noted that Mactan- Cebu International Airport Authority is correct in stating that one would not find an express statement in the case on the expropriation proceedings to the effect that “the [condemned] lot would return to [the landowner] or that [the landowner] had a right to repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug Airport.” This omission notwithstanding, and while the inclusion of this pronouncement in the judgment of condemnation would have been ideal, such precision is not absolutely necessary nor is it fatal to the cause of petitioners herein. No doubt, the return or repurchase of the condemned properties of petitioners could be readily justified as the manifest legal effect or consequence of the trial court‘s underlying presumption that “Lahug Airport will continue to be in operation” when it granted the complaint for eminent domain and the airport discontinued its activities. The predicament of petitioners involves a constructive trust, one that is akin to the implied trust referred to in Art. 1454 of the Civil Code, “If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.” In the case at bar, petitioners conveyed Lots No. 916 and 920 to the government with the latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the use of their properties upon a state of affairs that was not conceived nor contemplated when the expropriation was authorized. Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of trusts: “The only problem of great importance in the field of constructive trust is to decide whether in the numerous and varying fact situations presented to the courts there is a wrongful holding of property and hence a threatened unjust enrichment of the defendant.” Constructive trusts are fictions of equity which are bound by no unyielding formula when they are used by courts as devices to remedy any situation in which the holder of legal title may not in good conscience retain the beneficial interest. In constructive trusts, the arrangement is temporary and passive in which the trustee‘s sole duty is to transfer the title and possession over the property to the plaintiff-beneficiary. Of course, the “wronged party seeking the aid of a court of equity in establishing a constructive trust must himself do equity.” Accordingly, the court will exercise its discretion in deciding what acts are required of the plaintiff-beneficiary as conditions precedent to obtaining such decree and has the obligation to reimburse the trustee the consideration received from the latter just as the plaintiff-beneficiary would if he proceeded on the theory of rescission. In the good judgment of the court, the trustee may also be paid the necessary expenses he may have incurred in sustaining the property, his fixed costs for improvements thereon, and the monetary value of his services in managing the property to the extent that plaintiff-beneficiary will secure a benefit from his acts. The rights and obligations between the constructive trustee and the beneficiary, in this case, Government and the property owners over the lands, are echoed in Art. 1190 of the Civil Code, “When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received x x x In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return x x x.” Mactan-Cebu International Airport Authority (MCIAA) and Air Transportation Office (ATO) vs. Bernardo Lozada, et al., G.R. No. 176625, February 25, 2010. P a g e | 81 SALE Contracts; double sales; possession; actual and physical delivery. A double sale calls for the application of the rules in Article 1544 of the Civil Code, to wit: If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual physical delivery and constructive delivery. Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee. Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states that: When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. The Roman Catholic Church vs. Pante; G.R. No. 174118, April 11, 2012. Sale; rescission for breach of obligation to deliver; constructive delivery, execution of public instrument. A party is entitled to demand for the rescission of their contract for the failure to deliver the physical possession of the subject property and the certificate of title covering the same notwithstanding the absence of stipulations in the agreement expressly indicating the consequences of such omission, pursuant to Article 1191 of the NCC, which states that ―the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.‖ Article 1498 of the NCC generally considers the execution of a public instrument as constructive delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar, however, falls among the exceptions to the foregoing rule since a mere presumptive and not conclusive delivery is created as the respondent failed to take material possession of the subject property. There is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention of the parties. Such would be the case, for instance, where the vendor has no control over the thing sold at the moment of the sale, and, therefore, its material delivery could not have been made. As a general rule, the execution of a public instrument amounts to a constructive delivery of the thing subject of a contract of sale. However, exceptions exist, among which is when mere presumptive and not conclusive delivery is created in cases where the buyer fails to take material possession of the subject of sale. A person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument. Villamar vs. Mangaoil; G.R. No. 188661, April 11, 2012. Sale; contract of sale vs. contract to sell; no rescission in contract to sell. The subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank onNovember 26, 1990 is a contract to sell and not a contract of sale. The subject contract was correctly classified as a contract to sell based on the following pertinent stipulations: 8. That the title and ownership of the subject real properties shall remain with the First Party until the full payment of the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of ₱2,000,000.00. Pending payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the written consent of the First and Third Party. 9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute Sale in favor of the Second Party. Based on the above provisions, the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent. P a g e | 82 Accordingly, the petitioner‘s obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondent‘s full payment of the purchase price. Without respondent‘s full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondent‘s failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent. Mila A. Reyes v. Victoria T. Tuparan, G.R. No. 188064. June 1, 2011 Sale; innocent purchaser for value. The remaining bar to the recovery by the respondents of the excess area held by Atty. Tecson is the principle of an innocent purchaser for value of land under the Torrens System of Registration. The petitioners claim that they are bona fide purchasers of the entire nine hundred sixty-four (964) square meters of land covered by Lot 2189-B—with Aurora merely relying on the strength of TCT No. T-4,336 in the name of Waldetrudes, while Atty. Tecson placing confidence in TCT No. T-4,338 in the name of Aurora. Both TCT Nos. T-4,336 and T-4,338 define the area of Lot 2189-B as nine hundred sixty-four (964) square meters. The petitioners allege that at the time they made their respective purchase, they did not know of the existing partition of Lot 2189 per the First Plan and the First Partition Agreement. But the proven facts indicate that Atty. Tecson knew or, at the very least, should have known that Atty. Fausto and Waldetrudes were co-owners in equal share of Lot 2189. The Court noted the following circumstances: 1. Atty. Tecson was a long-time friend and neighbor of the Faustos. Atty. Tecson himself testified that he considered Atty. Fausto as a good friend and even admitted that he would sometimes visit the latter in his house to play mahjong. By this, Atty. Tecson knew that Atty. Fausto has an actual interest in Lot 2189. 2. Atty. Tecson was the one who presented the Second Partition Agreement to Waldetrudes and the respondents; 3. Waldetrudes and the respondents were not involved in the preparation of the Second Partition Agreement and, at the time they signed the said agreement, had no knowledge of the existence of the Second Plan; and 4. The Second Partition Agreement failed to state the specific areas allotted for each component of Lot 2189 and made no mention of the division proposed by the Second Plan. Aurora L. Tecson, et al. v. Minverva, Maria, et al. all surnamed Fausto and Isabel Vda. De Fausto; G.R. No. 180683. June 1, 2011 Sale; purchaser in good faith. A purchaser in good faith is one who buys the property of another, without notice that some other person has a right to, or interest in, such property, and pays the full and fair price for it at the time of such purchase or before he has notice of the claim or interest of some other persons in the property. He buys the property with the belief that the person from whom he receives the thing was the owner and could convey title to the property. He cannot close his eyes to facts that should put a reasonable man on his guard and still claim he acted in good faith. It is undisputed that respondents were neighbors of petitioners and even co-owners of land under TCT No. 8582. Respondents have also dealt with the Tamanis in the past, having mortgaged their property together when respondents availed of a loan from the Government Service Insurance System. Thus, it is inconceivable for respondents not to know that petitioners had been exercising open, continuous and notorious possession over the property. Like Cruz, respondents should have ascertained the land‘s identity and character given that houses were standing on the land in dispute and petitioners had been leasing the same to tenants. Maria Lourdes Tamani, et al. v. Ramon Salvador, et al., G.R. No. 171497. April 4, 2011 Sale; execution of public instrument equivalent to delivery. Article 1498 of the Civil Code provides that when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. In the instant case, petitioners failed to present any evidence to show that they had no intention of delivering the subject lots to respondent when they executed the said deed of sale. Hence, petitioners‘ execution of the deed of sale is tantamount to a delivery of the subject lots to respondent. The fact that petitioners remained in possession of the disputed properties does not prove that there was no delivery, because as found by the lower courts, such possession is only by respondent‘s mere tolerance. Anita Monasterio-Pe, et al. v. Jose Juan Tong, herein represented by his Attorney-in-fact, Jose Y. Ong, G.R. No. 151369. March 23, 2011 Sale; lack of consideration. It is a well-entrenched rule that where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. Moreover, Article 1471 of the Civil Code, provides that ―if the price is simulated, the sale is void,‖ which applies to the instant case, since the price purportedly paid as indicated in the contract of sale was simulated for no payment was actually made. Manuel Catindig, represented by his legal representative Emiliano Cantidig-Rodrigo v. Aurora Irene Vda. De Meneses/Silvino Roxas, Sr., represented by Felicisima Villafuerte Roxas v. Court of Appeals, et al.; G.R. No. 165851/G.R. No. 168875. February 2, 2011. P a g e | 83 Sale; double sale. The present controversy is a clear case of double sale, where the seller sold one property to different buyers, first to petitioner and later to respondent. In determining who has a better right, the guidelines set forth in Article 1544 of the Civil Code apply. Article 1544 states: Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. Admittedly, the two sales were not registered with the Registry of Property. Since there was no inscription, the next question is who, between petitioner and respondent, first took possession of the subject property in good faith. As aptly held by the trial court, it was respondent who took possession of the subject property and, therefore, has a better right. Petitioner insists that, upon the execution of the public instrument (the notarized deed of sale), she already acquired possession thereof, and thus, considering that the execution thereof took place ahead of the actual possession by respondent of the subject property, she has a better right. This is incorrect. Indeed, the execution of a public instrument shall be equivalent to the delivery of the thing that is the object of the contract. However, the Court has held that the execution of a public instrument gives rise only to a prima facie presumption of delivery. It is deemed negated by the failure of the vendee to take actual possession of the land sold. Dolorita C. Beatingo v. Lilia Bu Gasis; G.R. No. 179641. February 9, 2011. Sale; perfection of contract. As a rule, a contract is perfected upon the meeting of the minds of the two parties. Under Article 1475 of the Civil Code, a contract of sale is perfected the moment there is a meeting of the minds on the thing which is the object of the contract and on the price. In the present case, Medrano‘s offer to sell the shares of the minority stockholders at the price of 65% of the par value was not absolutely and unconditionally accepted by DBP. DBP imposed several conditions to its acceptance and it is clear that Medrano indeed tried in good faith to comply with the conditions given by DBP but unfortunately failed to do so. Hence, there was no birth of a perfected contract of sale between the parties. Development Bank of the Philippines v. Ben P. Medrano and Privatization Management Office; G.R. No. 167004. February 7, 2011. Sale; contract to sell does not transfer ownership; rights under contract to sell. A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. It does not, by itself, transfer ownership to the buyer. Nevertheless, rights given under a Contract to Sell must still be respected. A Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to buyers is the right to have his contract to sell registered with the Register of Deeds in order to make it binding on third parties. The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right. While DELTA, in the instant case, failed to register Enriquez‘s Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquez‘s Contract to Sell. Despite the non- registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTA‘s obligation. The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957. It knew that the loaned amounts were to be used for the development of DELTA‘s subdivision project, for this was indicated in the corresponding promissory notes. The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development. Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers. Luzon Development Bank vs. Angeles Catherine Enriquez / Delta Development and Management Services, Inc. vs. Angeles Catherine Enriquez, et al.; G.R. Nos. 168646 & G.R. No. 168666. January 12, 2011. P a g e | 84 Sale; double sale; buyer in good faith. The question before us, then, is who between petitioners and respondents have a better right over Lot 11-E-8-A? In case of a double sale of immovables, ownership shall belong to (1) the first registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who in good faith presents the oldest title. However, mere registration is not enough to confer ownership. The law requires that the second buyer must have acquired and registered the immovable property in good faith. In order for the second buyer to displace the first buyer, the following must be shown: (1) the second buyer must show that he acted in good faith (i.e., in ignorance of the first sale and of the first buyer‘s rights) from the time of acquisition until title is transferred to him by registration or failing registration, by delivery of possession; and (2) the second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law. One is considered a purchaser in good faith if he buys the property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property. Well-settled is the rule that every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the condition of the property. However, this rule shall not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendor‘s title will not make him an innocent purchaser for value if it later develops that the title was in fact defective, and it appears that he had such notice of the defect had he acted with that measure of precaution which may reasonably be required of a prudent man in a like situation. In the case at bar, both the trial court and CA found that petitioners were not buyers and registrants in good faith owing to the fact that Magallanes constructed a fence and small hut on the subject lot and has been in actual physical possession since 1979. Hence, petitioners were aware or should have been aware of Magallanes‘ prior physical possession and claim of ownership over the subject lot when they visited the lot on several occasions prior to the sale thereof. Spouses Ramy and Zenaida Pudadera vs. Ireneo Magallanes and the late Daisy Teresa cortel Magallanes, substituted by her children, Nelly M. Marquez, et al.; G.R. No. 170073, October 18, 2010. Sale; contract to sell versus contract of sale. Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyer‘s non-payment of the price is a negative resolutory condition; in the contract to sell, the buyer‘s full payment of the price is a positive suspensive condition to the coming into effect of the agreement. In the first case, the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale. In the second case, the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract. Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. That payment was a positive suspensive condition failure of which was not regarded a breach in the sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place. Since the suspensive condition did not arise, the parties stood as if the conditional obligation had never existed. It should be noted that the condition is not a pure, suspensive one. Although the Atienzas had no obligation as yet to turn over title pending the occurrence of the suspensive condition, it was implicit that they were under immediate obligation not to sell the land to another in the meantime. But when Espidol failed to pay within the period provided in their agreement, the Atienzas were relieved of any obligation to hold the property in reserve for him. The ruling of the lower courts that, despite the default in payment, the Atienzas remained bound to this day to sell the property to Espidol once he is able to raise the money and pay is quite unjustified. Sps. Paulino Atienza and Rufina Atienza vs. Domingo P. Espidol, G.R. No. 180665, August 11, 2010. Sale; innocent purchaser. A person is considered an innocent purchaser in good faith when he buys the property of another, without notice that some other person has a right or an interest in such property, and pays a full price for the same at the time of such purchase, or before he has notice of the claims or interest of some other person in the property. Whether petitioners were in good faith when they bought the property from the Samson heirs is a question of fact that will not be disturbed in a petition for review under Rule 45 of the Rules of Court, save for meritorious exceptions. None of these P a g e | 85 exceptions is present, however, in the case at bar. There is thus no compelling reason to overturn the factual findings of the trial court, which was affirmed by the Court of Appeals, respecting petitioners‘ notice of respondent‘s possession. As reflected earlier, Palma, a relative of petitioner Cesaria, acknowledged via two documents having been allowed by Josefa, respondent‘s mother, to occupy the land. His testimony, therefore, that he sought the permission of the Samson heirs, and not from Josefa, must give way to documentary evidence. In another vein, as noted above, petitioners live in the vicinity of the land which was fenced and planted to fruit bearing trees. As such, they were put on notice that the land was possessed by someone. Where the land subject of sale is in possession of a person other than the vendor, prudence dictates that the vendee should go beyond the certificate of title. Absent such investigation, good faith cannot be presumed. Spouses Braulio Navarro and Cesaria Sindao vs. Perla Rico Go, G.R. No. 187288. August 9, 2010 Sale; notice of cancellation for action to declare contract non-existent. Notice of cancellation by notarial act need not be given before the contract between the Atienzas and respondent Espidol may be validly declared non-existent. R.A. 6552 which mandated the giving of such notice does not apply to this case. The cancellation envisioned in that law pertains to extrajudicial cancellation or one done outside of court, which is not the mode availed of here. The Atienzas came to court to seek the declaration of its obligation under the contract to sell cancelled. Thus, the absence of that notice does not bar the filing of their action. Sps. Paulino Atienza and Rufina Atienza vs. Domingo P. Espidol, G.R. No. 180665, August 11, 2010. Agency; sale of land by an unauthorized agent. Respondent sold land owned by her daughter without any written authority. Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an immovable property. Based on a review of the records, there is absolutely no proof of respondent‘s written authority to sell the lot to petitioners. In fact, during the pre-trial conference, petitioners admitted that at the time of the negotiation for the sale of the lot, petitioners were of the belief that respondent was the owner of lot. Consequently, the sale of the lot by respondent who did not have a written authority from the real owner is void. A void contract produces no effect either against or in favor of anyone and cannot be ratified. Sps. Joselina Alcantara and Antonio Alcantara, et al. vs. Brigida L. Nido, as attorney-in-fact of Revelen Srivastava, G.R. No. 165133, April 19, 2010. Sale; contract to sell land; payment of price; Maceda Law. Contracts are law between the parties, and they are bound by its stipulations. It is clear from the above-quoted provisions that the parties intended their agreement to be a Contract to Sell: Dela Cruz retains ownership of the subject lands and does not have the obligation to execute a Deed of Absolute Sale until petitioners‘ payment of the full purchase price. Payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Strictly speaking, there can be no rescission or resolution of an obligation that is still non-existent due to the non-happening of the suspensive condition. Dela Cruz is thus not obliged to execute a Deed of Absolute Sale in petitioners‘ favor because of petitioners‘ failure to make full payment on the stipulated date. The trial court erred in applying R.A. 6552, or the Maceda Law, to the present case. The Maceda Law applies to contracts of sale of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants. The subject lands, comprising five parcels and aggregating 69,028 square meters, do not comprise residential real estate within the contemplation of the Maceda Law. Moreover, even if we apply the Maceda Law to the present case, petitioners‘ offer of payment to Dela Cruz was made a year and a half after the stipulated date. This is beyond the sixty-day grace period under Section 4 of the Maceda Law. Petitioners still cannot use the second sentence of Section 4 of the Maceda Law against Dela Cruz for Dela Cruz‘s alleged failure to give an effective notice of cancellation or demand for rescission because Dela Cruz merely sent the notice to the address supplied by petitioners in the Contract to Sell. It is undeniable that petitioners failed to pay the balance of the purchase price on the stipulated date of the Contract to Sell. Thus, Dela Cruz is within her rights to sell the subject lands to Bartolome. Neither Dela Cruz nor Bartolome can be said to be in bad faith. Spouses Faustino and Josefina Garcia, et al. vs. Court of Appeals, et al., G.R. No. 172036, April 23, 2010. Sale; buyer in good faith. The party, IDRI, was not a buyer in good faith. It had actual knowledge of facts and circumstances, which should impel a reasonably cautious person to make further inquiries about the vendor‘s title to the property. The representative of IDRI testified that he knew about the existence of the notice of lis pendens on the property subject of the sale and the legal separation case that had been filed. Thus IDRI could not feign ignorance of the property being conjugal. Furthermore, if IDRI made further inquiries, it would have known that the cancellation of the notice of lis pendens was highly irregular. Under Section 77 of Presidential Decree No. 1529, the notice of lis pendens may be cancelled (a) upon order of the court, or (b) by the Register of Deeds upon verified petition of the party who caused the registration of the lis pendens. In this case, the lis pendens was cancelled by the Register of Deeds upon the request of Alfredo. There was no court order for the cancellation of the lis pendens. Neither did Elvira, the party who caused the registration of the lis pendens, file a verified petition for its cancellation. Besides, had IDRI been more prudent before buying the property, it would have discovered that Alfredo‘s P a g e | 86 donation of the property to Winifred was without the consent of Elvira. Under Article 125 of the Family Code, a conjugal property cannot be donated by one spouse without the consent of the other spouse. Clearly, IDRI was not a buyer in good faith. Mario Siochi vs. Alfredo Gozon, et al./Inter-Dimensional Realty, Inc. Vs. Mario Siochi, et al., G.R. No. 169900/G.R. No. 169977, March 18, 2010. Sale; land; innocent purchaser for value. This case stemmed from a conflict of ownership (resulting from multiple transactions) over Lot 18026-A. Although it was continuously, openly and adversely possessed by Santiago Ebora, the property was mistakenly included by Chacon Enterprises in its application for original registration. As a result, litigation arose between respondents (the heirs of Ebora) and Chacon Enterprises. During the pendency of this litigation, the heirs of Ebora sold the entire Lot 18026-A to their co-heirs, the Pacardos. On the same day, the Pacardos assigned the property to Digno Roa, married to petitioner Lydia Roa. TCT No. T-24488 was issued in the name of Digno Roa. Meanwhile, the case between Chacon Enterprises and the heirs of Ebora was decided in favor of the latter. By reason of this decision, TCT No. T- 48097 was issued in the name of the heirs of Ebora. New TCTs were issued and the lots were thereafter sold to various respondents, which resulted in the issuance of new TCTs in the names of the respective vendees. All these transactions occurred without petitioner‘s knowledge and consent. In the case before the Supreme Court, the petitioner sought that respondents be declared as not innocent purchasers for value and that the subject properties be adjudicated in her favor. The court, however, ruled that respondents are innocent purchasers for value. Nonetheless, without undermining the reason behind this doctrine (of protecting innocent purchasers for value), the court when on to ―hold that petitioner is entitled to the property following Sanchez v. Quinio… In this case, as in Sanchez, petitioner‘s title was validly issued and had been undisturbed for 10 years before the title of respondents‘ predecessor (the Ebora heirs) was issued. Petitioner never relinquished her title to respondents or to anybody else. She therefore possessed a superior right over those of respondents, notwithstanding the fact that respondents were innocent purchasers for value. Moreover, the heirs of Ebora sold and conveyed their rights to and interests in Lot 18026-A to the spouses Pacardo who assigned the property to the husband of petitioner as early as June 3, 1977. From then on, the heirs of Ebora lost all their rights and interest over the property. Indeed, the heirs of Ebora even confirmed the sale to Josefa and the assignment and waiver of rights in favor of petitioner‘s husband in an instrument dated January 31, 1983. Thus, the heirs of Ebora had nothing to adjudicate among themselves on October 8, 1987. Neither did they have anything to transfer to the vendees or successors-in-interest. As such, the transferees of the heirs of Ebora acquired no better right than that of the transferors. The spring cannot rise higher than its source.‖ Lydia L. Roa Vs. Heirs of Santiago Ebora, et al., G.R. No. 161137, March 15, 2010. Sale; difference between contract of sale and contract to sell. In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory condition. On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages. The deed executed by the parties stated that petitioner sold the properties to respondent ―in a manner absolute and irrevocable‖ for a sum of P1.1 million. With regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance payable directly to RSLAI (on behalf of petitioner) within a reasonable time. Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price. On the contrary, the terms and conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership. In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer. In this regard, Article 1498 of the Civil Code provides that, as a rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold. Moreover, not only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from respondent and release his certificates of title to her. The totality of petitioner‘s acts clearly indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into. Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010 Sale; double sale; Article 1544; prior possession. Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof. In this instance, petitioner delivered the properties to respondent when he executed the notarized deed and handed over to respondent the keys to the properties. For this reason, respondent took actual possession and exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties. Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010 Sale; double sale; purchaser in good faith. This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same seller to the two different buyers in good faith. Article 1544 of the Civil Code sets down the P a g e | 87 rules on double or multiple sales. This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith. Needless to say, it disqualifies any purchaser in bad faith. A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other person‘s claim or interest in the property. The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to having notice of any defect in the seller‘s title. Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the balance of petitioner‘s outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioner‘s obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner himself rendered respondent‘s obligation to assume petitioner‘s indebtedness to RSLAI impossible to perform. Since respondent‘s obligation to assume petitioner‘s outstanding balance with RSLAI became impossible without her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the condition vis-à-vis the payment of the remainder of the purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of the purchase price. Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010. Sale; lump sum. In the instant case, the deed of sale is not one of a unit price contract. The parties agreed on the purchase price of P40,000.00 for a predetermined area of 4,000 sq m, more or less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on the South by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract of sale of land in a mass, the specific boundaries stated in the contract must control over any other statement, with respect to the area contained within its boundaries. Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in quantity. The difference in the area is obviously sizeable and too substantial to be overlooked. It is not a reasonable excess or deficiency that should be deemed included in the deed of sale. Carmen Del Prado vs. Spouses Antonio L. Caballero and Leonarda Caballero, G.R. No. 148225, March 3, 2010 Sale; prescription not relevant. The petitioners assert that the lot, being titled in the name of their predecessors-in-interest, could not be acquired by prescription or adverse possession. The assertion is unwarranted. Prescription, in general, is a mode of acquiring or losing ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law. However, prescription was not relevant to the determination of the dispute herein, considering that Lim did not base his right of ownership on an adverse possession over a certain period. He insisted herein, instead, that title to the land had been voluntarily transferred by the registered owners themselves to Luisa, his predecessor-in-interest. Lim showed that his mother had derived a just title to the property by virtue of sale; that from the time Luisa had acquired the property in 1937, she had taken over its possession in the concept of an owner, and had performed her obligation by paying real property taxes on the property, as evidenced by tax declarations issued in her name; and that in view of the delivery of the property, coupled with Luisa‘s actual occupation of it, all that remained to be done was the issuance of a new transfer certificate of title in her name. Teofisto Oño, et al. vs. Vicente N. Lim, G.R. No. 154270, March 9, 2010. Subdivision and Condominium Buyer‘s decree; P.D. No. 957; rescission of contract; impact of lack of License to Sell on contract. GG Sportswear, which had entered into a reservation agreement for the purchase of condo units, cannot seek the rescission of the agreement, where the developer had not breached any substantial provision of the agreement. Neither can GG Sportswear find recourse through P.D. No. 957, or the ―Subdivision and Condominium Buyers‘ Protective Decree.‖ This law covers all sales and purchases of subdivision or condominium units, and provides that the buyer‘s installment payments shall not be forfeited in favor of the developer or owner if the latter fails to develop the subdivision or condominium project. To recall, the completion date of the Antel Global Corporate Center was either in August 1998 (based on World Class‘s first License to Sell), on December 15, 1998 (based on the provisional Contract to Sell), or on December 1999 (based on World Class‘s second License to Sell). At the time GG Sportswear filed its complaint against World Class on June 10, 1997, the Antel Global Corporate Center was still in the course of development and none of these projected completion dates had arrived. Hence, any complaint for refund was premature. Significantly, World Class completed the project in August 1999, or within the time period granted by the HLURB for the completion of the condominium project under the second License to Sell. This completion, undertaken while the case was pending before the Arbiter, rendered the issue of World Class‘s failure to develop the condominium project moot and academic. On a final note, we choose to reiterate, for the benefit of the HLURB, our ruling in Co Chien v. Sta. Lucia Realty & Development, Inc., that the requirements of Sections 4 and 5 of P.D. No. 957 are intended merely for administrative convenience in order to allow for a more effective regulation of the industry and do not go into the validity of the contract such that the absence thereof would automatically render the contract null and void. G.G. Sportswear Mfg. Corp vs. World Class Properties, Inc., G.R. No. 182720, March 2, 2010 Assignment of credits. Was Reyes‘ sale of the property to the Vegas binding on PDC (one of Reyes‘ creditors) which tried to enforce the judgment credit against Reyes in its favor on the property? The CA ruled that Reyes‘ assignment of the property to P a g e | 88 the Vegas did not bind PDC, which had a judgment credit against Reyes, since such assignment neither appeared in a public document nor was registered with the register of deeds as Article 1625 of the Civil Code required. Article 1625 reads: Art. 1625. An assignment of a credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. (1526) But Article 1625 referred to assignment of credits and other incorporeal rights. Reyes did not assign any credit or incorporeal right to the Vegas. She sold the Vegas her house and lot. They became owner of the property from the time she executed the deed of assignment covering the same in their favor. PDC had a judgment for money against Reyes only. A court‘s power to enforce its judgment applies only to the properties that are indisputably owned by the judgment obligor. Here, the property had long ceased to belong to Reyes when she sold it to the Vegas in 1981. Sps. Antonio and Leticia Vega vs. Social Security System, et al., G.R. No. 181672, September 20, 2010 LEASE Lease; return of leased property in the leased premises. Here is the first paragraph of this case, with Digester‘s responses in capitals: ―What happens when personal properties inside leased premises are stipulated as included in the contract of lease?‖ THE PARTIES CAN DO THIS UNDER FREEDOM TO CONTRACT. ―Does a judgment on a suit for unlawful detainer ejecting the lessees from the subject property carry with it the return of these personal properties as well?‖ YES, BECAUSE UPON THE ISSUANCE OF THE EJECTMENT ORDER, THE LEASE TERMINATES AND CLAUSE REQURING RETURN OR REPLACEMENT OF CERTAIN PERSONAL PROPERTIES FOUND IN THE LEASED PREMISES, IS TRIGGERED. ―Finally, the trickier part which is the crux of this petition: what if some of these personal properties are lost, destroyed or sold by the lessor? May the ejected lessees still be ordered to pay for their value?‖ YES. University Physicians Services, Inc. vs. Marian Clinics, Inc. and Dr. Lourdes Mabanta, G.R. No. 152303, September 1, 2010. Lease; implied lease. It bears emphasis that the respondent did not give the petitioner a notice to vacate upon the expiration of the lease contract in December 1997 (the notice to vacate was sent only on August 5, 1998), and the latter continued enjoying the subject premises for more than 15 days, without objection from the respondent. By the inaction of the respondent as lessor, there can be no inference that it intended to discontinue the lease contract. An implied new lease was therefore created pursuant to Article 1670 of the Civil Code. An implied new lease or tacita reconduccion will set in when the following requisites are found to exist: a) the term of the original contract of lease has expired; b) the lessor has not given the lessee a notice to vacate; and c) the lessee continued enjoying the thing leased for fifteen days with the acquiescence of the lessor.‖ Since the rent was paid on a monthly basis, the period of lease is considered to be from month to month, in accordance with Article 1687 of the Civil Code. ―[A] lease from month to month is considered to be one with a definite period which expires at the end of each month upon a demand to vacate by the lessor.‖ When the respondent sent a notice to vacate to the petitioner on August 5, 1998, the tacita reconduccion was aborted, and the contract is deemed to have expired at the end of that month. ―[A] notice to vacate constitutes an express act on the part of the lessor that it no longer consents to the continued occupation by the lessee of its property.‖ After such notice, the lessee‘s right to continue in possession ceases and her possession becomes one of detainer. Viegely Samelo, represented by Attorney-in-Fact Cristina Samelo vs. Manotok Services, Inc., etc.; G.R. No. 170509, June 27, 2012. Lease; interest on unpaid rentals. The petitioner is liable to pay interest by way of damages for her failure to pay the rentals due for the use of the subject premises. We reiterate that the respondent‘s extrajudicial demand on the petitioner was made on August 5, 1998. Thus, from this date, the rentals due from the petitioner shall earn interest at 6% per annum, until the judgment in this case becomes final and executory. After the finality of judgment, and until full payment of the rentals and interests due, the legal rate of interest to be imposed shall be 12%. Viegely Samelo, represented by Attorney-in-Fact Cristina Samelo vs. Manotok Services, Inc., etc.; G.R. No. 170509, June 27, 2012. Lease; assignment of lease; need for consent. Article 1649 of the New Civil Code provides: Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. (n) In an assignment of a lease, there is a novation by the substitution of the person of one of the parties – the lessee. The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new juridical relation arises between the two persons who remain – the lessor and the assignee who is converted into the new lessee. The objective of the law in prohibiting the assignment of the lease without the lessor‘s consent is to protect the owner or lessor of the leased property. P a g e | 89 The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It need not be given simultaneously with that of the lessee and of the assignee. Neither is it required to be in any specific or particular form. It must, however, be clearly given. In this case, it cannot be said that Macgraphics gave its implied consent to the assignment of lease. Simedarby Pilipinas, Inc. vs. Goodyear Philippines, Inc., et al./Goodyear Philippines, Inc. vs. Sime Darby Pilipinas, Inc. et al., G.R. No. 182148/G.R. No. 183210. June 8, 2011 Lease; financial lease; liability of registered owner. In accordance with the law on compulsory motor vehicle registration, this Court has consistently ruled that, with respect to the public and third persons, the registered owner of a motor vehicle is directly and primarily responsible for the consequences of its operation regardless of who the actual vehicle owner might be. Well-settled is the rule that the registered owner of the vehicle is liable for quasi-delicts resulting from its use. Thus, even if the vehicle has already been sold, leased, or transferred to another person at the time the vehicle figured in an accident, the registered vehicle owner would still be liable for damages caused by the accident. The sale, transfer or lease of the vehicle, which is not registered with the Land Transportation Office, will not bind third persons aggrieved in an accident involving the vehicle. The compulsory motor vehicle registration underscores the importance of registering the vehicle in the name of the actual owner. FEB Leasing and Finance Corporation (now BPI Leasing Corp.) vs. Sps. Sergio P. Baylon and Maritess Villena Baylon, et al.; G.R. No. 181398. June 29, 2011 Lease. True, the quoted provision of the lease contract requires ICA to undertake major repairs ―affecting the structural condition of the building and those due to fortuitous events.‖ But AMA‘s outright rescission of the lease contract and demand that ICA return the deposit and advance rentals it got within 24 hours from such demand precluded ICA, first, from contesting the findings of the local building official or getting some structural specialists to verify such findings or, second, from making the required repair. Clearly, AMA‘s hasty rescission of the contract gave ICA no chance to exercise its options. AMA belatedly invokes Article 1660 of the Civil Code which reads: Art. 1660. If a dwelling place or any other building intended for human habitation is in such a condition that its use brings imminent and serious danger to life or health, the lessee may terminate the lease at once by notifying the lessor, even if at the time the contract was perfected the former knew of the dangerous condition or waived the right to rescind the lease on account of this condition. AMA is actually changing its theory of the case. It claimed in its complaint that it was entitled to rescind the contract of lease because ICA fraudulently hid from it the structural defects of its building. The CA did not agree with this theory but held that AMA was nonetheless entitled to rescind the contract for failure of ICA to make the repairs mentioned in the contract. Now, AMA claims that it has a statutory right to rescind the lease contract on the ground mentioned in Article 1660, even if it may be deemed to have initially waived such right. Article 1660 is evidently intended to protect human lives. If ICA‘s building was structurally defective and in danger of crashing down during an earthquake or after it is made to bear the load of a crowd of students, AMA had no right to waive those defects. It can rescind the lease contract under Article 1660. But this assumes that the defects were irremediable and that the parties had no agreement for rectifying them. As pointed out above, the lease contract implicitly gave ICA the option to repair structural defects at its expense. If that had been done as the contract provides, the risk to human lives would have been removed and the right to rescind, rendered irrelevant. In any event, the fact is that the local building official found ICA‘s building structurally defective and unsafe. Such finding is presumably true. For this reason, ICA has no justification for keeping AMA‘s deposit and advance rentals. Still, the Court holds that AMA is not entitled to recover more than the return of its deposit and advance rental considering that, contrary to AMA‘s claim, ICA acted in good faith and did not mislead it about the condition of the building. Immaculate Conception Academy, et al. v. AMA Computer College, Inc.; G.R. No. 173575. February 2, 2011. Lease; term; month-to-month basis. The well-entrenched principle is that a lease from month-to-month is with a definite period and expires at the end of each month upon the demand to vacate by the lessor. As held by the Court of Appeals in the assailed Amended Decision, the above-mentioned lease contract was duly terminated by DBP by virtue of its letter dated June 18, 1987. We reiterate that the letter explicitly directed the petitioners to come to the office of the DBP if they wished to enter into a new lease agreement with the said bank. Otherwise, if no contract of lease was executed within 30 days from the date of the letter, petitioners were to be considered uninterested in entering into a new contract and were thereby ordered to vacate the property. As no new contract was in fact executed between petitioners and DBP within the 30-day period, the directive to vacate, thus, took effect. DBP‘s letter dated June 18, 1987, therefore, constituted the written notice that was required to terminate the lease agreement between petitioners and Rudy Robles. From then on, the petitioners‘ continued possession of the subject property could be deemed to be without the consent of DBP. P a g e | 90 Thusly, petitioners‘ assertion that Article 1670 of the Civil Code is not applicable to the instant case is correct. The reason, however, is not that the existing contract was continued by DBP, but because the lease was terminated by DBP, which termination was accompanied by a demand to petitioners to vacate the premises of the subject property. Article 1670 states that ―[i]f at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived.‖ In view of the order to vacate embodied in the letter of DBP dated June 18, 1987 in the event that no new lease contract is entered into, the petitioners‘ continued possession of the subject properties was without the acquiescence of DBP, thereby negating the constitution of an implied lease. Cebu Bionic Builders Supply, Inc. and Lydia Sia vs. Development Bank of the Philippines, et al., G.R. No. 154366, November 17, 2010. Lease; right of first refusal; distinguished from option to buy. In the seventies, NDC had entered tinto two contracts of lease with a company called Golden Horizon Realty Corporation (GHRC). These each had a term of 10 years, renewable for another 10 upon the consent of the parties. In addition GHRC was granted an ―option‖ to purchase the leased property. Before the expiration of the second lease contract, GHRC sought to exercise its option to renew the lease and requested priority to negotiate for the property‘s purchase should NDC opt to sell. NDC did not respond to this request but even after the expiry of the term kept on accepting the rentals. GHRC learned that NDC had decided to secretly dispose of the land which prompted GHR to take legal action. Meanwhile, then President Aquino issued a memorandum order ordering the transfer to the National government of that NDC property. The National Government in turn transferred the property to PUP. The issue is whether the transfer of the property violated the ―option‖ that had been granted to GHRC. An option is a contract by which the owner of a property agrees with another that the latter shall have the right to buy the former‘s property at a fixed price within a certain time. It binds the party who has given the option, not to enter into a contract with any other person during the period designated, and within that period, to enter into such a contract with the one to whom the option was granted, if the latter decides to use the option. On the other hand, a right of first refusal is a contractual grant, not of a sale of a property, but of first priority to buy the property in the event the owner sells the same. As distinguished from an option contract, in a right of first refusal, while the object might be made determinate, the exercise of the right of first refusal would eb dependent not only on the owner‘s eventual intention to enter into a transaction with another, but also on terms, including the price, that are yet to be firmed up. The ―option‖ given to GHRC is obviously a mere right of first refusal and this is not disputed by the parties. What PUP and NDC assail is the conclusion that such right of first refusal subsisted even after the expiration of the original lease period when GHRC was allowed to continue staying in the leased premises under an implied renewal of lease. They argue that the right of first refusal provision was not carried over to such month-to-month lease. The court found this position untenable. Evidence shows that at the time NDC began negotiating for the transfer of the land to PUP, the right of first refusal was subsisting. Hence, whether or not the right of first refusal was carried over to the implied lease, is irrelevant. Polytechnic University of the Philippines Vs. Golden Horizon Realty Corporation/National Development Company Vs. Golden Horizon Realty Corporation, G.R. No. 183612/G.R. No. 184260, March 15, 2010 Lease; right to sublease. It is undisputed that petitioner had ejected respondent‘s lodgers three months before the expiration of the lease contract on 7 July 1996. Petitioner maintains that she had the right to terminate the contract prior to its expiration because respondent allegedly violated the terms of the lease contract by subleasing the rented premises. However, petitioner‘ s assertion is belied by the provision in the lease contract that states that the lessee can ―use the premises as a dwelling or as lodging house.‖ Thus, the lessee had the right to sublease the premises. Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010. Contracts; Rescission. Under their lease agreement, the remedy of rescission would become unavailable to DBS only if the Martins, as lessors, made the required repair and reconstruction after the damages by natural cause occurred, which meant putting the premises after the floods in such condition as would enable DBS to resume its use of the same for the purposes contemplated in the agreement, namely, as office, warehouse, and parking space for DBS‘ repossessed vehicles. Here, it is undisputed that the floods of May 25 and August 13, 1997 submerged the DBS offices and its 326 repossessed vehicles. The floods rendered the place unsuitable for its intended uses. And, while the Martins did some repairs, they did not restore the place to meet DBS‘ needs. Thus DBS may seek to rescinding the lease. Felicidad T. Martin, et al. vs. DBS Bank Philippines, Inc., et al. G.R. No. 174632 & G.R. No. 174804, June 16, 2010. Lease; lessee ―in good faith‖ versus ―builder in good faith‖; award of damages. In a case where the lessee made improvements to the leased premises in good faith, the applicable law is not the Civil Code provisions on builder in good faith, because those provisions contemplate a situation where the builder believes himself to be the real owner of the property. Tenants cannot be said to be builders in good faith as they have no pretension to be owners of the property. It is Article 1678 of the Civil Code which should apply. P a g e | 91 In this case, the lessees ―removed only the improvements they introduced without destroying the principal building, after the lessors refused to pay them the reasonable value of the improvements.‖ When the lessees demanded reimbursement, the lessors should have offered to pay the lessees Mores one-half of the value of the improvements. Since the lessors failed to make such offer, the lessees had the right to remove the improvements, and the lessors were not entitled to any moral damages. Alida Mores vs. Shirley M. Yu-Go, Ma. Victoria Yu-Lim and Ma. Estrella M. Yu, G.R. No. 172292, July 23, 2010. Lease; assignment; requirement for lessor‘s consent. PNOC‘s buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to ESSO Eastern. Logically, this change of ownership carried with it the transfer to PNOC of any proprietary interest ESSO Eastern may hold through ESSO Philippines, including ESSO Eastern‘s lease over the Property, which lease contract provided that the contract could not be assigned by ESSO Eastern without the consent of the lessor. As the lessor has given no prior consent to the transaction between ESSO Eastern and PNOC, ESSO Eastern violated the Contract‘s assignment veto clause. Romeo D. Mariano vs. Petron Corporation, G.R. No. 169438, January 21, 2010. Lease; waiver of right to eject lessee. The continued receipt of lease payments by the lessor despite the contractual breach amounted to a waiver of their option to eject the lessee. Romeo D. Mariano vs. Petron Corporation, G.R. No. 169438, January 21, 2010. Contracts; lump sum for piece of work. The parties entered into a contract for a piece of work whereby petitioner engaged respondent as contractor to build and provide the necessary materials for the construction of the structural steel works of HJI‘s fiber cement plant for a fixed lump-sum price of P44,223,909. The scope of work was defined in the subcontract as the completion of the structural steel works according to the main drawing, technical specifications and the main contract. Thus, to determine whether the roof ridge ventilation and crane beams were included in the scope of work, reference to the main drawing, technical specifications and main contract is necessary. The main contract stated that the structural steel works included Drawing Nos. P302-6200-S-405 and P302-6200-S-402. This, according to petitioner and respondent, referred to the roof ridge ventilation and crane beams. Hence, the said works were clearly included in the sub-contract works. Nevertheless, respondent contends that when Bennett signed the August 12, 1997 progress report, petitioner approved the additional cost estimates, in effect modifying the original agreement in the subcontract. In contracts for a stipulated price like fixed lump-sum contracts, the recovery of additional costs is governed by Article 1724 of the Civil Code. Settled is the rule that a claim for the cost of additional work arising from changes in the scope of work can only be allowed upon the (1) written authority from the developer or project owner ordering or allowing the written changes in work and (2) written agreement of parties with regard to the increase in price or cost due to the change in work or design modification. Furthermore, compliance with the two requisites of Article 1724, a specific provision governing additional works, is a condition precedent for the recovery. The absence of one or the other condition bars the recovery of additional costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved by any other evidence. Respondent, in this instance, presented the August 12, 1997 progress report signed by Bennett. However, respondent knew that Bennett was not authorized to order any changes in the scope of works or to approve the cost thereof. It addressed all correspondences relating to the project to (petitioner‘s) project manager Michael Dent, not Bennett. Moreover, Bennett did not sign the subcontract for and in behalf of respondent but only as a witness. Respondent was therefore aware of Bennett‘s lack of authority. In this respect, aside from respondent‘ s failure to present the documents required by Article 1724 of the Civil Code, we find that the sub-contract was never modified. Petitioner therefore cannot be liable for the additional costs incurred by respondent. In a fixed lump-sum contract, the project owner agrees to pay the contractor a specified amount for completing a scope of work involving a variety of unspecified items of work without requiring a cost breakdown. The contractor estimates the project cost based on the scope of work and schedule and considers probable errors in measurement and changes in the price of materials. By entering into a fixed lump- sum contract, respondent undertook the risk of incurring a loss due to errors in measurement. The sub-contract explicitly stated that the stipulated price was not subject to remeasurement. Since the roof ridge ventilation and crane beams were included in the scope of work, respondent was presumed to have estimated the quantity of steel (the minimum and maximum amount) needed on the said portions when it made its formal offer on July 5, 1997. Concomitantly, by the very nature of a fixed lump-sum contract, petitioner was only liable to pay the stipulated subcontract price. Leighton Contractors Philippines, Inc. vs. CNP Industries, Inc., G.R. No. 160972, March 9, 2010 PARTNERSHIP Joint Venture; Application of Laws on Partnership; Sharing of Losses. A joint venture being a form of partnership, it is to be governed by the laws on partnership. Article 1797 of the Civil Code provides that ―[T]he losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.” (Emphasis, the Court‘s.) In their joint venture agreement, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project. They did not provide for the splitting of losses, however. Applying the above-quoted provision of Article 1797 then, the same ratio applies in splitting the P535,353.50 obligation-loss of the joint venture. P a g e | 92 The appellate court‘s decision must be modified, however. Marsman Drysdale and Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman Drysdale for ―50% of the aggregate sum due‖ to PGI. Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on partnership on division of losses but would partake of a clear case of unjust enrichment at Gotesco‘s expense. Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs. Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29, 2010 . Partnership; existence of a partnership. A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. A contract of partnership is defined by the Civil Code as one where two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Undoubtedly, the best evidence would have been the contract of partnership or the articles of partnership. Unfortunately, there is none in this case, because the alleged partnership was never formally organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the ―partner‖ in the trucking business. The evidence presented by petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and not Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of Jose, having been derived from the alleged partnership. Petitioners heavily rely on Jimmy‘s testimony. But that testimony is just one piece of evidence against respondent. Applying the provisions of Article 1769 of the Civil Code (on whether a partnership exists), the following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto: (1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership; (2) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein; (3) all of the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business; and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose, having been derived from Jose‘s alleged partnership with Jimmy and Norberto. They failed to refute respondent‘s claim that Elfledo and respondent engaged in other businesses. Edison even admitted that Elfledo also sold Interwood lumber as a sideline. Petitioners could not offer any credible evidence other than their bare assertions. The testimonies prove it was through Elfredo‘s efforts and hard work that the partnership was able to acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by acting as the bookkeeper sans salary. It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo who was the partner, then upon his death the partnership should have been dissolved and its assets liquidated. On the contrary, these were not done but instead its operation continued under the helm of Elfledo and without any participation from the heirs of Jose Lim. Heirs of Jose Lim, represented by Elenito Lim vs. Juliet Villa Lim, G.R. No. 172690, March 3, 2010 AGENCY Agency; ratification. The complaint was anchored on the supposed failure of FEBTC to duly investigate the authority of Antonio in contracting the ―exceptionally and relatively immense‖ loans amounting to P5,000,000.00. Marcos alleged therein that his property had thereby become ―unlawfully burdened by unauthorized real estate mortgage contracts,‖ because the loans and the mortgage contracts had been incurred by Antonio and his wife only for themselves, to the exclusion of petitioner. Yet, Marcos could not deny that under the express terms of the SPA, he had precisely granted to Antonio as his agent the authority to borrow money, and to transfer and convey the property by way of mortgage to FEBTC; to sign, execute and deliver promissory notes; and to receive the proceeds of the loans on the former‘s behalf. In other words, the mortgage contracts were valid and enforceable against petitioner, who was consequently fully bound by their terms. Moreover, even if it was assumed that Antonio‘s obtaining the loans in his own name, and executing the mortgage contracts also in his own name had exceeded his express authority under the SPA, Marcos was still liable to FEBTC by virtue of his express ratification of Antonio‘s act. Under Article 1898 of the Civil Code, the acts of an agent done beyond the scope of his authority do not bind the principal unless the latter expressly or impliedly ratifies the same. In agency, ratification is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of ratification is the confirmation after the act, amounting to a substitute for a prior authority. Here, there was such a ratification by Marcos, as borne out by his execution of the letter of acknowledgement on September 12, 1996. But Marcos insists that the letter of acknowledgment was only a mere ―letter (written) on a mimeographic paper … a mere scrap of paper, a document by adhesion. The Court is confounded by Marcos‘ dismissal of his own express written ratification of Antonio‘s act. Being himself a lawyer, Marcos was aware of the import and consequences of the letter of acknowledgment. The Court cannot agree with his insistence that the letter was worthless due to its being a contract of adhesion. The letter was not a contract, to begin with, because it was only a unilateral act of his. Secondly, his insistence was fallacious and insincere P a g e | 93 because he knew as a lawyer that even assuming that the letter could be treated as a contract of adhesion it was nonetheless effective and binding like any other contract. The Court has consistently held that a contract of adhesion was not prohibited for that reason. In Pilipino Telephone Corporation v. Tecson,for instance, the Court said that contracts of adhesion were valid but might be occasionally struck down only if there was a showing that the dominant bargaining party left the weaker party without any choice as to be ―completely deprived of an opportunity to bargain effectively.‖ That exception did not apply here, for, verily, Marcos, being a lawyer, could not have been the weaker party. As the tenor of the of acknowledgment indicated, he was fully aware of the meaning and sense of every written word or phrase, as well as of the legal effect of his confirmation thereby of his agent‘s act. It is axiomatic that a man‘s act, conduct and declaration, wherever made, if voluntary, are admissible against him, for the reason that it is fair to presume that they correspond with the truth, and it is his fault if they do not. Marcos V. Prieto vs. Court of Appeals, et al.; G.R. No. 158597, June 18, 2012. Agency; ratification; agency by estoppel. Under Articles 1898 and 1910, an agent‘s act, even if done beyond the scope of his authority, may bind the principal if he ratifies them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent, can ratify the unauthorized acts, which the principal must have knowledge of. Neither Unimarine nor Cebu Shipyard was able to repudiate CBIC‘s testimony that it was unaware of the existence of Surety Bond No. G (16) 29419 and Endorsement No. 33152. There were no allegations either that CBIC should have been put on alert with regard to Quinain‘s business transactions done on its behalf. It is clear, and undisputed therefore, that there can be no ratification in this case, whether express or implied. Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the protection of third persons. It states that the principal is solidarily liable with the agent even when the latter has exceeded his authority, if the principal allowed him to act as though he had full powers. However, for an agency by estoppel to exist, the following must be established: 1. The principal manifested a representation of the agent‘s authority or knowingly allowed the agent to assume such authority; 2. The third person, in good faith, relied upon such representation; and 3. Relying upon such representation, such third person has changed his position to his detriment. In Litonjua, Jr. v. Eternit Corp., this Court said that ―[a]n agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.‖ This Court cannot agree with the Court of Appeals‘ pronouncement of negligence on CBIC‘s part. CBIC not only clearly stated the limits of its agents‘ powers in their contracts, it even stamped its surety bonds with the restrictions, in order to alert the concerned parties. Moreover, its company procedures, such as reporting requirements, show that it has designed a system to monitor the insurance contracts issued by its agents. CBIC cannot be faulted for Quinain‘s deliberate failure to notify it of his transactions with Unimarine. In fact, CBIC did not even receive the premiums paid by Unimarine to Quinain. Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the public, or specifically Unimarine, believe that Quinain had the authority to issue a surety bond in favor of companies other than the Department of Public Works and Highways, the National Power Corporation, and other government agencies. Neither was it shown that CBIC knew of the existence of the surety bond before the endorsement extending the life of the bond, was issued to Unimarine. For one to successfully claim the benefit of estoppel on the ground that he has been misled by the representations of another, he must show that he was not misled through his own want of reasonable care and circumspection. Country Bankers Insurance Corporation vs. Keppel Cebu Shipyard, Inc., et al.; G.R. No. 166044, June 18, 2012. Agency; agency by estoppel. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court wherever and whenever special circumstances of a case so demand. Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules that MEGAN is estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC. While it is true, as claimed by MEGAN, that Atty. Sabig said in court that he was only appearing for the hearing of Passi Sugar‘s motion for intervention and not for the case itself, his subsequent acts, coupled with MEGAN‘s inaction and negligence to repudiate his authority, effectively bars MEGAN from assailing the validity of the RTC proceedings under the principle of estoppel. Megan Sugar Corporation v. Regional Trial Court of Iloilo, Br. 68, Dumangas, Iloilo; New Frontier Sugar Corp., et al., G.R. No. 170352. June 1, 2011 Agency; doctrine of apparent authority. The Court finds that the signature of Abcede is sufficient to bind PRHC. As its construction manager, his very act of signing a letter embodying the P 36 million escalation agreement produced legal effect, even if there was a blank space for a higher officer of PHRC to indicate approval thereof. At the very least, he indicated authority to make such representation on behalf of PRHC. On direct examination, Abcede admitted that, as the construction P a g e | 94 manager, he represented PRHC in running its affairs with regard to the execution of the aforesaid projects. Abcede had signed, on behalf of PRHC, other documents that were almost identical to the questioned letter-agreement. PRHC does not question the validity of these agreements; it thereby effectively admits that this individual had actual authority to sign on its behalf with respect to these construction projects. Philippine Realty and Holding Corp. vs. Ley Const. and Dev. Corp./Ley Cons. and Dev. Corp. vs. Philippine Realty and Holding Corp., G.R. No. 165548/G.R. No. 167879. June 13, 2011 Agency. The sale of the DMCI shares made by EIB is null and void for lack of authority to do so, for petitioners never gave their consent or permission to the sale. Moreover, Article 1881 of the Civil Code provides that ―the agent must act within the scope of his authority.‖ Pursuant to the authority given by the principal, the agent is granted the right ―to affect the legal relations of his principal by the performance of acts effectuated in accordance with the principal‘s manifestation of consent.‖ In the case at bar, the scope of authority of EIB as agent of petitioners is ―to retain, apply, sell or dispose of all or any of the client‘s [petitioners‘] property,‖ if all or any indebtedness or other obligations of petitioners to EIB are not discharged in full by petitioners ―when due or on demand in or towards the payment and discharge of such obligation or liability.‖ The right to sell or dispose of the properties of petitioners by EIB is unequivocally confined to payment of the obligations and liabilities of petitioners to EIB and none other. Thus, when EIB sold the DMCI shares to buy back the KKP shares, it paid the proceeds to the vendees of said shares, the act of which is clearly an obligation to a third party and, hence, is beyond the ambit of its authority as agent. Such act is surely illegal and does not bind petitioners as principals of EIB. Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036, October 13, 2010. Agency; doctrine of apparent authority. The doctrine of apparent authority in respect of government contracts, has been restated to mean that the government is NOT bound by unauthorized acts of its agents, even though within the apparent scope of their authority. Under the law on agency, however, ―apparent authority‖ is defined as the power to affect the legal relations of another person by transactions with third persons arising from the other‘s manifestations to such third person such that the liability of the principal for the acts and contracts of his agent extends to those which are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred. Apparent authority, or what is sometimes referred to as the ―holding out‖ theory, or doctrine of ostensible agency, imposes liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an employer in somehow misleading the public into believing that the relationship or the authority exists. The existence of apparent authority may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. Easily discernible from the foregoing is that apparent authority is determined only by the acts of the principal and not by the acts of the agent. The principal is, therefore, not responsible where the agent‘s own conduct and statements have created the apparent authority. In this case, not a single act of respondent, acting through its Board of Directors, was cited as having clothed its general manager with apparent authority to execute the contract with it. Sargasso Construction & Development Corporation / Pick & Shovel, Inc./Atlantic Erectors, Inc./ Joint Venture vs. Philippine Ports Authority, G.R. No. 170530, July 5, 2010. Agency; doctrine of apparent authority. Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal. The principal‘s liability, however, is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other words, apparent authority is determined only by the acts of the principal and not by the acts of the agent. There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third party‘s detriment. In the present case, the decision of the trial court was utterly silent on the manner by which the bank, as supposed principal, has ―clothed‖ or ―held out‖ its branch manager as having the power to enter into an agreement, as claimed by petitioners. Further, we would be unduly stretching the doctrine of apparent authority were we to consider the power to undo or nullify solemn agreements validly entered into as within the doctrine‘s ambit. Although a branch manager, within his field and as to third persons, is the general agent and is in general charge of the corporation, with apparent authority commensurate with the ordinary business entrusted him and the usual course and conduct thereof, yet the power to modify or nullify corporate contracts remains generally in the board of directors. Being a mere branch manager alone is insufficient to support the P a g e | 95 conclusion that Mondigo has been clothed with ―apparent authority‖ to verbally alter terms of written contracts, especially when viewed against the telling circumstances of this case. It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of the agent‘s authority, and in case either is controverted, the burden of proof is upon them to establish it. As parties to the mortgage contract, the petitioners are expected to abide by its terms. The subsequent purported agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigo‘s actual or apparent authority, as above discussed. Violeta Tudtud Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc. and Teofilo Soon, Jr., G.R. No. 163825, July 13, 2010. Agency; principle of apparent authority; agency relationship between hospital and doctors who practice in its premises. This Court holds that PSI (the owner of the hospital) is liable to the Aganas, not under the principle of respondeat superior for lack of evidence of an employment relationship with a Dr. Ampil (who had left two pieces of gauze in the body of a patient he had operated on) but under the principle of ostensible agency for the negligence of Dr. Ampil and, pro hac vice, under the principle of corporate negligence for its failure to perform its duties as a hospital. While in theory a hospital as a juridical entity cannot practice medicine, in reality it utilizes doctors, surgeons and medical practitioners in the conduct of its business of facilitating medical and surgical treatment. Within that reality, three legal relationships crisscross: (1) between the hospital and the doctor practicing within its premises; (2) between the hospital and the patient being treated or examined within its premises and (3) between the patient and the doctor. The exact nature of each relationship determines the basis and extent of the liability of the hospital for the negligence of the doctor. Where an employment relationship exists, the hospital may be held vicariously liable under Article 2176 in relation to Article 2180 of the Civil Code or the principle of respondeat superior. Even when no employment relationship exists but it is shown that the hospital holds out to the patient that the doctor is its agent, the hospital may still be vicariously liable under Article 2176 in relation to Article 1431 and Article 1869 of the Civil Code or the principle of apparent authority. Moreover, regardless of its relationship with the doctor, the hospital may be held directly liable to the patient for its own negligence or failure to follow established standard of conduct to which it should conform as a corporation. The concurrent finding of the RTC and the CA that PSI was not the employer of Dr. Ampil is correct. Consequently, PSI cannot be held vicariously liable for the negligence of Dr. Ampil under the principle of respondeat superior. There is, however, ample evidence that the hospital (PSI) held out to the patient (Natividad) that the doctor (Dr. Ampil) was its agent. Present are the two factors that determine apparent authority: first, the hospital‘s implied manifestation to the patient which led the latter to conclude that the doctor was the hospital‘s agent; and second, the patient‘s reliance upon the conduct of the hospital and the doctor, consistent with ordinary care and prudence. [Digester’s Note: Here, the Supreme Court sets out what it believes are the indications of agency. We have numbered the premises.] (1) Enrique, the husband of the patient, testified that he consulted Dr. Ampil regarding the condition of his wife; that after the meeting and as advised by Dr. Ampil, he ―asked [his] wife to go to Medical City to be examined by [Dr. Ampil]‖; and that the next day, he told his daughter to take her mother to Dr. Ampil. This timeline indicates that it was Enrique who actually made the decision on whom Natividad should consult and where, and that the latter merely acceded to it. It explains the testimony of Natividad that she consulted Dr. Ampil at the instigation of her daughter. (2) Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified that he had known Ampil to be a specialist on that part of the body as a surgeon, and he had known ―him to be a staff member of the Medical City which is a prominent and known hospital.‖ Ampil was also a neighbor so Enrique had expected ―more than the usual medical service to be given to us, than his ordinary patients.‖ Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly influenced by the impression that Dr. Ampil was a staff member of Medical City General Hospital, and that said hospital was well known and prominent. Enrique looked upon Dr. Ampil not as independent of but as integrally related to Medical City. (3) PSI‘s acts tended to confirm and reinforce, rather than negate, Enrique‘s view. It is of record that PSI required a ―consent for hospital care‖ to be signed preparatory to the surgery of Natividad. The form reads: ―Permission is hereby given to the medical, nursing and laboratory staff of the Medical City General Hospital to perform such diagnostic procedures and to administer such medications and treatments as may be deemed necessary or advisable by the physicians of this hospital for and during the confinement of xxx. (emphasis supplied).‖ By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a physician of its hospital, rather than one independently practicing in it; that the medications and treatments he prescribed were necessary and desirable; and that the hospital staff was prepared to carry them out. (4) PSI pointed out in its memorandum that Dr. Ampil‘s hospital affiliation was not the exclusive basis of the Aganas‘ decision to have Natividad treated in Medical City General Hospital, meaning that, had Dr. Ampil been affiliated with another hospital, he would still have been chosen by the Aganas as Natividad‘s surgeon. The Court cannot speculate on what could have been behind the Aganas‘ decision but would rather adhere strictly to the fact that, under the circumstances at that time, Enrique decided to consult Dr. Ampil for he believed him to be a staff member of a prominent and known hospital. After his meeting with Dr. Ampil, Enrique advised his wife Natividad to go to the Medical City General Hospital to be examined by said doctor, and the hospital acted in a way that fortified Enrique‘s belief. The court must therefore maintain the ruling that PSI is P a g e | 96 vicariously liable for the negligence of Dr. Ampil as its ostensible agent. Professional Services, Inc. vs. The Court of Appeals, et al./Natividad (substituted by her children Marcelino Agana III, Enrique Agana, Jr. Emma Agana-Andaya, Jesus Agana and Raymund Agana and Errique Agana) vs. The Court of Appeals and Juan Fuentes Miguel Ampil vs. Natividad and Enrique Agana, G.R. Nos. 126297/G.R. No. 126467/G.R. No. 127590, February 2, 2010. Agency; principle of undisclosed principal. It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the principal. Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to the principal. Far East Bank and Trust Company (Now Bank of the Philippine Islands) and Rolando Borja, Deputy Sherrif vs. Sps. Ernesto and Leonor C. Cayetano, G.R. No. 179909, January 25, 2010. Agency; agency by estoppel. An agency by estoppel, which is similar to the doctrine of apparent authority requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance. There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant, and such must have produced a change of position to its detriment. Such proof is lacking in this case. Yun Kwan Byung vs. Philippine Amusement Gaming Corporation, G.R. No. 163553, December 11, 2009. Agency; implied agency. Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Implied agency, being an actual agency, is a fact to be proved by deductions or inferences from other facts. On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the principal may knowingly permit the agent to hold himself out as having such authority, and the principal becomes estopped to claim that the agent does not have such authority. Second, the principal may clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that the agent actually has such authority. In an agency by estoppel, there is no agency at all, but the one assuming to act as agent has apparent or ostensible, although not real, authority to represent another. The law makes no presumption of agency and proving its existence, nature and extent is incumbent upon the person alleging it. Whether or not an agency has been created is a question to be determined by the fact that one represents and is acting for another. Yun Kwan Byung vs. Philippine Amusement Gaming Corporation, G.R. No. 163553, December 11, 2009. Agency; implied agency. The basis for agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it. Absent such mutual intent, there is generally no agency. There is no implied agency in this case because PAGCOR did not hold out to the public as the principal of ABS Corporation. PAGCOR‘s actions did not mislead the public into believing that an agency can be implied from the arrangement with the junket operators, nor did it hold out ABS Corporation with any apparent authority to represent it in any capacity. The Junket Agreement was merely a contract of lease of facilities and services. Yun Kwan Byung vs. Philippine Amusement Gaming Corporation, G.R. No. 163553, December 11, 2009. LOAN Equitable mortgage. Lomises questions the nature of the agreement between him and Johnny, insisting that it was a contract of loan, not an assignment of leasehold rights and sale of improvements. In other words, what existed was an equitable mortgage, as contemplated in Article 1602, in relation with Article 1604, of the Civil Code. ―An equitable mortgage has been defined ‗as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, there being no impossibility nor anything contrary to law in this intent.‘‖ Article 1602 of the Civil Code lists down the circumstances that may indicate that a contract is an equitable mortgage: P a g e | 97 Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. [Emphasis ours.] Based on Lomises‘ allegations in his pleadings, we consider three circumstances to determine whether his claim is well- supported. First, Johnny was a mere college student dependent on his parents for support when the agreement was executed, and it was Johnny‘s mother, Domes, who was the party actually interested in acquiring the market stalls. Second, Lomises received only P48,000.00 of the P68,000.00 that Johnny claimed he gave as down payment; Lomises said that the P20,000.00 represented interests on the loan. Third, Lomises retained possession of the market stalls even after the execution of the agreement. Whether separately or taken together, these circumstances do not support a conclusion that the parties only intended to enter into a contract of loan. That Johnny was a mere student when the agreement was executed does not indicate that he had no financial capacity to pay the purchase price of P260,000.00. As to the second point, Lomises contends that of the P68,000.00 given by Johnny, he only received P48,000.00, with the remaining P20,000.00 retained by Johnny as interest on the loan. However, the testimonies of the witnesses presented during trial, including Lomises himself, negate this claim. On the third point, that Lomises retained possession of the market stalls even after the execution of his agreement with Johnny is also not an indication that the true transaction between them was one of loan. Johnny had yet to complete his payment and, until Lomises decided to forego with their agreement, had four more months to pay; until then, Lomises retained ownership and possession of the market stalls. Hence, the CA was correct in characterizing the agreement between Johnny and Lomises as a sale of improvements and assignment of leasehold rights. Lomises Aludos, deceased, substituted by Flora Aludos vs. Johnny M. Suerte; G.R. No. 165285, June 18, 2012. Equitable mortgage; right of redemption. The existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a concurrence of all or of a majority thereof, suffices to give rise to the presumption that the contract is an equitable mortgage. The provisions of the Civil Code governing equitable mortgages disguised as sale contracts are primarily designed to curtail the evils brought about by contracts of sale with right to repurchase, particularly the circumvention of the usury law and pactum commissorium. Courts have taken judicial notice of the well-known fact that contracts of sale with right to repurchase have been frequently resorted to in order to conceal the true nature of a contract, that is, a loan secured by a mortgage. It is a reality that grave financial distress renders persons hard-pressed to meet even their basic needs or to respond to an emergency, leaving no choice to them but to sign deeds of absolute sale of property or deeds of sale with pacto de retro if only to obtain the much-needed loan from unscrupulous money lenders. This reality precisely explains why the pertinent provision of the Civil Code includes a peculiar rule concerning the period of redemption, to wit: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: x x x (3)When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; P a g e | 98 x x x Ostensibly, the law allows a new period of redemption to be agreed upon or granted even after the expiration of the equitable mortgagor‘s right to repurchase, and treats such extension as one of the indicators that the true agreement between the parties is an equitable mortgage, not a sale with right to repurchase. Heirs of Jose Reyes, jr. namely; Magdalena C. Reyes, et al. vs. Amanda S. Reyes, et al., G.R. No. 158377, August 13, 2010. Loan; promissory note: elements. To ascertain whether or not respondent is bound by the promissory notes, it must be established that all the elements of a contract of loan are present. Like any other contract, a contract of loan is subject to the rules governing the requisites and validity of contracts in general. It is elementary in this jurisdiction that what determines the validity of a contract, in general, is the presence of the following elements: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of business has been followed; and (3) there was sufficient consideration for a contract. Pentacapital Investment Corporation vs. Makilito Mahinay/Pentacapital Investment Corporation Vs. Mikilito Mahinay, G.R. No. 171736, July 5, 2010 Interest rate. We affirm the interest rate decreed by the CA. Stipulated interest rates are illegal if they are unconscionable and courts are allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another. We cannot uphold the petitioner‘s invocation of our ruling in DBP v. Court of Appeals wherein the interest rate imposed was reduced to 10% per annum. The overriding circumstance prompting such pronouncement was the regular payments made by the borrower. Evidently, such fact is wanting in the case at bar, hence, the petitioner cannot demand for a similar interest rate. The circumstances attendant herein are similar to those in Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation wherein we levied the legal interest rate of 12% per annum. However, pursuant to Bank of the Philippine Islands, Inc. v. Yu, we deem it proper to further reduce the penalty charge decreed by the CA from 2% per month to 1% per month or 12% per annum in view of the following factors: (1) respondent has already received P7,504,522.27 in penalty charges, and (2) the loan extended to respondent was a short-term credit facility. RGM Industries, Inc. vs. United Pacific Capital Corporation; G.R. No. 194781, June 27, 2012. Damages; interest in case of breach of contract; interest rate. Interest may be imposed even in the absence of stipulation in the contract because Article 2210 of the Civil Code expressly provides that ―[i]nterest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.‖ Anent the interest rate, the general rule is that the applicable rate of interest ―shall be computed in accordance with the stipulation of the parties.‖ Absent any stipulation, the applicable rate of interest shall be 12% per annum ―when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).‖ In this case, the parties did not stipulate as to the applicable rate of interest. The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that the seller must return the payment made by the buyer if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller has admitted this. Notwithstanding demand by the buyer, the seller has failed to return the money and should be considered in default from the time that demand was made. Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money which required payment of interest at the rate of 12%. Forbearance is a contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable. ‗Forbearance of money, goods or credits‘ refers to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. Hermojina Estores vs. Spouses Arturo and Laura Supangan: G.R. No. 175139, April 18, 2012. Legal Interest. Since the obligation herein is for the payment of a sum of money, the legal interest rate to be imposed, under Article 2209 of the Civil Code is 6% per annum: Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. P a g e | 99 Following the guidelines above, the legal interest of 6% per annum is to be imposed from November 16, 1997, the date of the last demand, and 12% in lieu of 6% from the date this decision becomes final until fully paid. Republic of the Philippines, represented by the chief, Philippine National Police vs. Thi Thu Thuy De Guzman, G.R. No. 175021. June 15, 2011. Loan; perfection. Under Article 1934 of the Civil Code, a loan contract is perfected only upon the delivery of the object of the contract. In this case, although petitioners applied for a P3 million loan, only the amount of P1 million was approved by the bank because petitioners became collaterally deficient when they failed to purchase TCT No. T-227331 which had an appraised value of P1,944,000.00. Hence, on March 17, 1997, only the amount of P1 million was released by the bank to petitioners. Upon receipt of the approved loan on March 17, 1997, petitioners executed a promissory note for the amount of P1 million. As security for the P1 million loan, petitioners on the same day executed in favor of the bank a real estate mortgage over the properties covered by TCT Nos. T-237695, T-237696, T-237698, T-143683, T-143729, T-225131 and T-225132. Clearly, contrary to the findings of the RTC, the loan contract was perfected on March 17, 1997 when petitioners received the P1 million loan, which was the object of both the promissory note and the real estate mortgage executed by petitioners in favor of the bank. Spouses Wilfredo and Brigida Palada vs. Solidbank Corporation, et al., G.R. No. 172227. June 29, 2011 Loan; valid provision on interest rate. The Court has previously upheld as valid the proviso in loans that the interest rate would be made to depend on the prevailing market rate. Such provision does not signify an automatic increase in the interest. It simply means that the bank may adjust the interest according to the prevailing market rate. This may result to either an increase or a decrease in the interest. Lotto Restaurant Corporation, represented by SUAT KIM GO, v. BPI Family Savings Bank, Inc.; G.R. No. 177260. March 30, 2011 Interest; legal interest. The Court reiterated the guidelines on the rate of legal interest as laid out in Eastern Shipping Lines, Inc. v. Court of Appeals: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on ―Damages‖ of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be . . . the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to forbearance of credit.(Emphasis supplied) Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and Trust Company, et al. vs. Jose Marques, et al.; G.R. No. 171379/G.R. No. 171419, January 10, 2011. Legal interest. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal P a g e | 100 interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Land Bank of the Philippines vs. Alfredo Ong, G.R. No. 190755, November 24, 2010. Legal interest. Inasmuch as the case at bar involves an obligation not arising from a loan or forbearance of money, but consists in the payment of a sum of money, the legal rate of interest is 6% per annum of the amount demanded. Interest shall continue to run from February 12, 1997, the date when Vitarich demanded payment of the sum amounting to P921,083.10 from Locsin (and not from the time of the filing of the Complaint) until finality of the Decision (not until fully paid). The rate of interest shall increase to 12% per annum only from such finality until its satisfaction, the interim period being deemed to be equivalent to a forbearance of credit. Vitarich Corporation vs. Chona Locsin, G.R. No. 181560, November 15, 2010. Interest. The Supreme Court upheld the imposition of 20.189% interest rate and rejected its characterization as unconscionable. It cited Development Bank of the Philippines v. Family Foods Manufacturing Co. Ltd., where the Court upheld the validity of the imposition of 18% and 22% stipulated rates of interest in the two promissory notes. Likewise in Spouses Bacolor v. Banco Filipino Savings and Mortgage Bank, the 24% interest rate agreed upon by parties was held as not violative of the Usury Law, as amended by Presidential Decree No. 116. Aniceto G. Saludo, Jr. vs. Security Bank Corporation; G.R. No. 184041, October 13, 2010. Legal interest. In accordance with our ruling in Sta. Lucia Realty and Development v. Spouses Buenaventura, the applicable interest rate on the P6,153,398.05 to be paid by DBP to Maceda is 6% per annum, to be reckoned from the time of the filing of the complaint on 15 October 1984, because the case at bar involves a breach of obligation and not a loan or forbearance of money. We guide ourselves with the rules of thumb established in Eastern Shipping Lines, Inc. v. Court of Appeals. 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Pursuant to these rules, the interest rate of 12% per annum shall apply from the finality of judgment until the total amount awarded is fully paid. Bonifacio Sanz Maceda, Jr. vs. DBO / DBP Vs. Bonifacio Sanz Maceda, Jr., G.R. No. 174979 & G.R. No. 175010, August 11, 2010. P a g e | 101 Interest; legal rate; when interest begins to run and on what is base. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extra-judicially (Article 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Since this case before us involves an obligation not arising from a loan or forbearance of money, the applicable interest rate is 6% per annum. The legal interest rate of 6% shall be computed from 4 October 1999, the date the letter of demand was presumably received by the defendant. And in accordance with these rules, the rate of 12% per annum shall be charged on the total amount outstanding, from the time the judgment becomes final and executory until its satisfaction. Benny Y. Hung vs. BPI Card Finance Corp., G.R. No. 182398, July 20, 2010. Interest; unconscionable rate. It is true that parties to a loan agreement have a wide latitude to stipulate on any interest rate in view of Central Bank Circular No. 905, series of 1982, which suspended the Usury Law ceiling on interest rate effective January 1, 1983. However, interest rates, whenever unconscionable, may be equitably reduced or even invalidated. In several cases, this Court had declared as null and void stipulations on interest and charges that were found excessive, iniquitous and unconscionable. Stipulations authorizing the imposition of iniquitous or unconscionable interest are contrary to morals, if not against the law. Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived. The nullity of the stipulation on the usurious interest does not, however, affect the lender‘s right to recover the principal of the loan. Nor would it affect the terms of the real estate mortgage. The right to foreclose the mortgage remains with the creditors, and said right can be exercised upon the failure of the debtors to pay the debt due. The debt due is to be considered without the stipulation of the excessive interest. A legal interest of 12% per annum will be added in place of the excessive interest formerly imposed. The nullification by the CA of the interest rate and the penalty charge and the consequent imposition of an interest rate of 12% and penalty charge of 1% per month cannot, therefore, be considered a reversible error. Asian Cathay Finance and Leasing Corporation vs. Spouses Cesario Gravador and Norma De Vera and Spouses Emma Concepcion G. Dumigpi and Federico L. Dumigpi, G.R. No. 186550, July 5, 2010. Interest; unconscionable rate. Although the petition is unmeritorious, we find the 5% monthly interest rate stipulated in Clause 4 of the Compromise Agreement to be iniquitous and unconscionable. Accordingly, the legal interest of 12% per annum must be imposed in lieu of the excessive interest stipulated in the agreement. In several cases, we have ruled that stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law. In Medel v. Court of Appeals, we annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals, we declared a 3% monthly interest imposed on four separate loans to be excessive. In both cases, the interest rates were reduced to 12% per annum. In this case, the 5% monthly interest rate, or 60% per annum, compounded monthly, stipulated in the Kasulatan is even higher than the 3% monthly interest rate imposed in the Ruiz case. Thus, we similarly hold the 5% monthly interest to be excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law. It is therefore void ab initio for being violative of Article 1306 of the Civil Code. Lazaro Pasco and Lauro Pasco vs. Heirs of Filomena De Guzman, represented by Cresencia De Guzman, G.R. No. 165554, July 26, 2010. Interest; unconscionable rate. Aside from the payment of the principal obligation of P1,936,800.00, the parties agreed that respondent pay interest at the rate of 25% from February 17, 1997 until fully paid. Such rate, however, is excessive and thus, void. Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. To be sure, courts may reduce the interest rate as reason and equity demand. In this case, 12% interest is reasonable. Pentacapital Investment Corporation vs. Makilito Mahinay/Pentacapital Investment Corporation Vs. Mikilito Mahinay, G.R. No. 171736, July 5, 2010 P a g e | 102 Interest; Usury Law; need for parties to agree on the rate. The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. Although interest rates are no longer subject to a ceiling, the lender still does not have an unbridled license to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing. The stipulations on interest rate repricing in the promissory notes are valid because (1) the parties mutually agreed on said stipulations; (2) repricing takes effect only upon Solidbank‘s written notice to Permanent of the new interest rate; and (3) Permanent has the option to prepay its loan if Permanent and Solidbank do not agree on the new interest rate. The phrases ―irrevocably authorize,‖ ―at any time‖ and ―adjustment of the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent,‖ emphasize that Permanent should receive a written notice from Solidbank as a condition for the adjustment of the interest rates. In order that obligations arising from contracts may have the force of law between the parties, there must be a mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties is void. There was no showing that either Solidbank or Permanent coerced each other to enter into the loan agreements. The terms of the Omnibus Line Agreement and the promissory notes were mutually and freely agreed upon by the parties. Solidbank Corporation vs. Permanent Homes, Inc., G.R. No. 171925, July 23, 2010 Legal Interest. An interest of 12% per annum on the outstanding obligation must be imposed from the time of demand as the delay in payment makes the obligation one of forbearance of money, conformably with this Court‘s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs. Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29, 2010 . Contracts; interest rate applicable. The issue in this case is the interest rate applicable for respondent‘s delay in the payment of the balance of the price adjustment. Petitioners submit that the CA, in awarding the unpaid balance of the price adjustment, erred in fixing the interest rate at 12% instead of the 18% bank lending rate. In this appeal, petitioners allege that the contract between the parties consists of two parts, the Agreement and the General Conditions, both of which provide for interest at the bank lending rate on any unpaid amount due under the contract. Petitioners further claim that there is nothing in the contract which requires the consent of the respondent to be given in order that petitioners can charge the bank lending rate. In this case, the CA already settled that petitioners consulted respondent on the imposition of the price adjustment, and held respondent liable for the balance of P1,516,015.07. Respondent did not appeal from the decision of the CA; hence, respondent is estopped from contesting such fact. However, the CA went beyond the intent of the parties by requiring respondent to give its consent to the imposition of interest before petitioners can hold respondent liable for interest at the current bank lending rate. This is erroneous. A review of Section 2.6 of the Agreement and Section 60.10 of the General Conditions shows that the consent of the respondent is not needed for the imposition of interest at the current bank lending rate, which occurs upon any delay in payment. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs. In these cases, courts have no authority to alter a contract by construction or to make a new contract for the parties. The Court‘s duty is confined to the interpretation of the contract which the parties have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain. It is only when the contract is vague and ambiguous that courts are permitted to resort to construction of its terms and determine the intention of the parties. The escalation clause must be read in conjunction with Section 2.5 of the Agreement and Section 60.10 of the General Conditions which pertain to the time of payment. Once the parties agree on the price adjustment after due consultation in compliance with the provisions of the escalation clause, the agreement is in effect an amendment to the original contract, and gives rise to the liability of respondent to pay the adjusted costs. Under Section 60.10 of the General Conditions, the respondent shall pay such liability to the petitioner within 28 days from issuance of the interim certificate. Upon respondent‘s failure to pay within the time provided (28 days), then it shall be liable to pay the stipulated interest. This is the logical interpretation of the agreement of the parties on the imposition of interest. To provide a contrary interpretation, as one requiring a separate consent for the imposition of the stipulated interest, would render the intentions of the parties nugatory. As to the applicable rate, under Article 2209 of the Civil Code, the appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon in the contract of the parties. In the absence of a stipulation of a particular rate of penalty interest, payment of additional interest at a rate equal to the regular monetary interest becomes due and payable. Finally, if no regular interest had been agreed upon by the contracting parties, then the damages payable will consist of payment of legal interest which is 6%, or in the case of loans or forbearances of money, 12% P a g e | 103 per annum. It is only when the parties to a contract have failed to fix the rate of interest or when such amount is unwarranted that the Court will apply the 12% interest per annum on a loan or forbearance of money. The written agreement entered into between petitioners and respondent provides for an interest at the current bank lending rate in case of delay in payment and the promissory note charged an interest of 18%. To prove petitioners‘ entitlement to the 18% bank lending rate of interest, petitioners presented the promissory note prepared by respondent bank itself. This promissory note, although declared void by the lower courts because it did not express the real intention of the parties, is substantial proof that the bank lending rate at the time of default was 18% per annum. Absent any evidence of fraud, undue influence or any vice of consent exercised by petitioners against the respondent, the interest rate agreed upon is binding on them. Pan Pacific Service Contractors, Inc. et al. vs. Equitable PCI Bank, etc., G.R. No. 169975, March 18, 2010. Interest; stipulation on interest must be in writing. In the present case, the borrower obtained a P1,000,000.00 loan payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. This agreed sum can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon. Article 1956 of the Civil Code specifically mandates that ―no interest shall be due unless it has been expressly stipulated in writing.‖ Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, the court held in Tan v. Valdehueza and Ching v. Nicdao that collection of interest without any stipulation in writing is prohibited by law. Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. In other words, the facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six (6)-month period. Prisma Construction and Development Corporation and Rogelio S. Pantaleon vs. Arthur F. Menchavez, G.R. No. 160545, March 9, 2010 Interest; whether rate is unconscionable. The court noted in the Prisma case (see above digest) that the case of Medel v. Court of Appeals was not applicable. In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2% per annum, and a penalty charge of 1% per month, plus attorney‘s fee equivalent to 25% of the amount due, until the loan is fully paid. Taken in conjunction with the stipulated service charge and penalty, we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null and void. Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount except a specific sum of P40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners; they only assailed the application of a 4% interest rate, since it was not agreed upon. It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with the respondent. Prisma Construction and Development Corporation and Rogelio S. Pantaleon vs. Arthur F. Menchavez, G.R. No. 160545, March 9, 2010 Loan; accommodation party. The fact that the loans were undertaken by Gonzales when he signed as borrower or co- borrower for the benefit of the spouses Panlilio—as shown by the fact that the proceeds went to the spouses Panlilio who were servicing or paying the monthly dues—is beside the point. For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio, Gonzales has extended an accommodation to said spouses. As an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. In Ang v. Associated Bank, quoting the definition of an accommodation party under Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation party is a person ―who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person.‖ The Court further explained: [A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation. P a g e | 104 As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and surety—the accommodation party being the surety. As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the surety‘s liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom. Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability on the three promissory notes. Eusebio Gonzales v. Philippine Commercial & International Bank, et al.; G.R. No. 180257. February 23, 2011. DEPOSIT Deposit. Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or inns: Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner, through the latter‘s employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from See‘s delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of See‘s vehicle. Durban Apartments Corp., etc. vs. Pioneer Insurance and Surety Corp.; G.R. No. 179419. January 12, 2011. COMPROMISE Compromise agreement. Under the Civil Code of the Philippines, contracting parties may establish such stipulations, clauses, terms, and conditions, as they deem convenient, so long as they are not contrary to law, morals, good customs, public order, or public policy. A compromise agreement is a contract whereby the parties undertake reciprocal obligations to resolve their differences in order to avoid litigation or put an end to one already instituted. It is a judicial covenant having the force and effect of a judgment, subject to execution in accordance with the Rules of Court, and having the effect and authority of res judicata upon its approval by the court where the litigation is pending. Coca-Cola Bottlers Philippines, Inc. vs. Rodrigo Mercado, et al.; G.R. No. 190381. October 6, 2010 Compromise agreement. Under Article 2028 of the Civil Code, a compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. Compromise is a form of amicable settlement that is not only allowed, but also encouraged in civil cases. Contracting parties may establish such stipulations, clauses, terms, and conditions as they deem convenient, provided that these are not contrary to law, morals, good customs, public order, or public policy. Heirs of Alfredo Zabala, etc. et al. vs. Hon. Court of Appeals, et al., G.R. No. 189602, May 6, 2010. GUARANTY Guarantee. By its tenor, Grey‘s undertaking was a guarantee. It says, ―payment unconditionally guaranteed within sixty (60) days from Planters Products, Inc. Invoice date up to Pesos: Two Hundred Thousand (P200,000.00) only.‖ As it happens, bank P a g e | 105 guarantees are highly regulated transactions under the law. They are undertakings that are not so casually issued by banks or by their branch managers at the dorsal side of a client‘s promissory note as if an afterthought. A bank guarantee is a contract that binds the bank and so may be entered into only under authority granted by its board of directors. Such authority does not appear on any document. Indeed, PPI had no right to expect branch manager Grey to issue one without such authorization. United Coconut Planters Bank vs. Planters Products, Inc., Janet Layson and Gregory Grey; G.R. No. 179015, June 13, 2012. Surety; novation. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the obligee. Although the contract of a surety is secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. The surety‘s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. A surety is released from its obligation when there is a material alteration of the principal contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. In this case, however, no new contract was concluded and perfected as only the revision of the work schedule originally agreed upon was the subject thereof. There was no new contract/agreement which could be considered to have substituted the Building Contract. Philippine Charter Insurance Corporation vs. Petroleum Distributors & Service Corporation; G.R. No. 180898. April 18, 2012. Insurance; effectivity of bonds. Lagman anchors his defense on two (2) arguments: 1) the 1989 Bonds have expired and 2) the 1990 Bond novates the 1989 Bonds. The Court of Appeals held that the 1989 bonds were effective only for one (1) year, as evidenced by the receipts on the payment of premiums. The Supreme Court did not agree. The official receipts in question serve as proof of payment of the premium for one year on each surety bond. It does not, however, automatically mean that the surety bond is effective for only one (1) year. In fact, the effectivity of the bond is not wholly dependent on the payment of premium. Section 177 of the Insurance Code expresses: Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety:Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected. Country Bankers Insurance Corporation v. Antonio Lagman, G.R. No. 165487, July 13, 2011. Surety. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the obligee. The surety agreement is an accessory contract; and the surety becomes directly, primarily, and equally bound with the principal as the original promissor although the former possesses no direct or personal interest over the latter‘s obligations and does not receive any benefit therefrom. Star Two (SPV-AMC), Inc. v. Howard Ko, et al., G.R. No. 185454. March 23, 2011 Dishonor of check. This case involved certain loans for which petitioner was an accommodation party. The borrowers under the loans had defaulted triggering the solidary liability of the accommodation party, and the cancellation of the petitioner‘s credit line with that bank under a certain agreement. Consequently, one of the petitioner‘s checks was dishonored. The Supreme Court held that the bank improperly dishonored the check of the petitioner since it had failed to formally notify the petitioner as accommodation party of the default under the loan. Eusebio Gonzales v. Philippine Commercial & International Bank, et al.; G.R. No. 180257. February 23, 2011. Surety. As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. Let it be stressed that notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking. Suretyship, in essence, contains two types of relationship – the principal relationship between the obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the principal (Lucky Star) and the surety (respondent). In this P a g e | 106 arrangement, the obligee accepts the surety‘s solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not change in any material way the obligee‘s relationship with the principal obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship. Thus, the acceptance does not give the surety the right to intervene in the principal contract. The surety‘s role arises only upon the obligor‘s default, at which time, it can be directly held liable by the obligee for payment as a solidary obligor. In the case at bench, when Lucky Star failed to finish the drilling work within the agreed time frame despite petitioner‘s demand for completion, it was already in delay. Due to this default, Lucky Star‘s liability attached and, as a necessary consequence, respondent‘s liability under the surety agreement arose. Accordingly, after liability has attached to the principal, the obligee or, in this case, the petitioner, can exercise the right to proceed against Lucky Star or respondent or both. Contrary to the trial court‘s ruling, respondent insurance company was not automatically released from any liability when petitioner resorted to the rescission of the principal contract for failure of the other party to perform its undertaking. Precisely, the liability of the surety arising from the surety contracts comes to life upon the solidary obligor‘s default. It should be emphasized that petitioner had to choose rescission in order to prevent further loss that may arise from the delay of the progress of the project. Without a doubt, Lucky Star‘s unsatisfactory progress in the drilling work and its failure to complete it in due time amount to non-performance of its obligation. Finally, Article 1217 of the New Civil Code acknowledges the right of reimbursement from a co-debtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (the surety). Thus, respondent is entitled to reimbursement from Lucky Star for the amount it may be required to pay petitioner arising from its bonds. Asset Builders Corporation vs. Stronghold Insurance Co., Inc.; G.R. No. 187116. October 18, 2010. Surety. Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. A continuing suretyship covers current and future loans, provided that, with respect to future loan transactions, they are within the description or contemplation of the contract of guaranty. Petitioner argues that the approval of the second credit facility necessitates his consent considering the onerous and solidary liability of a surety. This is contrary to the express waiver of his consent to such renewal. Aniceto G. Saludo, Jr. vs. Security Bank Corporation; G.R. No. 184041, October 13, 2010. PLEDGE, MORTGAGE AND ANTICHRESIS Antichresis. For the contract of antichresis to be valid, Article 2134 of the Civil Code requires that ―the amount of the principal and of the interest shall be specified in writing; otherwise the contract of antichresis shall be void.‖ In this case, the Heirs of Adolfo were indisputably unable to produce any document in support of their claim that the contract between Adolfo and Bangis was an antichresis, hence, the CA properly held that no such relationship existed between the parties. Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.; G.R. No. 190875, June 13, 2012. Mortgage; deficiency claim; allowable after extrajudicial foreclosure of mortgage. We rule that PNB had the legal right to recover the deficiency amount. In Philippine National Bank v. Court of Appeals, we held that: ―it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial foreclosure of mortgages, while silent as to the mortgagee‘s right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed.‖ Indeed, as we indicated in Prudential Bank v. Martinez, the fact that the mortgaged property was sold at an amount less than its actual market value should not militate against the right to such recovery. Francisco Rabat, et al. vs. Philippine National Bank; G.R. No. 158755, June 18, 2012. P a g e | 107 Mortgage; pactum commissorium. The following are the elements of pactum commissorium: (1) There should be a property mortgaged by way of security for the payment of the principal obligation; and (2) There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. Villar‘s purchase of the subject property did not violate the prohibition on pactum commissorium. The power of attorney provision above did not provide that the ownership over the subject property would automatically pass to Villar upon Galas‘s failure to pay the loan on time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to apply the proceeds to the payment of the loan. This provision is customary in mortgage contracts, and is in conformity with Article 2087 of the Civil Code. Galas‘s decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well within the scope of her rights as the owner of the subject property. The subject property was transferred to Villar by virtue of another and separate contract, which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to Villar was automatic upon Galas‘s failure to discharge her debt, or that the sale was simulated to cover up such automatic transfer. Pablo P. Garcia vs. Yolanda Valdez Villar; G.R. No. 158891, June 27, 2012. Sale at public auction; inadequacy of bid price. We have consistently held that the inadequacy of the bid price at a forced sale, unlike that in an ordinary sale, is immaterial and does not nullify the sale; in fact, in a forced sale, a low price is considered more beneficial to the mortgage debtor because it makes redemption of the property easier. Francisco Rabat, et al. vs. Philippine National Bank; G.R. No. 158755, June 18, 2012 Mortgage; foreclosure. As to BPI‘s right to foreclose, the records show that Lotto defaulted in its obligation when it unjustifiably stopped paying its amortizations after the first year. Consequently, there is no question that BPI (which succeeded DBS) had a clear right to foreclose on Lotto‘s collateral. The Court held in Equitable PCI Bank, Inc. v. OJ-Mark Trading, Inc. that foreclosure is but a necessary consequence of non-payment of mortgage indebtedness. The creditor-mortgagee has the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the unpaid loan. Lotto Restaurant Corporation, represented by SUAT KIM GO, v. BPI Family Savings Bank, Inc.; G.R. No. 177260, March 30, 2011 Mortgage; Redemption price; should not include CGT. Considering that herein petitioners-mortgagors exercised their right of redemption before the expiration of the statutory one-year period, petitioner bank is not liable to pay the capital gains tax due on the extrajudicial foreclosure sale. There was no actual transfer of title from the owners-mortgagors to the foreclosing bank. Hence, the inclusion of the said charge in the total redemption price was unwarranted and the corresponding amount paid by the petitioners-mortgagors should be returned to them. Supreme Transliner, Inc., Moises C. Alvarez and Paulita S. Alvarez v. BPI Family Savings Bank, Inc./BPI Family Savings Bank, Inc. v. Supreme Transliner Inc., Moises C. Alvarez and Paulita S. Alvares; G.R. No. 165617/G.R. No. 165837. February 25, 2011; Mortgage; pactum commissorium. Pactum commissorium is a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a public sale. The elements of pactum commissorium, which enable the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. The second element is missing to characterize the Deed of Sale as a form of pactum commissorium. Veterans Bank did not, upon the petitioners‘ default, automatically acquire or appropriate the mortgaged property for itself. On the contrary, the Veterans Bank resorted to extrajudicial foreclosure and was issued a Certificate of Sale by the sheriff as proof of its purchase of the subject property during the foreclosure sale. That Veterans Bank went through all the stages of extrajudicial foreclosure indicates that there was no pactum commissorium. Spouses Fernando and Angelina Edralin v. Philippine Veterans Bank, G.R. No. 168523, March 9, 2011. Mortgage; extrajudicial foreclosure; notice requirement. Respondents did not present any evidence at all to establish that the notices of sale were not posted as required under Section 3 of Act No. 3135, as amended. Instead, respondents merely focused on how Notary Public Magpantay‘s Certificate of Posting was worded, and emphasized on technicalities and semantics. Respondents insist that the phrase ―on the 15 th day of November 1999, I have caused the posting of three (3) copies of Notice of Sale‖ in the Certificate of Posting meant that Notary Public Magpantay posted the notices for only one day, i.e., on November P a g e | 108 15, 1999. This is a rather specious interpretation of the aforequoted phrase. It is more logical and reasonable to understand the same phrase as to mean that the notices were posted beginning November 15, 1999 until the issuance of the certificate on December 9, 1999. There is also no basis to require the notary public‘s certificate to exactly state that the notices of sale were posted at ―public places.‖ Notary Public Magpantay‘s use of the words ―conspicuous places‖ in his certificate already satisfactorily complies with the legal requirement for posting. The adjective ―public‖ may refer to that which is ―exposed to general view,‖ and ―conspicuous‖ is a synonym thereof. Moreover, it bears to stress that the Certificate of Posting is actually evidence presented by the petitioner to establish that copies of the Notice of Sale were indeed posted as required by Act No. 3135, as amended. In addition, despite any defect in the posting of the Notice of Sale, the Court reiterates its ruling in previous jurisprudence that the publication of the same notice in a newspaper of general circulation is already sufficient compliance with the requirement of the law. Century Savings Bank vs. Spouses Danilo T. Samonte and Rosalinda M. Samonte; G.R. No. 176212, October 20, 2010. Mortgage; foreclosure; default is pre-requisite. Foreclosure is valid only when the debtor is in default in the payment of his obligation. It is a necessary consequence of non-payment of mortgage indebtedness. As a rule, the mortgage can be foreclosed only when the debt remains unpaid at the time it is due. Rizal Commercial Banking Corporation vs. Pedro P. Buenaventura; G.R. No. 176479. October 6, 2010. Mortgage; redemption price if lender is DBP. Section 16 of Executive Order (EO) No. 81 states that the redemption price for properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan. Section 16 states that, ―Any mortgagor of the Bank whose property has been extrajudicially sold at public auction shall x x x have the right to redeem the real property by paying to the Bank all of the latter‘s claims against him, as determined by the Bank.‖ The lower courts ruled that the redemption price for the property is equivalent only to what DBP paid during the public auction because DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure. The Supreme Court disagreed with this saying that Republic Act (RA) No. 85 and Act No. 1508 do not provide a procedure for extrajudicial foreclosure of real estate mortgage. When DBP stated in its letter to the ex-officio sheriff that the property be sold ―at public auction in accordance with the provisions of Act 3135,‖ it did so merely to find a proceeding for the sale. Also, EO No. 81, being a special and subsequent law, amended Act No. 3135 insofar as the as redemption price is concerned. Development Bank of the Philippines vs. Environmental Aquatics, Inc., et al.;G.R. No. 174329, October 20, 2010. Mortgaged property; what happens when mortgagor sells property without mortgagee‘s consent. The question is: was Reyes‘ disposal of the property in favor of the Vegas valid given a provision in the mortgage agreement (between Reyes and SSS) that she could not do so without the written consent of the SSS? The CA ruled that, under Article 1237 of the Civil Code, the Vegas who paid amortizations to the SSS except the last on behalf of Reyes, without the latter‘s knowledge or against her consent, cannot compel the SSS to subrogate them in her rights arising from the mortgage. Further, said the CA, the Vegas‘ claim of subrogation was invalid because it was done without the knowledge and consent of the SSS as required under the mortgage agreement. But Article 1237 cannot apply in this case since Reyes consented to the transfer of ownership of the mortgaged property to the Vegas. Reyes also agreed for the Vegas to assume the mortgage and pay the balance of her obligation to SSS. Of course, paragraph 4 of the mortgage contract covering the property required Reyes to secure SSS‘ consent before selling the property. But, although such a stipulation is valid and binding, in the sense that the SSS cannot be compelled while the loan was unpaid to recognize the sale, it cannot be interpreted as absolutely forbidding her, as owner of the mortgaged property, from selling the same while her loan remained unpaid. Such stipulation contravenes public policy, being an undue impediment or interference on the transmission of property. Besides, when a mortgagor sells the mortgaged property to a third person, the creditor may demand from such third person the payment of the principal obligation. The reason for this is that the mortgage credit is a real right, which follows the property wherever it goes, even if its ownership changes. Article 2129 of the Civil Code gives the mortgagee, here the SSS, the option of collecting from the third person in possession of the mortgaged property in the concept of owner. More, the mortgagor- owner‘s sale of the property does not affect the right of the registered mortgagee to foreclose on the same even if its ownership had been transferred to another person. The latter is bound by the registered mortgage on the title he acquired. After the mortgage debt to SSS had been paid, however, the latter had no further justification for withholding the release of the collateral and the registered title to the party to whom Reyes had transferred her right as owner. Under the circumstance, the Vegas had the right to sue for the conveyance to them of that title, having been validly subrogated to Reyes‘ rights. Sps. Antonio and Leticia Vega vs. Social Security System, et al., G.R. No. 181672, September 20, 2010. Mortgaged Property; what happens when a person sells property, and then borrows, and lender seeks to recover on loan by attaching the property that had been sold. A party with a judgment for money can only go against properties that P a g e | 109 undisputably belong to the borrower. If prior to the judgment, the borrower had sold the property, a creditor can no longer go after that property. Sps. Antonio and Leticia Vega vs. Social Security System, et al., G.R. No. 181672, September 20, 2010 Mortgage; blanket or dragnet clause. Before we resolve the issues directly posed, we first dwell on the determination of the nature of the cross-collateral stipulation in the mortgage contract. As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if, from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. This stipulation is valid and binding between the parties and is known as the ―blanket mortgage clause‖ (also known as the ―dragnet clause).‖ In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not only for the payment of the subject loan, but also for ―such other loans or advances already obtained, or still to be obtained.‖ The cross-collateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be released from mortgage since the security covers not only the subject loan but the two other loans as well. Violeta Tudtud Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc. and Teofilo Soon, Jr., G.R. No. 163825, July 13, 2010. Mortgage; Blanket Mortgage Clause. A blanket mortgage clause, which makes available future loans without need of executing another set of security documents, has long been recognized in our jurisprudence. It is meant to save time, loan closing charges, additional legal services, recording fees, and other costs. A blanket mortgage clause is designed to lower the cost of loans to borrowers, at the same time making the business of lending more profitable to banks. Settled is the rule that mortgages securing future loans are valid and legal contracts. Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010. Mortgage; writ of possession. The right of the purchaser to the possession of the foreclosed property becomes absolute upon the expiration of the redemption period. The basis of this right to possession is the purchaser‘s ownership of the property. After the consolidation of title in the buyer‘s name for failure of the mortgagor to redeem, the writ of possession becomes a matter of right and its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function. In this case, petitioners failed to redeem the subject property within one year from the date of registration of the certificate of sale. Hence, respondent consolidated ownership over the subject property and TCT No. 162999 was issued in the name of respondent. Thereafter, respondent filed an Ex-Parte Petition for Issuance of a Writ of Possession over the subject property, and it was ministerial upon the RTC of Parañaque City, Branch 257 to issue the writ of possession in favor of respondent. Hence, it is clear that the RTC of Parañaque City, Branch 257 did not gravely abuse its discretion in issuing the writ of possession, considering that it was the ministerial duty of the RTC to issue the writ of possession in favor of respondent, who had consolidated ownership over the subject property after the redemption period expired. Spouses Edmundo and Lourdes Sarrosa vs. Willy O. Dizon, G.R. No. 183027, July 26, 2010. Mortgages; redemption; bond requirement under Act. No. 3135; writ of possession. The mortgagor or his successor-in-interest must redeem the foreclosed property within one year from the registration of the sale with the Register of Deeds in order to avoid the title from consolidating in the purchaser. By failing to redeem thus wise, the mortgagor loses all interest over the foreclosed property. The purchaser, who has a right to possession that extends beyond the expiration of the redemption period, becomes the absolute owner of the property when no redemption is made, that it is no longer necessary for the purchaser to file the bond required under Section 7 of Act No. 3135, as amended, considering that the possession of the land becomes his absolute right as the land‘s confirmed owner. The consolidation of ownership in the purchaser‘s name and the issuance to him of a new TCT then entitles him to demand possession of the property at any time, and the issuance of a writ of possession to him becomes a matter of right upon the consolidation of title in his name. Eligio P. Mallari vs. Government Service Insurance System and the Provincial Sheriff of Pampanga, G.R. No. 157659, January 25, 2010. Mortgage; Impact of Foreclosure; Extinction of Mortgage. After the foreclosure of the mortgaged property, the mortgage is extinguished and the purchaser at auction sale acquires the property free from such mortgage. Any deficiency amount after foreclosure cannot constitute a continuing lien on the foreclosed property, but must be collected by the mortgagee-creditor in an ordinary action for collection. In this case, the second loan from the same mortgage deed is in the nature of a deficiency amount after foreclosure. Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010. Mortgage; foreclosure. Foreclosure is valid where the debtor is in default in the payment of an obligation. The essence of a contract of mortgage indebtedness is that a property has been identified or set apart from the mass of the property of the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation to answer the amount of P a g e | 110 indebtedness, in case of default in payment. Foreclosure is but a necessary consequence of non-payment of the mortgage indebtedness. In a real estate mortgage when the principal obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold with the view of applying the proceeds to the payment of the obligation. On the face of respondents‘ clear admission that they were unable to settle their obligations which were secured by the mortgages, EPCIB has a clear right to foreclose the mortgages. Equitable PCI Bank, Inc. vs. Maria Letecia Fernandez, et al., G.R. No. 163117, December 18, 2009. Mortgage; Redemption; Process and Calculation of Redemption Price. In order to effect redemption, the judgment debtor or his successor -in-interest need only pay the purchaser at the public auction sale the redemption amount composed of (1) the price which the purchaser at the public auction sale paid for the property and (2) the amount of any assessment or taxes which the purchaser may have paid on the property after the purchase, plus the applicable interest. Respondent bank‘s demand that the second loan be added to the actual amount paid for the property at the public auction sale finds no basis in law or jurisprudence. Regarding the computation of the redemption amount, Section 78 of Republic Act No. 337, otherwise known as the General Banking Act, governs in cases where the mortgagee is a bank. Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010. Mortgage; Registration. It is the act of registration which creates a constructive notice to the whole world and binds third persons. By definition, registration is the ministerial act by which a deed, contract, or instrument is inscribed in the records of the office of the Register of Deeds and annotated on the back of the TCT covering the land subject of the deed, contract, or instrument. A person dealing with registered land is not required to go beyond the TCT to determine the liabilities attaching to the property. He is only charged with notice of such burdens on the property as are duly annotated on the TCT. To require him to do more is to defeat one of the primary objects of the Torrens system. As to whether the second loan should have been annotated on the TCT of the mortgaged property in order to bind third parties, the case of Tad-Y v. Philippine National Bank is in point. The case involved a mortgage contract containing a provision that future loans would also be secured by the mortgage. This Court ruled that since the mortgage contract containing the blanket mortgage clause was already annotated on the TCT of the mortgaged property, subsequent loans need not be separately annotated on the said TCT in order to bind third parties. Records of the present case show that the mortgage contract, containing the provision that future loans would also be secured by the mortgage, is duly annotated on the TCT of the mortgaged property. This constitutes sufficient notice to the world that the mortgage secures not only the first loan but also future loans the mortgagor may obtain from respondent bank. Applying the doctrine laid down in Tad-Y v. Philippine National Bank, the second loan need not be separately annotated on the said TCT in order to bind third parties such as petitioners. Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010. See entry under Mortgage; Blanket Mortgage Clause. See also cases setting out exception to rule on reliance on title, under entries for Property; Buyer in Good Faith and Sale; Innocent Purchaser for Value. Mortgage; redemption period; applicable interest. The one-year redemption period applied by the CA is the rule that generally applies to foreclosure of mortgage by a bank. The period of redemption is not tolled by the filing of a complaint or petition for annulment of the mortgage and the foreclosure sale conducted pursuant to the said mortgage. However, considering the exceptional circumstances surrounding this case, we will not apply the rule in this instance pro hac vice. In Lipat, this Court upheld the RTC decision giving petitioners five months and 17 days from the finality of the trial court‘s decision to redeem their foreclosed property. Lipat, already final and executory, has therefore become the law of the case between the parties, including their heirs who are petitioners and respondents in this case. Consequently, petitioners had five months and 17 days from the finality of Lipat to exercise their right of redemption, even though this period was beyond one year from the date of registration of the sale. Thus, the CA erred (and even committed a grave abuse of discretion) when it insisted on a contrary ruling. The CA had no power to reverse this Court‘s final and executory judgment. The CA overstepped its authority when it held that the right of redemption had already expired one year after the date of the registration of the certificate of sale. Like all other courts in our judicial system, the CA must take its bearings from the rulings and decisions of this Court. Nevertheless, we note that the amount tendered by petitioners to redeem their foreclosed property was determined by the sheriff at the rate of one percent per month for only one year. Section 78 of the General Banking Act requires payment of the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage contract, and all the costs and other judicial expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. The rate of interest specified in the mortgage contract shall be applied for the one-year period reckoned from the date of registration of the certificate of sale in accordance with the General Banking Act. However, since petitioners effectively had more than one year to exercise the right of redemption, justice, fairness and equity require that they pay 12% p.a. interest beyond the one-year period up to June 16, 2004 when Partas consigned the P a g e | 111 redemption price with the RTC. Heirs of Estelita Burgos-Lipat namely: Alan B. Lipat and Alfredo B. Lipat, Jr. vs. Heirs of Eugenio D. Trinidad namely: Asuncion R. Trinidad, et al., G.R. No. 185644, March 2, 2010. Mortgage; extra-judicial foreclosure; Act No. 3135; old two-bidder requirement. Petitioners sought the nullification of an extrajudicial foreclosure sale for allegedly having been conducted in contravention of the procedural requirements prescribed in A.M. No. 99-10-05-0 (Re: Procedure in Extrajudicial Foreclosure of Real Estate Mortgages) and in violation of petitioners‘ right to due process. Petitioners argue that A.M. No. 99-10-05-0 which took effect on January 15, 2000, requires that there must be at least two participating bidders in an auction sale. However, the Court noted that the requirement for at least two participating bidders provided in the original version of paragraph 5 of A.M. No. 99-10-05-0 is not found in Act No. 3135. Hence, pursuant to the Resolution of the Supreme Court en banc dated January 30, 2001, it is no longer required to have at least two bidders in an extrajudicial foreclosure of mortgage. It should also be noted that pursuant to A.M. No. 99-10-05-0, as amended by the Resolutions of January 30, 2001 and August 7, 2001, the Court Administrator issued Circular No. 7-2002 dated January 22, 2002 which became effective on April 22, 2002. Section 5(a) of the said circular states ―[T]he bidding shall be made through sealed bids which must be submitted to the Sheriff who shall conduct the sale between the hours of 9 a.m. and 4 p.m. of the date of the auction (Act 3135, Sec. 4). The property mortgaged shall be awarded to the party submitting the highest bid and in case of a tie, an open bidding shall be conducted between the highest bidders. Payment of the winning bid shall be made either in cash or in managers check, in Philippine currency, within five (5) days from notice.‖ The use of the word ―bids‖ (in plural form) does not make it a mandatory requirement to have more than one bidder for an auction sale to be valid. A.M. No. 99-10-05-0, as amended, no longer prescribes the requirement of at least two bidders for a valid auction sale. We further held that ―except for errors or omissions in the notice of sale which are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, simple mistakes or omissions are not considered fatal to the valid*ity of the notice and the sale made pursuant thereto‖. Spouses Norman K. Certeza, Jr. et al. vs. Philippines Savings Bank, G.R. No. 190078, March 5, 2010. Mortgage; mortgagee in good faith; standard for banks. Petitioner PNB points out that, since it did a credit investigation, inspected the property, and verified the clean status of the title before giving out the loan to the Songcuans, it should be regarded as a mortgagee in good faith. PNB claims that the precautions it took constitute sufficient compliance with the due diligence required of banks when dealing with registered lands. As a rule, the Court would not expect a mortgagee to conduct an exhaustive investigation of the history of the mortgagor‘s title before he extends a loan. But petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be more cautious than ordinary individuals in dealing with lands, even registered ones, since the business of banks is imbued with public interest. It is of judicial notice that the standard practice for banks before approving a loan is to send a staff to the property offered as collateral and verify the genuineness of the title to determine the real owner or owners. One of the CA‘s findings in this case is that in the course of its verification, petitioner PNB was informed of the previous TCTs covering the subject property. And the PNB has not categorically contested this finding. It is evident from the faces of those titles that the ownership of the land changed from Corpuz to Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the Songcuans in less than three months and mortgaged to PNB within four months of the last transfer. The above information in turn should have driven the PNB to look at the deeds of sale involved. It would have then discovered that the property was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc for just P50,000.00; Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the Songcuans also for just P50,000.00. Yet the PNB gave the property an appraised value of P781,760.00. Anyone who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered as an innocent mortgagee for value. PNB vs. Corpuz. Philippine National Bank, as the Attorney-in-fact of Opal Portfolio Investments (SPV-AMC), Inc. vs. Mercedes Corpuz, represented by her Attorney-in-fact Valentina Corpuz, G.R. No. 180945, February 12, 2010. Waiver; validity; with respect to right of redemption. Settled is the rule that for a waiver to be valid and effective, it must, in the first place, be couched in clear and unequivocal terms which will leave no doubt as to the intention of a party to give up a right or benefit which legally pertains to him. Additionally, the intention to waive a right or an advantage must be shown clearly and convincingly. Unfortunately, ACFLC failed to convince us that respondents waived their right of redemption voluntarily. In fine, when the redemptioner chooses to exercise his right of redemption, it is the policy of the law to aid rather than to defeat his right. Thus, we affirm the CA in nullifying the waiver of the right of redemption provided in the real estate mortgage. Asian Cathay Finance and Leasing Corporation vs. Spouses Cesario Gravador and Norma De Vera and Spouses Emma Concepcion G. Dumigpi and Federico L. Dumigpi, G.R. No. 186550, July 5, 2010 Pledge. The query is whether or not the pledge on ―KKP Shares/Property‖ is valid. The answer is no. It is indispensable that the pledgor is the absolute owner of the thing pledged (second element). In the case at bar, the KKP shares were sold to third parties by EIB at PhP 0.14 and, as a result, petitioners lost their right of ownership over the KKP shares. Hence, from the time P a g e | 112 of the sale, petitioners were no longer the absolute owners of said shares, making the pledge constituted over said KKP shares null and void. Also, it is necessary under Art. 2085 that the person constituting the pledge has the free disposal of his or her property, and in the absence of that free disposal, that he or she be legally authorized for the purpose (third element). This element is absent in the case at bar. Petitioners no longer have the free disposal of the KKP shares when EIB sold said shares at the stock exchange as they are no longer the owners of the shares. Thus, there was no valid pledge constituted on the KKP shares. The notice of sale, assuming it incorporates the accessory contract of pledge, merely stated ―Property‖ as collateral in addition to KKP shares. This is a blatant violation of Art. 2096, which provides that ―a pledge shall not take effect against third persons if description of the thing pledged and the date of the pledge do not appear in a public instrument.‖ The thing pledged must be amply and clearly described and specifically identified. Evidently, the word ―Property‖ is vague, broad, and confusing as to the ownership. Hence, it does not satisfy the prescription under Art. 2096 of the Code. Worse, the notice of sale is not in a public instrument as required by said legal provision; therefore, the pledge on ―property‖ is void and without legal effect. Moreover, the notices of sale must be construed against EIB. Any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. The DMCI shares which EIB construed to be included within the ambit of the word ―property‖ cannot be considered the thing pledged to secure the buy back of the KKP shares in view of the vagueness of the word ―Property‖ and the non-applicability of the SDAA to the sale of the KKP shares. Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036, October 13, 2010. QUASI-CONTRACTS Damages; unjust enrichment. There is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. In the instant case, the fraudulent scheme concocted by Uy allowed him to improperly receive the proceeds of the three crossed checks and enjoy the profits from these proceeds during the entire time that it was withheld from SSPI. Equitable, through its gross negligence and mislaid trust on Uy, became an unwitting instrument in Uy‘s scheme. Equitable‘s fault renders it solidarily liable with Uy, insofar as respondents are concerned. Nevertheless, as between Equitable and Uy, Equitable should be allowed to recover from Uy whatever amounts Equitable may be made to pay under the judgment. It is clear that Equitable did not profit in Uy‘s scheme. Disallowing Equitable‘s cross- claim against Uy is tantamount to allowing Uy to unjustly enrich himself at the expense of Equitable. For this reason, the Court allows Equitable‘s cross-claim against Uy. Equitable Banking Corporation vs. Special Steel Products, Inc. and Augusto L. Pardo; G.R. No. 175350, June 13, 2012. Unjust enrichment. Unjust enrichment exists ―when a person unjustly 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.‖ Under Art. 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. The term is further used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. In order for an unjust enrichment claim to prosper, one must not only prove that the other party benefited from one‘s efforts or the obligations of others; it must also be shown that the other party was unjustly enriched in the sense that the term ―unjustly‖ could mean ―illegally‖ or ―unlawfully.‖ LCDC was aware that the escalation agreement was limited to P36 million. It is not entitled to remuneration of the excess, since it did not confer this benefit by mistake, fraud, coercion, or request. Rather, it voluntarily infused the excess amount with full knowledge that PRHC had no obligation to reimburse it. Philippine Realty and Holding Corp. vs. Ley Const. and Dev. Corp./Ley Cons. and Dev. Corp. vs. Philippine Realty and Holding Corp., G.R. No. 165548/G.R. No. 167879. June 13, 2011 Unjust enrichment defeats rule prohibiting multiplicity of suits. In Chieng v. Santos, this Court ruled that a mortgage-creditor may institute against the mortgage-debtor either a personal action for debt or a real action to foreclose the mortgage. The Court ruled that the remedies are alternative and not cumulative and held that the filing of a criminal action for violation of Batas Pambansa Blg. 22 was in effect a collection suit or a suit for the recovery of the mortgage-debt. In that case, however, this Court pro hac vice, ruled that respondents could still be held liable for the balance of the loan, applying the principle that no person may unjustly enrich himself at the expense of another. The principle of unjust enrichment is provided under Article 22 of the Civil Code which provides: P a g e | 113 Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. There is unjust enrichment ―when a person unjustly 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.‖ The principle of unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of another. The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause or consideration. The principle is applicable in this case considering that Edna admitted obtaining a loan from petitioners, and the same has not been fully paid without just cause. The Deed was declared void erroneously at the instance of Edna, first when she raised it as a defense before the RTC, Branch 33 and second, when she filed an action for declaratory relief before the RTC, Branch 93. Petitioner could not be expected to ask the RTC, Branch 33 for an alternative remedy, as what the Court of Appeals ruled that he should have done, because the RTC, Branch 33 already stated that it had no jurisdiction over any personal action that petitioner might have against Edna. Considering the circumstances of this case, the principle against unjust enrichment, being a substantive law, should prevail over the procedural rule on multiplicity of suits. The Court of Appeals, in the assailed decision, found that Edna admitted the loan, except that she claimed it only amounted to P340,000. Edna should not be allowed to unjustly enrich herself because of the erroneous decisions of the two trial courts when she questioned the validity of the Deed. Moreover, Edna still has an opportunity to submit her defenses before the RTC, Branch 42 on her claim as to the amount of her indebtedness. Arturo Sarte Flores v. Spouses Enrico L. Lindo, Jr. and Edna C. Lindo, G.R. No. 183984. April 13, 2011 Unjust enrichment. Land Bank maintains that the trial court erroneously applied the principle of equity and justice in ordering it to return the PhP 750,000 paid by Alfredo. Alfredo was allegedly in bad faith and in estoppel. Land Bank contends that it enjoyed the presumption of regularity and was in good faith when it accepted Alfredo‘s tender of PhP 750,000. It reasons that it did not unduly enrich itself at Alfredo‘s expense during the foreclosure of the mortgaged properties, since it tendered its bid by subtracting PhP 750,000 from the Spouses Sy‘s outstanding loan obligation. Alfredo‘s recourse then, according to Land Bank, is to have his payment reimbursed by the Spouses Sy. We rule that Land Bank is still liable for the return of the PhP 750,000 based on the principle of unjust enrichment. Land Bank is correct in arguing that it has no obligation as creditor to recognize Alfredo as a person with interest in the fulfillment of the obligation. But while Land Bank is not bound to accept the substitution of debtors in the subject real estate mortgage, it is estopped by its action of accepting Alfredo‘s payment from arguing that it does not have to recognize Alfredo as the new debtor. By accepting Alfredo‘s payment and keeping silent on the status of Alfredo‘s application, Land Bank misled Alfredo to believe that he had for all intents and purposes stepped into the shoes of the Spouses Sy. We turn then on the principle upon which Land Bank must return Alfredo‘s payment. Unjust enrichment exists ―when a person unjustly 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 Art. 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. Additionally, unjust enrichment has been applied to actions called accion in rem verso. In order that the accion in rem verso may prosper, the following conditions must concur: (1) that the defendant has been enriched; (2) that the plaintiff has suffered a loss; (3) that the enrichment of the defendant is without just or legal ground; and (4) that the plaintiff has no other action based on contract, quasi-contract, crime, or quasi-delict. 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. Unjust enrichment. Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully. Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of recovery. Rather, it is a prerequisite for the enforcement of the doctrine of restitution. P a g e | 114 Article 22 of the New Civil Code provides that every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict. An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi- contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie. As found by both the CIAC and affirmed by the CA, petitioner failed to prove that respondent‘s free use of the manlift was without legal ground based on the provisions of their contract. Thus, the third requisite, i.e., that the enrichment of respondent is without just or legal ground, is missing. In addition, petitioner‘s claim is based on contract, hence, the fourth requisite − that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict − is also absent. Clearly, the principle of unjust enrichment is not applicable in this case. Shinryo (Philippines) Company, Inc. vs. RRN Incorporated; G.R. No. 172525, October 20, 2010. Unjust enrichment. The principle of unjust enrichment cannot be validly invoked by a party who, through his own act or omission, took the risk of being denied payment for additional costs by not giving the other party prior notice of such costs and/or by not securing their written consent thereto, as required by law and their contract. Elpidio S. Uy, doing business under the name and style of Edison Development & Construction vs. Public Estates Authority, G.R. Nos. 147925-26, July 7, 2010. VIII. QUASI-DELICTS Damages; quasi-delict; vicarious liability. As a general rule, one is only responsible for his own act or omission. Thus, a person will generally be held liable only for the torts committed by himself and not by another. This general rule is laid down in Article 2176 of the Civil Code. Based on the above-cited article, the obligation to indemnify another for damage caused by one‘s act or omission is imposed upon the tortfeasor himself, i.e., the person who committed the negligent act or omission. The law, however, provides for exceptions when it makes certain persons liable for the act or omission of another. One exception is an employer who is made vicariously liable for the tort committed by his employee. Article 2180 of the Civil Code states: Article 2180. The obligation imposed by Article 2176 is demandable not only for one‘s own acts or omissions, but also for those of persons for whom one is responsible. x x x x Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. x x x x The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. Under Article 2176, in relation with Article 2180, of the Civil Code, an action predicated on an employee‘s act or omission may be instituted against the employer who is held liable for the negligent act or omission committed by his employee. Although the employer is not the actual tortfeasor, the law makes him vicariously liable on the basis of the civil law principle of pater familias for failure to exercise due care and vigilance over the acts of one‘s subordinates to prevent damage to another. In P a g e | 115 the last paragraph of Article 2180 of the Civil Code, the employer may invoke the defense that he observed all the diligence of a good father of a family to prevent damage. As its core defense, Filcar contends that Article 2176, in relation with Article 2180, of the Civil Code is inapplicable because it presupposes the existence of an employer-employee relationship. According to Filcar, it cannot be held liable under the subject provisions because the driver of its vehicle at the time of the accident, Floresca, is not its employee but that of its Corporate Secretary, Atty. Flor. We cannot agree. It is well settled that in case of motor vehicle mishaps, the registered owner of the motor vehicle is considered as the employer of the tortfeasor-driver, and is made primarily liable for the tort committed by the latter under Article 2176, in relation with Article 2180, of the Civil Code. The rationale for the rule that a registered owner is vicariously liable for damages caused by the operation of his motor vehicle is explained by the principle behind motor vehicle registration, which has been discussed by this Court in Erezo, and cited by the CA in its decision: The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways. [emphasis ours] Thus, whether there is an employer-employee relationship between the registered owner and the driver is irrelevant in determining the liability of the registered owner who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets and highways. Filcar Transport Services vs. Jose A. Espinas; G.R. No. 171456, June 20, 2012. Damages; negligence; proximate cause. PNB‘s act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the loss. Here, while PNB highlights Ofelia‘s fault in accommodating a stranger‘s check and depositing it to the bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day clearing period, an act which contravened established banking rules and practice. It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. It bears stressing that ―the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.‖ PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as ―negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected.‖ With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and regularity. ―The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct.‖ A bank is expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded. Philippine National Bank vs. Spouses Cheah Chee Chong and Ofelia Camacho Cheah/Spouses Cheah Chee Chong and Ofelia Camacho Chea vs. Philippine National Bank; G.R. Nos. 170865/G.R. No. 170892, April 25, 2012. Damages; res ipsa loquitur; elements; liability of employer. Under the doctrine of res ipsa loquitur, ―[w]here the thing that caused the injury complained of is shown to be under the management of the defendant or his servants; and the accident, in the ordinary course of things, would not happen if those who had management or control used proper care, it affords reasonable evidence – in the absence of a sufficient, reasonable and logical explanation by defendant – that the accident arose from or was caused by the defendant‘s want of care.‖ Res ipsa loquitur is ―merely evidentiary, a mode of proof, or a mere procedural convenience, since it furnishes a substitute for, and relieves a plaintiff of, the burden of producing a specific proof of negligence.‖ It ―recognizes that parties may establish prima facie negligence without direct proof, thus, it allows the principle to substitute for specific proof of negligence. It permits the plaintiff to present along with proof of the accident, enough of the attending circumstances to invoke the doctrine, create an inference or presumption of negligence and thereby place on the defendant the burden of proving that there was no negligence on his part.‖ The doctrine is based partly on ―the theory that the defendant in charge of the instrumentality which causes the injury either knows the cause of the accident or has the best opportunity of ascertaining it while the plaintiff has no such knowledge, and is therefore compelled to allege negligence in general terms.‖ The requisites of the doctrine of res ipsa loquitur as established by jurisprudence are as follows: 1) the accident is of a kind which does not ordinarily occur unless someone is negligent; 2) the cause of the injury was under the exclusive control of the person in charge and 3) the injury suffered must not have been due to any voluntary action or contribution on the part of the person injured. P a g e | 116 The aforementioned requisites having been met, there now arises a presumption of negligence which he could have overcome by evidence that he exercised due care and diligence in preventing strangers from using his jeep. Unfortunately, he failed to do so. The operator on record of a vehicle is primarily responsible to third persons for the deaths or injuries consequent to its operation, regardless of whether the employee drove the registered owner‘s vehicle in connection with his employment. Absent the circumstance of unauthorized use48 or that the subject vehicle was stolen which are valid defenses available to a registered owner, he cannot escape liability for quasi-delict resulting from his jeep‘s use. Oscar Del Carmen, Jr. vs. Geronimo Bacoy, guradian and representing the children, namely, Mary Marjorie B. Monsalud, et al.; G.R. No. 173870, April 25, 2012. Limited liability rule; availability. With respect to petitioners‘ position that the Limited Liability Rule under the Code of Commerce should be applied to them, the argument is misplaced. The said rule has been explained to be that of the real and hypothecary doctrine in maritime law where the shipowner or ship agent‘s liability is held as merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. In this jurisdiction, this rule is provided in three articles of the Code of Commerce. These are: Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage. Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587. Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him. Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. Article 837 specifically applies to cases involving collision which is a necessary consequence of the right to abandon the vessel given to the shipowner or ship agent under the first provision – Article 587. Similarly, Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is co-owned by several persons. Obviously, the forerunner of the Limited Liability Rule under the Code of Commerce is Article 587. Now, the latter is quite clear on which indemnities may be confined or restricted to the value of the vessel pursuant to the said Rule, and these are the – ―indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel.‖ Thus, what is contemplated is the liability to third persons who may have dealt with the shipowner, the agent or even the charterer in case of demise or bareboat charter. The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the Limited Liability Rule has been conceived to protect. The petitioners cannot invoke this as a defense. Agustin P. Dela Torre v. The Hon. Court of Appeals, et al./Philippine Trigon Shipyard Corporation, et al. v. Crisostomo G. Concepcion, et al., G.R. No. 160088/G.R. No. 160565, July 13, 2011 Charterer and sub-charterer; liability. In the present case, the charterer and the sub-charterer through their respective contracts of agreement/charter parties, obtained the use and service of the entire LCT-Josephine. The vessel was likewise manned by the charterer and later by the sub-charterer‘s people. With the complete and exclusive relinquishment of possession, command and navigation of the vessel, the charterer and later the sub-charterer became the vessel‘s owner pro hac vice. Now, and in the absence of any showing that the vessel or any part thereof was commercially offered for use to the public, the above agreements/charter parties are that of a private carriage where the rights of the contracting parties are primarily defined and governed by the stipulations in their contract. Although certain statutory rights and obligations of charter parties are found in the Code of Commerce, these provisions as correctly pointed out by the RTC, are not applicable in the present case. Indeed, none of the provisions found in the Code of Commerce deals with the specific rights and obligations between the real shipowner and the charterer obtaining in this case. Necessarily, the Court looks to the New Civil Code to supply the deficiency. Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement with Concepcion for the dry-docking and repair of LCT-Josephine, is liable under Article 1189 of the New Civil Code. There is no denying that the vessel was not returned to Concepcion after the repairs because of the provision in the Preliminary Agreement that the same ―should‖ be used by Roland for the first two years. Before the vessel could be returned, it was lost due to the negligence of Agustin to whom Roland chose to sub-charter or sublet the vessel. P a g e | 117 PTSC is liable to Concepcion under Articles 1665 and 1667 of the New Civil Code. As the charterer or lessee under the Contract of Agreement dated June 20, 1984, PTSC was contract-bound to return the thing leased and it was liable for the deterioration or loss of the same. Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under Article 1651 of the New Civil Code. Although he was never privy to the contract between PTSC and Concepcion, he remained bound to preserve the chartered vessel for the latter. Despite his non-inclusion in the complaint of Concepcion, it was deemed amended so as to include him because, despite or in the absence of that formality of amending the complaint to include him, he still had his day in court as he was in fact impleaded as a third-party defendant by his own son, Roland – the very same person who represented him in the Contract of Agreement with Larrazabal. In any case, all three petitioners are liable under Article 1170 of the New Civil Code. Agustin P. Dela Torre v. The Hon. Court of Appeals, et al./Philippine Trigon Shipyard Corporation, et al. v. Crisostomo G. Concepcion, et al., G.R. No. 160088/G.R. No. 160565, July 13, 2011 Common carrier; breach of contract of carriage. There existed a contract of carriage between G & S, as the owner and operator of the Avis taxicab, and Jose Marcial, as the passenger of said vehicle. As a common carrier, G & S is bound to carry [Jose Marcial] safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. However, Jose Marcial was not able to reach his destination safely as he died during the course of the travel. ―In a contract of carriage, it is presumed that the common carrier is at fault or is negligent when a passenger dies or is injured. In fact, there is even no need for the court to make an express finding of fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence. Unfortunately, G & S miserably failed to overcome this presumption. Both the trial court and the CA found that the accident which led to Jose Marcial‘s death was due to the reckless driving and gross negligence of G & S‘ driver, Padilla, thereby holding G & S liable to the heirs of Jose Marcial for breach of contract of carriage. That the driver was acquitted in the criminal case for reckless imprudence is immaterial. Article 31 of the Civil Code provides, viz: When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter. In this case, the action filed by the heirs is primarily for the recovery of damages arising from breach of contract of carriage allegedly committed by G & S. Clearly, it is an independent civil action arising from contract which is separate and distinct from the criminal action for reckless imprudence resulting in homicide filed by the heirs against Padilla by reason of the same incident. Hence, regardless of Padilla‘s acquittal or conviction in said criminal case, same has no bearing in the resolution of the present case. Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al. v. G & S Transport Corporation/G & S Transport Corporation v. Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al., G.R. No. 170071 & G.R. No. 170125, March 9, 2011. Common carrier; liability. Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such diligence. Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible. Unsworth Transportation International (Phils.), Inc. vs. Court of Appeals and Pioneer Insurance and Surety Corporation, G.R. No. 166250, July 26, 2010 Damages; vicarious liability. Under Article 2180 of the New Civil Code, when an injury is caused by the negligence of the employee, there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of the servant or employee, or in supervision over him after selection or both. The liability of the employer under Article 2180 is direct and immediate; it is not conditioned upon prior recourse against the negligent employee and a prior showing of the insolvency of such employee. Therefore, it is incumbent upon the private respondents (in this case, the petitioner) to prove that they exercised the diligence of a good father of a family in the selection and supervision of their employee. Filipinas Synthetic Fiber Corporation v. Wilfredo De Los Santos, et al., G.R. No. 152033. March 16, 2011 Damages; vicarious liability; employer‘s degree of diligence. Under Article 2180 of the Civil Code, the obligation imposed by Article 2176 is demandable not only for one‘s own acts or omissions, but also for those persons for whom one is responsible. Employers shall be liable for the damages caused by their employees, but the employers‘ responsibility shall cease upon proof that they observed all the diligence of a good father of the family in the selection and supervision of their employees. P a g e | 118 When an injury is caused by the negligence of an employee, a legal presumption instantly arises that the employer was negligent. This presumption may be rebutted only by a clear showing on the part of the employer that he exercised the diligence of a good father of a family in the selection and supervision of his employee. If the employer successfully overcomes the legal presumption of negligence, he is relieved of liability. In other words, the burden of proof is on the employer. The responsibility of two or more persons who are liable for quasi-delict is solidary. The civil liability of the employer for the negligent acts of his employee is also primary and direct, owing to his own negligence in selecting and supervising his employee. The civil liability of the employer attaches even if the employer is not inside the vehicle at the time of the collision. In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records. On the other hand, with respect to the supervision of employees, employers should formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, including documentary evidence. The Heirs of Redentor Completo and Elpidio Abiad vs. Sgt. Amando C. Albayda, Jr., G.R. No. 172200, July 6, 2010. Damages; vicarious liability; employer‘s degree of diligence. It is clear that the employer of a negligent employee is liable for the damages caused by the latter. When an injury is caused by the negligence of an employee, there instantly arises a presumption of the law that there was negligence on the part of the employer, either in the selection of his employee or in the supervision over him after such selection. However, the presumption may be overcome by a clear showing on the part of the employer that he has exercised the care and diligence of a good father of a family in the selection and supervision of his employee. In other words, the burden of proof is on the employer. Thus, petitioners must prove two things: first, that they had exercised due diligence in the selection of petitioner Añalucas, and second, that after hiring Añalucas, petitioners had exercised due diligence in supervising him. OMC Carriers, Inc. and Jerry Añalucas y Pitalino vs. Spouses Roberto C. Nabua and Rosario T. Nabua, G.R. No. 148974, July 2, 2010. Damages; quasi-delict. Unlike the subsidiary liability of the employer under Article 103 of the Revised Penal Code, the liability of the employer, or any person for that matter, under Article 2176 of the Civil Code is primary and direct, based on a person‘s own negligence. This case involves the accidental discharge of a firearm inside a gun store. A higher degree of care is required of someone who has in his possession or under his control an instrumentality extremely dangerous in character, such as dangerous weapons or substances. Such person in possession or control of dangerous instrumentalities has the duty to take exceptional precautions to prevent any injury being done thereby. Unlike the ordinary affairs of life or business which involve little or no risk, a business dealing with dangerous weapons requires the exercise of a higher degree of care. As a gun store owner, respondent is presumed to be knowledgeable about firearms safety and should have known never to keep a loaded weapon in his store to avoid unreasonable risk of harm or injury to others. Respondent has the duty to ensure that all the guns in his store are not loaded. Firearms should be stored unloaded and separate from ammunition when the firearms are not needed for ready-access defensive use. With more reason, guns accepted by the store for repair should not be loaded precisely because they are defective and may cause an accidental discharge such as what happened in this case. Respondent was clearly negligent when he accepted the gun for repair and placed it inside the drawer without ensuring first that it was not loaded. In the first place, the defective gun should have been stored in a vault. Before accepting the defective gun for repair, respondent should have made sure that it was not loaded to prevent any untoward accident. Indeed, respondent should never accept a firearm from another person, until the cylinder or action is open and he has personally checked that the weapon is completely unloaded. For failing to ensure that the gun was not loaded, respondent himself was negligent. Furthermore, it was not shown in this case whether respondent had a License to Repair, which authorizes him to repair defective firearms to restore its original composition or enhance or upgrade firearms. Clearly, respondent did not exercise the degree of care and diligence required of a good father of a family, much less the degree of care required of someone dealing with dangerous weapons, as would exempt him from liability in this case. Alfredo P. Pacis and Cleopatra D. Pacis vs. Jerome Jovanne Morales, G.R. No. 169467, February 25, 2010. Damages; quasi-delict. Whenever an employee‘s negligence causes damage or injury to another, there instantly arises a presumption that the employer failed to exercise the due diligence of a good father of the family in the selection or supervision of its employees. To avoid liability for a quasi-delict committed by his employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee. The Court upholds the finding of the trial court and the Court of Appeals that petitioner is liable to respondent, since it failed to exercise the diligence of a good father of the family in the selection and supervision of its bus driver, Margarito Avila, for having failed to sufficiently inculcate in him discipline and correct behavior on the road. Indeed, petitioner‘s tests were concentrated on the ability to drive and physical fitness to do so. It also did not know that Avila had been previously involved in sideswiping incidents. Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010. Common carriers; standard of diligence. Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for P a g e | 119 compensation, offering their services to the public. A common carrier is distinguished from a private carrier wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public. The distinction is significant in the sense that the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by the law on common carriers. Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them according to all the circumstances of such case, as required by Article 1733 of the Civil Code. When the Court speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual prudence and circumspection observe for securing and preserving their own property or rights. This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged for shipment. Thus, in case of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently. This presumption of fault or negligence, however, may be rebutted by proof that the common carrier has observed extraordinary diligence over the goods. With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of extraordinary diligence lasts from the time the goods are unconditionally placed in the possession of, and received by, the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation and R & B Insurance Corporation; G.R. No. 179446, January 10, 2011. Damages; negligence. Negligence is defined as ―the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent man and reasonable man could not do.‖ As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article 2176 of the Civil Code which states ―whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.‖ Indisputably, had the insurance premium been paid, through the automatic debit arrangement with FEBTC, Maxilite‘s fire loss claim would have been approved. Hence, Maxilite suffered damage to the extent of the face value of the insurance policy or the sum of P2.1 million. Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and Trust Company, et al. vs. Jose Marques, et al.; G.R. No. 171379/G.R. No. 171419, January 10, 2011. Damages; solidary liability. The Supreme Court found that Aquinas School was not solidarily liable for actions of person (Yamyamin) who was not its employee. The Court has consistently applied the ―four-fold test‖ to determine the existence of an employer-employee relationship: the employer (a) selects and engages the employee; (b) pays his wages; (c) has power to dismiss him; and (d) has control over his work. Of these, the most crucial is the element of control. Control refers to the right of the employer, whether actually exercised or reserved, to control the work of the employee as well as the means and methods by which he accomplishes the same. In this case, the school directress testified that Aquinas had an agreement with a congregation of sisters under which, in order to fulfill its ministry, the congregation would send religion teachers to Aquinas to provide catechesis to its students. Aquinas insists that it was not the school but Yamyamin‘s religious congregation that chose her for the task of catechizing the school‘s grade three students, much like the way bishops designate the catechists who would teach religion in public schools. Under the circumstances, it was quite evident that Aquinas did not have control over Yamyamin‘s teaching methods. Of course, Aquinas still had the responsibility of taking steps to ensure that only qualified outside catechists are allowed to teach its young students. In this regard, it cannot be said that Aquinas took no steps to avoid the occurrence of improper conduct towards the students by their religion teacher. It had reviewed the qualifications of Yamyamin, determined that the congregation that recommended her was legitimate and in order, provided her with teacher orientation and a Faculty Manual, and reviewed the course outline of the subjects that the teacher would be handling. Aquinas School vs. Sps. Jose Inton and Ma. Victoria S. Inton, etc., et al.; G.R. No. 184202, January 26, 2011. Quasi-delict; solidary liability. Loadmasters‘ claim that it was never privy to the contract entered into by Glodel with the consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual relation with Columbia, but it is liable for tort under the provisions of Article 2176 of the Civil Code on quasi-delicts. Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc. v. Phoenix Assurance Company of New York,/McGee & Co., Inc. where this Court held that a tort may arise despite the absence of a contractual relationship. In connection therewith, Article 2180 provides: ART. 2180. The obligation imposed by Article 2176 is demandable not only for one‘s own acts or omissions, but also for those of persons for whom one is responsible. P a g e | 120 x x x x Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees (truck driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer, Loadmasters should be made answerable for the damages caused by its employees who acted within the scope of their assigned task of delivering the goods safely to the warehouse. Whenever an employee‘s negligence causes damage or injury to another, there instantly arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees. To avoid liability for a quasi-delict committed by its employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee. In this regard, Loadmasters failed. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation and R & B Insurance Corporation; G.R. No. 179446, January 10, 2011. Damages; causal connection. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the ‗natural and probable consequences of the breach of the obligation‘. In this case, the trial court and the Court of appeals held AWIA liable for the cost of 11 shoring columns. The Supreme Court also found that AWIA had breached its duty of contract administration. It noted that had the effects on the marginal strength of the concrete been promptly disclosed to TMX, the cracks and deflections could have been rectified by the contractor before it was issued its final certification of payment and the owner could have been spared from further expenses. There is a causal connection between AWIA‘s negligence and the expenses incurred by TMX. The latter was compelled to shutdown the plant during the workdays in December to repair the roof. In the process, it incurred expenses for the repairs, including the salaries of its workers who were put on forced leave, for which it can ask for reimbursement as actual damages. Adrian Wilson International Associates, Inc. vs. TMX Philippines, Inc., G.R. No. 162608, July 26, 2010. Damages; diligence; standard of care of banks. While it is conceded that petitioner had the right to offset the unpaid interests due it against the deposits of respondent, the issue of whether it acted judiciously is an entirely different matter. As business affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. Metropolitan Bank and Trust Company vs. Larry Mariñas, G.R. No. 179105, July 26, 2010. Damages; negligence; degree of care; motor vehicle vs. bicycle. It is a rule in negligence suits that the plaintiff has the burden of proving by a preponderance of evidence the motorist‘s breach in his duty of care owed to the plaintiff, that the motorist was negligent in failing to exercise the diligence required to avoid injury to the plaintiff, and that such negligence was the proximate cause of the injury suffered. Article 2176 of the Civil Code provides that whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict. In this regard, the question of the motorist‘s negligence is a question of fact. It was proven by a preponderance of evidence that Completo failed to exercise reasonable diligence in driving the taxicab because he was over-speeding at the time he hit the bicycle ridden by Albayda. Such negligence was the sole and proximate cause of the serious physical injuries sustained by Albayda. Completo did not slow down even when he approached the intersection of 8 th and 11 th Streets of VAB. It was also proven that Albayda had the right of way, considering that he reached the intersection ahead of Completo. The bicycle occupies a legal position that is at least equal to that of other vehicles lawfully on the highway, and it is fortified by the fact that usually more will be required of a motorist than a bicyclist in discharging his duty of care to the other because of the physical advantages the automobile has over the bicycle. At the slow speed of ten miles per hour, a bicyclist travels almost fifteen feet per second, while a car traveling at only twenty- five miles per hour covers almost thirty-seven feet per second, and split-second action may be insufficient to avoid an accident. It is obvious that a motor vehicle poses a greater danger of harm to a bicyclist than vice versa. Accordingly, while the duty of using reasonable care falls alike on a motorist and a bicyclist, due to the inherent differences in the two vehicles, more care is required from the motorist to fully discharge the duty than from the bicyclist. Simply stated, the physical advantages that the P a g e | 121 motor vehicle has over the bicycle make it more dangerous to the bicyclist than vice versa. The Heirs of Redentor Completo and Elpidio Abiad vs. Sgt. Amando C. Albayda, Jr., G.R. No. 172200, July 6, 2010. Quasi-delict; human relations. The failure of respondents to act with fairness, honesty and good faith in securing better terms for the purchase of high-speed catamarans from AFFA, to the prejudice of the petitioner as the duly appointed exclusive distributor, is proscribed by Article 19 of the Civil Code. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be responsible. The object of this article, therefore, is to set certain standards which must be observed not only in the exercise of one‘s rights but also in the performance of one‘s duties. These standards are the following: act with justice, give everyone his due and observe honesty and good faith. Its antithesis, necessarily, is any act evincing bad faith or intent to injure. Its elements are the following: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring another. When Article 19 is violated, an action for damages is proper under Articles 20 or 21 of the Civil Code. Article 21 refers to acts contra bonus mores and has the following elements: (1) There is an act which is legal; (2) but which is contrary to morals, good custom, public order, or public policy; and (3) it is done with intent to injure. A common theme runs through Articles 19 and 21, and that is, the act complained of must be intentional. Allan C. Go, doing business under the name and style of “ACG Express Liner” vs. Mortimer F. Cordero/Mortimer F. Cordero vs. Allan C. Go, doing business under the name and style of “ACG Express Liner”, et al., G.R. No. 164703/G.R. No, 164747. May 4, 2010. Quasi-delict; tort interference. While it is true that a third person cannot possibly be sued for breach of contract because only parties can breach contractual provisions, a contracting party may sue a third person not for breach but for inducing another to commit such breach. Article 1314 of the Civil Code provides: ―Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. ― The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of a contract; and (3) interference of the third person is without legal justification. In this case, the presence of the first and second elements is not disputed. As to the third element, the Supreme Court cited its ruling in So Ping Bun v. Court of Appeals that noted how authorities have debated on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One view is that, as a general rule, justification for interfering with the business relations of another exists where the actor‘s motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferer‘s interest outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection. Moreover, justification for protecting one‘s financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. The court noted that as early as Gilchrist vs. Cuddy, it had held that where there was no malice in the interference of a contract, and the impulse behind one‘s conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. While the court does not encourage tort interferers seeking their economic interest to intrude into existing contracts at the expense of others, the conduct complained must transcend the limits forbidding an obligatory award for damages in the absence of any malice. Malice connotes ill will or spite, and speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or bad motive. The act of the respondents in inducing Robinson and AFFA to enter into another contract directly with ACG Express Liner to obtain a lower price for the second vessel resulted in AFFA‘s breach of its contractual obligation to pay in full the commission due to the petitioner and unceremonious termination of the petitioner‘s appointment as exclusive distributor. Such act may not be deemed malicious if impelled by a proper business interest rather than in wrongful motives. The attendant circumstances, however, demonstrated that respondents transgressed the bounds of permissible financial interest to benefit themselves at the expense of the petitioner. Allan C. Go, doing business under the name and style of “ACG Express Liner” vs. Mortimer F. Cordero/Mortimer F. Cordero vs. Allan C. Go, doing business under the name and style of “ACG Express Liner”, et al., G.R. No. 164703/G.R. No, 164747. May 4, 2010. Arrastre operator; liability. The relationship between the consignee and the arrastre operator is akin to that existing between the consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and a warehouseman. In the performance of its obligations, an arrastre operator should observe the same degree of diligence as that required of a common carrier and a warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre operator‘s duty is to take good care of the goods and to turn them over to the party entitled to their possession. The loss of 14 out of 26 boxes of printed aluminum sheets is undisputed. Records show that the subject shipment was discharged from the vessel and placed under the custody of petitioner for a period of seven days. Thereafter, the same was withdrawn from the container yard by the customs broker, then delivered to the consignee. It was after such delivery that the loss of 14 P a g e | 122 boxes was discovered. Hence, the complaint against both the arrastre operator and the customs broker. In a claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove that the losses were not due to its negligence or to that of its employees. To prove the exercise of diligence in handling the subject cargoes, petitioner must do more than merely show the possibility that some other party could be responsible for the loss or the damage. It must prove that it exercised due care in the handling thereof. Petitioner failed to do this. Instead, it insists that it be exonerated from liability, because the customs broker‘s representative received the subject shipment in good order and condition without exception. The appellate court‘s conclusion on this matter is instructive. The signature of the person/broker representative merely signifies that said person thereby frees the ATI from any liability for loss or damage to the cargo so withdrawn while the same was in the custody of such representative to whom the cargo was released. It does not foreclose any remedy or right of the consignee to prove that any loss or damage to the subject shipment occurred while the same was under the custody, control and possession of the arrastre operator. Considering that both petitioner and V. Reyes Lazo were negligent in the performance of their duties in the handling, storage and delivery of the subject shipment to the consignee, resulting in the loss of 14 boxes of printed aluminum sheets, both shall be solidarily liable for such loss. Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd., G.R. No. 171194, February 4, 2010. Arrastre operator; liability; extent of liability. The contract with the arrastre operator provided for a limitation on recovery for damages. But such limitation does not apply if the value of the cargo shipment is communicated to the arrastre operator before the discharge of the cargoes. It is undisputed that Access International, upon arrival of the shipment, declared the same for taxation purposes, as well as for the assessment of arrastre charges and other fees. For the purpose, the invoice, packing list and other shipping documents were presented to the Bureau of Customs as well as to petitioner for the proper assessment of the arrastre charges and other fees. Such manifestation satisfies the condition of declaration of the actual invoices of the value of the goods before their arrival, to overcome the limitation on the liability of the arrastre operator. Then, the arrastre operator, by reason of the payment to it of a commensurate charge based on the higher declared value of the merchandise, could and should take extraordinary care of the special or valuable cargo. What would, indeed, be unfair and arbitrary is to hold the arrastre operator liable for the full value of the merchandise after the consignee has paid the arrastre charges only on a basis much lower than the true value of the goods. What is essential is knowledge beforehand of the extent of the risk to be undertaken by the arrastre operator, as determined by the value of the property committed to its care. This defines its responsibility for loss of or damage to such cargo and ascertains the compensation commensurate to such risk assumed. Having been duly informed of the actual invoice value of the merchandise under its custody and having received payment of arrastre charges based thereon, petitioner cannot therefore insist on a limitation of its liability under the contract to less than the value of each lost cargo. The stipulation requiring the consignee to inform the arrastre operator and to give advance notice of the actual invoice value of the goods to be put in its custody is adopted for the purpose of determining its liabil ity, that it may obtain compensation commensurate to the risk it assumes, not for the purpose of determining the degree of care or diligence it must exercise as a depositary or warehouseman. Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd., G.R. No. 171194, February 4, 2010. Common carrier. See heading ―Arrastre Operator‖ and the case of Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd. where it was observed that the relationship between the consignee and the arrastre operator is akin to that existing between the consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and a warehouseman. Contract of carriage; damages. An examination of the evidence presented by petitioner shows that it consisted only of depositions of its witnesses. It had in its possession and disposition pertinent documents such as the flight manifest and the plane‘s actual seating capacity and layout which could have clearly refuted respondents‘ claims that there were not enough passenger seats available for them. It inexplicably failed to offer even a single piece of documentary evidence. The Court thus believes that if at least the cited documentary evidence had been produced, it would have been adverse to petitioner‘s case. Moreover, petitioner failed to satisfactorily explain why it did not issue boarding passes to respondents who were confirmed passengers, even after they had checked-in their luggage three hours earlier. That respondents did not reserve seats prior to checking-in did not excuse the non-issuance of boarding passes. From Carns‘ following testimony, it is gathered that respondents were made to wait for last-minute cancellations before they were accommodated onto the plane. This, coupled with petitioner‘s failure to issue respondents their boarding passes and the eleventh-hour directive for them to embark, reinforces the impression that the flight was overbooked. Petitioner‘s assertion that respondents disembarked from the plane when their request to be seated together was ignored does not impress. The fact that the respondents still boarded the plane ten minutes prior to the departure time, despite knowing that they would be seated apart, shows they were willing to abandon their request to be seated together. But as it turns out, there were not enough seats for the three of them. Respondents are correct that petitioner was guilty of breach of contract. They cite Singapore Airlines v. Fernandez, which ruled that when an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger then has every right to expect that he be transported on that flight and on that date. If he does P a g e | 123 not, then the carrier opens itself to a suit for a breach of contract of carriage. Northwest Airlines, Inc. vs. Spouses Edward J. Heshan and Neilia L. Heshan, et al., G.R. No. 179117, February 3, 2010. Medical malpractice. An integral part of physician‘s overall obligation to patient is the duty of reasonable disclosure of available choices with respect to proposed therapy and of dangers inherently and potentially involved in each. However, the physician is not obliged to discuss relatively minor risks inherent in common procedures when it is common knowledge that such risks inherent in procedure of very low incidence. Cited as exceptions to the rule that the patient should not be denied the opportunity to weigh the risks of surgery or treatment are emergency cases where it is evident he cannot evaluate data, and where the patient is a child or incompetent. The court thus concluded that the patient‘s right of self-decision can only be effectively exercised if the patient possesses adequate information to enable him in making an intelligent choice. The scope of the physician‘s communications to the patient, then must be measured by the patient‘s need, and that need is whatever information is material to the decision. The test therefore for determining whether a potential peril must be divulged is its materiality to the patient‘s decision. Cobbs v. Grant reiterated the pronouncement in Canterbury v. Spence that for liability of the physician for failure to inform patient, there must be causal relationship between physician‘s failure to inform and the injury to patient and such connection arises only if it is established that, had revelation been made, consent to treatment would not have been given. There are four essential elements a plaintiff must prove in a malpractice action based upon the doctrine of informed consent: ―(1) the physician had a duty to disclose material risks; (2) he failed to disclose or inadequately disclosed those risks; (3) as a direct and proximate result of the failure to disclose, the patient consented to treatment she otherwise would not have consented to; and (4) plaintiff was injured by the proposed treatment.‖ The gravamen in an informed consent case requires the plaintiff to ―point to significant undisclosed information relating to the treatment which would have altered her decision to undergo it. The element of ethical duty to disclose material risks in the proposed medical treatment cannot thus be reduced to one simplistic formula applicable in all instances. Further, in a medical malpractice action based on lack of informed consent, ―the plaintiff must prove both the duty and the breach of that duty through expert testimony. Dr. Rubi Li vs. Spouses Reynaldo and Lina Soliman as parents/heirs of deceased Angelica Soliman, G.R. No. 165279. June 7, 2011 Corporate responsibility; liability; negligence; damages. The Court notes that PSI made the following admission in its Motion for Reconsideration ―PSI is not liable for Dr. Ampil‘s acts during the operation. Considering further that Dr. Ampil was personally engaged as a doctor by Mrs. Agana, it is incumbent upon Dr. Ampil, as ―Captain of the Ship‖, and as the Agana‘s doctor to advise her on what to do with her situation vis-a-vis the two missing gauzes. In addition to noting the missing gauzes, regular check-ups were made and no signs of complications were exhibited during her stay at the hospital, which could have alerted petitioner PSI‘s hospital to render and provide post-operation services to and tread on Dr. Ampil‘s role as the doctor of Mrs. Agana. The absence of negligence of PSI from the patient‘s admission up to her discharge is borne by the finding of facts in this case. Likewise evident therefrom is the absence of any complaint from Mrs. Agana after her discharge from the hospital which had she brought to the hospital‘s attention, could have alerted petitioner PSI to act accordingly and bring the matter to Dr. Ampil‘s attention. But this was not the case. Ms. Agana complained ONLY to Drs. Ampil and Fuentes, not the hospital. How then could PSI possibly do something to fix the negligence committed by Dr. Ampil when it was not informed about it at all.” PSI reiterated its admission when it stated that had Natividad Agana ―informed the hospital of her discomfort and pain, the hospital would have been obliged to act on it.‖ This is a judicial admission by PSI that while it had no power to control the means or method by which Dr. Ampil conducted the surgery on Natividad Agana, it had the power to review or cause the review of what may have irregularly transpired within its walls strictly for the purpose of determining whether some form of negligence may have attended any procedure done inside its premises, with the ultimate end of protecting its patients. Second, it is a judicial admission that, by virtue of the nature of its business as well as its prominence in the hospital industry, it assumed a duty to ―tread on‖ the ―captain of the ship‖ role of any doctor rendering services within its premises for the purpose of ensuring the safety of the patients availing themselves of its services and facilities. Third, by such admission, PSI defined the standards of its corporate conduct under the circumstances of this case, specifically: (a) that it had a corporate duty to Natividad even after her operation to ensure her safety as a patient; (b) that its corporate duty was not limited to having its nursing staff note or record the two missing gauzes and (c) that its corporate duty extended to determining Dr. Ampil‘s role in it, bringing the matter to his attention, and correcting his negligence. And finally, by such admission, PSI barred itself from arguing in its second motion for reconsideration that the concept of corporate responsibility was not yet in existence at the time Natividad underwent treatment; and that if it had any corporate responsibility, the same was limited to reporting the missing gauzes and did not include ―taking an active step in fixing the negligence committed.‖ Given the standard of conduct that PSI defined for itself, the next relevant inquiry is whether the hospital measured up to it. PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the personal responsibility of informing Natividad about the two missing gauzes. Dr. Ricardo Jocson, who was part of the group of doctors that attended to Natividad, testified that toward the end of the surgery, their group talked P a g e | 124 about the missing gauzes but Dr. Ampil assured them that he would personally notify the patient about it. Furthermore, PSI claimed that there was no reason for it to act on the report on the two missing gauzes because Natividad Agana showed no signs of complications. She did not even inform the hospital about her discomfort. The excuses proffered by PSI are totally unacceptable. To begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr. Ampil the duty to review what transpired during the operation. The purpose of such review would have been to pinpoint when, how and by whom two surgical gauzes were mislaid so that necessary remedial measures could be taken to avert any jeopardy to Natividad‘s recovery. Certainly, PSI could not have expected that purpose to be achieved by merely hoping that the person likely to have mislaid the gauzes might be able to retrace his own steps. By its own standard of corporate conduct, PSI‘s duty to initiate the review was non-delegable. While Dr. Ampil may have had the primary responsibility of notifying Natividad about the missing gauzes, PSI imposed upon itself the separate and independent responsibility of initiating the inquiry into the missing gauzes. The purpose of the first would have been to apprise Natividad of what transpired during her surgery, while the purpose of the second would have been to pinpoint any lapse in procedure that led to the gauze count discrepancy, so as to prevent a recurrence thereof and to determine corrective measures that would ensure the safety of Natividad. That Dr. Ampil negligently failed to notify Natividad did not release PSI from its self-imposed separate responsibility. Corollary to its non-delegable undertaking to review potential incidents of negligence committed within its premises, PSI had the duty to take notice of medical records prepared by its own staff and submitted to its custody, especially when these bear earmarks of a surgery gone awry. Thus, the record taken during the operation of Natividad which reported a gauze count discrepancy should have given PSI sufficient reason to initiate a review. It should not have waited for Natividad to complain. As it happened, PSI took no heed of the record of operation and consequently did not initiate a review of what transpired during Natividad‘s operation. Rather, it shirked its responsibility and passed it on to others – to Dr. Ampil whom it expected to inform Natividad, and to Natividad herself to complain before it took any meaningful step. By its inaction, therefore, PSI failed its own standard of hospital care. It committed corporate negligence. It should be borne in mind that the corporate negligence ascribed to PSI is different from the medical negligence attributed to Dr. Ampil. The duties of the hospital are distinct from those of the doctor-consultant practicing within its premises in relation to the patient; hence, the failure of PSI to fulfill its duties as a hospital corporation gave rise to a direct liability to the Aganas distinct from that of Dr. Ampil. All this notwithstanding, we make it clear that PSI‘s hospital liability based on ostensible agency and corporate negligence applies only to this case, pro hac vice. It is not intended to set a precedent and should not serve as a basis to hold hospitals liable for every form of negligence of their doctors-consultants under any and all circumstances. The ruling is unique to this case, for the liability of PSI arose from an implied agency with Dr. Ampil and an admitted corporate duty to Natividad. Other circumstances peculiar to this case warrant this ruling, not the least of which being that the agony wrought upon the Aganas has gone on for 26 long years, with Natividad coming to the end of her days racked in pain and agony. Such wretchedness could have been avoided had PSI simply done what was logical: heed the report of a guaze count discrepancy, initiate a review of what went wrong and take corrective measures to ensure the safety of Nativad. Rather, for 26 years, PSI hemmed and hawed at every turn, disowning any such responsibility to its patient. Meanwhile, the options left to the Aganas have all but dwindled, for the status of Dr. Ampil can no longer be ascertained. Therefore, taking all the equities of this case into consideration, this Court believes P15 million would be a fair and reasonable liability of PSI, subject to 12% p.a. interest from the finality of this resolution to full satisfaction. Professional Services, Inc. vs. The Court of Appeals, et al./Natividad (substituted by her children Marcelino Agana III, Enrique Agana, Jr. Emma Agana-Andaya, Jesus Agana and Raymund Agana and Errique Agana) vs. The Court of Appeals and Juan Fuentes Miguel Ampil vs. Natividad and Enrique Agana, G.R. Nos. 126297/G.R. No. 126467/G.R. No. 127590, February 2, 2010. Human relations; abuse of right. Under the abuse of right principle found in Article 19 of the Civil Code, a person must, in the exercise of his legal right or duty, act in good faith. He would be liable if he instead acts in bad faith, with intent to prejudice another. Complementing this principle are Articles 20 and 21 of the Civil Code, which grant the latter indemnity for the injury he suffers because of such abuse of right or duty. The Court found that the petitioner had acted in bad faith and with intent to spite the respondent, when the petitioner, notwithstanding a preliminary injunction order preventing him from doing so, allowed another party to assume the office as Deputy Commissioner in place of the respondent. Petitioner‘s exclusion of the respondent from the centennial anniversary memorabilia was not an honest mistake by any reckoning. Indeed, he withheld her salary and prevented her from assuming the duties of the position. A party‘s refusal to abide by a court order enjoining him from doing an act, otherwise lawful, constitutes an abuse and an unlawful exercise of right. That respondent was later appointed Deputy Commissioner for another division of the Bureau is immaterial. While such appointment, when accepted, rendered the quo warranto case moot and academic, it did not have the effect of wiping out the injuries she suffered on account of Petitioner treatment of her. The damage suit is an independent action. Titus B. Villanueva vs. Emma M. Rosqueta, G.R. No. 180764, January 19, 2010. IX. DAMAGES P a g e | 125 Damages; actual damages and moral damages. For its role in the conversion of the checks, which deprived SSPI of the use thereof, Equitable is solidarily liable with Uy to compensate SSPI for the damages it suffered. Among the compensable damages are actual damages, which encompass the value of the loss sustained by the plaintiff, and the profits that the plaintiff failed to obtain. Interest payments, which SSPI claims, fall under the second category of actual damages. SSPI computed its claim for interest payments based on the interest rate stipulated in its contract with Interco. It explained that the stipulated interest rate is the actual interest income it had failed to obtain from Interco due to the defendants‘ tortious conduct. The Court finds the application of the stipulated interest rate erroneous. SSPI did not recover interest payments at the stipulated rate from Interco because it agreed that the delay was not Interco‘s fault, but that of the defendants‘. If that is the case, then Interco is not in delay (at least not after issuance of the checks) and the stipulated interest payments in their contract did not become operational. If Interco is not liable to pay for the 36% per annum interest rate, then SSPI did not lose that income. SSPI cannot lose something that it was not entitled to in the first place. Thus, SSPI‘s claim that it was entitled to interest income at the rate stipulated in its contract with Interco, as a measure of its actual damage, is fallacious. More importantly, the provisions of a contract generally take effect only among the parties, their assigns and heirs. SSPI cannot invoke the contractual stipulation on interest payments against Equitable because it is neither a party to the contract, nor an assignee or an heir to the contracting parties. Nevertheless, it is clear that defendants‘ actions deprived SSPI of the present use of its money for a period of two years. SSPI is therefore entitled to obtain from the tortfeasors the profits that it failed to obtain from July 1991 to June 1993. SSPI should recover interest at the legal rate of 6% per annum, this being an award for damages based on quasi-delict and not for a loan or forbearance of money. Both the trial and appellate courts awarded Pardo P3 million in moral damages. Pardo claimed that he was frightened, anguished, and seriously anxious that the government would prosecute him for money laundering and tax evasion because of defendants‘ actions. In other words, he was worried about the repercussions that defendants‘ actions would have on him. Equitable argues that Pardo‘s fears are all imagined and should not be compensated. The bank points out that none of Pardo‘s fears panned out. Moral damages are recoverable only when they are the proximate result of the defendant‘s wrongful act or omission. Both the trial and appellate courts found that Pardo indeed suffered as a result of the diversion of the three checks. It does not matter that the things he was worried and anxious about did not eventually materialize. It is rare for a person, who is beset with mounting problems, to sift through his emotions and distinguish which fears or anxieties he should or should not bother with. So long as the injured party‘s moral sufferings are the result of the defendants‘ actions, he may recover moral damages. The Court, however, finds the award of P3 million excessive. Moral damages are given not to punish the defendant but only to give the plaintiff the means to assuage his sufferings with diversions and recreation. We find that the award of P50,000.00 as moral damages is reasonable under the circumstances. Equitable Banking Corporation vs. Special Steel Products, Inc. and Augusto L. Pardo; G.R. No. 175350, June 13, 2012. Damages; moral damages. The Court increased the award of damages to ₱500,000 as moral damages and ₱100,000 as exemplary damages in connection with a finding that the crime of Trafficking in Persons as a Prostitute was committed. It quoted a previous ruling, People v. Lalli, where the Court stated that: ―the award finds basis in Article 2219 of the Civil Code, which states: Art. 2219. Moral damages may be recovered in the following and analogous cases: x x x (3) Seduction, abduction, rape, or other lascivious acts; ―The criminal case of Trafficking in Persons as a Prostitute is an analogous case to the crimes of seduction, abduction, rape, or other lascivious acts. In fact, it is worse. To be trafficked as a prostitute without one‘s consent and to be sexually violated four to five times a day by different strangers is horrendous and atrocious. There is no doubt that Lolita experienced physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, and social humiliation when she was trafficked as a prostitute in Malaysia. Since the crime of Trafficking in Persons was aggravated, being committed by a syndicate, the award of exemplary damages is likewise justified.‖ The Court went to say that: ―[w]e find no legal impediment to increasing the award of moral and exemplary damages in the case at bar. Neither is there any logical reason why we should differentiate between the victims herein and those in that case, when the circumstances are frighteningly similar. To do so would be to say that we discriminate one from the other, when all of these women have been the victims of unscrupulous people who capitalized on the poverty of others. While it is true that accused-appellant was not tried and convicted of the crime of trafficking in persons, this Court based its award of damages on P a g e | 126 the Civil Code, and not on the Anti-Trafficking in Persons Act, as clearly explained in Lalli.‖ The People of the Philippines vs. Nurfrashir Hashim y Saraban, et al. Bernadette Panscala, etc.;G.R. No. 194255, June 13, 2012 Damages. Respondents are not entitled to moral damages because contracts are not referred to in Article 2219 of the Civil Code, which enumerates the cases when moral damages may be recovered. Article 2220 of the Civil Code allows the recovery of moral damages in breaches of contract where the defendant acted fraudulently or in bad faith. However, this case involves a contract to sell, wherein full payment of the purchase price is a positive suspensive condition, the non-fulfillment of which is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. Since there is no breach of contract in this case, respondents are not entitled to moral damages. In the absence of moral, temperate, liquidated or compensatory damages, exemplary damages cannot be granted for they are allowed only in addition to any of the four kinds of damages mentioned. Mila A. Reyes v. Victoria T. Tuparan, G.R. No. 188064. June 1, 2011 Moral damages; pre-requisites for an award. In prayers for moral damages, recovery is more an exception rather than the rule. Moral damages are not meant to be punitive but are designed to compensate and alleviate the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar harm unjustly caused to a person. To be entitled to such an award, the claimant must satisfactorily prove that he has suffered damages and that the injury causing it has sprung from any of the cases listed in Articles 2219 and 2220 of the Civil Code. Moreover, the damages must be shown to be the proximate result of a wrongful act or omission. The claimant must thus establish the factual basis of the damages and its causal tie with the acts of the defendant. In fine, an award of moral damages calls for the presentation of 1) evidence of besmirched reputation or physical, mental or psychological suffering sustained by the claimant; 2) a culpable act or omission factually established; 3) proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and 4) the proof that the act is predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code. In the present case, respondent failed to establish by clear and convincing evidence that the injuries he sustained were the proximate effect of petitioner‘s act or omission. It thus becomes necessary to instead look into the manner by which petitioner carried out his renovations to determine whether this was directly responsible for any distress respondent may have suffered since the law requires that a wrongful or illegal act or omission must have preceded the damages sustained by the claimant. It bears noting that petitioner was engaged in the lawful exercise of his property rights to introduce renovations to his abode. While he initially did not have a building permit and may have misrepresented his real intent when he initially sought respondent‘s consent, the lack of the permit was inconsequential since it only rendered petitioner liable to administrative sanctions or penalties. The testimony of petitioner and his witnesses, specifically Architect Punzalan, demonstrates that they had actually taken measures to prevent, or at the very least, minimize the damage to respondent‘s property occasioned by the construction work. Architect Punzalan details how upon reaching an agreement with petitioner for the construction of the second floor, he (Punzalan) surveyed petitioner‘s property based on the Transfer Certificate of Title (TCT) and Tax Declarations and found that the perimeter wall was within the confines of petitioner‘s property; that he, together with petitioner, secured the consent of the neighbors (including respondent) prior to the start of the renovation as reflected in a Neighbor‘s Consent dated June 12, 1998; before the construction began, he undertook measures to prevent debris from falling into respondent‘s property such as the installation of GI sheet strainers, the construction of scaffoldings on respondent‘s property, the instructions to his workers to clean the area before leaving at 5:00 p.m; and that the workers conducted daily clean-up of respondent‘s property with his consent, until animosity developed between the parties. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. While the Court harbors no doubt that the incidents which gave rise to this dispute have brought anxiety and anguish to respondent, it is unconvinced that the damage inflicted upon respondent‘s property was malicious or willful, an element crucial to merit an award of moral damages under Article 2220 of the Civil Code. Rodolfo N. Regala v. Federico P. Carin, G.R. No. 188715, April 6, 2011. Damages; liquidated damages. Article 2226 of the Civil Code allows the parties to a contract to stipulate on liquidated damages to be paid in case of breach. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. As a general rule, contracts constitute the law between the parties, and they are bound by its stipulations. For as long as they are not contrary to law, morals, good customs, public order, or public policy, the P a g e | 127 contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient. Philippine Charter Insurance Corporation vs. Petroleum Distributors & Service Corporation; G.R. No. 180898. April 18, 2012. Damages; requisites. License to operate a cockpit is a mere privilege, and even if he was able to get a business permit from the mayor, this did not give him a license to operate a cockpit. Without any legal right to operate a cockpit in the municipality, petitioner is not entitled to damages. Injury alone does not give petitioner the right to recover damages; he must also have a right of action for the legal wrong inflicted by the respondents. We need not belabor that ―in order that the law will give redress for an act causing damage, there must be damnum et injuria – that act must be not only hurtful, but wrongful.‖ Danilo A. Du vs. Venancio R. Jayoma, et al.; G.R. No. 175042, April 23, 2012. Damages; loss of earning capacity. Clearly, the CA erred in deleting the award for lost income on the ground that the USAID Certification supporting such claim is self-serving and unreliable. On the contrary, we find said certification sufficient basis for the court to make a fair and reasonable estimate of Jose Marcial‘s loss of earning capacity just like in Tamayo v. Señora where we based the victim‘s gross annual income on his pay slip from the Philippine National Police. Hence, we uphold the trial court‘s award for Jose Marcial‘s loss of earning capacity. Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al. v. G & S Transport Corporation/G & S Transport Corporation v. Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al., G.R. No. 170071 & G.R. No. 170125, March 9, 2011 Damages; moral. While we deemed it proper to modify the amount of moral damages awarded by the trial court as discussed below, we nevertheless agree with the heirs that the CA should not have pegged said award in proportion to the award of exemplary damages. Moral and exemplary damages are based on different jural foundations. They are different in nature and require separate determination. The amount of one cannot be made to depend on the other. In Victory Liner Inc. v. Gammad we awarded P100,000.00 by way of moral damages to the husband and three children of the deceased, a 39-year old Section Chief of the Bureau of Internal Revenue, to compensate said heirs for the grief caused by her death. This is pursuant to the provisions of Articles 1764 and 2206(3) which provide: Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Articles 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. Art. 2206. x x x (3) The spouse, legitimate and illegitimate descendants and the ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. Here, there is no question that the heirs are likewise entitled to moral damages pursuant to the above provisions, considering the mental anguish suffered by them by reason of Jose Marcial‘s untimely death. Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al. v. G & S Transport Corporation/G & S Transport Corporation v. Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al., G.R. No. 170071 & G.R. No. 170125, March 9, 2011 Moral damages; conditions. The following are the conditions for the award of moral damages: (1) there is an injury – whether physical, mental or psychological – clearly sustained by the claimant; (2) the culpable act or omission is factually established, (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award of the of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. In the present case, Suarez failed to establish that his claimed injury was proximately caused by the erroneous marking of DAIF on the checks. Proximate cause has been defined as ―any cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the result complained of and without which would not have occurred.‖ There is nothing in Suarez‘s testimony which convincingly shows that the erroneous marking of DAIF on the checks proximately caused his alleged psychological or social injuries. Suarez merely testified that he suffered humiliation and that the prospective consolidation of the titles to the Tagaytay Properties did not materialize due to the dishonor of his checks, not die to the erroneous marking of the DAIF on his checks. Hence, Suarez has only himself to blame for his hurt feelings and the unsuccessful transaction with his client as these were directly caused by the justified dishonoring of his checks. Bank of the Philippines Islands Vs. Reynald R. Suarez, G.R. No. 167750, March 15, 2010. Damages; attorney‘s fees. It is well accepted in this jurisdiction that no premium should be placed on the right to litigate and that not every winning party is entitled to an automatic grant of attorney‘s fees. Indeed, before the effectivity of the new Civil Code, such fees could not be recovered in the absence of a stipulation. It was only with the advent of the new Civil Code that the right to collect attorney‘s fees in the instances mentioned in Article 2208 was recognized, and such fees are now included in the concept of actual damages. One such instance is where the defendant is guilty of gross and evident bad faith in refusing to satisfy the plaintiff‘s plainly valid, just and demandable claim. This is a corollary of the general principle expressed in Article 19 P a g e | 128 of the Civil Code that everyone must, in the performance of his duties, observe honesty and good faith and the rule embodied in Article 1170 that anyone guilty of fraud (bad faith) in the performance of his obligation shall be liable for damages. But, as noted by the Court in Morales v. Court of Appeals, the award of attorney‘s fees is the exception rather than the rule. The power of a court to award attorney‘s fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation and conjecture. The general rule is that attorney‘s fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. Herein, the element of bad faith on the part of Pilhino in commencing and prosecuting Civil Case No. 21,898-93, which was necessary to predicate the lawful grant of attorney‘s fees based on Article 2208 (4) of the Civil Code, was not established. Accordingly, the petitioners‘ demand for attorney‘s fees must fail. Spouses Moises and Clemencia Andrada v. Pilhino Sales Corporation, represented by its Branch Manager, Jojo S. Saet; G.R. No. 156448. February 23, 2011. Damages; attorney‘s fees. While it is a sound policy not to set a premium on the right to litigate, we find that respondent is entitled to reasonable attorney‘s fees. Attorney‘s fees may be awarded when a party is compelled to litigate or incur expenses to protect its interest, or when the court deems it just and equitable. In this case, petitioner refused to answer for the loss of See‘s vehicle, which was deposited with it for safekeeping. This refusal constrained respondent, the insurer of See, and subrogated to the latter‘s right, to litigate and incur expenses. Durban Apartments Corp., etc. vs. Pioneer Insurance and Surety Corp.; G.R. No. 179419. January 12, 2011. Attorney‘s fees. It is settled that the award of attorney‘s fees is the exception rather than the general rule; counsel‘s fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Attorney‘s fees, as part of damages, are not necessarily equated to the amount paid by a litigant to a lawyer. In the ordinary sense, attorney‘s fees represent the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorney‘s fees as part of damages are awarded only in the instances specified in Article 2208 of the Civil Code. As such, it is necessary for the court to make findings of fact and law that would bring the case within the ambit of these enumerated instances to justify the grant of such award, and in all cases it must be reasonable. Filomena R. Benedicto vs. Antonio Villaflores; G.R. No. 185020. October 6, 2010. Attorney‘s fees. We have stressed that the award of attorney‘s fees is the exception rather than the rule, as they are not always awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Attorney‘s fees as part of damages is awarded only in the instances specified in Article 2208 of the Civil Code. Financial Building Corporation vs. Rudlin International Corporation, et al./Rudlin International Corporation, et al. vs. Financial Building Corporation; G.R. No. 164186/G.R. No. 164347. October 4, 2010. Attorney‘s fees. An award of attorney‘s fees is the exception rather than the rule. The right to litigate is so precious that a penalty should not be charged on those who may exercise it erroneously. It is not given merely because the defendant prevails and the action is later declared to be unfounded unless there was a deliberate intent to cause prejudice to the other party. Spouses Ramy and Zenaida Pudadera vs. Ireneo Magallanes and the late Daisy Teresa cortel Magallanes, substituted by her children, Nelly M. Marquez, et al.;G.R. No. 170073, October 18, 2010. Damages; attorney‘s fees. On the award of attorney‘s fees, attorney‘s fees and expenses of litigation were awarded because Alfredo was compelled to litigate due to the unjust refusal of Land Bank to refund the amount he paid. There are instances when it is just and equitable to award attorney‘s fees and expenses of litigation. Art. 2208 of the Civil Code pertinently states: In the absence of stipulation, attorney‘s fees and expenses of litigation, other than judicial costs, cannot be recovered, except: x x x x (2) When the defendant‘s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. Given that Alfredo was indeed compelled to litigate against Land Bank and incur expenses to protect his interest, we find that the award falls under the exception above and is, thus, proper given the circumstances. Land Bank of the Philippines vs. Alfredo Ong, G.R. No. 190755, November 24, 2010. Damages; attorney‘s fees. Regarding the grant of attorney‘s fees, the Court agrees with the RTC that said award is justified. Losin refused to pay Vitarich despite the latter‘s repeated demands. It was left with no recourse but to litigate and protect its P a g e | 129 interest. We, however, opt to reduce the same to P10,000.00 from P20,000.00. Vitarich Corporation vs. Chona Locsin, G.R. No. 181560, November 15, 2010. Attorney‘s fees. Article 2208(2) of the Civil Code allows the award of attorney‘s fees in cases where the defendant‘s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. Attorney‘s fees may be awarded by a court to one who was compelled to litigate with third persons or to incur expenses to protect his or her interest by reason of an unjustified act or omission of the party from whom it is sought. Metropolitan Bank & trust Company, Inc. vs. The Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund, et al., G.R. No. 176959, September 8, 2010 Damages; exemplary. Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. Celedonio Tan‘s death and the destruction of the petitioners‘ home and tailoring shop were unquestionably caused by the respondents‘ gross negligence. The law allows the grant of exemplary damages in cases such as this to serve as a warning to the public and as a deterrent against the repetition of this kind of deleterious actions. The grant, however, should be tempered, as it is not intended to enrich one party or to impoverish another. Leticia Tan, et al. vs. OMC Carriers, Inc. and Bonifacio Arambala;G.R. No. 190521, January 12, 2011. Damages; recovery of temperate damages allowed where there is no competent proof of actual damages or loss of earning capacity. Absent competent proof on the actual damages suffered, a party still has the option of claiming temperate damages, which may be allowed in cases where, from the nature of the case, definite proof of pecuniary loss cannot be adduced although the court is convinced that the aggrieved party suffered some pecuniary loss. As a rule, documentary evidence should be presented to substantiate the claim for loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when: (1) the deceased is self-employed and earning less than the minimum wage under current labor laws, in which case, judicial notice may be taken of the fact that in the deceased‘s line of work, no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws. Leticia Tan, et al. vs. OMC Carriers, Inc. and Bonifacio Arambala; G.R. No. 190521, January 12, 2011. Damages; for loss of earning capacity. The award of damages for loss of earning capacity is concerned with the determination of losses or damages sustained by respondents, as dependents and intestate heirs of the deceased. This consists not of the full amount of his earnings, but of the support which they received or would have received from him had he not died as a consequence of the negligent act. Thus, the amount recoverable is not the loss of the victim‘s entire earnings, but rather the loss of that portion of the earnings which the beneficiary would have received. Indemnity for loss of earning capacity is determined by computing the net earning capacity of the victim as follows: Net Earning Capacity = life expectancy x (gross annual income -reasonable and necessary living expenses). Life expectancy shall be computed by applying the formula (2/3 x [80 - age at death]) adopted from the American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality. On the other hand, gross annual income requires the presentation of documentary evidence for the purpose of proving the victim‘s annual income. The victim‘s heirs presented in evidence Señora‘s pay slip from the PNP, showing him to have had a gross monthly salary of P12,754.00. Meanwhile, the victim‘s net income was correctly pegged at 50% of his gross income in the absence of proof as regards the victim‘s living expenses. Constancia G. Tamayo, et al. vs. Rosalia Abad Señora, et al., G.R. No. 176946, November 15, 2010. Damages; moral and exemplary; standard of diligence applicable to a bank. The award of moral damages should be granted in reasonable amounts depending on the facts and circumstances of the case. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused. As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking is impressed with public interest and great reliance is made on the bank‘s sworn profession of diligence and meticulousness in giving irreproachable service. Thus, the Court affirms the award as a way of setting an example for the public good. In addition, it also provided for attorney‘s fees. Both are subject to legal interest. In any event, Citibank should have been more cautious in dealing with its clients since its business is imbued with public interest. Banks must always act in good faith and must win the confidence of clients and people in general. It is irrelevant whether the client is a lawyer or not. Citibank, N.A. vs. Atty. Ernesto S. Dinopol, G.R. No. 188412, November 22, 2010. P a g e | 130 Damages. The party from whom damages was sought to be recovered (the petitioner), distributed copies of the decision of the lower court on an unlawful detainer case, to the neighbors of the losing party (the respondent). The latter filed a complaint against the respondent for, among others, moral damages against the petitioner for the embarrassment and humiliation he suffered by reason of petitioner‘s actions. The complaint was dismissed by the lower court. The Court of Appeals reversed the dismissal and went on to find the petitioner liable for damages. The Supreme Court agreed with the CA that the complaint should not have been dismissed but disagreed with the CA‘s already finding liability as no evidence, at that point, had been adduced yet. A cause of action (for damages) exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages. The court found that all these elements were present. First, respondent filed the complaint to protect his good character, name, and reputation. Every man has a right to build, keep, and be favored with a good name. This right is protected by law with the recognition of slander and libel as actionable wrongs, whether as criminal offenses or tortuous conduct. Second, petitioners are obliged to respect respondent‘s good name even though they are opposing parties in the unlawful detainer case. As Article 19 of the Civil Code requires, ―[e]very person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.‖ A violation of such principle constitutes an abuse of rights, a tortuous conduct. Petitioner is also expected to respect respondent‘s ―dignity, personality, privacy and peace of mind‖ under Article 26 of the Civil Code. Thus, Article 2219(10) of the Civil Code allows the recovery of moral damages for acts and actions referred to in Article 26, among other provisions, of the Civil Code. And third, respondent alleged that the distribution by petitioners to Horseshoe Village homeowners of copies of the MeTC decision in the unlawful detainer case, which was adverse to respondent and still on appeal before the RTC-Branch 88, had no apparent lawful or just purpose except to humiliate respondent or assault his character. As a result, respondent suffered damages – becoming the talk of the town and being deprived of his political career. Petitioners reason that respondent has no cause of action against them since the MeTC decision in the unlawful detainer case was part of public records. It is already settled that the public has a right to see and copy judicial records and documents. However, this is not a case of the public seeking and being denied access to judicial records and documents. The controversy is rooted in the dissemination by petitioners of the MeTC judgment against respondent to Horseshoe Village homeowners, who were not involved at all in the unlawful detainer case, thus, purportedly affecting negatively respondent‘s good name and reputation among said homeowners. The unlawful detainer case was a private dispute between petitioners and respondent, and the MeTC decision against respondent was then still pending appeal before the RTC-Branch 88, rendering suspect petitioners‘ intentions for distributing copies of said MeTC decision to non-parties in the case. While petitioners were free to copy and distribute such copies of the MeTC judgment to the public, the question is whether they did so with the intent of humiliating respondent and destroying the latter‘s good name and reputation in the community. Ermelinda Manaloto, et al. vs. Ismael Veloso III, G.R. No. 171365, October 6, 2010. Damages; actual damages. Actual or compensatory damages, indemnification comprises not only the value of the loss suffered, but likewise the profits the obligee failed to obtain. But in this case, he court did not find any evidence supporting the claim for damages, which must be proved. Calibre Traders Inc., Mario Sison Sebastian and Minda Blanco Sebastian vs. Bayer Philippines, Inc.; G.R. No. 161431, October 13, 2010. Damages; actual. Actual damages puts the claimant in the position in which he had been before he was injured. The award thereof must be based on the evidence presented, not on the personal knowledge of the court; and certainly not on flimsy, remote, speculative and non-substantial proof. Under the Civil Code, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Adrian Wilson International Associates, Inc. vs. TMX Philippines, Inc., G.R. No. 162608, July 26, 2010. Damages; actual. For one to be entitled to actual damages, it is necessary to prove the actual amount of loss with a reasonable degree of certainty, premised upon competent proof and the best evidence obtainable by the injured party. Actual damages are such compensation or damages for an injury that will put the injured party in the position in which he had been before he was injured. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. To justify an award of actual damages, there must be competent proof of the actual amount of loss. Credence can be given only to claims which are P a g e | 131 duly supported by receipts. OMC Carriers, Inc. and Jerry Añalucas y Pitalino vs. Spouses Roberto C. Nabua and Rosario T. Nabua, G.R. No. 148974, July 2, 2010. Damages; attorney‘s fees. The rule on the award of attorney‘s fees is that there must be a justification for the same. In the absence of a statement why attorney‘s fees were awarded, the same should be disallowed. OMC Carriers, Inc. and Jerry Añalucas y Pitalino vs. Spouses Roberto C. Nabua and Rosario T. Nabua, G.R. No. 148974, July 2, 2010. Damages; Attorney‘s Fees. The law allows a party to recover attorney‘s fees under a written agreement. In Barons Marketing Corporation v. Court of Appeals, the Court ruled that: ―[T]he attorney‘s fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorney‘s fees so provided are awarded in favor of the litigant, not his counsel. On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach. A stipulation on liquidated damages is a penalty clause where the obligor assumes a greater liability in case of breach of an obligation. The obligor is bound to pay the stipulated amount without need for proof on the existence and on the measure of damages caused by the breach. In the present case, the invoices stipulate for 25% of the overdue accounts as attorney‘s fees. The overdue account in this case amounts to P241,704.91, 25% of which is P60,426.23. This amount is not excessive or unconscionable, hence, we sustain the amount of attorney‘s fees as stipulated by the parties.Asian Construction and Development Corporation vs. Cathay Pacific Steel Corporation, G.R. No. 167942, June 29, 2010. Damages; Attorney‘s Fees. In this case, Marsman Drysdale‘s supplication for the award of attorney‘s fees in its favor must be denied because it could not claim that it was compelled to litigate or that the civil action or proceeding against it was clearly unfounded. The joint venture agreement between Marsman Drysdale and its co-party, Gotesco, provided that, in the event a party advances funds for the project, the joint venture shall repay the advancing party. Marsman Drysdale was thus not precluded from advancing funds to pay for PGI‘s contracted services to abate any legal action against the joint venture itself. It was in fact its hardline insistence on Gotesco having sole responsibility to pay for the obligation, despite the fact that PGI‘s services redounded to the benefit of the joint venture, that spawned the legal action against it and Gotesco. Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs. Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29, 2010 . Attorney‘s fees; quantum meruit. The principle of quantum meruit (as much as he deserves) may be a basis for determining the reasonable amount of attorney‘s fees. Quantum meruit is a device to prevent undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it. It is applicable even if there was a formal written contract for attorney‘s fees as long as the agreed fee was found by the court to be unconscionable. In fixing a reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit, factors such as the time spent, and extent of services rendered; novelty and difficulty of the questions involved; importance of the subject matter; skill demanded; probability of losing other employment as a result of acceptance of the proferred case; customary charges for similar services; amount involved in the controversy and the benefits resulting to the client; certainty of compensation; character of employment; and professional standing of the lawyer, may be considered. Indubitably entwined with a lawyer‘s duty to charge only reasonable fee is the power of the Court to reduce the amount of attorney‘s fees if the same is excessive and unconscionable in relation to Sec. 24, Rule 138 of the Rules. Attorney‘s fees are unconscionable if they affront one‘s sense of justice, decency or unreasonableness. The determination of the amount of reasonable attorney‘s fees requires the presentation of evidence and a full-blown trial. It would be only after due hearing and evaluation of the evidence presented by the parties that the trial court can render judgment as to the propriety of the amount to be awarded. Hicoblo M. Catly (deceased), subtituted by his wife, Lourdes A. Catly vs. William Navarro, et al., G.R. No. 167239, May 5, 2010. Damages; exemplary damages; attorney‘s fees. It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in a wanton, fraudulent, or malevolent manner. On the other hand, attorney‘s fees may be awarded only when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party, as when the defendant acted in gross and evident bad faith in refusing the plaintiff‘s plainly valid, just and demandable claim. We do not see the presence of these circumstances in the present case. As previously discussed, the petitioners‘ refusal to pay the change orders was based on a valid ground – lack of their prior written approval. There, too, is the matter of defective construction discussed below. Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R. No. 156038, October 11, 2010. The principle applies to the parties in the instant case, as, Alfredo, having been deemed disqualified from assuming the loan, had no duty to pay petitioner bank and the latter had no right to receive it. P a g e | 132 Moreover, the Civil Code likewise requires under Art. 19 that ―[e]very person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.‖ Land Bank, however, did not even bother to inform Alfredo that it was no longer approving his assumption of the Spouses Sy‘s mortgage. Yet it acknowledged his interest in the loan when the branch head of the bank wrote to tell him that his daughter‘s loan had not been paid. Land Bank made Alfredo believe that with the payment of PhP 750,000, he would be able to assume the mortgage of the Spouses Sy. The act of receiving payment without returning it when demanded is contrary to the adage of giving someone what is due to him. The outcome of the application would have been different had Land Bank first conducted the credit investigation before accepting Alfredo‘s payment. He would have been notified that his assumption of mortgage had been disapproved; and he would not have taken the futile action of paying PhP 750,000. The procedure Land Bank took in acting on Alfredo‘s application cannot be said to have been fair and proper. As to the claim that the trial court erred in applying equity to Alfredo‘s case, we hold that Alfredo had no other remedy to recover from Land Bank and the lower court properly exercised its equity jurisdiction in resolving the collection suit. As we have held in one case: Equity, as the complement of legal jurisdiction, seeks to reach and complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so. Equity regards the spirit and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts. Land Bank of the Philippines vs. Alfredo Ong, G.R. No. 190755, November 24, 2010 Damages; moral; exemplary. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injuries unjustly caused. Although incapable of pecuniary estimation, the amount must somehow be proportional to and in approximation of the suffering inflicted. Moral damages are not punitive in nature and were never intended to enrich the claimant at the expense of the defendant. As for exemplary damages, Article 2229 of the Civil Code provides that such damages may be imposed by way of example or correction for the public good. While exemplary damages cannot be recovered as a matter of right, they need not be proved, although plaintiff must show that he is entitled to moral, temperate, or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. Exemplary damages are imposed not to enrich one party or impoverish another, but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. However, the same statutory and jurisprudential standards dictate reduction of the amounts of moral and exemplary damages fixed by the SEC. Certainly, there is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral and exemplary damages, since each case must be governed by its own peculiar facts. Courts are given discretion in determining the amount, with the limitation that it should not be palpably and scandalously excessive. Indeed, it must be commensurate to the loss or injury suffered. Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. No. 172727, September 8, 2010 Damages; moral damages; compensatory damages; attorney‘s fees. Take note of this case for it‘s input on attorney‘s fees. Considering that petitioners acted in good faith in building their house on the subject property of the respondent-spouses, there is no basis for the award of moral damages to respondent-spouses. Likewise, the Court deletes the award to Vergon of compensatory damages and attorney‘s fees for the litigation expenses Vergon had incurred as such amounts were not specifically prayed for in its Answer to petitioners‘ third-party complaint. Under Article 2208 of the Civil Code, attorney‘s fees and expenses of litigation are recoverable only in the concept of actual damages, not as moral damages nor judicial costs. Hence, such must be specifically prayed for—as was not done in this case—and may not be deemed incorporated within a general prayer for ―such other relief and remedy as this court may deem just and equitable.‖ It must also be noted that aside from the following, the body of the trial court‘s decision was devoid of any statement regarding attorney‘s fees. In Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, we reiterated that attorney‘s fees are not to be awarded every time a party wins a suit. The power of the court to award attorney‘s fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney‘s fees. Luciano Briones and Nelly Briones vs. Jose Macabagdal, Fe D. Macabagdal and Vergon Realty Investments Corporation, G.R. No. 150666, August 3, 2010. Damages; standard of diligence of a bank; moral damages; no need for bad faith; exemplary damages; attorney‘s fees. Unquestionably, the petitioner, being a banking institution, had the direct obligation to supervise very closely the employees handling its depositors‘ accounts, and should always be mindful of the fiduciary nature of its relationship with the depositors. Such relationship required it and its employees to record accurately every single transaction, and as promptly as possible, considering that the depositors‘ accounts should always reflect the amounts of money the depositors could dispose of as they P a g e | 133 saw fit, confident that, as a bank, it would deliver the amounts to whomever they directed. If it fell short of that obligation, it should bear the responsibility for the consequences to the depositors, who, like the respondent, suffered particular embarrassment and disturbed peace of mind from the negligence in the handling of the accounts. In several decisions of the Court, the banks, defendants therein, were made liable for negligence, even without sufficient proof of malice or bad faith on their part, and the Court awarded moral damages of P100,000.00 each time to the suing depositors in proper consideration of their reputation and their social standing. The respondent should be similarly awarded for the damage to his reputation as an architect and businessman. As for the award of exemplary damages and attorney‘s fees, it is never overemphasized that the public always relies on a bank‘s profession of diligence and meticulousness in rendering irreproachable service. Its failure to exercise diligence and meticulousness warranted its liability for exemplary damages and for reasonable attorney‘s fees. Citytrust Banking Corporation vs. Carlos Romulo N. Cruz, G.R. No. 157049, August 11, 2010. Damages; compensatory damages. In the case at bar, respondents only testified to the fact that the victim, Reggie Nabua, was a freshman taking up Industrial Engineering at the Technological Institute of the Philippines in Cubao. There was no evidence of good academic record, extra-curricular activities, and varied interests presented in court. Hence, the Court of Appeals was correct when it deleted the award of compensatory damages amounting to P2,000,000.00, as the same is without any basis. OMC Carriers, Inc. and Jerry Añalucas y Pitalino vs. Spouses Roberto C. Nabua and Rosario T. Nabua, G.R. No. 148974, July 2, 2010. Damages; death indemnity. Death indemnity has been fixed by jurisprudence at P50,000.00. OMC Carriers, Inc. and Jerry Añalucas y Pitalino vs. Spouses Roberto C. Nabua and Rosario T. Nabua, G.R. No. 148974, July 2, 2010. Damages; moral. It must be stressed that moral damages are not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the plaintiff to obtain means, diversion or amusements that will serve to alleviate the moral suffering he/she has undergone due to the defendant‘s culpable action and must, perforce, be proportional to the suffering inflicted. Thus, given the circumstances of the case at bar, an award of P50,000.00 as moral damages is proper. OMC Carriers, Inc. and Jerry Añalucas y Pitalino vs. Spouses Roberto C. Nabua and Rosario T. Nabua, G.R. No. 148974, July 2, 2010. Damages; moral; exemplary; attorney‘s fees. Article 2217 of the Civil Code defines what are included in moral damages while Article 2219 enumerates the cases where they may be recovered. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. ―The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, serious anxiety as the result of the actuations of the other party. Invariably such action must be shown to have been willfully done in bad faith or with ill motive.‖ (But see Metropolitan Bank and Trust Company vs. Larry Mariñas, G.R. No. 179105, July 26, 2010.) In the same fashion, to warrant the award of exemplary damages, the wrongful act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in wanton, fraudulent, reckless or malevolent manner. As regards attorney‘s fees, the law is clear that in the absence of stipulation, attorney‘s fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. Having ruled that Jose committed fraud in obtaining title to the disputed property then he should be liable for both moral and exemplary damages. Likewise, since petitioners were compelled to litigate to protect their rights and having proved that Jose acted in bad faith, attorney‘s fees should likewise be awarded. Spouses Federico Valenzuela and Luz Buena-Valenzuela Vs. Spouses Jose Mano , Jr. and Rosanna Reyes-Mano, G.R. No. 172611, July 9, 2010. Damages; moral damages need not be attended by bad faith; exemplary damages; attorney‘s fees. A depositor has the right to recover reasonable moral damages even if the bank‘s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation. Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorney‘s fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest. Metropolitan Bank and Trust Company vs. Larry Mariñas, G.R. No. 179105, July 26, 2010. Damages; temperate. While the amount of actual damages was not duly established with certainty, the Court recognizes the fact that, indeed, Albayda incurred a considerable amount for the necessary and reasonable medical expenses, loss of salary and wages, loss of capacity to earn increased wages, cost of occupational therapy, and harm from conditions caused by prolonged immobilization. Temperate damages, more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved P a g e | 134 with certainty. Temperate damages must be reasonable under the circumstances. The Heirs of Redentor Completo and Elpidio Abiad vs. Sgt. Amando C. Albayda, Jr., G.R. No. 172200, July 6, 2010. Damages; amount in tort interference. The rule is that the defendant found guilty of interference with contractual relations cannot be held liable for more than the amount for which the party who was inducted to break the contract can be held liable. Respondents were therefore correctly held liable for the balance of petitioner‘s commission from the sale. Allan C. Go, doing business under the name and style of “ACG Express Liner” vs. Mortimer F. Cordero/Mortimer F. Cordero vs. Allan C. Go, doing business under the name and style of “ACG Express Liner”, et al., G.R. No. 164703/G.R. No, 164747. May 4, 2010. Damages; attorney‘s fees. See Hicoblo M. Catly (deceased), subtituted by his wife, Lourdes A. Catly vs. William Navarror, et al., G.R. No. 167239, May 5, 2010, above. Damages; moral; exemplary; attorney‘s fees. Respondents having acted in bad faith, moral damages may be recovered under Article 2219 of the Civil Code. On the other hand, the requirements of an award of exemplary damages are: (1) they may be imposed by way of example in addition to compensatory damages, and only after the claimant‘s right to them has been established; (2) that they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; and (3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner. The award of exemplary damages is thus in order. However, we find the sums awarded by the trial court as moral and exemplary damages as reduced by the CA, still excessive under the circumstances. Moral damages are meant to compensate and alleviate the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injuries unjustly caused. Although incapable of pecuniary estimation, the amount must somehow be proportional to and in approximation of the suffering inflicted. Moral damages are not punitive in nature and were never intended to enrich the claimant at the expense of the defendant. There is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar facts. Trial courts are given discretion in determining the amount, with the limitation that it ―should not be palpably and scandalously excessive.‖ Indeed, it must be commensurate to the loss or injury suffered. Because exemplary damages are awarded, attorney‘s fees may also be awarded in consonance with Article 2208 (1). Allan C. Go, doing business under the name and style of “ACG Express Liner” vs. Mortimer F. Cordero/Mortimer F. Cordero vs. Allan C. Go, doing business under the name and style of “ACG Express Liner”, et al., G.R. No. 164703/G.R. No, 164747. May 4, 2010. Damages; solidary liability. Respondent‘s argument that he cannot be held liable solidarily with the other party for actual, moral and exemplary damages, as well as attorney‘s fees awarded to respondent since no law or contract provided for solidary obligation in these cases, is bereft of merit. Conformably with Article 2194 of the Civil Code, the responsibility of two or more persons who are liable for the quasi-delict is solidary. Obligations arising from tort are, by their nature, always solidary. Allan C. Go, doing business under the name and style of “ACG Express Liner” vs. Mortimer F. Cordero/Mortimer F. Cordero vs. Allan C. Go, doing business under the name and style of “ACG Express Liner”, et al., G.R. No. 164703/G.R. No, 164747. May 4, 2010. Damages; actual damages due to loss of income. The lease contract clearly provides that petitioner leased to respondent the ground floor of her residential house for a term of one year commencing from 7 July 1995. Thus, the lease contract would expire only on 7 July 1996. However, petitioner started ejecting respondent‘s lodgers in March 1996 by informing them that the lease contract was only until 15 April 1996. Clearly, petitioner‘s act of ejecting respondent‘s lodgers resulted in respondent losing income from her lodgers. Hence, it was proper for the trial court and the appellate court to order petitioner to pay respondent actual damages in the amount of P45,000. Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010 Damages; actual damages; loss of earning capacity. The indemnity for loss of earning capacity of the deceased is provided for by Article 2206 of the Civil Code. Compensation of this nature is awarded not for loss of earnings, but for loss of capacity to earn money. As a rule, documentary evidence should be presented to substantiate the claim for damages for loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when: (1) the deceased is self-employed and earning less than the minimum wage under current labor laws, in which case, judicial notice may be taken of the fact that in the deceased‘s line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws. In this case, the records show that respondent‘s husband was leasing and operating a gasoline station and earned an annual income of one million pesos. Respondent presented in evidence a Certificate of Creditable Income Tax Withheld at Source. It is reasonable to use the Certificate and respondent‘s testimony as bases for fixing the gross annual income of the deceased at one million pesos before respondent‘s husband died. However, no documentary evidence was presented regarding the income derived from their copra business; hence, the testimony of respondent as regards such income cannot be considered. In the computation of loss of earning capacity, only net earnings, not gross earnings, are to be considered; that is, the total of the earnings less expenses P a g e | 135 necessary for the creation of such earnings or income, less living and other incidental expenses. In the absence of documentary evidence, it is reasonable to peg necessary expenses for the lease and operation of the gasoline station at 80 percent of the gross income, and peg living expenses at 50 percent of the net income (gross income less necessary expenses). Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010. Damages; exemplary damages; attorney‘s fees. Exemplary damages may be awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner which would justify an award of exemplary damages under Article 2232 of the Civil Code. Since the award of exemplary damages is proper in this case, attorney‘s fees and cost of the suit may also be recovered as provided under Article 2208 of the Civil Code. Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010. Damages; moral damages. Moral damges are not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the plaintiff to obtain means, diversions or amusements that will serve to alleviate the moral suffering he/she has undergone due to the defendant‘s culpable action and must, perforce, be proportional to the suffering inflicted. Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010. Damages; moral damages. In this case, moral damages may be recovered under Article 2219 and Article 2220 of the Civil Code in relation to Article 21. The petitioner‘s act of ejecting respondent‘s lodgers three months before the lease contract expired without valid reason constitutes bad faith. What aggravates the situation was that petitioner did not inform respondent, who was then working in Hong Kong, about petitioner‘s plan to pre-terminate the lease contract and evict respondent‘s lodgers. Moral damages may be awarded when the breach of contract was attended with bad faith. Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010 Damages; moral damages. Nonetheless, the petition is in part meritorious. There is a need to substantially reduce the moral damages awarded by the appellate court. While courts are given discretion to determine the amount of damages to be awarded, it is limited by the principle that the amount awarded should not be palpably and scandalously excessive. Moral damages are neither intended to impose a penalty to the wrongdoer, nor to enrich the claimant. Taking into consideration the facts and circumstances attendant to the case, an award to respondents of P500,000, instead of P2,000,000, as moral damages is to the Court reasonable. Northwest Airlines, Inc. vs. Spouses Edward J. Heshan and Neilia L. Heshan, et al., G.R. No. 179117, February 3, 2010. Damages; moral; exemplary; attorney‘s fees. Since an award of moral damages is predicated on a categorical showing from the claimant that emotional and mental sufferings were actually experienced, absent any evidence thereon in the present case, the award must be disallowed. And so too must the award of attorney‘s fees, absent an indication in the trial court‘s decision of the factual basis thereof, the award having been merely stated in the dispositive portion. Parenthetically, while respondent prayed in her complaint for the award of attorney‘s fees there is no showing that she submitted any documentary evidence in support thereof. Metropolitan Bank and Trust Co. and Solidbank Corporation vs. Bernardita H. Perez, represented by her Attorney in fact Patria H. Perez, G.R. No. 181842, February 5, 2010. Damages; negligence. Nevertheless, this fact does not affect the finding of the trial court that petitioner‘s bus driver, Margarito Avila, was guilty of simple negligence as affirmed by the appellate court. Foreseeability is the fundamental test of negligence. To be negligent, a defendant must have acted or failed to act in such a way that an ordinary reasonable man would have realized that certain interests of certain persons were unreasonably subjected to a general but definite class of risks. In this case, the bus driver, who was driving on the right side of the road, already saw the motorcycle on the left side of the road before the collision. However, he did not take the necessary precaution to slow down, but drove on and bumped the motorcycle, and also the passenger jeep parked on the left side of the road, showing that the bus was negligent in veering to the left lane, causing it to hit the motorcycle and the passenger jeep. Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010. Damages; temperate damages. Under Art. 2224 of the Civil Code, temperate damages ―may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty.‖ The cost of the repair of the motorcycle was prayed for by respondent in her Complaint. However, the evidence presented was merely a job estimate of the cost of the motorcycle‘s repair amounting to P17, 829.00. The Court of Appeals aptly held that there was no doubt that the damage caused on the motorcycle was due to the negligence of petitioner‘s driver. In the absence of competent proof of the actual damage caused on the motorcycle or the actual cost of its repair, the award of temperate damages by the appellate court in the amount of P10,000.00 was reasonable under the circumstances. Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010. Damages; attorney‘s fee; reduction. The relation to a foreclosure of a mortgage by a bank, the Court ruled that the award of attorney‘s fee, it being part of a party‘s liquidated damages, likewise could be equitably reduced. The Court affirmed the lower P a g e | 136 court‘s ruling reducing the attorney‘s fee from 10% to 1% based on the following reasons: (1) attorney‘s fee is not essential to the cost of borrowing, but a mere incident of collection; (2) 1% is just and adequate because the bank had already charged foreclosure expenses; (3) attorney‘s fee of 10% of the total amount due is onerous considering the rote effort that goes into extrajudicial foreclosures. Bank of the Philippines Islands, Inc. vs. Spouses Norman and Angelina Yu, et al., G.R. No. 184122, January 20, 2010. Damages; moral and exemplary; fraud in contract. The buyer defrauded the petitioners in his acts of issuing a worthless check and representing to them that the check was funded, committing in the process a substantial breach of his obligation as a buyer. For such fraudulent acts, the buyer is liable for moral damages and exemplary damages under Article 2220, and 2232 and 2234of the Civil Code, respectively. Spouses Carmen Tongson and Jose Tongson vs. Emergency Pawnshop Bula, Inc. et al., G.R. No. 167874, January 15, 2010. Damages; moral and exemplary; reduction. Moral damages were correctly awarded to the respondent. Such damages may be awarded when the defendant‘s transgression is the immediate cause of the plaintiff‘s anguish in the cases specified in Article 2219 of the Civil Code. Here, respondent‘s colleagues and friends testified that she suffered severe anxiety on account of the speculation over her employment status. She had to endure being referred to as a ―squatter‖ in her workplace. She had to face inquiries from family and friends about her exclusion from the Bureau‘s centennial anniversary memorabilia. She did not have to endure all these affronts and the angst and depression they produced had petitioner abided in good faith by the court‘s order in her favor. Clearly, she is entitled to moral damages. The Court, however, finds the award excessive. Moral damages are not a bonanza. They are given to ease the defendant‘s grief and suffering. Moral damages should reasonably approximate the extent of hurt caused and the gravity of the wrong done. The Court affirms the grant of exemplary damages by way of example or correction for the public good but, in line with the same reasoning, reduces it. Titus B. Villanueva vs. Emma M. Rosqueta, G.R. No. 180764, January 19, 2010. Damages; exemplary damages. Petitioner argues that assuming arguendo that compensatory damages had been awarded, the same contravened Article 2232 of the Civil Code which provides that in contracts or quasi-contracts, the court may award exemplary damages only if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Since, so petitioner concludes, there was no finding that it acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, it is not liable for exemplary damages. The argument fails. To reiterate, petitioner‘s liability is based not on contract or quasi-contract but on quasi-delict since there is no pre-existing contractual relation between the parties. Article 2231 of the Civil Code, which provides that in quasi-delict, exemplary damages may be granted if the defendant acted with gross negligence, thus applies. For ―gross negligence‖ implies a want or absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a thoughtless disregard of consequences without exerting any effort to avoid them. Metropolitan Bank and Trust Company, etc. vs. BA Finance Corporation and Malayan Insurance Co, Inc., G.R. No. 179952, December 4, 2009.